Title I - Obligations

G.R. No.
L-3756 Sources of Obligation

Sagrada Orden v National Coconut Corporation Sagrada Orden v National Coconut Corporation
I. Recit-ready Summary II. Facts of the Case
This is an action to recover the possession of a piece of real property (land This case is an action to recover the possession of a piece of real property
with warehouses) and the rentals for its occupation and use. The subject (land with warehouses) and the rentals for its occupation and use. The said
property was registered in the name of herein plaintiff before the Japanese land belongs to the plaintiff, in whose name the title was registered before
war. During the Japanese military occupation in 1943, the property was the Japanese war. In January 1943, during the Japanese military occupation,
acquired by Taiwan Tekkosho for the sum of P140,000.00. After liberation, the subject land was acquired by a Japanese corporation named Taiwan
in April 1946, the US Alien Property Custodian took possession, control, Tekkosho for the sum of P140,000.00, upon which the land title was issued
and custody thereof under Section 12 of the Trading with the Enemy Act.
in its name. After liberation in April 1946, the Alien Property Custodian of
The property was later occupied by herein defendant National Coconut
the USA (US APC) took possession, control, and custody thereof under
Corporation (NACOCO).
Section 12 of the Trading with the Enemy Act. Also in the year 1946, the
Plaintiff brought an action in court to annul the sale of the property to property was occupied by the Copra Export Management Company
Taiwan Tekkosho and recover its possession. It was later agreed upon by (CEMC) under a custodianship agreement with the US APC. When CEMC
the parties that the sale in favor of the Taiwan Tekkosho was null and void vacated the property, it was thereafter occupied by herein defendant
because it was executed under threats, duress, and intimidation and that National Coconut Corporation (NACOCO). In 1948, Defendant NACOCO
NACOCO shall vacate the premises. Pursuant to the said agreement, the leased1/3 of the warehouse to one Dioscoro Sarile for the monthly rental of
court rendered judgment releasing the defendant from liability, but P500.00 which was later raised to P1,000.00.
reserving to the plaintiff the right to recover from NACOCO reasonable
rentals for the use and occupation of the premises. Plaintiff brought an action in court to annul the sale of the property to
Taiwan Tekkosho, and recover its possession. It was later agreed upon by
Judgment was rendered for the plaintiff to recover from Defendant the sum the parties, as presented in a joint petition, that the sale in favor of the
of P3,000.00 monthly rentals from August 1946, the date when Defendant Taiwan Tekkosho was null and void because it was executed under threats,
began to occupy the premises, to February 1949 or the date it vacated it. duress, and intimidation; that the title issued in the name of Taiwan
Tekkosho be cancelled and the original title of Plaintiff be re-issued; that
Defendant NACOCO contests its liability for the rentals prior to February
the claims, rights, title, and interest of US APC be cancelled; that NACOCO
28, 1949, interposing the defense that it occupied the property in good faith
has until February 28, 1949 to recover its equipment and vacate the
and under no obligation to pay rentals for the use and occupation of the
premises; and that Plaintiff shall pay to the Philippine Alien Property
warehouse.
Administration the sum of P140,000.00.
The Court ruled that NACOCO should not be held liable therefor, there
being no offense on the part of NACOCO in its occupation and use of the Pursuant to the said agreement, the court rendered judgment releasing the
subject property. No cause of action arising from any source, no obligation. defendant from liability, but reserving to the plaintiff the right to recover
from NACOCO reasonable rentals for the use and occupation of the
premises.
1
Block B 2023 PETITIONER/APPELLANT: Sagrada Orden de Predicadores del Santisimo

Rosario de Filipinas
DIGEST AUTHOR: Regina Alzaga RESPONDENT: National Coconut Corporation
G.R. No. L-3756 Sources of Obligation
which had the legal control and administration thereof by express provision
The present action is to recover reasonable rentals from August 1946, the of law. The Alien Property Administration had the power to dispose of it by
date when Defendant began to occupy the premises. Judgment was rendered sale or otherwise, as though it were the absolute owner. Hence, even if
for the plaintiff to recover from Defendant the sum of P3,000.00 monthly NACOCO were liable for any rentals whatsoever, it would still not accrue
rentals from August 1946 to the date it vacates the premises. It was further to the plaintiff but to the US government.
declared: that plaintiff has always been the owner as the 1943 sale was void
ab initio; that Alien Property Administration never acquired any right There was also no privity of contract as there was no express agreement
thereto; that Defendant cannot claim any better rights than its predecessor, between the Alien Property Custodian and NACOCO that the latter shall
Alien Property Administrator; and that Defendant must pay reasonable pay rentals for its use and occupation of the property.
rentals for its occupation as it has used the property and subleased portion
thereof. There being no offense on the part of NACOCO for its occupation and use
of the subject property, it is only fair and just that it shall not be held liable
Defendant NACOCO contests its liability for the rentals prior to February therefor. The Court further emphasized that the reservation made in the
28, 1949, interposing the defense that it occupied the property in good faith present action may not be considered as vesting a new right, for if no right
and under no obligation to pay rentals for the use and occupation of the to claim for rentals existed at the time of such reservation, no rights can
warehouse. arise or accrue from such reservation alone.
III. Issue/s Law or Doctrine Applied
W/N NACOCO is liable for rentals or compensation for the use and ARTICLE 1157. Obligations arise from:
occupation of the property. - NO. 1.) Law;
2.) Contracts;
3.) Quasi-contracts;
IV. Holding/s 4.) Acts or omissions punished by law; and
5.) Quasi-delicts
The Court ruled that NACOCO shouldn't be held liable for any rentals
for the use and occupation of the property.
V. Disposition
Obligations must arise from any of the sources of obligations, namely: law,
contract or quasi-contract, crime, or negligence. Defendant-appellant WHEREFORE, that part of the judgment appealed from, which sentences
NACOCO is not guilty of any offense at all because it entered the premises defendant-appellant to pay rentals from August, 1946 to February 28, 1949
and occupied it with the permission of the Alien Property Administration,
2

G.R. No. L-3756 Sources of Obligation
is hereby reversed. In all other aspects the judgment is affirmed. Costs of

this appeal shall be against the plaintiff-appellee.
Separate Opinions
N/A
VI. Additional Notes
Ponente: Labrador, J.
VII. Random Facts

G.R. No. L-36840 | May 22, 1973 Contracts as a source of Obligation; Interpretation of Contracts
People’s Car v Commando Security People’s Car v Commando Security
I. Recit-ready Summary On April 5, 1970 at 1:00 AM, the security guard that defendant assigned
at plaintiff’s premises, without any consent or knowledge from either plaintiff
People’s Car INC (plaintiff) had a subsisting “guard service contract” or defendant, brought out of the compound a car belonging to the plaintiff’s
with Commando Security Service Agency (defendant), where plaintiff paid customer, a certain Joseph Luy (he left the car with plaintiff for servicing and
defendant so that defendant would safeguard plaintiff’s premises and prevent maintenance). Said guard basically took it for a joyride in the city streets,
unlawful acts that are inimical to plaintiff’s interest. On April 5, 1970 at abandoning his post, and in doing so lost control of the car causing it to fall
1:00am, Defendant’s security guard that was assigned at plaintiff’s premises into a ditch along J.P Laurel Street, Davao city. Plaintiff filed a complaint for
unlawfully took out a car that belonged to plaintiff’s customer Joseph Luy qualified theft against that guard.
(who left it there for maintenance and servicing), and drove it around the city
Plaintiff had to pay for repairs for Joseph Luy’s car (about P7079.10),
ending with the car falling into a ditch. Plaintiff had to pay for the car’s repairs
and they had to rent and make available a car for Joseph while plaintiff
and rent a car for Joseph Luy while the car was being repaired, costing them
about P8410.10 in total. repaired the damaged car (P1410) , costing plaintiff about P8489.10 in total.
Plaintiff argues that Defendant is liable for the liabilities incurred due to Plaintiff and defendant argue about defendant’s liability, given the
the act of defendant’s security guard, pursuant to paragraph 5 of their contract. provisions of their contract. Plaintiff claims that defendant is liable for the
Defendant however argues that they are only liable for P1000, pursuant to entire amount under paragraph 5 of their contract, where defendant “assumes
paragraph 4 of their contract. The Court of First Instance agreed with sole responsibility for the acts done during their (the guards) watch hours”.
Defendant, stating that Plaintiff could only recover P1000 as per their Defendant claims it is only liable for P1000 under paragraph 4 of the contract.
contract. The issue in this case is whether or not the Defendant is liable for Par. 4. — Party of the Second Part Par. 5 — The party of the Second
the full amount paid for by Plaintiff based on the liability they acquired due (defendant) through the negligence of its
to the act of Defendant’s security guard, as provided in their contract. guards, after an investigation has been Part assumes the responsibility for
The Supreme Court held that defendant is liable for the whole amount conducted by the Party of the First Part the proper performance by the
(plaintiff) wherein the Party of the Second guards employed, of their duties and
of P8,410.10. Paragraph 4 only applies to damages caused by their guard Part has been duly represented shall assume
through negligence to plaintiff’s property , and this was neither plaintiff’s full responsibilities for any loss or damages (shall) be solely responsible for the
property (it was Joseph Luy’s) nor was the damage done through negligence that may occur to any property of the acts done during their watch hours,
(it was a deliberate unlawful act). Paragraph 5 thus applies, which releases Party of the First Part for which it is the Party of the First Part being
accountable, during the watch hours of the
Plaintiff from any and all liabilities to third parties (such as what it had to Party of the Second Part, provided the same specifically released from any and
spend to fix the car and rent a different one for Joseph Luy) arising from acts is reported to the Party of the Second Part all liabilities to the former's
or omission done by the guard sent by defendant. within twenty-four (24) hours of the employee or to the third parties
occurrence, except where such loss or
damage is due to force majeure, provided arising from the acts or omissions
II. Facts of the Case however that after the proper investigation to done by the guard during their
Under a subsisting “Guard Service Contract” between People’s Car, be made thereof that the guard on post is tour of duty.
INC (plaintiff) and Commando Security Service Agency (defendant), found negligent and that the amount of the
loss shall not exceed ONE THOUSAND
Defendant as a security service agency undertook in consideration of (P1,000.00) PESOS per guard post.
Plaintiff’s payments to “safeguard and protect the business premises of
plaintiff from theft, pilferage, robbery, vandalism and any other unlawful acts
prejudicial to Plaintiff’s interest.”
1
Obligations and Contracts (2020) Plaintiff-appellant: People’s Car, INC.
DIGEST AUTHOR: Bryan Antonio Defendant-Appellee: Commando Security Service Agency
G.R. No. L-36840 | May 22, 1973 Contracts as a source of Obligation; Interpretation of Contracts
People’s Car v Commando Security People’s Car v Commando Security
The Trial Court held that defendant’s liability of the defendant was OBLIGATIONS ARISING FROM CONTRACTS HAVE THE
under paragraph 4, and is thus only liable for P1000 and not the full amount. FORCE OF LAW BETWEEN PARTIES, AND SHOULD BE
Hence the appeal. COMPLIED WITH IN GOOD FAITH ( ARTICLE 1159, Civil Code)
III. Issue/s VI. Disposition
ACCORDINGLY, the judgment appealed from is hereby reversed and

1. W/N Commando is liable for the full amount paid for by
judgment is hereby rendered sentencing defendant-appellee to pay plaintiff-
People’s Car for the liabilities arising from their guard’s acts
appellant the sum of P8,489.10 as and by way of reimbursement of the
based on paragraph 5 of their contract? YES. stipulated actual damages and expenses, as well as the costs of suit in both
instances. It is so ordered.
IV. Holding/s
VII. Additional Notes
1. YES, Commando is liable for the full amount caused by the act • Trial court’s (wrong) interpretation:
of their guard under paragraph 5 of their contract. o Had it been paragraph 5, plaintiff should have told Joseph
Paragraph 4 of the guard service contract limiting Defendant’s liability for Luy that it was not liable for the damage (because
loss and damage to P1000 is only for loss and damage to property of plaintiff paragraph 5 states that defendant will release plaintiff from
through the negligence of its guards, provided it was reported to plaintiff liability) but should Luy challenge in court, only then
within 24 hours and verified by investigation. The damage caused here was would it file a third party complaint against commando. If
caused not through negligence of the guard, but the guard’s own act of taking luy filed against them both, Plaintiff would have then filed
the car out of plaintiff’s premises unlawfully and causing it to fall into a ditch. a crossclaim against defendant.
Also, it wasn’t plaintiff’s property. Thus, Defendant is liable under paragraph
5, which states that they would be solely responsible for acts done during VII. Random Facts
watch hours, releasing plaintiff from any and all liabilities to third parties • Ponente: Teehanke, J
arising from the acts or omissions of their guard. As Plaintiff already
discharged the liability caused by the guard, Defendant has to indemnify
plaintiff of the amount it cost them to ‘release’ them from liability as provided
in their contract. . (plaintiff liable to customer, it paid – defendant, through
contract promised to release plaintiff from liability for act or omission of
guard causing damages, so it must pay plaintiff to ‘release’ plaintiff from
liability.)
V. Law or Doctrine Applied
2
Obligations and Contracts (2020) Plaintiff-appellant: People’s Car, INC.
DIGEST AUTHOR: Bryan Antonio Defendant-Appellee: Commando Security Service Agency
GR No. 141910 Articles 1155-1162, General Provisions, Civil Code
FGU Insurance Corp. vs GP Sarmiento Trucking Corp. FGU Insurance Corp. vs GP Sarmiento Trucking Corp.
I. Recit-ready summary Code is not availing. "Under the law on obligation and contract, negligence
or fault is not presumed. The law on quasi-delict provides for some
GPS is an exclusive contractor and hauler of Concepcion presumption of negligence but only upon the attendance of some
Industries, Inc. One day, it was to deliver 30 units of Condura white circumstances or proof of such negligence. However, in the present case,
refrigerators from Concepcion Industries, Inc. aboard one of its trucks. On its evidence shows that there was no attendance of such proof.
way, the truck collided with an unidentied truck, owned by the respondent
trucking company, resulting in damage to the cargoes. FGU, insurer of the When the case reached the CA, it ruled in favor of GPS Trucking Corp. The
shipment, paid to Concepcion Industries, Inc. the amount of the damages. In CA stated that in order for the presumption of negligence provided for under
turn, FGU Insurance led a claim against GPS for the recovery of the the law governing common carrier (Article 1735, Civil Code) to arise, the
damages incurred. However, GPS led a motion to dismiss for failure to appellant must first prove that the appellee is a common carrier. Should the
prove that it was a common carrier. appellant fail to prove that the appellee is a common carrier, the presumption
The Supreme Court held that GPS Trucking Corporation is an would not arise; consequently, the appellant would have to prove that the
exclusive contractor and hauler of Concepcion Industries, Inc., oﬀering its carrier was negligent.
service to neither individual or entity. A common carrier is one which oﬀers
its services whether to the public in general or to a limited clientele in
particular, but never on an exclusive basis. Therefore, GPS does not t the II. Issue/s
category of a common carrier. However, the Court emphasized that it is still
not freed from its liability since the respondent trucking corporation 1. Whether or not Respondent GPS may be considered as a common
recognizes the existence of a contract of carriage; thus, there is a presumed carrier as defined under the law and existing jurisprudence? NO
lack of care and corresponding liability when it failed to deliver the goods 2. Whether or not respondent GPS, either as a common carrier or a
private carrier, may be presumed to have been negligent when the
goods it undertook to transport safely were subsequently damaged
II. Facts of the case while in its protective custody and possession? YES
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver 30 units of III. Holding/s
Condura white refrigerators aboard one of its Isuzu truck, driven by Lambert
Eroles, from the plant site of Concepcion Industries, Inc., along South 1. NO. The Supreme Court finds the conclusion of the trial court and the
Superhighway in Alabang to Dagupan City. While the truck was traversing Court of Appeals to be amply justified. GPS, being an exclusive contractor
McArthur highway in Tarlac, it collided with an unidentified truck, causing it and hauler of Concepcion Industries, Inc., rendering or offering its services
to fall into a deep canal, resulting in damages to the cargoes. to no other individual or entity, cannot be considered a common carrier.
Common carriers are persons, corporations, firms or associations engaged
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to in the business of carrying or transporting passengers or goods or both, by
Concepcion Industries, Inc., the value of the covered cargoes in the sum of land, water, or air, for hire or compensation, offering their services to the
P204,450.00. FGU, in turn, being the subrogee of the rights and interests of public, whether to the public in general or to a limited clientele in particular,
Concepcion Industries, Inc., sought reimbursement of the amount it had paid but never on an exclusive basis.
to the latter from GPS. Since the trucking company failed to heed the claim,
FGU filed a complaint for damages and breach of contract of carriage
2. YES. The Supreme Court also stated that the respondent GPS Trucking
against GPS and its driver Lambert Eroles with the RTC.
Corporation cannot simply escape from liability. In culpa contractual, upon
The trial granted the motion to dismiss the case. It stated that the application which the petitioner rests as being the subrogee of Concepcion Industries,
of the law on common carriers is not warranted, specifically the presumption Inc., the mere proof of the existence of the contract and the failure of its
of fault or negligence on the part of a common carrier in case of loss, compliance justify, prima facie, a corresponding right of relief. In the case at
damage or deterioration of goods during transport under 1735 of the Civil bar, the Respondent trucking corporation, in recognizing the existence of a
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: FGU Insurance Corporation

DIGEST AUTHOR: Larry Abucay RESPONDENT: GP Sarmiento Trucking Corporation
GR No. 141910 Articles 1155-1162, General Provisions, Civil Code
FGU Insurance Corp. vs GP Sarmiento Trucking Corp. FGU Insurance Corp. vs GP Sarmiento Trucking Corp.
contract of carriage between it and petitioner, assured and admitted that the Culpa Contractual
cargoes it has assumed to deliver have been lost or damaged while in its (i) Pre-existing obligation between the parties
custody. In such a situation, a default on, or failure of compliance with, the (ii) Fault or negligence is incidental to the performance of the obligation
obligation – in this case, the delivery of the goods in its custody to the place
of destination - gives rise to a presumption of lack of care and corresponding (iii) Defense of having exercised diligence of a good father of a family is not
liability on the part of the contractual obligor. available, just like in criminal action. Applied doctrine of Respondent
Superior, or
IV. Law or Doctrine Applied Master and Servant Rule
Art. 1734. Common carriers are responsible for the loss, destruction, or V. Disposition
deterioration of the goods, unless the same is due to any of the following
causes only: WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court,
Branch 66, of Makati City, and the decision, dated 10 June 1999, of the
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; Court of Appeals, are AFFIRMED only insofar as respondent Lambert M.
(2) Act of the public enemy in war, whether international or civil; Eroles is concerned, but said assailed order of the trial court and decision of
(3) Act of omission of the shipper or owner of the goods; the appellate court are REVERSED as regards G.P. Sarmiento Trucking
(4) The character of the goods or defects in the packing or in the containers; Corporation which, instead, is hereby ordered to pay FGU Insurance
(5) Order or act of competent public authority. Corporation the value of the damaged and lost cargoes in the amount of
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of P204,450.00. No costs.
the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted VI. Separate Opinions
negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733. VII. Additional Notes
Art. 2185. Unless there is proof to the contrary, it is presumed that a person VIII. Random Facts
driving a motor vehicle has been negligent if at the time of the mishap, he Ponente: Vitug, J.:
was violating any traffic regulation.
Culpa Aquiliana vs. Culpa Contractual

Culpa Aquiliana:
1. Only private concern.
2. Repairs the damage by indemnication.
3. Covers all acts that are faulty or negligent.
4. Preponderance of evidence.
5. No reservation – it’s independent from crime. (Andamo vs IAC, 191 SCRA
203)
6. Employer’s liability is solidary (Fabre Jr. vs CA, 259 SCRA 426, ‘ 96)
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: FGU Insurance Corporation

DIGEST AUTHOR: Larry Abucay RESPONDENT: GP Sarmiento Trucking Corporation
G.R. No. 145804 | February 6, 2003 Article 1159
Light Rail Transit Authority v Navidad Light Rail Transit Authority v Navidad
I. Recit-ready Summary Nicanor’s widow, Marjorie, filed a complaint for damages against Escartin,
A drunk Navidad entered the LRT and had a fist fight with one of the Roman, LRTA, and Metro Transit Org, and Prudent for the death of her
guards (Prudent Agency) there. The fight caused Navidad to fall on the husband. LRTA and Roman filed a counterclaim against and a cross claim
track and was hit by the train. Navidad died. Marjorie, his widow, filed a against Escartin and Prudent (guard agency). Prudent averred that it
complaint for damages. The CA dismissed the complaint against Prudent exercised due diligence in the selection and supervision of its guards.
and the guard because no link was established between them and Navidad’s Prudent contended Navidad failed to prove that Escartin acted negligently.
death. LRTA was liable for breaching the contract of carriage.
The trial court ruled in favor of Navidad. Prudent and Escartin were held
Issue: W/N LRTA is liable for the death of Navidad liable. The complaint against LRTA and Roman was dismissed.
The SC held that LRTA is liable. The law requires common carriers to carry
The CA modified the decision of the trial court. The CA opined that there
passengers safely with utmost diligence of very cautious persons with due
was a contract of carriage between victim and LRTA so the latter is liable.
regard for all circumstances. The common carrier is obligated to ensure
The contract was established when Navidad entered the premises and paid
safety of passengers even after the trip, so long as they are within the
premises of the common carrier. for his token. Prudent was not liable since there was nothing to link the
agency to the death. The evidence merely established that Navidad died
In case of death or injury, the carrier is presumed to have been at fault or because he was hit by the train owned by LRTA.
negligent. By simple proof of injury, the passenger is relieved from
establishing the fault or negligence of the carrier or its employees. The
burden now goes to the carrier to prove injury was because of an unforeseen III. Issue/s
event. In this case, LRTA was unable to overcome the presumption. The 1. W/N LRTA is liable for the death of Navidad (YES)
foundation of LRTA’s liability is the contract of carriage and its obligation 2. W/N Prudent is liable (NO)
to indemnify the victim arises from the breach of that contract by reason of
its failure to exercise the high diligence required of the common carrier. IV. Holding/s
1. YES, LRTA is liable for the death of Navidad. Law and
jurisprudence dictate that a common carrier is burdened with the
II. Facts of the Case duty of exercising utmost diligence in the safety of passengers. The
Civil Code governs the liability of a common carrier for the death
A drunk Nicanor Navidad entered the EDSA LRT after purchasing a token. of or injury of its passengers. The law requires common carriers to
Navidad had a fist fight with security guard Junelito Escartin. No evidence carry passengers safely with utmost diligence of very cautious
showing who hit first. Navidad fell on the track and was hit by a train persons with due regard for all circumstances. Further, the
operated by Rodolfo Roman and was killed. common carrier is obligated to ensure safety of passengers even
after the trip, so long as they are within the premises of the
common carrier.
1
Oblicon 2020 PETITIONER/APPELLANT: LRTA and Rodolfo Roman

DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: Marjorie Navidad, Heirs of the Late NICANOR NAVIDAD
& PRUDENT SECURITY AGENCY
Article 1159
In case of death or injury, the carrier is presumed to have been at Obligations arising from contracts have the force of law between the
fault or negligent. By simple proof of injury, the passenger is contracting parties and should be complied with in good faith.
relieved from establishing the fault or negligence of the carrier or
its employees. The burden now goes to the carrier to prove injury Article 1755
was because of an unforeseen event. In this case, LRTA was A common carrier is bound to carry the passengers safely as far as human
unable to overcome the presumption. The foundation of LRTA’s care and foresight can provide, using the utmost diligence of very cautious
liability is the contract of carriage and its obligation to indemnify persons, with a due regard for all the circumstances.
the victim arises from the breach of that contract by reason of its
Article 1756
failure to exercise the high diligence required of the common
In case of death of or injuries to passengers, common carriers are presumed
carrier.
to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in Articles 1733 and
2.Prudent is not liable. If at all, that liability could only be for tort 1755.
(quasi-delict) under the provisions of Article 2176 and related
provisions, in conjunction with Article 2180, of the Civil Code. Article 1759
The premise for the employer’s liability under quasi-delicts is the Common carriers are liable for the death of or injuries to passengers through
negligence of the employees. Once such fault is established, the the negligence or willful acts of the former's employees, although such
employer can then be made liable on the basis of the presumption employees may have acted beyond the scope of their authority or in
that the employer failed to exercise due diligence in the selection violation of the orders of the common carriers.
and supervision of its employees. The liability can only be negated
by showing due diligence in the selection and supervision of the This liability of the common carriers does not cease upon proof that they
employee, a factual matter that has not been shown. Tthe liability exercised all the diligence of a good father of a family in the selection and
of the common carrier and an independent contractor would be supervision of their employees.
solidary. A contractual obligation can be breached by tort and
when the same act or omission causes the injury, one resulting in Article 1763
A common carrier is responsible for injuries suffered by a passenger on
culpa contractual and the other in culpa aquiliana, Article 2194 of
account of the willful acts or negligence of other passengers or of strangers,
the Civil Code can well apply. When an act which constitutes a
if the common carrier's employees through the exercise of the diligence of a
breach of contract would have itself constituted the source of a
good father of a family could have prevented or stopped the act or omission.
quasi-delictual liability had no contract existed between the parties, Art. 2176
the contract can be said to have been breached by tort, thereby Whoever by act or omission causes damage to another, there being fault or
allowing the rules on tort to apply. negligence, is obliged to pay for the damage done. Such fault or negligence,
V. Law or Doctrine Applied if there is no pre-existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter.
2

Art. 2180
The obligation imposed by Article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is
responsible.
VI. Disposition
WHEREFORE, the assailed decision of the appellate court is AFFIRMED

with MODIFICATION but only in that (a) the award of nominal damages is
DELETED and (b) petitioner Rodolfo Roman is absolved from liability. No
costs.
VII. Separate Opinions

none
VIII. Additional Notes
VII. Random Facts

● Ponente: Vitug, J.

No. L-44748| August 1986 Obligations
RCPI v. CA
I. Recit-ready Summary civil liability arising from the criminal act of its employee.
RCPI (Radio Communications of the Philippines Inc.) was tasked (NOPE)
to send a telegram to Loreto Dionela. The telegram was sent but the 2. The Honorable Court of Appeals erred in holding that there was
problem was that there were certain offensive words added to the telegram sufficient publication of the alleged libelous telegram in question,
by the operators as an inside joke. (WALA KANG PADALA DITO - as contemplated by law on libel. (WAS NOT TOUCHED ON
KAHIT BULBOL MO) In the RTC, Dionela sued RCPI for libel not as an ANYMORE BY SC)
employer, but directly; citing that the task of RCPI is to transmit telegrams, 3. The Honorable Court of Appeals erred in holding that the liability
and it would open the door to fraud if they escape liability by merely of petitioner-company-employer is predicated on Articles 19 and
showing the employees acted beyond the scope of their task. RTC ruled in 20 of the Civil Code, Articles on Human Relations. (NO)
favor of Dionela and granted 40,000 for moral damages and 3,000 for 4. The Honorable Court of Appeals erred in awarding Atty's. fees.
attorney’s fees. RCPI elevated the case to the CA in which they ruled (SAME AS #2)
similarly to the RTC, except this time citing that the proximate cause of the
injury to Dionela was due to the negligence of the employers (RCPI) for III. Holding/s
being unable to provide precautionary steps to avoid similar situations, thus 1. NO. W/N The Honorable Court of Appeals erred in holding that
negligence is imputable to RCPI and not its employees. The CA still ruled Petitioner-employer should answer directly and primarily for the
in favor of Dionela but reduced the awarding of fees to 15,000 for moral civil liability arising from the criminal act of its employee.
damages and 2,000 for attorney’s fees. RCPI once again elevated the case to
the SC, where they still maintain that the lower courts erred in holding that As a corporation, the petitioner can act only through its employees.
RCPI should answer directly for the civil liability from their employees Hence the acts of its employees in receiving and transmitting
acts. The SC then states that the action was filed against RCPI directly and messages are the acts of the petitioner. To hold that the petitioner
not as an employer who is subsidiarily liable. There was a breach of is not liable directly for the acts of its employees in the pursuit of
contract in RCPI’s part through the negligence of its own employees when petitioner's business is to deprive the general public availing of the
they added the libelous part of the message unbeknownst to the sender. The services of the petitioner of an effective and adequate remedy.
Court then goes on to apply the doctrine of RES IPSA LOQUITUR to the
case considering the facts and circumstances, and thus affirms the CA’s 2. (WAS NOT TOUCHED ON ANYMORE BY SC)
decision.
3. NO. W/N The Honorable Court of Appeals erred in holding that
Facts of the Case the liability of petitioner-company-employer is predicated on
Honestly the case is really short there really isn’t any more facts to Articles 19 and 20 of the Civil Code, Articles on Human Relations
add.
II. Issue/s
The action filed by Dionela against RCPI was on the basis of
1. The Honorable Court of Appeals erred in holding that
Article 19 and 20 on negligence and NOT on Article 1161 of the
Petitioner-employer should answer directly and primarily for the
Civil Code. (circles back to #1 tbh)
Obligations and Contracts (2020) PLAINTIFF-APPELLEE: Radio Communications of the Philippines Inc.
DIGEST AUTHOR: Sean Lee DEFENDANT- APPELLANT: Court of Appeals and Loreto Dionela
No. L-44748| August 1986 Obligations
RCPI v. CA
IV. Law or Doctrine Applied
ART. 19.- Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
ART. 20.-Every person who, contrary to law, wilfully or negligently causes

damage to another, shall indemnify the latter for the same.
NEGLIGENCE OF THE EMPLOYEE

In the footnote it says that: “In contracts, the negligence of the employee
(servant) is the negligence of the employer (master). This is the master and
servant rule.
RES IPSA LOQUITUR
The thing speaks for itself. In most cases, negligence must be proven to
recover damages, but because it may be hard to substantiate in some cases,
the Court may look to this doctrine by considering the facts and
circumstances of the injury.
V. Disposition
WHEREFORE, premises considered, the judgment of the appellate
court is hereby AFFIRMED.

- bulbol amputa ang mature???
VII. Random Facts
● Ponente: Paras, J
Obligations and Contracts (2020) PLAINTIFF-APPELLEE: Radio Communications of the Philippines Inc.
DIGEST AUTHOR: Sean Lee DEFENDANT- APPELLANT: Court of Appeals and Loreto Dionela
G.R. No. 147437 | May 8, 2009 General provisions | Obligations and contracts
Caminos vs. People Caminos vs. People
I. Recit-ready Summary In general, the degree of care and attention required of a driver in a
The case is rooted on a vehicular collision between vehicles owned by particular case in exercising reasonable care will vary with and must be
Larry Caminos and Arnold Litonjua. measured in the light of all the surrounding circumstances, such that it
must be commensurate with the dangers which are to be anticipated and
The two vehicles collided at the intersection of Ortigas, Avenue and the injuries which are likely to result from the use of the vehicle.
Columbia street in Mandaluyong. Details are as follows:
• Volkswagen driven by Arnold Litonjua was turning left at the It is must be stressed that this restriction on speed assumes more
intersection. importance where the motorist is approaching an intersection. Ordinary
• Mitsubishi Super Saloon driven by Caminos which was going or reasonable care in the operation of a motor vehicle at an intersection
straight, coming from the opposite direction, rammed into the side would naturally require more precaution than is necessary when driving
of Arnold’s vehicle elsewhere in a street or highway.
• The view of both drivers was obstructed by the center island flower
bed. II. Facts of the Case
• A sketch was made by a patrolman, which was signed by both The case is rooted on a vehicular collision between vehicles owned by
parties. Larry Caminos and Arnold Litonjua.
Petitioner was subsequently charged before the Regional Trial Court of A traffic accident investigation report was issued by the police revealing
Pasig City with reckless imprudence resulting in damage to property that at the time of the collision, Arnold's car, which had "no right of
while petitioner imputed negligence to Arnold. way", was "turning left" whereas petitioner's car was "going straight"
and was "exceeding lawful speed". It also indicated that the vision of the
The trial court found petitioner guilty as charged which as affirmed by drivers was obstructed by the "center island flower bed". Damages
the Court of Appeals. suffered by Arnold by way of repairs amounted to P139K.
Petitioner appealed to the Supreme Court, arguing that Arnold was the
Arnold’s version is that his vehicle was at full stop at the intersection
one negligent.
when the collision occurred, his car not having passed the median line
The Supreme Court ruled that petitioner was the one principally liable. of the island. However, Caminos claims that it was Arnold’ s fault and
that he was only on second gear during the accident and was going at
Aside from the entry in the TAIR, however, which noted petitioner's around 25-30 kph
speed to be beyond what is lawful, the physical evidence on record
likewise seems to negate petitioner's contention. The photographs taken Petitioner was subsequently charged before the Regional Trial Court of
of Arnold's car clearly show that the extent of the damage to it could not Pasig City with reckless imprudence resulting in damage to property.
have been caused by petitioner's car running on second gear at the speed
of 25-30 kph. Petitioner, a company driver, imputed negligence to Arnold as the cause
of the mishap.
1
Obligations and Contracts (2020) PETITIONER: Larry Caminos
DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: People of the Philippines
The trial court found petitioner guilty as charged, finding Arnold’s establishing the accused’s culpability beyond reasonable doubt. Hence,
version consistent with the evidence and ordered the petitioner to pay even if we are to hypothesize that Arnold was likewise negligent in
the P139K. neglecting to keep a proper lookout as he took a left turn at the
intersection, such negligence will not support an acquittal.
On appeal, the appellate court affirmed the judgment of conviction
rendered by the trial court against petitioner. However, it mitigated the Imprudence connotes a deficiency of action. It implies a failure in
award of civil indemnity on its finding that Arnold himself was likewise precaution or a failure to take the necessary precaution once the danger
reckless in maneuvering a left turn inasmuch as he had neglected to look or peril becomes foreseen. Thus, something more than mere negligence
out, before entering the other lane of the road. in the operation of a motor vehicle is necessary to constitute the offense
of reckless driving, and a willful and wanton disregard of the
III. Issue/s consequences is required.
W/N the Arnold was the one principally liable for the incident due
to his negligence? NO In traffic law parlance, the term right of way is understood as the right of
one vehicle to proceed in a lawful manner in preference to another
IV. Holding/s approaching vehicle under such circumstances of direction, speed and
NO, it is the petitioner who should be held liable for the accident due proximity as to give rise to a danger of collision unless one of the vehicles
to his negligence. grants precedence to the other.
The evidence showed that Caminos was speeding when the incident The ultimate test, in other words, is to be found in the reasonable
occurred. Speeding is indicative of imprudent behavior because a foreseeability that harm might result if commensurate care is not
motorist is bound to exercise such ordinary care and drive at a reasonable exercised. It is not necessary, however, that a motorist actually foresee
rate of speed commensurate with the conditions encountered on the road. the probability of harm or that the particular injury which resulted was
foreseeable; it would suffice that he, in the position of an ordinary
Aside from the entry in the TAIR, however, which noted petitioner's prudent man, knowing what he knew or should have known, anticipate
speed to be beyond what is lawful, the physical evidence on record that harm of a general nature as that suffered was to materialize.
likewise seems to negate petitioner's contention. The photographs taken
of Arnold's car clearly show that the extent of the damage to it could not V. Law or Doctrine Applied
have been caused by petitioner's car running on second gear at the speed Article 1163 of the Civil Code
of 25-30 kph. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the law or
It was clearly established from the evidence that it was petitioner’s the stipulation of the parties requires another standard of care.
negligence that proximately caused the accident. Moreover, proof that
the offended party was also negligent or imprudent in the operation of Reckless imprudence
his automobile bears little weight, if at all, at least for purposes of Consists in voluntarily but without malice, doing or failing to do an act
from which material damage results by reason of inexcusable lack of
2
precaution on the part of the person performing or failing to perform

such act, taking into consideration his employment or occupation,
degree of intelligence, physical condition and other circumstances
regarding persons, time and place. Its elements are:
• that the offender has done or failed to do an act

• that the act is voluntary
• that the same is without malice
• that material damage results
• that there has been inexcusable lack of precaution on the part of the
offender.
VI. Disposition
WHEREFORE, the petition is DENIED. The Decision of the Court of

Appeals in CA-G.R. CR No. 14819 dated 28 February 1995 is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court
of Pasig, Branch 163 in Criminal Case No. 76653 dated 18 September
1992 is REINSTATED.

Mitsubishi Super Saloon – car driven by Caminos
Volkswagen Karmann Ghia – car driven by Arnold
VII. Random Facts

• Ponente: Tinga, J.
3
GR No 163879 / July 30, 2014 Civil Liability
Cabugao v People Cabugao v People
I. Recit-ready Summary Dagupan for confinement, where he was admitted eventually. They did
JR Palma has been complaining of abdominal pains to his mother, which several tests on him that day, undergoing blood tests and ultrasound,
led to him being brought to Dr Cabugao. His recurring condition led to him eventually finding out that he has acute appendicitis. His case then referred
being admitted into Nazareth General Hospital, where it was found that he to Dr. Ynzon, a surgeon, who then ordered the administration of antibiotics
was suffering from acute appendicitis and thus was referred to Dr Ynzon, and pain relievers.
the attending surgeon, who then administered him meds. Despite the
medication, his condition worsened, leading to his untimely death. Charges The following day, on June 16, JR complained again of abdominal pain and
were then brought against the two doctors for reckless imprudence resulting his parents noticed a swelling in his scrotum. Later that afternoon, he started
in homicide. vomiting out greenish stuff 3x and also had watery bowels 3x. The nurses
on duty relayed his condition to Dr. Ynzon, who was merely giving orders
The issue to be resolved basically is whether the two doctors' charges are through the telephone. He continued administering the same medicines to
supported by evidence at hand and the Court ruled that the evidence alleviate his pain. Unfortunately, that midnight, JM’s condition worsened,
supported the charges against Dr Ynzon for gross negligence of his duty but with his continuous loose bowel movements, vomiting (2x) and
not for Dr Cabugao due to the evidence showing that he performed the best restlessness. The following morning, on June 17, he had a running fever of
of his abilities. 38c which rendered him unconscious. They tried to alleviate it by giving
him 1 ampule of Aeknil and Valium each but he continued to deteriorate
While the case was pending though, Dr Ynzon passed away which then and by 2pm, JR’s temperature soared to 42c, giving him convulsions,
gave way to an issue regarding the viability of his civil liabilities despite his ultimately leading to his death.
death. The Court then ruled that despite the extinction of his criminal case
as a result, a civil case can still be filed against his estate or administrator to On Feb 1, 2001, information was filed against the two doctors for reckless
recover damages, depending on what source of obligation is considered. In imprudence resulting to homicide. The RTC then convicted the two on the
this case, despite the extinction of his criminal liability, his obligation can grounds that both of them were indeed negligent in the performance of their
still be sourced from a contract or quasi delict, in which the respondents duties to JR. This was affirmed by the CA, leading us to the current appeal.
have the choice to go after the administrator if based on quasi delict or to go
after the estate itself if based on contract.
II. Issue/s
Facts of the Case W/N The petitioners’ conviction of the crime of reckless imprudence
On June 14, 2000, at around 4pm, 10 year old Rodolfo Palma Jr. (JR) resulting in homicide, arising from alleged medical malpractice is
complained of abdominal pain to his mother, Rosario Palma. Later that supported by the evidence in record; YES, for Dr Ynzon and NO, for Dr
5pm, his mother and father, Atty. Rodolfo Palma Sr., brought JR to the Cabugao
clinic of Dr. Cabugao, who was a general practitioner specializing in family
medicine. He gave medicines for the pain and told them to call him up if the W/N Dr Ynzon’s civil liability was extinguished upon his death; NO, his
stomach pains recur. The next day, at 4:30am, they returned to Dr. Cabugao civil liability on another source of obligation survived
who then advised them to bring JR to the Nazareth General Hospital in
1
OBLICON 1B 2020 PETITIONER/APPELLANT: Dr. Antonio Cabugao, Dr. Clenio Ynzon

DIGEST AUTHOR: Jayvee Ala RESPONDENT: People of the Philippines, Spouses Palma
III. Holding/s practitioner, it was more apparent that he did not fail in taking precaution in
For Dr Ynzon, YES, his conviction is supported by the evidence in the performance of his duty, as shown by his relentless monitoring over the
record kid, his continuous administration of medicines during the 24hr monitoring
Based on the case, his involvement was able to fulfill all the requisites that period, his referral to Dr Ynzon ,which showed that he exercised precaution
constitute reckless imprudence resulting in homicide. In the instant case, it by referring them to another doctor who is competent on the field of
was sufficiently established that to prevent certain death, it was necessary to medicine relevant to the needs of the patient, and also his notification on the
perform surgery on JR immediately, as supported by expert testimonies. It nurses and resident-doctors that he will be on leave- coincidentally during
is clear that if JR’s condition remains unchecked will probably result in the last days of JR. All of these acts pertain to a doctor who has exercised
death (which it did). In this case, Dr Ynzon did not immediately perform all necessary precautions to perform his duty well.
surgery on the kid which led to his inevitable conclusion as a result.
Because of this, it can be observed that Dr Ynzon also failed to practice NO, Dr Ynzon’s civil liability survived even after he died
that degree of skill and care required in the treatment of his patient. During While the case was still pending appeal, the Court was informed that Dr.
the crucial times when he was most needed, he was not there, only having Ynzon died on Dec 23, 2011 due to multi- organ failure, which then begs
met the kid once during morning rounds. When he was giving out orders to the question about his criminal and pecuniary liabilities. The Court upheld
his nurses, he was not present in the scene, preferring to give out the rules laid down in People v Bayotas (see part V) regarding the issue,
instructions through phone instead of actually going there to accurately which if applied to the current case will mean that his death extinguishes his
assess the situation. To make matters worse, he even ruled out surgery when criminal liability, yet his civil liability still persists, though not based on
the kid’s condition worsened. These acts all pertain to his reckless and gross delict but by contract and reckless imprudence he was guilty of under the
negligence of his duty as the kid’s attending surgeon. What made the Court RPC. This means then that a separate civil action can be instituted either
convinced that he was guilty of such negligence is his seeming indifference against the administrator or the estate, depending on the source of such
to the kid’s situation, which led to his failure to exercise precaution and due obligation (Sec. 4, Rule 111). If based on a quasi delict, the action can be
care inexcusably. instituted against the administrator of the estate (Sec 1, Rule 87). If based
on a contract, the action can be instituted against the estate itself (Sec 5,
For Dr Cabugao, NO, his conviction is not supported by the evidence in Rule 86).
record
The Court is not convinced that he is guilty of such charge due to the
prosecution’s failure to prove the fact of the crime and the presence of all IV. Law or Doctrine Applied
elements of such. The evidence does not support such contention that Dr
Cabugao is in any position to perform surgery on the kid. It is established RECKLESS IMPRUDENCE
that Dr Cabugao is not a surgeon but instead a general practitioner - consists of voluntarily doing or failing to do, without malice
specializing in family medicine. Obviously, he cannot do the appendectomy that the offender fails to do an act from which material damage
even if he wanted to, leading to the kid’s referral to Dr. Ynzon in the first results by reason of an inexcusable lack of precaution on the part
place. Even then, Dr Cabuago’s supervision did not cease upon his referral of the person performing or failing to perform such act
to the surgeon, by exerting all efforts to monitor him. As a general
2

REQUISITES depending on the source of obligation upon which the same is based as
1) that the doing or failure to do the act is voluntary explained above.
2) that it be without malice
3) that material damage results from reckless imprudence 4. Finally, the private offended party need not fear a forfeiture of his right to
4) that there is an inexcusable lack of precaution on the part of the file this separate civil action by prescription, in cases where during the
offender prosecution of the criminal action and prior to its extinction, the
private-offended party instituted together therewith the civil action. In such
PEOPLE V BAYOTAS DOCTRINE/ RULES a case, the statute of limitations on the civil liability is deemed interrupted
during the pendency of the criminal case, conformably with provisions of
1. Death of the accused pending appeal of his conviction extinguishes his Article 1155 21 of the Civil Code, that should thereby avoid any
criminal liability as well as the civil liability based solely thereon. As apprehension on a possible privation of right by prescription.
opined by Justice Regalado, in this regard, "the death of the accused prior to
final judgment terminates his criminal liability and only the civil liability
directly arising from and based solely on the offense committed, i. e. , civil V. Disposition
liability ex delicto in senso strictiore. " WHEREFORE, premises considered, petitioner DR. ANTONIO
P. CABUGAO is hereby ACQUITTED of the crime of reckless
2. Corollarily, the claim for civil liability survives notwithstanding the death imprudence resulting in homicide.
of accused, if the same may also be predicated on a source of obligation Due to the death of the accused Dr. Clenio Ynzon prior to the
Article 1157 of the Civil Code enumerates these other
other than delict. 19 disposition of the case, his criminal liability is extinguished; however, his
sources of obligation from which the civil liability may arise as a result of civil liability subsists. A separate civil action may be filed against the
the same act or omission: executor/administrator or the estate of Dr Ynzon, depending on the source
of obligation upon which the same are based.
a) Law SO ORDERED.
b) Contracts VI. Separate Opinions
c) Quasi-contracts
d) . . .
e) Quasi-delicts VII. Random Facts

Ponente: Peralta, J.
3. Where the civil liability survives, as explained in Number 2 above, an
action for recovery therefor may be pursued but only by way of filing a
separate civil action and subject to Section 1, Rule 111 of the 1985 Rules on
Criminal Procedure as amended. This separate civil action may be enforced
either against the executor/administrator or the estate of the accused,
3

G.R. No. 141910 | January 13, 2014 Sources of Obligations enumerated in Article 1157
The Metropolitan Bank and Trust Company vs Rosales The Metropolitan Bank and Trust Company vs Rosales

On May 2002, Rosales accompanied and acted as an interpreter for Metropolitan Bank and Trust Company is a domestic banking
her client, Liu Chiu Fang, a Taiwanese National applying for a retiree's corporation. Respondent Ana Grace Rosales (Rosales) is the owner of
visa from the Philippine Leisure and Retirement Authority (PLRA), to China Golden Bridge Travel Services, a travel agency. Yo Yuk To is
Metrobank Escolta Branch to open a savings account, as required by the the mother of respondent Rosales.
PLRA. In 2000, respondents opened a Joint Peso Account with Metrobank
On March 3, 2003, respondents opened with Metrobank Pritil- Pritil-Tondo Branch with a balance of PHP2,515,693.52 (as of August
Tondo Branch a Joint Dollar Account with an initial deposit of 2004).
US$14,000.00. On May 2002, Rosales accompanied and acted as an interpreter for
On July 2003, Metrobank issued a “Hold Out” order against her client, Liu Chiu Fang, a Taiwanese National applying for a retiree's
respondents’ account. visa from the Philippine Leisure and Retirement Authority (PLRA), to
On September 2003, Metrobank filed a criminal case for Estafa Metrobank Escolta Branch to open a savings account, as required by the
through False Pretences, Misrepresentation, Deceit, and Use of Falsified PLRA.
Documents against respondent Rosales. Metrobank accused Rosales On March 3, 2003, respondents opened with Metrobank Pritil-
and an unidentified woman for the unauthorized and fraudulent Tondo Branch a Joint Dollar Account with an initial deposit of
withdrawal of US$75,000.00 from Liu Chiu Fang's dollar. US$14,000.00.
Petitioner anchors its right to withhold respondents' deposits on the On July 2003, Metrobank issued a "Hold Out" order against
Application and Agreement for Deposit Account. The court ruled that respondents' accounts.
the "Hold Out" clause applies only if there is a valid and existing On September 2003, Metrobank, through its Special Audit
obligation arising from any of the sources of obligation enumerated in Department Head Antonio Ivan Aguirre, filed before the Office of the
Article 1157 of the Civil Code. Prosecutor of Manila a criminal case for Estafa through False
Petitioner failed to show that respondents have an obligation to it Pretences, Misrepresentation, Deceit, and Use of Falsified
and although a criminal case was filed by petitioner against respondent, Documents against respondent Rosales. Metrobank accused Rosales
this is not enough reason for Metrobank to issue a "Hold Out" order as and an unidentified woman for the unauthorized and fraudulent
the case is still pending and no final judgment of conviction has been withdrawal of US$75,000.00 from Liu Chiu Fang's dollar.
rendered yet. Moreover, at the time petitioner issued the "Hold Out"
order, the criminal complaint had not yet been filed. Metrobank alleged that:
Thus, considering that Rosales is not liable under any of the five On February 5, 2003, Metrobank Escolta Branch received from the
sources of obligation, there was no legal basis for petitioner to issue the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang;
"Hold Out" order. Metrobank is guilty of breach of contract when it • Rosales went to Metrobank Escolta Branch to inform its Branch
unjustifiably refused to release Rosales' deposit despite demand. Bank Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was
deposits, which are in the nature of a simple loan or mutuum, one must going to withdraw her dollar deposits in cash;
be paid upon demand by the depositor. Having breached its contract • Gutierrez told Rosales to come back the following day because the
with respondents, Metrobank is liable for damages. bank did not have enough dollars;
Obligations and Contracts (2020) PETITIONER/APPELLANT: The Metropolitan Bank and Trust Company
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Ana Grace Rosales and Yo Yuk To
On February 6, 2003, Rosales accompanied an impostor of Liu Chiu IV. Holding/s

Fang to the bank; 1. No, the "Hold-Out" provision in the application and agreement for
• The impostor was able to withdraw Liu Chiu Fang's dollar deposit deposit account does not apply in this case.
in the amount of US$75,000.00; Petitioner anchors its right to withhold respondents' deposits on the
• On March 3, 2003, respondents opened a dollar account with Application and Agreement for Deposit Account. The "Hold Out"
petitioner; clause applies only if there is a valid and existing obligation arising from
• Metrobank later discovered that the serial numbers of the dollar any of the sources of obligation enumerated in Article 1157 of the Civil
notes deposited by Rosales in the amount of US$11,800.00 were Code.
Art. 1157. Obligations arise from:
the same as those withdrawn by the impostor. 1) Law;
2) Contracts;
Rosales’ version: 3) Quasi-contracts;
4) Acts or omissions punished by law; and
On February 6, 2003, Gutierrez informed Rosales that Liu Chiu 5) Quasi-delict.
Fang was at the bank to close her account. Rosales went back to the bank and Petitioner failed to show that respondents have an obligation to it
caught a glimpse of a woman seated at the desk of the Branch Operating and although a criminal case was filed by petitioner against respondent,
Officer, Melinda Perez (Perez). Rosales approached Perez who informed her this is not enough reason for Metrobank to issue a "Hold Out" order as
that Liu Chiu Fang had closed her account and had already left. Perez then the case is still pending and no final judgment of conviction has been
gave a copy of the Withdrawal Clearance issued by the PLRA to Rosales. rendered against respondent Rosales. At the time petitioner issued the
On June 16, 2003, Liu Chiu Fang called Rosales inquiring about the "Hold Out" order, the criminal complaint had not yet been filed.
extension of her PLRA Visa and her dollar account. Liu Chiu Fang found out Thus, considering that Rosales is not liable under any of the five
that her account had been closed without her knowledge. Rosales went to the sources of obligation, there was no legal basis for petitioner to issue the
bank to inform Gutierrez and Perez of the unauthorized withdrawal. "Hold Out" order. Metrobank is guilty of breach of contract when it
On June 23, 2003, Rosales and Liu Chiu Fang went to the PLRA Office, unjustifiably refused to release Rosales' deposit despite demand. Bank
where they were informed that the Withdrawal Clearance was issued on the deposits, which are in the nature of a simple loan or mutuum, 1 must be
basis of a Special Power of Attorney (SPA) executed by Liu Chiu Fang in paid upon demand by the depositor. Having breached its contract with
favor of a certain Richard So. However, Liu Chiu Fang denied executing the respondents, Metrobank is liable for damages.
SPA.
2. Yes, Respondents are entitled to moral and exemplary damages and
III. Issue/s attorney's fees.
1. W/N, the "Hold-Out" provision in the application and agreement In cases of breach of contract, moral damages may be recovered only
for deposit account does not apply in this case? NO. if the defendant acted fraudulently or in bad faith or is "guilty of gross
2. W/N the Metrobank employees were negligent in releasing Liu Chiu negligence amounting to bad faith, or in wanton disregard of his
Fang's funds and the award of moral damages, exemplary damages, contractual obligations.” It can be deduced from the factual antecedents
and attorney's fees was proper? YES. that the issuance of the "Hold Out" order was issued in bad faith and
respondents are entitled to Moral Damages.
I. The order was issued without any legal basis.
II. Metrobank did not inform Rosales of the reason for the "Hold Out."
2
III. The order was issued prior to the filing of the criminal complaint. Records show that VII. Separate Opinions
the "Hold Out" order was issued on July 31, 2003, while the criminal complaint was
filed only on September 3, 2003. N/A
As to the award of exemplary damages, Article 2229 of the Civil Code VIII. Additional Notes
provides that exemplary damages may be imposed "by way of example N/A
or correction for the public good, in addition to the moral, temperate, VII. Random Facts
● Ponente: Del, Castillo, J.
liquidated or compensatory damages." They are awarded only if the
guilty party acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.
Petitioner indeed acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner when it refused to release the deposits of respondents
without any legal basis. The banking industry is impressed with public
interest. As such, "the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it." It must
therefore "treat the accounts of its depositors with meticulous care and
always to have in mind the fiduciary nature of its relationship with
them."
Petitioner has the right to protect itself from fraud or suspicions of
fraud, the exercise of this right should be done within the bounds of the law
and in accordance with due process, and not in bad faith or in a wanton
disregard of its contractual obligation to respondents.
ART. 1157. OBLIGATIONS ARISE FROM:

1. Law;
2. Contracts;
3. Quasi-contracts;
4. Acts or omissions punished by law; and
5. Quasi-delict.
VI. Disposition
WHEREFORE, the Petition is hereby DENIED. The assailed April 2,

2008 Decision and the May 30, 2008 Resolution of the Court of Appeals in
CA-G.R. CV No. 89086 are hereby AFFIRMED.
SO ORDERED.
3
[G.R. No 12191 | October 14, 1918] [Obligations, General Provisions of the Civil Code]
[Cangco v Manila Railroad] [Cangco v Manila Railroad]
I. Recit-ready Summary Cangco can recover damages against Manila Railroad. The Rakes Doctrine
provides that if the accident was caused by plaintiff's own negligence, no
Cangco was a Manila Railroad copyist clerk. Cangco was supplied with a liability is imposed upon defendant, whereas if the accident was caused by
pass to use the company’s trains for free. An accident occurred as he was defendant's negligence and plaintiff's negligence merely contributed to his
alighting from a train. Cangco alighted before the train fully stopped. His feet injury, the damages should be apportioned.
hit a sack of watermelons strewn over the station platform. He slipped. His
right arm was then crushed by the stopping train. His right arm was then To find whether Cangco is negligent the Court used the test of negligence for
amputated in a hospital in Manila. passengers attempting to alight a moving train in the Thompson
Commentaries on Negligence. The test requires the determination of whether
Issue 1: W/N Manila Railroad can impute the accident solely to the fault of the passenger exercised reasonable care. It considers considered whether an
its employees to escape from suit? (No) ordinarily prudent person, of the age, sex and condition of the passenger,
would have acted as the passenger acted under the circumstances disclosed
Sub-Issue: Is the obligation contractual or extra-contractual? by the evidence.
(Contractual)
The Court enumerated the following circumstances: the platform was
The obligation between Cangco and Manila Railroad is contractual. Thus, elevated to reduce possibility of accidents; the platform was made of cement
Manila Railroad cannot escape from suit by transferring its liability to its and is therefore stable; Cangco was a young man filled with the vigor of youth
employees. and free from the burden of women’s restrictive clothing; and, Cangco was
familiar with the station. Thus, the Court found Cangco not guilty of
A contractual and extra-contractual obligation is mainly distinguished by the contributory negligence.
presence of a pre-existing contract between the parties. A contractual
obligation has a pre-existing contract. An extra-contractual obligation has The decision of lower court is reversed, and judgment is hereby rendered
none. If the case does not involve a pre-existing contract, then the master (or plaintiff for the sum of P3,290.25, and for the costs of both instances. So
employer) can impute the recover of damages to its servant (or employee) by ordered.
proving that it has exercised diligence and due care of a good father in the
selection and supervision of its servants. However, if there is a pre-existing Arellano, C.J., Torres, Street and Avanceña, JJ., concur.
contract, then, the master cannot transfer the fault to its servant. Thus, the
master must pay for the damages of its servants.
II. Facts of the Case
The present case involves a contractual obligation which arises from the
contract of carriage between Manila Railroad and Cangco. This is proven by Cangco was a copyist clerk of Manila Railroad. His monthly wage is P25. He
the train pass given by Manila Railroad. Thus, Manila Railroad cannot lived in San Mateo, Rizal. To go to Manila for work, he used a company
transfer the liability to its employees for their negligence in handling the sack supplied pass which entitled him to ride the company's train for free.
of watermelons.
On January 20, 1915, Cangco was returning home from work. As the train
Issue 2: W/N Cangco is precluded from recovering damages under the drew closer to San Mateo station, he took his position upon the steps of the
doctrine of comparative negligence? (No) coach. There is a cement platform which begins to rise with a moderate
Block B 2023 PETITIONER/APPELLANT: Jose Cangco

DIGEST AUTHOR: Jann Aristeo E. Amorado RESPONDENT: Manila Railroad Co.
gradient from the company's office extending to the front of the said office.
AS the train slowed down, Emilio Zuniga, another Manila Railroad III. Issue/s
employee, got off the same car safely just where the platform begins to rise.
However, when the train proceeded farther, Cangco stepped off the coach but 1. 1. W/N Manila Railroad can impute the accident solely to the fault of its
his feet hit a sack of watermelons. He slipped and fell on the platform. The employees to escape from suit? (No)
train, still moving, crushed the Cangco's right arm before it came to a full
stop. 1. Is the obligation contractual or extra-contractual? (Contractual)
The accident occurred between 19:00 and 20:00 on a dark night. Some 2. W/N Cangco is precluded from recovering damages under the doctrine of
distance away, a single light was dimly lighting the station. The objects on comparative negligence? (No)
the platform were difficult to discern, more so for a person emerging from the
train. IV. Holding/s
There was a sack of watermelons because it was harvest season and a large 1. W/N Manila Railroad can impute the accident solely to the fault of its
lot of watermelons were brought to the station for shipment to the market. employees to escape from suit? (No)
The watermelon sacks were placed only about two feet from the platform. It
is also clear that Cangco slipped for he stepped on one of the watermelons.
Is the obligation contractual or extra-contractual? (Contractual)
Cangco was drawn from the train in an unconscious state. He suffered very
serious injuries. He was brought to a hospital in Manila and was amputated. The obligation is a contractual obligation. The type of obligation is a pertinent
However, the operation was unsatisfactory. He was then carried to another issue because it determines whether Cangco can recover damages from
hospital and was amputated higher near the shoulder. Cangco expended Manila Railroad. The Court differentiated culpa aquiliana or extra-
P790.25 in medical fees, surgical fees, and other expenses connected to the contractual obligations and culpa contractual or contractual obligations to
process of his curation. resolve the issue.
Procedural CULPA AQUILIANA. The provisions of cupla aquiliana or extra-

contractual obligations can be seen in Art. 1902, 1903 of the Old Civil Code
On August 31, 1915, Cangco instituted this proceeding in the Manila Court (OCC) and the articles on Quasi-Delicts on the New Civil Code (NCC). Art.
of First Instance to recover damages from Manila Railroad citing the 1903 of the OCC is roughly the same as Art. 2180 of the NCC. Based from
negligence of its employees for placing sacks of watermelons on the platform the Court’s discussion on extra-contractual obligations, the elements of an
which became a menace to passengers alighting from the train. The judge extra-contractual obligation are:
ruled that while the employees were negligent, Cangco himself was negligent
for not exercising due caution when alighting from the train. The judge 1. No pre-existing contractual relation between the
precluded Cangco from recovering damages from Manila Railroad. Cangco parties. (Art. 1902, 1903 of the OCC; Rakes v Atlantic, Gulf
appealed his case. and Pacific)

2. A servant does an act or omission causing damage to another; Applied to the present case, the obligation is contractual and not extra-
3. There is fault or negligence on the part of the servant who contractual. The pre-existing contractual relation came from the company
caused damage; train pass which creates a contract of carriage between Manila Railroad and
4. There exists a rebuttable presumption that the master of Cangco. Thus, the fault cannot be imputed to Manila Railroad’s employees.
the servant was negligent in the selection or supervision of The recovery of damages has to be made against the master, Manila
the servant (Art. 1903 of the OCC; Bahia v Litonjua and Railroad.
Leynes); and,
5. The injured person obliges the person who caused damage to 2. W/N Cangco is precluded from recovering damages under the doctrine of
pay for the damage. comparative negligence? (No)
CULPA CONTRACTUAL. Culpa Contractual or contractual obligations MANILA RAILROAD'S DEFENSE. Even granting that the negligent act
are based on Art. 1101, 1103, and 1104 of the OCC or Art. 1170, 1171, of its employees was a breach of its contractual obligation to maintain safe
1172, 1173 of the NCC. Its elements are: means of approaching and leaving trains, the direct and proximate cause
was Cangco's own contributory negligence in failing to wait until the train
1. There exists a pre-existing contractual relation between the had come to a complete stop before alighting.
parties;
2. A servant does an act or omission causing damage to another Operating Laws:
which constitutes a breach of the pre-existing contract;
3. There is fault or negligence on the part of the servant who caused
damage; and, COMPARATIVE/CONTRIBUTORY NEGLIGENCE; RAKES
4. The injured person obliges the person who caused damage to pay DOCTRINE. If the accident was caused by plaintiff's own negligence, no
for the damage. liability is imposed upon defendant, whereas if the accident was caused by
defendant's negligence and plaintiff's negligence merely contributed to his
injury, the damages should be apportioned (Rakes v Atlantic, Gulf and
Thus, the main differences between extra-contractual and contractual Pacific).
obligations are the existence of a pre-existing contractual relation and the
rebuttable presumption of negligence of the master on selecting or
supervising the servant. In extra-contractual obligations, if the master or TEST OF NEGLIGENCE FOR PASSENGERS ATTEMPTING TO
employer proves that they were not negligent in selecting or supervising ALIGHT A MOVING TRAIN. "The test by which to determine whether
the servant or employee, then they can shift the suit to the employee the passenger has been guilty of negligence in attempting to alight from a
(Art. 1903 of the OCC). However, for contractual obligations the Court, moving railway train, is that of ordinary or reasonable care. It is to be
citing Manresa, provides that the “proof of contract and of its considered whether an ordinarily prudent person, of the age, sex and
condition of the passenger, would have acted as the passenger acted under
nonperformance is sufficient prima facie to warrant a recovery.”
the circumstances disclosed by the evidence. This care has been defined to
be, not the care which may or should be used by the prudent man generally,
Supreme Court of Porto Rico has held that similar articles are applicable to but the care which a man of ordinary prudence would use under similar
cases of extra-contractual culpa (culpa aquiliana) exclusively. circumstances, to avoid injury." (Thompson, Commentaries on Negligence,
vol. 3, sec. 3010.)

Cangco was not guilty of contributory negligence. Applying the test of 1. No pre-existing contractual relation between the
negligence, the following circumstances do not characterize imprudence for parties. (Art. 1902, 1903 of the OCC; Rakes v Atlantic, Gulf
the part of Cangco: and Pacific)
2. A servant does an act or omission causing damage to another;
1. PLATFORM CLOSER TO THE CAR. The company's platform 3. There is fault or negligence on the part of the servant who
was constructed upon a level higher than that of the roadbed and caused damage;
the surrounding ground. The distance from the steps of the car to 4. There exists a rebuttable presumption that the master of
the spot where the alighting passenger would place his feet on the the servant was negligent in the selection or supervision of
platform was thus reduced, thereby decreasing the risk incident to the servant (Art. 1903 of the OCC; Bahia v Litonjua and
stepping off. Leynes); and,
2. NATURE OF THE PLATFORM. The nature of the platform, 5. The injured person obliges the person who caused damage to
constructed as it was of cement material, also assured to the pay for the damage.
passenger a stable and even surface on which to alight.
3. CANGCO WAS A YOUNG MAN. The plaintiff was possessed of CULPA CONTRACTUAL (Art. 1101, 1103, and 1104 of the OCC; Art.
the vigor and agility of young manhood, and it was by no means so 1170, 1171, 1172, 1173 of the NCC)
risky for him to get off while the train was yet moving as the same
act would have been in an aged or feeble person. In determining 1. There exists a pre-existing contractual relation between
the question of contributory negligence in performing such act - the parties;
that is to say, whether the passenger acted prudently or recklessly - 2. A servant does an act or omission causing damage to
the age, sex, and physical condition of the passenger are another which constitutes a breach of the pre-existing
circumstances necessarily affecting the safety of the passenger, and contract;
should be considered. Women, it has been observed, as a general 3. There is fault or negligence on the part of the servant who
rule are less capable than men of alighting with safety under such caused damage; and,
conditions, as the nature of their wearing apparel obstructs the free 4. The injured person obliges the person who caused damage to
movement of the limbs. pay for the damage.
4. CANGCO WAS FAMILIAR WITH THE STATION. Again, it
may be noted that the place was perfectly familiar to the plaintiff
as it was his daily custom to get on and of the train at this station.
There could, therefore, be no uncertainty in his mind with regard
either to the length of the step which he was required to take or the RAKES DOCTRINE. If the accident was caused by plaintiff's own
character of the platform where he was alighting. negligence, no liability is imposed upon defendant, whereas if the accident
was caused by defendant's negligence and plaintiff's negligence merely
contributed to his injury, the damages should be apportioned (Rakes v
V. Law or Doctrine Applied Atlantic, Gulf and Pacific).
TEST OF NEGLIGENCE FOR PASSENGERS ATTEMPTING TO

CULPA AQUILIANA (Art. 1902, 1903 of the Old Civil Code, Quasi- ALIGHT A MOVING TRAIN. "The test by which to determine whether the
Delicts on the New Civil Code): passenger has been guilty of negligence in attempting to alight from a moving
4

railway train, is that of ordinary or reasonable care. It is to be considered

whether an ordinarily prudent person, of the age, sex and condition of the
passenger, would have acted as the passenger acted under the circumstances
disclosed by the evidence. This care has been defined to be, not the care
which may or should be used by the prudent man generally, but the care
which a man of ordinary prudence would use under similar circumstances, to
avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)
VI. Disposition
The decision of lower court is reversed, and judgment is hereby rendered

plaintiff for the sum of P3,290.25, and for the costs of both instances. So
ordered.
Arellano, C.J., Torres, Street and Avanceña, JJ., concur.
MALCOLM (DISSENTING). Justice Malcolm agrees with the majority

decision in only two sentences:
1. It may be admitted that had plaintiff waited until the train had
come to a full stop before alighting, the particular injury
suffered by him could not have occurred.
2. An attempt to alight from a moving train is negligence per se.
Thus, Manila Railroad should be absolved from the complaint.
VII. Random Facts

● Ponente: Justice Fischer
● The P3,290.25 came from compensation for the disability (P2,500)
and from medical fees (P790.25)

[G.R. No 138296| November 22, 2000] [Obligations, General Provisions of the Civil Code]
[Viron v De los Santos] [Viron v De los Santos]
I. Recit-ready Summary The respondents only presented a job estimate and a photo as proof, which
are not proof that could ascertain the damages.
A traffic accident occurred between a cargo truck and a bus. Petitioner
Viron Transport owned the bus while defendant De los Santos was the II. Facts of the Case
driver of truck owned by Samidan. There parties gave two conflicting
versions of the events. However, the court determined that the defendant’s Respondent De los Santos’ version – actual events
version was the true one. De los Santos recounted that the bus tried to
overtake his truck, and he swerved to the right shoulder of the highway, but Defendant Alberto delos Santos was the driver of defendant Rudy Samidan
as soon as he occupied the right lane of the road, the cargo truck which he of the latter's vehicle, a Forward Cargo Truck with Plate No. TDY-524.
was driving was hit by the Viron bus on its left front side, as the bus At about 12:30 in the afternoon of August 16, 1993, he was driving said
swerved to his lane to avoid an incoming bus on its opposite direction. truck along the National Highway within the vicinity of Barangay
Viron Transport then filed a civil action for damages against the defendants Parsolingan, Gerona, Tarlac. The Viron bus with Plate No., TB-AVC-332,
which was met with a counterclaim from the defendants. Viron assailed the driven by Wilfredo Villanueva y Gaudia, tried to overtake his truck, and
counterclaim on the ground that the defendants did not allege that Viron he swerved to the right shoulder of the highway, but as soon as he
was negligent in the supervision and selection of their employees. occupied the right lane of the road, the cargo truck which he was
driving was hit by the Viron bus on its left front side, as the bus
W/N defendants De los Santos needed to state in their counterclaim that the swerved to his lane to avoid an incoming bus on its opposite direction.
Viron was negligent in the supervision and selection of its employees? – He and the driver of the Viron bus proceeded to report the incident to the
No. Gerona Police Station. A Vehicular Traffic Report was prepared by the
police with a Sketch of the relative positions of the circumstances leading to
It is not necessary to state that petitioner was negligent in the supervision or the vehicular collision.
selection of its employees, as its negligence is presumed by operation of
law. The presumption that they are negligent flows from the negligence of Procedural
their employee. (Art. 2180) That presumption, however, is only juris
tantum, not juris et de jure and may be rebuttable. Their only possible Petitioner Viron Transport instituted a civil case as an action to recover
defense is that they exercised all the diligence of a good father of a family damages based on quasi-delict filed as a result of this vehicular accident.
to prevent the damage. However, Viron transport was not able to overcome After trial, the lower court dismissed their complaint and sustained the De
this presumption with contrary evidence that they exercised ordinary los Santos’ counterclaim for damages. Viron appealed to the CA which
diligence with the supervision and selection of their employees. affirmed in toto the decision of the lower court. CA denied Viron’s MR and
elevated the case to the SC via petition for certiorari.
However, the SC held that the CA erred in awarding damages to the
respondents actual damages, to be recoverable, must not only be capable of
proof, but must actually be proved with a reasonable degree of certainty.
1
Block B 2023 PETITIONER/APPELLANT: Viron Transport Co.

DIGEST AUTHOR: Joseph Mari Z. Capeding RESPONDENT: ALBERTO DELOS SANTOS y NATIVIDAD and RUDY
SAMIDAN
III. Issue/s
3. Viron contends that De los Santos’ counterclaim failed to state a cause of
1. W/N the CA was wrong for affirming the findings of the lower court that action for there is no averment therein that “petitioner failed to exercise the
Viron was at fault of the accident – No. diligence of a good father of a family in the selection and supervision of its
drivers or employees.”
2. W/N Viron was at fault? – Yes.
It is not necessary to state that petitioner was negligent in the
3. W/N defendants De los Santos needed to state in their counterclaim supervision or selection of its employees, as its negligence is presumed
that the Viron was negligent in the supervision and selection of its by operation of law. The presumption that they are negligent flows from
employees? – No. the negligence of their employee. That presumption, however, is only juris
tantum, not juris et de jure. Their only possible defense is that they
4. W/N the CA erred in awarding damages to respondents De los exercised all the diligence of a good father of a family to prevent the
Santos and Samidan? – Yes. damage.
IV. Holding/s Viron, through its witnesses, namely, Danilo Azardon, a shop supervisor
and Fernando Mallare, an administrative officer, failed to rebut such legal
1. The CA was correct for affirming the lower court that Viron was at fault. presumption of negligence in the selection and supervision of
The rule is settled that the findings of the trial court especially when employees, thus, petitioner as the employer is responsible for damages,
affirmed by the CA, are conclusive on this Court when supported by the the basis of the liability being the relationship of pater familias or on the
evidence on record. The Supreme Court will not assess and evaluate all over employer's own negligence. (see Art. 2180 in notes) Thus, Viron as the
again the evidence, testimonial and documentary adduced by the parties to employer is responsible for damages, the basis of the liability being the
an appeal particularly where, such as here, the findings of both the trial relationship of pater familias or on the employer's own negligence.
court and the appellate court on the maker coincide. Viron failed to show
any compelling ground to reverse the findings. 4. Actual damages, to be recoverable, must not only be capable of proof, but
must actually be proved with a reasonable degree of certainty. Courts
2. The Viron passenger bus collided with the cargo truck in a vain attempt cannot simply rely on speculation, conjecture or guesswork in determining
to overtake the latter. At the sight of an oncoming bus in the opposite the fact and amount of damages. To justify an award of actual damages,
direction, the Viron passenger bus swerved to the right lane which was then there must be competent proof of the actual amount of loss, credence can be
occupied by the cargo truck resulting in the collision of the two vehicles. In given only to claims which are duly supported by receipts. Only a job
reference to Alberto delos Santos' testimony, the lower court pointed out estimate for the repair of the truck as well as a photo were the basis for the
that the said driver of the cargo truck was on its proper lane at the time damages awarded by the CA. Regardless of lack of receipts to award actual
of impact, and even swerved earlier toward the right shoulder of the damages, temperate damages were still awarded for the repair of truck.
road just to give room to the bus.

SAMIDAN
When the employee causes damage due to his own negligence while
performing his own duties, there arises the juris tantum presumption that the
employer is negligent, rebuttable only by proof of observance of the
diligence of a good father of a family.
Article 2176. Whoever by act or omission causes damage to another, there

being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
Article 2180. The obligation imposed by article 2176 is demandable not

only for one's own acts or omissions, but also for those of persons for whom
one is responsible. Employers shall be liable for the damages caused by
their employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business or
industry. The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the diligence of a
good father of a family to prevent damage.
VI. Disposition
The challenged decision of the Court of Appeals affirming that of the
Regional Trial Court of Manila, is modified insofar as it awarded actual
damages to Alberto delos Santos and Rudy Samidan in the amount of
P19,500.00 and an additional P10,000.00 as expenses for transportation and
accommodation during the trial for lack of evidentiary bases therefor.
Considering the fact, however, that the cargo truck sustained damages due
to the negligence or fault of petitioner, the award of P10,000.00 in favor of
private respondents as and for temperate damages is in order. The award of
P10,000.00 as attorney's fees is DELETED for reasons above-stated.
Melo, Vitug, and Panganiban, JJ., concur.

SAMIDAN
[GR No. 163868 | May 8, 2009] [Degree of Diligence; Negligence; Quasi-Delict]
[Mindanao Terminal v Phoenix] [Mindanao Terminal v Phoenix]
I. Recit-ready Summary Del Monte Produce insured the shipment under an “open cargo
policy” of Phoenix, a non-life insurance company with McGee as the
Del Monte contracted Mindanao Terminal, a stevedoring company, agent of Phoenix. When the shipment arrived in Incheon, they found
to load and stow a shipment of PH bananas and pineapples owned by out that some of the shipment were damaged and based on the survey
Del Monte Produce into M/V Mistrau bound for Incheon, Korea. Del report done by the damage surveyor, some were so damaged that
Monte Produce insured this shipment with Phoenix, a non-life they no longer had commercial value.
insurance company and McGee, the agent of Phoenix. Later, it was
discovered that some of the shipment delivered were damaged to the Del Monte Produce filed a claim under their open cargo policy for
point that they no longer have commercial value. the damages to its shipment. DM Produce received the payment and
they issued a subrogation receipt to Phoenix and McGee. Phoenix
Del Monte Produce then filed a claim for damages from their and McGee, in turn, filed an action for damages against Mindanao
insurance with Phoenix and McGee. They received payment and Terminal.
issued a subrogation receipt to Phoenix and McGee which, in turn,
filed an action for damages against Mindanao Terminal. III. Issue/s
1. W/N Mindanao Terminal is under obligation to observe the
The issue in this case is W/N Mindanao Terminal was negligent same extraordinary degree of diligence that common carriers
thereby making it liable for damages under a quasi-delict. The Court are required to do. NO
said NO. Mindanao Terminal’s only participation was to load the 2. W/N Mindanao Terminal was negligent in the loading and
cargoes onboard M/V Mistrau, not to transport it and act as common stowage of the cargoes onboard M/V Mistrau making it
carrier. As a stevedoring company, they were only expected to liable for damages under a quasi-delict. NO
exercise ordinary diligence as no law or stipulation of contract
required them to exercise a higher degree of diligence. IV. Holding/s
1. No. Mindanao Terminal is under no obligation to observe
II. Facts of the Case the same extraordinary degree of diligence that common
carriers are required to do.
Del Monte contracted Mindanao Terminal, a stevedoring company,
to load and stow a shipment of 146,288 cartons of green PH bananas Article 1173 states that when the law or contract does not state the
and 15,202 cartons of pineapples owned by Del Monte Produce into degree of diligence which is to be observed in the performance of an
M/V Mistrau. It was docked at Davao port and was transported to obligation then that which is expected of a good father of a family or
Incheon, Korea in favor of consignee Taegu Industries. ordinary diligence shall be required. In this case, there was neither a
law imposing higher degree of diligence for a stevedoring company
nor a stipulation in their contract. Mindanao Terminal’s only
1
[Obligations and Contracts 2020] PETITIONER/APPELLANT: MINDANAO TERMINAL AND BROKERAGE SERVICE, INC.
DIGEST AUTHOR: Myna RESPONDENT: PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC.
[GR No. 163868 | May 8, 2009] [Degree of Diligence; Negligence; Quasi-Delict]
[Mindanao Terminal v Phoenix] [Mindanao Terminal v Phoenix]
participation was to load the cargoes on board M/V Mistrau and was their role in a manner that met the degree of diligence required of
required to observe only ordinary diligence. It was never the them.
custodian of the shipment; a stevedore is not a common carrier for it
does not transport goods and passengers. V. Law or Doctrine Applied
The Court explained the difference between an arrastre and a Article 1173. The fault or negligence of the obligor consists in the
stevedore. An arrastre is a Spanish word which refers to hauling a omission of that diligence which is required by the nature of the
cargo. An arrastre operator’s duty is to take good care of the goods obligation and corresponds with the circumstances of the persons, of
and to turn them over to the party entitled to their possession. The the time and of the place. When negligence shows bad faith, the
responsibility of the arrastre operator lasts until the delivery of the provisions of articles 1171 and 2201, paragraph 2, shall apply.
cargo to the consignee. In the performance of its obligations, an
If the law or contract does not state the diligence which is to be
arrastre operator should observe the same degree of diligence as that
observed in the performance, that which is expected of a good father
required of a common carrier and a warehouseman. On the other
of a family shall be required. (1104a)
hand, a stevedore is not a common carrier for it does not transport
goods or passengers; it is not akin to a warehouseman for it does not Article 1157. Obligations arise from:
store goods for profit. The responsibility of the stevedore ends upon
the loading and stowing of the cargo in the vessel. The loading and (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions
stowing of cargoes would not have a far reaching public ramification punished by law; and (5) Quasi-delicts.
as that of a common carrier and warehouseman. The public policy
considerations in legally imposing upon a common carrier or a VI. Disposition
warehouseman a higher degree of diligence is not present in a
stevedoring outfit which mainly provides labor in loading and WHEREFORE, the petition is GRANTED. The decision of the
stowing of cargoes for its clients. Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the
decision of the Regional Trial Court of Davao City, Branch 12 in
2. No. Mindanao Terminal was not negligent and therefore, Civil Case No. 25,311.97 is hereby REINSTATED MINUS the
not liable for damages awards of ₱100,000.00 as attorney’s fees and ₱83,945.80 as actual
damages.
The present action is based on quasi-delict. They are suing not for
injuries arising from breach of contract but from the alleged VII. Separate Opinions
negligent manner by which Mindanao Terminal handled the cargoes. VIII. Additional Notes
As shown in the case, they were not negligent as they performed VII. Random Facts
● Ponente: Tinga,J.
2
[Obligations and Contracts 2020] PETITIONER/APPELLANT: MINDANAO TERMINAL AND BROKERAGE SERVICE, INC.
DIGEST AUTHOR: Myna RESPONDENT: PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC.
G.R. No. 124354 | December 29, 1999 Doctrine of res ipsa loquitur
Ramos v. CA Ramos v. CA
I. Recit-ready Summary •Civil case for damages was filed with the Regional Trial Court of
This case involves whether respondents should be made liable for the Quezon City alleging negligence in the management and care of
unfortunate comatose condition of a patient. Plaintiff Erlinda Ramos was Erlinda Ramos.
advised to undergo an operation to remove a stone in her gall bladder. After • Plaintiff argued that it was due to lack of oxygen in her brain
meeting Dr. Hosaka and having him examine the documents, he advised the caused by the faulty management of her airway.
petitioners to undergo a cholecystectomy operation. Dr. Hosaka also
• Respondents argued that the cause of the brain damage was
reassured Rogelio Ramos that he will look for a good anesthesiologist. She
was then prepared for the operation by the hospital staff and Dr. Gutierrez. Erlinda’s allergic reaction to the anesthetic agent.
However, Dr. Hosaka had yet to arrive, which made Rogelio worry for his • The RTC rendered judgement in favor of petitioners, holding the
wife who was waiting in the operating room. When Dr. Hosaka finally defendants liable to plaintiffs for damages. The Court finds the
arrived, it prompted the people inside the operating room to begin moving. following liable through their acts: Gutierrez failed to administer
Herminda noticed Dr. Gutierrez having difficulty with intubating the due care in intubating the patient and failed to repeat the
patient, she then noticed the bluish discoloration of the nailbeds of the left administration of atropine. Hosaka failed to arrive on time for the
hand of Erlinda. She also overheard Dr. Hosaka ordering someone to call scheduled operation, to provide the patient a “good
Dr. Calderon, who was another anesthesiologist. Herminda felt that anesthesiologist”, and chose Gutierrez to administer the
something wrong was happening. The patient was then taken to the anesthesia. DLSMC (the hospital) is liable for the acts of
Intensive Care Unit, which she stayed in for month and after another four negligence of the doctors in their practice of medicine.
months she was released. The hospital asked Gutierrez and Hosaka to
• The Court of Appeals rendered a decision reversing the findings
explain what happened. They said that the patient had bronchospasm.
Charges were then filed against a surgeon, anesthesiologist, and a hospital. of the trial court. The appellees were ordered to pay the unpaid
Petitioner’s argue that Erlinda fell under comatose and was confined in the hospital bills amounting P93,542.25.
hospital for months, which led to an increase in petitioner’s medical bill, • The decision, however, was received by petitioner who was
was the result of negligence. They argue that there was negligence on the mistakenly addressed as “Atty. Rogelio Ramos” and no copy was
respondents’ part as they failed to properly conduct the operation and sent to Coronel Law Office. Rogelio then referred the decision to
management in the care of the patient. Charges were filed against Dr. Atty. Ligsay just four days before the expiration of the
Gutierrez, Dr. Hosaka, and the hospital on the ground of negligence in their reglementary period for filing a motion of reconsideration. After
part in the operation of petitioner, Erlinda. The Court modified the the court denied the motion for extension, petitioners sought the
resolution of the appellate court so as to award in favor of petitioners, and to services of Atty. Sillano. But the appellate court still denied on the
make private respondents solidarily liable for damages. ground that the fifteen-day period had already expired.
• Atty. Sillano then filed a motion for extension to the Court, after
receiving the resolution from the appellate court, which was
• Erlinda was advised to undergo a cholecystectomy to remove a
granted, and petitioners were given a thirty-day extension.
stone in her gall bladder. She was admitted in to DLSMC for her
• The Court finds that the pieces of evidence and testimonies point
operation. However, several incidents occurred, such as tardiness
to negligence of private respondents in their care of petitioner. As
of the surgeon, mishandling of the anesthesiologist, and
Dr. Gutierrez failed to administer proper diligence to prepare
mismanagement of the hospital, which allegedly led to her
Erlinda, Dr. Hosaka failed to diligently oversee the operation as
condition.
head surgeon, and the hospital failed to supervise its staff
members.
1
Oblicon (2020) PETITIONER: Rogelio Ramos and Erlinda Ramos
DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Court of Appeals
• Due to the aforementioned reasons, the Court modified the ruling administration of anesthesia and in the use of endotracheal tube.
of the Court of Appeals in favor of petitioners, making private Furthermore, the instruments used in the administration of anesthesia,
respondents solidarily liable for damages. including the endoctracheal tube, were all under the exclusive control of
private respondents. And finally, Erlinda could not have been guilty of
III. Issue/s contributory negligence because she was under the influence of anesthetics
W/N THE NEGLIGENCE OF THE RESPONDENTS DID NOT which rendered her unconscious.
CAUSE THE UNFORTUNATE COMATOSE CONDITION OF
PETITIONER ERLINDA RAMOS. V. Law or Doctrine Applied
DOCTRINE OF RES IPSA LOQUITUR
W/N THE COURT OF APPEALS ERRED IN NOT APPLYING It is a maxim for the rule that the fact of the occurrence of an
THE DOCTRINE OF RES IPSA LOQUITUR. injury, taken with then surrounding circumstances, may permit an inference
or raise a presumption of negligence, or make out a plaintiff’s prima facie
case, and present a question of fact for defendant to meet with an
IV. Holding/s
explanation. It is considered as evidentiary or in the nature of procedural
NO. Respondents are liable for damages caused by negligence.
law. Regarded as a mode of proof. The doctrine may be resorted to if the
Dr. Gutierrez negligence resulted in cerebral anoxia and eventual coma of following requisites is satisfactorily shown:
Erlinda. She failed to observe the proper pre-operative protocol which could 1. The Accident is of a kind which ordinarily does not occur in the
have prevented the unfortunate incident. Respondent physician could have absence of someone’s negligence.
been much more prepared to meet the contingency brought about by the 2. It is caused by an instrumentality within the exclusive control of
perceived anatomic variations in the patient’s neck and oral area, defects the defendant or defendants
would have been easily overcome by a prior knowledge of those variations 3. The possibility of contributing conduct which would make the
together with a change in technique. plaintiff responsible is eliminated.
ARTICLE 2180 of the CIVIL CODE –
Dr. Hosaka, as the so called “captain of the ship”, has the responsibility to The obligation imposed by Article 2176 is demandable not only for
see to it that those under him perform their task in the proper manner. His one's own acts or omissions, but also for those of persons for whom one is
negligence can be found in his failure to exercise the proper authority in not responsible.
The father and, in case of his death or incapacity, the mother, are
determining if his anesthesiologist observed proper anesthesia protocols.
responsible for the damages caused by the minor children who live in their
company.
The hospital failed to adduce evidence showing that it exercised the Guardians are liable for damages caused by the minors or
diligence of a good father of a family in the hiring and supervision of the incapacitated persons who are under their authority and live in their
respondent. The hospital is solidarily responsible with its physicians for company.
Erlinda’s condition. The owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in the service
YES. The Court finds the doctrine of res ipsa loquitur appropriate in of the branches in which the latter are employed or on the occasion of their
the case at bar. functions.
According to the Court and under the doctrine of res ipsa loquitur, this kind
of situation does not happen in the absence of negligence of someone in the
2
Employers shall be liable for the damages caused by their

employees and household helpers acting within the scope of their assigned
tasks, even though the former are not engaged in any business or industry.
The State is responsible in like manner when it acts through a
special agent; but not when the damage has been caused by the official to
whom the task done properly pertains, in which case what is provided in
Article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall
be liable for damages caused by their pupils and students or apprentices, so
long as they remain in their custody.
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the diligence of a
good father of a family to prevent damage. (1903a)
VI. Disposition
WHEREFORE, the decision and resolution of the appellate court
appealed from are hereby modified so as to award in favor of
petitioners, and solidarily against private respondents the following: 1)
P1,352,000.00 as actual damages computed as of the date of
promulgation of this decision plus a monthly payment of P8,000.00 up
to the time that petitioner Erlinda Ramos expires or miraculously
survives; 2) P2,000,000.00 as moral damages; 3) P1,500,000.00 as
temperate damages; 4) P100,000.00 each as exemplary damages and
attorney’s fees; and 5) the costs of the suit.
VII. Random Facts

• Ponente: Kapunan, J,
• Herminda Cruz is Erlinda’s sister-in-law and was the Dean of the
College of Nursing at the Capitol Medical Center.
• The petitioners engaged the services of Coronel Law Office, Atty.
Ligsay, and Atty. Sillano.
• Scientific studies point out that intubation problems are responsible
for one-third of deaths and serious injuries associated with
anesthesia.
• Cholecystectomy is the surgical excision of the gall bladder.
3
[G.R. No 142625 | December 19, 2006] [Obligations, General Provisions of the Civil Code]
[Nogales v CMC] [Nogales v CMC]
I. Recit-ready Summary WHEREFORE, the Court PARTLY GRANTS the petition. The Court finds
respondent Capitol Medical Center vicariously liable for the negligence
Corazon Nogales was pregnant with her 4th child. Due to her old age she was of Dr. Oscar Estrada.
taken to Capitol Medical Center (CMC) so that specialized doctors may take
care of probable complications. She was under the care of Dr. Estrada who II. Facts of the Case
was an independent-contractor physician (not a regular employee of CMC) Pregnant with her fourth child, Corazon Nogales ("Corazon"), who was then
who directed other medical staff on how to treat Corazon’s condition. 37 years old, was under the exclusive prenatal care of Dr. Oscar Estrada ("Dr.
Estrada") beginning on her fourth month of pregnancy or as early as
Her child was born in a very fragile state. Corazon died due to complications December 1975. While Corazon was on her last trimester of pregnancy, Dr.
such as blood loss caused by alleged negligence of Dr. Estrada and other Estrada noted an increase in her blood pressure and development of leg
medical staff. edema 5 indicating preeclampsia, which is a dangerous complication of
pregnancy.
Dr. Estrada was found guilty of negligence by the court. While the rest of
the medical staff were absolved from liability showing that they were Corazon began to manifest moderate vaginal bleeding which rapidly
merely under the instruction of Dr. Estrada and lack of evidence showing became profuse. Corazon's blood pressure dropped from 130/80 to 60/40
attributable negligence to them. within five minutes. There was continuous profuse vaginal bleeding.
Because of this, Corazon died.
W/N CMC is vicariously liable due to Dr. Estrada’s negligence? YES [
Under the Civil Code, Dr. Estrada was found guilty of negligence by the court. While the rest of the
medical staff were absolved from liability showing that they were merely
Art. 2180. The obligation imposed by article 2176 is demandable not under the instruction of Dr. Estrada and lack of evidence showing attributable
only for one's own acts or omissions, but also for those of persons for whom negligence to them
one is responsible.
So therefore, only exist vicarious liability if it can be shown that Estrada
CMC claims that it is not liable for the malpractice of Dr. Estrada as he was
is an employee of CMC. Since only then will CMC have responsibility
merely an independent-contractor physician who is not a part of the regular
over the negligence of Estrada
medical staff of CMC.
BUT CMC ARGUES that it is NOT liable since Dr. Estrada is NOT one of
their regular employees and is an independent-contractor physician. III. Issue/s
W/N CMC can he held liable for Estrada’s negligence? YES
Hospitals can still be liable for the acts of independent-contractor physicians
if the patient was led to believe the doctor was actually part of the regular IV. Holding/s
medical staff [DOCTRINE OF ESTOPPEL APPLIES]
W/N CMC can he held liable for Estrada’s negligence? YES
In this case, since the Nogales’ were led to believe that Dr. Estrada was
actually part of their regular medical staff, CMC is estopped from claiming Basically, the issue in this case is whether CMC is vicariously liable for the
the defense that Dr. Estrada was merely an independent-contractor physician. negligence of Dr. Estrada. The resolution of this issue rests, on the other
Block B 2023 PETITIONER/APPELLANT: Rogelo Nogales

DIGEST AUTHOR: Christine Joyce L. Sumaway RESPONDENT: CMC
hand, on the ascertainment of the relationship between Dr. Estrada and hospital may be liable if the physician is the "ostensible" agent of the hospital.
CMC. The Court also believes that a determination of the extent of liability This exception is also known as the "doctrine of apparent authority." (please
of the other respondents is inevitable to finally and completely dispose of refer to the doctrine portion)
the present controversy.
the individual who was alleged to be negligent was an employee or agent of
CMC disclaims liability by asserting that Dr. Estrada was a mere visiting the hospital. In this regard, the hospital need not make express representations
physician and that it admitted Corazon because her physical condition then to the patient that the treating physician is an employee of the hospital; rather
was classified an emergency obstetrics case. a representation may be general and implied. The doctrine of apparent
authority is a species of the doctrine of estoppel.
The case of Ramos v CA states that:
Article 1431 of the Civil Code provides that "[t]hrough estoppel, an
While "consultants" are not, technically employees, a point which admission or representation is rendered conclusive upon the person making
respondent hospital asserts in denying all responsibility for the patient's it, and cannot be denied or disproved as against the person relying thereon."
condition, the control exercised, the hiring, and the right to terminate Estoppel rests on this rule: "Whenever a party has, by his own declaration,
consultants all fulfill the important hallmarks of an employer-employee act, or omission, intentionally and deliberately led another to believe a
relationship, with the exception of the payment of wages. In assessing particular thing true, and to act upon such belief, he cannot, in any litigation
whether such a relationship in fact exists, the control test is arising out of such declaration, act or omission, be permitted to
determining. Accordingly, on the basis of the foregoing, we rule that falsify it."
for the purpose of allocating responsibility in medical negligence cases,
an employer-employee relationship in effect exists between hospitals In the instant case, CMC impliedly held out Dr. Estrada as a member of its
and their attending and visiting physicians medical staff. Through CMC's acts, CMC clothed Dr. Estrada with apparent
authority thereby leading the Spouses Nogales to believe that Dr. Estrada was
While the Court in Ramos did not expound on the control test, such test an employee or agent of CMC. CMC cannot now repudiate such authority.
essentially determines whether an employment relationship exists between a
physician and a hospital based on the exercise of control over the physician These are the following facts that made the Nogales’ believe that Dr.
as to details. Specifically, the employer (or the hospital) must have the right Estrada was a regular medical staff:
to control both the means and the details of the process by which the (1) CMC granted staff privileges to Dr. Estrada. CMC extended its
employee (or the physician) is to accomplish his task. medical staff and facilities to Dr. Estrada.
(2) CMC made Rogelio sign consent forms printed on CMC
While Dr. Estrada enjoyed staff privileges at CMC, such fact alone did not letterhead.
make him an employee of CMC Without any indication in these consent forms that Dr. Estrada was an
independent contractor-physician, the Spouses Nogales could not have
The question now is whether CMC is automatically exempt from liability known that Dr. Estrada was an independent contractor
considering that Dr. Estrada is an independent contractor-physician. (3) Dr. Estrada's referral of Corazon's profuse vaginal bleeding to
Dr. Espinola, who was then the Head of the Obstetrics and Gynecology
In general, a hospital is not liable for the negligence of an independent Department of CMC, gave the impression that Dr. Estrada as a member of
contractor-physician. There is, however, an exception to this principle. The CMC's medical staff was collaborating with other CMC-employed specialists
in treating Corazon.
2

Also known as “take it or leave it contracts” leaves the other party with no
The records show that the Spouses Nogales relied upon a perceived option but to accept the terms
employment relationship with CMC in accepting Dr. Estrada's services.
Rogelio testified that he and his wife specifically chose Dr. Estrada to handle VI. Disposition
Corazon's delivery not only because of their friend's recommendation, but WHEREFORE, the Court PARTLY GRANTS the petition. The Court finds
more importantly because of Dr. Estrada's "connection with a reputable respondent Capitol Medical Center vicariously liable for the negligence
hospital, the CMC of Dr. Oscar Estrada. The amounts of P105,000 as actual damages and
P700,000 as moral damages should each earn legal interest at the rate of six
MOREOVER, expressly exempt CMC from liability for Corazon's death percent (6%) per annum computed from the date of the judgment of the trial
due to negligence during such treatment or operation. Such release forms, court. The Court affirms the rest of the Decision dated 6 February 1998 and
being in the nature of contracts of adhesion, are construed strictly against Resolution dated 21 March 2000 of the Court of Appeals in CA-G.R. CV
hospitals. Besides, a blanket release in favor of hospitals "from any and all No. 45641. S
claims," which includes claims due to bad faith or gross negligence, would
be contrary to public policy and thus void. SO ORDERED.
VII. Quisumbing, Carpio Morales, Tinga and Velasco, Jr., JJ., concur.
Doctrine of Apparent Authority (stemming from the principle of
Estoppel)
-[U]nder the doctrine of apparent authority a hospital can be held vicariously
liable for the negligent acts of a physician providing care at the hospital,
regardless of whether the physician is an independent contractor, unless the
patient knows, or should have known, that the physician is an independent
contractor. The elements of the action have been set out as follows: "For a
hospital to be liable under the doctrine of apparent authority, a plaintiff must
show that:
(1) the hospital, or its agent, acted in a manner that would lead a reasonable
person to conclude that the individual who was alleged to be negligent was
an employee or agent of the hospital;
(2) where the acts of the agent create the appearance of authority, the
plaintiff must also prove that the hospital had knowledge of and acquiesced
in them; and
(3) the plaintiff acted in reliance upon the conduct of the hospital or its
agent, consistent with ordinary care and prudence."
Contract of adhesion
3

G.R. No. 126297; 126467; 127590 | January 31, 2007 Medical Negligence; Obligations derived from a Quasi-Delict
Professional Services Inc. v. Natividad and Enrique Agana Professional Services Inc. v. Natividad and Enrique Agana
I. Recit-ready Summary diagnosesd by Dr. Ampil to have cancer of the sigmoid. He soon found that
Natividad Agana was rushed to the Medicial City General Hospital. She was the malignancy had spread to her left ovary, necessitating operation. After
diagnosesd by Dr. Ampil to have cancer of the sigmoid. He soon found that obtaining her husband’s consent, Dr. Fuentes performed a hysterectomy on
the malignancy had spread to her left ovary, necessitating operation. After her. Dr. Ampil then took over, completed the operation, and closed the
obtaining her husband’s consent, Dr. Fuentes performed a hysterectomy on incision despite being told by the nurses that 2 gauzes were still missing.
her. Dr. Ampil then took over, completed the operation, and closed the
incision. Natividad experienced excruciating pain in her anal region Operation appeared to be flawed. Natividad experienced excruciating pain in
afterwards, and consulted Dr. Ampil and Dr. Fuentes about it. They said that her anal region afterwards, and consulted Dr. Ampil and Dr. Fuentes about it.
it was a normal consequence of the surgery, and Dr. Ampil said that she They said that it was a normal consequence of the surgery, and Dr. Ampil
consult an oncologist. They flew to the States to seek further treatment, and said that she consult an oncologist.
soon she was declared cancer free. They flew back to the PH, with Natividad
still in pain. Two pieces of gauze were found inside her body: one was found Natividad and her husband flew to the States to seek further treatment. After
by her daughter and extracted by Dr. Ampil, telling her that soon the pain 4 months she was declared cancer free. She flew back to the Philippines.
would vanish, and the second was found by Dr. Gutierrez from the Polymedic However, her daughter soon found a piece of gauze protruding from her
General Hospital, who told her that she needed another operation. A vagina. Dr. Ampil removed it,and told her the pain would vanish. The pain
complaint for damages was filed against PSI, DR. AMPIL, AND DR. intensified, so she sought treatment at the Polymedic General Hospital, where
FUENTES. Natividad died during the pendency of the case. another piece of gauze was extracted from her.
Main issues to be resolved are 1. W/N Dr. Fuentes is liable, 2. W/N Dr. Ampil Natividad and her husband then filed a complaint for damages against PSI,
is liable, 3. W/N PSI is liable for Dr. Ampil’s negligence. Dr. Ampil, and Dr. Fuentes. Sadly, Natividad died during the pendency of the
case.
Dr. Fuentes was not held to be liable because he was not the main surgeon in
control and management of the thing which caused the injury. According to III. Issue/s
the Captain of the Ship doctrine, it was Dr. Ampil, because he was the doctor
1. W/N Dr. Fuentes is liable? - NO
who ordered the incision closed despite knowing that 2 pieces of gauze were
2. W/N Dr. Ampil is liable for negligence and malpractice? - YES
still missing. PSI was also held to be liable for Dr. Ampil’s negligence
3. W/N PSI may be held solidarily liable for the negligence of Dr.
because they had held him out to be one of their agents, by including his name
Ampil? - YES
in the display of names and specializations in the Medical City lobby.
IV. Holding/s
Natividad Agana was rushed to the Medicial City General Hospital because
1.DR. FUENTES IS NOT LIABLE
of difficulty in bowel movement and bloody anal discharge. She was
1
Obligations and Contracts 2020 PETITIONER: Professional Services Inc.; Natividad Agana (substituted by
her children) & Enrique Agana
DIGEST AUTHOR: Julianna Soberano RESPONDENT: Natividad Agana; Dr. Fuentes; Dr. Ampil
The doctrine of Res Ipsa Loquitur cannot apply in the case because the consequence of the operation. Dr. Ampil had the duty to remove all foreign
element of “control and management of the thing which caused the injury” is objects before the closure of the wound. When he failed to do that, it became
absent. After performing the hysterectomy, the rest of the surgery was left to his duty to inform Natividad. He breached both duties.
the hands of Dr. Ampil. According to the Captain of the Ship rule, it is the
operating surgeon who is in complete charge of all the personnel connected His negligence was held to be the proximate cause of Natividad’s injury
with the operation in the surgery room. Court proved this to be Dr. Ampil, because he ordered the incision to be closed despite being told by the nurses
because he was the one who called on Dr. Fuentes, found his work to be in that 2 pieces of gauze were still missing. His concealment thereafter only
order, granted him permission to leave, and ordered the closure of the aggravates his negligence.
incision. Thus, the thing that caused the injury was mainly in the hands of Dr.
Ampil, not Dr. Fuentes. 3.YES PSI IS SOLIDARILY LIABLE FOR THE NEGLIGENCE OF
DR. AMPIL
2.YES DR. AMPIL IS LIABLE
Dr. Ampil was the physician who examined the work of Dr. Fuentes after the For the purpose of apportioning liability in medical negligence cases, the
hysterectomy, declared everything in order, and then ordered the incision Court applied the doctrine from Ramos v. CA which states that an employer-
closed. Apparently, he was mistaken. employee relationship exists between the hospital and their attending/visiting
physician(s), and the concept of an agency by implication or estoppel from
The surgeons used gauzes and sponges to control the bleeding during the Article 1869 of the Civil Code.
operation, and the Court explained that an operation requiring the placing of
sponges in the incision is NOT complete until all sponges have been properly In cases where a hospital has held out a physician as its agent or employee
removed. The leaving of sponges and other foreign objects in the wound after AND that a patient has accepted treatment from that person believing s/he to
the incision has been closed is at least prima facie evidence of negligence. be an employee of the hospital, said hospital shall be held liable for the
negligence of aforementioned physician.
Although there are times when a danger to the patient’s life precludes the
physicians from further searching for other foreign objects in the body, this In the case at bar, PSI was found to have publicly displayed the names AND
does not absolve the physicians from any obligation. It is their legal duty to specializations of their physicians in the lobby of Medical City → Dr. Ampil’s
inform the patient, within a reasonable time, by advising her of what they had name included. This created the impression that Dr. Ampil was an agent of
been compelled to do so that she may seek relief from the effects of the the hospital. It leads the public to believe that PSI vouches for the names
foreign objects left in her body. displayed in the lobby of Medical City.
Dr. Ampil did not inform Navidad about the missing two pieces of gauze. He PSI also has the duty to oversee all persons who practice medicine within its
even misled her to think that the pain she experienced was the ordinary walls AND to remedy any negligence committed. Thus, having found Dr.
2
Ampil to be negligent, PSI evidently failed in its duty and is thus liable for 1. Occurrence of an injury
damages. 2. Thing which caused the injury was in
the control and management of the
I. Law or Doctrine Applied defendant
3. Occurrence was such that in the
ordinary course of things, would not
have happened if those who had control
Article 1157. Obligations arise from:
or management had used proper care
4. Absence of explanation by the
(1) Law; defendant
(2) Contracts;
II. Disposition
(3) Quasi-contracts;
WHEREFORE, we DENY all petitions and AFFIRM the challenged decision
(4) Acts or omissions punished by law; and of the Court of Appeals in CA-GR CV No. 42062 and CA-GR SP No. 32198.
(5) Quasi-delicts III. Additional Notes
VII. Random Facts

Article 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the
Ponenete: Sandoval Gutierrez
agency, knowing that another person is acting on his behalf without
authority.
Doctrine of the Captain of the Ship. it is the operating surgeon who is in

complete charge of all the personnel connected with the operation in the
surgery room.
Res Ipsa Loquitur. The thing speaks for itself.
Requisites of Res Ipsa Loquitur.
3
[GR No. 160889 | April 27, 2007] [Res Ipsa Loquitur]
[Cantre v Sps Go] [Cantre v Sps Go]
I. Recit-ready Summary procedures to stop the bleeding, and while Dr. Cantre was massaging
Nora’s uterus for it to contract and stop bleeding, she ordered a
During Nora S. Go’s delivery of her 4th child, her attending droplight to warm Nora and her baby.
physician Dr. Milagros Cantre used a droplight to warm Nora and
her baby after performing various medical procedures to control While in the recovery room, Nora’s husband notices a fresh gaping
Nora’s bleeding. While in the recovery room, Nora’s husband wound 2 ½ to 3 ½ inches in the inner portion of her left arm. Dr.
noticed a fresh gaping wound in her left arm. When asked, Dr. Cantre said that it was due to the blood pressure cuff. Her husband
Cantre said it was due to the blood pressure cuffs. Nora’s husband, brought Nora to the NBI for a physical examination and was told that
however, brought her to the NBI for a physical exam and they were the injury appears to be a burn and that a droplight, when placed near
told that it was a burn and that a droplight, when placed near the skin the skin for 10 minutes, can cause such burn. The medico-legal
for 10 minutes, can cause such burn. dismissed the likelihood of it being caused by a blood pressure cuff
as the scar was only on one side and not around the arm.
Nora had to undergo skin grafting and scar revision, the costs of
which were shouldered by the hospital. The pain remained in her Nora had to undergo skin grafting and scar revision, the costs of
arm. Spouses Go then filed a complaint for damages against Dr. which were shouldered by the hospital. Still, the unslightly mark and
Cantre and the hospital. the pain in her arm remained. Spouses Go then filed a complaint for
damages against Dr. Cantre and the hospital. Both the RTC and the
The Court held that a ruling on Dr Cantre’s negligence may be based CA ruled in favor of Spouses Go.
on the res ipsa loquitur doctrine wherein the mere existence of an
injury may justify a presumption of negligence on the part of the III. Issue/s
person who controls the instrument causing the injury provided that 1. W/N Dr. Cantre may be found negligent based on the Res
the requisites were met. In this case, Dr. Cantre was not able to rebut Ipsa Loquitur doctrine. YES
the presumption of negligence under the Res Ipsa Loquitur doctrine
and hence, she was liable to pay Nora for moral damages. IV. Holding/s
1. YES. Dr. Cantre was found to be negligent based on the Res
II. Facts of the Case Ipsa Loquitur doctrine
Dr. Milagros L. Cantre was the attending physician of Nora S. Go. In cases of medical negligence, the doctrine Res Ipsa Loquitur allows
She have birth to her 4th child but suffered profuse bleeding to the the mere existence of an injury to justify a presumption of negligence
parts of the placenta which were not completely expelled from her on the part of the person who controls the instrument causing the
womb after delivery and she suffered hypovolemic shock resulting in injury provided that the requisites were met:
a drop of her blood pressure. Dr. Cantre performed various medical
1
[Obligations and Contracts 2020] PETITIONER/APPELLANT: Dr. Milagros Cantre

DIGEST AUTHOR: Myna RESPONDENT: Spouses John David Go and Nora Go
[GR No. 160889 | April 27, 2007] [Res Ipsa Loquitur]
[Cantre v Sps Go] [Cantre v Sps Go]
1. the accident is of a kind which ordinarily does not occur in VII. Separate Opinions
the absence of someone’s negligence
2. it is caused by an instrumentality within the exclusive VIII. Additional Notes
control of the defendant or defendants
3. the possibility of contributing conduct which would make VII. Random Facts
the plaintiff responsible is eliminated ● Ponente: Quisumbing, J.
The first requisite is met in this case as Nora’s wound was not an
ordinary occurrence in delivering a baby. The second requisite is also
met since regardless of whether the injury was caused by the
droplight or the blood pressure cuff, the physician in charge is
deemed to have exclusive control under the “captain of the ship”
doctrine. Lastly, for the third requisite, Nora could not have
contributed to her injury as she was then unconscious while in
hypovolemic shock.
Dr. Cantre’s defense was not enough to rebut the presumption of

negligence under the Res Ipsa Loquitur doctrine and hence, she was
found to be liable to pay Nora for moral damages.
Res Ipsa Loquitur: the mere existence of an injury justifies a

presumption of negligence on the part of the person who controls the
instrument causing the injury, provided the requisites concur (please
check the Holding for the requisites)
VI. Disposition
WHEREFORE, the petition is DENIED. The Decision dated October 3,
2002 and Resolution dated November 19, 2003 of the Court of Appeals
in CA-G.R. CV No. 58184 are AFFIRMED.
[Obligations and Contracts 2020] PETITIONER/APPELLANT: Dr. Milagros Cantre

