Final Draft

CIVIL LAW REVIEW 2017-2018`
OBLIGATIONS -ARTS. 1156-1304
VILLAROEL V. ESTRADA
Nature: Complaint for sum of money

Ponente: AVANCEÑA
Date: December 19, 1940
DOCTRINE: The rule that a new promise to pay a debt must be made by the same person obligated or
otherwise legally authorized by it, is not applicable to this case since there was voluntarily assumption of the
obligation.
FACTS:
Relevant Provision of Law:
On May 9, 1912, Alexandra F. Callao, mother of defendant John F. Villarroel, obtained from the spouses
Mariano Estrada and Severina a loan of P1, 000 payable after seven years. Alexandra died, leaving as the only
heir the defendant. Spouses Mariano Estrada and Severina died too, leaving as the only heir to the plaintiff
Bernardino Estrada. On August 9, 1930, the defendant signed a document which states in duty to the plaintiff
the amount of P1, 000, with an interest of 12 percent per year. This action relates to the collection of this
amount.
LC: condemn the defendant to pay the claimed amount of P1, 000 with legal interest of 12 percent per year
from the August 9, 1930 until fully pay.
ISSUE:
RULING:
Although the action to recover the original debt has prescribed and when the lawsuit was filed in this case.
However, this action is based on the original obligation contracted by the mother of the defendant, who has
prescribed, but in which the defendant contracted the August 9, 1930 (Exhibito B) to assume the fulfillment
of that obligation, as prescribed. Being the only defendant of the primitive herdero debtor entitled to succeed
him in his inheritance, that debt legally brought by his mother, but lost its effectiveness by prescription, it is
now, however, for a moral obligation, which is consideration enough to create and effective and enforceable
his obligation voluntarily contracted the August 9, 1930 in Exhibito B.
The rule that a new promise to pay a debt prrescrita must be made by the same person obligated or otherwise
legally authorized by it, is not applicable to this case that does not require compliance with the mandatory
obligation orignalmente but from which they would voluntarily assume the obligation.
NOTE: The case is in Spanish.
ANSAY V. NDC
Nature: Complaint for 20% Christmas bonus

Ponente: PARAS, C. J.
Date: April 29, 1960
DOCTRINE: Civil obligations are a right of action to compel their performance. Natural obligations,
not being based on positive law but on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been
delivered or rendered by reason thereof".
FACTS:
Relevant Provision of Law: Article 1423 of the New Civil Code
On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a complaint
praying for a 20% Christmas bonus for the years 1954 and 1955.
Page 1 of 81
TC dismissed the complaint, and held, among others:

the Court does not see how petitioners may have a cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers to
command respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to give such bonus but that they had only
ask that such bonus be given to them because it is a moral obligation of respondents to give that but as
this Court understands, it has no power to compel a party to comply with a moral obligation (Art. 142,
New Civil Code.).
Appellants contend that there exists a cause of action in their complaint because their claim rests on moral
grounds or what in brief is defined by law as a natural obligation.
ISSUE: W/N a Christmas bonus is a demandable obligation.
RULING:
Generally, a Christmas bonus, being a natural obligation, is not demandable.
Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a right of
action to compel their performance. Natural obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their performance, BUT after voluntary fulfillment by
the obligor, they authorize the retention of what has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be cognizable by the court is
voluntary fulfillment by the obligor. Certainly retention can be ordered but only after there has been
voluntary performance. But here there has been no voluntary performance. In fact, the court cannot
order the performance.
Philippine Education Co. vs. CIR: From the legal point of view a bonus is not a demandable and
enforceable obligation. It is so when it is made a part of the wage or salary compensation.
H. E. Heacock vs. National Labor Union: Even if a bonus is not demandable for not forming part of the
wage, salary or compensation of an employee, the same may nevertheless, be granted on equitable
consideration as when it was given in the past, though withheld in succeeding two years from low salaried
employees due to salary increases.
Still the facts in said Heacock case are not the same as in the instant one, and hence the ruling applied in said
case cannot be considered in the present action.
DBP V. CONFESOR
Nature: Complaint for payment of loan

Ponente: GANCAYCO, J.
Date: May 11, 1989
DOCTRINE:
FACTS:
Relevant Provision of Law: Art. 165 of the CC
[1st PN] On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural
loan from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the
sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said date whereby they bound
themselves jointly and severally to pay the account in ten (10) equal yearly amortizations.
[2nd PN] As the obligation remained outstanding and unpaid even after the lapse of the aforesaid ten-year
period, Confesor (only the H), who was by then a member of the Congress of the Philippines, executed a
second promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the same
on or before June 15, 1961. The new promissory note reads as follows —
Page 2 of 81
I hereby promise to pay the amount covered by my promissory note on or before June 15, 1961. Upon
my failure to do so, I hereby agree to the foreclosure of my mortgage. It is understood that if I can secure
a certificate of indebtedness from the government of my back pay I will be allowed to pay the amount
out of it.
Said spouses not having paid the obligation on the specified date, the DBP filed a complaint against the
spouses for the payment of the loan.
CITY COURT: ordered the defendants Patricio Confesor and Jovita Villafuerte Confesor to pay the plaintiff
Development Bank of the Philippines, jointly and severally the sum of P5,760.96 plus additional daily interest,
etc
CFI: reversed; dismissed the complaint

 in signing the promissory note alone, respondent Confesor cannot thereby bind his wife, respondent
Jovita Villafuerte, pursuant to Article 166 of the New Civil Code which provides:
Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift, or is under civil
interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real
property of the conjugal partnership without, the wife's consent. If she ay compel her to refuses
unreasonably to give her consent, the court m grant the same.
Petitioner Bank contends,
 that the right to prescription may be renounced or waived; and
 that in signing the second promissory note respondent Patricio Confesor can bind the conjugal
partnership; or otherwise said respondent became liable in his personal capacity.
ISSUE: W/N the right to prescription may be renounced or waived
RULING:
YES. The right to prescription may be waived or renounced.
Article 1112 of Civil Code provides:

Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not
the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results from acts which
imply the abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However,
when respondent Confesor executed the second promissory note on April 11, 1961 whereby he promised to
pay the amount covered by the previous promissory note on or before June 15, 1961, and upon failure to do
so, agreed to the foreclosure of the mortgage, said respondent thereby effectively and expressly renounced
and waived his right to the prescription of the action covering the first promissory note.
This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt.
The consideration of the new promissory note is the pre-existing obligation under the first promissory note.
The statutory limitation bars the remedy but does not discharge the debt.
... It is this new promise, either made in express terms or deduced from an acknowledgement as a legal
implication, which is to be regarded as reanimating the old promise, or as imparting vitality to the remedy
(which by lapse of time had become extinct) and thus enabling the creditor to recover upon his original
contract.
ISSUE #2: W/N the debt is chargeable against the conjugal partnership considering that the husband, alone,
signed the 2nd PN
RULING:
YES. The debt in favor of the bank is chargeable to the conjugal partnership.
Page 3 of 81
Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As such
administrator, all debts and obligations contracted by the husband for the benefit of the conjugal partnership,
are chargeable to the conjugal partnership.
CRUZ V. TUASON AND CO.
Nature: complaint for recovery of improvements and conveyance of land

Ponente: BARREDO, J
DOCTRINE: a presumed qauasi-contract cannot emerge as against one party when the subject matter
thereof is already covered by an existing contract with another party.
FACTS:
Relevant Provision of Law: Art 2141, CC (quasi-contract)
Faustino Cruz filed a complaint for recovery of improvements and conveyance of land. He alleged two
separate causes of action, namely:
(1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the land in
question on the strength of an "informacion posesoria" ) plaintiff made permanent improvements
valued at P30,400.00 on said land having an area of more or less 20 quinones and for which he also
incurred expenses in the amount of P7,781.74, and since defendants-appellees are being benefited by
said improvements, he is entitled to reimbursement from them of said amounts and
(2) that in 1952, defendants availed of plaintiff's services as an intermediary with the Deudors to work
for the amicable settlement of Civil Case No. Q-135, then pending also in the Court of First Instance
of Quezon City, and involving 50 quinones of land, of Which the 20 quinones aforementioned form
part, and notwithstanding his having performed his services, as in fact, a compromise agreement
entered into on March 16, 1963 between the Deudors and the defendants was approved by the court,
the latter have refused to convey to him the 3,000 square meters of land occupied by him, (a part of
the 20 quinones above) which said defendants had promised to do "within ten years from and after
date of signing of the compromise agreement", as consideration for his services.
Defendants filed a MD on the following grounds:

(1) As regards that improvements made by plaintiff, that the complaint states no cause of action, the
agreement regarding the same having been made by plaintiff with the Deudors and not with the
defendants, hence the theory of plaintiff based on Article 2142 of the Code on unjust enrichment is
untenable; and
(2) anent the alleged agreement about plaintiffs services as intermediary in consideration of which,
defendants promised to convey to him 3,000 square meters of land, that the same is unenforceable
under the Statute of Frauds, there being nothing in writing about it, and, in any event,
(3) that the action of plaintiff to compel such conveyance has already prescribed.
CFI: dismissed the complaint on three grounds: (1) failure of the complaint to state a cause of action
(defendant is not privy to the agreement between plaintiff and the Deudors); (2) the cause of action of
plaintiff is unenforceable under the Statute of Frauds; and (3) the action of the plaintiff has already
prescribed.
ISSUE: W/N plaintiff’s claim (2nd COA) is unenforceable under the State of Frauds
RULING:
No. Statute of Frauds is inapplicable. Nevertheless, plaintiff still cannot claim from defendant.
It is elementary that the Statute refers to specific kinds of transactions and that it cannot apply to any that is
not enumerated therein.
The contract is not a sale of real property or any interest therein: In the instant case, what appellant is trying to enforce
is the delivery to him of 3,000 square meters of land which he claims defendants promised to do in
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consideration of his services as mediator or intermediary in effecting a compromise of the civil action, Civil
Case No. 135, between the defendants and the Deudors. In no sense may such alleged contract be considered
as being a "sale of real property or of any interest therein." Indeed, not all dealings involving interest in real
property come under the Statute.
There is already partial execution of the agreement: Moreover, appellant's complaint clearly alleges that he has already
fulfilled his part of the bargains to induce the Deudors to amicably settle their differences with defendants as,
in fact, on March 16, 1963, through his efforts, a compromise agreement between these parties was approved
by the court. In other words, the agreement in question has already been partially consummated, and is no
longer merely executory. And it is likewise a fundamental principle governing the application of the Statute
that the contract in dispute should be purely executory on the part of both parties thereto.
We cannot, however, escape taking judicial notice, in relation to the compromise agreement relied
upon by appellant, that in several cases We have decided, We have declared the same rescinded and
of no effect. Thus, viewed from what would be the ultimate conclusion of appellant's case, We entertain
grave doubts as to whether or not he can successfully maintain his alleged cause of action against defendants,
considering that the compromise agreement that he invokes did not actually materialize and defendants have
not benefited therefrom
ISSUE #2 (TOPICAL): W/N plaintiff can claim based on a quasi-contract (unjust enrichment).
RULING:
No. Art 2142, CC is not applicable.
Art. 2142 states,

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.
From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as
against one party when the subject matter thereof is already covered by an existing contract with another
party.
Predicated on the principle that no one should be allowed to unjustly enrich himself at the expense of
another, Article 2124 creates the legal fiction of a quasi-contract precisely because of the absence of any
actual agreement between the parties concerned. Corollarily, if the one who claims having enriched somebody
has done so pursuant to a contract with a third party, his cause of action should be against the latter, who in
turn may, if there is any ground therefor, seek relief against the party benefited.
It is essential that the act by which the defendant is benefited must have been voluntary and unilateral on the
part of the plaintiff. As one distinguished civilian (Ambrosio Padilla) puts it, "The act is voluntary, because
the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because it arises
from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. The
reason why the law creates a juridical relation and imposes certain obligation is to prevent a situation where a
person is able to benefit or take advantage of such lawful, voluntary and unilateral acts at the expense of said
actor."
In the case at bar, since appellant has a clearer and more direct recourse against the Deudors with whom he
had entered into an agreement regarding the improvements and expenditures made by him on the land of
appellees. it Cannot be said, in the sense contemplated in Article 2142, that appellees have been enriched at
the expense of appellant.
SIDE ISSUE (Procedural): the impugned main order was issued on August 13, 1964, while the appeal was
made on September 24, 1964 or 42 days later. Clearly, this is beyond the 30-day reglementary period for
appeal. Hence, the subject order of dismissal was already final and executory when appellant filed his appeal.
GUTIERREZ HERMANOS V. ORENSE
Nature: Complaint to compel defendant to execute an instrument transferring all the

right, interest, title and share which the defendant has in the subject property.
Page 5 of 81
Ponente: TORRES, J.
DOCTRINE:
FACTS:
Relevant Provision of Law: Article 1259 of the Civil Code
On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, against Engacio
Orense, in which he set forth,
 that on and before February 14, 1907, the defendant Orense had been the owner of a parcel of land,
with the buildings and improvements thereon (masonry house with the nipa roof), situated in the
pueblo of Guinobatan, Albay, xxx;
 hat the said property has up to date been recorded in the new property registry in the name of the
said Orense xxx;
 that, on February 14, 1907, Jose Duran, a nephew of the defendant, with the latter's knowledge and
consent, executed before a notary a public instrument whereby he sold and conveyed to the plaintiff
company, for P1,500, the aforementioned property, the vendor Duran reserving to himself the right
to repurchase it for the same price within a period of four years from the date of the said instrument;
 that the plaintiff company had not entered into possession of the purchased property, owing to its
continued occupancy by the defendant and his nephew, Jose Duran, by virtue of a contract of lease
executed by the plaintiff to Duran, which contract was in force up to February 14, 1911;
 that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely
confirmed and ratified by the defendant Orense;
 that, in order to perfect the title to the said property, but that the defendant Orense refused to do so,
without any justifiable cause or reason, wherefore he should be compelled to execute the said deed
by an express order of the court, xxx
 that the defendant had been occupying the said property since February 14, 1911, and refused to pay
the rental thereof, notwithstanding the demand made upon him for its payment at the rate of P30 per
month, the just and reasonable value for the occupancy of the said property, the possession of which
the defendant likewise refused to deliver to the plaintiff company, in spite of the continuous
demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez
Hermanos, claiming to have rights of ownership and possession in the said property.
CFI: ordered the defendant to make immediate delivery of the property in question, through a public
instrument, by transferring and conveying to the plaintiff all his rights in the property described in the
complaint
(FACTS WHICH LED TO THE FILING OF CIVIL CASE) After the lapse of the four years stipulated for
the redemption, the defendant refused to deliver the property to the purchaser, the firm of Gutierrez
Hermanos, and to pay the rental thereof. His refusal was based on the allegations
 that he had not executed any written power of attorney to Jose Duran, nor had he given the latter
any verbal authorization to sell the said property to the plaintiff firm in his name; and
 that, prior to the execution of the deed of sale, the defendant performed no act such as might have
induced the plaintiff to believe that Jose Duran was empowered and authorized by the defendant to
effect the said sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with
estafa (CRIMINAL CASE). CFI acquitted Duran since Orense, when called to the witness stand, stated that
he had consented to the sale of the property. Thus, plaintiff firm filed the present civil case.
ISSUE: W/N defendant must fulfill the obligation contracted by his nephew.
RULING:
YES. The owner of the property consented to the sale made by the nephew.
It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant
conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same
Page 6 of 81
way by selling the said property. The principal must therefore fulfill all the obligations contracted by
the agent, who acted within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action of his nephew, who in this case acted as the
manager of his uncle's business, and Orense'r ratification produced the effect of an express authorization
to make the said sale. (Civil Code, arts. 1888 and 1892.)
Article 1259 of the Civil Code prescribes:
"No one can contract in the name of another without being authorized by him or without his legal
representation according to law.
A contract executed in the name of another by one who has neither his authorization nor legal
representation shall be void, unless it should be ratified by the person in whose name it was executed
before being revoked by the other contracting party.
The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the
beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by
the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself
consented to his nephew Jose Duran's making the said sale.
If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's
selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to
deny that admission, to the prejudice of the purchaser, who gave P1,500 for the said property.
ADILLE V. CA
Nature: Action for partition with accounting

Ponente: SARMIENTO, J
Date: January 29, 1988
DOCTRINE:
FACTS:
Relevant Provision of Law: Art. 1456, implied trust
The land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City with an area of some
11,325 sq. m. originally belonged to one Felisa Alzul as her own private property; she married twice in her
lifetime;
 the first, with one Bernabe Adille, with whom she had as an only child, herein defendant Rustico
Adille;
 in her second marriage with one Procopio Asejo, her children were herein plaintiffs,
[sale] Now, sometime in 1939, said Felisa sold the property in pacto de retro to certain 3rd persons, period of
repurchase being 3 years, but she died in 1942 without being able to redeem and after her death, but during
the period of redemption, herein defendant (child of 1st M) repurchased, by himself alone, and after that, he
executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother
Felisa with the consequence that he was able to secure title in his name alone also, so that OCT. No. 21137 in
the name of his mother was transferred to his name, that was in 1955.
After some efforts of compromise had failed, his half-brothers and sisters, herein plaintiffs, filed present case
for partition with accounting on the position that he was only a trustee on an implied trust when he
redeemed,-and this is the evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo was
occupying a portion, defendant counterclaimed for her to vacate.
LC: defendant was and became absolute owner, he was not a trustee, and therefore, dismissed case and also
condemned plaintiff occupant, Emeteria to vacate
CA: reversed TC;
Page 7 of 81
Petitioner (defendant) contends,

the property subject of dispute devolved upon him upon the failure of his co-heirs to join him in its
redemption within the period required by law. He relies on the provisions of Article 1515 of the old Civil
Article 1613 of the present Code, giving the vendee a retro the right to demand redemption of the entire
property.
ISSUE: May petitioner, as a co-owner, acquire exclusive ownership over the property held in common?
If not, whether petitioner acts as a TRUSTEE or a NEGOTIORUM GESTOR.
RULING:
No, petitioner cannot acquire exclusive ownership under the circumstances. Since there is fraud, petitioner is
a mere trustee of the property. The doctrine of negotiorum gestio cannot apply in the case at bar.
The right of repurchase may be exercised by a co-owner with respect to his share alone.
Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement from the
remaining co-owners. There is no doubt that redemption of property entails a necessary expense. Under the
Civil Code:
ART. 488. Each co-owner shall have a right to compel the other co-owners to contribute to the expenses
of preservation of the thing or right owned in common and to the taxes. Any one of the latter may
exempt himself from this obligation by renouncing so much of his undivided interest as may be
equivalent to his share of the expenses and taxes. No such waiver shall be made if it is prejudicial to the
co-ownership.
The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under
Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one
co-heir or co-owner of the property in its totality does not vest in him ownership over it. Failure on the part
of all the co-owners to redeem it entitles the vendee a retro to retain the property and consolidate title thereto
in his name. ut the provision does not give to the redeeming co-owner the right to the entire property. It does
not provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name
terminate the existing co-ownership. Registration of property is not a means of acquiring ownership. It
operates as a mere notice of existing title, that is, if there is one.
The petitioner must then be said to be a trustee of the property on behalf of the private respondents.
The Civil Code states:
ART. 1456. 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.
The petitioner's pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he
executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers and
sisters and to exercise sole dominion over the property.
RE: negotiorum gestio

It is the view of the CA that the petitioner, in taking over the property, did so either on behalf of his co-heirs,
in which event, he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code, OR for
his exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the private respondents
being the beneficiaries, under the Article 1456.
The evidence, of course, points to the second alternative (TRUST) the petitioner having asserted claims of
exclusive ownership over the property and having acted in fraud of his co-heirs. He cannot therefore be said
to have assume the mere management of the property abandoned by his co-heirs, the situation Article 2144
of the Code contemplates. In any case, as the CA itself affirms, the result would be the same whether it is one
or the other. The petitioner would remain liable to the Private respondents, his co-heirs.
RE: prescription
Page 8 of 81
This Court is not unaware of the well-established principle that prescription bars any demand on property
(owned in common) held by another (co-owner) following the required number of years. In that event, the
party in possession acquires title to the property and the state of co-ownership is ended. In the case at bar, the
property was registered in 1955 by the petitioner, solely in his name, while the claim of the private
respondents was presented in 1974. Has prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have been
preceded by repudiation (of the co-ownership). (No repudiation on the part of the private
respondents/plaintiffs.
ANDRES v. MANTRUST
Ponente: CORTES, J.
Date: September 15, 1989
DOCTRINE: Requisites of solution indebiti:
(1) that he who paid was not under obligation to do so; and,
(2) that payment was made by reason of an essential mistake of fact
FACTS:
Relevant Provision of Law: Art. 2154, CC
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers
was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time to time remitted certain
amounts of money to petitioner in payment for the items it had purchased. Sometime in August 1980,
FACETS instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter
referred to as FNSB) to transfer $10,000.00 to petitioner via PNB.
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust
Corporation to effect the above- mentioned transfer through its facilities and to charge the amount to the
account of FNSB with private respondent. Although private respondent was able to send a telex to PNB to
pay petitioner $10,000.00 through the Pilipinas Bank, where petitioner had an account, the payment was not
effected immediately because the payee designated in the telex was only "Wearing Apparel." Upon query by
PNB, private respondent sent PNB another telex dated August 27, 1980 stating that the payment was to be
made to "Irene's Wearing Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00
through Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private respondent about the delay and at the same time
amended its instruction by asking it to effect the payment through the Philippine Commercial and Industrial
Bank (hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already received the remittance
of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.
Private respondent (Mantrust) asked petitioner for the return of the second remittance of $10,000.00 but the
latter refused to pay.
LC: in favor of petitioner as defendant; Art. 2154 of the New Civil Code is not applicable to the case because
the second remittance was made not by mistake but by negligence and petitioner was not unjustly enriched by
virtue thereof
CA: Art 2154 is applicable; reversed CFI
Page 9 of 81
ISSUE: W/N petitioner has an obligation to return the $10,000.
RULING:
Art. 2154 of the New Civil Code provides that:
Art. 2154. If something received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through an error, has been
unduly delivered, an obligation to restore it arises.
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solution indebiti, is one of the concrete manifestations of
the ancient principle that no one shall enrich himself unjustly at the expense of another.
For this article to apply the following requisites must concur:

(1) that he who paid was not under obligation to do so; and,
(2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558,
563 (1960)].
Petitioner: he had the right to demand and therefore to retain the second $10,000.00 remittance. It is alleged
that even after the two $10,000.00 remittances are credited to petitioner's receivables from FACETS, the
latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last $10,000.00 remittance being
in payment of a pre-existing debt, petitioner was not thereby unjustly enriched.
SC: The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS.
It was the latter and not private respondent which was indebted to petitioner. On the other hand, the contract
for the transmittal of dollars from the United States to petitioner was entered into by private respondent with
FNSB. Petitioner, although named as the payee was not privy to the contract of remittance of dollars. There
being no contractual relation between them, petitioner has no right to apply the second $10,000.00 remittance
delivered by mistake by private respondent to the outstanding account of FACETS.
Petitioner: the payment by respondent bank of the second $10,000.00 remittance was not made by mistake
but was the result of negligence of its employees.
SC: The Court holds that the finding by the Court of Appeals that the second $10,000.00 remittance was
made by mistake, being based on substantial evidence, is final and conclusive. CA held:
The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the written interrogatories
sent to the First National State Bank of New Jersey through the Consulate General of the Philippines in
New York, Adelaide C. Schachel, the investigation and reconciliation clerk in the said bank testified that a
request to remit a payment for Facet Funwear Inc. was made in August, 1980. That there was a mistake
in the second remittance of US $10,000.00 is borne out by the fact that both remittances have the same
reference invoice number which is 263 80.
Petitioner: when one of two innocent persons must suffer by the wrongful act of a third person, the loss
must be borne by the one whose negligence was the proximate cause of the loss.
SC: The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable
to a case.
PUYAT AND SONS V. MANILA
Nature: action for refund

Ponente: PAREDES, J
Page 10 of 81

DOCTRINE: (Citing a US case) It is too well settled in this state to need the citation of authority that if
money be paid through a clear mistake of law or fact, essentially affecting the rights of the parties, and which
in law or conscience was not payable, and should not be retained by the party receiving it, it may be
recovered. Both law and sound morality so dictate
FACTS:
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail Dealerls
Taxes paid by it, corresponding to the first Quarter of 1950 up to the third Quarter of 1956, amounting to
P33,785.00, against the City of Manila and its City Treasurer. The case was submitted on the following
stipulation of facts, to wit—
"1. That the plaintiff is a corporation duly organized and existing according to the laws of the Philippines,
with offices at Manila; while defendant City Manila is a Municipal Corporation duly organized in accordance
with the laws of the Philippines, and defendant Marcelino Sarmiento is the duly qualified incumbent City
Treasurer of Manila;
"2. That plaintiff is engaged in the business of manufacturing and selling all kinds of furniture xxx
"3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance No. 3364, defendant City
Treasurer of Manila assessed from plaintiff retail dealer's tax corresponding to the quarters hereunder stated
on the sales of furniture manufactured and sold by it at its factory site, all of which assessments plaintiff paid
without protest in the erroneous belief that it was liable therefor xxx
"4. That plaintiff, being a manufacturer of various kinds of furniture, is exempt from the payment of taxes
imposed under the provisions of Sec. 1, Group II, of Ordinance No. 3364, which took effect on September
24, 1956, on the sale of the various kinds of furniture manufactured by it pursuant to the provisions of Sec.
18(n) of Republic Act No. 409 (Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816.
xxx
"6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer of Manila, a formal request
for refund of the retail dealer's taxes unduly paid by it.
"7. That on July 24, 1958, the defendant City Treasurer of Manila definitely denied said request for
refund.
LC: ordered the defendants to refund the amount of P29,824.00; Of the payments made by the plaintiff, only
that made on October 25, 1950 in the amount of P1,250.00 has prescribed Payments made in 1951 and
thereafter are still recoverable since the extra-judicial demand made on October 30, 1956 was well within the
six-year prescriptive period of the New Civil Code.
CITY OF MANILA (defendants): the taxes in question were voluntarily paid by appellee company and
since, in this jurisdiction, in order that a legal basis arise for claim of refund of taxes erroneously assessed,
payment thereof must be made under protest, and this being a condition sine qua non, and no protest having
been made, -- verbally or in writing, thereby indicating that the payment was voluntary, the action must fail.
PUYAT AND SONS: the payments could not have been voluntary. At most, they were paid "mistakenly
and in good faith" and "without protest in the erroneous belief that it was liable thereof." Voluntariness is
incompatible with protest and mistake. It submits that this is a simple case of "solutio indebiti"
ISSUE: W/N the amounts paid by plaintiff-appelele, as retail dealer's taxes under Ordinance 1925, as
amended by Ordinance No. 3364of the City of Manila, without protest, are refundable
RULING:
Plaintiff-Appellee is entitled to the refund.
Page 11 of 81
Appellants do not dispute the fact that appellee-company is exempted from the payment of the tax in
question.
Newport v. Ringo (US case): "It is too well settled in this state to need the citation of authority that if
money be paid through a clear mistake of law or fact, essentially affecting the rights of the parties, and which
in law or conscience was not payable, and should not be retained by the party receiving it, it may be
recovered. Both law and sound morality so dictate. Especially should this be the rule as to illegal taxation…”
RE: Requirement of protest
In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question similar to the case at bar, it was
held that the requiredment of protest refers only to the payment of taxes which are directly imposed by the
charter itself, that is, real estate taxes, which view was sustained by judicial and administrative precedents, one
of which is the case of Medina, et al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words,
protest is not necessary for the recovery of retail dealer's taxes, like the present, because they are not directly
imposed by the charter.
ISSUE #2: IF yes on #1, W/N the claim for refund filed in October 1956, in so far as said claim refers to
taxes paid from 1950 to 1952 has already prescribed
CITY OF MANILA: article 1146 (NCC), which provides for a period of four (4) years (upon injury to the
rights of the plaintiff), apply to the case.
PUYAT AND SONS: provisions of Act 190 (Code of Civ. Procedure) should apply, insofar as payments
made before the effectivity of the New Civil Code on August 30, 1950, the period of which is ten (10) years,
(Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 (NCC), for payments made after
said effectivity, providing for a period of six (6) years (upon quasi-contracts like solutio indebiti).
RULING:
Even if the provisions of Act No. 190 should apply to those payments made before the effectivity of the new
Civil Code, because "prescription already running before the effectivity of of this Code shall be govern by
laws previously in force xxx " (Art. 1116, NCC), Still payments made before August 30, 1950 are no
longer recoverable in view of the second paragraph of said article (1116), which provides:
"but if since the time this Code took effect the entire period herein required for prescription should
elapse the present Code shall be applicable even though by the former laws a longer period might be
required".
Anent the payments made after August 30, 1950, it is obvious that the action has prescribed with respect to
those made before October 30, 1950 only, considering the fact that the prescription of action is interrupted
xxx when is a written extra-judicial demand x x x" (Art. 1155, NCC), and the written demand in the case at
bar was made on October 30, 1956 (Stipulation of Facts).
MODIFIED in the sense that only payments made on or after October 30, 1950 should be refunded, the
decision appealed from is affirmed, in all other respects.
SALUDAGA V. FEU
Nature: Complaint for damages

