SALUD PATENTE, demandante-apelada vs. ROMAN OMEGA, demandado-apelante. G.R.

No. L-4433 May 29, 1953

Villaba, Leyte, August 24, 1949.

This debt is not covered by any security because of the intimate relations of my family to her.

This sum covers my previous indebtedness to her which I received from her on May 4, 1947 and previous
thereto.

I hereby certify that I have to pay this whole indebtedness to her, before I exercise my right of repurchase
of an agricultural land, situated in Tag-alang, Villaba, Leyte, bearing Tax No. 2662, which I sold to her
under a pacto de retro sale.

That, upon the face of the promissory note in question, it is apparent that no definite term is fixed therein
and that its performance is left to the will of the debtor-defendant. (Rec. on Appeal p. 9)

That the questions involved in the present action are purely questions of Law; viz.:

(a) Whether or not the Justice of the Peace of Villaba, Leyte, had jurisdiction to take cognizance of the
present case and to fix a definite term for the payment of the indebtedness in question by the defendant by
applying the provisions of article 1128 of the Civil Code;

(b) Whether or not, the Court of First Instance has, consequently, an appellate jurisdiction in the present
action; (Rec. on Appeal, pp. 9-10)

It is practically admitted by the parties that the obligations arising from the two promissory notes should be
governed by said article, (Art. 1128, Civ. Code) inasmuch as it was the intention of the plaintiff, evidenced
by the terms of the said notes, to grant the debtor a period within which to pay the debts. . . . The defendant
contends that art. 1113 of the Civil Code should be applied inasmuch as the obligations derived from the
promisory notes were demandable from the time of their execution, . . . .

We hold that the two promissory notes are governed by art. 1128 because under the terms thereof the
plaintiff intended to grant the defendant a period within which to pay his debts. As the promissory notes do
not fix this period, it is for the court to fix the same. (66 Phil., 369)

Separate Opinions

FERIA, BENGZON and REYES., JJ., concurring:

We concur in the result. However, we believe that article 1115 of the Civil Code is inapplicable. The case
is governed by article 1128.
 TAYLOR VS UYTIENG PAO, GR NO L-16109, OCTOBER 2, 1922

FACTS: Taylor contracted his services to Tan Liuan & Co as superintendent of an oil factory which the
latter contemplated establishing
The contract extended over 2 years and the salary was P600/month during the first year and
P700/month during the second with electric, light and water for domestic consumption or in lieu thereof,
P60/month
At this time, the machinery for contemplated factory had not been acquired, though ten expellers had
been ordered from the US
It was understood that should the machinery to be installed fail, for any reason, to arrive in Manila
within the period of 6 months, the contract may be cancelled by the party of the second part at its option,
such cancellation not to occur before the expiration of such 6 months

The machinery did not arrive in Manila within the 6 months; the reason does not appear, but a
preponderance of evidence show that the defendants seeing that oil business no longer promised large
returns, either cancelled the order for machinery from choice or were unable to supply the capital
necessary to finance the project.
Defendants communicated to Taylor that they had decided to rescind the contract.
Taylor instituted this action to recover damages in the amount of P13k, covering salary and perks due
and to become due

ISSUE: WON in a contract for the prestation of service, it is lawful for the parties to insert a provision
giving the employer the power to cancel the contract in contingency which may be dominated by himself

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

NEWTON JISON v. CA, GR No. L-45349, 1988-08-15

FACTS: The instant petition for review of the decision of the Court of Appeals... issue of the validity of
the rescission of a contract to sell a subdivision lot due to the failure of the lot buyer to pay monthly
installments on their due dates and the forfeiture of the... amounts already paid.
Petitioners... entered into a Contract to Sell with private respondent, Robert O. Phillips & Sons. Inc.,...
whereby the latter agreed to sell to the former a lot... for the agreed price... of P55,000.00, with interest at
8% per annum, payable on an installment basis.
Pursuant to the contract, petitioners paid private respondents a down payment of P11,000.00... a monthly
installment of P533.85.
due to the failure of petitioners to build a house as provided in the contract, the stipulated penalty of P5.00
per square meter was imposed to the effect that the monthly amortization was increased to P707.24.
January 1, 1966, February 1, 1966 and March 1, 1966, petitioners failed to pay the monthly installments
due on said dates although petitioners subsequently paid the amounts due and these were accepted by
private respondent.
petitioners failed to pay... private respondent sent a letter (Ex... to petitioners calling their attention to the
fact that their account was four months overdue.
This... letter was followed up by another letter... where private respondent reminded petitioner of the
automatic rescission clause of the contract.
Petitioners eventually paid on March 1, 1967.
Petitioners again failed to pay the monthly installments
Thus, in a letter... private respondent returned petitioners' check and informed them that the contract was
cancelled... petitioners failed to pay the monthly installment due, thereby making their account delinquent
for three months.
petitioners tendered payment for all the installments already due but the tender was refused.
Thus, petitioners... countered by filing a complaint for specific performance
Court of First Instance... and consigning the monthly... installments due with the court.
endered judgment in favor of private respondent, dismissing the complaint and declaring the contract
cancelled and all payments already made by... petitioner forfeited;
Not satisfied with the decision of the trial court, petitioners appealed to the Court of Appeals.
Court of Appeals... ffirmed the former's decision.
Thus, the instant petition for review.
ISSUES: principal issue in this case is the legality of the rescission of the contract and the forfeiture of
the payments already made by petitioners.
RULING: In this case, private respondent has denied that rescission is justified and has resorted to
judicial action. It is now for the Court to determine whether resolution of the contract by petitioner was
warranted.
We hold that resolution by petitioners of the contract was ineffective and inoperative against private
respondent for lack of notice of resolution,... There is no denying that in the instant case the resolution or
rescission of the Contract to Sell was valid.
Neither can it be said that the cancellation of the contract was ineffective for failure of private respondents to
give petitioners notice thereof as petitioners were... informed by private respondent that the contract was
cancelled
While the resolution of the contract and the forfeiture of the amounts already paid are valid and binding
upon petitioners, the Court is convinced that the forfeiture of the amount of P47,312.64, although it
includes the accumulated fines for petitioners' failure to construct... a house as required by the contract, is
clearly iniquitous considering that the contract price is only P55,000.00. The forfeiture of fifty percent
(50%) of the amount already paid, orP23,656.32, appears to be a fair settlement.
In arriving at this amount the Court gives weight... to the fact that although petitioners have been
delinquent in paying their amortizations several times to the prejudice of private respondent, with the
cancellation of the contract the possession of the lot reverts to private respondent who is free to resell it to
another party.
The Court's decision to reduce the amount forfeited finds support in the Civil Code. As stated in
paragraph 3 of the contract, in case the contract is cancelled, the amount already paid shall be forfeited in
favor of the vendor as liquidated damages. The Code provides that... liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable
[Art. 2227.]
Further, in obligation with a penal clause, the judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor
Private respondent is ordered to refund to petitioners the excess of P23,656.32 within thirty (30) days
from the date of finality of this judgment.