DIGEST AUTHOR: Myna RESPONDENT: Spouses John David Go and Nora Go
G.R. No. 166869 | February 16, 2010 Negligence
Phil Hawk v. Tan Lee Phil Hawk v. Tan Lee
I. Recit-ready Summary position at the side of the highway; and when they were about to make a
Respondent and her husband got into a vehicular accident involving the turn, she saw a bus running at fast speed coming toward them, and then the
petitioner’s bus driver, which occurred in Barangay Buensoceso, Gumaca, bus hit a jeep parked on the roadside, and their motorcycle as well. This
Quezon. After this incident, the respondent filed a complaint against accident caused her hospitalization for suffering multiple injuries and her
Philippine Hawk Corporation (petitioner) and defendant Margarito Avila for husband’s loss of life. Ernest Ovial, jeepney driver, testified also that he was
damages based on quasi-delict. The RTC found the bus driver guilty of parked on the highway’s left side when he saw the bus dragging the
simple negligence and ordered petitioner and Avila to pay the respondent motorcycle along the highway before it hit him. In the defense of the bus
jointly and solidarily the sum of ₱745,575.00 representing loss of earnings driver, Margarito Avila stated that he was driving at a reasonable speed
and actual damages plus ₱50,000.00 as moral damages. On appeal, the CA
when the motorcycle ran from his left side and crossed his path, so he turned
affirmed the RTC’s decision, but modified the award of damages. However,
the bus to the right, but he heard a loud sound and saw it turned turtle. He
petitioner contends that the CA erred in awarding other kinds of damages in
ran away for fear of his life, but he surrendered to the police after. The RTC
favor of the respondent, who did not appeal from the trial court's decision.
The Court ruled that there was negligence indeed on the part of petitioner’s found the bus driver guilty of simple negligence and ordered petitioner and
bus driver for his failure to take precautionary measures. In effect, the Court Avila to pay the respondent jointly and solidarily the sum of ₱745,575.00
also ruled that petitioner is liable for damages since they failed to exercise representing loss of earnings and actual damages plus ₱50,000.00 as moral
the diligence of a good father of the family in the selection and supervision damages. On appeal, the Court of Appeals affirmed the RTC’s decision and
of Avila for having failed to sufficiently inculcate in him discipline and modified the award of damages. With this, petitioner and Avila are hereby
correct behavior on the road. Lastly, the Court ruled that the CA correctly ordered to pay jointly and severally appellee the following amount: (a)
awarded civil indemnity for the death of respondent’s husband, temperate ₱168,019.55 as actual damages; (b) ₱10,000.00 as temperate damages; (c)
damages, and moral damages for the physical injuries sustained by ₱100,000.00 as moral damages; (d) ₱590,000.00 as unearned income; and
respondent in addition to the damages granted by the trial court to (e) ₱50,000.00 as civil indemnity.
respondent. However, they overlooked in awarding the net earning capacity
and actual damages. III. Issue/s
1. W/N there is negligence on Avila’s part; YES
II. Facts of the Case 2. W/N petitioner is liable to respondent for damages; YES
On 15 March 2005, Vivian Tan Lee (respondent) filed before the RTC of 3.
Quezon City a complaint against Philippine Hawk Corporation (petitioner) a. W/N CA may award other kinds of damages in favor
and defendant Margarito Avila for damages based on quasi-delict, arising of the respondent who did not appeal from the RTC’s
from a vehicular accident which caused Silvino Tan’s death that occurred on decision; YES
March 17, 1991 in Barangay Buensoceso, Gumaca, Quezon. According to b. W/N such damages are correct in value; NO
the respondent, she was riding on their motorcycle in tandem with her
husband at a place after a Caltex gasoline station in Barangay Buensoceso, IV. Holding/s
Gumaca, Quezon on the way to Lopez, Quezon. They were on a stop
1
Obligations and Contracts (2020) PETITIONER: Philippine Hawk Corporation
DIGEST AUTHOR: Steven Rivera RESPONDENT: Vivian Tan Lee
1. YES, Avila was guilty of simple negligence. Justice Regalado’s book in which he commented on Section 8 stating that it
It is a settled rule that the findings of the trial court, especially when has been held that the CA is clothed with ample authority to review matters,
affirmed by the Court of Appeals, are conclusive on this Court when even if they are not assigned as errors on appeal, if it finds that their
supported by the evidence on record. Foreseeability is the fundamental test consideration is necessary in arriving at a just decision of the case.
of negligence. To be negligent, a defendant must have acted or failed to act
in such a way that an ordinary reasonable man would have realized that b. NO, the CA erred in awarding the correct values for the
certain interests of certain persons were unreasonably subjected to a general damages.
but definite class of risks. In the case at bar, Avila was negligent when he i. Loss of earning capacity - only the net earnings,
turned from the right to the left side of the road and failed to slow down, not the gross earnings, are to be considered; that
despite seeing the motorcycle and the jeep on the left side. is, the total of the earnings less expenses
necessary for the creation of such earnings or
2. YES, petitioner is to respondent for damages. income, less living and other incidental expenses.
The law requires an employer to exercise the care and diligence of a good If there is no documentary evidence for such
father of a family in the selection and supervision of his employee in order expenses, it presumed that necessary expenses
to avoid liability for a quasi-delict committed by his employee. In this case are 80 percent of the gross income, while living
at bar, petitioner failed to exercise the diligence of a good father of the expenses are 50 percent of the net income (gross
family in the selection and supervision of Avila for having failed to income less necessary expenses). In this case,
sufficiently inculcate in him discipline and correct behavior on the road. The respondent presented a Certificate of Creditable
petitioner’s requirements are limited to the ability to drive and physical Income Tax Withheld at Source for the Year
fitness to do so. Also, they failed to investigate Avila’s involvement in 1990 as evidence for gross annual income (GAI)
sideswiping incidents. which showed that respondent’s husband earned
a gross income of P950,988.43 in 1990.
3. However, the income from their copra business
a. YES, the CA may award other kinds of damages in favor of the cannot be taken into consideration because there
respondent who did not appeal from the RTC’s decision. was no documentary evidence presented. Hence,
Under Section 8, Rule 51 of the 1997 Rules of Civil Procedure, it states that the GAI was set at one million pesos.
no error which does not affect the jurisdiction over the subject matter or the
validity of the judgment appealed from or the proceedings therein will be Net Earning capacity
considered unless stated in the assignment of errors, or closely related to or X = [2/3 (80-65)] x ₱1,000,000.00 - ₱800,000.00 (80% of 1M)
dependent on an assigned error and properly argued in the brief, save as the X = 2/3 (15) x ₱200,000.00 - ₱100,000.00 (50% of ₱200k)
court pass upon plain errors and clerical errors. In this case, the Court cited X = 30/3 x ₱100,000.00
2
X = 10 x ₱100,000.00 b. In Philippine National Bank v. Rabat, it cited the book of Justice

X = ₱1,000,000.00 Regalado regarding his comment on Section 8, Rule 51 of the 1997
Rules of Civil Procedure: “The procedure in the Supreme Court
ii. Actual Damages - are substantiated by being generally the same as that in the Court of Appeals, unless
documentary evidence like receipts of expenses otherwise indicated, it has been held that the latter is clothed with
incurred for the death or injuries sustained by the ample authority to review matters, even if they are not assigned as
victims. In this case at bar, funeral and related errors on appeal, if it finds that their consideration is necessary in
arriving at a just decision of the case”.
expenses amounted only to ₱114,948.60, while
the medical expenses of respondent amounted
VI. Disposition
only to ₱12,244.25, yielding a total of
WHEREFORE, the petition is DENIED. The Decision of the Court of
₱127,192.85 in actual damages. Appeals dated August 17, 2004 in CA-G.R. CV No. 70860 is hereby
iii. Moral Damages - awarded to alleviate the moral AFFIRMED with MODIFICATION. Petitioner Philippine Hawk
suffering he/she has undergone due to the Corporation and Margarito Avila are hereby ordered to pay jointly and
defendant’s culpable action and must, perforce, severally respondent Vivian Lee Tan: (a) civil indemnity in the amount of
be proportional to the suffering inflicted. In this Fifty Thousand Pesos (₱50,000.00); (b) actual damages in the amount of
case, the Court affirmed the moral damages One Hundred Twenty-Seven Thousand One Hundred Ninety-Two Pesos
awarded by the CA. ₱50,000 for the death of her and Eighty-Five Centavos ( ₱127,192.85); (c) moral damages in the amount
husband and ₱30,000 in accordance with of Eighty Thousand Pesos (₱80,000.00); (d) indemnity for loss of earning
prevailing jurisprudence. capacity in the amount of One Million Pesos (₱1,000,000.00); and (e)
iv. Civil Indemnity - fixed by current jurisprudence temperate damages in the amount of Ten Thousand Pesos (₱10,000.00).
under Art. 2206 of the Civil Code at ₱50,000.00.
V. Law or Doctrine Applied Basis for RTC’s decision - If the bus were on the right side of the highway,
a. Section 8, Rule 51 of the 1997 Rules of Civil Procedure: and Margarito Avila turned his bus to the right in an attempt to avoid hitting
No error which does not affect the jurisdiction over the subject the motorcycle, then the bus would not have hit the passenger jeep, which
matter or the validity of the judgment appealed from or the was then parked on the left side of the road. Hence, the bus was driving on
proceedings therein will be considered unless stated in the the right side of the highway and turned to the left which caused its collision
assignment of errors, or closely related to or dependent on an with the motorcycle and the jeep
assigned error and properly argued in the brief, save as the court
pass upon plain errors and clerical errors.
3
Computation for loss of earning capacity
Life x GAI - Reasonable - Living Expenses

Expectancy expenses
(50% of the
[2/3 (80-age at (80% of difference between
the time of GAI) GAI and
death)] Reasonable
expenses)
VII. Random Facts

● Ponente: Peralta, J.
4
G.R. No. 165279 | June 2011 Medical Negligence | Informed Consent
Rubi Li vs. Sps. Soliman Rubi Li vs. Sps. Soliman
I. Recit-ready Summary action based on the doctrine of informed consent. He, however, disagreed
Respondents' 11-year old daughter, Angelica Soliman, underwent a that there was adequate disclosure of material risks with the consent of
biopsy of the mass located in her lower extremity at the St. Luke's Medical Angelica’s parents.
Center (SLMC). Results showed that Angelica was suffering In Justice Abad’s concurring opinion, he concurred with the
from osteosarcoma, a high-grade cancer of the bone. Angelica's right leg majority out of the belief that the issue in this case rests on a question of
was amputated by Dr. Jaime Tamayo in order to remove the tumor. As fact. He did not believe the Solimans can be trusted to make an appropriate
adjuvant treatment to eliminate any remaining cancer cells, chemotherapy claim.
was suggested by Dr. Tamayo. Dr. Tamayo referred Angelica to another
doctor at SLMC, herein petitioner Dr. Rubi Li, a medical oncologist. II. Facts of the Case
Angelica was admitted to SLMC. However, she died on just 11 days after On July 7, 1993, respondents' 11-year old daughter, Angelica
the administration of the first cycle of the chemotherapy regimen. Soliman, underwent a biopsy of the mass located in her lower extremity at
Respondents filed a damage suit against petitioner, Dr. Leo the St. Luke's Medical Center (SLMC). Results showed that Angelica was
Marbella, Mr. Jose Ledesma, a certain Dr. Arriete and SLMC. Respondents suffering from osteosarcoma, osteoblastic type, a high-grade cancer of the
charged them with negligence and disregard of Angelica's safety, health and bone which usually afflicts teenage children. Following this diagnosis and
welfare by their careless administration of the chemotherapy drugs, their as primary intervention, Angelica's right leg was amputated by Dr. Jaime
failure to observe the essential precautions in detecting early the symptoms Tamayo in order to remove the tumor. As adjuvant treatment to eliminate
of fatal blood platelet decrease and stopping early on the chemotherapy, any remaining cancer cells, and hence minimize the chances of recurrence
which bleeding led to hypovolemic shock that caused Angelica's untimely and prevent the disease from spreading to other parts of the patient's body
demise. Further, it was specifically averred that petitioner assured the (metastasis), chemotherapy was suggested by Dr. Tamayo. Dr. Tamayo
respondents that Angelica would recover in view of 95% chance of healing referred Angelica to another doctor at SLMC, herein petitioner Dr. Rubi Li,
with and when asked regarding the side effects, petitioner mentioned only a medical oncologist.
slight vomiting, hair loss and weakness. Respondents thus claimed that they On August 18, 1993, Angelica was admitted to SLMC.The
would not have given their consent to chemotherapy had petitioner not following day, petitioner began administering three chemotherapy drugs
falsely assured them of its side effects. intravenously. The following days, the respondents noticed discoloration on
The Court held that Dr. Rubi Li was not negligent, thus not liable Angelica’s face, which extended to her neck. Petitioner dismissed this as
for damages. The respondents failed to prove the four essential elements a effect of medicines. She also had rashes on the nose and cheek area. She
plaintiff must prove in a malpractice action based upon the doctrine of had difficulty breathing and was thus provided with oxygen inhalation
informed consent. Thus, the Court held that there was adequate disclosure apparatus. On August 22, respondents asked to stop the chemotherapy and
of material risks inherent in the chemotherapy procedure performed with the to bring Angelica home. Petitioner agreed to the request the next day and
consent of Angelica's parents. prescribed take home medicines for Angelica. But she remained in
In Justice Carpio’s dissenting opinion, he explained how Dr. Li confinement due to convulsions and LBM. Angelica continued to suffer
failed to adequately inform the spouses of all material risks and side effects from convulsions and difficulty in breathing while the petitioner ordered an
of the chemotherapy. electrocardiogram analysis, infused calcium gluconate, and antibacterial
In Justice Brion’s separate opinion, he agreed with the ponencia drugs to combat infection. By August 26, Angelica was bleeding through
that the spouses Soliman failed to prove the essential elements of a cause of the mouth. Respondents also saw blood on her anus and urine. About four
1
Obligations and Contracts (2020) RESPONDENT: Spouses Reynaldo and Lina Soliman
DIGEST AUTHOR: Nikki Paglicawan PETITIONER: Dr. Rubi Li
to eight bags of blood, consisting of packed red blood cells, fresh whole employed her highest skill and knowledge in the administration of
blood, or platelet concentrate, were transfused to Angelica. For two days chemotherapy drugs on Angelica but despite all efforts said patient died.
(August 27 to 28), Angelica continued bleeding. Angelica developed ulcers Respondents appealed, claiming that they were informed only of
in her mouth, which petitioner said were blood clots that should not be three side effects. The Court of Appeals ruled in favor for the respondents
removed. She was restless as endotracheal and nasogastric tubes were and found Dr. Rubi Li negligent and liable for damages.
inserted into her weakened body. On August 31, respondents claimed that Petitioner filed a motion for reconsideration which the appellate
Angelica became hysterical, but according to petitioner, she was merely court denied.
irritated. Part of Angelica’s skin was also noted to be shredding by just
rubbing cotton on it. At 9:30 in the evening, Angelica pulled out her III. Issue/s
endotracheal tube. 1. W/N Dr. Rubi Li was negligent, and liable for damages? NO.
She died on September 1, 1993, just 11 days after the
administration of the first cycle of the chemotherapy regimen. IV. Holding/s
On February 21, 1994, respondents filed a damage suit against 1. No, Dr. Rubi Li was not proven to be negligent.
petitioner, Dr. Leo Marbella, Mr. Jose Ledesma, a certain Dr. Arriete and There are four essential elements a plaintiff must prove in a malpractice
SLMC. Respondents charged them with negligence and disregard of action based upon the doctrine of informed consent: "(1) the physician had a
Angelica's safety, health and welfare by their careless administration of the duty to disclose material risks; (2) he failed to disclose or inadequately
chemotherapy drugs, their failure to observe the essential precautions in disclosed those risks; (3) as a direct and proximate result of the failure to
detecting early the symptoms of fatal blood platelet decrease and stopping disclose, the patient consented to treatment she otherwise would not have
early on the chemotherapy, which bleeding led to hypovolemic shock that consented to; and (4) plaintiff was injured by the proposed treatment." The
caused Angelica's untimely demise. Further, it was specifically averred that gravamen in an informed consent case requires the plaintiff to "point to
petitioner assured the respondents that Angelica would recover in view of significant undisclosed information relating to the treatment which would
95% chance of healing with and when asked regarding the side effects, have altered her decision to undergo it.
petitioner mentioned only slight vomiting, hair loss and weakness.
Respondents thus claimed that they would not have given their consent to Examining the evidence on record, the Court held that there was
chemotherapy had petitioner not falsely assured them of its side effects. adequate disclosure of material risks inherent in the chemotherapy
Petitioner denied having been negligent in administering the procedure performed with the consent of Angelica's parents. Respondents
chemotherapy drugs to Angelica and asserted that she had fully explained to could not have been unaware in the course of initial treatment and
respondents how the chemotherapy will affect not only the cancer cells but amputation of Angelica's lower extremity, that her immune system was
also the patient’s normal body parts, including the lowering of white and already weak on account of the malignant tumor in her knee. On the other
red blood cells and platelets. hand, it is difficult to give credence to respondents' claim that petitioner told
Since the medical records of Angelica were not produced in court, them of 95% chance of recovery for their daughter, as it was unlikely for
the trial and appellate courts had to rely on testimonial evidence, principally doctors like petitioner who were dealing with grave conditions such as
the declarations of petitioner and respondents themselves. cancer to have falsely assured patients of chemotherapy's success rate.
In dismissing the complaint, the trial court held that petitioner was Besides, informed consent laws in other countries generally require only a
not liable for damages as she observed the best known procedures and reasonable explanation of potential harms, so specific disclosures such as
2
statistical data, may not be legally necessary. Further, in a medical same community. Under the patient standard of materiality, a doctor is
malpractice action based on lack of informed consent, "the plaintiff must obliged to disclose that information which a reasonable patient would deem
prove both the duty and the breach of that duty through expert testimony. material in deciding whether to proceed with a proposed treatment.
Such expert testimony must show the customary standard of care of The patient’s right to self-decision shapes the boundaries of the
physicians in the same practice as that of the defendant doctor. duty to reveal. That right can be effectively exercised only if the patient
possesses enough information to enable an intelligent choice. The test for
determining whether a particular peril must be divulged is its materiality to
the patient’s decision: all risks potentially affecting the decision must be
unmasked.
Doctrine of Informed Consent
Dr. Li admitted that she assured the spouses Soliman that there was
In malpractice actions, there are four essential elements a plaintiff must
an 80% chance that Angelica’s cancer would be controlled and that she
prove based upon the doctrine of informed consent:
disclosed to them only some of the associated risks and side effects of
(1) the physician had a duty to disclose material risks;
chemotherapy. She impliedly admits that she failed to disclose many other
(2) he failed to disclose or inadequately disclosed those risks;
associated risks and side effects, including the most material: infection,
(3) as a direct and proximate result of the failure to disclose, the patient
sepsis, and death.
consented to treatment she otherwise would not have consented to; and
Had Dr. Li adequately disclosed that there was a chance that their
(4) plaintiff was injured by the proposed treatment.
daughter could die of infection as a result of chemotherapy, they may have
decided against it and sought for an alternative treatment.
VI. Disposition
Justice Carpio votes to DENY the petition.
WHEREFORE, the petition for review on certiorari is GRANTED.
The Decision dated June 15, 2004 and the Resolution dated September 1,
Separate: Brion, J.
2004 of the Court of Appeals in CA-G.R. CV No. 58013 are SET ASIDE.
Justice Brion concurred in the result of the ponencia and its
conclusion that the suing parents failed to prove by preponderance of
The Decision dated September 5, 1997 of the Regional Trial Court of
evidence the essential elements of a cause of action based on the doctrine of
Legazpi City, Branch 8, in Civil Case No. 8904 is REINSTATED and
informed consent.
UPHELD.
However, he disagreed with the ponencia’s conclusion that “there
was adequate disclosure of material risks with the consent of Angelica’s
parents” in view of a complete absence of expert testimony establishing a
Dissenting: Carpio, J.
medical disclosure standard in the present case.
Dr. Li failed to obtain the informed consent of the spouses
The parents failed to prove by competent expert testimony the first
Reynaldo and Lina Soliman; she is liable for damages.
and fourth elements of a prima facie case for lack of informed consent,
The doctrine of informed consent requires doctors to disclose
specifically: (1) the scope of the duty to disclose and the violation of this
adequately the material risks and side effects of the proposed treatment.
duty, and (2) that the chemotherapy administered by the petitioner
There are two standards by which courts determine what constitutes
proximately caused the death of Angelica Soliman.
adequate disclosure of associated risks and side effects of a proposed
The patients’ parents must present expert supporting testimony to
treatment: the physician standard and the patient standard of materiality.
establish the scope of what should be disclosed and the significant risks
Under the physician standard, the requisite pertinent facts to be disclosed
attendant to chemotherapy that the petitioner should have considered and
are those which would be given by a like physician of good standing in the
disclosed; the determination of the scope of disclosure, and the risks and
3
their probability are matters a medical expert must determine and testify on. Concurring: Abad, J.
They failed to elicit any expert testimony from the defendant doctor Justice Abad concurred with the majority out of the belief that,
regarding the recognized standard of care in the medical community about ultimately, the issue in this case rests on a question of fact: whether Dr. Li
what risks of chemotherapy should have been disclosed to them. The failed to disclose (or inadequately disclosed) to the respondents Soliman
testimony of their physician-witness, Dr. Balmaceda of the DOH, failed to spouses the risks of chemotherapy for their daughter. This question of fact
establish the existence of the risks or side-effects the petitioner Dr. Li arises because Dr. Li and the Solimans gave opposing versions of what
should have disclosed to them in the use of chemotherapy in the treatment were disclosed. Thus, the question then was who to believe between them.
of osteosarcoma. Dr. Balmaceda, although a medical doctor, could not have At the heart of the Solimans’ claim for damages is the proposition
testified as an expert on these points because she is neither an oncologist that they would not have agreed to submit their daughter to chemotherapy
nor a qualified expert on the diagnosis and treatment of cancers. Neither is had they known that the side effects she faced were more than just hair loss,
she a pharmacologist who can properly advance an opinion on the toxic side vomiting, and weakness. But the Solimans are arguing from hindsight. The
effects of chemotherapy. fact is that they were willing to assume huge risks on the chance that their
Justice Brion did not agree with the ponencia’s conclusion that daughter could cheat death. They did not mind that their young daughter’s
“there was adequate disclosure of material risks of the with the consent of left leg would be amputated from above the knee for a 50% chance of
Angelica’s parents.” Such conclusion was made without the requisite preventing the spread of the cancer. Everyone knows of the travails and
premises. Determining the sufficiency of disclosure can be made only after agonies of chemotherapy, yet it is rare indeed for a cancer patient or his
a prior determination and assessment of risks have been made. No evidence relatives not to take a chance with this treatment, which had proved
exists showing that these premises have been properly laid and proven. successful in extending the lives of some.
Hence, for lack of basis, no conclusion can be made on whether sufficient Furthermore, it was not Dr. Li, according to Reynaldo, who
disclosure followed. In other words, the disclosure cannot be said to be convinced him to agree to submit his daughter to chemotherapy but Dr.
sufficient in the absence of evidence of what, in the first place, should be Tamayo. He explained to him the need for their daughter to undergo
disclosed. chemotherapy to increase the chance of containing her cancer. This
Justice Brion submitted that the parents failed to prove that the consultation took place even before the Solimans met Dr. Li. It is a mark of
chemotherapy administered by the petitioner proximately caused the death their insensitivity that the Solimans included as proof of the damages they
of Angelica Soliman. Traditionally, he said plaintiffs alleging lack of suffered, the expenses they incurred for the surgical procedure performed
informed consent must show two types of causation: 1) adequate disclosure by Dr. Tamayo, including the latter’s professional fees. The amputation
would have caused the plaintiff to decline the treatment, and 2) the that Dr. Tamayo performed took place before the chemotherapy. The
treatment proximately caused injury to the plaintiff. Solimans cannot be trusted to make an appropriate claim.
The mother’s lay testimony at best only satisfied the first type of
causation. Justice Brion disagreed that the facts as stated by the RTC and
the CA clearly show that the chemotherapy caused Angelica’s death. He VIII. Additional Notes
reiterated that in the absence of competent expert testimony, the Court has
no factual basis to declare that the chemotherapy administered by the VII. Random Facts
petitioner proximately caused Angelica’s death. In sum, the suing parents ● Ponente: Villarama Jr., J.
failed to prove by appropriate evidence – i.e., by expert testimony – that
Angelica’s death was caused by the chemotherapy the petitioner
administered.
[GR No. 167366 | September 26, 2012] [Medical Negligence]
[Cereno vs CA] [Cereno vs CA]
I. Recit-ready Summary gunshot victim. The only anesthesiologist in the hospital Dr. Rosalina Tatad
Raymond Olavere was brought to the Bicol Regional Medical Center was also busy attending to the same patient. Right before finishing the
(BRMC) because he was stabbed. He was attended by Nurse Balares and operation of the gunshot wound victim, another patient was wheeled in the
Dr. Realuyo. Dr. Realuyo recommended that Olavere be operated on by Dr. operating room, this time a woman giving birth to triplets. Dr. Zafe and Dr.
Zafe. It should be noted that there is only one anesthesiologist in the whole Cereno decided to defer the operation of Raymond because the only
hospital, Dr. Tatad. Before Raymond Olavere can be operated on, the two anesthesiologist available is busy with the patient giving birth and upon
doctors first had to attend to a gunshot wound patient. Upon finishing the examination of Raymond’s condition he was stable. The two doctors noted
operation on the gunshot wound patient, a pregnant woman was brought to that Raymond had a stable blood pressure, and that nothing significant was
the ER. Dr. Tatad immediately attended to the woman as she was in labor happening. At that time Raymond had 200-300cc of fluid in his thoracic
and giving birth to triplets, while Dr. Zafe and Dr. Cereno checked up on cavity.
Raymond. Upon determining that Raymond only had 200-300cc of blood in At 11:55 PM the parents of Raymond return to turnover the needed
his thoracic cavity, the petitioners decided to defer the operation. Close to 2 blood for the operation. Dr. Cereno and Dr. Zafe started the procedure on
hours later Raymond was finally operated on. Upon opening Raymond’s Raymond around 12:15 AM. They found out that the thoracic cavity of
body, the petitioners were surprised to find 3200cc of blood in his thoracic Raymond had 3200cc of blood already. The blood was extracted and the
cavity. The doctors scrambled to control the bleeding before transfusing doctors found a puncture on his lung. Dr. Cereno noted that he had to look
Raymond with fresh blood. In the middle of the operation, Raymond died for the source of blood first before transfusing blood to Raymond. Blood
due to cardiac arrest. The parents of Raymond filed against Dr. Zafe and was finally transfused to Raymond around 1:45 AM. Surprisingly Raymond
Cereno for damages due to negligence. The RTC held that the petitioners suffered a cardiac arrest and died during the procedure at around 2:30AM.
were negligent in their performance of duty due to the non-observance of The parents of Raymond filed in the RTC of Naga, a complaint for
proper protocol and delay in the transfusion of blood. The CA affirmed the damages claiming that the doctors were negligent. The RTC dismissed the
decision of the RTC. The issue in the present case is whether or not the cases against Dr. Realuyo and Nurse Balares, but found Dr. Zafe and
petitioners were grossly negligent in the performance of their duties. The SC Dr. Cereno negligent in not immediately operating on Raymond. The
ruled that Medical Negligence was not proven in this case due to the RTC held that the petitioners should have requested for a standy
absence of expert testimony to dispute the actions of the petitioners. There anesthesiologist, and faulted petitioners for the delay in the blood
was no evidence that there was a breach of duty on the part of the doctors. transfusion. The CA affirmed the decision of the RTC in finding petitioners
guilty of gross negligence in the performance of duty. Hence the present
petition.
Raymond Olavere, a victim of stabbing was rushed to the Bicol Regional III. Issue/s
Medical Center (BRMC) at around 9:15 PM. He was attended to by Nurse 1. W/N the petitioners were grossly negligent in the performance
Arlene Balares and Dr. Realuyo (Resident). Dr. Realuyo recommended that of their duties (NO)
Raymond undergo an emergency procedure called emergency exploratory 2. W/N BRMC is an indispensable party and thus subsidiarily liable
laparotomy. His parents were requested to obtain 500cc of blood type O. At (NO)
10:30 PM, Raymond Olavere was prepared in the operating room. In the
meantime the surgeons, Dr. Zafe and Dr. Cereno were busy attending to a IV. Holding/s
1
[Legal Research 2019] PETITIONER/APPELLANT: Dr.Pedre Dennis Cereno and Dr.Santos Zafe
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Court of Appeals, Spouses Diogenes Olavere and Fe
Serrano
[GR No. 167366 | September 26, 2012] [Medical Negligence]
[Cereno vs CA] [Cereno vs CA]
1. NO, the petitioners are not negligent. The trial court’s

conclusion that it was the duty of the petitioners to request Dr. It is settled that the complainant has the burden of establishing breach of
Tatad to call the backup anesthesiologist is not tantamount to duty on the part of the doctors or surgeons.
negligence. It was not proven that the petitioners were aware of the
“BRMC protocol” that there is a back up anesthesiologist available It must be proven that such breach of duty has a causal connection to the
on call. Petitioners cannot be assumed to know the protocols of the resulting death of the patient. Causation must be proven within a reasonable
anesthesiology department since they are not part of the said medical probability based upon competent expert testimony which was
department. There was no expert witness that testified against the lacking in the case.
propriety of the actions of the petitioners. Neither was there any
expert testimony inferring that petitioners failed to exercise the
standard of care, diligence, learning and skill required from VI. Disposition
doctors.
IN LIGHT OF THE FOREGOING, the instant Petition for Review on
There is no negligence on the part of the petitioners due to the Certiorari is hereby GRANTED. The Court of Appeals decision dated 21
delay in the blood transfusion. The alleged delay cannot be February 2005 in CA-G.R. CV No. 65800 is hereby REVERSED and SET
attributed to the petitioners, because it was never proven that they ASIDE. No costs.
were the cause of such delay. There was only a need for blood SO ORDERED.
transfusion when the petitioners saw the gross bleeding. Again the
parents of Raymond failed to present any expert witness to dispute VII. Separate Opinions
the course of action taken by the petitioners. Medical Negligence N/A
was not proven in this case due to the absence of expert testimony
to dispute the actions of the petitioners.
2. NO, the cause of action against petitioners may be prosecuted fully
and the determination of their liability may be arrived at without
impleading the hospital where they are employed.
VII. Random Facts
V. Law or Doctrine Applied ● Ponente: Perez, J.
MEDICAL NEGLIGENCE
1) There is a health care provider
2) Who fails to do something which a reasonably prudent health care
provider would have done, or that he or she did something that a
reasonably prudent provider would not have done
3) Failure or action caused injury to the patient
2
[Legal Research 2019] PETITIONER/APPELLANT: Dr.Pedre Dennis Cereno and Dr.Santos Zafe
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Court of Appeals, Spouses Diogenes Olavere and Fe
Serrano
[G.R. No 150785 | September 15, 2006] [General Provisions]
[Nuguid v. Nicdao] [Nuguid v. Nicdao]
I. Recit-ready Summary Subsequently, petitioner demanded payment of the sums above-mentioned,

but respondent refused to acknowledge the indebtedness. Thereafter,
Nicdao is charged with 14 counts of violation of BP 22. The criminal petitioner deposited all aforementioned checks in the bank totaling
complaints allege that she and her husband approached Nuguid to borrow P1,150,000.00. The checks were all returned for having been drawn against
money totaling to P1,150,000 to settle some obligation. She furnished open insufficient funds.
dated checks for the said amount as security for the loan. Nuguid then
demanded for the payment but Nicdao refused to acknowledge the A verbal and written demand was made upon respondent to pay the amount
indebtedness. The checks were all returned for having been drawn against
represented by the bounced checks, but to no avail. Hence, a complaint for
insufficient funds. Hence, this case was filed against Nicdao. The RTC
violation of BP 22 was filed against the respondent. The trial court convicted
convicted Nicdao but this was reversed by the CA. Nuguid assails that the
civil liability of Nicdao was not extinguished by the acquittal of the criminal the defendant. The CA reversed the decision, thus acquitting Nicdao.
case. The issue in this case is W/N the respondent remains civilly liable Petitioner now contends that the civil liability of the defendant was not
despite the acquittal of the criminal case. The SC held No. Extinction of the extinguished by the acquittal.
penal action does not carry with it the eradication of civil liability unless it
falls under specific grounds (see holding). The SC upheld the decision of the III. Issue/s
CA given the evidence that the civil liability had already been fully satisfied
and extinguished by payment. The statements of the appellate court leave no 1. Whether or not respondent remains civilly liable to petitioner despite her
doubt that respondent, who was acquitted from the charges against her, had acquittal? - NO
already been completely relieved of civil liability.
IV. Holding/s
II. Facts of the Case No. From the standpoint of its effects, a crime has a dual character: (1) as an
offense against the State because of the disturbance of the social order and
Accused Clarita S. Nicdao is charged with having committed the crime of
(2) as an offense against the private person injured by the crime unless it
Violation of BP 22 in fourteen (14) counts. The criminal complaints allege involves the crime of treason, rebellion, espionage, contempt and others
that respondent and her husband approached petitioner and asked her if they
(wherein no civil liability arises on the part of the offender either because
could borrow money to settle some obligations. Having been convinced by
there are no damages to be compensated or there is no private person injured
them and because of the close relationship of respondent to petitioner, the
by the crime.
latter lent the former her money. Thus, every month, she was persuaded to
release P100,000.00 to the accused until the total amount reached
What gives rise to the civil liability is really the obligation of everyone to
P1,150,000.00.
repair or to make whole the damage caused to another by reason of his act or
omission, whether done intentionally or negligently and whether or not
As security for the P1,150,000.00, respondent gave petitioner open dated
punishable by law.
checks with the assurance that if the entire amount is not paid within one (1)
year, petitioner can deposit the checks.
Block B 2023 PETITIONER/APPELLANT: Emma P. Nuguid

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Clarita S. Nicdao
[G.R. No 150785 | September 15, 2006] [General Provisions]
[Nuguid v. Nicdao] [Nuguid v. Nicdao]
Extinction of penal action does not carry with it the eradication of civil VII. Separate Opinions
liability, unless the extinction proceeds from a declaration in the final
judgment that the fact from which the civil liability might arise did not exist. None.
In this petition, we find no reason to ascribe any civil liability to respondent. VIII. Additional Notes
As found by the CA, her supposed civil liability had already been fully
Check Nos and corresponding amounts:
satisfied and extinguished by payment. The statements of the appellate court
leave no doubt that respondent, who was acquitted from the charges against
her, had already been completely relieved of civil liability.
The basic principle in civil liability ex delicto is that every person criminally
liable is also civilly liable, crime being one of the five sources of obligations
under the Civil Code. A person acquitted of a criminal charge, however, is
not necessarily civilly free because the quantum of proof required in criminal
prosecution (proof beyond reasonable doubt) is greater than that required for
civil liability (mere preponderance of evidence). In order to be completely
free from civil liability, a person's acquittal must be based on the fact that he
did not commit the offense. If the acquittal is based merely on reasonable
doubt, the accused may still be held civilly liable since this does not mean he
did not commit the act complained of. It may only be that the facts proved
did not constitute the offense charged.
Acquittal will not bar a civil action in the following cases: (1) where the
acquittal is based on reasonable doubt as only preponderance of evidence is
required in civil cases; (2) where the court declared the accused's liability is
not criminal but only civil in nature and (3) where the civil liability does not
arise from or is not based upon the criminal act of which the accused was
acquitted. VII. Random Facts
● Ponente: Corona, J.
VI. Disposition
WHEREFORE, the petition hereby DENIED. The October 30, 2001 decision
of the Court of Appeals in C.A.-G.R. No. 23054 is AFFIRMED.
Block B 2023 PETITIONER/APPELLANT: Emma P. Nuguid

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Clarita S. Nicdao
G.R. No. L-13667 | April 29, 1960 General Provisions (Natural Obligations)
Ansay vs. Board of Directors Ansay vs. Board of Directors
I. Recit-ready Summary IV. Holding/s

Petitioners Ansay et al filed a complaint at the CFI of Manila against the 1. NO, the Board cannot be compelled by the court to deliver the
Board of Directors praying for a 20% Christmas bonus for the years claimed bonus BECAUSE IT STEMS FROM A NATURAL
1954 and 1955. Respondent Board of Directors filed a motion to OBLIGATION
dismiss, which was granted due to petitioners’ lack of cause of action. The bonus prayed for is discretionary upon the Board of Directors,
Thus petitioners appealed to the SC. and under no legal obligation, be it law or contract, is said board
The SC agreed with the CFI that the bonus cannot be granted because it bound to pay such bonus to petitioners. The claim is backed only by
is an act of liberality and more importantly, it is anchored on a natural the moral obligation or natural obligation of respondent Board to
obligation, which does not grant a right of action for performance. It petitioners.
only becomes demandable in court when there is voluntary fulfillment Natural obligations, unlike civil obligations, are normally not
on the part of the obligor. Thus, since respondent Board has not cognizable by the court. However, if there is voluntary performance
voluntarily fulfilled the obligation, the court cannot order the by the obligor, only then can the fulfillment of such obligations
performance thereof. become demandable.
In the present case, there was no voluntary fulfillment from
II. Facts of the Case respondent Board and thus, the court cannot order the performance.
On July 25, 1956, Ansay et al filed in the Court of First Instance in
Manila a complaint against the Board of Directors of the National V. Law or Doctrine Applied
Development Company praying for a 20% Christmas bonus for the years
1954 and 1955. In response, the Board of Directors filed a motion to dismiss NATURAL OBLIGATIONS VS CIVIL OBLIGATIONS
this complaint on August 15, 1956. Natural obligations are based on equity and natural law, as opposed to civil
The CFI ruled that petitioner Ansay et al have no cause of action to obligations, which are based on positive law and thus, give the obligee a
secure such bonus because 1. a bonus is an act of liberality, and 2. petitioners right of action to compel the performance thereof.
only ask that the bonus be given out of respondent Board of Directors’ moral
NATURAL OBLIGATIONS REQUIRE VOLUNTARY
obligation. Thus the case and subsequent motion for reconsideration by
FULFILLMENT
petitioners were dismissed.
Unlike civil obligations, the fulfillment of natural obligations do not grant a
Petitioners Ansay et al appealed to the Supreme Court. They contended right of action to enforce their performance. Simply, they are not
that there is a cause of action in their complaint for their claim rested on moral demandable in court. However, if there is voluntary fulfillment by the
grounds. They admit that respondents are under no legal obligation to give obligor, it will then become cognizable by the court and certain retention
such bonus, but they are under a natural obligation to do so. can be ordered.
III. Issue/s VI. Disposition

1. W/N the Board of Directors can be compelled by the court to
deliver the claimed bonuses? NO.
1
Obligations and Contracts (2019) PETITIONER: Primitivo Ansay, etc. et al
DIGEST AUTHOR: Kara Nazario RESPONDENT: The Board of Directors of the National Development
Company, et al
G.R. No. L-13667 | April 29, 1960 General Provisions (Natural Obligations)
Ansay vs. Board of Directors Ansay vs. Board of Directors
Premises considered, the order appealed from is hereby affirmed,

without pronouncement as to costs.
VII. Random Facts

 Ponente: Paras, C.J
2
Obligations and Contracts (2019) PETITIONER: Primitivo Ansay, etc. et al
DIGEST AUTHOR: Kara Nazario RESPONDENT: The Board of Directors of the National Development
Company, et al
G.R. No. L-9343 | December 1959 solutio indebiti
Manila Surety & Fidelity Co., Inc. v. Lim Manila Surety & Fidelity Co., Inc. v. Lim
I. Recit-ready Summary Surety & Fidelity Co., Inc. The case was dismissed which was affirmed by
the CA.
Valentin R. Lim obtained a judgment against Irineo Facundo, "ordering Lim filed a motion for determination of damages for the uncollected
the latter to vacate the premises and to pay the plaintiff a monthly rental of rentals due to the issuance of the writ. The Facundo v. Santos case, wherein
P100 from February 18, 1955 until the defendant vacate the premises and to no damages were awarded to Lim, already became final around 2 years from
pay the costs. Facundo filed a petition for certiorari with CFI Rizal (Facundo the date of judgement. However, CFI still allowed Lim to prove the damages
v. Santos) wherein a writ of preliminary injunction was issued upon the filing and awarded him the bond posted by Manila Surety.
by Facundo of a bond in the sum of P1000, which was posted by the Manila A writ of preliminary injunction was issued upon a petition for the same
Surety & Fidelity Co., Inc. The case was eventually dismissed which was by Facundo. The court dismissed the case and dissolved the writ. In view of
affirmed by the CA. Lim’s previous motion for determination of damages, the CFI directed
Lim filed a motion for determination of damages for the uncollected Manila Surety to pay Lim the full value of the bond, through a writ of
rentals due to the issuance of the writ. A writ of preliminary injunction was execution. SC declared said writ null and void, thus, Manila Surety demanded
issued upon a petition for the same by Facundo. The court eventually the immediate reimbursement of the payment it made in compliance with the
dismissed the case and dissolved the writ. In view of Lim’s previous motion writs. However, Lim refused to return the same
for determination of damages, the CFI directed Manila Surety to pay Lim the
full value of the bond, through a writ of execution. SC declared said writ null III. Issue/s
and void, thus, Manila Surety demanded the immediate reimbursement of the 1. W/N Manila Surety is precluded from recovering the money given
payment it made in compliance with the writs. However, Lim refused to the allegation that (1) it was its natural obligation and the money
return the same. was voluntarily paid, and (2) the requisites of solutio indebiti,
The Court ruled that Manila Surety is not precluded from recovering which is the only basis for the return of the amount paid, do not
the money it has given since it was not voluntary. Manila Surety paid due in exist in the present case? NO
compliance with the writ of execution. Moreover, contrary to the position of
Lim, the case does not fall under Article 2154. It is based on the theory that IV. Holding/s
the judgment upon which Manila Surety made payment was declared null and 1. NO, Manila Surety is not precluded from recovering the money.
void and consequently the execution of said judgment and the payment made
thereunder were also null and void. The money given by Manila Surety was not voluntary. It was thru a
coercive process of the writ of execution issued at the instance and insistence
II. Facts of the Case of Lim. Certainly, were it not for said writ of execution, Manila Surety would
Valentin R. Lim obtained a judgment against Irineo Facundo, "ordering not have paid to defendant-appellant the amount in question.
the latter to vacate the premises and to pay the plaintiff a monthly rental of Moreover, the instant case does not fall under the provisions of Article
P100 from February 18, 1955 until the defendant vacate the premises and to 2154; it is based on the theory that the judgment upon which Manila Surety
pay the costs. Facundo filed a petition for certiorari with CFI Rizal (Facundo made payment was declared null and void and consequently the execution of
v. Santos). wherein a writ of preliminary injunction was issued upon the filing said judgment and the payment made thereunder were also null and void. It
by Facundo of a bond in the sum of P1000, which was posted by the Manila is quite a settled rule that damages caused by the issuance of a preliminary
injunction should be adjudicated in the final judgment rendered in the case in
which the injunction was issued. In civil cases Nos. 487 and 7674 of the Court
1
Obligations and Contracts (2019) PETITIONER/APPELLANT: Manila Surety

DIGEST AUTHOR: Stephanie Co RESPONDENT: Sec Valentino Lim
G.R. No. L-9343 | December 1959 solutio indebiti
Manila Surety & Fidelity Co., Inc. v. Lim Manila Surety & Fidelity Co., Inc. v. Lim
of First Instance of Rizal, the award of damages was done after the decision
on the merit of said cases became final, so said award was illegal, for which
no writ of execution could be validly issued. Evidently, the order of
September 30, 1949 of the Court of First Instance of Rizal whereby it
awarded damages and ordered the forfeiture and execution of plaintiff's bond
in each of said two cases, is null and void, it having been issued in violation
of the Rules of Court.
Article 1423 of the Civil Code

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".

If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
VI. Disposition
WHEREFORE, finding no error in the decision appealed from the same

is hereby affirmed, with costs.

Ponente: Justice Endencia
Obligations and Contracts (2019) PETITIONER/APPELLANT: Manila Surety

DIGEST AUTHOR: Stephanie Co RESPONDENT: Sec Valentino Lim
G.R. No. 214073 | October 4, 2017 General Provisions
Bicol Medical Center v. Botor Bicol Medical Center v. Botor
I. Recit-ready Summary complex.” The closure of the gate drew a lot of criticism from the
Sometime in 2009, Bicol Medical Center constructed a steel gate along J. community. Atty. Noe Botor wrote to Naga City Mayor Bongat asking for
Miranda Avenue to control traffic flow and pedestrians entering the hotel the reopening or dismantling of the gate for being a public nuisance.
premises. In 2012, the steel gate was closed by BMC to make way for However, instead of dismantling, Mayor Bongat filed a Verified Petition
development within the complex and for safety reasons. Respondents filed with Prayer for a Writ of Preliminary Injunction against BMC. The RTC
for a writ of preliminary injunction against BMC praying that the gate be denied Naga City’s application for injunctive relief. The CA on the other
reopened or dismantled for being a public nuisance. The RTC denied the hand granted the petition for the issuance of a writ of mandatory preliminary
application for injunctive relief while the CA on the other hand granted the injunction. Hence, this petition before the SC by the BMC and Department
petition for the issuance of a writ of mandatory preliminary injunction. The of Health.
SC ruled that the CA erred in granting the petition, ruling that the
respondents failed to establish prima facie proof of their clear legal right to The petitioners claim that although Road Lot No.3 had been open to
utilize Road Lot No. 3. While they presented an assessor’s tax mapping pedestrian as BMC’s service road, it was never intended for use by the
control roll and its identification map, together with witnesses’ testimonies general public and was not owned by Naga City, The petitioners also claim
corroborating their claim, these were easily rebutted by the Department of that the purpose of the road closure was in preparation for the construction
Health’s certificate of title and the City Engineer’s categorical statement of the Cancer Center Building. Thus, the inunction issued also had the effect
that “the road from Panganiban Drive up to the entrance and exit gate of of halting the construction of a government project.
BMC was not included in the list” of city roads under Naga City’s control.
The SC ruled that respondents likewise cannot rely on the supposed III. Issue/s
customary use of Road Lot No. 3 by the public to support their claimed right 1. W/N The Court of Appeals Erred in Issuing a Writ of
of unfettered access to the road because customary use is not one (1) of the Preliminary Injunction on the Closure of Road Lot No.3. (YES)
sources of legal obligation.
2. W/N Respondents may rely on the supposed customary use of
II. Facts of the Case Road Lot No.3 by the public to support their claimed right of
BMC, formerly the Camarines Sur Privincial Hospital is located along unfettered access to the road. (NO)
Mabini Street. Road Lot NO.3, which stretched from Panganiban Road to J.
Miranda Avenue, is a service road which leads to BMC. Sometime in 2009, IV. Holding/s
Bicol Medical Center constructed a steel gate along J. Miranda Avenue to 1. YES. The SC held that CA erred in issuing a Writ of Preliminary
control the flow of vehicles and pedestrians entering the hospital premises. Injunction on the Closure of Road Lot No. 3. The Court ruled that
respondents failed to establish prima facie proof of their legal right to
On March 21, 2012 Dr. Nerva, BMC Chief issued a hospital memorandum utilize Road Lot No.3. While they submitted an assessor’s taxing map
rerouting traffic inside the BMC compound. The rerouting scheme closed and witnesses’ testimonies to support their claim, these were rebutted
the steel gate for vehicles and pedestrians along J. Miranda Avenue for by by the Department of Health’s certificate of title and the City
safety reasons and to make way for “massive development within the Engineer’s categorical statement that “the road from Panganiban Drive
Obligations and Contracts PETITIONER: Bicol Medical Center and The Department of Health 1
DIGEST AUTHOR: Ryon Rivera RESPONDENT: Noe B. Botor Celjun F. Yap, Ismael A. Albao, Augusto S.
Quilon, Edgar F. Esplana, and Josefina F. Esplana
up to the entrance and exit gate of BMC was not included in the list” of (5) Quasi-delicts
city roads under Naga City’s control. . Instead of merely relying on a
tax map and claims of customary use, Naga City or respondents should Art. 1158. Obligations derived from law are not presumed. Only
have presented a clear legal right to support their claim over Road Lot those expressly determined in this Code or in special laws are
No. 3. demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has not been foreseen, by
Further, The Court found that the Court of Appeals erred in limiting the provisions of this Book.
prima facie evidence merely to the evidence presented by Naga City
and respondents and in disregarding altogether petitioners' evidence,
VI. Disposition
which had the effect of squarely rebutting Naga City and respondents'
assertions
WHEREFORE, this Court resolves to GRANT the Petition. The assailed
February 28, 2014 Decision and August 26, 2014 Resolution of the Court of
2. NO. Respondents cannot rely on the supposed customary use of Appeals in CA-G.R. SP No. 129806 are REVERSED and SET ASIDE.
Road Lot No. 3 by the public to support their claimed right of
unfettered access to the road because customary use is not one (1) The temporary restraining order issued by this Court in its October 8, 2014
of the sources of legal obligation, Resolution is made PERMANENT.
V. Law or Doctrine Applied VII. Additional Notes
VII. Random Facts

Any hint of doubt or dispute on the asserted legal right precludes
● Ponente: Leonen, J.
the grant of preliminary injunctive relief.
(1) Law;
(2) Contracts;
(4) Acts or omissions punished by law; and
G.R. No. L-7089 | August 31, 1954 General Provisions
De la Cruz v Northen Theatrical Inc. De la Cruz v Northen Theatrical Inc.
I. Recit-ready Summary dismissed the complaint after a reinvestigation by the Provincial Fiscal. De
La Cruz was subsequently charged again for homicide, but was acquitted
Plaintiff-appellant Domingo De La Cruz was employed by Northern after trial.
Theatrical Enterprises Inc. as a security guard for their movie theater. In the In both criminal cases, De la Cruz employed a lawyer for his defense,
afternoon of July 4, 1941, De La Cruz denied entry to Benjamin Martin and he subsequently demanded that his former employer reimburse his
because the latter had no ticket. Martin attacked him with a bolo, and De la expenses. The company refused, prompting him to file the present action
Cruz fatally shot him in self-defense. Two criminal cases for homicide were against the movie corporation and the three members of its board of
filed against De La Cruz, and though he was acquitted, he incurred legal
directors. De La Cruz sought to recover not only the amounts he had paid
expenses. He demanded that his former employer reimburse him for the
his lawyers, but also moral damages suffered due to his worry, his neglect of
legal expenses as well as pay him moral damages for what he suffered. The
Court of First Instance of Ilocos Norte found no cause of action and his interests, his family, and the cultivation of his land (a total of P 15,000).
dismissed the complaint without costs. The issue is whether or not an The Court of First Instance of Ilocos Norte rejected the theory of the
employee or servant may recover damages if, in the line of duty and while plaintiff that he was an agent of the defendants and that such status entitled
in the performance of the task assigned to him, he performs an act which him to reimbursement of expenses incurred by him in connection with the
eventually results in him incurring expenses, caused not directly by his agency (based on Articles. 1709-1729 of the old Civil Code). The court
master or employer or his fellow servants or by reason of his performance of found that plaintiff had no cause of action and dismissed the complaint
his duty, but rather by a third party or stranger not in the employ of his without costs. De la Cruz appealed directly to The Supreme Court, for the
employer. The Supreme Court upheld the ruling of the lower court, reason that only questions of law are involved in the appeal.
stating that there is no existing law or jurisprudence that applies to the
current circumstances. III. Issue/s
1. W/N Northern Theatrical Enterprises Inc is liable to reimburse
expenses and pay moral damages to its employee: NO.
Plaintiff-appellant Domingo De La Cruz was employed as a special
IV. Holding/s
guard for the respondent corporation, Northern Theatrical Enterprises Inc.,
which operated a movie house in Laoag, Ilocos Norte. De La Cruz’s duties
1. NO, Northern Theatrical Enterprises Inc is not obligated to
were to guard the main entrance of the cine, to maintain peace and order,
pay De la Cruz .
and to report the commission of disorders within the premises. He also
carried a revolver as part of said duties.
The Court affirms the trial court’s determination that the
In the afternoon of July 4, 1941, a Benjamin Martin wanted to crash
relationship between the movie corporation and the plaintiff was
the entrance of the movie house. He was infuriated by De La Cruz’s refusal
not that of principal and agent, because the principle of
to admit him without a ticket, and he attacked the guard with a bolo. In the
representation was in no way involved. The plaintiff was not
ensuing struggle, De La Cruz defended himself as best he could until he
employed to represent the defendant corporation in its dealings
ended up fatally shooting Martin.
with third parties. He was a mere employee hired to perform
For the killing, De la Cruz was charged with homicide in Criminal
certain specific duties or tasks: acting as special guard at the main
Case No. 8449 of the Court of First Instance of Ilocos Norte, but the court
Obligations and Contracts (2020) PETITIONER: Domingo De La Cruz (plaintiff-appellant) 1

DIGEST AUTHOR: Vito Castañeda RESPONDENT: Northern Theatrical Enterprises, Inc. (defendants-appellees)
entrance of the movie house to stop gate crashers, and maintaining Another interpretation involves the doctrine of proximate cause.
peace and order within the premises. The question posed by this The damages incurred here via the payment of the lawyer's fee did
appeal is whether an employee or servant who, in line of duty and not flow directly from the performance of the plaintiff’s duties
while in the performance of the task assigned to him, performs an but only indirectly because there was an efficient, intervening
act which eventually results in him incurring expenses, caused not cause: the filing of the criminal charges. The fatal shooting
directly by his master or employer or his fellow servants or by incident was not the proximate cause of the damages suffered, but
reason of his performance of his duty, but rather by a third party only a remote cause that lacked the legal requirement to fix civil
or stranger not in the employ of his employer, may recover said responsibility. For the proximate cause to attach liability, the act of
damages against his employer. the defendant must have caused a natural and continuous sequence
leading to the plaintiff’s injury. In this case, the defendant
On this matter, The Court agrees with the trial court in that there do corporation was not responsible for the filing of criminal charges
not seem to be existing laws or jurisprudence applicable to the necessitating the plaintiff’s legal expenses. (See Part V, paragraph
case. The Court provided an example where an employer may find 2).
it in its own best interest to provide legal aid to a criminally
charged employee, because if the latter were found guilty the V. Law or Doctrine Applied
employers would be subsidiarity liable for damages. However,
there is no legal obligation for them to provide the aid. If the (Special case: No directly applicable law or doctrine)
employer is not legally obliged to give legal assistance to its
employee and provide him with a lawyer, naturally said employee “We (The Court) confess that we are not aware of any law or judicial
authority that is directly applicable to the present case, and realizing the
may not recover the amount he may have paid a lawyer hired by
importance and far-reaching effect of a ruling on the subject-matter we have
him.
searched, though vainly, for judicial authorities and enlightenment. All the
laws and principles of law we have found, as regards master and servants, or
The Court considered an alternative interpretation where the employer and employee, refer to cases of physical injuries, light or serious,
damage suffered by the plaintiff due to legal expenses was not resulting in loss of a member of the body or of any one of the senses, or
caused by his own act of fatally shooting the gatecrasher, but by permanent physical disability or even death, suffered in line of duty and in
the filing of the charge of homicide that necessitated the legal aid the course of the performance of the duties assigned to the servant or
in the first place. Such charges are “improperly filed” in the sense employee, and these cases are mainly governed by the Employer's Liability
that an acquittal confirms the plaintiff as innocent and blameless. Act and the Workmen's Compensation Act. But a case involving damages
Therefore, the damages incurred due to “improper filing” are owed caused to an employee by a stranger or outsider while said employee was in
by the State and the deceased’s heirs who insisted on the filing. the performance of his duties, presents a novel question which under
Even in this scenario the Court finds no reason why the employer present legislation we are neither able nor prepared to decide in favor
would be held liable. of the employee.”

Proximate Cause:
Article 2217 (New Civil Code) - 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 result of the defendant's wrongful act for omission.
(See Part VII, Additional Notes).
VI. Disposition
IN VIEW OF THE FOREGOING, the judgment of the lower court is

affirmed. No costs.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and

Reyes, J.B.L., JJ., concur.

a. The case does not elaborate on the doctrine of proximate
cause apart from a single short paragraph at the end of the
case (paraphrased in Part IV).
b. The term “proximate” appears only 8 times in the New
Civil Code; Article 2217 seems to be the most relevant to
the case.
VIII. Random Facts

• Ponente: Montemayor, J.
February 8, 2020
Sam Mendez’s 1917 is a pretty great movie. It is highly recommended that
the film be watched in IMAX, but apparently none of the IMAX theaters in
Metro Manila are screening it. Instead, every single one of them is
showing… Birds of Prey. I mean, it’s not a bad film, certainly leagues better
than its predecessor (Suicide Squad, which was shit).
-Vito

G.R. 177056 | September 18, 2009 General Provisions
OSG v AyalaLand OSG v AyalaLand
I. Recit-ready Summary assuming arguendo that the collection of parking fees was legally
The respondents operate shopping malls in various locations in the authorized, to find out the basis and reasonableness of the parking rates
Philippines. With these malls, they also operate parking facilities. They pay charged by shopping malls, (3) to determine the legality of the policy of
for the maintenance and the security of these parking facilities. shopping malls of denying liability in cases of theft, robbery, or carnapping,
The Senate Committees on Trade and Commerce and on Justice and by invoking the waiver clause at the back of parking tickets.
Human Rights conducted an investigation regarding the legality of the After a number of hearings, the Senate Committees issued a Report
practice of charging parking fees by shopping malls. The Committees issued stating that the collection of parking fees by shopping malls is contrary to
a Report concluding that the collection of parking fees by shopping malls is the National Building Code. The Committees found that the interpretation
contrary to the National Building Code. of the National Building Code is in favor of making parking spaces free.
The OSG filed a petition, in accordance with the Committee Report, The Report recommended that the OSG institute necessary action to enjoin
against the respondents. The RTC held that the Building code and its IRR the collection of parking fees. Thus, the OSG, on behalf of the DPWH
do not impose that parking spaces shall be provided by the mall owners for Secretary and local building officials, filed petitions against the respondents.
free and that Article 1158 of the Civil Code must apply. The CA affirmed The RTC and CA would rule in favor of the respondents.
the ruling of the RTC.
Finally, the SC also affirmed the rulings of the RTC and CA. They III. Issue/s
found no merit in the arguments of the respondents trying to put parking 1. W/N The respondents are obliged to provide free parking
fees within the ambit of the National Building Code. That law gives the spaces to their customers based on the National Building Code?
DPWH secretary regulatory power insofar as the minimum standards or YES/NO
requirements for buildings are met. Nowhere in the law is it provided that a
minimum requirement for buildings is that they provide free parking. IV. Holding/s
Further, the OCG is effectively invoking police power but this, likewise, 1. NO, the prohibition of the collection by the respondents of
does not sway the court. To allow this would be akin to allowing the
parking from people who use their parking facilities has no
government to take the respondent’s property without payment of just
basis in the National Building Code or its IRR.
compensation.
The National Building Code does not mention “parking fees” so,
following the principles of statutory construction, it must be held that that
law does not regulate the imposition of parking fees.
The respondents Ayala Land, Robinsons, and Shanggri-La maintain
The petitioner provides arguments which it hopes will put parking fees
and operate shopping malls. SM Prime operates commercial buildings. The
in the ambit of the National Building Code. The SC is not swayed. The
buildings of the respondents all operate with parking facilities. They collect
National Building Code gives the DPWH secretary regulatory power insofar
fees from people making use of the parking spaces.
as the minimum standards or requirements for buildings are met. Nowhere
The Senate Committee on Trade and Commerce and on Justice and
in the law is it provided that a minimum requirement for buildings is that
Human Rights conducted an investigation to: (1) inquire into the legality of
they provide free parking.
the prevalent practice of shopping malls of charging parking fees, (2)
1
Obligations and Contracts PETITIONER: The Office of the Solicitor General
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Ayala Land Incorporated, Robinsons Land Corporation,
Shangri-La Plaza Corporation, and SM Prime Holding, Inc.
G.R. 177056 | September 18, 2009 General Provisions
OSG v AyalaLand OSG v AyalaLand
According to the SC, the OSG is effectively invoking police power but
this, likewise, does not sway the court. To allow this would be akin to
allowing the government to take the respondent’s property without just
compensation.

This article provides that: “Obligations derived from the law are
not presumed. Only those expressly determined in this Code or in special
laws are demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has been foreseen, by the provisions
of this Book.”
Here, the National Building Code does not mention “parking fees”;
it does not regulate the imposition of parking fees. To demand that the
respondents stop collecting parking fees would be to demand an obligation
not found in any law. This contravenes Art. 1158 of the Civil Code.
VI. Disposition
WHEREFORE, the instant Petition for Review on Certiorari is
hereby DENIED. The Decision dated 25 January 2007 and Resolution
dated 14 March 2007 of the Court of Appeals in CA-G.R. CV No. 76298,
affirming in toto the Joint Decision dated 29 May 2002 of the Regional
Trial Court of Makati City, Branch 138, in Civil Cases No. 00-1208 and No.
00-1210 are hereby AFFIRMED. No costs.

● Eminent Domain is an inherent power of the state. It enables the
State to forcibly acquire private lands intended for public use upon
payment of just compensation to the owner.
VII. Random Facts
● Ponente: Chico-Nazario, J.
2
Obligations and Contracts PETITIONER: The Office of the Solicitor General
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Ayala Land Incorporated, Robinsons Land Corporation,
Shangri-La Plaza Corporation, and SM Prime Holding, Inc.
G.R. No. 146708 | December 13, 2005 Sources of Obligation (Contract)
Joel Bortikey v. AFP Retirement and Separation Benefits System Joel Bortikey v. AFP Retirement and Separation Benefits System
I. Recit-ready Summary 24% annual interest stated in the contract was contrary to law and public
On May 13, 1992, Joel Bortikey (petitioner) bought a parcel of land from morals. This was denied by the board absent ceiling on interest rates at the
AFP Retirement and Separations Benefits System (AFPRSBS). The time the contract was perfected. The Office of the President and the Court of
transaction was embodied in a contract to sell. Stipulated in the contract is Appeals also denied the complaint.
the balance to be paid in 60 consecutive monthly installments with an interest III. Issue/s
rate of 24% per annum (see FACTS for more details). 4 years after, Joel W/N the interest rate of 24% per annum as stipulated in the contract to
Bortikey filed a complaint in the Housing and Land Use Regulatory Board sell is legal – YES
alleging that the 24% annual interest stated in the contract was contrary to
law and public morals. This was denied by the board absent ceiling on interest IV. Holding/s
rates at the time the contract was perfected. The Office of the President and YES, THE 24% PER ANNUM INTEREST RATE IS LEGAL.
the Court of Appeals also denied the complaint. The issue is W/N the interest The imposition of interest rates is a custom in our economic system. Joel
rate of 24% per annum as stipulated in the contract to sell is legal. The SC Bortikey was free to decide on the manner of payment, either in cash or
held that yes, the interest rate is legal and binding. Imposition of interest rates installment. Since he opted to purchase the land on installment basis, he
is a custom in our economic system. Also, Joel Bortikey himself decided on consented to the imposition of interest on the contract price. He cannot now
the manner of payment meaning he consented to the imposition of the 24% unilaterally withdraw from it by disavowing the obligation created by the
per annum interest rate. Given that the contract was entered into by the parties stipulation in the contract. Given that the contract was entered into by the
freely and voluntarily, and that Joel has been in possession of the property parties freely and voluntarily, and that Joel has been in possession of the
for several years, he cannot now attack the legality of the interest rate without property for several years, he cannot now attack the legality of the interest
impairing the constitutional right to the obligation of contracts. The Civil rate without impairing the constitutional right to the obligation of contracts.
Code provides that obligations arising from contracts have the force of law The Civil Code provides that obligations arising from contracts have the force
between the contracting parties and should be complied with in good faith, of law between the contracting parties and should be complied with in good
and the contracting parties may establish terms and provided they are not faith, and the contracting parties may establish terms and provided they are
contrary to law, morals, good customs, public order, and public policy. not contrary to law, morals, good customs, public order, and public policy.
II. Facts of the Case V. Law or Doctrine Applied

On May 13, 1992, Joel Bortikey (petitioner) bought a parcel of land for a sum ART. 1159
of Php 310,100 from AFP Retirement and Separations Benefits System Obligations arising from contracts have the force of law between the
(AFPRSBS). The transaction was embodied in a contract to sell. Stipulated contracting parties and should be complied with in good faith.
in the contract is the down payment of 31,010 down payment to be made ART. 1306
upon signing of the agreement and the balance to be paid in 60 consecutive The contracting parties may establish such stipulations, clauses, terms and
monthly installments with an interest rate of 24% per annum. Additionally, conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, and public policy.
failure to pay the amortization due on the specified maturity date and after
the seven-day grace period, shall result in a penalty of 24% per annum to be
VI. Disposition
reckoned from the first day of default. 4 years after, Joel Bortikey filed a WHEREFORE, premises considered, the instant petition is hereby
complaint in the Housing and Land Use Regulatory Board alleging that the DENIED.
Obligations and Contracts (2020) PETITIONER/APPELLANT: Joel Bortikey

DIGEST AUTHOR: Pia Casano RESPONDENT: AFP Retirement and Separation Benefits System
G.R. No. 129796 | September 20, 2004 Sources of obligations, in bad faith v. malice, abuse of rights
Astroland Developers, Inc. v. Government Service Insurance System Astroland Developers, Inc. v. Government Service Insurance System
I. Recit-ready Summary The interim, the National Housing Authority (NHA), issued a cease-
Queen’s Row Subdivision, Inc. (QRSI) is the owner of a parcel of land and-desist order against the QRSI. QRSI and the GSIS were also sued by the
located in Barangay Molino, Bacoor, Cavite. To finance the development of contractors/ suppliers for nonpayment of construction materials and services
a portion of the property into a housing project, QRSI secured a loan of PHP rendered in the amount of around PHP 7.6M. By September 1980, QRSI had
10M from the Government Service Insurance System (GSIS). QRSI was to an outstanding obligation on its loan of around PHP 28M avail with the
construct 4,493 housing unites on a portion of the property. GSIS. QRSI then requested an additional of PHP 8M from the GSIS to
By September 1980, QRSI had an outstanding obligation on its loan of which the latter agreed on the condition that a new project manager be
around PHP 28M to the GSIS. QRSI then requested an additional of PHP
designated by QRSI to continue with the development of the property. QRSI
8M from the GSIS to which the latter agreed upon GSIS’s condition that a
agreed to the condition and designated the Astroland Developers, Inc.
new project manager be designated by QRSI to continue with the
development of the property. QRSI agreed and designated the Astroland (ASTRO) as project manager for the unfinished project.
Developers, Inc. (ASTRO) as project manager. However, there was a On September 30, 1980, QRSI, ASTRO, as the new project manager of
unilateral termination and cancellation of the Project Management the unfinished project, and the GSIS executed a Project Management
Agreement and Supplemental Contract by GSIS. Hence, on April 22, 1984 Agreement (PMA) in which ASTRO agreed to continue the development of
and October 15, 1984, ASTRO again wrote to GSIS, reiterating its demand the property and to construct 1,741 housing units. The parties also agreed
for payment of management fees. On February 22, 1985, the GSIS Board of that the ASTRO would be paid by QRSI for its services, including a
Trustees approved Resolution No. 216 denying the claim of ASTRO. management fee. They also agreed that the PMA may be terminated or
Hence, ASTRO brings this case to the SC. rescinded by the GSIS for valid cause without need of judicial action by
The SC ruled that respondent cancelled the PMA conformably to the giving sixty (60) days notice to that effect to both parties, which act shall be
provisions of the said agreement. There is no evidence that the respondent final and binding. On September 30, 1980, the GSIS, QRSI, and ASTRO
acted in bad faith, much less with malice or with negligence in so doing. executed a Supplemental Contract to Project Management Agreement
Even in the three contracts that the parties were under, respondent had the
(SCPMA) in which they agreed to appoint Isabel V. Arrieta, the president of
right to the cancellation. Thus, the SC decided that there is no factual and
legal bases to hold the respondent liable for damages under Articles 19, 20 QRSI, as exclusive general sales agent to undertake the marketing and sales
and 2176 of the New Civil Code. of the completed housing units.
On February 22, 1982, Arrieta informed ASTRO the balance of her
II. Facts of the Case commissions on the sales of the housing units amounting to P135,000 and
Queen’s Row Subdivision, Inc. (QRSI) is the owner of a parcel of land requested for the remittance. ASTRO then wrote to Arrieta that, because of
located in Barangay Molino, Bacoor, Cavite. To finance the development of her failure to comply with the provisions of their Sales Agency Agreement,
a portion of the property into a housing project, QRSI secured a loan of PHP she was not entitled to any commission. When the Board of Trustees of the
10M from the Government Service Insurance System (GSIS). QRSI was to GSIS received reports of alleged activities of the contractors and/or ASTRO,
construct 4,493 housing unites on a portion of the property consisting of 100 including some GSIS officers, it approved Resolution No. 455 authorizing
hectars and then sell the same to qualified members of the GSIS. It secured the management of the GSIS to verify and investigate the report, to act
an additional loan of PHP 4M from the GSIS again. However, by 1980, only thereon and hold in abeyance the processing of all claims for payment under
1,250 housing units had been constructed. the PMA pending full verification.
Obligations and Contracts (2020) PETITIONER: Astroland Developers, Inc. v. 1

DIGEST AUTHOR: Steph Naval RESPONDENT: Government Service Insurance System
On June 9, 1982, Arrieta wrote to the Senior Vice-President of the The court ruled against ASTRO. The respondents pointed out that ASTRO
GSIS, urging the immediate rescission and termination of the PMA and only constructed 626 housing units when it was agreed upon for ASTRO to
SCPMA on the allegation that ASTRO unscrupulously violated the terms complete 1,741 housing units. According to the SC, the respondent is
and conditions thereof. The Board of Trustees of the GSIS issued Resolution empowered under the PMA to unilaterally cancel or rescind without judicial
No. 587 approving the recommendations of the OGCC and appointing the action. Upon the lapse of 60 days from notice of the cancellation or
CV Management Corporation as project manager, in lieu of ASTRO, to take recission, such act of the respondent is binding on the petitioner and QRSI.
Thus, the respondent had the right to dispense with the petitioner’s services
effect upon the expiration of the sixty-day written notice thereof. There was
as project manager and to approve a substitute to complete the unfinished
a unilateral termination and cancellation of the PMA and SCPMA by GSIS,
project.
but ASTRO did not file any request for the reconsideration of the resolution
nor any judicial action to assail the same. 2. NO, ASTRO is NOT entitled to management fees from the
As of September 20, 1982, ASTRO had completed 626 house-lot units respondent either under the PMA and the SCPMA or for
or an average of 37 housing units per month and had paid P15,500,000 for damages under Art. 19 of the New Civil Code.
the account of QRSI to the GSIS.14 It had yet to finish constructing 1,115 ASTRO argues that the respondent is liable for damages under Art. 19, 20
housing units. During the period of September 30, 1982 to December 31, and 2176 of the New Civil Code. (refer to doctrine section of digest)
1982, ASTRO conducted the winding-up of its operations and turned over
the unfinished project to QRSI and the GSIS. The SC does not agree. Under Article 1157 of the New Civil Code,
However, On April 22, 1984 and October 15, 1984, ASTRO again obligations arise from law, contract, quasi-contract, acts or omissions
wrote the GSIS, reiterating its demand for the payment of management fees punishable by law, and quasi-delict. Obligations arising from contracts have
in the total amount of P21,187,069, inclusive of interest and charges from the force of law between the contracting parties and should be complied
January 1, 1983 to October 15, 1984.18 On February 22, 1985, the GSIS with in good faith. Three contracts were executed: (1) the tripartite
Board of Trustees approved Resolution No. 216 denying the claim of agreement, (2) the Project Management Agreement and (3) the
Supplemental Contract to the Project Management Agreement. Even a
ASTRO based on the following recommendation of the Technical Assistant
cursory reading of the three contract will show that, under Art. III of the
II and Officer-In-Charge of the Housing Project Administrative Department.
PMA, the respondent is not liable for management fees due to the petitioner.
III. Issue/s Neither is the respondent liable to the petitioner for damages under Art. 19
1. W/N the recission by the respondent of the PMA and the and 20 of the New Civil Code. The elements of abuse of rights are the
SCPMA is in accord with the PMA and the SCPMA? following: (a) the existence of a legal right or duty which is exercised in bad
2. W/N ASTRO is entitled to management fees from the faith; and (b) for the sole intent of prejudicing or injuring another.
respondent either under the PMA and the SCPMA or for
damages under Art. 19 of the New Civil Code? According the SC, malice or bad faith is at the core of the said provision.
Good faith is presumed and he who alleges bad faith has the duty to prove
IV. Holding/s the same. Good faith refers to the state of the mind which is manifested by
1. YES, the recission by the respondent of the PMA and the the acts of the individual concerned. It consists of the intention to abstain
SCPMA is in accord with the PMA and the SCPMA. from taking an unconscionable and unscrupulous advantage of another. Bad
faith, on the other hand, does not simply connote bad judgment or simple

negligence, it imparts dishonest purpose or some moral obliquity and wrong, a breach of known duty due to some motives or interest or ill-will
conscious doing of a wrong, a breach of known duty due to some motives or that partakes of the nature of fraud. Malice connotes ill-will or spite and
interest or ill-will that partakes of the nature of fraud. Malice connotes ill- speaks not in response to duty. It implies an intention to do ulterior and
will or spite and speaks not in response to duty. It implies an intention to do unjusticiable harm. Malice is bad faith or bad motive.
ulterior and unjusticiable harm. Malice is bad faith or bad motive.
V. Law or Doctrine Applied ELEMENTS OF THE ABUSE OF RIGHTS

The elements of abuse of rights are the following: (a) the existence of a
ARTICLES CITED FROM THE NEW CIVIL CODE legal right or duty which is exercised in bad faith; and (b) for the sole intent
Article 19. Every person must, in the exercise of his rights and in the of prejudicing or injuring another.
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith. VI. Disposition
Article 20. Every person who, contrary to law, wilfully or negligently IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
causes damage to another, shall indemnify the latter for the same. decision of the Court of Appeals is AFFIRMED. Costs against the
petitioner.
being fault or negligence, is obliged to pay for the VII. Random Facts
damage done. Such fault or negligence, if there is no pre-existing • Ponente: Callejo, Sr.
contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter.
Article 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(5) Quasi-delicts.
GOOD FAITH, BAD FAITH AND MALICE

Malice or bad faith is at the core of the said provision. Good faith is
presumed and he who alleges bad faith has the duty to prove the same. Good
faith refers to the state of the mind which is manifested by the acts of the
individual concerned. It consists of the intention to abstain from taking an
unconscionable and unscrupulous advantage of another. Bad faith, on the
other hand, does not simply connote bad judgment or simple negligence, it
imparts dishonest purpose or some moral obliquity and conscious doing of a

[G.R. No L-29203 | July 26, 1971] [Obligations: General Provisions]
Maritime Company of the Philippines vs. Reparations Commission Maritime Company of the Philippines vs. Reparations Commission
I. Recit-Ready Summary procurement, production, delivery and acquisition, of, the goods
concerned."
Reparations Commissions shipped goods to Maritime Company that Petitioner countered that that is not the case as Maritime and Reparations
incurred freight charges amounting to P228,250. The goods having arrived had an agreement in a contract of carriage that the consignee, in this case,
safely, was received by defendant but refused to pay the above stated freight Reparations, is to shoulder the freight charges.
charges. It claims that as end-user, it is exempt from paying said freight Both the lower court and the CA ruled in favor of Reparations Commissions
charges. Reparations Commissions, however, invoking Sec. 11, R.A. 1789 invoking Sec. 11, R.A. 1789. They simply applied said law and ruled that
countered Maritime’s claim to exemption. The law simply stated that such is prevailing.
end-users are not to be exempt from freight charges. Petitioner continued to
argue that it is not so as it had a contract of carriage with Reparations
stating that the consignee is to be responsible for the freight charge. The III. Issue/s
issue in the case is whether or not the contract of carriage is in accordance
with the statute applicable at hand, Sec. 11, R.A. 1789. The Court held that Whether the contract of carriage (where the consignee is responsible for
the contract is against the prevailing statute and is not exempted or excluded paying the freight charges) entered into by petitioner and defendant is in
from the application thereof. accordance with Sec. 11 of R.A. 1789. NO.
IV. Holding/s
No, the Court held that “it is an elementary rule of contracts that the
Reparations Commissions shipped goods to Maritime Company that
laws, in force at the time the contract was made, enter into and govern
incurred freight charges amounting to P228,250. The goods having arrived
it.” In this case, the law at the time of the said contract was Sec. 11 of R.A.
safely, was received by defendant but refused to pay the above stated freight
1789. The law maintains that end-users are not exempted from
charges. It claims that as end-user, it is exempt from paying said freight
charges. Reparations Commissions, however, invoking Sec. 11, R.A. 1789 freight-charges, hence their contract wherein consignee is to pay for freight
countered Maritime’s claim to exemption. The law stated, “The insurance, charges amounting to P228,250.00 is of no moment. The law shall always
ocean freight and other expenses incident to importation shall be paid by the prevail over the contract as it is the law which governs over it. Even when
end-user in accordance with usual business practice." xxx “Nothing herein said statute is not explicitly written within the said contract, the prevailing
shall be construed as exempting the end-user from paying in full all the statute will still hold.
necessary costs, charges and expenses incident to the application for and the
Oblicon B2023 PETITIONER/APPELLANT: Maritime Company of the Philippines

DIGEST AUTHOR: Alex Sulaik RESPONDENT: Reparations Commissions
[G.R. No L-29203 | July 26, 1971] [Obligations: General Provisions]
Maritime Company of the Philippines vs. Reparations Commission Maritime Company of the Philippines vs. Reparations Commission
“It is a fundamental requirement that the contract entered into must

be in accordance with, and not repugnant to, an applicable statute.”
(Maritime Company of the Philippines vs. Reparations
Commission)
VI. Disposition
WHEREFORE, the lower court decision of March 29, 1968 is

affirmed. With costs against plaintiff-appellant.
VII. Random Facts

● Ponente: Fernando, J.
Oblicon B2023 PETITIONER/APPELLANT: Maritime Company of the Philippines

DIGEST AUTHOR: Alex Sulaik RESPONDENT: Reparations Commissions
[G.R. No. 120592 | March 14, 1997] [quasi-contracts]
[TRB v NLRC] [TRB v NLRC]
I. Recit-ready Summary During the existence of that agreement, petitioner union referred to private
Petitioner and Atty.. Cruz entered into a retainer agreement whereby the respondent the claims of its members for holiday, mid-year and year-end
former obligated itself to pay the latter a monthly retainer fee of P3k. During bonuses against their employer, Traders Royal Bank (TRB). A complaint was
the existence of that agreement, petitioner union referred to private filed by petitioner. NLRC favored the employees, awarding them holiday pay
respondent the claims of its members for holiday, mid-year and year-end differential, mid-year bonus differential, and year-end bonus differential.
bonuses against their employer, TRB. Petitioner filed complained. NLRC TRB challenged the decision of the NLRC before the SC. The SC deleted the
favored the employees. TRB challenged the decision before SC. SC deleted award of mid-year and year-end bonus differentials while affirming the award
the award of mid-year and year-end bonus differentials while affirming the
of holiday pay differential.
award of holiday pay differential. After private respondent received the SC
decision, he notified the petitioner union, TRB and NLRC of his right to
exercise and enforce his attorney’s lien over the award of holiday pay After private respondent received the decision of the SC he notified the
differential, he filed a motion before LA for the determination of his petitioner union, the TRB and the NLRC of his right to exercise and enforce
attorney’s fees, praying that 10% of the total award for holiday pay his attorney’s lien over the award of holiday pay differential, he filed a motion
differential computed by TRB at P175,794.32, or the amount of P17,579.43, before LA for the determination of his attorney’s fees, praying that 10% of
be declared as his attorney’s fees, and that petitioner union be ordered to pay the total award for holiday pay differential computed by TRB at P175,794.32,
and remit said amount to him. SC held that private respondent is entitled to or the amount of P17,579.43, be declared as his attorney’s fees, and that
Atty.’s fees aside from his retainer fee. A quasi-contract between the parties petitioner union be ordered to pay and remit said amount to him.
in the case at bar arose from private respondent's lawful, voluntary and
unilateral prosecution of petitioner's cause without awaiting the latter's Petitioner opposed said motion. LA favored private respondent. Petitioner
consent and approval. Private respondent is entitled to an additional appealed to NLRC but NLRC affirmed LA’s decision. Hence the petition at
remuneration for pursuing legal action in the interest of petitioner before the bar.
labor arbiter and the NLRC, on top of the P3,000.00 retainer fee he received
III. Issue/s
monthly from petitioner
Is the private respondent entitled to Atty.’s fees aside from his retainer fee?
Petitioner Traders Royal Bank Employees Union and private respondent IV. Holding/s
Atty. Emmanuel Noel Cruz, head of the E.N.A. Cruz and Associates law firm, Yes.
entered into a retainer agreement on Feb 1987 whereby the former obligated [NOT SO RELATED WITH THE TOPIC] [skip to the page 3 if you wish]
itself to pay the latter a monthly retainer fee of P3,000.00 in consideration of There are 2 commonly accepted concepts of attorney’s fees, the so-called
the law firm's undertaking to render the services enumerated in their contract. ordinary and extraordinary. In its ordinary concept, an attorney’s fee is the
Parenthetically, said retainer agreement was terminated by the union on April reasonable compensation paid to a lawyer by his client for the legal services
1990. he has rendered to the latter. The basis of this compensation is the fact of his
employment by and his agreement with the client.
[ObliCon and 2020] PETITIONER/APPELLANT: TRADERS ROYAL BANK EMPLOYEES

UNION-INDEPENDENT,
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: NATIONAL LABOR RELATIONS COMMISSION and
EMMANUEL NOEL A. CRUZ
In its extraordinary concept, an attorney’s fee is an indemnity for damages A general retainer, or retaining fee, is the fee paid to a lawyer to secure his
ordered by the court to be paid by the losing party in a litigation. The basis of future services as general counsel for any ordinary legal problem that may
this is any of the cases provided by law where such award can be made, such arise in the routinary business of the client and referred to him for legal action.
as those authorized in Article 2208, Civil Code, and is payable not to the The future services of the lawyer are secured and committed to the retaining
lawyer but to the client, unless they have agreed that the award shall pertain client. For this, the client pays the lawyer a fixed retainer fee. The fees are
to the lawyer as additional compensation or as part thereof. paid whether or not there are cases referred to the lawyer. The reason for the
remuneration is that the lawyer is deprived of the opportunity of rendering
It is the first type of attorney’s fees which private respondent demanded services for a fee to the opposing party or other parties. In fine, it is a
before the labor arbiter. A claim for attorney’s fees may be asserted either in compensation for lost opportunities.
the very action in which the services of a lawyer had been rendered or in a
separate action. While a claim for attorney’s fees may be filed before the A special retainer is a fee for a specific case handled or special service
judgment is rendered, the determination as to the propriety of the fees or as rendered by the lawyer for a client. A client may have several cases
to the amount thereof will have to be held in abeyance until the main case demanding special or individual attention. If for every case there is a separate
from which the lawyer’s claim for attorney’s fees may arise has become final. and independent contract for attorney’s fees, each fee is considered a special
Otherwise, the determination to be made by the courts will be premature. Of retainer.
course, a petition for attorney’s fees may be filed before the judgment in favor
of the client is satisfied or the proceeds thereof delivered to the client. The P3,000.00 monthly fee provided in the retainer agreement between the
union and the law firm refers to a general retainer, or a retaining fee, as said
Private respondent was well within his rights when he made his claim and monthly fee covers only the law firm’s commitment to render the legal
waited for the finality of the judgment for holiday pay differential, instead of services enumerated in said agreement..
filing it ahead of the award’s complete resolution.
[RELATED TO SYLLABUS TOPIC]
The P3,000.00 which petitioner pays monthly to private respondent does not Generally speaking, where the employment of an attorney is under an express
cover the services the latter actually rendered before the LA and NLRC in valid contract fixing the compensation for the attorney, such contract is
behalf of the former. As stipulated in their retainer’s agreement, the monthly conclusive as to the amount of compensation. SC cannot, however, apply the
fee is intended merely as a consideration for the law firm’s commitment to foregoing rule in the instant petition and treat the fixed fee of P3,000.00 as
render the services. full and sufficient consideration for private respondent's services, as
petitioner would have it.
There are two kinds of retainer fees a client may pay his lawyer. These are
a general retainer, or a retaining fee, and a special retainer. The P3,000.00 is independent and different from the compensation which
private respondent should receive in payment for his services. While
petitioner and private respondent were able to fix a fee for the latter's promise

UNION-INDEPENDENT,
to extend services, they were not able to come into agreement as to the law A quasi-contract between the parties in the case at bar arose from
firm's actual performance of services in favor of the union. Hence, the retainer private respondent's lawful, voluntary and unilateral prosecution of
agreement cannot control the measure of remuneration for private petitioner's cause without awaiting the latter's consent and approval.
respondent's services. Petitioner cannot deny that it did benefit from private respondent's efforts as
the law firm was able to obtain an award of holiday pay differential in favor
SC, therefore, cannot favorably consider the suggestion of petitioner that of the union. It cannot even hide behind the cloak of the monthly retainer of
private respondent had already waived his right to charge additional fees P3,000.00 paid to private respondent because, as demonstrated earlier,
because of their failure to come to an agreement as to its payment. private respondent's actual rendition of legal services is not compensable
merely by said amount.
Firstly, there is no showing that private respondent unequivocally opted to
waive the additional charges in consonance with Part D of the agreement. Private respondent is entitled to an additional remuneration for pursuing legal
Secondly, the prompt actions taken by private respondent, i.e., serving notice action in the interest of petitioner before the labor arbiter and the NLRC, on
of charging lien and filing of motion to determine attorney's fees, belie any top of the P3,000.00 retainer fee he received monthly from petitioner. The
intention on his part to renounce his right to compensation for prosecuting law firm's services are decidedly worth more than such basic fee in the
the labor case instituted by the union. And, lastly, to adopt such theory of retainer agreement. Thus, in Part C thereof on "Fee Structure," it is even
petitioner may frustrate private respondent's right to attorney's fees, as the provided that all attorney's fees collected from the adverse party by virtue of
former may simply and unreasonably refuse to enter into any special a successful litigation shall belong exclusively to private respondent, aside
agreement with the latter and conveniently claim later that the law firm had from petitioner's liability for appearance fees and reimbursement of the items
relinquished its right because of the absence of the same. of costs and expenses enumerated therein.
The fact that petitioner and private respondent failed to reach a meeting A quasi-contract is based on the presumed will or intent of the obligor
of the minds with regard to the payment of professional fees for special dictated by equity and by the principles of absolute justice. Some of these
services will not absolve the former of civil liability for the corresponding principles are: (1) It is presumed that a person agrees to that which will
remuneration therefor in favor of the latter. benefit him; (2) Nobody wants to enrich himself unjustly at the expense of
another; and (3) We must do unto others what we want them to do unto us
Obligations do not emanate only from contracts. One of the sources of under the same circumstances. 33
extra-contractual obligations found in our Civil Code is the quasi-
contract premised on the Roman maxim that nemo cum alterius detrimento As early as 1903, we allowed the payment of reasonable professional fees to
locupletari protest. As embodied in our law, 32 certain lawful, voluntary and an interpreter, notwithstanding the lack of understanding with his client as to
unilateral acts give rise to the juridical relation of quasi-contract to the end his remuneration, on the basis of quasi-contract. 34 Hence, it is not necessary
that no one shall be unjustly enriched or benefited at the expense of another. that the parties agree on a definite fee for the special services rendered by
private respondent in order that petitioner may be obligated to pay

UNION-INDEPENDENT,
compensation to the former. Equity and fair play dictate that petitioner should
pay the same after it accepted, availed itself of, and benefited from private VII. Random Facts
respondent's services. ● Ponente: REGALADO, J.,
We are not unaware of the old ruling that a person who had no knowledge of,
nor consented to, or protested against the lawyer's representation may not be
held liable for attorney's fees even though he benefited from the lawyer's
services. 35 But this doctrine may not be applied in the present case as
petitioner did not object to private respondent's appearance before the NLRC
in the case for differentials.

(1) Law;
(2) Contracts;
(5) Quasi-delicts.
VI. Disposition
WHEREFORE, the impugned resolution of respondent National Labor
Relations Commission affirming the order of the labor arbiter is MODIFIED,
and petitioner is hereby ORDERED to pay the amount of TEN THOUSAND
PESOS (P10,000.00) as attorney's fees to private respondent for the latter's
legal services rendered to the former.
SO ORDERED.

4

UNION-INDEPENDENT,
[G.R. No. 120592 | March 14, 1997] [quasi-contracts] [TRB v NLRC] [TRB v NLRC]
I. Recit-ready Summary
During the existence of that agreement, petitioner union referred to private Petitioner and Atty. Cruz
entered into a retainer agreement whereby the
respondent the claims of its members for holiday, mid-year and year-end former obligated itself to pay the
latter a monthly retainer fee of P3k. During
bonuses against their employer, Traders Royal Bank (TRB). A complaint the existence of that agreement,
petitioner union referred to private
was filed by petitioner. NLRC favored the employees, awarding them respondent the claims of its
members for holiday, mid-year and year-end
holiday pay differential, mid-year bonus differential, and year-end bonus bonuses against their employer,
TRB. Petitioner filed complained. NLRC
differential. TRB challenged the decision of the NLRC before the SC. The favored the employees. TRB
challenged the decision before SC. SC deleted
SC deleted the award of mid-year and year-end bonus differentials while the award of mid-year and year-
end bonus differentials while affirming the
affirming the award of holiday pay differential. award of holiday pay differential. After private respondent
received the SC decision, he notified the petitioner union, TRB and NLRC of his right to exercise and
enforce his attorney’s lien over the award of holiday pay differential, he filed a motion before LA for the
determination of his attorney’s fees, praying that 10% of the total award for holiday pay differential
computed by TRB at P175,794.32, or the amt of P17,579.43, be declared as his attorney’s fees, and that
petitioner union be ordered to pay and remit said amt to him. Issue: W/N private respondent is entitled
to atty’s fees aside from retainer fee? -YES. SC held that private respondent is entitled to Atty.’s fees
(P10,000) aside from his retainer fee. A quasi-
1
[ObliCon and 2020] PETITIONER/APPELLANT: Trade Royal Bank Employees Union-
Independent
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: National Labor Relations Commission and Emmanuel
Noel
A. Cruz
After private respondent received the decision of the SC he notified the petitioner union, the TRB and the
NLRC of his right to exercise and enforce his attorney’s lien over the award of holiday pay differential, he
filed a motion before LA for the determination of his attorney’s fees, praying that 10% of the total award
for holiday pay differential computed by TRB at P175,794.32, or the amount of P17,579.43, be declared
as his attorney’s fees, and that petitioner union be ordered to pay and remit said amount to him.
contract between the parties in the case at bar arose from private respondent's lawful, voluntary and
unilateral prosecution of petitioner's cause without awaiting the latter's consent and approval. Private
respondent is entitled to an additional remuneration for pursuing legal action in the interest of petitioner
Petitioner opposed said motion. LA favored private respondent. Petitioner appealed to NLRC but NLRC
affirmed LA’s decision. Hence the petition at bar.
before the labor arbiter and the NLRC, on top of the P3,000.00 retainer fee he received monthly from
petitioner II. Facts of the Case
III. Issue/s
WON the private respondent is entitled to Atty.’s fees aside from his retainer fee? - YES
Petitioner Traders Royal Bank Employees Union and private respondent Atty. Emmanuel Noel Cruz,
head of the E.N.A. Cruz and Associates law
IV. Holding/s firm, entered into a retainer agreement on Feb 1987 whereby the former obligated itself to
pay the latter a monthly retainer fee of P3,000.00 in consideration of the law firm's undertaking to render
the services
Yes. Atty. Cruz is entitled to atty’s fees worth P10,00 aside from the retainer fee. enumerated in their
contract. Parenthetically, said retainer agreement was terminated by the union on April 1990.
[G.R. No. 120592 | March 14, 1997] [quasi-contracts] [TRB v NLRC] [TRB v NLRC]
ere the employment of an attorney is under an express valid

tract fixing the compensation for the attorney, such contract is
Section 5. Where Death Results from Arson. If by reaso
clusive as to the amount of compensation. SC cannot, however,
or on the occasion of the arson death results, the penalt
ly the foregoing rule in the instant petition and treat the fixed fee
Reclusion Perpetua to death shall be imposed.
3,000.00 as full and sufficient consideration for private
pondent's services, as petitioner would have it.
VI.
Disposition
P3,000.00 is independent and different from the
mpensation which private respondent should receive in
WHEREFORE, the impugned resolution of respondent National
ment for his services.
Labor Relations Commission affirming the order of the labor
arbiter is MODIFIED, and petitioner is hereby ORDERED to pay
did not consider the suggestion of petitioner that private the amount of TEN THOUSAND PESOS (P10,000.00) as
pondent had already waived his right to charge additional fees attorney's fees to private respondent for the latter's legal services
ause of their failure to come to an agreement as to its payment. rendered to the former.
- No showing that that private respondent unequivocally VII. Separate

opted to Opinions
waive the additional charges in consonance with Part D of
the agreement - prompt actions taken by private respondent VIII. Additional Notes
(served notice of
charging lien and filed motion to determine atty’s fees) A quasi-contract between the parties in the case at bar arose f
belie any intention on his part to renounce such right private respondent's lawful, voluntary and unilateral prosecution
petitioner's cause without awaiting the latter's consent and approv
fact that parties failed to reach a meeting of the minds on
ment of professional fees for special services will not absolve A quasi-contract between the parties in the case at bar arose
former of civil liability for the corresponding remuneration from private respondent's lawful, voluntary and unilateral
efor in favor of the latter. prosecution of petitioner's cause without awaiting the latter's
consent and approval.
igations do not emanate only from contracts but
o quasi- contracts based on the Civil Code.
VII. Random
Law or Doctrine Applied Presidential Decree No. Facts
3 (Amending The Law On Arson) ● Ponente: REGALADO, J.,
bliCon and 2020] PETITIONER/APPELLANT: Trade Royal Bank Employees Union-

Independent
GEST AUTHOR: Wisch Gabriel RESPONDENT: National Labor Relations Commission and Emmanuel Noel
A. Cruz
I. Recit-ready Summary During the existence of that agreement, petitioner union referred to private
Petitioner and Atty. Cruz entered into a retainer agreement whereby the respondent the claims of its members for holiday, mid-year and year-end
former obligated itself to pay the latter a monthly retainer fee of P3k. During bonuses against their employer, Traders Royal Bank (TRB). A complaint
the existence of that agreement, petitioner union referred to private was filed by petitioner. NLRC favored the employees, awarding them
respondent the claims of its members for holiday, mid-year and year-end holiday pay differential, mid-year bonus differential, and year-end bonus
bonuses against their employer, TRB. Petitioner filed complained. NLRC differential. TRB challenged the decision of the NLRC before the SC. The
favored the employees. TRB challenged the decision before SC. SC deleted SC deleted the award of mid-year and year-end bonus differentials while
the award of mid-year and year-end bonus differentials while affirming the affirming the award of holiday pay differential.
award of holiday pay differential. After private respondent received the SC
decision, he notified the petitioner union, TRB and NLRC of his right to After private respondent received the decision of the SC he notified the
exercise and enforce his attorney’s lien over the award of holiday pay petitioner union, the TRB and the NLRC of his right to exercise and enforce
differential, he filed a motion before LA for the determination of his his attorney’s lien over the award of holiday pay differential, he filed a
attorney’s fees, praying that 10% of the total award for holiday pay motion before LA for the determination of his attorney’s fees, praying that
differential computed by TRB at P175,794.32, or the amt of P17,579.43, be 10% of the total award for holiday pay differential computed by TRB at
declared as his attorney’s fees, and that petitioner union be ordered to pay P175,794.32, or the amount of P17,579.43, be declared as his attorney’s
and remit said amt to him. Issue: W/N private respondent is entitled to fees, and that petitioner union be ordered to pay and remit said amount to
atty’s fees aside from retainer fee? -YES. SC held that private respondent him.
is entitled to Atty.’s fees (P10,000) aside from his retainer fee. A quasi-
contract between the parties in the case at bar arose from private respondent's Petitioner opposed said motion. LA favored private respondent. Petitioner
lawful, voluntary and unilateral prosecution of petitioner's cause without appealed to NLRC but NLRC affirmed LA’s decision. Hence the petition at
awaiting the latter's consent and approval. Private respondent is entitled to an bar.
additional remuneration for pursuing legal action in the interest of petitioner
before the labor arbiter and the NLRC, on top of the P3,000.00 retainer fee
III. Issue/s
he received monthly from petitioner
II. Facts of the Case WON the private respondent is entitled to Atty.’s fees aside from
his retainer fee? - YES
Petitioner Traders Royal Bank Employees Union and private respondent
Atty. Emmanuel Noel Cruz, head of the E.N.A. Cruz and Associates law IV. Holding/s
firm, entered into a retainer agreement on Feb 1987 whereby the former
obligated itself to pay the latter a monthly retainer fee of P3,000.00 in Yes. Atty. Cruz is entitled to atty’s fees worth P10,00 aside from the retainer
consideration of the law firm's undertaking to render the services fee.
enumerated in their contract. Parenthetically, said retainer agreement was
terminated by the union on April 1990.
1

Independent
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: National Labor Relations Commission and Emmanuel Noel
A. Cruz
Where the employment of an attorney is under an express valid contract Section 5. Where Death Results from Arson. If by reason of or on
fixing the compensation for the attorney, such contract is conclusive as to the occasion of the arson death results, the penalty of Reclusion
the amount of compensation. SC cannot, however, apply the foregoing rule Perpetua to death shall be imposed.
in the instant petition and treat the fixed fee of P3,000.00 as full and
sufficient consideration for private respondent's services, as petitioner VI. Disposition
would have it.
The P3,000.00 is independent and different from the compensation which Relations Commission affirming the order of the labor arbiter is
private respondent should receive in payment for his services. MODIFIED, and petitioner is hereby ORDERED to pay the amount of
TEN THOUSAND PESOS (P10,000.00) as attorney's fees to private
SC did not consider the suggestion of petitioner that private respondent had respondent for the latter's legal services rendered to the former.
already waived his right to charge additional fees because of their failure to
come to an agreement as to its payment. VII. Separate Opinions
- No showing that that private respondent unequivocally opted to VIII. Additional Notes
waive the additional charges in consonance with Part D of the
agreement A quasi-contract between the parties in the case at bar arose from private
- prompt actions taken by private respondent (served notice of respondent's lawful, voluntary and unilateral prosecution of petitioner's cause
charging lien and filed motion to determine atty’s fees) belie any without awaiting the latter's consent and approval.
intention on his part to renounce such right
A quasi-contract between the parties in the case at bar arose from private
The fact that parties failed to reach a meeting of the minds on payment of respondent's lawful, voluntary and unilateral prosecution of petitioner's
professional fees for special services will not absolve the former of civil cause without awaiting the latter's consent and approval.
liability for the corresponding remuneration therefor in favor of the latter.
Obligations do not emanate only from contracts but also quasi- VII. Random Facts
contracts based on the Civil Code. ● Ponente: REGALADO, J.,

Presidential Decree No. 1613 (Amending The Law On Arson)

Independent
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: National Labor Relations Commission and Emmanuel Noel
A. Cruz
Recit-ready Summary During the existence of that agreement, petitioner union referred to priva
tioner and Atty. Cruz entered into a retainer agreement whereby the respondent the claims of its members for holiday, mid-year and year-end
mer obligated itself to pay the latter a monthly retainer fee of P3k. During bonuses against their employer, Traders Royal Bank (TRB). A complain
existence of that agreement, petitioner union referred to private was filed by petitioner. NLRC favored the employees, awarding them
ondent the claims of its members for holiday, mid-year and year-end holiday pay differential, mid-year bonus differential, and year-end bonus
uses against their employer, TRB. Petitioner filed complained. NLRC differential. TRB challenged the decision of the NLRC before the SC. T
red the employees. TRB challenged the decision before SC. SC deleted SC deleted the award of mid-year and year-end bonus differentials while
award of mid-year and year-end bonus differentials while affirming the affirming the award of holiday pay differential.
rd of holiday pay differential. After private respondent received the SC
sion, he notified the petitioner union, TRB and NLRC of his right to After private respondent received the decision of the SC he notified the
cise and enforce his attorney’s lien over the award of holiday pay petitioner union, the TRB and the NLRC of his right to exercise and enfo
erential, he filed a motion before LA for the determination of his his attorney’s lien over the award of holiday pay differential, he filed a
rney’s fees, praying that 10% of the total award for holiday pay motion before LA for the determination of his attorney’s fees, praying th
erential computed by TRB at P175,794.32, or the amt of P17,579.43, be 10% of the total award for holiday pay differential computed by TRB at
ared as his attorney’s fees, and that petitioner union be ordered to pay P175,794.32, or the amount of P17,579.43, be declared as his attorney’s
remit said amt to him. Issue: W/N private respondent is entitled to fees, and that petitioner union be ordered to pay and remit said amount t
’s fees aside from retainer fee? -YES. SC held that private respondent him.
ntitled to Atty.’s fees (P10,000) aside from his retainer fee. A quasi-
ract between the parties in the case at bar arose from private respondent's Petitioner opposed said motion. LA favored private respondent. Petition
ul, voluntary and unilateral prosecution of petitioner's cause without appealed to NLRC but NLRC affirmed LA’s decision. Hence the petitio
iting the latter's consent and approval. Private respondent is entitled to an bar.
tional remuneration for pursuing legal action in the interest of petitioner
re the labor arbiter and the NLRC, on top of the P3,000.00 retainer fee
eceived monthly from petitioner III. Issue/s
Facts of the Case WON the private respondent is entitled to Atty.’s fees aside f
his retainer fee? - YES
tioner Traders Royal Bank Employees Union and private respondent
. Emmanuel Noel Cruz, head of the E.N.A. Cruz and Associates law IV. Holding/s
, entered into a retainer agreement on Feb 1987 whereby the former
gated itself to pay the latter a monthly retainer fee of P3,000.00 in Yes. Atty. Cruz is entitled to atty’s fees worth P10,00 aside from the reta
sideration of the law firm's undertaking to render the services fee.
merated in their contract. Parenthetically, said retainer agreement was
minated by the union on April 1990.

Independent
GEST AUTHOR: Wisch Gabriel RESPONDENT: National Labor Relations Commission and Emmanuel No
A. Cruz
ere the employment of an attorney is under an express valid contract Section 5. Where Death Results from Arson. If by reason of o
ng the compensation for the attorney, such contract is conclusive as to the occasion of the arson death results, the penalty of Reclu
amount of compensation. SC cannot, however, apply the foregoing rule Perpetua to death shall be imposed.
he instant petition and treat the fixed fee of P3,000.00 as full and
icient consideration for private respondent's services, as petitioner VI. Disposition
ld have it.
P3,000.00 is independent and different from the compensation which Relations Commission affirming the order of the labor arbiter is
ate respondent should receive in payment for his services. MODIFIED, and petitioner is hereby ORDERED to pay the amount of
TEN THOUSAND PESOS (P10,000.00) as attorney's fees to private
did not consider the suggestion of petitioner that private respondent had respondent for the latter's legal services rendered to the former.
ady waived his right to charge additional fees because of their failure to
e to an agreement as to its payment. VII. Separate Opinions
- No showing that that private respondent unequivocally opted to VIII. Additional Notes
waive the additional charges in consonance with Part D of the
agreement A quasi-contract between the parties in the case at bar arose from pri
- prompt actions taken by private respondent (served notice of respondent's lawful, voluntary and unilateral prosecution of petitioner's c
charging lien and filed motion to determine atty’s fees) belie any without awaiting the latter's consent and approval.
intention on his part to renounce such right
A quasi-contract between the parties in the case at bar arose from private
fact that parties failed to reach a meeting of the minds on payment of respondent's lawful, voluntary and unilateral prosecution of petitioner's
essional fees for special services will not absolve the former of civil cause without awaiting the latter's consent and approval.
lity for the corresponding remuneration therefor in favor of the latter.
igations do not emanate only from contracts but also quasi- VII. Random Facts
tracts based on the Civil Code. ● Ponente: REGALADO, J.,
Law or Doctrine Applied

sidential Decree No. 1613 (Amending The Law On Arson)

Independent
GEST AUTHOR: Wisch Gabriel RESPONDENT: National Labor Relations Commission and Emmanuel No
A. Cruz
G.R. No. 175256 | August 23, 2012 Forum Shopping; Civil Liability Ex Delicto and Independent Civil Liability
Lim vs. Ping Lim vs. Ping
I. Recit-ready Summary April 1999: FRCC did not allow Lim to withdraw the remaining 37,200
FR Cement Corporation (FRCC) issued withdrawal authorities to (worth P2,380,800) bags in the withdrawal authorities. Co and Borja
dealers, Fil-Cement Center and Tigerbilt (FCCT). FCCT sold 50,000 bags of explained to Lim that FRCC increased the price and the remaining bags of
cement to Kou Co Ping for P3.15M (P63/bag). Co sold the same to Lily Lim cement will only be released when Lim either: pay for the different price or
for P3.2M (64/bag) and the latter was able to withdraw 2,800 bags and sold receive a lesser quantity of the cement.
back 10,000 withdrawal authorities to Co. However, Lim was not able to Lim asserted that the withdrawal authorities she bought were not subject
withdraw the remaining 37,200 bags (worth P2,380,800) from FRCC and will to fluctuations. As Co failed to resolve the issue with the plant or return Lim's
only be released if the former either pay for the different price or receive
money, the latter brought it to the court.
lesser quantity of bags of cement. Co failed to resolve the issue, which
Lim filed an information of Estafa through Misappropriation or
prompted Lim to file before the RTC of Pasig an information of Estafa
through Misappropriation or Conversion against Co. The RTC dismissed the Conversion against Co before the RTC of Pasig City for misappropriating,
case and absolved Co of his civil liabilities. Lim appealed the dismissal of misapplying, and converting to his own use the amount of P2,380,800.00
civil liabilities to the CA, and while it was pending, she filed a complaint payment for the 37,200 bags of cement.
breach of contract and abuse of rights before the RTC of Manila. Co RTC of Pasig: acquitted Co of the estafa case for insufficiency of
maintained that the two causes of action raise the same issue, which was Co’s evidence and relieved him of his civil liability. Lim sought a reconsideration
liability to Lim, for her inability to withdraw the bags of cement, and should but the RTC denied the motion.
be dismissed on the grounds of lis pendens and forum shopping. The SC ruled Lim appealed RTC's dismissal of Co's civil liability to the CA. While
that Lim did not commit forum shopping. Although the cases filed by the the appeal before the CA was pending, Lim filed a complaint before the RTC
offended party arose from the same act or omission of the offender, they are, of Manila for specific performance and damages. The two causes of action
however, based on different causes of action. The criminal cases for estafa asserted in the claim were: breach of contract and abuse of rights.
are based on culpa criminal while the civil action for collection is anchored In his defense, Co maintained that the two causes of action raise the
on culpa contractual.
same issue: Co's liability to Lim for inability for her to withdraw the bags of
II. Facts of the Case cement. Because of this, they should be dismissed on the grounds of lis
February 1999: FR Cement Corporation (FRCC) issued several pendens and forum shopping.
withdrawal authorities for dealers and traders: Fil-Cement Center and CA 2nd Division: favorably resolved Co’s motion and dismissed Lim’s
Tigerbilt (FCCT). Gail Borja (FCCT's administrative manager) sold the appeal from the civil aspect of the estafa case. The parties, causes of action,
withdrawal authorities of 50,000 bags of cement to Kou Co Ping (a.k.a. and reliefs prayed for in Lim’s appeal and in her civil complaint are identical.
Charlie Co) for P3.15 million (P63/bag). Thus, the CA Second Division dismissed Lim’s appeal for forum shopping.
February 15, 1999: Co sold the withdrawal authorities to Lily Lim for The CA denied Lim’s motion for reconsideration.
P3.2 million (P64/bag). Manila RTC: denied Co’s Motion to Dismiss and held that there was no
Lim withdrew the cement bags from FRCC on a staggered basis forum shopping because the causes of action invoked in the two cases are
(payments in different amounts and different intervals and was able to different. It observed that the civil complaint before it is based on an
withdraw 2,800 bags of cement. She sold back the withdrawal authorities obligation arising from contract and quasi-delict, whereas the civil liability
worth 10,000 bags to Co. involved in the appeal of the criminal case arose from a felony. Co filed a
petition for certiorari.
1
Obligations and Contracts (2020) PETITIONER: Lily Lim
DIGEST AUTHOR: Joses RESPONDENT: Kou Co Ping a.k.a. Charlie Co
CA 17th Division: denied Co’s petition and remanded the civil complaint notwithstanding the prohibition on double recovery under Article 2177 of the
to the trial court for further proceedings. The CA Seventeenth Division agreed Civil Code.
with the Manila RTC that the elements of litis pendentia and forum shopping
are not met in the two proceedings because they do not share the same cause V. Law or Doctrine Applied
of action. SINGLE ACT OR OMISSION THAT CAUSES DAMAGE ARISES TO
TWO SEPARATE CIVIL LIABILITIES
III. Issue/s A single act or omission that causes damage to an offended party may
give rise to two separate civil liabilities on the part of the offender: (1) civil
1. W/N Lim committed forum shopping in filing the civil case for
liability ex delicto, that is, civil liability arising from the criminal offense
specific performance and damages during the pendency of her
under Article 100 of the Revised Penal Code,− AND (2) independent civil
appeal on the civil aspect of Estafa? (NO) liability, that is, civil liability that may be pursued independently of the
criminal proceedings.
IV. Holding/s
1. NO, Lim did not commit forum shopping in filing the civil case CIVIL LIABILITY EX DELICTO
for specific performance and damages during the pendency of Civil liability arising from the criminal offense under Article 100 of
her appeal on the civil aspect of Estafa. the Revised Penal Code.
The cases filed by the offended party arose from the same act or INDEPENDENT CIVIL LIABILITY
omission, however, they are based on the different causes of action which do The independent civil liability may be based on "an obligation not arising
not amount to forum shopping. The essence of forum shopping is the filing from the act or omission complained of as a felony," as provided in Article
of multiple suits involving the same parties for the same cause of action, either 31 of the Civil Code (such as for breach of contract or for tort). It may also
simultaneously or successively, to secure a favorable judgment. be based on an act or omission that may constitute felony but,
The criminal cases for estafa are based on culpa criminal while the nevertheless, treated independently from the criminal action by specific
civil action for collection is anchored on culpa contractual. Moreover, provision of Article 33 of the Civil Code ("in cases of defamation, fraud
there can be no forum shopping in the instant case because the law and physical injuries").
expressly allows the filing of a separate civil action which can proceed
independently of the criminal action. ARTICLE 31, CIVIL CODE OF THE PHILIPPINES
In the case at bar, the first action of Lim was a civil action ex delcito, When the civil action is based on an obligation not arising from the
having been instituted together with the criminal action for estafa. The second act or omission complained of as a felony, such civil action may proceed
action was a civil action arising from a contractual obligation and for tortious independently of the criminal proceedings and regardless of the result of the
conduct based on the allegations in her complaint1. The SC discussed that latter.
Lim’s second action1, filed before the RTC of Manila, only involves the
obligations arising from contract and tort, which is separate, distinct, and ARTICLE 33, CIVIL CODE OF THE PHILIPPINES
independent from the appeal on civil liabilities for the crim of estafa charged In cases of defamation, fraud, and physical injuries a civil action for
against Co. These two cases can proceed to their final adjudication, damages, entirely separate and distinct from the criminal action, may be
brought by the injured party. Such civil action shall proceed independently of
the criminal prosecution, and shall require only a preponderance of evidence.
2
withdrawal authorities it issued; and that Co did not comply with his
ARTICLE 2177, CIVIL CODE obligation under the sale contract to deliver the 37,200 bags of
Responsibility for fault or negligence under the preceding article is cement to Lim.
entirely separate and distinct from the civil liability arising from negligence
under the Penal Code. But the plaintiff cannot recover damages twice for the
same act or omission of the defendant.
VI. Disposition
WHEREFORE, premises considered, Lily Lim’s Petition in G.R. No.
175256 is GRANTED. The assailed October 20, 2005 Resolution of the
Second Division of the Court of Appeals in CA-G.R. CV No. 85138 is
REVERSED and SET ASIDE. Lily Lim’s appeal in CA-G.R. CV No. 85138
is ordered REINSTATED and the Court of Appeals is DIRECTED to
RESOLVE the same with DELIBERATE DISPATCH.
Charlie Co’s Petition G.R. No. 179160 is DENIED. The assailed April
10, 2007 Decision of the Seventeenth Division of the Court of Appeals in CA-
G.R. SP No. 93395 is AFFIRMED in toto.