Ponente: YNARES-SANTIAGO, J.
DOCTRINE:
FACTS:
Page 12 of 81
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when
he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on
August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to
the wound he sustained. Meanwhile, Rosete was brought to the police station where he explained that the
shooting was accidental. He was eventually released considering that no formal complaint was filed against
him.
Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached
their obligation to provide students with a safe and secure environment and an atmosphere conducive to
learning. Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and
Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services
within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever
would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other
hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance.
TC: held FEU and GALAXY liable
CA: reversed; dismissed the complaint; shooting was a fortuitous event
ISSUE: W/N FEU is liable based on the contract between it and its student
RULING:
YES. FEU is liable (culpa contractual).
PSBA v CA: 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. For its part, the
school undertakes to provide the student with an education that would presumably suffice to equip him with
the necessary tools and skills to pursue higher education or a profession. On the other hand, the student
covenants to abide by the school's academic requirements and observe its rules and regulations.
It is settled that 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. In the instant case, we find that, when
petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and
secure the premises, there is a prima facie showing that respondents failed to comply with its
obligation to provide a safe and secure environment to its students.
Re: Force majeure
Respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe
learning environment for their students. They failed to prove that they ensured that the guards assigned in the
campus met the requirements stipulated in the Security Service Agreement. Indeed, certain documents about
Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a security
guard for the university was offered.
It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital
documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters
or failure to check the papers stating the qualifications of the guards is negligence on the part of
respondents. A learning institution should not be allowed to completely relinquish or abdicate security
matters in its premises to the security agency it hired. To do so would result to contracting away its inherent
obligation to ensure a safe learning environment for its students.
Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered,
respondents must show that no negligence or misconduct was committed that may have occasioned
the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be
partly the result of a person's participation - whether by active intervention, neglect or failure to act - the
whole occurrence is humanized and removed from the rules applicable to acts of God
Page 13 of 81
Re: Damages
Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations
are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for damages.
DISPOSITIVE:
a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount
of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this Decision.
After this decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum
until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00;
moral damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of
P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus (Prfesident of FEU) is DISMISSED. The
counterclaims of respondents are likewise DISMISSED.
SAGRADA ORDEN VS NACOCO
Nature: Action to recover the possession of a parcel of land and the warehouses, as
well as the rentals for its occupation and use
Ponente: Labrador
Date: June 30, 1952
DOCTRINE: In order for an obligation to exist, it must be created by law, contract, quasi-contract,
delicts, or quasi-delicts.
FACTS:
Old Civil Code Article 1089. Obligations are created by law, by contracts, by quasi-contracts, and by illicit acts and omissions
or by those in which any kind of fault or negligence occur
On January 4, 1942, during the Japanese occupation, a Japanese corporation by the name of Taiwan
Tekkosho acquired a certain parcel of land owned by the plaintiff for the sum of Php140,000.00, and title was
issued in its name. After the end of World War 2, the Alien Property Custodian of the USA took possession,
control and custody thereof for the reason that the land belonged to an enemy national. Afterwards the
property was occupied by the Copra Export Management Company, which later vacated it in favor of the
National Coconut Corporation.
Sagrada Orden made a claim of the property before the Alien Property Custodian but this was denied, so it
brought an action at the CFI of Manila to annul the sale of the property to Taiwan Tekkosho and to recover
its possession.
The case did not come to trial as the parties presented a joint petition where it was claimed that the sale in
favor of Taiwan Tekkosho was null and voide because it was executed under threats, duress, and intimidation,
and it was agreed that the title should be re-issued in favor of Sagrada Orden. The parties also prayed that
NACOCO and the Alien Property Administration be released from liability, and that NACOCO would pay
rentals.
CFI released NACOCO from any liability but denied plaintiff the right to recover reasonable rentals.
Plaintiff appeals to recover reasonable rentals from August 1946, which as when NACOCO began occupying
the premises, and to vacate it.
Page 14 of 81
Respondent, on the other hand, admits rentals but only starting February 28, 1949, when the judgment of the
CFI was issued. It defends itself by saying it occupied the property in good faith, and had no obligation
whatsoever to pay rentals for the use and occupation of the warehouse.
ISSUE:
Whether or not NACOCO is liable for rentals from the time of its occupancy or from the time of the judgment of the CFI.
RULING: It is not liable for rentals at all.

If defendant is liable at all, its obligations must arise from any of the four sources of obligations: law, contract
or quasi-contract, crime, or negligence.
NACOCO is not guilty of any offense at all since it entered the premises and occupied the same with the
permission of the Alien Property Administration, which had legal control and administration. It’s not
negligent of anything either. There was no privity of contract or obligation between the Alien Property
Custodian and Taiwan Tekkosho such that the Alien Property Custodian or its permittee (NACOCO) can be
held responsible for the illegal occupation by Taiwan Takkosho. Note: the Alien Property Custodian did not
occupy the property as successor to the interests of Taiwan Tekkosho, but by expression provision of the
law. When NACOCO took possession of the property, the Alien Property Administration had the absolute
control of the property as the trustee of the US Government; as such, if NACOCO is liable for rentals, it
would accrue to the US Government and not to Sagrada Orden.
Furtehrmore, there was no agreement between the Alien Property Custodian and NACOCO for the payment
of rentals on the property. The predecessor of NACOCO, Copra Export, did not pay any rentals or had to
pay any compensation of any kind. When the NACOCO succeeded Copra Export, it must have also been
free from payment of rentals, especially since it’s a Government corporation.
As such, there is no basis on any of the sources of obligations to find that NACOCO is liable for rentals to
Sagrada Orden.
PEOPLE’S CAR INC. VS COMMANDO SECURITY SERVICE AGENCY
Nature: Action for damages

Ponente: Teehankee
Date: May 22, 1973
DOCTRINE: Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith
FACTS:
NCC Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
People’s Car Inc and Commando Security Service Agency entered into a Guard Service Contract where the
latter would safeguard and protect the business premises of People’s Car from theft, pilferage, robbery,
vandalism and all other unlawful acts of any person or persons prejudicial to the interest of the plaintiff.
On April 5, 1970, at around 1AM, one of the security guards, without any authority or consent whatsoever,
brought out of the compound of the plaintiff a car belonging to Joseph Luy, a customer, and eventually lost
control of the said car, causing the same to fall into a ditch. Plaintiff filed a complaint of qualified theft
against the security guard; plaintiff alleges that it had to suffer damages by way of payment for the repairs of
the car in the amount of Php7,079, as well as car rental value in the sum of Php1,410 as plaintiff had to loan a
car to Joseph Luy for 47 days while the car was being repaired. As such, plaintiff incurred a total of
Php8,489.10 in damages.
Plaintiff claimed that the entire amount is imputable to Commando Security as, under paragraph 5 of their
contract, defendant assumed liability for acts done during their watch hours by guards, while Commando
alleges, under paragraph 4 of the contract, that its liability should not exceed Php1,000.
Page 15 of 81
TC ruled in favor of the interpretation of Commando Security.
ISSUE: What is the extent of the liability of Commando Security in light of the contract that the parties entered into
RULING: It is liable for the entire Php8,489.10.

The limitation to Php1,000 per guard post is only applicable for loss or damage “through the negligence of its
guards during watch hours” provided that the same is duly reported to the plaintiff within 24 hours of the
occurrence and the negligence is verified after proper investigation with the attendance of both contracting
parties. It’s inapplicable in this case as the property of the plaintiff was not lost or damaged at its premises,
and was there just mere negligence of the security guard.
Rather, this case involves a security guard who willfully and unlawfully drove out a car and lost control of the
same, causing the plaintiff to incur actual damages in the amount of Php8,489.10. Consequently, defendant is
liable for the entire damages under paragraph 5, where the defendant assumes “liability for the acts during
their watch hours” and that it “releases plaintiff from any and all liabilities to the third parties arising from
acts or omissions done by guards during their tour of duty.” As the act here is wanton and unlawful, the
defendant is liable.
Contrary to TC’s determination, plaintiff was not required to tell Luy that it was not liable under the Guard
Service Contract with Commando, and that it should have brought the action in court. The TC also required
that Luy would file a third-party complaint (rather than dismiss the action vs. plaintiff) or to have plaintiff file
a crossclaim (if Luy did not opt to dismiss the action). The recommendations of the TC are unduly technical
and unrealistic
Plaintiff was in law liable to Luy for the damages caused by the security guard, but it was also justified in
making good such damages and relying in turn on the defendant’s honoring its contract. Plaintiff couldn’t tell
its customer that it was not liable since the customer could not hold defendant to account for damages as the
customer had no privity of contract with the defendant.
CANGCO VS MANILA RAILROAD
Nature: Action for damages based on quasi-delict

Ponente: Fisher
Date: October 4, 1918
DOCTRINE: The liability arising from culpa aquillana is based on a voluntary act or omission, which,
without willful intent but by mere negligence, has caused damage to another. An employer who exercises all
possible care in the selection and direction of his employee would not occur any liability. For the liability to
exist, there should actually be some fault attributable to the defendant personally.
FACTS:
Civil Code ART. 1903. The obligation imposs=ed by the next preceding articles is enforceable not only for
personal acts and omissions, but also for those of persons for whom another is responsible..
Jose Cango was an employee of the Mania Railroad Company as a clerk. To travel from his home to his place
of work, he used a pass, as supplied by the company, which entitled him to ride on the company’s trains for
free.
On January 20, 1915, at around 7 to 8PM, Cangco was about to disembark from the slowing train, when one
or both of his feet came in contact with sack of watermelons resulting in him falling violently on the
platform; his body rolled from the platform and was drawn under the moving car where his right arm was
badly crushed and lacerated. The platform was dimly lit so that it was difficult to discern the objects on the
platform.
Page 16 of 81
Pit appears that the sack of melons were on the platform as it was customary season for harvesting and a
large lot had been brought to the station for the shipment to the market. They were contained in numbers
sacks, which had been piled on the platform in a row upon another near the edge of the platform.
As a result of the accident, Cangco had to undergo two surgeries resulting in the amputation of his arm until
near the shoulder, and he expended actual medical damages in the amount of Php790.25. He thus filed an
action with the CFI of Manila to recover damages based on the negligence of the employees in leaving the
sacks of watermelons at the edge of the platform.
CFI ruled that while negligence was attributable to the defendant, the plaintiff had failed to exercise due
caution in alighting from the train and so was precluded from recovering
ISSUE: Whether or not Cangco is entitled to recover damages from MRR for the negligent actions of
MRR’s employees in placing the sacks of watermelons at the edge of the platform
RULING: Yes, Manila railroad is liable for damages for breach of contract of carriage.
It cannot be doubted that the employees of the railroad company were negligent in piling the sacks on the
platform and that their presence caused the plaintiff to suffer his injuries; as such, they constituted an
effective legal cause of the injuries sustained by the plaintiff. However, it must still be weighed against the
contributory negligence of the plaintiff.
The foundation of the legal liability of the defendant is the contract of carriage; the obligation to respond for
the damage arises from the failure of the defendant to exercise due care in its performance. The liability of is
direct and immediate, and differs from the presumptive responsibility for the negligence of its employees as
imposed by Civil Code Article 1903, which can be rebutted by proof of the exercise of due care in the
selection and supervision of employees. Article 1903 is not applicable to contractual obligations (culpa
contractual), but only to extra-contractual obligations (culpa aquiliana).
Court cites precedent in the Rakes case where the Court stated that Article 1903 of the Civil Code is
inapplicable to acts of negligence which constitute the breach of contract; they would be subject instead to
articles 1101, 1103 and 1104.
The distinction is important as the liability imposed on employers for damages based on the negligence of the
employees is not based on respondeat superior – which would impose the master liable in every case and
unconditionally – but on the principle in Article 1902, which imposes upon all persons who by their own fault
or negligence cause injury to another, the obligation to indemnify the damages. As such, the employer would
not be liable for damages done by a negligent employee if the employer were not negligent in the selection
and direction of the employee, and the act did not amount to breach of the contract between the third person
and the employer.
The liability arising from culpa aquillana is based on a voluntary act or omission, which, without willful intent
but by mere negligence, has caused damage to another. An employer who exercises all possible care in the
selection and direction of his employee would not occur any liability. For the liability to exist, there should
actually be some fault attributable to the defendant personally.
On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants
or agents, when such acts or omissions cause damages which amount to the breach of a contact, is not based
upon a mere presumption of the master's negligence in their selection or control, and proof of exercise of the
utmost diligence and care in this regard does not relieve the master of his liability for the breach of his
contract.
The Court describes extra-contractual obligations arise from the breach or omission of the mutual duties
which civilized society imposes on its members such that the breach of these will result in the obligation to
indemnify. The viniculum juris is the wrongful or negligent act or omission itself, while in contractual relations,
the viniculum exists independently from the breach of the voluntary duty.
The positions of parties who have taken a contract with each other versus those who haven’t are different.
The burden of proof is on the plaintiff to show the negligence in culpa aquillana, while in a contract, it is
sufficient to prove the contract and the nonperformance.
Page 17 of 81
Here: the duty was based on a contract of carriage, which is direct and immediate, and its non-performance
could not be excused by proof that the fault was morally imputable to defendant’s employees.
Defendant’s allegation that the plaintiff should not have gotten off from the train prior to its slowing down is
insufficient to deny damages as it is not negligence per se for a passenger to alight from a moving train. The
train here was “barely moving” and it seems to be a common practice to do so without any injury. Any
contributory negligence on the part of the plaintiff would still be on the negligence of the defendant as the
platform was dark and dimly lit.
Dissent: J. Malcolm
The contributory negligence of the plaintiff, in attempting to alight from a moving train should absolve
defendant from liability.
GUTIERREZ VS. GUTIERREZ
Nature: Action to recover damages from physical injuries from an automobile accident
Ponente: Malcolm
Date: September 23, 1931
DOCTRINE: The head of the house, the owner of an automobile, who maintains it for the general use of
the family, is liable for its negligent operation by one of his children where the car is occupied and being used
at the time of the injury for the pleasure of other members of the owner’s family.
FACTS:
Spanish Civil Code ART. 1903. The obligation imposed by the next preceding articles is enforceable not only for personal acts
and omissions, but also for those of persons for whom another is responsible.
The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by the minor children
who live with them.
On February 2, 1930, a passenger truck, and an automobile, driven by Bonifacio Gutierrez and owned by his
parents, Mr. and Mrs. Manuel Gutierrez, collided with one another as they were passing on the Talon Bridge
on the Manila South Road. Narciso was a passenger on the truck, and he suffered a fracture in his right leg,
which required medical attendance and had not yet healed at the date of the trial.
The parties conceded that the collusion was caused by negligence. However, the plaintiff blames both sets of
drivers, while the truck owner blames the automobile driver, while the automobile owners blame the truck
driver.
ISSUE: Who among the defendants are liable – the truck owner or the automobile owner?
RULING:
Bonifacio, at the time of the accident, was only 18 and was driving at an excessive rate and so contributed to
the accident by his negligence. As such, based on article 1903 of the Civil Code, the father would be liable for
damages caused by the minor.
Citing US cases as precedent, the Court ruled that it has been held that the head of the house, the owner of
an automobile, who maintains it for the general use of the family, is liable for its negligent operation by one
of his children where the car is occupied and being used at the time of the injury for the pleasure of other
members of the owner’s family.
On the other hand, the liability of Cortez, the owner of the passenger truck, and Velasco, the drier, rests on a
contract, which was sufficiently proven in evidence. The trial court found that the speed of the truck at the
time and lack of care of the driver also contributed to the accident.
Cortez and Velasco’s contention that Narciso contributed to the accident by sticking his leg outside the truck
can’t be counted on as it was not pleaded in court and there was no evidence presented.
Page 18 of 81
NOTES: Villa-Real had a concurring opinion which merely voted for an indemnity of Php7,500.
Hongkong and Shanghai Banking Corp vs. Broqueza, G.R. No. 178610,
November 17, 2010
Antonio T. Carpio / (DIVISION)

FACTS:
Petitioners Gerong and Editha Broqueza are employees of Hongkong and Shanghai Banking Corporation
(HSBC). They are also members of respondent HSBC, Ltd. Staff Retirement Plan (HSBCL-SRP, plaintiff)
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 Broqueza obtained a car loan in the amount of Php 175,000.00. 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 HSBC’s
employees were terminated, Among whom petitioners. The employees then filed an illegal dismissal case
before the NLRC against HSBC. Because of their dismissal, petitioners were not able to pay the monthly
amortizations of their respective loans. Thus respondent considered the accounts delinquent. Demands to
pay the respective obligations were made upon petitioners, but they failed to pay.
ISSUE:
Whether or not the loan is immediately demandable?
RULING:
The obligation to pay the car loan is a pure obligation because the promissory note does not specify a period.
When the employee ceased being an employee of the company, She can no longer avail of the benefit of
payment by installment. Therefore, ABC INC can demand payment immediately.
_____________________________________________________________________________________
PAY VS PALANCA
Nature: Action for a sum of money based on a promissory note

Ponente: Fernando
Date: June 28, 1974
DOCTRINE: An obligation that does not depend on a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once. The filing of an action only 15 years after is too late to
enforce.
FACTS:
NCC 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once
George Pay is a creditor of the late Justo Palanca. Pay’s claim is based on a promissory noted dated January
30, 1952, wherein Justo Palanca and Rosa Palanca promised to pay the amount of Php26,900.00. Pay comes
to the court seeking that Segunda, the widow, be appointed as the administratrix under the belief that once a
certain parcel of land is under her administration, Pay, as the creditor, could seek his claim against the
administratrix.
Page 19 of 81
Palanca denies stating that she had refused to be appointed as the administratrix, that the property no longer
belonged to the deceased, and that the rights of Pay on the instrument had already prescribe; the note had
been executed 15 years prior.
TC ruled in favor of Palanca and dismissed the case
ISSUE: Whether a creditor is barred by prescription in his attempted to collect on a promissory note
executed more than 15 years earlier.
RULING: Yes.
Based on the evidence presented, the only argument that merits the attention of the Court is that of
prescription. As noted by NCC 1179, any obligation that does not depend on a future or uncertain event, or
upon a past event unknown to the parties is demandable at once.
As the obligation was due and demandable, the filing of the suit after 15 years was much too late. The Civil
Code additionally states that the prescriptive period of a written contract is 10 years.
SMITH BELL VS SOTELO MATTI
Nature: Specific Performance – payment of goods and to receive the same

Ponente: Romualdez
Date: March 9, 1922
FACTS:
Civil Code 1125. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day
arrives.
A day certain is understood to be one which must necessarily arrive, even though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be
governed by the rules of the next preceding section.
In August 1918, Smith Bell and Sotelo entered into contracts whereby the former obligated itself to sell to
Sotelo two steel tanks for the price of Php21,000, the tanks were to be shipped from New York and delivered
at Manila within 3-4 months; two expellers for the price of Php25,000, which were to be shipped from San
Francisco in the month of September 1918 or as soon as possible; and two electric motors at the price of
Php2,000 each – the delivery stipulation read “approximate delivery within 90 days – this is not guaranteed.”
All of the contracts were subject to contingencies such as the sellers not being responsible for delays caused
by force majeure.
The tanks arrived on April 27, 1919, the expellers on October 26 1918, and the motors on February 27, 1919.
Plaintiff notified Sotelo of the arrival of the goods, but he refused to receive and pay for them.
Smith Bell alleges that it immediately notified Sotelo of the arrival of the goods yet Sotelo has refused to
receive any of them to pay for their price.
Sotelo counters that the he made the contracts as the manager of the Manila Oil Refining and By-Products
Company, and that it was only in May 1919 that he was notified of the arrival of the goods, which arrived
incomplete and long after the dates stipulated. They allege that the delay in the delivery resulted in suffering
damages for the non-delivery of the tanks (P116,783.91) and on the expellers and motors (P21,250)
TC absolved the defendant from paying for the tanks and motors but ordered that defendant pay P50,000 for
the expellers, which includes legal interest
ISSUE: Whether or not under the contracts entered into and the circumstances established in record, the plaintiff fulfilled its
obligation to bring the goods and in due time.
RULING: Yes, the obligations were conditional.
Page 20 of 81
None of the contracts fixed a specific date for the delivery of goods – they stated “within 3-4 months”, “in
September 1918, or as soon as possible” or “approximate delivery within 90 days – this is not guaranteed”
and all of them were subject to the clause that force majeure was a possible defense in case of delays.
The record discloses that the contracts were executed at the time of World War I, which mean that there were
rigid restrictions on exports from the USA of articles such as machinery in question, and that transportation
was difficult, which was known to the parties.
Considering these contracts in light of civil law, the Court ruled that the term the parties attempted to fix is so
uncertain that one cannot tell whether or not the goods could actually be brought to Manila, so the
obligations must be considered as conditional.
The export of the machinery was contingent on the sellers obtaining certificate of priority and permission of
the US Government, so it was subject to a condition that depended on the effort of Smith Bell and on the
will of third persons who could in no way be compelled to fulfill the obligation. The obligor is considered as
having sufficiently performed his part of the obligation if he has done all in his power, even if the condition
has not been fulfilled.
As such, Soleto is sentenced to accept and receive the machinery and to pay Php96,000.00 including legal
interest from the date of the filing of the complaint until fully paid.
CHAVES VS GONZALES

Ponente: Reyes
DOCTRINE: When the time for compliance of an obligation had evidently expired,
even if a term was not properly fixed by the parties, there is a breach of contract by
non-performance.
FACTS:
NCC 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
The same shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed
that what has been poorly done be undone
NCC 1170. 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.
NCC 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by
the parties. Once fixed by the courts, the period cannot be changed by them.
In July 1963, Chaves delivered to Gonzales a typewriter for routine cleaning and servicing. Gonzales was
unable to finish the job after some time in spite of repeated reminders made by Chaves. Instead, he
constantly gave assurances.
In October 1963, defendant asked from plaintiff the sum of P6.00 for the purchase of spare parts, which
plaintiff gave. On October 26, finally fed up with the delay, plaintiff demanded that the typewriter be
returned. The defendant returned the same in a wrapped package; the plaintiff discovered that the same was
completely in shames with the interior cover and some parts and screws missing. Plaintiff sent a letter
formally demanded the return of the missing parts, the interior cover and P6.00. The next day, defendant
returned some of the missing parts, the interior cover and P6.00
Page 21 of 81
The plaintiff had his typewriter repaired by Freixas Business Machines, which was successful in doing so for
the cost of P89.85.
Plaintiff commenced an action at the CFI of Manila, asking for P90 as actual damages, P100 as temperate,
P500 for moral, and P500 as attorney’s fees.
TC ruled that the defendant should not be liable for the repairs made by Freixas, but should only be liable for
the value of the missing parts. As such it ordered the defendant to pay the sum of P31.10, and the costs of
the suit.
Plaintiff alleges that based on NCC 1167, he should be entitled to the whole cost of labor and materials that
went into the repair of the machine.
Defendant alleges that it should not be held liable as his contract with the plaintiff did not contain a period
under NCC 1197, such that the plaintiff should have first filed an action to fix the period, within which he
should have complied with the contract before he is liable for breach
ISSUE: Whether or not defendant is liable to plaintiff for the cost of actually repairing the typewriter, which it had failed to do
RULING:
The Court ruled that there was a perfected contract for cleaning and servicing a typewriter, which was
properly intended that the defendant finish it at a future time though it was not specified. Furthermore, some
time had passed without the work having been finished, and the defendant returned the typewriter
“cannibalized” and unrepaired, which is a breach of his contract, and he did so without asking for more time
to finish the job or for compensation for the work he had done.
Consequently, the Court rules that the time for compliance had evidently expired and there was already
breach of contract by non-performance. Defendant cannot invoke NCC 1197 as the fixing of a period would
be a mere formality and would only serve as a delay.
Clear that the defendant breached his obligation, so he is liable under NCC 1167 for the cost of the execution
of the obligation in the proper manner, which is P89.85 He is also liable under NCC 1170 for the cost of the
missing parts for his negligence in returning the typewriter in the same condition in which he had received it.
The other damages were correctly rejected as they were not alleged in his complaint.
ENCARNACION VS BALDOMAR
Nature:
Ponente: Hilado
DOCTRINE: The validity and fulfillment of a contract of lease cannot be left solely and exclusively to the
will of one of the parties – here the lessees – as it would deprive the owner from being able discontinue the
lease
FACTS:
Encarnacion leased a house to Jacinto Baldomar and her son Lefrado Fernando on a month-to-month basis
for the monthly rental of P35. After the end of World War 2, Encarnacion informed Baldomar and her son to
vacate the house by April 15, 1945 as he needed it for his offices as a result of the destruction of the building
where his office previously was. In spite of his demand, the defendants insisted on their occupancy.
Baldomar and Fernanco contend that Encarnacion authorized them to continue their occupancy indefinitely
while they are able to faithfully fulfill their obligation with respect to the payment of rentals.
Encarnacion contends that the lease had always been on a month-to-moth basis.
CFI ruled in favor of Encarnacion
Page 22 of 81
ISSUE: Whether or not Encarnacion is justified in ordering the ejectment of Baldomar and Fernando from
the house that he leased to them
RULING: Yes. The Court puts more credit on the witness of Encarnacion that the lease was for a month
to month basis.
The defense set up by Fernando basically left the validity and fulfillment of the contract of lease solely and
exclusively to the will of one of the parties – whether or not they would continue paying rentals or not – and
would deprive the owner from any say in the matter. If this defense were allowed, the owner could potentially
never be able to discontinue the lease. Conversely, if the owner wished the lease to continue, the lessees could
just stop paying in order to terminate the lease. The Court states that this is void according to 1256 of the
Spanish Civil Code.
ELEIZEGUI VS MANILA LAWN TENNIS CLUB