UNLAD RESOURCES DEVELOPMENT CORPORATION vs. DRAGON

,G.R. NO. 149338, July 28, 2008

FACTS: The parties in this case entered in a Memorandum of Agreement (MoA) that UNLAD will
invest in additional stocks worth 4.8M and pay up immediately 1.2M for said subscription while the
respondents, Dragon and company, shall transfer control and management over the Rural Bank to
UNLAD Resources. The respondents complied with their obligation but the petitioners did not, thus
respondents filed a complaint for rescission of the agreement and the return of control and management of
the Rural Bank from petitioners to respondents, plus damages.

ISSUE: WON the rescission of the MoA between the parties is proper.

HELD: Yes, the MoA between the parties can be rescinded pursuant to Article 1191 of the Civil Code
which states that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. Since UNLAD failed to comply with what is
incumbent upon him, the other party-the respondents can ask for rescission of the MoA on such ground.
Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was just cause for
rescission. With the contract, thus rescinded, the parties must be restored to the original state, that is,
before they entered into the Memorandum of Agreement.

PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE

BORROMEO, CONSUELO B. MORALES and CANUTO V. BORROMEO,
JR., petitioners, vs. COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased)
Substituted by FELISA VILLAMOR, ROSARIO V. LIAO LAMCO, MANUEL
VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and CARMENCITA
VILLAMOR, respondents. G.R. No. L-22962 September 28, 1972

The point pressed on us by private respondents, 1 in this petition for review of a decision of the Court of
Appeals in the interpretation of a stipulation which admittedly is not free from ambiguity, there being a
mention of a waiver of the defense of prescription, is not calculated to elicit undue judicial sympathy. For
if accorded acceptance, a creditor, now represented by his heirs, 2 who, following the warm and generous
impulse of friendship, came to the rescue of a debtor from a serious predicament of his own making would
be barred from recovering the money loaned. Thus the promptings of charity, unfortunately not often
persuasive enough, would be discredited. It is unfortunate then that respondent Court of Appeals did not
see it that way. For its decision to be upheld would be to subject the law to such a scathing indictment. A
careful study of the relevant facts in the light of applicable doctrines calls for the reversal of its decision.
The facts as found by the Court of Appeals follow: "Before the year 1933, defendant [Jose A. Villamor]
was a distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in
Cebu City. Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo] used to borrow
from the latter certain amounts from time to time. On one occasion with some pressing obligation to settle
with Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land
and house in Cebu City. Mr. Miller filed civil action against the defendant and attached his properties
including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be
registered because not properly drawn up. Plaintiff then pressed the defendant for settlement of his
obligation, but defendant instead offered to execute a document promising to pay his indebtedness even
after the lapse of ten years. Liquidation was made and defendant was found to be indebted to plaintiff in
the sum of P7,220.00, for which defendant signed a promissory note therefor on November 29, 1933 with
interest at the rate of 12% per annum, agreeing to pay 'as soon as I have money'. The note further stipulates
that defendant 'hereby relinquish, renounce, or otherwise waive my rights to the prescriptions established
by our Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ... at any time
even after the lapse of ten years from the date of this instrument'. After the execution of the document,
plaintiff limited himself to verbally requesting defendant to settle his indebtedness from time to time.
Plaintiff did not file any complaint against the defendant within ten years from the execution of the
document as there was no property registered in defendant's name, who furthermore assured him that he
could collect even after the lapse of ten years. After the last war, plaintiff made various oral demands, but
defendants failed to settle his account, — hence the present complaint for collection." 3 It was then noted
in the decision under review that the Court of First Instance of Cebu did sentence the original defendant,
the deceased Jose A. Villamor, to pay Canuto O. Borromeo, now represented by petitioners, the sum of
P7,220.00 within ninety days from the date of the receipt of such decision with interest at the rate of 12%
per annum from the expiration of such ninety-day period. That was the judgment reversed by the Court of
Appeals in its decision of March 7, 1964, now the subject of this petition for review. The legal basis was
the lack of validity of the stipulation amounting to a waiver in line with the principle "that a person cannot
renounce future prescription." 4