• Ponente: Mariano C. Del Castillo, J.
• WITHDRAWAL AUTHORITIES - These are like warehouse
receipts. The withdrawal authorities in the case at bar state the
number of bags that the dealer/trader paid for and can withdraw from
the plant. Each withdrawal authority contained a provision that it is
valid for six months from its date of issuance, unless revoked by
FRCC Marketing Department.
• LIS PENDENS - Pending legal action.
• FORUM SHOPPING - Filing of multiple suits involving the same
parties for the same cause of action, either simultaneously or
successively, to secure a favorable judgment.
• 1Lim’s civil complaint allegations (second action): defendants
breached their contractual obligations to her under the sale contract
and under the withdrawal authorities; that Co and his co-defendants
wanted her to pay more for each bag of cement, contrary to their
agreement to fix the price at P 64.00 per bag and to the wording of
the withdrawal authorities; that FRCC did not honor the terms of the
3
G.R. No. 74761 | November 6, 1990 General Provisions
Andamo v IAC Andamo v IAC
I. Recit-ready Summary create an action for quasi-delicts or culpa extra-contractual under the Civil
Code.
Petitioner spouses Emmanuel and Natividad Andamo are the owners of
a parcel of land situated in Cavite which is adjacent to that of respondent II. Facts of the Case
Missionaries of Our Lady of La Salette, Inc., a religious corporation.
Petitioner spouses Emmanuel and Natividad Andamo are the owners of
Within the land of respondent corporation, waterpaths and a parcel of land situated in Cavite which is adjacent to that of respondent
contrivances, including an artificial lake, were constructed, which allegedly Missionaries of Our Lady of La Salette, Inc., a religious corporation.
inundated and eroded petitioners’ land, caused a young man to drown,
damaged petitioners’ crops and plants, washed away costly fences, Within the land of respondent corporation, water conductors,
endangered the lives of petitioners and their labors during rainy and stormy contrivances and manipulators, including an artificial lake, were constructed
seasons, and exposed plants and other improvements to destruction. causing a young man to drown to death, while herein plaintiffs allegedly
suffered and will continue to suffer, as follows:
As a result, petitioners instituted a criminal action against the
respondents. While the criminal case is still pending, they filed another 1. Portions of the land of plaintiffs were eroded and converted to
action, this time a civil case for damages. deep, wide and long canals, such that the same can no longer be
planted to any crop or plant
The trial court issued an order dismissing the civil case for lack of 2. Costly fences constructed by plaintiffs were, on several occasions,
jurisdiction as the criminal case which was instituted ahead of the civil case washed away
was still unresolved. Said order was anchored on the provision of Section 3. During rainy and stormy seasons, the lives of plaintiffs and their
3(a), Rule 111 of the Rules of Court. The appellate court affirmed the laborers are always in danger
decision of the RTC. 4. Plants and other improvements on other portions of the land of
plaintiffs are exposed to destruction
The issue in this case is W/N the RTC and IAC erred in dismissing the
civil case filed by the petitioners. SC held that Yes, the RTC and IAC erred As a result, in July 1982, petitioners instituted a criminal action against
in dismissing the civil case based on Section 3(a), Rule 111 of the Rules of the officers and directors of the respondent corporation for destruction by
Court, since it is predicated on a quasi-delict under Article 2176 of the Civil means of injunction under Article 324 of the RPC. Subsequently, on
Code. The distinctness of quasi-delicts is shown in Article 2177 of the Civil February 1983, petitioners filed another action against respondent
Code. This is further strengthened by previous jurisprudence with the Court corporation, this time a civil case for damages with prayer for the issuance
holding that “a quasi-delict is a separate legal institution under the Civil of a writ of preliminary injunction before the same court. Respondent
Code with a substantivity all its own, and individuality that is entirely apart corporation filed its answer to the complaint and opposition to the issuance
and independent from a delict or crime. The same negligence causing of a writ of preliminary injunction.
damages may produce civil liability arising from a crime under the RPC, or
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: Natividad Andamo and Emmanuel Andamo 1
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Intermediate Appellate Court and Missionaries of Our Lady of La Salette, Inc.
The trial court, acting on respondent corporation’s motion to dismiss or a) Damages suffered by the plaintiff
suspend the civil action, issued an order dismissing the civil case for lack of b) Fault or negligence of the defendant, or some other person for
jurisdiction, as the criminal case which was instituted ahead of the civil case whose acts he must respond
was still unresolved. Said order was anchored on the provision of Section c) The connection of cause and effect between the fault or negligence
3(a), Rule 111 of the Rules of Court which provides that “criminal and civil of the defendant and the damages incurred by the plaintiff.
actions arising from the same offense may be instituted separately, but after
the criminal action has been commenced the civil action cannot be instituted The recitals of the complaint, the alleged presence of damage to the
until final judgment has been rendered in the criminal action.” petitioners, the act or omission of respondent corporation supposedly
constituting fault or negligence, and the causal connection between the act
The appellate court affirmed the decision of the RTC. Hence, this and the damage, with no pre-existing contractual obligation between the
petition. Petitioners are contending that both courts erred in dismissing the parties make a clear case of a quasi-delict or culpa aquiliana.
civil case since it is predicated on a quasi-delict.
It must be stressed that the use of one’s property is not without
III. Issue/s limitations. Although the right of an owner to build structures on his land is
recognized, such structures must be so constructed and maintained using all
1. W/N the RTC and IAC erred in dismissing the civil case based on reasonable care so that they cannot be dangerous to adjoining landowners. If
Section 3(a), Rule 111 of the Rules of Court. YES the structures cause injury or damage to an adjoining landowner or a third
person, the latter can claim indemnification for the injury or damage
IV. Holding/s suffered under Article 2176 of the Civil Code.
1. YES, RTC and IAC erred in dismissing the civil case based on The distinctness of quasi-delicts is shown in Article 2177 of the Civil
Section 3(a), Rule 111 of the Rules of Court, since it is predicated Code. This is further strengthened by previous jurisprudence with the Court
on a quasi-delict. holding that “a quasi-delict is a separate legal institution under the Civil
Code with a substantivity all its own, and individuality that is entirely apart
It is axiomatic that the nature of an action filed in court is determined and independent from a delict or crime. The same negligence causing
by the facts alleged in the complaint as constitution the cause of action. The damages may produce civil liability arising from a crime under the RPC, or
purpose of an action or suit and the law to govern it is to be determined not create an action for quasi-delicts or culpa extra-contractual under the Civil
by the claim of the party filing the action but rather by the complaint itself, Code. Therefore, the acquittal or conviction in the criminal case is entirely
its allegations and prayer for relief. irrelevant in the civil case, unless, the court has the declared that the fact
from which the civil action arose did not exist.
A careful examination of the complaint shows that the civil action is
one under Articles 2176 and 2177 of the Civil Code on quasi-delicts. All the V. Law or Doctrine Applied
elements of a quasi-delict are present, to wit:
ARTICLE 2176, CIVIL CODE

being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict is governed by the provisions of this chapter.
Article 2177. Responsibility for fault or negligence under the preceding

article is entirely separate and distinct from the civil liability arising from
negligence under the Penal Code. But the plaintiff cannot recover damages
twice for the same act or omission of the defendant.
VI. Disposition
WHEREFORE, the assailed decision February 17, 1986 of the then

Intermediate Appellate Court affirming the order of dismissal of the
Regional Trial Court of Cavite, Branch 18 (Tagaytay City) dated August 17,
1984 is hereby REVERSED and SET ASIDE. The trial court is ordered to
reinstate Civil Case No. TG-748 entitled “Natividad V. Andamo and
Emmanuel R. Andamo vs. Missionaries of Our Lady of La Salette, Inc.” and
to proceed with the hearing of the case with dispatch. This decision is
immediately executory. Costs against respondent corporation.
SO ORDERED.
VII. Random Facts
 Ponente: Fernan, J.
G.R. No. L-21438. | September 1966 Contract of Carriage
Air France vs Carrascoso Air France vs Carrascoso
III. Issue/s
Air France, issued to Carrascoso a ‘first class’ round trip airplane ticket 1. W/N, Air France should be held liable for the breach of the contract
from Manila to Rome. From Manila to Bangkok, Carrascoso travelled in first of carriage? YES.
class. However, on board the plane in Bangkok, the manager forced
Carrascoso to vacate his ‘first class’ seat since a white man had a batter right IV. Holding/s
to the said seat. Carrascoso initially refused but eventually decided to give up 1. YES, The court ruled that there was a breach of the contract of
his seat many of the other Filipino passengers told him to just give his seat. carriage and Air France, as the employer, must be liable.
The issue in this case is whether or not Air France should be liable. The court
ruled that Air France should be liable. The court held that the contract of air The court established that a contract to transport passengers is different
carriage, generates a relation attended with a public duty. Passengers should from any other contractual relation. The contract of air carriage, establishes
be treated by the carrier's employees with kindness, respect, courtesy and due a relation attended with a public duty. Passengers should be treated by the
consideration. Any rude or discourteous conduct on the part of employees carrier's employees with kindness, respect, courtesy and due consideration.
towards a passenger gives the latter an action for damages against the carrier. They are entitled to be protected against personal misconduct, injurious
Neglect or malfeasance of the carrier's employees, naturally, could give language, indignities and abuses from such employees. Any rude or
ground for an action for damages. discourteous conduct on the part of employees towards a passenger gives the
latter an action for damages against the carrier. Neglect or malfeasance of the
Petitioner's contract with Carrascoso is one attended with public duty. carrier's employees, naturally, could give ground for an action for damages.
The stress of Carrascoso's action as we have said, is placed upon his wrongful
expulsion. This is a violation of public duty by the petitioner-air carrier — a Petitioner's contract with Carrascoso is one attended with public duty.
case of quasi-delict. Damages are proper. The stress of Carrascoso's action as we have said, is placed upon his wrongful
expulsion. This is a violation of public duty by the petitioner-air carrier — a
case of quasi-delict. Damages are proper.
Air France, issued to Carrascoso a ‘first class’ round trip airplane ticket
from Manila to Rome. From Manila to Bangkok, Carrascoso travelled in first CONTRACT OF AIR CARRIAGE
class. However, on board the plane in Bangkok, the manager forced
Carrascoso to vacate his ‘first class’ seat since according to the manager, a The contract of air carriage, generates a relation attended with a
white man had a better right to the said seat. Carrascoso initially refused but public duty. A violation of the public duty of the carrier is considered a quasi-
eventually decided to give up his seat many of the other Filipino passengers delict. Neglect or malfeasance of the carrier's employees, naturally, could
told him to just give his seat. The court recognized that Air France did not give ground for an action for damages
provide any evidence that the ‘white man’ had better rights to the said seat.
Obligations and Contracts (2019) PETITIONER/APPELLANT: Air France

DIGEST AUTHOR: John Joves RESPONDENT: Rafael Carrascoso
G.R. No. L-21438. | September 1966 Contract of Carriage
Air France vs Carrascoso Air France vs Carrascoso
VI. Disposition
On balance, we say that the judgment of the Court of Appeals does not
suffer from reversible error. We accordingly vote to affirm the same. Costs
against petitioner. So ordered.
Obligations and Contracts (2019) PETITIONER/APPELLANT: Air France

DIGEST AUTHOR: John Joves RESPONDENT: Rafael Carrascoso
G.R.190601 | February 7, 2011 General Provisions | Breach of Contract Guanio v Makati Shangrila
Hotel Inc. Guanio v Makati Shangrila Hotel Inc.
The Guanios then claim that during the reception, the The Guanios booked at the Makati
Shangrila for their
hotel’s representatives did not show up, there was a delay in wedding reception. After the
scheduled food tasting and other
the service of the dinner, some items from the menu were pertinent preparations, a contract was
drawn between the two
unavailable, the waiters were rude, and they were charged extra parties. During the event, The
Guanios took notice of the
fees for extending despite the Sales Manager’s (Alvarez) various mishaps and complaints which
were mostly about the
promise that they would not be charged. The couple received service of the hotel during their
reception. The Guanios filed a
an apologetic letter from the Executive Assistant Manager complaint for a breach of contract
against Makati Shangrila.
(Svensson) of the Hotel after they complained. The RTC awarded damages in favor of the
Guanios but was
A complaint for breach of contract was filed by the overturned by the CA due to the sudden
increase of guests
Guanios in the RTC. In its answer, the hotel claimed that the which the CA identified as the
proximate cause of the delay of
Guanios had requested a combination of food which brought service. The main issue in this case
whether or not the hotel
the price up. Also, the hotel claims that their representatives will be liable for damages for breach
of contract. The Supreme
were present in the event, only that they were not permanently Court held that the hotel is
excused from liability because of
stationed as there were other hotel functions. The delay in the failure of the Guanios to inform
the Hotel of the sudden
service was due to the sudden increase of guests to 470 from increase of attendees which the
Guanios were obligated to do
the expected attendance of 350-380. The hotel also denied under the contract both parties signed.
However, by virtue of
admission from liability in the letter of Svensson, saying that the principle of equity, the court
awarded the Guanios nominal
such was standard protocol for the nature of the business and damages.
also to maintain good will. II. Facts of the Case
The RTC favored the Guanios and ordered Makati Spouses Guanio booked at the Makati
Shangarila Hotel
Shangrila to pay for damages. The CA reversed the decision for their wedding reception on July
28, 2001. The Guanios
saying that the proximate cause of the delay was the sudden requested for an initial food tasting
at the hotel and settled with
increase of guests. a 950 peso menu. When the final food tasting took place three
III. Issue/s days before the event, the Guanios aver that the food servings
1. W/N the doctrine of proximate cause is applicable in were half their size compared from
the initial one. The hotel
actions involving breach of contract. (NO) quoted them a higher price for the food at 1,200
pesos but
2. W/N the Hotel is liable for damages based on the signed reached an agreed final price of
1,150 pesos per person. Both
contract. (NO) parties finalized the contract a day before the reception.
IV. Holding/s
Obligations and Contracts (2020) PETITIONER/APPELLANT: Luigi and Anna Guanio
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Makati Shangrila (Shangrila Hotel Manila)
1
1. The Court finds that since the complaint arose from a
2. The Guanios did not inform the hotel of the sudden change contract, the doctrine of proximate
cannot be applied. This is
of the number of guests which thus excused the Hotel from because, the doctrine of proximate
cause applies only in actions
liability based on their contract. As for their other claim that for quasi-delicts The Court further
explained that:
the Hotel departed from its verbal agreement with the Guanios, the doctrine is a device for
imputing
same fails, given that the written contract which the parties liability to a person where there is no
relation
entered into the day before the event, being the law between between him and another party. In
such a case,
them. the obligation is created by law itself. But,
The exculpatory clause notwithstanding, the Court where there is a pre-existing contractual
relation
notes that respondent could have managed the "situation" better. between the parties, it is the
parties themselves
The Hotel admitted that three hotel functions coincided with who create the obligation, and the
function of
the reception. To the Court, the delay in service might have the law is merely to regulate the
relation thus
been avoided or minimized if the hotel exercised prescience in created.
scheduling events. No less than quality service should be Article 1170 of the Civil Code will be
the one that will
delivered especially in events which possibility of repetition is apply in the present case. The
Court cites RCPI v Verchez to
close to nil. The Guanios are not expected to get married twice explain further:
in their lifetimes. In culpa contractual . . . the mere proof
In the present petition, under considerations of equity, of the existence of the contract and the
failure of
the Court deems it just to award the amount of P50,000.00 by its compliance justify, prima facie,
a
way of nominal damages to petitioners, for the discomfiture corresponding right of relief. The
law,
that they were subjected to during to the event. The Court recognizing the obligatory force of
contracts,
recognizes that every person is entitled to respect of his dignity, will not permit a party to be set
free from
personality, privacy and peace of mind. liability for any kind of misperformance of the
contractual undertaking or a contravention of
V. Law or Doctrine Applied the tenor thereof. A breach upon the contract
Art. 1170. Those who in the performance of their confers upon the injured party a valid cause
for recovering that which may have been lost or suffered.
obligations are guilty of fraud, negligence or delay, and those who in any manner contravene
the tenor thereof, are liable for damage.
2
Breach of contract
• Ponente:J. Carpio-Morales Is the failure without legal reason to comply with the terms of a
contract. It is also defined as the failure, without legal excuse, to perform any promise
which forms the whole or part of the contract.
VI. Disposition WHEREFORE, the Court of Appeals Decision dated July 27, 2009 is
PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion, ORDERED
to pay the amount of P50,000.00 to petitioners by way of nominal damages. SO
ORDERED.
VII.Additional Notes Pertinent provision of the Banquet and Meeting Services Contract
between the parties read:
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled
date and time of the Function of any change in the minimum guaranteed covers. In the absence of
such notice, paragraph 4.3 shall apply in the event of under attendance. In case the actual number
of attendees exceed the minimum guaranteed number by ten percent (10%), the HOTEL
shall not in any way be held liable for any damage or inconvenience which may be caused
thereby. The ENGAGER shall also undertake to advise the guests of the situation and take
positive steps to remedy the same.
VII. Random Facts
3
G.R.190601 | February 7, 2011 General Provisions | Breach of Contract
Guanio v Makati Shangrila Hotel Inc. Guanio v Makati Shangrila Hotel Inc.
I. Recit-ready Summary The Guanios then claim that during the reception, the
The Guanios booked at the Makati Shangrila for their hotel’s representatives did not show up, there was a delay in
wedding reception. After the scheduled food tasting and other the service of the dinner, some items from the menu were
pertinent preparations, a contract was drawn between the two unavailable, the waiters were rude, and they were charged extra
parties. During the event, The Guanios took notice of the fees for extending despite the Sales Manager’s (Alvarez)
various mishaps and complaints which were mostly about the promise that they would not be charged. The couple received
service of the hotel during their reception. The Guanios filed a an apologetic letter from the Executive Assistant Manager
complaint for a breach of contract against Makati Shangrila. (Svensson) of the Hotel after they complained.
The RTC awarded damages in favor of the Guanios but was A complaint for breach of contract was filed by the
overturned by the CA due to the sudden increase of guests Guanios in the RTC. In its answer, the hotel claimed that the
which the CA identified as the proximate cause of the delay of Guanios had requested a combination of food which brought
service. The main issue in this case whether or not the hotel the price up. Also, the hotel claims that their representatives
will be liable for damages for breach of contract. The Supreme were present in the event, only that they were not permanently
Court held that the hotel is excused from liability because of stationed as there were other hotel functions. The delay in
the failure of the Guanios to inform the Hotel of the sudden service was due to the sudden increase of guests to 470 from
increase of attendees which the Guanios were obligated to do the expected attendance of 350-380. The hotel also denied
under the contract both parties signed. However, by virtue of admission from liability in the letter of Svensson, saying that
the principle of equity, the court awarded the Guanios nominal such was standard protocol for the nature of the business and
damages. also to maintain good will.
II. Facts of the Case The RTC favored the Guanios and ordered Makati
Spouses Guanio booked at the Makati Shangarila Hotel Shangrila to pay for damages. The CA reversed the decision
for their wedding reception on July 28, 2001. The Guanios saying that the proximate cause of the delay was the sudden
requested for an initial food tasting at the hotel and settled with increase of guests.
a 950 peso menu. When the final food tasting took place three III. Issue/s
days before the event, the Guanios aver that the food servings 1. W/N the doctrine of proximate cause is applicable in
were half their size compared from the initial one. The hotel actions involving breach of contract. (NO)
quoted them a higher price for the food at 1,200 pesos but 2. W/N the Hotel is liable for damages based on the signed
reached an agreed final price of 1,150 pesos per person. Both contract. (NO)
parties finalized the contract a day before the reception. IV. Holding/s
1
1. The Court finds that since the complaint arose from a 2. The Guanios did not inform the hotel of the sudden change
contract, the doctrine of proximate cannot be applied. This is of the number of guests which thus excused the Hotel from
because, the doctrine of proximate cause applies only in actions liability based on their contract. As for their other claim that
for quasi-delicts The Court further explained that: the Hotel departed from its verbal agreement with the Guanios,
the doctrine is a device for imputing same fails, given that the written contract which the parties
liability to a person where there is no relation entered into the day before the event, being the law between
between him and another party. In such a case, them.
the obligation is created by law itself. But, The exculpatory clause notwithstanding, the Court
where there is a pre-existing contractual relation notes that respondent could have managed the "situation" better.
between the parties, it is the parties themselves The Hotel admitted that three hotel functions coincided with
who create the obligation, and the function of the reception. To the Court, the delay in service might have
the law is merely to regulate the relation thus been avoided or minimized if the hotel exercised prescience in
created. scheduling events. No less than quality service should be
Article 1170 of the Civil Code will be the one that will delivered especially in events which possibility of repetition is
apply in the present case. The Court cites RCPI v Verchez to close to nil. The Guanios are not expected to get married twice
explain further: in their lifetimes.
In culpa contractual . . . the mere proof In the present petition, under considerations of equity,
of the existence of the contract and the failure of the Court deems it just to award the amount of P50,000.00 by
its compliance justify, prima facie, a way of nominal damages to petitioners, for the discomfiture
corresponding right of relief. The law, that they were subjected to during to the event. The Court
recognizing the obligatory force of contracts, recognizes that every person is entitled to respect of his dignity,
will not permit a party to be set free from personality, privacy and peace of mind.
liability for any kind of misperformance of the
contractual undertaking or a contravention of V. Law or Doctrine Applied
the tenor thereof. A breach upon the contract Art. 1170. Those who in the performance of their
confers upon the injured party a valid cause for obligations are guilty of fraud, negligence or delay, and
recovering that which may have been lost or those who in any manner contravene the tenor thereof, are
suffered. liable for damage.
2
Breach of contract  Ponente:J. Carpio-Morales

Is the failure without legal reason to comply with the terms
of a contract. It is also defined as the failure, without legal
excuse, to perform any promise which forms the whole or
part of the contract.
VI. Disposition
WHEREFORE, the Court of Appeals Decision dated July
27, 2009 is PARTIALLY REVERSED. Respondent is, in
light of the foregoing discussion, ORDERED to pay the
amount of P50,000.00 to petitioners by way of nominal
damages.
SO ORDERED.
VII.Additional Notes
Pertinent provision of the Banquet and Meeting Services
Contract between the parties read:
4.5. The ENGAGER must inform the HOTEL at least forty

eight (48) hours before the scheduled date and time of the
Function of any change in the minimum guaranteed covers. In
the absence of such notice, paragraph 4.3 shall apply in the
event of under attendance. In case the actual number of
attendees exceed the minimum guaranteed number by ten
percent (10%), the HOTEL shall not in any way be held
liable for any damage or inconvenience which may be
caused thereby. The ENGAGER shall also undertake to
advise the guests of the situation and take positive steps to
remedy the same.
VII. Random Facts

3
G.R. No. 191937 | August 9, 2017 Quasi-delict
Orient Freight International, Inc. vs. Keihin-Everett Orient Freight International, Inc. vs. Keihin-Everett
Forwarding, Co. Inc. Forwarding, Co. Inc.

Keihin-Everett Forwarding Company, respondent, claimed that Orient This case is a petition for review on certiorari assailing the decision of
Freight International, Inc., petitioner, caused the termination of their In- the Court of Appeals affirming the decision of the Regional Trial Court
House Brokerage Service Agreement with Matsushita. which found petitioner Orient Freight International, Inc.'s (Orient Freight)
Respondent, in their Trucking Service Agreement with Matsushita, negligence caused the cancellation of Keihin-Everett Forwarding Company,
sub-contracted petitioner. Upon expiration, Keihin-Everett executed an In- Inc.'s (Keihin-Everett) contract with Matsushita Communication Industrial
House Brokerage Service Agreement with Matsushita and continued to Corporation of the Philippines (Matsushita).
retain the services of petitioner. In 2001, respondent entered into a Trucking Service Agreement with
In 2002, Matsushita heard of news about the interception by Caloocan Matsushita to provide services for the latter’s trucking requirements. These
City police of a stolen truck filled with items belonging to said company. were subcontracted to Orient Freight on the same day. When the said
Respondent investigated on the matter but petitioner simply said it was a contract expired, Keihin-Everett executed an In-House Brokerage Service
mechanical breakdown and that the shipment was still delivered on time. Agreement (IHBSA) for Matsushita's Philippine Economic Zone Authority
However, the shipment was found to be missing goods worth US$34,226.14 export operations. Keihin-Everett continued to retain the services of Orient
when it arrived in Yokohama, Japan. Respondent later found out, through a Freight, which sub-contracted its work to Schmitz Transport and Brokerage
police report that when the car broke down, the driver drove it away only for Corporation.
the truck to be found in C3 road. Petitioner then claimed that its initial In 2002, Matsushita contacted respondent’s Sales Manager about the
ruling of pilferage was in good faith as manifested by the information from which showed the interception by Caloocan City police of a stolen truck
its employees and the good condition and timely shipment. filled with shipment of video monitors and CCTV systems owned by
Consequently because of this incident, Matsushita terminated its Matsushita.
IHBSA with Keihin-Everett. Respondent now seeks indemnity from the Petitioner responds to Keihin-Everett that the incident simply involved
petitioner for loss of income due to the petitioner’s negligence. But the breakdown and towing of the truck, which was driven by Ricky Cudas
petitioner refuses to pay. RTC and CA both ruled in favor of Keihin-Everett. (Cudas), with truck helper, Rubelito Aquino, and that it did not miss the
Of all 4 issues discussed by the Court, the issue related to our topic is closing time of the vessel intended for shipment. When petitioner was asked
whether or not the Court of Appeals, considering the existing contracts in to investigate the matter, they simply reiterated that it broke down and had
this case, erred in applying Article 2176 of the Civil Code. to be towed. However, when the shipment arrived in Yokohama, Japan, it
The Court held that YES. It ruled that Articles 1170, 1172, and 1173 of was discovered that 10 pallets of the 218 cartons, worth US$34,226.14,
the Civil Code on negligence in the performance of an obligation should were missing.
apply. Petitioner’s negligence did not create the vinculum juris or legal Respondent, then, independently investigated the incident. The police
relationship with the respondent, which would have otherwise given rise to report from Caloocan City Police Station revealed that at around 2:00 p.m.
a quasi-delict. Petitioner’s obligation was created upon respondent’s inquiry on April 17, 2002, somewhere in Plaza Dilao, Paco Street, Manila, Cudas
regarding the incident. Hence, the negligence of the petitioner arises from its told Aquino to report engine trouble to Orient Freight. Then, Cudas drove
performance to its obligation and not because of bad faith. the truck away only to be intercepted by the police in C3 road. Cudas
The instant petition is denied. escaped and became the subject of manhunt. Orient Freight wrote back on
May 15, 2002 to admit that its previous report was erroneous and that
pilferage was apparently proven.
Obligations and Contracts (2020) PETITIONER: Orient Freight International, Inc. 1

DIGEST AUTHOR: Leslie Castillo RESPONDENT: Keihin-Everett Forwarding Co., Inc.
Matsushita terminated its IHBSA with respondent due to loss of 3. W/N Orient Freight, Inc. was negligent for failing to disclose the
confidence because of how Keihin-Everett handled the situation and its facts surrounding the hijacking incident on April 17, 2002, which
nondisclosure of this incident’s relevant facts "amounted to fraud and led to the termination of the Trucking Service Agreement between
signified an utter disregard of the rule of law.” Keihin-Everett Forwarding Co., Inc. and Matsushita
Respondent demanded P2,500,000.00 from petitioner as indemnity for Communication Industrial Corporation of the Philippines? YES.
loss of income because of how petitioner mishandled the situation which led 4. W/N the trial court erred in the computation of the awarded actual
to the termination of IHBSA. But Orient Freight refused to pay. Hence, and pecuniary loss by basing it on, among others, the Profit and
respondent filed for damages in Branch 10 RTC Manila for the alleged Loss Statement submitted by Keihin-Everett Forwarding Co., Inc.?
"misrepresentation, malice, negligence and fraud" of petitioner that caused NO.
the termination of IHBSA.
Petitioner, in its Answer, claimed that its initial ruling of pilferage was IV. Holding/s
in good faith as manifested by the information from its employees and the 1. NO. This Court in Aguilar v. Court of Appeals, et al. ruled that
good condition and timely shipment. It claimed that it is discretionary upon inappropriately impleading the lower court as respondent does not
Matsushita to terminate the contract. Further, it claimed that respondent automatically mean the dismissal of the appeal. This is a mere
derived income substantially less than what it sued for. In their formal defect.
counterclaim, they also asserted for damages. 2. YES, Articles 1170, 1172, and 1173 of the Civil Code on
The RTC ruled in favor of Keihin-Everett and found Orient Freight negligence in the performance of an obligation should apply.
"negligent in failing to investigate properly the incident and make a factual Both the Regional Trial Court and Court of Appeals erred in finding
report to Keihin[-Everett] and Matsushita," despite having enough time to petitioner's negligence of its obligation to report to be an action based on a
properly investigate the incident. It ruled that petitioner failed to exercise quasi-delict. Petitioner's negligence did not create the vinculum juris or legal
due diligence in disclosing facts of the incident causing the respondent to relationship with the respondent, which would have otherwise given rise to
suffer income losses due to Matsushita’s cancellation of their contract. a quasi-delict. Petitioner's duty to respondent existed prior to its negligent
The CA affirmed the decision of the RTC. It ruled that the oral and act. When respondent contacted petitioner regarding the news report and
documentary evidence has established both the damage suffered by Keihin- asked it to investigate the incident, petitioner's obligation was created.
Everett and Orient Freight's fault or negligence. Orient Freight was Thereafter, petitioner was alleged to have performed its obligation
negligent in not reporting and not thoroughly investigating the April 17, negligently, causing damage to respondent.
2002 incident despite Keihin-Everett's instruction to do so. The doctrine "the act that breaks the contract may also be a tort," on
Hence, this petition. which the lower courts relied, is inapplicable here. Petitioner's negligence,
arising as it does from its performance of its obligation to respondent, is
III. Issue/s dependent on this obligation. Neither do the facts show that Article 21 of the
1. W/N the failure to state the names of the parties in this Petition for Civil Code applies, there being no finding that petitioner's act was a
Review, in accordance with Rule 45, Section 4 of the Rules of conscious one to cause harm, or be of such a degree as to approximate fraud
Court, is a fatal defect? NO. or bad faith.
2. W/N the Court of Appeals, considering the existing contracts in To be sure, there was inaction on the part of the defendant which caused
this case, erred in applying Article 2176 of the Civil Code? YES damage to the plaintiff, but there is nothing to show that the defendant

intended to conceal the truth or to avoid liability. When the facts became CULPA AQUILIANA
apparent to defendant, the latter readily apologized to Keihin and Matsushita Is the "the wrongful or negligent act or omission which creates a vinculum
for their mistake. juris and gives rise to an obligation between two persons not formally bound
3. YES, despite the circumstances which would have cautioned by any other obligation.” and is governed by Article 2176 of the Civil Code:
petitioner to act with care while investigating and reporting the Article 2176. Whoever by act or omission causes damage to
hijacking incident, petitioner failed to to do so. another, there being fault or negligence, is obliged to pay for the
From the foregoing account, it is evident that [Orient Freight] not only damage done. Such fault or negligence, if there is no pre-existing
had knowledge of the foiled hijacking of the truck carrying the subject contractual relation between the parties, is called a quasi-delict
shipment but, more importantly, withheld said information from [Keihin- and is governed by the provisions of this Chapter.
Everett], Confronted with the April 19, 2002 tabloid account thereof,
[Orient Freight] appears to have further compounded its omission by CULPA CONTRACTUAL
misleading [Keihin-Everett] and Matsu[s]hita into believing that the subject Is "the fault or negligence incident in the performance of an obligation
incident was irresponsibly reported and merely involved a stalled vehicle which already-existed, and which increases the liability from such already
which was towed to avoid obstruction of traffic. Consequently, petitioner is existing obligation.” This is governed by Articles 1170 to 1174 of the Civil
responsible for the damages that respondent incurred due to the former's Code:
negligent performance of its obligation. Article 1170. Those who in the performance of their obligations
4. NO, it could be reasonably foreseen that the failure to disclose are guilty of fraud, negligence, or delay, and those who in any
the true facts of an incident, especially when it turned out that manner contravene the tenor thereof, are liable for damages.
a crime might have been committed, would lead to a loss of Article 1171. Responsibility arising from fraud is demandable in
trust and confidence in the party which was bound to disclose all obligations. Any waiver of an action for future fraud is void.
these facts. Article 1172. Responsibility arising from negligence in the
Petitioner caused the loss of trust and confidence when it misled performance of every kind of obligation is also demandable, but
respondent and Matsushita into believing that the incident had been such liability may be regulated by the courts, according to the
irresponsibly reported and merely involved a stalled truck. Thus, petitioner circumstances.
is liable to respondent for the loss of profit sustained due to Matsushita's Article 1173. The fault or negligence of the obligor consists in the
termination of the In-House Brokerage Service Agreement. As regards the omission of that diligence which is required by the nature of the
amount of damages, this Court cannot rule on whether the Regional Trial obligation and corresponds with the circumstances of the persons,
Court erred in using the Profit and Loss Statement submitted by respondent of the time and of the place. When negligence shows bad faith, the
for its computation. The amount of the award of damages is a factual matter provisions of articles 1171 and 2201, paragraph 2, shall apply.
generally not reviewable in a Rule 45 petition, The damages awarded by the If the law or contract does not state the diligence which is to be
Regional Trial Court, as affirmed by the Court of Appeals, were supported observed in the performance, that which is expected of a good
by documentary evidence such as respondent's audited financial statement. father of a family shall be required.
Article 1174. Except in cases expressly specified by the law, or
V. Law or Doctrine Applied when it is otherwise declared by stipulation, or when the nature of
Negligence may either result in culpa aquiliana or culpa contractual. the obligation requires the assumption of risk, no person shall be

responsible for those events which could not be foreseen, or which,

though foreseen, were inevitable. VII. Random Facts
Note: the existence of a contract between the parties does not bar the • Ponente: Leonen J.
commission of a tort by the one against the order and the consequent
recovery of damages therefor. . However, if the act complained of would
not give rise to a cause of action for a quasi-delict independent of the
contract, then the provisions on quasi-delict or tort would be inapplicable.
VI. Disposition
WHEREFORE, the petition is DENIED. The January 21, 2010 Decision
and April 21, 2010 Resolution of the Court of Appeals in CA-G.R. CV No.
91889 are AFFIRMED. SO ORDERED.

The test (whether a quasi-delict can be deemed to underlie the breach of a
contract) can be stated thusly: Where, without a pre-existing contract
between two parties, an act or omission can nonetheless amount to an
actionable tort by itself, the fact that the parties are contractually bound is
no bar to the application of quasi-delict provisions to the case.
QUASI-DELICT BREACH of CONTRACT

Negligence is direct, substantive, and Negligence is merely incidental to the
independent performance of the contractual
obligation; there is a pre-existing
contract or obligation
The defense of "good father of a The defense of "good father of a
family" is a complete and proper family" is not a complete and proper
defense insofar as parents, guardians defense in the selection and
and employers are concerned supervision of employees
There is no presumption of Negligence is presumed so long as it
negligence and it is incumbent upon can be proved that there was breach
the injured party to prove the of the contract and the burden is on
negligence of the defendant, the defendant to prove that there was
otherwise, the former's complaint will no negligence in the carrying out of
be dismissed the terms of the contract; the rule
of respondeat superior is followed

G.R. No. 76824 | December 20, 1988 Tender of Payment and Consignation
Alfonso v. CA Alfonso v. CA
I. Recit-ready Summary 7) The SC held that the tenor of the two (2) letters shows that the free
1) Sps. Basco are the new owners of an apartment building, having rent offer was merely a proposal of Sps. Basco to Alfonso who
acquired it from Sps. Vibar (former owners). Unit No. 276 or rejected it by tendering his payment corresponding to the April 1984
“fourth door” of the apartment was being rented out by the former rental and consistently refusing to vacate the premises. Such
owners to Roland Alfonso at a monthly rental of P185.00. rejection rendered the proposal of free rental without force and
2) After having purchased the property, Sps. Basco sent a letter to effect. Alfonso was duty bound to pay the rentals as they fall due in
Alfonso that as new owners of the apartment building, they are order to abort any ejectment proceedings against him.
giving him 90 days within which to vacate the premises and that they 8) If the lessor refuses to accept the payment, as in the case at bar,
will be using the said property as their own residence. defendant had a remedy provided for by law, namely consignation in
3) Alfonso refused to vacate the unit and instead, sent by registered court or deposit in a bank in the lessor's name with due notice to the
mail his rental payment corresponding to April 1984, which was lessor. Alfonso did not avail of such remedy so that when Sps. Basco
rejected by the Sps. Basco, who instead proposed to Alfonso a period filed the ejectment proceedings against him on July 30, 1984, the
of 1 year, from April 1984 up to March 31, 1985, within which to rentals corresponding to the month of April to July 1984 had not yet
stay at the premises free from rental in exchange for the voluntary been paid.
surrender of the premises to the plaintiffs by defendant. However, 9) Tender of payment is not enough; consignation must follow in order
Alfonso insisted that he could not be ejected from the premises, to extinguish the debt. Otherwise failure to comply with the
prompting Sps. Basco to file an ejectment case in court. requirements provided for under Sec. 5, paragraph (b) Batas
4) On November 5, 1984 Alfonso filed a motion in court praying that Pambansa Blg. 25 is a ground for ejectment. Delayed consignation
the rentals from April 1984 up to the current month of November, be or deposit will not do. Moreover, when Alfonso filed his Motion to
ordered deposited in court. Consign Rentals in November 1984, he was already eight (8)
5) Sps. Basco filed a Manifestation with the Court stating that the months delayed in the payment of his rentals.
deposit of the unpaid rentals for eight (8) months – April to
November 1984 – cannot render ineffective the provision of Sec. II. Facts of the Case (Material Facts)
5(b) of Batas Pambansa Blg. 25: which allows the ejectment of a 1. On March 19, 1984 – Danilo Basco and Luzviminda C. Basco (new
lessee in case of arrears in payment of rent for three (3) months at owners) purchased an apartment building located in Grace Park,
one time provided, that in case of refusal by the lessor to accept Caloocan City from Pacifico Vibar and Antonia Mapay Vibar (former
payment of the rental agreed upon, the lessee shall either deposit by owners).
way of consignation, the amount in Court or in a bank in the name of a. Unit No. 276 (fourth door) of the aforesaid apartment was being
and with notice to the lessor. rented out by the former owners to Roland Alfonso at a monthly
6) On January 14, 1986, the MTC rendered the assailed decision in rental of P185.00.
favor of Sps. Basco which was reversed by the RTC on appeal b. The new owners were also the former lessees of a G/F unit located
declaring that Alfonso cannot be ejected for non-payment of rentals. at the back of the apartment building.
The CA overruled the findings of the RTC and reinstated the 2. After the Sps. Basco had purchased the property, they sent Alfonso a
judgment of the MTC. Hence, the present petition. letter:
Obligations and Contracts (2020) PETITIONER: Roland Alfonso 1

DIGEST AUTHOR: Princess Alvaran RESPONDENT: Court of Appeals, Danilo Basco and Luzviminda C. Basco
a. "There is imperative need to make general repairs and renovation consignation, the amount in Court or in a bank in the name of and with
of the 4-door apartment into a purely residential house which is notice to the lessor.
presentable and safe to live in.” 9. On January 14, 1986, the MTC rendered the assailed decision in favor of
b. "I am willing to give you and the other lessees of the other doors Sps. Basco which was reversed by the RTC on appeal declaring that
ninety (90) days from receipt of this letter within which to vacate Alfonso cannot be ejected for non-payment of rentals. The CA overruled
the premises and deliver possession thereof to me, without paying the findings of the RTC and reinstated the judgment of the MTC.
any rental.” 10. Hence, the present petition. Alfonso insists that the RTC did not err in
3. Alfonso refused to vacate the said unit and on May 30, 1984 – he sent ruling that he did not incur any default and that the MTC had no
by registered mail his payment corresponding to the April 1984 jurisdiction to determine the ejectment case.
rental, which was rejected by the Sps. Basco.
4. In another letter, Sps. Basco proposed to give the Alfonso a period of III. Issue/s
one (1) year – from April 1, 1984 or up to March 31, 1985 – within 1. W/N petitioner properly availed the remedy of consignation
which to stay at the premises free from rental in exchange for the against the ejectment proceedings? NO.
voluntary surrender of the premises. Alfonso insisted that he could not 2. W/N the MTC lacked jurisdiction to try the ejectment case? YES,
be ejected from the subject premises. however, the RTC affirmed the findings and declarations of the
5. The parties could not arrive at a settlement, Sps. Basco filed a complaint MTC regarding the issue without the jurisdiction of the MTC to
for ejectment with the Barangay Office. Alfonso failed to appear at the rule on these issues being questioned.
scheduled hearings, thus, the Barangay Captain was prompted to issue a
certification needed to file the case in court. IV. Holding/s
6. On July 30, 1984, Sps. Basco filed a complaint in the MTCC praying for Issue #1
the ejectment of the defendant of Alfonso based on two (2) grounds: NO. The mere tender of payment is not enough. Consignation must
a. The Sps. Basco intended to have the premises of their own follow to extinguish the obligation. Delayed consignation or deposit will
personal (residential purposes) and not do.
b. Delay in the payment of rentals by Alfonso. Petitioner’s Arguments Court’s Rebuttals
7. On November 5, 1984, Alfonso filed a motion in court praying that the • Alfonso contends • When Alfonso filed his Motion to Consign
rentals from April 1984 up to the current month of November, be that his Motion to Rentals in November 1984, he was
ordered deposited in court. Consign was already eight (8) months delayed in the
8. On November 6, 1984, Sps. Basco filed a Manifestation with the Court brushed aside by the payment of his rentals.
stating that the deposit of the unpaid rentals for eight (8) months – respondent trial • There is no evidence that said motion was
April to November 1984 – cannot render ineffective the provision of court. ever submitted to the trial court or Judge.
Sec. 5(b) of Batas Pambansa Blg. 25: which allows the ejectment of a
lessee in case of arrears in payment of rent for three (3) months at one
time, provided, that in case of refusal by the lessor to accept payment of
the rental agreed upon, the lessee shall either deposit by way of

Overall Ruling the court of its jurisdiction over

The tenor of the two (2) letters shows that the free rent offer was merely a the ejectment case.
proposal of Sps. Basco to Alfonso who rejected it by tendering his payment Overall Ruling
corresponding to the April 1984 rental and consistently refusing to vacate As already mentioned earlier, demand to vacate the premises was made
the premises. Such rejection rendered the proposal of free rental without upon defendant as early as March 1984 as evidenced by Danilo Basco's
force and effect. Alfonso was duty bound to pay the rentals as they fall due letter and reiterated in the letter dated May 1984. It is to be noted that in the
in order to abort any ejectment proceedings against him. decision of the Regional Trial Court, while it reversed the decision of the
Metropolitan Trial Court on the ground that there was no delayed payment
If the lessor refuses to accept the payment, as in the case at bar, of rentals, also affirmed the findings and declarations of said Metropolitan
defendant had a remedy provided for by law, namely consignation in court Trial Court regarding the issue on the need of the premises by the plaintiffs,
or deposit in a bank in the lessor's name with due notice to the lessor. without the jurisdiction of the lower court to rule on these issues being
Alfonso did not avail of such remedy so that when Sps. Basco filed the question.
ejectment proceedings against him on July 30, 1984, the rentals
corresponding to the month of April to July 1984 had not yet been paid. V. Law or Doctrine Applied
Tender of payment is not enough; consignation must follow in order to ART. 1256 OF THE CIVIL CODE
extinguish the debt. Otherwise failure to comply with the requirements Art. 1256. If the creditor to whom payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by the consignation of
provided for under Sec. 5, paragraph (b) Batas Pambansa Blg. 25 is a
the thing or sum due.
ground for ejectment. Delayed consignation or deposit will not do.
Moreover, when Alfonso filed his Motion to Consign Rentals in November Consignation alone shall produce the same effect in the following cases:
1984, he was already eight (8) months delayed in the payment of his 1) When the creditor is absent or unknown, or does not appear at the place of
rentals. payment;
2) When he is incapacitated to receive the payment at the time it is due;
3) When without just cause, he refuses to give a receipt;
Issue #2 4) When two or more persons claim the same right to collect;
YES, however, the RTC affirmed the findings and declarations of the MTC 5) When the title of the obligation has been lost.
regarding the issue without the jurisdiction of the MTC to rule on these
issues being questioned. VI. Disposition
Petitioner’s Arguments Court’s Rebuttals WHEREFORE, finding no merit in the instant petition, the same is hereby
• Alfonso contends that the MTC • The fact that the decision of the DISMISSED.
lacked jurisdiction to try the Metropolitan Trial Court in
ejectment case against him on favor of plaintiffs was based on
• N/A
the ground that Sps. Basco failed the ground of non-payment of
to make the necessary demand. rentals and not based on VII. Random Facts
personal need cannot deprive • Ponente: Paras, J.

G.R. No. 152529 | September 22, 2003 Tender of Payment and Consignation
Sps. Biesterbos v. CA Sps. Biesterbos v. CA
I. Recit-ready Summary situated at Crestwood Court Subdivision, Bakakeng Norte,

1. In 1992, Efren E. Bartolome entered into a Contract to Sell with the Baguio City, for 2 Million Pesos.
Sps. Biesterbos. b. The property was mortgaged to the Philippine National Bank
a. Bartolome agreed to sell to the Sps. Biesterbos a one (1) unit of a (PNB).
duplex residential house and lot for 2 Million Pesos. 2. The contract to sell provided that: (Only pertinent parts lifted)
b. Bartolome also agreed to advance to petitioners the sum of 1. The BUYER shall pay to the OWNER the sum of P1 Million,
P600,000 for their purchase of an adjacent lot owned by Philippine Currency, as down payment upon signing of this
Bartolome's brother.
Contract to Sell; the balance of P1 Million shall be paid by the
c. Sps. Biesterbos, in turn, obligated themselves to reimburse
respondent the said amount. Thus, a contract of loan or BUYER to the OWNER on or before July 30, 1992;
forbearance was created. 2. xxx
2. Sps. Biesterbos made subsequent payments totaling P2,081,208.24. 3. xxx
3. Several demands were made by respondent for the full settlement by 4. xxx
petitioners of their due obligation. 5. That the OWNER, in addition to the sale of the house and lot
4. On July 3, 1993 – Sps. Biesterbos informed Bartolome that they had subject of this contract, will advance for the BUYER the cost
already deposited the amount of P521,691.76, “In Trust For Mr. Efren of the adjacent vacant lot belonging to his brother at an
Bartolome,” at the PNB branch in Baguio City, and that that the money agreed price of P600,000.
could be withdrawn by him at any time during banking hours. 6. The BUYER shall reimburse to the OWNER, the Six Hundred
5. Although the deposit did not constitute a valid tender of payment and Thousand Pesos including the cost of transfer, documentation and
consignation, it could be considered an act of good faith to fully settle registration fee, within a reasonable time or on/or before July 30,
petitioners' obligation and, hence, suspend the running of the interest 1992, after ownership of the lot is transferred into the name of the
on the outstanding amount.
BUYER.
6. To settle the conflict of the parties on this issue, the SC ruled: the legal
interest to be paid on the principal amount of P518,791.76 (unpaid 3. April 23, 1992 – Bartolome received, by way of a down payment, the
balance of the P600,000 in issue) is 12% per annum from May 18, amount of P972,486.00 from Sps. Biesterbos. Conformably with
1993 (date when extrajudicial demand was made on petitioners) up paragraph 5 of the agreement, Bartolome advanced the sum of
until July 3, 1993 (when petitioners notified respondent of the deposit P600,000.00 for the purchase by Sps. Biesterbos of an adjacent lot
with the PNB). owned by Bartolome's brother.
7. Another 12% interest per annum is to be paid on the amount due and 4. Sps. Biesterbos failed to pay the amounts due and owing to Bartolome
owing as of, and from the date of finality of the Court's decision until under the contract as so agreed.
full payment would have actually been made. 5. August 5, 1992 – Bartolome received from Sps. Biesterbos the amount
of P319,612.65; subsequent payment are as follows:
II. Facts of the Case (Material Facts) Due Date Amount Date Actually Received
1. April 18, 1992 – Efren E. Bartolome entered into a Contract to Sell
April 17, 1992 P972,486.80
with the Sps. Hendrik and Alice Biesterbos.
a. Bartolome agreed to sell to the Sps. Biesterbos a one (1) unit of a July 30, 1992 P319,612.65
duplex residential house and lot with an area of three 345 sqm, September 11, 1992 P348,849.43 September 15, 1992
Obligations and Contracts (2020) PETITIONER: Sps. Hendrik Biesterbos and Alicia S. Biesterbos 1
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Court of Appeals and Efren E. Bartolome
October 10, 1992 P345,259.36 October 12, 1992 a. Bartolome failed to comply with his obligation for the immediate
February 9, 1993 P50,000.00 transfer of possession of the property and the construction and
March 23, 1993 P10,000.00 March 24, 1993
installation of a driveway.
b. They also asserted that they had paid the amounts even after July
March 20, 1993 P30,000.00 Paid by Sps. Biesterbos at PNB
30, 1992 (See table in #5 above) and claimed that the deadline for
April 6, 1993 P5,000.00 As evidenced by Exh. ‘5’ the payment of the balance of the due obligation was novated
Total Payment Made P2,081,208.24 when private respondent continued to receive payments even
6. Several demands were made by respondent for the full settlement by deadline.
petitioners of their due obligation. c. The Sps. Biesterbos being unaware of the loan obligation to the
7. In a letter, dated December 20, 1992 – Bartolome demanded the PNB, should not be held liable for any alleged bank charges and
payment of the still unpaid balance of P710,713.16, interests.
8. Bartolome claimed to have sent another letter on March 25, 1993 – the 13. Sps. Biesterbos prayed that the consignation of the amount of
summary of the amount due and payable, totaling 718, 407.92, P521,691.76, representing what they averred to be the amount due
inclusive of: from them under the contract to sell, be meanwhile approved by the
Bank Interest and Bank Charges P94,021.80 RTC and respondent be made to transfer to them the absolute
(From August 1 to October 1992) ownership of the property.
Accrued Interest and Bank Charges P64,693.36 14. On July 21, 1994 – the RTC initially denied the prayer for
(From October 14, 1992 to March 30, 1993) consignation for lack of merit. In time, the RTC rendered its decision:
Cost of Maintenance and Caretaker P3,000.00
a. Declaring Sps. Biesterbos to have complied with their obligation
9. May 18, 1993 - Bartolome reiterated his demand and informed under the contract to sell with respect to the townhouse and lot;
petitioners that, because of the delay, Sps. Biesterbos had to pay b. Ordering Bartolome to execute the corresponding deed of sale
additional interests on his bank loan thereby increasing to P918,407.92 transferring the townhouse and lot to the defendants Biesterbos;
the sum due. c. Ordering the plaintiff Bartolome to deliver the TCT to Sps.
a. Sps. Biesterbos denied having received any other demand-letter Biesterbos free from all liens and encumbrances as committed by
except for this. him in the contract to sell;
10. On July 3, 1993 – Sps. Biesterbos informed Bartolome that they had d. Ordering the Sps. Biesterbos to reimburse to the plaintiff
already deposited the amount of P521,691.76, “In Trust For Mr. Efren P518,791.60 representing the balance of the P600,000.00 which
Bartolome,” at the PNB branch in Baguio City, and that that the money the latter had advanced to the owner of the adjacent lot;
could be withdrawn by him at any time during banking hours. e. xxx
11. On July 9, 1993 – Not satisfied with the arrangement with the bank, f. xxx
Bartolome filed a complaint for specific performance and damages g. xxx
against Sps. Biesterbos before the RTC of Baguio City. h. xxx
12. Sps. Biesterbos’s (Petitioners’) Contentions in their answer: 15. Still feeling aggrieved, Bartolome appealed to the CA.
16. The CA rendered a decision affirming that of the RTC except insofar (b) Sps. Biesterbos to, in turn, reimburse to Bartolome the P600,000.00 was
as the latter had ordered the payment of interest on "P518,791.76 in the nature of a contract of loan or a forbearance.
representing the balance of the P600,000.00 which the latter
(Bartolome) had advanced for petitioners as payment to the owner of The SC considered the demand-letter of 18 May 1993 sent to Sps.
the adjacent lot, with an interest of 12% per annum from the time the Biesterbos, absent any contrary showing, as the demand to occasion default.
defendants-appellees defaulted in their payment up to the time of
the filing of the complaint being in the nature of a contract of loan." On July 3, 1993, the Sps. Biesterbos informed Bartolome that they had
17. On December 21, 2001, the CA granted the motion for already deposited the amount of P521,691.76, “In Trust for Mr. Efren
reconsideration of Bartolome and ordered that the interest of 12% per Bartolome,” at the PNB branch in Baguio City, and that that the money
annum awarded to him should be paid from the time of default until could be withdrawn by him at any time during banking hours. The SC held
full payment of the principal. that while such a procedure did not strictly constitute a valid tender of
18. Hence, present petition questioning the interest payment decreed by payment and consignation, still, it could be considered an act of good
the CA. faith on the part of petitioners to fully settle their obligation. Equity and
justice would demand that such an act, placing at the disposal of Bartolome
III. Issue/s the deposited sum, should have the effect of suspending the running of the
1. W/N there was a valid tender of payment and consignation interest on said outstanding amount.
made by the Sps. Biesterbos? NO, it was technically defective,
but still, it should be considered an act of good faith. The SC cited the case of Gregorio Araneta, Inc. vs. De Paterno and Vidal:
2. W/N Sps. Biesterbos should pay the 12% interest per annum of the "The matter of the suspension of the running of interest on the loan is
amount of P518,791.76, when no such or any interest was agreed governed by principles which regard reality rather than technicality,
upon by the parties? YES. substance rather than form. Good faith of the offeror or ability to make
good the offer should in simple justice excuse the debtor from paying
IV. Holding/s interest after the offer is rejected. A debtor cannot be considered
delinquent who offered checks backed by sufficient deposit or ready to pay
Issue #1 cash if the creditor chose that means of payment. Technical defects of the
No, while such a procedure did not strictly constitute a valid tender of offer cannot be adduced to destroy its effects when the objection to accept
payment and consignation, still, it could be considered an act of good the payment was based on entirely different grounds. Thus, although the
faith on the part of petitioners to fully settle their obligation. defective consignation made by the debtor did not discharge the mortgage
Overall Ruling debt, the running of interest on the loan is suspended by the offer and tender
The RTC and the CA correctly concluded that the agreement between the of payment."
parties insofar as it had obligated:
(a) Sps. Biesterbos to "advance for the buyer the cost of the adjacent vacant The legal interest to be paid on the principal amount of P518,791.76 is
lot belonging to Bartolome’s brother at an agreed price of Six Hundred 12% per annum which shall commence from 18 May 1993 when
Thousand (P600,000.00) Pesos," and extrajudicial demand was made on petitioners up until 03 July 1993 when
petitioners notified respondent that the amount of P521,691.76. 1) When the creditor is absent or unknown, or does not appear at the
place of payment;
2) When he is incapacitated to receive the payment at the time it is
due;
Issue #2 3) When without just cause, he refuses to give a receipt;
Yes, Sps. Biesterbos should pay the 12% interest per annum of the amount 4) When two or more persons claim the same right to collect;
of P518,791.76 in accordance with provisions under Title XVIII on 5) When the title of the obligation has been lost.
‘Damages’ of the Civil Code.
Overall Ruling II. Disposition
Regarding the payment of interest, the SC cited the ruling on Eastern
WHEREFORE, the petition is partly GRANTED. The questioned decision
Shipping Lines, Inc. vs. Court of Appeals for guidance. and resolution of the appellate court are hereby AFFIRMED with
MODIFICATION, i.e., that the legal interest to be paid on the principal
1. When the obligation is breached, and it consists in the payment of a sum amount of P518,791.76 is TWELVE PERCENT (12%) per annum which
of money, i.e., a loan or forbearance of money, the interest due should be shall commence from 18 May 1993 when extrajudicial demand was made
that which may have been stipulated in writing. Furthermore, the interest on petitioners up until 03 July 1993 when petitioners notified respondent
due shall itself earn legal interest from the time it is judicially demanded. that the amount of P521,691.76 had been deposited in his name with the
In the absence of stipulation, the rate of interest shall be 12% per annum Philippine National Bank withdrawable by him at any time during banking
to be computed from default, i.e., from judicial or extrajudicial demand hours. Another 12% interest per annum shall be paid on the amount due and
under and subject to the provisions of Article 1169 of the Civil Code. owing as of, and from, the date of finality of this decision until full payment
2. xxx would have actually been made. No costs.
3. When the judgment of the court awarding a sum of money becomes final
III. Additional Notes
and executory, the rate of legal interest, whether the case falls under
• N/A
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
VII. Random Facts
then an equivalent to a forbearance of credit." • Ponente: Vitug, J.
I. Law or Doctrine Applied
ART. 1256 OF THE CIVIL CODE

Art. 1256. If the creditor to whom payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
G.R. No. L-30187 | June 25, 1980 Compensation
Republic v. De Los Angeles Republic v. De Los Angeles
I. Recit-ready Summary In the instant case, the claim of the RCA that Petra R. Farin has
1. Sps. Petra R. Farin and Benjamin Farin obtained a loan from the an outstanding obligation to the RCA in the amount of P263,062.40
Marcelo Steel Corporation in the amount of P600,000.00. which should be compensated against the rents already due or may
2. As security therefor, Sps. Farin (mortgagors) constituted, in favor be due, was raised by the RCA in its motion for the reconsideration
of Marcelo Steel Corp. (mortgagee), a real estate mortgage upon of the order of December 23, 1967. A copy of said motion was duly
their parcel of land situated at Quezon City. furnished counsel for Sps. Farin and although they subsequently
3. Pending the foreclosure, Petra Farin leased portions of the Doña filed a similar motion for the reconsideration, they did not
Petra Building, situated on the mortgaged premises, to the Rice dispute nor deny such claim. Neither did the Marcelo Steel
and Corn Administration (RCA). Corporation dispute such claim of compensation in its opposition
4. Marcelo Steel Corp., invoking paragraph 5 of the mortgage to the motion for the reconsideration. The silence of Sps. Farin,
contract, filed a motion praying that an order be issued directing although the declaration is such as naturally one to call for action or
and/or authorizing the RCA and all other business concerns holding comment if not true, could be taken as admission of the existence
offices at the Doña Petra Building to channel or pay directly to it and validity of such a claim. Therefore, since the claim of the
the rents for the use of the building. RCA is undisputed, proof of its liquidation is not necessary.
5. Judge De Los Angeles issued the questioned order dated December
23, 167, granting the prayer. II. Facts of the Case (Material Facts)
6. The RCA filed a motion for the reconsideration of said order 1. October 29, 1964 – Sps. Petra R. Farin and Benjamin Farin
alleging that: obtained a loan from the Marcelo Steel Corporation in the
a. Sps. Farin has an outstanding obligation with the RCA in the amount of P600,000.00.
amount of P263,062.40, representing rice shortages incurred a. As security therefor, Sps. Farin (mortgagors) constituted, in
by her as a bonded warehouseman under contract with the favor of Marcelo Steel Corp. (mortgagee), a real estate
RCA, which should be compensated with the rents due and mortgage upon their parcel of land situated at Quezon City.
may be due; and 2. July 24, 1965 – Marcelo Steel Corp. wrote the Sheriff of Quezon
7. The trial court denied subsequent motions saying: City requesting the extra-judicial foreclosure of the mortgage.
“The records does not show any proof that the plaintiff, Petra a. Accordingly, the sheriff advertised and scheduled the extra-
Farin, is indebted to the aforesaid movant, RCA, as alleged in the judicial foreclosure sale of the mortgaged property for August
said motion and assuming that the herein plaintiff is really 26, 1965.
indebted to the RCA, the records further does not show that a b. August 21, 1965 – the Sps. Farin filed a petition for
case has been filed against her for the payment of such obligation, prohibition with injunction and damages against Benito
and therefore, there is no apparent legal ground to hold the Macrohon (Sheriff) and Marcelo Steel Corp. with the CFI of
payment of the rentals due the plaintiff."
Rizal, upon the ground that they have not been in default in
8. The SC held that proof of the liquidation of a claim, in order that
the payment of their obligation.
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.
Obligations and Contracts (2020) PETITIONER: Republic of the Phils. and Rice and Corn Administration 1
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Hon. De Los Angeles and Marcelo Steel Corporation.
3. Judge Walfrido De Los Angeles, issued an order commanding the to P37,500.00 to enable her to make the necessary repairs on the air
Sheriff and Marcelo Steel Corp. to desist from proceeding with the conditioning system of the Doña Petra Building, stating that "That
public auction sale of the property scheduled on August 26, 1965. RCA is ready, willing and able to release to the petitioners the
4. While the above case was pending, Petra Farin leased portions of rentals mentioned above." This motion was granted.
the Doña Petra Building, situated on the mortgaged premises, to 11. May 17, 1968 – the RCA filed a motion to set aside the said order,
the Rice and Corn Administration (RCA). claiming that the allegations contained in the motion dated May 10,
a. P11,500.00 per month, payable on or before the 5th day of 1968 is unauthorized and gratuitous, and the delivery of the
the incoming month. withheld rentals to Petra R. Farin would defeat its claim without
5. December 9, 1967 – the Marcelo Steel Corp., invoking paragraph giving the corporation its day in court.
5 of the mortgage contract, filed a motion praying that an order a. The RTC denied this motion, saying: “The records does not
be issued directing and/or authorizing the RCA and all other show any proof that the plaintiff, Petra Farin, is indebted to
business concerns holding offices at the Doña Petra Building to the aforesaid movant, RCA, as alleged in the said motion and
channel or pay directly to it the rents for the use of the building. assuming that the herein plaintiff is really indebted to the
6. December 23, 1967 – Judge De Los Angeles issued the questioned RCA, the records further does not show that a case has been
order granting the prayer. 􀁇led against her for the payment of such obligation, and
7. The RCA filed a motion for the reconsideration of said order, therefore, there is no apparent legal ground to hold the
praying that it be excluded therefrom, for the following reasons: payment of the rentals due the plaintiff."
a. The rents due Petra Farin had been assigned by her, with the 12. August 28, 1968 – the RCA filed a motion to vacate the orders
conformity with the RCA, to Vidal A. Tan; directing the them to pay rentals to Marcelo Steel Corp., reiterating
b. Sps. Farin has an outstanding obligation with the RCA in the the grounds alleged in its motion for reconsideration dated and in
amount of P263,062.40, representing rice shortages incurred its second motion for reconsideration which has remained unacted
by her as a bonded warehouseman under contract with the upon.
RCA, which should be compensated with the rents due and a. The RCA emphasized that it is not a party to the case;
may be due; and b. That it had been denied due process for lack of notice and the
c. RCA was never given an opportunity to be heard on these right to be heard;
matters c. That compensation took place by operation of law pursuant to
8. Sps. Farin filed a similar motion for the reconsideration. The RTC Art. 1286 of the Civil Code without the need of filing a case
DENIED both motions for reconsideration on April 3, 1968 and against Sps. Farin, or a decision rendered against her for the
April 17, 1968. payment of such obligation; and
9. The RCA filed a second motion for reconsideration, but no d. That the provisions of the Rules of Court permitting a
action appears to have been taken on this motion. judgment creditor to reach money or property in the hands of
10. May 10, 1968 – Petra Farin filed an urgent ex parte motion to third persons like the RCA, all presuppose a final judgment,
authorize the RCA to release the rentals corresponding to the and not a mere interlocutory order.
months of December 1967, January and February 1968, amounting 13. The motion was DENIED on December 19, 1968.
14. RCA received a letter from Marcelo Steel Corp., dated January 2, comment if not true, could be taken as admission of the existence and
1969, requesting compliance with the order of December 23, 1967, validity of such a claim. Therefore, since the claim of the RCA is
and the payment of accrued rentals. Hence, the petitioner instituted undisputed, proof of its liquidation is not necessary.
the present recourse. The SC further stated that if the record is bereft of the proof, it is because
Judge Delos Reyes did not call for the submission of such proof. Had Judge
III. Issue/s Delos Reyes issued an order calling for proof, the RCA would have
1. W/N compensation of debts between RCA and Sps. Farin had presented sufficient evidence to the satisfaction of the court.
taken place? YES.
2. W/N RCA was denied due process of law? YES.
Issue #2
IV. Holding/s
YES, RCA was denied due process of law. Hence, the order dated
Issue #1
December 23, 1967, is null and void and of no legal effect.
YES, there was compensation of debt.
Overall Ruling
Overall Ruling
The order of December 23, 1967 was within the competence of the Judge
Judge Delos Reyes erred in denying the claim of the RCA that
De Los Reyes, since Sps. Farin, had empowered the Marcelo Steel Corp. to
compensation of debts had taken place allegedly because:
collect and receive any interest, dividend, rents, profits or other income or
"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
benefit produced by or derived from the mortgaged property under the
that the herein plaintiff is really indebted to the RCA, the records further terms of the real estate mortgage contract executed by them.
does not show that a case has been filed against her, or a decision has been However, Judge De Los Reyes exceeded his jurisdiction in ordering
rendered against her for the payment of such obligation." RCA to pay the rentals to Marcelo Steel Corp., without giving them an
Proof of the liquidation of a claim, in order that there be compensation of opportunity to be heard. RCA are not parties to the case between the Sps.
debts, is proper if such claim is disputed. But, if the claim is undisputed, as Farin and Marcelo Steel Corp. RCA, in particular, was not furnished with a
in the case at bar, the statement is sufficient, and no other proof may be copy of the motion dated December 9, 1967, praying that an order be issued
required. directing and/or authorizing the RCA and other lessees to channel or pay
In the instant case, the claim of the RCA that Petra R. Farin has an directly to Marcelo Steel Corp., so that the RCA was deprived of its day in
outstanding obligation to the RCA in the amount of P263,062.40 which court and precluded it from presenting the defenses that it has against the
should be compensated against the rents already due or may be due, was Sps. Farin which, in this case, are:
raised by the RCA in its motion for the reconsideration of the order of 1. That the rents due to Petra Farin had been assigned by her to Vidal
December 23, 1967. A copy of said motion was duly furnished counsel for A. Tan,
Sps. Farin and although they subsequently filed a similar motion for the 2. That Sps. Farin has an outstanding obligation to the RCA in the
reconsideration, they did not dispute nor deny such claim. Neither did the amount of P263,062.40 which should be compensated with the
Marcelo Steel Corporation dispute such claim of compensation in its rentals already due or may be due.
opposition to the motion for the reconsideration. The silence of Sps. The said order clearly violated the constitutional provision against
Farin, although the declaration is such as naturally one to call for action or depriving a person of his property without due process of law. While there
may be rents due the lessor for the use of portions of the Doña Petra
Building, the collection of said rents should not be done in an arbitrary and
illegal manner, Certain rules should be observed and justice accorded the
parties whose property rights would be adversely affected thereby.
Since the order of December 23, 1967 was issued in excess of
jurisdiction, the said order is null and void and of no legal effect.

ARTICLE 1279 OF THE CIVIL CODE
ART. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
VI. Disposition
WHEREFORE, the petition is granted, and the order issued on December
23, 1967 in Civil Case No. Q-9384 of the Court of First Instance of Rizal,
Quezon City, Branch IV, entitled:
"Petra R. Farin, et al., petitioners, versus Benito Macrohon, et al.,
respondents," as well as the orders dated April 3, 1968, May 14, 1968, and
December 19, 1968, all affirming the said order of December 23, 1967,
should be, as they are hereby, annulled and set aside. With costs against the
respondent Marcelo Steel Corporation.

• N/A
VII. Random Facts

• Ponente: Concepcion, Jr., J.
I. Recit-ready Summary In the instant case, the claim of the RCA that Petra R. Farin has
1. Sps. Petra R. Farin and Benjamin Farin obtained a loan from the an outstanding obligation to the RCA in the amount of P263,062.40
Marcelo Steel Corporation in the amount of P600,000.00. which should be compensated against the rents already due or may
2. As security therefor, Sps. Farin (mortgagors) constituted, in favor be due, was raised by the RCA in its motion for the reconsideration
of Marcelo Steel Corp. (mortgagee), a real estate mortgage upon of the order of December 23, 1967. A copy of said motion was duly
their parcel of land situated at Quezon City. furnished counsel for Sps. Farin and although they subsequently
3. Pending the foreclosure, Petra Farin leased portions of the Doña filed a similar motion for the reconsideration, they did not
Petra Building, situated on the mortgaged premises, to the Rice dispute nor deny such claim. Neither did the Marcelo Steel
and Corn Administration (RCA). Corporation dispute such claim of compensation in its opposition
4. Marcelo Steel Corp., invoking paragraph 5 of the mortgage to the motion for the reconsideration. The silence of Sps. Farin,
contract, filed a motion praying that an order be issued directing although the declaration is such as naturally one to call for action or
and/or authorizing the RCA and all other business concerns holding comment if not true, could be taken as admission of the existence
offices at the Doña Petra Building to channel or pay directly to it and validity of such a claim. Therefore, since the claim of the
the rents for the use of the building. RCA is undisputed, proof of its liquidation is not necessary.
5. Judge De Los Angeles issued the questioned order dated December
23, 167, granting the prayer. II. Facts of the Case (Material Facts)
6. The RCA filed a motion for the reconsideration of said order 1. October 29, 1964 – Sps. Petra R. Farin and Benjamin Farin
alleging that: obtained a loan from the Marcelo Steel Corporation in the
a. Sps. Farin has an outstanding obligation with the RCA in the amount of P600,000.00.
amount of P263,062.40, representing rice shortages incurred a. As security therefor, Sps. Farin (mortgagors) constituted, in
by her as a bonded warehouseman under contract with the favor of Marcelo Steel Corp. (mortgagee), a real estate
RCA, which should be compensated with the rents due and mortgage upon their parcel of land situated at Quezon City.
may be due; and 2. July 24, 1965 – Marcelo Steel Corp. wrote the Sheriff of Quezon
7. The trial court denied subsequent motions saying: City requesting the extra-judicial foreclosure of the mortgage.
“The records does not show any proof that the plaintiff, Petra a. Accordingly, the sheriff advertised and scheduled the extra-
Farin, is indebted to the aforesaid movant, RCA, as alleged in the judicial foreclosure sale of the mortgaged property for August
said motion and assuming that the herein plaintiff is really 26, 1965.
indebted to the RCA, the records further does not show that a b. August 21, 1965 – the Sps. Farin filed a petition for
case has been filed against her for the payment of such obligation, prohibition with injunction and damages against Benito
and therefore, there is no apparent legal ground to hold the Macrohon (Sheriff) and Marcelo Steel Corp. with the CFI of
payment of the rentals due the plaintiff."
Rizal, upon the ground that they have not been in default in
8. The SC held that proof of the liquidation of a claim, in order that
the payment of their obligation.
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.
3. Judge Walfrido De Los Angeles, issued an order commanding the to P37,500.00 to enable her to make the necessary repairs on the air
Sheriff and Marcelo Steel Corp. to desist from proceeding with the conditioning system of the Doña Petra Building, stating that "That
public auction sale of the property scheduled on August 26, 1965. RCA is ready, willing and able to release to the petitioners the
4. While the above case was pending, Petra Farin leased portions of rentals mentioned above." This motion was granted.
the Doña Petra Building, situated on the mortgaged premises, to 11. May 17, 1968 – the RCA filed a motion to set aside the said order,
the Rice and Corn Administration (RCA). claiming that the allegations contained in the motion dated May 10,
a. P11,500.00 per month, payable on or before the 5th day of 1968 is unauthorized and gratuitous, and the delivery of the
the incoming month. withheld rentals to Petra R. Farin would defeat its claim without
5. December 9, 1967 – the Marcelo Steel Corp., invoking paragraph giving the corporation its day in court.
5 of the mortgage contract, filed a motion praying that an order a. The RTC denied this motion, saying: “The records does not
be issued directing and/or authorizing the RCA and all other show any proof that the plaintiff, Petra Farin, is indebted to
business concerns holding offices at the Doña Petra Building to the aforesaid movant, RCA, as alleged in the said motion and
channel or pay directly to it the rents for the use of the building. assuming that the herein plaintiff is really indebted to the
6. December 23, 1967 – Judge De Los Angeles issued the questioned RCA, the records further does not show that a case has been
order granting the prayer. 􀁇led against her for the payment of such obligation, and
7. The RCA filed a motion for the reconsideration of said order, therefore, there is no apparent legal ground to hold the
praying that it be excluded therefrom, for the following reasons: payment of the rentals due the plaintiff."
a. The rents due Petra Farin had been assigned by her, with the 12. August 28, 1968 – the RCA filed a motion to vacate the orders
conformity with the RCA, to Vidal A. Tan; directing the them to pay rentals to Marcelo Steel Corp., reiterating
b. Sps. Farin has an outstanding obligation with the RCA in the the grounds alleged in its motion for reconsideration dated and in
amount of P263,062.40, representing rice shortages incurred its second motion for reconsideration which has remained unacted
by her as a bonded warehouseman under contract with the upon.
RCA, which should be compensated with the rents due and a. The RCA emphasized that it is not a party to the case;
may be due; and b. That it had been denied due process for lack of notice and the
c. RCA was never given an opportunity to be heard on these right to be heard;
matters c. That compensation took place by operation of law pursuant to
8. Sps. Farin filed a similar motion for the reconsideration. The RTC Art. 1286 of the Civil Code without the need of filing a case
DENIED both motions for reconsideration on April 3, 1968 and against Sps. Farin, or a decision rendered against her for the
April 17, 1968. payment of such obligation; and
9. The RCA filed a second motion for reconsideration, but no d. That the provisions of the Rules of Court permitting a
action appears to have been taken on this motion. judgment creditor to reach money or property in the hands of
10. May 10, 1968 – Petra Farin filed an urgent ex parte motion to third persons like the RCA, all presuppose a final judgment,
authorize the RCA to release the rentals corresponding to the and not a mere interlocutory order.
months of December 1967, January and February 1968, amounting 13. The motion was DENIED on December 19, 1968.
14. RCA received a letter from Marcelo Steel Corp., dated January 2, comment if not true, could be taken as admission of the existence and
1969, requesting compliance with the order of December 23, 1967, validity of such a claim. Therefore, since the claim of the RCA is
and the payment of accrued rentals. Hence, the petitioner instituted undisputed, proof of its liquidation is not necessary.
the present recourse. The SC further stated that if the record is bereft of the proof, it is because
Judge Delos Reyes did not call for the submission of such proof. Had Judge
III. Issue/s Delos Reyes issued an order calling for proof, the RCA would have
1. W/N compensation of debts between RCA and Sps. Farin had presented sufficient evidence to the satisfaction of the court.
taken place? YES.
2. W/N RCA was denied due process of law? YES.
Issue #2
IV. Holding/s
YES, RCA was denied due process of law. Hence, the order dated
Issue #1
December 23, 1967, is null and void and of no legal effect.
YES, there was compensation of debt.
Overall Ruling
Overall Ruling
The order of December 23, 1967 was within the competence of the Judge
Judge Delos Reyes erred in denying the claim of the RCA that
De Los Reyes, since Sps. Farin, had empowered the Marcelo Steel Corp. to
compensation of debts had taken place allegedly because:
collect and receive any interest, dividend, rents, profits or other income or
"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
benefit produced by or derived from the mortgaged property under the
that the herein plaintiff is really indebted to the RCA, the records further terms of the real estate mortgage contract executed by them.
does not show that a case has been filed against her, or a decision has been However, Judge De Los Reyes exceeded his jurisdiction in ordering
rendered against her for the payment of such obligation." RCA to pay the rentals to Marcelo Steel Corp., without giving them an
Proof of the liquidation of a claim, in order that there be compensation of opportunity to be heard. RCA are not parties to the case between the Sps.
debts, is proper if such claim is disputed. But, if the claim is undisputed, as Farin and Marcelo Steel Corp. RCA, in particular, was not furnished with a
in the case at bar, the statement is sufficient, and no other proof may be copy of the motion dated December 9, 1967, praying that an order be issued
required. directing and/or authorizing the RCA and other lessees to channel or pay
In the instant case, the claim of the RCA that Petra R. Farin has an directly to Marcelo Steel Corp., so that the RCA was deprived of its day in
outstanding obligation to the RCA in the amount of P263,062.40 which court and precluded it from presenting the defenses that it has against the
should be compensated against the rents already due or may be due, was Sps. Farin which, in this case, are:
raised by the RCA in its motion for the reconsideration of the order of 1. That the rents due to Petra Farin had been assigned by her to Vidal
December 23, 1967. A copy of said motion was duly furnished counsel for A. Tan,
Sps. Farin and although they subsequently filed a similar motion for the 2. That Sps. Farin has an outstanding obligation to the RCA in the
reconsideration, they did not dispute nor deny such claim. Neither did the amount of P263,062.40 which should be compensated with the
Marcelo Steel Corporation dispute such claim of compensation in its rentals already due or may be due.
opposition to the motion for the reconsideration. The silence of Sps. The said order clearly violated the constitutional provision against
Farin, although the declaration is such as naturally one to call for action or depriving a person of his property without due process of law. While there
may be rents due the lessor for the use of portions of the Doña Petra
Building, the collection of said rents should not be done in an arbitrary and
illegal manner, Certain rules should be observed and justice accorded the
parties whose property rights would be adversely affected thereby.
Since the order of December 23, 1967 was issued in excess of
jurisdiction, the said order is null and void and of no legal effect.

(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
debtor.
VI. Disposition
WHEREFORE, the petition is granted, and the order issued on December
23, 1967 in Civil Case No. Q-9384 of the Court of First Instance of Rizal,
Quezon City, Branch IV, entitled:
"Petra R. Farin, et al., petitioners, versus Benito Macrohon, et al.,
respondents," as well as the orders dated April 3, 1968, May 14, 1968, and
December 19, 1968, all affirming the said order of December 23, 1967,
should be, as they are hereby, annulled and set aside. With costs against the
respondent Marcelo Steel Corporation.

• N/A
VII. Random Facts

• Ponente: Concepcion, Jr., J.
[GR No. L-22797 | September 12, 1966 ] Art.1170
Vda. de Blas v. Blas de Buenaventura Vda. de Blas v. Blas de Buenaventura
I. Recit-ready Summary an opposition to the probate. The grounds raised for the opposition are fraud
Rosalina Santos filed for the probate of the will of Maxima and mental incapacity. Before Flora Blas could close their evidence, she
Santos. Flora Blas and Justo Garcia filed an opposition to the probate, withdrew her opposition to the probate, so the court granted the probate of
grounded on the argument that the said will was executed via fraud. Flora the will. After the probate order became final, Flora Blas filed a petition
Blas eventually withdrew her opposition to the probate. The will contains a praying for the delivery of a fishpond stated in item No. 3, Clause No. 6 of
“no-contest and forfeiture” clause which states that all those who oppose the will.
the probate of the will shall not inherit anything from the will. She then Rosalina Santos filed an opposition to the prayer for delivery of
filed a petition for the delivery of a fishpond, that is included in the will of Flora Blas predicated on the ground that there is a provision in the will
Maxima Santos. Rosalina Santos opposed said prayer for delivery citing the stating “any heirs, devisees or legatees that contests or opposes its probate
Flora Blas’ violation of the “no-contest and forfeiture” clause. Lower court shall lose his or her right to receive any inheritance or benefit under it,
denied the motion for delivery based on the violation of the “no contest and which shall be in favor of the others.” This “no-contest and forfeiture”
forfeiture” clause. The issue in the main case is whether or not the clause of the will has the effect of depriving Flora of her devise in view of
opposition of Flora violated the “no contest and forfeiture” clause. The her opposition to the probate. The lower court denied the motion for
Court ruled that Flora Blas made a mistake in good faith in her opposition. delivery of the fishpond by Flora Blas based on the “no contest and
The Court posited that the timely rectification of Flora contributed to the forfeiture” clause of the will.
speedy probate of the will. The case was remanded and the lower court was Flora Blas appealed to the Court of Appeals due to the main issue
instructed to deliver to Flora Blas the fishpond. in the case, which is whether or not the opposition and eventual withdrawal
RESOLUTION AMENDING DECISION (PERTINENT TOPIC) of Flora Blas constituted a breach of the “no contest and forfeiture” clause
Flora Blas filed a motion for reconsideration. Rosalina Santos of the will. Her main argument is that her timely withdrawal from her
again filed her opposition. Flora Blas argues that the fruits or rent of the opposition, which was raised in good faith should not amount to a violation
fishpond should be delivered to her along with the said property. It is of the “no-contest and forfeiture” clause. The Court sided with Flora Blas
important to note that she did not expressly seek the recovery of the fruits stating that she should not be penalized for her mistake made in good faith,
initially. The Court ruled that she is entitled to the fruit and rents of the which was later rectified by her timely withdrawal. Her subsequent action
fishpond accruing from the time of death of Maxima Santos upto the time of of withdrawal of opposition contributed to the speedy probate of the will of
delivery to her. The Court cited Article 1170 which states that, “The Maxima Santos, therefore did not impair the true intention of Maxima
obligation to give a determinate thing includes that of delivering all its Santos with regards to the “no contest no forfeiture” clause of the will. The
accessions and accessories, even though they may not have been case was remanded to the lower court with the instruction that Flora Blas’
mentioned.” fish pond be delivered to her.
RESOLUTION AMENDING DECISION (PERTINENT PART TO OUR
II. Facts of the Case (It should be noted that the main case isn't the DISCUSSION )
pertinent part for class. The main case sets the factual antecedence for
the pertinent topic which will be discussed here.) Flora Blas filed a motion for reconsideration. Against this motion
Rosalina Santos, the niece of the deceased, filed for the probate of for reconsideration, Rosalina Santos filed her opposition. Appellant-movant
the will of Maxima Santos Vda. Blas. Nearest of kin are the siblings, Flora Blas argues that she is not only entitled to the fishpond, but also to the
nephews, and nieces. Flora Blas de Buenaventura and Justo Garcia filed fruits or rents of the fishpond from the time of the death of the Maxima
1
[Oblicon2020] PETITIONER/APPELLANT: TESTACY OF MAXIMA SANTOS VDA. DE

BLAS, ROSALINA SANTOS (Executrix),
Reynaldo Reveche RESPONDENT: FLORA BLAS DE BUENAVENTURA (Legatee)
[GR No. L-22797 | September 12, 1966 ] Art.1170
Vda. de Blas v. Blas de Buenaventura Vda. de Blas v. Blas de Buenaventura
Santos upto the time said fishpond was delivered to her. Appellant did not ACCESSIONS AND ACCESSORIES
expressly seek recovery for the fruits or rents of the said property in her Article 1166 of the Civil Code applies: "The obligation to give a
petition for delivery. The pertinent issue in the Resolution is whether or not determinate thing includes that of delivering all its accessions and
the fruits or rents of the fishpond should also be delivered to Flora Blas and accessories, even though they may not have been mentioned."
if so, whether it has incurred delay.
INTEREST
III. Issue/s Interest does not run, unless stipulated, where there is yet no delay.
1. Whether or not the accessions, or rent of the fishpond shall be DELAY IN SETTLEMENT PROCEEDINGS
delivered to Flora ? - YES No delay on the part of the administratrix until after the court orders to
2. If yes, whether or not delay has been incurred? - NO make delivery.
VI. Disposition
IV. Holding/s WHEREFORE, the appealed orders dated April 30, 1958 and March 7,
1. YES, the fruits or rents of the fishpond should be delivered to 1959 are hereby reversed and this case is remanded to the court a quo, with
Flora. The Court ruled that the provisions of law regarding the instruction that appellant's specifc devise under the will be forthwith
devised properties expressly state that “devise of a specific thing delivered to her by appellee executrix, will all the fruits or rents thereof
includes its fruits and income earned after the testator’s death.” accruing from the death of the testatrix on October 5, 1956 until its delivery,
Fruits or rents are considered accessions according to Articles 441 and for this purpose said appellee executrix shall render an accounting to
and 442 of the Civil Code. Strictly speaking, there is no need to the court a quo. Lastly, attorney's fee of P5,000 is hereby awarded in
mention them in the petition since, Article 1166 of the Civil Code appellant's favor against appellee. No costs. So ordered.
states that, "The obligation to give a determinate thing includes
that of delivering all its accessions and accessories, even though VII. Separate Opinions
they may not have been mentioned." VIII. Additional Notes
- The important part about the main case is the result because the
2. NO, delay has not yet incurred. The rule is that interest does decision is what ordered the delivery of the fishpond. Take note of
not run, unless stipulated, where there is yet no delay. In the arguments of Flora Blanco: she was addressed as Flora
settlement proceedings, there is no delay on the part of the Buendia instead of Flora Blas, testimony of the nurse stating that
administratrix until after the court orders her to make delivery of no one was in the room at the time stated in the will when Maxima
the legacy or devise. In this case, since the court a quo did not Santos was executing the document, mental incapability and severe
issue an order, the appellee has not incurred delay and is thus not illness of Maxima Santos around the time the will was executed.
liable for interest.
VII. Random Facts
Ponente: Bengzon, J.P., J
2
[Oblicon2020] PETITIONER/APPELLANT: TESTACY OF MAXIMA SANTOS VDA. DE

BLAS, ROSALINA SANTOS (Executrix),
Reynaldo Reveche RESPONDENT: FLORA BLAS DE BUENAVENTURA (Legatee)
[G.R. No L-27454 | April 30, 1970] [Contravention of the Tenor of the Obligation]
Rosendo O. Chaves vs. Fructuoso Gonzales Rosendo O. Chaves vs. Fructuoso Gonzales
I. Recit-Ready Summary in shambles. He demanded that Gonzales return to him the missing parts
and the P6.00 for repair parts. Gonzales did so. Chaves had to take his
Petitioner Chaves took his portable typewriter to Respondent Gonzales typewriter elsewhere for repairs which amounted to P89.85. Chaves filed a
for routine cleaning and servicing. After not being able to finish the job, case against Gonzales claiming actual and compensatory damages of
Chaves repeatedly reminded Gonzales to do so. At one point, Gonzales P90.00, temperate damages of P100.00, moral damages of P500.00, and
asked for P6.00 for repair parts. After some time when Gonzales had still attorney's fees of P500.00 and invoking Art. 1167. On his defense, Gonzales
not finished cleaning and servicing petitioner’s typewriter, he went to claims that the Chaves’s right of action should have been that he file a
Gonzales and took back the said item. Unfortunately, the same was returned definite date in court wherein the said cleaning and servicing is to be
to him in shambles. Chaves had to take his typewriter elsewhere for repairs accomplished; since was no time stipulated to finish the service, he is not in
which amounted to P89.85. Chaves filed a case against Gonzales claiming the delay.
actual and compensatory damages, temperate damages, moral damages,
and attorney's fees. On his defense, Gonzales claims that the Chaves’s right III. Issue/s
of action should have been that he file a definite date in court wherein the
said cleaning and servicing is to be accomplished; since was no time Whether petitioner Chaves is entitled to damages under Art. 1167 of the
stipulated to finish the service, he is not in the delay. The issue in the case is Civil Code. YES.
whether or not Chaves has the right to claim damages. The Court held that
Chaves has the right to claim damages for the repairs and missing parts of IV. Holding/s
his typewriter amounting to P89.00, but since he did not stipulate in the
facts reasons for his temperate and moral damages, and his attorney’s fees,
Yes, Chaves is entitled to damages as stated in Art. 1167 of the Civil
this cannot, then, be granted to him.
Code, which states “If a person obliged to do something fails to do it,
the same shall be executed at his cost. This rule 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 he undone.” Gonzales
Petitioner Chaves took his portable typewriter to Respondent Gonzales
for routine cleaning and servicing. After not being able to finish the job, contravened the tenor of his obligations because he not only failed to do the
Chaves repeatedly reminded Gonzales to do so. At one point, Gonzales service asked, but also returned the typewriter with missing parts and in
asked for P6.00 for repair parts. After some time when Gonzales had still shambles. The Court held that the cost of execution of the obligation in this
not finished cleaning and servicing petitioner’s typewriter; he, then, went to case should be the cost o f labor or service in the repair of the typewriter
Gonzales’s house to take back his typewriter. Upon returning home, amounting to P58.75. Gonzales is also liable for the missing parts
however, Chaves found out that his typewriter had missing parts and were amounting to P31.10. Since temperate damages, moral damages, and
1
Oblicon B2023 PETITIONER/APPELLANT: Rosendo O. Chaves

DIGEST AUTHOR: Alex Sulaik RESPONDENT: Fructuoso Gonzales
[G.R. No L-27454 | April 30, 1970] [Contravention of the Tenor of the Obligation]
Rosendo O. Chaves vs. Fructuoso Gonzales Rosendo O. Chaves vs. Fructuoso Gonzales
attorney’s fees were not alleged in Chaves’ complaint, the same cannot be ● He directly appealed his case to the Supreme Court, that’s why he
granted to him. In total, the Court awarded him P89.85 with additional could no longer allege factual antecedents to his temperate and
interest. moral damages, as well as his attorney's fees.
V. Law or Doctrine Applied VII. Random Facts

● Ponente: Reyes, J.B.L. J.
ART. 1167. If a person obliged to do something fails to do it, the same shall
be executed at his cost.
This same rule 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 he undone.
VI. Disposition
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is

hereby modified, by ordering the defendant-appellee to pay, as he is hereby
ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the
legal rate from the filing of the complaint. Costs in all instances against
appellee Fructuoso Gonzales.

● Chaves was initially granted P31.10 by the lower courts, that’s
why he appealed his case.
Oblicon B2023 PETITIONER/APPELLANT: Rosendo O. Chaves

DIGEST AUTHOR: Alex Sulaik RESPONDENT: Fructuoso Gonzales
G.R. 183872 | November 17, 2014 Article 1167, 1169 and 1170
Mackay v Caswell Mackay v Caswell
I. Recit-ready Summary for service connection. The Caswells had already paid Owen Php 227,000
Caswell spouses hired Owen to install electricity in their home. by then.
Unfortunately, Owen’s work had a number of defects and this caused a
delay in the installation electricity because it failed to meet the requirements Zameco II inspected the installation and tested the distribution transformers
set by Zameco II, the only distributor of electricity in the area. The Caswells and found that there were numerous deficiencies in the installation. Zameco
looked for Owen to fix the deficiencies, but he was nowhere to be found. II refused to provide energy to the Caswell home.
Zameco II remedied the deficiencies and electricity was finally installed.
The Caswells claim that they are entitled reimbursements for the payments The Caswells thus looked for Owen to fix the deficiencies, but Owen was
they incurred for Zameco II’s services. The RTC held that the Caswells
not found. Zameco II fixed the problems and Caswells had electricity. The
should have filed an action for specific performance and that by
Caswells filed a case for estafa against Owen. Owen was acquitted
immediately resorting to the service of Zameco II, Owen was deprived the
opportunity to rectify his work. The CA reversed the RTC decision and held
that there was no need to file an action for specific performance. Owen filed a Complaint for, seeking to recover the Php 23,000 due to him,
as well as damages for the estafa case filed against him.
The issue is W/N a judicial action for specific performance is necessary?.
The SC held that an action for specific performance was not necessary. The Caswells maintain that Owen is not entitled to any money because he
Caswell’s effort to communicate served as demand. The SC gave credence failed to finish his job. Hence, the Caswells are the ones entitled to
to Caswells’ claim that they looked for Owen to demand rectification of the reimbursements for the expenses incurred to correct Owen’s work.
work, but Owen et al was nowhere to be found. The act of demanding Owen
to secure the permit and to subject the transformer to testing is substantial Owen et al testified that they rectified the discrepancies Zameco II found
compliance to the requirements of Art. 1715. Furthermore, to file an action and that he informed them that the house was ready for connection.
for specific performance not only deprives the Caswells from hiring
someone else to rectify the work, but also defeats the purpose of the The MTC ruling in favor of the Caswells, found that Owen’s work suffers
contracted work--which is to immediately have electricity in their home. In from deficiencies. Caswells have a right to require him to remove the defect
this situation, time is of the essence. (no need for demand by the creditor in and execute another work. The php 69,905 that the Caswells spent should
order that delay may exist Art.1169)
be borne by Owen. The court deducted the php 23,000 Owen was seeking
from the Caswells.
Facts of the Case
The RTC reversed the MTC decision and opined that the Caswells should
Caswell spouses asked Zameco II (only distributor of electricity in the area) have filed a judicial action for specific performance. By immediately
to install electricity in their newly built home. Payment for the service was resorting to the service of Zameco II, Owen was not given the opportunity
quoted at an estimate of Php 456,000. However, the caswells hired Owen to remedy his deficiencies in accordance with Art 1715.
Mackay(Owen) to do it for them because Owen offered to do the job for
Php 250,000. Owen claimed that the installation was completed and ready The CA reinstated the MTC decision. The CA reasoned that the Caswells’
effort to communicate with Owen effectively served as the former’s request
1
Oblicon 2020 PETITIONER/APPELLANT: OWEN PROSPER A. MACKAY

DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: SPOUSES DANA CASWELL and CERELINA CASWELL
to rectify the flaws in his contracted work. There was no need to file a nowhere to be found. The act of demanding Owen to secure the
judicial action for specific performance. permit and to subject the transformer to testing is substantial
compliance to the requirements of Art. 1715.
II. Issue/s
1. W/N Owen executed his work with defects that could lessen its Furthermore, to file an action for specific performance not only
value for its stipulated use? (YES) deprives the Caswells from hiring someone else to rectify the
2. W/N a judicial action for specific performance is necessary? work, but also defeats the purpose of the contracted work--which is
(YES) to immediately have electricity in their home. In this situation, time
3. W/N Owen has to reimburse the costs the Caswells have is of the essence. (therefore, there is no need for demand by the
shouldered as the latter’s actual damages? he is to reimburse the creditor in order that delay may exist Art.1169)
rectification (YES)
3. The SC held that Owen has to reimburse the Caswells for the
III. Holding/s expenses they incurred. One is entitled to compensation only for
1. The SC said yes, Owen executed his work with defects. The SC pecuniary loss suffered that has duly been proved. Receipts must
looked into the Joint Affidavit filed by the Caswells. In the show proof of actual amount loss. The claimant must prove the
affidavit, the Caswells narrated that Owen told them he would amount loss with a reasonable degree of certainty premised upon
deliver the permits and contact Zameco so that the electricity could competent proof and on the best evidence obtainable. In this case,
be connected (see notes for details). Nobody from Owen’s group the SC gave credence to the documents relied upon by the CA and
acted. These circumstances, together with the deficiencies the MTC at arriving at the rectification cost (see notes).
sufficiently explain the delay in the connection of the electricity.
Owen’s job was not only to finish the installation, but also do IV. Law or Doctrine Applied
quality work and quality material in order to meet the requirements Article 1167.
imposed by Zameco II.
If a person obliged to do something fails to do it, the same shall be
2. The SC ruled that an action for specific performance is not executed at his cost.
necessary. Caswell’s effort to communicate served as demand.
Under Article 1715 of the Civil Code, if the work of a contractor Art. 1169.
has defects which destroy or lessen its value or fitness for its
Those obliged to deliver or to do something incur in delay from the
ordinary or stipulated use, he may be required to remove the defect
time the obligee judicially or extrajudicially demands from them the
or execute another work. If he fails to do so, he shall be liable for
fulfillment of their obligation.
the expenses by the employer for the correction of the work.
Demand required under this provision need not be in a particular However, the demand by the creditor shall not be necessary in order
form. The SC gave credence to Caswells’ claim that they looked that delay may exist:
for Owen to demand rectification of the work, but Owen et al was
2

(1) When the obligation or the law expressly so declare; or

“1) no permits [were] requested or [were] given by ZAMECO; (2)
(2) When from the nature and the circumstances of the transformer allegedly brand new [and] had to run through testing laboratory.
obligation it appears that the designation of the time when the Owen['s] group [neither] did the testing nor caused a testing; (3) complete
thing is to be delivered or the service is to be rendered was a inspection of installation was [yet] to be done . . .; (4) no installation layout
controlling motive for the establishment of the contract; or was provided or presented to ZAMECO; (5) nobody [from Owen's group
was] around for 4-5 days to . . . talk about our problems. Owen called, sent
(3) When demand would be useless, as when the obligor has word to [us] and we have gone down (3) occasions at night to try to find
rendered it beyond his power to perform. him. The three did [a] vanishing act. Finally, [they came] to take the
transformer for testing. [The] one day testing told us by Pulangco turned
Article 1170. into 1 1/2 weeks . . . . I had to go pick it up myself at test complex. Brought
the transformer home from Castillejos, August [10,] 1998 with the test
Those who in the performance of their obligations are guilty of fraud, results. No response from the people who called themselves NAPOCOR.
negligence, or delay, and those who in any manner contravene the tenor After [chasing after] Owen Mackay . . . and [after] empty promises we were
thereof, are liable for damages. referred to Atty. Pacis, [and] the rest is still unsettled;”
Article 1715. a) Engr. Pulangco's handwritten receipt of P15,400.00, to which he had

testified before the court that he had indeed received such amount
The contract shall execute the work in such a manner that it has the
qualities agreed upon and has no defects which destroy or lessen its b) the Sales Invoice No. 2029 issued by Peter A. Eduria Enterprises
value or fitness for its ordinary or stipulated use. Should the work be reflecting the total cost of P53,805.00.00.
not of such quality, the employer may require that the contractor
remove the defect or execute another work. If the contract fails or VII. Random Facts
refuses to comply with this obligation, the employer may have the ● Ponente: Del Castillo, J.
defect removed or another work executed, at the contractor's cost.
V. Disposition
WHEREFORE, the instant petition is DENIED. The April 30, 2008

Decision and July 24, 2008 Resolution of the Court of Appeals in CA-G.R.
SP No. 97146, which reinstated the June 29, 2006 Decision of the
Municipal Trial Court, San Narciso, Zambales, in Civil Case No. 538, are
AFFIRMED in toto. No costs.
VI. Separate Opinions

3

G.R. No. 134692 | August 1, 2000 Nature and Effects of Obligations
Fajardo v Freedom to Build, Inc. Fajardo v Freedom to Build, Inc.
I. Recit-ready Summary Transfer Certificate is a Restrictive Covenant which provides certain

The respondent is an owner-developer and seller of low-cost prohibitions:
housing. They sold a house and lot to the petitioner spouses. Within their Easements. For the good of the entire
contract is a Restrictive Covenant that provides certain prohibitions. These community, the homeowner must observe a two-meter
prohibitions state, among others, that (1) a second storey expansion must be easement in front. No structure of any kind (store,
placed on the back portion of the house and should not extend beyond the garage, bodega, etc.) may be built on the front
apex of the original building, and (2) the second floor expansion must be 6 easement.
meters behind the property line and 4 meters behind the front wall. "Upward expansion. A second storey is not
Petitioners, despite numerous warnings by the respondents, prohibited. But the second storey expansion must be
placed above the back portion of the house and
extended the roof and second floor of their house. The end of the second
should not extend forward beyond the apex of the
floor reached a point directly above the front wall of the house. Thus, the
original building.
respondents raised the matter to court.
"Front expansion: 2nd Storey: No unit may
The RTC and CA ruled in favor of the respondents and directed the be extended in the front beyond the line as designed
petitioners to immediately demolish the portion of their property which is and implemented by the developer in the 60 sq. m.
against the Restrictive Covenant of their contract. unit. In other words, the 2nd floor expansion, in
The SC upheld the decision of the lower courts. They held that front, is 6 meters back from the front property line
Restrictive Covenants have been upheld even if they limit how one uses and 4 meters back from the front wall of the house,
one’s property provided that the restrictions must be reasonable, not against just as provided in the 60 sq. m. units."
public policy or the law, and not a restraint of trade. The purpose here is to
prevent overcrowding and to promote privacy. Petitioners argue that the The petitioners, despite the Covenant and numerous warnings by the
contract does not provide a penalty of demolition in the event that the respondents, expanded the second storey and roof of their house until the
Restrictive Covenant is violated so no demolition can take place. This end of it reached a point directly above the front wall of the house. This
argument must fall. Article 1168 is clear in saying that if an obligation is to prompted the respondents to raise the matter to court. The RTC and CA
not do and the obligor does the thing forbidden, it is the obligor that must ruled in favor of the respondents and directed the petitioners to demolish
undo the thing done at his own expense. the portion of their property violative of the Restrictive Covenant.
III. Issue/s
II. Facts of the Case 1. W/N The provisions of the Restrictive Covenant are valid?
The respondent is an owner-developer and seller of low-cost YES.
housing. They sold a house and lot in the De la Costa Homes in Barangka, 2. W/N The petitioners may be required to demolish structure
Marikina to the petitioner spouses. Within the Contract of Sale and the violating the Restrictive Covenant at their expense? YES.
1
Obligations and Contracts (2020) PETITIONER: Eliseo Fajardo, Jr. and Marissa Fajardo
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Freedom to Build, Inc.
G.R. No. 134692 | August 1, 2000 Nature and Effects of Obligations
Fajardo v Freedom to Build, Inc. Fajardo v Freedom to Build, Inc.
IV. Holding/s structure cannot be accepted. The Civil Code is clear in Article 1168 that it
1. YES, in general, frontline restriction on constructions have is the obligor that is responsible for undoing the act at his expense.
been held to be valid stipulations.
Negative easements are the most common easement created by a VI. Disposition
covenant whose effect is to preclude the owner of the land from doing an WHEREFORE, the assailed decision, dated 13 July 1998, of the
act, which, if no easement existed, he would be entitled to. The court has Court of Appeals in CA-G.R. CV No. 50085 sustaining that of the court a
sustained Restrictive Covenants where the Covenants are reasonable, not qou, is AFFIRMED. No costs.
contrary to public policy or to the law, and not in restraint of trade.
In a low cost-socialized housing, owner-developers are constrained
● Restrictive Covenants are not synonymous with easements. Such
to build as many houses on a limited land area for the marginalized buyers
covenants, limitations on the manner in which one may use his
while also maintaining safety, aesthetics, and a decent living conditions. The own property, do not result in true easements, but a case of
restrictions are intended to prevent overcrowding and to promote privacy servitudes (burden) which are sometimes characterized as negative
among the residents. easements.
VII. Random Facts
2. YES, demolition may take place at the expense of the ● Ponente: Vitug, J.
petitioners.
Petitioners argue that the contract does not prescribe the penalty of
demolition in the event of a violation of the Restrictive Covenant. Thus, no
demolition can take place. Article 1168 of the Civil Code provides that in an
obligation to not do and the obligor does what is forbidden, it shall be
undone at the expense of the obligor. With this, the petitioners must
demolish the portion of the property at their expense.

