CONDITIONAL OBLIGATION

INTERNATIONAL HOTEL CORPORATION, vs.

FRANCISCO B. JOAQUIN, JR. and RAFAEL SUAREZ

G.R. No. 158361 April 10, 2013 BERSAMIN, J.:

FACTS

In 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of

Directors of the International Hotel Corporation (IHC) for him to render technical assistance in
securing a foreign loan for the construction of a hotel, to be guaranteed by the Development
Bank of thePhilippines (DBP).The proposal encompassed nine phases, and they approved
phase one to phase six of the proposal during the special board meeting on February 11, 1969,
and earmarked₱2,000,000.00 for the project. Anent the financing, IHC applied with DBP for a
foreign loan guaranty. DBP processed the application, and approved it on October 24, 1969
subject to several conditions. On July 11, 1969, shortly after submitting the application to DBP,
Joaquin wrote to IHC to request the payment of his fees in the amount of ₱500,000.00 for the
services that he had provided and would be providing to IHC in relation to the hotel project that
were outside the scope of the technical proposal. Joaquin intimated his amenability to receive
shares of stock instead of cash in view of IHC’s financial situation. This was granted by the
stockholders. IHC entered into an agreement with Weston, and communicated this development
to DBP. However, DBP denied the application for guaranty for failure to comply with the
conditions contained in its November 12, 1971 letter. Due to Joaquin’s failure to secure the
needed loan, IHC, through its President Bautista, canceled the 17,000 shares of stock
previously issued to Joaquin and Suarez as payment for their services. The latter requested a
reconsideration of the cancellation, but their request was rejected.

Consequently, Joaquin and Suarez commenced this action for specific performance,
annulment, damages and injunction before the Regional Trial Court in Manila , impleading IHC
and the members of its Board of Directors.

The RTC found that Joaquin and Suarez had failed to meet their obligations when IHC
had chosen to negotiate with Barnes rather than with Weston, the financier that Joaquin had
recommended; and that the cancellation of the shares of stock had been proper under Section
68 of the Corporation Code, which allowed such transfer of shares to compensate only past
services, not future ones. The CA concurred with the RTC, upholding IHC’s liability under Article
1186 of the Civil Code. It ruled that in the context of Article 1234 of the Civil Code, Joaquin had
substantially performed his obligations and had become entitled to be paid for his services; and
that the issuance of the shares of stock was ultra vires for having been issued as consideration
for future services.

On appeal, IHC argued that Article 1186 and Article 1234 of the Civil Code cannot be the
source of IHC’s obligation to pay respondents and argues that it should not be held liable
because: (a) it was Joaquin who had recommended Barnes; and (b) IHC’s negotiation with
Barnes had been neither intentional nor willfully intended to prevent Joaquin from complying
with his obligations
ISSUE/s

a.) Whether Article 1186 and Article 1234 of the Civil Code can be the source of IHC’s
obligation to pay respondents.
b.) Are Joaquin and Suarez entitled to the shares of stocks issued as payment for their
services?

RULING

A.) No.

Article 1186 of the Civil Code reads: “The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment”.

This provision refers to the constructive fulfillment of a suspensive condition, whose

application calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment
of the condition, and (b) the actual prevention of the fulfillment. Mere intention of the debtor to
prevent the happening of the condition, or to place ineffective obstacles to its compliance,
without actually preventing the fulfillment, is insufficient.

Article 1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by
the obligee.

It is well to note that Article 1234 applies only when an obligor admits breaching the
contract after honestly and faithfully performing all the material elements thereof except for
some technical aspects that cause no serious harm to the obligee IHC correctly submits that the
provision refers to an omission or deviation that is slight, or technical and unimportant, and does
not affect the real purpose of the contract.