The rather summary and curt disposition of the crucial legal question of respondent Court in its five-page
decision, regrettably rising not too-far-above the superficial level of analysis hardly commends itself for
approval. In the first place, there appeared to be undue reliance on certain words employed in the written
instrument executed by the parties to the total disregard of their intention. That was to pay undue homage
to verbalism. That was to ignore the warning of Frankfurter against succumbing to the vice of literalism in
the interpretation of language whether found in a constitution, a statute, or a contract. Then, too, in effect it
would nullify what ought to have been evident by a perusal that is not-too-cursory, namely, that the creditor
moved by ties of friendship was more than willing to give the debtor the utmost latitude as to when his
admittedly scanty resources will allow him to pay. He was not renouncing any right; he was just being
considerate, perhaps excessively so. Under the view of respondent Court, however, what had been agreed
upon was in effect voided. That was to run counter to the well-settled maxim that between two possible
interpretations, that which saves rather than destroys is to be preferred. What vitiates most the appealed
decision, however, is that it would amount not to just negating an agreement duly entered into but would
put a premium on conduct that is hardly fair and could be characterized as duplicitous. Certainly, it would
reflect on a debtor apparently bent all the while on repudiating his obligation. Thus he would be permitted
to repay an act of kindness with base ingratitude. Since as will hereafter be shown, there is, on the contrary,
the appropriate construction of the wording that found its way in the document, one which has all the
earmarks of validity and at the same time is in consonance with the demands of justice and morality, the
decision on appeal, as was noted at the outset, must be reversed.

1. The facts rightly understood argue for the reversal of the decision arrived at by respondent Court of
Appeals. Even before the event that gave rise to the loan in question, the debtor, the late Jose A. Villamor,
being a friend and a former classmate, used to borrow from time to time various sums of money from the
creditor, the late Canuto O. Borromeo. Then faced with the need to settle a pressing obligation with a certain
Miller, he did borrow from the latter sometime in 1933 what respondent Court called "a large sum of money
for which he mortgaged his land and house in Cebu City." 5 It was noted that this Miller did file a suit
against him, attaching his properties including those he did mortgage to the late Borromeo, there being no
valid objection to such a step as the aforesaid mortgage, not being properly drawn up, could not be
registered. Mention was then made of the late Borromeo in his lifetime seeking the satisfaction of the sum
due with Villamor unable to pay, but executing a document promising "to pay his indebtedness even after
the lapse of ten years." 6 It is with such a background that the words employed in the instrument of
November 29, 1933 should be viewed. There is nothing implausible in the view that such language
renouncing the debtor's right to the prescription established by the Code of Civil Procedure should be given
the meaning, as noted in the preceding sentence of the decision of respondent Court, that the debtor could
be trusted to pay even after the termination of the ten-year prescriptive period. For as was also made clear
therein, there had been since then verbal requests on the part of the creditor made to the debtor for the
settlement of such a loan. Nor was the Court of Appeals unaware that such indeed was within the
contemplation of the parties as shown by this sentence in its decision: "Plaintiff did not file any complaint
against the defendant within ten years from the execution of the document as there was no property
registered in defendant's name who furthermore assured him that he could collect even after the lapse of
ten years." 7

2. There is much to be said then for the contention of petitioners that the reference to the prescriptive period
is susceptible to the construction that only after the lapse thereof could the demand be made for the payment
of the obligation. Whatever be the obscurity occasioned by the words is illumined when the light arising
from the relationship of close friendship between the parties as well as the unsuccessful effort to execute a
mortgage, taken in connection with the various oral demands made, is thrown on them. Obviously, it did
not suffice for the respondent Court of Appeals. It preferred to reach a conclusion which for it was
necessitated by the strict letter of the law untinged by any spirit of good morals and justice, which should
not be alien to legal norms. Even from the standpoint of what for some is strict legalism, the decision arrived
at by the Court of Appeals calls for disapproval. It is a fundamental principle in the interpretation of
contracts that while ordinarily the literal sense of the words employed is to be followed, such is not the case
where they "appear to be contrary to the evident intention of the contracting parties," which "intention shall
prevail." 8 Such a codal provision has been given full force and effect since the leading case of Reyes v.
Limjap, 9a 1910 decision. Justice Torres, who penned the above decision, had occasion to reiterate such a
principle when he spoke for the Court in De la Vega v. Ballilos 10 thus: "The contract entered into by the
contracting parties which has produced between them rights and obligations is in fact one of antichresis,
for article 1281 of the Civil Code prescribes among other things that if the words should appear to conflict
with the evident intent of the contracting parties, the intent shall prevail." 11 In Abella v. Gonzaga, 12 this
Court through the then Justice Villamor, gave force to such a codal provision when he made clear that the
inevitable conclusion arrived at was "that although in the contract Exhibit A the usual words 'lease,' 'lessee,'
and 'lessor' were employed, that is no obstacle to holding, as we do hereby hold, that said contract was a
sale on installments, for such was the evident intention of the parties in entering into said contract. 13 Only
lately in Nielson and Company v. Lepanto Consolidated Mining Company, 14 this Court, with Justice
Zaldivar, as ponente, after stressing the primordial rule that in the construction and interpretation of a
document, the intention of the parties must be sought, went on to state: "This is the basic rule in the
interpretation of contracts because all other rules are but ancillary to the ascertainment of the meaning
intended by the parties. And once this intention has been ascertained it becomes an integral part of the
contract as though it had been originally expressed therein in unequivocal terms ... ." 15 While not directly
in point, what was said by Justice Labrador in Tumaneng v. Abad16 is relevant: "There is no question that
the terms of the contract are not clear on the period of redemption. But the intent of the parties thereto is
the law between them, and it must be ascertained and enforced." 17 Nor is it to be forgotten, following what
was first announced in Velasquez v. Teodoro 18 that "previous, simultaneous and subsequent acts of the
parties are properly cognizable indicia of their true intention." 19