This article provides that: “When the obligation consists in not
doing and the obligor does what has been forbidden him, it shall be undone
at his expense.”
The petitioners, being the ones obligated to not violate the
provision in the contract pertaining to the expansionary limits of a second
storey, are, thus, liable to demolish these. The argument that absent a
specific provision in the contract, it is the respondent that must demolish the
2
Obligations and Contracts (2020) PETITIONER: Eliseo Fajardo, Jr. and Marissa Fajardo
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Freedom to Build, Inc.
G.R. No. 96505 | July 1, 1993 Fraud; distinguished from negligence; guilty of fraud
Legaspi Oil v. CA Legaspi Oil v. CA
I. Recit-ready Summary with appellee for the sale and delivery of copra. The records show that he
Legaspi Oil Co. had several transactions with Bernard Oseraos, concluded:
through his authorized acting agents, for the sale of copra. The price at • a sale for 70 tons of copra at P95.00 per 100 kilos on May 27, 1975
which appellant sells the copra varies from time to time, depending on the • another sale for 30 tons of P102.00 per 100 kilos on September 23,
prevailing market price when the contract is entered into. One of his 1975
authorized agents, Jose Llover, had previous transactions with appellee for
• November 6, 1975, another designated agent signed a contract in
the sale and delivery of copra. On February 16, 1976, Jose Llover signed
contract No. 3804 for the sale of 100 tons of copra at P82.00 per 100 kilos behalf of appellant for the sale of 100 tons of copra at P79.00 per
with delivery terms of 20 days effective March 8, 1976. 100 kilos with delivery terms of 25 days effective December 15,
As compared to Bernard’s transaction on November 6, 1975, the 1975.
current price agreed upon is slightly higher than the last contract. In all these At this point, it must be noted that the price of copra had been fluctuating
contracts though, the selling price had always been stated as "total price" (going up and down), indicating its unsteady position in the market.
rather than per 100 kilos. However, the parties have understood the same to On February 16, 1976, appellant's agent Jose Llover signed
be per 100 kilos in their previous transactions. After the period to deliver contract No. 3804 for the sale of 100 tons of copra at P82.00 per 100 kilos
had lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance with delivery terms of 20 days effective March 8, 1976. As compared to
of 53,666 kilos as per running account card. appellant's transaction on November 6, 1975, the current price agreed upon
Demands were made by Legaspi Oil Co. to deliver the balance, is slightly higher than the last contract. In all these contracts though, the
however, there was still no compliance. Legaspi Oil Co. then exercised its selling price had always been stated as "total price" rather than per 100
option under the contract and purchased the undelivered balance from the
kilos. However, the parties have understood the same to be per 100 kilos in
open market at the prevailing price of P168.00 per 100 kilos, or a price
their previous transactions.
differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable
against Bernard. After the period to deliver had lapsed, appellant sold only 46,334
The issue in this case is W/N Bernard Oseraos is liable for damages kilos of copra thus leaving a balance of 53,666 kilos as per running account
arising from fraud or bad faith in deliberately breaching the contract of sale card. Accordingly, demands were made upon Bernard Oseraos to deliver the
entered into by the parties. The SC rules that Bernard is liable for damages. balance with a final warning embodied in a letter dated October 6, 1976,
Bernard is guilty of fraud in failure to perform obligation under the sales that failure to deliver will mean cancellation of the contract, the balance
contract whereunder he bound himself to deliver to petitioner 100 metric to be purchased at open market and the price differential to be charged
tons of copra within twenty (20) days from March 8, 1976, against appellant. On October 22, 1976, since there was still no
compliance, appellee exercised its option under the contract and purchased
II. Facts of the Case the undelivered balance from the open market at the prevailing price of
Bernard Oseraos (apellant) acting through his authorized agents, had P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a
several transactions with appellee Legaspi Oil Co. for the sale of copra to net loss of P46,152.76 chargeable against appellant. On November 3,
the latter. The price at which appellant sells the copra varies from time to 1976, petitioner filed a complaint against private respondent for breach of a
time, depending on the prevailing market price when the contract is entered contract and for damages.
into. One of his authorized agents, Jose Llover, had previous transactions
Obligations and Contracts (2020) PETITIONER: Legaspi Oil Co., Inc. 1

DIGEST AUTHOR: Steph Naval RESPONDENT: Court of Appeals and Bernard Oseraos
G.R. No. 96505 | July 1, 1993 Fraud; distinguished from negligence; guilty of fraud
Legaspi Oil v. CA Legaspi Oil v. CA
III. Issue/s
1. W/N private respondent Oseraos is liable for damages arising FRAUD AND NEGLIGENCE
from fraud or bad faith in deliberately breaching the contract Fraud may be defined as the voluntary execution of a wrongful act, or a
of sale entered into by the parties? YES. wilful omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in
IV. Holding/s Article 1170 of the Civil Code of the Philippines is the deliberate and
intentional evasion of the normal fulfillment of obligation; it is
1. YES, private respondent Oseraos is liable for damages arising
distinguished from negligence by the presence of deliberate intent,
from fraud or bad faith in deliberately breaching the contract
which is lacking in the latter.
of sale entered into by the parties.
The SC ruled that private respondent is guilty of fraud in the performance of ARTICLE 1170 OF THE CIVIL CODE
his obligation under the sales contract whereunder he bound himself to Those who in the performance of their obligation are guilty of fraud,
deliver to petitioner 100 metric tons of copra within twenty (20) days from negligence, or delay, and those who in any manner contravene the tenor
March 8, 1976. However within the delivery period, Oseraos delivered only thereof, are liable for damages.
46,334 kilograms of copra to petitioner, leaving an undelivered thus a
balance of 53,666 kilograms. Petitioner made repeated demands upon VI. Disposition
private respondent to comply with his contractual undertaking to deliver the
balance of 53,666 kilograms but private respondent elected to ignore the WHEREFORE, the instant petition is hereby GRANTED. The
same. decision of the respondent Court of Appeals in CA-G.R. CV No. 05828 is
ANNULLED and SET ASIDE and the decision of the trial court in Civil
Thus, private respondent is liable to pay respondent the amount of Case No. 5529 REINSTATED, with costs against private respondent. SO
P46,152.76 as damages. In case of fraud, bad faith, malice, or wanton ORDERED.Cd
attitude, the guilty party is liable for all damages, which may be reasonably
attributed to the non-performance of the obligation VII. Additional Notes
• Copra – dried meat or kernel of the coconut; fruit of the coconut
Fraud may be defined as the voluntary execution of a wrongful act, or a palm
wilful omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in VII. Random Facts
Article 1170 of the Civil Code of the Philippines is the deliberate and
intentional evasion of the normal fulfillment of obligation; it is • Ponente: Melo, J.
distinguished from negligence by the presence of deliberate intent,
which is lacking in the latter. The conduct of private respondent clearly
manifests his deliberate fraudulent intent to evade his contractual obligation
for the price of copra had in the meantime more than doubled from P82.00
to P168 per 100 kilograms.
Obligations and Contracts (2020) PETITIONER: Legaspi Oil Co., Inc. 2

DIGEST AUTHOR: Steph Naval RESPONDENT: Court of Appeals and Bernard Oseraos
G.R. No. 149051| June 30, 2006 Nature and Effect of Obligations
Banaga v Majaducon Banaga v Majaducon
I. Recit-ready Summary The SC held that yes, the trial court was incorrect in dismissing
petitioner’s appeal. While it is correct that petitioner bound herself to
An action for redemption of a parcel of land filed by petitioner abide by the findings of the survey team, the waiver does not include
Banaga against private respondent Candelario Damalerio before the RTC. future fraud. Responsibility arising from fraud is demandable in all
The trial court dismissed petitioner’s complaint, prompting her to elevate the obligations. Any waiver of an action for future fraud is void. Petitioner’s
matter to the Court of Appeals which reversed the trial court and upheld waiver cannot be taken to cover allegations of fraud.
petitioner’s right to redeem the property.
However, petitioner failed to exercise her right to redeem within the given
period. Private respondent moved to declare the termination of the 30-day Petitioner Banaga instituted an action for redemption of a parcel of land in
redemption period, but the trial court denied the same in an Order issued. General Santos against Candalerio Damalerio. Upon elevation to the CA, it
was ruled that petitioner had the right to redeem said property. However,
Controversy arose anew when private respondent moved for the issuance of petitioner failed to exercise her right to redeem within the given period.
a special order for demolition of a structure alleged to be erected within Lot Damalerio moved to declare the termination of the 30-day redemption
2-G-2. Petitioner objected, claiming that the structure is situated within Lot period, but the trial court denied the same. Thus, Damalerio filed for a
2-G-1, the adjacent property retained and still owned by petitioner. To petition for certiorari praying for the nullification of said order. CA granted
resolve the issue, the trial court directed both parties to conduct a joint such. Banaga appealed to the SC and was denied, a writ of execution was
survey of the two lots. As the reports submitted by the two surveyors issued as a consequence. However, the Register of Deeds refuse to issue a
revealed conflicting results, petitioner and private respondent jointly certificate of title in the name of Damalerio.
manifested that a relocation survey be made by the survey team from the Litigation commenced again when Damalerio elevated the case to the CA
DENR. The report submitted by the DENR indicated that Lot 2-G-1 had via a petition for certiorari and mandamus. The CA decision, which was
encroached on private respondent’s Lot 2-G-2. affirmed by the SC, directed the Register of Deeds to issue certificates of
title in Damalerio’s name and the trial court to issue a writ of execution and
Petitioner brought up allegations of discrepancy and alterations in the lot writ of possession in favor of Damalerio. The RTC then issued a writ of
data computations used in the survey when compared to data found in execution and writ of possession for the delivery of the subject property, Lot
DENR records. 2-G-2 to Damalerio. Damalerio was placed in possession of Lot 2-G-2,
which he fenced with galvanize iron sheets.
The relevant issue in this case is W/N the trial court committed error when it
upheld the findings of the survey report given petitioner’s allegation of Damalerio then moved for the issuance of a special order for the demolition
fraud involving alterations in the technical descriptions which were used as of a structure allegedly erected within Lot 2-G-2. Banaga objected, arguing
basis for the survey? that the structure was in Lot 2-G-1 which he still owned. The trial court
ordered them to conduct a joint survey of the two lots to resolve the issue.
However, they submitted conflicting results. The parties then agreed that a
Obligations and Contracts PETITIONER: BIBLIA T. BANAGA 1
DIGEST AUTHOR: Ryon Rivera RESPONDENT: HON. JOSE S. MAJADUCON, Presiding Judge
Regional Trial Court, Court, Branch XXIII, 11th Judicial Region,
General Santos City and CANDELARIO S. DAMALERIO
survey be made by a team from the DENR. They agreed before the RTC execution of the decision in the main case and was hence
that they would abide and honor such findings and recommendations by the justified in denying petitioner’s notice of appeal? NO.
DENR team.
3. W/N The trial court committed error in judgment insofar as it
Engr. Dida of the DENR conducted the relocation survey and his report upheld the accuracy of the survey report in light of petitioner’s
submitted that Lot 2-G-1 (Banaga’s property) encroached on Damalerio’s allegation of fraud involving alterations in the technical
Lot 2-G-2 by some 136 sqm. descriptions used as basis for the survey? YES.
Despite Banaga’s motion for the conduct of a verification survey, the trial
court proceeded in taking the testimony of Engr. Dida and directed both IV. Holding/s
parties to submit their memoranda. The trial court then approved the report 1. No, in adjudging the plausibility of an explanation, a court
submitted by Engr. Dida. shall likewise consider the importance of the subject matter of the case
or the issues involved therein, and the prima facie merit of the pleading
Banaga then went to the CA seeking the nullification of the orders of the sought to be expunged for violation of Section 11.
trial court. Banaga questioned the trial court’s dismissal of her notice of
appeal on the ground that the trial court has the ministerial duty to approve The basis of allowing the appellate review of the trial court’s order
the notice of appeal duly filed on time and to transmit the records of the case approving the survey is to afford petitioner the opportunity to prove her
to the appellate court. CA dismissed the petition on the ground that claim that she bears the risk of being illegally deprived of a property
petitioner failed to show that the trial court committed grave abuse of belonging to her. Thus, the dismissal of this petition on a mere technicality
discretion in approving the survey report by Engr. Dida. Banaga now comes will ignore the constitutional provision against depriving a person of his
to the SC imputing that the CA erred when it ruled that the trial court judge property without due process of law. Besides, the proximity between the
did not commit grave abuse of discretion, that the CA erred when it held offices of opposing counsel had not been clearly established.
that petitioner had acquised to the execution of the assailed order, hence, he
is no longer allowed to appeal from such, and that the CA ered when it held 2.NO, the SC does not agree with the trial court.
that petitioner was estopped from assailing the challenged order.
There may be instances when an error may be committed in the course of
execution proceedings prejudicial to the rights of a party. These instances
III. Issue/s call for correction by a superior court, as where –
1. W/N the trial court correctly dismissed petitioner’s notice of
appeal? NO.
1) the writ of execution varies the judgment;
2) there has been a change in the situation of the parties making
2. W/N the trial court correctly ruled that the determination of execution inequitable or unjust;
the boundary limits of Lot 2-G-2 was a matter incidental to the
3) execution is sought to be enforced against property exempt

from execution; V. Law or Doctrine Applied
4) it appears that the controversy has never been subject to the ART 1171 - Responsibility arising from fraud is demandable in all
judgment of the court; obligations. Any waiver of an action for future fraud is void.
5) the terms of the judgment are not clear enough and there
remains room for interpretation thereof; or VI. Disposition
6) it appears that the writ of execution has been improvidently WHEREFORE, the instant petition is GRANTED. The Decision of the
issued, or that it is defective in substance, or is issued against Court of Appeals in CA-G.R. SP No. 63375 is REVERSED and SET
the wrong party, or that the judgment debt has been paid or ASIDE. A new judgment is entered NULLIFYING the orders dated
otherwise satisfied, or the writ was issued without authority;15 February 9, 2001 and October 2, 2000 of the Regional Trial Court, Branch
23, General Santos City.
In these exceptional circumstances, considerations of justice and equity
dictate that there be some mode available to the party aggrieved of elevating
the question to a higher court, either by appeal (writ of error or certiorari), VII. Additional Notes
or by a special civil action of certiorari, prohibition, or mandamus.
VII. Random Facts
To rule that a special civil action for certiorari constitutes the sole and Ponente: Tinga, J.
exclusive remedy to assail a writ or order of execution would unduly restrict
the remedy available to a party prejudiced by an improper or illegal
execution. A special civil action for certiorari is not a mode of appeal where
the appellate court reviews the errors of fact or law committed by the lower
court. The issue in a special civil action for certiorari is whether the lower
court acted without or in excess of jurisdiction or with grave abuse of
discretion.
3. YES, While it is correct that petitioner bound herself to abide by the

findings of the survey team, the waiver does not include future fraud.
Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud is void. Petitioner brought up allegations
of discrepancy and alterations in the lot data computations used in the
survey when compared to data found in DENR records. Petitioner’s waiver
cannot be taken to cover allegations of fraud.
G.R. No. L-12219 | March 15, 1918 Contributory Negligence
Picart v. Smith Picart v. Smith
I. Recit-ready Summary Plaintiff Amado Picart was riding on his pony on the Carlatan Bridge in San
II. Facts of the Case Fernando, La Union when the defendant, riding on his car, approached from
In the year 1912, plaintiff Amado Picart was riding on his pony on the the opposite direction. Defendant
Frank Smith blew his horn several times as
Carlatan Bridge in San Fernando, La Union when the defendant, riding on his a warning. He continued
his course and after he had taken the bridge he gave
car, approached from the opposite direction. Defendant Frank Smith blew his two more successive blasts,
as it appeared to him that Smith was not
horn several times as a warning. He continued his course and after he had observing the rule of the road.
Plaintiff moved the horse to the right instead
taken the bridge he gave two more successive blasts, as it appeared to him of moving to the left,
reasoning that he had no sufficient time to move to the
that Smith was not observing the rule of the road. Plaintiff moved the horse right direction. Defendant
continued to approach, and when he had gotten
to the right instead of moving to the left, reasoning that he had no sufficient quite near, he quickly turned
to the left. The horse, out of fright, turned its
time to move to the right direction. Defendant continued to approach, and body across the bridge. Its limb
was broken and the rider was thrown off and
when he had gotten quite near, he quickly turned to the left. The horse, out of got injured. The horse died.
An action for damages was filed.
fright, turned its body across the bridge. Its limb was broken and the rider was thrown off and got injured.
The horse died. An action for damages was filed The issue is whether or not Smith, the defendant, is
guilty of negligence which
against the defendant. gives rise to a civil obligation to repair the damage done even if Picart was not
completely free of fault.
III. Issue/s W/N Smith, the defendant, is guilty of negligence which gives rise to a The SC held that
Smith is guilty and ordered him to pay Php200. Smith’s
civil obligation to repair the damage done. – YES negligence was the immediate and determining
cause of the accident and the antecedent negligence of Picart was just a remote factor. The test for
IV. Holding/s determining whether a person is negligent in doing an act whereby injury or
YES, SMITH IS GUILTY OF NEGLIGENCE & CIVILLY LIABLE. damage results to the person or
property of another is this: Would a prudent
The negligence of Smith was the immediate and determining cause of the man, in the position of the
person to whom negligence is attributed, foresee
accident and the antecedent negligence of Picart was a more remote factor harm to the person injured as
a reasonable consequence of the course about
in the case. Upon starting to cross the bridge, Smith had the right to assume to be pursued. If so, the law
imposes a duty on the actor to refrain from that
that the horse and rider would pass over to the proper side. But as he moved course or to take precaution
against its mischievous results, and the failure
toward the center of the bridge, he must have perceived that it was too late to do so constitutes
negligence. Reasonable foresight of harm, followed by
for the horse to cross with safety in front of the moving vehicle. This the ignoring of the admonition born of
this prevision, is the constitutive fact
situation occurred while the automobile was yet some distance away. It was in negligence.
no longer within the power of the plaintiff to escape being run down by going to a place of greater safety.
The control of the situation had then The SC noted that Picart himself was not free from fault, for he was
guilty
passed entirely to the defendant. The test by which to determine the of antecedent negligence in planting
himself on the wrong side of the road.
existence of negligence in a particular case may be stated as: Did the However, the negligent acts of the
two parties were not contemporaneous,
defendant in doing the alleged negligent act use that reasonable care and since the negligence of the
defendant succeeded the negligence of the
caution which an ordinarily prudent person would have used in the same plaintiff by an appreciable
interval. Under these circumstances the law is
situation? If not, then he is guilty of negligence. Conduct is said to be that the person who has the last fair
chance to avoid the impending harm
negligent when a prudent man in the position of the tortfeasor would have and fails to do so is chargeable
with the consequences, without reference to
foreseen that an effect harmful to another was sufficiently probable to the prior negligence of the other
party.
warrant his foregoing the conduct or guarding against its consequences. The
1
Obligations and Contracts (2020) PETITIONER/APPELLANT: Amado Picart
DIGEST AUTHOR: Pia Casano RESPONDENT: Frank Smith
SC noted that Picart himself was not free from fault, for he was guilty of antecedent negligence in planting
himself on the wrong side of the road.
IX. Random Facts However, the negligent acts of the two parties were not contemporaneous,
• Ponente: Justice Street since the negligence of the defendant succeeded the negligence of the plaintiff
by an appreciable interval. Under these circumstances the law is that the person who has the last fair
chance to avoid the impending harm and fails to do so is chargeable with the consequences, without
reference to the prior negligence of the other party.
V. Law or Doctrine Applied When is there negligence? When there is an absence of the reasonable
care and caution which an ordinarily prudent person would have used in the same situation. Conduct
is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an
effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding
against its consequences. Reasonable foresight of harm, followed by the ignoring of the admonition born
of this prevision, is the constitutive fact in negligence.
When contributory negligence does not matter Where both parties are guilty of negligence, but the
negligent act of one succeeds that of the other by an appreciable interval of time, the one who has the
last reasonable opportunity to avoid the impending harm and fails to do so is chargeable with the
consequences, without reference to the prior negligence of the other party.
VI. Disposition VII. Separate Opinions Justice Malcolm (concurring): The "last clear chance" rule is
applicable. When a traveler has reached a point where he cannot extricate himself and vigilance on his
part will not avert the injury, his negligence in reaching that position becomes the condition and not the
proximate cause of the injury and will not preclude a recovery.
• Court decided to grant 200 pesos for the damage. Whole amount that Picart asked for was not awarded
because the other damages are of remote character.
2
Plaintiff Amado Picart was riding on his pony on the Carlatan Bridge in San II. Facts of the Case
Fernando, La Union when the defendant, riding on his car, approached from In the year 1912, plaintiff Amado Picart was riding on his pony on the
the opposite direction. Defendant Frank Smith blew his horn several times as Carlatan Bridge in San Fernando, La Union when the defendant, riding on his
a warning. He continued his course and after he had taken the bridge he gave car, approached from the opposite direction. Defendant Frank Smith blew his
two more successive blasts, as it appeared to him that Smith was not horn several times as a warning. He continued his course and after he had
observing the rule of the road. Plaintiff moved the horse to the right instead taken the bridge he gave two more successive blasts, as it appeared to him
of moving to the left, reasoning that he had no sufficient time to move to the that Smith was not observing the rule of the road. Plaintiff moved the horse
right direction. Defendant continued to approach, and when he had gotten to the right instead of moving to the left, reasoning that he had no sufficient
quite near, he quickly turned to the left. The horse, out of fright, turned its time to move to the right direction. Defendant continued to approach, and
body across the bridge. Its limb was broken and the rider was thrown off and when he had gotten quite near, he quickly turned to the left. The horse, out of
got injured. The horse died. An action for damages was filed. fright, turned its body across the bridge. Its limb was broken and the rider was
thrown off and got injured. The horse died. An action for damages was filed
The issue is whether or not Smith, the defendant, is guilty of negligence which against the defendant.
gives rise to a civil obligation to repair the damage done even if Picart was
not completely free of fault. III. Issue/s
W/N Smith, the defendant, is guilty of negligence which gives rise to a
The SC held that Smith is guilty and ordered him to pay Php200. Smith’s civil obligation to repair the damage done. – YES
negligence was the immediate and determining cause of the accident and
the antecedent negligence of Picart was just a remote factor. The test for IV. Holding/s
determining whether a person is negligent in doing an act whereby injury or YES, SMITH IS GUILTY OF NEGLIGENCE & CIVILLY LIABLE.
damage results to the person or property of another is this: Would a prudent The negligence of Smith was the immediate and determining cause of the
man, in the position of the person to whom negligence is attributed, foresee accident and the antecedent negligence of Picart was a more remote factor
harm to the person injured as a reasonable consequence of the course about in the case. Upon starting to cross the bridge, Smith had the right to assume
to be pursued. If so, the law imposes a duty on the actor to refrain from that that the horse and rider would pass over to the proper side. But as he moved
course or to take precaution against its mischievous results, and the failure toward the center of the bridge, he must have perceived that it was too late
to do so constitutes negligence. Reasonable foresight of harm, followed by for the horse to cross with safety in front of the moving vehicle. This
the ignoring of the admonition born of this prevision, is the constitutive fact situation occurred while the automobile was yet some distance away. It was
in negligence. no longer within the power of the plaintiff to escape being run down by
going to a place of greater safety. The control of the situation had then
The SC noted that Picart himself was not free from fault, for he was guilty passed entirely to the defendant. The test by which to determine the
of antecedent negligence in planting himself on the wrong side of the road. existence of negligence in a particular case may be stated as: Did the
However, the negligent acts of the two parties were not contemporaneous, defendant in doing the alleged negligent act use that reasonable care and
since the negligence of the defendant succeeded the negligence of the caution which an ordinarily prudent person would have used in the same
plaintiff by an appreciable interval. Under these circumstances the law is situation? If not, then he is guilty of negligence. Conduct is said to be
that the person who has the last fair chance to avoid the impending harm negligent when a prudent man in the position of the tortfeasor would have
and fails to do so is chargeable with the consequences, without reference to foreseen that an effect harmful to another was sufficiently probable to
the prior negligence of the other party. warrant his foregoing the conduct or guarding against its consequences. The
1

SC noted that Picart himself was not free from fault, for he was guilty of
antecedent negligence in planting himself on the wrong side of the road. IX. Random Facts
However, the negligent acts of the two parties were not contemporaneous, • Ponente: Justice Street
since the negligence of the defendant succeeded the negligence of the
plaintiff by an appreciable interval. Under these circumstances the law is
that the person who has the last fair chance to avoid the impending harm
and fails to do so is chargeable with the consequences, without reference to
the prior negligence of the other party.

When is there negligence?
When there is an absence of the reasonable care and caution which an
ordinarily prudent person would have used in the same situation. Conduct
is said to be negligent when a prudent man in the position of the tortfeasor
would have foreseen that an effect harmful to another was sufficiently
probable to warrant his foregoing the conduct or guarding against its
consequences. Reasonable foresight of harm, followed by the ignoring of
the admonition born of this prevision, is the constitutive fact in negligence.
When contributory negligence does not matter

Where both parties are guilty of negligence, but the negligent act of one
succeeds that of the other by an appreciable interval of time, the one who
has the last reasonable opportunity to avoid the impending harm and fails to
do so is chargeable with the consequences, without reference to the
prior negligence of the other party.
VI. Disposition
Justice Malcolm (concurring): The "last clear chance" rule is applicable.
When a traveler has reached a point where he cannot extricate himself and
vigilance on his part will not avert the injury, his negligence in reaching that
position becomes the condition and not the proximate cause of the injury
and will not preclude a recovery.

• Court decided to grant 200 pesos for the damage. Whole amount that
Picart asked for was not awarded because the other damages are of
remote character.
2

G.R. 141258 | April 9, 2003 Article 1170 - negligence in performance of obligations Sarmiento
v. Spouses Sun-Cabrido Sarmiento v. Spouses Sun-Cabrido
that an obligation to pay actual damages arose in favor of the petitioner Dra. Virgina Lao requested
Tomasa Sarmiento (petititoner) to find her
against the respondent spouses who admittedly owned and managed the shop. somebody to reset a pair
of diamond earrings into two gold rings. Sarmiento sent a certain Tita Payag to Dingding’s Jewelry shop,
owned and managed
II. Facts of the Case by the Spouses Cabrido, which accepted the job order for P400.
Sometime in April 1994, Dra. Virgina Lao requested Tomasa Sarmiento After 3 days. Payag one of the
diamond earrings which was appraised as
(petititoner) to find her somebody to reset a pair of diamond earrings into two worth .33 carat and almost
perfect in cut and clarity. Marilou Sun initially
gold rings. Sarmiento sent a certain Tita Payag to Dingding’s Jewelry shop, tried to dismount the diamond
from its original setting but she failed. She
owned and managed by the Spouses Cabrido, which accepted the job order then asked her goldsmith
Santos, who tried twisting the diamond with a pair
for P400. of pliers thus breaking the gem. The respondents refused to replace the diamond so petitioner
was forced to buy a replacement worth P30000.
After 3 days. Payag one of the diamond earrings which was appraised as worth .33 carat and almost
perfect in cut and clarity. Marilou Sun initially The Court held that when Payag asked Marilou to reset the
pair of earrings,
tried to dismount the diamond from its original setting but she failed. She then Marilou did not express any
reservation regarding the dismounting of the
asked her goldsmith Santos, who tried twisting the diamond with a pair of diamonds, which was part of
the petitioner’s job order. If Marilou had
pliers thus breaking the gem. The respondents refused to replace the diamond intended to spare the
shop of the task of dismounting the gem, then she could
so petitioner was forced to buy a replacement worth P30000. have easily told Tayag to have them
dismounted first. Instead, petitioner was charged for the job order. Thus, a perfected contract to reset the
pair of
Rose Cabrido denied having entered into any transaction with Payag however earrings arose between
the parties.
she did not deny the possibility that she may have availed of their services. Marilou admitted knowing
Payag but mentioned that Payag first demanded Obligations arising from contracts have the force of law
between the
P15000 from her when the gem broke, thinking that she was the owner of the contracting parties.
Corollary, those who in the performance of their duties
jewelry shop. Santos said that he thought the gem was a sapphire and denied are guilty of fraud,
negligence or delay and those who in any manner
being an employee of Dingding’s. contravene the tenor thereof, are liable for damages. The fault or
negligence of the obligor consists in the omission of that diligence which is required by
Petitioner filed a complaint for damages. The MTC ruled in favor of the the nature of the obligation and
corresponds with the circumstances of the
petitioner. However, the RTC reversed the decision disallowing any persons, of the time and of the place.
responsibility arising from the breach. The same was affirmed by the CA.
Santos acted negligently in dismounting the diamond from its original setting. The practiced of the trade is
to use a miniature wire saw but Santos used a
III. Issue/s pair of pliers in clipping the original setting. This resulted in the breakage of
1. W/N the respondents should be held liable for damages arising the diamond. The jewelry shop
failed to perform its obligation with the
from the breakage based on a breach of contract? YES ordinary diligence required by the
circumstances. Given this, the Court held
IV. Holding/s
1
Obligations and Contracts 2020 PETITIONER/APPELLANT: Tomasa Sarmiento
DIGEST AUTHOR: Stephanie Co RESPONDENT: Luis & Rose Sun-Cabrido and Marilou Sun
G.R. 141258 | April 9, 2003 Article 1170 - negligence in performance of obligations Sarmiento
v. Spouses Sun-Cabrido Sarmiento v. Spouses Sun-Cabrido
1. YES, the respondents are liable for damages arising from the
Article 1170 of the Civil Code breakage.
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor The Court held that when Payag asked Marilou to reset the pair of
earrings,
thereof, are liable for damages. Marilou did not express any reservation regarding the dismounting of the
diamonds, which was part of the petitioner’s job order. If Marilou had intended to spare the shop of the
task of dismounting the gem, then she could have easily told Tayag to have them dismounted first.
Instead, petitioner was charged for the job order. Thus, a perfected contract to reset the pair of earrings
arose between the parties.
2
Article 1173 of the Civil Code The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171
and 2201, paragraph 2, shall apply.
Given Marilou’s actions, she cannot now deny the shops obligation to reset
VI. Disposition the pair of earrings. Obligations arising from contracts have the force of law
WHEREFORE, the instant petition is GRANTED and the assailed decision between the contracting
parties. Corollary, those who in the performance of
of the Court of Appeals dated November 26, 1999 is hereby reversed and set their duties are guilty of
fraud, negligence or delay and those who in any
aside. Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby manner contravene the tenor
thereof, are liable for damages. The fault or negligence of the obligor consists in the omission of that
diligence which is
ordered to pay, jointly and severally, the amount of P30,000 as actual damages and P10,000 as moral
damages in favor of the petitioner. required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
The Court held that Santos acted negligently in dismounting the diamond
from its original setting. The practiced of the trade is to use a miniature wire saw but Santos used a pair of
pliers in clipping the original setting. This resulted in the breakage of the diamond. The jewelry shop failed
to perform
Res ipsa loquitor was also be applied since Marilou examined the gem before dismounting it. Its
subsequent breakage in the hands of Santos could only have been caused by his negligence in using the
wrong equipment. its obligation with the ordinary diligence required by the circumstances.
VII. Random Facts Moreover, the facts show that Santos had been working at Dingding’s for
● Ponente: Justice Corona about 6 months already. The preponderance of evidence shows that Marilou
and Santos were employed at Dingding’s in order to perform activities which were usually necessary in its
business. Given this, the Court held that an obligation to pay actual damages arose in favor of the
petitioner against the respondent spouses who admittedly owned and managed the shop.
G.R. 141258 | April 9, 2003 Article 1170 - negligence in performance of obligations
Sarmiento v. Spouses Sun-Cabrido Sarmiento v. Spouses Sun-Cabrido
I. Recit-ready Summary that an obligation to pay actual damages arose in favor of the petitioner
Dra. Virgina Lao requested Tomasa Sarmiento (petititoner) to find her against the respondent spouses who admittedly owned and managed the shop.
somebody to reset a pair of diamond earrings into two gold rings. Sarmiento
sent a certain Tita Payag to Dingding’s Jewelry shop, owned and managed II. Facts of the Case
by the Spouses Cabrido, which accepted the job order for P400.
Sometime in April 1994, Dra. Virgina Lao requested Tomasa Sarmiento
After 3 days. Payag one of the diamond earrings which was appraised as (petititoner) to find her somebody to reset a pair of diamond earrings into two
worth .33 carat and almost perfect in cut and clarity. Marilou Sun initially gold rings. Sarmiento sent a certain Tita Payag to Dingding’s Jewelry shop,
tried to dismount the diamond from its original setting but she failed. She owned and managed by the Spouses Cabrido, which accepted the job order
then asked her goldsmith Santos, who tried twisting the diamond with a pair for P400.
of pliers thus breaking the gem. The respondents refused to replace the
diamond so petitioner was forced to buy a replacement worth P30000. After 3 days. Payag one of the diamond earrings which was appraised as
worth .33 carat and almost perfect in cut and clarity. Marilou Sun initially
The Court held that when Payag asked Marilou to reset the pair of earrings, tried to dismount the diamond from its original setting but she failed. She then
Marilou did not express any reservation regarding the dismounting of the asked her goldsmith Santos, who tried twisting the diamond with a pair of
diamonds, which was part of the petitioner’s job order. If Marilou had pliers thus breaking the gem. The respondents refused to replace the diamond
intended to spare the shop of the task of dismounting the gem, then she could so petitioner was forced to buy a replacement worth P30000.
have easily told Tayag to have them dismounted first. Instead, petitioner was
charged for the job order. Thus, a perfected contract to reset the pair of Rose Cabrido denied having entered into any transaction with Payag however
earrings arose between the parties. she did not deny the possibility that she may have availed of their services.
Marilou admitted knowing Payag but mentioned that Payag first demanded
Obligations arising from contracts have the force of law between the P15000 from her when the gem broke, thinking that she was the owner of the
contracting parties. Corollary, those who in the performance of their duties jewelry shop. Santos said that he thought the gem was a sapphire and denied
are guilty of fraud, negligence or delay and those who in any manner being an employee of Dingding’s.
contravene the tenor thereof, are liable for damages. The fault or negligence
of the obligor consists in the omission of that diligence which is required by Petitioner filed a complaint for damages. The MTC ruled in favor of the
the nature of the obligation and corresponds with the circumstances of the petitioner. However, the RTC reversed the decision disallowing any
persons, of the time and of the place. responsibility arising from the breach. The same was affirmed by the CA.
Santos acted negligently in dismounting the diamond from its original setting.
The practiced of the trade is to use a miniature wire saw but Santos used a III. Issue/s
pair of pliers in clipping the original setting. This resulted in the breakage of 1. W/N the respondents should be held liable for damages arising
the diamond. The jewelry shop failed to perform its obligation with the from the breakage based on a breach of contract? YES
ordinary diligence required by the circumstances. Given this, the Court held
IV. Holding/s
1

G.R. 141258 | April 9, 2003 Article 1170 - negligence in performance of obligations
Sarmiento v. Spouses Sun-Cabrido Sarmiento v. Spouses Sun-Cabrido
1. YES, the respondents are liable for damages arising from the Article 1170 of the Civil Code
breakage. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor
The Court held that when Payag asked Marilou to reset the pair of earrings, thereof, are liable for damages.
Marilou did not express any reservation regarding the dismounting of the
diamonds, which was part of the petitioner’s job order. If Marilou had Article 1173 of the Civil Code
The fault or negligence of the obligor consists in the omission of that
intended to spare the shop of the task of dismounting the gem, then she could
diligence which is required by the nature of the obligation and corresponds
have easily told Tayag to have them dismounted first. Instead, petitioner was
with the circumstances of the persons, of the time and of the place. When
charged for the job order. Thus, a perfected contract to reset the pair of negligence shows bad faith, the provisions of Articles 1171 and 2201,
earrings arose between the parties. paragraph 2, shall apply.
Given Marilou’s actions, she cannot now deny the shops obligation to reset VI. Disposition
the pair of earrings. Obligations arising from contracts have the force of law WHEREFORE, the instant petition is GRANTED and the assailed decision
between the contracting parties. Corollary, those who in the performance of of the Court of Appeals dated November 26, 1999 is hereby reversed and set
their duties are guilty of fraud, negligence or delay and those who in any aside. Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby
manner contravene the tenor thereof, are liable for damages. The fault or ordered to pay, jointly and severally, the amount of P30,000 as actual
negligence of the obligor consists in the omission of that diligence which is damages and P10,000 as moral damages in favor of the petitioner.
required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. VII. Separate Opinions

The Court held that Santos acted negligently in dismounting the diamond
from its original setting. The practiced of the trade is to use a miniature wire Res ipsa loquitor was also be applied since Marilou examined the gem before
saw but Santos used a pair of pliers in clipping the original setting. This dismounting it. Its subsequent breakage in the hands of Santos could only
resulted in the breakage of the diamond. The jewelry shop failed to perform have been caused by his negligence in using the wrong equipment.
its obligation with the ordinary diligence required by the circumstances.
VII. Random Facts
Moreover, the facts show that Santos had been working at Dingding’s for ● Ponente: Justice Corona
about 6 months already. The preponderance of evidence shows that Marilou
and Santos were employed at Dingding’s in order to perform activities which
were usually necessary in its business. Given this, the Court held that an
obligation to pay actual damages arose in favor of the petitioner against the
respondent spouses who admittedly owned and managed the shop.

G.R.193577 | September 7, 2011 Standard of Conduct
Francisco v Chemical Bulk Inc. Francisco v Chemical Bulk Inc.
I. Recit-ready Summary 1. That Petron Corporation (Petron) should deliver the

Antonio Franciso, is a blind owner of the Caltex Station diesel fuel to Antonio at his business address which should be
in Rizal. In 1993, Basca and 3 others offered to sell him fuel to properly indicated in Petron's invoice
which Antonio agreed subject to his conditions. All of the 2. Sealed delivery tank
conditions were met and there were a total of 17 deliveries. In 3. Basca to issue a separate receipt
1996, CBCI filed a complaint for damages against Antonio All of Antonio’s conditions were met and there were a
alleging that Antonio acquired possession of fuel which total of 17 deliveries. On 16 April 1996, CBCI filed a
deprived CBCI its use. The RTC favored Antonio on the complaint for sum of money and damages against Francisco.
ground that he was a purchaser in good faith. The CA reversed CBCI avers that Petron, on various dates, sold fuel to CBCI but
the RTC on appeal. The main issue in this case is whether or these were delivered to and received by Antonio. He then sold
not the CA erred in not finding that Antonio exercised the the fuel to third persons from whom he received payment.
required diligence of the blind person in the conduct of his CBCI alleged that Antonio acquired possession of the fuel
business. The Supreme Court ruled that the CA did not err without authority from CBCI and deprived CBCI of the use of
stating that Antonio had been operating the Station for about 15 the fuel it had paid for. CBCI demanded payment from but
years already in which his blindness was no hindrance for him Antonio refused to pay. Antonio should have known that since
in transacting business until this time. The Court also said that only Petron, Shell and Caltex are authorized to sell and
Antonio failed to exercise the reasonable standard of conduct distribute petroleum products in the Philippines, the fuel came
expected of a blind person since he merely relied on Basca’s from illegitimate, if not illegal or criminal, acts. CBCI asserted
ID, he did not verify with the CBCI about the fuel being stolen, that Francisco violated Articles 19, 20, 21, and 22 of the Civil
accepted a receipt printed on half a bond paper, and there was Code and that he should be held liable. In the alternative, CBCI
no proof of authority from the CBCI authorizing Basca to sell. claimed that Antonio, in receiving CBCI's fuel, entered into an
II. Facts of the Case innominate contract of do ut des (I give and you give) with
Antonio Francisco owns a Caltex Station in Rizal. In CBCI for which Francisco is obligated to pay CBCI
1993, Basca and three others introduced themselves as P1,119,905, the value of the diesel fuel.
employees of Chemical Bulk Inc and offered to sell fuel to In Antonio’s Answer, he explained that he operates the
Antonio. After checking the I.D. of Basca, Antonio agreed to Caltex station with the help of his family because he
purchase under the ff conditions: completely lost his eyesight due to sickness. He claimed that he
asked Jovito, his son, to look into and verify the identity of
Bacsa, who introduced himself as a confidential secretary of a
1
Obligations and Contracts (2020) PETITIONER/APPELLANT: Antonio Francisco (substituted by heirs)
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Chemical Bulk Carriers Inc.

certain Mr. Inawat, CBCI's manager for operations and he said The court notes that Antonio, despite being blind, had been
that he was satisfied with the proof of Bacsa. managing and operating the Caltex station for 15 years and this
The trial court ruled in Antonio's favor in making CBCI was not a hindrance for him to transact business until this time.
liable since the 17 deliveries were covered by original and In this case, the court ruled the Antonio failed to exercise the
genuine invoices, Bacsa’s acts bound CBCI and Antonio was a standard of conduct expected of a reasonable person who is
purchaser in good faith. On appeal, the Court of Appeals set blind. First, Antonio merely relied on the I.D. of Bacsa to
aside the trial court's Decision and ruled in CBCI's favor since determine if he was authorized by CBCI. Second, Antonio
Bacsa's act of selling the diesel fuel to Antonio was his already expressed his misgivings about the fuel, fearing that
personal act and, even if Bacsa connived with Inawat, the sale they might be stolen property, yet he did not verify with CBCI
does not bind CBCI and that Antonio cannot feign good faith the authority of Bacsa. Third, Antonio relied on the receipts
since he had doubts as to the authority of Bacsa yet he did not issued by Bacsa which were typewritten on a half sheet of plain
seek confirmation from CBCI. On 15 January 2001, Antonio bond paper. Fourth, the delivery to Antonio, as indicated in
died and his heirs filed a motion for substitution. Petron's invoice, does not show that CBCI authorized Bacsa to
sell the diesel fuel to Antonio. He clearly failed to exercise the
III. Issue/s standard of conduct expected of a reasonable person who is
1. W/N the CA erred in not finding that Antonio exercised blind.
the required diligence of the blind person in the conduct of
his business. (NO) 2. The heirs of Francisco argue that CBCI approved expressly
2. W/N on the basis of the factual findings of the CA, RTC or tacitly the transactions. According to them, there was
and admitted facts, it can be concluded that CBCI apparent authority for Bacsa to enter into the transactions
approved expressly or tacitly the transactions. (NO) insisting that CBCI was not unlawfully deprived of its
IV. Holding/s property because Inawat gave Bacsa the authority to sell the
1. The heirs of Antonio argue that since Antonio was blind, the fuel and that CBCI is bound by such action. But in this case, it
standard of conduct that was required of him was that of a is clear that Bacsa was not the owner of the diesel fuel.
reasonable person under like disability. Physical handicaps and Antonio was aware of this but he claimed that Bacsa was
infirmities, such as blindness or deafness, are treated as part of authorized by CBCI to sell the fuel. However, Antonio's claim
the circumstances under which a reasonable person must act. that Bacsa was authorized is not supported by any evidence
Thus, the standard of conduct for a blind person becomes that except his self-serving testimony. Bacsa cannot transfer title to
of a reasonable person who is blind. Antonio as Bacsa was not the owner of the fuel nor was he
2

authorized by CBCI to sell. CBCI did not commit any act to may be estoppel, the owner must, by word or conduct, have
clothe Bacsa with apparent authority to sell that would have caused or allowed it to appear that title or authority to sell is
misled Antonio. Francisco, therefore, did not acquire any title with the seller and the buyer must have been misled to his
over the fuel. Since CBCI was unlawfully deprived of its damage.
property, it may recover from Antonio, even if he pleads good VI. Disposition
faith. WHEREFORE, we DENY the petition. We AFFIRM the 31
May 2010 Decision and 31 August 2010 Resolution of the
Court of Appeals.
SO ORDERED.
Standard of Conduct
This is the level of expected conduct that is required by the
nature of the obligation and corresponding to the circumstances
VII. Random Facts
of the person, time and place. The most common standard of
 Ponente:J. Carpio
conduct is that of a good father of a family or that of a
reasonably prudent person. To determine the diligence which
must be required of all persons, we use as basis the abstract
average standard corresponding to a normal orderly person.
General Principle on a Seller without a Title

A seller without title cannot transfer a better title than he has.
Only the owner of the goods or one authorized by the owner to
sell can transfer title to the buyer. Therefore, a person can sell
only what he owns or is authorized to sell and the buyer can, as
a consequence, acquire no more than what the seller can legally
transfer. Moreover, the owner of the goods who has been
unlawfully deprived of it may recover it even from a purchaser
in good faith. Thus, the purchaser of property which has been
stolen from the owner has been held to acquire no title to it
even though he purchased for value and in good faith. The
exception from the general principle is the doctrine of
estoppel where the owner of the goods is precluded from
denying the seller's authority to sell. But in order that there
3

[G.R. No L-9671 | August 23, 1957] [Nature and Effect of Obligations]
[Isaac v A.L. Ammen Transportation] [Isaac v A.L. Ammen Transportation]
I. Recit-ready Summary Ligao, Albay to Pili, Camarines Sur. Cesar Issac (Isaac) was a passenger of
the bus when the bus collided with a pick-up coming from the opposite
direction. Isaac’s left arm was completely severed and it fell inside the bus.
Cesar Isaac (Isaac) was a passenger of an A.L. Ammen Transportation He lived but he incurred expenses amounting to P623.40. He was the only
(Ammen) bus. Isaac rested his left elbow on the windowsill. During the trip, passenger injured for his left arm was outside the window.
the bus, travelling at a moderate speed and in the proper lane, collided with a
pickup which was traveling at full speed and not in the proper lane. Isaac ISAAC’S ACTION AGAINST AMMEN. The collision which resulted to the
lived but his left arm was completely severed. He was the only person injured
loss of his left arm was the result of the gross incompetence and recklessness
as a result of the collision.
of the bus driver. Isaac also alleged that Ammen failed to comply with its
Can Ammen be held liable for the Isaac’s injury? – No. contractual obligation to transport Isaac safely to his destination. Isaac prayed
1. SUB: Has Ammen observed the diligence required for the sudden for a total of P157,000.
collision which resulted in Isaac’s injury? - Yes
2.. SUB: What is the diligence required for emergency situations? – AMMEN’S DEFENSE. The injury was the fault of the pick up driver. Isaac
Care of an ordinary prudent person. likewise contributed was contributorily negligent himself. The accident was
3. SUB: Is Isaac guilty of contributory negligence for having placed also some thing which they could not have foreseen or was inevitable.
his left elbow outside the window? - Yes
OPERATING PRINCIPLE; LIABILITY OF A COMMON CARRIER. The
Ordinarily, the diligence required from common carriers is extraordinary following are the principles governing the liability of a common carrier based
diligence due to the demand of consideration of human life (Art. 1733, 1755, on Articles 1733, 1755, and 1756 of the Civil Code: (1) the liability of a
and 1756 of the Civil Code). However, for carriers in sudden emergencies, carrier is contractual and arises upon breach of its obligation. There is breach
the diligence required is lowered to care of an ordinary prudent person for the if it fails to exert extraordinary diligence according to all the circumstances
fact that the driver is required to act quickly without a chance for deliberation of each case; (2) a carrier is obliged to carry its passenger with the utmost
(Corpus Juris Secundum). The bus driver, who operated the bus to be at a diligence of a very cautious person, having due regard for all the
moderate speed in the proper lane, was exercising the care of an ordinary circumstances [or extraordinary diligence]; (3) a carrier is presumed to be at
prudent person when he swerved to the right to avoid the fast pickup. fault or to have acted negligently in case of death of, or injury to, passengers,
it being its duty to prove that it exercised extraordinary diligence; and (4) the
Isaac was the only victim of the collision. He rested his left elbow outside the carrier is not an insurer against all risks of travel.
window, still in the same position when the collision took place. Had he not
rested his elbow on the window sill, he would have not suffered from any Extraordinary diligence is demanded by the preciousness of human life and
injury. Thus, he is guilty of contributory negligence. This further militates by the consideration that every person must in every way be safeguarded
Isaac’s position. against all injury.
LOWER COURT’S RULING.
A.L. Ammen Transporation (Ammen) is a land transportation company
We have examined very carefully the evidence presented in the
operating in Bicol provinces. One of its buses is Bus 31 which travels from
1
Block B 2023 PETITIONER/APPELLANT: Cesar Isaac

DIGEST AUTHOR: Jann Aristeo E. Amorado RESPONDENT: A. L. Ammen Transportation Co. Inc.
view, mainly, the statements that we have bounded above, and we have with a sudden emergency, the fact that he is obliged to act quickly and without
concluded that the respondent has done, everything that was of a chance for deliberation must be taken into account, and he is not held to the
his part to avoid the accident, but nevertheless, he has not been able to avoid same degree of care that he would otherwise be required to exercise in the
it. absence of such emergency but must exercise only such care as any ordinary
prudent person would exercise under like circumstances and conditions, and
The fact that the defendant, before the crash, had to pass his the failure on his part to exercise the best judgment the case renders possible
truck on top of the piles of gravel that were deposited on the bank of the does not establish lack of care and skill on his part which renders the
way, without going any further, because of the serious risk that the lives of company, liable (emphasis added)" (Corpus Juris Secundum).
its passengers, is conclusive proof of what we have said, namely: - that the
The defendant did his best to avoid the accident, without being able to avoid Bus 31 was running at a moderate speed in the proper lane. However, the
it, because it was beyond his control. [Translated from Spanish using Google pickup was at full speed outside its proper land. The bus driver swerved to
Translate] the extreme right of the road to avoid collision. The bus could not move
farther to the right due to the 3ft high pile of stones or gravel.
III. Issue/s
Considering the circumstances, the bus driver has done what a prudent man
1. Can Ammen be held liable for the Isaac’s injury? could have done to avoid collision and this relieves Ammen from liability
1. SUB: What is the diligence required for emergency situations? – under the law.
Care of an ordinary prudent person
2. SUB: Has Ammen observed the diligence required for the sudden SUB: Is Isaac guilty of contributory negligence for having placed
collision which resulted in Isaac’s injury? - Yes his left elbow outside the window? - Yes
3. SUB: Is Isaac guilty of contributory negligence for having placed
his left elbow outside the window? - Yes Isaac was the only victim of the collision. He rested his left elbow outside the
window, still in the same position when the collision took place. Had he not
IV. Holding/s rested his elbow on the window sill, he would have not suffered from any
injury. Thus, he is guilty of contributory negligence. This further militates
Can Ammen be held liable for the Isaac’s injury? – No. Isaac’s position.
SUB: What is the diligence required for sudden emergency situations? V. Law or Doctrine Applied
– Care of an ordinary prudent person.
SUB: Has Ammen observed the diligence required for the sudden LIABILITY OF A COMMON CARRIER. The following are the principles
collision which resulted in Isaac’s injury? – Yes governing the liability of a common carrier based on Articles 1733, 1755, and
1756 of the Civil Code: (1) the liability of a carrier is contractual and arises
upon breach of its obligation. There is breach if it fails to exert extraordinary
OPERATING DOCTRINE; LOWER DEGREE OF DILIGENCE DURING
diligence according to all the circumstances of each case; (2) a carrier is
EMERGENCY FOR CARRIER. "Where a carrier's employee is confronted obliged to carry its passenger with the utmost diligence of a very cautious
2

person, having due regard for all the circumstances [or extraordinary
diligence]; (3) a carrier is presumed to be at fault or to have acted negligently
in case of death of, or injury to, passengers, it being its duty to prove that it
exercised extraordinary diligence; and (4) the carrier is not an insurer against
all risks of travel.
LOWER DEGREE OF DILIGENCE DURING EMERGENCY FOR

CARRIER . "Where a carrier's employee is confronted with a sudden
emergency, the fact that he is obliged to act quickly and without a chance for
deliberation must be taken into account, and he is not held to the same degree
of care that he would otherwise be required to exercise in the absence of such
emergency but must exercise only such care as any ordinary prudent person
would exercise under like circumstances and conditions, and the failure on
his part to exercise the best judgment the case renders possible does not
establish lack of care and skill on his part which renders the company, liable
(emphasis added)" (Corpus Juris Secundum).
VI. Disposition
Wherefore, the decision appealed from is affirmed, with costs against

appellant.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Labrador,

Concepcion, Endencia and Felix, JJ., concur.
No separate opinions.
VII. Random Facts

● Ponente: Justice Bengzon

G.R. No. 208293 | December 10, 2014 Due diligence of banks
PNB vs. Santos PNB vs. Santos
I. Recit-ready Summary documents Manimbo had submitted was a special power of attorney
Respondents Santos et al were to withdraw some P1.8M from the PNB purportedly executed by Reyme Santos in favor of Manimbo.
account of their deceased father after submitting the necessary documents. At the RTC Marikina, respondents filed a complaint for sum of money
They found out that a certain Manimbo had already claimed such deposits and damages against PNB and Lina Aguilar. The RTC held that the latter
under false pretense of being the rightful heir and by submitting a different were negligent in releasing the deposit to Manimbo for failing to strictly
set of documents from those required of respondents. observe the document requirements. PNB and Aguilar were to pay
Respondents filed a complaint of sum of money and damages with the P1,882,002 (since the premium savings account apparently was converted
RTC, which ruled in their favor. The CA affirmed.
from the time deposit, hence there is only one account) with 6% interest,
The issue is whether or not PNB and branch manager Aguilar were
moral and exemplary damages, attorney’s fees, and cost of suit.
negligent in releasing the deposits. The SC ruled that they were negligent, for
they failed to receive the important proof of payment of or exemption of estate The CA upheld the RTC decision but cancelled the award of exemplary
tax, an important requirement for releasing deposits of decedents. This shows damages as petitioners did not act in bad faith, and changed the interest rate
that their standards of releasing such deposits are fickle, weak, and a threat to to 12%
the security of the deposits entrusted to them by clients. They also failed to at
least verify the veracity of the documents submitted by Manimbo, or be III. Issue/s
cautious when different claimants came forward for the deposits. 1. W/N PNB was negligent in releasing the deposit to Manimbo?
Thus, PNB failed to exercise even the regular diligence of a good father YES.
of a family, much less the higher standard required of banks by virtue of the
public interest impressed in them. They must be extraordinarily diligent in IV. Holding/s
handling the fiduciary matters of their clients. 1. YES, PNB was negligent in releasing the deposit to Manimbo.
PNB was negligent in accepting the fraudulent documents of Manimbo.
II. Facts of the Case They did not consider the very important requisite that is a certificate of
Respondents Carmelita, Reyme, and Angel L. Santos discovered that payment of or exception from estate tax, a necessity for releasing deposits of
their late father Angel C. Santos maintained a premium savings account decedents, which was not submitted by Manimbo. This shows that PNB’s
amounting to P1,759,082, and a time deposit of P1,000,000 with PNB. They standards for releasing deposits of decedents are lax, arbitrary, and a threat
tried to withdraw their father’s deposit, but needed the following documents to the deposits entrusted to them by their clients.
accdg to Lina Aguilar, PNB branch manager: They did not question the veracity other documents submitted by Manimbo,
1. Death Certificate such as merely photocopies of the required death certificate, and they were
2. Certificate of payment of or exemption from estate tax (used by not even cautious of the possibility of fraud when there were multiple
heirs when withdrawing deposits of decedents e.g. parents) claiming parties. Thus, they failed to exercise even the diligence of a good
3. Deed of Extrajudicial Settlement father of a family.
4. Publisher’s Affidavit of the above deed
5. Surety bond equal to the amount to be withdrawn V. Law or Doctrine Applied
Upon completing these, respondents were informed that a Bernardito
HIGHER STANDARD OF DILIGENCE FOR BANKS
Manimbo had already claimed and received the deposit. Among the
1
Obligations and Contracts (2019) PETITIONER: Philippine National Bank, Lina Aguilar
DIGEST AUTHOR: Kara Nazario RESPONDENT: Carmelita S. Santos et al (children of Angel C. Santos)
G.R. No. 208293 | December 10, 2014 Due diligence of banks
PNB vs. Santos PNB vs. Santos
“The standard of diligence required of banks is higher than the degree of

diligence of a good father of a family.”
The banking industry is imbued with public interest, especially in light of its
fiduciary (involving trust) nature. Thus, a higher standard of diligence is
required of them in handling the fiduciary matters of their clients.
CONTRACTS BET. BANKS AND DEPOSITORS

“The contractual relationship between banks and their depositors is
governed by the Civil Code provisions on simple loan. Once a person makes
a deposit of his or her money to the bank, he or she is considered to have
lent the bank that money. The bank becomes his or her debtor, and he or she
becomes the creditor of the bank, which is obligated to pay him or her on
demand.”
VI. Disposition
WHEREFORE, the Court of Appeals' decision dated July 25, 2013

is AFFIRMED with the MODIFICATIONS in that petitioners Philippine
National Bank and Lina B. Aguilar are ordered solidarily liable to pay
respondents Pl00,000.00 as exemplary damages. Further, the interest rate for
the amount of Pl,882,002.05, representing the face value of PNB Manager's
Check No. AF-974686B is modified to 12% from April 26, 1998 until June
30, 2013, and 6% from July 1, 2013 until satisfaction. All monetary awards
shall then earn interest at the rate of 6% per annum from finality of the
decision until full satisfaction.
VII. Random Facts

 Ponente: Leonen, J.
2
Obligations and Contracts (2019) PETITIONER: Philippine National Bank, Lina Aguilar
DIGEST AUTHOR: Kara Nazario RESPONDENT: Carmelita S. Santos et al (children of Angel C. Santos)
G.R. No. 102316| June 30, 1997 Contract Stipulations
Valenzuela Hardwood v. CA Valenzuela Hardwood v. CA
Valenzuela Hardwood and Industrial Supply, Inc. (VHIS) entered into an II. Facts of the Case
agreement with Seven Brothers Shipping corporation whereby the latter Valenzuela Hardwood and Industrial Supply, Inc. (VHIS) entered into an
undertook to load on board its vessel M/V Seven Ambassadors 940 Lauan agreement with the Seven Brothers wherein the latter undertook to load on
round logs for shipment from Isabela to Manila. On January 20, plaintiff board its vessel M/V Seven Ambassador the former’s lauan round logs
insured the cargo with South Sea Surety and Insurance for two million pesos. numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
However on January 25, 1984, the M/V Seven Ambassador sank, resulting in VHIS insured the logs against loss and/or damage with South Sea Surety
the loss of petitioners’ logs. Pursuant to the loss, petitioner filed a claim with and Insurance Co.
South Sea Surety and Insurance for the insured amount of the logs, but the
latter refused, denying liability under the policy. Petitioner likewise filed a The said vessel sank resulting in the loss of VHIS’ insured logs. VHIS
formal claim against Seven Brothers Shipping Corporation for the value of demanded from South Sea Surety the payment of the proceeds of the policy
the lost logs, but the latter likewise denied their claim. but the latter denied liability under the policy for non-payment of premium.
VHIS likewise filed a formal claim with Seven Brothers for the value of the
The trial court found for the plaintiff, holding South Sea and Seven Brothers lost logs but the latter denied the claim.
liable for the loss. On appeal, the Court of Appeals affirmed in part the
decision of the trial court. The Court of Appeals affirmed the liability of South The RTC ruled in favor of the petitioner. Both Seven Brothers and South
Sea Surety and Assurance but exonerated Seven Brothers, stating that the Sea Surety appealed. The Court of Appeals affirmed the judgment except as
latter is a private carrier therefore the provisions on common carriers is not to the liability of Seven Brothers. South Sea Surety and VHIS filed separate
applicable to their contract. petitions for review before the Supreme Court. In a Resolution dated 2 June
1995, the Supreme Court denied the petition of South Sea Surety. The
The issue in this case is whether or not the stipulation in a charter party stating present decision concerns itself to the petition for review filed by VHIS.
that owners shall not be responsible for loss, split, short-landing, breakages
and any kind of damages to the cargo is valid. III. Issue/s
The Court ruled in the affirmative, stating that it is not disputed that private 1.Whether or not the stipulation in a charter party stating that owners shall
respondent acted as a private carrier in transporting petitioner’s lauan logs. not be responsible for loss, split, short-landing, breakages and any kind of
Thus, Article 1745 and other Civil Code provisions on common carriers damages to the cargo is valid? - YES
which were cited by petitioner may not be applied unless expressly stipulated
2.Is the subject stipulation void for being contrary to Articles 1170 and 1173?
by the parties in their charter party. In Contracts of Private Carriage, the
– NO lol
parties may validly stipulate that responsibility for the cargo rests solely on
the charterer, exempting the shipowner from liability for loss of or damage to
the cargo caused even by the negligence of the ship captain. Based on Article IV. Holding/s
1306 of the Civil Code, such stipulation is valid because it is freely entered
into by the parties and the same is not contrary to law, morals, good customs, 1.YES THE STIPULATION IS VALID
public order, or public policy.
1
Obligations and Contracts 2020 PETITIONER: Valenzuela Hardwood
DIGEST AUTHOR: Julianna Soberano RESPONDENT: CA
Yes. It is undisputed that private respondent had acted as a private carrier in carriers. When the charterer decides to exercise this option, he takes a
transporting petitioner’s lauan logs. Thus, Article 1745 and other Civil Code normal business risk.
provisions on common carriers which were cited by petitioner may not be
applied unless expressly stipulated by the parties in their charter party. 2.NO STIPULATION IS NOT VOID
Articles 1170 and 1173 are applicable only to the obligor or the one with the
In a contract of private carriage, the parties may validly stipulate that obligation to perform. Seven Brothers is NOT an obligor in respect of the
responsibility for the cargo rests solely on the charterer, exempting the cargo, for this obligation to bear the loss was shifted to Valenzuela
shipowner from liability for loss of or damage to the cargo caused even by Hardwood by virtue of the charter party. Further, the standard of diligence
the negligence of the ship captain. Pursuant to Article 1306 of the Civil in this case was modified in the contract of private carriage between the
Code, such stipulation is valid because it is freely entered into by the parties parties.
and the same is not contrary to law, morals, good customs, public order, or
public policy. Indeed, their contract of private carriage is not even a contract I. Law or Doctrine Applied
of adhesion. In a contract of private carriage, the parties may freely stipulate
their duties and obligations which perforce would be binding on them. Article 1745. Any of the following or similar stipulations shall be
Unlike in a contract involving a common carrier, private carriage does not considered unreasonable, unjust and contrary to public policy:
involve the general public. Hence, the stringent provisions of the Civil Code
on common carriers protecting the general public cannot justifiably be
(1) That the goods are transported at the risk of the owner or
applied to a ship transporting commercial goods as a private carrier.
shipper;
Consequently, the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection given by
law in contracts involving common carriers. (2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
The general public enters into a contract of transportation with common
carriers without a hand or a voice in the preparation thereof. The riding (3) That the common carrier need not observe any diligence in the
public merely adheres to the contract; even if the public wants to, it cannot custody of the goods;
submit its own stipulations for the approval of the common carrier. Thus,
the law on common carriers extends its protective mantle against one-sided (4) That the common carrier shall exercise a degree of diligence
stipulations inserted in tickets, invoices or other documents over which the less than that of a good father of a family, or of a man of ordinary
riding public has no understanding or, worse, no choice. Compared to the prudence in the vigilance over the movables transported;
general public, a charterer in a contract of private carriage is not similarly
situated. It can enter into a free and voluntary agreement. In practice, the (5) That the common carrier shall not be responsible for the acts or
parties in a contract of private carriage can stipulate the carrier’s obligations omission of his or its employees;
and liabilities over the shipment which, in turn, determine the price or
consideration of the charter. Thus, a charterer, in exchange for convenience
and economy, may opt to set aside the protection of the law on common
2
(6) That the common carrier's liability for acts committed by

thieves, or of robbers who do not act with grave or irresistible
threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss,
destruction, or deterioration of goods on account of the defective
condition of the car, vehicle, ship, airplane or other equipment used
in the contract of carriage.
Article 1306. The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public
policy.
II. Disposition
WHEREFORE, premises considered, the petition is hereby DENIED for its

utter failure to show any reversible error on the part of Respondent Court.
The assailed Decision is AFFIRMED.
VII. Random Facts
3
G.R. No. L-7664 | August 1958 Negligence
Ong vs. Metropolitan Water District Ong vs. Metropolitan Water District
I. Recit-ready Summary Iluminado Vicente carrying with him the resuscitator and a medicine kit. He
Dominador Ong, 14-year old son of plaintiffs, in company with injected the boy with camphorated oil. Vicente left on a jeep to fetch Dr.
two of his brothers went to swim at the defendant’s swimming pool. After Ayuyao from the University of the Philippines. Abaño continued the
paying the admission fee they went to one of the small pools where the artificial manual respiration, and applied the resuscitator until the two
water was shallow. Later Dominador told his brothers that he was going to oxygen tanks were exhausted. Dr. Ayuyao arrived with another resuscitator,
the locker room to drink a bottle of coke. His two brothers went to the but boy was already dead.
bigger pool. Later, another boy in the swimming pool informed a lifeguard That evening, the incident was investigated by the Police
employed by the defendant that somebody was swimming underwater for Department of Quezon City and in the investigation boys Ruben Ong and
quite a long time. The lifeguard immediately jumped into the big swimming Andres Hagad, Jr. gave written statements. On the following day, an
pool and retrieved the apparently lifeless body of Dominador Ong from the autopsy was performed. The death was due to asphyxia by submersion in
bottom. Artificial respiration and a resuscitator were applied by employees water.
of the defendant upon Dominador for the purpose of reviving him. A doctor Dominador’s parents, plaintiffs spouses herein, seek to recover
was summoned by employees of the defendant to revive the boy but all to from defendant, the sum of P50,000 as damages, P5,000 as funeral expenses,
no avail. This action was instituted by the parents of the boy to recover and P11,000 as attorneys' fees, for the death of their son Dominador Ong in
damages from the defendant for the death of their son. one of the swimming pools operated by defendant.
Plaintiffs claimed that there was negligence on the part of the
defendant. The Court held that there is sufficient evidence to show that III. Issue/s
defendant has taken all necessary precautions to avoid danger to the lives of 1. W/N the death of minor Dominador Ong can be attributed to
its patrons or prevent accidents, thus defendant is not liable for damages. the negligence of defendant and/or its employees so as to entitle
plaintiffs to recover damage? NO.
II. Facts of the Case 2. W/N the doctrine of last clear chance could be used against the
Dominador Ong, a 14-year old high school student and boy scout, respondent? NO.
and his brothers Ruben and Eusebio, went to Metropolitan Water District's
recreational swimming pools. they immediately went to one of the small IV. Holding/s
pools where the water was shallow. Dominador Ong told his brothers that 1. No, the death of Dominador cannot be attributed to the
he was going to the locker room to drink a bottle of coke. Ruben and negligence of the defendant.
Eusebio went to the bigger pool, leaving Dominador in the small pool so Plaintiffs failed to prove negligence on the part of the defendant or its
they did not see the him when he left the pool to get a bottle of coke. employees. The present action is one for damages founded on culpable
Around 5-10 minutes later, some boys who were in the pool area negligence, thus, the principle to be observed is that the person claiming
informed a bather by the name of Andres Hagad, Jr., that somebody was damages has the burden of proving that the damage is caused by the fault or
swimming under water for quite a long time. Another boy informed negligence of the person from whom the damage is claimed, or of one of his
lifeguard Manuel Abaño of the same happening and Abaño immediately employees.
jumped into the big swimming pool and retrieved the body of Dominador There is sufficient evidence to show that defendant has taken all necessary
Ong. Abaño immediately applied manual artificial respiration. Nurse precautions to avoid danger to the lives of its patrons or prevent accidents.
Armando Rule came to render assistance, followed by sanitary inspector The pools are provided with a ring buoy, toy roof, towing line, oxygen
1
Obligations and Contracts (2020) PLAINTIFF/APPELLANT: Mr. and Mrs. Amador C. Ong
DIGEST AUTHOR: Nikki Paglicawan DEFENDANT/APPELLEE: Metropolitan Water District
resuscitator and a first aid medicine kit. The bottom of the pools is painted opponent, is considered in law solely responsible for the consequences of
with black colors to insure clear visibility. There is on display in a the accident.”
conspicuous place within the area, rules and regulations governing the use
of the pools. Defendant employs six lifeguards who are all trained and were Since (1) it is not known how minor Ong came into the big swimming pool
issued certificates of proficiency. These lifeguards work on schedule and (2) it being apparent that he went there without any companion in
prepared by their chief and arranged in such a way as to have two guards at violation of one of the regulations regarding the use of the pools, and (3) it
a time on duty. There is nurse and a sanitary inspector with a clinic appearing that the lifeguard responded to the call for help and immediately
provided with oxygen resuscitator. There are security guards who are retrieved the body and tried to bring him back to life, it is clear that there is
available always in case of emergency. no room for the application of the doctrine.
The plaintiffs ascribed negligence to defendant claiming that the lifeguard at
the time was not available or was attending to something else thus his help
came late. They tried to prove through the testimony of Andres Hagad, Jr. V. Law or Doctrine Applied
and Ruben Ong that when the other bathers detected that there was a
drowning person in the big swimming pool and shouted to the lifeguard for ARTICLE 2176 CIVIL CODE
help, Abaño did not immediately respond to the alarm. It was only upon the Whoever by act or omission causes damage to another, there being fault or
third call that he threw away the magazine he was reading and allowed three negligence, is obliged to pay for the damage done. Such fault or negligence,
or four minutes to elapse before retrieving the body from the water. This if there is so pre-existing contractual relation between the parties, is called a
negligence of Abaño, they contend, is attributable to defendant. This claim
was belied by Hagad’s and Ong’s written statements wherein they stated
ARTICLE 2080 CIVIL CODE
that Abaño immediately dived in the pool to retrieve the body. Their The guarantors, even though they be solidary, are released from their
testimonies were disregarded. obligation whenever by some act of the creditor they cannot be subrogated
This action is governed by Article 2176 in relation to Article 2080 of the to the rights, mortgages, and preference of the latter.
Civil Code. The first article provides that "whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay Doctrine of Last Clear Chance
for the damages done." Such fault or negligence is called quasi-delict. “As the doctrine usually is stated, a person who has the last clear
Under the second article, this obligation is demandable not only for one's chance or opportunity of avoiding an accident, notwithstanding the
own acts or omissions but also for those of persons for whom one is negligent acts of his opponent or the negligence of a third person which is
responsible. imputed to his opponent, is considered in law solely responsible for the
consequences of the accident.”
2. No, the doctrine of last clear chance is not applicable in this case. The last clear chance doctrine can never apply where the party
charged is required to act instantaneously, and if the injury cannot be
“As the doctrine usually is stated, a person who has the last clear chance or avoided by the application of all means at hand after the peril is or should
opportunity of avoiding an accident, notwithstanding the negligent acts of have been discovered; at least in cases in which any previous negligence of
his opponent or the negligence of a third person which is imputed to his the party charged cannot be said to have contributed to the injury.
VI. Disposition
Wherefore, the decision appealed from being in accordance with law and
the evidence, we hereby affirm the same, without pronouncement as to costs.
"The rule is well settled that the owners of resorts to which people generally
are expressly or by implication invited are legally bound to exercise
ordinary care and prudence in the management and maintenance of such
resorts, to the end of making them reasonably safe for visitors" (Larkin vs.
Saltair Beach Co., 30 Utah 86, 83 Pac. 686).
"Although the proprietor of a natatorium is liable for injuries to a patron,

resulting from lack of ordinary care in providing for his safety, without the
fault of the patron, he is not, however, in any sense deemed to be the insurer
of the safety of patrons. And the death of a patron within his premises does
not cast upon him the burden of excusing himself from any presumption of
negligence" (Bertalot vs. Kinnare. 72 Ill. App. 52, 22 A. L. R. 635; Flora vs.
Bimini Water Co., 161 Cal. 495, 119 Pac. 661).
VII. Random Facts

● Ponente: Bautista Angelo, J.
G.R. No. 137873 | April 20, 2001 Nature and Effect of Obligations D.M. Consunji v. CA D.M.
Consunji v. CA
1. Jose Juego was crushed to death when the platform he was then
on board and performing work, fell and Jose Juego, a construction worker of D.M. Consunji, Inc. fell 14 floors
2. The falling of the platform was due to the removal or getting loose from the Renaissance Tower, Pasig City to his death.
As a result, respondent
of the pin which was merely inserted to the connecting points of Maria Juego, Jose’s widow, filed in the RTC a complaint
for damages
the chain block and platform but without safety lock. against petitioner D.M. Consunji, Inc. The petitioner raised, among
other defenses, the respondent’s prior availment of the benefits from the State
As a result, Maria Juego, Jose’s widow, filed in the RTC a complaint Insurance Fund. The RTC rendered a decision in
favor of respondent Maria
for damages against D.M. Consunji, Inc. The petitioner raised, among other Juego which the CA subsequently affirmed.
Hence, this petition.
defenses, the respondent’s prior availment of the benefits from the State Insurance Fund. The main issue in this case is
W/N respondent Maria Juego is precluded from recovering damages under the Civil Code. The Court held that NO,
The RTC rendered a decision in favor of respondent Maria Juego respondent is not precluded from recovering damages
under the Civil Code.
which the CA subsequently affirmed. Hence, this petition.
It is the rule that “claimants may invoke either the Workmen’s Compensation Act or the provisions of the Civil Code,
subject to the
III. Issue/s
consequence that the choice of one remedy will exclude the other and that the acceptance of compensation under the remedy
chosen will preclude claim for additional benefits under the other remedy. The exception is where a claimant who has already
been paid under the Workmen’s Compensation Act may still sue for damages under the Civil Code on the basis of
supervening facts or developments occurring after he opted for the first
1. W/N the police report was admissible evidence of the alleged
negligence of petitioner. YES 2. W/N the doctrine of res ipsa loquitor is applicable to prove negligence
on the part of the petitioner. YES 3. W/N respondent is precluded from recovering damages under the remedy.” The
petitioner falls under the exception because the respondent
Civil Code. NO was unaware of petitioner’s negligence when she filed her claim for death benefits from the State
Insurance Fund. There is no proof that respondent
IV. Holding/s knew that her husband died in the elevator crash [due to negligence] when she accomplished her application
for benefits from the ECC on November 15, 1990, considering that the police investigation came out 10 days after her
accomplishment of the form.
Obligations and Contracts (2020) PETITIONER: D.M. Consunji, Inc.
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Court of Appeals and Maria Juego
1. YES, the police report is admissible evidence of the alleged negligence
of petitioner.
Jose Juego, a construction worker of D.M. Consunji, Inc. fell 14 floors
Petitioner maintains that the police report produced by the respondent is hearsay and, therefore, inadmissible. The court
disagrees.
from the Renaissance Tower, Pasig City to his death. This was confirmed by PO3 Rogelio Villanueva who investigated
the tragedy. PO3 Villanueva’s
The Rules of Court provide that a witness can testify only to those facts which he knows of his personal knowledge, that
is, which are derived from report stated that:
his perception. A witness, therefore, may not testify as what he merely learned from others wither because he was told or
read or heard the same.
1
Consunji v. CA
This is known as the hearsay rule. This hearsay rule is not only limited to
3. The injury suffered must not
No contributory negligence was oral testimony or statements but also applies to written statements.
have been due to any voluntary
attributed to the deceased action or contribution on the However, the hearsay rule is not without exceptions, one of which
are
part of the person injured entries in official records, as provided by Section 44, Rule 130. The requisites for admissibility
under this rule include:
3. NO, the respondent is not precluded from recovering damages
under the Civil Code. 1. The entry was made by a public officer or by another person
specially enjoined by law to do so
Petitioner argues that respondent had previously availed of the death 2. It was made by the public officer in the
performance of his duties,
benefits provided under Article 173 of the Labor Code and is, therefore, or by such other person in the performance of a
duty specially
precluded from claiming from the deceased’s employer damages under the enjoined by law
Civil Code. The court disagreed. 3. The public officer or other person had sufficient knowledge of the facts by him stated,
which must have been acquired by personally
Based on previous jurisprudence, the court ruled that “claimants may or through official information.
invoke either the Workmen’s Compensation Act or the provisions of the Civil Code, subject to the consequence that the
choice of one remedy will The court held that the police report met all these requirements.
exclude the other and that the acceptance of compensation under the remedy chosen will preclude claim for additional
benefits under the other remedy. 2. YES, res ipsa loquitor may be applied in the case at bar.
The exception is where a claimant who has already been paid under the Workmen’s Compensation Act may still sue for
damages under the Civil Res ipsa loquitor literally means “the thing or transaction speaks for
Code on the basis of supervening facts or developments occurring after he itself.” This doctrine is a rule of necessity and it
applies where evidence is
opted for the first remedy.” absent or not readily available, provided it meets certain requirements.
The court held that the respondent’s case came under the exception The court determined that all requisites are present in
the case at bar.
because the respondent was unaware of petitioner’s negligence when she filed her claim for death benefits from the State
Insurance Fund. There is no Requisites Court Decision
proof that respondent knew that her husband died in the elevator crash [due 1. The accident was of a kind
No worker is going to fall from the
to negligence] when she accomplished her application for benefits from the which does not ordinary occur
14th floor of a building to the
Employee’s Compensation Commission (ECC) on November 15, 1990, unless someone is negligent
basement while performing work
considering that the police investigation came out 10 days after her in a construction site unless
accomplishment of the form. someone is negligent 2. The instrumentality or agency
The construction with all its
In addition, there is no showing that respondent knew of the remedies which caused the injury was
paraphernalia and human resources
available to her when the claim before the ECC was filed. On the contrary, under the exclusive control of
that likely caused the injury is
she testified that she was not aware of her rights. The petitioner’s argument the person charged with
under the exclusive control and
of “ignorance of the law excuses no one from compliance therewith” has no negligence
management of the appellant
merit because such applies only to mandatory and prohibitory laws.
2
Consunji v. CA
WHEREFORE, the case is REMANDED to the Regional Trial Court V. Law or Doctrine Applied
of Pasig City to determine whether the award decreed in its decision is more than that of the ECC. Should the award
decreed by the trial court be greater SECTION 44, RULE 130, RULES OF COURT
than that awarded by the ECC, payments already made to private respondent pursuant to the Labor Code shall be deducted
therefrom. In all other Section 44. Entries in official records made in the performance of his duty
respects, the Decision of the Court of Appeals is AFFIRMED. SO by a public officer of the Philippines, or by a person in
the performance of a
ORDERED. duty specially enjoined by law are prima facie evidence of the facts therein stated.
RES IPSA LOQUITOR
VIII. Random Facts
“Where it is shown that the thing or instrumentality which caused the injury
• Ponente: Kapunan, J. complained of was under the control or management of the defendant, and that the occurrence
resulting in the injury was such as in the ordinary course of things would not happen if those who had its control or
management used proper care, there is sufficient evidence, or, as sometimes stated, reasonable evidence, in the absence of
explanation by the defendant, that the injury arose from or was caused by the defendant's want of care.”
ARTICLE 173, LABOR CODE
ARTICLE 173. Extent of liability. — Unless otherwise provided, the liability of the State Insurance Fund under this Title
shall be exclusive and in place of all other liabilities of the employer to the employee, his dependents or anyone otherwise
entitled to receive damages on behalf of the employee or his dependents. The payment of compensation under this Title shall
not bar the recovery of benefits as provided for in Section 699 of the Revised Administrative Code, Republic Act Numbered
Eleven hundred sixty-one, as amended, Republic Act Numbered Six hundred ten, as amended, Republic Act Numbered
Forty-eight hundred sixty-four as amended, and other laws whose benefits are administered by the System or by other
agencies of the government.
VI. Disposition
3
G.R. No. 137873 | April 20, 2001 Nature and Effect of Obligations
D.M. Consunji v. CA D.M. Consunji v. CA
I. Recit-ready Summary 1. Jose Juego was crushed to death when the platform he was then
on board and performing work, fell and
Jose Juego, a construction worker of D.M. Consunji, Inc. fell 14 floors 2. The falling of the platform was due to the removal or getting loose
from the Renaissance Tower, Pasig City to his death. As a result, respondent of the pin which was merely inserted to the connecting points of
Maria Juego, Jose’s widow, filed in the RTC a complaint for damages the chain block and platform but without safety lock.
against petitioner D.M. Consunji, Inc. The petitioner raised, among other
defenses, the respondent’s prior availment of the benefits from the State As a result, Maria Juego, Jose’s widow, filed in the RTC a complaint
Insurance Fund. The RTC rendered a decision in favor of respondent Maria for damages against D.M. Consunji, Inc. The petitioner raised, among other
Juego which the CA subsequently affirmed. Hence, this petition. defenses, the respondent’s prior availment of the benefits from the State
Insurance Fund.
The main issue in this case is W/N respondent Maria Juego is precluded
from recovering damages under the Civil Code. The Court held that NO, The RTC rendered a decision in favor of respondent Maria Juego
respondent is not precluded from recovering damages under the Civil Code. which the CA subsequently affirmed. Hence, this petition.
It is the rule that “claimants may invoke either the Workmen’s III. Issue/s
Compensation Act or the provisions of the Civil Code, subject to the
consequence that the choice of one remedy will exclude the other and that
1. W/N the police report was admissible evidence of the alleged
the acceptance of compensation under the remedy chosen will preclude
negligence of petitioner. YES
claim for additional benefits under the other remedy. The exception is where
a claimant who has already been paid under the Workmen’s Compensation 2. W/N the doctrine of res ipsa loquitor is applicable to prove negligence
Act may still sue for damages under the Civil Code on the basis of on the part of the petitioner. YES
supervening facts or developments occurring after he opted for the first 3. W/N respondent is precluded from recovering damages under the
remedy.” The petitioner falls under the exception because the respondent Civil Code. NO
was unaware of petitioner’s negligence when she filed her claim for death
benefits from the State Insurance Fund. There is no proof that respondent IV. Holding/s
knew that her husband died in the elevator crash [due to negligence] when
she accomplished her application for benefits from the ECC on November 1. YES, the police report is admissible evidence of the alleged negligence
15, 1990, considering that the police investigation came out 10 days after of petitioner.
her accomplishment of the form.
Petitioner maintains that the police report produced by the respondent is
II. Facts of the Case hearsay and, therefore, inadmissible. The court disagrees.
Jose Juego, a construction worker of D.M. Consunji, Inc. fell 14 floors
from the Renaissance Tower, Pasig City to his death. This was confirmed by The Rules of Court provide that a witness can testify only to those facts
PO3 Rogelio Villanueva who investigated the tragedy. PO3 Villanueva’s which he knows of his personal knowledge, that is, which are derived from
report stated that: his perception. A witness, therefore, may not testify as what he merely
learned from others wither because he was told or read or heard the same.
Obligations and Contracts (2020) PETITIONER: D.M. Consunji, Inc. 1

This is known as the hearsay rule. This hearsay rule is not only limited to 3. The injury suffered must not No contributory negligence was
oral testimony or statements but also applies to written statements. have been due to any voluntary attributed to the deceased
action or contribution on the
However, the hearsay rule is not without exceptions, one of which are part of the person injured
entries in official records, as provided by Section 44, Rule 130. The
requisites for admissibility under this rule include: 3. NO, the respondent is not precluded from recovering damages
under the Civil Code.
1. The entry was made by a public officer or by another person
specially enjoined by law to do so Petitioner argues that respondent had previously availed of the death
2. It was made by the public officer in the performance of his duties, benefits provided under Article 173 of the Labor Code and is, therefore,
or by such other person in the performance of a duty specially precluded from claiming from the deceased’s employer damages under the
enjoined by law Civil Code. The court disagreed.
3. The public officer or other person had sufficient knowledge of the
facts by him stated, which must have been acquired by personally Based on previous jurisprudence, the court ruled that “claimants may
or through official information. invoke either the Workmen’s Compensation Act or the provisions of the
Civil Code, subject to the consequence that the choice of one remedy will
The court held that the police report met all these requirements. exclude the other and that the acceptance of compensation under the remedy
chosen will preclude claim for additional benefits under the other remedy.
2. YES, res ipsa loquitor may be applied in the case at bar. The exception is where a claimant who has already been paid under the
Workmen’s Compensation Act may still sue for damages under the Civil
Res ipsa loquitor literally means “the thing or transaction speaks for Code on the basis of supervening facts or developments occurring after he
itself.” This doctrine is a rule of necessity and it applies where evidence is opted for the first remedy.”
absent or not readily available, provided it meets certain requirements.
The court held that the respondent’s case came under the exception
The court determined that all requisites are present in the case at bar. because the respondent was unaware of petitioner’s negligence when she
filed her claim for death benefits from the State Insurance Fund. There is no
Requisites Court Decision proof that respondent knew that her husband died in the elevator crash [due
1. The accident was of a kind No worker is going to fall from the to negligence] when she accomplished her application for benefits from the
which does not ordinary occur 14th floor of a building to the Employee’s Compensation Commission (ECC) on November 15, 1990,
unless someone is negligent basement while performing work considering that the police investigation came out 10 days after her
in a construction site unless accomplishment of the form.
someone is negligent
2. The instrumentality or agency The construction with all its In addition, there is no showing that respondent knew of the remedies
which caused the injury was paraphernalia and human resources available to her when the claim before the ECC was filed. On the contrary,
under the exclusive control of that likely caused the injury is she testified that she was not aware of her rights. The petitioner’s argument
the person charged with under the exclusive control and of “ignorance of the law excuses no one from compliance therewith” has no
negligence management of the appellant merit because such applies only to mandatory and prohibitory laws.

WHEREFORE, the case is REMANDED to the Regional Trial Court

V. Law or Doctrine Applied of Pasig City to determine whether the award decreed in its decision is more
than that of the ECC. Should the award decreed by the trial court be greater
SECTION 44, RULE 130, RULES OF COURT than that awarded by the ECC, payments already made to private respondent
pursuant to the Labor Code shall be deducted therefrom. In all other
Section 44. Entries in official records made in the performance of his duty respects, the Decision of the Court of Appeals is AFFIRMED. SO
by a public officer of the Philippines, or by a person in the performance of a ORDERED.
duty specially enjoined by law are prima facie evidence of the facts therein
stated. VII. Additional Notes
RES IPSA LOQUITOR VIII. Random Facts
“Where it is shown that the thing or instrumentality which caused the injury  Ponente: Kapunan, J.
complained of was under the control or management of the defendant, and
that the occurrence resulting in the injury was such as in the ordinary course
of things would not happen if those who had its control or management used
proper care, there is sufficient evidence, or, as sometimes stated, reasonable
evidence, in the absence of explanation by the defendant, that the injury
arose from or was caused by the defendant's want of care.”
ARTICLE 173, LABOR CODE
ARTICLE 173. Extent of liability. — Unless otherwise provided, the

liability of the State Insurance Fund under this Title shall be exclusive and
in place of all other liabilities of the employer to the employee, his
dependents or anyone otherwise entitled to receive damages on behalf of the
employee or his dependents. The payment of compensation under this Title
shall not bar the recovery of benefits as provided for in Section 699 of the
Revised Administrative Code, Republic Act Numbered Eleven hundred
sixty-one, as amended, Republic Act Numbered Six hundred ten, as
amended, Republic Act Numbered Forty-eight hundred sixty-four as
amended, and other laws whose benefits are administered by the System or
by other agencies of the government.
VI. Disposition

GR No. 174269 Nature and Conditions of Obligations, Art. 1163-1179
Polo S. Pantaleon vs. American Express Int’l. Inc. Polo S. Pantaleon vs. American Express Int’l. Inc.
I. Recit-ready summary decided to release the items even without American Express’s approval.
After that trip, the Pantaleon family proceeded to a US trip. But again,
During their guided European trip, the petitioner and his family went to Pantaleon experienced delay in securing approval in his purchases using the
Amsterdam. This trip included a visit to Coster Diamond House wherein
petitioner’s wife purchased several jewelries with the use of her husband’s credit card on two separate occasions - when he wanted to purchase golf
credit card, but the approval from the respondent credit card company, equipment and when he wanted to purchase children’s shoes.
American Express, took a long time. Thus, it caused inconvenience not just to
the petitioners but also to the other people in the guided tour. Then, when the Upon return to Manila, Pantaleon sent American Express a letter
petitioner proceeded to their US trip, the same delay occurred to them while
purchasing golf equipment and shoes. As such, upon returning to the demanding an apology for the humiliation and inconvenience he and his family
Philippines, the petitioner demanded an apology letter from the respondent, experienced due to the delays in obtaining approval for his credit card
and received one. But, dissatisfied, he filed an action for damages against the purchases. American Express responded by explaining that the delay in
respondent. The issues are (1) w/n the respondent is guilty of culpable delay, Amsterdam was due to the amount involved. Dissatisfied with this explanation,
and (2) w/n the respondent is obligated to act on petitioner’s offer within a Pantaleon filed an action for damages against the credit card company before
specified time. The SC ruled in the negative for both. In the former, the SC
stated that the petitioner failed to meet the demand required by law and the the RTC. The RTC found American Express guilty and awarded Pantaleon
requisites of culpable delay under Art 1169 of the Civil Code. American moral damages, exemplary damages, attorney’s fees, and litigation expenses
Express cannot be defaulted in its obligation with the petitioner, since there
was no obligation to begin with, and subsequently the petitioner has no right On appeal, the CA reversed the awards. The CA disagreed with the
to demand from the respondent. And in the latter, the SC stated that the
respondent was not obliged to act on the offers of the petitioner whenever he RTC’s finding that American Express had breached its contract, noting that the
uses his credit card, since there was no provision under the credit card delay was not attended by bad faith, malice or gross negligence. The appellate
membership agreement that obligates the respondent to act within a specified court found that American Express exercised diligent efforts to effect the
time. approval of Pantaleon’s purchases. Since, there was no proof that American
Express breached its contract, or that it acted in a wanton, fraudulent or
II. Facts of the case
malevolent manner, the appellate court ruled that American Express could not
American Express is a resident foreign corporation engaged in the be held liable for any form of damages. Hence, the present petition.
business of providing credit services. Pantaleon has been an American
Express cardholder since 1980. Then on October 1991, Pantaleon and his II. Issue/s
family went on a guided European tour. One of their trips included a trip to the
1. W/N American Express is guilty of culpable delay against the
Coster Diamond House (Coster). Mrs. Pantaleon decided to purchase some
petitioner Pantaleon? NO
diamond pieces, and presented her husband’s American Express credit card
2. W/N American Express had the obligation to act on the offer of
to the sales clerk to pay for this purchase. However after a while, Coster had
petitioner Pantaleon within a specific period of time? NO
not received approval from American Express for the purchase so Pantaleon
asked the store clerk to cancel the sale. The store manager, however, III. Holding/s
convinced Pantaleon to wait a few more minutes. But, 45 minutes later,
American Express still had not approved the purchase. Since the city tour 1. NO. The Supreme Court stated that the respondent is not
could not begin until the Pantaleons were onboard the tour bus, Coster guilty of culpable delay.
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: Polo S. Pantaleon DIGEST AUTHOR: Larry Abucay RESPONDENT:
American Express International Inc.
act within a specific period of time. Also, even if Pantaleon claimed

The SC stated that from a loan agreement perspective, the remains that no obligation exists on the part of American Express to
contractual relationship begins to exist only upon the meeting of the that American Express had always approved his requests “in a
offer and acceptance of the parties involved. In more concrete matter of seconds, this would still not be enough to establish a
terms, when cardholders use their credit cards to pay for their legally demandable right. As a general rule, custom is not a source
purchases, they merely offer to enter into loan agreements with the of legal obligation; thus, it will never ripen into a right.
credit card company. Only after the latter approves the purchase
requests that the parties enter into binding loan contracts, in IV. Law or Doctrine Applied
keeping with Article 1319. This kind of viewpoint supports in the
reservation found in the card membership agreement itself, ARTICLE 1169 - Those obliged to deliver or to do something incur in delay
particularly paragraph 10, which clearly states that American from the time the obligee judicially or extrajudicially demands from them the
Express “reserve[s] the right to deny authorization for any fulfillment of their obligation.
requested Charge." By so providing, American Express made its However, the demand by the creditor shall not be necessary in order
position clear that it has no obligation to approve any and all charge that delay may exist:
requests made by its card holders. With that being said, American 1. When the obligation or the law expressly so declare; or 2. When
Express is not guilty of culpable delay or Mora Solvendi. Pantaleon from the nature and the circumstances of the obligation it appears that
cannot claim that American Express defaulted in its obligation, the designation of the time when the thing is to be delivered or the
because there was no obligation on the part of American Express to service is to be rendered was a controlling motive for the
begin with. Since, by the express terms of the credit card establishment of the contract; or
agreement, American Express is not obligated to approve 3. When demand would be useless, as when the obligor has rendered it
Pantaleon’s purchase request. Without a demandable obligation, beyond his power to perform.
there can be no finding of default. 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
Moreover, the Court found that Pantaleon failed to make the upon him. From the moment one of the parties fulfills his obligation, delay by
demand required by Article 1169 of the Civil Code. A demand the other begins.
presupposes the existence of an obligation between the parties. So,
whenever Pantaleon used his American Express credit card to pay ARTICLE 1319 - Consent is manifested by the meeting of the offer and the
for his purchases, what the stores transmit to American Express are acceptance upon the thing and the cause which are to constitute the
his offers to execute loan contracts, and not the demand required contract. The offer must be certain and the acceptance absolute. A qualified
by law to make the debtor in default, given that no obligation could acceptance constitutes a counter-offer.
arise on the part of American Express until after its acceptance of Acceptance made by letter or telegram does not bind the offerer except from
Pantaleon’s offers. the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made.
2. NO. The Court stated the respondent was not obligated to act
on the offers of the petitioner on a specified time. MORA SOLVENDI (mora of the debtor) – delay of the obligor or debtor to
perform his obligation.
The SC held that there is no provision in the credit card Requisites:
membership agreement that obligates American Express to act on -positive act or prestation of the debtor
all cardholder purchase requests within a specifically defined period -obligation should be demandable, due and liquidated. -
of time. Thus, regardless of whether the obligation is worded was to that the debtor shall delay by fraud or by negligence
"act in a matter of seconds" or to "act in timely dispatch," the fact -creditor should demand either judicially or extra-judicially.
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: Polo S. Pantaleon DIGEST AUTHOR: Larry Abucay RESPONDENT:
American Express International Inc.
MORA ACCIPIENDI (mora of the creditor) – the delay of the obligee or

creditor to accept the delivery of the thing which is the object of the
obligation.
Requisites:
-the fulfilment requires the act of cooperation on the part of the creditor.
-that the debtor has done what is incumbent upon him
-refusal by creditor.
COMPENSATIO MORAE – the delay of the parties or obligors in reciprocal

obligations.
V. Disposition
WHEREFORE, premises considered, we SET ASIDE our May 8, 2009

Decision and GRANT the present motion for reconsideration. The Court of
Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs.
VIII. Random Facts

Ponente: Brion, J.:
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: Polo S. Pantaleon
DIGEST AUTHOR: Larry Abucay RESPONDENT: American Express International Inc.
I. Recit-ready summary After that trip, the Pantaleon family proceeded to a US trip. But again,
Pantaleon experienced delay in securing approval in his purchases using the
During their guided European trip, the petitioner and his family went to credit card on two separate occasions - when he wanted to purchase golf
Amsterdam. This trip included a visit to Coster Diamond House wherein
petitioner’s wife purchased several jewelries with the use of her husband’s equipment and when he wanted to purchase children’s shoes.
credit card, but the approval from the respondent credit card company,
American Express, took a long time. Thus, it caused inconvenience not just Upon return to Manila, Pantaleon sent American Express a letter
to the petitioners but also to the other people in the guided tour. Then, when demanding an apology for the humiliation and inconvenience he and his
the petitioner proceeded to their US trip, the same delay occurred to them
family experienced due to the delays in obtaining approval for his credit card
while purchasing golf equipment and shoes. As such, upon returning to the
Philippines, the petitioner demanded an apology letter from the respondent, purchases. American Express responded by explaining that the delay in
and received one. But, dissatisfied, he filed an action for damages against Amsterdam was due to the amount involved. Dissatisfied with this
the respondent. The issues are (1) w/n the respondent is guilty of culpable explanation, Pantaleon filed an action for damages against the credit card
delay, and (2) w/n the respondent is obligated to act on petitioner’s offer company before the RTC. The RTC found American Express guilty and
within a specified time. The SC ruled in the negative for both. In the former,
the SC stated that the petitioner failed to meet the demand required by law awarded Pantaleon moral damages, exemplary damages, attorney’s fees,
and the requisites of culpable delay under Art 1169 of the Civil Code. and litigation expenses
American Express cannot be defaulted in its obligation with the petitioner,
since there was no obligation to begin with, and subsequently the petitioner On appeal, the CA reversed the awards. The CA disagreed with the
has no right to demand from the respondent. And in the latter, the SC stated RTC’s finding that American Express had breached its contract, noting that
that the respondent was not obliged to act on the offers of the petitioner
whenever he uses his credit card, since there was no provision under the the delay was not attended by bad faith, malice or gross negligence. The
credit card membership agreement that obligates the respondent to act appellate court found that American Express exercised diligent efforts to
within a specified time. effect the approval of Pantaleon’s purchases. Since, there was no proof that
American Express breached its contract, or that it acted in a wanton,
II. Facts of the case
fraudulent or malevolent manner, the appellate court ruled that American
American Express is a resident foreign corporation engaged in the Express could not be held liable for any form of damages. Hence, the
business of providing credit services. Pantaleon has been an American present petition.
Express cardholder since 1980. Then on October 1991, Pantaleon and his
II. Issue/s
family went on a guided European tour. One of their trips included a trip to
the Coster Diamond House (Coster). Mrs. Pantaleon decided to purchase 1. W/N American Express is guilty of culpable delay against the
some diamond pieces, and presented her husband’s American Express petitioner Pantaleon? NO
credit card to the sales clerk to pay for this purchase. However after a while, 2. W/N American Express had the obligation to act on the offer of
Coster had not received approval from American Express for the purchase petitioner Pantaleon within a specific period of time? NO
so Pantaleon asked the store clerk to cancel the sale. The store manager,
however, convinced Pantaleon to wait a few more minutes. But, 45 minutes III. Holding/s
later, American Express still had not approved the purchase. Since the city
tour could not begin until the Pantaleons were onboard the tour bus, Coster 1. NO. The Supreme Court stated that the respondent is not
guilty of culpable delay.
decided to release the items even without American Express’s approval.

act within a specific period of time. Also, even if Pantaleon claimed

The SC stated that from a loan agreement perspective, the that American Express had always approved his requests “in a
contractual relationship begins to exist only upon the meeting of the matter of seconds, this would still not be enough to establish a
offer and acceptance of the parties involved. In more concrete legally demandable right. As a general rule, custom is not a source
terms, when cardholders use their credit cards to pay for their of legal obligation; thus, it will never ripen into a right.
purchases, they merely offer to enter into loan agreements with the
credit card company. Only after the latter approves the purchase IV. Law or Doctrine Applied
requests that the parties enter into binding loan contracts, in
keeping with Article 1319. This kind of viewpoint supports in the ARTICLE 1169 - Those obliged to deliver or to do something incur in delay
reservation found in the card membership agreement itself, from the time the obligee judicially or extrajudicially demands from them the
particularly paragraph 10, which clearly states that American fulfillment of their obligation.
Express “reserve[s] the right to deny authorization for any However, the demand by the creditor shall not be necessary in order that
requested Charge." By so providing, American Express made its delay may exist:
position clear that it has no obligation to approve any and all charge 1. When the obligation or the law expressly so declare; or
requests made by its card holders. With that being said, American 2. When from the nature and the circumstances of the obligation it
Express is not guilty of culpable delay or Mora Solvendi. Pantaleon appears that the designation of the time when the thing is to be
cannot claim that American Express defaulted in its obligation, delivered or the service is to be rendered was a controlling motive
because there was no obligation on the part of American Express for the establishment of the contract; or
to begin with. Since, by the express terms of the credit card 3. When demand would be useless, as when the obligor has rendered
agreement, American Express is not obligated to approve it beyond his power to perform.
Pantaleon’s purchase request. Without a demandable obligation, In reciprocal obligations, neither party incurs in delay if the other does not
there can be no finding of default. comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
Moreover, the Court found that Pantaleon failed to make the the other begins.
demand required by Article 1169 of the Civil Code. A demand
presupposes the existence of an obligation between the parties. ARTICLE 1319 - Consent is manifested by the meeting of the offer and the
So, whenever Pantaleon used his American Express credit card to acceptance upon the thing and the cause which are to constitute the
pay for his purchases, what the stores transmit to American contract. The offer must be certain and the acceptance absolute. A qualified
Express are his offers to execute loan contracts, and not the acceptance constitutes a counter-offer.
demand required by law to make the debtor in default, given that no Acceptance made by letter or telegram does not bind the offerer except from
obligation could arise on the part of American Express until after its the time it came to his knowledge. The contract, in such a case, is presumed
acceptance of Pantaleon’s offers. to have been entered into in the place where the offer was made.
2. NO. The Court stated the respondent was not obligated to act MORA SOLVENDI (mora of the debtor) – delay of the obligor or debtor to
on the offers of the petitioner on a specified time. perform his obligation.
Requisites:
The SC held that there is no provision in the credit card -positive act or prestation of the debtor
membership agreement that obligates American Express to act on -obligation should be demandable, due and liquidated.
all cardholder purchase requests within a specifically defined period -that the debtor shall delay by fraud or by negligence
of time. Thus, regardless of whether the obligation is worded was to -creditor should demand either judicially or extra-judicially.
"act in a matter of seconds" or to "act in timely dispatch," the fact
remains that no obligation exists on the part of American Express to

MORA ACCIPIENDI (mora of the creditor) – the delay of the obligee or

creditor to accept the delivery of the thing which is the object of the
obligation.
Requisites:
-the fulfilment requires the act of cooperation on the part of the creditor.
-that the debtor has done what is incumbent upon him
-refusal by creditor.
COMPENSATIO MORAE – the delay of the parties or obligors in reciprocal

obligations.
V. Disposition
WHEREFORE, premises considered, we SET ASIDE our May 8, 2009

Decision and GRANT the present motion for reconsideration. The Court of
Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs.
VIII. Random Facts

Ponente: Brion, J.:

G.R. No. 165662 | May 3, 2006 Demand not needed to incur delay if expressed in the obligation
Selegna Management and Development corp v UCPB Selegna Management and Development corp v UCPB

Selegna Management and Development Corporation and Spouses On September 19, 1995, Selegna Management and Development
Edgardo and Zenaida Angeles (petitioners) were granted a credit facility Corporation and Spouses Edgardo and Zenaida Angeles (petitioners) were
worth 70m by United Coconut Planters Bank (respondent) in 1995. granted a credit facility worth 70m by (respondent) United Coconut Planters
Petitioners mortgaged parcels of land and condominiums as security for this Bank. As security for this credit facility, petitioners mortgaged parcels of land
credit facility. Petitioners were also required to execute a promissory note in in Muntinlupa, Las Piñas, Antipolo, and Quezon. Petitioners also mortgaged
favor of respondent every time they availed this credit facility, to which they several Condominium units in Makati. Likewise, they were also required to
had to pay interest in monthly amortizations. In their credit agreement, failure
execute a promissory note in favor of respondent every time they availed this
to pay any availment of the accommodation or interest, or any sum due,
credit facility – to which petitioners were required to pay the interest in
constituted an event of default, allowing respondent to declare all outstanding
availments as due and demandable. monthly amortizations.
In 1995,Petitioners acquired an increase of the credit facility, and It was stipulated in their credit agreement that failure to pay any
executed a promissory note worth 103m which had an interest rate of 21.75% availment of the accommodation or interest, or any sum due, constitutes an
per annum. event of default, which allows respondent to declare (as immediately due and
On December 1998, respondent sent petitioner a demand letter demandable and payable) all outstanding availments.
demanding payment for petitioner’s failure to pay an interest amortization Petitioners increased the credit facility with UCPB, and executed a
worth 14m when it was already due. On January the next year, respondent promissory note for P103,909,710.82 which matures on March 26, 1999.
invoked the acceleration provision of their agreement, declaring the principal They agreed to an interest rate of 21.75% per annum in the same note.
obligation(103m), interest and sums payable (17m as of the invocation) as On December 21, 1998, respondent sent petitioner a demand letter,
due and demandable. later on, respondents issued their Final demand. demanding petitioner to pay their outstanding obligation of P14,959,525.10
Petitioners responded by paying 10m as partial payment and requesting for failing to pay interest amortization due May 30, 1998 on the promissory
a 60-day period to update their accrued interest charges. Respondent was
note .
unsatisfied, moving to extrajudicially foreclose the mortgaged properties.
Petitioners sought TRO/WPI from which was granted by the RTC but was On January 25, 1999, through counsel, respondent invoked the
eventually reversed by the CA. the CA said that a question on accounting did acceleration provision of their credit agreement due to petitioner’s failure to
not warrant a foreclosure, and petitioners clearly failed to meet their pay the monthly interest due since May 30, 1998. Remember, under their
obligations. The issue here is whether or not petitioner was indeed already in agreement, failure to pay any due installments of the loan or interest or any
default, which allows respondent to accelerate and eventually foreclose on sum due is an event of default. Respondent’s counsel declared their principal
petitioner. obligation (P103m), interest, and sums payable to be immediately due and
The SC held that petitioners were indeed in default. Nonpayment of demandable. through counsel, respondent formally demanded the principal
monthly interest as it happened in this case was indeed an “Event of default” obligation(103m) as well as the interest, penalty, and other charges. (17m as
as stipulated on their agreements, and their agreements also allowed of the demand letter by respondent’s counsel). On March 4, 1999, respondents
respondent to foreclose on the mortgaged property in a clear case of default sent their final demand for petitioners to settle the obligations.
by the petitioners. Petitioners paid around 10m as partial payment for the accrued interest.
Respondent was unsatisfied and applied for extrajudicial foreclosure of
1
Oblicon (2020) PETITIONER: Selegna Management and Development Corporation, Spouses
Edgardo and Zenaida Angeles
DIGEST AUTHOR: Bryan Antonio RESPONDENT: United Coconut Planters Bank (UCPB)
petitioner’s mortgaged properties. Petitioners requested for 60 days to update an “event of default” in their credit agreement. Since contracts are law
their charges, to restructure, or to negotiate a takeout with their account. This between parties, respondents are justified in invoking the acceleration clause
was denied by the bank. declaring the entire obligation immediately due and demandable. the failure
A lot of procedural back and forth happened in the various RTC’s, where to pay also activated article IX of the real estate mortgage, which allowed the
petitioners sought for a temporary restraining order/preliminary injunction of mortgagee to immediately to immediately foreclose the mortgage. Given all
respondent’s foreclosure of petitioner’s properties. The flip-flopping in the this, it is clear that respondent had every right to apply for the extrajudicial
foreclosure.
RTC ended with the granting the preliminary injunction, requiring
respondents to subject to accounting all the extrajudicially foreclosed
2. NO, there is no basis for preliminarily enjoining the extrajudicial
properties of the plaintiff. This was at first affirmed by the CA, which stated foreclosure
that respondents were kept in the dark about how their principal obligation
Petitioners do not have any clear right to be protected. The allegations of their
had ballooned to 132m, and this refusal to provide a detailed accounting
right to due process being violated and the maturity of their obligation
precluded the possibility of foreclosing the properties. The payment of 10m forestalled was not substantiated. In the absence of a clear legal right, the
as partial payment was said to have updating and averting the maturity of the
issuance of a writ for preliminary injunction is grave abuse of discretion
outstanding obligation. Upon MR on the CA, they reversed themselves,
stating that the foreclosure should not be enjoined, petitioners clearly failed
to meet their obligations which already matured, a question on accounting .
does not warrant an injunction of the foreclosure as it is not essential. Hence, Art. 1169. Those obliged to deliver or to do something incur in delay from
petitioners appealed to SC. the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
III. Issue/s
1. W/N Petitioners are in default? YES. However, the demand by the creditor shall not be necessary in order that
2. W/N there is basis for preliminarily enjoining the extrajudicial delay may exist:
foreclosure? NO.
(1) When the obligation or the law expressly so declare
IV. Holding/s
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the service
1. YES, petitioners are in default.
is to be rendered was a controlling motive for the establishment of the
The parties stipulated in their credit agreements, mortgage contracts, and contract; or
promissory notes that respondent was authorized to foreclose on the
mortgages in a clear case of default by petitioners. The March 26, 1999 (3) When demand would be useless, as when the obligor has rendered it
promissory note (the one worth 103m) expressly states that petitioners had an beyond his power to perform.
obligation to pay monthly interest on the principal. they failed to pay those
monthly payments starting May 30, 1998. their nonpayment was defined as
2
In reciprocal obligations, neither party incurs in delay if the other does not sufficient for an injunction, so it should be denied here as well, considering
comply or is not ready to comply in a proper manner with what is incumbent they did not even dispute how much outstanding obligation they had.
upon him. From the moment one of the parties fulfills his obligation, delay regarding the claim of petitioner’s partial payment (10m) forestalling the
by the other begins. maturity of the loan making the foreclosure premature, the court disagreed.
There was no such agreement between the parties that partial payment would
- In this case, the credit agreement between the parties clearly stated that waive the respondent’s right to foreclose, no circumstances that would
any instance of failing to pay the interest constitutes default, allowing indicate renunciation of the right to foreclose. In fact, respondent asserted its
respondent to accelerate the obligation and make all outstanding right by filing for extrajudicial foreclosure after receiving the partial payment.
availments due and demandable.
VII. Random Facts
ELEMENTS OF DELAY : ordinarily, in order for an obligor to incur delay, • Ponente: Panganiban, CJ.
the following must concur: (1) that the obligation be demandable and
liquidated (2) the debtor delays performance (3) that the creditor judicially
or extrajudicially requires debtor’s performance.
VI. Disposition
WHEREFORE, the Petition is DENIED and the assailed Amended Decision

and Resolution AFFIRMED. Costs against petitioners.
Extra details she might ask: regarding the “lack of accounting” repeatedly
argued in the lower courts, the SC held that a failure to furnish a debtor of a
detailed statement of account does not ipso facto result in an unliquidated
obligation. Besides, petitioner knew from their promissory note the values of
the principal obligation, interest rate, and that delay would result in a penalty
charge of one percent per month. They knew from their credit agreement that
in case of default, penalty is based on the total principal amount outstanding.
These show that the amount of total obligation is known to them or at least
determinable. When they paid partially, they didn’t even question the
principal, interest, etc. it seems the accounting claim was only to stall.
Petitioners do not even assail the amounts due from them, neither do they
contend that a detailed accounting would show that they are not in default. In
an earlier case, a pending question regarding the due amount was not
3
G.R. No. 73345. | April 7, 1993. Nature and Effect of Obligations; Penal Obligation, Accessory
Obligation
SSS v Moonwalk Development SSS v Moonwalk Development
I. Recit-ready Summary Moonwalk denied SSS' claims and asserted that the latter had ample
opportunity to discover the truth but failed to do so.
The Social Security System entered into a loan agreement with The trial court dismissed the complaint after a trial on the following
Moonwalk Development & Housing Corporation, where the latter borrowed stipulation of facts: On October 6, 1971, SSS approved the application of
a sum of P12,254,700.00. The conditions of the loan involved a mortgage of defendant Moonwalk for an interim loan in the amount of P30,000,000.00
Moonwalk’s real properties in Rizal and Cavite, an interest rate of 12%, and for the purpose of developing and constructing a housing project in the
a penalty clause stipulating an additional 12% in the event of late payment provinces of Rizal and Cavite. A sum of P9,595,000.00 was released to
of amortization.
defendant Moonwalk as of November 28, 1973, and the debt on this was
Moonwalk eventually paid its debt in full, and SSS subsequently
restructured in an Amended Deed of First Mortgage.
released Moonwalk’s mortgaged properties. However, SSS later sent a
demand letter for P7,517,178.21, claiming that Moonwalk had On July 23, 1974, SSS released an additional P2,659,700.00 to
miscalculated the payments on the interest rate, and also incurred a 12% defendant Moonwalk, in exchange for a promissory note for
penalty for the late payment of an amortization. Moonwalk denied liability, P12,254,700.00.
and a subsequent case SSS filed before the trial court was decided in Moonwalk made a total payment of P23,657,901.84 to SSS for the
Moonwalk’s favor. The trial court held that Moonwalk’s principal loan principal of P12,254,700.00 released to it. The last payment made by
obligation was extinguished by its full payment and SSS’s acceptance, Moonwalk in the amount of P15,004,905.74 was based on the Statement of
therefore any accessory obligation like a penal clause is likewise Account. After settlement of the account, SSS issued a Release of
extinguished. Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal.
The Supreme Court upheld the rulings of the Intermediate Appellate SSS then sent two letters to Moonwalk (dated November 28, 1979 and
Court and trial court, further clarifying that SSS lost the right to demand the December 17, 1979) alleging that it committed an honest mistake in
enforcement of the penalty when it failed to issue any sort of demand to
releasing Moonwalk from its obligation. Moonwalk’s counsel asserted
Moonwalk before the debt was repaid and the obligation was fulfilled.
that it had completely paid its obligations to SSS.
II. Facts of the Case On October 6, 1990, the trial court issued an order dismissing the
complaint on the ground that the obligation was already extinguished
On February 20, 1980, the Social Security System (SSS) filed a by Moonwalk’s payment of its indebtedness to SSS and by the latter's act of
complaint in the Court of First Instance of Rizal against Moonwalk cancelling the real estate mortgages. The trial court dismissed SSS’s Motion
Development & Housing Corporation (Moonwalk). Petitioner SSS alleged for Reconsideration, and the Intermediate Appellate Court likewise affirmed
that Moonwalk had committed an error in failing to compute the 12% the trial court’s ruling. SSS then appealed to the Supreme Court.
interest due on delayed loan payments, resulting in a chain of errors in
Moonwalk’s payments resulting to an unpaid balance of P7,053.77 towards III. Issue/s
the principal loan. Also, Moonwalk allegedly did not reflect in its statement 1. W/N a penalty attached to an obligation is still demandable
or account of an unpaid balance on the said penalties for delayed after the obligation itself has been extinguished? NO.
payments in the amount of P7,517,178.21 as of October 10, 1979.
Obligations and Contracts (2020) PETITIONER: Social Security System 1

DIGEST AUTHOR: Vito Castañeda RESPONDENT: Moonwalk Development & Housing Corporation
Obligation
2. W/N SSS’s status as a trustee prevents it from waiving the penal the penal clause, which is also an accessory obligation, must also be deemed
clause: NO. extinguished.
SSS’s demand letters (for payment of the penalty) are therefore
IV. Holding/s ineffective as there was nothing to demand. If and only if SSS had
demanded the penalties before Moonwalk made the last payment and SSS
1. No, a penalty is not demandable after the extinguishment of a released the mortgage, would Moonwalk be liable for the principal amount,
principal obligation. the 12% interest, and the 12% penalty for late payment. Failure to demand
the penalty before the extinguishment of the obligation constitutes a waiver.
The object sought to be recovered in this case is not the 12% interest A penal clause is an accessory undertaking to assume greater liability
on the loan but the 12% penalty for failure to pay an amortization on time. in case of breach. It has a double function: (1) to provide for liquidated
The obligation sought to be enforced is the penal clause of the contract damages, and (2) to strengthen the coercive force of the obligation by the
entered into between the parties (see Law/Doctrine for definitions). The threat of greater responsibility in the event of breach. From the foregoing, it
issue in this case revolves around the nature of an obligation arising from a is clear that a penal clause is intended to prevent the obligor from defaulting
penal clause, and when such obligations become demandable. in the performance of his obligation. However, since the obligation has been
First, a penal clause is a kind of accessory obligation, defined as that fully complied with and extinguished, the penal clause has lost its raison d'
attached to a principal obligation in order to complete the same or take its entre (reason for being).
place in the case of breach. The existence of an accessory obligation is According to Article 1226 of the Civil Code, the penalty can only be
dependent on the existence of a principal obligation. A principal enforced from the time the primary obligation becomes demandable (See
obligation may exist without an accessory obligation but an accessory Law/Doctrine). Even so, the Court asserts that Moonwalk incurred no delay
obligation cannot exist without a principal obligation. Indebtedness is an (which would have made them liable to the penal clause) because SSS failed
example of a principal obligation, to which a mortgage or penalty (accessory to demand performance.
obligations) can attach. Indebtedness can exist without mortgage, but not The Court cited Article 1169 of the Civil Code, which states, “Those
vice versa. obliged to deliver or to do something incur in delay from the time the
Second, a penalty is demandable in case of non-performance or late obligee judicially or extrajudicially demands from them the fulfillment of
performance of the main obligation. There must be a breach of the their obligation." There are three exceptions to this general rule, and the
obligation either by total or partial non-fulfillment, or “non-fulfillment in Court held that none of them apply to the facts of the current case (see
point of time” (called mora or delay). The Court reiterates that, in general, Law/Doctrine).
there is no mora or delay unless there is a demand. SSS did not demand SSS apparently never compelled performance of the obligation in a
the payment of the penalty, hence, Moonwalk was not in delay (see manner that would count as a demand. It chose not to push through with the
Law/Doctrine, Art. 1169). foreclosure on Moonwalk’s properties, and when SSS presented another
The Court affirmed that Moonwalk completed payment of its principal “demand” in the form of a Statement of Account, Moonwalk responded with
obligation (including the interest), and that the real estate mortgages, which the final payment, which SSS accepted as repayment of the debt in full.
were accessory obligations, were likewise validly extinguished. Logically,

Obligation
3. No, SSS’ status as a trustee does not prevent it from forgoing ART. 1169, Civil Code - Those obliged to deliver or to do something incur
demand of a penalty in delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation."
SSS argued that the funds it held were trust funds and as trustee, the There are only three instances when demand is not necessary to render the
petitioner could not perform acts affecting the funds that would diminish obligor in default. These are the following:
property rights of the owners and beneficiaries thereof. They cited the
(1) When the obligation or the law expressly so declares;
holding in the case of United Christian Missionary Society v. Social Security
Commission, which said that "No discretion or alternative is granted
that the designation of the time when the thing is to be delivered or the
respondent Commission in the enforcement of the law's mandate that the service is to be rendered was a controlling motive for the establishment of
employer who fails to comply with his legal obligation to remit the the contract; or
premiums to the System within the prescribed period shall pay a penalty of (3) When the demand would be useless, as when the obligor has rendered it
three (3%) per month.” beyond his power to perform.
The Court held that the doctrine in that case does not apply, since it
refers to a completely different kind of obligation, one created by law. The ART. 1226, Civil Code - In obligations with a penal clause, he penalty shall
agreement between SSS and Moonwalk is an example of a government substitute the indemnity for damages and the payment of interests in case of
created corporation entering into a contract with private party concerning a noncompliance, if there is no stipulation to the contrary. Nevertheless,
loan, causing it to descend to the level of a private person. Hence, the rules damages shall be paid if the obligor refuses to pay the penalty or is guilty of
on contract applicable to private parties are applicable to it. The penalty in fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
United Christian Missionary Society v. Social Security Commission is one
accordance with the provisions of this Code.
that cannot be waived as a matter of law, while the penalty in SSS v
Moonwalk is a stipulation in a private contract.
ART. 1229, Civil Code - The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable
PENAL CLAUSE - an accessory obligation which the parties attach to a
principal obligation for the purpose of insuring the performance thereof by
VI. Disposition
imposing on the debtor a special presentation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is
WHEREFORE, in view of the foregoing, the petition is DISMISSED and
irregularly or inadequately fulfilled"
the decision of the respondent court is AFFIRMED.
SO ORDERED.
ACCESSORY OBLIGATION - defined as that attached to a principal
obligation in order to complete the same or take its place in the case of
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
breach

Obligation

• The Court cited Art 1226 and 1229 as part of an analogy. If the
obligation has not been complied with, then the penalty shall apply
according to Art. 1226. If there has been partial or irregular
compliance with the obligation, then the penalty may be lowered
according to Art. 1229. Therefore, if the obligation has been fully
complied with, there should be no penalty at all.
VIII. Random Facts

• Ponente: Campos, Jr., J.
Fun fact: Apparently I’m more obese than the petitioner in YRASUEGI v.
PAL.
The digest said he was 5’8 and 209-215 lbs. As of February 14, 2020, I’m
5’4 and 220 lbs.
At least I have no plans of being a flight steward.