b.) Considering that the respondents were able to secure an agreement with Weston,
and subsequently tried to reverse the prior cancellation of the guaranty by DBP, the court rule
that they thereby constructively fulfilled their obligation. It is notable that the confusion on the
amounts of compensation arose from the parties’ inability to agree on the fees that respondents
should receive. Considering the absence of an agreement, and in view of respondents’
constructive fulfillment of their obligation, the Court has to apply the principle of quantum meruit
in determining how much was still due and owing to respondents. Under the principle of
quantum meruit, a contractor is allowed to recover the reasonable value of the services
rendered despite the lack of a written contract. The measure of recovery under the principle
should relate to the reasonable value of the services performed. The principle prevents undue
enrichment based on the equitable postulate that it is unjust for a person to retain any benefit
without paying for it. Being predicated on equity, the principle should only be applied if no
express contract was entered into, and no specific statutory provision was applicable. Under the
established circumstances, we deem the total amount of ₱200,000.00 to be reasonable
compensation for respondents’ services under the principle of quantum meruit.
Joint obligation

SPOUSES RODOLFO BEROT AND LILIA BEROT vs. FELIPE C. SIAPNO.

G.R. No. 188944 July 9, 2014 SERENO, CJ:

FACTS

Macaria and and Spouses Lilia and Rodolfo Berot obtained a loan from Felipe for Php
250,000 payable within one year together with interest therein at the rate of 2% per annum from
that date until fully paid. Macaria and Lilia mortgaged a land to Felipe in the names of Macaria
and her husband Pedro Berot who is already deceased. Macaria and Lilia defaulted which lead
Felipe tofile an action against them for foreclosure of mortgage and damages. Felipe said that
Macaria and Lilia failed and refused to pay the abovementioned sum of ₱250,000.00 plus the
stipulated interest of 2% per month despite lapse of one year from May 23, 2002.

In defense, Spouses Berot said that the contested property is Rodolfo’s inheritance from
his father Pedro, on said property is their family home, that the mortgage is void as it was
constituted over the family home without he consent of their children, who are the beneficiaries
thereof; that their obligation is only joint. Macaria subsequently died.

ISSUE

Is the obligation joint?

RULING

No. Under Article 1207 of the Civil Code of the Philippines, the general rule is that when
there is a concurrence of two or more debtors under a single obligation, the obligation is
presumed to be joint. The law further provides that to consider the obligation as solidary in
nature, it must expressly be stated as such, or the law or the nature of the obligation itself must
require solidarity. Here, no indication in the plain wordings of the instrument that the debtors –
the late Macaria and Spouses Berot – had expressly intended to make their obligation to Felipe
solidary in nature. Absent from the mortgage are the express and indubitable terms
characterizing the obligation as solidary. Felipe was not able to prove by a preponderance of
evidence that Spouses Berot’s obligation to him was solidary. Hence, applicable to this case is
the presumption under the law that the nature of the obligation herein can only be considered as
joint. It is incumbent upon the party alleging otherwise to prove with a preponderance of
evidence that Spouses Berot's obligation under the loan contract is indeed solidary in character.
OBLIGATION WITH A PENAL CLAUSE

SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and DISTRICT

ENGINEER CELESTINO R. CONTRERAS vs.
SPOUSES HERACLEO and RAMONA TECSON
G.R. No. 179334 April 21, 2015 PERALTA, J.:

FACTS
In 1940, the Department of Public Works and Highways (DPWH) took Spouses
Tecson’s(respondents-movant)' subject property without the benefit of expropriation
proceedings for the construction of the MacArthur Highway. In a letter dated December 15,
1994, respondent-movants demanded the payment of the fair market value of the subject parcel
of land. Celestino R. Contreras (Contreras), then District Engineer of the First Bulacan
Engineering District of theDPWH, offered to pay for the subject land at the rate of Seventy
Centavos (P0.70) per square meter, per Resolution of the Provincial Appraisal Committee
(PAC) of Bulacan. Unsatisfied with the offer, respondents-movants demanded the return of their
property, or the payment of compensation at the current fair market value. Hence, the complaint
for recovery of possession with damages filed by respondents-movants. Respondents-movants
were able to obtain favorable decisions in the Regional Trial Court (RTC) and the Court of
Appeals (CA), with the subject property valued at One Thousand Five Hundred Pesos
(₱1,500.00) per square meter, with interest at six percent (6%) per annum.