There is another fundamental rule in the interpretation of contracts specifically referred to in Kasilag v.
Rodriguez, 20 as "not less important" 21 than other principles which "is to the effect that the terms, clauses
and conditions contrary to law, morals and public order should be separated from the valid and legal
contract when such separation can be made because they are independent of the valid contract which
expresses the will of the contracting parties. Manresa, commenting on article 1255 of the Civil Code and
stating the rule of separation just mentioned, gives his views as follows: 'On the supposition that the various
pacts, clauses, or conditions are valid, no difficulty is presented; but should they be void, the question is as
to what extent they may produce the nullity of the principal obligation. Under the view that such features
of the obligation are added to it and do not go to its essence, a criterion based upon the stability of juridical
relations should tend to consider the nullity as confined to the clause or pact suffering therefrom, except in
cases where the latter, by an established connection or by manifest intention of the parties, is inseparable
from the principal obligation, and is a condition, juridically speaking, of that the nullity of which it would
also occasion.' ... The same view prevails in the Anglo-American law as condensed in the following words:
'Where an agreement founded on a legal consideration contains several promises, or a promise to do several
things, and a part only of the things to be done are illegal, the promises which can be separated, or the
promise, so far as it can be separated, from the illegality, may be valid. The rule is that a lawful promise
made for a lawful consideration is not invalid merely because an unlawful promise was made at the same
time and for the same consideration, and this rule applies, although the invalidity is due to violation of a
statutory provision, unless the statute expressly or by necessary implication declares the entire contract
void. ..." 22

Nor is it to be forgotten that as early as Compania Agricola Ultramar v. Reyes, 23 decided in 1904, the then
Chief Justice Arellano in a concurring opinion explicitly declared: "It is true that contracts are not what the
parties may see fit to call them, but what they really are as determined by the principles of law." 24 Such a
doctrine has been subsequently adhered to since then. As was rephrased by Justice Recto in Aquino v.
Deala: 25 "The validity of these agreements, however, is one thing, while the juridical qualification of the
contract resulting therefrom is very distinctively another." 26 In a recent decision, Shell Company of the
Phils., Ltd. vs. Firemen's Insurance Co. of Newark, 27 this court, through Justice Padilla, reaffirmed the
doctrine thus: "To determine the nature of a contract courts do not have or are not bound to rely upon the
name or title given it by the contracting parties, should there be a controversy as to what they really had
intended to enter into, but the way the contracting parties do or perform their respective obligations,
stipulated or agreed upon may be shown and inquired into, and should such performance conflict with the
name or title given the contract by the parties, the former must prevail over the latter." 28 Is it not rather
evident that since even the denomination of the entire contract itself is not conclusively determined by what
the parties call it but by the law, a stipulation found therein should likewise be impressed with the
characterization the law places upon it?

What emerges in the light of all the principles set forth above is that the first ten years after November 29,
1933 should not be counted in determining when the action of creditor, now represented by petitioners,
could be filed. From the joint record on appeal, it is undoubted that the complaint was filed on January 7,
1953. If the first ten-year period was to be excluded, the creditor had until November 29, 1953 to start
judicial proceedings. After deducting the first ten-year period which expired on November 29, 1943, there
was the additional period of still another ten years. 29 Nor could there be any legal objection to the
complaint by the creditor Borromeo of January 7, 1953 embodying not merely the fixing of the period
within which the debtor Villamor was to pay but likewise the collection of the amount that until then was
not paid. An action combining both features did receive the imprimatur of the approval of this Court. As
was clearly set forth in Tiglao v. The Manila Railroad Company: 30 "There is something to defendant's
contention that in previous cases this Court has held that the duration of the term should be fixed in a
separate action for that express purpose. But we think the lower court has given good reasons for not
adhering to technicalities in its desire to do substantial justice." 31 The justification became even more
apparent in the latter portion of the opinion of Justice Alex Reyes for this Court: "We may add that
defendant does not claim that if a separate action were instituted to fix the duration of the term of its
obligation, it could present better proofs than those already adduced in the present case. Such separate
action would, therefore, be a mere formality and would serve no purpose other than to delay." 32 There is
no legal obstacle then to the action for collection filed by the creditor. Moreover, the judgment of the lower
court, reversed by the respondent Court of Appeals, ordering the payment of the amount due is in
accordance with law.

3. There is something more to be said about the stress in the Tiglao decision on the sound reasons for not
adhering to technicalities in this Court's desire to do substantial justice. The then Justice, now Chief Justice,
Concepcion expressed a similar thought in emphasizing that in the determination of the rights of the
contracting parties "the interest of justice and equity be not ignored." 33 This is a principle that dates back
to the earliest years of this Court. The then Chief Justice Bengzon in Arrieta v. Bellos, 34 invoked equity.
Mention has been made of "practical and substantial justice," 35 "[no] sacrifice of the substantial rights of
a litigant in the altar of sophisticated technicalities with impairment of the sacred principles of
justice," 36 "to afford substantial justice" 37 and "what equity demands." 38 There has been disapproval
when the result reached is "neither fair, nor equitable." 39 What is to be avoided is an interpretation that
"may work injustice rather than promote justice." 40What appears to be most obvious is that the decision
of respondent Court of Appeals under review offended most grievously against the above fundamental
postulate that underlies all systems of law.

WHEREFORE, the decision of respondent Court of Appeals of March 7, 1964 is reversed, thus giving full
force and effect to the decision of the lower court of November 15, 1956. With costs against private
respondents.