G.R. No. 153004 | November 2004 Art.1169
Santos Ventura vs Santos Santos Ventura vs Santos
SVHFI then sold two of their properties previously subjected to lis pendens
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. which prompted Ernesto to send a letter demanding the payment of the
(SVHFI) were involved in multiple civil cases filed in different civil courts remaining 13 million pesos. Meanwhile, on September 30, 1991, the RTC of
in the Philippines. On October 26, 1990, the parties decided to execute a Makati issued a decision approving the compromise agreement. On, October
compromise agreement which ended all of their pending litigations. The 28, 1992, Ernesto sent another demand letter but was again ignored by
agreement stated that SVHFI would pay Ernesto Santos 14.5 million pesos. SVHFI. Because of this, Ernesto decided to apply for a writ of execution from
Ernesto Santos moved for the dismissal of the cases and lifting of the lis
the RTC of Makati which was then granted. Thus, the properties were levied
pendens on the real properties involved. In exchange, SVHFI paid Ernesto
and two of the properties were sold to a public auction wherein Riverland,
Santos 1.5 million pesos, leaving a balance of 13 million pesos. On, October
Inc. was the highest bidder.
28, 1992, Ernesto sent a demand letter to claim the 13 million but was again
ignored by SVHFI. On June 2, 1995, Santos and Riverland, Inc. filed a
On June 2, 1995, Santos and Riverland, Inc. filed a complaint for Declaratory
complaint for Declaratory Relief and Damages alleging that there was a delay
Relief and Damages alleging that there was a delay on the part of SVHFI in
on the part of SVHFI in paying the balance of 13 million.
paying the balance of 13 million.
The issue in this case is whether or not SVRH should pay legal interest due
III. Issue/s
to the alleged delay of payments. The court first established that the two-year
1. W/N, SVRH should pay legal interest due to the alleged delay of
period must be counted from October 26, 1990, which was the date of the
payments? YES.
execution of the contract and not from the judicial approval of the contract.
Thus, when respondent sent a demand letter on October 28, 1992, the
IV. Holding/s
obligations was already due and demandable. And in accordance with Article
1. YES, The court ruled that SVHFI should pay legal interests.
1169, the SVHFI incurred delay when in failed to pay it due obligation after
the demand was made.
The court first established that the two-year period must be counted from
October 26, 1990, which was the date of the execution of the contract and not
from the judicial approval of the contract. Thus, when respondent sent a
demand letter on October 28, 1992, the obligations was already due and
demandable. And in accordance with Article 1169, the SVHFI incurred delay
Ernesto V. Santos and Santos Ventura Hocorma Foundation, In.c
when in failed to pay it due obligation after the demand was made.
(SVHFI) were involved in multiple civil cases filed in different civil courts
in the Philippines. On October 26, 1990, the parties decided to execute a
The court discussed that the debtor is considered in default when the
compromise agreement which ended all of their pending litigations. The
following requisites are present. First, that the obligation be demandable and
agreement stated that SVHFI would pay Ernesto Santos 14.5 million pesos.
already liquidated. Second, that the debtor delays performance. Third, that
In compliance with the said agreement, Ernesto Santos moved for the
the creditor requires the performance judicially or extra judicially.
dismissal of the cases and lifting of the lis pendens on the real properties
involved. In exchange, SVHFI paid Ernesto Santos 1.5 million pesos, leaving
a balance of 13 million pesos.
1
Obligations and Contracts (2019) PETITIONER/APPELLANT: Santos Ventura Hocorma Foundation, Inc.
DIGEST AUTHOR: John Joves RESPONDENT: Ernesto V. Santos and Riverland, Inc.
In this case, the first requisite is present since the obligation is already VII. Additional Notes
due and demandable when the respondents sent the demand letter on October
28,1992 because the two-year period of the compromise agreement ended on Compromise Agreement
October 26, 1992. The second requisite is also present since it was only able
to settle its outstanding balance on February 8, 1995. The third requisite is 1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the
also present because the demand letter sent by the respondents were in following manner:
accordance with the extra-judicial demand provided by law.
A. P1.5 Million immediately upon the execution of this agreement;
Because of this delay, SVHFI is liable for damages for the delay in the
performance of its obligations as provided in Article 1770 of the civil code. B. The balance of P13 Million shall be paid, whether in one lump sum or in
The court said that in the absence of agreement, the legal rate of interest shall installments, at the discretion of the Foundation, within a period of not more
prevail. In this case, the legal interest is 12% per annum and it must be than two (2) years from the execution of this agreement; provided, however,
computed from the judicial or extra-judicial demand. that in the event that the Foundation does not pay the whole or any part of
such balance, the same shall be paid with the corresponding portion of the
V. Law or Doctrine Applied land or real properties subject of the aforesaid cases and previously covered
by the notices of lis pendens, under such terms and conditions as to area,
Article 1169 valuation, and location mutually acceptable to both parties; but in no case
Those obliged to deliver or to do something incur in delay from the time the shall the payment of such balance be later than two (2) years from the date of
obligee judicially or extrajudicially demands from them the fulfillment of this agreement; otherwise, payment of any unpaid portion shall only be in the
their obligation. form of land aforesaid;
Article 1170 2. Immediately upon the execution of this agreement (and [the] receipt of the
Those who in the performance of their obligations are guilty of fraud, P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of
negligence, or delay and those who in any manner contravene the tenor
Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and
thereof are liable for damages.
voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No.
VI. Disposition 26598) and 88-45366 (C.A.-G.R. No. 24304) respectively and for the
immediate lifting of the aforesaid various notices of lis pendens on the real
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated properties aforementioned (by signing herein attached corresponding
January 30, 2002 of the Court of Appeals and its April 12, 2002 Resolution documents, for such lifting); provided, however, that in the event that
in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner. defendant Foundation shall sell or dispose of any of the lands previously
subject of lis pendens, the proceeds of any such sale, or any part thereof as
may be required, shall be partially devoted to the payment of the Foundation's
obligations under this agreement as may still be subsisting and payable at the
time of any such sale or sales;
5. Failure of compliance of any of the foregoing terms and conditions by

either or both parties to this agreement shall ipso facto and ipso jure
automatically entitle the aggrieved party to a writ of execution for the
enforcement of this agreement.
[G.R. No. 166662 | June 27, 2008] [demand]
[Autocorp v Intra Strata Assurance] [Autocorp v Intra Strata Assurance]
I. Recit-ready Summary Petitioners executed and signed two Indemnity Agreements with identical
Autocorp, represented by its President, Rodriguez, secured an ordinary re- stipulations in favor of ISAC, agreeing to act as surety of the subject bonds
export bond from ISAC in favor of BOC, to guarantee the re-export of 2 units
of car and/or to pay the taxes and duties thereon. Petitioners executed and ISAC issued the subject bonds to guarantee compliance by petitioners with
signed 2 Indemnity Agreements in favor of ISAC, agreeing to act as surety their undertaking with the BOC to re-export the imported vehicles within
of the subject bonds. ISAC issued the subject bonds to guarantee compliance the given period and pay the taxes and/or duties due thereon. In turn,
by petitioners with their undertaking with BOC. Petitioners agreed, as surety, petitioners agreed, as surety, to indemnify ISAC for the liability the latter
to indemnify ISAC for the liability the latter may incur on the said bonds may incur on the said bonds
Autocorp failed to re-export the items guaranteed by the bonds and/or
liquidate the entries or cancel the bonds, and pay the taxes and duties Autocorp failed to re-export the items guaranteed by the bonds and/or
pertaining to the said items, despite repeated demands made by BOC and liquidate the entries or cancel the bonds, and pay the taxes and duties
ISAC. BOC then considered the two bonds forfeited. Failing to secure from pertaining to the said items, despite repeated demands made by the BOC, as
petitioners the payment of the face value of the two bonds, ISAC filed with well as by ISAC. By reason thereof, the BOC considered the two bonds
RTC an action against petitioners to recover a sum of money + AF. ISAC forfeited.
impleaded the BOC as a necessary party plaintiff in order that the reward of
money or judgment shall be adjudged unto the said necessary plaintiff. WON
Failing to secure from petitioners the payment of the face value of the two
the bonds are now due and demandable? YES. Petitioners' obligation to
bonds, ISAC filed with the RTC an action against petitioners to recover a
indemnify ISAC became due and demandable the moment the bonds issued
sum of money plus AF. ISAC impleaded the BOC as a necessary party
by ISAC became answerable for petitioners' non-compliance with its
plaintiff in order that the reward of money or judgment shall be adjudged
undertaking with the BOC. Indemnity Agreements give ISAC right to recover
unto the said necessary plaintiff.
from petitioners the face value of the subject bonds plus atty’s fees at the time
ISAC becomes liable on the said bonds to the BOC, regardless of whether the
BOC had actually forfeited the bonds, demanded payment thereof and/or Petitioners filed a MTD, which was denied. RTC ordered Autocorp to pay
received such payment. Petitioners also invoke the alleged lack of demand of ISAC and/or BOC the face value of the subject bonds plus atty’s fees.
ISAC. But demand is not required before an obligation becomes due and Autocorp’s MR was denied. CA affirmed the trial court’s decision. MR was
demandable. A demand is only necessary in order to put an obligor in a denied. Hence this Petition for Review on Certiorari.
due and demandable obligation in delay to make him liable for
interests/damages for the period of delay. III. Issue/s
WON these bonds are now due and demandable? - YES
Petitioner Autocorp Group, represented by its President, Peter Rodriguez,
secured an ordinary re-export bond from private respondent Intra Strata IV. Holding/s
Assurance Corporation (ISAC) in favor of public Bureau of Customs
(BOC), to guarantee the re-export of 2 units of car (at 2 different dates) Yes. Bonds are now due and demandable.
(check below to know the cars) and/or to pay the taxes and duties thereon.
[ObliCon and 2020] PETITIONER/APPELLANT: Autocorp Group and Peter Y. Rodriguez

DIGEST AUTHOR: Wisch Gabriel RESPONDENT: Intra Strata Assurance Corp. and Bureau of Customs
[G.R. No. 166662 | June 27, 2008] [demand]
[Autocorp v Intra Strata Assurance] [Autocorp v Intra Strata Assurance]
Petitioners' obligation to indemnify ISAC became due and demandable the otherwise, an extrajudicial demand is not required before a judicial demand,
moment the bonds issued by ISAC became answerable for petitioners' non- i.e., filing a civil case for collection, can be resorted to.
compliance with its undertaking with the BOC. Stated differently,
petitioners became liable to indemnify ISAC at the same time the bonds V. Law or Doctrine Applied
issued by ISAC were placed at the risk of forfeiture by the BOC for non- Art. 1169. Those obliged to deliver or to do something incur in
compliance by petitioners with its undertaking. delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
Indemnity Agreements give ISAC right to recover from petitioners the face However, the demand by the creditor shall not be necessary in order
value of the subject bonds plus atty’s fees at the time ISAC becomes liable that delay may exist:
on the said bonds to the BOC, regardless of whether the BOC had actually (1) When the obligation or the law expressly so declare; or
forfeited the bonds, demanded payment thereof and/or received such (2) When from the nature and the circumstances of the obligation it
payment. It must be pointed out that the Indemnity Agreements explicitly appears that the designation of the time when the thing is to be
provide that petitioners shall be liable to indemnify ISAC whether payment delivered or the service is to be rendered was a controlling motive
has actually been made by the ISAC or not and ISAC may proceed against for the establishment of the contract; or
petitioners by court action or even prior to making payment to BOC which (3) When demand would be useless, as when the obligor has
may be done by ISAC. rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
Article 2071 of the Civil Code provides: does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
Art. 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
VI. Disposition
xxx
WHEREFORE, the instant Petition for Review on Certiorari is DENIED.
The Decision of the Court of Appeals dated 30 June 2004 in CA-G.R. CV
(4) When the debt has become demandable, by reason of the expiration of No. 62564 which affirmed with modification the Decision of the Regional
the period for payment; Trial Court of Makati City, in Civil Case No. 95-1584 dated 16 September
1998 is AFFIRMED in toto. Costs against petitioners.
Petitioners also invoke the alleged lack of demand on the part of ISAC.
Even if proven true, such a fact does not carry much weight considering that VII. Random Facts
demand, whether judicial or extrajudicial, is not required before an ● Ponente: CHICO-NAZARIO, J.,
obligation becomes due and demandable. A demand is only necessary
● Cars:
in order to put an obligor in a due and demandable obligation in delay,
- 1 unit of Hyundai Excel 4-door 1.5 LS
which in turn is for the purpose of making the obligor liable for
- 1 unit of Hyundai Sonata 2.4 GLS
interests or damages for the period of delay. Thus, unless stipulated
[ObliCon and 2020] PETITIONER/APPELLANT: Autocorp Group and Peter Y. Rodriguez

DIGEST AUTHOR: Wisch Gabriel RESPONDENT: Intra Strata Assurance Corp. and Bureau of Customs
G.R. No. 233774 | April 10, 2019 Nature and Effect of Obligations (Art. 1169)
Pineda v. Zuñiga Vda. De Vega Pineda v. Zuñiga Vda. De Vega
I. Recit-ready Summary interest, the legal interest of 12% per annum should be imposed; (3) the
Petitioner Pineda loaned P500,000 to respondent, payable within one 2003 Agreement's interest rate was unconscionable […].
year, with an 8% monthly interest rate. Respondent executed a real estate The CA Decision reversed and set aside the RTC Decision and
mortgage as security for the loan. Upon the loan’s maturity, respondent dismissed the complaint. The CA found that petitioner failed to prove that
failed to pay. Thereafter, the parties underwent mediation proceedings, prior demand had been made upon respondent for the full payment of the
which were unsuccessful, and necessitated the case to be set for hearing with latter's obligation. While the complaint alleged and petitioner testified that
the RTC of Malolos City, Bulacan. The RTC ruled in favor of petitioner and demand was sent to respondent by registered mail and received on
granted petitioner’s remedies/demands of collection and foreclosure of September 7, 2004, the registry return card evidencing such receipt was
mortgage. Upon appeal, the CA dismissed the complaint upon finding that not offered in evidence. The CA noted that what petitioner presented was a
petitioner failed to prove that prior demand had been made upon respondent. copy of the said demand letter with only a photocopy of the face of a
The evidence that petitioner presented was not enough to prove that registry return card which was claimed to refer to the said letter. According
respondent had received the demand letter, because only a copy of the letter to the CA, it thoroughly reviewed petitioner's formal offer and found no
was presented as evidence, and not the registry receipt card or any other reference to the registry receipt card or any competent proof, like a postman
competent proof. Hence, this appeal. certificate or the testimony of the postman, that respondent actually
The SC ruled in favor of petitioner. While the prior extrajudicial received the demand letter. The CA concluded that for failing to prove
demand was not proven, the filing of the case constitutes the judicial the requisite demand under Article 1169 of the Civil Code, respondent
demand to pay the loan that is contemplated in the law. Therefore, pursuant could not be considered in default and petitioner's case must fail.
to Art. 1170, respondent is in delay and is liable for damages. Further, the III. Issue/s
Court adjusted the interest rate that should be paid to petitioner. Because the 1. W/N it was proven that respondent is in delay? (YES.)
Agreement contained no stipulation on interest and the its interest rate was 2. W/N the interest rate applied was proper? (NO.)
unconscionable, the rate of interest on the loan of respondent should be 12% IV. Holding/s
per annum from judicial demand or filing of the original complaint with the 1. YES, respondent Virginia is in delay.
RTC until June 30, 2013 and 6% per annum from July 1, 2013. Further, the The SC is not a trier of facts, however, the present case is worthy of
RTC erred in reckoning the imposition of interest from extrajudicial demand exception. After the CA found that petitioner failed to prove that
because the finding of the CA in this respect is upheld.
extrajudicial demand was made upon respondent and after it had observed
that petitioner had not asserted any of the exceptions to the requisite demand
On March 25, 2003, respondent borrowed from her P500,000 payable
under Article 1169 of the Civil Code, the CA concluded that respondent
within one year with an interest rate of 8% per month. To secure the loan,
respondent executed a real estate mortgage (2003 Agreement) over a parcel could not be considered in default. Respondent did not allege receipt of the
of land, together with all the buildings and improvements existing thereon, appended demand letter (Annex “C”), thus such fact had to be established
in petitioner's favor. On the loan's maturity, respondent failed to pay her by the petitioner. The registry return card is the best evidence of receipt of
loan despite demand. As of May 2005, the unpaid accumulated interest respondent of such demand letter, yet only a mere copy of the letter was
amounted to P232,000. presented. Necessarily, petitioner's case should fail. The CA is correct on its
RTC rendered a Decision finding that (1) the existence of the loan factual finding, but the legal conclusion is flawed.
and the real estate mortgage had been established and, thus, judicial What petitioner seeks to enforce against respondent is a contract of
foreclosure would be proper given respondent's non-compliance therewith; loan, which is secured by a real estate mortgage. Based on the sources of
(2) since the undated Agreement had no provision on the payment of obligations, the obligation arises from contract. Liability for damages arises
Obligations and Contracts (2020) PETITIONER: Ma. Luisa A. Pineda 1
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Virginia Zuñiga vda. De Vega
G.R. No. 233774 | April 10, 2019 Nature and Effect of Obligations (Art. 1169)
Pineda v. Zuñiga Vda. De Vega Pineda v. Zuñiga Vda. De Vega
pursuant to Article 1170 of the Civil Code against "those who in the dated August 30, 2017 in CA-G.R. CV No. 106404 are REVERSED and
performance of their obligations are guilty of fraud, negligence, or delay, SET ASIDE. The Decision dated April 30, 2015 of the Regional Trial Court
and those who in any manner contravene the tenor thereof." of Malolos City, Bulacan, Branch 17 in Civil Case No. 526-M-2005 is
While delay was not triggered by an extrajudicial demand because PARTLY REINSTATED insofar as the order against respondent Virginia
petitioner failed to establish receipt of her demand letter, this delay was Zuñiga vda. de Vega to pay petitioner Ma. Luisa A. Pineda the loaned
triggered when petitioner judicially demanded the payment of the loan. amount of P200,000 and P30,000.00 as attorney's fees is concerned.
While the CA was correct in observing that default generally begins from Respondent Virginia Zuñiga vda. de Vega is also ordered to pay petitioner
the moment the creditor demands the performance of the obligation, and Ma. Luisa A. Pineda interest on the loaned amount at the rate of 12% per
without such demand the effects of default will not arise, it failed to annum from the filing of the original complaint up to June 30, 2013 and 6%
acknowledge that when petitioner filed her complaint dated June 10, 2005, per annum from July 1, 2013 until the finality of this Decision; and on the
such filing constituted the judicial demand upon respondent to pay the total amount due on the Decision's finality, interest of 6% per annum from
latter's principal obligation and the interest thereon. Therefore, from the such date of finality until full payment thereof.
filing of the complaint, respondent is in delay and is liable for damages.
2. NO, the interest the RTC applied was not proper. The SC found the following problems with the RTC ruling (minor errors not
The RTC ruling can only be partially reinstated. The RTC erred on the rate related to topic):
of interest that it imposed. The 12% per annum rate of interest should be 1. RTC erred in granting both demands of collection and foreclosure
revised. Since the RTC found that the undated Agreement contained no of mortgage successively. These remedies are mutually exclusive as
stipulation on interest and the 2003 Agreement's interest rate was they are complete in themselves. The grant of one precludes the
unconscionable, the rate of interest on the loan of respondent should be 12% other. This is because there is a single cause of action, which arises
per annum from judicial demand or filing of the original complaint with the from the non-payment of the debt, which gives rise to two possible
demands. One cannot split up his single cause of action by filing a
RTC until June 30, 2013 and 6% per annum from July 1, 2013. Further, the
complaint for payment of the debt, and another complaint for
RTC erred in reckoning the imposition of interest from extrajudicial demand
foreclosure of the mortgage. If he does, the filing of the first
because the finding of the CA in this respect is upheld. complaint will bar the other. By allowing the creditor to file two
separate complaints, one to recover his credit and another to
V. Law or Doctrine Applied foreclose his mortgage, we will, in effect, be authorizing him plural
Default or mora is a voluntary breach of an obligation. In positive redress for a single breach of contract at so much cost to the courts
obligations, like an obligation to give, the debtor incurs in delay from the and with so much vexation and oppression to the debtor.
time the creditor demands from him the fulfillment of the obligation. 2. The award of P50,000 nominal damages is deleted. "nominal
Demand may be judicial — if the creditor files a complaint against the damages cannot coexist with compensatory damages."
debtor — or extrajudicial — if the creditor demands orally or in writing. If VII. Random Facts
the debtor fails to fulfill or perform his obligation, he is in mora solvendi • Ponente: CAGUIOA, J.
and is liable for damages. • The case uses BOTH “registry return card” and “registry receipt
VI. Disposition card” so personal choice nalang on which one to use!
WHEREFORE, the Petition is hereby PARTLY GRANTED. The
Decision of the Court of Appeals dated March 21, 2017 and its Resolution
Obligations and Contracts (2020) PETITIONER: Ma. Luisa A. Pineda 2

DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Virginia Zuñiga vda. De Vega
G.R. No. 108129 | September 23, 1999 Nature and Effects | Obligations and contracts
Aerospace Chemical vs. CA Aerospace Chemical vs. CA
On June 27, 1986, petitioner Aerospace Industries, Inc. purchased five II. Facts of the Case
hundred metric tons of sulfuric acid from private respondent Philippine On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace)
Phosphate Fertilizer Corporation. Petitioner agreed to secure the means purchased five hundred (500) metric tons of sulfuric acid from private
of transport to pick-up the sulfuric acid from private respondents' respondent Philippine Phosphate Fertilizer Corporation (Philphos).
loadports in Basay, Negros Oriental and Sangi, Cebu. On October 3, Initially set beginning July 1986, the agreement provided that the
1986, petitioner paid the purchased price of 500 MT of sulfuric acid. buyer shall pay its purchases in equivalent Philippine currency value,
Then, it chartered M/T Sultan Kayumanggi to carry the agreed five days prior to the shipment date. Petitioner as buyer committed to
volumes of freight from designated loading areas. But the vessel was
secure the means of transport to pick-up the purchases from private
able to withdraw a partial amount of sulfuric acid from Basay and
respondent's loadports. Per agreement, one hundred metric tons (100
Sangi because it tilted. And later, it sank with a total amount of 227.51
MT of sulfuric acid on board. Petitioner sent a demand letter to private MT) of sulfuric acid should be taken from Basay, Negros Oriental
respondent for delivery of the 272.49 MT of sulfuric acid. Petitioner storage tank, while the remaining four hundred metric tons (400 MT)
then filed a complaint against private respondent for specific should be retrieved from Sangi, Cebu. On December 18, 1986, M/T
performance and/or damages before the Regional Trial Court of Pasig. Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51
The private respondent filed an answer with counterclaim and alleged MT of sulfuric acid. Again, the vessel tilted. Further loading was
that it was the petitioner which was remiss in the performance of its aborted. Two survey reports conducted by the Societe Generale de
obligation in arranging the shipping requirements of its purchases and, Surveillance (SGS) Far East Limited, dated December 17, 1986 and
hence, should pay damages. Petitioner prevailed in the trial court. January 2, 1987, attested to these occurrences. Later, on a date not
However, on appeal, the Court of Appeals reversed the decision of the specified in the record, M/T Sultan Kayumanggi sank with a total of
trial court and instead found petitioner guilty of delay and therefore, 227.51 MT of sulfuric acid on board. Petitioner chartered another
liable for damages. vessel, M/T Don Victor, with a capacity of approximately 500 MT.6
[TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20,
On the issue of whether or not the petitioner is guilty of delay, the
Court agreed with the Court of Appeals that the private respondent had 1987, Melecio Hernandez, acting for the petitioner, addressed letters to
no obligation to agree to the additional order and may not be faulted private respondent, concerning additional orders of sulfuric acid to
for its inability to meet the said additional requirements of the replace its sunken purchases.
petitioner. And the respondent's incapacity to agree to the delivery of
another 227.51 MT. was not a legal justification for the petitioner's The trial court held that the petitioner was absolved in its obligation to
refusal to lift the remaining 272.481. On the other hand, petitioner was pick-up the remaining sulfuric acid because its failure was due to force
found guilty of delay, after private respondent made the necessary majeure. According to the trial court, it was private respondent who
extrajudicial demand by requiring petitioner to lift the cargo at its committed a breach of contract when it failed to accommodate the
designated loadports. When petitioner failed to comply with its additional order of the petitioner.
obligations under the contract, it became liable for its shortcomings.
Petitioner was indubitably liable for proven damages.
1
Obligations and Contracts (2020) PETITIONER: Aerospace Chemical vs. CA
DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Court of Appeals, Philippine Phosphate Fertilizer
Corporation
However, on appeal, the Court of Appeals reversed the decision of the petitioner to immediately replace M/T Sultan Kayumanggi with
trial court and instead found petitioner guilty of delay and therefore, another seaworthy vessel. However, despite repeated demands,
liable for damages. petitioner did not comply seasonably.
III. Issue/s
1. W/N private respondent is liable for breach of contract? NO 2. Yes. Note that private respondent extended its lease agreement for
2. W/N petition is liable for damages? YES. Sangi, Cebu storage tank until August 31, 1987, solely for petitioner's
3. W/N the receipt of partial payment by the respondent is a deemed sulfuric acid. It stands to reason that petitioner should reimburse
waiver for the delay? YES. private respondent's rental expenses of P32,000 monthly, commencing
4. W/N the seller is liable for storage and maintenance expenses for December 15, 1986, up to August 31, 1987, the period of the extended
fungible goods as provided for in the Civil Code? NO lease.
IV. Holding/s 3. Yes. The petitioner made an advance payment for the unlifted
1. Yes, We find the appellate court's conclusion that petitioner violated sulfuric acid in the amount of three hundred three thousand, four
the subject contract amply supported by preponderant evidence. hundred eighty-three pesos and thirty seven centavos (P303,483.37), it
Petitioner's claim was predicated merely on the allegations of its is proper to set-off this amount against the rental expenses initially
employee, Melecio Hernandez, that the storm or force majeure caused paid by private respondent. It is worth noting that the adjustment and
the petitioner's delay and failure to lift the cargo of sulfuric acid at the allowance of private respondent's counterclaim or set-off in the present
designated loadports. For on record, the storm was not action, rather than by another independent action, is encouraged by the
the proximate cause of petitioner's failure to transport its purchases on law. Such practice serves to avoid circuitry of action, multiplicity of
time. The survey report submitted by a third-party surveyor, SGS Far suits, inconvenience, expense, and unwarranted consumption of the
East Limited, revealed that the vessel, which was unstable, was court's time
incapable of carrying the full load of sulfuric acid. Note that there
was a premature termination of loading in Basay, Negros Oriental. The 4. No. The general rule that before delivery, the risk of loss is borne by
vessel had to undergo several repairs before continuing its voyage to the seller who is still the owner, is not applicable in this case because
pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel petitioner had incurred delay in the performance of its obligation.
still failed to carry the whole lot of 500 MT of sulfuric acid due to ship Article 1504 of the Civil Code clearly states: "Unless otherwise
defects like listing to one side. Its unfortunate sinking was not due agreed, the goods remain at the seller's risk until the ownership therein
to force majeure. It sunk because it was, based on SGS survey report, is transferred to the buyer, but when the ownership therein is
unstable and unseaworthy. It is also worth noting that the weather was transferred to the buyer the goods are at the buyer's risk whether actual
fair when the ship sank. delivery has been made or not, except that: (2) Where actual delivery
has been delayed through the fault of either the buyer or seller the
The vessel was petitioner's agent. When it failed to comply with the goods are at the risk of the party at fault."
necessary loading conditions of sulfuric acid, it was incumbent upon
2
Corporation
V. Law or Doctrine Applied VIII. Random Facts

Article 1169 of the Civil Code • Ponente: Quisumbing, J.
Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.

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.
Requisites of default on the part of the debtor:

• that the obligation be demandable and already liquidated
• that the debtor delays performance
• that the creditor requires the performance judicially or
extrajudicially.
VI. Disposition
WHEREFORE, the petition is hereby DENIED. The assailed decision
of the Court of Appeals in CA G.R. CV No. 33802 is AFFIRMED,
with MODIFICATION that the amount of damages awarded in favor
of private respondent is REDUCED to Two hundred seventy two
thousand pesos (P272,000.00). It is also ORDERED that said amount
of damages be OFFSET against petitioner's advance payment of Three
hundred three thousand four hundred eighty three pesos and thirty-
seven centavos (P303,483.37) representing the price of the 272.481
MT of sulfuric acid not lifted. Lastly, it is ORDERED that the excess
amount of thirty one thousand, four hundred eighty three pesos and
thirty seven centavos (P31,483.37) be RETURNED soonest by private
respondent to herein petitioner.

None
3
Corporation
[G.R. No 199650 |June 26, 2013] [Obligations, Delay (Mora)]
[J Asia Development Corporation v Utility Assurance [J Asia Development Corporation v Utility Assurance
Corporation] Corporation]
I. Recit-ready Summary Decision dated January 27, 2011 and Resolution dated December 8, 2011 of
J Asia contracted a construction agreement with Mabunay wherein Mabunay the Court of Appeals in CAG. R. SP No. 112808 are hereby REVERSED and
was to construct a 72-room condotel (Condo/hotel) for J Asia in Boracay. SET ASIDE. The Award made in the Decision dated February 2, 2010 of the
The construction was to be completed within 365 days from the time Construction Industry Arbitration Commission is hereby REINSTATED
reckoned from the first calendar day after signing of the Notice of Award and with the following MODIFICATIONS: "Accordingly, in view of our
Notice to Proceed and receipt of down payment (20% of contract price). foregoing discussions and dispositions, the Tribunal hereby adjudges, orders
Moreover it was stipulated that Mabunay should comply with the scheduled and directs: HD
monthly progress reports as these reports will determine the amount of
payment due as well as the evaluation of the construction. 1) Respondent Utassco to pay to petitioner J Plus Asia Development
Corporation the full amount of the Performance Bond, P8,400,000.00,
But less than a month before the project was due the project was only pursuant to Art. 13 of the Construction Agreement dated December 24, 2007,
31.39% complete. J Asia terminated the contract and demanded performance with interest at the rate of 6% per annum computed from the date of the 􀁃ling
and sent demand letters to Mabunay and his surety due to Mabunay’s delay of the complaint until the finality of this decision, and 12% per annum
in the completion of the project. computed from the date this decision becomes final until fully paid; and
2) Respondent Mabunay to indemnify respondent Utassco of the
W/N Mabunay was guilty of delay? YES. amounts respondent Utassco will have paid to claimant under this decision,
plus interest thereon at the rate of 12% per annum computed from the date he
Here, the work schedule approved by petitioner was intended, not only to is notified of such payment made by respondent Utassco to claimant until
serve as its basis for the payment of monthly progress billings, but also fully paid, and to pay Utassco P100,000.00 as attorney's fees.
for evaluation of the progress of work by the contractor. Article 13.01 (g)
(iii) of the Construction Agreement provides that the contractor shall be SO ORDERED.
deemed in default if, among others, it had delayed without justifiable cause
the completion of the project "by more than thirty (30) calendar days based II. Facts of the Case
on official work schedule duly approved by the OWNER." Records showed
that as early as April 2008, or within four months after Mabunay On December 24, 2007, petitioner J Plus Asia Development Corporation
commenced work activities, the project was already behind schedule for represented by its Chairman, Joo Han Lee, and Martin E. Mabunay, doing
reasons not attributable to petitioner. In the succeeding months, business under the name and style of Seven Shades of Blue Trading and
Mabunay was still unable to catch up with his accomplishment even as Services, entered into a Construction Agreement whereby the latter
petitioner constantly advised him of the delays, as can be gleaned from the undertook to build the former's 72-room condominium/hotel (Condotel
following notices of delay sent by petitioner's (J Asia) engineer and Building 25) located at the Fairways & Bluewaters Golf & Resort in Boracay
construction manager, Engr. Sheila N. Botardo. Island, Malay, Aklan. The project, costing P42,000,000.00, was to be
completed within one year or 365 days reckoned from the 􀁃rst calendar day
Mabunay was clearly in default considering the dismal percentage of his after signing of the Notice of Award and Notice to Proceed and receipt of
accomplishment (32.38%) of the work he contracted. down payment (20% of contract price). The P8,400,000.00 down payment
was fully paid on January 14, 2008. Payment of the balance of the contract
WHEREFORE, the petition for review on certiorari is GRANTED. The price will be based on actual work finished within 15 days from receipt of the
1
Block B 2023 PETITIONER/APPELLANT: J Asia

DIGEST AUTHOR: Christine Joyce L. Sumaway RESPONDENT: Martin Mabunay (7 Shades of Blue)
monthly progress billings. Per the agreed work schedule, the completion date (1) W/N Mabunay was guilty of delay? YES
of the project was December 2008. Mabunay also submitted the required
Performance Bond issued by respondent Utility Assurance Corporation
(UTASSCO) in the amount equivalent to 20% down payment or P8.4 million. terms of the Construction Agreement. Article 1374 of the Civil Code requires
Mabunay commenced work at the project site on January 7, 2008. that the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them
But less than a month before the project was due (Nov. 14 , 2008) the taken jointly. Here, the work schedule approved by petitioner was intended,
project was only 31.39% complete. J Asia terminated the contract and not only to serve as its basis for the payment of monthly progress billings,
demanded performance and sent demand letters to Mabunay and his surety but also for evaluation of the progress of work by the contractor. Article 13.01
due to Mabunay’s delay in the completion of the project. (g) (iii) of the Construction Agreement provides that the contractor shall be
deemed in default if, among others, it had delayed without justifiable cause
In his Answer, Mabunay claimed that the delay was caused by retrofitting the completion of the project "by more than thirty (30) calendar days based
and other revision works ordered by Joo Han Lee. He asserted that he actually on official work schedule duly approved by the OWNER."
had until April 30, 2009 to finish the project since the 365 days period of
completion started only on May 2, 2008 after clearing the retro􀁃tted old Records showed that as early as April 2008, or within four months after
structure. Hence, the termination of the contract by petitioner was premature Mabunay commenced work activities, the project was already behind
and the filing of the complaint against him was baseless, malicious and in bad schedule for reasons not attributable to petitioner. In the succeeding
faith. months, Mabunay was still unable to catch up with his accomplishment
even as petitioner constantly advised him of the delays, as can be gleaned
In holding that Mabunay has not at all incurred delay, the CA pointed out that from the following notices of delay sent by petitioner's (J Asia) engineer
the obligation to perform or complete the project was not yet demandable as and construction manager, Engr. Sheila N. Botardo.
of November 19, 2008 when petitioner terminated the contract, because the
agreed completion date was still more than one month away (December 24, Mabunay was clearly in default considering the dismal percentage of his
2008). Since the parties contemplated delay in the completion of the entire accomplishment (32.38%) of the work he contracted on account of delays
project, the CA concluded that the failure of the contractor to catch up with in executing the scheduled work activities and repeated failure to provide
schedule of work activities did not constitute delay giving rise to the sufficient manpower to expedite construction works.
contractor's liability for damages.
(2) W/N Mabunay is liiable to pay the performance bond and liquidated
III. Issue/s
damaged? YES
(1) W/N Mabunay was guilty of delay? YES
(2) W/N Mabunay is liiable to pay the performance bond and liquidated
[Liquidated Damages]
damaged? YES
A stipulation for liquidated damages is attached to an obligation in order to
ensure performance and has a double function: (1) to provide for
IV. Holding/s liquidated damages, and (2) to strengthen the coercive force of the

obligation by the threat of greater responsibility in the event of breach. and directs: HD
The amount agreed upon answers for damages suffered by the owner due to
delays in the completion of the project. 38 As a precondition to such award, 1) Respondent Utassco to pay to petitioner J Plus Asia Development
however, there must be proof of the fact of delay in the performance of the Corporation the full amount of the Performance Bond, P8,400,000.00,
obligation. pursuant to Art. 13 of the Construction Agreement dated December 24, 2007,
with interest at the rate of 6% per annum computed from the date of the 􀁃ling
In this case, it was held that Mabunay was guilty of breach. of the complaint until the finality of this decision, and 12% per annum
computed from the date this decision becomes final until fully paid; and
[Performance Bond] 2) Respondent Mabunay to indemnify respondent Utassco of the
The plain and unambiguous terms of the Construction Agreement authorize amounts respondent Utassco will have paid to claimant under this decision,
petitioner to confiscate the Performance Bond to answer for all kinds of plus interest thereon at the rate of 12% per annum computed from the date he
damages it may suffer as a result of the contractor's failure to complete the is notified of such payment made by respondent Utassco to claimant until
building. Having elected to terminate the contract and expel the contractor fully paid, and to pay Utassco P100,000.00 as attorney's fees.
from the project site under Article 13 of the said Agreement, petitioner is
clearly entitled to the proceeds of the bond as indemnification for damages it SO ORDERED.c
sustained due to the breach committed by Mabunay. Such stipulation
allowing the confiscation of the contractor's performance bond partakes of
the nature of a penalty clause. A penalty clause, expressly recognized by law,
is an accessory undertaking to assume greater liability on the part of the
obligor in case of breach of an obligation. It functions to strengthen the
coercive force of obligation and to provide, in effect, for what could be the
liquidated damages resulting from such a breach. The obligor would then be
bound to pay the stipulated indemnity without the necessity of proof on the
existence and on the measure of damages caused by the breach. long as such
stipulation does not contravene law, morals, or public order, it is strictly
binding upon the obligor.
V. Disposition
WHEREFORE, the petition for review on certiorari is GRANTED. The

Decision dated January 27, 2011 and Resolution dated December 8, 2011 of
the Court of Appeals in CAG. R. SP No. 112808 are hereby REVERSED and
SET ASIDE. The Award made in the Decision dated February 2, 2010 of the
Construction Industry Arbitration Commission is hereby REINSTATED
with the following MODIFICATIONS: "Accordingly, in view of our
foregoing discussions and dispositions, the Tribunal hereby adjudges, orders
3

[G.R. Nos. 180631-33 | July 2, 2014] [Concept of Delay or Default]
[Phil Charter Corp v Central Colleges] [Phil Charter Corp v Central Colleges]
I. Recit-ready Summary This a motion for partial reconsideration on the decision of the
SC in the Phil Charter Insurance Corp vs Central Colleges case
This a motion for partial reconsideration on the decision of the SC in promulgated on February 2, 2012.
the Phil Charter Insurance Corp vs Central Colleges case
promulgated on February 2, 2012. On May 16, 2000, Central Colleges of the Philippines (CCP), an
educational institution, contracted the services of Dynamic Planners
PCIC is questioning the decision of the SC on their liability under the and Construction Corporation (DPCC) to be its general contractor for
Surety Bond and the Performance Bond. the construction of its 5-storey school building in Aurora Blvd.,
Quezon City. They had a Contract Agreement which also indicated
The issue in this case is whether or not PCIC should be held liable that the entire building will be built in 2 phases with each phase
under the Performance Bond despite the allegation that CCP failed to valued at 124,000.
comply with the time-bar limitations provided for under the
Performance Bond agreement. The Court said yes. The July 25, 2003 To guarantee the fulfillment of the obligation, DPCC posted 3 bonds,
and September 16, 2003 documents on which PCIC relies on are all issued by the Philippine Charter Insurance Corporation (PCIC)
mere appraisal reports and are only meant to inform DPCC of CCP’s namely:
concerns. Under Article 1169 of the Civil Code, the first requisite for
a finding of default is that the obligation is demandable and 1. Surety Bond PCIC-45542 amounting to 7,031,460.74
liquidated. In this case, the obligation only became demandable in 2. Performance Bond PCIC-45541 in the amount of
October 29, 2003 when CCP finally decided to notify PCIC and 2,929,775.31
DPCC of their election to treat the ordinary delay as a breach of 3. Performance Bond PCIC-41672 for 692,890.74
obligation.
All the bonds were callable on demand and set to expire on October
CCP had 10 days from October 23, 2003 to file their claim and they 30, 2003.
did on November 7, 2003. Hence, the liability of PCIC has already
attached. CCP acted well within the time-bar limitation laid down in Phase 1 was completed without issue. The Phase 2, however,
encountered numerous delays. On July 25, 2003, CCP audited DPCC
the Performance Bond Agreement.
and found that only 47% of the work to be done was actually
finished.
[Obligations and Contracts 2020] PETITIONER/APPELLANT: Philippine Charter Insurance Corporation

DIGEST AUTHOR: Myna RESPONDENT: Central Colleges of the Philippines and Dynamic Planners
and Construction Corporation
On October 29, 2003, CCP sent a letter to DPCC and PCIC already in delay for managing to complete only 51% of the
informing them of the breach in the contract and that the CCP plans construction work for Phase 2. It held that due to DPCC’s
to claim on the construction bonds. inexcusable delay, CCP was legally right to terminate their contract
with it. The CA deleted the award of cost of materials left by DPCC
On November 6, 2003, CCP notified DPCC that only 51% of the at the construction site.
project was completed which was way behind the construction
schedule. They were prompted to declare the occurrence of default The petition in the SC only concerned the Surety Bond and the
against DPCC. Performance Bond PCIC-45541 since the President of CCP has
judicially admitted that it is no longer interested in pursuing
On November 21, 2003, CCP notified PCIC that they have decided PCIC-46172.
to terminate their contract with DPCC due to their inability to
complete the project on time. The SC rendered its decision finding PCIC and DPCC jointly and
severally liable under the surety and the performance bonds.
On August 13, 2004, CCP sent a letter to PCIC of its final demand
for the payment of P13,924,351.24 as indicated in the bonds. III. Issue/s
1. Whether or not PCIC should be held liable under the
PCIC denied their claims against the 3 bonds. CCP then filed a Surety bond despite the allegation that the repayment of
complaint with request for arbitration before the Construction downpayment had already been effected. YES
Industry Arbitration Commission (CIAC) against DPCC and PCIC.
They pray that DPCC and PCIC be held jointly and severally liable
2. Whether or not PCIC should be held liable under the
against the 3 bonds.
Performance Bond despite the allegation that CCP failed
CIAC rendered a decision in favor of CCP. DPCC was found to be to comply with the time-bar limitations provided for
liable to pay from the Surety Bond the unrecouped downpayment and under the Performance Bond agreement. YES
from the Performance Bond. CCP, on the other hand, was ordered to IV. Holding/s
pay DPCC for the construction materials which were left at the 1. Yes, PCIC should be held liable under the Surety bond
construction site.
PCIC was not successful in showing that repayment has already been
All parties appealed the decision of the arbitration to the CA. The made by DPCC in favor of CCP. They claim it to be a common
CA modified the decision of the CIAC saying that DPCC was industry practice that repayment of down payment is done through
2

deductions from progress Billings of the construction project. They Article 1169 of the Civil Code
said that the downpayment had been repaid through periodic Those obliged to deliver or to do something incur in delay from the
deductions by way of work accomplishments, but no competent time the obligee judicially or extrajudicially demands from them the
evidence was presented to support that such kind of arrangement was fulfillment of their obligation.
made in their case. An allegation of repayment, if properly proven,
Three Requisites for finding a default:
would most likely relieve PCIC of its liability under the Surety bond.
But absent supporting evidence, their liability stands. 1. the obligation is demandable and liquidated
2. the debtor delays performance
2. Yes, PCIC should be held liable under the Performance Bond 3. the creditor judicially or extrajudicially requires the debtor’s
despite the allegation that CCP failed to comply with the performance
time-bar limitations
VI. Disposition
The July 25, 2003 and September 16, 2003 documents on which
PCIC relies on are mere appraisal reports and are only meant to WHEREFORE, the subject motion for partial reconsideration is
inform DPCC of CCP’s concerns. Under Article 1169 of the Civil DENIED. (Leonnen, J., designated Member per Raffle, dated June
Code, the first requisite for a finding of default is that the obligation 16, 2014, in lieu of Associate Justice Roberto A. Abad who has
is demandable and liquidated. In this case, the obligation only retired)
became demandable in October 29, 2003 when CCP finally decided
SO ORDERED.
to notify PCIC and DPCC of their election to treat the ordinary delay
as a breach of obligation. VII. Separate Opinions
CCP had 10 days from October 23, 2003 to file their claim and they VIII. Additional Notes
did on November 7, 2003. Hence, the liability of PCIC has already
attached. CCP acted well within the time-bar limitation laid down in VII. Random Facts
the Performance Bond Agreement. ● Ponente: Mendoza, J.

G.R. No. 112182 | December 12,1994 Article 1169, Civil Code
Bricktown Dev’t. Corp. vs Amor Tierra Bricktown Dev’t. Corp. vs Amor Tierra
I. Recit-ready Summary demand. Still, the SC ordered the refund by the petitioner of P1,334,443.21
Bricktown Development Corporation (Petitioner), executed two since the respondent was also liable for the breach.
Contracts to Sell in favor of Amor Tierra Development Corporation
(Respondent), covering a total of 96 residential lots (total of 82,888 sqm) at II. Facts of the Case
the Multinational Village Subdivision in Paranaque. On March 31, 1981, Bricktown Development Corporation
The total price of P21,639,875.00 was stipulated to be paid by private (Petitioner), represented by its president, Mariano Velarde, executed
respondent in multiple amounts and maturity dates from March to December two Contracts to Sell in favor of Amor Tierra Development
1981, with a balance to be paid by means of an assumption by private Corporation (Respondent). The said contracts cover a total of 96
respondent of petitioner corporation's mortgage liability to the Philippine residential lots (aggregate area lot of 82,888 sqm.) in Multinational
Savings Bank or, alternately, to be made payable in cash. On date, March 31, Village Subdivision, La Huerta, Paranaque. The total price of
1981, the parties executed a Supplemental Agreement, providing that private
P21,639,875.00 was stipulated by respondent in such amounts and
respondent would additionally pay to petitioner a 21% interest on the balance
maturity dates as follows:
of down payment for the period from 31 March to 30 June 1981, and interest
paid by petitioner to the bank in updating the bank loan for the period from P2,200,000.00 March 31, 1981
February 1 to March 31, 1981. P3,209,968.75 June 30, 1981
Respondent was only able to pay the petitioner the sum of P4,729,906.25 December 31, 1981
P1,334,443.21. However, the parties continued to negotiate for a possible P11,500,000.00 To be paid by means of an
modification of their agreement, but nothing conclusive happened. And on assumption by respondent of
October 12, 1981, petitioner’s counsel sent the respondent a “Notice of petitioner’s mortgage liability
Cancellation of Contract” because of the latter’s failure to pay the agreed to Philippine Savings Bank or,
amount. alternatively, to be made
Several months later, respondent’s counsel, demanded the refund of payable in cash.
respondent's various payments to petitioner, allegedly "amounting to The parties executed a Supplemental Agreement where the
P2,455,497.71," with interest within fifteen days from receipt of said letter, respondent would pay the petitioner additional amounts of P55,362.68 (21%
or, in lieu of a cash payment, to assign to respondent an equivalent number of
interest) on the balance of down payment for March 31-June 30, 1981 and
unencumbered lots at the same price fixed in the contracts. When the demand
was not heeded, respondent filed an action with the court a quo which P390,369.37 representing interest paid by the petitioner to Philippine Savings
rendered a decision in its favor. The decision of the lower court was affirmed Bank in updating the bank load from February 1 to March 31, 1981.
in toto by the Court of Appeals. The main issue raised in the petition is Private respondent was only able to pay petitioner corporation the
whether or not the petitioner validly rescinded the Contracts to Sell. The SC sum of P1,334,443.21. However, the parties continued to negotiate for a
affirmed the decision of the trial court and CA that the contracts were validly possible modification of their agreement, but nothing conclusive happened.
rescinded, because the 60-day grace period in the terms of contracts to sell And on October 12, 1981, petitioner’s counsel sent private respondent a
became operative once the due payments were not made on the maturity date. Notice of Cancellation of Contract because of the latter’s failure to pay the
This does not require a judicial demand since this grace period is not likened agreed amount due on June 30, 1981. Petitioner advised the respondent that
with Article 1169 of the Civil Code, which needs a judicial or extrajudicial it still had the right to pay its arrearages within 30 days from receipt of the
notice, “otherwise the actual cancellation of contract would take place.”
1
Obligations and Contracts (2020) PETITIONER: Bricktown Dev’t. Corp. (now Multinational Realty Dev Corp)
DIGEST AUTHOR: Joses RESPONDENT: Amor Tierra Dev’t. Corp. & CA
On September 26, 1983, respondent demanded the refund of its In addition, non-payment of the purchase price in a contract to sell can
payments to the petitioner allegedly amounting to P2,455,479.71 with prevent the obligation to convey title from acquiring any obligatory cause.
interest, within 15 days from receipt of said letter (through cash or by giving The forfeiture of payments under the cancelled contracts must be viewed
the respondent equivalent number of unencumbered lots at the same price differently as the series of events and circumstances warrant some favorable
fixed in contracts). But to no avail, the respondent commenced an action to consideration by the SC. The petitioner did not deny that there had been
the court a quo. consistent negotiations between the parties but such did not result in novation
The trial court declared the contracts rescinded and ordered the of the contracts to sell.
petitioner to return to the respondent P1,334,443.21 with 12% interest per
annum until fully paid. The CA affirmed the trial court’s finding and The SC concluded that the petitioner still acted within its legal right to
judgments and added that the cancellation of contract required a positive act rescind or cancel the contracts to sell and found that it would be
on part of the petitioners giving respondent the 60-day grace period1 provided unconscionable to sanction also petitioner's forfeiture of the payments made
in the contract to sell. by the respondent. Moreover, the petitioners did not act in good faith or fair
III. Issue/s dealing. However, the respondent also breached, that's why the SC ordered to
1. W/N the contracts to sell were validly rescinded or cancelled by return the interest payment computed from the judicial demand.
petitioner corporation? (YES)
2. W/N the amounts already remitted by private respondent under said 2. NO, the amounts already remitted by private respondent under said
contracts were rightly forfeited by petitioner corporation? (NO) contracts were not rightly forfeited by petitioner corporation.
The terms of payment agreed upon by the parties were not met. The
IV. Holding/s respondent was only able to remit P1,334,443.21, which is short of the
1. YES, the contracts to sell were validly rescinded or cancelled by stipulated initial payment of P2,200,000.00 and no additional payments were
the petitioner corporation. made. Since the respondent did not actually possess the property under the
Terms of payment agreed by the parties were not met by the respondent. contract, the petitioner is then ordered to return to private respondent the
Only P1,334,443.21 was only able to remit by the respondent of the amount remitted. However, to adjudge any interest payment by petitioners on
P21,639,875.00. The SC took notice that the notice of cancellation was even the amount to be thus refunded, private respondent should not be allowed to
made months after the lapse of the contracted grace period, under the totally free itself from its own breach.
Paragraph 151 of the Contracts to Sell. Such grace period is a right of the
debtor. When the grace period is conferred, it will be effective without the V. Law or Doctrine Applied
need of demand. This differs from Article 1169 of the Civil Code wherein the
latter would still require a judicial or extrajudicial demand before it would DOCTRINE OF THE CASE
become "default". In the case at bar, the 60-day grace period under the A contract, once perfected, has the force of law between the parties with
contract became ipso facto operative when the due payments were not which they are bound to comply in good faith and from which neither one
made at their stated maturities. may renege without the consent of the other. The autonomy of contracts
allows the parties to establish such stipulations, clauses, terms and conditions
as they may deem appropriate provided only that they are not contrary to law,
2
morals, good customs, public order or public policy. The standard norm in 15. Should the PURCHASER fail to pay when due any of
the performance of their respective covenants in the contract, as well as in the the installments mentioned in stipulation No. 1 above, the
exercise of their rights thereunder, is expressed in the cardinal principle that OWNER shall grant the purchaser a sixty (60)-day grace
the parties on that juridical relation must act with justice, honesty and good period within which to pay the amount/s due, and should
faith. the PURCHASER still fail to pay the due amount/s within
the 60-day grace period, the PURCHASER shall have the
ARTICLE 1169, CIVIL CODE OF THE PHILIPPINES right to ex-parte cancel or rescind this contract, provided,
Those obliged to deliver or to do something incur in delay from the time the however, that the actual cancellation or rescission shall take
obligee judicially or extrajudicially demands from them the fulfillment of effect only after the lapse of thirty (30) days from the date
their obligation. When demand would be useless, as when the obligor has of receipt by the PURCHASER of the notice of
rendered it beyond his power to perform cancellation of this contract or the demand for its rescission
by a notarial act, and thereafter, the OWNER shall have the
NOVATION – ARTICLE 1293, CIVIL CODE right to resell the lot/s subject hereof to another buyer and
Novation is a mode of extinguishing an obligation by changing its objects or all payments made, together with all improvements
principal obligations, by substituting a new debtor in place of the old one, or introduced on the aforementioned lot/s shall be forfeited in
by subrogating a third person to the rights of the creditor. Article 1293 of the favor of the OWNER as liquidated damages, and in this
Civil Code defines novation as follows: connection, the PURCHASER obligates itself to peacefully
vacate the aforesaid lot/s without necessity of notice or
"Art. 1293. Novation which consists in substituting a new debtor in the place demand by the OWNER.
of the original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment by the VII. Random Facts
new debtor gives him rights mentioned in articles 1236 and 1237. • Ponente: Vitug, J.
VI. Disposition
WHEREFORE, the appealed decision is AFFIRMED insofar as it

declares valid the cancellation of the contracts in question but MODIFIED by
ordering the refund by petitioner corporation of P1,334,443.21 with 12%
interest per annum to commence only, however, from the date of finality of
this decision until such refund is effected. No costs.

• 1A notice of cancellation was ultimately made months after the lapse
of the contracted grace period. Paragraph 15 of the Contracts to Sell
provided thusly:
3
GR No 213014 / Oct 14, 2015 Article 1169
Maybank v Spouses Tarrosa Maybank v Spouses Tarrosa
I. Recit-ready Summary P564,579.91, inclusive of principal, interests and penalty charges. They
Spouses Oscar and Nenita Tarrosa obtained a P91,000 loan from offered to pay a lesser amount, which Maybank refused. Thereafter, on June
PNB- Republic Bank (now Maybank) which was then secured by a real 25, 1998, Maybank commenced extrajudicial proceedings before the office
estate mortgage over a land situated in San Carlos, Negros Occidental. They of Sheriff Villanueva. The subject property was eventually sold in a public
obtained a second loan amounting to P60,000 which they were supposed to auction sale held on July 29, 1998 for a total bid price of P600,000 to the
pay by Mar 11, 1984. They failed to however and it took 15 years before highest bidder, Philmay Property Inc (PPI) which was thereafter issued a
they realized this failure when on Mar 1998, they received a final demand Certificate of Sale, dated July 30, 1998.
letter from Maybank requesting for its payment (now P564,579.91). On Sept 7, 1998, the respondent spouses filed a complaint for
Negotiations broke down though and by June 1998, Maybank started declaration of nullity and invalidity of the foreclosure of real estate and of
foreclosing the land secured by the real estate mortgage, prompting the public auction sale proceedings and damages with prayer for preliminary
couple to file a complaint in court. injunction against Maybank, PPI, Sheriff Villanueva and the Registry of
The main issue to be resolved here is whether or not Maybank is Deeds of San Carlos before the RTC. The RTC held that the second loan
barred by prescription from executing its right to foreclose the subject was subject to the continuing security provision in the real estate mortgage
property. The SC held that Maybank is not barred by prescription, because justifying the foreclosure, however it then ruled that Maybank’s right to
prescription never ran in the first place from the maturity date in Mar 1984. foreclose, reckoned from the time the loan matured on Mar 11, 1984 (due
They contended that the stipulations in the real estate mortgage has no date) has already prescribed due to lack of any timely judicial action,
mention of dispensing the demand to hold one in default or an express written extrajudicial demand or written acknowledgement by the debtor of
declaration that failure to pay from the maturity date would hold one in his debt, that could have interrupted the prescription period, therefore
default, all scenarios which would have commenced the running of the nullifying the foreclosure. Maybank filed an MR which was then denied,
prescription. Absent such declarations, the prescription would then only run prompting them to appeal to the CA, who then affirmed the RTC on the
from the lapse of the period indicated from the final demand letter in Mar same merits.
1998, which was 5 days. Therefore, Maybank’s right to foreclose is not
barred and thus upheld to be valid. III. Issue/s
W/N the CA erred in finding that Maybank’s right to foreclose the real
II. Facts of the Case estate mortgage over the subject property was barred by prescription;
On Dec 15, 1980, the respondent spouses obtained from then PNB- YES
Republic Bank (now Maybank), a P91,000 loan. This was secured by a Real IV. Holding/s
Estate Mortgage over a 500 sqm. parcel of land situated in San Carlos City, YES, the CA erred in finding that Maybank’s right to foreclose has
Negros Occidental, covered by TCT No. T-5649. After paying the said loan been barred by prescription
sometime in March 1983, the spouses obtained another loan from Maybank Typically, the prescription period for an action to enforce a right arising
in the amount of P60,000, payable on March 11, 1984. Unfortunately, they from a mortgage is 10 years from the time the right of action accrues, which
failed to settle the second loan upon maturity. So, 15 years later, they in this case, such right is usually accrued from the respondent’s failure to
received a Final Demand Letter (dated Mar 4, 1998) from Maybank, pay/default. However, such accrual of right will depend on the stipulations
requiring them to settle their outstanding loan in the aggregate amount of of the obligation. Aside from the fact that it needs to be demandable and its
1
Obligations and Contracts PETITIONER/APPELLANT: Maybank Philippines

DIGEST AUTHOR: Jayvee Ala RESPONDENT: Spouses Oscar and Nenita Tarrosa
GR No 213014 / Oct 14, 2015 Article 1169
Maybank v Spouses Tarrosa Maybank v Spouses Tarrosa
performance was delayed by debtor to be considered as a default, it also In reciprocal obligations, neither party incurs in delay if the other does not
requires that the creditor demands for its performance, judicially and comply or is not ready to comply in a proper manner with what is
extrajudicially, unless the demand is not necessary due to an express incumbent upon him. From the moment one of the parties fulfills his
stipulation, a provision of the law, an instance where time is the controlling obligation, delay by the other begins. (1100a)
motive for its performance and a circumstance which would make the
demand useless. A pplying it in the case, the lower courts erred in agreeing VI. Disposition
that Mar 11, 1984 is the reckoning point for the accrual of right of action WHEREFORE, the petition is GRANTED. The Decision dated
November 29, 2013 and the Resolution dated May 13, 2014 of the Court of
due to a misinterpretation of the stipulation in real estate mortgage.
Appeals in CA- G.R CV No. 02211 are hereby REVERSED AND SET
Paragraph 5 of that mortgage merely articulates the assured right of
ASIDE. The complaint in Civil Case No. 98-10451 is DISMISSED
Maybank to elect foreclosure upon failure of payment, but this does not
mean in anyway an express declaration that demand would be unnecessary VII. Separate Opinions
to hold the respondent in default or that the default will commence upon
failure of payment. Absent this declarations, it shall be presumed that
demand is not dispensed with in this case and that as a result, Maybank’s VIII. Additional Notes
right to foreclose the mortgage accrued only after the lapse of the period
indicated in its Final Demand letter (Mar 1998) which is after 5 days,
therefore upholding the foreclosure proceedings to be valid. VII. Random Facts
Ponente: Perlas- Bernabe, J.
ARTICLE 1169 of the Civil Code
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:

that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
Obligations and Contracts PETITIONER/APPELLANT: Maybank Philippines

DIGEST AUTHOR: Jayvee Ala RESPONDENT: Spouses Oscar and Nenita Tarrosa
[G.R. No 184458 | January 14, 2015] Art. 1169
[Rivera v. Spouses Chua] [Rivera v. Spouses Chua]
I. Recit-ready Summary October 1998 Rivera issued and delivered a check of P25,000.00
(almost 3 yrs after) as partial payment for the loan
The parties were friends of long standing having known each other since 21 Dec 1998 Spouses Chua received another check but was
1973. In February 1995, Rivera obtained a loan from the Spouses Chua, in blank as to payee and amount. As per
the amount of P120,000.00 embodied in a promissory note with stipulations understanding, the check was issued in the amount
that failure on the part of Rivera to pay the amount on December 31, 1995, of P133,454 with cash as payee as partial payment.
he agrees to pay 5% interest monthly from the date of default until the Upon presentment, the two checks were
obligation is fully paid for. Three years have passed from the maturity date, dishonored for the reason of “account closed”
when Rivera issued two (2) checks in favor of Chua as payment for the loan. 31 May 1999 The amount due was pegged at P366,000 covering
The first one was in the amount of P25,000. The second one was a blank both the principal and interest
check with no indicated payee and amount. As per their understanding, the
second check was a payment for a total of P133,454 for partial payment of The Spouses Chua alleged that they have repeatedly demanded payment from
the obligation. But upon presentment, it dishonored for the reason “account Rivera to no avail. Because Rivera’s unjustified refusal to pay, Spouses Chua
closed.” In their collection suit, Spouses Chua alleged that they have filed a suit against him. Rivera claimed forgery of the subject PN and denied
repeatedly demanded payment from Rivera to no avail. In his Answer, Rivera his indebtness. Hence, this case was brought by Spouses Chua against Rivera.
claimed forgery of the subject Promissory Note and denied his indebtedness
thereunder. From the MeTC to the CA, the monetary claim of Spouses Chua The MeTC ruled that the PN was signed by one and the same person and
was sustained. The issue in this case is W/N a demand from Spouses Chua is ruled in favor of the Spouses Chua granting the payment of the principal,
needed to make Rivera liable. The SC held NO. Demand is no longer stipulated interest until 1 Jan 1996, legal interest of 12% from 11 June 1999
necessary because the law is explicit that when the debtor fails to pay upon as actual and compensatory damages, and 20% of the whole amount as
maturity date, when the obligation is due and demandable, he therefore incurs attorney’s fees. The RTC affirmed the Decision of the MeTC but deleted the
delay. (Art. 1169 of the Civil Code) award of the attorney’s fees. Rivera appealed to the CA which affirmed his
liability but reduced the imposition of interest from 60% to 12% per annum
II. Facts of the Case and reinstated the award of the attorney’s fees.
The parties were friends of long standing having known each other since III. Issue/s
1973. Rivera and Salvador were kumpadres, Rivera is the godfather of the
Spouses Chua’s son. In February 1995, Rivera obtained a loan from the 1. W/N a demand from Sps. Chua is needed to make Rivera liable. (NO)
Spouses Chua, in the amount of P120,000.00 embodied in a promissory note
with stipulations that failure on the part of Rivera to pay the amount on IV. Holding/s
December 31, 1995, he agrees to pay 5% interest monthly from the date of
default until the obligation is fully paid for. NO. Demand is no longer necessary because the law is explicit that when the
debtor fails to pay upon maturity date, when the obligation is due and
Summary of Events: demandable, he therefore incurs delay. Art. 1169 of the Civil Code states,
“Those obliged to deliver or to do something incur in delay from the time the
1
Block B 2023 PETITIONER/APPELLANT: Rodrigo Rivera

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Spouses Salvador Chua and Violeta S. Chua
[G.R. No 184458 | January 14, 2015] Art. 1169
obligee judicially or extrajudicially demands from them the fulfillment of delivered or the service to the rendered was a controlling motive for
their obligation. However, the demand by the creditor shall not be necessary the establishment of the contract; or
in order that delay may exist: 1) When the obligation or the law expressly so (3) When demand would be useless, as when the obligor has rendered
declare xxx.” There are four instances when demand is not necessary to it beyond his power to perform
constitute the debtor in default: (1) when there is an express stipulation to that In reciprocal obligations, neither party incurs in delay if the other does not
effect; (2) where the law so provides; (3) when the period is the controlling comply or is not ready to comply in a proper manner with what is incumbent
motive or the principal inducement for the creation of the obligation; and (4) upon him. From the moment one of the parties fulfills his obligation, delay
where demand would be useless. In the first two paragraphs, it is not by the other begins.
sufficient that the law or obligation fixes a date for performance; it must
further state expressly that after the period lapses, default will commence. VI. Disposition
The clause in the Promissory Note containing the stipulation of interest which WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision
expressly requires Rivera to pay 5% monthly interest from the date of default of the Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner
until the entire obligation is fully paid. It is evident that the maturity of the Rodrigo Rivera is ordered to pay respondents Spouses Salvador and Violeta
obligation on a date certain, December 31, 1995, will give rise to the Chua the following:
obligation to pay interest. The date of default under the Promissory Note is 1
(1) The principal amount of P120,000.00
January 1996, the day following 31 December 1995, the due date of the
(2) Legal interest of 12% per annum of the principal amount of
obligation. On that date, Rivera became liable for the stipulated interest P120,000.00 reckoned from 1 January 1996 until 30 June 2013
which the Promissory Note says is equivalent to 5% a month. In sum, until (3) Legal interest of 6% per annum of the principal amount of
31 December 1995, demand was not necessary before Rivera could be held P120,000.00 from 1 July 2013 to date when this Decision becomes
liable for the principal amount of P120,000.00. Thereafter, on 1 January final and executory
1996, upon default, Rivera became liable to pay the Spouses Chua damages, (4) 12% per annum applied to the total of paragraphs 2 and 3 from 11
in the form of stipulated interest. June 1999, date of judicial demand, to 30 June 2013, as interest due
earning legal interest
V. Law or Doctrine Applied (5) 6% per annum applied to the total amount of paragraphs 2 and 3
from 1 July 2013 to date when this Decision becomes final and
Art. 1169 of the Civil Code executory, as interest due earning legal interest
Art. 1169. Those obliged to deliver or to do something incur in delay from (6) Attorney’s fees in the amount of P50,000.00; and
the time the oblige judicially or extrajudicially demands from them the (7) 6% per annum interest on the total of the monetary awards from the
fulfillment of their obligations finality of this Decision until full payment thereof
delay may exist:
None.
(1) When the obligation or law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it VIII. Additional Notes – Not OBLICON specific
appears that the designation of the time when the thing is to be
Issue on Forgery:
2

[G.R. No 184458 | January 14, 2015] Art. 1169
• SC was not inclined to depart from the lower courts’ uniform rulings
that Rivera indeed signed it
• Rivera offers no evidence for his asseveration that his signature on
the promissory was forged, only that the signature is not his and
varies from his usual signature
• Well-entrenched in jurisprudence is that factual findings of the trial
court especially when affirmed by the appellate court, are accorded
highest degree of respect and are considered conclusive between the
parties
• In this case, Rivera’s base assertion is unsubstantiated and directly
disputed by the testimony of a handwriting expert from the NBI.
Issue on Interest Computation:

• The appellate court found the 5% monthly or 60% annual interest
rate tantamount to being illegal, iniquitous and unconscionable
• C.A.’s disposition on the propriety of the reduction of the interest
rate is affirmed by a “bar by prior judgment”
• Computation – refer to disposition part
VII. Random Facts

● Ponente: Perez, J.

GR. 145483| November 2004 Obligations
Lorenzo Shipping Corp. v. BJ Marthel International, Inc.
I. Recit-ready Summary contract of sale and whether or not said contract was validly rescinded
Okay basically May 1989, Lorenzo shipping Corp asked for a by petitioner.
quotation for some machine parts from BJ Marthel International, with the
quotation stating that delivery is within 2 months after receipt of firm order SC affirmed the decision of the CA. In determining whether time is of the
and that 25% payment upon delivery. November 1989, Lorenzo shipping essence in a contract, there must be a sufficient manifestation, either in the
Corp sent BJ a purchase order for 1 cylinder, but omitted the terms of contract itself or the surrounding circumstances of that intention.
delivery in the form. Additionally, Lorenzo gave 10 postdated checks to Petitioners insist that the quotation form and purchase order are the same
cover for the full amount of the cylinder. The check was postdated on documents, in which case the respondents should have abided by the terms.
January 1990, but also the checks were useless kasi insufficient funds in SC disagrees. There are significant differences with the quotation form and
Lorenzo. Meanwhile Lorenzo bought a 2nd cylinder and made the purchase purchase order. The delivery terms were omitted by the petitioners in the
order, leaving out the delivery time again. On April 1990, Respondent BJ Purchase Order, and it made no mention of any due date. (See 3 stages of a
delivered the cylinders to the petitioner but both cylinders remained contract below) plus, it was petitioner who prepared the purchase order,
unsettled. Which is why respondent sent a demand letter on January 1991 omitting the date of delivery and varied the terms with respect to down
requiring petitioners to pay 477,000 for each cylinder but instead petitioners payment which caused obscurity in the contract. SC says that this obscurity
sent a letter back saying that they’re offering 150,000 pesos saying that the must be resolved against the petitioners. SC held in a different case that
cylinders were delivered late and due to M/V Dandiangs being scrapped when the time of delivery is not fixed or is stated in general and indefinite
they’ll have to sell the cylinders to pay the balance. Respondents was pissed terms, time is not of the essence of the contract. Thus petitioner's claim does
so they sent another letter this time demanding them to pay+ interest+ not hold water as they themselves were the ones who omitted the date of
attorneys fees. delivery, and also did not even inform respondents of the urgent nature of
the purchase order.
Both parties failed to settle so respondents filed an action for sum of money There having been no failure on the part of the respondent to perform its
and damages with the RTC. RTC dismissed the action and ordered obligation, the power to rescind the contract is unavailing to the petitioner. (
respondents to pay 50,000 because respondent was bound to the quotation Article 1191) The law explicitly gives either party the right to rescind the
with respect to payment and delivery. But the CA reversed this decision contract only upon the failure of the other to perform the obligation
,ordering petitioners to pay, brushing of the claims of petitioner that time assumed thereunder. The right, however, is not an unbridled one. A party
was of the essence when it came to the cylinders, considering a significant who deems a contract violated may consider it rescinded even without
amount of time lapsed between the respondent’s offer and the petitioner’s previous court action, BUT it is up to the courts ultimately to decide
purchase order. The Court of Appeals also held that respondent could not whether it was proper to rescind the contract or not. But the law definitely
have incurred delay in the delivery of cylinder liners as no demand, judicial does not require that the injured must first file suit and wait for a judgment
or extrajudicial, was made by respondent upon petitioner in contravention before taking extrajudicial steps to protect its interest. Here, there is no
of the express provision of Article 1169. Also CA says there was no showing that petitioner notified respondent of its intention to rescind the
cancellation of orders by petitioner. contract of sale between them. Quite the contrary, the respondent's act of
The case was elevated to the SC, and the main issue here is whether or proceeding with the opening of an irrevocable letter of credit on 23
not respondent incurred delay in performing its obligation under the February 1990 shows that no rescission happened.
1
Obligations and Contracts (2020) PLAINTIFF-APPELLEE: Lorenzo Shipping Corp.

DIGEST AUTHOR: Sean Lee DEFENDANT- APPELLANT: BJ Marthel International Inc.
Court of Appeals also held that respondent could not have incurred delay in
Facts of the Case the delivery of cylinder liners as no demand, judicial or extrajudicial, was
Lorenzo Shipping Corporation buys spare machine parts from BJ Marthel made by respondent upon petitioner in contravention of the express
International, Inc. On May 1989, Lorenzo asks for a quotation on various provision of Article 1169. Also CA says there was no cancellation of orders
machine parts, with the quotation stating that delivery is within 2 months by petitioner.
after receipt of firm order and that 25% payment upon delivery. In
November 1989, Petitioner Lorenzo ordered 1 cylinder liner worth 477,000 II. Issue/s
pesos, and issued 10 post dated checks covering the full amount. The 1. W/N respondent incurred delay in performing its obligation under
petitioner’s check was post-dated on January 18, 1990, but when it was the contract of sale? NO.
cashed in by the respondent, the check was dishonoured due to insufficient
2. W/N said contract was validly rescinded by petitioner? NO.
funds. Petitioner then goes on to buy another cylinder, this time the
III. Holding/s
purchase order involves 25% upon delivery clause, but leaves out the
1. NO. W/N respondent incurred delay in performing its obligation
delivery time. Respondent placed the order for the 2 cylinders with its
principal in Japan and opened a letter of credit with the First Interstate Bank under the contract of sale?
of Tokyo. In determining whether time is of the essence in a contract, there must be a
On April 20, 1990, Respondent delivered the 2 cylinders to petitioner’s sufficient manifestation, either in the contract itself or the surrounding
warehouse. The cylinders remained unsettled, which is why Mr. Kansan Jr, circumstances of that intention. Petitioners insist that the quotation form
respondent’s vice-President, sent a demand letter on January 2, 1991 and purchase order are the same documents, in which case the respondents
requiring petitioners to pay. But instead, petitioners sent a letter offering to should have abided by the terms. SC disagrees. There are significant
pay only P 150,000 for the cylinder liners, saying that the cylinders were differences between the delivery terms of the quotation form and the
delivered late and due to M/V Dandiangs being scrapped, so they would purchase orders. The delivery terms were omitted by the petitioners in the
have to sell off the cylinders to pay the balance. Another demand letter Purchase Order, and it made no mention of any due date. (See 3 stages of a
came from the respondents, this time requiring petitioners to settle the contract below)
balance with interest and attorney’s fees. The formal quotation sent by respondents represented the negotiation
Both parties failed to settle the matter, which prompted respondents to stage, at this point there is no agreement with the terms and conditions of
file an action for sum of money and damages before the RTC, alleging that the contract for the cylinders. The parties were at liberty to discuss
despite repeated demands, petitioner refused to settle its obligations. After provisions of the contract of sale before its perfection. Notably, petitioner
trial, the court dismissed the action, with costs against BJ, which is ordered was the one who prepared the purchase order, omitting the date of delivery
to pay P50,000.00 to Lorenzo. RTC held that respondent was bound to the and varied the terms with respect to down payment which caused obscurity
quotation with respect to the terms of payment and delivery. It also declare in the contract. SC says that this obscurity must be resolved against the
that respondent cancelled the contract of sale when it returned the postdated petitioners. SC held in a different case that when the time of delivery is not
checks by petitioner. CA reversed the decision, brushing off the claims of fixed or is stated in general and indefinite terms, time is not of the essence
the petitioner when they say that time was of the essence with the contract of the contract. Thus petitioner's claim does not hold water as they
of sale considering that a significant period of time lapsed between themselves were the ones who omitted the date of delivery, and also did not
respondents offer and the issuance of purchase orders by petitioner. The even inform respondents of the urgent nature of the purchase order. The
2

failure of petitioner to notify respondent of said date is fatal to its claim that parties agree upon the essential elements of the contract. The last stage is
time was of the essence in the subject contracts of sale. the consummation of the contract wherein the parties fulfill or perform the
terms agreed upon in the contract, culminating in the extinguishment
thereof.
2. NO. W/N said contract was validly rescinded by petitioner?
ART. 1191- The power to rescind obligations is implied in reciprocal ones,
There having been no failure on the part of the respondent to perform its
in case one of the obligors should not comply with what is incumbent upon
obligation, the power to rescind the contract is unavailing to the petitioner. (
him.
Article 1191)
The law explicitly gives either party the right to rescind the contract only
upon the failure of the other to perform the obligation assumed thereunder.
The right, however, is not an unbridled one. A party who deems a contract V. Disposition
violated may consider it rescinded even without previous court action, BUT WHEREFORE, premises considered, the instant petition for
it is up to the courts ultimately to decide whether it was proper to rescind review on certiorari is DENIED. The Decision of the Court of Appeals,
the contract or not. But the law definitely does not require that the dated 28 April 2000, and its resolution, dated 06 October 2000 are hereby
contracting party who believes itself injured must first file suit and wait for AFFIRMED.
a judgment before taking extrajudicial steps to protect its interest. Here,
there is no showing that petitioner notified respondent of its intention to VI. Additional Notes.
rescind the contract of sale between them. Quite the contrary, respondent's Additional things: In the RTC, petitioner says that time was
act of proceeding with the opening of an irrevocable letter of credit on 23 of the essence in the delivery of the cylinder liners and that the
February 1990 belies petitioner's claim that it notified respondent of the delivery on 20 April 1990 of said items was late as respondent
cancellation of the contract of sale. Truly, no prudent businessman would committed to deliver said items “within two (2) months after
receipt of firm order” from petitioner. Petitioner further prayed
pursue such action knowing that the contract of sale, for which the letter of
that it be allowed to sell the cylinder liners at the best possible
credit was opened, was already rescinded by the other party
price and to place the proceeds of said sale in escrow.
IV. Law or Doctrine Applied CA ordered petitioners to pay P954,000 and accrued
interest computed at 14% per annum reckoned from May
ART. 1169- Those obliged to deliver or to do something incur in delay 1991.
from the time the obligee judicially or extrajudicially demands from them CA also said this:
the fulfillment of their obligation. In the instant case, the appellee should have provided for an
allowance of time and made the purchase order earlier if
Principle of a Contract’s 3 stages: Contract undergoes three distinct stages
indeed the said cylinder liner was necessary for the repair of
- preparation or negotiation, its perfection, and finally, its consummation.
the vessel scheduled on the first week of January, 1990. In
Negotiation begins from the time the prospective contracting parties
fact, the appellee should have cancelled the first purchase
manifest their interest in the contract and ends at the moment of agreement
order when the cylinder liner was not delivered on the date it
of the parties. The perfection or birth of the contract takes place when the
3

now says was necessary. Instead it issued another purchase

order for the second set of cylinder liner. This fact negates
appellee's claim that time was indeed of the essence in the
consummation of the contract of sale between the parties.
Finally, the ten postdated checks issued in November 1989 by

petitioner and received by the respondent as full payment of
the purchase price of the first cylinder liner supposed to be
delivered on 02 January 1990 fail to impress.. The earliest
maturity date of the checks was 18 January 1990. As
delivery of said checks could produce the effect of payment
only when they have been cashed, respondent's obligation
to deliver the first cylinder liner could not have arisen as
early as 02 January 1990 as claimed by petitioner since by
that time, petitioner had yet to fulfill its undertaking to
fully pay for the value of the first cylinder liner.
Petitioner's receipt of the cylinder liners when they were

delivered to its warehouse on 20 April 1990 clearly indicates
that it considered the contract of sale to be still subsisting up
to that time. Indeed, had the contract of sale been cancelled
already as claimed by petitioner, it no longer had any business
receiving the cylinder liners even if said receipt was "subject
to verification." By accepting the cylinder liners when these
were delivered to its warehouse, petitioner indisputably
waived the claimed delay in the delivery of said items.
VII. Random Facts


[G.R. No 115129 | Feb 12, 1997] [Obligations, Nature and Effect of Obligations, Reciprocal Obligations]
[Barzaga v CA] [Barzaga v CA]
death in her wake and funeral. In compliance to his wife’s wishes, Ignacio set her
I. Recit-ready Summary interment on the 24th of December.
Ignacio Barzaga’s wife’s dying wish was to be laid to rest before Christmas, so her Dec 21, 1990
family could enjoy the holiday instead of grieving her death in her wake and funeral.
In compliance to his wife’s wishes, Ignacio set her interment on the 24th of Ignacio went to the hardware store of respondent Angelito Alviar (owner) to
December and wanted a niche to be constructed in time for this. inquire about the availability of certain materials to be used in the construction of
a niche for his wife. He also asked if the materials could be delivered at once. The
As time was of the essence, Barzaga bought construction materials from owner Boncales (storekeeper) replied that she had yet to verify if the store had pending
Alviar’s store upon storekeeper Bocales’ verbal promise that it could be delivered by deliveries that afternoon because if there were then all subsequent purchases would
8AM Dec 22 to Memorial Center. After multiple follow-ups and delays, Barzaga have to be delivered the following day.
refused delivery of the materials as he was displeased with how lightly owner
Alviar’s business took the obligation. Dec 22, 1990
W/N owner Alviar was liable? At 7AM, Barzaga returned to owner Alviar's hardware store to follow up his
purchase of construction materials. He told the store employees that the materials he
The court ruled that there was indeed an an explicitly agreed time of delivery, was buying would have to be delivered at the Memorial Cemetery in Dasmariñas,
evidenced by storekeeper Bocales’ positive verbal commitment. Therefore, Cavite, by 8AM that morning since his hired workers were already at the burial
site and time was of the essence. Boncales agreed and Barzaga paid the amount of
indicating it in the invoice was no longer necessary to be binding. PHP 2,110.
As the the defense of owner Alviar of fortuitous event, the Court said that it is of the He went back to the site and awaited the delivery until 9AM. The materials not yet
nature of his business to expect contingencies such as the flat tire. Regardless, it was being delivered, he went back to the shop and inquired about the status of the
proved during trial that the reason for delay was another delivery made by the truck. delivery. He was told by Boncales that the delivery truck was not yet there and was
This evidenced bad faith on the part of storekeeper Bocales. assured that once it arrives, the materials will be delivered immediately. He went
back to the site but the materials still did not arrive by 10AM, he went back to the
store again was told the same thing.
This case is clearly one of non-performance of a reciprocal obligation. (Art. 1169,
par. 3) Barzaga already did his part in the obligation (payment), therefore it was After waiting for hours, Barzaga became upset by the materials still not having been
incumbent for owner Alviar to make delivery on time delivered and went directly to the police station to file a complaint against owner
Alviar. When he returned again to the store he saw the delivery truck already there
but the materials he purchased were not yet ready for loading. Distressed that owner
II. Facts of the Case Alviar's employees were not the least concerned, Barzaga decided to cancel his
transaction with the store and look for construction materials elsewhere.
Ignacio Barzaga’s wife was dying from an illness. Her dying wish was to be laid to Afternoon of the same day, petitioner was able to buy from another store. But since
rest before Christmas, so her family could enjoy the holiday instead of grieving her it was already dark and the workers had already left, he decided to just start the niche
Block B 2023 PETITIONER/APPELLANT: IGNACIO BARZAGA

DIGEST AUTHOR: Jem Capeding RESPONDENT: COURT OF APPEALS and ANGELITO ALVIAR
the next morning of Dec 23 although he knew it wouldn’t be finished by the III. Issue/s
interment on Dec 24.
W/N owner Alviar was liable (or stated with procedural issue: W/N the CA erred in
Dec 26, 1990 reversing the RTC decision holding Alviar liable?) – YES
His laborers had to take a break on Christmas Day (Dec 25) and they could only IV. Holding/s
resume in the morning of the Dec 26. In the end, the niche was finished by
afternoon, two and a half days late. The law expressly provides that those who in the performance of their obligation are
guilty of fraud, negligence, or delay and those who in any manner contravene the
Jan 21, 1991 tenor thereof, are liable for damages. (Art. 1170)
Barzaga wrote owner Alviar demanding recompense for the damage he suffered Contrary to the appellate court's factual determination, there was a specific time
which did not get a reply. Therefore, he decided to sue the latter in the RTC. agreed upon for the delivery of the materials to the cemetery. Barzaga went to the
store and made a specific inquiry regarding the possible time of delivery, to which
Arguments during trial the storekeeper Boncales responded to. Because of this positive verbal
commitment by Boncales, it was no longer necessary to indicate in the invoices the
Respondent Alviar: exact time the purchased items were to be brought to the cemetery. In fact,
● Legal delay could not be validly ascribed to him because no specific time of storekeeper Boncales admitted that it was not custom to indicate the time of delivery
delivery was agreed upon between them. The invoices evidencing the sale did whenever she prepared invoices.
not contain any stipulation as to the exact time of delivery.
● If there even was a delay, the delivery truck suffered a flat tire on the way to With regards to owner Alviar’s defense of a fortuitous event for delay, the court
the store to pick up the materials (fortuitous event) ruled against it. The nature of private respondent's business requires that he
● His men were ready to make the delivery by 10:30AM in the morning of 22 should be ready at all times to meet contingencies of this kind. In addition,
December but petitioner refused to accept them, being the ultimate cause of the storekeeper Bocales even testified that the delivery truck arrived a little late than
delay in the construction. usual because it came from a delivery of materials in Langcaan, Dasmarias, Cavite.
Significantly, this information was withheld by Boncales from petitioner when the
Procedural facts latter was negotiating with her for the purchase of construction materials. The
deliberate suppression of this information by itself manifests a certain degree of
● RTC ruled in favor of plaintiff Barzaga, awarding him with a refund, damages, bad faith on the part of respondent's storekeeper.
litigation fees and attorney’s fees.
● Respondent Alviar appealed the RTC decision in the CA This case is clearly one of non-performance of a reciprocal obligation. (Art.
o CA reversed the decision and ruled in favor of owner Alviar 1169, par. 3 ) In their contract of purchase and sale, petitioner had already complied
o There was no contractual commitment as to the exact time of delivery fully with what was required of him as purchaser, i.e., the payment of the purchase
since this was not indicated in the invoice price of P2,110.00. It was incumbent upon respondent to immediately fulfill his
obligation to deliver the goods otherwise delay would attach.

computed at the legal rate per annum from the date of the filing of the case;
SC therefore sustained the award of moral damages since it cannot be denied that (b) P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages;
petitioner and his family suffered wounded feelings, mental anguish and serious (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is
anxiety while keeping watch on Christmas day over the remains of their loved one AFFIRMED. No costs.
who could not be laid to rest on the date she herself had chosen. We also affirm the SO ORDERED.
grant of exemplary damages because the lackadaisical and feckless attitude of the
employees of respondent over which he exercised supervisory authority indicates Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.
gross negligence in the fulfillment of his business obligations.
Art. 1169. Those obliged to deliver or to do something incur in delay from the time Merriam-Webster definition of niche:
the obligee judicially or extrajudicially demands from them the fulfillment of their 1a: a recess in a wall especially for a statue
obligation. b: something (such as a sheltered or private space) that resembles a recess in a wall
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is
to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.
VI. Disposition
WHEREFORE, the decision of the Court of Appeals is REVERSED and

SET ASIDE except insofar as it GRANTED on a motion for reconsideration the
refund by private respondent of the amount of P2,110.00 paid by petitioner for the
construction materials. Consequently, except for the award of P5,000.00 as
temperate damages which we delete, the decision of the Regional Trial Court
granting petitioner (a) P2,110.00 as refund for the value of materials with interest
3

G.R. No. 170479 | February 18, 2008 Irregularities: Delay and Fraud
Almocera vs. Ong Almocera vs. Ong
I. Recit-ready Summary auction to a third party due to foreclosure of mortgage. This information
Plaintiff Johnny Ong (Ong) engaged in a Contract to Sell with would’ve prevented him from entering into the contract.
petitioner Andre T. Almocera (Almocera), Chief Executive Officer of First The defendants assert on the other hand, that the brother of the plaintiff
Builder Multi-Purpose Cooperative (FBMC), to acquire from defendant a Tommy Ong, initially reserved units 4 and 5 to give his brother and option
“townhome”, Unit No. 4 of Atrium Townhomes in Cebu City. The selling to choose, and the main reason for choosing unit 4 was because defendants
price was P3,400,000 for an area of 88 sq. meters in a three-story building. said they would sell it to another person for 4 million. Furthermore,
Ong, as downpayment, gave P1,060,000 and he avers that prior to defendants, still aver that Ong should pay the remaining purchase price as
giving this amount, defendants fraudulently concealed the fact that before per their contract.
the perfection of the contract, the property was mortgaged and encumbered
with Land Bank of the Philippines (LBP). The lot was later sold on public III. Issue/s
auction to a third party due to foreclosure of mortgage. Defendants, 1. W/N defendants Almocera and FBMC are liable for damages?
however, still aver that Ong should pay the remaining purchase price as per YES.
their contract. 2. W/N Almocero is solidarily liable with FBMC? YES.
The SC ruled in favor of respondents affirming the grant for damages
of RTC Cebu and CA. Firstly, they stated that the case pertains to a contract IV. Holding/s
to sell rather than a contract of sale, meaning defendants retained ownership
1. YES, defendants are liable for delay and fraud.
as seller and failed to transfer ownership of the lot within 6 months of the
A distinction must be made between a contract of sale in which title
initial downpayment. In lieu of this, defendants incurred delay without need
passes to the buyer upon delivery of the thing sold and a contract to sell . . .
for demand under Art. 1169 section 3. Secondly, to require Ong to pay the
where by agreement the ownership is reserved in the seller and is not to pass
remaining balance would be tantamount to unjust enrichment. Thirdly, the
until the full payment of the purchase price is made. In other words, in a
deliberate withholding by the defendants of the mortgage constitutes fraud
contract to sell, ownership is retained by the seller and is not to pass to the
and bad faith under Art. 1170 entitling Ong to damages. Lastly, Almocero
buyer until full payment of the price. It is clear that petitioner and FBMC
cannot raise the issue of piercing the veil of corporate fiction for the first
had the obligation to complete the townhouse unit within six months from
time on appeal. The petition was DENIED and Almocero has to return the
the signing of the contract. Upon compliance therewith, the obligation of
downpayment and pay moral damages and attorney’s fees.
respondent to pay the balance of P2,400,000.00 arises.
Furthermore, defendants incurred delay without need for demand in the
instant case under Art. 1169 (3). Demand by the respondent would be
Plaintiff Johnny Ong (Ong) engaged in a Contract to Sell with
useless because the impossibility of complying with their (petitioner and
petitioner Andre T. Almocer (Almocera), Chief Executive Officer of First
FBMC) obligation was due to their fault. If only they paid their loans with
Builder Multi-Purpose Cooperative (FBMC), to acquire from defendant a
the LBP, the mortgage on the subject townhouse would not have been
“townhome”, Unit No. 4 of Atrium Townhomes in Cebu City. The selling
foreclosed and thereafter sold to a third person.
price was P3,400,000 pesos for an area of 88 sq. meters in a three-story
Petitioner herein is also justified in refusing to pay the balance of the
building.
contract price. To allow otherwise would be tantamount to unjust
Ong, as downpayment, gave P1,060,000 and he avers that prior to
enrichment. The fundamental doctrine of unjust enrichment is the transfer of
giving this amount, defendants fraudulently concealed the fact that before
value without just cause or consideration. The elements of this doctrine
the perfection of the contract, the property was mortgaged and encumbered
which are present in this case are: (1) enrichment on the part of the
with Land Bank of the Philippines (LBP). The lot was later sold on public
Obligations and Contracts (2020) PETITIONER: Andre T. Almocera 1

DIGEST AUTHOR: King Manalo RESPONDENT: Johnny Ong
G.R. No. 170479 | February 18, 2008 Irregularities: Delay and Fraud
Almocera vs. Ong Almocera vs. Ong
defendant; (2) impoverishment on the part of the plaintiff; and (3) lack of comply or is not ready to comply in a proper manner with what is
cause. The main objective is to prevent one to enrich himself at the expense incumbent upon him. From the moment one of the parties fulfills his
of another. obligation, delay by the othercbegins.
Lastly, the defendants are guilty of fraud in dealing with the
plaintiff pursuant of Art. 1170. They performed voluntary and willful acts ARTICLE 1170 OF THE CIVIL CODE (DAMAGES)
which prevent the normal realization of the prestation, knowing the effects Those who in the performance of their obligations are guilty of fraud,
which naturally and necessarily arise from such acts. Their acts import a negligence, or delay, and those who in any manner contravene the tenor
dishonest purpose or some moral obliquity and conscious doing of a wrong. thereof, are liable for damages.
The said acts certainly give rise to liability for damages.
VI. Disposition
2. YES, Almocero is solidarily liable with FBMC.
This issue of piercing the veil of corporate fiction was never raised WHEREFORE, the petition is DENIED. The Decision of the Court of
before the trial court. The same was raised for the first time before the Court Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 is AFFIRMED.
of Appeals which ruled that it was too late in the day to raise the same. It Costs against the petitioner.
would be unfair to the adverse party who would have no opportunity to
present further evidence material to the new theory not ventilated before the VII. Additional Notes
CONTRACT OF SALE BETWEEN ONG AND FBMC
trial court.
4. TERMS OF PAYMENT:
4a. ONE MILLION PESOS (P1,000,000.00) is hereby acknowledged as
V. Law or Doctrine Applied Downpayment for the above-mentioned Contract Price.
4b. The Balance, in the amount of TWO MILLION FOUR HUNDRED
ARTICLE 1169 OF THE CIVIL CODE (DELAY) PESOS (P2,400,000.00) shall be paid thru financing Institution facilitated
Art. 1169. Those obliged to deliver or to do something incur in delay by the SELLER, preferably Landbank of the Philippines (LBP). Upon
from the time the obligee judicially or extrajudicially demands from them completion, delivery and acceptance of the BUYER of the Townhouse Unit,
the fulfillment of their obligation. the BUYER shall have paid the Contract Price in full to the SELLER.
xxx xxx xxx
However, the demand by the creditor shall not be necessary in order that 6. COMPLETION DATES OF THE TOWNHOUSE UNIT:
delay may exist: The unit shall be completed and conveyed by way of an Absolute Deed of
(1) When the obligation or the law expressly so declares; or Sale together with the attendant documents of Ownership in the name of the
(2) When from the nature and the circumstances of the obligation it BUYER — the Transfer Certificate of Title and Certificate of Occupancy
appears that the designation of the time when the thing is to be within a period of six (6) months from the signing of Contract to Sell.
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or VII. Random Facts
(3) When demand would be useless, as when the obligor has • Ponente: Chico-Nazario, J.
rendered it beyond his power to perform.
Obligations and Contracts (2020) PETITIONER: Andre T. Almocera 2

DIGEST AUTHOR: King Manalo RESPONDENT: Johnny Ong
G.R. No. L-30056 | August 30, 1988 Ambiguity
Agcaoili v. GSIS Agcaoili v. GSIS
I. Recit-ready Summary double walling, lighting facilities, water connection, bathroom, toilet,
The GSIS approved the application of Agcaoili for the purchase of a house kitchen, drainage, were inexistent. Petitioner asked his homeless friend,
and lot in the GSIS Housing Project at Nangka, Marikina, Rizal, subject to Villanueva, to stay in the premises as some sort of watchman, pending
the condition that the latter should forthwith occupy the house, a condition completion of the construction of the house. Agcaoili paid the first monthly
that Agcaoili tried to fulfill but could not for the reason that the house was installment and the incidental fees, but refused to make further payments
absolutely uninhabitable; Agcaoili, after paying the first installment and until and unless the GSIS completed the housing unit. In effect, GSIS
other fees, having thereafter refused to make further payment of other cancelled the award and required Agcaoili to vacate the premises. In their
stipulated installments until GSIS had made the house habitable; and defense, petitioner had no right to suspend payment of amortizations on
appellant having refused to do so, opting instead to cancel the award and account of the incompleteness of his housing unit, since said unit had been
demand the vacation by Agcaoili of the premises; and Agcaoili having sued sold "in the condition and state of completion then existing . . . (and) he is
the GSIS in the Court of First Instance of Manila for specific performance deemed to have accepted the same in the condition he found it when he
with damages and having obtained a favorable judgment, the case was accepted the award”. In addition, the respondent claimed that since the
appealed to this Court by the GSIS. Its appeal must fail. The issue perfection of the contract of sale between it and petitioner being conditioned
presented before the court was whether or not the cancellation of award upon the latter's immediate occupancy of the house subject thereof, and the
in favor of Agcaoili by the GSIS is valid. The Court ruled that the GSIS latter having failed to comply with the condition, no contract ever came into
is not justified in cancelling the award since he was the party who existence between them. Hence, the latter filed an action for specific
caused the ambiguity of the obligation, the same will be resolved against performance and damages against the former before the CFI of Manila. The
them. The contract should only be understood as imposing on the GSIS an CFI declared the cancellation of the award as illegal and void, ordered the
obligation to deliver to Agcaoili a reasonably habitable dwelling in return GSIS to respect and enforce the award granted to petitioner, and ordered the
for his undertaking to pay the stipulated price. Also, petitioner had the right GSIS to complete the house in question so as to make the same habitable
to demand specific performance because it is the duty of the GSIS, as seller, and authorizing petitioner to collect the monthly amortization thereon only
to deliver the thing sold in a condition suitable for its enjoyment by the after said house shall have been completed.
buyer for the purpose contemplated, in other words, to deliver the house
subject of the contract in a reasonably livable state. III. Issue/s
1. W/N Agcaoili have the right to demand specific performance
II. Facts of the Case against the GSIS; YES
Government Service Insurance System (respondent) approved the 2. W/N the GSIS can cancel the award of Agcaoili; NO
application of Marcelo Agcaoili (petitioner) for the purchase of a house and
lot in the GSIS Housing Project subject to the condition that the latter IV. Holding/s
should occupy the house immediately. In exchange, Agcaoili was asked to 1. YES, Agcaoili can demand specific performance against the
pay the monthly amortizations and other fees. However, petitioner could not GSIS.
stay in it because the house was nothing more than a shell, in such a state of There was then a perfected contract of sale between the parties because
incompleteness that civilized occupation was not possible: ceiling, stairs,
there had been a meeting of the minds upon the purchase by Agcaoili of a
1
Obligations and Contracts (2020) PETITIONER: Marcelo Agcaoili
DIGEST AUTHOR: Steven Rivera RESPONDENT: Government Service Insurance System
determinate house and lot in the GSIS Housing Project at Nangka, advocate an absurdity, the creation of an unfair situation. By any objective
Marikina, Rizal at a definite price payable in amortizations at P31.56 per interpretation of its terms, the contract can only be understood as imposing
month, and from that moment the parties acquired the right to reciprocally on the GSIS an obligation to deliver to Agcaoili a reasonably habitable
demand performance. After petitioner’s fulfillment of his duty, it was then dwelling in return for his undertaking to pay the stipulated price.
the duty of the respondent to deliver the house subject of the contract in a
reasonably livable state, but they failed to do so. However, the Court cannot V. Law or Doctrine Applied
require specific performance of the contract in question according to its Rule on Ambiguity
literal terms, as this would result in inequity. Specific performance requires The party to a contract who is responsible for alleged imprecision or
not only that the contract be just and equitable in its provisions, but that the ambiguity in its terms will not be permitted to make capital of such
consequences of specific performance likewise be equitable and just. The imprecision or ambiguity; the question of interpretation arising therefrom
general rule is that this equitable relief will not be granted if, under the should be resolved against it.
circumstances of the case, the result of the specific enforcement of the
Rule on Specific Performance
contract would be harsh, inequitable, oppressive, or result in an
Where specific performance according to the literal terms of a contract
unconscionable advantage to the plaintiff.
would result in inequity by reason of the circumstances obtaining at the time
of judgment being significantly different from those existing at the
2. NO, the GSIS is not justified in cancelling the award in favor of generation of the rights litigated, the Court may exercise its equity
the petitioner. jurisdiction to adjust those rights and, in determining the precise relief to be
Since the GSIS caused the ambiguity of the obligation, it should be resolved given, "balance the equities" or the respective interests of the parties and
against it. The contract can only be understood as imposing on the GSIS an take account of the relative hardship that one form of relief or another may
obligation to deliver to Agcaoili a reasonably habitable dwelling in return occasion to them.
for his undertaking to pay the stipulated price. Since GSIS did not fulfill that
obligation, and was not willing to put the house in habitable state, it cannot VI. Disposition
invoke Agcaoili's suspension of payment of amortizations as cause to cancel WHEREFORE, the judgment of the Court a quo insofar as it invalidates and
the contract between them. It is axiomatic that "(i)n reciprocal obligations, sets aside the cancellation by respondent GSIS of the award in favor of
neither party incurs in delay if the other does not comply or is not ready to petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low cost
comply in a proper manner with what is incumbent upon him." Nor may the housing project at Nangka, Marikina, Rizal, and orders the former to respect
GSIS succeed in justifying its cancellation of the award on the basis that the aforesaid award and to pay damages in the amounts specified, is
AFFIRMED as being in accord with the facts and the law. Said judgment is
petitioner failed to comply with the condition, however the records show
however modified by deleting the requirement for respondent GSIS "to
that Agcaoili tried to comply, but he had to leave the following day because
complete the house in question so as to make the same habitable," and
it was uninhabitable. In this case, the GSIS’s contention that the contract did
instead it is hereby ORDERED that the contract between the parties relative
not clearly impose upon it the obligation to deliver a habitable house, is to to the property above described be modified by adding to the cost of the
2
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. No pronouncement as to costs.
VII. Random Facts

● Ponente: Narvasa, J.
3
G.R. NO. 126083 | July 12, 2006 Article 1169
Cortes v. CA Cortes v. CA
I. Recit-ready Summary • On various dates in 1983, the Corporation advanced to Cortes the
This case is about the rescinding of the contract of sale entered into by total sum of P1,213,000.00. Sometime in September 1983, the
petitioner and private respondent. The contract of sale over the lots located parties executed a deed of absolute sale containing the following
at Baclaran, Paranaque, Metro Manila have a purchase price of terms:
P3,700,000.00. The Corporation advanced the sum of P1,213,000.000 and 1. Upon execution of this instrument, the Vendee shall pay unto
in September 1983, the parties executed a deed of absolute sale containing the Vendor sum of TWO MILLION AND TWO HUNDRED
the following terms: (1) the vendee shall pay the vendor 2,200,000.00 pesos THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less
minus the advancements made in connection with the sale, and (2) all advances paid by the Vendee to the Vendor in connection with
the sale;
1,500,000.00 pesos shall be payable within one year from date of execution
2. The balance of ONE MILLION AND FIVE HUNDRED
of this instrument. On January 14, 1985, the Corporation filed the instant THOUSAND [P1,500,000.00] PESOS, Phil. Currency shall be
case for specific performance seeking to compel Cortes to deliver the TCTs payable within ONE (1) YEAR from date of execution of this
and the original copy of the Deed of Absolute Sale, because Cortes refused instrument, payment of which shall be secured by an irrevocable
to deliver said documents, despite the respondent’s readiness to pay. standby letter of credit to be issued by any reputable local banking
In Cortes claimed that the Corporation were already given a duplicate institution acceptable to the Vendor.
xxx
copy of the three TCTs and it is the respondent that refuses to pay the
4. All expense for the registration of this document with the
agreed down payment. Moreover, the subject property is occupied by his Register of Deeds concerned, including the transfer tax, shall be
lessee who agreed to vacate the premises upon payment of disturbance fee, divided equally between the Vendor and the Vendee. Payment of
however, the Corporation’s failure to pay he also failed to pay the the capital gains shall be exclusively for the account of the Vendor;
disturbance fee leading to the lessee refusing to pay the monthly rentals. 5% commission of Marcosa Sanchez to be deducted upon signing
The trial court rescinded the sale and directed Cortes to return the of sale.
advanced sum paid to him plus interest, ruling that the Corporation should • The Corporation filed the instant case for specific performance
have fully paid the amount of P2,200,000.00 upon the execution of the seeking to compel Cortes to deliver the TCTs and the original copy
contract. But the Court of appeals reversed the decision finding that the of the Deed of Absolute Sale. According to the Corporation,
parties agreed that the Corporation will fully pay the balance of the down despite its readiness and ability to pay the purchase price, Cortes
payment upon Cortes' delivery of the three TCTs to the Corporation. No refused delivery of the sought documents.
delivery was made; hence the Corporation was justified for not paying the • Cortes claimed that the owner's duplicate copy of the three TCTs
balance. were surrendered to the Corporation and it is the latter which
Since Cortes did not perform his part, the provision of the contract
refused to pay in full the agreed down payment. He added that
requiring the Corporation to pay in full the down payment never acquired
obligatory force. The SC affirmed the decision of the appellate court and portion of the subject property is occupied by his lessee who
ordered the parties to fulfill the promised obligations; to deliver the agreed to vacate the premises upon payment of disturbance fee.
necessary documents to the Corporation and for the latter to pay in full. However, due to the Corporation's failure to pay in full the sum of
P2,200,000.00, he in turn failed to fully pay the disturbance fee of
II. Facts of the Case the lessee who now refused to pay monthly rentals. He thus prayed
• With a purchase price of P3,700,000.00, the Corporation as buyer, that the Corporation be ordered to pay the outstanding balance plus
and Cortes as seller, entered into a contract of sale over the lot at interest and in the alternative, to cancel the sale and forfeit the
Baclaran, Paranaque, Metro Manila. P1,213,000.00 partial down payment, with damages in either case.
Trial Court
1
Oblicon (2020) PETITIONER: Antonio R. Cortes
DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Court of Appeals Villa Esperanza Development Corporation
Trial court rendered a decision rescinding the sale and directed IV. Holding/s
Cortes to return to the Corporation the amount of P1,213,000.00, plus The settled rule is that the decisive factor in evaluating an agreement is
interest. It ruled that pursuant to the contract of the parties, the Corporation the intention of the parties, as shown not necessarily by the terminology
should have fully paid the amount of P2,200,000.00 upon the execution of used in the contract but by their conduct, words, actions and deeds prior to,
the contract. It stressed that such is the law between the parties because the during and immediately after executing the agreement.
Corporation failed to present evidence that there was another agreement that Hence, both parties were in delay. Considering that their obligation
modified the terms of payment as stated in the contract. And, having failed was reciprocal, performance thereof must be simultaneous. The mutual
to pay in full the amount of P2,200,000.00 despite Cortes' delivery of the inaction of Cortes and the Corporation therefore gave rise to a
Deed of Absolute Sale and the TCTs, rescission of the contract is proper. compensation morae or default on the part of both parties because neither
has completed their part in their reciprocal obligation. Cortes is yet to
Court of Appeals deliver the original copy of the notarized Deed and the TCTs, while the
The Court of Appeals reversed the decision of the trial court and Corporation is yet to pay in full the agreed down payment of P2,200,000.00.
directed Cortes to execute a Deed of Absolute Sale conveying the properties This mutual delay of the parties cancels out the effects of default, such no
and to deliver the same to the Corporation together with the TCTs, one is guilty of delay.
simultaneous with the Corporation's payment of the balance of the purchase
price of P2,487,000.00.The records show that no such delivery was made, V. Law or Doctrine Applied
hence, the Corporation was not remiss in the performance of its obligation ARTICLE 1169 of the CIVIL CODE –
and therefore justified in not paying the balance. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of
Supreme Court their obligation.
We find no merit in Cortes' contention that the failure of the
Corporation to act on the proposed settlement at the pre-trial must be
delay may exist:
construed against the latter. Under Article 1169 of the Civil Code, from the
moment one of the parties fulfills his obligation, delay by the other begins. (1) When the obligation or the law expressly so declare; or
Since Cortes did not perform his part, the provision of the contract requiring
the Corporation to pay in full the down payment never acquired obligatory (2) When from the nature and the circumstances of the obligation it appears
force. Moreover, the Corporation could not be faulted for not automatically that the designation of the time when the thing is to be delivered or the
heeding to the offer of Cortes. service is to be rendered was a controlling motive for the establishment of
the contract; or
III. Issue/s
W/N there is delay in the performance of the parties' obligation (3) When demand would be useless, as when the obligor has rendered it
that would justify the rescission of the contract of sale. beyond his power to perform.
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
2
ARTICLE 1191 of the CIVIL CODE –

The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
Reciprocal Obligations defined –

Reciprocal obligations are those which arise from the same cause, and
which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to
be performed simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other.
VI. Disposition
WHEREFORE, the petition is DENIED and the June 13, 1996
Decision of the Court of Appeals in CA-G.R. CV No. 47856, is
AFFIRMED.
VII. Random Facts

• Ponente: Ynares-Santiago, J
• Transfer Certificate of Title No.: 31113-A, 31913-A, and 32013-A.
3
G.R. No. L-47851 | October 3, 1986 Article 1174
Nakpil and Sons vs. CA Nakpil and Sons vs. CA

This consolidated case is about the office of Philippine Bar Association Plaintiff-appellant Philippine Bar Association (PBA) constructed an
in Intramuros, Manila. In constructing the building, they hired the services office building on its 840 square meters lot located in Intramuros, Manila.
of Juan F. Nakpil & Sons and Juan F. Nakpil for the plans, specifications For the plans, specifications and design, PBA contracted the services of
and design and hired United Construction Company, Inc. for the third-party defendants-appellants Juan F. Nakpil & Sons and Juan F. Nakpil
construction of the building. (NAKPILS). For the construction of the building, PBA contracted the
On August 2, 1968, a strong earthquake hit Manila causing major services of United Construction Company, Inc. (UNITED) on an
damages to said office which resulted the building to tilt forward. United administration basis. The building was completed in June 1966.
shored the building at the expense of P13, 661.28. On November 29, 1968, On August 2, 1968, an unusually strong earthquake hit Manila. The
PBA filed the action for recovery of damages from both NAKPILS and building sustained major damages which resulted the building to tilt
UNITED claiming that the collapse of the building was caused by the forward. As a temporary remedial measure, the building was shored up by
defects in the construction. UCCI at the expense of P13,661.28
Based on the findings of the Commissioner, it was revealed that the On November 29, 1968, PBA filed this action for recovery of damages
damage sustained by PBA was caused directly by the earthquake (estimated against UCCI and its President and General Manager Juan J. Carlos,
7.3 magnitude) which was aggravated by the defects in the plans and claiming that the collapse of the building was caused by defects in the
specifications as well as failure of the contractors to observe the requisite construction. UNITED, in turn, filed a third-party complaint against the
workmanship in the construction of the building. NAKPILS, alleging in essence that the collapse of the building was due to
The trial court and the CA ruled in favor of PBA in stating that both the defects in the architects’ plans, specifications and design. Roman
United and Nakpil are liable for damages. Ozaeta, the then President of PBA, was included as a third-party defendant
The issue related to our topic is whether or not whether or not an act of for damages for having included Juan J. Carlos, President of UNITED as
God-an unusually strong earthquake-which caused the failure of the party defendant.
building, exempts from liability, parties who are otherwise liable because of PBA moved twice for the demolition of the building on the ground that
their negligence. it may topple down in case of a strong earthquake. The motions were
The Court held that No, it does not exempt the parties from liability. It opposed by the defendants and the matter was referred to the Commissioner.
ruled that at the case at bar, the obligors did not meet the requisites to be Finally, on April 30, 1979, the building was authorized to be demolished at
exempted from liability as stated in Article 1174. Moreover, the Court the expense of PBA, but not before another earthquake of high intensity on
concurred with the findings of the Commissioner and upheld that UNITED April 7, 1970 followed by other strong earthquakes on April 9 and 12, 1970,
was found to have made substantial deviations from the plans and caused further damage to the property. The actual demolition was
specifications and to have failed to observe the requisite workmanship in the undertaken by the buyer of the damaged building.
construction as well as to exercise the requisite degree of supervision; while The Commissioner submitted his report on September 25, 1970 with
the NAKPILS were found to have inadequacies or defects in the plans and the findings that while the damage sustained by the PBA building was
specifications prepared by them. caused directly by the August 2, 1968 earthquake whose magnitude was
The Court upheld the decision of the trial court in holding UNITED and estimated at 7.3 they were also caused by the defects in the plans and
NAKPILS liable for damages but modified the amount of damages to be specifications prepared by the third-party defendants' architects, deviations
awarded to PBA. from said plans and specifications by the defendant contractors and failure
of the latter to observe the requisite workmanship in the construction of the
Obligations and Contracts (2019) PETITIONER: Nakpil and Sons 1
DIGEST AUTHOR: Leslie Castillo RESPONDENT: Court of Appeals, United Construction Company, Inc., Juan
J. Carlos, and The Philippine Bar Association
building and of the contractors, architects and even the owners to exercise It is reasonable to conclude, therefore, that the proven defects, deficiencies
the requisite degree of supervision in the construction of subject building. and violations of the plans and specifications of the PBA building
The trial court decided to make United Construction and Juan F. Nakpil contributed to the damages which resulted during the earthquake of August
& Sons liable for the damages. The CA affirmed the decision but lowered 2, 1968 and the vice of these defects and deficiencies is that they not only
the award of damages. Hence, this consolidated petition. increase but also aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not only tend to add
III. Issue/s but also to multiply the effects of the shortcomings in the design of the
1. W/N an act of God-an unusually strong earthquake-which caused building. We may say, therefore, that the defects and deficiencies in the
the failure of the building, exempts from liability, parties who are construction contributed greatly to the damage which occurred.
otherwise liable because of their negligence? No.
2. W/N the lower courts ruled correctly in ruling the amount of damages 2. NO, the Court modified it.
to be awarded to PBA? No. The evidence sufficiently supports a conclusion that the negligence and
fault of both United and Nakpil and Sons, not a mysterious act of an
IV. Holding/s inscrutable God, were responsible for the damages. The PBA in its brief
1. NO, it does not exempt the parties from liability. Court held that insists that the proper award should be P1,830,000.00 representing the total
herein petitioners cannot be exempted from liability. value of the building, while both the NAKPILS and UNITED question the
Article 1174 is of no application to the case at bar. To exempt the additional award of P200,000.00 in favor of the PBA. The PBA further
obligor from liability under Article 1174 of the Civil Code, for a breach of urges that the unrealized rental income awarded to it should not be limited
an obligation due to an "act of God," the following must concur: (a) the to a period of one-half year but should be computed on a continuing basis at
cause of the breach of the obligation must be independent of the will of the the rate of P178,671.76 a year until the judgment for the principal amount
debtor; (b) the event must be either unforeseeable or unavoidable; (c) the shall have been satisfied. The Court declared the amount of liability in the
event must be such as to render it impossible for the debtor to fulfill his dispositive part of this case.
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 Court V. Law or Doctrine Applied
concurs with the findings of the Commissioner on the technical issues and
fails to find any sufficient cause to disregard or modify the same. It held that ARTICLE 1723, NEW CIVIL CODE
the negligence of the defendant and the third-party defendants petitioners The engineer or architect who drew up the plans and specifications for a
was established beyond dispute both in the lower court and in the building is liable for damages if within fifteen years from the completion of
Intermediate Appellate Court. the structure the same should collapse by reason of a defect in those plans
UNITED was found to have made substantial deviations from the and specifications, or due to the defects in the ground. The contractor is
plans and specifications and to have failed to observe the requisite likewise responsible for the damage if the edifice fags within the same
workmanship in the construction as well as to exercise the requisite degree period on account of defects in the construction or the use of materials of
of supervision; while the NAKPILS were found to have inadequacies or inferior quality furnished by him, or due to any violation of the terms of the
defects in the plans and specifications prepared by them. 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 entering into the cause of the mischief. When the effect, the cause
of the causes of action by reason of any defect mentioned in the preceding of which is to be considered, is found to be in part the result of the
paragraph. participation of man, whether it be from active intervention or
The action must be brought within ten years following the collapse of the neglect, or failure to act, the whole occurrence is thereby
building. humanized, as it were, and removed from the rules applicable to
the acts of God.
ARTICLE 1174, NEW CIVIL CODE • If upon the happening of a fortuitous event or an act of God, there
Except in cases expressly specified by law, or when it is otherwise declared concurs a corresponding fraud, negligence, delay or violation or
by stipulation, or when the nature of the obligation requires the assumption contravention in any manner of the tenor of the obligation as
of risk, no person shall be responsible for events which could not be provided for in Article 1170 of the Civil Code, which results in loss
foreseen or which though foreseen, were inevitable. or damage, the obligor cannot escape liability.
VI. Disposition VII. Random Facts

WHEREFORE, the decision appealed from is hereby MODIFIED and • Ponente: Paras, J.
considering the special and environmental circumstances of this case, We • G.R. No. L-47851 October 3, 1986 - JUAN F. NAKPIL & SONS,
deem it reasonable to render a decision imposing, as We do hereby impose, and JUAN F. NAKPIL, petitioners, vs. THE COURT OF
upon the defendant and the third-party defendants (with the exception of APPEALS, UNITED CONSTRUCTION COMPANY, INC.,
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity JUAN J. CARLOS, and the PHILIPPINE BAR
in favor of the Philippine Bar Association of FIVE MILLION ASSOCIATION, respondents.
(P5,000,000.00) Pesos to cover all damages (with the exception of attorney's • G.R. No. L-47863 October 3, 1986 - THE UNITED
fees) occasioned by the loss of the building (including interest charges and CONSTRUCTION CO., INC., petitioner,
lost rentals) and an additional ONE HUNDRED THOUSAND vs. COURT OF APPEALS, ET AL., respondents.
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable • G.R. No. L-47896 October 3, 1986 - PHILIPPINE BAR
upon the finality of this decision. Upon failure to pay on such finality, ASSOCIATION, ET AL., petitioners, vs. COURT OF APPEALS,
twelve (12%) per cent interest per annum shall be imposed upon afore- ET AL., respondents.
mentioned amounts from finality until paid. Solidary costs against the
defendant and third-party defendants (except Roman Ozaeta).