Nature: Action for ejectment
Ponente: Arellano
Date: May 19, 1903
DOCTRINE:
FACTS:
Art 1128 Should the obligation not fix a period, but it can be inferred from its nature and circumstances that there was an
intention to grant it to the debtor, the courts shall fix the duration of the same.
The court shall also fix the duration of the period when it may have been left to the will of the debtor.
Eleizegui leased a parcel of land for a fixed consideration and to endure at the will of the lessee, who was
authorized to make improvements upon the land such as erecting buildings of both permanent and
temporary character, by making fills, laying pipes, and making such other improvements as may be desirable
for the comfort and amusement of the members.
Eleizegui later tried to terminate the lease by sending notice to the Tennis Club but this was ignored. As such,
he filed an action to recover the land. Elezegui contends that, based on Article 1569 of the Spanish Civil
Code, the lessor may judicially dispossess the lessee upon the expiration of the conventional term or of the
legal term.
TC ruled in favor of Eleizegui contending that the lease was on a per month basis
ISSUES
(1) Whether or not there was a conventional term
RULING: Yes, so 1581 which imposes a legal term is not applicable
The Court notes that there are clauses, which do stipulate a term, so the legal term as imposed by 1581
cannot be applied.
Clause 3 of the contract states that “Mr. Williamson, or whoever may succeed him as secretary of the club,
may terminate this lease whenever desired without other formality other than that of giving a month’s notice.
The owners of the land undertake to maintain the club as tenant as long as the latter shall see fit.”
As such, the contract of lease cannot be considered as being one without a conditional term as there is one,
which is dependent on the lessee. As such, the lease could not be considered terminated by the notice given
by Eleizegui as this notice is necessary only when it becomes necessary to have recourse to the legal term.
It is also evident that the lessors did not intend to reserve to themselves the right to rescind which they
expressly conferred upon the lessee by establishing it exclusively with the latter.
Page 23 of 81
(2) Whether or not the lease depends upon the will of the lessee.
RULING:
However, It cannot be concluded that the termination of the contract is to be left completely at the will of
the lessee simply because it has been stipulated that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of
obligations with a term it has supplied the deficiency of the former law with respect to the "duration of the
term when it has been left to the will of the debtor," and provides that in this case the term shall be fixed by
the courts. (Art. 1128, sec. 2.) In every contract, as laid down by the authorities, there is always a creditor who
is entitled to demand the performance, and a debtor upon whom rests the obligation to perform the
undertaking. In bilateral contracts the contracting parties are mutually creditors and debtors. Thus, in this
contract of lease, the lessee is the creditor with respect to the rights enumerated in article 1554, and is the
debtor with respect to the obligations imposed by articles 1555 and 1561. The term within which
performance of the latter obligation is due is what has been left to the will of the debtor. This term it is which
must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that by which it is sought to
obtain from the judge the determination of this period, and not the unlawful detainer action which has been
brought — an action which presupposes the expiration of the term and makes it the duty of the judge to
simply decree an eviction. To maintain the latter action it is sufficient to show the expiration of the term of
the contract, whether conventional or legal; in order to decree the relief to be granted in the former action it
is necessary for the judge to look into the character and conditions of the mutual undertakings with a view to
supplying the lacking element of a time at which the lease is to expire.
The lower court’s judgment is erroneous and therefore reversed and the case was remanded with directions to
enter a judgment of dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club.
SEPARATE OPINION: Concurring by J. Willard:

Willard contends that 1128 should apply generally to unilateral contracts – those in which the credit parted
with something of value, leaving it to the debtor to say when it should be returned. It should not be applied
to the contract of lease. But he agrees that 1581 is inapplicable
PHILIPPINE BANKING representing estate of JUSTINA SANTOS v. LUI

SHE as administratrix of WONG HENG
Nature: Annulment of contract

Ponente: Castro
Date: 12 September 1962
DOCTRINE: Contracts at bar cannot be annulled on the ground of 1308 – that “the contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of them.” At bar, the
contract of lease was not dependent on Wong’s will, as there was a fixed term.
FACTS:
Relevant Provision of Law: 1308, 1416
Santos and her sister Lorenzo both owned a Manila compound. Wong was their lessor. He had a restaurant
on the compound and also lived therein.
When Lorenzo died, Santos exclusively owned the property. It was at this time when she became close with
Wong’s children. Wong himself was the trusted man to whom she delivered various amounts for safekeeping,
including rentals from her property. He also took care of the payment; in her behalf, of taxes, lawyers' fees,
funeral expenses, masses, salaries of maids and security guard, and her household expenses.
Santos and Wong then entered into several contracts with each other:
Page 24 of 81
1. Contract of lease covering the area already leased to Wong and an additional area for 50 years, with right to
lessee to withdraw. The contract was then amended to include the entire compound of Santos, including the
very house where she loved;
2. An option to buy the leased premises in favor of Wong. This was conditioned on his obtaining Filipino
citizenship;
3. A contract extending the lease to 99 years; and
4. Another fixing the option to buy at 50 years.
Santos then executed two wills where she asked her heirs to respect the contracts made.
However, a codicil later executed said differently: it claimed that the contracts were made only because of
inducement and machination employed by Wong. Santos then filed a case to annul the above contracts and
for collection of unpaid rentals.
CFI ruled for Santos, and annulled all contracts except the first contract of lease. At this point, the original
parties passed away.
ISSUE: W/N contracts should be annulled?
RULING: Yes, they should be.
1. But they cannot be annulled on the ground of 1308 – that “the contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them.” At bar, the contract of lease was not
dependent on Wong’s will, as there was a fixed term.
2. They cannot also be annulled on the ground that Santos was not the owner. When Lorenzo died, the
entire property became Santos’ therefore she could validly dispose.
3. Neither can they be annulled because a fiduciary relationship existed between Santos and Wong, with the
latter as agent, contrary to article 1646, in relation to article 1941 of the Civil Code, which disqualifies "agents
(from leasing) the property whose administration or sale may have been entrusted to them." Wong was never
an agent of Justina Santos.
4. Cannot annul based on fraud. There was no fraud employed, as Santos dictated the terms of these
contracts to her lawyer with Wong’s aid. The lawyer fully explained the effects of the contracts.
5. Neither can these contracts be annulled on the grounds that Santos was blind, and that the contracts were
in English, which she did not understand. Nor can they be voided because of an alleged mistaken belief that
Wong rescued Santos and her sister from a fire.
6. But they are invalidated because of an illegal cause! Contracts were executed to circumvent the
constitutional prohibition against alien ownership of land. 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.
But pari delicto does not avail at bar because: 1) the parties are dead; and 2) article 1416 of the Civil Code
provides, as an exception to the rule on pari delicto, that "When the agreement is not illegal per se but is merely
prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or delivered."
Further, if the pari delicto rule were to apply and neither party may have recourse against the other, then this
would further defeat the constitutional prohibition.
Since all contracts are annulled, the property is returned to the Santos estate.
LIM V. PEOPLE
Page 25 of 81
Nature: Estafa
Ponente: Relova
Date: 21 November 1984
DOCTRINE: Since the agreement fixed a period, 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.
FACTS:
Relevant Provision of Law: 1197
Lim was a businesswoman. She went to the home of Maria Ayroso and offered to sell the latter’s tobacco.
They agreed that Lim would receive the overprice for which she would sell the tobacco for. The product was
then loaded in Lim’s jeep. Lim eventually only paid for part of the tobacco she took. Ayroso demanded
payment for the rest.
But Lim alleges that the contract between them was not one of agency but one of sale. She alleged that since
a sale took place, ownership was now vested in her and she is not obligated to remit anything further to
Ayroso.
The CFI found Lim guilty of estafa. CA affirmed, and in doing so stated that the contract contained a fixed
period so the obligation was immediately demandable as soon as the tobacco was sold.
ISSUE: W/N Lim is guilty of estafa
RULING: Yes, Lim is guilty.
From the agreement of Lim and Ayroso, it is clear that the proceeds of the sale of the tobacco should be
turned over to the Ayroso 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.
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.
Their agreement constituted Lim as an agent with the obligation to return the tobacco if the same was not
sold.
ARANETA V. PHILIPPINE SUGAR ESTATES DEVT. CO. LTD
Nature: Specific performance

Ponente: Reyes, JBL
Date: 31 May 1967
DOCTRINE: 1197 provides a two-step process:
1. The court must first determine that "the obligation does not fix a period (or that the period is made to
depend upon the will of the debtor), but from the nature and the circumstances it can be inferred that a
period was intended."
2. This preliminary point settled, the court must then proceed to the second step, and decide what period was
"probably contemplated by the parties."
FACTS:
Araneta sold part of its Sta. Mesa Hts. Subdivision to Phil. Sugar. The contract included an obligation on the
seller’s end to construct roads on the NE, NW and SW sides of the buyer’s land within a reasonable time.
However, the respondent already finished constructing a church and convent but the NE street was not yet
constructed. They filed action to compel petitioner to fulfill its end of the deal.
Page 26 of 81
Petitioner attempts to excuse itself by reasoning that such failure is because of a squatter, Abundo who still
refuses to vacate.
The CFI and CA ruled in favor of respondent, even fixing a two-year period for petitioner to comply with its
obligation to construct the NE street. Petitioner questions this ruling.
ISSUE: W/N the lower courts were correct to impose a period
RULING: No.
The contract between petitioner and respondent granted the former “reasonable time within which to
comply” – the lower courts should not have imposed their own period of two years. Instead, they should
have limited themselves to ruling whether or not this “reasonable period” had lapsed. If it did, then there is
breach, if not, then the action should be dismissed for it was filed prematurely.
Further, the two-year period was arbitrarily set. 1197 provides a two-step process:
1. The court must first determine that "the obligation does not fix a period (or that the period is made to
depend upon the will of the debtor), but from the nature and the circumstances it can be inferred that a
period was intended."
2. This preliminary point settled, the court must then proceed to the second step, and decide what period was
"probably contemplated by the parties."
This process was not followed. The two-year period was made out of thin air.
At bar, the parties were both aware that squatters existed. This, the conclusion is that the parties must have
intended to defer the performance of the obligations under the contract until the squatters were duly evicted.
MILLARE V. HERNANDO
Nature: To order renewal of lease

Ponente: Feliciano
Date: 30 June 1987
DOCTRINE: The first paragraph of Article 1197 is inapplicable when the contract fixes a period. The
second paragraph of Article 1197 is equally inapplicable when the duration of the renewal period was not left
to the will of one party alone.
Relevant Provision of Law: 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them
FACTS:
The Cos were lessees to Millare under a lease contract for a five-year period. In May 1980, Millare informed
the Cos that they could continue leasing so long as they were amenable to paying creased rentals of P1,200.00
a month. In response, a counteroffer of P700.00 a month was made and to this, Millare allegedly stated that
the amount of monthly rentals could be resolved at a later time since "the matter is simple among us." This
led the spouses Co to think that the lease had been renewed, but Millare thought otherwise and demanded
that they vacate the property.
Paragraph 13 of the lease contract states the following: This contract of lease is subject to the laws and
regulations of the government; and that this contract of lease may be renewed after a period of five (5) years
under the terms and conditions as will be mutually agreed upon by the parties at the time of renewal.
Page 27 of 81
The Co spouses went to court to ask for the renewal of the lease contract at P700 for 10 years. The CFI
ruled on their behalf. The lower court judge interpreted paragraph 13 to mean that since the original lease
was fixed for five years, it follows, therefore, that the lease contract is renewable for another five.
ISSUE: W/N the lease was renewed.
RULING: No.
The lease contract (paragraph 13) can only mean that the lessor and lessee may agree to renew the contract
upon their reaching agreement on the terms and conditions. Failure to reach agreement will of course prevent
the contract from being renewed at all. In the instant case, the lessor and the lessee conspicuously failed to
reach agreement both on the amount of the rental to be payable during the renewal term, therefore there was
no renewal.
The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an
original period of five years, which had expired. The second paragraph of Article 1197 is equally clearly
inapplicable since the duration of the renewal period was not left to the will of the lessee alone, but rather to
the will of both the lessor and the lessee. Most importantly, Article 1197 applies only where a contract of
lease clearly exists. Here, the contract was not renewed at all, there was in fact no contract at all the period of
which could have been fixed.
Even if an implied lease took place, this would not be for an entire five-year period, but only for month-to-
month.
CALANG V. PEOPLE
Nature: Criminal, reckless imprudence

Ponente: Brion
Date: 3 August 2010
DOCTRINE: Since the charge was criminal, it was error for the lower courts to hold Philtranco jointly and
severally liable under Articles 2176 and 2180 on quasi delicts.
FACTS:
Relevant Provision of Law: 2168, 2180, RPC 102, 103
Calang was driving a Philtranco bus when its rear left side hit the front left of a Sarao jeep coming from the
opposite direction. As a result of the collision, the jeep driver Pinohermoso lost control and bumped and
killed bystander Mabansag. Two jeep passengers were also killed and others injured.
RTC ruled that Calang was guilty of multiple homicide, multiple physical injuries and damage to property
through reckless imprudence. It ordered that Calang be liable jointly and severally with Philtranco to pay
damages. CA affirmed this ruling.
ISSUE: W/N the lower courts were correct in imposing joint and several liability
RULING: No. Philtranco should not be held jointly and severally liable with Calang. The charge against
Calang was criminal, therefore it was error for the lower courts to hold Philtranco jointly and severally liable
under Articles 2176 and 2180 on quasi delicts.
If at all, Philtranco’s liability may only be subsidiary under RPC, Articles 102 and 103. These liabilities are
deemed written into the judgments in cases to which they are applicable. Thus, in the dispositive portion of
its decision, the trial court need not expressly pronounce the subsidiary liability of the employer.
Nonetheless, before the employers’ subsidiary liability is enforced, adequate evidence must exist establishing
that (1) they are indeed the employers of the convicted employees; (2) they are engaged in some kind of
Page 28 of 81
industry; (3) the crime was committed by the employees in the discharge of their duties; and (4) the execution
against the latter has not been satisfied due to insolvency.
RONQUILLO V. CA and SO
Nature: Collection suit and execution thereof

Ponente: Cuevas
DOCTRINE: The obligation in the case at bar being described as "individually and jointly", the same is
therefore enforceable against one of the numerous obligors.
FACTS:
Relevant Provision of Law: None mentioned
Ronquillo was one of four defendants in a collection case filed by private respondent So. A compromise
agreement was reached between the parties, which stated that the debtors obligated themselves to pay their
obligation “individually and jointly.”
In a motion for modification of the order to execute the compromise, So prayed that the execution be done
against all defendants, jointly and severally.
The writ of execution was then issued for the satisfaction of P 82,500, with debtors (including petitioner)
“singly or jointly liable.”
ISSUE: How should payment be enforced?
RULING: Individually and jointly.
The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively or
"severally". An agreement to be "individually liable" undoubtedly creates a several obligation, and a "several
obligation is one by which one individual binds himself to perform the whole obligation. The obligation in
the case at bar being described as "individually and jointly", the same is therefore enforceable against one of
the numerous obligors.
MALAYAN INSURANCE V. CA

Ponente: Padilla
DOCTRINE: Direct liability of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The
liability of the insurer is based on contract; that of the insured is based on tort.
FACTS:
Relevant Provision of Law: 1217, 2180, 2184
Malayan issued an insurance policy for respondent Sio Choy covering a jeep. While the policy was in effect,
the insured jeep, while driven by Campollo (employee of San Leon Rice Mill), collided with a Pantranco bus,
causing injuries to jeep passenger Vallejos and driver Campollo, as well as damage to the jeep.
Vallejos filed an action for damages against Sio Choy, Malayan, and San Leon Rice Mill, praying that they be
held jointly and severally liable. The RTC and CA ruled in Vallejos’ favor finding all three solidarily liable.
1st ISSUE: W/N Malayan should be held solidarily liable alongside Sio Choy and San Leon Rice Mill
Page 29 of 81
RULING: No. Only respondents Sio Choy and San Leon Rice Mill are solidarily liable to respondent
Vallejos for the damages. Respondents Sio Choy and San Leon Rice Mill are the principal tortfeasors who are
primarily liable to respondent Vallejos. The law states that the responsibility of two or more persons who are
liable for a quasi-delict is solidarily (2180, 2184).
While it is true that where the insurance contract provides for indemnity against liability to third persons,
such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort.
2nd ISSUE: W/N Malayan is entitled to be reimbursed by respondent San Leon Rice Mill, Inc. even if the
latter respondent is not privy to the contract of insurance
RULING: Yes, Malayan is entitled to reimbursement. Since Malayan paid Vallejos, it has become the
subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has
against respondent San Leon Rice Mill. Article 1217 of the Civil Code gives to a solidary debtor who has paid
the entire obligation the right to be reimbursed by his co-debtors for the share which corresponds to each.
PNB V. INDEPENDENT PLANTERS ASSN.
Nature: Collection suit

Ponente: Plana
Date: 16 May 1983
DOCTRINE: In case of the death of one of the solidary debtors, the creditor may, if he so chooses, proceed
against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors
FACTS:
PNB filed a complaint with the CFI against several solidary debtors for the collection of a sum of money.
But the CFI dismissed this because one of the defendants (Ceferino Valencia) died. CFI directed PNB to
instead file a money claim in the testate or intestate proceeding for the settlement of the estate of the
deceased.
PNB challenged this decision based on Art. 1216, where the creditor may proceed against any one, some
or all of the solidary debtors.
ISSUE: W/N CFI was correct to dismiss case because of the death of one debtor
RULING: No. CFI was wrong.
The choice is undoubtedly left to the creditor to determine against whom he will enforce collection. In case
of the death of one of the solidary debtors, the creditor may, if he so chooses, proceed against the surviving
solidary debtors without necessity of filing a claim in the estate of the deceased debtors. It is not mandatory
for him to have the case dismissed against the surviving debtors and file its claim in the estate of the deceased
solidary debtor.
THE BACHRACH MOTOR CO. INC. V. ESPIRITU

Nature: Collection suit
Ponente: Avanceña
Date: 6 November 1928
DOCTRINE: Article 1152 of the Old Civil Code permits the agreement upon a penalty apart from the
interest. Should there be such an agreement, the penalty does not includ
Page 30 of 81
FACTS:
Relevant Provision of Law: Article 1152, Old Civil
Code
Espiritu purchased two white trucks from petitioner. Both were secured by mortgage on other trucks and by
promissory notes. However, Espiritu failed to make full
e the interest, and may be demanded separately.
payment on both trucks. After the securities were sold and the proceeds applied to the loan:
Case 28497: Balance of P7,732.09 with interest at the rate of 12 per cent per annum from May 1, 1926 until
fully paid, and 25 per cent thereof in addition as penalty.
Case 28498: Balance of P4,208.28 with interest at 12 per cent per annum from December 1, 1925 until fully
paid, and 25 per cent thereon as penalty.
Espiritu assails the 25 % penalty upon the debt, in addition to the interest of 12 % per annum. He claims the
contract is usurious.
ISSUE: W/N the contract is usurious
RULING: No, it is not usurious. Article 1152 of the Civil Code permits the agreement upon a penalty apart
from the interest. Should there be such an agreement, the penalty does not include the interest, and may be
demanded separately. The penalty is not to be added to the interest for the determination of whether the
interest exceeds the rate fixed by the law, since said rate was fixed only for the interest. But considering that
the obligation was partly performed, and making use of the power given to the court by article 1154 of the
Civil Code, this penalty is reduced to 10 per cent of the unpaid debt.
ROBES-FRANCISCO v. CFI
Nature: Direct appeal on questions of law
Ponente: J. Munoz Palma
DOCTRINE: A stipulation in a deed of absolute sale that should the vendor fail to issue the transfer
certificate of title within six months from date of full payment, the vendor shall refund to the vendee the total
amount cannot be considered a penal clause in contemplation of Article 1226 of the New Civil Code as to
preclude recovery of damages. For obvious reasons, the clause does not convey any penalty, for even without
it, pursuant to Article 2209 of the Civil Code, the vendee would still recover the amount paid by her with
legal rate of interest which is even more than the 4% provided for in the clause.
FACTS:
Relevant Provision of Law: Article 1226 and 2209
(Civil Code)
Private respondent Millan bought a lot from petitioner Robes Realty corporation in May, 1962, and paid in
full her installments on December 22, 1971, but it was only on March 2, 1973, that a deed of absolute sale
was executed in her favor.
The deed had the provision:

- The seller warrants that the TCT shall be transferred in the name of the buyer within 6 months from
full payment.
- In case the seller fails to issue the TCT, the seller bears the obligation to refund the total amount
already paid, plus 4% per annum interest.
Notwithstanding the lapse of almost three years since she made her last payment, petitioner still failed to
convey the corresponding transfer certificate of title to private respondent who accordingly was compelled to
file a complaint for specific performance. The complaint prays: Judgment ordering the reformation of the
deed of absolute sale; Judgment ordering the seller corporation to deliver the TCT; or, if not possible, pay
buyer Millan the value of the lot and Judgment ordering the seller corp to pay damages, corrective and actual
Page 31 of 81
(P15k).
Seller corp answered. They want the complaint to be dismissed because the deed of absolute sale was
voluntarily executed between them and the interest of the buyer Millan was protected by the provision of
interest at 4% per annum.
The case was submitted for decision on the pleadings. The trial court awarded nominal damages for P20,000.
PETITIONER - The deed of absolute sale executed between the parties stipulates that should the vendor
fail to issue the transfer certificate of title within six months from the date of full payment, it shall refund to
the vendee the total amount paid for with interest at the rate of 4% per annum, Hence, the vendee is bound
by the terms of the provision and cannot recover more than what is agreed upon. Article 1226 of the Civil: in
obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of
interests in case of noncompliance, if there is no stipulation to the contrary.
ISSUE: WON the award of nominal damages was proper under the circumstances
RULING: The trial court did not err in awarding nominal damages; however, the circumstances of the case
warrant a reduction of the amount to P10,000.
A stipulation in a deed of absolute sale that should the vendor fail to issue the transfer certificate of title
within six months from date of full payment, the vendor shall refund to the vendee the total amount cannot
be considered a penal clause in contemplation of Article 1226 of the New Civil Code as to preclude recovery
of damages. For obvious reasons, the clause does not convey any penalty, for even without it, pursuant to
Article 2209 of the Civil Code, the vendee would still recover the amount paid by her with legal rate of
interest which is even more than the 4% provided for in the clause.
Under Articles 2221 and 2222 of the New Civil Code, nominal damages are not intended as indemnification
for the loss suffered but for the vindication or recognition of a right violated or invaded. They are recoverable
where some injury has been done the amount of which the evidence fails to show, the assessment of damages
being left to the discretion of the court. Nominal damages are by their very nature small sums fixed by the
court without regard to the extent of the harm done to the injured party. A nominal damage is a substantial
claim if based upon the violation of a legal right; in such case the law presumes a damage, although actual or
compensatory damages are not proven ; in truth, nominal damages are damages in name only, and not in fact
and are allowed, not as an equivalent of a wrong inflicted, but simply in recognition of the existence of a
technical injury. It cannot co-exist with compensatory or exemplary damages. The circumstances of a
particular case determine whether or not the amount assessed as nominal damages is within the scope or
intention of Article 2221 of the Civil Code.
-
- Bad faith is not to be presumed. Thus, the fact that the reality corporation failed to convey a transfer
certificate of title to the buyer because the subdivision property was mortgaged does not itself show
that there was bad faith or fraud; especially where the vendor expected that arrangements were
possible from the mortgagee to make partial releases of the subdivision lots from the overall real
estate mortgage but the vendor did not simply succeed in that regard.
-
- The amount of P20,000 awarded as nominal damages against realty corporation for failure to convey
a transfer certificate of title to the buyer who had fully paid the purchase price of the lot is excessive.
Nor may such award be considered in the nature of exemplary damages where the failure to convey
the transfer certificate of title was not attended by fraud or bad faith, because in breach of a contract
exemplary damages are awarded if the guilty party acted in wanton, fraudulent, reckless, oppressive
or malevolent manner. Exemplary or corrective damages are imposed by way of example or
correction for the public good only if the injured party has shown that he is entitled to recover moral,
temperate or compensatory damages.
PAMINTUAN v. CA
Nature: Complaint for Damages
Page 32 of 81
Ponente: J. Aquino
DOCTRINE: Responsibility arising from fraud is demandable in all obligations.
FACTS:
Relevant Provision of Law: Article 1171 (Civil
Code)
In 1960, Pamintuan was the holder of a barter license wherein he was authorized to export to Japan 1,000
metric tons of white flint corn valued at 47,000 US dollars in exchange for a collateral importation of plastic
sheetings of an equivalent value.
By virtue of that license, he entered into an agreement to ship his corn to Tokyo Menka Kaisha, Ltd. of
Osaka, Japan in exchange for plastic sheetings. He contracted to sell the plastic sheetings to Yu Ping Kun
Co., Inc. for
P265,550. The company undertook to open an irrevocable domestic letter of credit for that amount in favor
of Pamintuan.
It was further agreed that Pamintuan would deliver the plastic sheetings to the company at its bodegas in
Manila or suburbs directly from the piers "within one month upon arrival of" the carrying vessels. Any
violation of the contract of sale would entitle the aggrieved party to collect from the offending party
liquidated damages in the sum of P10,000.
Upon receipt of the letter from the Manila branch of Tokyo Menka confirming the acceptance by Japanese
suppliers of firm offers for the consignment to Pamintuan of plastic sheetings, the company immediately
secured an irrevocable letter of credit for Pamintuan.
On September 27 and 30 and October 4, 1960, the Japanese suppliers shipped to Pamintuan, through Toyo
Menka Kaisha, Ltd., the plastic sheetings in four shipments. The plastic sheetings arrived in Manila and were
received by Pamintuan. Out of the shipments, Pamintuan delivered to the company's warehouse only a part
of the shipments.
He withheld delivery of (1) 50 cases of plastic sheetings containing 26,000 yards valued at $5,200; (2) 37 cases
containing 18,440 yards valued at $2,305; (3) 60 cases containing 30,000 yards valued at $5,400 and (4) 83
cases containing 40,850 yards valued at $5,236.97. While the plastic sheetings were arriving in Manila,
Pamintuan informed the president of Yu Ping Kun Co., Inc. that he was in dire need of cash with which to
pay his obligations to the PNB. Inasmuch as the computation of the prices of each delivery would allegedly
be a long process, Pamintuan requested that he be paid immediately.
Pamintuan and the president of the company agreed to fix the price of the plastic sheetings at P0.782 a yard,
regardless of the kind, quality or actual invoice value thereof. The parties arrived at that figure by dividing the
total price of P265,550 by 339,440 yards, the aggregate quantity of the shipments.
After Pamintuan had delivered 224,150 yards of sheetings of inferior quality valued at P163,.047.87, he
refused to deliver the remainder of the shipments with a total value of P102,502.13. As justification for his
refusal, Pamintuan said that the company failed to comply with the conditions of the contract and that it was
novated with respect to the price.
The company filed its amended complaint for damages. RTC awarded the company actual damages for
unrealized profits and overpayment as well as (a) P10,000 as stipulated liquidated damages, (b) P10,000 as
moral damages, (c) Pl,102.85 as premium paid by the company on the bond of P102,502.13 for the issuance
of the writ of preliminary attachment and (d) P10,000 as attorney's fees, or total damages of P110,559.28.
CA found that the contract of sale between Pamintuan and the company was partly consummated. The
company fulfilled its obligation to obtain the Japanese suppliers' confirmation of their acceptance of firm
offers totalling $47,000. Pamintuan reaped certain benefits from the contract. Hence, he is estopped to
repudiate it; otherwise, he would unjustly enrich himself at the expense of the company.
PETITIONER:
The buyer, Yu Ping Kun Co., Inc., is entitled to recover only liquidated damages based on the stipulation
Page 33 of 81
"that any violation of the provisions of this contract (of sale) shall entitle the aggrieved party to collect from
the offending party liquidated damages in the sum of P10,000 ". 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 " (1st sentence of Art. 1226, Civil Code).
ISSUE:
WON the buyer is entitled to recover only liquidated damages
RULING:
NO. The second sentence of article 1226 itself provides that I nevertheless, damages shall be paid if the
obligor ... is guilty of fraud in the fulfillment of the obligation". "Responsibility arising from fraud is
demandable in all obligations" (Art. 1171, Civil Code). "In case of fraud, bad faith, malice or wanton attitude,
the obligor shall be responsible for an damages which may be reasonably attributed to the non-performance
of the obligation" (Ibid, art. 2201).
The trial court and the Court of Appeals found that Pamintuan was guilty of fraud because he did not make a
complete delivery of the plastic sheetings and he overpriced the same. That factual finding is conclusive upon
this Court.
There is no justification for the Civil Code to make an apparent distinction between penalty and liquidated
damages because the settled rule is that there is no difference between penalty and liquidated damages insofar
as legal results are concerned and that either may be recovered without the necessity of proving actual
damages and both may be reduced when proper (Arts. 1229, 2216 and 2227, Civil Code. See observations of
Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p. 251).
Castan Tobeñas notes that the penal clause in an obligation has three functions: "1. Una funcion coercitiva o
de garantia, consistente en estimular al deudor al complimiento de la obligacion principal, ante la amenaza de
tener que pagar la pena. 2. Una funcion liquidadora del daño, o sea la de evaluar por anticipado los perjuicios
que habria de ocasionar al acreedor el incumplimiento o cumplimiento inadecuado de la obligacion. 3. Una
funcionestrictamente penal, consistente en sancionar o castigar dicho incumplimiento o cumplimiento
inadecuado, atribuyendole consecuencias mas onerosas
para el deudor que las que normalmente lleva aparejadas la infraccion contractual. " (3 Derecho Civil Espanol,
9th Ed., p. 128).
[Rough Translation] Castan Tobeñas notes that the penal clause in an obligation has three functions: "1. A
coercive function or warranty, of stimulating the debtor to comply with the principal obligation, under the
threat of having to pay the penalty. 2. A liquidation of the damage function, ie to evaluate in advance the
damages that the creditor would have to cause the failure or inadequacy of the obligation. 3 A criminal
function consisting of a sanction or punish such failure or inadequate performance, attributing more onerous
consequences for the debtor that normally carries with it the contractual breach.”
The penalty clause is strictly penal or cumulative in character and does not partake of the nature of liquidated
damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir, en el supuesto incumplimiento
o mero retardo de la obligacion principal, ademas de la pena, los danos y perjuicios. Se habla en este caso de
pena cumulativa, a differencia de aquellos otros ordinarios, en que la pena es sustitutiva de la reparacion
ordinaria." (Ibid, Castan Tobenas, p. 130).
[Rough Translation] The penalty clause is strictly penal or cumulative in character and does not partake of the
nature of liquidated damages (pena sustitutiva) when the parties agree that the creditor may request, assuming
there is mere breach or delay principal obligation, in addition to the sentence, damages, where the penalty is a
substitute for the ordinary repair.
In this case, Yu Ping Kun Co., Inc. is allowed to recover only the actual damages proven and not to award to
it the stipulated liquidated damages of ten thousand pesos for any breach of the contract. The proven damages
supersede the stipulated liquidated damages.
Page 34 of 81
AGCAOILI v. GSIS
Nature: Action for Specific Performance and Damages
Ponente: J. Narvasa
Date: August 30, 1988
DOCTRINE: 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.