ORIENTAL COMMERCIAL CO., INC., petitioner, vs. QUIRICO ABETO and ALEJO
MABANAG, respondents. G.R. No. L-42391 October 10, 1934

In civil case No. 35897 of the Court of First Instance of Manila, the herein petitioner sought to recover from
Gregorio Bugayong, Vicente Rosario and the herein respondent Alejo Mabanag a certain sum of money,
interest, penalty and costs. After trial, judgment was rendered ordering Bugayong alone to pay the sum of
P5,742.73 with legal interest thereon from August 15, 1929, plus the costs, and absolving Mabanag and
Rosario from the complaint. Appeal was taken therefrom and the case was docketed in this court as case
No. 37624. After the same had been submitted for decision, judgment was rendered as follows: 1

On the whole case we believe that P1,000 should be awarded appellant for attorney's fees and that judgment
should be entered against all the defendants and appellees in the sum of P5,742.73, with legal interest from
the 15th of August, 1929, until paid, together with the sum of P1,000 as attorney's fees, and the costs in
both instances.

As thus modified, the judgment of the Court of First Instance of Manila is affirmed. So ordered.

Said judgment having become final, the clerk of court issued the following decree.

By virtue thereof it is hereby adjudged and decreed that the judgment of the Court of First Instance of
Manila, dated the 18th day of February, nineteen hundred and thirty-two, and from which the above-entitled
appeal was taken, be, and the same is hereby, affirmed with the modification that judgment is entered
against all the defendants and appellees in the sum of P5,742.73, with legal interest from the 15th of August,
1929, until paid, together with the sum of P1,000 as attorney's fees, and the costs in both instances.

It further ordered that the plaintiff-appellant recover from the defendants-appellees the sum of P143, as
costs.

After the case had been remanded to the court of origin, the petitioner applied for and obtained a writ of
execution of the judgment. By virtue of said writ, real and personal properties belonging to Rosario and the
respondent Mabanag were levied upon. The latter executed in favor of the petitioner a promissory note for
the sum of P1,000 as partial payment of the judgment and succeeded in having the execution suspended in
that state. Inasmuch as the judgment was not executed in full in spite of the time that elapsed, the petitioner
obtained from the clerk of court an alias writ of execution against the respondent Mabanag, and the
provincial sheriff of Rizal levied upon two pieces of real property belonging to him, fixing their sale at
public auction for August 10, 1934. The said respondent then filed a motion praying the court to enjoin the
sheriff from proceeding with the sale, alleging that, according to the terms of the judgment, he was a mere
joint obligor with Rosario, for which reason he was not liable to satisfy in full the unpaid balance of the
judgment which, according to the last writ of execution, amounted to P1,750.16. Lastly, he claimed that,
being a mere surety, execution did not lie against him until after the property of the principal debtor
Gregorio Bugayong is exhausted. The court sustained said motion and on August 4, 1934, it ordered the
sheriff to abstain from proceeding with the advertised sale, and directed that no writ of execution be issued
against the respondent Mabanag until after the property of Bugayong is exhausted or Bugayong should
happen to be insolvent.

The petitioner filed this petition for a writ of certiorari to have said order of August 4, 1934, set aside.

The only to be decided by this court is whether or not the trial court, in issuing the order in question, acted
without or in excess of its jurisdiction or abused its sound discretion. In deciding such question, we should
first determine the rights and obligations created by the final judgment rendered by this court. It is beyond
question that said judgment is binding upon the parties to the case and that it superseded the action brought
by the petitioner.

A claim or demand, being put in suit and passing to final judgment, is merged or swallowed up in the
judgment, loses its vitality, and cannot thereafter be used either as a cause of action or as a set-off, unless
the statute otherwise provides; and this rule applies to a final decree in a court of equity. Moreover, as a
general rule all the peculiar qualities of the claim are merged in the judgment, which then stands on the
same footing as all other judgments. And these rules apply to all species of demands, including contracts,
bonds, and promissory notes, but not, according to the weight of authority, a judgment on which a new
judgment is recovered. (34 C. J., pp. 752-754.)

It being settled that the final judgment determines and is the source of the rights and obligations of the
parties to that case, let us find out what obligations are derived therefrom in favor of the petitioner and
against the respondent Mabanag and his co-defendants therein. In the judgment of this court, notice of
which was served by the clerk on the trial court and the parties, it is simply stated that judgment be entered
against all the defendants and appellees in the sum of P5,742.73, with legal interest from the 15th of August,
1929, until paid, together with the sum of P1,000 as attorney's fees, and costs, but it does not specify the
kind of obligation imposed upon the defendants in connection with the payment or the manner in which
said payment should be made by them. In other words, the judgment failed to state whether or not the
defendants should pay said sums jointly and severally.

As to obligations, the Civil Code provides as follows:

ART. 1137. The concurrence of two or more creditors, or of two or more debtors, in a single obligation,
does not imply that each one of the former has a right to ask, nor that each one of the latter is bound to
comply in full with the things which are the objects of the same. This shall only take place when the
obligation determines it expressly, being constituted as a joint and several obligation.

ART. 1138. If from the context of the obligation referred to in the preceding article, any other thing does
not appear, the credit or the debt shall be presumed as divided in as many equal parts as there are creditors
or debtors, and shall be considered as credits or debts, each one different from the other.

In the case of De Leon vs. Nepomuceno and De Jesus (37 Phil., 180), this court, in determining the manner
in which the costs should be paid in conformity with the language of the judgment rendered in an election
case, said:
Examining the language of the judgment for costs, which is set out in the foregoing statement of facts, it is
manifest that it is merely a joint judgment against the protestado y tercerista, and does not permit of
construction or interpretation as a "joint and several" judgment. No argument is necessary. It is sufficient
to cite here articles 1137 and 1138 of the Civil Code as to the rule in this jurisdiction.