• An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention, which by
no amount of foresight, pains or care, reasonably to have been
expected, could have been prevented.
• 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
G.R. No. L-47851 | April 15, 1988 Article 1175
Nakpil and Sons vs. CA (MR) Nakpil and Sons vs. CA (MR)

This is a motion for reconsideration of the October 3, 1986 decision of This is a motion for reconsideration of the October 3, 1986 decision of
this Court, filed by the United Construction Co., Inc. The case of October 3, this Court, filed by the United Construction Co., Inc.,
1986 is about the office of Philippine Bar Association in Intramuros, Plaintiff-appellant Philippine Bar Association (PBA) constructed an
Manila. In constructing the building, they hired the services of Juan F. office building on its 840 square meters lot located in Intramuros, Manila.
Nakpil & Sons and Juan F. Nakpil for the plans, specifications and design For the plans, specifications and design, PBA contracted the services of
and hired United Construction Company, Inc. for the construction of the third-party defendants-appellants Juan F. Nakpil & Sons and Juan F. Nakpil
building. (NAKPILS). For the construction of the building, PBA contracted the
On August 2, 1968, a strong earthquake hit Manila causing major services of United Construction Company, Inc. (UNITED) on an
damages to said office which resulted the building to tilt forward. United administration basis. The building was completed in June 1966.
shored the building at the expense of P13, 661.28. On November 29, 1968, On August 2, 1968, a strong earthquake hit Manila causing major
PBA filed the action for recovery of damages from both NAKPILS and damages to said office which resulted the building to tilt forward. United
UNITED claiming that the collapse of the building was caused by the shored the building at the expense of P13, 661.28. On November 29, 1968,
defects in the construction. PBA filed the action for recovery of damages from both NAKPILS and
Based on the findings of the Commissioner, it was revealed that the UNITED claiming that the collapse of the building was caused by the
damage sustained by PBA was caused directly by the earthquake (estimated defects in the construction.
7.3 magnitude) which was aggravated by the defects in the plans and Based on the findings of the Commissioner, it was revealed that the
specifications as well as failure of the contractors to observe the requisite damage sustained by PBA was caused directly by the earthquake (estimated
workmanship in the construction of the building. 7.3 magnitude) which was aggravated by the defects in the plans and
The trial court, the CA and the Court in its October 3, 1986 decision specifications as well as failure of the contractors to observe the requisite
ruled in favor of PBA in stating that both United and Nakpil are liable for workmanship in the construction of the building.
damages. After the protracted hearings, the Commissioner eventually submitted
In this motion for reconsideration, the issue related to our topic is W/N his report on September 25, 1970 with the findings that while the damage
the interest of twelve per cent (12%) per annum imposed on the total sustained by the PBA building was caused directly by the August 2, 1968
amount of the monetary award is in contravention of law. earthquake whose magnitude was estimated at 7.3 they were also caused by
The Court held that it is not applicable in the instant case as it will be the defects in the plans and specifications prepared by the third-party
noted that in the cases already adverted to, the rate of interest is imposed on defendants' architects, deviations from said plans and specifications by the
the total sum, from the filing of the complaint until paid; in other words, as defendant contractors and failure of the latter to observe the requisite
part of the judgment for damages. workmanship in the construction of the building and of the contractors,
Another issue related to our topic is whether or not PBA must bear architects and even the owners to exercise the requisite degree of
and/or share in any liability for damages in the premises has no legal or supervision in the construction of subject building.
contractual basis. Court held that no because UNITED failed to present any The TC decided to make United Construction and Juan F. Nakpil &
provision of law and insisted on the inherent legal duty of owner only. Sons liable for the damages. The CA affirmed the decision but lowered the
award of damages. On the October 3, 1986 Court decision, it awarded P5,
000, 000 as damages and P100, 000 as attorney’s fees. Upon failure to pay

on such finality, twelve (12%) per cent interest per annum shall be imposed being imposed provided the sums referred to in the judgment are paid upon
upon afore-mentioned amounts from finality until paid. the finality of the judgment. It is delay in the payment of such final
On December 24, 1986, UNITED filed a Motion for Reconsideration. judgment, that will cause the imposition of the interest. It will be noted that
On the other hand, on January 16, 1987, the NAKPILS filed a Motion to in the cases already adverted to, the rate of interest is imposed on the total
Refer Case to Supreme Court En Banc and for Reconsideration of aforesaid sum, from the filing of the complaint until paid; in other words, as part of
decision. the judgment for damages. Clearly, they are not applicable to the instant
On February 11, 1987, UNITED filed a Manifestation that it is joining case.
the NAKPILS in regard to their prayer to refer the present case to the Court 2. NO, the trial court did not err in holding that charging the owner
En Banc. The Second Division of this Court, in a Resolution dated April 1, with full time supervision of the construction has no legal or
1987 denied the NAKPILS' Motion for Reconsideration. contractual basis.
Of all the issues presented in this motion for reconsideration, the issues UNITED failed to cite any provision of law to support its argument that
related to our topic is W/N the interest of twelve per cent (12%) per annum PBA should provide full-time and active supervision in the construction of
imposed on the total amount of the monetary award is in contravention of subject building. UNITED purely insisted on inherent legal duty of owner,
law and W/N the trial court in holding that PBA (owner) must bear and/or reinforced by practice, usage and custom, to exercise such supervision. The
share in any liability for damages in the premises has no legal or contractual Court held that UNITED is contradicting its own view given that PBA hired
basis. services of architects and engineers whose training involves highly technical
matters.
III. Issue/s
1. W/N the interest of twelve per cent (12%) per annum imposed V. Law or Doctrine Applied
on the total amount of the monetary award is in contravention Central Bank Circular No. 416 (passed pursuant to the authority
of law? NO. granted to the Central Bank by P.D. No. 116 which amended Act No. 2655,
otherwise known as the Usury Law) is applicable only in the following: (1)
2. W/N the trial court in holding that PBA (owner) must bear loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in
and/or share in any liability for damages in the premises has no judgments (judgments spoken of refer to judgments involving loans or
legal or contractual basis? NO. forbearance of any money, goods or credits).
VI. Disposition
IV. Holding/s
PREMISES CONSIDERED, UNITED's motion for reconsideration is
1. NO, it is not contravening the law. hereby DENIED; the NAKPILS' motion for leave to file second motion for
There should be no dispute that the imposition of 12% interest pursuant to
reconsideration is also DENIED, the latters' first motion on the same
Central Bank Circular No. 416 (passed pursuant to the authority granted to
grounds having been already denied with finality in the resolution of April
the Central Bank by P.D. No. 116 which amended Act No. 2655, otherwise 3, 1987. Needless to say, the Motion to Refer this case to the Court En Banc
known as the Usury Law) is applicable only in the following: (1) loans; (2) is DENIED, in view of all the things stated in this Resolution.
forbearance of any money, goods or credit; and (3) rate allowed in
judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits). It is true that in the instant
case, there is neither a loan nor a forbearance, but then no interest is actually

• N/A
VII. Random Facts

• Ponente: Paras, J.
• [G.R. No. L-47851. April 15, 1988.] JUAN F. NAKPIL & SONS
and JUAN F. NAKPIL , petitioners, vs. THE COURT
• OF APPEALS, UNITED CONSTRUCTION COMPANY, INC.,
JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION,
respondents.
• [G.R. No. L-47863. April 15, 1988.] THE UNITED
CONSTRUCTION CO., INC. and JUAN J. CARLOS , petitioners,
• vs. THE COURT OF APPEALS, THE PHILIPPINE BAR
ASSOCIATION, JUAN F. NAKPIL & SONS, and JUAN F.
NAKPIL, respondents.
• [G.R. No. L-47896. April 15, 1988.] PHILIPPINE BAR
ASSOCIATION , petitioner, vs. THE COURT OF APPEALS,
• UNITED CONSTRUCTION COMPANY, INC., and JUAN J.
CARLOS, and JUAN F. NAKPIL & SONS and JUAN F.
NAKPIL, respondents.

G.R. No. 118664 Nature and Effect of Obligation
Japan Airlines v. CA, et al Japan Airlines v. CA, et al
I. Recit-ready Summary indefinitely. To accommodate the needs of its stranded passengers, JAL
rebooked all the Manila-bound passengers on a flight due to depart on
June 16, 1991. JAL also paid for the hotel expenses for their unexpected
Private respondents filed an action for damages against JAL, asserting that overnight stay. However, on June 16, 1991, much to the dismay of the
JAL failed in its obligation to provide care and comfort to its stranded private respondents, their flight was again cancelled still due to the
passengers when it refused to pay for their hotel and accommodation indefinite closure of NAIA. At that point, JAL informed the private
expenses from June 16 to 21, 1991 at Narita, Japan. JAL, on the other respondents that it would no longer defray their hotel and accommodation
hand, averred that airline passengers have no vested right to these expense during their stay in Narita. NAIA was only reopened to airline
amenities in case a flight is cancelled due to "force majeure." traffic on June 22, 1991. Hence, private respondents were forced to pay for
their own accommodation and meal expenses from June 16 to 21, 1991.
The RTC rendered its judgment in favor of private respondents, holding JAL
liable for actual, moral, and exemplary damages and attorney's fees. JAL Private respondents filed an action for damages against JAL, asserting that
appealed the decision before the CA, which affirmed the trial court JAL failed to live up to its duty to provide care and comfort to its stranded
decision. Hence, the instant petition. passengers when it refused to pay for their hotel and accommodation
expenses from June 16 to 21, 1991 at Narita, Japan, when JAL was
The SC ruled in favor of petitioner JAL, stating that common carriers may obligated to shoulder their expenses as long as they were still stranded in
not be held responsible for all injuries or damages if the same were caused Narita.
by a fortuitous event. Nevertheless, the Court held JAL liable for nominal
damages for its failure to book for its transit passengers the earliest flight JAL denied respondents' allegation and averred that airline passengers
to Manila. have no vested right to these amenities in case a flight is cancelled due to
"force majeure."
The RTC rendered its judgment in favor of private respondents, holding JAL
On June 13, 1991, private respondents boarded two JAL flights in California liable for damages (actual, moral, exemplary damages + attorney's fees).
bound for Manila. Their flights were to make an overnight stopover at JAL appealed the decision before the CA, which affirmed the trial court
Narita, Japan, at the airlines' expense. Unfortunately, the Mt. Pinatubo decision, only lowering the damages. JAL filed a motion for
eruption caused unrelenting ashfall which blanketed Ninoy Aquino reconsideration which, however, proved futile and unavailing. Hence, the
International Airport (NAIA), rendering it inaccessible to airline traffic. instant petition.
Consequently, private respondents' trip to Manila was cancelled
1
Block B 2023 PETITIONER/APPELLANT: Japan Airlines
DIGEST AUTHOR: Regina Alzaga RESPONDENT: Court of Appeals, Enrique Agana, Maria Angela Nina Agana,
Adalia Francisco, and Jose Miranda
part to meet the standards of care and diligence. However, common

III. Issue/s carriers may not be held responsible for all injuries or damages if the same
were caused by a fortuitous event.
W/N JAL, as a common carrier, has the obligation to shoulder the hotel In ruling in favor of the private respondents, the lower courts relied on the
and meal expenses of its stranded passengers until they have reached Court's decision in PAL v. Court of Appeals. However, such reliance is
their final destination, even if the delay were caused by "force majeure." misplaced, as the factual background of the PAL case is different from that
of the instant petition. In the earlier case, the fortuitous event was
worsened by the neglect and malfeasance by the carrier's employees,
IV. Holding/s hence an action for damages against PAL was permissible.
Nevertheless, the Court does not completely absolve petitioner JAL from
There is no contention that what caused the delay can be considered as
any liability. JAL failed in its obligation to look after the comfort and
"force majeure" since their delayed arrival in Manila was not imputable to
convenience of its passengers when it declassified private respondents
JAL.
from "transit passengers" to "new passengers," as a result of which private
respondents were placed on a waiting list from June 20 to June 24, further
However, private respondents contend that while JAL cannot be held
delaying their travel. After all, JAL had the duty to make the necessary
responsible for the delayed arrival in Manila, it was nevertheless liable for
arrangements to transport private respondents on the first available
their living expenses during their unexpected stay in Narita since airlines
connecting flight to Manila, the destination they originally booked.
have the obligation to ensure the comfort and convenience of its
Consequently, the award of nominal damages is in order.
passengers.
The Court does not agree. Law or Doctrine Applied
It is true that a contract to transport passengers is imbued with public Article 1174. Except in cases expressly specified by the law, or when it is
interest, hence a common carrier may be rendered liable for any damages otherwise declared by stipulation, or when the nature of the obligation
that may be sustained by its passengers should there be any failure on its requires the assumption of risk, no person shall be responsible for those
events which, could not be foreseen, or which, though foreseen, were

inevitable.
VII. Random Facts
V. Disposition
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals

dated December 22, 1993 is hereby MODIFIED. The award of actual moral
and exemplary damages is hereby DELETED. Petitioner JAL is ordered to
pay each of the private respondents nominal damages in the sum of
P100,000.00 each including attorney’s fees of P50,000.00 plus costs.
Separate Opinions
N/A
Ponente: Romero, J.
The Court may award nominal damages in every obligation arising

from any source enumerated in Article 1157, or in every case
where any property right has been evaded.
G.R. No. 147324 | May 25, 2004 Fortuitous Event
PhilComSat v Globe Telecom PhilComSat v Globe Telecom
I. Recit-ready Summary forces and personnel from Cubi Point constitute force majeure and exempt
Globe contracted with local service provider, Philcomsat, for the Globe from complying with its obligation for the remainder of the tern of
provision of the communication facilities (earth station), for the exclusive use Agreement.
of US Defence Communications Agency in the military bases of the US in Article 1174, which exempts an obligor from liability on account of
Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, fortuitous events or force majeure, refers not only to events that are
Zambales. The term of the contract was for five (5) years. In turn, Globe unforeseeable, but also to those which are foreseeable, but inevitable.
promised to pay Philcomsat monthly rentals for each leased circuit involved. Philcomsat and Globe agreed in Section 8 of the Agreement of the
On September 1991, The Senate passed and adopted Senate Resolution events which shall constitute force majeure. There is nothing in the
No. 141, expressing its decision not to concur in the ratification of the Treaty enumeration that runs contrary to, or expands, the concept of a fortuitous
of Friendship, Cooperation and Security and its Supplementary Agreements event under Article 1174. Not being contrary to law, morals, good customs,
that was supposed to extend the term of the use by the US of Subic Naval public order, or public policy, Section 8 of the Agreement which Philcomsat
Base. and Globe freely agreed upon has the force of law between them.
The Philippine Government sent a Note Verbale to the US Government
through the US Embassy, notifying it of the Philippines' termination of the II. Facts of the Case
RPUS Military Bases Agreement on 31 December 1991, the withdrawal of Globe Telecom, Inc. (Globe), had been engaged in the coordination of the
all US military forces from Subic Naval Base should be completed by said provision of various communication facilities for the military bases of the
date. United States of America (US) in Clark Air Base, Angeles, Pampanga and
Globe notified Philcomsat of its intention to discontinue the use of the Subic Naval Base in Cubi Point, Zambales. The said communication facilities
earth station effective 08 November 1992 in view of the termination of the were installed and configured for the exclusive use of the US Defense
RPUS Military Bases Agreement. Globe invoked as basis for the letter of Communications Agency (USDCA) operated only by its personnel or those
termination Section 8 (Default) of the Agreement (see facts). of American companies contracted by it. Said American companies, in turn,
Meanwhile, Philcomsat referred to Section 7 (Discontinuance of contracted with Globe. Globe, on the other hand, contracted with local service
Service) of the Agreement (see facts). provider, Philippine Communications Satellite Corporation (Philcomsat).
Philcomsat and sent a reply to Globe, stating that: "We expect [Globe] On May 1991, Philcomsat and Globe entered into an Agreement whereby
to know its commitment to pay the stipulated rentals for the remaining Philcomsat obligated itself to operate and provide an IBS Standard B earth
terms of the Agreement even after [Globe] shall have discontinue[d] the use station (earth station). The term of the contract was for five (5) years. In
of the earth station after November 08, 1992." turn, Globe promised to pay Philcomsat monthly rentals for each leased
Philcomsat demanded the payment of its outstanding obligations under circuit involved.
the Agreement amounting to US$4,910,136.00 plus interest and attorney's Both parties knew that the Military Bases Agreement between the
fees. Furthermore, Philcomsat argues that the termination of the RP-US Republic of the Philippines and the US (RP-US Military Bases Agreement),
Military Bases Agreement cannot be considered a fortuitous event because which was the basis for the occupancy of the Clark Air Base and Subic Naval
the happening thereof was foreseeable. Base in Cubi Point, was to expire in 1991. Philcomsat installed and
The Court affirmed the decision of the CA and held that the termination established the earth station at Cubi Point and the USDCA made use of the
of the RP-US Military Bases Agreement, the non-ratification of the Treaty of same.
Friendship, Cooperation and Security, and the withdrawal of US military
Obligations and Contracts (2020) PETITIONER/APPELLANT: Philippine Communications Satellite Corporation
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Globe Telecom, Inc

On September 1991, The Senate passed and adopted Senate Resolution earth station after November 08, 1992." Philcomsat demanded the payment
No. 141, expressing its decision not to concur in the ratification of the Treaty of its outstanding obligations under the Agreement amounting to
of Friendship, Cooperation and Security and its Supplementary Agreements US$4,910,136.00 plus interest and attorney's fees. Moreover, Philcomsat
that was supposed to extend the term of the use by the US of Subic Naval argues that the termination of the RP-US Military Bases Agreement cannot
Base be considered a fortuitous event because the happening thereof was
The Philippine Government sent a Note Verbale to the US Government foreseeable.
through the US Embassy, notifying it of the Philippines' termination of the
RPUS Military Bases Agreement on 31 December 1991, the withdrawal of III. Issue/s
all US military forces from Subic Naval Base should be completed by said 1. W/N, the termination of the RP-US Military Bases Agreement, the
date. Globe notified Philcomsat of its intention to discontinue the use of the non-ratification of the Treaty of Friendship, Cooperation and
earth station effective 08 November 1992 in view of the termination of the Security, and the withdrawal of US military forces and personnel
RPUS Military Bases Agreement. from Cubi Point constitute force majeure which would exempt
Globe invoked as basis for the letter of termination Section 8 (Default) of Globe from complying with its obligation under its Agreement with
the Agreement: Philcomsat? YES.
Neither party shall be held liable or deemed to be in default for any failure 2. W/N Globe is liable to pay rentals under the Agreement for the
to perform its obligation under this Agreement if such failure results directly or
month of December 1992? YES.
indirectly from force majeure or fortuitous event. Either party is thus precluded
from performing its obligation until such force majeure or fortuitous event shall 3. W/N Philcomsat is entitled to attorney's fees and exemplary
terminate. For the purpose of this paragraph, force majeure shall mean damages? NO.
circumstances beyond the control of the party involved including, but not limited
to, any law, order, regulation, direction or request of the Government of the
IV. Holding/s
Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other 1. Yes, the termination of the RP-US Military Bases Agreement, the
catastrophies or acts of God. non-ratification of the Treaty of Friendship, Cooperation and
Meanwhile, Philcomsat referred to Section 7 (Discontinuance of Service) Security, and the withdrawal of US military forces and personnel
of the Agreement: from Cubi Point constitute force majeure and exempt Globe from
Should [Globe] decide to discontinue with the use of the earth station after complying with its obligation for the remainder of the term of
it has been put into operation, a written notice shall be served to PHILCOMSAT
Agreement.
at least sixty (60) days prior to the expected date of termination. Notwithstanding
the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT Article 1174, which exempts an obligor from liability on account of
for the rental of the actual number of T1 circuits in use, but in no case shall be fortuitous events or force majeure, refers not only to events that are
less than the first two (2) T1 circuits, for the remaining life of the agreement. unforeseeable, but also to those which are foreseeable, but inevitable. A
However, should PHILCOMSAT make use or sell the earth station subject to
fortuitous event may either be an "act of God," or natural occurrences such
this agreement, the obligation of [Globe] to pay the rental for the remaining life
of the agreement shall be at such monthly rate as may be agreed upon by the as floods or typhoons, or an "act of man," such as riots, strikes or wars.
parties. Philcomsat and Globe agreed in Section 8 of the Agreement of the
Philcomsat sent a reply to Globe, stating that "we expect [Globe] to events which shall constitute force majeure. There is nothing in the
know its commitment to pay the stipulated rentals for the remaining terms of enumeration that runs contrary to, or expands, the concept of a fortuitous
the Agreement even after [Globe] shall have discontinue[d] the use of the event under Article 1174. Not being contrary to law, morals, good

customs, public order, or public policy, Section 8 of the Agreement which The award of attorney's fees is the exception rather than the rule, and
Philcomsat and Globe freely agreed upon has the force of law between must be supported by factual, legal and equitable justifications. In previously
them. decided cases, the Court awarded attorney's fees where a party acted in gross
In order that Globe may be exempt from non-compliance with its and evident bad faith in refusing to satisfy the other party's claims and
obligation to pay rentals under Section 8, the concurrence of the following compelled the former to litigate to protect his rights; when the action filed is
elements must be established: clearly unfounded, or where moral or exemplary damages are awarded. 39
(1) the event must be independent of the human will; However, in cases where both parties have legitimate claims against each
(2) the occurrence must render it impossible for the debtor to fulfill other and no party prevailed, such as in the present case where the claims of
the obligation in a normal manner; and both parties were sustained in part, an award of attorney's fees would not be
(3) the obligor must be free of participation in, or aggravation of, warranted.
the injury to the creditor. Exemplary damages may be awarded in cases involving contracts or
Philcomsat and Globe had no control over the non-renewal of the term of the quasicontracts, if the erring party acted in a wanton, fraudulent, reckless,
RP-US Military Bases Agreement when the same expired in 1991, because oppressive or malevolent manner. In the present case, it was not shown that
the prerogative to ratify the treaty extending the life thereof belonged to the Globe acted wantonly or oppressively in not heeding Philcomsat's demands
Senate. Neither did the parties have control over the subsequent withdrawal for payment of rentals. It was established during the trial of the case before
of the US military forces and personnel from Cubi Point in December 1992. the trial court that Globe had valid grounds for refusing to comply with its
These events made impossible the continuation of the Agreement until the contractual obligations after 1992.
end of its five-year term without fault on the part of either party.
2. Yes, Globe is liable to pay rentals under the Agreement for the
month of December 1992. SECTION 8, OF THE AGREEMENT
Globe alleged that it terminated the Agreement with Philcomsat effective 1. Any law, order, regulation, direction or request of the Philippine
08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the 2. Government;
US Navy, the date when they actually ceased using the earth station subject 3. Strikes or other labor difficulties;
4. Insurrection;
of the Agreement was not established during the trial. However, the trial court
5. Riots;
found that the US military forces and personnel completely withdrew from
6. National emergencies;
Cubi Point only on 31 December 1992. Thus, until that date, the USDCA had 7. War;
control over the earth station and had the option of using the same. 8. Acts of public enemies;
Furthermore, Philcomsat could not have removed or rendered ineffective said 9. Fire, floods, typhoons or other catastrophies or acts of God;
communication facility until after 31 December 1992 because Cubi Point was 10. Other circumstances beyond the control of the parties.
accessible only to US naval personnel up to that time. Hence, Globe is liable
for payment of rentals until December 1992. SECTION 25, ARTICLE XVIII OF THE 1987 Constitution
Foreign military bases, troops or facilities, which include those located at the
3. No, Philcomsat is not entitled to attorney's fees and exemplary US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless
damages. a new treaty is duly concurred in by the Senate and ratified by a majority of

the votes cast by the people in a national referendum when the Congress so
requires, and such new treaty is recognized as such by the US Government.

Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which,
could not be foreseen, or which, though foreseen, were inevitable.

Parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem fit, as long as the same do not run counter to the
law, morals, good customs, public order or public policy.

Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Courts cannot stipulate for the parties nor amend their agreement where the
same does not contravene law, morals, good customs, public order or public
policy, for to do so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and effect thereto.
VI. Disposition
WHEREFORE, the Petitions are DENIED for lack of merit. The

assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is
AFFIRMED.
SO ORDERED.

N/A
N/A
VII. Random Facts
● Ponente: Tinga, J.

G.R. No. L-87584 | June 1992 Liability of Owner/Proprietor
Gotesco vs. Chatto Gotesco vs. Chatto
I. Recit-ready Summary soon as they were able to get out to the street they walked the nearby FEU
Plaintiff Gloria E. Chatto, and her 15-year old daughter, plaintiff Hospital where they were confined and treated for one day.
Lina Delza E. Chatto went to see the movie "Mother Dear" at Superama I The next day, they transferred to the UST hospital. The medico
theater, owned by defendant Gotesco Investment Corporation. They bought legal findings confirmed physical injuries. Plaintiff Gloria Chatto was
balcony tickets but were unable to find seats due to the number of people treated in said hospital from June 5 to June 19 and plaintiff Lina Delza
patronizing the movie. Hardly 10 minutes after entering the theater, the Chatto from June 5 to 11. Due to continuing pain in the neck, headache and
ceiling of its balcony collapsed. Shocked and hurt, plaintiffs managed to dizziness, plaintiff went to Illinois, USA in July 1982 for further treatment.
crawl under the fallen ceiling. As soon as they were able to get out to the She was treated at the Cook County Hospital in Chicago, Illinois. She
street they walked the nearby FEU Hospital where they were confined and stayed in the U.S. for about 3 months during which time she had to return to
treated for one day. the Cook County Hospital 5 or 6 times.
The next day, they transferred to the UST hospital. Plaintiff Gloria Defendant tried to avoid liability by alleging that the collapse of
Chatto was treated in said hospital from June 5 to June 19 and plaintiff Lina the ceiling of its theater was done due to force majeure. It maintained that
Delza Chatto from June 5 to 11. Due to continuing pain in the neck, its theater did not suffer from any structural or construction defect.
headache and dizziness, plaintiff went to Illinois, USA for further treatment. In justifying its award of actual or compensatory and moral
She was treated at the Cook County Hospital in Chicago, Illinois. She damages and attorney's fees, the trial court said:
stayed in the U.S. for about 3 months during which time she had to return to It has been established thru the uncontradicted testimony of Mrs.
the Cook County Hospital 5 or 6 times. Chatto that during the chaos and confusion at the theater she lost a pair of
Defendant tried to avoid liability by alleging that the collapse of earrings worth P2,500 and the sum of P1,000.00 in cash contained in her
the ceiling of its theater was done due to force majeure. It maintained that wallet which was lost; and that she incurred the following expenses:
its theater did not suffer from any structural or construction defect. P500.00 as transportation fare from Cebu City to Manila on the first leg of
The Court held that defendant is liable for damages. The defendant her trip to the United States; P350.00 for her passport; and P46,978.00 for
failed to prove that the collapse was due to force majeur, not to constuction her expense relative to her treatment in the United States, including the cost
defects. of a round-trip ticket (P11,798.00) hospital and medical bills and other
attendant expenses. The total is P51,328.00, which is more than the sum of
II. Facts of the Case P49,050.00 claimed in the complaint, hence should be reduced accordingly.
This is a petition for review under Rule 45 of the Rules of Court Mrs. Chatto contracted to pay her counsel the sum of P20,000.00, which
assailing the decision ordering the defendant to pay damages. this court considers reasonable.
In the afternoon of June 4, 1982 plaintiff Gloria E. Chatto, and her The plaintiffs are entitled to moral damages, which are the direct
15-year old daughter, plaintiff Lina Delza E. Chatto went to see the movie and proximate result of the defendants gross negligence and omission. Such
"Mother Dear" at Superama I theater, owned by defendant Gotesco moral damages include the plaintiffs' physical suffering, mental anguish,
Investment Corporation. They bought balcony tickets but even then were fright and serious anxiety.
unable to find seats considering the number of people patronizing the movie.
Hardly 10 minutes after entering the theater, the ceiling of its balcony III. Issue/s
collapsed. The theater was plunged into darkness and pandemonium ensued. 1. W/N Gotesco is liable for damages? YES.
Shocked and hurt, plaintiffs managed to crawl under the fallen ceiling. As a. W/N the collapse was due to force majeure? NO.
1
Obligations and Contracts (2020) PETITIONER: Gotesco Investment Corporation

DIGEST AUTHOR: Nikki Paglicawan RESPONDENT: Gloria and Lina Chatto
IV. Holding/s It is settled that:

1. Yes, Gotesco is liable. The collapse was due to construction
defects, not force majeure. The owner or proprietor of a place of public amusement impliedly
Petitioner's claim that the collapse of the ceiling of the theater's balcony was warrants that the premises, appliances and amusement devices are safe for
due to force majeure is not even founded on facts because its own witness, the purpose for which they are designed, the doctrine being subject to no
Mr. Jesus Lim Ong, admitted that "he could not give any reason why the other exception or qualification than that he does not contract against
ceiling collapsed." Having interposed it as a defense, it had the burden to unknown defects not discoverable by ordinary or reasonable means.
prove that the collapse was indeed caused by force majeure. It could not This implied warranty has given rise to the rule that:
have collapsed without a cause. That Mr. Ong could not offer any
explanation does not imply force majeure. As early as 85 years ago, this Where a patron of a theater or other place of public
Court had the occasion to define force majeure. amusement is injured, and the thing that caused the
Petitioner could have easily discovered the cause of the collapse if indeed it injury is wholly and exclusively under the control and
were due to force majeure. To our mind, the real reason why Mr. Ong could management of the defendant, and the accident is such
not explain the cause or reason is that either he did not actually conduct the as in the ordinary course of events would not have
investigation or that he is, as the respondent Court impliedly held, happened if proper care had been exercised, its
incompetent. He is not an engineer, but an architect who had not even occurrence raises a presumption or permits of an
passed the government's examination. As such, the post-incident inference of negligence on the part of the defendant.
investigation cannot be considered as material to the present proceedings.
What is significant is the finding of the trial court, affirmed by the That presumption or inference was not overcome by the petitioner.
respondent Court, that the collapse was due to construction defects. There
was no evidence offered to overturn this finding. The building was V. Law or Doctrine Applied
constructed barely 4 years prior to the accident. It was not shown that any of
the causes denominates as force majeure obtained immediately before or at On the liability of the owner
the time of the collapse of the ceiling. Such defects could have been easily The owner or proprietor of a place of public amusement impliedly
discovered if only petitioner exercised due diligence and care in keeping warrants that the premises, appliances and amusement devices are safe for
and maintaining the premises. But as disclosed by the testimony of Mr. Ong, the purpose for which they are designed, the doctrine being subject to no
other exception or qualification than that he does not contract against
there was no adequate inspection of the premises. His answers to the
unknown defects not discoverable by ordinary or reasonable means.
questions on inspection disclosed neither the exact dates of said. inspection
Where a patron of a theater or other place of public amusement is
nor the nature and extent of the same. That the structural designs and plans
injured, and the thing that caused the injury is wholly and exclusively
of the building were duly approved by the City Engineer and the building
under the control and management of the defendant, and the accident is
permits and certificate of occupancy were issued do not at all prove that
such as in the ordinary course of events would not have happened if
there were no defects in the construction, especially as regards the ceiling,
proper care had been exercised, its occurrence raises a presumption or
considering that no testimony was offered to prove that it was ever
permits of an inference of negligence on the part of the defendant.
inspected at all.
2

Force Majeure
Blackstone:
Inevitable accident or casualty; an accident produced by any
physical cause which is irresistible; such as lightning. tempest, perils of the
sea, inundation, or earthquake; the sudden illness or death of a person. (2
Blackstone's Commentaries, 122; Story in Bailments, sec. 25.)
Escriche:
The event which we could neither foresee nor resist; as for
example, the lightning stroke, hail, inundation, hurricane, public enemy,
attack by robbers; Vis major est, says Cayo, ea quae consilio humano neque
provideri neque vitari potest. Accident and mitigating circumstances.
Bouvier:
Any accident due to natural cause, directly exclusively without
human intervention, such as could not have been prevented by any kind of
oversight, pains and care reasonably to have been expected. (Law Reports, 1
Common Pleas Division, 423; Law Reports, 10 Exchequer, 255.)
VI. Disposition
WHEREFORE, judgment is hereby rendered DENYING the instant petition
with costs against petitioner.
SO ORDERED.
VII. Random Facts

● Ponente: Davide Jr., J.

[G.R. No. 185798 | January 13, 2014] [Fortuitous Events]
Fil-Estate Properties Inc.. v. Spouses Ronquillo Fil-Estate Properties Inc.. v. Spouses Ronquillo
I. Recit-Ready Summary P5,174,000.00. The spouses deposited P200,000.00 as reservation fee. As

agreed upon, the spouses paid full down-payment of P1,552,200.00 and has
Spouses Conrad and Maria Victoria Ronquillo purchased an 82 square been paying P63,363.33 for monthly amortizations. Unfortunately, the
meter condominium unit at Central Park Place Tower owned by petitioner construction of the condominium stopped, and when it did, the spouses
Fil-Estate Properties Inc. The condominium unit cost a pre-selling price of stopped paying amortization fees. The spouses then asked for
P5,174,000.00. The spouses deposited P200,000.00 as reservation fee. As reimbursement of the P2, 198, 949.96 that they had already paid. The
agreed upon, the spouses paid full down-payment of P1,552,200.00 and has spouses sent 2 successive letters demanding a full refund of their already
been paying P63,363.33 for monthly amortizations. Unfortunately, the paid fees. The petitioners did not respond to the demands of the
construction of the condominium stopped, and when it did, the spouses
respondents. The spouses filed a complaint to the HLURB for Refund and
stopped paying amortization fees. The spouses then asked for
Damages. The Arbiter sided with respondents, stating that petitioners must
reimbursement of the P2, 198, 949.96 that they had already paid. The
reimburse the spouses in the full amount of the fees already paid, plus
petitioners did not respond to their demands. The spouses filed a complaint
to the HLURB for Refund and Damages. The petitioners contended that P100,000 for moral damages, P50,000 for attorney’s fees, and P10,000 for
they had not committed fraud or misrepresentation, but instead that the administrative fine. The petitioners contended that they had not committed
cessation of the work on the said condominium was due to the depreciation fraud or misrepresentation, but instead that the cessation of the work on the
of peso due to the Asian financial crisis, a fortuitous event that cannot be said condominium was due to the depreciation of peso due to the Asian
held against them. The issues in this case are (1) whether or not the Asian financial crisis, a fortuitous event that cannot be held against them. The
financial crisis is a fortuitous event, (2) whether or not petitioners are liable appeal was raised to the Office of the President which affirmed the decision
for 12% interest, and (3), whether or not the award for moral damages, of the HLURB, adding a 12% interest rate on the principal until it such is
attorney’s fees, and administrative fees were proper. The Court held that (1) fully paid.
no, the Asian financial crisis is not considered a fortuitous event since the
petitioners are considered masters in projections on commodities and
currency movements and business risks, (2) no, the right interest rate is 6% III. Issue/s
according to the BSP Monetary Board Circular No. 799, and (3) yes, since 1. Whether or not the Asian financial crisis is a fortuitous event
the petitioners acted in bad faith. which justly delayed the petitioners in the performance of their
contractual obligation. NO.
II. Facts of the Case 2. Whether or not petitioners are liable for 12% interest. NO.
Spouses Conrad and Maria Victoria Ronquillo purchased an 82 square 3. Whether or not the award for moral damages, attorney’s fees, and
meter condominium unit at Central Park Place Tower owned by petitioner administrative fees were proper. YES.
Fil-Estate Properties Inc. The condominium unit cost a pre-selling price of
1
Oblicon B2023 PETITIONER/APPELLANT: Fil-Estate Properties Inc. & Fil-Estate Network Inc
DIGEST AUTHOR: Alex Sulaik RESPONDENT: Spouses Conrad and Maria Victoria Ronquillo
legal rate.” With regard to this, the Court’s ruling that the Asian
IV. Holding/s financial crisis is not a fortuitous even nor is it an unforeseeable
event, the Court ordered the full payment of the amortizations to
1. No, the Asian financial crisis is not considered a fortuitous the the respondent Spouse with additional 6% legal interest.
event. It has been held in various jurisprudence that the Asian
financial crisis is not considered a fortuitous event. Especially for 2. No, the imposed 12% interest rate by the Office of the
Fil-Estate Properties, Inc. wherein they are considered to be President is excessive. During the case, the Bangko Sentral ng
masters in projections on commodities and currency movements Pilipinas Monetary Board issued BSP-MB Circular No. 799 which
and business risks. This being so, the Supreme Court ruled that the pegged the interest rate at 6% regardless of the source of the
complainants are entitled to rescind their contract due to obligation.
Fil-Estate’s non-performance under Art. 1911 of the Civil Code,
which states “The power to rescind obligations is implied in 3. Yes, the award for moral damages, attorney’s fees, and
reciprocal ones, in case one of the obligors should not comply with administrative fees were proper. The lower courts found
what is incumbent upon him. The injured party may choose Fil-Estate Properties Inc. to have acted in bad faith when they
between the fulfillment and the rescission of the obligation, with breached the contract, when they failed to address respondents’
payment of damages in either case. He may also seek rescission, grievances, and when they adamantly refused to refund
even after he has chosen fulfillment, if the latter should become respondents’ payment.
impossible.” The Court also cited Sec 23 of P.D. 957 which states
“Non-Forfeiture of Payments. No installment payment made by a
buyer in a subdivision or condominium project for the lot or unit V. Law or Doctrine Applied
he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or Article 1174. Except in cases expressly specified by the law, or when it is
developer, desists from further payment due to the failure of the otherwise declared by stipulation, or when the nature of the obligation
owner or developer to develop the subdivision or condominium requires the assumption of risk, no person shall be responsible for those
project according to the approved plans and within the time limit events which could not be foreseen, or which, though foreseen, were
for complying with the same. Such buyer may, at his option, be inevitable.
reimbursed the total amount paid including amortization interests
but excluding delinquency interests, with interest thereon at the
2
Article 1170. Those who in the performance of their obligations are guilty VIII. Additional Notes
of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. P.D 957, Section 23. Non-Forfeiture of Payments. No installment payment
made by a buyer in a subdivision or condominium project for the lot or unit
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in he contracted to buy shall be forfeited in favor of the owner or developer
case one of the obligors should not comply with what is incumbent upon when the buyer, after due notice to the owner or developer, desists from
him. further payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and
within the time limit for complying with the same. Such buyer may, at his
The injured party may choose between the fulfillment and the rescission of
option, be reimbursed the total amount paid including amortization interests
the obligation, with the payment of damages in either case. He may also
but excluding delinquency interests, with interest thereon at the legal rate.
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible. VII. Random Facts
● Ponente:Perez, J. .
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who

have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
VI. Disposition
WHEREFORE, the petition is PARTLY GRANTED. The appealed

Decision is AFFIRMED with the MODIFICATION that the legal interest to
be paid is SIX PERCENT (6%) on the amount due computed from the time
of respondents' demand for refund on 8 October 1998.
GR No L- 6648 / July 25, 1955 Fortuitous Events
Victorias Planters v. Victorias Milling Victoria Planters v. Victorias Milling
I. Recit-ready Summary interrupted for 6 years due to the Second World War (4y) and post-war
Sugar cane planters from Manapla and Cadiz executed milling reconstruction (2y). Unfortunately, after the liberation, North Negros did
contracts with two different milling companies, North Negros Sugar and not reconstruct its destroyed sugar central and advised its planters that it had
Victorias Milling, which both stipulated that the two respective companies made arrangements with Victorias Milling to mill their produce as well.
would mill their sugarcane produce in their own milling centers. The In 1948, both the planter associations from North Negros and
contracts also had a 30- year stipulation period in which once it is lapsed, Victorias Milling considered that the 30- year stipulation period in their
the contracts would expire. It was all smooth until the Second World War contract has expired (1947-48 for North Negros and 1948-49 for Victorias).
and the reconstruction period (6 years) which rendered it impossible for the They tried to negotiate for new contracts using this as leverage, with this
planters to honor their obligation. Their contracts expired by 1948 and they time the planters are demanding to be given increased participation in the
tried to negotiate for better terms using it as leverage but the respondent milled sugar for their benefit, considering that the circumstances
refused, countering that the 30 years stipulated only considers milling surrounding the industry have changed through the three decades. However,
period, not in time. the respondent corporation refused to recognized the expiration of their
The issue to be resolved is whether the 6 year interruption should contracts, contending that the 30 years considered in the contracts is 30
be deducted, and the SC ruled that it should not be deducted due to it being years of milling, not 30 years in time, therefore not counting the 6 year
considered as a fortuitous event, relieving them of the obligation during that interruption, thus their respective expiration period should only commence
time. WW2 and the reconstruction thereafter was unforeseeable and should in 1952 for North Negros and 1957 for Victorias.
not hold the planters liable for their failure to oblige. To try and make up for
the interruption would tantamount to extending the terms beyond the III. Issue/s
contract, thus the expiration of their contract should be upheld. W/N the 6 year interruption period be deducted in the 30 years
being stipulated in their contracts; NO
From 1917 to 1934, the sugar cane planters from Manapla and IV. Holding/s
Cadiz, Negros Occidental, executed milling contracts with North Negros NO, the 6 years interruption should not be deducted in their respective
Sugar Co., in which it stipulated that the company’s sugar central would be 30 year stipulation
milling the produce from the planters of Manapla and Cadiz. In the same The six- year interruption (1941-47) caused by the war and reconstruction is
timeframe, on Nov 17, 1916, some of the planters also executed a contract to be considered as a fortuitous event. Due to its unforeseeable nature, the
with Victorias Milling through Miguel J. Ossorio in which it stipulated that planters cannot be held liable for such an event, given that it is established
a sugar central, that has a capacity of milling 300 tons of sugarcane every that they were prevented by a force majeure such as war and not due to an
day, would be constructed, to serve as a milling center for their produce. intentional non performance. In effect, the fortuitous event relieves the
North Negros Sugar had its first milling in the 1918-19 season while the planters of the obligation during that time. If anything, the performance of
Victorias Milling had theirs during the 1921-22 season. They continued their obligation (sugarcane production delivery) was impossible at that time
their millings every successive crop season thereafter, until it was during the period, so the respondents could not demand its performance. To
OBLIGATIONS AND CONTRACTS PETITIONER/APPELLANT: Victorias Planters Association, North Negros

Planters Association
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Victorias Milling Inc.
GR No L- 6648 / July 25, 1955 Fortuitous Events
Victorias Planters v. Victorias Milling Victoria Planters v. Victorias Milling
try and make up for the said interruption, by adding six more years for them
to fulfill, would tantamount to an extension of the term of the contracts
agreed upon.

ART 1174 of the 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, or which, though foreseen, were inevitable
VI. Disposition
The judgement appealed from is affirmed, with costs against
the appellant
VII. Random Facts

Ponente: Padilla, J.
OBLIGATIONS AND CONTRACTS PETITIONER/APPELLANT: Victorias Planters Association, North Negros

Planters Association
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Victorias Milling Inc.
G.R.124922 | June 22, 1998 Delay | Fortuitous Event
Co v CA Co v CA

Jimmy Co entrusted his Nissan pick-up to Broadway On July 18, 1990, Jimmy entrusted his Nissan pick-up
Motor Corp for repairs. The car was due for release on July 21, 1998 model to Broadway Motor Corp (BMC) for repair and
1990. However, during that same day, Jimmy could not get his supply of car parts. BMC undertook to return the car on July 21,
car because it had a weak battery charge. The car was due to be 1990 fully serviced according to the job contract. After
redelivered three days later on July 24. But, come July 24, Jimmy’s payment, he was given a gate pass for his car.
Jimmy was informed that his car was carnapped while being However, on that day, the car could not be released as its
tested in Manila. Jimmy filed for damages against BMC. A battery was weak. Jimmy bought a battery so that BMC could
pre-trial agreement on the sole issue to be resolved in the case install it and redeliver the car three days later. On July 24, 1990,
was made regarding who among the parties will be liable for when Jimmy went back to get his car, he was told that it was
the damages. The trial court found BMC guilty of delay, carnapped while being tested by an employee in Manila. BMC
holding them liable. The CA reversed the lower court’s ruling reported it to the police.
since the trial court was limited only on the issue during pre- Jimmy filed a suit for damages since he was not able to
trial and that the car was lost due to a fortuitous event. The recover his car. He anchored his claim on the supposed
main issue in this case is whether or not the repair shop can be negligence of BMC. BMC averred that they have no liability
held liable for the loss of a customer’s vehicle while the same since the car was lost through a fortuitous event, the
is in its custody for repair or other job services. The Supreme carnapping.
Court held such issue in the affirmative. First, the Supreme During pre-trial, Jimmy and BMC both agreed on the
Court ruled that issue determined at the pre-trial is not value of the car and as well as the sole issue in the case in
applicable in barring other issues to appeal. The question of which who among both the parties would bear the loss of the
delay which Jimmy premised his complaint must be considered car. The trial court found BMC guilty of delay in the
since it is necessarily intertwined and immediately connected performance of its obligation and held them liable. On appeal
with the principal issue agreed upon. Carnapping cannot be to the CA, the court reversed the ruling of the lower court since
considered a defense against liability since it is not a fortuitous the trial court was limited in resolving only the negligence as
event and the BMC was not able to sufficiently establish the agreed during the pre-trial and that car was lost due to a
existence of such. The Court also cited Article 1165 of the fortuitous event.
Civil Code making BMC liable for the delay since it was III. Issue/s
supposed to deliver Jimmy’s car three (3) days before it was
lost.
1
Obligations and Contracts (2020) PETITIONER/APPELLANT: Jimmy Co (Business name: Dragon Metal
Manufacturing)
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Court of Appeals and Broadway Motor Sales Corp.
Co v CA Co v CA
1. W/N a repair shop can be held liable for the loss of a done solely by third parties and that neither the claimant nor
customer’s vehicle while the same is in its custody for the person alleged to be negligent has any participation. In this
repair or other job services. (YES) case, a police report on its own is not enough evidence to
IV. Holding/s establish such.
Contrary to the CA's ruling the Supreme Court stated Article 1165 of the Civil Code makes an obligor who is
that the rule of the determination of issues at a pre-trial guilty of delay responsible even for a fortuitous event until he
conference which bars the consideration of other issues on has effected the delivery. In this case, BMC was already in
appeal, except those that may involve privilege or impeaching delay as it was supposed to deliver Jimmy’s car three (3) days
matter, is inapplicable to this case. The question of delay, before it was lost. Further, Jimmy’s agreement to the
though not exactly mentioned as an issue at the pre-trial may rescheduled delivery does not defeat his claim as BMC had
be tackled by the court considering that it is necessarily already breached its obligation. It cannot be considered as a
intertwined and intimately connected with the principal issue waiver of Jimmy's right to hold BMC liable because the car
agreed upon by the parties (who will bear the loss and whether was unusable and thus, Jimmy had no option but to leave it.
there was negligence). Jimmy’s imputation of negligence to Assuming further that there was no delay, still working
BMC is premised on delay which is the very basis of his against BMC is the legal presumption under Article 1265 that
complaint. Thus, it was unavoidable for the court to resolve the its possession of the thing at the time it was lost was due to its
case, particularly the question of negligence without fault. This presumption is reasonable since he who has the
considering whether BMC was guilty of delay in the custody and care of the thing can easily explain the
performance of its obligation. circumstances of the loss. In this case, having failed to rebut
Furthermore, it is a not a defense for a repair shop of the presumption and since the case does not fall under the
motor vehicles to escape liability simply because the damage exceptions, BMC is answerable for the loss.
or loss of a thing lawfully placed in its possession was due to It is likewise emphasized that pursuant to Articles 1174
carnapping. Carnapping per se cannot be considered as a and 1262 of the Civil Code, liability attaches even if the loss
fortuitous event. The fact that a thing was unlawfully and was due to a fortuitous event if "the nature of the obligation
forcefully taken from another's rightful possession, as in cases requires the assumption of risk". Carnapping is a normal
of carnapping, does not automatically give rise to a fortuitous business risk for those engaged in the repair of motor vehicles.
event. To be considered as such, carnapping entails more than This is why repair shops are required to register in the DTI for
the mere forceful taking of another's property. It must be an insurance policy and the failure of which amounts to
proved and established that the event was an act of God or was negligence. Assuming that BMC’s repair business is duly
2
Manufacturing)
Co v CA Co v CA
registered, it presupposes that its shop is covered by insurance In accordance with the Rules of evidence, the burden of
from which it may recover the loss. If BMC can recover from proving that the loss was due to a fortuitous event rests on
its insurer, then it would be unjustly enriched if it will not him who invokes it.
compensate Jimmy to whom no fault can be attributed. VI. Disposition
Otherwise, if the shop is not registered, then the presumption of WHEREFORE, premises considered, the decision of the
negligence applies. Court Appeals is REVERSED and SET ASIDE and the
decision of the court a quo is REINSTATED.
SO ORDERED.
Art. 1165.
When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by Article
VII. Random Facts
1170, may compel the debtor to make the delivery.
 Ponente:J. Martinez
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same

thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery.
Art. 1265. Whenever the thing is lost in the possession of

the debtor, it shall be presumed that the loss was due to his
fault, unless there is proof to the contrary, and without
prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood,
storm, or other natural calamity.
Burden of Proof
3
Manufacturing)
G.R. No. 147839 | June 08, 2006 Irregularities: Fortuitous Events
Gaisano Inc. vs. Insurance Company Gaisano Inc. vs. Insurance Company
I. Recit-ready Summary IMC in this adequately established its claim of P2,119,205.00 while
Intercapital Marketing Corporation (IMC) and Levi Strauss Phils. Inc. LSPI failed to adduce evidence for its claim of P535,613.00 under Art. 2207
(LSPI) respectively make and distribute Wrangler Blue Jeans. They both of the Civil Code. Therefore, petitioners are only liable to respondent for the
separately obtained fire insurance policies with book debt insurance from claim of IMC.
the respondent, Insurance Company of North America. Book debts are
defined as the "unpaid account still appearing in the Book of Account of the II. Facts of the Case
Insured 45 days after the time of the loss covered under this Policy." Intercapital Marketing Corporation (IMC) and Levi Strauss Phils. Inc.
(LSPI) respectively make and distribute Wrangler Blue Jeans. They both
Petitioner is a customer and dealer of the products of IMC and LSPI. separately obtained fire insurance policies with book debt insurance from
On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro the respondent, Insurance Company of North America. Book debts are
City, owned by petitioner, was consumed by fire. Included in the items lost defined as the "unpaid account still appearing in the Book of Account of the
or destroyed in the fire were stocks of ready-made clothing materials sold Insured 45 days after the time of the loss covered under this Policy."
and delivered by IMC and LSPI. Respondent Insurance Company then filed
a complaint for damages against petitioner, as their demands for their
Petitioner is a customer and dealer of the products of IMC and LSPI.
subrogated right for payment the unpaid accounts to IMC and LSPI were
left unheeded. Petitioners claimed non-liability because the fire was a On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro
fortuitous event. City, owned by petitioner, was consumed by fire. Included in the items lost
or destroyed in the fire were stocks of ready-made clothing materials sold
The issue before the SC is whether or not petitioner is liable for and delivered by IMC and LSPI.
damages in favor of respondent despite the fortuitous event of a fire. The SC
ruled in the affirmative stating that the case falls under paragraph (1), Art, Respondent Insurance Company then filed a complaint for damages
1504 of the Civil Code. In this instance, the seller (IMC and LSPI) retains against petitioner as IMC and LSPI filed their claims under their respective
ownership only to ensure that the buyer (Gaisano Inc.) will pay its debt, the insurance and book debt. The accounts of petitioner on the sale and delivery
risk of loss is borne by the buyer. Accordingly, petitioner bears the risk of of ready-made clothing materials with IMC was P2,119,205.00 while with
loss. Furthermore, petitioner’s defense of the fortuitous event of fire under LSPI it was P535,613.00. Since the Insurance company paid IMC and LSPI
Article 1174 of the Civil Code cannot stand because the insurance in this it was subrogated the rights against the petitioner. The petitioner didn’t want
case is not for loss of goods by fire but for petitioner's accounts with IMC
to pay despite demands. The RTC dismissed the complaint in favor of the
and LSPI that remained unpaid 45 days after the fire. In other words,
petitioner's obligation is for the payment of money not for destruction of petitioner while the CA reversed the RTC and upheld the liability the
goods. As where the obligation consists in the payment of money, the failure petitioner. Hence it was brought to the SC.
of the debtor to make the payment even by reason of a fortuitous event shall
not relieve him of his liability. Under Article 1263 of the Civil Code, "[i]n III. Issue/s
an obligation to deliver a generic thing, the loss or destruction of anything of 1. W/N petitioner is liable for damages to respondent despite the
the same kind does not extinguish the obligation." An obligation to pay fortuitous event of fire? YES.
money is generic; therefore, it is not excused by fortuitous loss of any 2. W/N the respondent subrogated the right of action from IMC and
specific property of the debtor. LSPI despite them retaining ownership of the goods? YES.
Obligations and Contracts (2020) PETITIONER: Gaisano Cagayan, Inc. 1

DIGEST AUTHOR: King Manalo RESPONDENT: Insurance Company of North America
IV. Holding/s specific property of the debtor. Thus, whether 􀁃re is a fortuitous event or
1. YES, the fortuitous event of fire is of no moment what is petitioner was negligent are matters immaterial to this case. What is relevant
relevant is the outstanding accounts of the petitioner to IMC. here is whether it has been established that petitioner has outstanding
accounts with IMC and LSPI.
The SC ruled that the case falls under paragraph (1), Art, 1504 of the
Civil Code. Thus, when the seller retains ownership only to ensure that the 2. YES, respondent Insurance Company of North America still has
buyer will pay its debt, the risk of loss is borne by the buyer. Accordingly, the right for damages over petitioner.
petitioner bears the risk of loss. Petitioner’s argument that the fortuitous
event of fire under Article 1174 of the Civil Code is misplaced because the An insurable interest in property means that one derives a benefit from its
insurance in this case is not for loss of goods by fire but for petitioner's existence or would suffer loss from its destruction. Indeed, a vendor or
accounts with IMC and LSPI that remained unpaid 45 days after the fire. seller retains an insurable interest in the property sold so long as he has any
interest therein, in other words, so long as he would suffer by its destruction,
Moreover, it must be stressed that the insurance in this case is not for as where he has a vendor's lien. In this case, the insurable interest of IMC
loss of goods by fire but for petitioner's accounts with IMC and LSPI that and LSPI pertain to the unpaid accounts appearing in their Books of
remained unpaid 45 days after the fire. Accordingly, petitioner's obligation Account 45 days after the time of the loss covered by the policies. As these
is for the payment of money. As where the obligation consists in the book debts are covered by the initial insurance of the respondent they
payment of money, the failure of the debtor to make the payment even by therefore subrogate the right to damages against the petitioner.
reason of a fortuitous event shall not relieve him of his liability. The
rationale for this is that the rule that an obligor should be held exempt from V. Law or Doctrine Applied
liability when the loss occurs thru a fortuitous event only holds true when
the obligation consists in the delivery of a determinate thing and there is no ARTICLE 1504 (1) OF THE CIVIL CODE
ART. 1504. Unless otherwise agreed, the goods remain at the seller's
stipulation holding him liable even in case of fortuitous event. It does not
risk until the ownership therein is transferred to the buyer, but when the ownership
apply when the obligation is pecuniary in nature. therein is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a (1) Where delivery of the goods has been made to the buyer or to a bailee
generic thing, the loss or destruction of anything of the same kind does not for the buyer, in pursuance of the contract and the ownership in the goods
has been retained by the seller merely to secure performance by the buyer
extinguish the obligation." If the obligation is generic in the sense that the
of his obligations under the contract, the goods are at the buyer's risk from
object thereof is designated merely by its class or genus without any the time of such delivery; (Emphasis supplied)
particular designation or physical segregation from all others of the same
class, the loss or destruction of anything of the same kind even without the ARTICLE 1174 OF THE CIVIL CODE (FORTUITOUS EVENTS)
debtor's fault and before he has incurred in delay will not have the effect of Art. 1174. 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
extinguishing the obligation. This rule is based on the principle that the
of risk, no person shall be responsible for those events which could not be foreseen,
genus of a thing can never perish. Genus nunquan perit. An obligation to or which, though foreseen were inevitable.
pay money is generic; therefore, it is not excused by fortuitous loss of any


Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract…
VI. Disposition
WHEREFORE, the petition is partly GRANTED. The assailed Decision
dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of
Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the
MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.

• IMC and LSPI did not lose complete interest over the goods. They
have an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who bears the
risk of loss, in property insurance, one's interest is not determined
by concept of title, but whether insured has substantial economic
interest in the property.
VII. Random Facts

• Ponente: Austria-Martinez, J.

G.R. No. 134685 | November 19, 1999 Fraud; Civil Code, Article 1387
Siguan v Lim et al. Siguan v Lim et al.
Rosa executed a deed of donation conveying four parcels of land in favor of 1st and 2nd Req.
her children. Its TCTs were issued.
Rosa’s alleged debt in favor of Siguan incurred in August 1990 while the
Siguan presented checks issued by Rosa to drawee bank. However, the Deed was purportedly executed on August 1989.
checks were dishonored for the account was closed. Siguan demanded
payment for the checks, but she was stood up by Rosa. Siguan filed a BP 22 Notarial documents, except last wills and testaments, are public documents
case against Rosa. The RTC convicted Rosa as charged. The case is still
and are evidence of the facts that gave rise to their execution and of their
pending review.
date. (Sec. 19, 23, Rule 132, Rules of Court)
Siguan filed an accion pauliana against Rosa and her children to rescind the
deed. Siguan claimed the following: that the deed was antedated; the In the present case, the fact that the questioned Deed was registered only on
transfer was made in bad faith in fraud of creditors, including Siguan 2 July 1991 is not enough to overcome the presumption as to the
herself; and, the transfer left Rosa with no properties to satisfy her truthfulness of the statement of the date in the questioned deed, which is 10
obligations. Rosa claimed that the deed was not antedated and that transfer August 1989. Petitioner's claim against LIM was constituted only in August
was made in good faith. 1990, or a year after the questioned alienation. Thus, the first two requisites
for the rescission of contracts are absent.
Is the deed of donation rescissible? – No.
3rd Req.
Civil Code, Art. 1381 enumerates rescissible contracts, and among them are
The action for rescission is a subsidiary remedy. It has to be proven that
"those contracts undertaken in fraud of creditors when the latter cannot in
there are no other legal remedies available. Siguan failed to establish this.
any other manner collect the claims due them."
4th Req.
The action to rescind contracts in fraud of creditors is known as accion
pauliana. To prosper, these requisites must be present: The Court presented two means of establishing fraud. There is a
(1) Plaintiff asking for rescission has a credit prior to the alienation, presumption of fraud when at the time of donation , the donor did not
although demandable later; reserve sufficient property to pay their debts prior to the donation (Art. 759,
(2) Debtor has made a subsequent contract conveying a patrimonial Art. 1387 of the Civil Code). Siguan’s credit only existed a year after the
benefit to a third person; execution of the deed. Therefore, Siguan could not have been said to be
(3) Creditor has no other legal remedy to satisfy his claim; defrauded by the alienation. Furthermore, Rosa still had properties the time
(4) Act being impugned is fraudulent; and, the Deed was executed. Thus, it was not sufficiently established that she had
(5) Third person who received the property conveyed, if it is by no property to cover her debts.
onerous title, has been an accomplice in the fraud.
The Court has laid down these circumstances evidencing fraud:
Siguan was unable to prove the first four requisites for an accion pauliana to
prosper.
Obligations and Contracts (2020) PETITIONER: Maria Antonia Siguan 1

DIGEST AUTHOR: Jann Aristeo E. Amorado RESPONDENT: Rosa Lim, Linde Lim, Ingrid Lim, Neil Lim
1. The fact that the consideration of the conveyance is fictitious or is 2. SUAREZ ESTAFA CASE AGAINST ROSA. On July 31, 1990, Rosa
inadequate; was convicted of estafa in a criminal case filed by Suarez. The Supreme
2. A transfer made by a debtor after suit has begun and while it is pending Court acquitted Rosa but held her civilly liable.
against him; 3. DEED OF DONATION. Rosa purportedly executed a Deed of Donation
3. A sale upon credit by an insolvent debtor; on August 10, 1989. The Deed conveyed four parcels of land (563sqm,
4. Evidence of large indebtedness or complete insolvency; 600sqm, 368sqm, 511sqm) in Cebu to her children. New transfer certificates
5. The transfer of all or nearly all of his property by a debtor, especially of title (TCT) were issued in the name of the children. On July 02, 1991, the
when he is insolvent or greatly embarrassed financially; Deed of Donation was registered in favor of Rosa’s children.
6. The fact that the transfer is made between father and son, when there are 4. ACCION PAULIANA. June 23, 1993, Siguan, the petitioner, filed an
present other of the above circumstances; and accion pauliana against Rosa and her children to rescind the Deed of
7. The failure of the vendee to take exclusive possession of all the property. Donation and to declare void the issued TCTs.
5. SIGUAN’S CLAIMS. Siguan claimed that sometime in July 1991, Lim
However, Siguan failed to prove that any of these circumstances exist. transferred all her real property to her children in bad faith and in fraud of
creditors, including Siguan. Siguan also claimed that Rosa conspired with
Thus, absent the four requisites the petition must fail. her children in antedating the Deed of Donation in the prejudice of Rosa’s
creditors. And, at the time of the fraudulent conveyance, Rosa left no
Regarding the Suarez estafa case, albeit she is a creditor prior the alienation, sufficient properties to pay her obligations.
she is not a party to the accion pauliana. Under Art. 1384 of the Civil Code, 6. ROSA’s CLAIMS. Rosa denied any liability to Siguan. Rosa claimed that
only the creditor who brought the action for rescission can benefit from the her convictions in her BP 22 cases were erroneous. As regards the Deed,
rescission; those who are strangers to the action cannot benefit from its Rosa claimed that the Deed was not antedated and it was made in good faith
effects. And the revocation is only to the extent of the plaintiff creditor's at a time when she had sufficient property. The Deed was only registered on
unsatisfied credit; as to the excess, the alienation is maintained.
July 02 1991 because she was seriously ill.
[It’s long. But, if you make it shorter, then it will not be really recit ready.] 7. TRIAL COURT. The trial court ordered the rescission of the Deed of
Donation; declared the TCTs void; ordered the Cebu City Register of Deeds
II. Facts of the Case (Material Facts) to reinstate the titles in the name of Rosa; and, directed the Lims to pay
1. BP 22 CASE AGAINST ROSA LIM. On August 25 and 26, 1990, Rosa Siguan for damages (moral, P10,000; attorney’s fees, P10,000; litigation
Lim (Rosa) issued two checks worth P300k and P241k payable to cash. expenses, P5,000).
When Maria Antonia Siguan (Siguan) presented it with drawee bank, the 8. COURT OF APPEALS. The Court of Appeals (CA) reversed the trial
checks were dishonored for “account closed.” Demands to make good the court’s decision and dismissed the accion pauliana.
checks proved futile. As a consequence is a BP 22 criminal case filed by 9. CA’S RATIONALE; REQS. FOR FILING AN ACCION PAULIANA.
Siguan against Rosa. The RTC convicted Rosa as charged. The case is CA said that the requisites for the filing of an accion pauliana were absent:
pending review. (1) there must be a credit existing prior to the celebration of the contract
and, (2) there must be a fraud, or at least the intent to commit fraud, to the

prejudice of the creditor seeking the rescission. [NOTE: See the Supreme donation is evidence of the fact of Rule 132 of the Rules of Court
Court’s Ruling for the full set of requisites.] which gave rise to its execution • Siguan failed to present
10. FIRST REQ. ABSENT. The Deed of Donation, executed and and of the date of the latter." convincing evidence that the
acknowledged before a notary public, appears on its face to have been Said provision should be read Deed of Donation was antedated
executed on August 10, 1989. There is no convincing evidence to indicate with Section 30 of the same Rule and executed in fraud of
that the notary public and the parties antedated the Deed. Since Rosa’s which provides that notarial petitioner
indebtedness (checks) were incurred a year after the execution of the Deed, documents are prima facie • Court of Appeals correctly struck
the first requirement was not met. evidence of their execution, not down the awards of damages,
11. SECOND REQ. ABSENT. Siguan argued that even if it is not antedated "of the facts which gave rise to attorney's fees and expenses of
there is still fraud of creditors because Suarez became Rosa’s creditor on their execution and of the date of litigation because there is no
1987, before the execution of the Deed. The CA found this untenable for the latter." factual basis therefor in the body
fraud must prejudice the creditor seeking the rescission. • Court of Appeals overlooked of the trial court's decision
12. CA MOTION FOR RECONSIDERATION DENIED. Article 759 of the New Civil
III. Issue/s Code. In this case, LIM made no
1. Was the Deed of Donation entered into in fraud of the creditors of reservation of sufficient property
Rosa (and therefore, rescissible) ? – No. to pay her creditors prior to the
2. Was the awards of damages, attorney’s fees, and litigation expenses execution of the Deed of
proper? – Yes. Donation.
IV. Holding/s
Issue #1
No, the Deed of Donation is not rescissible. Siguan failed to prove all the
requisites for an accion pauliana to prosper.
Petitioner’s Arguments Respondent’s Arguments
• Siguan argues Court of Appeal’s • Having agreed on the law and
findings that the Deed of requisites of accion pauliana,
Donation was not in fraud of petitioner cannot take shelter
creditors and includes as fact the under a different law;
Suarez Case. • Siguan cannot invoke the credit
• Court of Appeals incorrectly of Victoria Suarez, who is not a
applied or interpreted Section 23, party to this case, to support her
Rule 132 of the Rules of Court, accion pauliana
in holding that "being a public • Court of Appeals correctly
document, the said deed of applied or interpreted Section 23

Overall Ruling
Civil Code, Art. 1381 enumerates rescissible contracts, and among them are The Court presented two means of establishing fraud. There is a
"those contracts undertaken in fraud of creditors when the latter cannot in presumption of fraud when at the time of donation , the donor did not
any other manner collect the claims due them." reserve sufficient property to pay their debts prior to the donation (Art. 759,
Art. 1387 of the Civil Code). Siguan’s credit only existed a year after the
The action to rescind contracts in fraud of creditors is known as accion execution of the deed. Therefore, Siguan could not have been said to be
pauliana. To prosper, these requisites must be present: defrauded by the alienation. Furthermore, Rosa still had properties the time
(6) Plaintiff asking for rescission has a credit prior to the alienation, the Deed was executed. She had a 220sqm parcel of land in Mandaue City,
although demandable later; Cebu, a parcel of land in Talisay (P800k to P900k), Cebu, a 2.1hectare
(7) Debtor has made a subsequent contract conveying a patrimonial parcel of land with coconut trees in Southern Leyte, and a 3.6hectare parcel
benefit to a third person; of land with coconut trees in Southern Leyte. Thus, it was not sufficiently
(8) Creditor has no other legal remedy to satisfy his claim; established that she had no property to cover her debts.
(9) Act being impugned is fraudulent; and,
(10) Third person who received the property conveyed, if it is by The Court has laid down these circumstances evidencing fraud:
onerous title, has been an accomplice in the fraud. 1. The fact that the consideration of the conveyance is fictitious or is
inadequate;
1st AND 2nd REQ. ABSENT. 2. A transfer made by a debtor after suit has begun and while it is pending
against him;
Rosa’s alleged debt in favor of Siguan incurred in August 1990 while the 3. A sale upon credit by an insolvent debtor;
Deed was purportedly executed on August 1989. 4. Evidence of large indebtedness or complete insolvency;
5. The transfer of all or nearly all of his property by a debtor, especially
Notarial documents, except last wills and testaments, are public documents when he is insolvent or greatly embarrassed financially;
and are evidence of the facts that gave rise to their execution and of their 6. The fact that the transfer is made between father and son, when there are
date. (Sec. 19, 23, Rule 132, Rules of Court) present other of the above circumstances; and
7. The failure of the vendee to take exclusive possession of all the property.
3rd REQ. ABSENT.
However, Siguan failed to prove that any of these circumstances exist.
Article 1383 of the Civil Code provides that the action for rescission is but a
subsidiary remedy which cannot be instituted except when the party Thus, absent the four requisites the petition must fail.
suffering damage has no other legal means to obtain reparation for the same.
However, Siguan failed to prove that she has exhausted all other legal Regarding the Suarez case, albeit she is a creditor prior the alienation, she is
means. not a party to the accion pauliana. Under Art. 1384 of the Civil Code, only
the creditor who brought the action for rescission can benefit from the
4th REQ. ABSENT. rescission; those who are strangers to the action cannot benefit from its

effects. And the revocation is only to the extent of the plaintiff creditor's in fact, law or equity.
unsatisfied credit; as to the excess, the alienation is maintained.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer

the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants or
of competent judicial authority;
(5) All other contracts specially declared by law to be subject to

rescission. (1291a)
Issue #2
Yes, the CA’s award of damages, attorney’s fees, and litigation expenses Fraud Circumstances
was proper. The Court has laid down these circumstances evidencing fraud:
Petitioner’s Arguments Respondent’s Arguments 1. The fact that the consideration of the conveyance is fictitious or is
• N/A • N/A inadequate;
2. A transfer made by a debtor after suit has begun and while it is pending
Overall Ruling against him;
3. A sale upon credit by an insolvent debtor;
Now on the propriety of the trial court's awards of moral damages, 4. Evidence of large indebtedness or complete insolvency;
attorney's fees and expenses of litigation in favor of the petitioner. We have 5. The transfer of all or nearly all of his property by a debtor, especially
pored over the records and found no factual or legal basis therefor. The trial when he is insolvent or greatly embarrassed financially;
court made these awards in the dispositive portion of its decision without 6. The fact that the transfer is made between father and son, when there are
stating, however, any justification for the same in the ratio decidendi. present other of the above circumstances; and
Hence, the Court of Appeals correctly deleted these awards for want of basis 7. The failure of the vendee to take exclusive possession of all the property.

Requisites for filing an accion pauliana:

(1) Plaintiff asking for rescission has a credit prior to the alienation,
although demandable later;
(2) Debtor has made a subsequent contract conveying a patrimonial
benefit to a third person;
(3) Creditor has no other legal remedy to satisfy his claim;
(4) Act being impugned is fraudulent; and,
(5) Third person who received the property conveyed, if it is by
onerous title, has been an accomplice in the fraud.
VI. Disposition
WHEREFORE, the petition is hereby DISMISSED and the challenged

decision of the Court of Appeals in CA-G.R. CV. No. 50091 is AFFIRMED
in toto.

• N/A
VII. Random Facts

• Ponente: Davide, Jr., C.J.

Anchor Savings Bank vs Henry H. Furigay Anchor Savings Bank vs Henry H. Furigay
I. Recit-ready summary its earlier decision, and dismissed the complaint of the petitioner on
the basis of prescription.
The petitioner Anchor Savings Bank filed a verified complaint for sum
of money and damages with an application for replevin against the Upon appeal to the CA, the CA agreed with the petitioner that the
respondents. However, while that case was pending, respondent action for rescission had not yet prescribed, rather was premature -
spouses donated their registered properties to their minor children. since an action for rescission is of subsidiary nature. In the present
As such, claiming that the donation of these properties was made in case, the petitioner Anchor Savings failed to allege in its complaint
fraud of creditors, the petitioner filed an action for rescission against that it had resorted to all legal remedies to obtain satisfaction of its
the respondents. The RTC ruled that the action for rescission had claim. Appeals for reconsideration were denied; hence, the present
already prescribed. While, the CA found that the action of the petition of the petitioner before the Court.
petitioner had not yet prescribed, but was premature and dismissed
the case. The remedy of rescission is subsidiary in nature, it cannot II. Issue/s
be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. However, the ● W/N the action of the petitioner Anchor Savings Bank to
petitioner failed to comply with the requisites before filing the action, file a complaint for rescission of Deed of Donation was
since the petitioner did not exhaust all of its legal remedies first. premature to warrant a dismissal? YES
Thus, even if the action for rescission had not yet prescribed, it is still
premature. III. Holding/s
II. Facts of the case YES. The SC held that the respondent’s action for Rescission of
Deed of Donation was premature.
On April 21, 1999, the petitioner Anchor Savings filed a complaint for
a sum of money and damages with an application for replevin before Pursuant to Article 1177 of the Civil Code the remedy of Rescission
the RTC of Makati City against the Ciudad Transport, its president, is of subsidiary nature. As such, a creditor would have a cause of
respondent Furigay, his wife and a John Doe. The RTC ruled in favor action to bring an action for rescission, if it is alleged that the
of the petitioner, and ordered the respondents Php 8,695,202.59 as following successive measures have already been taken: (1) exhaust
PRINCIPAL OBLIGATION, as well as an interest, penalty charge, the properties of the debtor through levying by attachment and
liquidated damages, and attorney’s fees. execution upon all the property of the debtor, except such as are
exempt by law from execution; (2) exercise all the rights and actions
However, while the Civil Case was still pending, the respondents of the debtor, save those personal to him (accion subrogatoria); and
donated their properties in Pangasinan to their minor children, (3) seek rescission of the contracts executed by the debtor in fraud
Hegem and Heriette. As such, claiming that such donations were of their rights (accion pauliana).
made in fraud of the reditors, the present respondents filed a
Complaint for Rescission of Deed of Donation, Title and Damages
With respect to an accion pauliana being of subsidiary in nature and “last
before the RTC. Once again, the RTC ruled in favor of the petitioner. resort” of the creditor, it is required that the ultimate facts constituting the
But, the respondents filed an MR and added that the petitioner’s following requisites must all be alleged in the complaint: (1) That the plaintiff
action for rescission had already prescribed. The RTC reconsidered asking for rescission, has credit prior to the alienation, although demandable
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: Anchor Savings Bank

DIGEST AUTHOR: Larry Abucay RESPONDENT: Henry Furigay, wife, and minor children
Anchor Savings Bank vs Henry H. Furigay Anchor Savings Bank vs Henry H. Furigay
later; (2) That the debtor has made a subsequent contract conveying a ARTICLE 1383. An action for rescission is subsidiary; it cannot be
patrimonial benefit to a third person; (3) That the creditor has no other legal instituted except when the party suffering damage has no other legal
remedy to satisfy his claim, but would benefit by rescission of the means to obtain reparation for the same.
conveyance to the third person; (4) That act being impugned is fraudulent;
and (5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud. ARTICLE 1389 of the Civil Code simply provides that, 'The action to
claim rescission must be commenced within four years.' Since this
provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e, from the moment the cause of
action accrues, therefore, applies. Article 1150 of the Civil Code is
In relation to the petitioner’s action for rescission, the Court stated particularly instructive:
that the remedy of rescission is subsidiary in nature; thus, it cannot
be instituted except when the party suffering damage has no other ARTICLE 1150. The time for prescription for all kinds of
legal means to obtain reparation for the same, pursuant to Article actions, when there is no special provision which ordains
1383 of the Civil Code. However, in the case at bar, the petitioner otherwise, shall be counted from the day they may be
Anchor Savings simply undertook the third measure and filed an brought.
action for annulment of the donation, without availing the first and
second remedies, that is, exhausting the properties of the Requisites of Accion Pauliana:
respondents Furigay or their transmissible rights and actions. Thus, 1. Defendant must be indebted to plaintiff
this cannot be done. 2. The fraudulent act performed by the debtor subsequent to
the contract gives advantage to another
From the foregoing, it is clear that the four-year prescriptive period 3. The creditor is prejudiced by such act.
commences to run neither from the date of the registration of the 4. The creditor must have pursued all properties of the debtor
deed sought to be rescinded nor from the date the trial court subject to execution
rendered its decision but from the day it has become clear that there 5. The creditor has no other legal remedy.
are no other legal remedies by which the creditor can satisfy his
claims. In the present case, the action is indeed premature. V. Disposition
IV. Law or Doctrine Applied WHEREFORE, the petition is hereby DENIED.
ARTICLE 1177 - The creditors, after having pursued the property in VI. Separate Opinions
possession of the debtor to satisfy their claims, may exercise all the
rights and bring all the actions of the latter for the same purpose, VII. Additional Notes
save those which are inherent in his person; they may also impugn
the acts which the debtor may have done to defraud them VIII. Random Facts
Ponente: Mendoza, J.:
OBLIGATIONS AND CONTRACTS (2020) PETITIONER: Anchor Savings Bank

DIGEST AUTHOR: Larry Abucay RESPONDENT: Henry Furigay, wife, and minor children
G.R. No. L-8437 | November 28, 1956 Binding effect of contracts upon heirs of deceased party
Estate of Hemady v Luzon Surety Estate of Hemady v Luzon Surety
I. Recit-ready Summary of the 20 bonds it had executed in consideration of the counterbonds, and
Luzon Surety Co., filed a claim against the Estate of Hemady based on further asked for judgment for the unpaid premiums and documentary
20 indemnity agreements of counter bonds, each subscribed by a distinct stamps affixed to the bonds, with 12 per cent interest thereon.
principal and by the deceased K.H. Hemady (a surety solidary guarantor in Before answer was led, and upon motion of the administratrix of
all of the agreements). The 20 agreements all contained stipulations that Hemady's estate, the lower court, by order of September 23, 1953, dismissed
Hemady would be surety to the principals where Luzon Surety acted as the claims of Luzon Surety Co., on two grounds:
surety. Luzon Surety prayed for allowance of the value of the 20 bonds it 1. the premiums due and cost of documentary stamps were not
had executed in consideration of the counterbonds.
contemplated under the indemnity agreements to be a part of the
Upon motion of the administratrix of Hemady’s estate, CFI
undertaking of the guarantor (Hemady), since they were not liabilities
dismissed Luzon Surety’s claim against the Estate of K.H. Hemady on the ff
grounds: incurred after the execution of the counterbonds;
1. that the premiums due and cost of documentary stamps were not 2. whatever losses may occur after Hemady's death, are not
contemplated under the indemnity agreements to be a part of the chargeable to his estate, because upon his death he ceased to be
undertaking of the guarantor (Hemady), since they were not guarantor.
liabilities incurred after the execution of the counterbonds; and The administratrix further contends that upon the death of Hemady, his
2. that “whatever losses may occur after Hemady’s death, are not liability as a guarantor terminated, and therefore, in the absence of a
chargeable to his estate, because he ceased to be guarantor upon his showing that a loss or damage was suffered, the claim cannot be considered
death. contingent. Under 2046 of the new Civil Code, a new requirement for a
Consequently, Luzon Surety appealed to the Supreme Court. The issue is person to qualify as a guarantor: integrity. As correctly pointed out by the
W/N the heirs of Hemady, by way of Hemady’s estate, are liable to Luzon Administratrix, integrity is something purely personal and is not
Surety Co., for liabilities incurred by Hemedy arising from both parties
transmissible. Upon the death of Hemady, his integrity was not
guaranty agreement. The SC ruled they are liable because under Article
transmitted to his estate or successors. Whatever loss therefore, may
1311 of the present CC: "Contracts take effect only as between the parties,
their assigns and heirs, EXCEPT in the case where the rights and occur after Hemady's death, are not chargeable to his estate because
obligations arising from the contract are not transmissible by their upon his death he ceased to be a guarantor. After this dismissal of the
nature, or by stipulation or by provision of law." (Please check the claims of Luzon Surety Co, the case was then brought to the Supreme Court.
digest’s ratio section of the issue as well for the case provided several
discussion points. However, this was the main basis.) III. Issue/s
1. W/N the heirs of Hemady, by way of Hemady’s estate, are
II. Facts of the Case liable to Luzon Surety Co., for liabilities incurred by Hemedy
The Luzon Surety Co. had led a claim against the Estate based on 20 arising from both parties guaranty agreement? YES.
different indemnity agreements, or counter bonds, each subscribed by a
distinct principal and by the deceased K. H. Hemady (a surety solidary IV. Holding/s
guarantor in all of them) in consideration of the Luzon Surety Co.'s of 1. YES, the heirs of Hemady, by way of Hemady’s estate, are
having guaranteed, the various principals in favor of different creditors. The liable to Luzon Surety Co., for liabilities incurred by Hemedy
Luzon Surety Co., prayed for allowance, as a contingent claim, of the value arising from both parties guaranty agreement
Obligations and Contracts (2020) PETITIONER: Estate of K.H. Hemady 1

DIGEST AUTHOR: Steph Naval RESPONDENT: Luzon Surety Co., Inc.
The SC cites Article 1311 of the present CC: "Contracts take effect only as • Under our law, general rule is that a party’s contractual rights and
between the parties, their assigns and heirs, EXCEPT in the case where the obligations are transmissible to the successors.
rights and obligations arising from the contract are not transmissible Exception: Rights and obligations arising from the contract are not
by their nature, or by stipulation or by provision of law." transmissible (1) By their nature (2) By stipulation (3) By provision of
• While in our successional system the responsibility of the heirs for law.
the debts of their decedent cannot exceed the value of the • The nature of the obligation of the surety or guarantor does not
inheritance they receive from him, the principle remains intact that warrant the conclusion that his peculiar individual qualities are
these heirs succeed not only to the rights of the deceased but also to contemplated as a principal inducement for the contract. – Luzon
his obligations. Surety as creditor, expected nothing but reimbursement from K.H.
"ART. 774. — Succession is a mode of acquisition by virtue of which the Hemady for the former’s disbursements on account of the principal
property, rights and obligations to the extent of the value of the inheritance, debtors.
of a person are transmitted through his death to another or others either by
his will or by operation of law." Thus, the liability of Hemady as guarantor is NOT EXTINGUISHED BY
"ART. 776. — The inheritance includes all the property, rights and DEATH. Luzon Surety Co. had the right to file against the state a contingent
obligations of a person which are not extinguished by his death." claim for reimbursement. However, it becomes unnecessary not to discuss
the estate’s liability for premiums and stamp taxes for the Luzon Surety’s
• Mojica v. Fernandez - The principle on which these decisions rest claim did state a cause of action, and its dismissal was erroneous.
is x x x the heirs of a deceased person cannot be held to be
“third persons” in relation to any contracts touching the real V. Law or Doctrine Applied
estate of their decedent which comes in to their hands by right of
inheritance; they take such property subject to all the obligations GUARANTOR NEW QUALIFICATION
resting thereon in the hands of him from whom they derive their Under Article 2046 of the new Civil Code, a new requirement for a person
rights. to qualify as a guarantor: integrity. As correctly pointed out by the
Administratrix, integrity is something purely personal and is not
• Binding effect of contracts upon the heirs of the deceased party - transmissible. Upon the death of Hemady, his integrity was not
is not altered by the provision in the Rules of Court that money transmitted to his estate or successors. Whatever loss therefore, may
debts of a deceased must be liquidated and paid from his estate occur after Hemady's death, are not chargeable to his estate because
before the residue is distributed among said heirs. upon his death he ceased to be a guarantor. After this dismissal of the
(REASON: whatever payment is thus made from the estate is ultimately a claims of Luzon Surety Co, the case was then brought to the Supreme Court.
payment made by the heirs and distributees, since the amount of the paid
claim in fact diminishes or reduces the shares that the heirs would have ARTICLE 1311 OF THE NCC
"Contracts take effect only as between the parties, their assigns and heirs,
been entitled to receive.)
EXCEPT in the case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law."

VI. Disposition
SUCCESSION AND INHERITANCE
"ART. 774. — Succession is a mode of acquisition by virtue of which the Wherefore, the order appealed from is reversed, and the records are ordered
property, rights and obligations to the extent of the value of the inheritance, remanded to the court of origin, with instructions to proceed in accordance
of a person are transmitted through his death to another or others either by with law. Costs against the Administratrix- Appellee. So ordered.
his will or by operation of law."
"ART. 776. — The inheritance includes all the property, rights and VII. Random Facts
obligations of a person which are not extinguished by his death." • Ponente: REYES, J.B.L.
MOJICA V. FERNANDEZ
The principle on which these decisions rest is x x x the heirs of a deceased
person cannot be held to be “third persons” in relation to any contracts
touching the real estate of their decedent which comes in to their hands
by right of inheritance; they take such property subject to all the obligations
resting thereon in the hands of him from whom they derive their rights.
BINDING EFFECT OF CONTRACTS UPON THE HEIRS OF THE

DECEASED PARTY
Binding effect of contracts upon the heirs of the deceased party - is not
altered by the provision in the Rules of Court that money debts of a
deceased must be liquidated and paid from his estate before the residue is
distributed among said heirs.
EXCEPTIONS TO TRANSMISSIBLE CONTRACTUAL RIGHTS

AND OBLIGATIONS TO SUCCESSORS
Under our law, general rule is that a party’s contractual rights and
obligations are transmissible to the successors.
Exception: Rights and obligations arising from the contract are not
transmissible (1) By their nature (2) By stipulation (3) By provision of
law.

G.R. No. L-23559 | October 4, 1971 Usury
Briones v. Cammayo Briones v. Cammayo
I. Recit-ready Summary illegally and unlawfully refuse to acknowledge as part payment of the
Petitioner filed an action to recover 1,500 plus damages, attorney’s fees and account but as in interest of the said loan for an extension of another term of
costs of suit against Respondents Cammayo before the MTC. Respondents one year. Hence, they claim that the contract of loan between petitioner and
claim that they executed a real estate mortgage as security for the loan of Primitivo is a usurious contract. In the petitioner’s comment, he denied all
P1,200.00 given to defendant Primitivo P. Cammayo upon the usurious the allegations of the counterclaim. The Municipal Court granted the motion
agreement, that petitioner delivered to the Primitivo only the sum of and rendered judgment sentencing the defendants to pay the plaintiff the
P1,200.00 and withheld the sum of P300.00 which was intended as advance sum of P1,500.00, with interests thereon at the legal rate from February 22,
interest for one year, and that Primitivo paid to Briones an amount of P330 1962, plus the sum of P150.00 as attorney's fees. On appeal, the CFI ordered
during the period from October 1955 to July 1956, but the latter refused to
respondent to pay petitioner the sum of P1,180.00 with interest thereon at
acknowledge it as part of the payment. The MTC and CFI ruled in favor of
the legal rate from October 16, 1962 until fully paid. This judgment
the petitioner and ordered the respondent to pay P1,500 to the petitioner.
represents respondent's debt of P1,500.00 less usurious interest of P120.00
The court ruled that under Act No. 2655, the debtor in a usurious contract of
loan should pay the creditor the amount which he justly owes him. Hence, and the additional sum of P200.00 as attorney's fees or a total deduction of
the creditor is still entitled to collect the principal obligation. However, the P320.00.
court ruled that in simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which is the cause of the III. Issue/s
contract is not illegal. 1. W/N the creditor is entitled to collect from the debtor the
amount representing the principal obligation;
II. Facts of the Case 2. W/N the creditor is entitled to collect interests;
Aurelio G. Briones (petitioner) filed an action in the Municipal Court of
Manila against Primitivo, Nicasio, Pedro, Hilario and Artemio IV. Holding/s
(respondents), all surnamed Cammayo, to recover from them, jointly and 1. YES, the creditor is still entitled to collect the principal
severally, the amount of P1,500.00, plus damages, attorney's fees and costs obligation.
of suit. Respondents executed a real estate mortgage as security for the loan Under Act 2655, a usurious contract is void and that the creditor had no
of P1,200.00 given to defendant Primitivo P. Cammayo upon the usurious right of action to recover the interest in excess of the lawful rate, but that
agreement that defendant pays to the plaintiff and that the plaintiff reserve does not mean that the debtor may keep the principal received by him as
and secure, as in fact plaintiff reserved and secured himself, out of the loan — thus unjustly enriching himself to the damage of the creditor. In the
alleged loan of P1,500.00 as interest the sum of P300.00 for one year, but recent jurisprudence, the debtor in a usurious contract of loan should pay the
petitioner delivered to the Primitivo only the sum of P1,200.00 and withheld creditor the amount which he justly owes him. The Usury Law, by its letter
the sum of P300.00 which was intended as advance interest for one year. and spirit, did not deprive the lender of his right to recover from the
Also, they added that Primitivo paid to Briones during the period from borrower the money actually loaned to and enjoyed by the latter. In the case
October 1955 to July 1956 the total sum of P330.00 which the latter, at bar,
1
2. NO, the creditor is not entitled to collect interests. loan (P1,180.00) only, with interest thereon at the legal rate of 6% per
In simple loan with stipulation of usurious interest, the prestation of the annum from the date of the filing of the complaint. With costs.
debtor to pay the principal debt, which is the cause of the contract is not VII. Additional Notes
illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since Basis of the decision:
it is the only one that is illegal. The principal debt remaining without
stipulation for payment of interest can be recovered in a judicial action. And The court found that there remained due from defendants an unpaid
principal amount of P20,287.50; that plaintiff charged usurious interests, of
in case of such demand the debtor incurs in delay the debt earns interest
which P1,048.15 had actually been deducted in advance by plaintiff from
from the date of the demand. Such interest is not due to stipulation, for there
the loan that said amount of P1,048.15 should therefore be deducted from
was none, the same is void. Rather, it is due to the general provision of the
the unpaid principal of P20,287.50, leaving a balance of P19,247.35 still
law that in obligations to pay money, where the debtor incurs in delay, he payable to the plaintiff. Said court held that notwithstanding the usurious
has to pay the interest by way of damages. interests charged, plaintiff is not barred from collecting the principal of the
loan or its balance of P19,247.35.
Section 6, Act 2655 VIII. Random Facts
The Usury Law penalizes any person or corporation who, for any loan or ● Ponente: Dizon, J.
renewal thereof or forbearance, shall collect or receive a higher rate or
greater sum or value than is allowed by law, and provides further that, in IX. Separate Opinions
such case, the debtor may recover the whole interest, commissions, a. CASTRO, J ., dissenting:
premiums, penalties and surcharges paid or delivered, with costs and It is my view, however, that in a contract which is tainted with usury, that is,
attorney's fees, in an appropriate action against his creditor, within two (2) with a stipulation (whether written or unwritten) to pay usurious interest, the
years after such payment or delivery. prestation to pay such interest is an integral part of the cause of the contract
1 It is also the controlling cause, for a usurer lends his money not just to
Article 1350, Civil Code have it returned but indeed to acquire inordinate gain. The law never
In simple loan with stipulation of usurious interest, the prestation of the proscribes a contract merely because of the immoral motive of a contracting
debtor to pay the principal debt, which is the cause of the contract is not party, for the reason that it does not concern itself with motive but only with
illegal. cause. 2 An exception is where such motive becomes an integral part of the
cause, like the stipulated usurious interest in a contract of loan.
VI. Disposition
IN VIEW OF THE FOREGOING, the decision appealed from is modified b. BARREDO, J ., concurring:
in the sense that appellee may recover from appellant the principal of the In brief, my point is that while it is true that Article 1957 of the Civil Code
declares that all usurious contracts and stipulations are void, this is nothing
2
new, for such has been the law even under the Usury Law before the Civil
Code went into effect, and, moreover, it is evident that the Civil Code itself
yields to the Usury Law when it comes to the question of how much of the
loan and interests paid by the borrower may be recovered by him, and the
Usury Law is clear that he may recover only all the interests, including, of
course, the legal part thereof, with legal interest from the date of judicial
demand, without maintaining that he can also recover the principal he has
already paid to the lender.
3
G.R. No. 125944 | June 29, 2001 Nature and Effect of Obligations
Sps. Solangon v. Salazar Sps. Solangon v. Salazar
I. Recit-ready Summary they have already paid the respondent P78,000.00 and tendered P47,000.00
more, but the latter has initiated foreclosure proceedings for their alleged
Petitioner spouses obtained from respondent three separate loans of failure to pay the loan of P230,000.00 plus interest. This is all, according to
P60,000.00, P136,512.00 and P230,000 each secured by the same real estate the petitioners, despite respondent’s promise to them that he will not
mortgage with an interest of 72% per annum. For failure of petitioners to foreclose the mortgage as long as they pay the stipulated interest upon
pay their third loan obligation in the amount of P230,000.00 plus the maturity or within reasonable time thereafter.
stipulated interest, respondent foreclosed the mortgage. Petitioners initiated
this action to prevent the foreclosure of the mortgage. On the other hand, the respondent claimed that the mortgages were
executed to secure three separate loans, and that the first two loans were
The main issue in this case W/N the 72% per annum stipulated rate is paid but the last one was not. He also denied having represented that he will
unconscionable. The court held that YES, the rate is unconscionable. not foreclose the mortgage as long as the petitioners pay interest.
Even though Circular No. 905 has expressly removed the interest III. Issue/s
ceilings prescribed by the Usury Law, making the law ‘legally inexistent’,
nothing in the said circular grants lenders carte blanche authority to raise 1. W/N the CA erred in holding that the parties executed 3 mortgage
interest rates to levels which will either enslave their borrowers or lead to a contracts instead of one. NO
hemorrhaging of their assets. 2. W/N the 72% per annum interest rate is unconscionable. YES
The court in this case, basing from previous jurisprudence, found that
IV. Holding/s
the 6% per month or 72% per annum is definitely outrageous and inordinate.
They found that the reduction of the said interest rate to 12% per annum is
more consonant with justice. 1. NO, the CA did not err in holding that the parties executed 3 mortgage
contracts instead of one.
Petitioners contend that they obtained from respondent only one loan in
Petitioner spouses obtained from respondent three separate loans of the amount of P60,000.00 secured by the first mortgage.
P60,000.00, P136,512.00 and P230,000 each secured by the same real estate
The Court agreed with the trial court, which is in the best position to
mortgage with an interest of 6% per month or 72% per annum. For failure of
evaluate the evidence presented before it, when it did not give credence to
petitioners to pay their third loan obligation in the amount of P230,000.00
petitioners’ corroborated testimony and ruled:
plus the stipulated interest, respondent foreclosed the mortgage.
“The real estate mortgage was signed not only by Ursula
This action was initiated by the spouses to prevent the foreclosure of Solangon but also by her husband including the Promissory Note
the mortgaged property. They alleged that they obtained only one loan from appended to it. Signing a document without knowing its contents
the respondent, and that was for the amount of P60,000.00. The subsequent is contrary to common experience. The uncorroborated testimony
mortgages were merely continuations of the first one. According to them, of Ursula Solangon cannot be given weight.”
Obligations and Contracts (2020) PETITIONER: Spouses Danilo Solangon and Ursula Solangon 1
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Jose Avelino Sala
G.R. No. 125944 | June 29, 2001 Nature and Effect of Obligations
Sps. Solangon v. Salazar Sps. Solangon v. Salazar
6) when the Court of Appeals, in making its findings, went beyond

2. YES, the 72% per annum is unconscionable and should, therefore, the issues of the case and such findings are contrary to the
be reduced. admission of both appellant and appellee
7) when the findings of the Court of Appeals are contrary to those of
The Court of Appeals, in sustaining the stipulated interest rate, the trial court
ratiocinated that since the Usury Law had been repealed by Central Bank 8) when the findings of fact are conclusions without citation of
Circular No. 905 there is no more maximum rate of interest and the rate will specific evidence on which they are based.
just depend on the mutual agreement of the parties. The Court disagrees.
CENTRAL BANK CIRCULAR NO. 905
The court held that even though Circular No. 905 expressly removed
the interest ceilings prescribed by the Usury Law which made the law Circular No. 905 of the Central Bank, adopted on December 22, 1982, has
‘legally inexistent’, nothing in the said circular grants the lenders carte expressly removed the interest ceilings prescribed by the Usury Law. This
blanche authority to charge interest rates that are iniquitous, unconscionable made the Usury Law now ‘legally inexistent’. The result of this is that
and exorbitant. interest can now be charged as lender and borrower may agree upon.
However, nothing in said circular “grants lenders carte blanche authority to
The court in this case, basing from previous jurisprudence, found that raise interest rates to levels which will either enslave their borrowers or lead
the 6% per month or 72% per annum is definitely outrageous and inordinate. to a hemorrhaging of their assets.”
They found that the reduction of the said interest rate to 12% per annum is
more consonant with justice. The Court on several occasions has reduced the interest rates stipulated
upon by the parties when found that a lower interest rate is more consonant
V. Law or Doctrine Applied with justice.
RULE 45, 1197 Rules of Civil Procedure VI. Disposition
In a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, WHEREFORE, the appealed decision of the Court of Appeals is
only questions of law may be raised. The settled rule is that findings of fact AFFIRMED subject to the MODIFICATION that the interest rate of 72%
of lower courts are final and conclusive and will not be reviewed on appeal per annum is ordered reduced to 12% per annum. SO ORDERED.
except:
1) when the conclusion is a finding grounded entirely on speculation,
surmises or conjectures VIII. Random Facts
2) when the inference made is manifestly mistaken, absurd or
impossible  Ponente: Sandoval-Gutierrez, J.
3) when there is grave abuse of discretion
4) when the judgment is based on a misapprehension of facts
5) when the findings of facts are conflicting
Obligations and Contracts (2020) PETITIONER: Spouses Danilo Solangon and Ursula Solangon 2
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Jose Avelino Sala
[G.R. No 148541 |Novermber 11, 2004] [Obligations, Nature of Obligations]
[DBP v Perez] [DBP v Perez]
Bonita Perez acquired from DBP an industrial loan worth 240k in total.
Bonita Perez was made to sign promisory notes that were restructured and IN LIGHT OF ALL THE FOREGOING, the assailed Decision dated
secured by a mortgage on her real and personal property. February 28, 2001 of the Court of Appeals and Order dated June 11, 1993 of
the Regional Trial Court, Makati City, Branch 145, are AFFIRMED WITH
Failing to pay the monthly amortizations, the DBP sought to foreclose the MODIFICATION. The case is hereby REMANDED to the trial court for
mortgage on the properties. determination of the total amount of the respondents' obligation according to
the reduced interest rate of twelve percent (12%) per annum.
Issue: W/N the promisory note is a contract of adhesion and therefore void? SO ORDERED.
No.
Held:
The CA noted that the petitioner prepared the new promissory note on its own On April 28, 1978, petitioner Development Bank of the Philippines (DBP)
and that the only participation of the respondents was to sign the same. The sent a letter to respondent Bonita Perez, informing the latter of the approval
CA concluded, therefore, that the new promissory note was a contract of of an industrial loan amounting to P214,000.00 for the acquisition of
adhesion. machinery and equipment and for working capital, and an additional
industrial loan amounting to P21,000.00 to cover unforeseen price escalation.
A contract of adhesion is so-called because its terms are prepared by only one
party while the other party merely affixes his signature signifying his
On May 18, 1978, the respondents were made to sign four promissory notes
adhesion thereto. While we accede to the appellate court's conclusion that
the new promissory note was in the nature of a contract of adhesion, we covering the total amount of the loan, P235,000.00. These promissory notes
cannot fathom how this can further the respondents' case. In discussing the were all due on August 31, 1988. A fourth promissory note due on September
consequences of a contract of adhesion, we held in Rizal Commercial 19, 1988 was, likewise, executed to cover the additional loan of P21,000.00.
Banking Corporation v. Court of Appeals: The promissory notes were to be paid in equal quarterly amortizations and
were secured by a mortgage contract covering real and personal properties.
It bears stressing that a contract of adhesion is just as binding as
ordinary contracts. It is true that we have, on occasion, struck down Due to the respondents' failure to comply with their amortization
such contracts as void when the weaker party is imposed upon in payments, the petitioner decided to foreclose the mortgages that secured
dealing with the dominant bargaining party and is reduced to the the obligation. However, in a Letter 8 dated October 7, 1981, Mrs. Perez
alternative of taking it or leaving it, completely deprived of the requested for a restructuring of their account due to difficulties they
opportunity to bargain on equal footing. Nevertheless, contracts of were encountering in collecting receivables.
adhesion are not invalid per se; they are not entirely prohibited. The
one who adheres to the contract is in reality free to reject it entirely;
if he adheres, he gives his consent. The petitioner informed the respondents that it had approved the restructuring
of their accounts. The loan was restructured and Perez signed another
In this case, there was no showing that the consent of Perez was vitiated. She promissory note in the amount of P231,000.00 at eighteen percent (18%)
was only compelled by legal means to sign the promisory note. The only interest per annum, payable quarterly at P12,553.27, over a period of ten
means used to compel her was the enforcement of the debt years.
1
Block B 2023 PETITIONER/APPELLANT: DBP

DIGEST AUTHOR: Christine Joyce L. Sumaway RESPONDENT: Bonita Perez
consequences of a contract of adhesion, we held in Rizal Commercial

The CA found that the respondents did not voluntarily sign the restructured Banking Corporation v. Court of Appeals:
promissory note as they were only forced to sign it for fear of having their
mortgaged property foreclosed by the bank. It ruled that the restructured It bears stressing that a contract of adhesion is just as binding as
promissory note which was prepared by the petitioner alone was a contract of ordinary
adhesion which violates the rule on mutuality of contracts. contracts. It is true that we have, on occasion, struck down such
contracts as void when the weaker party is imposed upon in dealing
with the dominant bargaining party and is reduced to the alternative
III. Issue/s
of taking it or leaving it, completely deprived of the opportunity to
(1) whether the new promissory note is voidable for not having been bargain on equal footing. Nevertheless, contracts of adhesion are
voluntarily signed by the respondents and for being a contract of not invalid per se; they are not entirely prohibited. The one who
adhesion? NO adheres to the contract is in reality free to reject it entirely; if he
(2) whether the interest rate agreed upon by the parties in the new adheres, he gives his consent.
promissory note is usurious; YES
(3) whether Central Bank Circular No. 158 should be applied in
computing the total obligations of the respondents; NO (2) whether the interest rate agreed upon by the parties in the new
(4) the amount of the total obligation of the respondents. Was not promissory note is usurious; YES
determined in this case since there is a need for a recomputation,
the case was remanded. It is elementary that the laws in force at the time the contract was made
generally govern the effectivity of its provision. We note that the new
IV. Holding/s promissory note was executed on May 6, 1982, prior to the effectivity of CB
Circular No. 905 on January 1, 1983. At that time, The Usury Law, Act No.
(1) whether the new promissory note is voidable for not having been 2655, as amended by Presidential Decree No. 116, was still in force and
voluntarily signed by the respondents and for being a contract of effect.
adhesion? NO
In usurious loans, the entire obligation does not become void because of an
agreement for usurious interest; the unpaid principal debt still stands and
The CA noted that the petitioner prepared the new promissory note on its own
remains valid, but the stipulation as to the usurious interest is void.
and that the only participation of the respondents was to sign the same. The
Consequently, the debt is to be considered without stipulation as to the
CA concluded, therefore, that the new promissory note was a contract of
interest. In the absence of an express stipulation as to the rate of interest, the
adhesion.
legal rate at twelve percent (12%) per annum shall be imposed.
A contract of adhesion is so-called because its terms are prepared by only one
party while the other party merely affixes his signature signifying his (3) whether Central Bank Circular No. 158 should be applied in
adhesion thereto. While we accede to the appellate court's conclusion that computing the total obligations of the respondents; NO
the new promissory note was in the nature of a contract of adhesion, we
cannot fathom how this can further the respondents' case. In discussing the The formula provided under paragraph 3, Sec. 2(i),

CB Circular No. 158 cannot be used in computing the total obligation of the
respondents because it merely applies to the computation of the simple annual
rate. Simple annual rate is the uniform percentage which represents the ratio,
on an annual basis, between the finance charges and the amount to be
financed.
(4) the amount of the total obligation of the respondents. Was not
determined in this case since there is a need for a recomputation, the
case was remanded.
we find that the records are insufficient to enable us to determine the total
amount of the respondents' obligation. It is not even clear how much the
respondents have already paid on the restructured loans and when such
payments were made. The evidence presented was only able to show that they
paid 35,000 in total.
Moreover, considering our previous conclusion that the interest rates

prescribed under the new promissory note are usurious, the statement of
account presented by the petitioner is no longer pertinent. It must be stressed
that such statement of account was arrived at based on the usurious interest
rates. Hence, the total amount of the obligation must necessarily be
recomputed.
V. Disposition
VI.
IN LIGHT OF ALL THE FOREGOING, the assailed Decision dated
February 28, 2001 of the Court of Appeals and Order dated June 11, 1993 of
the Regional Trial Court, Makati City, Branch 145, are AFFIRMED WITH
MODIFICATION. The case is hereby REMANDED to the trial court for
determination of the total amount of the respondents' obligation according to
the reduced interest rate of twelve percent (12%) per annum.
SO ORDERED.