Code)
FACTS: The appellant Government Service Insurance System (GSIS) approved the application of the
appellee Marcelo Agcaoili for the purchase of the house and lot in the GSIS Housing Project in Nangka,
Marikina, Rizal, but said application was subject to the condition that the latter should forthwith occupy the
house. Agcaoili lost no time in occupying the house but he could not stay in it and had to leave the very next
day because the house was nothing more than a shell, in such a state that civilized occupation was not
possible: ceiling, stairs, double walling, lighting facilities, water connection, bathroom, toilet, kitchen, drainage,
were inexistent. Agcaoili did, however, ask a homeless friend, a certain Villanueva, to stay in the premises as
some sort of watchman, pending the completion of the construction of the house. He thereafter complained
to the GSIS, but to no avail.
Subsequently, the GSIS asked Agcaoili to pay the monthly amortizations of P35.36 and other fees. He paid
the first monthly amortizations and incidental fees but he refused to make further payments until and unless
the GSIS completed the housing unit. Thereafter, GSIS cancelled the award and required Agcaoili to vacate
the premises. The house and lot was consequently awarded to another applicant. Agcaoili reacted by
instituting suit in the CFI Manila for specific performance and damages. Judgment was rendered in favor of
Agcaoili. GSIS then appealed from that judgment.
ISSUES: WON the cancellation by the GSIS of the award in favor of petitioner Agcaoili just and proper
RULING: NO. Respondent GSIS did not fulfill its obligation to deliver the house in a habitable state,
therefore, it cannot invoke the petitioner’s suspension of payment as a cause to cancel the contract between
them. There was a perfected contract of sale, it was then the duty of GSIS as seller to deliver the thing sold in
a condition suitable for its enjoyment by the buyer and for the purpose contemplated. The house
contemplated was one that could be occupied for purpose of residence in reasonable comfort and
convenience. There would be no sense in requiring the awardee to immediately occupy and live in a shell of a
house, the structure consisting only of four walls with openings, and a roof.
Since GSIS did not fulfill the obligation, and was not willing to put the house in habitable state, it cannot
invoke Agcaoili's suspension of payment of amortizations as cause to cancel the contract between them. 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.
The contract between the parties relative to the property should be modified by adding to the cost of the
land, as of the time of perfection of the contract, the cost of the house in its unfinished state also as of the
time of perfection of the contract, and correspondingly adjusting the amortizations to be paid by petitioner
Agcaoili, the modification to be effected after determination by the Court a quo of the value of said house on
the basis of the agreement of the parties, or if this is not possible by such commissioner or commissioners as
the Court may appoint.
ARRIETA v. NARIC
Ponente: J. Regala
Date: January 24, 1964
Page 35 of 81
DOCTRINE: One who assumes a contractual obligation and fails to perform the same on account of his
inability to meet certain bank requirements, which inability he knew and was aware of when he entered into
the contract, should be held liable in damages for breach of contract.
FACTS:
Code)
On May 19, 1952, Paz and Vitaliado Arrieta participated in the public bidding called by NARIC for the
supply of 20,000 metric tons of Burmese rice. As her bid of $203 per metric ton was the lowest, she was
awarded the contract for the same.
On July 1, 1952, Arrieta and NARIC entered into a Contract of Sale of Rice under the term of which Arrieta
obligated hersef to deliver to NARIC 20,000 metric tons of Burmese rice at $203,000 per metric ton. In turn,
the defendant corporation committed itself to pay for the imported rice "by means of an irrevocable,
confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in
Burma, immediately."
However, it was only on July 30, 1952, or a full month from the execution of the contract, that the defendant
corporation took the first to open a letter of credit by forwarding to the PNB its Application for Commercial
Letter Credit.
On the same day, Arrieta thru counsel, advised NARIC of the extreme necessity for the immediate opening
of the letter credit since she had by then made a tender to her supplier in Rangoon, Burma, equivalent to 5%
of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in Rangoon this 5% will
be confiscated if the required letter of credit is not received by them before August 4, 1952.
On August 4, 1952, PNB informed NARIC that its application for a letter of has been approved by the Board
of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon
presentment. It turned out, however, NARIC was not in a financial position to meet the condition.
As a result of the delay in the opening of the letter of credit by NARIC, the allocation of Arrieta’s supplier in
Rangoon was cancelled and the 5% deposit amounting to an equivalent of P200,000 was forfeited. Arrieta
endeavored but failed to restore the cancelled Burmese
rice allocation, and thus offered Thailand rice instead. Such offer was rejected by NARIC. Subsequently,
Arrieta sent a letter to NARIC, demanding compensation for the damages caused her in the sum of
US$286,000 representing unrealized profit. The demand having been rejected, she instituted the case.
ISSUES:
(1) WON NARIC is liable for damages
(2) WON the rate of exchange to be applied in the conversion is that prevailing at the time of breach, or
at the time the obligation was incurred, or on the promulgation of the decision
RULING:
(1) YES. One who assumes a contractual obligation and fails to perform the same on account of
his inability to meet certain bank requirements, which inability he knew and was aware of when he
entered into the contract, should be held liable in damages for breach of contract.
Under Article 1170 of the Civil Code, not only debtors guilty of fraud, negligence or default but also every
debtor, in general, who fails in the performance of his obligations is bound to indemnify for the losses and
damages caused thereby.
The phrase "in any manner contravene the tenor" of the obligation in Art. 1170, Civil Code, includes any
illicit task which impairs the strict and faithful fulfillment of the obligation, or every kind of defective
performance.
Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts
admitting of no other reasonable explanation.
(2) In view of Republic Act 529 which specifically requires the discharge of obligations only "in
Page 36 of 81
any coin or currency which at the time of payment is legal tender for public and private debt", the
award of damages in U.S. dollars made by the lower court in the case at bar is modified by converting
it into Philippine pesos at the rate of exchange prevailing at the time the obligation was incurred or
when the contract in question was executed.
As pronounced in Eastboard Navigation vs. Ismael, if there is any agreement to pay an obligation in the
currency other than Philippine legal tender, the same is null and void as contrary to public policy (RA 529),
and the most that could be demanded is to pay said obligation in Philippine currency to be measured in the
prevailing rate of exchange at the time the obligation was incurred. Herein, the rate of exchange to be applied
is that of 1 July 1952, when the contract was executed.
TELEFAST v. CASTRO
Ponente: J. Padilla
Date: February 29, 1988
DOCTRINE: 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." Art. 2176 also provides that "whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done."
FACTS:
Code)
The petitioner is a company engaged in transmitting telegrams. The plaintiffs are the children and spouse of
Consolacion Castro who died in the Philippines. One of the plaintiffs, Sofia was in the Philippines for
vacation when their mother died. On the same day, Sofia sent a telegram thru Telefast to her father and other
siblings in the USA to inform about the death of their mother. The defendants, after receiving the required
fees and charges, accepted the telegram for transmission.
Unfortunately, the deceased had already been interred but not one from the relatives abroad was able to pay
their last respects. Sofia found out upon her return in the US that the telegram was never received. Hence, the
present suit for damages on the ground of breach of contract. The only defense of defendants was that the
failure was due to “the technical and atmospheric factors beyond its control.” The defendant-petitioner
argues that it should only pay the actual amount paid to it.
No evidence appeared on record that the defendant ever made any attempt to advise Sofia as to why they
could not transmit the telegram.
The lower court ruled in favor of the plaintiffs and awarded compensatory, moral, exemplary, damages to
each of the plaintiffs with 6% interest per annum plus attorney’s fees. The Court of Appeals affirmed this
ruling but modified and eliminated the compensatory damages to Sofia and exemplary damages to each
plaintiff, it also reduced the moral damages for each. The petitioner appealed contending that, it can only be
held liable for P 31.92, the fee or charges paid by Sofia C. Crouch for the telegram that was never sent to the
addressee, and that the moral damages should be removed since defendant's negligent act was not motivated
by "fraud, malice or recklessness.”
ISSUE: WON the award of the moral, compensatory and exemplary damages is proper
RULING: YES. There was a contract between the petitioner and private respondent Sofia C. Crouch
whereby, for a fee, petitioner undertook to send said private respondent's message overseas by telegram.
Petitioner failed to do this despite performance by said private respondent of her obligation by paying the
required charges. Petitioner was therefore guilty of contravening its and is thus liable for damages. This
liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard
would result in an inequitous situation where petitioner will only be held liable for the actual cost of a
telegram fixed thirty (30) years ago.
Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of
Page 37 of 81
fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for
damages." Art. 2176 also provides that "whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done."
Award of Moral, compensatory and exemplary damages is proper

The petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering
private respondents had to undergo. Art. 2217 of the Civil Code states: "Moral damages include physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they
are the proximate results of the defendant's wrongful act or omission."
Then, the award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she
incurred when she came to the Philippines from the United States to testify before the trial court. Had
petitioner not been remiss in performing its obligation, there would have been no need for this suit or for
Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount
of P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due
diligence in transmitting the messages of their customers.
NPC v. CA
Ponente: Gutierrez, J.
Date: May 16, 1988
DOCTRINE: When the negligence of a person concurs with an act of God in producing a loss, such person
is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be
exempt from liability for loss because of an act of God, he must be free from any previous negligence or
misconduct by which the loss or damage may have been occasioned.
FACTS:
Engineering Construction, Inc. (ECI), being a successful bidder, executed a contract with the National
Waterworks and Sewerage Authority (NAWASA),
whereby the former undertook to furnish all tools, labor, equipment, and materials, and to construct the
proposed 2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and Appurtenant
Features, at Norzagaray, Bulacan, and to complete said works within 800 calendar days from the date the
Contractor receives the formal notice to proceed.
The project involved 2 major phases: the first phase comprising, the tunnel work covering a distance of 7
kilometers, passing through the mountain, from the Ipo river, a part of Norzagaray, Bulacan, where the Ipo
Dam of the defendant National Power Corporation is located, to Bicti; the other phase consisting of the
outworks at both ends of the tunnel.
ECI already had completed the first major phase of the work. Some portions of the outworks at the Bicti site
were still under construction. As soon as the ECI had finished the tunnel excavation work at the Bicti site, all
the equipment no longer needed there were transferred to the Ipo site where some projects were yet to be
completed.
Typhoon 'Welming' hit Central Luzon, passing through National Power Corporation's (NPC) Angat Hydro-
electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains
intermittently fell. Due to the heavy downpour brought about by typhoon “Welming,” the water in the
reservoir of the Angat Dam was rising perilously at the rate of 60 centimeters per hour. To prevent an
overflow of water from the dam, NPC caused the opening of the spillway gates.
ECI sued NPC for damages. The trial court and the CA found that NPC was negligent when it opened the
gates only at the height of the typhoon holding that it could have opened the spill gates gradually and should
have done so before the ‘typhoon’ came. Both courts awarded
Page 38 of 81
ECI for damages.
NPC assails the decision of the CA as being erroneous on the grounds, inter alia, that the loss sustained by
ECI was due to force majeure. The rapid rise of water level in the reservoir due to heavy rains brought about
by the typhoon is an extraordinary occurrence that could not have been foreseen. On the other hand, ECI
assails the decision of the court of appeals modifying the decision of the trial court eliminating the awarding
of exemplary damages.
ISSUES
(1) WON NPC is liable for damages in light of the typhoon which hit the area
RULING: YES. 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 was the proximate cause of the loss and damage.
As was held in Nakpil & Sons v. CA:
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot
escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and
removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
(2) WON ECI is entitled to exemplary damages?
RULING: NO. CA did not err in eliminating the award since it found that there was no bad faith on the part
of NPC and that neither can the latter's negligence be considered gross. In Dee Hua Liong Electrical
Equipment Corp. v. Reyes, the Court ruled:
Neither may private respondent recover exemplary damages since he is not entitled to moral or
compensatory damages, and again because the petitioner is not shown to have acted in a wanton,
fraudulent, reckless or oppressive manner (Art. 2234, Civil Code).
JIMENEZ v. CITY OF MANILA

Nature: Action for Damages
Ponente: Paras, J.
Date: May 29, 1987
DOCTRINE: Under Article 2189 of the Civil Code, it is not necessary for the liability therein established to
attach, that the defective public works belong to the province, city or municipality from which responsibility
is exacted. What said article requires is that the province, city or municipality has either "control or
supervision" over the public building in question.
FACTS:
Petitioner Bernardino Jimenez bought bagoong in the Sta. Ana Public Market on a rainy day. It was flooded
by ankle-deep and dirty rainwater. When petitioner turned around, he stepped on an uncovered drainange
opening, causing a 4-inch rusty nail to penetrate his leg. Petitioner fell sick and was unable to supervise his
Page 39 of 81
bus business for a long time. He sued the City of Manila and Asiatic Integrated Corp. as administrator of the
said public market. The trial court sentenced the City of Manila and Asiatic solidarily liable for damages. On
appeal, the CA modified and held that only Asiatic is liable. Hence this petition. HELD—City of Manila
liable under article 2189 of the Civil Code.
Argument
The City of Manila argues that it cannot be held liable because under the Management and Operating
Contract with Asiatic, the latter assumed sole responsibility for damages which may be suffered by third
persons for any cause attributable to it.
The City of Manila also argues that under the Revised Charter of Manila, it “shall not be liable or held for
damages or injuries to persons or property arising from the failure of the Mayor, the Municipal Board, or any
other City Officer, to enforce the provisions of this chapter, or any other law or ordinance, or from
negligence of said Mayor, Municipal Board, or any other officers while enforcing or attempting to enforce
said provisions.”
ISSUE:
Whether the City of Manila is liable for the injuries suffered by the petitioner despite the contract and the
Revised Charter of Manila?
RULING:
Yes.
1. The Revised Charter of Manila establishes a general rule regulating the liability of the City of Manila for
"damages or injury to persons or property arising from the failure of city officers" to enforce the provisions
of said Act, "or any other law or ordinance or from negligence" of the City "Mayor, Municipal Board, or
other officers while enforcing or attempting to enforce said provisions."
On the other hand, Art. 2189 of the Civil Code provides that “Provinces, cities and municipalities shall be
liable for damages for the death of, or injuries suffered by any person by reason of defective conditions of
roads, streets, bridges, public buildings and other public works under their control or supervision.”
The said article constitutes a particular prescription making "provinces, cities and municipalities ... liable for
damages for the death of, or injury suffered by any person by reason" — specifically — "of the defective
condition of roads, streets, bridges, public buildings, and other public works under their control or
supervision." In other words the Revised Charter of Manila refers to liability arising from negligence, in
general, regardless of the object, thereof, while Article 2189 of the Civil Code governs liability due to
"defective streets, public buildings and other public works" in particular and is therefore decisive on this
specific case.
Under article 2189, it is not necessary for the liability therein established to attach, that the defective public
works belong to the province, city or municipality from which responsibility is exacted. What said article
requires is that the province, city or municipality has either "control or supervision" over the public building
in question.
2. The City of Manila, per the contract, remained in control of Asiatic, hence the former must be held liable
for petitioner’s injuries.
The fact of supervision and control of the City over subject public market was admitted by Mayor Ramon
Bagatsing in his letter to Secretary of Finance Cesar Virata.
In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary duty is to
take direct supervision and control of that particular market, more specifically, to check the safety of the place
for the public.
3. On defense:
Page 40 of 81
“As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of
a good father of a family. (Art. 1173 of the Civil Code).
“There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the
public market reasonably safe for people frequenting the place for their marketing needs.
“While it may be conceded that the fulfillment of such duties is extremely difficult during storms and
floods, it must however, be admitted that ordinary precautions could have been taken during good
weather to minimize the dangers to life and limb under those difficult circumstances.
“For instance, the drainage hole could have been placed under the stalls instead of on the passage
ways. Even more important is the fact, that the City should have seen to it that the openings were
covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was already
uncovered, and five (5) months after the incident happened, the opening was still uncovered. Moreo
ver, while there are findings that during floods the vendors remove the iron grills to hasten the flow
of water, there is no showing that such practice has ever been prohibited, much less penalized by the
City of Manila. Neither was it shown that any sign had been placed thereabouts to warn passersby of the
impending danger.
“To recapitulate, it appears evident that the City of Manila is likewise liable for damages under Article
2189 of the Civil Code, respondent City having retained control and supervision over the Sta. Ana
Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts
“Petitioner had the right to assume that there were no openings in the middle of the passageways and
if any, that they were adequately covered. Had the opening been covered, petitioner could not have
fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury suffered,
the City is therefore liable for the injury suffered by the petitioner.
“Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily
liable under Article 2194 of the Civil Code.”
Dispositive
The judgment is modified. The City of Manila and Asiatic are solidarily liable.
NAKPIL & SONS v. CA (144 SCRA 596)

Nature: Action for Damages
DOCTRINE: If upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided
for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability.
FACTS:
Art. 1723, Civil Code. The engineer or architect who drew up the plans and specifications for a building is liable for damages if
within fifteen years from the completion of the structure, the same should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. The contractor is likewise responsible for the damages if the edifice falls, within
the same period, on account of defects in the construction or the use of materials of inferior quality furnished by him, or due to any
violation of the terms of the contract. If the engineer or architect supervises the construction, he shall be solidarily liable with the
contractor.
Acceptance of the building, after completion, does not imply waiver of any of the cause of action by reason of any defect mentioned
in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.
Art. 1174, Civil Code. 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,
Page 41 of 81
or which, though foreseen, were inevitable.
The Philippine Bar Association (PBA) decided to construct an office building on its 840 square meter lot. It
engaged the services of United Construction Inc., as contractor, and the architect was Juan F. Nakpil & Sons.
The building was completed in June, 1966.
In the early morning of August 2, 1968, an unusually strong earthquake hit Manila and the building sustained
major damage. The front columns of the building buckled, causing the building to tilt forward dangerously.
On November 29, 1968 PBA commenced action or the recovery of damages arising from the partial collapse
of the building. PBA claims that the collapse was due to defects in the construction, the failure of contractors
to
follow plans and specifications and violations by the defendants of the terms of the contract. On the other
hand, United Construction Inc. filed a third-party complaint against the Nakpils, alleging in essence that the
collapse of the building was due to the defects in the architects" plans, specifications and design.
PBA moved twice for the demolition of the building on the ground that it would topple down in case of a
strong earthquake. Three more earthquakes occurred and with the PBA’s request for demolition was granted.
The appointed Commissioner, Hizon, submitted his report which stated that the damage sustained by the
PBA building was directly caused by the earthquake and was also caused by the defects in the plans and
specifications prepared by the architects, deviations from said plans and specifications by the contractor and
failure of the contractor to observe the requisite workmanship in the construction of the building.
The trial court agreed with the findings of the Commissioner. Thus, it held that United is entitled to the claim
for damages. CA affirmed the decision of the trial court but modified the decision by granting PBA an
additional P200,000 to be paid by the contractor and architects jointly. The parties appealed from the decision
of the CA.
The United Architects of the Philippines and The Philippine Institute of Architects intervened as amicus
curiae and submitted a position paper which said that the plans and specifications of the Nakpils were not
defective. When asked by the Court to comment, the Commissioner reiterated his findings and said that there
were deficiencies in the design of the architects which contributed to the collapse of the building.
Petitioners Nakpil and UCCI on the other hand claimed that it was an act of God that caused the failure of
the building which should exempt them from responsibility.
ISSUE: WON the defendants are exempt from liability (WON an act of God-an unusually strong
earthquake-which caused the failure of the building, exempts from liability, parties who are otherwise liable
because of their negligence.)
RULING: NO. The negligence of the defendants was established beyond dispute. United Construction Co.,
Inc. was found to have made substantial deviations from the plans and specifications. and to have failed to
observe the requisite workmanship in the construction as well as to exercise the requisite degree of
supervision; while the Nakpils were found to have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake.
There is no dispute that the earthquake is a fortuitous event or an act of God. To exempt the obligor from
liability under Article 1174 of the Civil Code, for a breach of an obligation due to an "act of God," the
following must concur: (a) the cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from
any participation in, or aggravation of the injury to the creditor.
The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned
exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into
the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the
result of the participation of man, whether it be from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God.
Page 42 of 81
(1 Corpus Juris, pp. 1174-1175).
NOTES: The defendants filed Motions for Reconsideration from the decision of the 2nd Division of the
Supreme Court. The Court held:
ISSUE: Article 1723 does not apply in view of the findings of the Commissioner that the building did not
collapse as a result of the earthquake.
COURT: In the assasiled decision, the Court is in complete accord with the findings of the trial court and
affirmed by the CA, that after the earthquake the building was not totally lost, the collapse was only partial
and the building could still be restored. But after the subsequent earthquakes on there was no question that
further damage was caused to the property resulting in an eventual and unavoidable collapse or demolition
(compete collapse). Note that a needed demolition is in fact a form of "collapse".
The bone of contention is therefore, not on the fact of collapse but on who should shoulder the damages
resulting from the partial and eventual collapse. As ruled by this Court in said decision, there should be no
question that the NAKPILS and UNITED are liable for the damage.
ISSUE: The finding of bad faith is not warranted in fact and is without basis in law.
COURT: A careful study of the decision will show that there is no contradiction between the above finding
of negligence by the trial court which was formed by the CA and the ruling of this Court. On the contrary, on
the basis of such finding, it was held that such wanton negligence of both the defendant and the third-party
defendants in effecting the plans, designs, specifications, and construction of the PBA building is equivalent
to bad faith in the performance of their respective tasks.
UNIVERSAL FOOD CORPORATION VS. CA