ART. 1137. The concurrence of two or more creditors, or of two or more debtors, in a single obligation,
does not imply that each one of the former has a right to ask, nor that each one of the latter is bound to
comply in full with the things which are the objects of the same. This shall only take place when the
obligation determines it expressly, being constituted as a joint and several obligation.

ART. 1138. If from the context of the obligation referred to in the preceding article, any other thing does
not appear, the credit or the debt shall be presumed as divided in as many equal parts as there are creditors
or debtors, and shall be considered as credits or debts, each one different from the other.

"A joint obligation under the Law of Louisiana binds the parties thereto only for their proportion of the
debt, whilst a solidary obligation, on the contrary, binds each of the obligors for the whole debt." (Groves vs.
Sentell; 14 Sup. Ct., 898, 901; 153 U. S., 465; 38 L. ed., 785.)

And in the case of Sharruf vs. Tayabas Land Co. and Ginainati (37 Phil., 655), wherein the case of De Leon
was again favorably cited, the same rule was reiterated in the following terms:

We agree with the appellant that this promissory note evidences a joint and not a joint and several
obligation, but it appearing that the trial judge correctly rendered judgment holding the defendants "jointly"
liable, there is no necessity for any modification of the terms of the judgment in that regard. Our decision
in the case of De Leon vs. Nepomuceno and De Jesus (p. 180, ante) should make it quite clear that in this
jurisdiction at least, the word "jointly" when used by itself in a judgment rendered in English is equivalent
to the word mancomunadamente, and that it is necessary to use the words "joint and several" in order to
convey the idea expressed in the Spanish term solidariamente (in solidum); and further, that a contract, or
a judgment based thereon, which fails to set forth that a particular obligation is "joint and several" must be
taken to have in contemplation a "joint" (mancomunada), and not a "joint and several" (solidary) obligation.

Therefore, it is already a well established doctrine in this jurisdiction that, when it is not provided in a
judgment that the defendants are liable to pay jointly and severally a certain sum of money, none of them
may be compelled to satisfy in full said judgment. And applying said doctrine to the case under
consideration, it follows that the respondent Mabanag is not in fact liable to satisfy in full the amount of
the judgment rendered against him and the other two co-defendants.

It is of no consequence that, under the written contract of suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in character. The final judgment, which superseded the
action brought for the enforcement of said contract, declared the obligation to be merely joint, and the same
cannot be executed otherwise.

In the court's order it is decreed that no writ of execution be issued against the respondent Mabanag until
after the property of the co-defendant Bugayong is exhausted. This court is of the opinion that there was
excess of jurisdiction upon this point. In the final judgment nothing can be inferred giving any of the
defendants therein the benefit of order. The final judgment rendered against them does not consider any of
them as surety.

Wherefore, it being understood that the respondent Mabanag is not entitled to the benefit of exhaustion, the
petition is denied, without special pronouncement as to costs. So ordered.

Malcolm, Villa-Real, Butte and Goddard, JJ., concur.

STRONGHOLD INSURANCE COMPANY, INC., Petitioner, vs.
REPUBLIC-ASAHI GLASS CORPORATION, Respondent. G.R. No. 147561 June 22, 2006

Asurety company’s liability under the performance bond it issues is solidary. The death of the principal
obligor does not, as a rule, extinguish the obligation and the solidary nature of that liability.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the March 13,
2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed Decision disposed as
follows:

"WHEREFORE, the Order dated January 28, 1993 issued by the lower court is REVERSED and SET
ASIDE. Let the records of the instant case be REMANDED to the lower court for the reception of evidence
of all parties."3

The Facts

The facts of the case are narrated by the CA in this wise:

"On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered into a
contract with x x x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the construction of
roadways and a drainage system in Republic-Asahi’s compound in Barrio Pinagbuhatan, Pasig City, where
[respondent] was to pay x x x JDS five million three hundred thousand pesos (P5,300,000.00) inclusive of
value added tax for said construction, which was supposed to be completed within a period of two hundred
forty (240) days beginning May 8, 1989. In order ‘to guarantee the faithful and satisfactory performance of
its undertakings’ x x x JDS, shall post a performance bond of seven hundred ninety five thousand pesos
(P795,000.00). x x x JDS executed, jointly and severally with [petitioner] Stronghold Insurance Co., Inc.
(SICI) Performance Bond No. SICI-25849/g(13)9769.

"On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos (P795,000.00)
by way of downpayment.

"Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount of two hundred
seventy four thousand six hundred twenty one pesos and one centavo (P274,621.01) were submitted by x x
x JDS to [respondent], which the latter paid. According to [respondent], these two progress billings
accounted for only 7.301% of the work supposed to be undertaken by x x x JDS under the terms of the
contract.

"Several times prior to November of 1989, [respondent’s] engineers called the attention of x x x JDS to the
alleged alarmingly slow pace of the construction, which resulted in the fear that the construction will not
be finished within the stipulated 240-day period. However, said reminders went unheeded by x x x JDS.

"On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS, [respondent]
Republic-Asahi extrajudicially rescinded the contract pursuant to Article XIII of said contract, and wrote a
letter to x x x JDS informing the latter of such rescission. Such rescission, according to Article XV of the
contract shall not be construed as a waiver of [respondent’s] right to recover damages from x x x JDS and
the latter’s sureties.

"[Respondent] alleged that, as a result of x x x JDS’s failure to comply with the provisions of the contract,
which resulted in the said contract’s rescission, it had to hire another contractor to finish the project, for
which it incurred an additional expense of three million two hundred fifty six thousand, eight hundred
seventy four pesos (P3,256,874.00).
"On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the bond for not
less than P795,000.00. On March 22, 1991, [respondent] again sent another letter reiterating its demand for
payment under the aforementioned bond. Both letters allegedly went unheeded.