ISSUE/s

a.) Whether the valuation would be based on the corresponding value at the time of the
taking or at the time of the filing of the action
b.) Are the Spouses Tecson entitled to damages?

RULING

a.) Just compensation due Spouses Tecson in this case should, therefore, be fixed not
as of the time of payment but at the time of taking in 1940 which is Seventy Centavos
(P0.70)per square meter, and not One Thousand Five Hundred Pesos (₱1,500.00) per square
meter, as valued by the RTC and CA. The State is not obliged to pay premium to the property
owner for appropriating the latter's property; it is only bound to make good the loss sustained by
the landowner, with due consideration of the circumstances availing at the time the property was
taken. More, the concept of just compensation does not imply fairness to the property owner
alone. Compensation must also be just to the public, which ultimately bears the cost of
expropriation.

Notwithstanding the foregoing, the court recognize that the owner's loss is not only his
property but also its income-generating potential. Thus, when property is taken, full
compensation of its value must immediately be paid to achieve a fair exchange for the property
and the potential income lost. The rationale for imposing the interest is to
compensate the petitioners for the income they would have made had they been properly
compensated for their properties at the time of the taking.

Considering that respondents-movants only resorted to judicial demand for the payment
of the fair market value of the land on March 17, 1995, it is only then that the interest earned
shall itself earn interest. The total amount due to respondents-movants shall earn a straight six
percent (6%) legal interest, pursuant to Circular No. 799 and the case of Nacar. Such interest is
imposed by reason of the Court's decision and takes the nature of a judicial debt. Clearly, the
award of interest on the value of the land at the time of taking in 1940 until full payment is
adequate compensation to respondents-movants for the deprivation of their property without the
benefit of expropriation proceedings. Such interest, however meager or enormous it may be,
cannot be inequitable and unconscionable because it resulted directly from the application of
law and jurisprudence standards that have taken into account fairness and equity in setting the
interest rates due for the use or forbearance of money. Thus, adding the interest computed to
the market value of the property at the time of taking signifies the real, substantial, full and
ample value of the property. Verily, the same constitutes due compliance with the constitutional
mandate on eminent domain and serves as a basic measure of fairness. In addition to the
foregoing interest, additional compensation shall be awarded to respondents-movants by way of
exemplary damages and attorney's fees in view of the government's taking without the benefit of
expropriation proceedings.

The uniform rule of the Court, however, is that the compensation must be, not in the
form of rentals, but by way of 'interest from the date that the company [or entity] exercising the
right of eminent domain take possession of the condemned lands, and the amounts granted by
the court shall cease to earn interest only from the moment they are paid to the owners or
deposited in court.

b.) YES. Considering that respondents-movants were deprived of beneficial ownership over
their property for more than seventy (70) years without the benefit of a timely expropriation
proceedings, and to serve as a deterrent to the State from failing to institute such proceedings
within the prescribed period under the law, a grant of exemplary damages in the amount of One
Million Pesos (₱1,000,000.00) is fair and reasonable. Moreover, an award for attorney's fees in
the amount of Two Hundred Thousand Pesos(₱200,000.00) in favor of respondents-movants is
in order. In sum, respondents-movants shall be entitled to an aggregate amount of One Million
Seven Hundred Eighteen Thousand Eight Hundred Forty-Eight Pesos and Thirty-Two Centavos
(₱1,718,848.32) as just compensation as of September 30, 2014.
The Court emphasize that the government's failure, to initiate the necessary expropriation
proceedings prior to actual taking cannot simply invalidate the State's exercise of its eminent
domain power, given that the property subject of expropriation is indubitably devoted for public
use, and public policy imposes upon the public utility the obligation to continue its services to
the public. To hastily nullify said expropriation in the guise of lack of due process would certainly
diminish or weaken one of the State's inherent powers, the ultimate objective of which is to
serve the greater good. Thus, the non-filing of the case for expropriation will not necessarily
lead to the return of the property to the landowner. What is left to the landowner is the right of
compensation.