33 SCRA 1
FACTS:
This is a petition for certiorari by the UFC against the CA decision of February 13, 1968 declaring the BILL
OF ASSIGNMENT rescinded, ordering UFC to return to Magdalo Francisco his Mafran sauce trademark
and to pay his monthly salary of P300.00 from Dec. 1, 1960 until the return to him of said trademark and
formula. In 1938, plaintiff Magdalo V. Francisco, Sr. discovered a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce. It was used commercially
since 1942, and in the same year plaintiff registered his trademark in his name as owner and inventor with the
Bureau of Patents. However, due to lack of sufficient capital to finance the expansion of the business, in
1960, said plaintiff secured the financial assistance of Tirso T. Reyes who, after a series of negotiations,
formed with others defendant Universal Food Corporation eventually leading to the execution on May 11,
1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1).
On May 31, 1960, Magdalo Francisco entered into contract with UFC stipulating among other things that he
be the Chief Chemist and Second Vice-President of UFC and shall have absolute control and supervision
over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals used in the
preparation of said Mafran sauce and that said positions are permanent in nature.
In line with the terms and conditions of the Bill of Assignment, Magdalo Francisco was appointed Chief
Chemist with a salary of P300.00 a month. Magdalo Francisco kept the formula of the Mafran sauce secret to
himself. Thereafter, however, due to the alleged scarcity and high prices of raw materials, on November 28,
1960, Secretary-Treasurer Ciriaco L. de Guzman of UFC issued a Memorandum duly approved by the
President and General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be retained in
the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being
until the corporation should resume its operation. On December 3, 1960, President and General Manager
Tirso T. Reyes, issued a memorandum to Victoriano Francisco ordering him to report to the factory and
produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope with the orders of the
corporation's various distributors and dealers, and with instructions to take only the necessary daily
employees without employing permanent employees. Again, on December 6, 1961, another memorandum
Page 43 of 81
was issued by the same President and General Manager instructing the Assistant Chief Chemist Ricardo
Francisco, to recall all daily employees who are connected in the production of Mafran Sauce and also some
additional daily employees for the production of Porky Pops. On December 29, 1960, another memorandum
was issued by the President and General Manager instructing Ricardo Francisco, as Chief Chemist, and
Porfirio Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full swing starting
January 2, 1961 with further instructions to hire daily laborers in order to cope with the full blast operation.
Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only until
his services were terminated on November 30, 1960. On January 9 and 16, 1961, UFC, acting thru its
President and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the
corporation including its trademarks, formula and assets at a price of not less than P300,000.00. Due to these
successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, he filed the
present action on February 14, 1961. Then in a letter dated March 20, 1961, UFC requested said plaintiff to
report for duty, but the latter declined the request because the present action was already filed in court.
ISSUES:
1. Was the Bill of Assignment really one that involves transfer of the formula for Mafran sauce itself?
2. Was petitioner’s contention that Magdalo Francisco is not entitled to rescission valid?
RULING:
1. No. Certain provisions of the bill would lead one to believe that the formula itself was transferred.
To quote, “the respondent patentee "assign, transfer and convey all its property rights and interest
over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part,"
and the last paragraph states that such "assignment, transfer and conveyance is absolute and
irrevocable (and) in no case shall the PARTY OF THE First Part ask, demand or sue for the
surrender of its rights and interest over said MAFRAN trademark and mafran formula."
“However, a perceptive analysis of the entire instrument and the language employed therein would lead one
to the conclusion that what was actually ceded and transferred was only the use of the Mafran sauce
formula.This was the precise intention of the parties.”
The SC had the following reasons to back up the above conclusion. First, royalty was paid by UFC to
Magdalo Francisco. Second, the formula of said Mafran sauce was never disclosed to anybody else. Third, the
Bill acknowledged the fact that upon dissolution of said Corporation, the patentee rights and interests of said
trademark shall automatically revert back to Magdalo Francisco. Fourth, paragraph 3 of the Bill declared only
the transfer of the use of the Mafran sauce and not the formula itself which was admitted by UFC in its
answer. Fifth, the facts of the case undeniably show that what was transferred was only the use. Finally, our
Civil Code allows only “the least transmission of right, hence, what better way is there to show the least
transmission of right of the transfer of the use of the transfer of the formula itself.”
2. No. Petitioner’s contention that Magdalo Francisco’s petition for rescission should be denied because
under Article 1383 of the Civil Code of the Philippines rescission cannot be demanded except when
the party suffering damage has no other legal means to obtain reparation, was of no merit because “it
is predicated on a failure to distinguish between a rescission for breach of contract under Article
1191 of the Civil Code and a rescission by reason of lesion or economic prejudice, under Article
1381, et seq.” This was a case of reciprocal obligation. Article 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder was subordinated to anything other
than the culpable breach of his obligations by the defendant. Hence, the reparation of damages for
the breach was purely secondary. Simply put, unlike Art. 1383, Art. 1191 allows both the rescission
and the payment for damages. Rescission is not given to the party as a last resort, hence, it is not
subsidiary in nature.
_____________________________________________________________________________________
MAGDALENA ESTATE VS. MYRICK

71 PHIL. 346
FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots No. 28 and 29 of Block 1, Parcel 9 of the San Juan
Subdivision, San Juan, Rizal. Their contract of sale provides that the Price of P7,953 shall be payable in 120
Page 44 of 81
equal monthly installments of P96.39 each on the second day of every month beginning the date of execution
of the agreement.
In pursuance of said agreement, the vendee made several payments amounting to P2,596.08, the last being
due and unpaid was that of May 2, 1930. By reason of this, the vendor, through its president, notified the
vendee that, in view of his inability to comply with the terms of their contract, said agreement had been
cancelled, relieving him of any further obligation thereunder, and that all amounts paid by him had been
forfeited in favor of the vendor. To this communication, the vendee did not reply, and it appears likewise that
the vendor thereafter did not require him to make any further disbursements on account of the purchase
price.
ISSUE:
Was the petitioner authorized to forfeit the purchase price paid?
RULING:
No. The contract of sale contains no provision authorizing the vendor, in the event of failure of the vendee
to continue in the payment of the stipulated monthly installments, to retain the amounts paid to him on
account of the purchase price. The claim therefore, of the petitioner that it has the right to forfeit said sums
in its favor is untenable. Under Article 1124 of the Civil Code, however, he may choose between demanding
the fulfillment of the contract or its resolution. These remedies are alternative and not cumulative, and the
petitioner in this case, having elected to cancel the contract cannot avail himself of the other remedy of
exacting performance. As a consequence of the resolution, the parties should be restored, as far as
practicable, to their original situation which can be approximated only be ordering the return of the things
which were the object of the contract, with their fruits and of the price, with its interest, computed from the
date of institution of the action.
_____________________________________________________________________________________
UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES

35 SCRA 102
FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was granted
exclusive authority to cut, collect and remove timber from the Land Grant for a period starting from the date
of agreement to December 31, 1965, extendible for a period of 5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands,
ALUMCO still failed to pay, so UP sent a notice to rescind the logging agreement. On the other hand,
ALUMCO executed an instrument entitled “Acknowledgment of Debt and Proposed Manner of Payments.
It was approved by the president of UP, which stipulated the following:
3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the
balance outstanding after the said payments have been applied shall be paid by the debtor in full no later than
June 30, 1965.
5. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without reservation
that Creditor shall have the right to consider the Logging Agreement rescinded, without the necessity of any
judicial suit…
ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19,1965, UP
informed ALUMCO that it had, as of that date, considered rescinded and of no further legal effect the
logging agreement, and that UP had already taken steps to have another concessionaire take over the logging
operation.
ALUMCO filed a petition to enjoin UP from conducting the bidding. The lower court ruled in favor of
ALUMCO, hence, this appeal.
ISSUE:
Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any judicial
pronouncement to that effect?
Page 45 of 81
RULING:
Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has
the right and the power to consider the Logging Agreement of December 2, 1960 as rescinded without the
necessity of any judicial suit. As to such special stipulation and in connection with Article 1191 of the Civil
Code, the Supreme Court, stated in Froilan vs. Pan Oriental Shipping Co:
“There is nothing in the law that prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is
not always necessary for the injured party to resort to court for rescission of the contract.”
_____________________________________________________________________________________
ZULUETA VS. MARIANO

G.R. No. L-29360 January 30, 1982111 SCRA 206
FACTS:
Petitioner Zulueta, owner of a house and lot, entered into a “Contract to Sell” for the said property with
private respondent, a movie director. The said property cost P75,000 payable in 20years with respondent
buyer assuming to pay a down payment of P5,000 and a monthly instalment of P630 payable in advance
before the 5th day of the corresponding month, starting with December,1964.One of their stipulations was
that upon failure of the buyer to fulfill any of the conditions being stipulated, the buyer automatically and
irrevocably authorizes owner to recover extrajudicially, physical possession of the land, building and other
improvements, which were the subject of the said contract, and to take possession also extra-judicially
whatever personal properties may be found within the aforesaid premises from the date of said failure to
answer for whatever unfulfilled monetary obligations buyer may have with owner. Demand was also waived.
On the allegation that private respondent failed to comply with the monthly amortizations stipulated in the
contract, despite demands to pay and to vacate the premises, and that thereby the contract was converted into
one of lease, petitioner commenced an Ejectment suit against respondent before the Municipal Court of
Pasig, praying that judgment be rendered ordering respondent to 1)vacate the premises; 2) pay petitioner the
sum of P11, 751.30 representing respondent’s balance owing as of May, 1966; 3) pay petitioner the sum of
P630 every month after May, 1966, and costs. Private respondent contended that the Municipal Court had no
jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract.
ISSUE:
Was the action before the Municipal Court essentially one for rescission or annulment of a contract?
RULING:
Yes. According to the Supreme Court, “...proof of violation is a condition precedent to resolution or
rescission. It is only when the violation has been established that the contract can be declared resolved or
rescinded. Upon such rescission in turn, hinges a pronouncement that possession of the realty has become
unlawful.” The Supreme Court, in Nera vs. Vacante (3 SCRA 505), also said, “A violation by a party of any of
the stipulations of a contract on agreement to sell real property would entitle the other party to resolved or
rescind it.” Also, according to the book of Tolentino, Civil Code of the Phil., Vol. IV, 1962 ed. P. 168,citing
Magdalena Estate vs. Myrick, 71 Phil. 344 (1941), extra-judicial rescission has legal effect when the parties
does not oppose it. If it is objected to, judicial determination of the issue is still necessary.With regards to the
jurisdictions of inferior courts, the Supreme Court said that the CFI correctly ruled that the Municipal Court
had no jurisdiction over the case and correctly dismissed the appeal. However, the CFI erred in assuming
original jurisdiction, in the face of the objection interposed by petitioner. Section 11, Rule 40, leaves no room
for doubt on this point.
_____________________________________________________________________________________
Page 46 of 81
PALAY INC. V. CLAVE

G.R. NO. L-56076
FACTS:
On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott sold a parcel of land owned
by the corporation to the private respondent, Nazario Dumpit, by virtue of a Contract to Sell. The sale price
was P23,300.00 with 9% interest per annum, payable with a down payment of P4,660.00 and monthly
instalments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic extrajudicial
rescission upon default in payment of any monthly instalment after the lapse of 90 days from the expiration
of the grace period of one month, without need of notice and with forfeiture of all instalments paid.
Respondent Dumpit paid the down payment and several instalments amounting to P13,722.50 with the last
payment was made on December 5, 1967 for instalments up to September 1967. Almost six (6) years later,
private respondent wrote petitioner offering to update all his overdue accounts and sought consent to the
assignment of his rights to a certain Lourdes Dizon. Petitioners informed respondent that his Contract to Sell
had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold.
Respondent filed a letter complaint with the National Housing Authority (NHA) questioning the validity of
the rescission. The NHA held that the rescission is void in the absence of either judicial or notarial demand.
Palay, Inc. and Onstott in his capacity as President of the corporation, jointly and severally, was ordered to
refund Dumpit the amount paid plus 12% interest from the filing of the complaint. Petitioners' MR was
denied by the NHA. Respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution
of the NHA. Reconsideration sought by petitioners was denied for lack of merit. Thus, the present petition.
ISSUE:
W/N demand is necessary to rescind a contract?
RULING:
As held in previous jurisprudence, the judicial action for the rescission of a contract is not necessary where
the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions.
However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the
rescission. A written notice is indispensable to inform the defaulter of the rescission. Hence, the resolution by
petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of
resolution (as held in the U.P. vs. Angeles case). The act of a party in treating a contract as cancelled should
be made known to the other.
Later, RA 6551 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Instalment
Payments,” emphasized the indispensability of notice of cancellation to the buyer when it specifically
provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer.
Moreover, there was no waiver on the part of the private respondent of his right to be notified under
paragraph 6 of the contract since it was a contract of adhesion, a standard form of petitioner corporation, and
private respondent had no freedom to stipulate. Finally, it is a matter of public policy to protect buyers of real
estate on instalment payments against onerous and oppressive conditions. Waiver of notice is one such
onerous and oppressive condition to buyers of real estate on instalment payments.
As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent
or the same should be replaced by another acceptable lot but since the property had already been sold to a
third person and there is no evidence on record that other lots are still available, private respondent is entitled
to the refund of instalments paid plus interest at the legal rate of 12% computed from the date of the
institution of the action. It would be most inequitable if petitioners were to be allowed to retain private
respondent's payments and at the same time appropriate the proceeds of the second sale to another.
Onstott not personally liable
Onstott was made liable because he was then the President of the corporation and the controlling
stockholder but there was no sufficient proof that he used the corporation to defraud private respondent. He
cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere
ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding
the separate corporate personality.
Page 47 of 81
Finally, there are no badges of fraud on the petitioners' part. They had literally relied, albeit mistakenly, on
paragraph 6 (supra) of the contract when it rescinded the contract to sell extrajudicially and had sold it to a
third person.
Petitioner Palay, Inc. is liable to refund to respondent Dumpit the amount of P13,722.50, with interest at
twelve (12%) p.a. from November 8, 1974, the date of the filing of the Complaint.
_____________________________________________________________________________________
ANGELES VS. CALASANZ

135 SCRA 323
FACTS:
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and plaintiffs-appellees Buenaventura
Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the
amount of P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00
upon the execution of the contract. They promised to pay the balance in monthly installments of P41.20 until
fully paid, the installment being due and payable on the 19th day of each month. The plaintiffs-appellees paid
the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38.
On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a letter requesting the
remittance of past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract
because the plaintiffs failed to meet subsequent payments. The plaintiffs’ letter with their plea for
reconsideration of the said cancellation was denied by the defendants.
The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant to execute in
their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land
in question, they found out that they have already paid the total amount including interests, realty taxes and
incidental expenses. The defendants alleged in their answer that the plaintiffs violated par. 6 of the contract to
sell when they failed and refused to pay and/or offer to pay monthly installments corresponding to the
month of August, 1966 for more than 5 months, thereby constraining the defendants to cancel the said
contract.
The Court of First Instance rendered judgment in favor of the plaintiffs, hence this appeal.
ISSUE:
Has the Contract to Sell been automatically and validly cancelled by the defendants-appellants?
RULING:
No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the sum
of P3,920 plus 7% interest per annum, it is likewise true that under par 12 the seller is obligated to transfer
the title to the buyer upon payment of the said price.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. The
Supreme Court agree with the observation of the plaintiffs appellees to the effect that the terms of a contract
must be interpreted against the party who drafted the same, especially where such interpretation will help
effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of
the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness
and injurious in its effect which, in essence, and its entirety is most unfair to the buyers.
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have
already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few
remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of
P671.67 without any interest thereon, the defendant must immediately execute the final deed of sale in favor
of the plaintiffs and execute the necessary transfer of documents, as provided in par.12 of the contract.
_____________________________________________________________________________________
Page 48 of 81
BOYSAW VS INTERPHIL PROMOTIONS (148 SCRA 635)

FACTS:
On May 1, 1961, Boysaw and manager Ketchum signed with Interphil (represented by Sarreal) a contract to
engage Flash Elorde in a boxing match at Rizal Memorial Stadium on Sept 30, 1961 or not later than 30 days
shld a postponement be mutually agreed upon. Boysaw, accdg to contract, shld not engage in other bouts
prior to the contest. Interphil signed Elorde to a similar agreement. Boysaw fought and defeated Louis Avila
in Nevada. Ketchum assigned to Amado Araneta his managerial rights, who later transferred the rights to
Alfredo Yulo. Sarreal wrote to Games and Amusement Board (GAB) regarding this switch of managers bec
they weren’t notified. GAB called for conferences and decided to schedule the Elorde-Boysaw bout on Nov
4, 1961. USA National Boxing Assoc approved. Sarreal offered to move the fight to Oct 28 for it to be w/in
the 30 day allowable postponement in the contract. Yulo refused. He was willing to approve the fight on Nov
4 provided it will be promoted by a certain Mamerto Besa. The fight contemplated in the May 1 contract
never materialized. Boysaw and Yulo sued Interphil, Sarreal and Nieto. Boysaw was abroad when he was
scheduled to take the witness stand. Lower court reset the trial. Boysaw was still absent on the later date.
Court reset. On the third instance, a motion for postponement was denied. Boysaw and Yulo moved for a
new trial, but it was denied. Hence, this appeal.
ISSUES:
1. WON there was a violation of the May 1 contract and if so, who was guilty
2. WON there was legal ground for postponement of the fight
3. WON lower court erred in refusing postponement of the trial for 3rd time
4. WON lower court erred in denying new trial
5. WON lower court erred in awarding appellees damages
RULING:
1. Boysaw violated the contract when he fought with Avila. Civil Code provides, the power to rescind
obligations is implied, in reciprocal ones, (as in this case) in case one of the obligors should not
comply w/ what is incumbent upon him. Another violation was made in the transfers of managerial
rights. These were in fact novations which, to be valid, must be consented to by Interphil. When a
contract is unlawfully novated, the aggrieved creditor may not deal with the substitute.
2. The appellees could have opted to rescind or refuse to recognize the new manager, but all they
wanted was to postpone the fight owing to an injury Elorde sustained. The desire to postpone the
fight is lawful and reasonable. The GAB did not act arbitrarily in acceding to the request to reset the
date of the fight and Yulo himself agreed to abide by the GAB ruling. The appellees offered to move
the fight w/in the 30 day period for postponement but this was refused by the appellants,
notwithstanding the fact that by virtue of the appellants violations, they have forfeited any right to
the enforcement of the contract.
3. The issue of denial of postponement of trial was raised in another petition for certiorari and
prohibition. It can’t be resurrected in this case.
4. The court was correct in denying new trial. The alleged newly discovered evidence are merely
clearances from clerk of court, which can alter the result of the trial.
5. Because the appellants willfully refused to participate in the final hearing and refused to present
documentary evidence, they prevented themselves from objecting to or presenting proof contrary to
those adduced by the appellees.
Page 49 of 81
PILIPINAS BANK VS IAC

JUNE 30, 1987
FACTS:
Hacienda Benito, Inc. as vendor, and private respondents, as vendees executed Contract to Sell No. over a
parcel of land on monthly installments subject to the condition: “The contract shall be considered
automatically rescinded and cancelled and of no further force and effect upon failure of the vendee to pay
when due, three or more consecutive installments as stipulated therein or to comply with any of the terms
and conditions thereof…”
During the contract, petitioner sent series of notices to private respondents (PR) for thei latter’s
balances/arrearages. From time to time, PR partially complied with this and requested for extensions. On
May 19, 1970, the petitioner, for the last time, reminded the PR to pay their balance. After more than two
years, PR sent a letter expressing their desire to settle their desire to fully settle their obligation. On
March 27, 1974, petitioner wrote a letter to PR , informing them that the contract to sell had been
rescinded. PR filed Complaint for Specific Performance with Damages to compel petitioner to execute a
deed of sale.
After trial, the lower court rendered a decision in PR’s favor, holding that petitioner could not rescind the
contract to sell, because: (a) petitioner waived the automatic rescission clause by accepting payment and by
sending letters advising private respondents of the balances due, thus, looking forward to receiving payments
thereon. Said decision was affirmed on appeal. Hence, this Petition For Review on Certiorari,
ISSUE:
Whether or not the Contract to Sell was rescinded, under the automatic rescission clause contained therein?
RULING: In case the rescission is found unjustified under the circumstances, still in the instant case there is
a clear waiver of the stipulated right of "automatic rescission," as evidenced by the many extensions granted
private respondents by the petitioner. In all these extensions, the petitioner never called attention to the
proviso on "automatic rescission." The assailed decision is affirmed.
_____________________________________________________________________________________
CENTRAL BANK V COURT OF APPEALS

G.R. NO. L-45710 OCTOBER 3, 1985
The bank’s asking for advance interest for the loan is improper considering that the total loan hasn’t been
released. A person can’t be charged interest for nonexisting debt. The alleged discovery by the bank of
overvaluation of the loan collateral is not an issue. Since Island Savings Bank failed to furnish the P63,000.00
balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to
such extent.
FACTS:
Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application
for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan. The loan called for a lump
sum of P80,000, repayable in semi-annual installments for 3 yrs, with 12% annual interest. After the
agreement, a mere P17K partial release of the loan was made by the bank and Tolentino and his wife signed a
promissory note for the P17,000 at 12% annual interest payable w/in 3 yrs. An advance interest was deducted
fr the partial release but this prededucted interest was refunded to Tolentino after being informed that there
was no fund yet for the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited the
bank from making new loans and investments. And after the bank failed to restore its solvency, the Central
Bank prohibited Island Savings Bank from doing business in the Philippines. Island Savings Bank in view of
the non-payment of the P17K filed an application for foreclosure of the real estate mortgage. Tolentino filed
Page 50 of 81
petition for specific performance or rescission and damages with preliminary injunction, alleging that since
the bank failed to deliver P63K, he is entitled to specific performance and if not, to rescind the real estate
mortgage.
ISSUES:
1) Whether or not Tolentino’s can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
3) Whether or not the real estate mortgage can be foreclosed
RULING:
1)Whether or not Tolentino’s can collect from the bank for damages. The loan agreement implied reciprocal
obligations. When one party is willing and ready to perform, the other party not ready nor willing incurs in
delay. When Tolentino executed real estate mortgage, he signified willingness to pay. That time, the bank’s
obligation to furnish the P80K loan accrued. Now, the Central Bank resolution made it impossible for the
bank to furnish the P63K balance. The prohibition on the bank to make new loans is irrelevant bec it did not
prohibit the bank fr releasing the balance of loans previously contracted. Insolvency of debtor is not an
excuse for non-fulfillment of obligation but is a breach of contract.
The bank’s asking for advance interest for the loan is improper considering that the total loan hasn’t been
released. A person can’t be charged interest for nonexisting debt. The alleged discovery by the bank of
overvaluation of the loan collateral is not an issue. The bank officials should have been more responsible and
the bank bears risk in case the collateral turned out to be overvalued. Furthermore, this was not raised in the
pleadings so this issue can’t be raised. The bank was in default and Tolentino may choose bet specific
performance or rescission w/ damages in either case. But considering that the bank is now prohibited fr
doing business, specific performance cannot be granted. Rescission is the only remedy left, but the rescission
shld only be for the P63K balance.
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
The promissory note gave rise to Sulpicio M. Tolentino’s reciprocal obligation to pay the P17,000.00 loan
when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in
default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the
promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to
ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay. Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish
the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt
within 3 years as stipulated, they are both liable for damages.
3) Whether or not the real estate mortgage can be foreclosed

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00
debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.
_____________________________________________________________________________________
M. TUASON & CO., INC. VS. JAVIER

G.R. NO. L-28569 February 27, 1970
FACTS:
On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract to sell with respondent Ligaya
Javier a parcel of land known as Lot No. 28, Block No. 356, PSD 30328, of the Sta. Mesa Heights
Subdivision for the sum of Php3,691.20 with 10% interest per annum; Php396.12 will be payable upon
execution of the contract, and an installment of Php43.92 monthly for a period of ten (10) years. It was
further stipulated in the contract, particularly the sixth paragraph, that upon failure of respondent to pay the
monthly installment, she is given a one month grace period to pay such installment together with the monthly
Page 51 of 81
installment falling on the said grace period. Furthermore, failure to pay both monthly installments,
respondent will pay an additional 10% interest. And after 90 days from the end of the grace period, petitioner
can rescind the contract, the payments made by respondent will be considered as rentals. Upon the execution
of the contract, respondent religiously paid the monthly installment until January 5, 1962. Respondent,
however, was unable to the pay the monthly installments within the grace period which petitioner,
subsequently, sent a letter to respondent on May 22, 1964 that the contract has been rescinded and asked the
respondent to vacate the said land. So, upon failure of respondent to vacate the said land, petitioner filed an
action to the Court of First Instance of Rizal for the rescission of the contract. The CFI rendered a decision
in favor of respondent in applying Article 1592 of the New Civil Code. Hence, petitioner made an appeal to
the Supreme Court alleging that since Article 1592 of the New Civil applies only to contracts of sale and not
in contracts to sell.
ISSUE:
Did the CFI erroneously apply Article 1592 of the New Civil Code?
RULING:
Yes. Regardless, however, of the propriety of applying Article 1592, petitioner has not been denied substantial
justice under Article 1234 of the New Civil Code. In this connection, respondent religiously satisfied the
monthly installments for almost eight (8) years or up to January 5, 1962. It has been shown that respondent
had already paid Php4,134.08 as of January 5, 1962 which is beyond the stipulated amount of Php3,691.20.
Also, respondent has offered to pay all installments overdue including the stipulated interest, attorney’s fees
and the costs which the CFI accordingly sentenced respondent to pay such installment, interest, fees and
costs. Thus, petitioner will be able recover everything that was due thereto. Under these circumstances, the
SC feel that, in the interest of justice and equity, the decision appealed from may be upheld upon the
authority of Article 1234 of the New Civil Code.
_____________________________________________________________________________________
LEGARDA VS SALADAÑA
G.R. No. L-26578, January 28, 1974
FACTS:
Saldaña had entered into two written contracts with Legarda, a subdivision owner, whereby Legarda agreed to
sell to him two of his lots for 1,500 per lot, payable over a span of 10 years on 120 monthly installments with
10% interest per annum. Saldaña paid for eight consecutive years but did not make any further payments due
to Legarda’s failure to make the necessary improvement on the said lot which was promised by their
representative, the said Mr. Cenon. Saldaña already paid a total of Php3,582.06. The statement of account
shows that Saldaña paid Php1,682.28 of the principal and Php1,889.78 for the interest. It did not distinguish
which of the two said lots was paid. Petitioner, then, rescinded the contract based on the stipulation of the
contract that payments made by respondent shall be considered as rentals and any improvements made shall
be forfeited in favor of the petitioner. The lower court ruled sustaining petitioner’s cancellation of contract.
So respondent appealed and judgment was reversed in favor of the respondent ordering petitioners to deliver
to plaintiff one of the two lots at the choice of the defendant and execute the deed of conveyance. Hence this
petition.
ISSUE:
Was the cancellation of the sale of contract valid?
RULING:
No, even though it was stipulated that failure to complete the payment would result to the cancellation of the
contract, it was still not valid. As clearly shown in the statement of account, Saldaña was able to pay one of
the two said lots. Under Article 1234 of the New Civil Code, “if the obligation has been substantially
performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment,
less damages suffered by the obligee”. Hence, under the authority of Article 1234 of the New Civil Code,
Saladaña is entitled to one of the two lots of his choice and the interest paid shall be forfeited in favor of the
petitioners.
Page 52 of 81
AZCONA V. JAMANDRE (151 SCRA 317)