"[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS payment
of P3,256,874.00 representing the additional expenses incurred by [respondent] for the completion of the
project using another contractor, and from x x x JDS and SICI, jointly and severally, payment
of P750,000.00 as damages in accordance with the performance bond; exemplary damages in the amount
of P100,000.00 and attorney’s fees in the amount of at least P100,000.00.

"According to the Sheriff’s Return dated June 14, 1991, submitted to the lower court by Deputy Sheriff
Rene R. Salvador, summons were duly served on defendant-appellee SICI. However, x x x Jose D. Santos,
Jr. died the previous year (1990), and x x x JDS Construction was no longer at its address at 2nd Floor,
Room 208-A, San Buena Bldg. Cor. Pioneer St., Pasig, Metro Manila, and its whereabouts were unknown.

"On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondent’s] money claims against
[petitioner and JDS] have been extinguished by the death of Jose D. Santos, Jr. Even if this were not the
case, [petitioner] SICI had been released from its liability under the performance bond because there was
no liquidation, with the active participation and/or involvement, pursuant to procedural due process, of
herein surety and contractor Jose D. Santos, Jr., hence, there was no ascertainment of the corresponding
liabilities of Santos and SICI under the performance bond. At this point in time, said liquidation was
impossible because of the death of Santos, who as such can no longer participate in any liquidation. The
unilateral liquidation on the party (sic) of [respondent] of the work accomplishments did not bind SICI for
being violative of procedural due process. The claim of [respondent] for the forfeiture of the performance
bond in the amount of P795,000.00 had no factual and legal basis, as payment of said bond was conditioned
on the payment of damages which [respondent] may sustain in the event x x x JDS failed to complete the
contracted works. [Respondent] can no longer prove its claim for damages in view of the death of Santos.
SICI was not informed by [respondent] of the death of Santos. SICI was not informed by [respondent] of
the unilateral rescission of its contract with JDS, thus SICI was deprived of its right to protect its interests
as surety under the performance bond, and therefore it was released from all liability. SICI was likewise
denied due process when it was not notified of plaintiff-appellant’s process of determining and fixing the
amount to be spent in the completion of the unfinished project. The procedure contained in Article XV of
the contract is against public policy in that it denies SICI the right to procedural due process. Finally, SICI
alleged that [respondent] deviated from the terms and conditions of the contract without the written consent
of SICI, thus the latter was released from all liability. SICI also prayed for the award of P59,750.00 as
attorney’s fees, and P5,000.00 as litigation expenses.

"On August 16, 1991, the lower court issued an order dismissing the complaint of [respondent] against x x
x JDS and SICI, on the ground that the claim against JDS did not survive the death of its sole proprietor,
Jose D. Santos, Jr. The dispositive portion of the [O]rder reads as follows:

‘ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business under trade
and style, ‘JDS Construction’ and Stronghold Insurance Company, Inc. is ordered DISMISSED.

‘SO ORDERED.’

"On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking reconsideration of the
lower court’s August 16, 1991 order dismissing its complaint. [Petitioner] SICI field its ‘Comment and/or
Opposition to the Motion for Reconsideration.’ On October 15, 1991, the lower court issued an Order, the
dispositive portion of which reads as follows:

‘WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due course. The
Order dated 16 August 1991 for the dismissal of the case against Stronghold Insurance Company, Inc., is
reconsidered and hereby reinstated (sic). However, the case against defendant Jose D. Santos, Jr. (deceased)
remains undisturbed.

‘Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance Company
Inc., are set for hearing on November 7, 1991 at 2:00 o’clock in the afternoon.

‘SO ORDERED.’

"On June 4, 1992, [petitioner] SICI filed its ‘Memorandum for Bondsman/Defendant SICI (Re: Effect of
Death of defendant Jose D. Santos, Jr.)’ reiterating its prayer for the dismissal of [respondent’s] complaint.

"On January 28, 1993, the lower court issued the assailed Order reconsidering its Order dated October 15,
1991, and ordered the case, insofar as SICI is concerned, dismissed. [Respondent] filed its motion for
reconsideration which was opposed by [petitioner] SICI. On April 16, 1993, the lower court denied
[respondent’s] motion for reconsideration. x x x."4

Ruling of the Court of Appeals

The CA ruled that SICI’s obligation under the surety agreement was not extinguished by the death of Jose
D. Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the bond.

The appellate court also found that the lower court had erred in pronouncing that the performance of the
Contract in question had become impossible by respondent’s act of rescission. The Contract was rescinded
because of the dissatisfaction of respondent with the slow pace of work and pursuant to Article XIII of its
Contract with JDS.

The CA ruled that "[p]erformance of the [C]ontract was impossible, not because of [respondent’s] fault,
but because of the fault of JDS Construction and Jose D. Santos, Jr. for failure on their part to make
satisfactory progress on the project, which amounted to non-performance of the same. x x x [P]ursuant to
the [S]urety [C]ontract, SICI is liable for the non-performance of said [C]ontract on the part of JDS
Construction."5

Hence, this Petition.6

Issue

Petitioner states the issue for the Court’s consideration in the following manner:

"Death is a defense of Santos’ heirs which Stronghold could also adopt as its defense against obligee’s
claim."7

More precisely, the issue is whether petitioner’s liability under the performance bond was automatically
extinguished by the death of Santos, the principal.

The Court’s Ruling

The Petition has no merit.