G.R. No. L- 29900 | June 28, 1974 Art 1179: Obligation demandable at once
Pay v. Palanca Pay v. Palanca
I. Recit-ready Summary 8. It was appealed to the Supreme Court, and they only discussed the
Palanca executed a promissory note in Jan 30, 1952, promising to pay issue of prescription wherein they affirmed the dismissal of the
George Pay P26,900 with 12% interest per annum. Pay filed this case fifteen petition.
years later, asking that Segunda (Justo Palanca’s widow) be appointed as III. Issue/s
administratrix over a parcel of land in order to claim his right under the 1. W/N a creditor is barred by prescription in his attempt to
promissory note against her. The Court ruled that such action has prescribed, collect on a promissory note, which states that payment is due
because the wording of the promissory note is “upon demand,” which means “upon demand”? YES.
that the obligation was immediately due. The ten year prescription has
IV. Holding/s
elapsed, and the case was dismissed.
II. Facts of the Case (Material Facts) Issue #1
1. JAN 30, 1952: Justo Palanca executed a promissory note wherein YES, Pay is barred by prescription from collecting money on the
he promised to pay George Pay P26,900 with 12% interest per promissory note, because said note was immediately due and
annum. demandable 15 years ago.
2. The promissory note is worded thus: For value received from time Petitioner’s Arguments Court’s Rebuttals
to time since 1947, we [jointly and severally promise to] pay to Mr. • Pay wants to be paid his debt, • Such wording means that the note
[George Pay] at his office at the China Banking Corporation the and is using the promissory note was immediately due and
sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), which he may claim “upon demandable fifteen years ago.
with interest thereon at the rate of 12% per annum upon receipt by demand.” • The action has prescribed.
either of the undersigned of cash payment from the Estate of the Overall Ruling
late Don Carlos Palanca or upon demand. Petitioner was hopeful that the satisfaction of his credit could he realized
3. JULY 3, 1963: Justo Palanca died. either through the debtor sued receiving cash payment from the estate of the
4. AUG 26, 1961: More than 15 years after the promissory note was late Carlos Palanca presumptively as one of the heirs, or, as expressed
executed, Pay filed this petition. therein, "upon demand." There is nothing in the record that would indicate
5. Pay was asking that Segundina Chua Vda. De Palanca (widow of whether or not the first alternative was fulfilled. What is undeniable is that
Justo), be appointed as administratrix of a certain piece of property on August 26, 1961, more than fifteen years after the execution of the
located at Taft Avenue, Manila. (value assessed at P41,800) so that promissory note on January 30, 1952, this petition was led. The defense
he may file his claim against her as administratrix. interposed was prescription Its merit is rather obvious. Article 1179 of the
6. The lower court stated that Segunda refused to be appointed, that Civil Code provides: "Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown to the
the property no longer belonged to the debtor (Palanca), and that
parties, is demandable at once." It has been applied according to its express
the action has already prescribed.
language. Petition dismissed due to prescription.
7. The lower court held that the 10 year prescription period applied.
The note was immediately due and demandable, with even the
creditor (Pay) admitting that he was relying on the wording “upon
demand.” Dismissed. Article 1179
Obligations and Contracts (2020) PETITIONER: (in the matter of the intestate estate of Justo Palanca) George 1
Pay
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Segundina Chua vda. De Palanca
G.R. No. L- 29900 | June 28, 1974 Art 1179: Obligation demandable at once
Pay v. Palanca Pay v. Palanca
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.
VI. Disposition
WHEREFORE, the lower court decision of July 24, 1968 is
AFFIRMED. Costs against George Pay.
VII. Random Facts

• Ponente: Fernando, J.
Obligations and Contracts (2020) PETITIONER: (in the matter of the intestate estate of Justo Palanca) George 2
Pay
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Segundina Chua vda. De Palanca
G.R. No. 131784 | Sept 16, 1999 Conditions in Obligation (Art 1181)
Gonzales vs. Cruz Gonzales vs. Cruz
I. Recit-ready Summary 3. Particularly, para. 9 of the contract stipulated that “the lessors
Paula Cruz and Thomas Cruz entered into a contract of lease and should hereby commit themselves and shall undertake to obtain a
purchase with Felix Gonzales, over a parcel of land in Rodriguez, Rizal. The separate and distinct TCT over the herein leased portion to the
contract stipulated that after the 1y period, Gonzales should purchase the lessee within a reasonable period of time which shall not exceed 4
land and pay the rentals per hectare. Particularly, it also stipulated in para. 9 years” (1st part) and that "a new contract shall be executed by
that the Cruz' should obtain a separate and distinct TcT over the leased herein parties which shall be the same in all respects with the
portion, to Gonzales. This stipulation arose to be the main issue in Contract of Lease" (2nd part)
contention, as its ambiguity has led to the Cruz heirs filing suit against 4. Gonzales managed to pay the P2.5k/P15k annual rental in
Gonzales. The Cruz heirs contend that the purchase should be done first,
accordance with the contract and thereafter took possession of the
before the TcT, while Gonzales contends that it should be the other way
property, even installing his own caretaker (Jesus Sembrano)
around. The lower courts were divided, with the RTC siding with Gonzales
5. However, he did not exercise his option to purchase the property
and the CA siding with the Cruz heirs.
Main issue depends on the interpretation of the assailed paragraph, upon the expiration of the 1y period, yet still he remained in
which would then determine the condition precedent of the contract. The SC possession without paying for the purchase price or the rentals
sided with Gonzales, seeing that based on the text and nature of the contract, thereon.
as well as the factual circumstances surrounding the case, his argument 6. A letter was then sent by heir Ricardo Cruz to Gonzales, informing
made more sense in the contract's context and thus effectual. This means him of their decision to rescind their contract due to a breach done
that this is the condition precedent of the case and in light of its non- by Gonzales, and therefore orders him to vacate the property within
fulfillment, the obligation of Gonzales to purchase land does not arise to 10 days. He refused.
compel him as a result. 7. Despite the intervention of the Barangay and Paula Cruz’ death,
every demand letter sent to Gonzales were left unheeded
II. Facts of the Case (Material Facts) 8. While all of this was happening, the property was the subject of an
1. On Dec 1, 1983, Paula Cruz, along with her heirs with Thomas extrajudicial partition, in which the title remained in the name of
Cruz entered into a contract of lease/purchase with Felix L. the Cruz’ predecessor in interest, Bernardina Calixto and Severo
Gonzales, sole proprietor and manager of Felgon Farms, of a Cruz.
half-portion of a ‘parcel of land containing an area of 12 hectares 9. The Cruz’ then filed a complaint for recovery of possession of
and an accretion of 2 hectares situated in Rodriguez, Rizal, covered property against Gonzales, on the grounds of breach of contract- in
by TCT 12111 particular para. 9 and also the payment of only P50k of the agreed
2. The contract of lease stipulated that after the 1y period of the P500k downpayment of the P1m price.
contract ends, the lessee (Gonzales) shall purchase the property on 10. The RTC and CA differed in their interpretation of the assailed
the price of P1 mil, payable within 2y with an interest of 12% per paragraph of contract which influenced their rulings. While they
annum. In addition to this was the requirement of the lessee to pay both understood that the TCT that the Cruz’s must obtain should be
rentals of P2.5k per hectare in Gonzales’ name, RTC believes that the delivery of the TCT to
1
Obligations and Contracts (2020) PETITIONER: Felix L. Gonzales
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Heirs of Thomas and Paula Cruz
Gonzales should be done first, as a condition precedent for the Overall Ruling
property purchase, while the CA believes that it should be the other ● The record shows that the parcel of land was still registered in the name
way around. of Bernardina Calixto and Severo Cruz, with no showing that the
⁵ respondents were only heirs of Severo Cruz, meaning that there was no
III. Issue/s assurance that the respondent heirs will be awarded that specific parcels
1. W/N the CA erred in its interpretation of paragraph 9 of the lease of land (which explains the existence of an extrajudicial partition in the
of contract; YES middle of the issue)
2. W/N paragraph 9 of the contract is a condition precedent ● As a result, there is a need for them to obtain separate titles in their
before Gonzales could exercise his option to purchase the names in order to dispose such property validly. This was the intention
property; YES of the ninth paragraph in order for them to validly sell their share in the
3. W/N the Cruz’ can rescind the contract after the 1y period; NO property to Gonzales, who in return can now purchase the property.
● This means that the previous determination of the lower courts that the
IV. Holding/s TCT be obtained in Gonzales' name, should be overturned in favor of
the newly determined intention of the said paragraph.
Issue #1 ● The above claim is supported by the fact that the assailed paragraph
W/N the CA erred in its interpretation of paragraph 9 of the lease of actually never indicated that the TCT should be obtained in Gonzales'
contract, that Gonzales' purchase should come first before the obtainment name but rather it indicated that the respondents should obtain a TCT
of the TcT by the Cruz family; YES over the leased portion to Gonzales. This is further bolstered by the
P50k downpayment in order to expedite the obtainment of TCT.
Respondent’s Arguments Court’s Rebuttals ● Another reason why the lower courts' previous contention was untenable
● The CA believes that Gonzales ● The SC sided with the is because it would render the second part of the paragraph (new
should have purchased the petitioner's contention (and the contract) ineffectual and that following the contention would have made
property first before the Cruz’ RTC partially), believing it to be the current situation of Gonzales absurd since it then begs the question
can obtain a TCT in his name the more effectual import for the on to why did he have to pay rentals if the contention supposes that he
● The Cruz family holds the same ambiguous paragraph, therefore has to purchase first the land before the obtainment of TCTs, or the
view as well. contending that the Cruz' should question regarding the need for a 4 year period before the parties can
deliver the TCT in their names execute the contract.
first before compelling Gonzales
to purchase the property. Issue #2
W/N paragraph 9 of the contract is a condition precedent before
Gonzales could exercise his option to purchase the property; YES
2
W/N the Cruz’ can rescind the contract after the 1y period; NO
Petitioner’s Arguments Court’s Rebuttals
● Paragraph 9 is a condition ● Since it is established that Respondent's Arguments Court’s Rebuttals
precedent to compel him to Para. 9 requires the Cruz' to ● Since Gonzales didn't ● They cannot rescind the
purchase property (that is if its obtain a separate and distinct purchase the property, contract
interpreted to be that the TCT be TCT in their names, it should alleging breach, then they
delivered before purchase). logically follow that such seek to rescind the contract
undertaking was a condition and to recover the property.
precedent to Gonzales' Overall Ruling
obligation to purchase the ● Since the suspensive condition (obtainment of TCT in their names
property, governed by Art by the Cruz') was not fulfilled, there can be no recission of an
1181. obligation as yet non-existent because the suspensive condition has
not happened.
Overall Ruling
● Condition is an event, either future or uncertain, upon which an V. Law or Doctrine Applied
obligation to acquire rights or its resolution, is made to depend on Art. 1181
for its fulfillment. Without it, the contract is not perfected. In conditional obligations, the acquisition of rights, as well as the
● The SC has held that when the obligation assumed by a party to a extinguishment or loss of those already acquired, shall depend upon the
contract is expressly subjected to a condition, the obligation cannot happening of the event which constitutes the condition.
be enforced against him unless the condition is complied with. If
the condition is based on an happening of a future and uncertain VI. Disposition
event, and it did not happen, it would stand as if the conditional WHEREFORE, the petition is GRANTED and the appealed
Decision is REVERSED and SET ASIDE. The Decision of
obligation never existed.
the trial court is REINSTATED, but the award of moral
● Applying it in the case, the obligation of Gonzales to buy the land
damages and attorney's fees is DELETED for lack of basis.
cannot be enforced unless the Cruz' comply with the suspensive
No costs. SO ORDERED.
condition to acquire first a separate and distinct TCT. Since the
condition was not fulfilled, then the obligation of Gonzales to VII. Additional Notes
purchase does not arise.
VII. Random Facts
● Ponente: Panganiban, J.
Issue #3
3
G.R. No. 16570 | March 09, 1922 Conditional Obligation
Smith Bell v. Sotelo Matti Smith Bell v. Sotelo Matti
I. Recit-ready Summary 6. Sotelo denied the claims of Smith Co. alleging that he only acted as
as manager of the intervenor, Manila Oil Refining and By-Products
In August, 1918, Smith, Bell & Co. (Smith Co.) and Sotelo entered Co., Inc. (Manila Oil).
into a contract wherein Smith Co. would sell two steel tanks, two expellers, 7. Sotelo also claims that it was only on May, 1919 that Manila Oil
and two electric motors to Sotelo. The steel tanks were to be delivered was notified of the deliveries of the tanks and that the expellers and
“within three or four months”, the two expellers “within the month of motors are incomplete.
September 18 or as soon as possible.”, and the two electric motors 8. The lower court absolved Sotelo from the complaint with regards
“approximately within ninety days – this is not guaranteed”. The tanks the tanks and electric motors but ordered them to receive the
arrived at Manila on April 27, 1919; the expellers on October 26,1918; and expellers and pay Smith Co. 50,000 pesos, the price of the said
the motors on February 27, 1919. Smith Co. notified Sotelo but he refused goods, with legal interest.
to receive and pay. Because of Sotelo’s refusal, Smith Co. decided to sue.
The issue in this case is whether or not Smith, Bell & Co. has fulfilled its III. Issue/s
obligation to deliver the goods without delay. The court ruled that Smith Co. 1. W/N Smith, Bell & Co. has fulfilled its obligation to deliver the
did not incur any delay since the obligations were subject to conditions. The goods without delay? YES.
court said that when the fulfillment of the condition does not depend on the
will of the obligor, but on that of a third person, who can in no way be
compelled to carry it out, the obligor's part of the contract is complied with
if he does all that is in his power. In this case the obligation the fulfillment IV. Holding/s
of the obligation depended on the issuance of certificates by the US
Govvernment. Issue #1
YES, Smith, Bell & Co. has fulfilled its obligation to deliver the goods
II. Facts of the Case (Material Facts) without delay.
1. In August, 1918, Smith, Bell & Co. (Smith Co.) and Sotelo entered Sotelo Matti’s Arguments Court’s Rebuttals
into a contract wherein Smith Co. would sell two steel tanks, two • Smith Co. incurred delay in the • There was no fixed delivery
expellers, and two electric motors to Sotelo. fulfillment of their obligations period.
2. Based on the contract, the steel tanks were to be delivered “within
since they were not able to meet • It is stated in the contract that the
three or four months”, the two expellers “within the month of
the said dates in the stipulation. obligation is subject to a
September 18 or as soon as possible.”, and the two electric motors
condition.
“approximately within ninety days – this is not guaranteed”.
3. The tanks arrived at Manila on April 27, 1919; the expellers on
October 26,1918; and the motors on February 27, 1919.
4. Smith Co. notified Sotelo but he refused to receive and pay.
5. The refusal of Sotelo to receive and pay for the equipment
prompted Smith Co. to sue.
Obligations and Contracts (2020) PETITIONER: Smith, Bell & Co. 1

DIGEST AUTHOR: John Joves RESPONDENT: Vicente Sotelo Matti
G.R. No. 16570 | March 09, 1922 Conditional Obligation
Smith Bell v. Sotelo Matti Smith Bell v. Sotelo Matti
Overall Ruling V. Law or Doctrine Applied

To resolve the issue, the court first determined if there was a fixed
period for the delivery of the goods. The court ruled that the goods did not CONDITIONAL OBLIGATION THAT DEPEND ON THE WILL OF A
THIRD PERSON
have a specific period for delivery since for the steel tanks, there is a
stipulation that the delivery time is not guaranteed due to possible delays That when the fulfillment of the condition does not depend on the will of the obligor,
caused by government regulations, railroad embargoes, or lack of vessel but on that of a third person, who can in no way be compelled to carry it out, the
space. For the motors, it is stipulated that delivery is not guaranteed because obligor's part of the contract is complied with if he does all that is in his power, and
it is subject to issuance of the US government of certificates. has the right to demand performance of the contract by the other party
VI. Disposition
Because of these conditions, the court ruled that the obligation must be
regarded as a conditional obligation. The export of the machineries depend Wherefore, the judgment appealed from is modified, and the defendant, Mr.
on the condition that the sellers would be able to obtain certificate of Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff the
priority and permission from the United States Government. The court held tanks, the expellers and the motors is question, and to pay the plaintiff the
that when the fulfillment of the condition does not depend on the will of the sum of ninety-six thousand pesos (96,000), with legal interest thereon from
obligor, but on that of a third person, who can in no way be compelled to July 17, 1919, the date of the filing of the complaint, until fully paid , and
carry it out, the obligor's part of the contract is complied with if he does all the costs of both instances. So ordered.
that is in his power. In this case, it was proven that Smith Co. has made all
the efforts it could possibly make to deliver the said goods to Manila
The court also held that when an obligation is to deliver within a

reasonable time, it does not mean that the seller must stop all his other work
and devote his time to that particular order. The reasonable time can be
determined by considering the circumstances such as the character of the
goods, the ability of the producer to produce the goods, the facilities
available for transaction, etc. In this case, it has been sufficiently proven that
Smith Co. did all within its powers to deliver the machineries as soon as
possible. Therefore, Smith Co. has not incurred any delay in the fulfillment
of their obligation.
Obligations and Contracts (2020) PETITIONER: Smith, Bell & Co. 2

DIGEST AUTHOR: John Joves RESPONDENT: Vicente Sotelo Matti
G.R. No. 117009 | October 11, 1995 Conditional Obligation
Security Bank vs. CA Security Bank vs. CA
I. Recit-ready Summary II. Facts of the Case (Material Facts)

Respondent Ysmael Ferrer was contracted by petitioners 1. Respondent Ysmael Ferrer was contracted by petitioners Security
Security Bank and Trust Company and Rosito Manhit to construct the Bank and Trust Company (SBTC) and Rosito Manhit to construct
building of SBTC in Davao City for the price of P1,760,000.00. The the building of SBTC in Davao City for the price of P1,760,000.00.
contract provided that Ferrer would finish the construction in 200 2. The contract, dated 4 February 1980, provided that Ferrer would
working days. He finished the work on 15 August 1980, within the finish the construction in 200 working days. He finished the work
contracted period. on 15 August 1980, within the contracted period.
Due to increase of cost of materials, Ferrer incurred additional 3. Due to increase of cost of materials, Ferrer incurred additional
expenses of about P300,000.00 on top of the original cost. These were expenses of about P300,000.00 on top of the original cost. These
made known to petitioner SBTC as early as March 1980. Ferrer made were made known to petitioner SBTC thru its Vice-President and
timely demands for payment of the increased cost, supported by proof Supervising Architect as early as March 1980.
of the additional expenses. 4. Ferrer made timely demands for payment of the increased cost,
SBTC verified Ferrer's claims for additional cost. A recommendation supported by receipts, invoices, payrolls and other documents
was made to settle Ferrer's claim but only for P200,000.00. Even so, proving the additional expenses.
SBTC refused to pay the additional cost, invoking Article IX of the 5. SBTC thru Assistant Vice-President and a representative of an
contract, which states that any change as to the cost of labor and/or architectural firm, verified Ferrer's claims for additional cost. A
materials shall be subject to a mutual agreement of the parties. In this recommendation was made to settle Ferrer's claim but only for
case, petitioner contends there is no mutual agreement as they did not P200,000.00.
authorize any additional expenses. 6. SBTC refused to pay the additional cost and denied authorizing
Ysmael C. Ferrer then filed a complaint for breach of contract payment of any amount beyond the original contract price,
with damages. RTC ruled for Ferrer. CA affirmed. invoking Article IX of the contract, which states that any change as
The issue in this case is W/N SBTC is liable for payment of to the cost of the payment shall be agreed upon mutually by both
the additional cost? The Supreme Court ruled in favor of respondent parties. (see notes for full provision)
Ysmael. SBTC is liable. Decisions of the RTC and CA are affirmed and 7. Ysmael C. Ferrer then filed a complaint for breach of contract with
petitioner is ordered to pay damages. damages. RTC ruled for Ferrer. CA affirmed. (See notes for reward)
The SC held that this case falls under Article 1182 of the Civil
Code, which states that a conditional obligation shall be void if its
III. Issue/s
fulfillment depends upon the sole will of the debtor. In this case, the
mutual agreement depends on the sole will of the petitioner, since 1. W/N SBTC is liable for payment of the additional cost due to
Ferrer would naturally give consent to such an agreement which would the increase in cost of materials? YES.
allow him recovery of the cost.
Obligations and Contracts (2020) PETITIONER: Security Bank & Trust Company, Rosito C. Manhit 1
DIGEST AUTHOR: Nikki RESPONDENT: Ysmael Ferrer, Court of Appeals
IV. Holding/s Overall Ruling

It is not denied that Ferrer incurred additional expenses due to a drastic and
Issue #1 unexpected increase in construction cost. He made timely demands for his
YES, SBTC is liable for payment of the additional costs incurred. claim which was adequately proven by receipts, invoices and other
supporting documents. In fact, petitioner bank admitted liability for
Petitioner’s Arguments Court’s Rebuttals increased cost when a recommendation was made to settle Ferrer's claim for
 Under Article IX of the building  Nemo ex alterius incommodo P200,000.00.
contract, any increase in the debet lecupletari (no man ought
price of labor and/or materials to be made rich out of another's The SC ruled that the case falls under Article 1182 of the Civil Code. This
resulting in an increase in injury) / Civil Code Art. 22. provision states that a conditional obligation shall be void if its fulfillment
construction cost above the Every person who through an act depends upon the sole will of the debtor. In the present case, the mutual
stipulated contract price will not of performance by another, or any agreement stipulated in the contract (which the petitioner contends is
automatically make petitioners other means, acquires or comes missing, thus proving it has no liability) is in effect a condition dependent
liable to pay for such increased into possession of something at on petitioner bank's sole will, since private respondent would naturally and
cost, as any payment above the the expense of the latter without logically give consent to such an agreement which would allow him
stipulated contract price has been just or legal ground, shall return recovery of the increased cost.
made subject to the condition the same to him. (Refer to overall
that the "appropriate adjustment" ruling) The SC also discussed that it cannot be denied that petitioner bank derived
will be made "upon mutual  This case falls under Article 1182 benefits when private respondent completed the construction even at an
agreement of both parties". of the Civil Code. A conditional increased cost. To allow petitioner bank to acquire the constructed building
 Since there was no mutual obligation shall be void if its at a price far below its actual construction cost would constitute unjust
agreement between the parties, fulfillment depends upon the sole enrichment for the bank to the prejudice of Ferrer, and contrary to Article 22
petitioners' obligation to pay will of the debtor. In the present of the Civil Code.
amounts above the original case, the mutual agreement, is in
contract price never materialized. effect a condition dependent on
petitioner bank's sole will, since V. Law or Doctrine Applied
private respondent would
ARTICLE 1182 OF THE CIVIL CODE (CONDITIONAL OBLIGATION)
naturally and logically give Art. 1182. When the fulfillment of the condition depends upon the sole will of the
consent to such an agreement debtor, the conditional obligation shall be void. If it depends upon chance or upon
which would allow him recovery the will of a third person, the obligation shall take effect in conformity with the
of the increased cost. provisions of this Code.
ARTICLE 22 OF THE CIVIL CODE e) attorney's fees equivalent to 25% of the principal
Art. 22. Every person who through an act of performance by another, or any other amount due; and
means, acquires or comes into possession of something at the expense of the latter f) costs of suit.
without just or legal ground, shall return the same to him.
 Conditional Obligation - a condition wherein the execution of
VI. Disposition which is suspended by a condition which has not been
accomplished, and subject to which it has been contracted.
WHEREFORE, with the above modification in respect of the amount of
attorney's fees, the appealed decision of the Court of Appeals in CA G.R.
VII. Random Facts
CV No. 40450 is AFFIRMED.
 Ponente: Padilla, J.
 Article IX of the Building Contract
If at any time prior to the completion of the work to

be performed hereunder, increase in prices of
construction materials and/or labor shall
supervene through no fault on the part of the
contractor whatsoever or any act of the government
and its instrumentalities which directly or indirectly
affects the increase of the cost of the project,
OWNER shall equitably make the appropriate
adjustment on mutual agreement of both parties.
 The trial court ruled for Ferrer and ordered defendants SBTC and
Rosito C. Manhit to pay:
a) P259,417.23 for the increase in price of labor and

materials plus 12% interest thereon per annum from
15 August 1980 until fully paid;
b) P24,000.00 as actual damages;
c) P20,000.00 as moral damages;
d) P20,000.00 as exemplary damages;
G.R. No. 107207 | November 23, 1995 Pure and Conditional Obligations
Romero v. CA Romero v. CA
I. Recit-ready Summary Counsel of Romero objected to this saying that respondent had no right to
seek rescission of the contract since it was the injured party, in this case
Petitioner Virgilio Romero is engaged in the business of production, Romero, who had the right to do so.
manufacture and exportation of perlite filter aids, permalite insulation and
processed perlite ore. In 1988, Romero and his foreign partners decided to Because of Romero’s continued refusal to accept the return, respondent
put up a central warehouse in Metro Manila on a land area of approx. 2,000 filed with the RTC for a rescission of the deed of conditional sale. The RTC
sqm. This project was made known to real estate brokers. After the rendered decision in favor of Romero holding that respondent had no right
announcement, Alfonso Flores and his wife, accompanied by a broker, to file for rescission of the contract since she was not the injured party. The
offered a parcel of land measuring 1,952 sqm owned by respondent, CA reversed this decision and ordered for the cancellation of the contract
Enriqueta Chua vda. De Ongsiong. Romero visited the property and found based on the fact that the contract entered into by the parties was subject to a
the place suitable for their project except for the presence of squatters in the resolutory condition and that respondent substantially complied with her
area. obligation to evict the squatters and it was Romero who was not ready to
pay the purchase price Hence, the petition.
Flores spouses offered Romero that should he advance the amount of
P50,000.00 to be used for the ejectment case against the squatters, The issue in this case is W/N the CA erred in cancelling the contract of
respondent would agree to sell the property for only P800.000 per sqm. conditional sale. SC held that YES, the CA made an error since under Art.
Romero expressed his concurrence and a deed of conditional sale was drawn 1191 of the Civil Code, the right of resolution of a party to an obligation is
between the parties. The respondent was given 60 days to eject the squatters predicated on a breach of faith by the other party that violates the reciprocity
from the area, otherwise the downpayment made by Romero shall be between them. Since the respondent was the one who failed in her
reimbursed. obligation under the contract, she does not have the right to rescind such
contract.
Romero paid the P50,000.00 while respondent filed a complaint for
ejectment. On February 21, 1989, judgment was rendered ordering the In addition, the court held that respondent is obligated to evict the
squatters to vacate the area; however, this was handed down beyond the 60- squatters on the property. The ejectment of the squatters is a condition the
day period agreed upon by the parties. The writ of execution was issued operative act of which sets into motion the period of compliance by
even later on March 30, 1989 which is 7 months after the agreed upon petitioner of his own obligation, i.e., to pay the balance of the purchase
period. price. Respondent’s failure to remove the squatters from the property within
the stipulated period gives Romero the right to either refuse to proceed with
Respondent, through a letter, sought to return the P50,000.00 since she the agreement or waive that condition in consonance with Art. 1545 of the
could not get rid of the squatters on the lot. Romero, through his counsel, Civil Code. This option clearly belongs to Romero and not to the
refused to accept the reimbursement and even offered to eject the squatters respondent. Here, evidently, petitioner has waived the performance of the
himself. Counsel for respondent, however, said that the deed of conditional condition imposed on respondent to free the property from squatters.
sale has been rendered null and void due to his client’s failure to fulfill her
obligation. He further added that respondent decided to keep the property.
Obligations and Contracts (2020) PETITIONER: Virgilio R. Romero 1

DIGEST AUTHOR: Pam Madrigal RESPONDENT: Court of Appeals, Enriqueta Chua vda. de Ongsiong
II. Facts of the Case (Material Facts) 9. Still pursuant to the agreement, respondent filed a complaint for
ejectment (Civil Case No. 7579) against Melchor Musa and 29 other
1. Petitioner Virgilio Romero is a civil engineer who was engaged in the squatter families.
business of production, manufacture and exportation of perlite filter 10. A judgment was rendered in the ejectment case which ordered the
aids, permalite insulation and processed perlite ore. squatters to vacate the premises.
2. In 1988, Romero and his foreign partners decided to put up a central 11. This decision was handed down beyond the 60-day period (expiring
warehouse in Metro Manila on a land area of approx. 2,000 sqm. This August 9, 1988) stipulated in the contract. The writ of execution of the
project was made known to real estate brokers. judgment was issued, still later, only on March 30, 1989.
3. After the announcement, Alfonso Flores and his wife, accompanied by 12. Respondent sought to return the P50,000 she received from Romero
a broker, offered a parcel of land measuring 1,952 sqm owned by since she could not get rid of the squatters on the lot.
respondent, Enriqueta Chua vda. De Ongsiong. 13. As a response, Atty. Apostol, counsel for petitioner, told the respondent
4. Romero visited the property and found the place suitable for their that since judgment for the eviction case was already rendered and it is
project except for the presence of squatters in the area. possible to eject the squatters from the premises, Romero proposes that
5. Flores spouses offered Romero that should he advance the amount of he shall take it upon himself to eject the squatters.
P50,000.00 to be used for the ejectment case against the squatters, 14. Meanwhile, the Presidential Commission for the Urban Poor (PCUP)
respondent would agree to sell the property for only P800.000 per sqm. asked the MeTC for a grace period of 45 days from April 21, 1989
6. Romero expressed his concurrence and a contract was drawn between within which to relocate and transfer the squatter families. As a result,
the parties. the court suspended the enforcement of the writ of execution.
7. The following are the more significant stipulations in the contract: 15. Replying to Atty. Apostol, Atty. Yuseco, counsel for respondent, told
a. The balance of the purchase price in the amount P1,511,600.00 the former that the Deed of Conditional Sale had been rendered null and
ONLY shall be paid 45 days after the removal of all squatters from void by virtue of his client’s failure to evict the squatters from the
the property premises within the agreed period. He added that respondent had
b. That if after 60 days from the date of the signing of this contract decided to retain the property.
the VENDOR shall not be able to remove the squatters from the 16. Atty. Apostol countered this by saying that the respondent had no right
property being purchased, the downpayment made by the buyer to rescind contract and to retain the property since that right belongs to
shall be returned/reimbursed by the VENDOR to the VENDEE. Romero who is the injured party in the case.
c. That upon full payment of the overall purchase price, the 17. He added that respondent has not complied with her obligation under
VENDOR without necessity of demand shall immediately sign and their contract in good faith. It was obvious that respondent deliberately
deliver the deed of absolute sale in favor of the VENDEE. refused to exert efforts to eject the squatter and her decision to retain
8. As agreed, Romero paid the P50,000 for the ejectment of the squatters the property was brought about by the sudden increase in the value of
in the area. The check payment was received and acknowledged by the realties in the surrounding areas.
other party. 18. Because of Romero’s continued refusal to accept the return of the
P50,000.00 advance payment, respondent, on June 27, 1989, filed with
the RTC for a rescission of the deed of conditional sale.

19. Meanwhile, on August 25, 1989, the MeTC issued an alias writ of Issue #1
execution in the ejectment case on motion of respondent but the YES, the contract should not have been cancelled because respondent
squatters apparently still stayed on. did not have the right to seek rescission of the contract.
20. Back to the case at hand, the RTC rendered a decision holding that Respondent’s Arguments Court’s Rebuttals
respondent had no right to rescind the contract since it was she who  The contract became null and  The respondent’s action for
violated her obligation to eject. They added that it was Romero who had void because of respondent’s rescission is not warranted since
the right under Art. 1191 of the Civil Code to rescind the agreement. failure to fulfill her obligation. under Art. 1191, it is the injured
21. The RTC also noted that respondent caused the issuance of an alias writ Therefore, she could seek party which is Romero who has
of execution in the ejectment suit two months after she filed the rescission or cancellation of the the right to rescind the contract.
complaint for rescission. If she was really afraid of the squatters, which contract.
was the ground relied upon by respondent in seeking rescission, then Overall Ruling
she should not have pursued the issuance an alias writ of execution.
22. Accordingly, the RTC dismissed the complaint and ordered respondent SC held that a sale is at once perfected where a person (the seller)
to eject the squatters from the property and to execute the absolute deed obligates himself, for a price certain, to deliver and to transfer ownership
of conveyance upon payment of the full purchase price by Romero. of a specified thing or right to another (the buyer) over which the latter
23. The CA reversed the RTC’s decision and ordered the cancellation of the agrees. Since the parties fulfill these conditions, SC ruled that the
contract of conditional sale. agreement of the parties is a duly perfected contract.
24. The CA opined that the contract entered into by the parties was subject
to a resolutory condition and that respondent substantially complied From the moment the contract was perfected, the parties are bound
with her obligation to evict the squatters and it was Romero who was not only to the fulfillment of what has been expressly stipulated but also to
not ready to pay the purchase price. They also added that, contrary to all the consequences of which, according to their nature, may be in
the RTC’s ruling, the provision requiring mandatory keeping with good faith, usage and law. In the case at hand, respondent is
return/reimbursement of the P50,000.00 in case respondent fails to eject obligated to evict the squatters on the property. The ejectment of the
the squatters within the 60-day period was not a penal clause. squatters is a condition the operative act of which sets into motion the
25. Hence, this petition. period of compliance by petitioner of his own obligation, i.e., to pay the
balance of the purchase price. Respondent’s failure to remove the
III. Issue/s squatters from the property within the stipulated period gives Romero the
right to either refuse to proceed with the agreement or waive that
1. W/N the CA erred in cancelling the contract of conditional sale. condition in consonance with Art. 1545 of the Civil Code. This option
YES clearly belongs to Romero and not to the respondent. Here, evidently,
petitioner has waived the performance of the condition imposed on
IV. Holding/s respondent to free the property from squatters.
In any case, SC ruled that respondent’s action for rescission is not

warranted since she is not the injured party. Under Art. 1191 of the Civil WHEREFORE, the questioned decision of the Court of Appeals is
Code, the right of resolution of a party to an obligation is predicated on a hereby REVERSED AND SET ASIDE, and another is entered ordering
breach of faith by the other party that violates the reciprocity between petitioner to pay private respondent the balance of the purchase price and
them. Since the respondent was the one who failed in her obligation under the latter to execute the deed of absolute sale in favor of petitioner. No
the contract, she does not have the right to rescind such contract. costs. SO ORDERED.


 SC held that they share in the opinion of the CA in that the undertaking
required of private respondent does not constitute a "potestative
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case condition dependent solely on his will" that might, otherwise, be void in
one of the obligors should not comply with what is incumbent upon him. accordance with Article 1182 of the Civil Code 17 but a "mixed"
condition "dependent not on the will of the vendor alone but also of
The injured party may choose between the fulfillment and the rescission of the third persons like the squatters and government agencies and personnel
obligation, with the payment of damages in either case. He may also seek rescission, concerned." There was no other mention of this issue in the case.
even after he has chosen fulfillment, if the latter should become impossible.
VII. Random Facts
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
 Ponente: Vitug, J.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
Law.
ART. 1545. Where the obligation of either party to a contract of sale is subject to
any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If the other party has
promised that the condition should happen or be performed, such first mentioned
party may also treat the nonperformance of the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the fulfillment
by the seller of his obligation to deliver the same as described and as warranted
expressly or by implication in the contract of sale as a condition of the obligation of
the buyer to perform his promise to accept and pay for the thing.
VI. Disposition

G.R. No. L-58286 | May 16, 1983 Article 1182, Civil Code
Ducusin v Court of Appeals Ducusin v Court of Appeals
The Ducusins, petitioners in this case, own and leased to the spouses Here, the resolutory condition is dependent on third parties (the
Baliola, private respondents, a one-door apartment unit in Sta. Mesa, Manila children of the petitioner). The CA, however, held that the petitioners failed
on February 20, 1975. The pertinent portion of their contract of lease states to prove that the children were married and needed the apartment unit as
that: their residence.
The term of this contract shall be in a month to month The issues to be resolved by the SC are (1) whether or not the
basis commencing on February 19, 1975 until terminated petitioners can unilaterally terminate the contract of lease under the terms
by the lessor on the ground that his children need the and conditions agreed upon, and (2) whether or not the petitioner’s
premises for their own use or residence or upon any children's need for the unit was sufficiently proven. The SC affirmed the
ground provided for in accordance with law; ruling of the CA but only insofar that the petitioners may terminate the
contract unilaterally. However, the SC held that Agapito Jr. was sufficiently
The spouses occupied the apartment for almost 2 years where on proven as married and needed the apartment unit. The level of evidence
January 18, 1977, the Ducusins sent them a Notice to Terminate Lease required to prove this in this case is a preponderance of evidence. The
Contract for the reason that their 2 sons were getting married and will need petitioners provided wedding photographs, testimony of Ducusin Sr. who
the apartment for use and residence. The Baliolas were given until March was present at the wedding, and a marriage certificate.
15, 1977 to vacate the premises. The Baliolas did not reply but instead Further, the petitioners showed that the Agapito Jr. and his family
wrote a letter to the Secretary of National Defense to report the eviction. intend to settle in the Philippines. Ducusin Jr. was residing with his wife in
The Ducusins filed an action for ejectment against the Baliolas in Canada but a testimony of Arturo Ducusin shows that he was talking to
the City Court of Manila. The action also alleged that the respondents were Agapito Jr. over the phone and the latter was coming home and was
violating the terms of contract by subleasing the premises and using it as a preparing his documents. A letter from Agapito Jr. also shows that he
factory for commercial goods. The allegations of subleasing and using the intends to settle in the Philippines instead of Canada. Finally, there are no
unit as a factory was unproven and, thus, was not given credence in court. other rooms available as the 3 of the 8 rooms in the apartment building were
The City Court ruled that the contract of lease was validly terminated. The untenable due to wear and tear while the rest all had tenants.
respondents raised the matter to the Court of First Instance affirmed the II. Facts of the Case (Material Facts)
decision of the City Court. The respondents then raised the issue to the 1. On February 20, 1975, the Ducusins leased an apartment unit to the
Court of Appeals. Baliolas.
The CA held that the petitioners may unilaterally terminate the 2. In the contract of lease, it states term of this contract shall be in a
contract of lease by citing Article 1182 of the Civil Code which states that: month to month basis commencing on February 19, 1975 until
terminated by the lessor on the ground that his children need the
When the fulfillment of the condition depends upon premises for their own use or residence or upon any ground
the sole will of the debtor, the conditional obligation shall provided for in accordance with law;
be void. If it depends upon chance or upon the will of a
3. The respondents paid rent and resided in the unit for 2 years.
third person, the obligation shall take effect in conformity
with the provisions of this Code.
1
Obligations and Contracts (2020) PETITIONER: Agapito B. Ducusin and Agapito T. Ducusin
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Court of Appeals, Virgilio Baliola, and Lilia Baliola
4. On January 18 1977, the petitioners sent a Notice to Terminate Overall Ruling

Lease on the ground that his 2 children were getting married and The SC held that the CA was right in stating that this case falls
needed the apartment for their own use and residence. under Article 1182 of the Civil Code. This article states that: When the
5. The Baliolas were given until March 15, 1977 to vacate the fulfillment of the condition depends upon the sole will of the debtor, the
premises. conditional obligation shall be void. If it depends upon chance or upon the
6. The Baliolas made no reply. will of a third person, the obligation shall take effect in conformity with the
7. On April 14, 1977, the Ducusins filed an action for ejectment in the provisions of this Code. Here, the condition depends upon third parties, the
City Court of Manila. lessor’s children. Whenever the children require the leased units for their
8. The City Court ruled in favor of the Ducusin saying that the own needs, the contract shall be deemed terminated.
contract was validly terminated and ordering the respondents to
vacate the premises. Issue #2
9. The Court of First Instance affirmed the ruling of the City Court. W/N the fact that the petitioner’s children need the unit has been proven?
10. The CA held that the contract was valid and that the Ducusins can YES.
unilaterally terminate the contract, but the marriage and Agapito Respondent’s Arguments Court’s Rebuttals
Jr’s need to use the apartment unit was not proven. ● The evidence provided by the ● The testimony should be given
petitioners are hearsay and weight as the the person testifying
III. Issue/s self-serving was present at the wedding (as
1. W/N the petitioners can unilaterally terminate the contract of ● The petitioners were unable to proven by a photograph)
lease under the terms and conditions provided? YES. show that the respondent’s ● The evidence provided is
2. W/N the fact that the petitioner’s children need the unit has been leased unit was the only competent, clear, and substantial.
proven? YES. available unit.
IV. Holding/s
Issue #1
W/N the petitioners can unilaterally terminate the contract of lease
under the terms and conditions provided? YES.
Respondent’s Arguments Court’s Rebuttals
● The need for the premises is not ● The case falls under paragraph
lawful or valid Art 1182 of the Civil Code.
2
Overall Ruling Appeals are contrary to those of the trial court or premised on the absence of
The evidence presented by the petitioners should be given more evidence and is contradicted by evidence on record; the conclusion is a
weight. The testimonies are all based on facts known to those testifying. finding grounded entirely on speculation, surmise and conjectures; and the
This is clear as it was proven that Ducusin Sr. was present at the wedding inference made is manifestly mistaken. This case falls under the exceptions.
and Arturo talked to his brother about the latter’s plan to return and settle in
the Philippines with his wife. VI. Disposition
Evidence provided by the petitioners also shows that the remaining WHEREFORE, IN VIEW OF THE FOREGOING, the decision of the
units were either untenantable or occupied. There is no other place available respondent Court of Appeals subject of this review is hereby REVERSED
for the use of the petitioner’s son. and SET ASIDE. The decision of the City Court of Manila, Branch XVI and
Generally the findings of the fact are deemed accepted but there are affirmed on appeal to the court of First Instance of Manila, Branch XVI is
exceptions to this rule which this case falls under. The CA excluded and hereby reinstated and restored, with costs in favor of the petitioners.
ignored evidence which are competent, clear, and substantial. This makes
manifest its commission of grave abuse of discretions and justifies a review
● The contract of lease stipulates that the respondents must pay
of the facts.
Php220.00 on or before every 30th day of the month without
needing demand.
ARTICLE 1182 of the Civil Code VII. Random Facts
Article 1182 provides that: ● Ponente: Guerrero, J.
When the fulfillment of the condition depends upon the
sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third
person, the obligation shall take effect in conformity with
the provisions of this Code
The children of the petitioner are deemed to be third parties and the
condition that the children would need the premises for their own use or
residence is a valid condition and falls under Article 1182.
Reviewing Findings of Fact

The general rule is that the findings of fact of the CA are deemed
accepted as the basis for review of their decisions. However, the findings of
fact are not conclusive when there is grave abuse of discretion; the judgment
is based on misapprehension of facts; the findings of facts of the Court of
3
G.R. No. 70789 | October 19, 1992 Article 1182, Civil Code (Potestative Conditions)
Rustan Pulp v. CA Rustan Pulp v. CA
I. Recit-ready Summary • Price of pulp wood raw materials is P30/m3;

Rustan Pulp & Paper Mills was offered by Romeo Lluch for the former to be • Sec. 3: Rustan Pulp has option to buy from other sellers who
supplied with raw materials. Rustan Pulp proposed a non-exclusive contract to buy are equally qualified and licensed as Lluch; and,
wood pulp from Lluch. However, a condition in the contract gave Rustan Pulp the • Sec. 7: Rustan Pulp has the right to stop accepting deliveries
right to stop accepting deliveries when the supply became sufficient until such time when the supply became sufficient until such time the raw
the raw materials are needed.
materials are needed, with sufficient notice given to the seller
During the test run of the pulp mill, major defects on the machinery were
discovered prompting the Japanese supplier of the machinery to recommend the 4. During the test run of the pulp mill, the machinery had major defects
stoppage of the deliveries. The suppliers were informed to stop deliveries but were prompting the Japanese supplier of the machinery to recommend the
not informed as to the reasons for the stoppage. stoppage of deliveries.
Lluch sought to clarify the tenor of the notice as to whether stoppage of 5. Suppliers were informed to stop the deliveries through a letter signed by
delivery or termination of the contract of sale was intended, but Rustan Pulp failed to Romeo Vergara (30 days from the issuance of the notice in September 30,
reply. This alleged ambiguity notwithstanding, Lluch and the other suppliers 1968) but were not informed of the reasons for such stoppage.
resumed deliveries after a series of talks between Lluch and Romeo Vergara, the 6. Lluch wanted to clarify with Rustan Pulp whether the notice of stoppage of
manager of Rustan Pulp. delivery or termination of the contract of sale was intended, but the latter
Later, Lluch filed a complaint for breach of contract. The case was dismissed, failed to reply.
but at the same time, the court enjoined Rustan Pulp to honor the contract. On 7. Due to this ambiguity, Lluch and other suppliers resumed deliveries after a
appeal, the IAC ruled that Rustan Pulp's suspension of deliveries was not in the series of talks to Vergara, the manager of Rustan Pulp.
lawful exercise of its rights under the contract of sale.
8. January 23, 1969, Lluch filed a complaint for breach of contract but was
The issue is whether or not the contract of sale is purely potestative based on
dismissed. However, the court enjoined Rustan Pulp to honor the contract.
the contract where Rustan Pulp has the right to unilaterally stop accepting deliveries
9. Immediate Appellate Court found it unjust to rule that the contract of sale
and, thus, invalid. The SC said it is potestative, under Article 1182 of the Civil Code,
be temporarily suspended until Rustan Pulp is ready to accept deliveries
because the apprehension on the erroneous resumption of deliveries inasmuch as the
from the respondents. This would make the resumption of the contract
prerogative suggests a condition solely dependent upon the will of the petitioners. A
purely dependent on the will of one party, in this case, Rustan Pulp.
potestative condition depends upon the exclusive will of one of the parties. For this
Therefore, the IAC ruled that Rustan Pulp's suspension of deliveries was
reason, it is considered void. A purely potestative imposition of this character must
not in the lawful exercise of its rights under the contract of sale.
be obliterated from the face of the contract without affecting the rest of the
III. Issue/s
stipulations considering that the condition relates to the fulfillment of an already
1. W/N the contract between Rustan Pulp & Paper Mills, Inc. and Lluch
existing obligation and not to its inception.
is a purely potestative imposition thereby making it invalid or void?
(YES).
II. Facts of the Case (Material Facts)
1. In 1966, petitioner Rustan Pulp & Paper Mills, Inc. (Rustan Pulp) started IV. Holding/s
operations in Baloi, Lanao Del Norte.
2. In March 20, 1967, Respondent Lluch (Lluch), holder of forest products Issue #1
license, transmitted a letter Rustan Pulp, proposing to supply wood pulp to YES, because the apprehension on the illusory resumption of deliveries
the latter. inasmuch as the prerogative suggests a condition solely dependent upon the
3. Rustan Pulp’s letter-reply proposed a non-exclusive contract, which later will of the petitioners.
became part of the executed contract of sale in April 1968, with the
conditions that (see Additional Notes1):
Obligations and Contracts (2020) PETITIONERS: Rustan Pulp & Paper Mills, Inc., Bienvenido R. Tantoco, Sr., Romeo S. Vergara 1
DIGEST AUTHOR: Joses RESPONDENT: IAC, Iligan Diversified Projects, Inc., Romeo A. Lluch, Roberto G. Borromeo
G.R. No. 70789 | October 19, 1992 Article 1182, Civil Code (Potestative Conditions)
Rustan Pulp v. CA Rustan Pulp v. CA

• The letter they issued on Sept. 30. • Such condition diminishes the legal V. Law or Doctrine Applied
1968 is well within the stoppage efficacy of such right due to being
guaranteed to them by Sec. 7 of the dependent only to the will of the ARTICLE 1182 OF THE CIVIL CODE (POTESTATIVE CONDITIONS)
contract petitioners, therefore, inoperative Art. 1182. When the fulfillment of the condition depends on the sole will of the
debtor, the conditional obligation shall be void.
• They asserted that their obligation may • Incongruous for petitioners to have sent
be exculpated when such obligation the letters calling for suspension and yet, ARTICLE 1267 OF THE CIVIL CODE
has become so difficult as to be they in effect disregarded their own advice When the service has become so difficult as to be manifestly beyond the
manifestly beyond the contemplation by accepting the deliveries from the contemplation of the parties, the obligor may also be released therefrom, in whole or
of parties (Art. 1267) suppliers in part.
• Demeanor of petitioners along this line • Decision of IAC, reiterated by the SC: if
was sought to be justified as an act of the plant could not be operated on a VI. Disposition
generous accommodation, which commercial scale, it would then be
entailed greater loss to them and “was illogical for Rustan Pulp to continue WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that
not motivated by the usual accepting deliveries of raw materials only petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and
businessman’s obsession with profit" attorney's fees as awarded by respondent Court.
Overall Ruling
The SC ruled that there is basis for the apprehension on the erroneous resumption of
• 1Conditions in the contract that are in contention:
deliveries at Rustan Pulp because the contract suggests a condition solely dependent upon 3. That BUYER shall have the option to buy from other SELLERS who are
Rustan Pulp’s exclusive will. The contested condition in the contract is that Rustan Pulp can equally qualified and holders of appropriate government authority or license to
stop the delivery of pulp wood from Lluch if the supply at the plant is sufficient, and resume sell or dispose, that BUYER shall not buy from any other seller whose pulp
delivery when the need arises, as determined by Rustan Pulp (section 7 of the contract). woods being sold shall have been established to have emanated from the
SELLER'S lumber and/or firewood concession. . . .
Article 1182 of the Civil Code describes a potestative condition that depends upon the
And that SELLER has the priority to supply the pulp wood materials
exclusive will of one of the parties. For this reason, it is considered void. A purely requirement of the BUYER;
potestative imposition of this character must be obliterated from the face of the contract xxx xxx xxx
without affecting the rest of the stipulations considering that the condition relates to the 7. That the BUYER shall have the right to stop delivery of the said raw
fulfillment of an already existing obligation and not to its inception. materials by the seller covered by this contract when supply of the same shall
become sufficient until such time when need for said raw materials shall have
The SC referenced their ruling to the case of Taylor vs. Uy Tieng Piao, where a become necessarily provided, however, that the SELLER is given sufficient
condition which is both potestative (or facultative) and resolutory may be valid, even notice.
though the saving clause is left to the will of the obligor. But the Taylor case, which allowed
a condition for unilateral cancellation dependent on the arrival of factory machinery, cannot VII. Random Facts
be applied in this case at hand because the facts relate to the birth of the undertaking and not • Ponente: Melo, J.
to the fulfillment of an existing obligation.
In the disposition of the SC, it only imputed liability to Rustan Pulp, removing the
liability of Vergara (President) and Tantoco (Manager). The President and Manager of a
corporation who entered into and signed a contract in his official capacity, cannot be made
liable thereunder in his individual capacity in the absence of stipulation to that effect due to
the personality of the corporation being separate and distinct from the persons composing it.
Obligations and Contracts (2020) PETITIONERS: Rustan Pulp & Paper Mills, Inc., Bienvenido R. Tantoco, Sr., Romeo S. Vergara 2
DIGEST AUTHOR: Joses RESPONDENT: IAC, Iligan Diversified Projects, Inc., Romeo A. Lluch, Roberto G. Borromeo
G.R. No. 177050 | July 1, 2013 Fulfillment of Suspensive Conditions
Lim v. DBP Lim v. DBP
I. Recit-ready Summary freed from the duty to pay the loan without paying it. 2. W/N the
Petitioners obtained the first loan of P40,000 (Lim Account) and the foreclosure sale is valid? No because there was notice of the extrajudicial
second loan of P960,000 (Diamond L Ranch Account). In these two foreclosure was sent by DBP to petitioners about the foreclosure sale which
transactions, the former executed Promissory Notes with an interest rate of was clearly in violation of paragraph 11 of the Mortgage. 3. W/N the
9% per annum and penalty charge of 11% per annum for the first loan, and imposition of additional interest and penalties not stipulated in the
with an interest rate of 12% per annum and a penalty charge of 1/3% per Promissory Notes is valid? No, Under the Civil Code, no interest shall be
month on the overdue amortization, payable within 10 years. The violent due unless it has been expressly stipulated in writing, except if the payment
confrontations between government troops and Muslim rebels affected the of interest and penalties in loans is agreed upon by the parties and reduced
petitioners’ business which caused their failure to pay amortizations. their agreement in writing. In conclusion, the case was remanded to the RTC
Petitioners gave P902,800.00 as partial payment, leaving an outstanding for the proper determination of petitioners' total loan obligations based on
loan balance of P610,498.30, inclusive of charges and unpaid interest, as of the interest and penalties stipulated in the Promissory Notes. The Court
September 30, 1978. In effect, Edmundo received a Notice of Foreclosure, ruled that the foreclosure sale was null and void for failure to comply with
but he kept on paying interests in order to postpone it and on informing DBP paragraph 11 of the Mortgage.
that he will settle the accounts. Bonifacio Tamayo, respondent’s branch
head, guaranteed an accepted Restructuring Agreement by the Regional II. Facts of the Case (Material Facts)
Credit Committee (RCC), provided that petitioner will pay 10% down 1. Petitioners Carlos, Consolacion, and Carlito (all surnamed Lim)
payment and the remaining balance in 36 monthly installments. Edmundo obtained a loan of P40,000.00 (Lim Account) from respondent
agreed and complied with it, but he was informed that the proposal was Development Bank of the Philippines to Finance their cattle raising
rejected. Edmundo received another notice and requested another extension, business and executed a Promissory Note undertaking to pay the
however he failed to comply with the conditions. Hence, the public auction annual amortization with an interest rate of 9% per annum and
sale was conducted. Petitioners filed before the RTC of General Santos City, penalty charge of 11% per annum. After a year, petitioners,
a Complaint against DBP for Annulment of Foreclosure and Damages with together with Edmundo Lim, Shirley Dizon, and Arleen Fernandez,
Prayer for Issuance of a Writ of Preliminary Injunction and/or Temporary
obtained another loan from DBP amounting to P960,000 (Diamond
Restraining Order. The RTC ruled in favor of the former because they were
L Ranch Account) and executed a Promissory Note, promising to
discharged from their obligation and that the foreclosure of petitioners’
pay the loan annually from August 22, 1973 until August 22, 1982
mortgaged properties was null and void. On appeal, the CA reversed the
RTC’s decision. The following issues in the case are as follows: 1. W/N with an interest rate of 12% per annum and a penalty charge of
petitioner’s obligation is deemed fulfilled since DBP prevented them 1/3% per month on the overdue amortization. Also, petitioners
from performing their obligation by charging excessive interest and secured a real estate mortgage covering 11 parcels of land in favor
penalties not stipulated in the Promissory Notes? No, it will be irrational of DBP.
for any Bank to provide a suspensive condition in the Promissory Note or 2. Due to violent confrontations between government troops and
the Restructuring Agreement that will allow the debtor-promissor to be Muslim rebels, petitioners forced to abandon their cattle ranch
1
Obligations and Contracts (2020) PETITIONER: Carlos Lim, Consolacion Lim, Carlito Lim, Edmund Lim,
Shirley Leodadia Dizon, and Arleen Lim Fernandez
DIGEST AUTHOR: Steven Rivera RESPONDENT: Development Bank of the Philippines
which resulted to the fall of the business and the failure on Agreement for the settlement of his accounts, but it was denied for
petitioner’s part to pay the loan amortizations. Petitioners gave his failure to comply within a reasonable time.
P902,800.00 as partial payment, leaving an outstanding loan 6. The Ex-Officio Sheriff conducted a public auction sale of the
balance of P610,498.30, inclusive of charges and unpaid interest, mortgaged properties for the satisfaction of petitioners' total
as of September 30, 1978. Edmundo requested from DBP obligations. DBP was the highest bidder in the amount of
Statements of Account for the "Lim Account" and the "Diamond L P3,310,176.55. Edmundo was informed by the DBP that their right
Ranch Account. However, the former requested for the amended of redemption over the foreclosed properties would expire on July
SoA due to the latter’s failure to apply his recent payment. 28, 1995.
3. Edmundo received a Notice of Foreclosure, but paid an interest 7. Petitioners filed before the RTC of General Santos City, a
worth P60,000 in order to postpone it for 60 days. The former Complaint against DBP for Annulment of Foreclosure and
proposed to settle the accounts through dacion en pago by paying Damages with Prayer for Issuance of a Writ of Preliminary
the balance in equal quarterly payments for five years, but it was Injunction and/or Temporary Restraining Order. The RTC issued a
rejected and pursued with the foreclosure proceedings. TRO to cease and desist DBP from consolidating the titles over
4. Bonifacio Tamayo, respondent’s branch head, guaranteed an petitioners' foreclosed properties and from disposing the same. The
accepted Restructuring Agreement by the Regional Credit RTC ruled that the petitioner was discharged from their obligation
Committee (RCC), provided that petitioner will pay 10% and that the foreclosure of petitioners’ mortgaged properties was
downpayment and the remaining balance in 36 monthly null and void.
installments. Petitioner complied, but Tamayo informed him that 8. On appeal, the CA reversed the RTC’s decision and ordered
the proposal was rejected and that the RCC required a 50% down petitioners to pay the respondent the amount of Two Million Five
payment and a payment for the balance within a year. The former Hundred Ninety Two Thousand Two Hundred Ninety Nine and
wrote a letter of appeal to RCC, and it was granted, provided that Seventy-Nine Centavos (P2,592,299.79) plus interest and penalties
payment of March 15 and June 15, 1993 amortizations must be as stipulated in the Promissory Note computed from 11 July 1994
made within 30 days. No compliance by Edmundo was made. until full payment.
5. Edmundo received Notice that the mortgaged properties were
scheduled to be auctioned on the same day. In effect, he requested III. Issue/s
again for extension, and was granted, provided that it will be the 1. W/N petitioner’s obligation is deemed fulfilled since DBP
last extension to be granted and that all amortizations due from prevented them from performing their obligation by charging
March to November 1993 shall be paid including the additional excessive interest and penalties not stipulated in the
interest computed at straight 18.5% from date of your receipt of Promissory Notes? NO;
notice of approval. The former again requested a Restructuring 2. W/N the foreclosure sale is valid? NO;
2
3. W/N the imposition of additional interest and penalties not Overall Ruling
stipulated in the Promissory Notes is valid? NO; The Promissory Notes subject of the instant case became due and
demandable as early as 1972 and 1976. Petitioners’ last payment was in
IV. Holding/s 1978. Under Article 1186 of the Civil Code, the condition shall be deemed
fulfilled when the obligor voluntarily prevents its fulfillment. The three
Issue #1 requisites are: (1) The condition is suspensive; (2) The obligor actually
NO, the obligation was not extinguished or discharged. prevents the fulfillment of the condition; and (3) He acts voluntarily. In the
Petitioner’s Arguments Court’s Rebuttals case at bar, there is no suspensive condition because it will be irrational for
● Petitioners insist that DBP ● In their defense, the amounts in any Bank to provide a suspensive condition in the Promissory Note or the
prevented them from performing the Statements of Account vary Restructuring Agreement that will allow the debtor-promissor to be freed
their obligation by charging because the computations were from the duty to pay the loan without paying it.
excessive interest and penalties based on different cut-off dates
not stipulated in the Promissory and different incentive schemes. Issue #2
Notes, by failing to promptly NO, the foreclosure is not valid.
provide them with the correct Petitioner’s Arguments Court’s Rebuttals
Statements of Account, and by ● They insist that the foreclosure ● The foreclosure sale is valid
cancelling the Restructuring sale is void for lack of personal because gross inadequacy of the
Agreement even if they already notice and the inadequacy of the bid price as a ground for the
paid P362,271.75 as down bid price. annulment of the sale applies only
payment. to judicial foreclosure.
3
Overall Ruling Overall Ruling

The bank's failure to send a notice of foreclosure to petitioners. In the recent Under Article 1956 of the Civil Code, no interest shall be due unless it has
jurisprudence, the Courts have consistently held that unless the parties been expressly stipulated in writing, except if the payment of interest and
stipulate, "personal notice to the mortgagor in extrajudicial foreclosure penalties in loans is agreed upon by the parties and reduced their agreement
proceedings is not necessary" because Section 3 of Act 3135 only requires in writing. In this case, petitioners never agreed to pay additional interest
the posting of the notice of sale in three public places and the publication of and penalties. Consequently, this case should be remanded to the RTC for
that notice in a newspaper of general circulation. In this case, the parties the proper determination of petitioners' total loan obligation based on the
stipulated that all correspondence relative to the mortgage shall be sent to interest and penalties stipulated in the Promissory Notes.
the mortgagor. However, no notice of the extrajudicial foreclosure was sent
by DBP to petitioners about the foreclosure sale scheduled on July 11, 1994.
Hence, the failure of DBP to comply with their contractual agreement with
petitioners is a breach sufficient to invalidate the foreclosure sale.
Issue #3 V. Law or Doctrine Applied

NO, the penalties and interest rates should be expressly stipulated in
writing. Article 1186 of the Civil Code
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. The three requisites are: (1) The condition is suspensive; (2) The obligor
Petitioner’s Arguments Court’s Rebuttals actually prevents the fulfillment of the condition; and (3) He acts voluntarily.
● They insist that the foreclosure ● The foreclosure sale is valid
sale is void for lack of personal because gross inadequacy of the Article 1956 of the Civil Code
notice and the inadequacy of the bid price as a ground for the No interest shall be due unless it has been expressly stipulated in writing.
bid price. annulment of the sale applies only
to judicial foreclosure. VI. Disposition
WHEREFORE, the Petition is PARTLY GRANTED . The assailed
February 22, 2007 Decision of the Court of Appeals in CA-G.R. CV No.
59275 is hereby MODIFIED in accordance with this Decision. The case is
hereby REMANDED to the Regional Trial Court of General Santos City,
Branch 22, for the proper determination of petitioners' total loan obligations
based on the interest and penalties stipulated in the Promissory Notes dated
November 24, 1969 and December 30, 1970. The foreclosure sale of the
4
mortgaged properties held on July 11, 1994 is DECLARED void ab initio

for failure to comply with paragraph 11 of the Mortgage, without prejudice
to the conduct of another foreclosure sale based on the recomputed amount
of the loan obligations, if necessary.

●
VII. Random Facts

● Ponente: Del Castillo, J.
5
G.R. No. L-29155 | May 13, 1970 Art. 1191
Universal Food Corp. v CA Universal Food Corp. v CA
I. Recit-ready Summary later registered his trademark in his name as owner and inventor
Magdalo Francisco invented a formula for the manufacture of a food with the Bureau of Patents. Due to a lack of capital to finance his
seasoning popularly known as MAFRAN sauce. Magdalo later registered expansion, he secured the financial assistance of Tirso Reyes who
his trademark in his name as owner and inventor with the Bureau of Patents. formed with petitioner Universal Food Corp (UFC). Eventually the
Due to a lack of capital to finance his expansion, he secured the financial Bill of Assignment (BOA) was executed (check notes for BOA).
assistance of Tirso Reyes who formed with petitioner Universal Food Corp 2. The terms and conditions of the BOA appointed Magdala as Chief
(UFC). Eventually the Bill of Assignment (BOA) was executed. The terms Chemist, with a salary of Php 300 per month, on a permanent basis.
and conditions of the BOA appointed Magdala as Chief Chemist, with a Victoriano Francisco was appointed auditor. Since the start of the
salary of Php 300 per month, on a permanent basis. Magdalo never allowed UFC operations, Magdalo never allowed anyone, not even his son,
anyone, not even his son, to enter the laboratory when he was preparing the to enter the laboratory when he was preparing the secret materials
secret materials for the Mafran sauce. The operations of UFC was for the Mafran sauce. Magdalo expressed willingness to give the
suspended and several memoranda were issued by UFC, all of which formula to UFC provided that it be kept in a safe and opened only
implied that Magdalo was to be removed from his position as UFC when he is incapacitated to perform his duties as chief chemist
operations continue. Magdalo filed an action to rescind the BOA (UFC never acquired a safe). UFC’s president and Reyes requested
Magdalo to allow one or two of his family members to observe but
ISSUE: W/N the rescission of the BOA was proper? Magdalo denied.
3. Due to the alleged scarcity and high prices of raw materials, the
The SC said yes, the rescission was proper. The BOA is clearly a reciprocal UFC secretary-treasurer issued a memorandum which provides that
obligation. UFC violated the BOA by terminating Magdalo without lawful only Ricardo Francisco should be retained in the factory and that
and justifiable cause. Generally, there can be no rescission for slight breach the payment of Magalo’s salary should be halted until the
of contract. Only substantial breach that would defeat the very object of the corporation resumes operation.
parties in making the agreement may be rescinded. Magdalo’s dismissal is a 4. Another memorandum was issued to Victoriano Francisco ordering
substantial breach of the BOA. Magdalo was dismissed without any fault or him to report to the factory and produce Mafran sauce at a rate of
negligence on his part. The option to demand performance or rescission is not less than 100 cases per day and taking only daily employees
upon the offended party. without employing permanent ones. Another memorandum ordered
full scale production and the hiring of employees.
5. None of these memoranda recalled Magdalo to go back to work,
II. Facts of the Case (Material Facts) hence he filed an action to rescind the BOA and prayed that UFC
1. Magdalo Francisco invented a formula for the manufacture of a be adjudged to be without any right to use the Mafran trademark
food seasoning popularly known as MAFRAN sauce. Magdalo
1
Obligations and Contracts (2020) PETITIONER:UNIVERSAL FOOD CORPORATION
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: THE COURT OF APPEALS, MAGDALO V.
FRANCISCO, SR., and VICTORIANO V. FRANCISCO
G.R. No. L-29155 | May 13, 1970 Art. 1191
and formula. Reyes requested Magdalo to go back to work but comply with his obligation and ● Provisions of the BOA clearly
Magdalo declined because of the pending action. the other is not (art. 1169) show Magdalo’s invention during
6. The Court of First Instance of Manila dismissed Magdalo’s ● Magdalo did not comply with the execution of the BOA was to
complaint. The CA reversed the CFI decision and rescinded the his contractual obligation to cede cede only the use of the formula
BOA, ordered UFC to return to Magdalo his Mafran sauce, and to and transfer to UFC the formula ● BOA provides: property righs
pay his monthly salary of Php300 until the return of his trademark for the Mafran Sauce. and interests revert back to
and formula Magdalo upon dissolution
● UFC admitted in the Answer that
III. Issue/s it was only the use of the formula
1. W/N, by virtue of the terms of the BOA, Magdalo ceded and that was ceded to them
transferred to UFC the formula for the Mafran sauce? (NO)
2. W/N Magdalo was dismissed from his position as chief chemist Overall Ruling
without justifiable cause, in violation of the BOA which provides
that his appointment is permanent in character? (YES) SC said only the use of the Mafran sauce was ceded and transferred to UFC.
3. W/N the rescission of the BOA was proper? (YES) The word “royalty” when employed in connection with a license under a
4. W/N UFC has to pay Magdalo Php300 until the Mafran trademark patent, means compensation for the use of a patented invention.
and formula is returned to him?
In order to preserve the secrecy of Mafran, the BOA provides that Magdalo
IV. Holding/s was to be appointed as chief chemist on a permanent basis. In case of his
death and disabilities, his qualified heirs shall succeed him as chief chemist.
Issue #1 Further, the BOA provided Magdalo absolute control and supervision over
W/N, by virtue of the terms of the BOA, Magdalo ceded and transferred to the laboratory, over the purchase and safekeeping of chemicals and
UFC the formula for the Mafran sauce? (NO) mixtures used in the preparation of Mafran. These provisions indicate that
Petitioner’s Arguments Court’s Rebuttals Magdalo, at the time of the BOA’s execution, intended to cede only the use
● Magdalo is not entitled to ● Only the use of the formula was of the formula and not the formula itself
rescission because the right to ceded and transferred to UFC
rescind in reciprocal obligations ● Payment of 2% royalty of net The last paragraph of the BOA provides that property rights shall be
is not absolute, and can only be annual profit indicates payment reverted back to Magdalo, upon the dissolution of the company. There
demanded when one is ready to for the use of the patented could be no reversion of the rights and trademark if a company is insolvent.
invention
2
G.R. No. L-29155 | May 13, 1970 Art. 1191
UFC admitted in its complaint that UFC was given rights over the appointment as chief chemist ● Another memorandum addressed
trademark and formula so that UFC may use the formula in preparation of was in acting capacity. Ricardo as the chief chemist
the Mafran sauce and trade name for marketing. ● At the hearing, the president and
general manager admitted that
For the foregoing reasons, the SC held that only the use of the formula was the two months of salary paid to
ceded and transferred to UFC. Magdalo was considered as
separation pay
Issue # 2
W/N Magdalo was dismissed from his position as chief chemist without Overall Ruling
justifiable cause, in violation of the BOA which provides that his SC said yes, Magdalo was dismissed without justifiable cause and in
appointment is permanent in character? (YES) violation of the BOA. The factual findings indicate that Magdalo was
Petitioner’s Arguments Court’s Rebuttals dismissed. The facts narrated clearly prove the UFC schemed and
● There is nothing in the ● Factual findings indicate maneuvered to dismiss Magdalo from his position as permanent chief
successive memoranda issued by otherwise chemist, which is in violation of the BOA
UFC which implied that ● The secretary-treasurer issued a
Magdalo was being dismissed memorandum directing only
from his position Ricardo be retained in the Issue #3
● Magdalo was there when the factory and that payment of W/N the rescission of the BOA is proper? (YES)
board decided to suspend Magdalo’s salary should be
operations for 4-6 months stopped Petitioner’s Arguments Court’s Rebuttals
● Magdalo had knowledge of the ● Another memorandum ordered ● Rescission of the BOA should ● The BOA is reciprocal in nature.
partial operations. Despite this, Victoria Francisco to produce the be denied because under art. Art. 1191 provides that rescission
Magdalo did not report to work Mafran Sauce at a rate of not less 1388, rescission is a subsidiary is implied in reciprocal
● Magdalo received a copy of the than 100 cases per day. Only remedy which cannot be obligations. Power to rescind
board resolution which indicated daily employees were to be hired, instituted until the party arises when one of the obligors
that UFC was set to resume full no permanent ones suffering damage was no other do not comply with what is
production and that Magdalo is ● Another memorandum instructed legal remedies. incumbent upon him
to report to work immediately. Ricardo to recall all daily
This indicated that Ricardo’s employees and hire additional Overall Ruling
employees
3
G.R. No. L-29155 | May 13, 1970 Art. 1191
The SC said the rescission of the BOA is proper. The BOA is clearly a the Mafran trademark to ● One of the considerations in the
reciprocal obligation. UFC violated the BOA by terminating Magdalo him transfer of the use was the
without lawful and justifiable cause. Generally, there can be no rescission ● that under Art. 1191 right permanent employment of
for slight breach of contract. Only substantial breach that would defeat the to specific performance is Magdalo as chief chemist with a
very object of the parties in making the agreement may be rescinded. not conjunctive with the salary of Php300 per month
Magdalo’s dismissal is a substantial breach of the BOA. Magdalo was right to rescind the ● As long as UFC uses the formula,
dismissed without any fault or negligence on his part. The option to demand reciprocal contract Magdalo is entitled to be paid his
performance or rescission is upon the offended party. ● that Magdalo cannot ask salary
for both remedies
The SC emphasized that Magdalo entered into the BOA primarily because: Overall Ruling
1. he was to be appointed as permanent chief chemist and SC said yes, UFC has to pay Magdalo. The BOA that it was only the use of
2. that he was to have absolute control and supervision over the the formula that was ceded to UFC. Further, UFC employed Magdalo as
preparation of the Mafran sauce permanent chief chemist with a monthly salary of Php300, unless death or
3. the transfer of rights of the trademark was only for the use of the other disabilities supervened. Under these circumstances, UFC cannot
formula escape paying Magdalo his agreed salary, as long as the use, as well as the
4. that it was his obligation to continue researching and improving the rights to use, the formula of the Mafran sauce remained with UFC.
quality of products
These provisions of the BOA are so interdependent that a violation of one V. Law or Doctrine Applied
would result in the nullification of the rest. Hence, there was substantial
breach committed by UFC. The rescission was proper ART. 1191.
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. "The injured party
may choose between the fulfillment and the rescission of the obligation, with the
Issue #4 payment of damages in either case. He may also seek rescission even after he has
W/N UFC has to pay Magdalo Php300 until the Mafran trademark and chosen fulfillment, if the latter should become impossible.
formula is returned to him?
"The court shall decree the rescission claimed, unless there be just cause authorizing
Petitioner’s Arguments Court’s Rebuttals the fixing of a period.
● CA erred in holding that ● SC emphasizes that what was
Magdalo is entitled ceded was only the use of the "This is understood to be without prejudice to the rights of third persona who have
payment of his monthly formula acquired the thing, in accordance with articles 1385 and 1388 of the Mortgage Law."
salary until the return of ART. 1383.
4
G.R. No. L-29155 | May 13, 1970 Art. 1191
The action for rescission is subsidiary; it cannot be instituted except when the party 4. Upon dissolution of UFC, property rights and interest over said
suffering damage has no other legal means to obtain reparation for the same." trademark and formula shall automatically revert back to Magdalo
REYES, J.B.L., J., concurring:
ART. 1384.
Rescission shall be only to the extent necessary to cover the damages caused.
Under Article 1191, the rescission on account of breach of stipulations is
not predicated on injury to economic interest of the party plaintiff but on the
VI. Disposition breach of faith by the defendant, that violates the reciprocity between the
parties. It is not subsidiary action, and Article 1191 may be scanned without
"Wherefore the appealed decision is reversed. The Bill of Assignment disclosing anywhere that the action for rescission thereunder is subordinated
(Exhibit A) is hereby rescinded, and the defendant corporation is ordered to to anything other than the culpable breach of his obligations by the
return and restore to the plaintiff Magdalo V. Francisco, Sr. the right to the defendant. The rescission is a principal action retaliatory in character, it
use of his Mafran sauce trademark and formula, subject-matter of the Bill of being unjust that a party be held bound to fulfill his promises when the other
Assignment, and to this end the defendant corporation and all its assigns and violates his. On the contrary, in the rescission by reason of lesion or
successors are hereby permanently enjoined, effective immediately, from economic prejudice, under Article 1383 the cause of action is subordinated
using in any manner the said Mafran sauce trademark and formula. The to the existence of that prejudice, because it is the raison d'etre as well as the
defendant corporation shall also pay to Magdalo V. Francisco, Sr. his measure of the right to rescind. Hence, where the defendant makes good the
monthly salary of P300 from December 1, 1960, until the date of finality of damage caused, the action can not be maintained or continued, as expressly
this judgment, inclusive, the total amount due to him to earn legal interest provided in Article 1383 and 1384. But the operation of these two articles is
from the date of the finality of this judgment until it shall have been fully limited to the cases of rescission for lesion enumerated in Article 1381 of
paid, plus attorney's fees in the amount of P600, with costs against the the Civil Code of the Philippines, and does not apply to cases under Article
defendant corporation." As thus modified, the said judgment is affirmed, 1191.
with costs against the petitioner corporation.
VII. Random Facts
VII. Additional Notes ● Ponente: Castro, J.:
Pertinent information in the BOA:

1. Magdalo’s appointment as chief chemist is permanent
2. Only the use of the Mafran formula was ceded and transferred to
UFC (payment of 2% royalty for its use)
3. Magdalo had absolute control in the manufacturing of the Mafran
sauce. Absolute control on supervision of assistants and personnel
in the laboratory
5
G.R. No. 47774 | March 14, 2020 Interpretation, cancellation, absence of forfeiture clause
Magdalena Estate v. Myrick Magdalena Estate v. Myrick
I. Recit-ready Summary 5. The vendor on December 14, 1932, noticed vendee that in view of
Magdalena Estate sold to Louis Myrick (Louis) lots 28 and 29 of a his inability to comply with the terms of their agreement, said
certain subdivision. Their contract provided that the price of P7,953 shall be agreement had been cancelled as of that date, thereby relieving him
payable in 120 equal monthly installments of P96.39 each on the second day of any further obligation thereunder, and that all amounts paid by him
of every month from the date of the execution of the agreement. Vendee had been forfeited in favor of the vendor, who assumes the absolute
made payments but the last was due and unpaid. By reason of this, the right over the lots in question.
vendor, through its president notified the vendee that in view of his 6. Vendee did not reply, and it appears likewise that the vendor
inability to comply with the terms of their agreement, said agreement
thereafter did not require him to make any further disbursements on
has been cancelled relieving him of any further obligations thereunder
account of the purchase price.
and all amounts paid have been forfeited in favor of the vendor.
The main issues of this case are: W/N the intention of the author of a
written instrument shall always prevail over the literal sense of its wording Court of First Instance of Albay - Myrick filing against the Magdalena
and W/N a bilateral contract may be resolved or cancelled only by the Estate, Inc. for the sum of P2,596.08 with legal interest thereon from the
prior mutual agreement of the parties. filing of the complaint until its payment, and for costs of the suit.
The SC ruled for the first issue that when the text of the instrument is Magdalena Estate, Inc. alleged that contract SJ-639 was still in full force
explicit and leaves no doubt as to its intention, the court may not read and effect and that, therefore, the plaintiff should be condemned to pay the
into it any other which would contradict its plain import. For the second balance plus interest and attorneys' fees.
issue, the plaintiff does not have the right to forfeit said sums in its favor.
Under article 1124 of the Civil Code however, he may choose between CFI - Ordered defendant to pay the plaintiff the sum of P2,596.08 with
demanding the fulfillment of the contract or its resolution. These legal interest from December 14, 1932 until paid and costs, and dismissing
remedies are alternative and not cumulative, and the petitioner in this
defendant's counterclaim
case, having elected to cancel the contract, cannot avail himself of the other
CA – Confirmed decision of lower court with the only modification that the
remedy of exacting performance.
payment of interest was to be computed from the date of the filing of
II. Facts of the Case (Material Facts) the complaint instead of from the date of the calculation of the contract.
1. Magdalena Estate, Inc., sold to Louis J. Myrick lots Nos. 28 and
29 of Block 1, Parcel 9 of the San Juan Subdivision, San Juan, Rizal, III. Issue/s
2. Their contract of sale No. SJ-639 providing that the price of P7,953 1. W/N the intention of the author of a written instrument shall
shall be payable in 120 equal monthly installments of P96.39 each on always prevail over the literal sense of its wording? NO.
the 2nd day of every month beginning the date of execution of the 2. W/N a bilateral contract may be resolved or cancelled only by
agreement. the prior mutual agreement of the parties (which is approved
3. Vendee executed and delivered to the vendor a promissory note for by the judgment of the proper court)? NO.
the whole purchase price 3. W/N the letter of December 14, 1932 was not assented to by the
4. Vendee made several monthly payments amounting to P2,596.08 respondent? (The SC ruled the CA’s conclusion for this is final
(the last being on October 4, 1930), although the first installment due and should not be disturbed.)
and unpaid was that of May 2, 1930.
Obligations and Contracts (2020) PETITIONER: Magdalena Estate, Inc. 1

DIGEST AUTHOR: Steph Naval RESPONDENT: Louis J. Myrick
CA’s conclusion - The intent to resolve the contract is expressed

unmistakably in the letters from the president of the corporation reiterating Overall Ruling
that plaintiff 'lost his rights for the land for being behind more than two The petitioner cancelled the contract, advised the respondent that he has
years. relieved of his obligations thereunder, and led said respondent to believe it
so and act upon such belief, the, petitioner may not be allowed, in the
IV. Holding/s language of section 333 of the Code of Civil Procedure in any litigation
arising out of such act, to falsify it. A party cannot, in the course of
Issue #1 litigation or in dealings in nais, be permitted to repudiate his representations,
NO, the intention of the author of a written instrument shall always or occupy inconsistent positions, or, in the letter of the Scotch law, to
prevail over the literal sense of its wording. "approbate and reprobate.”
Overall Ruling The contract of sale, contract SJ-639, contains no provision authorizing
According to the SC, where the terms of a writing are clear, positive and the vendor, in the event of failure of the vendee to continue in the
unambiguous, the intention of the parties should be gleaned from the payment of the stipulated monthly installments, to retain the amounts
language therein employed, which is conclusive in the absence of mistake. paid to him on account of the purchase price. The claim, therefore, of the
The proposition that the intention of the writer, once ascertained, shall petitioner that it has the right to forfeit said sums in its favor is
prevail over the literal sense of the words employed is not absolute and untenable. Under article 1124 of the Civil Code however, he may choose
should be deemed secondary to and limited by the primary rule that, between demanding the fulfillment of the contract or its resolution.
when the text of the instrument is explicit and leaves no doubt as to its These remedies are alternative and not cumulative, and the petitioner in
intention, the court may not read into it any other which would contradict this case, having elected to cancel the contract, cannot avail himself of the
its plain import. other remedy of exacting performance.
Determination of the petitioner to cancel their contract:

(1) the act of the petitioner in immediately taking possession of the lots in
question and offering to resell them to Judge M. V. del Rosario
(2) his failure to demand from the respondent the balance of the account V. Law or Doctrine Applied
after the mailing of the disputed letter; and
(3) the letters of January 10. 1933 and April 10 1935 reiterate, in clear INTERPRETATION OF THE WRITING
terms, the intention to cancel first announced by petitioner Where the terms of writing are clear, positive and unambiguous, the intention of the
parties should be gleaned from the language therein employed, which is conclusive
in the absence of mistake
Issue #2 ABSENCE OF FORFEITURE CLAUSE

W/N a bilateral contract may be resolved or cancelled only by the prior The contract of sale, contract SJ-639, contains no provision authorizing the vendor,
in the event of failure of the vendee to continue in the payment of the stipulated
mutual agreement of the parties (which is approved by the judgment of monthly installments, to retain the amounts paid to him on account of the purchase
the proper court)? NO.

price. The claim, therefore, of the petitioner that it has the right to forfeit said sums
in its favor is untenable.
ARTICLE 1124
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.
VI. Disposition
The writ prayed for is hereby denied, with costs against the petitioner. So
ordered.
VII. Random Facts

• Ponente: Laurel, J.

G.R. No. L-28602 | September 29. 1970 Article 1191 - Rescission of Obligations
UP vs De los Angeles UP vs De los Angeles
I. Recit-ready Summary 4. Then, when UP was about to execute an action for rescission or
termination of the parties’ logging agreement, ALUMCO executed
UP and ALUMCO entered into a logging agreement. However, ALUMCO an instrument which acknowledged its debts and provided manner
had incurred unpaid accounts and refused to pay. Thus, UP informed of payments in favor of UP
respondent ALUMCO that it had considered their logging agreement as 5. After that, ALUMCO continued its logging operations, but again
rescinded, and filed a complaint to recover payment. ALUMCO filed a incurred an unpaid account of P61,133.74; in addition to its prior
petition to enjoin UP from bidding the logging rights. The respondent judge unpaid account
issued an order enjoining UP from awarding the logging rights over any 6. Because of that, UP informed respondent ALUMCO that it had
other party. However, UP had already entered into a logging agreement with considered their logging agreement as rescinded and of no further
Sta. Clara Lumber Company when the said order was issued. As such, upon legal effect. Subsequently, filed a complaint against ALUMCO for
motion by ALUMCO, the respondent judge declared UP in contempt of the collection of the latter’s unpaid accounts. With that, UP started
court. UP filed a motion for reconsideration but was denied. The issue in to conduct bidding for the logging rights over the Land Grant
this is w/n petitioner can treat its contract with ALUMCO rescinded, and 7. As a response, ALUMCO filed a petition to enjoin UP from
may disregard the same even before any judicial decree. The SC answered conducting the bidding
in the affirmative. UP and ALUMCO had expressly stipulated in their 8. The respondent judge issued an order enjoining UP from awarding
contract UP has the right and the power to consider the Logging Agreement the logging rights over any other party
as rescinded without the necessity of any judicial suit. Moreover, such 9. However, UP had already entered into a logging agreement with
action may be instituted extra-judicially, but it is only the final judgment of Sta. Clara Lumber Company when the said order was issued.
the corresponding court that will conclusively and finally settle whether 10. As such, upon motion by ALUMCO, the respondent judge declared
the action taken was or was not correct in law. UP in contempt of court; and ordered Sta. Clara Lumber to refrain
from exercising logging rights
II. Facts of the Case (Material Facts) 11. UP filed a motion for reconsideration but was denied
1. In the present case, UP and ALUMCO entered into a logging 12. Hence, the present petition
agreement, wherein the latter was granted exclusive authority for a
period of 5 years to cut, collect, and remove timber from the Land III. Issue/s
Grant of UP in the provinces of Laguna and Quezon ● W/N the petitioner UP can treat its contract with ALUMCO
2. The Land Grant was given by the government to UP to be operated rescinded, and may disregard the same even before any
and developed for the purposes of raising additional for its support judicial decree? YES
as an institution for higher learning
3. However, 4 years after the parties’ contract was entered into, IV. Holding/s
ALUMCO had incurred an unpaid account of P219,362.94; which
despite repeated demands of UP, ALUMCO had failed to pay
1
Obligations and Contracts (2020) PETITIONER: University of the Philippines
DIGEST AUTHOR: Larry Abucay RESPONDENT: Walfreido de los Angeles, Judge of the CFI in Quezon City
Issue #1 action in its own behalf,

YES, the petitioner UP can treat its contract with ALUMCO rescinded, and bring the matter to
even without any judicial decree court. Then, should the
Respondent’s Arguments Court’s Rebuttals court, after due hearing,
● Respondent ALUMCO ● In the rst place, UP and decide that the resolution of
contended that it is only after a ALUMCO had expressly the contract was not
final court decree declaring the stipulated in the warranted, the responsible
contract rescinded for violation "Acknowledgment of Debt party will be sentenced to
of its terms that UP could and Proposed Manner of damages
disregard ALUMCO’s rights Payments" that, upon
under the contract and treat the default by the debtor Overall Ruling
agreement as breached and of no ALUMCO, UP has the
force or effect right and the power to The SC stated that the party who deems the contract violated may consider it
consider the Logging resolved or rescinded, and act accordingly, without previous court action,
Agreement as rescinded but it proceeds at its own risk. For it is only the final judgment of the
without the necessity of any corresponding court that will conclusively and finally settle whether the
judicial suit action taken was or was not correct in law. BUT the law de nitely does not
require that the contracting party who believes itself injured must first file
● However, it must be suit and wait for a judgment before taking extrajudicial steps to protect its
understood that the act of a interest. Otherwise, the party injured by the other's breach will have to
party in treating a contract passively sit and watch its damages accumulate during the pendency of the
as cancelled or resolved on suit until the nal judgment of rescission is rendered when the law itself
account of infractions by requires that he should exercise due diligence to minimize its own damages
the other contracting party (Article 2203, Civil Code)
must be made known to the
other and is always Moreover, in fact, even without express provision conferring the power of
provisional, being ever cancellation upon one contracting party, the Supreme Court of Spain has
subject to scrutiny and repeatedly held that a resolution of reciprocal or synallagmatic contracts
review by the proper court. may be made extrajudicially unless successfully impugned in court.
If the other party denies
that rescission is justi ed,
it is free to resort to judicial
2

Article 1191 - The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent VII. Random Facts
upon him. ● Ponente: Quisumbing, J.
become impossible.
This is understood to be without prejudice to the rights of third persons who

have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
Article 2203 - The party suffering loss or injury must exercise the diligence
of a good father of a family to minimize the damages resulting from the act
or omission in question.
VI. Disposition
WHEREFORE, the writ of certiorari applied for is granted, and the order of
the respondent court of 25 February 1966, granting the Associated Lumber
Company's petition for injunction, is hereby set aside. Let the records be
remanded for further proceedings conformably to this opinion.
3
G.R. No. L-56076 | September 21, 1983 Recission: Notice of Default is Indispensable
Palay Inc. vs Clave Palay Inc. vs Clave
I. Recit-ready Summary use of the premises and for liquidated damages suffered by the failure
In 1965, Palay Inc., executed a Contract to Sell a parcel of land to of the buyer to fulfill his part of the agreement.
Nazario Dumpit with a sale price of P23,000 to be paid in monthly 3. Dumpit paid a total amount of P13,772 worth of installments
installments of P246 until fully paid. Paragraph 6 of the contract provides including the downpayment.
for automatic extrajudicial rescission upon default in payment of any of the 4. The last payment made by Dumpit was on December 5, 1967 for
monthly payments after the lapse of 90 days from the end of the one month installments up to September 1967. (beginning of default)
grace period, without need of notice. Dumpit paid a total payment of 5. Almost 6 years later, Nazario Dumpit wrote several letters to Palay
P13,772 including downpayment and installments. However, his last Inc. offering to update all his overdue accounts with interest and
payment was in December 1967. Almost 6 years later, Dumpit wrote to
seeking its written consent to assign his rights to a certain Lourdes
Palay Inc., offering to update his overdue accounts with interest and seeking
Dizon.
Palay’s written consent to assign his rights to Lourdes Dizon. Palay Inc.
6. Palay Inc. replied stating that his Contract to Sell has been rescinded
replied saying that his Contract to Sell has been rescinded pursuant to par 6
of the contract. The main issue in this case is whether or not notice or already pursuant to the automatic extrajudicial rescission clause in
demand is not mandatory given that the automatic rescission is stated by the contract.
stipulation. The Supreme Court ruled that NO, notice is still necessary 7. Dumpit filed a complaint with the National Housing Authority for
despite the stipulation of automatic rescission in the contract. Jurisprudence reconveyance and refund.
has held that judicial action for the recission of a contract is not necessary 8. NHA found the rescission void in the absence of demand. NHA also
when the contract expressly provides it may be automatically rescinded. ordered Palay Inc and its president, Alberto Onstott, to refund
However, an act of a party in treating a contract as cancelled should be made Dumpit P13,772 with 12% interest from the filing of the complaint.
known to the other. 9. Palay Inc. appealed to the Office of the President, but was denied for
lack of merit.
1. On March 28, 1965, Palay Inc., executed a Contract to Sell a parcel III. Issue/s
of land to Nazario Dumpit. Sale price was at P23,000 with 9% 1. W/N notice or demand is not mandatory under the
interest per annum. Downpayment is set at P4,660 and monthly circumstances and therefore may be dispensed with by
installments of P246 until fully paid. stipulation in a contract to sell - NO.
2. Paragraph 6 of the contract provides for an automatic extrajudicial 2. W/N Palay Inc. is liable for the refund of the installment
rescission upon default in payment of any of the monthly payments payments - YES.
after the lapse of 90 days beginning from the expiration of the one 3. W/N the doctrine of piercing the veil of corporate fiction has
month grace period, without need of notice. All of the installments application to the case at bar - NO (will be briefly discussed under
which may have been paid shall be considered as rents paid for the additional notes)
1
Obligations and Contracts (2020) PETITIONER: Palay Inc and Albert Onstott
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Jacobo Clave, National Housing Authority and Nazario
Dumpit
4. W/N the respondent Presidential Executive Assistant committed Overall Ruling

grave abuse of discretion in upholding the decision of respondent
NHA holding petitioners, Onstott, solidarily liable for the refund of Court holds that the resolution by Palay Inc. of the contracts is ineffective
the installments made by Dumpit? - NO (will be briefly discussed and inoperative against Clave for lack of notice.
under additional notes)
Judicial action for the rescission of a contract is not necessary where there is
IV. Holding/s a stipulation providing that it may be revoked for violation of any of its
terms, but there must be a written notice sent to the defaulter informing him
Issue #1 of the rescission. The rescission is always provisional, subject to scrutiny
NO, notice may not be dispensed with by stipulation. and review by the proper court. The defaulter is free to resort to judicial
Petitioner’s Arguments Court’s Rebuttals action to challenge the rescission but proceeds at its own risk. Judicial action
● Petitioner maintains that it was ● Judicial action for rescission of a is necessary, because without it, the extrajudicial remains contestable and
justified in cancelling the contract is not necessary where subject to judicial invalidation unless the action is barred by acquiescence,
contract to sell without prior the contract provides that it may estoppel or prescription. Resolution of reciprocal contracts may be done
notice or demand because of be revoked for violation of any extrajudicially unless successfully questioned in Court.
paragraph 6 in the contract which stipulations, but written notice
provides for automatic needs to be sent to the defaulter. The indispensability of notice of cancellation to the buyer is also
extrajudicial rescission upon ● Debtor needs to be informed of underscored in RA 6551 “An Act to Provide Protection to Buyers of Real
default after the lapse of 90 days the rescission. Estate on Installment Payments” (See law/doctrine for specific section).
after the expiration of the one ● The contract is a contract of
month grace period, without adhesion, so private respondent Issue #2
need of notice. had no freedom to stipulate. YES, Palay Inc. is liable for the refund of the installment payments
● Petitioner argues that upon the Waiver of rights should be certain
default of the respondent the and unequivocal. Waiver follows
contract between the parties is only where liberty of choice has
deemed ipso facto rescinded. been fully accorded.
● Petitioner also argues that
respondent has waived his right
to be notified under paragraph 6.
2
Dumpit
Petitioner’s Court’s Rebuttals The act of a party in treating a contract as cancelled should be made known
Arguments Art. 1385 of the Civil Code states that: to the other.
● NA Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and INDISPENSABILITY OF NOTICE OF CANCELLATION (RA 65551)
the price with its interest; consequently, it can be carried out Sec. 3(b) The actual cancellation of the contract shall take place after 30
only when he who demands rescission can return whatever he 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
may be obliged to restore.
cash surrender value to the buyer.
Neither shall rescission take place when the things which are
the object of the contract are legally in the possession of third
VI. Disposition
persons who did not act in bad faith. WHEREFORE, the questioned Resolution of respondent public oNcial,
In this case, indemnity for damages may be demanded from dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed to
the person causing the loss. refund to respondent Nazario M. Dumpit the amount of P13,722.50, with
Overall Ruling interest at twelve (12%) percent per annum from November 8, 1974, the
The Court held that because of the resolution by Palay Inc, rights to the lot date of the Iling of the Complaint. The temporary Restraining Order
should be restored to Clave or should be replaced by another acceptable lot. heretofore issued is hereby lifted.
However, considering that the property was sold to a third person and there
are no other available substitute lots, Clave is entitled to the refund of VII. Additional Notes
installments plus interest at 12% from the date of the institution of action. Holding for the 3rd and 4th issue (piercing of the corporate veil and grave
abuse of discretion)
- A corporation is vested by law with a personality separate and
distinct from those of the persons compromising it.
- Petitioner Onstott was made liable because he was the President of
WRITTEN NOTICE STILL REQUIRED THOUGH JUDICIAL
the corporation and the controlling stockholder.
ACTION NOT NECESSARY FOR RESCISSION
- General Rule: A corporation may not be made to answer for
Torralba vs. de Los Angeles
acts/liabilities of its stockholders.
The Court held that judicial action for the rescission of a contract is not
- Supreme Court: We find no badges of fraud on petitioners part.
necessary where the contract provides that it may be revoked and cancelled
They relied on paragraph 6 of the contract when it rescinded the
for violation of any of its terms and conditions. However, in this case, there
contract to sell.
was at least a written notice sent to the defaulter informing him of the
rescission.
VIII. Random Facts
University of the Philippines vs. Walfrido de los Angeles
● Ponente: Melencio-Herrera, J.
3
Dumpit
G.R. No L-42283 | March 18, 1985 Conditional Obligations
Angeles vs. Calasanz Angeles vs. Calasanz
I. Recit-ready Summary 3. In July 1966, petitioners had already paid P4,533.38. In December
Petitioner Angeles assails that Respondent Calasanz did not validly 1966, the respondents made a demand for the remittance of past
cancel their final deed of sale.. On December 1957, the parties came into a due accounts. In January 1967, the respondents cancelled their
contract to sell for a parcel of land in Cainta Rizal amounting to P3,920.00 final deed of sale due to the non-payment of their August 1966
with 7% interest per annum.They made down payments and promised to (this was delayed for five months) debt after demanding the same
pay P41.20 interest each month until fully paid, due on the 19th day of each for four months.
month. In July 1966, petitioners had already paid P4,533.38. In December Note: The facts in the case are really short, this is basically it :)
1966, the respondents made a demand for the remittance of past due
accounts. In January 1967, the respondents cancelled their final deed of sale
due to the non-payment of their August 1966 debt after demanding the same
III. Issue/s
for four months.. The issue in this case is whether or not Respondent
1. Whether respondent Calasanz validly cancelled their final
Calasanz validly cancelled their final deed of sale. The Court ruled that
although according the the provisions in relation to reciprocal obligations deed of sale. NO.
the parties may validly extrajudicially rescind from the obligation in cases
when the obligor does not perform what is obligated of him, the breach of IV. Holding/s
the contract must be that of a substantial one and not that of a casual breach
of contract. Considering that Petitioner Angeles had already paid the Issue
principal amount of P3,920 plus interest fees totaling in the amount of NO, Respondent Calasanz did not validly cancel their final deed of
P4,533.38, the non-payment of the August 1966 debt is not a substantial sale.
breach of contract. The Court also emphasized that respondents had Respondent’s Arguments Court’s Rebuttals
accepted delayed payments from petitioners, thus, waiving their right to ● The final deed of sale was ● Although the parties in contracts
rescind and is estopped from stating otherwise. In sum, Respondent validly cancelled because the may validly rescind obligations
Calasanz did not validly cancel their final deed of sale.
petitioners failed to pay for the upon the other’s
August 1966 debt. non-performance, the breach of
the contract must be a
1. Petitioner Angeles assails that Respondent Calasanz did not validly
substantial breach. The breach
cancel their final deed of sale.
in this case a casual breach of
2. In December 1957, the parties came into a contract to sell for a
contract.
parcel of land in Cainta Rizal amounting to P3,920.00 with 7%
interest per annum. They made down payment of P392.00 and
promised to pay P41.20 interest each month until fully paid, due on
the 19th day of each month.
1
Obligations and Contracts (2020) PETITIONER: Buenaventura Angeles
DIGEST AUTHOR: Alex Sulaik RESPONDENT: Ursula Torres Calasanz
Overall Ruling The Court held that the respondents did not validly cancel their final deed
of sale and therefore must issue the same to the petitioners, as well as,
According to Art. 1911 of the Civil Code, “The power to rescind ordering petitioner to pay their debt amounting to P671.67 without
obligations is implied in reciprocal ones, in case one of the obligors interest.
should not comply with what is incumbent upon him.The injured party
may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, V. Law or Doctrine Applied
even after he has chosen fulfillment, if the later should become
impossible." Art. 1911 of the Civil Code
It was stipulated in their contract under Sec. 6 that should petitioners fail
to comply with their obligations, respondents may cancel their final deed obligors should not comply with what is incumbent upon him.The injured party may
of sale. Accordingly with Art. 1911, this is a valid stipulation in the choose between the fulfillment and the rescission of the obligation, with the
contract. The respondents may validly and extrajudicially rescind from payment of damages in either case. He may also seek rescission, even after he has
their obligation should the other party not comply with the same. chosen fulfillment, if the later should become impossible.
However, there is a limitation to such rescission. The Court citing
Universal Food Corp. vs. Court of Appeals said that a breach in the
contract must be a substantial breach and not that of a casual breach. VI. Disposition
Considering that Petitioner Angeles had already paid the principal
amount of P3,920 plus interest fees totaling in the amount of P4,533.38, WHEREFORE, the instant petition is DENIED for lack of merit. The
the non-payment of the August 1966 debt is not a substantial breach of decision appealed from is AFFIRMED with the modi cation that the
contract, but merely a casual breach wherein petitioners can comply with. plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY
Petitioner had already paid the monthly installment for a period of almost ONE PESOS AND SIXTY-SEVEN CENTAVOS (671.67) without any
9 years. In only a short time, the entire obligation would have been paid. interests. Costs against the defendants-appellants.
The Court also emphasized that respondents had accepted delayed SO ORDERED.
payments from petitioners, thus, waiving their right to rescind and is
estopped from stating otherwise.
The Court also found that stated in their contract under Sec. 12, that VII. Additional Notes
should petitioners be able to pay the principal price of P3,920.00, the ● In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the
Court stated that —"The general rule is that rescission of a contract
respondents will execute their final deed of sale.
will not be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object
2
of the parties in making the agreement. (Song Fo & Co. v.

Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of
whether a breach of a contract is substantial depends upon the
attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707
& L-23720, Jan. 17, 1968)." . . .
● Sec. 6 of their contract: “...it is understood further, that should a
period of 90 days elapse, to begin from the expiration of the month
of grace herein mentioned, and the party of SECOND PART has
not paid all the amounts he should have paid with the
corresponding interest up to that date, the party of the FIRST
PART has the right to declare this contract cancelled and of no
effect...”
● Sec. 12 of their contract: “That once the payment of the sum of
P3,920.00, the total price of the sale is completed, the party to the
FIRST PART will execute in favor of the party of the SECOND
PART, the necessary deed or deeds to transfer to the latter the title
of the parcel of land sold, free from all hens and encumbrances
other than those expressly provided in this contract; it is
understood, however, that au the expenses which may be incurred
in the said transfer of title shall be paid by the party of the
SECOND PART, as above stated.”
●
●
VII. Random Facts

● Ponente: Gutierres, JR., J.
3
G.R. No. L-22590 | March 20, 1987 Article 1191 | The Power to Rescind
Boysaw v Interphil Boysaw v Interphil
I. Recit-ready Summary 3. A supplemental agreement on details not covered by the main

Boysaw and his former manager entered into a boxing contract with contact was signed by Ketchum and Interphil on May 3, 1961.
Interphil to fight Flash Elorde in May 1961. This contract contained Thereafter, Interphil signed Elorde to a similar agreement to
stipulations that the contest shall be held on Sep 30 1961 at the Rizal engage Boysaw in a fight.
Stadium or not later than 30 days thereafter in case of postponement and that 4. On July 2, 1961, Ketchum assigned to Araneta the managerial
Boysaw should not engage in other fights before the fight contemplated by rights to Boysaw. While on Sep 1, 1961, Araneta assigned the same
the contract. Yulo acquired managerial rights over Boysaw after Ketchum to Yulo. 4 days after, Yulo wrote to Sarreal to inform the latter that
transferred such to Araneta who then transferred to Yulo. Yulo wrote to
Yulo had acquired managerial rights over Boysaw and indicating
inform Interphil of the change. Sarreal, representing Interphil, wrote to the
thier readiness to comply with the boxing contract. Meanwhile,
GAB about the switch of managers of which they were not notified.
Eventually, the fight never materialized. Boysaw and Yulo filed for Sarreal wrote to the Games and Amusement Board expressing
damages in thr CFI. The trial was reset on 2 different dates and finally concern over the switch of managers of which he has not be
proceeded on Jul 23, 1963 because Boysaw was not able to go back to the notified.
country.The CFI dismissed the complaint filed by Boysaw. The main issue 5. The Board concluded its decsicion and scheduled the fight on
in this case is whether or not there was a violation in the contract signed by November 4, 1961. Yulo refused this date even if Sarreal offered to
both parties, and if there was, identify who among the parties violated such. hold it on Oct 28, 1961 (well within the 30 day allowable period in
The court held that the agreement was indeed violated by no other than the contract).
Boysaw and Yulo themselves. In the first case, Boysaw had fought in 6. In Oct 1961, Yulo communicated with a Local Boxing Promoter to
another fight in Las Vegas which ran in contrary to the stipulation in the promote the Elorde-Boysaw fight. In one instance, Yulo showed
agreement. Second, the transfer of managerial rights to Yulo was deemed as that he was willing to accept the Nov 4 fight date.
a novation of the original contract which is not valid unless Interphil 7. While an Elorde-Boysaw fight was eventually staged, the fight
consented (in this case it did not). The refusal of Boysaw and Yulo to accept
contemplated in the May 1, 1961 boxing contract never
a postponement without any other reason but the implementation of the
terms of the original boxing contract entirely overlooks the fact that by materialized.
virtue of the violations they have committed of the terms thereof, they have 8. Boysaw and Yulo filed for damages in the CFI for the alleged
forfeited any right to its enforcement. refusal of Interphil to honor their commitments in the contract.
II. Facts of the Case (Material Facts) 9. Boysaw moved to disqualify Solicitor Coquia (SolGen) and Atty.
1. Boysaw and former Manager (Ketchum) signed with Interphil Edu (GAB) and succeeding with disqualifying only Atty. Edu.
Promotions represented by Sarreal, a contract to engage Flash 10. The case through 1963 with Boysaw leaving the country without
Elorde in a boxing contest on May 1, 1961. informing the court and failing to appear on the witness stand on
2. It is stipulated that the contest would be held at the Rizal Stadium May 1963. This led the court the reset trial to June 20, 1963 but
on Sep 30, 1961 or not later than 30 days thereafter should a Boysaw was still not in the country. It was later postponed to July
postponement be mutually agreed upon, and that Boysaw would 20 upon the assurance that should Boysaw fail to appear, the case
not, before the contest, engage in any other such contest without will be submitted with the evidence this far presented.
the written consent of Interphil. 11. On July 16, Boysaw filed a motion to postpone the trial since
Boysaw could not return on time. This was denied.
Obligations and Contracts (2020) PETITIONER: Solomon Boysaw and Alfredo Yulo 1
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Interphil Promitions Inc., Lope Sarreal Sr., Manuel Nieto Jr.
12. The trial proceeded on July 23,1963 with the case being deemed Overall Ruling
submitted after Boysaw declined to submit documentary evidence The evidence established that the contract was violated by Boysaw himself
when they had no other witnesses to present. when,without the approval or consent of Interphil, he fought Avila on June
13. After the lower court rendered its judgment dismissing Boysaw’s which Yulo admitted to. While the contract imposed no penalty for such
complaint, he moved for a new trial. The motion was denied, violation, this does not grant any of the parties the unbridled liberty to
hence, this appeal taken directly to the Supreme Court by reason of breach it with impunity. Our law on contracts recognizes the principle
the amount involved. that actionable injury inheres in every contractual breach.
III. Issue/s
1. W/N there was a violation of the fight contract of May 1, 1961; There is no doubt that the contract in question gave rise to reciprocal
and if there was, who was guilty of such violation. (YES) obligations. Being those which arise from the same cause, and in which
2. W/N there was legal ground for the postponement of the fight date each party is a debtor and a creditor of the other, such that the obligation of
from September 1, 1961, as stipulated in the May 1, 1961 boxing one is dependent upon the obligation of the other. Meanwhile, the power to
contract, to November 4, 1961. (YES) rescind is given to the injured party. And, where the plaintiff is the
3. Whether or not the lower court erred in refusing a postponement of party who did not perform the undertaking which he was bound by the
the July 23, 1963 trial. terms of the agreement to perform, he is not entitled to insist upon the
4. W/N the lower court erred in denying the appellant's motion for a performance of the contract by the defendant, or recover damages
new trial. because of his own breach.
5. W/N the lower court, on the basis of the evidence adduced, erred in
awarding the appellee’s damages of the character and amount Another violation of the contract in question was the assignment and
stated in the decision. transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr.,
IV. Holding/s of the managerial rights over Boysaw without the knowledge or consent of
Issue #1 Interphil. The assignments, from Ketchum to Araneta, and from Araneta to
Yes, There was a violation of the fight contract of May 1, 1961; and if Yulo, were in fact novations of the original contract which, to be valid,
there was, who was guilty of such violation. should have been consented to by Interphil. That Yulo, through a letter,
Petitioner’s Arguments Court’s Rebuttals advised Interphil on of his acquisition of the managerial rights over Boysaw
 They had not violated the  The contract was violated by cannot change the fact that such acquisition, and the prior acquisition of
contract with Interphil. It was Boysaw himself in engaging in such rights by Araneta were done without the consent of Interphil.
Interphil which did not honor another fight with Avila without
thier commitments. consent of Interphil It is clear that the Interphil, instead of availing themselves of the options
 The transfer of managerial rights given to them by law of rescission or refusal to recognize the substitute
was another violation since it is a obligor Yulo, really wanted to postpone the fight date owing to an injury
novation of the contract which that Elorde sustained in a recent bout. Under the circumstances, the
should have been consented to by Interphil’s desire to postpone the fight date could neither be unlawful nor
Interphil. unreasonable.
Yulo in a petition for certiorari and prohibition docketed as G.R. No. L-

The refusal of Boysaw and Yulo to accept a postponement without any 21506. The dismissal by the Court of said petition had laid this issue to rest,
other reason but the implementation of the terms of the original boxing and appellants cannot now hope to resurrect the said issue in this appeal.
contract entirely overlooks the fact that by virtue of the violations they
have committed of the terms thereof, they have forfeited any right to its Issue #4
enforcement. No, the lower court did not err in denying the appellant's motion for a new
trial.
Issue #2 Petitioner’s Arguments Court’s Rebuttals
Yes, there was legal ground for the postponement of the fight date from  If clearances were admitted to  Argument is without merit. The
September 1, 1961 to November 4, 1961. support the motion for a new trial, court upholds the lower court.
Petitioner’s Arguments Court’s Rebuttals the lower court would have
 Only Manuel Nieto made the  No evidence which supports such allowed the postponement of the
decision for postponement contention trial, it being convinced that
arrogsting to himself the  Yulo admitted that it was the Boysaw did not leave without
prerogatives of the GAB board. GAB board that set the fight date. notice to the court or to his
counsel. Boysaw's testimony
Overall Ruling upon his return would, then, have
Yulo himself admitted that it was the GAB Board that set the questioned altered the results of the case
fight date. Also, it must be stated that one of the strongest presumptions of Overall Ruling
law is that official duty has been regularly performed. In this case, the The alleged newly discovered evidence, upon which the motion for new
absence of evidence to the contrary, warrants the full application of said trial was made to rest, consists merely of clearances which Boysaw secured
presumption that the decision to set the Elorde-Boysaw Dght on November from the clerk of court prior to his departure for abroad. Such evidence
4, 1961 was a GAB Board decision and not of Manuel Nieto, Jr. alone. cannot alter the result of the case even if admitted for they can only prove
that Boysaw did not leave the country without notice to the court or his
Issue #3 counsel. The testimony of Boysaw cannot be considered newly-discovered
No, the lower court did not err in refusing a postponement of the July 23, evidence for as appellees rightly contend, such evidence has been in
1963 trial existence waiting only to be elicited from him by questioning.
 That the lower court erred in  Issue had already been raised and Issue #5
refusing to postpone since addressed in a previous ruling (Yes, Partly) the lower court erred in awarding only of moral damages.
Boysaw could not be back in
time. Petitioner’s Arguments Court’s Rebuttals
Overall Ruling  Actual Damages: a conclusion or  Actual: No reason to disturb
The same issue had been raised before the Supreme Court by Boysaw and finding based upon the  Moral: Uphold Petitioner’s
uncorroborated testimony of a arguments as per Article 2219. of the latter, but not without the consent of the creditor. Payment by the new
lone witness cannot be sufficient debtor gives him the rights mentioned in Articles 1236 and 1237
 Moral Damages: award was not
sanctioned by law.
VI. Disposition
Overall Ruling
The court finds no reason to disturb the award of P250,000.00 as and for WHEREFORE, except for the award of moral damages which is herein
unrealized profits to the appellees. However, in the matter of moral deleted, the decision of the lower court is hereby affirmed.
damages, we are inclined to uphold the Boysaw’s contention that the award SO ORDERED.
is not sanctioned by law and well-settled authorities. The action herein
brought by Boysaw is based on a perceived breach committed by the VII. Additional Notes
Interphil of the contract of May 1, 1961, and cannot, as such, be arbitrarily N/A
considered as a case of malicious prosecution. Moral damages cannot be VII. Random Facts
imposed on a party litigant although such litigant exercises it erroneously  Ponente: Fernan, J.
because if the action has been erroneously Dled, such litigant may be
penalized for costs.

Art. 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
Art. 1191
The power to rescind obligations is implied in reciprocal ones, in case one
become impossible.
Art. 1293
Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will
G.R. No. . L-67881 | June 30, 1987 Topic: Automatic Rescission Clauses; Waivers thereof
O96 - Pilipinas Bank v IAC O96 - Pilipinas Bank v IAC
I. Recit-ready Summary b. P l2,182.00 upfront payment, reducing the remaining

balance on the principal to P35,306.00.
On April 16, 1961, Hacienda Benito, Inc. (later substituted by c. Principal, plus a stipulated interest of 6% per annum,
Philippine Bank) executed a contract to sell a parcel of land in in Antipolo, was to be paid over a period of 8-1/2 years starting
Rizal to Jose and Carmen Diokno. The 47,488 peso price of the land, plus a on May 1, 1961
6% per annum interest rate, was to be paid over a period of 8.5 years, in d. Monthly installments of P446.10 until fully paid
monthly installments of 446.10 pesos. Upon completion of payment, the (later adjusted to P797.86, starting on April 1, 1965)
vendor would execute a deed of sale. The contract also contained an
e. Upon complete payment of the total price of the lot
automatic rescission clause, which would terminate it in the event of
the vendor shall execute a deed of sale in favor of the
failure t pay three or more consecutive installments.
The Dioknos, however, struggled to pay the agreed amounts, falling vendee
almost 20 months behind as of April 17, 1967 (6 years later). Petitioner f. The contract shall be considered automatically
warned them that the automatic rescission clause would be activated upon rescinded and cancelled and of no further force
failure to pay the installments. Even so, the Dioknos asked for several and effect upon failure of the vendee to pay when
extensions of 30 and 60 days, which petitioner granted. 5-6 years after the due, three or more consecutive installments as
Dioknos stopped asking for extensions, they attempted to settle the entire stipulated therein or to comply with any of the
obligation and receive the deed of sale, as they had already planned to sell terms and conditions thereof, in which case the
the land to another person. Petitioner rejected the offer and said it had opted vendor shall have right to resell the said parcel of
to avail of the automatic rescission clause. land to any person interested, forfeiting payments
The Dioknos filed a case for Specific Performance, which was decided made by the vendee as liquidated damages.
in their favor before the lower court. The Intermediate Appellate Court
affirmed the decision, ordering petitioner to deliver the parcel of land and to
3. Petitioners began to default on their payments.
pay damages and attorney’s fees. Petitioner bank appealed to the Court,
asserting that it had the right to use the automatic rescission clause provided
in the contract. The Court held that the petitioner had effectively waived a. July 27, 1965: petitioner sent to private respondents
its right to the clause by granting numerous extensions to the debtor a Statement of Account showing partial payments for
Dioknos. the month of April 1965 and May 1965 and complete
default for June, July and August, 1965.
II. Facts of the Case (Material Facts) b. Private respondents paid Pl,397.00 as partial
payments for the installments for the months of June
1. On April 18, 1961, Hacienda Benito, Inc. executed a contract 1965 to August 1965
to sell a parcel of land in in Antipolo, Rizal to Jose W. c. March 17, 1967 - petitioner sent private respondents
Diokno And Carmen I. Diokno a simple demand letter showing a delinquency in
2. The terms of the contract are as follows: their monthly amortizations for 19 months
a. Total price for the lot: P 47,488.00
Obligations and Contracts (2020) PETITIONER: Pilipinas Bank 1

DIGEST AUTHOR: Vito Castañeda RESPONDENT: Intermediate Appellate Court (Fourth Civil Cases Division),
Jose W. Diokno And Carmen I. Diokno,
d. April 17, 1967 - petitioner sent another demand letter informing him that she had a buyer who was ready to
showing total arrearages of 20 months, and advised purchase the property,
that unless the Dioknos up-date their installment c. March 27, 1974 - petitioner wrote a letter to private
payments, petitioner shall be constrained to avail of respondents, informing them that the contract to
the automatic rescission clause. sell had been rescinded/cancelled by a notarial
act, to which letter was annexed a "Demand for
4. Private respondents began asking for extensions Rescission of Contract", notarized on March 25,
1974
a. May 17, 1967, private respondents made a partial
payment of P2,000.00, and requested for an 7. Respondents file a case against petitioner bank (issue
extension of 60 days from to update their accounts. finally reaches the courts)
b. July 17, 1967 - private respondents asked for another
extension of sixty (60) days a. Respondents filed Complaint for Specific
c. September 18, 1967 - private respondents paid Performance with Damages to compel petitioner to
P5,000.00 as partial payment and requested an execute a deed of sale in their favor, and to deliver to
extension of another 30 them the title of the lot in question.
d. October 19, 1967 - Private respondents failed to b. Petitioner filed a counterclaim for damages in the
update their arrearages and did not request for any form of attorney's fees, claiming that Contract to Sell
further extensions. No. VV-18(a) has been automatically rescinded or
cancelled by virtue of private respondents' failure to
5. May 19, 1971 (over 3 years later): Petitioner wrote a letter to pay the installments due in the contract under the
private respondents, reminding them of their balance which automatic rescission clause.
will be due on the 31st. c. The lower court rendered a decision in private
respondents' favor, holding that petitioner could not
6. Petitioners tried to rescind the contract rescind the contract to sell, because: (a) petitioner
waived the automatic rescission clause by accepting
a. July 5, 1973 (another 2 years): Private respondents payment on September 1967, and by sending letters
wrote a letter to petitioner expressing their desire to advising private respondents of the balances due,
fully settle their obligation, requesting for a complete thus, looking forward to receiving payments thereon.
statement of all the balance due including interests. Said decision was affirmed on appeal.
b. Petitioner did not respond, and on March 25, 1974,
private respondent Carmen I. Diokno went to see the 8. The Intermediate Appellate Court affirmed the
Chairman of petitioner's Board of Directors to decision of the lower court, issuing the assailed decision,

ordering petitioners: Overall Ruling
a. To deliver to the plaintiffs the parcel of land The Court finds the petition meritless. While "automatic rescission"
b. To pay the sum of P556,160.00 less the amount due provisions (without prior need of judicial rescission, resolution or
on the contract with legal interest on said balance cancellation) are generally valid, in the instant case there is a clear waiver of
from April 22, 1974 until the same is fully paid; the stipulated right of "automatic rescission" as evidenced by the many
3. To pay P50,000.00 by way of moral damages; extensions granted by Pilipinas Bank. Also, in granting these extensions,
4. To pay P50,000.00 by way of exemplary damages; the Pilipinas Bank never called attention to the proviso on "automatic
5. To pay ten per cent (10%) of the judgment by way of rescission."
attorney's fees; and
6. To pay costs of suit.
III. Issue/s
1. W/N the contract to sell was rescinded or cancelled, under the (There does not seem to be a Civil Code provision mentioned in the case
automatic rescission clause: NO. that squarely applies to the main issue.)
IV. Holding/s AUTOMATIC RECISSION CLAUSE – Rescinds the contract upon the
occurrence of certain conditions
Issue #1
NO, the contact to sell was not rescinded due to the automatic rescission ARTICLE 1179. Every obligation whose performance does not depend
clause, as the latter had been waived by Pilipinas Bank’s actions upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be
• There is an automatic rescission • There is a clear WAIVER of the demandable, without prejudice to the effects of the happening of the event.
clause in the contract, and it stipulated right of "automatic (1113)
must apply due to the Dioknos’ rescission," as evidenced by
late payments. the many extensions granted to ARTICLE 1181. In conditional obligations, the acquisition of rights, as
the Dioknos. well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.
ARTICLE 1191. 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.