FACTS:
Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in Negros Occidental
to Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for 3agricultural years beginning
1960. On March 30, 1960, when the first annual rent was due, petitioner was not able to deliver possession of
the leased property thus he “waived” payment of that rental. Respondent only entered the premises on
October 26, 1960 after paying P7000, which was acknowledged by the petitioner in the receipt. On April 6,
1961, the petitioner notified respondent that the contract of lease was deemed cancelled for violation of the
conditions of the contract. Earlier, in fact, the respondent had been ousted from the possession of the 60
hectares of the leased premises and let with only 20 hectares of the original area.
ISSUES
Whether or not the lease contract is deemed cancelled upon failure of the respondent to:
1. Attach the parcelary plan identifying the exact area subject of the contract
2. Secure approval of PNB of said contract
3. Pay the rentals
RULING:
Parcelary Plan
The correct view is that there was an agreed subject-matter, although it was not expressly defined because the
plan was not annexed and never approved. There was still an ascertainable object because the leased premises
were sufficiently delineated and identified. Failure to attach the plan was imputable to the petitioner himself
because he was supposed to prepare the said plan. Nevertheless, the identification of the lease area rendered
the plan unnecessary and its absence did not nullify the agreement.
PNB Approval
Petitioners claim that such possession was not delivered because the approval of by the PNB had not
materialized due to respondent's neglect. Respondent was negotiating the loan with PNB but the contract
does not state upon whom fell the obligation to secure the approval.
Payment of Rent
Petitioner contends that the payment of P7000, which was short of P200, was a violation of the agreement
thus the contract should be deemed cancelled. But the petitioner unqualifiedly accepted the amount. The
absence of any mention of the discrepancy in the receipt nor any protest or demand to collect the remaining
balance, means that petitioner acknowledged the amount as the full payment for the rent. The SC affirms the
decision of the CA and petition is denied. Note: The CA held that the amount of P200 had been condoned
but the SC viewed it as a mere reduction of the stipulated rental in consideration of the withdrawal from the
leased premises where the petitioner intended to graze his cattle.
Relevant Articles/ Jurisprudence

Art 1235 – 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.
Aranas v Tutaan
127 SCRA 828
FACTS:
The stocks of Universal Textile Mills (UTEX) were issued to co-defendants Manuel and Castaneda.
Subsequently, in 1971, the lower court declared that Luisa Aranas is the rightful owner of the 400 shares of
stocks at Universal Textile Mills (UTEX. Further, it ordered that dividends in cash or stocks pertaining to the
same be delivered to Aranas. UTEX then filed a motion to clarify the phrase in said decision which states “to
deliver to her all dividends appertaining to the same, whether in cash or in stocks” meant dividends properly
pertaining to the plaintiffs after the court’s declaration of her ownership. The said motion was granted, where
Page 53 of 81
the court ordered UTEX to pay the plaintiff the cash dividends which accrued to the stocks in question after
the current decision was rendered but the cash dividends already paid to the co-defendants before the court
decision may not be claimed by the plaintiffs.
The co-defendants filed for a new trial and the decision was the same as the the 1971 ruling. Upon appeal to
the CA, the said ruling was affirmed. The lower court issued a writ of execution in 1979 directed to UTEX to
1) cancel the certificate of stocks of the co-defendants and issue new ones in the name of the petitioners, and
2) Pay the cash dividends accrued from 1972 to 1979 (period from the new trial to the issuance of writ of
execution). UTEX alleged that the cash dividends had already been paid.
ISSUE:
Whether or not there was valid payment?
RULING:
No. It is elementary that payment made by a judgment debtor to a wrong party cannot extinguish the
obligation of such debtor to its creditor. It was clear in the motion for clarification that all dividends accruing
to the said shares after the rendition of judgement belonged to the Aranas. When UTEX paid the wrong
parties, despite its knowledge and understanding of the final judgment, it is still liable to pay Aranas as the
lawful declared owners of the said shares. The burden to recover the wrong payment is on UTEX and cannot
be passed on to the Aranas as the innocent parties.
__________________________________________________________________________________
Kalalo vs. Luz

34 SCRA 337
FACTS:
On 17 November 1959, Octavio Kalalo entered into an agreement with Alfredo Luz where he was to render
engineering design services for a fee. On 11 December 1961, Kalalo sent Luz a statement of account where
the balance due for services rendered was P59,505. On 18 May 1962, Luz sent Kalalo a resume of fees due to
the latter, and a check for P10,861.08. Kalalo refused to accept the check as full payment of the balance of
the fees due him. On 10 August 1962, Kalalo filed a complaint containing 4 causes of action, i.e. $28,000
(representing 20% of the amount paid to Luz in the International Research Institute project) and the balance
of P30,881.25 as fees; P17,0000 as consequential and moral damages; P55,000 as moral damages, attorney’s
fees and litigation expenses; and P25,000 as actual damages, attorney’s fees and litigation expenses). The trial
court ruled in favor of Kalalo. Luz filed an appeal directly with the Supreme Court raising only questions of
law.
ISSUE:
Whether the rate of exchange of dollar to peso are those at the time of the payment of the judgment or at the
time when the research institute project became due and demandable?
RULING:
Luz’ obligation to pay Kalalo the sum of US$28,000 accrued on 25 August 1961, or after the enactment of
RA 529 (16 June 1950). Thus, the provision of the statute which requires payment at the prevailing rate of
exchange when the obligation was incurred cannot be applied. RA 529 does not provide for the rate of
exchange for the payment of obligation incurred after the enactment of the Act, and thus the rate of
exchange should be that prevailing at the time of payment. The view finds support in the ruling of the Court
Page 54 of 81
in Engel vs. Velasco & Co. The trial court did not err in holding the rate of exchange is that at the time of
payment.
____________________________________________________________________________________
Ponce vs. CA
90 SCRA 533
FACTS:
On 3 June 1969, Jesus Afable, together with Feliza Mendoza and Ma. Aurora Dino executed a promissory
note in favor of Nelia Ponce in the sum of P814,868.42 payable without interest on or before 31 July 1969,
subject to an interest of 12% per annum if not paid at maturity, and an additional sum equivalent to 10% of
total amount due as attorney’s fees in case it is necessary to bring suit, and the execution of a first mortgage
on their properties or the Carmen Planas Memorial Inc. in the event of failure to pay the indebtedness in
accordance with the terms. Upon failure of the debtors to pay, a complaint was filed against them for the
recovery of the principal sum, plus interest and damages. The trial court rendered judgment in favor of
Ponce. The Court of Appeals affirmed the decision of the trial court. On the second motion for
reconsideration, however, the appellate court reversed the judgment and opined that the intent of the parties
was that the note was payable in US dollars which is illegal, with neither party entitled to recover under the
“in pari delicto” rule.
ISSUE:
Whether an agreement to pay in dollars defeat a creditor’s claim for payment?
RULING:
If there is an agreement to pay an obligation in a currency other than Philippine legal tender, the same is
illegal / null and void as contrary to public policy, pursuant to RA 529, and the most that can be demanded is
to pay the said obligation in Philippine currency. It cannot defeat a creditor’s claim for payment, for such will
allow a person to enrich himself inequitably at another’s expense. What RA 529 prohibits is the payment of
an obligation in dollars. A creditor cannot oblige the debtor to pay in dollars, even if the loan was given in
said currency. In such case, the indemnity is expressed in Philippine currency on the basis of the current rate
of exchange at the time of payment.
NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS

10 SCRA 686
FACTS:
Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money
filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise
judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private
respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorney’s fee of which P5,000.00 has been
paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was
issued levied on the personal properties of the petitioner. Before the date of the auction sale, petitioner
deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashier’s Check of
the Equitable Banking Corporation and P13,130.00 in cash for a total of P63,130.00. Private respondent
refused to accept the check and the cash and requested for the auction sale to proceed. The properties were
Page 55 of 81
sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner subsequently filed an ex-
parte motion for issuance of certificate of satisfaction of judgment which was denied by the respondent
Judge. Hence this present petition, alleging that the respondent Judge capriciously and whimsically abused his
discretion in not granting the requested motion for the reason that the judgment obligation was fully satisfied
before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the
refusal of the private respondent to accept the check, the respondent Judge cited Article 1249 of the New
Civil Code which provides that payments of debts shall be made in the currency which is the legal tender of
the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit
money do not have legal tender power. In sustaining the contention of the private respondent to refuse the
acceptance of the cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that
creditor cannot be compelled to accept partial payment unless there is an express stipulation to the contrary.
ISSUE:
Can the check be considered a valid payment of the judgment obligation?
RULING:
Yes. It is to be emphasized that it is a well-known and accepted practice in the business sector that a Cashier’s
Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this certification
implies that the check is sufficiently funded in the drawee bank and the funds will be applied whenever the
check is presented for payment. The object of certifying a check is to enable the holder to use it as money.
When the holder procures the check to be certified, it operates as an assignment of a part of the funds to the
creditors. Hence, the exception provided in Section 63 of the Central Bank Act which states that checks
which have been cleared and credited to the account of the creditor shall be equivalent to a delivery to the
creditor in cash the amount equal to that which is credited to his account. The Cashier’s Check and the cash
are valid payment of the obligation of the petitioner. The private respondent has no valid reason to refuse the
acceptance of the check and cash as full payment of the obligation.
___________________________________________________________________________________
Roman Catholic of Malolos v IAC

191 SCRA 411
FACTS:
The property subject matter of the contract consists of a parcel of land in the Province of Bulacan, issued and
registered in the name of the petitioner which it sold to the private respondent.
On July 7, 1971, the subject contract over the land in question was executed between the petitioner as vendor
and the private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a
downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within
four (4) years from execution of the contract. The contract likewise provides for cancellation, forfeiture of
previous payments, and reconveyance of the land in question in case the private respondent would fail to
complete payment within the said period.
After the expiration of the stipulated period for payment, Atty. Adalia Francisco (president of the company
who bought land) wrote the petitioner a formal request that her company be allowed to pay the principal
amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment and the
accrued interest of P24,000.00 to be paid immediately upon approval of the said request.
The petitioner formally denied the said request of the private respondent, but granted the latter a grace period
of five (5) days from the receipt of the denial to pay the total balance of P124,000.00. The private respondent
Page 56 of 81
wrote the petitioner requesting an extension of 30 days from said date to fully settle its account but this was
still denied.
Consequently, Atty. Francisco wrote a letter directly addressed to the petitioner, protesting the alleged refusal
of the latter to accept tender of payment made by the former on the last day of the grace period. But the
private respondent demanded the execution of a deed of absolute sale over the land in question
Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his client to execute the deed of
absolute sale so the petitioner cancelled the contract and considered all previous payments forfeited and the
land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending parties have conflicting versions on
the main question of tender of payment.
According to the trial court:
. . . What made Atty. Francisco suddenly decide to pay plaintiff’s obligation on tender her payment, when her
request to extend the grace period has not yet been acted upon? Atty. Francisco’s claim that she made a
tender of payment is not worthy of credence.
The trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal
check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof.
Not satisfied with the said decision, the private respondent appealed to the IAC. The IAC reversed the
decision of the trial court. The IAC, in finding that the private respondent had sufficient available funds, ipso
facto concluded that the latter had tendered payment.
ISSUE:
Whether or not the finding of the IAC that Atty. Francisco had sufficient available funds did tender payment
for the said obligation.
Whether or not an offer of a check is a valid tender of payment of an obligation under a contract which
stipulates that the consideration of the sale is in Philippine Currency.
RULING:
1. No. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender
currency as payment to the obligee for the former’s obligation and demanding that the latter accept the same.
Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of
the bargain. The respondent court was therefore in error.
2. No. In the case of Philippine Airlines v. Court of Appeals:

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. The tender of payment by the private respondent was not valid for
failure to comply with the requisite payment in legal tender or currency stipulated within the grace period the
DECISION of the IAC is hereby SET ASIDE and ANNULLED and the DECISION of the trial court is
REINSTATED.
Page 57 of 81
Tibajia vs. CA
223 SCRA 163
FACTS:
A suit for collection of sum of money was ruled in favor of Eden Tan and against the spouses Norberto Jr.
and Carmen Tibajia. After the decision was made final, Tan filed a motion for execution and levied upon the
garnished funds which were deposited by the spouses with the cashier of the Regional Trial Court of Pasig.
The spouses, however, delivered to the deputy sheriff the total money judgment in the form of Cashier’s
Check (P262,750) and Cash (P135,733.70). Tan refused the payment and insisted upon the garnished funds to
satisfy the judgment obligation. The spouses filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. The motion was denied.
ISSUE:
Whether the spouses have satisfied the judgment obligation after the delivery of the cashier’s check and cash
to the deputy sheriff.
RULING:
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 (Philippine
Airlines vs. Court of Appeals; Roman Catholic Bishop of Malolos vs. Intermediate Appellate Court). The
court is not, by decision, sanctioning the use of a check for the payment of obligations over the objection of
the creditor (Fortunado vs. Court of Appeals).
____________________________________________________________________________________
VELASCO VS. MANILA ELECTRIC CO., ET. AL. -

42 SCRA 556
FACTS:
Pedro J. Velasco, the appellant, complained that MERALCO, the appellee company, created a nuisance, as
defined in Art. 694 of the Civil Code of the Philippines, in form of noise from their substation which was in
the same street, next to Velasco’s property/residence, which the appellant also uses for his Medical Practice
as a physician. The claim cannot be proven solely by testimony however, as the testimonies given by the
locals do not corroborate with each other, or were subjective. To get a more accurate proof, under
instructions from the Director of Health, Dr. Jesus Almonte, noted as an impartial party, used a sound level
meter and other instruments within the compound of the plaintiff-appellant to get a reading on the decibels
or sound meter. It was observed that the readings range from 46-80 decibels, depending on the time and
place. The appellee company also took sound level samplings, with Mamerto Buenafe conducting the reading
within and near the vicinity of the substation, whose readings range from 42-76 decibels. The readings were
compared to Technical charts, which listed the decibels of areas from an average home: 40, to the noisiest
spot of Niagara Falls: 92. Thus, the readings from the impartial party appeared more reliable. The court
concluded that the evidence pointed the noise levels to be of actionable nuisance, and that the appellant is
entitled to relief, as there was a possibility that it had effect on the appellant’s health. Appellee company
contended that the appellant should not have a ground to complain because of: 1) the intensity inside
Velasco’s house was on 46 to 47 decibels; 2) the sound level at the North General Hospital, where silence was
observed, was higher that his residence and did not take action; 3) MERALCO had received no complaint in
its 50 years of operations until the case.
Page 58 of 81
ISSUES:
Whether or not the substation constituted a public nuisance. Whether or not Velasco had the right to claim
for damages.
RULING:
The court held that the substation constituted a public nuisance in form of noise, of which they made
reference and consideration with cases in the U.S. regarding what level of noise would constitute as public
nuisance as defined in Art. 694 of the Civil Code of the Philippines. The court also contended that the
damage claims by the plaintiff-appellant was exaggerated, taking into consideration that 1) the appellant did
not make all the possible measures, for example to perhaps lease the property to others, 2) as for his health, it
was observed that only Velasco, among the other locals seem to have the ailments as he listed, and therefore
lowered it to a more justifiable amount of 20,000 pesos in damages and 5,000 pesos in attorney’s fees, payable
by the appellee. They also ordered that the appellee should take measures in lowering the noise within 90
days.
_____________________________________________________________________________________
Commissioner of Public Highways vs. Burgos

96 SCRA 831
FACTS:
On 1924, the government took private respondent Victor Amigable's land for road-right-of-way purpose. On
1959, Amigable filed in the Court of First Instance a complaint to recover the ownership and possession of
the land and for damages for the alleged illegal occupation of the land by the government (entitled Victor
Amigable vs. Nicolas Cuenco, in his capacity as Commissioner of Public Highways and Republic of the
Philippines).
Amigable's complaint was dismissed on the grounds that the land was either donated or sold by its owners to
enhance its value, and that in any case, the right of the owner to recover the value of said property was
already barred by estoppel and the statute of limitations. Also, the non-suability of the government was
invoked.
In the hearing, the government proved that the price of the property at the time of taking was P2.37 per
square meter. Amigable, on the other hand, presented a newspaper showing that the price was P6.775.
The public respondent Judge ruled in favor of Amigable and directed the Republic of the Philippines to pay
Amigable the value of the property taken with interest at 6% and the attorney's fees.
ISSUE:
Whether or not the provision of Article 1250 of the New Civil Code is applicable in determining the amount
of compensation to be paid to private respondent Amigable for the property taken?
RULING:
Article 1250 of the NCC provides that the value of currency at the time of the establishment of the obligation
shall be the basis of payment which would be the value of peso at the time of taking of the property when the
obligation of the government to pay arises. It is only when there is an agreement that the inflation will make
the value of currency at the time of payment, not at the time of the establishment, the basis for payment.
Page 59 of 81
The correct amount of compensation would be P14,615.79 at P2.37 per square meter, not P49,459.34, and
the interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered
its decision as was awarded by the said court should accordingly be reduced.
FILIPINO PIPE vs. NAWASA

161 SCRA 32
FACTS:
NAWASA entered into a contract with the plaintiff FPFC for the latter to supply iron pressure pipes worth
P270,187.50 to be used in the construction of the Anonoy Waterworks in Masbate and the Barrio San
Andres-Villareal Waterworks in Samar. NAWASA paid in installments on various dates, a total of
P134,680.00 leaving a balance of P135,507.50 excluding interest. FPFC demanded payment from NAWASA
of the unpaid balance of the price with interest in accordance with the terms of their contract. NAWASA
failed to pay, plaintiff filed a collection suit. RTC rendered judgment ordered NAWASA to pay the unpaid
balance in NAWASA negotiable bonds. NAWASA did not deliver the bonds to the judgment creditor.
FPFC filed another complaint seeking an adjustment of the unpaid balance in accordance with the value of
the Philippine peso FPFC presented voluminous records and statistics showing that a spiraling inflation has
marked the progress of the country from 1962 up to the present. There is no denying that the price index of
commodities, which is the usual evidence of the value of the currency, has been rising.
ISSUE:
W/N there exists an extraordinary inflation of the currency justifying an adjustment of NAWASA's unpaid
judgment obligation to FPFC?
RULING:
Article 1250 of the Civil Code provides: In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall
be the basis of payment, unless there is an agreement to the contrary..
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 said currency, and such decrease or
increase could not have reasonably foreseen or was manifestly beyond contemplation the the parties at the
time of the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code
Vol. IV, p. 284.)
While appellant's voluminous records and statistics proved that there has been a decline in the purchasing
power of the Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is
simply a universal trend that has not spared our country.
_____________________________________________________________________________________
DEL ROSARIO VS SHELL

164 SCRA 556
FACTS:
Page 60 of 81
On September 20, 1960 the parties entered into a Lease Agreement whereby the plaintiff- appellant leased a
parcel of land known as Lot No. 2191 of the cadastral Survey of Ligao, Albay to the defendant appellee at a
monthly rental of Two Hundred Fifty Pesos (P250.00). Paragraph 14 of said contract of lease provides: “In
the event of an official devaluation or appreciation of the Philippine cannot the rental specified herein shall
be adjusted in accordance with the provisions of any law or decree declaring such devaluation or appreciation
as may specifically apply to rentals."
On November 6, 1965, President Diosdado Macapagal promulgated Executive Order No. 195 1 titled
"Changing the Par Value of the Peso from US$0.50 to US$0.2564103 (U.S. Dollar of the Weight and
Fineness in Effect on July 1, 1944). This took effect at noon of November 8, 1965. By reason of this
Executive Order No. 195, plaintiff-appellant demanded from the defendant-appellee ailieged increase in the
monthly rentals from P250.00 a month to P487.50 a month. Defendant-appellee fertilize to pay the increased
monthly rentals.
On January 16, 1967, plaintiff-appellant filed a complaint (Civil Case No. 68154) with the CFI of Manila,
Branch XVII praying that defendant-appellee be ordered to pay the monthly rentals as increased by reason of
Executive Order 195. On January 8, 1968 the trial court in dismissing the complaint
ISSUE:
Whether or not Executive Order No. 195 in effect decreased the worth or value of our currency and a
"devaluation" or "depreciation" has taken place which would justify the proportionate increase of rent?
RULING:
It will be noted that devaluation is an official act of the government (as when a law is enacted thereon) and
refers to a reduction in metallic content; depreciation can take place with or without alleged official act, and
does not depend on metallic content (although depreciation may be caused currency devaluation).
In the case at bar, while no express reference has been made to metallic content, there nonetheless is a
reduction in par value or in the purchasing power of Philippine currency. Even assuming there has been no
official devaluation as the term is technically understood, the fact is that there has been a diminution or
lessening in the purchasing power of the peso, thus, there has been a "depreciation" (opposite of
"appreciation"). Moreover, when laymen unskilled in the semantics of economics use the terms "devaluation"
or "depreciation" they certainly mean them in their ordinary signification — decrease in value. Hence as
contemplated, the term "devaluation" may be regarded as synonymous with "depreciation," for certainly both
refer to a decrease in the value of the currency. The rentals should therefore by their agreement be
proportionately increased.
_____________________________________________________________________________________
FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS

111 SCRA 421
FACTS:
Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for construction
purposes. In order to increase their production, they looked for a rock crusher which Rizal Consolidated
Corporation then had for sale. A brother of Sy Bang, went to inspect the machine at the Rizal Consolidated’s
plant site. Apparently satisfied with the machine, the private respondents signified their intent to purchase the
same.
Page 61 of 81
Since he does not have the financing capability, Sy Bang applied for financial assistance from Filinvest Credit
Corporation. Filinvest agreed to extend financial aid on the following conditions: (1) that the machinery be
purchased in the petitioner’s name; (2) that it be leased with option to purchase upon the termination of the
lease period; and (3) that Sy Bang execute a real estate mortgage as security for the amount advanced by
Filinvest. A contract of lease of machinery (with option to purchase) was entered into by the parties whereby
they to lease from the petitioner the rock crusher for two years. The contract likewise stipulated that at the
end of the two-year period, the machine would be owned by Sy Bang.
3 months from the date of delivery, Sy Bang claiming that they had only tested the machine that month, sent
a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the
machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour.
They then demanded that the petitioner make good the stipulation in the lease contract. Sy Bang stopped
payment on the remaining checks they had issued to the petitioner.
As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real estate mortgage.
ISSUE:
WON the real transaction was lease or sale? SALE ON INSTALLMENTS?
RULING:
The real intention of the parties should prevail. The nomenclature of the agreement cannot change its true
essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it
to be, not what it is called by the parties. It is apparent here that the intent of the parties to the subject
contract is for the so-called rentals to be the installment payments. Upon the completion of the payments,
then the rock crusher, subject matter of the contract, would become the property of the private respondents.
This form of agreement has been criticized as a lease only in name.
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in
that form, for one reason or another, have frequently resorted to the device of making contracts in the form
of leases either with options to the buyer to purchase for a small consideration at the end of term, provided
the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title
shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called
rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed
amount results, by the terms of bargain, in the transfer of title to the lessee.
Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent
Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over
the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going
through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the
vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the
installments-cum-rentals already paid.
Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is presumed to be more
knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard
now to complain of any alleged deficiency of the said machinery. It was Sy Bang who was negligent, not
Filinvest. Further, Sy Bang is precluded to complain because he signed a Waiver of Warranty.
Page 62 of 81
CITIZENS SURETY VS CA
162 SCRA 738
FACTS:
On December 4, 1959, the petitioner issued two (2) surety bonds CSIC Nos. 2631 and 2632 to guarantee
compliance by the principal Pascual M. Perez Enterprises of its obligation under a "Contract of Sale of
Goods" entered into with the Singer Sewing Machine Co. In consideration of the issuance of the aforesaid
bonds, Pascual M. Perez, in his personal capacity and as attorney-in-fact of his wife, Nicasia Sarmiento and in
behalf of the Pascual M. Perez Enterprises executed on the same date two (2) indemnity agreements wherein
he obligated himself and the Enterprises to indemnify the petitioner jointly and severally, whatever payments
advances and damage it may suffer or pay as a result of the issuance of the surety bonds.
In addition to the two indemnity agreements, Pascual M. Perez executed a deed of assignment on the same
day, December 4,1959, of his stock of lumber with a total value of P400,000.00. On April 12, 1960, a second
real estate mortgage was further executed in favor of the petitioner to guarantee the fulfillment of said
obligation.
Pascual M. Perez Enterprises failed to comply with its obligation under the contract of sale of goods with
Singer Sewing Machine Co., Ltd. Consequently, the petitioner was compelled to pay, as it did pay, the fair
value of the two surety bonds in the total amount of P144,000.00. Except for partial payments in the total
sum of P55,600.00 and notwithstanding several demands, Pascual M. Perez Enterprises failed to reimburse
the petitioner for the losses it sustained under the said surety bonds.
The petitioner filed a claim for sum of money against the estate of the late Nicasia Sarmiento which was being
administered by Pascual M. Perez. In opposing the money claim, Pascual M. Perez asserts that the surety
bonds and the indemnity agreements had been extinguished by the execution of the deed of assignment.
ISSUE:
Whether or not the administrator's obligation under the surety bonds and indemnity agreements had been
extinguished by reason of the execution of the deed of assignment?
RULING:
On its face, the document speaks of an assignment where there seems to be a complete conveyance of the
stocks of lumber to the petitioner, as assignee. However, in the light of the circumstances obtaining at the
time of the execution of said deed of assignment, we cannot regard the transaction as an absolute conveyance.
The subsequent acts of the private respondent bolster the fact that the deed of assignment was intended
merely as a security for the issuance of the two bonds. Partial payments amounting to P55,600.00 were made
after the execution of the deed of assignment to satisfy the obligation under the two surety bonds. Since later
payments were made to pay the indebtedness, it follows that no debt was extinguished upon the execution of
the deed of assignment. Moreover, a second real estate mortgage was executed on April 12, 1960 and
eventually cancelled only on May 15, 1962. If indeed the deed of assignment extinguished the obligation,
there was no reason for a second mortgage to still have to be executed. The deed of assignment was therefore
intended merely as another collateral security for the issuance of the two surety bonds.
Page 63 of 81
REPUBLIC, in behalf of the RICE AND CORN ADMINISTRATION v.