Sole Issue:

Effect of Death on the Surety’s Liability

Petitioner contends that the death of Santos, the bond principal, extinguished his liability under the surety
bond. Consequently, it says, it is automatically released from any liability under the bond.
As a general rule, the death of either the creditor or the debtor does not extinguish the
obligation.8 Obligations are transmissible to the heirs, except when the transmission is prevented by the
law, the stipulations of the parties, or the nature of the obligation.9 Only obligations that are personal10 or
are identified with the persons themselves are extinguished by death.11

Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money claims arising from
a contract against the estate of a deceased debtor. Evidently, those claims are not actually
extinguished.13 What is extinguished is only the obligee’s action or suit filed before the court, which is not
then acting as a probate court.14

In the present case, whatever monetary liabilities or obligations Santos had under his contracts with
respondent were not intransmissible by their nature, by stipulation, or by provision of law. Hence, his death
did not result in the extinguishment of those obligations or liabilities, which merely passed on to his
estate.15 Death is not a defense that he or his estate can set up to wipe out the obligations under the
performance bond. Consequently, petitioner as surety cannot use his death to escape its monetary obligation
under its performance bond.

The liability of petitioner is contractual in nature, because it executed a performance bond worded as
follows:

"KNOW ALL MEN BY THESE PRESENTS:

"That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd.,
Pasig, MM Philippines, as principal and the STRONGHOLD INSURANCE COMPANY,
INC. a corporation duly organized and existing under and by virtue of the laws of the
Philippines with head office at Makati, as Surety, are held and firmly bound unto the
REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm, partnership,
corporation or association supplying the principal with labor or materials in the penal sum
of SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00), Philippine Currency,
for the payment of which sum, well and truly to be made, we bind ourselves, our heirs,
executors, administrators, successors and assigns, jointly and severally, firmly by these
presents.

"The CONDITIONS OF THIS OBLIGATION are as follows;

"WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into
a contract with the REPUBLIC ASAHI GLASS CORPORATION represented by
_________________, to fully and faithfully. Comply with the site preparation works road
and drainage system of Philippine Float Plant at Pinagbuhatan, Pasig, Metro Manila.

"WHEREAS, the liability of the Surety Company under this bond shall in no case exceed
the sum of PESOS SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00)
Philippine Currency, inclusive of interest, attorney’s fee, and other damages, and shall not
be liable for any advances of the obligee to the principal.

"WHEREAS, said contract requires the said principal to give a good and sufficient bond in
the above-stated sum to secure the full and faithfull performance on its part of said contract,
and the satisfaction of obligations for materials used and labor employed upon the work;

"NOW THEREFORE, if the principal shall perform well and truly and fulfill all the
undertakings, covenants, terms, conditions, and agreements of said contract during the
original term of said contract and any extension thereof that may be granted by the obligee,
with notice to the surety and during the life of any guaranty required under the contract, and
shall also perform well and truly and fulfill all the undertakings, covenants, terms,
 conditions, and agreements of any and all duly authorized modifications of said contract that
may hereinafter be made, without notice to the surety except when such modifications
increase the contract price; and such principal contractor or his or its sub-contractors shall
promptly make payment to any individual, firm, partnership, corporation or association
supplying the principal of its sub-contractors with labor and materials in the prosecution of
the work provided for in the said contract, then, this obligation shall be null and void;
otherwise it shall remain in full force and effect. Any extension of the period of time which
may be granted by the obligee to the contractor shall be considered as given, and any
modifications of said contract shall be considered as authorized, with the express consent of
the Surety.

"The right of any individual, firm, partnership, corporation or association supplying the contractor with
labor or materials for the prosecution of the work hereinbefore stated, to institute action on the penal bond,
pursuant to the provision of Act No. 3688, is hereby acknowledge and confirmed."16

As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which provides as
follows:

"Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation
of the principal debtor in case the latter should fail to do so.

"If a person binds himself solidarily with the principal debtor, the provisions of Section 4,17 Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship."

xxxxxxxxx

"Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected."

Elucidating on these provisions, the Court in Garcia v. Court of Appeals18stated thus:

"x x x. The surety’s obligation is not an original and direct one for the performance of his own act, but
merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the
contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor
or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and
equally bound with the principal. x x x."19

Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor and the
petitioner herein, in view of the solidary nature of their liability. The death of the principal debtor will not
work to convert, decrease or nullify the substantive right of the solidary creditor. Evidently, despite the
death of the principal debtor, respondent may still sue petitioner alone, in accordance with the solidary
nature of the latter’s liability under the performance bond.

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED. Costs
against petitioner.

SO ORDERED.

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision
were reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

BALDOMERO INCIONG, JR. vs. CA and PBCom

[G.R. No. 96405; June 26, 1996] Obligations and Contracts| Joint and Solidary Liability|

FACTS: Petitioner Inciong together with Rene C. Naybe and Gregorio D. Pantanosas, signed a
promissory note holding themselves jointly and severally liable to private respondent PBCom,
CDO branch. Said due date expired without the promissors having paid their obligation.
Consequently, the bank sent petitioner telegrams demanding payment. Since both obligors did not
respond to the demands made, a complaint for collection of money was filed. In 1987, the lower
court dismissed the case against defendant Pantanosas as approved by the bank, meanwhile
defendant Naybe had gone to Saudi Arabia. In his answer, petitioner Inciong alleged that he was
just persuaded to act as a “co-maker” in the said loan. Petitioner also argues that the dismissal of
the complaint against Naybe and Pantanosas, his co-maker, constituted a release of his obligation.

ISSUE: Whether the promissory note binds Inciong as a solidary co-maker or as a guarantor.

HELD: Petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This
is patent even from the first sentence of the promissory note which states: I/we, JOINTLY and
SEVERALLY promise to pay x x x..
Because the promissory note expressly states that the three signatories are jointly and severally
liable, any one, some or all of them may be proceeded against for the entire obligation. The
choice is left to the solidary creditor to determine against whom he will enforce collection.
Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as having
discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his co-
makers, as provided by law.