HON. WALFRIDO DE LOS ANGELES
Nature: Complaint to annul sale
Ponente: Concepcion, J.
Date: June 25, 1980
DOCTRINE: Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if
such claim is disputed. But, if the claim is undisputed, as in the case at bar, the statement is sufficient and no
other proof may be required.
FACTS:
On Oct 29, 1964 spouses Petra and Benjamin Farin obtained a loan from Marcelo Steel Corporation in the
amount of P600k, with a real estate mortgage on a parcel of land in Quezon City as security. Mortgagee
Marcelo Steel requested for extrajudicial foreclosure which the sheriff advertised and scheduled. Spouses
Farin filed petition for prohibition against the sheriff and mortgagee.
Acting upon petition, Hon. De los Angeles issued an order commanding the Sheriff from proceeding with
the public auction sale.
While the above case was pending, Petra Farin lease portions of the "Doña Petra Building situated on the
mortgaged premises, to the Rice and Corn Administration, (RCA).
On December 9, 1967, Marcelo Steel filed a motion praying that RCA to channel its rental payments to
Marcelo Steel, by invoking paragraph 5 of mortgage consent. Respondent judge de los Angeles issued assailed
order granting said motion.
The RCA filed a motion for the reconsideration of said order, praying that it be excluded therefrom, for the
reasons that (a) the rents due Petra Farin had been assigned by her, with the conformity with the RCA, to
Vidal A. Tan; (b) Petra Farin has an outstanding obligation with the RCA in the amount of P263,062.40,
representing rice shortages incurred by her as a bonded warehouse under contract with the RCA, which
should be compensated with the rents due and may be due; and (c) RCA was never given an opportunity to
be heard on these matters
RTC denied said motion and said that he records does not show any proof that the plaintiff, Petra Farin, is
indebted to the aforesaid movant, RCA, as allegedly in the said motion and assuming that the herein plaintiff
is really indebted to the RCA, the records further does not show that a case has been filed against her for the
payment of such obligation, and therefore, there is no apparent legal ground to hold the payment of the
rentals due the plaintiff.
On August 28, 1968, the RCA filed a motion to vacate the orders directing the RCA to pay rentals to Marcelo
Steel Corporation, reiterating therein the grounds alleged in its motion for reconsideration dated January 19,
1968, and in its second motion for reconsideration dated April 17, 1968, which has remained unacted upon.
In said motion, the RCA emphasized that it is not a party to the case; that it had been denied due process for
lack of notice and the right to be heard; that compensation took place by operation of law pursuant to Art.
1286 of the Civil Code without the need of a case against Petra R. Farin, or a decision rendered against her
for the payment of such obligation. Motion was denied, and so RCA filed petition for review.
ISSUE: WON RCA can validly claim that compensation of debts had taken place, even if no case had been filed.
RULING:
Insofar as it recognized the right of the herein private respondent, Marcelo Steel Corporation, to collect and
receive rentals from the lessees of the Doña Petra Building, the order of December 23, 1967 was within the
competence of the respondent Judge, since the lessor-mortgagor, Petra Farin, had empowered the said
corporation to collect and receive any interest, dividend, rents, profits or other income or benefit produced
by or derived from the mortgaged property under the terms of the real estate mortgage contract executed by
them.
The respondent Judge also erred in denying the claim of the RCA that compensation of debts had taken place
allegedly because "The records does not show any proof that the plaintiff is indebted to the aforesaid movant,
RCA, as alleged in the said motion and assuming that the herein plaintiff is really indebted to the RCA, the
Page 64 of 81
records further does not show that a case has been filed against her, or a decision has been rendered against
her for the payment of such obligation."
Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if such claim is
disputed. But, if the claim is undisputed, as in the case at bar, the statement is sufficient and no other proof
may be required.
In the instant case, the claim of the RCA that Petra R. Farin has an outstanding obligation to the RCA in the
amount of P263,062.40 which should be compensated against the rents already due or may be due, was raised
by the RCA in its motion for the reconsideration of the order of December 23, 1967.
A copy of said motion was duly furnished counsel for Petra R. Farin and although the said Petra R. Farin
subsequently filed a similar motion for the reconsideration of the order of December 23, 1967, she did not
dispute nor deny such claim
Neither did the Marcelo Steel Corporation dispute such claim of compensation in its opposition to the
motion for the reconsideration of the order of December 23, 1967.
The silence of Petra R. Farin, order of December 23, 1967. although the declaration is such as naturally one
to call for action or comment if not true, could be taken as an admission of the existence and validity of such
a claim. Therefore, since the claim of the RCA is undisputed, proof of its liquidation is not necessary. At any
rate, if the record is bereft of the proof mentioned by the respondent Judge of first instance, it is because the
respondent Judge did not call for the submission of such proof. Had the respondent Judge issued an order
calling for proof, the RCA would have presented sufficient evidence to the satisfaction of the court.
Aquino concurs: I concur in the result and on the understanding that the trial court should hold a hearing to
determine the merits of the claim of petitioner RCA
that it is entitled to retain the rentals by way of compensation.
Petition of RCA granted.
SOLINAP V del Rosario (123 SCRA 640)
Nature: Complaint to annul sale

Ponente: Escolin, J.
Date: July 25, 1983
DOCTRINE: Compensation cannot take place where one's claim against the other is still the subject of
court litigation. It is a requirement, for compensation to take place, that the amount involved be certain and
liquidated."
FACTS:
The spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said
hacienda to petitioner Loreto Solinap for 10 years for the stipulated rental of P50,000.00 a year.
It was further agreed in the lease contract that P25,000.00 from the rental should be paid by Solinap to the
PNB to amortize the indebtedness of the spouses Lutero.
When Tiburcio Lutero died, his heirs instituted the testate estate proceedings. On the basis of an order,
respondents Juanito Lutero [grandson and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid the
PNB the sum of P25,000.00 as partial settlement of the deceased's obligations. Spouses Lutero filed a motion
seeking reimbursement from the petitioner. They argued that the said amount should have been paid by
petitioner to the PNB, as stipulated in the lease contract.
Before the motion could be resolved, petitioner Solinap a separate action against the spouses Lutero for
collection of P71,000.00 they borrowed from the petitioner. The spouses answered and pleaded a
counterclaim against petitioner for P125,000.00 representing unpaid rentals on Hacienda Tambal and that
petitioners purchased one-half of Hacienda Tambal.
Page 65 of 81
The respondent judge issued an order granting the spouses’ motion for reimbursement from petitioner of the
sum of P25,000.00, plus interest. Petitioner filed a petition for certiorari before this Court, assailing the above
order, which the Court Dismissed.
Respondent Luteros then filed a Motion for Execution of the payment for reimbursement. Thereafter the
Petitioner Solinap filed with the respondent court a motion raising that the amount payable to Luteros should
be compensated against the latter's indebtedness to Solinap amounting to P7 1,000.00.
This motion was denied by respondent judge on the ground that "the claim of Loreto Solinap against spouses
was yet to be liquidated and determined, such that the requirement in Article 1279 of the New Civil Code that
both debts are liquidated for compensation to take place has not been established by the oppositor Loreto
Solinap.
Petitioner filed a motion for reconsideration of this order, but the same was denied. Hence, this petition.
ISSUE: WON the obligation of petitioner to private respondents may be compensated or set-off against the amount sought to be
recovered in an action for a sum of money filed by the former against the latter
RULING:
The petition is devoid of merit.
Petitioner: Judge erred in not declaring the mutual obligations of the parties extinguished to the extent of their
respective amounts. He relies on Article 1278 of the Civil Code to the effect that compensation shall take
place when two persons, in their own right, are creditors and debtors of each other.
Supreme Court: The argument fails to consider Article 1279 of the Civil Code which provides that
compensation can take place only if both obligations are liquidated.
In the case at bar, the petitioner's claim against the respondent Luteros in Civil Case No. 12379 is still
pending determination by the court. While it is not for the Court to pass upon the merits of the plaintiffs'
cause of action in that case, it appears that the claim asserted therein is disputed by the Luteros on both
factual and legal grounds. More, the counterclaim interposed by them, if ultimately found to be meritorious,
can defeat petitioner's demand. Upon this premise, his claim in that case cannot be categorized as liquidated
credit which may properly be set-off against his obligation.
As this Court ruled in Mialhe vs. Halili, “Compensation cannot take place where one's claim against the other
is still the subject of court litigation. It is a requirement, for compensation to take place, that the amount
involved be certain and liquidated."
WHEREFORE, the petition is dismissed, with costs against petitioner.
Abad Concurring: Petition is frivolous, and petitioner should be assessed treble costs.
SYCIP V CA (134 SCRA 317)

Nature: Estafa Case
Ponente: Relova, J.
DOCTRINE: Compensation takes place only when two persons in their own right are creditors and debtors
of each other, and that each one of the obligors is bound principally and is at the same time a principal
creditor of the other.
FACTS:
Jose Lapuz received from Albert Smith in Manila 2000 shares of stock from Republic Flour Mills in the name
of Dwight Dill who had left for Honolulu, with the understanding that Lapuz was supposed to sell the shares
of stock, the value out of which he would get a commission. Lapuz made it clear that he did not own the
shares. He was approached by defendant Sycip who assured him he could sell it for a good price. Thereafter,
Jose K. Lapuz received a letter from the Sycip, informing him that "1,758 shares has been sold for a net
amount of P29,000.00," but that the transaction could not be concluded until they received the Power of
Page 66 of 81
Attorney duly executed by Dwight Dill, appointing a person to endorse the certificate of stock and a
resolution from Biochemical Research Laboratory authorizing transfer of certificate. Lapuz signed his
conformity to such document. Power of attorney only authorized sale of 1758 shares.
Jose K. Lapuz managed to sell 758 shares, the sum of which was remitted to Albert Smith.
The accused-appellant sold and paid for the other 500 shares of stock, for the payment of which Jose K.
Lapuz issued in his favor a receipt, dated June 9, 1961
The draft for P8,000.00, "the full value of the 500 shares' mentioned in the letter of the accused-appellant was
dishonored by the bank, for lack of funds. Jose K. Lapuz then "discovered from the bookkeeper that he got
the money and he pocketed it already, so he started hunting for Mr. Sycip. When he found the accused-
appellant, the latter gave him a check in the amount of P5,000.00, issued by his daughter on July 12, 1961.
This also was dishonored by the bank for lack of sufficient funds to cover it.
When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa case (in the) fiscals office ...
against him' unless he raise [the] balance left eight thousand" the accused-appellant answered him by sending
a wire, "P5,000 remitted ask boy check Equitable. But "the check was never made good," so Jose K. Lapuz
testified. He had to pay Albert Smith the value of the 500 shares of stock."
The Trial Court convicted Sycip of Estafa which the Court of Appeals Affirmed.
ISSUE:
(1) WON legal compensation can take place?
RULING:
Petitioner contends that respondent Court of Appeals erred in not applying the provisions on compensation
or setting-off debts under Articles 1278 and 1279 of the New Civil Code, despite evidence showing that Jose
K. Lapuz still owed him an amount of more than P5,000.00 and innot dismissing the appeal considering that
the latter is not legally the aggrieved party.
This contention is untenable. Compensation cannot take place in this case since the evidence shows that Jose
K. Lapuz is only an agent of Albert Smith and/or Dr. Dwight Dill.
Compensation takes place only when two persons in their own right are creditors and debtors of each other,
and that each one of the obligors is bound principally and is at the same time a principal creditor of the other.
Moreover, as correctly pointed out by the trial court, Lapuz did not consent to the off-setting of his
obligation with petitioner's obligation to pay for the 500 shares.
(2) WON the Court of Appeals denied him due process when they refused his prayer that the appealed case be heard.
RULING: It is discretionary on its part whether or not to set a case for oral argument. If it desires to hear
the parties on the issues involved, motu propio or upon petition of the parties, it may require contending
parties to be heard on oral arguments. Stated differently, if the Court of Appeals chooses not to hear the case,
the Justices composing the division may just deliberate on the case, evaluate the recorded evidence on hand
and then decide it. Accused-appellant need not be present in the court during its deliberation or even during
the hearing of the appeal before the appellate court; it will not be heard in the manner or type of hearing
contemplated by the rules for inferior or trial courts.
COMPANIA MARITIMA VS CA
(L-50900 April 9, 1985)
FACTS:
Fernando A. Froilan purchased from the Shipping Administration a boat described as MV/FS-197 for the
sum of P200,000.00, with a down payment of P50,000.00. To secure payment of the unpaid balance of the
purchase price, a mortgage was constituted on the vessel in favor of the Shipping Administration.
The contract was duly approved by the President of the Philippines. Froilan appeared to have defaulted in
spite of demands, not only in the payment of the first installment on the unpaid balance of the purchase price
and the interest thereon when they fell due, but also failed in his express undertaking to pay the premiums on
Page 67 of 81
the insurance coverage of the vessel obliging the Shipping Administration to advance such payment to the
insurance company. Subsequently, FROILAN appeared to have still incurred a series of defaults
notwithstanding reconsiderations granted.
General Manager (of the Shipping Administration) directed its officers to take immediate possession of the
vessel and to suspend the unloading of all cargoes on the same until the owners thereof made the
corresponding arrangement with the Shipping Administration. Pursuant to these instructions, the boat was,
not only actually repossessed, but the title thereto was registered again in the name of the Shipping
Administration, thereby re-transferring the ownership thereof to the government.
Pan Oriental Shipping Co., hereinafter referred to as Pan Oriental, offered to charter said vessel FS-197 for a
monthly rent of P3,000.00. Because the government was then spending for the guarding of the boat and
subsistence of the crew members since repossession, the Slopping Administration, accepted Pan Oriental's
offer "in principle" subject to the condition that the latter shag cause the repair of the vessel advancing the
cost of labor and drydocking thereof, and the Shipping Administration to furnish the necessary spare parts. In
accordance with this charter contract, the vessel was delivered to the possession of Pan Oriental.
In the meantime, Froilan tried to explain his failure to comply with the obligations he assumed and asked that
he be given another extension to file the necessary bond. However, as he failed to fulfill even these offers
made by him in these two communications, the Shipping Administration denied his petition for
reconsideration (of the rescission of the contract).
The Cabinet revoked the cancellation of Froilan's contract of sale and restored to him all his rights
thereunder, on condition that he would give not less than P1,000.00 to settle partially as overdue accounts
and that reimbursement of the expenses incurred for the repair and drydocking of the vessel performed by Pan
Oriental was to be made in accordance with future adjustment between him and the Shipping Administration.
Later, pursuant to this reservation, Froilan's request to the Executive Secretary that the Administration
advance the payment of the expenses incurred by Pan Oriental in the drydocking and repair of the vessel, was
granted on condition that Froilan assume to pay the same and file a bond to cover said undertaking.
The formal bareboat charter with option to purchase, in favor of the Pan Oriental was returned to the
General Manager of the Shipping Administration without action (not disapproval), only because of the
Cabinet resolution restoring Froilan to his rights under the conditions set forth therein, namely, the payment
of P10,000.00 to settle partially his overdue accounts and the filing of a bond to guarantee the reimbursement
of the expenses incurred by the Pan Oriental in the drydocking and repair of the vessel But Froilan again
failed to comply with these conditions. And so the Cabinet, considering Froilan's consistent failure to comply
with his obligations, including those imposed in the resolution, resolved to reconsider said previous
resolution restoring him to his previous rights.
The Cabinet resolved once more to restore Froilan to his rights under the original contract of sale, on
condition that he shall pay the sum of P10,000.00 upon delivery of the vessel to him, said amount to be
credited to his outstanding accounts; that he shall continue paying the remaining installments due, and that he
shall assume the expenses incurred for the repair and drydocking of the vessel. Pan Oriental protested to this
restoration of Froilan's rights under the contract of sale, for the reason that when the vessel was delivered to
it, the Shipping Administration had authority to dispose of the said property, Froilan having already
relinquished whatever rights he may have thereon. Froilan paid the required cash of P10,000.00, and as Pan
Oriental refused to surrender possession of the vessel, he filed an action for replevin to recover possession
thereof and to have him declared the rightful owner of said property.
The Republic of the Philippines, having been allowed to intervene in the proceeding, also prayed for the
possession of the vessel in order that the chattel mortgage constituted thereon may be foreclosed. Defendant
Pari Oriental resisted said intervention, claiming to have a better right to the possession of the vessel by
reason of a valid and subsisting contract in its favor, and of its right of retention, in view of the expenses it had incurred
for the repair of the said vessel. As counterclaim, defendant demanded of the intervenor to comply with the latter's
obligation to deliver the vessel pursuant to the provisions of the charter contract.
Subsequently, Compañia Maritima, as purchaser of the vessel from Froilan, was allowed to intervene in the
proceedings (in the lower court), said intervenor taking common cause with the plaintiff Froilan.
Page 68 of 81
The lower court rendered a decision upholding Froilan's (and Compañia Maritima's) right to the ownership
and possession of the FS-197. However, in the circumstances of this case, therefore, the resulting situation is
that neither Froilan nor the Pan Oriental holds a valid contract over the vessel. However, since the intervenor
Shipping Administration, representing the government practically ratified its proposed contract with Froilan
by receiving the full consideration of the sale to the latter, for which reason the complaint in intervention was
dismissed as to Froilan, and since Pan Oriental has no capacity to question this actuation of the Shipping
Administration because it had no valid contract in its favor, the of the lower court adjudicating the vessel to
Froilan and its successor Maritima, must be suspended. Nevertheless, under the already adverted to, Pan
Oriental cannot be considered as in bad faith until after the institution of the case.
ISSUE:
Whether or not the obligation can take place where one of the debts is not liquidated as when there is a
running interest still to be paid thereon?
RULING:
NO. The legal interest payable from February 3, 1951 on the sum of P40,797.54, representing useful expenses
incurred by PAN-ORIENTAL, is also still unliquidated 8 since interest does not stop accruing "until the
expenses are fully paid." 9 Thus, we find without basis REPUBLIC's allegation that PAN- ORIENTAL's
claim in the amount of P40,797.54 was extinguished by compensation since the rentals payable by PAN-
ORIENTAL amount to P59,500.00 while the expenses reach only P40,797.54. Deducting the latter amount
from the former, REPUBLIC claims that P18,702.46 would still be owing by PAN-ORIENTAL to
REPUBLIC. That argument loses sight of the fact that to the sum of P40,797.54 will still have to be added
the legal rate of interest "from February 3, 1951 until fully paid."
The amount of P6,937.72 a month ordered to be paid by REPUBLIC and MARITIMA to PAN-ORIENTAL
until the latter is paid its useful and necessary expenses is likewise in order. That amount represents the
damages for the wrongful issuance of the Writ of Replevin and was computed as follows: P4,132.77 for loss
of income by PAN ORIENTAL plus P2,804.95 as monthly depreciation of the vessel in lieu of the charter
hire. It should further be recalled that this Court, in acting on PAN- ORIENTAL's application for damages
in its Resolution of December 16, 1966, supra, did not deny the same but referred it instead to the Trial Court
"there to be heard and decided" since evidence would have to be presented. Moreover, this Court found that
PAN-ORIENTAL was "deprived of the possession of the vessel over which (it) had a lien for these
expenses" and that FROILAN and REPUBLIC "may be held responsible for the deprivation of defendant
(PANORIENTAL) of its right to retention of the property until fully reimbursed on the necessary
expenditures made on the vessel. "
The return of Pl5,000.00 ordered by the Trial Court and affirmed by the Appellate Court was but just and
proper. As this Court found, that sum was tendered to REPUBLIC "which together with its (PAN-
ORIENTAL's) alleged expenses already made on the vessel, cover 25% of the cost of the vessel, as provided
in the option granted in the bareboat contract. This amount was accepted by the Administration as deposit"
Since the purchase did not eventually materialize for reasons attributable to REPUBLIC, it is but just that the
deposit be returned. It is futile to allege that PAN-ORIENTAL did not plead for the return of that amount
since its prayer included other reliefs as may be just under the premises. Courts may issue such orders of
restitution as justice and equity may warrant.
We find no merit in MARITIMA's contention that the alleged damages on account of wrongful replevin was
barred by res judicata, and that the application for damages before the lower Court was but a mere adoption
of a different method of presenting claims already litigated. For the records show that an application for
damages for wrongful replevin was filed both before this Court and thereafter before the Trial Court after
this Tribunal specifically remanded the issue of those damages to the Trial Court there to be heard and
decided pursuant to Rule 60, Section 10 in relation to Rule 57, Section 20.
THE INTERNATIONAL CORPORATE BANK, INC. VS IAC

(G.R. No. L-69560 June 30, 1988)
FACTS:
Page 69 of 81
Private respondent secured from petitioner's predecessors-in-interest, the then Investment and Underwriting
Corp. of the Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00. To secure this
loan, private respondent mortgaged her real properties in Quiapo, Manila and in San Rafael, Bulacan, which
she claimed have a total market value of P110,000,000.00. Of this loan, only the amount of P20,000,000.00
was approved for release. The same amount was applied to pay her other obligations to petitioner, bank
charges and fees. Thus, private respondent's claim that she did not receive anything from the approved loan.
Private respondent made a money market placement with ATRIUM in the amount of P1,046,253.77 at 17%
interest per annum for a period of 32 days or until October 13, 1980, its maturity date. Meanwhile, private
respondent allegedly failed to pay her mortgaged indebtedness to the bank so that the latter refused to pay the
proceeds of the money market placement on maturity but applied the amount instead to the deficiency in the
proceeds of the auction sale of the mortgaged properties. With Atrium being the only bidder, said properties
were sold in its favor for only P20,000,000.00. Petitioner claims that after deducting this amount, private
respondent is still indebted in the amount of P6.81 million.
Private respondent filed a complaint with the trial court against petitioner for annulment of the sheriff's sale
of the mortgaged properties, for the release to her of the balance of her loan from petitioner in the amount of
P30,000,000,00, and for recovery of P1,062,063.83 representing the proceeds of her money market
investment and for damages. She alleges in her complaint, which was subsequently amended, that the
mortgage is not yet due and demandable and accordingly the foreclosure was illegal; that per her loan
agreement with petitioner she is entitled to the release to her of the balance of the loan in the amount of
P30,000,000.00; that petitioner refused to pay her the proceeds of her money market placement
notwithstanding the fact that it has long become due and payable; and that she suffered damages as a
consequence of petitioner's illegal acts.
In its answer, petitioner denies private respondent's allegations and asserts among others, that it has the right
to apply or set off private respondent's money market claim of P1,062,063.83. Petitioner thus interposes
counterclaims for the recovery of P5,763,741.23, representing the balance of its deficiency claim after
deducting the proceeds of the money market placement, and for damages.
The trial court subsequently dismissed private respondent's cause of action concerning the annulment of the
foreclosure sale, for lack of jurisdiction, but left the other causes of action to be resolved after trial. Private
respondent then filed separate complaints in Manila and in Bulacan for annulment of the foreclosure sale of
the properties in Manila and in Bulacan, respectively.
Private respondent filed a motion to order petitioner to release in her favor the sum of P1,062,063.83,
representing the proceeds of the money market placement, at the time when she had already given her direct
testimony on the merits of the case and was being cross-examined by counsel. Petitioner filed an opposition
thereto, claiming that the proceeds of the money market investment had already been applied to partly satisfy
its deficiency claim, and that to grant the motion would be to render judgment in her favor without trial and
make the proceedings moot and academic. However, at the hearing, counsel for petitioner and private
respondent jointly manifested that they were submitting for resolution said motion as well as the opposition
thereto on the basis of the pleadings and of the evidence which private respondent had already presented.
ISSUE:
Whether or not legal compensation can take place under Article 1290 of the Civil Code?
RULING:
NO. Petitioner contends that after foreclosing the mortgage, there is still due from private respondent as
deficiency the amount of P6.81 million against which it has the right to apply or set off private respondent's
money market claim of P1,062,063.83. The argument is without merit. As correctly pointed out by the
respondent Court of Appeals. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. (Art. 1278, Civil Code). "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 debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires among others, that
in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and
demandable."
Page 70 of 81
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 arising from breach of contract.
There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83
representing the proceeds of her money market investment. This is admitted. But whether private respondent
is indebted to petitioner in the amount of P6.81 million representing the deficiency balance after the
foreclosure of the mortgage executed to secure the loan extended to her, is vigorously disputed. This
circumstance prevents legal compensation from taking place.
It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC Manila, for
annulment of Sheriffs sale on extra-judicial foreclosure of private respondent's property from which the
alleged deficiency arose. Therefore, the validity of the extrajudicial foreclosure sale and petitioner's claim for
deficiency are still in question, so much so that it is evident, that the requirement of Article 1279 that the
debts must be liquidated and demandable has not yet been met. For this reason, legal compensation cannot
take place under Article 1290 of the Civil Code.
_____________________________________________________________________________________
MINDANAO PORTLAND CEMENT VS. CA

(G.R. No. L-62169, February 28, 1983)
DOCTRINE: For compensation to take place, the two parties must be debtors and creditors of each other.
FACTS:
Respondent Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel Corporation
(Pacweld) as the latter's attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff
Mindanao Portland Cement Corporation (MPCC), for the collection of attorney’s fees from a previous case
against MPCC.
MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds therefor, that said amount is set-
off by a like sum of P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way of
attorney's fees which MPCC recovered from the same Court of First Instance of Manila in another civil case,
entitled Pacweld Steel Corporation, et al. writ of execution to this effect having been issued by said court
The court denied the petition by MPCC. An appeal was filed where MPCC claims that the court erred in not
holding that the two obligations are extinguished reciprocally by operation of law. Fermin denied that the
storage of zippers in Mariano’s warehouse was intended to guarantee the payment of his loan. These were
merely deposits because he had nowhere to place the zippers.When Fermin tried to get the rest of the
zippers, Mariano refused to release it due to the non-payment of the loan. Mariano sued Fermin for the
principal amount of 160000
The trial court: in favor of Fermin that the debt was reduced to P120000. The CA reversed the same in favor
of Mariano that debt was P160000 (original)
ISSUE:
WON the two obligations are extinguished reciprocally by operation of law? NO.
RULING:
The Supreme Court ruled in favor of the MPCC. The appealed order granting Atty. Laquihon’s motion was a
void alteration of judgment. Pursuant to the provisions of Art. 1278, 1279 and 1290 of the Civil Code and all
the requisites in Art. 1279 “even creditors and debtors are unaware” for automatic compensation are present.
MPCC and Pacweld were creditors and debtors of each other, their debts to each other consisting in 2
separate cases, ordering the payment to each other of the sum of P10,000 by way of attorney’s fees. The 2
obligations offset each other.
It is clear from the record that both corporations, petitioner Mindanao Portland Cement Corporation
(appellant) and respondent Pacweld Steel Corporation (appellee), were creditors and debtors of each other,
Page 71 of 81
their debts to each other consisting in final and executory judgments of the Court of First Instance in two (2)
separate cases, ordering the payment to each other of the sum of P10,000.00 by way of attorney's fees. The
two (2) obligations, therefore, respectively offset each other, compensation having taken effect by operation
of law and extinguished both debts to the concurrent amount of P10,000.00, pursuant to the provisions of
Arts. 1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the said Code
for automatic compensation "even though the creditors and debtors are not aware of the compensation" were
duly present.
_____________________________________________________________________________________
FUA V YAP
(GR No. 48797 July 30, 1943)
FACTS:
Plaintiff-appellee Fua was the judgment creditor of the appellants, the Yaps. They were sentenced to pay Fua
P1, 539.04 with legal interest and costs. By virtue of a writ of execution, a parcel of land belonging to the
appellants was levied and was scheduled to be sold at a public auction. The appellants then executed a
mortgage in favor of appellee where it was stipulated that the appellants’ obligation was reduced to P1, 200
payable on four installments, to secure payment of the P1, 200, a camarin belonging to the appellants was
mortgaged to the appellee, that in case appellant default in payment, they would pay 10% of the unpaid
balance as attorney’s fees, plus the costs of the action to be brought by appellee by reason of such default,
and the amount of P338 representing the discount conceded to the appellants.
But pursuant to an alias writ of execution, the land was eventually sold at a public auction with appellee as
highest bidder. Appellants refused to vacate said parcel so an action was instituted by Fua. Appellants relied
on the legal defenses, among others, that their obligation under the judgment in the civil case was novated by
the mortgage executed by them in favor of the appellee.
The lower court ruled in favor of appellee and declared him to be the owner of the land ordering appellant to
deliver the same to appellee.
ISSUE:
Whether the liability under the judgment in the civil case had been extinguished by the settlement evidenced
by the mortgage executed by them in favor of the appellee?
RULING:
YES. Appellants liability under the judgment in the civil case had been extinguished by the statement
evidenced by the mortga ge executed by them in favor of appellee. Although said mortgage did not expressly
cancel the old obligation, this was impliedly novated by reason of the incompatibility resulting from the fact
that, whereas the judgment was for P1, 538.04 payable at one time, did not provid e for attorney’s fees, and
was not secured, the new obligation is for P1, 200 payable in installments, stipulates for attorney’s fee, and is
secured by a mortgage.
The later agreement did not merely extend the time to pay the judgment, because it was therein recited that
appellant promised to pay P1, 200 to appellee as a settlement of said judgment. Said judgment cannot be said
to have been settled, unless it was extinguished.
_____________________________________________________________________________________
MILLAR v. CA
(GR No. L-29981 April 30, 1971)
FACTS:
Page 72 of 81
Gabriel did not pay the first installment due on a chattel mortgage on a jeep he had executed with Millar.
 The CFI of Manila issued a writ of execution ordering Gabriel to return a Willy’s Ford jeep to Millar.
 Gabriel pleaded with Millar to release the jeep under an arrangement whereby he was to mortgage
the jeep in order to pay the judgment debt in favor of the latter. Gabriel executed a chattel mortgage
on the jeep.
o Gabriel was to pay a total of PHP 1700 in two installments at PHP 850 each.
Gabriel failed to pay the first installment. Millar then obtained a writ of execution but even after the lapse of
the entire chattel mortgage period, it was returned unsatisfied.
 After five unsatisfied writs of execution, the sheriff levied on certain personal properties belonging to
Gabriel and scheduled them for execution sale.
 Respondent Gabriel: Filed an urgent motion for suspension of execution sale on the ground of
payment of the judgment debt.
The lower court ordered the suspension of the execution sale and ruled that novation had taken place and
that the parties had executed the chattel mortgage only “to secure or get better security for the judgment.”
 CA held that there the chattel mortgage agreement impliedly novated the CFI judgment.
 CA held that the following circumstances demonstrated the incompatibility between the judgment
debt and the deed of chattel mortgage:
Judgment Debt Chattel Mortgage
Orders Gabriel to pay PHP 1746.98 with Only PHP 1700

interest at 12% per annum from the filing of
complaint plus PHP 400 in attorney’s fees
and the costs of suit
No specific mode of payment Payment of the sum of PHP 1700 in two
equal installments
No mention of damages Obligates Gabriel to pay liquidated damages

in the amount of PHP 300 in case of default
Unsecured Jeep may be foreclosed extrajudicially in case

of default
ISSUE:
WON the deed of chattel mortgage novated the judgment of the CFI? NO
RULING:
No novation shall be implied, unless there is clear and convincing proof of complete incompatibility between
the two obligations.
NO. There was no clear and convincing proof that there was an implied novation in the execution of the
Chattel Mortgage Agreement.
 On the first circumstance: Only modifications that alter the essence of the old obligation result in
implied novation.
o The mere reduction of the amount due does not constitute a sufficient indicium of
incompatibility especially in the light of Millar and Gabriel’s admission that the reduced
amount was due to partial payments made by the latter before the execution of the chattel
mortgage agreement.
o The deed of chattel mortgage was a mere specification of how much exactly Gabriel owed to
Millar in order to avoid confusion.
Page 73 of 81
 On the third circumstance: Discrepancy between the PHP 400 and PHP 300 fixed as attorney’s fees
and damages in the judgment and the deed respectively explained:
o Partial payments made by Gabriel before the execution of the chattel mortgage agreement
were applied in satisfaction of part of the judgment debt and of part of the attorney’s fees
fixed in the judgment, thereby reducing both amounts. (I don’t understand the reasoning here)
o There was no clear and convincing evidence that the PHP 300 in attorney’s fees stipulated in
the deed of chattel mortgage intended the same as an obligation for payment of liquidated
damages in case of default.
 On the second circumstance: The chattel mortgage simply gave Gabriel an express and specific
method of payment and more time to enable him to satisfy the judgment indebtedness. It did not
constitute any substantial modification of the judgment.
On the fourth circumstance: The debt security in the form of the jeep was stipulated to secure the satisfaction
of the liability. It effectuated no substantial alteration in Gabriel’s liability.
_____________________________________________________________________________________
NATIONAL POWER CORPORATION VS DAYRIT

(GR NO. L-62845-46 November 25, 1983)
FACTS:
DANIEL E. ROXAS, doing business under the name and style of United Veterans Security Agency and
Foreign Boats Watchmen, sued the NATIONAL POWER CORPORATION (NPC) and two of its officers
in Iligan City. The purpose of the suit was to compel the NPC to restore the contract of Roxas for security
services which the former had terminated. After several incidents, the litigants entered into a Compromise
Agreement on October 14, 1981, and they asked the Court to approve it. NPC executed another contract for
security services with Josette L. Roxas whose relationship to Daniel is not shown. At any rate Daniel has
owned the contract. The NPC refused to implement the new contract for which reason Daniel filed a Motion
for Execution in the aforesaid civil case which had been re-numbered R-82- 10787.
The NPC assails the Order on the ground that it directs execution of a contract which had been novated.
Upon the other hand, Roxas claims that said contract was executed precisely to implement the compromise
agreement for which reason there was no novation.
ISSUE:
Whether or not novation can be presumed?
RULING:
NO. Novation is never presumed but must be explicitly stated; No novation in the absence of explicit
novation or incompatibility on every point between the old and the new agreement of the parties.
It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest
incompatibility between the old and the new obligations in every aspect. Thus the Civil Code provides:
“Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be
on every point incompatible with each other.”
In the case at bar there is nothing in the May 14, 1982, agreement which supports the petitioner's contention.
There is neither explicit novation nor incompatibility on every point between the "old" and the "new"
agreements.
_____________________________________________________________________________________
Page 74 of 81
INTEGRATED CONSTRUCTION SERVICES, INC., ET AL. VS. RELOVA

(G.R. No. L-41117 DECEMBER 29, 1986)
FACTS:
Petitioners sued the respondent Metropolitan Waterworks and Sewerage System (MWSS), formerly
NAWASA, in the Court of First Instance of Manila for breach of contract. Meanwhile, parties submitted the
case to Arbitration.
The Arbitration Board rendered its decision:

o MWSS is ordered to pay petitioners about P15.5M less P2.3M to be set aside as trust fund to pay
creditors of joint venture in connection with the project, or a net award of P13,188,950.20 with
interest thereon from filing of complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS some discounts in consideration of an early
payment of the award.
Thus, MWSS adopted Board Resolution embodying the terms and conditions of their agreement (discounts).
MWSS sent letter to petitioners, quoting Board Resolution w/c grants MWSS some discounts from amount
payable (e.g. reductions in interests, net principal award), provided that MWSS would pay judgment within 15
d therefrom or up to October 17, 1972.
Petitioners signed their "Conforme" to the letter, and extended period to pay the judgment less the discounts.
MWSS, however, paid only on December 22, 1972, the amount stated in the decision but less the reductions
provided in letter.
Three years after, after the last balance of trust fund had been released to satisfy creditors' claims, the
petitioners filed Motion for Execution in said civil case against MWSS for the balance due under the CFI
award. Respondent MWSS opposed execution, setting defenses of payment and estoppel.
CFI/Judge Relova: denied Motion for Execution on ground that parties had novated the award by their
subsequent agreement.
Petitioners elevated case with SC thru petition for mandamus as a special civil action and/or, in the
alternative, an appeal from orders of the CFI.
ISSUE:
WON the subsequent letter-agreement between Petitioners and MWSS novated the judgment award?
RULING:
NO. While the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a
shortening of the period within which to pay, the suspensive and conditional nature of the said agreement
(making the novation conditional) is expressly acknowledged and stipulated in the 14th whereas clause of
MWSS' Resolution No. 132-72. MWSS' failure to pay within the stipulated period removed the very cause and
reason for the agreement, rendering some ineffective. Petitioners, therefore, were remitted to their original
rights under the judgment award.
The placing of MWSS under the control and management of the Secretary of National Defense thru Letter of
Instruction No. 2, was not an unforeseen supervening factor because when MWSS forwarded the letter-
agreement to the petitioners on October 2, 1972, the MWSS was already aware of LOI No. 2.
MWSS' contention that the stipulated period was intended to pressure MWSS officials to process the voucher
is untenable. As aforestated, it is apparent from the terms of the agreement that the 15-day period was
intended to be a suspensive condition. MWSS, admittedly, was aware of this, as shown by the internal
memorandum of a responsible MWSS official, stating that necessary steps should be taken to effect payment
within 15 days, for otherwise, MWSS would forego the advantages of the discount."
Page 75 of 81
____________________________________________________________________________________
COCHINGYAN, JR. V. R&B SURETY AND INSURANCE CO., INC
(GR No. L-47369 June 30, 1987)
FACTS:
In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) was granted an increase in its line of
credit from P400,000.00 to P800,000.00 (the “Principal Obligation”), with the Philippine National Bank
(PNB).
PAGRICO submitted Surety Bond No. 4765, issued by respondent R&B Surety and Insurance Co., (R&B
Surety) in the amount of P400,000.00 in favor of the PNB. In consideration of R & B Surety's issuance of the
Surety Bond, two identical indemnity agreements were entered into with R & B Surety executed by the
Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, and (b) another agreement dated 24
December 1963 was executed by PAGRICO.
Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B Surety to
pay an annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set forth in
said SURETY BOND for a period beginning ... until the same is CANCELLED and/or DISCHARGED."
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment
from R & B Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety
made a series of payments to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed
vouchers and receipts.
R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva
for reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB
under the Surety Bond. When petitioners failed to heed its demands, R & B Surety brought suit against
Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben.
The lower court rendered a decision in favor of R & B Surety, ordering the Cochingyan and Villanueva to pay
the plaintiff, jointly and severally, the total amount of their liability on Surety Bond No. 4765, at the interest
rate of 6% per annum.
ISSUE:
Whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B Surety to the
PNB under the Surety Bond which, in turn, extinguished the obligations of the petitioners under the
Indemnity Agreements?
RULING:
NO.
It is at once evident that the Trust Agreement does not expressly terminate the obligation of R & B Surety
under the Surety Bond. On the contrary, the Trust Agreement expressly provides for the continuing
subsistence of that obligation by stipulating that "[the Trust Agreement] shall not in any manner release" R &
B Surety from its obligation under the Surety Bond.
Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of complete incompatibility between the old and the
new obligation (and nothing else) would sustain a finding of novation by implication. But where, as in this
case, the parties to the new obligation expressly recognize the continuing existence and validity of the old
one, where, in other words, the parties expressly negated the lapsing of the old obligation, there can be no
novation. The issue of implied novation is not reached at all.
What the trust agreement did was, at most, merely to bring in another person or persons-the Trustor[s]-to
assume the same obligation that R & B Surety was bound to perform under the Surety Bond. It is not unusual
in business for a stranger to a contract to assume obligations thereunder; a contract of suretyship or guarantee
is the classical example. The precise legal effect is the increase of the number of persons liable to the obligee,
and not the extinguishment of the liability of the first debtor. Thus, in Magdalena Estates vs. Rodriguez, we
held that:
Page 76 of 81
“[t]he mere fact that the creditor receives a guaranty or accepts payments from a third
person who has agreed to assume the obligation, when there is no agreement that the first
debtor shall be released from responsibility, does not constitute a novation, and the
creditor can still enforce the obligation against the original debtor.”
In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already previously
bound to R & B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also became
directly liable to the PNB. So far as the PNB was concerned, the effect of the Trust Agreement was that
where there had been only two, there would now be three obligors directly and solidarily bound in favor of
the PNB: PAGRICO, R & B Surety and the Trustor. And the PNB could proceed against any of the three, in
any order or sequence. Clearly, PNB never intended to release, and never did release, R & B Surety. Thus, R
& B Surety, which was not a party to the Trust Agreement, could not have intended to release any of its own
indemnitors simply because one of those indemnitors, the Trustor under the Trust Agreement, became also
directly liable to the PNB.
Notes:
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a

subsequent one which terminates it, either by changing its object or principal conditions, or by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation
through a change of the object or principal conditions of an existing obligation is referred to as objective (or
real) novation. Novation by the change of either the person of the debtor or of the creditor is described as
subjective (or personal) novation. Novation may also be both objective and subjective (mixed) at the same
time. In both objective and subjective novation, a dual purpose is achieved-an obligation is extinguished and a
new one is created in lieu thereof.
If objective novation is to take place, it is imperative that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new obligation be on every point incompatible with the old
one. Novation is never presumed: it must be established either by the discharge of the old debt by the express
terms of the new agreement, or by the acts of the parties whose intention to dissolve the old obligation as a
consideration of the emergence of the new one must be clearly discernible.
Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the
juridical relation between the parties to the original contract is extended to a third person. It is essential that
the old debtor be released from the obligation, and the third person or new debtor take his place in the new
relation. If the old debtor is not released, no novation occurs and the third person who has assumed the
obligation of the debtor becomes merely a co-debtor or surety or a co-surety.
_____________________________________________________________________________________
BALILA VS IAC
(GR NO. L-68477 October 29, 1987)
FACTS:
Petitioners were defendants and private respondents were plaintiffs in a Civil Case. They entered into an
amicable settlement wherein petitioners admitted “having sold under a pacto de retro sale 3 parcels of land
(Lot 965, Lot 16, Lot 52) in the amount of P84,000” and that they “hereby promise to pay the said amount
within the period of 4 months but not later than May 15, 1981.”
December 30, 1981 or more than 7 months after the last day for making payments, petitioners redeemed
from private respondent Guadalupe Lot No. 52 by paying the amount of P20,000.
August 4, 1982 – Guadalupe filed a motion for a hearing on the consolidation of the title over the remaining
2 parcels of land namely Lot 965 and Loot 16 alleging that the earlier court decision (approving the amicable
settlement) remained unenforced for non-payment of the total obligation. Petitioners opposed, alleging that
they had made partial payments to Guadalupe’s attorney-in-fact and son, Waldo, as well as to the Sheriff.
TC issued an order affirming consolidation.
Page 77 of 81
On June 8, 1983, while the TC order had not yet been enforced, petitioners paid Guadalupe by tendering the
amount of P28,000 to her son Waldo, thus leaving an unpaid amount of P35,200. A certification dated June
8, 1983 and signed by Waldo showed that petitioners were given a period of 45 days from date or up to July
23, 1983 within which to pay the balance. Such certification supported petitioners’ MR of the order of
consolidation. MR was however denied.
ISSUE:
Was the Order approving the amicable settlement novated upon subsequent mutual agreements of the
parties? YES
RULING:
The root of all the issues raised before Us is that judgment by compromise rendered by the lower court based
on the terms of the amicable settlement of the contending parties. Such agreement not being contrary to law,
good morals or public policy was approved by the lower court and therefore binds the parties who are
enjoined to comply therewith. However, the records show that petitioners made partial payments to private
respondent Waldo del Castillo after May 15, 1981 or the last day for making payments, redeeming Lot No. 52
as earlier stated.
There is no question that petitioners tendered several payments to Waldo del Castillo even after redeeming lot
No. 52. A total of these payments reveals that petitioners share. fulIy paid the amount stated in the judgment
by com promise. The only issue is whether Waldo del Castillo was a person duly authorized by his mother
Guadalupe Vda. de del Castillo, as her attorney-in-fact to represent her in transactions involving the
properties in question. We believe that he was so authorized.
The fact therefore remains that the amount of P84,000.00 payable on or before May 15, 1981 decreed by the
trial court in its judgment by compromise was novated and amended by the subsequent mutual agreements
and actions of petitioners and private respondents. Petitioners paid the aforestated amount on an insatalment
basis and they were given by private respondents no less than eight extensions of time pay their obligation.
These transactions took place during the pendency of the motion for reconsideration of the Order of the trial
court dated April 26, 1983 in Civil Case No. U-3501, during the pendency of the petition for certiorari in AC-
G.R. SP-01307 before the Intermediate Appellate Court and after the filing of the petition before us.
The principle has been laid down that, when, after judgment has become final, facts and circumstances
transpire which render its execution impossible or unjust, the interested party may ask the court to modify or
alter the judgment to harmonize the same with justice and the facts.
DISPOSITIVE
Petition is given due course. Private respondents are hereby ordered to reconvey and deliver lot No. 965 and
Lot No. 16 as covered by TCT Nos. 146360 and 146361 respectively in favor of petitioners. Should private
respondents fail to do so, the Clerk of Court of the Regional Trial Court concerned is ordered to execute the
necessary deed of reconveyance, conformably with the provisions of the Rules of Court. The local Register of
Property is ordered to register said deed of reconveyance. Private respondents are hereby authorized to
withdraw the balance in the amount of P10,000 consigned by petitioners on January 9, 1985 with the trial
court as per OR No. 9764172 (Annex "O") a full payment of petitioners' obligation.
_____________________________________________________________________________________
PEOPLE'S BANK AND TRUST COMPANY vs. SYVEL'S INCORPORATED, ANTONIO and
ANGEL SYYAP
(GR No. L-29280 August 11, 1988)
FACTS:
Chattel mortgage was executed in connection w/ credit commercial line (loan) of P900k granted to Syvel’s
Inc. When credit expired, Antonio and Angel Syyap executed undertaking in favor of People’s Bank whereby
they both agreed to guarantee, and without benefit of excussion the full and prompt payment of any
indebtedness incurred on account of said credit line.
Page 78 of 81
When Syvel’s failed to make payment, People’s Bank started to foreclose extrajudicially the chattel mortgage,
which was not pushed through in an attempt to settle. But there was still no payment.
People’s Bank filed action for foreclosure of chattel mortgage was executed on its stocks of goods, personal
properties, and other materials owned by it and located at it stores or warehouses.
On petition, plaintiff People’s Bank claimed that defendants are disposing their properties to defraud their
creditors e.g. People’s Bank. A preliminary writ of attachment was issued.
Hence, defendants Syyap set up counterclaim for damages.
During pendency of case, Antonio Syyap proposed to settle the case, hence, a conference was held wherein
Syyap requested for dismissal of case and instead, offered to execute a REM on his real property in
Cavite.
People’s Bank consented.
In same case, defendants Syyap filed Motion to Dismiss case, but defendants refused to agree if it meant the
dismissal of their counterclaim. Instead, they filed their own Motion to Dismiss on the ground that by
execution of real estate mortgage, obligation secured by chattel mortgage was novated, and therefore, People
Bank’s cause of action to (ELAM: which was to foreclose the chattel mortgage) was extinguished.
ISSUE:
Whether or not novation occurred when the real estate mortgage was executed?
RULING:
NO
Court ruled (with People’s Bank):

 Novation takes place when the object or principal condition of an obligation is changed or
altered. Novation is never presumed; it must be explicitly stated or there must be manifest
incompatibility between old and new obligations in every aspect.
In this case:
(1) Contract on its face does not show existence of explicit novation nor incompatibility between old
and new agreements. 2nd contract indicates that real estate mortgage was executed as new additional
security only.
(2) In the real estate mortgage, appellants agreed that chattel mortgage shall remain in full force and
shall not be impaired by the real estate mortgage.
Contracts provides --- “That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series
of 1965, Notary Public Jose C. Merris, Manila); real estate mortgage executed by Angel V. Syyap and Rita V.
Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila) shall
remain in full force and shall not be impaired by this mortgage (par. 5, Exhibit"A,").
It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as
additional security for the performance of the contract (Bank of P.I. v. Herrige, 47 Phil. 57).
WON respondent judge gravely erred in the issuance of the writ of preliminary attachment?
NO.
Court ruled (with People’s Bank):
 Act of debtor in taking his stock of goods from the rear of his store at night, is sufficient to support
an attachment upon ground of fraudulent concealment of property for the purpose of delaying and
defrauding creditors.
Appellant failed to adduce evidence of bad faith or malice in the procurement of the writ of preliminary
attachmen
Page 79 of 81
__________________________________________________________________
ESTRELLA BENIPAYO RODRIGUEZ et al vs. HON. JUAN O. REYES

(G.R. No. L-22958 January 30, 1971)
FACTS:
Petitioners filed with the respondent court a complaint against their brother, respondent Alberto D.
Benipayo, for the partition of the properties held by them in common as heirs of the late spouses, Donato D.
Benipayo and Pura Disonglo (Civil Case No. 52188). After respondent Benipayo had answered the complaint,
the court set the case for a pre-trial conference, and in the course thereof the parties agreed to have the
properties in litigation sold at public auction to the highest bidder. Pursuant to an order issued by the
respondent judge, the parties submitted to the court a list of the properties to be sold, among which were
some lots in Albay, and the following parcels of land, with their improvements, that were at the time
mortgaged to the Development Bank of the Philippines
The respondent judge first directed the sale at public auction of properties located in Albay. After the
consummation of the sale and the approval thereof, His Honor ordered the sale of the two Manila lots and
improvements described above. Pursuant to the order, the sheriff of the City of Manila scheduled the auction
sale on 30 March 1964 at 10:00 o'clock A.M. Notice thereof was duly posted and published
On the date set for the sale, petitioners moved for its postponement on the ground that they were not in a
position to actively participate therein, but upon objection of respondent Benipayo's counsel, His honor
denied the motion and the sale was held as scheduled.
Herein respondent, Jose N. Dualan, successfully bid at the auction sale the sum of P235,000.0 for Lot No. 6-
B-2, Block No. 2124, covered by Transfer Certificate of Title No. 48979, issued by the Office of the Register
of Deeds of Manila; while respondent Vicente Sayson's bid of P173,000.00 was the highest for Lot No. 6-A
of Block No. 2124, covered by Transfer Certificate of Title No. 48978 issued by the same office. After the
sheriff had filed his return with the respondent judge, petitioners moved for the approval of the sale,
deducting from the total amount of P408,000.00 the sheriff's percentage, and the expenses incurred by
petitioners for the publication of the notice of sale.
The petitioners seek to apply the doctrine of caveat emptor to the successful bidder Dualan, and contend that
under said rule Dualan bought at his own peril and, having purchased the property with knowledge of the
encumbrance he should assume payment of the indebtedness secured thereby.
ISSUE:
Whether or not the doctrine of caveat emptor can be applied to the successful bidder Dualan?
RULING:
NO. The maxim "caveat emptor" applies only to execution sales, and this was not one such.5 The mere fact that
the purchaser of an immovable has notice that the required realty is encumbered with a mortgage does not
render him liable for the payment of the debt guaranteed by the mortgage, in the absence of stipulation or
condition that he is to assume payment of the mortgage debt.
The reason is plain:

the mortgage is merely an encumbrance on the property, entitling the mortgagee to have the property
foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage debt, and apply the proceeds of
the sale to the satisfaction of his credit.
Mortgage is merely an accessory undertaking for the convenience and security of the mortgage creditor, and
exists independently of the obligation to pay the debt secured by it. The mortgagee, if he is so minded, can
waive the mortgage security and proceed to collect the principal debt by personal action against the original
mortgagor.
Page 80 of 81
By buying the property covered by TCT No. 48979 with notice that it was mortgaged, respondent Dualan
only undertook either to pay or else allow the land's being sold if the mortgage creditor could not or did no
obtain payment from the principal debtor when the debt matured. 6 Nothing else. Certainly the buyer did not
obligate himself to replace the debtor in the principal obligation, and he could not do so in law without the
creditor's consent.
Our Civil Code, Article 1293, explicitly provides:

ART. 1293. Novation which consists in substituting a new debtor in the place of the original one,
may be made even with out the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236
and 1237.
The obligation to discharge the mortgage indebtedness, therefore, remained on the shoulders of the original
debtors and their heirs, petitioners herein, since the record is devoid of any evidence of contrary intent.
Upon the other hand, the orders complained of, in so far as they require the vendors-heirs to clear the title to
the land sold to respondent Dualan, when the latter bid for it with full knowledge that the same was subject
to a valid and subsisting mortgage, is plainly erroneous. In submitting his bid, Dualan is presumed to know,
and in fact did know, that the property was subject to a mortgage lien; that such encumbrance would make
him, as purchaser, eventually liable to discharge mortgage by paying or settling with the mortgage creditor,
should the original mortgagors fail to satisfy the debt. Normally, therefore, he would have taken this
eventuality into account in making his bid, and offer a lower amount for the lot than if it were not
encumbered. If he intended his bid to be understood as conditioned upon the property being conveyed to
him free from encumbrance, it was his duty to have so stated in his bid, or at least before depositing the
purchase price. He did not do so, and the bid must be understood and taken to conform to the normal
practice of the buyer's taking the mortgaged property subject to the mortgage. Consequently, he may not
demand that the vendors should discharge the encumbrance aforesaid.
Thus, the questioned order of the trial court ordering the vendors-heirs to clear the property of all its
encumbrances is not in accordance with law.
_____________________________________________________________________________________
Page 81 of 81

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CIVIL LAW REVIEW 2017-2018`

OBLIGATIONS -ARTS. 1156-1304

Nature: Complaint for sum of money

NOTE: The case is in Spanish.

Nature: Complaint for 20% Christmas bonus

TC dismissed the complaint, and held, among others:

ISSUE: W/N a Christmas bonus is a demandable obligation.

Nature: Complaint for payment of loan

CFI: reversed; dismissed the complaint

ISSUE: W/N the right to prescription may be renounced or waived

Article 1112 of Civil Code provides:

CRUZ V. TUASON AND CO.

Nature: complaint for recovery of improvements and conveyance of land

Defendants filed a MD on the following grounds:

Art. 2142 states,

GUTIERREZ HERMANOS V. ORENSE

Nature: Complaint to compel defendant to execute an instrument transferring all the

Nature: Action for partition with accounting

CA: reversed TC;

Petitioner (defendant) contends,

If not, whether petitioner acts as a TRUSTEE or a NEGOTIORUM GESTOR.

RE: negotiorum gestio

CA: Art 2154 is applicable; reversed CFI

ISSUE: W/N petitioner has an obligation to return the $10,000.

For this article to apply the following requisites must concur:

PUYAT AND SONS V. MANILA

Nature: action for refund

Date: April 30, 1963

Plaintiff-Appellee is entitled to the refund.

RE: Requirement of protest

Nature: Complaint for damages

TC: held FEU and GALAXY liable

CA: reversed; dismissed the complaint; shooting was a fortuitous event

YES. FEU is liable (culpa contractual).

Re: Force majeure

SAGRADA ORDEN VS NACOCO

RULING: It is not liable for rentals at all.

PEOPLE’S CAR INC. VS COMMANDO SECURITY SERVICE AGENCY

Nature: Action for damages

TC ruled in favor of the interpretation of Commando Security.

RULING: It is liable for the entire Php8,489.10.

CANGCO VS MANILA RAILROAD

Nature: Action for damages based on quasi-delict

GUTIERREZ VS. GUTIERREZ

Antonio T. Carpio / (DIVISION)

Whether or not the loan is immediately demandable?

Nature: Action for a sum of money based on a promissory note

TC ruled in favor of Palanca and dismissed the case

SMITH BELL VS SOTELO MATTI

Nature: Specific Performance – payment of goods and to receive the same

RULING: Yes, the obligations were conditional.

Nature: Action for damages

CFI ruled in favor of Encarnacion

ELEIZEGUI VS MANILA LAWN TENNIS CLUB

SEPARATE OPINION: Concurring by J. Willard:

PHILIPPINE BANKING representing estate of JUSTINA SANTOS v. LUI

Nature: Annulment of contract

ISSUE: W/N contracts should be annulled?

RULING: Yes, they should be.

Relevant Provision of Law: 1197

ISSUE: W/N Lim is guilty of estafa

RULING: Yes, Lim is guilty.

ARANETA V. PHILIPPINE SUGAR ESTATES DEVT. CO. LTD

Nature: Specific performance