The injured party may choose between the fulfillment and the rescission of o in any event, until May 18, 1977 (when petitioner made
the obligation, with the payment of damages in either case. He may also arrangements for the acquisition of additional 870 square
seek rescission, even after he has chosen fulfillment, if the latter should meters) petitioner could not have delivered the entire area
become impossible. contracted for, so, neither could private respondents be
liable in default, citing Art. 1189 of the New Civil Code.
The court shall decree the rescission claimed, unless there be just cause (Decision, pp. 141-148, Amended Record on Appeal).
authorizing the fixing of a period. o *ARTICLE 1189 OF THE CIVIL CODE - When the
conditions have been imposed with the intention of
This is understood to be without prejudice to the rights of third persons who suspending the efficacy of an obligation to give, the
have acquired the thing, in accordance with articles 1385 and 1388 and the following rules shall be observed in case of the
Mortgage Law. improvement, loss or deterioration of the thing during the
pendency of the condition:
(The granting of extensions constitutes a waiver of the rescission clause, as (1) If the thing is lost without the fault of the debtor, the
they imply that Pilipinas Bank has chosen not to avail of it. Automatic obligation shall be extinguished;
rescissions will not be effective without notice to the other party) (2) If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood that the
VI. Disposition thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or
WHEREFORE the assailed decision is hereby AFFIRMED but the actual it cannot be recovered;
damages are hereby reduced to P250,000.00 (the profit private respondents 3) When the thing deteriorates without the fault of the
could have earned had the land been delivered to them at the time they were debtor, the impairment is to be borne by the creditor;
ready to pay all their arrearages) minus whatever private respondents still (4) If it deteriorates through the fault of the debtor, the
owe the petitioner (with the stipulated 6% annual interest up to March 25, creditor may choose between the rescission of the
1974) as a result of the contract. obligation and its fulfillment, with indemnity for damages
SO ORDERED. in either case
(5) If the thing is improved by its nature, or by time, the
Fernan (Chairman), Gutierrez, Jr., Padilla and Cortes, JJ., concur. improvement shall inure to the benefit of the creditor;
Bidin, J., took no part. (6) If it is improved at the expense of the debtor, he shall
have no other right than that granted to the usufructuary.
(1122)
• At some point in the proceedings, Philippine Bank substituted
Hacienda Benito, Inc. and the Manufactures Bank and Trust VII. Random Facts
Company (as successors in interest) • Ponente: Paras, J.
• The lower court also gave the following reason for ruling against • Property has an area of 5,936 square meters; located in the Victoria
petitioner bank: Valley Subdivision in Antipolo, Rizal
G.R. No. 97347 | July 06, 1999 Positive Suspensive Condition; Art. 1191
Ong v Sps. Robles Ong v Sps. Robles
I. Recit-ready Summary 1983) covered by a check voucher. P496,500.09 shall be paid directly to the
Bank of the Philippine Islands (BPI) to answer Sps. Robles’ loan (around
Ong and Sps. Robles entered into an Agreement of Purchase of Sale P537,310). The balance of P1,400,000 shall be paid in four quarterly
respecting two parcels of land. Sps. Robles agree to sell the title to the land installments of P350,000. The first installment is due on June 15, 1983.
and its improvements for P2,000,000. Ong took possession of the land and Until the payment of the total purchase price, Ong and Sps. Robles bind
controlled the land and its improvements (piggery and rice mill). However, themselves to deliver to the former a good and sufficient deed of sale and
Ong was not able to completely pay the P2,000,000. Sps. Robles then conveyance for the parcels of land, free from liens and encumbrances. Upon
sought to rescind the contract and to recover the properties. RTC and CA
execution of this document, Sps. Robles shall transfer possession of the said
ruled in favor of Sps. Robles.
parcels of land including improvements (rice mill and piggery) to Ong and
May the contract be rescinded under Art. 1911 of the New Civil Code? Ong. The payments shall be affected in the residence of the Sps. Robles
YES unless another place has been designated in writing.
3. ONG’S PAYMENT. Ong paid the P103,499.91 by depositing it with the
Art. 1380 (rescission as a subsidiary remedy) does not apply since the United Coconut Planters Bank. Ong deposited sums of money with BPI.
case at bench does not fall under the circumstances stipulated in Art. 1381. Ong issued four postdated P350,000 checks payable to Sps. Robles. These
checks were dishonored due to insufficient funds. Ong failed to replace the
In the present case, the promise to sell the parcels of land is subject to checks. As per the BPI deposit, Ong only paid P393,679.60 out of the
the fulfillment of the suspensive condition of the full payment of the P496,500.09. BPI threatened to foreclose Sps. Robles mortgage, Sps. Robles
purchase price by Ong. Ong failed to complete their payment. Thus, the then sold three transformers of the rice mill to satisfy the outstanding
non-fulfillment of the condition of full payment rendered the contract to sell obligations with Ong’s consent. Ong voluntarily gave Sps. Robles authority
ineffective and without force and effect. NOTE: Failure to pay is not a to operate the rice mill. However, Ong continued possession of the two
breach of contract in this case. It is however an event which prevents the parcels of land while the Sps. Robles were forced to use the rice mill for
vendor’s (Sps. Robles) obligation to convey title from acquiring binding residential purposes.
force. The breach contemplated in Article 1191 of the New Civil Code is the 3. Sps. Robles demanded through a demand letter the return of their
obligor's failure to comply with an obligation already extant, not a failure of properties, but Ong did not return the properties.
a condition to render binding that obligation. 4. RTC. Sps. Robles complained for rescission of contract and recovery of
properties with damages. During the pendency of the case, Ong constructed
II. Facts of the Case (Material Facts) a hollow block fence on the property and expanded the piggery. The Court
enjoined Ong from introducing these improvements upon the prompt of the
1. CONTRACT. 1983, May 10. Jaime Ong (Ong) and Miguel Robles and Sps. Robles. The Court ruled and ordered the contract “Agreement of
Alejandra Robles (Sps. Robles) executed an “Agreement of Purchase and Purchase and Sale” be set aside and Ong deliver the parcels of land and its
Sale” respecting two parcels of land in Quezon. impovements to Sps. Robles.
2. STIPULATIONS. The purchase price is P2,000,000 (TWO MILLION 5. CA. CA affirmed RTC’s decision but deleted the award of exemplary
PESOS). The initial payment is P600,000. P103,499.91 of the initial damages.
payment shall be paid to the sellers (this has already been paid on March 22,
Obligations and Contracts (2020) PETITIONER: Jaime Ong 1
DIGEST AUTHOR: Jann Amorado RESPONDENT: Court of Appeals, Spouses Miguel Robles and Alejandra
Robles
III. Issue/s Overall Ruling

1. May the Agreement of Purchase and Sale be validly rescinded under
Article 1191 of the New Civil Code? YES SUIB ISSUE 1: ART. 1380 CANNOT BE APPLIED.
1.1 Can Art. 1380 be applied instead of Art. 1191? NO
1.2 Is the present contract a contract of sale or a contract to sell? Art. 1191 v Art. 1380 [Note: Art. 1380 is the one present in Siguan v Lim
CONTRACT TO SELL and Anchor Savings Bank v Furigay]
2. Have the parties novated their original contract as to the time and manner
of payment? NO Art. 1191: rescission applicable to reciprocal obligations. Reciprocal
IV. Holding/s obligations are those which arise from the same cause, and in which each
party is a debtor and a creditor of the other, such that the obligation of one is
Issue #1 dependent upon the obligation of the other. They are to be performed
Yes, the contract may be validly rescinded under Article 1191 of the New simultaneously such that the performance of one is conditioned upon the
Civil Code simultaneous fulfillment of the other. Rescission of reciprocal obligations
Petitioner’s Arguments Court’s Rebuttals under Article 1191 of the New Civil Code should be distinguished from
• Art. 1191 is NOT applicable • rescission of contracts under Article 1383. Although both presuppose
since Ong has paid Sps. Robles a contracts validly entered into and subsisting and both require mutual
considerable sum and therefore restitution when proper, they are not entirely identical.
has substantially complied with
Ong’s obligation. Ong cites Art. Art. 1380: a remedy granted by law to the contracting parties and even to
1383 to the effect where specific third persons, to secure the reparation of damages caused to them by a
performance is an available contract, even if this should be valid, by restoration of things to their
remedy, rescission may not be condition at the moment prior to the celebration of the contract. It implies a
resorted to. contract, which even if initially valid, produces a lesion or a pecuniary
damage to someone.
The original term for rescission in Art. 1191 is resolution. Resolution is a

principal action which is based on breach of a party while rescission in Art.
1383 is a subsidiary action limited to cases stated in Art. 1381.
Art 1381 reads:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are
the object thereof;
Robles
condition to render binding that obligation.

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of competent
judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.

(1291a)
CONCLUSION. The contract at the present case does not fall under any of the
circumstances stated in art 1381.
SUB ISSUE 2: THE AGREEMENT OF PURCHASE AND SALE IS A

CONTRACT TO SELL.
Contract of sale: title of the property passes to vendee upon delivery of the thing
sold.
Contract to sell: ownership is reserved in the vendor and is not passed to the vendee
Issue #2
until full payment of the purchase price. The payment of the purchase price is a No, the contract was not novated as to the manner and time of payment.
positive suspensive condition, the failure of which is not a beach, casual or serious, Petitioner’s Arguments Court’s Rebuttals
but a situation that prevents the obligation of the vendor to convey title from • •
acquiring an obligatory force.
Overall Ruling
In the present case, the promise to sell the parcels of land is subject to the fulfillment
of the suspensive condition of the full payment of the purchase price by Ong. Ong
Novation is NEVER presumed, it must be proved as fact either by express
failed to complete their payment. Thus, the non-fulfillment of the condition of full
payment rendered the contract to sell ineffective and without force and effect. stipulation of the parties or by implication derived from an irreconcilable
NOTE: Failure to pay is not a breach of contract in this case. It is however an event incompatibility between the old and new obligation.
which prevents the vendor’s (Sps. Robles) obligation to convey title from acquiring
binding force. The breach contemplated in Article 1191 of the New Civil Code is While Ong may state that there was a verbal agreement for the novation
the obligor's failure to comply with an obligation already extant, not a failure of a such fact is unsubstantiated by evidence on record.
Robles
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
For novation to take place, the follow requisites should occur: stated in the preceding number;
1. there is a previous valid obligation
2. there must be an agreement of the parties concerted to a new contract
manner collect the claims due them;
3. there must be an extinguishment of the old contract
4. there must be the validity of the new contract (4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of competent
The aforementioned requisites are absent at the present case. judicial authority;
V. Law or Doctrine Applied (5) All other contracts specially declared by law to be subject to rescission.
(1291a)
Art. 1191:
Differences Between Art. 1191 and Art. 1381
The power to rescind obligations is implied in reciprocal ones, in case one Art. 1191 Art. 1381
of the obligors should not comply with what is incumbent upon him. Action type Principal Action (Can be Subsidiary Action
resorted to without
The injured party may choose between the fulfillment and the rescission of attacking the properties of
the obligation, with the payment of damages in either case. He may also the other property)
Applicable when Breach of a party Rescissible contracts (Art.
1381)
become impossible.
The court shall decree the rescission claimed, unless there be just cause Novation Requisites:
1. there is a previous valid obligation
This is understood to be without prejudice to the rights of third persons who 2. there must be an agreement of the parties concerted to a new contract
have acquired the thing, in accordance with Articles 1385 and 1388 and the 3. there must be an extinguishment of the old contract
Mortgage Law. 4. there must be the validity of the new contract
Art 1381: VI. Disposition
(1) Those which are entered into by guardians whenever the wards whom they WHEREFORE, the decision rendered by the Court of Appeals is hereby
represent suffer lesion by more than one-fourth of the value of the things which are AFFIRMED with the MODIFICATION that respondent spouses are ordered
the object thereof; to return to petitioner the sum of P48,680.00 in addition to the amounts
already awarded. Costs against petitioner..
Robles
VII. Random Facts

• Ponente: Ynares-Santiago, J.

Robles
G.R. No. 202079 | June 10, 2013 Substantial breach
Fil-Estate v. Vertex Fil-Estate v. Vertex
I. Recit-ready Summary The Court held that in a sale of shares of stock, physical delivery of a
Fil-Estate Golf and Development, Inc. (FEGDI) was the developer of stock certificate is one of the essential requisites for the transfer of
the Forest Hills Golf and Country Club (Forest Hills). ownership of the stocks purchased.
Under these facts, considered in relation to the governing law, FEGDI
Forest Hills shares of stocks were issued to RS Asuncion for the clearly failed to deliver the stock certificates, representing the shares of
purpose of financing its operations amounting to P1.1 million. In turn, stock purchased by Vertex, within a reasonable time from the point the
RS Asuncion sold the said shares to Vertex Sales and Trading, Inc. shares should have been delivered. This was a substantial breach of
(Vertex) and notified that FEGDI and Forest Hills to recognize Vertex their contract that entitles Vertex the right to rescind the sale under
as owners of the shares. For this reason, Vertex enjoyed membership Article 1191 of the Civil Code.
privileges in Forest Hills.
Accordingly, the amount paid to FEGDI by reason of the sale should
After full payment of the purchase price and related necessary fees, the be returned to Vertex.
stock certificates were still not issued in the name of Vertex. Despite
demands made by Vertex, the stock certificates were still not issued in II. Facts of the Case (Material Facts)
their name. 1. Forest Hills, being developed by Fil-Estate, sold, on installment,
common shares in return for a consideration P1.1 million to RS
As a result, Vertex filed for a Complaint for Rescission with Damages Asuncion for the purpose of financing its operations.
and Attachment against FEGDI, FELI and Forest Hills. It averred that 2. In turn, RS Asuncion sold the said shares to Vertex Sales and
the petitioners defaulted in their obligation as sellers when they failed Trading, Inc. (Vertex) and notified that FEGDI and Forest Hills to
and refused to issue the stock certificate covering the subject share recognize Vertex as owners of the shares. For this reason, Vertex
despite repeated demands. On the basis of its rights under Article 1191
enjoyed membership privileges in Forest Hills.
of the Civil Code, Vertex prayed for the rescission of the sale and
3. After full payment of the purchase price and related necessary fees,
demanded the reimbursement of the amount it paid (or P1,100,000.00),
plus interest. During the pendency of the rescission action (or on the stock certificates were still not issued in the name of Vertex.
January 23, 2002), a certificate of stock was issued in Vertex's name, Despite demands made by Vertex, the stock certificates were still
but Vertex refused to accept it. not issued in their name.
4. This prompted Vertex to make a final demand and as the demand
The issue in this case is whether or not the delay in the issuance of a went unheeded, Vertex filed a Complaint for Rescission with
stock certificate can be considered a substantial breach as to warrant Damages and Attachment against FEGDI, FELI and Forest Hills.
rescission of the contract of sale. 5. The RTC dismissed the complaint based on the following:
• The delay in the issuance of the stock certificates is a casual
The Court ruled that the delay in the issuance of a stock certificate is breach only
considered a substantial breach that entitles one the right to rescind the
• The sale had already been consummated; the issuance of the
sale.
stock certificates is not necessary to be a shareholder.
Obligations and Contracts (2020) PETITIONER: Fil-Estate Golf and Development, Inc. 1
DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Vertex Sales and Trading, Inc.
6. The Court of Appeals reversed the ruling of the trial court requires a specific form to
reasoning that the prolonged delay in the issuance of the stock transfer ownership.
certificates is was substantial breach that is a ground for rescission. • FELI was only dragged into the
action when its staff used the
III. Issue/s wrong letterhead in replying to
1. W/N the delay in the issuance of a stock certificate can be Vertex and issued the wrong
considered a substantial breach as to warrant rescission of the receipt for the payment of transfer
contract of sale. (YES) taxes. Thus FELI should be
absolved from any liability.
In this case, Vertex fully paid the purchase price by February 11, 1999 but
YES, Physical delivery is necessary to the stock certificate was only delivered on January 23, 2002 after Vertex
transfer ownership of stocks filed an action for rescission against FEGDI.
Petitioner’s Arguments Court’s Rebuttals Under these facts, considered in relation to the governing law, FEGDI
• FEGDI argued that the delay • Physical delivery is necessary to clearly failed to deliver the stock certificates, representing the shares of
cannot be considered a transfer ownership of stocks. stock purchased by Vertex, within a reasonable time from the point the
substantial breach because FEGDI clearly failed to deliver shares should have been delivered. This was a substantial breach of their
Vertex was unequivocally the stock certificates, representing contract that entitles Vertex the right to rescind the sale under Article 1191
recognized as a shareholder of the shares of stock purchased by of the Civil Code. It is not entirely correct to say that a sale had already been
Forest Hills. Vertex, within a reasonable time consummated as Vertex already enjoyed the rights a shareholder can
• Vertex's nominees became from the point the shares should exercise. The enjoyment of these rights cannot suffice where the law, by its
members of Forest Hills and have been delivered. This was a express terms, requires a specific form to transfer ownership.
fully enjoyed and utilized all its substantial breach of their
facilities. contract that entitles Vertex the “Mutual restitution is required in cases involving rescission under Article
• Fil-Estate Land, Inc. (FELI) is right to rescind the sale under 1191” of the Civil Code; such restitution is necessary to bring back the
not a party to the contract. Article 1191 of the Civil Code. parties to their original situation prior to the inception of the contract.
• It is not entirely correct to say Accordingly, the amount paid to FEGDI by reason of the sale should be
that a sale had already been returned to Vertex. On the amount of damages, the CA is correct in not
consummated as Vertex already awarding damages since Vertex failed to prove by sufficient evidence that it
enjoyed the rights a shareholder suffered actual damage due to the delay in the issuance of the certificate of
can exercise. The enjoyment of stock.
these rights cannot suffice where
the law, by its express terms,

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. The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case.
Sec. 63 of the Corporation Code

Certificate of stock and transfer of shares. — The capital
stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice-president, countersigned by
the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation showing
the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares
transferred
VI. Disposition
WHEREFORE, we hereby DENY the petition. The decision dated
February 22, 2012 and the resolution dated May 31, 2012 of the Court
of Appeals in CA-G.R. CV No. 89296 are AFFIRMED with the
MODIFICATION that Fil-Estate Land, Inc. is ABSOLVED from
any liability.

None
VII. Random Facts

• Ponente: Brion, J.
G.R. No. 201167 | February 27, 2013 Art. 1191. Rescission of Obligations
Gotesco Properties, Inc. v. Fajardo Gotesco Properties, Inc. v. Fajardo
Spouses Eugenio and Angelina Fajardo (Sps. Fajardo) entered into a II. Facts of the Case (Material Facts)
Contract to Sell with Gotestco Properties, Inc. (GPI) for a lot in Evergreen 1. Sps. Fajardo entered into a Contract to Sell with GPI.
Executive Village in Caloocan City. Sps. Fajardo are to pay P126,000 over a 2. They purchased 100 sq. meter lot in Evergreen Executive Village
10-year period with 9% interest and upon delivery, GPI is to execute a final located in Caloocan City.
deed of sale and transfer the property. 3. The lot is a portion of a bigger lot with the mother title not having a
technical description as to its boundaries.
Despite the full payment and subsequent demands of the spouses, GPI 4. The contract obligates Sps. Fajardo to pay P126,000 within a 10-
failed to execute the deed, deliver the title, and transfer physical possession
year period with a 9% interest per annum.
of the property. Hence, Sps. Fajardo filed a complaint for specific
5. While GPI, on the other hand, is obligated to execute a final deed
performance or rescission of contract with damages under Art. 1191.
of sale in favor of Sps. Fajardo upon their full payment.
The lower courts ruled in Sps. Fajardo’s favor holding petitioners 6. Despite full payment on Jan. 17, 2000 and subsequent demands
jointly and solidarily liable and ordering the refund of the property at its (Sept. 15, 2002 letter) of Sps. Fajardo, GPI failed to execute the
prevailing market value plus legal interest from date of demand. deed, deliver the title, and transfer physical possession of the
subject lot.
The SC affirmed the decision with modification as, the Board of 7. In May 2006 Sps. Fajardo filed a complaint for specific
Director’s having acted in good faith, cannot be made jointly and solidarily performance or rescission of the contract with damages at the
liable with the company herein, GPI. The court addressed the issue of House and Land-Use Regulatory Board – Expanded National
whether or not respondent-spouses are entitled to rescission of their contract Capital Region Field Office (HLURB-ENCRFO) towards both the
with GPI. company (GPI) and its Board of Directors (Jose C. Go, Evelyn,
etc.)
The court answered in the affirmative stating that it is a violation of
8. Sps. Fajardo argued the ff:
Section 25 of PD No. 957 (The Subdivision and Condominium Buyer’s
a. Violation of Section 20 of PD No. 957 (Not providing for
Protective Decree) which states that in a contract to sell, the seller’s
obligation to deliver the title is simultaneous and reciprocal to the buyer’s the necessary facilities in the Subdivision, e.g. lights,
full payment. The defense that it was beyond their control cannot stand as water etc.)
the lack of technical descriptions on the property were only questioned by b. Failure to provide boundary marks for the lots contained
petitioners 8 years after its purchase from the original owner nor was there in the mother title. (BSP tried to levy the property without
any proof proffered as to the long delay in performance from the date of their knowledge)
extrajudicial demand in Sept. 2002. Thus, Sps. Fajardo are afforded the right 9. Sps. Fajardo prayed for:
to rescind as there was substantial breach in contract pursuant to Art. 1191. a. Execution of deed, conveyance of title and transfer of
This means the abrogation of the contract from its inception as if no contract physical possession; as well as development of the Subd.
has been made. However, as pointed out by the CA, to prevent unjust b. Or cancellation/rescission of the contract and refund of
enrichment according to the case of Solid Homes v Tan, the property should total payments plus legal interest starting Jan. 2000.
be refunded at its prevailing market value and not the contract price.
PETITIONER: Gotesco Properties, Inc., Jose C. Co, Evelyn Go, Lourdes G.
Obligations and Contracts (2020) Ortega, George Go, and Vicente Go
DIGEST AUTHOR: King Manalo RESPONDENTS: Spouses Eugenio and Angelina Fajardo
1
10. GPI maintained the ff:

a. Sps. Fajardo were aware of the lack of technical IV. Holding/s
description upon purchase. Issue #1
b. The specific lot was free from liens and encumbrances. YES, respondent-spouses Fajardo have the right to rescind their
c. Failure to deliver the title was beyond their control as contract to sell with GPI.
GPI’s petition for technical description while initially Petitioner’s Arguments Court’s Rebuttals
granted by the RTC, was subsequently reversed by the CA • Breach of contract could not • Petitioners acquired the land from
causing delay. have occurred because non- the original owner in 1992 which
d. Art. 1191 remains inapplicable as they were willing to compliance was beyond the did not bear any technical
comply and were only prevented by uncontrollable control of petitioners, i.e. the description. This concern was
circumstances. legal proceedings concerning the only brought to court in 2000, 8
e. BSP’s adverse claim on the mother title has long been subdivision of individual lots in years from its initial acquisition.
settled and annotated. the mother title. • Neither was it explained why
11. HLURB-ENCRFO Ruling: In favor of Sps. Fajardo holding that • Thus Sps. Fajardo have no right there was no filing within
GPI’s failure to meet its said obligation constitutes breach of to rescind. reasonable time a new petition
contract which warrants the option of rescission, recovering • BSP’s adverse claim on the for inscription after the 2003 CA
P168,728.83 plus legal interest from the date of extrajudicial mother title has long been settled decision dismissing their earlier
demand on Sept. 2002. (Also ruled joint and solidary liability of and annotated. petition on technical defects.
the Board of Directors) • The new petition for inscription
12. HLURB Board of Commissioners Ruling: Affirmed, added that was only filed in 2006 (3 years
there was violation of Section 25 of PD No. 957. after the first one) and this had
13. Office of the President Ruling: Affirmed not yet attained finality.
14. CA Ruling: Affirmed with Modification; refund of Sps. Fajardo
• Lastly, with regard to BSP’s
should be based on prevailing market value of the property
claim over the mother title, there
pursuant to Solid Homes v. Tan.
appears to be no cancellation of
15. Hence this petition.
the annotations in GPI’s favor.
Overall Ruling – No merit in the contention
III. Issue/s
Clearly, the delay in performance since the extrajudicial demand in Sept. 16,
1. W/N respondent-spouses Fajardo have the right to rescind
2002 was unreasonable and unjustified. It therefore cannot be denied that
their contract? YES.
GPI substantially breached its contract with Sps. Fajardo pursuant of Sec. 25
a. What are the effects of this specific rescission?
of PD No. 957 (The Subdivision and Condominium Buyer’s Protective
b. W/N they’re entitled to damages from GPI? YES
Decree) which states that in contracts to sell, the obligation to deliver the
2. W/N the Board of Directors may be held jointly and solidarily
title is simultaneous and reciprocal to the buyer’s full payment. This section
liable with their company GPI? NO.
2
imposes upon the subdivision owner or developer the obligation to cause the Petitioner’s Arguments Court’s Rebuttals
transfer of the corresponding certificate of title to the buyer upon full • Individual petitioners, i.e. the • None, petition is meritorious.
payment. Board of Directors never
participated in the acts
Furthermore, as this obligation was substantially breached by GPI Sps. complained of nor found to have
Fajardo are accorded the right to rescind the contract to sell according to acted in bad faith.
Article 1191. • Thus should not be held liable
for damages.
What are the effects of this specific rescission? Overall Ruling – Meritorious
Rescission generally does not merely terminate the contract but restores to It was not shown that the individual petitioners acted maliciously or dealt
the parties their original status as if no contract had been made. This with Sps. Fajardo in bad faith.
requires mutual restitution which means that both parties are to return any
benefits they may have received as a result of the contract. It has been The settled rule is that in the absence of malice and bad faith officers of the
consistently ruled as well that mutual restitution under Article 1385 applies corporation cannot be made personally liable for liabilities of the
to cases of rescission in Article 1191. This requires the returning of the corporation which, by legal fiction, has a personality separate and distinct
object of the contract, together with its fruits and the price with interest. from its officers, stockholders, and members.
In this case as only GPI had benefitted and as ruled in Solid Homes v Tan, V. Law or Doctrine Applied
Sps. Fajardo must be able to recover the price of the property pegged at its
prevailing market value as otherwise would be unjust enrichment as SEC. 25 OF PD NO. 957 (THE SUBDIVISION AND CONDOMINIUM
petitioners could just sell the same lot at the higher present value. Also, the BUYERS PROTECTIVE DECREE)
intent of PD 957 is to protect the buyer from unscrupulous sellers who Sec. 25. Issuance of Title. — The owner or developer shall
reneged on their obligations. Thus, equity and justice dictate that the injured deliver the title of the lot or unit to the buyer upon full
party be given full recompense and recover at the prevailing market value of payment of the lot or unit. No fee, except those required for
the subject lot. the registration of the deed of sale in the Registry of Deeds,
shall be collected for the issuance of such title. In the event a
mortgage over the lot or unit is outstanding at the time of the
Lastly, Sps. Fajardo are entitled to moral and exemplary damages plus
issuance of the title to the buyer, the owner or developer shall
attorney’s fees including costs of suit as they’ve experience mental anguish,
redeem the mortgage or the corresponding portion thereof
sleepless nights and were constrained to avail of private counsel. within six months from such issuance in order that the title
over any fully paid lot or unit may be secured and delivered
Issue #2 to the buyer in accordance herewith.
NO, the Board of Directors are not jointly and solidarily liable with the
company and are thus absolved.

3
ARTICLE 1191. OF THE CIVIL CODE (RESCISSION OF petitioners Jose C. Go, Evelyn Go, Lourdes G. Ortiga, George Go, and
OBLIGATIONS) Vicente Go from personal liability towards respondent-spouses Eugenio and
ART. 1191. The power to rescind obligations is implied in reciprocal ones, Angelina Fajardo.
him. VII. Additional Notes
• This Court has consistently ruled that this provision applies to
The injured party may choose between the fulfillment and the rescission of rescission under Article 1191:
the obligation, with the payment of damages in either case. He may also [S]ince Article 1385 of the Civil Code expressly and clearly states
seek rescission, even after he has chosen fulfillment, if the latter should that "rescission creates the obligation to return the things which
become impossible. were the object of the contract, together with their fruits, and the
price with its interest," the Court finds no justification to sustain
The court shall decree the rescission claimed, unless there be just cause petitioners' position that said Article 1385 does not apply to
authorizing the fixing of a period. rescission under Article 1191…
This is understood to be without prejudice to the rights of third persons who VII. Random Facts
have acquired the thing, in accordance with articles 1385 and 1388 and the • Ponente: Perlas-Bernabe, J.
Mortgage Law.
ARTICLE 1385. OF THE CIVIL CODE (RESCISSION EFFECTS)

ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obligated to restore.
Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss.
VI. Disposition
WHEREFORE, the assailed July 22, 2011 Decision and February 29, 2012
Resolution of the Court of Appeals in CA-G.R. SP No. 112981 are
hereby AFFIRMED WITH MODIFICATION, absolving individual
4
G.R. No. 159823 | February 18, 2013 Article 1191 Recission
Reyes vs. Rossi Reyes vs. Rossi
I. Recit-ready Summary 5. Reyes commenced an action for rescission of contract and damages
This case is about a deed of conditional sale involving the purchase by in the RTC of Quezon City.
Reyes of equipment worth 10 Million Pesos. Parties agreed that Reyes 6. Rossi charged Reyes with five counts of estafa and five counts of
would pay the sum of 3 Million Pesos as down payment, and the remaining violation of BP 22.
through four post-dated checks. Reyes later requested to restructure his 7. Reyes submitted a counter-affidavit claiming that the checks were
obligation from four post-dated checks to nine post-dated checks with an held from being honored due to the equipment being found to be in lesser
interest of 25,000/month. Rossi deposited three checks, but two checks were condition than expected with noticeable defects. Advanced Foundation
denied payment, while the third was dishonored. Rossi deposited two more replied that the pump had been sold on an is, where is basis.
checks, but they were likewise dishonored. Reyes filed a civil action for 8. Reyes assailed the jurisdiction of the Office of the City Prosecutor
rescission, while Rossi filed criminal cases of estafa and violation of BP 22. of Makati over the criminal charges during the pendency of the civil action
The issue is whether or not the civil action for rescission of the contract which posed a prejudicial question, which led to the recommendation to
of sale raised a prejudicial question that required the suspension of the dismiss the charges of estafa and suspension of the BP 22 proceedings.
criminal prosecution for violation of BP 22? The Court ruled in favor of
respondent and affirmed the CA ruling, which states that the pendency of Trial Court Ruling
the civil case does not bar the continuation of the proceedings in the Approving the recommendation of the Assistant City Prosecutor, the
preliminary investigation on the ground that it poses a prejudicial question. trial court dismissed the complaint for Estafa and suspended the proceedings
Considering that the contracts are deemed to be valid until rescinded, for BP 22 until the prejudicial question raised has been duly resolved.
the consideration and obligatory effect thereof are also deemed to have
been validly made, thus demandable. Consequently, there was no failure CA Ruling
of consideration at the time when the subject checks were dishonored. In the petition for certiorari by Rossi--the Court of Appeals reversed
Hence, the Court denies the petition since his obligation to fund the checks the suspension of the preliminary investigation of the criminal proceedings
or to make arrangements for them with the drawee bank should not be tied ordered by the RTC while sustaining the dismissal of the complaints for
up to the future event of extinguishment of the obligation under the contract estafa.
of sale through rescission.
SC Ruling
II. Facts of the Case (Material Facts) The SC agrees with the holding of the CA that the civil action for the
1. Reyes and Advanced Foundation Construction Systems rescission of contract was not determinative of the guilt or innocence of
Corporation, represented by its Executive Project Director, Rossi, executed Reyes. Finding that the contracts are deemed to be valid until rescinded, the
a deed of conditional sale of a Warman Dredging Pump HY 300A worth consideration and obligatory effect thereof are also deemed to have been
P10,000,000. validly made, thus demandable.
2. The parties agreed that Reyes will pay a down payment of
P3,000,000 and the remainder in four dated checks. III. Issue/s
3. Reyes requested the restructuring of his obligation to make it nine 1. W/N the civil action for rescission of the contract of sale raised
post-dated checks with a rate of P25,000/month.
a prejudicial question that required the suspension of the
4. Rossi deposited three checks, but two were denied payment by
criminal prosecution for violation of BP 22? NO.
Reyes and the third was dishonored. Two other checks were also
dishonored.
Obligations and Contracts (2020) PETITIONER: Teodoro A. Reyes 1

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Ettore Rossi
IV. Holding/s
Issue #2
Issue #1 SAMPLE
NO, the rescission of the contract of sale as a prejudicial question does Petitioner’s Arguments Court’s Rebuttals
not require the suspension of criminal proceedings for the violation of • Sample • Sample
BP 22. • •
• Reyes posits that the resolution • Until the contract is rescinded, Overall Ruling
of the civil action will be the juridical tie and the
determinative of his criminal obligations will subsist.
liability for the violations of BP V. Law or Doctrine Applied
22. If the contract would be ARTICLE 1191.
rescinded, his obligation to pay The power to rescind obligations is implied in reciprocal ones, in
under the conditional deed of case one of the obligors should not comply with what is incumbent upon
sale would be extinguished. him.
Overall Ruling The injured party may choose between the fulfilment and the
The SC affirmed the exposition of the CA which states that the rescission of rescission of
contracts in case of breach pursuant to Article 1191 of the Civil Code of the
seek rescission, even after he has chosen fulfilment, if the latter should
Philippines also presupposes a valid contract unless rescinded or annulled. it
become impossible.
is clear that the pendency of the civil case does not bar the continuation of The court shall decree the rescission claimed, unless there be just
the proceedings in the preliminary investigation on the ground that it poses a cause authorizing the fixing of a period.
prejudicial question. Considering that the contracts are deemed to be valid This is understood to be without prejudice to the rights of third persons
until rescinded, the consideration and obligatory effect thereof are also who have acquired the thing, in accordance with Articles 1385 and 1388 and
deemed to have been validly made, thus demandable. Consequently, there the Mortgage Law.
was no failure of consideration at the time when the subject checks were
dishonored. SECTION 7, RULE 111 OF THE 2000 RULES OF CRIMINAL
PROCEDURE
Reyes already committed the violations upon the dishonor of the checks that Elements of prejudicial question. — The elements of a prejudicial
he had issued at a time when the conditional sale was still fully binding question are:
upon the parties. His obligation to fund the checks or to make (a) the previously instituted civil action involves an issue similar or
intimately related to the issue raised in the subsequent criminal action,
arrangements for them with the drawee bank should not be tied up to
and
the future event of extinguishment of the obligation under the contract
(b) the resolution of such issue determines whether or not the criminal
of sale through rescission. action may proceed.

VI. Disposition
WHEREFORE, the Court DENIES the petition for review; AFFIRMS the
decision the Court of Appeals promulgated on May 30, 2003; and
DIRECTS the petitioner to pay the costs of suit.

• Breakdown of the issue: Petitioner argues that the criminal case
filed against him should be suspended until his civil action for
rescission has been resolved. His main reason for this is that if his
civil action accepted then his obligation would be extinguished,
therefore his criminal case would likewise be extinguished as if
there was no obligation to begin with.
• Violation of Batas Pambansa Blg. 22 requires the concurrence of
the following elements, namely: (1) the making, drawing, and
issuance of any check to apply for account or for value; (2) the
knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the
drawee bank for the payment of the check in full upon its
presentment; and (3) the subsequent dishonor of the check by the
drawee bank for insufficiency of funds or credit or dishonor for
the same reason had not the drawer, without any valid cause,
ordered the bank to stop payment.
VII. Random Facts

• Ponente: Bersamin, J.
• Check No. Date Amount
• 72807 April 30, 1998 P25,000.00
• 79125 May 01, 1998 1,000,000.00
• 72802 May 30, 1998 2,000,000.00
• 72808 June 30, 1998 25,000.00
• 72809 July 31, 1998 25,000.00
• 72801 August 31, 1998 2,000,000.00
• 72810 September 30, 1998 25,000.00
• 72811 October 31, 1998 25,000.00
• 72903 November 30, 1998 2,000,000.00

G.R. No. 188633 | April 10, 2013 Art. 1191 (Rescission)
Sandoval Shipyards vs. PMMA Sandoval Shipyards vs. PMMA
I. Recit-ready Summary Rosario who claimed to have been verbally authorized by

PMMA and Sandoval entered into a Ship Building Contract wherein PMMA’s president, allegedly received the lifeboats.
Sandoval would construct two lifeboats for PMMA. Sandoval failed to 7. 3 months after, PMMA sent a team to inspect on the lifeboats.
follow the specifications agreed upon- a different engine was used and the Upon inspection, the team found 3 irregularities:
lifeboats were delivered way past 45 days from date of contract, as a. The lifeboats had a different brand of diesel engines
stipulated in the contract. Sandoval failed to rectify the situation, thus compared to what was stipulated in the contract (It was a
compelling PMMA to file a case for rescission. The lower courts found Japan-made Isuzu instead)
there was a breach of contract and ordered rescission. The issue is W/N the
b. The electric starting systems of the engines had no manual
cause of action is for rescission and not breach of contract. The SC held that
which was a necessity in case of system failure.
the lower courts were correct. Such failure or breach of respondent's
contractual rights is the cause of action. Rescission or damages are part of c. The construction of the engine compartment was not in
the reliefs. A cause of action is an act or omission which violates the rights conformity with the approved plan.
of another. The breach was found to be substantial and sufficient to warrant 8. PMMA ordered the petitioner to rectify the errors in the lifeboats.
a rescission of the contract or a mutual restitution of benefits received plus 9. A meeting was held between the parties which ended with an
damages, as provided by the Civil Code. The factual circumstances, agreement that petitioner will deliver the lifeboats with the agreed
however, rendered mutual restitution impossible since the petitioners plan and specifications and w/ an extended deadline.
delivered the lifeboats to Rosario, an unauthorized receiver of the lifeboats. 10. Despite repeated demands, petitioner failed to deliver, thus
As the delivery to Rosario was invalid, it was as if respondent never compelling PMMA to file against them a complaint for rescission
received the lifeboats. As it never received the object of the contract, it of contract with damages.
cannot return the object. The petitioners were ordered to return the entire 11. The RTC held that the allegations in the complaint were for a
amount received as payment from respondent. breach of contract and ordered the petitioners liable for damages.
12. CA affirmed the ruling. Stated that petitioners committed a clear
substantial breach of the contract which warranted rescission.
1. Philippine Merchant Marine Academy (PMMA) entered into a
13. CA held that petitioners failed to deliver the lifeboats due to
Ship Building Contract with Sandoval Shipyards through its agent
the fact that Rosario, the one alleged to have received the
Rimport Industries.
lifeboats, was not a duly authorized representative named in
2. In their contract, petitioners are to construct two units of lifeboats
the contract.
to be used as training boats by PMMA students.
14. Petitioner is now claiming that CA erred in substituting the cause
3. Specifically, the lifeboats should have 45-HP Gray Marine diesel
of action from rescission to breach of contract.
engines and should be delivered within 45 working days from the
date of contract-signing and payment of the mobilization fund.
III. Issue/s
4. The mobilization fund was paid on March 1995.
1. W/N the cause of action is for rescission and not breach of
5. PMMA’s mode of payment is by installment basis depending on
contract? NO.
the progress accomplishment of the work as stated in the contract.
6. On Aug 1995 (way past the 45 working days delivery as stipulated
IV. Holding/s
in the contract), a faculty member of PMMA named Angel
Obligations and Contracts (2020) PETITIONER: Sandoval Shipyards Inc. & Rimport Industries Inc. 1
DIGEST AUTHOR: Pia Casano RESPONDENT: Philippine Merchant Marine Academy (PMMA)
G.R. No. 188633 | April 10, 2013 Art. 1191 (Rescission)
Sandoval Shipyards vs. PMMA Sandoval Shipyards vs. PMMA
The power to rescind obligations is implied in reciprocal ones, in

Issue #1 case one of the obligors should not comply with what is incumbent upon
No. The cause of action is the failure or breach of PMMA’s contractual him.
rights. Rescission or damages are part of the reliefs. The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He
may also seek rescission, even after he has chosen fulfillment, if the latter
• Respondent agreed to substitute • The engines installed were should become impossible.
the engines of equivalent quality. different from what was agreed, The court shall decree the rescission claimed, unless there be just cause
• The acceptance of the lifeboat thus there was a breach of authorizing the fixing of a period.
was implied by the act of contract. Further, they failed to This is understood to be without prejudice to the rights of third persons
respondent’s president in naming deliver within the agreed time. who have acquired the thing, in accordance with Articles 1385 and 1388 and
the 2 lifeboats. the Mortgage Law. (1124)
Overall Ruling
A cause of action is an act or omission which violates the rights of another. VI. Disposition
The respondent’s complaint alleged that petitioners failed to comply with WHEREFORE, in view of the foregoing, we DENY the Petition for Review
on Certiorari dated 21 August 2009 and AFFIRM the Decision dated 26
their obligation under the Ship Building Contract. Such failure or breach of
February 2009 and Resolution dated 06 July 2009 of the Court of Appeals in
respondent's contractual rights is the cause of action. Rescission or damages CA-G.R. CV No. 88094.
are part of the reliefs. In this case, Sandoval Shipyard’s violated the
stipulations in the contract by installing surplus diesel engines and failing to VII. Additional Notes
deliver the lifeboats within the agreed time. The breach was found to be
substantial and sufficient to warrant a rescission of the contract or a mutual VIII. Random Facts
restitution of benefits received plus damages, as provided by the Civil Code. • Ponente: Sereno, CJ
The factual circumstances, however, rendered mutual restitution impossible
since the petitioners delivered the lifeboats to Rosario, an unauthorized
receiver of the lifeboats. As the delivery to Rosario was invalid, it was as if
respondent never received the lifeboats. As it never received the object of
the contract, it cannot return the object. The petitioners were ordered to
return the entire amount received as payment from respondent.
Article 1191 CIVIL CODE
Obligations and Contracts (2020) PETITIONER: Sandoval Shipyards Inc. & Rimport Industries Inc. 2
DIGEST AUTHOR: Pia Casano RESPONDENT: Philippine Merchant Marine Academy (PMMA)
G.R. No. 162802 | October 9, 2023 Rescission (Art. 1191)
Eds Manufacturing Inc. v. Healthcheck International Inc. Eds Manufacturing Inc. v. Healthcheck International Inc.
I. Recit-ready Summary apparent consent of EMI, belies any intention to cancel or rescind it, even as
Healthcheck Inc (HCI). is a Health Maintenance Organization (HMO). Eds they felt that they ought to have received more than what they got.
Manufacturing, Inc. (EMI) entered into an 1 yr insurance contract with HCI
from May 1, 1998 to April 30, 1999 for its employees and dependents. The II. Facts of the Case (Material Facts)
agreement was a Service Program and EMI paid the full premium for the 1. Healthcheck Inc (HCI). is a Health Maintenance Organization
coverage. Only 2 months into the program, problems began to loom in. HCI (HMO) that provides prepaid health and medical insurance
failed to preserve its credit standing with DLSUMC 3 times prompting the coverage for its clients. It maintains a network of accredited
latter to suspend its accreditation. Complaints from EMI employees and hospitals and medical clinics including De La Salle University
workers were pouring in that their HMO cards were not being honored by Medical Center (DLSUMC) in Dasmarinas, Cavite.
the DLSUMC and other hospitals and physicians. EMI formally notified 2. Eds Manufacturing, Inc. (EMI) entered into an 1 yr insurance
HCI that it was rescinding their April 1998 Agreement. EMI failed to collect
contract with HCI Inc. from May 1, 1998 to April 30, 1999 for its
all the HMO cards of the employees and surrender them to HCI as stipulated
4,191 employees and 4,592 dependents.
in the Agreement. EMI sent HCI two letters demanding for the payment of
P5,884,205 as the 2/3 portion of the premium that remained unutilized after 3. It was Service Program and EMI paid the full premium for the
the Agreement was rescinded in the previous September. HCI pre-empted coverage.
EMI's threat of legal action by instituting the present case before the RTC of 4. Only 2 months into the program, problems began to loom in.
Pasig due to unlawful pretermination of the contract and failure of EMI to 5. July 17 – HCI notified EMI that its accreditation with DLSUMC
submit to a joint reconciliation of accounts and deliver such assets as was suspended and advised it to avail of the services of nearby
properly belonged to HCI. The RTC ruled in favor of HCI and found EMI's accredited institutions
rescission of the Agreement was not done through court action or by a 6. A more detailed communication to subscribers came out days later
notarial act and was based on casual or slight breaches of the contract. informing them of the problems of the HMO industry in the wake
Despite the announced rescission, the employees of EMI continued to avail of the Asian regional financial crisis and proposing interim
of HCI's services until March 1999. On appeal, the CA reversed the decision measures for the unexpired service contracts.
of the Regional Trial Court (RTC) of Pasig City and ruled that although 7. EMI and HCI hammered a this handwritten 5-point agreement (see
Healthcheck International, Inc. (HCI) substantially breached their
notes)
agreement, it also appears that EMI not validly rescind the contract between
them. 8. July 24 - DLSUMC resumed services with HCI still had to settle its
The issue in this case is W/N there was a valid rescission of the Agreement accounts
between the parties. 9. Aug 3 – In another meeting with EMI, HCI undertook to settle all
The SC held NO, Rescission referred to in Article 1191, more appropriately its accounts with DLSUMC in order to maintain its accreditation.
referred to as resolution, is on the breach of faith by one of the parties 10. Aug 15 to 20 - Despite this commitment, HCI failed to preserve its
which is violative of the reciprocity between them. It is apparent that HCI credit standing with DLSUMC prompting the latter to suspend its
violated its contract with EMI to provide medical service to its employees in accreditation for a second time
a substantial way. However, although a ground exists to validly rescind the 11. Sept 9 - A third suspension remained in force until the end of the
contract between the parties, it appears that EMI failed to judicially rescind contract period.
the same. It is evident that EMI had not rescinded the contract at all. The
continued use by them of their privileges under the contract, with the
Obligations and Contracts (2020) PETITIONER: Eds Manufacturing Inc 1

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Healthcheck International Inc
12. Sept 1998 - Complaints from EMI employees and workers were by HCI could not be undertaken until it submitted the monthly
pouring in that their HMO cards were not being honored by the utilization reports mentioned in the Agreement.
DLSUMC and other hospitals and physicians. 21. EMI asked for the dismissal of the complaint and interposed a
13. Sept 3, EMI formally notified HCI that it was rescinding their April counterclaim for damages and unutilized premium of P5,884,205.
1998 Agreement on account of HCI's serious and repeated breach SEACTH
of its undertaking including but not limited to the unjustified non- 22. Sep 2000 (after trial) Court ruled in favor of HCI and found the ff:
availability of services. It demanded a return of premium for the 23. EMI's rescission of the Agreement on September 3, 1998 was not
unused period after September 3, giving a ballpark figure of P6 done through court action or by a notarial act and was based on
million. casual or slight breaches of the contract.
14. There was failure of EMI to collect all the HMO cards of the 24. Despite the announced rescission, the employees of EMI continued
employees and surrender them to HCI as stipulated in the to avail of HCI's services until March 1999.
Agreement. 25. The services rendered by HCI from May 1998 to March 1999
15. Oct 12 - HCI had to tell EMI that its employees were still utilizing purportedly came to a total of P10,149,821.13.
the cards even beyond the pretermination date set by EMI. It asked 26. Deducted from this figure the premium paid by EMI, leaving a net
for the surrender of the cards so that it could process the payable to HCI of P1,323,513.63, in addition to moral damages and
pretermination of the contract and finalize the reconciliation of attorney's fees. EMI's counterclaims, on the other hand, were
accounts. “ Until we have received the IDs, HCI said, we will dismissed for lack of merit.
consider your account with us ongoing and existing, thus subject 27. On appeal, the CA reversed the decision of the Regional Trial
for inclusion to present billing and payment. “ Court (RTC) of Pasig City and ruled that although Healthcheck
16. EMI did not respond to the reminder of HCI. International, Inc. (HCI) substantially breached their agreement, it
17. Jan 1999 - EMI sent HCI two letters demanding for the payment of also appears that EMI not validly rescind the contract between
P5,884,205 as the 2/3 portion of the premium that remained them. Thus, the CA dismissed the complaint filed by HCI, while at
unutilized after the Agreement was rescinded in the previous the same time dismissing the counterclaim filed by EMI.
September. (see notes for basis of computation)
18. HCI pre-empted EMI's threat of legal action by instituting the III. Issue/s
present case before the Regional Trial Court of Pasig. 1. W/N there was a valid rescission of the Agreement between the
19. Cause of action: Unlawful pretermination of the contract and parties? – NO
failure of EMI to submit to a joint reconciliation of accounts and
deliver such assets as properly belonged to HCI. IV. Holding/s
20. EMI responded alleging that HCI reneged on its duty to provide
adequate medical coverage after EMI paid the premium in full. Issue #1
Having rescinded the contract, it claimed that it was entitled to the No, there was no valid rescission of the Agreement between the parties
unutilized portion of the premium, and that the accounting required

Overall Ruling The power to rescind obligations is implied in reciprocal ones, in case one
• The general rule is that rescission (more appropriately, resolution) of the obligors should not comply with what is incumbent upon him.
of a contract will not be permitted for a slight or casual breach, but
only for such substantial and fundamental violations as would The injured party may choose between the fulfillment and the rescission of
defeat the very object of the parties in making the agreement the obligation, with the payment of damages in either case. He may also
• Rescission referred to in Article 1191, more appropriately referred become impossible.
to as resolution, is on the breach of faith by one of the parties
which is violative of the reciprocity between them. The court shall decree the rescission claimed, unless there be just cause
• It is apparent that HCI violated its contract with EMI to provide authorizing the fixing of a period.
medical service to its employees in a substantial way. As aptly
found by the CA, the various reports made by the EMI employees This is understood to be without prejudice to the rights of third persons who
from July to August 1998 are living testaments to the gross denial have acquired the thing, in accordance with Articles
of services to them at a time when the delivery was crucial to their 1385 and 1388 and the Mortgage Law
health and lives.
• However, although a ground exists to validly rescind the contract VI. Disposition
between the parties, it appears that EMI failed to judicially rescind
WHEREFORE, premises considered, the Decision dated November 28,
the same. It is evident that EMI had not rescinded the contract at
2003 and Resolutions dated March 16, 2004 of the Court of Appeals, in CA-
all. G.R. CV No. 69420, are hereby AFFIRMED.
• It failed to surrender the HMO cards of its employees although this
was required by the Agreement, and allowed them to continue VII. Additional Notes
using them beyond the date of the rescission. The in-patient and the • EMI and HCI’s handwritten 5-point agreement:
out-patient utilization reports submitted by HCI shows entries as o HCI to furnish EMI with list of procedural enhancements
late as March 1999, signifying that EMI employees were availing by 7/24 (FRI)-hospitals and professional fees payment
of the services until the contract period were almost over. o HCI to reduce no. of accredited hospitals to improve
• The continued use by them of their privileges under the contract, monitoring of bills for payment and other problems
with the apparent consent of EMI, belies any intention to cancel or o EMI to study the possibility of adding 'LIABILITY
rescind it, even as they felt that they ought to have received more CLAUSE' to existing contract; to furnish HC copy for its
than what they got. review.
• Various jurisprudence were cited in the case (see notes) o No renewal of contract w/HC should there be another
suspension of services in any hospitals to be chosen
V. Law or Doctrine Applied (w/regard to item #2.) w/in the present contract period.
o HC decision on APE provided by 7/24 (FRI)
Article 1191 of the Civil Code states: • Basis of HCI’s observations:
a. that EMI paid premium of P8,826,307.50

b. Healthcheck's accreditation with DLSUMC was

suspended on July 17, August 15 and Sept. 9, 1998 by VII. Random Facts
reason of Healthcheck's unjustified failure to pay its • Ponente: Peralta, J.
benefits to the hospital. • Leonen, J’s concurring opinion:
c. That Healthcheck's accreditation with other hospitals and o I agree that Healthcheck International, Inc.'s violation of
individual physicians was also suspended on various its contract with Eds Manufacturing, Inc. is substantial. Its
dates for the same reason. violation is enough ground for Eds Manufacturing, Inc. to
d. That, in effect Healthcheck managed to comply with its resolve (or rescind) the contract in accordance with
obligation only for the first 4 months of the year-long Article 1191 of the Civil Code.
contract, or 1/3 thereof. o If the party who failed to comply does not contest the
• Jurisprudence cited in the Holding: resolution then the contract is deemed resolved; the
a. JBL Reyes’ concurring opinion in Universal Food resolution produces legal effects. The courts step into the
Corporation v. Court of Appeals: picture only when the party who allegedly violated the
i. It is probable that the petitioner's confusion contract disputes the other party’s unilateral resolution. In
arose from the defective technique of the new that case, the court determines whether there is indeed
Code that terms both instances as "rescission" substantial breach of the contract to justify the party’s
without distinction between them; unlike the unilateral resolution of the contract
previous Spanish Code of 1889 that o A judicial decree is not necessary to constitute a valid
differentiated between "resolution" for breach of resolution. It is only necessary when the ground for the
stipulations from "rescission" by reason of resolution is in dispute. A judgment on the validity of the
lesion or damage. But the terminological resolution settles whether the unilateral resolution is
vagueness does not justify confusing one case proper. In other words, while resolution may be valid even
with the other, considering the patent difference without a judicial decree, the other party may question in
in causes and results of either action. court the act of resolution in case of abuse by the
b. Pryce Corporation v. Philippine Amusement Gaming resolving party. The party who unilaterally resolves a
Corporation contract runs the risk of having his or her action corrected
i. Relevantly, it has been pointed out that by the court by declaring it as invalid if he or she abuses
resolution was originally used in Article 1124 of or erroneously uses his or her power to resolve.
the old Civil Code, and that the term became the o The invalidity of Eds Manufacturing, Inc.'s resolution of
basis for rescission under Article 1191 (and its contract with Healthcheck International, Inc. based on
conformably, its failure to institute a judicial action for resolution is,
ii. also Article 1659). therefore, disputable. Nevertheless, Eds Manufacturing,
c. Iringan v. Court of Appeals - reiterated the rule that in the Inc.'s resolution is invalid because of its employees'
absence of a stipulation, a party cannot unilaterally and continued use of Healthcheck International, Inc.'s services
extrajudicially rescind a contract. A judicial or notarial even after the contract period. This contradicts the alleged
act is necessary before a valid rescission (or resolution) intention to resolve the contract.
can take place.

G.R. No. 186332| October 23, 2013 Art 1191 - Rescission
Planters Development Bank v Sps. Lopez Planters Development Bank v Sps. Lopez
I. Recit-ready Summary The SC ruled in favor of Planters Bank, ordering the respondents to pay the
petitioners P3,500,000.00 with 12% monetary interest per annum.
The Spouses Lopez obtained a real estate loan in the amount of P3,000,000
from Planter Bank to construct a four-story dormitory building. Originally
the loan agreement stipulated the loan payable for 14 years with an interest
rate of 21% per annum. Due to a series of amendments and a second loan II. Facts of the Case
the amount eventually totaled P4,200,000 with an interest rate of 32%. The
Spouses Lopez however were not able to avail of the full amount because Spouses Lopez obtained a real estate loan in the amout of P3,000,000 from
Planters Bank refused to release the remaining amount of P700,000. The Planters Bank for the construction of a four-story dormitory building. Lopez
Lopez spouses filed a complaint for rescission of the loan agreements and mortgaged a parcel of land. The loan agreement provided that the loan is
for damages, alleging they could not continue the construction of the payable for 14 years with monetary interest at 21% per annum. Furthermore,
building because Planters Bank refused to release the remaining loan partial drawdowns on the loan shall be based on project completion, and
balance. shall be allowed upon submission of job accomplishment reports by the
project engineer.
The RTC ruled in Planters Bank's favor. It maintained that the spouses
Lopez violated the loan agreement by failing to submit accomplishment Subsequetly the parties signed an agreement to the loan increasing the
reports and by deviating from the construction project plans. On the other interest to 23% and the term shortened to three years. It was again amended
hand, the CA reversed the RTC ruling. It held that Planters Bank's refusal a second time, further increasing the interest to 25% and provided that
to release the loan was a substantial breach of the contract. releases on the loan shall be subject to Planter Bank’s availability of funds.
Planters Bank now posits before the SC arguing that the spouses Lopez Because of the deterioration of the economy at the time (1983) the spouses
violated the loan agreements for their failure to submit accomplishment Lopez obtained another loan in the amount of P1,200,000 from Planters
reports and by constructing a six-story building instead of a four-story Bank to finish the project.
building, that there was no estoppel because only one year and twenty days
have elapsed from the violation of the contract until the spouses Lopez's A third amendment to the loan was made increasing the loan to 4,200,000
filing of the complaint, that there must be an unjustifiable neglect for an and the interest rate to 27% and shortening it to one year. The contract also
unreasonable period of time for estoppel to apply, that even assuming that it provided that the remaining loan shall only be available to the spouses
breached the contract, it was only a slight breach because only P700,000.00 Lopez until June 30, 1984. On the same date, the spouses Lopez increased
of the P4,200,000.00 loan was not released, and that it cannot convey the the amount secured by the mortgage to P4,200,000.00. On August 15, 1984,
foreclosed properties because they were already sold to third parties. The Planters Bank unilaterally increased the interest rate to thirty-two percent
main issues in this case were w/n the spouses violated the loan agreement, (32%) p.a. The spouses Lopez failed to avail the full amount of the loan
and w/n planters bank substantially violated the loan agreement. because Planters Bank refused to release the remaining amount of
P700,000.00.
Obligations and Contracts PETITIONER: Planters Development Bank 1
DIGEST AUTHOR: Ryon Rivera
RESPONDENT: SPOUSES ERNESTO LOPEZ and FLORENTINA LOPEZ,
substituted by JOSEPH WILFRED JOVEN, JOSEPH GILBERT JOVEN and
MARLYN JOVEN
The Lopez spouses filed a complaint for rescission of the loan agreements
and for damages, alleging they could not continue the construction of the
2A.The spouses Lopez submitted accomplishment reports. The .
building because Planters Bank refused to release the remaining loan evidence on record shows that Engr. Fianza submitted accomplishment
balance. Planters Banks argued that its refusal to release the loan was the reports from November 19, 1983 until June 9, 1984. His testimony is
result of the spouses Lopez's violations of the loan agreement, namely: (1) corroborated by the estimony of Marayag, Planters Bank's appraisal
non-submission of the accomplishment reports; and (2) construction of a department head. This latter testimony shows that the spouses Lopez indeed
six-story building. submitted accomplishment reports. CT
2B. Planters Bank is estopped from opposing the spouses Lopez's

III. Issue/s deviation from the construction project. The principle of equitable
1) Whether the CA's amended decision dated July 30, 2007 is final and estoppel prevents Planters Bank from raising the spouses Lopez's violation
executory. NO of the loan agreement. Planters Bank was already aware that the spouses
Lopez were building six floors as early as September 30, 1983. Records
2) Whether the spouses Lopez violated the loan agreement; disclose that Planters Bank also conducted a series of ocular inspections.
Despite such knowledge, the bank kept silent on the violation of the loan
a) Whether the spouses Lopez submitted accomplishment reports, agreement as Planters Bank still continued to release the loan in partial
YES amounts to the spouses Lopez. As the CA correctly pointed out, Planters
Bank only raised this argument during trial — a move that highly appears to
b) Whether the spouses Lopez deviated from the construction be an afterthought. The concurrence of the following requisites is necessary
project; NO for the principle of equitable estoppel to apply: (a) conduct amounting to
false representation or concealment of material facts or at least calculated to
convey the impression that the facts are otherwise than, and inconsistent
3) Whether Planters Bank substantially breached the loan agreement;
with, those which the party subsequently attempts to assert; (b) intent, or at
NO
least expectation that this conduct shall be acted upon, or at least influenced
by the other party; and (c) knowledge, actual or constructive, of the actual
4) Whether the amount of awards rendered by the CA is proper. NO
facts.
IV. Holding/s
1. NO, The CA's amended decision dated July 30, 2007 is not yet final 3. Planters Bank only committed a slight or casual breach of the
and executory because Planters Bank filed a motion for reconsideration on contract. Planters Bank indeed incurred in delay by not complying with its
time; its filing is allowed by the Rules of Court. obligation to make further loan releases.Its refusal to release the remaining
balance, however, was merely a slight or casual breach as shown below. In
other words, its breach was not sufficiently fundamental to defeat the object
MARLYN JOVEN
of the parties in entering into the loan agreement. The well-settled rule is V. Law or Doctrine Applied
that rescission will not be permitted for a slight or casual breach of the
contract. The factual circumstances of this case lead us to the conclusion Art. 1191. The power to rescind obligations is implied in reciprocal
that Planters Bank substantially complied with its obligation. To reiterate, ones, in case one of the obligors should not comply with what is
Planters Bank released P3,500,000.00 of the P4,200,000.00 loan. Only the incumbent upon him.
amount of P700,000.00 was not released. This constitutes 16.66% of the
entire loan. Planters Bank is not an insurer of the building's construction. The injured party may choose between the fulfillment and the rescission
External factors, such as the steep price of the materials and the cost of
of the obligation, with the payment of damages in either case. He may
labor, affected the erection of the building. More importantly, the spouses
also seek rescission, even after he has chosen fulfillment, if the latter
Lopez took the risk that the project would not be finished when they
should become impossible.
constructed a six-story building instead of four-story structure.
4. The estate of Florentina Lopez shall pay Planters Bank the amount of The court shall decree the rescission claimed, unless there be just cause
P3,500,000.00 with 12% monetary interest p.a. from June 22, 1984 until authorizing the fixing of a period.
full payment of the obligation. Planters Bank and the spouses Lopez
undertook reciprocal obligations when they entered into a loan agreement. This is understood to be without prejudice to the rights of third persons
In reciprocal obligations, the obligation or promise of each party is the who have acquired the thing, in accordance with Articles 1385 and
consideration for that of the other. The mere pecuniary inability of one 1388 and the Mortgage Law.
contracting party to fulfill an engagement does not discharge the other
contracting party of the obligation in the contract. Planters Bank's slight
breach does not excuse the spouses Lopez from paying the overdue loan in
the amount of P3,500,000.00.Despite this finding, however, we cannot VI. Disposition
sustain the imposition of the interest rate in the loan contract. Even if we WHEREFORE, premises considered, the assailed amended decision dated
disregard the 32% p.a., the interest rate of 27% p.a. in the third amended July 30, 2007 and resolution dated February 5, 2009 of the Court of Appeals
agreement is still excessive We thus equitably reduce the monetary interest are hereby REVERSED. Respondents Joseph Wilfred, Joseph Gilbert and
rate to 12% p.a. on the amount due computed from June 22, 1984 until full Marlyn, all surnamed Joven, are ordered to pay THREE MILLION FIVE
payment of the obligation. The estate of Florentina Lopez shall further be HUNDRED THOUSAND PESOS (P3,500,000.00) with 12% monetary
liable for compensatory interest at the rates of 12% p.a. from June 22,1984 interest per annum commencing on June 22, 1984 until fully paid; 12%
until June 30, 2013 and 6% p.a. from July 1, 2013 until the finality of this compensatory interest per annum commencing on June 22, 1984 until June
Decision with respect to the computation of compensatory interest, Section 30, 2013; 6% compensatory interest per annum commencing on July 1,
1 of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013, 2013 until the finality of this Decision; and 6% interest rate per annum
which took effect on July 1, 2013 prescribing an interest rate of 6%, commencing from the finality of this Decision until fully paid. The proceeds
amending CB Circular 905-82 which imposed a 12% interest rate. of the foreclosed mortgaged property in the auction sale shall be deducted
MARLYN JOVEN
from the principal of the loan from the time payment was made to Planters
Bank and the remainder shall be the new principal from which the
computation shall thereafter be made. Furthermore, the respondents' liability
is limited to the value of the inheritance they received from the deceased
Florentina Lopez.
VII. Random Facts

● Ponente: Brion, J.

MARLYN JOVEN
G.R. No. 74729 | May 31, 2000 Article 1191; Rescission
Reliance Commodities, Inc. v IAC Reliance Commodities, Inc. v IAC

This case is about Marvin Paez, with his wife Rosa Valino, and 1. Marvin Paez and Rosa Valino (wife of Marvin) – entered into three
Reliance Commodities Inc. (RCI) entering into three contracts. The first contracts with petitioner regarding the operation of thee manganese
contract stipulated that RCI will provide funds and equipment for operation mining claims for Daniel Garde located in Malinas, Gabaldon,
of mining claims of Daniel Garde located in Malinas, Gabaldon, Nueva Nueva Ecija
Ecija. The second contract “Addendum To Operating Agreement” stipulated 2. Samuel Chuason – president and general manager of Reliance
that Paez will segregate Manganese Ores into two classes. The third contract Commodities Inc.; agreed to supply Paez with funds and equipment
“Deed Of First Real Estate Mortgage” was executed as security for more for said operations
cash advances, in favor of RCI. 3. FIRST contract: April 19, 1972 – first contract between Marvin
RCI was obligated to supply the private respondents made several cash Paez and Reliance Commodities, Inc.
advances and with this amount, Marvin Paez hired laborers and purchased 4. APRIL 19 AGREEMENT: Samuel agreed to provide funds and
necessary tools, supplies, and foodstuff. On the other hand, RCI was equipment for operation of mining claims
obligated to supply bulldozer, dump truck, and cobra drill. 5. SECOND contract: June 1, 1972 – “Addendum to Operating
However, problem arose when there were differences concerning cash Agreement”
advances between Paez and RCI. RCI demanded the return of bulldozer, 6. ADDENDUM TO OPERATING AGREEMENT: PAEZ shall
dump truck, and cobra drill while Marvin’s laborers refused to release such segregate the Manganese Ores into two (2) classes
equipment for the reason that they had not been paid wages. RCI then paid 7. Pursuant to second contract, RCI gave Marvin P8, 300.00
P800 for salaries then foreclosed extrajudicially the mortgage executed by 8. Marvin provided for: laborers, purchased tools, supplies, and
spouses. The spouses then filed for nullity of second and third contracts and foodstuff
for RCI to make further cash advancements. 9. RCI provided for: bulldozer, dump truck, cobra drill
Trial court ruled in favor of RCI while IAC ruled in favor of the 10. Mining operation started July 1, 1972
spouses directing RCI to pay spouses and setting the restraining order to 11. THIRD contract: July 28, 1972 – “Deed of First Real Estate
foreclose permanent. Mortgage"
The issue is W/N IAC erred in finding that RCI gave cause for the 12. DEED OF FIRST REAL ESTATE MORTGAGE: executed by
rescission of the contract and erred in ruling that restitution was not spouses as security for more cash advances to sustain mining
available under Article 1191 of the Civil Code? [Note: Not said in the case, operation
but IAC ruled that restitution is not available by ruling that restraining order 13. Pursuant to third contract, RCI made several cash advances
on foreclosure be made permanent]. amounting to P23,000
Court held that YES, IAC erred because RCI complied with its 14. Problem: Difference arose between plaintiff Marvin Paez and
obligation of giving cash advances and providing equipment while Paez defendant company concerning cash advances
failed to comply with its obligation to deliver manganese ores. Moreover, 15. RCI’s CLAIM: Return bulldozer, dump truck, cobra drill
Court ruled that restitution requires parties to restore to each other what they 16. MARVIN’s CLAIM: Marvin’s laborers refused to release such
have received by reason of contracts (Article 1191 of the Civil Code). equipment for the reason that they had not been paid wages
17. RCI then paid P800 for salaries THEN foreclosed extrajudicially
the mortgage executed by plaintiffs and notified Paez that such
property will be sold at public auction
Obligations and Contracts (2020) PETITIONER: Reliance Commodities, Inc. and the Provincial Sheriff of 1
Nueva Ecija
DIGEST AUTHOR: Leslie Castillo RESPONDENT: Intermediate Appellate Court, Marvin Paez and Rosa Valino
18. FILING of COMPLAINT: Marvin and wife prayed for 1) a writ of IV. Holding/s
preliminary injunction to enjoin the provincial sheriff from Issue #1
proceeding with the auction sale, 2) an order annulling the Deed of YES, because it was the spouses that did not comply with their
First Real Estate Mortgage and the Addendum and 3) a directive obligation and restitution is available under Article 1191 of the Civil
requiring the defendant Reliance Commodities to make further Code.
cash advances to plaintiffs and other costs
19. ANSWER: RCI claimed that the violation of the contracts came
RCI made cash advances totaling RCI is the injured party because
from the spouses because they failed to deliver at all the
P41, 130.00 and turned over three Paez failed to make even a single
manganese ores stipulated in the contract according to the schedule
heavy equipment. delivery of manganese ores to the
outlined SO 1) no reason to rescind contracts and 2) RCI is entitled
stockpile yard at Gabaldon. There
to foreclose security
was no mining operation at all.
20. TRIAL COURT: In favor of Reliance Commodities, Inc., ordering
spouses to pay RCI, setting aside restraining order enabling RCI to Overall Ruling
proceed with extrajudicial foreclosure YES. IAC erred because it is Paez that gave cause to the rescission of the
21. IAC: In favor of spouses, declaring "Deed of First Real Estate contracts (for not delivering ores) and erred in ruling that restitution was not
Mortgage" (Exhibit F) and the "Addendum to Operating available (rescission of the contracts requires the parties to restore to each
Agreement" null and void, ordering RCI to pay spouses; set other what they have received by reason of the contracts according to
restraining order to foreclose permanent Article 1191 of the Civil Code)
ORIGINAL AGREEMENT OF THE PARTIES [discussed in the ruling part

of the case]: RCI will pay P70.00 for every ton of manganese ores delivered V. Law or Doctrine Applied
with a grade of 40% to 46% or over. Payment is upon delivery of the ores at
the stockpile yard at Gabaldon, Nueva Ecija. RCI was to advance the ARTICLE 1191 OF THE CIVIL CODE
ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in
expenses of mining and hauling as they were incurred every fifteen (15)
case one of the obligors should not comply with what is incumbent upon him.
days, and that advances made were deductible from the agreed consideration The injured party may choose between the fulfillment and the rescission of the
of P70.00 per ton. obligation, with the payment of damages in either case. He may also seek rescission,
III. Issue/s The court shall decree the rescission claimed, unless there be just cause authorizing
W/N the Intermediate Appellate Court erred in finding that RCI gave cause the fixing of a period.
for the rescission of the contract and erred in ruling that restitution was not This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage
available under Article 1191 of the Civil Code? YES.
Law.
VI. Disposition
WHEREFORE, the Court GRANTS the petition for review on certiorari,
and REVERSES the decision of the Intermediate Appellate Court. The
Nueva Ecija
Court REVIVES and AFFIRMS the decision of the trial court, with the
modification that the sum to be restituted to petitioner Reliance
Commodities, Inc. shall earn legal interest only from the finality of this
decision until fully paid.

• The rescission has the effect of abrogating the contracts in all parts.
VII. Random Facts

• Ponente: Pardo, J.
Nueva Ecija
G.R. No. 144934 | January 15, 2004 Rescission of Contracts under Article 1991 of the New Civil Code
Rivera v. Del Rosario Rivera v. Del Rosario
I. Recit-ready Summary (M), and the reconveyance to them of the entire property with TCT No. T-50.668
Respondent Fidela Del Rosario borrowed P250,000 Mariano Rivera in the (M) restored. The RTC ruled in favor of respondents.
early part of 1987. To secure the loan, she and Mariano Rivera agreed to execute A On appeal to the Court of Appeals, the trial court's judgment was modified.
Deed of Real Estate Mortgage and an Agreement to Sell (Kasunduan) the land. The Deed of Absolute Sale is declared null and void only insofar as Lot No. 1083-C
The Kasunduan provided that the children of Mariano Rivera, herein is concerned, but valid insofar as it conveyed Lot No. 1083-A, that TCT No. 158443
petitioners, would purchase Lot No. 1083-C for a consideration of P2,141,622.50 to (M) is valid insofar as Lot No. 1083-A is concerned.
be paid in three installments: Hence this petition.
1. P250,000 upon the signing of the Kasunduan, The issue in this case is whether or not the Court of Appeals correctly ruled
2. P750,000 on August 31, 1987, and that the Deed of Absolute Sale is valid insofar as Lot 1038-A is concerned. The
3. P1,141,622.50 on December 31, 1987. Supreme Court ruled that, no, the contract should be VOID in its entirety.
It also provided that the Deed of Absolute Sale would be executed only after Rescission of reciprocal obligations under Article 1191 of the New Civil Code
the second installment is paid and a postdated check for the last installment is should be distinguished from rescission of contracts under Article 1383 of the same
deposited with Fidela. Unlike the Kasunduan, the Deed of Absolute Sale stipulated a Code. Both presuppose contracts validly entered into as well as subsisting, and both
purchase price of only P601,160, and covered a certain Lot No. 1083-A in addition require mutual restitution when proper, nevertheless they are not entirely identical.
to Lot No. 1083-C. Although Fidela intended to sign only the Kasunduan and the While Article 1191 uses the term rescission, the original term used in Article
Real Estate Mortgage, she inadvertently affixed her signature on all the three 1124 of the old Civil Code, from which Article 1191 was based, was resolution.
documents on March 10, 1987. Resolution is a principal action that is based on breach of a party, while rescission
Mariano then gave Fidela the amount of P250,000, P200,000 on October 30, under Article 1383 is a subsidiary action limited to cases of rescission for lesion
29187 and gave Oscar P67,800 for the payment of the balance. Fidela entrusted the under Article 1381 of the New Civil Code. The Kasunduan does not fall under any
owner's copy of TCT No. T-50.668 (M) to Mariano to guarantee compliance with the of those situations mentioned in Article 1381. Hence, Article 1383 is inapplicable.
Kasunduan. Mariano refused to return the TCT. The Kasunduan reveals that it is in the nature of a contract to sell, as
Carlos del Rosario caused the annotation on TCT No. T-50.668 (M) of an distinguished from a contract of sale. In a contract to sell, the payment of the
Affidavit of Loss of the owner's duplicate copy of the title on September 7, 1992 purchase price is a positive suspensive condition, the failure of which is not a breach,
This annotation was offset, however, when Mariano registered the Deed of Absolute casual or serious, but a situation that prevents the obligation of the vendor to convey
Sale on October 13, 1992. Afterwards caused the annotation of an Affidavit of title from acquiring an obligatory force.
Recovery of Title on October 14, 1992. Thus, TCT No. T-50.668 (M) was cancelled, Respondents in this case bound themselves to deliver a Deed of Absolute Sale
and in its place was issued TCT No. 158443 (M) in the name of petitioners Adelfa, and clean title covering Lot No. 1083-C after petitioners have made the second
Cynthia and Jose Rivera installment. This promise to sell was subject to the fulfillment of the suspensive
The Riveras, as the new owners of Lot No. 1083-C, were also negotiating with condition: that petitioners pay P750,000 on August 31, 1987, and deposit a postdated
the tenant, Feliciano Nieto. To document their agreement with Feliciano Nieto, the check for the third installment of P1,141,622.50. However, petitioners failed to
Riveras executed a Written Abdication of Rights over a Portion of a Parcel of Land complete payment of the second installment. The non-fulfillment of the condition
on November 16, 1992. Four days later, they registered the document with the rendered the contract to sell ineffective and without force and effect.
Registry of Deeds. Two titles were then issued: Failure to pay, in this instance, is not even a breach but an event that prevents
1. TCT No. T-161784 (M) in the name of Nieto, for 4,500 sq. m. of land, the vendor's obligation to convey title from acquiring binding force. Hence, the
and agreement of the parties in the instant case may be set aside, but not because of a
2. TCT No. T-161785 (M) in the name of petitioners Adelfa, Cynthia and breach on the part of petitioners for failure to complete payment of the second
Jose Rivera, over the remaining 10,529 sq. m. of land. installment. Rather, their failure to do so prevented the obligation of respondents to
Respondents filed a complaint in the Regional Trial Court asking that the convey title from acquiring an obligatory force.
Kasunduan be rescinded for failure of the Riveras to comply with its conditions, with
damages. They also sought the annulment of the Deed of Absolute Sale on the
ground of fraud, the cancellation of TCT No. T-161784 (M) and TCT No. T-161785
Obligations and Contracts (2020) PETITIONER: Adelfa, Cynthia and Jose Rivera 1
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Fidela Del Rosario (Deceased) Oscar, Rosita, Violeta, Enrique Jr.,
Carlos, Juanito And Eloisa Del Rosario
II. Facts of the Case (Material Facts) 10. Carlos del Rosario caused the annotation on TCT No. T-50.668 (M) of an
1. Respondents Fidela (deceased), Oscar, Rosita, Violeta, Enrique Jr., Carlos, Affidavit of Loss of the owner's duplicate copy of the title on September
Juanito and Eloisa, all surnamed Del Rosario, were the registered owners 7, 1992.
of Lot No. 1083- C. 1. This annotation was offset, however, when Mariano registered
2. On May 16, 1983, respondent’s children executed a Special Power of the Deed of Absolute Sale on October 13, 1992.
Attorney in favor of their mother, Fidela, authorizing her to sell, lease, 2. Afterwards caused the annotation of an Affidavit of Recovery
mortgage, transfer and convey their rights over Lot No. 1083-C. of Title on October 14, 1992.
3. Fidela borrowed P250,000 from Mariano Rivera in the early part of 1987. 3. Thus, TCT No. T-50.668 (M) was cancelled, and in its place
4. To secure the loan, she and Mariano Rivera agreed to execute A Deed of was issued TCT No. 158443 (M) in the name of petitioners
Real Estate Mortgage and an Agreement to Sell (Kasunduan) the land. Adelfa, Cynthia and Jose Rivera
5. The Kasunduan provided that the children of Mariano Rivera, herein 11. The Riveras, as the new owners of Lot No. 1083-C, were also negotiating
petitioners, would purchase Lot No. 1083-C for a consideration of with the tenant, Feliciano Nieto, to rid the land of the latter's tenurial right.
P2,141,622.50 to be paid in three installments: 1. When Nieto refused to relinquish his tenurial right over 9,000 sq.
1. P250,000 upon the signing of the Kasunduan, m. of the land, the Riveras offered to give 4,500 sq. m. in
2. P750,000 on August 31, 1987, and exchange for the surrender.
3. P1,141,622.50 on December 31, 1987. 2. Nieto accepted. Subdivision Plan No. Psd-031404-052505 was
6. It also provided that the Deed of Absolute Sale would be executed only then made on August 12, 1992 which was later inscribed on TCT
after the second installment is paid and a postdated check for the last No. 158443 (M).
installment is deposited with Fidela. 12. To document their agreement with Feliciano Nieto, the Riveras executed a
1. Unlike the Kasunduan, the Deed of Absolute Sale stipulated a Kasulatan sa Pagtatakwil ng Karapatan sa Pagmamay-ari ng Bahagi
purchase price of only P601,160, and covered a certain Lot No. ng Isang Lagay na Lupa (Written Abdication of Rights over a Portion
1083-A in addition to Lot No. 1083-C. of a Parcel of Land) on November 16, 1992.
2. This deed, as well as the Kasunduan and the Deed of Real Estate 13. Four days later, they registered the document with the Registry of Deeds.
Mortgage was signed by Mariano's children, petitioners Adelfa, Two titles were then issued:
Cynthia and Jose on March 9, 1987. 1. TCT No. T-161784 (M) in the name of Nieto, for 4,500 sq. m.
3. Although Fidela intended to sign only the Kasunduan and the of land, and
Real Estate Mortgage, she inadvertently affixed her signature on 2. TCT No. T-161785 (M) in the name of petitioners Adelfa,
all the three documents on March 10, 1987. Cynthia and Jose Rivera, over the remaining 10,529 sq. m. of
7. Mariano then gave Fidela the amount of P250,000. land.
1. On October 30, 1987, he also gave Fidela a check for P200,000. 14. Respondents filed a complaint in the Regional Trial Court asking that the
2. In the ensuing months, also, Mariano gave Oscar del Rosario Kasunduan be rescinded for failure of the Riveras to comply with its
several amounts totaling P67,800 upon the latter's demand for conditions, with damages. They also sought the annulment of the Deed of
the payment of the balance. Absolute Sale on the ground of fraud, the cancellation of TCT No. T-
8. While Mariano was making payments to Oscar, Fidela entrusted the 161784 (M) and TCT No. T-161785 (M), and the reconveyance to them
owner's copy of TCT No. T-50.668 (M) to Mariano to guarantee of the entire property with TCT No. T-50.668 (M) restored.
compliance with the Kasunduan. 15. The RTC ruled in favor of respondents.
9. Mariano unreasonably refused to return the TCT. 1. The trial court ruled that Fidela's signature in the Deed of
Absolute Sale was genuine but found that Fidela never intended
to sign the said deed. Noting the peculiar differences between reparation other than to file a case from a contract of sale.
the Kasunduan and the Deed of Absolute Sale, the trial court for rescission, as required by • The contract entered into by the
concluded that the Riveras were guilty of fraud in securing the Article 1383. parties should be rescinded based
execution of the deed and its registration in the Registry of • on Article 1911.
Deeds. • The breach contemplated in Article
2. This notwithstanding, the trial court sustained the validity of 1191 of the New Civil Code is the
TCT No. T-161784 (M) in the name of Feliciano Nieto since obligor's failure to comply with an
there was no fraud proven on Nieto's part. obligation already extant, not a
3. On the foregoing, the trial court rescinded the Kasunduan but failure of a condition to render
ruled that the P450,000 paid by petitioners be retained by binding that obligation.
respondents as payment for the 4,500 sq. m. portion of Lot No. Overall Ruling
1083-C that petitioners gave to Nieto. Rescission of reciprocal obligations under Article 1191 of the New Civil Code
16. On appeal to the Court of Appeals, the trial court's judgment was modified. should be distinguished from rescission of contracts under Article 1383 of the
1. The Deed of Absolute Sale is declared null and void only same Code. Both presuppose contracts validly entered into as well as subsisting, and
insofar as Lot No. 1083-C is concerned, but valid insofar as it both require mutual restitution when proper, nevertheless they are not entirely
conveyed Lot No. 1083-A, that TCT No. 158443 (M) is valid identical.
insofar as Lot No. 1083-A is concerned. While Article 1191 uses the term rescission, the original term used in Article 1124
17. While this petition was pending, respondent Fidela del Rosario died. of the old Civil Code, from which Article 1191 was based, was resolution.
Resolution is a principal action that is based on breach of a party, while rescission
III. Issue/s under Article 1383 is a subsidiary action limited to cases of rescission for lesion
1. W/N the Court of Appeals correctly ruled that the Deed of Absolute under Article 1381 of the New Civil Code. The Kasunduan does not fall under any
Sale is valid insofar as Lot 1038-A is concerned? NO. of those situations mentioned in Article 1381. Hence, Article 1383 is inapplicable.
2. W/N the respondent’s cause of action is barred by prescription? NO.
The Kasunduan reveals that it is in the nature of a contract to sell, as distinguished
IV. Holding/s from a contract of sale.
Issue #1 In a contract of sale, the title to the property passes to the vendee upon the delivery
No, the Court of Appeals erred in ruling that the Deed of Absolute Sale is valid of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in
insofar as Lot 1038-A is concerned. the vendor and is not to pass to the vendee until full payment of the purchase price.
Petitioner’s Arguments Court’s Rebuttals In a contract to sell, the payment of the purchase price is a positive suspensive
condition, the failure of which is not a breach, casual or serious, but a situation that
• Petitioners cite Articles 1383, 1389 • The Kasunduan does not fall under
prevents the obligation of the vendor to convey title from acquiring an obligatory
and 1391 of the New Civil Code. any of those situations mentioned
force.
• They alleged that rescission of the in Article 1381.
Kasunduan should have been • Article 1383 is inapplicable.
Respondents in this case bound themselves to deliver a Deed of Absolute Sale and
dismissed, for respondents' failure • A careful reading of the Kasunduan
clean title covering Lot No. 1083-C after petitioners have made the second
to prove that there was no other reveals that it is in the nature of a
installment. This promise to sell was subject to the fulfillment of the suspensive
legal means available to obtain contract to sell, as distinguished
condition: that petitioners pay P750,000 on August 31, 1987, and deposit a V. Law or Doctrine Applied
postdated check for the third installment of P1,141,622.50. However, petitioners
failed to complete payment of the second installment. The non-fulfillment of the ARTICLE 1381 OF THE NEW CIVIL CODE
condition rendered the contract to sell ineffective and without force and effect. Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things
The breach the breach contemplated in Article 1191 of the New Civil Code is the
which are the object thereof;
obligor's failure to comply with an obligation already extant, not a failure of a
(2) Those agreed upon in representation of absentees, if the latter suffer the
condition to render binding that obligation. lesion stated in the preceding number;
Failure to pay, in this instance, is not even a breach but an event that prevents manner collect the claims due them;
the vendor's obligation to convey title from acquiring binding force. Hence, the (4) Those which refer to things under litigation if they have been entered into
agreement of the parties in the instant case may be set aside, but not because of a by the defendant without the knowledge and approval of the litigants or of
breach on the part of petitioners for failure to complete payment of the second competent judicial authority;
installment. Rather, their failure to do so prevented the obligation of (5) All other contracts specially declared by law to be subject to rescission.
respondents to convey title from acquiring an obligatory force. To conclude, the
contract is null and void in its entirety. ARTICLE 1191 OF THE NEW CIVIL CODE
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
Issue #2
The injured party may choose between fulfillment and the rescission of the
No, the respondent’s cause of action is not barred by prescription. obligation, with the payment of damages in either case. He may also seek rescission,
Petitioner’s Arguments Court’s Rebuttals even after he has chosen fulfillment, if the latter should become impossible.
• Petitioners contend that even • Contrary to petitioners' assertion, The court shall decree the rescission claimed, unless there be just cause
assuming respondents had satisfied we find that prescription has not yet authorizing the fixing of a period.
this requirement, prescription had set in. Article 1391 states that the This is understood to be without prejudice to the rights of third person who have
already set in, the complaint having action for annulment of void acquired the thing, in accordance with Article 1385 and 1388 and the Mortgage Law.
been filed in 1992 or five years after contracts shall be brought within
the execution of the Deed of four years. This period shall begin VI. Disposition
Absolute Sale in March 10, 1987. from the time the fraud or mistake
is discovered. Here, the fraud was WHEREFORE, the assailed decision of the Court of Appeals is MODIFIED. The
Deed of Absolute Sale in question is declared NULL and VOID in its entirety.
discovered in 1992 and the
Petitioners are ORDERED to pay respondents P323,617.50 as actual damages,
complaint filed in 1993. Thus, the
P30,000.00 as moral damages, P20,000.00 as exemplary damages and P20,000.00 as
case is well within the prescriptive attorney's fees. No pronouncement as to costs.
period.
• N/A
VII. Random Facts

• Ponente: Quisumbing, J.
G.R. No. 156627 | June 4, 2004 Pure and Conditional Obligations: Rescission
Barredo v Leaño Barredo v Leaño
In 1979, Petitioner Spouses Manuel and Jocelyn Barredo bought a house II. Facts of the Case (Material Facts)
& lot in Las Piñas, Metro Manila using the proceeds of two loans, one from 1. In 1979, (Petitioners) Spouses Manuel and Jocelyn Barredo Bought
SSS and one from Apex. To secure these loans, petitioners executed a real a house & lot along Las Piñas, Metro Manila using two loans. A
estate mortgage using the same house in a real estate mortgage with SSS and 50,000 loan from SSS payable in 25 years, and a loan of 88,400 from
a second mortgage with Apex. Apex Mortgage and Loans Corporation (Apex) payable in 20 years.
In 1987, petitioners sold the same house and lot to Respondent Spouses To secure these loans, Petitioners executed a first mortgage over the
Eustaquio and Emilda Leaño via a conditional deed of sale with assumption house in favor of SSS, and a second one in favor of Apex.
of mortgage. Respondents would pay 200k (100k downpayment, remaining
2. On July 10, 1987, Petitioners sold their houses to (Respondents)
100k as 10 equal monthly installments) upon the signing of the contract.
Spouses Eustaquio and Emilda Leaño by way of Conditional Deed
Respondents would also assume the payment of the amortizations for the
mortgages. The 200k was paid by respondents, and petitioners turned over of Sale with assumption of mortgage. Respondents would pay
possession of the House and Lot to respondents. Petitioners 200,000, 100k on July 15, 1987, with the remaining
2 years later in 1989, Petitioners complained in the RTC that despite balance of 100k being paid in 10 monthly installments upon the
demands, Respondents failed to pay the mortgage amortizations, causing signing of the contract.. Respondents would also pay the monthly
them damage. Respondents claim they were paying up to date, the failure to amortizations to SSS and Apex beginning July 1987 until both are
pay SSS was due to petitioners instructing SSS to not accept payment. fully paid.
Allegedly in order to protect their good name, credit standing and reputation, 3. Respondents paid the 200,000, and Petitioners turned over the
Petitioners paid off the remaining mortgage loans with the SSS and Apex. possession of the house and lot to Respondents in accordance with
RTC held that the failure of respondents to pay the mortgage the agreement.
amortizations was a breach of a substantial condition (prejudicing the 4. 2 years later (December 1989), Petitioners initiated a complaint
petitioner’s credit standing by making them appear delinquent) and ordered before the Las Piñas RTC, seeking the rescission of the contract on
the rescission of the contract plus damages. (note that RTC did not order the
the ground of Respondents failing to pay the mortgage
return of the 200k respondents paid)
CA reversed the RTC and required the turn over of the House and lot amortizations to SSS and Apex despite demands. Respondents
back to respondents, holding that the payment of the amortizations were Claim they were up to date on their payments with Apex, but were
merely collateral to the principal consideration. the issue would be whether unable to pay SSS amortizations because they were refused upon the
or not the payment of the mortgage amortizations is a substantial condition to instructions of Petitioners.
the sale such that breaching it would allow petitioners to rescind the 5. Allegedly in order to save their good name, credit standing, and
obligation. reputation, Petitioners themselves settled the mortgage loans.
SC agreed with the CA, the principal object of the obligation was the Petitioners paid the SSS 27,494 in September 11, 1989, and
sale of the house and lot with the payment of amortizations being merely a 41,401.91 on January 9,1990 – to which the SSS issued a release of
collateral matter (a natural consequence of a sale of mortgaged property). real estate mortgage. Petitioners paid Apex 5,379.23 on October 3,
Nowhere in the agreement was it stipulated that the sale was conditioned upon 1989, and 64,000 in January 9, 1990 – to which Apex issued a
full payment of the amortizations. Assuming arguendo that it was a breach, it Certification of full payment of loan. They also paid the Real Estate
was still a minor breach that does not defeat the object of the contract.
Property Tax from 1987-1990.
1
Obligations and Contracts (2020) PETITIONER: Spouses Manuel and Jocelyn BARREDO
DIGEST AUTHOR: Bryan Antonio RESPONDENT: Spouses Eustaquio and Emilda LEAÑO
6. RTC ruled in favor of petitioners, declaring the Conditional deed of that failure to comply with it would allow rescission of the
Sale and Assumption of Mortgage rescinded and therefore null and conditional sale? NO.
void. RTC reasoned that the assumption of the mortgage debt by
Respondents was a substantial condition, with the credit standing of IV. Holding/s
Petitioners appearing to be delinquent due to Respondent’s non-
payment, and apparently Petitioners feared foreclosure due to Issue #1
Respondent’s failure to pay the mortgage amortizations. NO, the failure of Spouses Leaño to pay the mortgage debts is not a
7. By this point, Respondents returned the possession of the house substantial breach sufficient to allow Spouses Barredo to rescind the
back. CA reversed the lower court, declaring that the payments of conditional sale.
amortization to Apex and SSS were mere collateral matters, which Petitioner’s Arguments Court’s Rebuttals
do not detract from paying the principal consideration. They ordered • The conditional Sale had 2 • A careful reading of the
petitioners to execute the Deed of Absolute Sale upon payment of equally essential and material provisions show that the
Respondents of the amount petitioners paid to settle the mortgage obligations – payment of the principal object was the sale of
loans. (see number 5) 200k, and the payment of the the house and lot, for which
8. On appeal to SC, Petitioners claimed it was a conditional sale with mortgage amortizations to SSS Respondents paid 200k (100k
2 equally essential conditions – the payment of the 200k, and the and Apex. The deed of absolute down, 100k in ten equal
payment of the amortization – with them only executing the deed of sale would only be executed payments.
absolute sale upon compliance with both. They claim the failure of upon compliance with both, so • The assumption of the mortgages
Respondents to pay the amortizations gave rise to Petitioner’s right the failure of Respondents to by respondents were just
to refrain from executing the deed. They in fact asked for rescission pay the Amortizations allowed collateral matters, natural
– a right accorded to injured parties. them to rescind as the injured consequence of a sale of
9. Respondents contend that it was only obliged to assume the party. mortgaged property.
amortization payments, and nowhere in the contract was it stipulated
that full payment of such was a condition. assuming arguendo failure
to pay was not full compliance with the obligation, it was
Petitioner’s fault for not notifying SSS that the debt was assigned to
them. the “breach” , if any, was only slight and doesn’t defeat the
object of the agreement. Petitioners cannot be an injured party with
the right to rescission because Respondents are the ones who would
lose the house and lot should they fail to pay the amortizations.
III. Issue/s
1. W/N the paymentof the mortgage debts to SSS and Apex by
Spouses Leaño was a substantial breach to the obligation such
2
Overall Ruling casual breach, but only such substantial and fundamental breach as
Respondents merely bound themselves to assume Petitioner’s obligations would defeat the very object of the parties in making the agreement.
with SSS and Apex. It was never stipulated that the sale was conditioned
upon the full payment of the loans. To include full payment of the VI. Disposition
obligations with the SSS as a condition would be to unnecessarily stretch
IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of
and put new meaning to the provisions of the agreement.
Appeals in CA-G.R. CV No. 44009 promulgated May 21, 2002, and its
Resolution therein dated December 10, 2002, are hereby AFFIRMED. Costs
Even if we consider the loan payments as a condition of the sale, rescission against petitioners. SO ORDERED.
would remain unavailable, since it would have just been a casual breach
which does not defeat the very object of the contract. The main VII. Additional Notes
consideration was the 200k they agreed upon, with the assumption of the
mortgage being a natural consequence of buying mortgaged property. VII. Random Facts
Petitioners would not even benefit from payment of the amortizations since Ponente: Puno, J.
they already parted with the property, and they already received the 200k.
(not really needed I think) If they really wanted to “protect their good
name, credit standing, and reputation, they would’ve sought the consent or
at least notified SSS and Apex. RTC erred also in not ordering petitioners
to return the 200k they already received when it ordered rescission – since
it is the duty of the court to require both parties to surrender what they
received and place each other as far as practicable in his original situation
in cases of rescission.
EFFECTS OF RESCISSION
Art. 1385 of the Civil Code provides that “rescission creates the obligation to return
the things which were the object of the contract, together with their fruits, and the price
with its interest” – vendor is obliged to return the purchase price if he rescinds the
sale, as would have been the case here had the RTC been upheld. (see additional notes
also)
- In a mountain of jurisprudence cited, it has been consistently held
that rescission of a contract would not be permitted for a slight or
3
G.R. No. 157318 | August 9, 2006 Contracts to sell v Contracts of Sale (effects of non-payment)
Villanueva v Estate of Gonzaga Villanueva v Estate of Gonzaga
I. Recit-ready Summary condition. It does not apply to a contract to sell. As to Article 1191, it is
The Villanueva’s were engaged in the practice of operating subordinated to the provisions of Article 1592 when applied to sales of
transloading stations and sugar trade while the Gonzaga’s owned a parcel of immovable property. Neither provision is applicable [to a contract to sell].
land. They executed a MOA (or a contract to sell) with the Estate of
Gonzaga to buy Gonazaga’s lands. The MOA between petitioners and respondents is a conditional contract to
sell. Ownership over the lots is not to pass to the petitioners until full
The Villanueva’s asked if they could use the premises during the next payment of the purchase price. Petitioners' obligation to pay, in turn, is
milling session, but the Gonzaga’s refused since the balance was not yet conditioned upon the release of the lots from mortgage with the PNB to be
fully paid. secured by the respondents. Although there was no express provision
regarding reserved ownership until full payment of the purchase price, the
The Gonzaga’s filed for rescission of the MOA. intent of the parties in this regard is evident from the provision that a deed
of absolute sale shall be executed only when the lots have been released
W/N the rescission of the MOA was proper? NO. from mortgage and the balance paid by petitioners. Since ownership has not
been transferred, no further legal action need have been taken by the
There is no legal basis for the rescission. The remedy of rescission under respondents, except an action to recover possession in case petitioners
Art. 1191 of the Civil Code is predicated on a breach of faith by the other refuse to voluntarily surrender the lots.
party that violates the reciprocity between them. We have held in numerous
cases that the remedy does not apply to contracts to sell. We explained the II. Facts of the Case (Material Facts)
reason in Santos v. Court of 1. The Villanueva’s were engaged in the in the practice of operating
Appeals, viz — transloading stations and sugar trade.
2. The Gonzaga’s were an owner of a parcel of land in Bacolod City
. . . [I]n a contract to sell, title remains with the vendor and does not pass on 3. They parties executed a MOA wherein the pertinent provisions are
to the vendee until the purchase price is paid in full. Thus, in a contract to as follows (you may refer to those in bold)
sell, the payment of the purchase price is a positive suspensive condition.
Failure to pay the price agreed upon is not a mere breach, casual or serious,
5. WHEREAS, the SECOND PARTY agrees to purchase
but a situation that prevents the obligation of the vendor to convey title from
the aforesaid lots at the price of ONE HUNDRED FIFTY
acquiring an obligatory force. This is entirely different from the situation in
(P150.00) PESOS per sq. meter or for a total price of
a contract of sale, where non-payment of the price is a negative resolutory
FOUR HUNDRED EIGHTY SIX THOUSAND
condition. The effects in law are not identical. In a contract of sale, the
(P486,000.00) PESOS subject to the following conditions:
vendor has lost ownership of the thing sold and cannot recover it, unless the
contract of sale is rescinded and set aside. In a contract to sell, however, the
A.) That the FIRST PARTY shall cause the release of the
vendor remains the owner for as long as the vendee has not complied fully
aforementioned lots from the Philippine National Bank
with the condition of paying the purchase price. If the vendor should eject
(PNB) at the earliest possible time. IcESDA
the vendee for failure to meet the condition precedent, he is enforcing the
contract and not rescinding it.
B.) That the SECOND PARTY agrees to pay the amount of
P486,000.00 as follows:
Article 1592 speaks of non-payment of the purchase price as a resolutory
Obligations and Contracts (2020) PETITIONER Generoso Villanueva and Raul Villanueva 1
DIGEST AUTHOR: Tin Sumaway RESPONDENT: Estate of Villanueva

P100,000.00 - upon the signing of this agreement. unreasonably failing to secure the release of the lots from mortgage with the
P191,600.00 - on or before January 10, 1990. PNB within the earliest possible time, as stipulated in the MOA.
P194,400.00 - upon the approval by the PNB of the 9. CA: Petitioners led a petition for review before the Court of Appeals.
release of the lots. On January 16, 2003, the Court of Appeals affirmed the trial court's decision
but deleted the award for moral damages on the ground that petitioners were
C.) That it is hereby agreed that the ONE HUNDRED not guilty of bad faith in refusing to pay the balance of the purchase price.
THOUSAND (P100,000.00) PESOS down payment shall
at the same time be considered as earnest money which III. Issue/s
shall be forfeited in the event the SECOND PARTY 1. W/N the action for rescission of the MOA was proper? NO
withdraws from this agreement.
IV. Holding/s
D.) That upon payment of 60% of the purchase price, the
SECOND PARTY may start to introduce improvements
Issue #1
in the area if they so desire.
No Rescission of the MOA was not proper.
E.) That upon the release by the Philippine National
Bank (PNB) of the lots subject of this agreement, the Petitioner’s Arguments Court’s Rebuttals
FIRST PARTY shall immediately execute a Deed of Sale • The rescission is based on • There is no legal basis for the
in favor of the SECOND PARTY . All expenses for (1) non-payment of the full rescission. The remedy of
documentation and capital gains shall be borne by the purchase price rescission under Art. 1191 of the
FIRST PARTY, while expenses for transfer of title to the (2) violation of the MOA, Civil Code is predicated on a
SECOND PARTY shall be borne by the latter. wherein the Villanueva’s breach of faith by the other party
operated in the premises without that violates the reciprocity
[NOTE: the sale of conditioned upon the release of the land under the
paying the full purchase price between them. We have held in
mortgage of PNB]
numerous cases that the remedy
4. The Villanueva’s introduced improvements on the land upon payment of does not apply to contracts to sell.
291,600 pesos representing 60% of the total purchase price of the lots. Overall Ruling
5. The Villanueva’s then asked permission if they can use the premises for There is no legal basis for the rescission. The remedy of rescission under
the next milling season to which the Gonazaga’s refused due to the non Art. 1191 of the Civil Code is predicated on a breach of faith by the other
payment of the FULL purchase price. party that violates the reciprocity between them. We have held in numerous
6. The Villanueva’s wrote the Gonzaga’s informing them that the PNB had cases that the remedy does not apply to contracts to sell. We explained the
agreed to release the lots from mortgage. She demanded payment of the reason in Santos v. Court of Appeals, viz —
balance of the purchase price.
7. But the Gonzaga’s filed for a rescission of the MOA. . . . [I]n a contract to sell, title remains with the vendor and does not pass on
8. RTC: RTC-Bacolod City, docketed as Civil Case No. 6552. Petitioners to the vendee until the purchase price is paid in full. Thus, in a contract to
alleged that respondents delayed performance of their obligation by sell, the payment of the purchase price is a positive suspensive condition.

Failure to pay the price agreed upon is not a mere breach, casual or serious,
but a situation that prevents the obligation of the vendor to convey title from V. Law or Doctrine Applied
acquiring an obligatory force. This is entirely different from the situation in
a contract of sale, where non-payment of the price is a negative resolutory
condition. The effects in law are not identical. In a contract of sale, the VI. Disposition
vendor has lost ownership of the thing sold and cannot recover it, unless the
contract of sale is rescinded and set aside. In a contract to sell, however, the IN VIEW WHEREOF, the petition is GRANTED. The assailed Decision
vendor remains the owner for as long as the vendee has not complied fully dated January 16, 2003 of the Court of Appeals in CA-G.R. CV No. 46865
with the condition of paying the purchase price. If the vendor should eject is REVERSED and SET ASIDE. Petitioners and respondents are restored to
the vendee for failure to meet the condition precedent, he is enforcing the the status quo ante before the execution of the Deed of Rescission dated
contract and not rescinding it. May 28, 1991 which is declared of no legal effect.
Article 1592 speaks of non-payment of the purchase price as a resolutory SO ORDERED.

condition. It does not apply to a contract to sell. As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to sales of VII. Additional Notes
immovable property. Neither provision is applicable [to a contract to sell].
However, petitioners may not demand production by the respondents of the
The MOA between petitioners and respondents is a conditional contract to titles to the lots as a condition for their payment. It was not required under
sell. Ownership over the lots is not to pass to the petitioners until full the MOA. The MOA merely states that petitioners shall pay the balance
payment of the purchase price. Petitioners' obligation to pay, in turn, is "upon approval by the PNB of the release of the lots" from mortgage.
conditioned upon the release of the lots from mortgage with the PNB to be Petitioners may not add further conditions now.
secured by the respondents. Although there was no express provision
regarding reserved ownership until full payment of the purchase price, the Obligations arising from contracts have the force of law between the
intent of the parties in this regard is evident from the provision that a deed contracting parties and should be complied with in good faith
of absolute sale shall be executed only when the lots have been released
from mortgage and the balance paid by petitioners. Since ownership has not VII. Random Facts
been transferred, no further legal action need have been taken by the • Ponente: Puno, J.
respondents, except an action to recover possession in case petitioners
refuse to voluntarily surrender the lots.
The records show that the lots were finally released from mortgage.
Petitioners have always expressed readiness to pay the balance of the
purchase price once that is achieved. Hence, the Villanueva’s should be
allowed to pay the balance now, if they so desire, since it is established that
Gonzaga’s previous demand for the Villanueva’s to pay was
PREMATURE.

G.R. No. 112330 | August 17, 1999 Rescission of Reciprocal Obligations (Article 1191)
Sps. Co v CA Sps. Co v CA
I. Recit-ready Summary not and so, rescission is in order. Rescission aims to restore parties to
On October 4, 1984, Spouses Henry and Elizabeth Co (Spouses their former situations. Since the Beata property was not delivered to
Co) entered into a verbal contract with Adoracion Custodio for her, she has nothing to return. Spouses Co, on the other hand, must
Custodio’s purchase of a house and lot in Beata St., New Alabang return the 30,000 payment they received.
Village owned by Spouses Co in the amount of $100,000. The
$100,000 purchase price is payable in 2 payments: $40,000 is to be II. Facts of the Case (Material Facts)
paid on December 4, 1984 and $60,000 on January 5, 1985. Custodio 1. October 9, 1984: Spouses Henry and Elizabeth Co (Spouses
failed to pay on said dates. However, on January 25, 1985, Custodio Co) entered into a verbal contract with Adoracion Custodio
still gave Co $30,000 as partial payment for the purchase price of the for Custodio’s purchase of a house and lot in Beata St., New
property. Spouses Co’s lawyer later sent a demand letter to Custodio Alabang Village owned by Spouses Co in the amount of
for the $70,000 balance. Another demand letter was sent to Custodio $100,000
saying that she has lost her “option to purchase” the Beata property 2. One week later, before leaving for the United States:
and that they are giving Custodio another option by offering to sell a Custodio paid $1,000 and $40,000 as earnest money in order
different property to her. They said in the letter that they will apply that the property may be reserved for her purchase, to be
the payments she has made for the 1st property if she chooses to buy
deducted from the total purchase price
this 2nd one. However, if Custodio fails to purchase the 2nd property
3. The $100,000 purchase price is payable in 2 payments on:
within 30 days, all her payments will be forfeited. Custodio’s lawyer
December 4, 1984 - $40,000 and
wrote a letter to Spouses Co’s lawyer manifesting that Custodio is
now ready to pay the remaining balance to complete the $100,000 January 5, 1985 - $60,000
purchase price of the first property in New Alabang but Spouses Co 4. January 25, 1985: although the period of payment had
refused to accept it. They said she already lost this option. Custodio already expired, Custodio still paid Co $30,000 as partial
then filed a complaint for rescission in court. payment for the purchase price
The issue in this case is whether or not the Court of Appeals 5. March 15, 1985: Spouses Co’s lawyer sent a demand letter
erred in ordering the Spouses Co to return Custodio’s $30,000 partial to Custodio for the $70,000 balance on the purchase price
payment. The Court said NO. According to Article 1191 of the Civil 6. August 8, 1986: Another demand letter was sent by Spouses
Code, the power to rescind obligations is implied in reciprocal Co’s lawyer to Custodio. In the letter, Co said Custodio has
obligations in case one of the obligors should not comply with that is already lost her “option to purchase” the Beata property. But
incumbent upon him. In this case, Custodio was not in default and they gave Custodio another option by offering to sell a
was willing to perform her part of the contract but Spouses Co were different property to her. They said they will apply the
1
Obligations and Contracts (2020) PETITIONER: Sps Henry and Elizabeth Co
DIGEST AUTHOR: Myna RESPONDENT: Mrs. Adoracion Custodio
payments she has made for the 1st property if she chooses to Petitioner’s Arguments (Spouses Court’s Rebuttals
buy this 2nd one. However, if Custodio fails to purchase the Co) ● Custodio was already in
2nd property within 30 days, all her payments will be ● Spouses Co argue that breach of her obligation under
forfeited. Custodio can no longer Article 1191 of the Civil Code
7. September 5, 1986: Custodio’s lawyer wrote a letter to exercise her option to pay the when she failed to pay the
Spouses Co’s lawyer manifesting that Custodio is now ready balance of the purchase price amounts of $40,000 and
to pay the remaining balance to complete the $100,000 because she was in default. $60,000 on their respective
purchase price of the first property in New Alabang. She failed to pay after a due dates BUT spouses Co did
8. October 24, 1986: Custodio filed a complaint. demand was made. not sue for either specific
9. The RTC ruled in favor of Custodio and ordered Spouses Co ● Sps Co claim that they gave performance or rescission of
to pay refund the $30,000 partial payment given by Custodio another option to the contract.
Custodio. buy another property but she ● As manifested in their August
10. CA affirmed. manifested her readiness to 8 letter, Sps Co mistakenly
pay for the first property. This believed that Custodio lost her
III. Issue/s manifestation no longer has option over the Beata property
1. W/N Spouses Co validly rescinded their contract with any legal effect since this when she failed to pay for the
Custodio? NO. option was no longer $70,000 balance
2. W/N the Court of Appeals erred in ordering Spouses Co available to her. ● In the absence of an express
to return Custodio’s $30,000 partial payment? NO ● This being the case, the Court stipulation authorizing the
of Appeals should have ruled sellers to extrajudicially
IV. Holding/s that Spouses Co validly rescind the contract of sale, the
rescinded their contract with spouses Co cannot unilaterally
Issue #1 Custodio. and extrajudicially rescind the
NO, Spouses Co did not validy rescind their contract with contract of sale.
Custodio.
2
Overall Ruling payments she had made not and so, rescission is in
● Despite the fact that Custodio was already in breach of her would be forfeited. order. Since the Beata property
obligation under Article 1191 of the Civil Code when she failed to was not delivered to her, she
pay the amounts of $40,000 and $60,000 on their respective due has nothing to return. Spouses
dates, spouses Co did not sue for either specific performance or Co, on the other hand, must
rescission of the contract. Spouses Co believed that by virtue of return the 30,000 payment
their August 8 letter, Custodio already lost her option over the they received for rescission
Beata property. means to restore the parties in
● However, in the absence of an express stipulation authorizing the their former situations.
sellers to extrajudicially rescind the contract of sale, the spouses Overall Ruling
Co cannot unilaterally and extrajudicially rescind the contract of ● The power to rescind obligations is implied in reciprocal
sale. obligations in case one of the obligors should not comply with that
● Custodio acted within her rights when she attempted to pay the is incumbent upon him. In this case, Custodio was not in default
remaining balance as the contract was still subsisting at that time. and was willing to perform her part of the contract but Spouses Co
● When Spouses Co refused to accept the payment and to deliver the were not and so, rescission is in order.
Beata property, Custodio immediately filed for rescission of the Rescission creates the obligation to return the things which were
contract of sale. the object of the contract. The parties are restored to their former
situations. Custodio’s request for rescission is in order. Since the
Beata property was not delivered to her, she has nothing to return.
Issue #2 Spouses Co, on the other hand, must return the 30,000 payment
W/N the Court of Appeals erred in ordering Spouses Co to return they received.
Custodio’s $30,000 partial payment? NO
Petitioner’s Arguments Court’s Rebuttals V. Law or Doctrine Applied
● There was a warning in the ● Custodio’s request for
August 8 letter that if rescission is in order. She was Article 1191 of the Civil Code
Custodio fails to exercise her not in default and was willing
option to purchase the 2nd to perform her part of the The power to rescind obligations is implied in reciprocal ones, in
property within 30 days, the contract but Spouses Co were case one of the obligors should not comply with what is incumbent
3
upon him. VI. Disposition

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either WHEREFORE, the instant petition is hereby DENIED, and the
case. He may also seek rescission, even after he has chosen appealed decision of the Court of Appeals is AFFIRMED.
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just ●
cause authorizing the fixing of a period.
VII. Random Facts
This is understood to be without prejudice to the rights of third ● Ponente: Gonzaga-Reyes, J.
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law. (1124)
Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the

person causing the loss.
4
G.R. No. 129107 | September 26, 2001 Article 1191
Iringan v. CA Iringan v. CA
I. Recit-ready Summary 1. Antonio Palao (respondent) sold an undivided portion of Lot 9992
Palao and Iringan executed a Deed of Sale whereby the former sold to of the Tuguegarao Cadastre to Alfonso Iringan (petitioner).
the latter an undivided portion of Lot No. 992, the purchase price of which 2. They executed a Deed of Sale with the purchase price of 295,000
shall be paid in three installments. When petitioner failed to pay the full payable as follows:
amount of the second installment, private respondent wrote a letter informing a. P10,000.00 — upon the execution of this instrument, and
petitioner that he considered the contract as rescinded. Petitioner did not for this purpose, the vendor acknowledges having received
oppose the revocation of the contract but proposed for reimbursement of the the said amount from the vendee as of this date;
amount, which he had already paid, or private respondent could sell to him an
b. P140,000.00 — on or before April 30, 1985;
equivalent portion of the land. Private respondent, however, did not agree.
c. P145,000.00 — on or before December 31, 1985
On July 1, 1991, private respondent filed a complaint for Judicial
Confirmation of Rescission and Damages against petitioner to compel the 3. When the second payment was due, Iringan paid only 40,000.
latter to formalize in a public document their mutual agreement of revocation 4. Due to Iringan’s failure to comply with his obligation, Palao sent
and rescission and to have a judicial confirmation of the said revocation under him a letter stating that he considered the contract as rescinded and
the terms and conditions fair, proper and just for both parties. Petitioner that he would no longer accept further payments.
opposed the rescission of the contract contending that the proper remedy of 5. Iringan replied that they were not opposing the revocation of the
private respondent is for collection of the balance of the purchase price. The Deed of Sale however he asked for reimbursement:
trial court ruled in favor of private respondent. It affirmed the rescission of a. P50,000.00 — cash received by you (Palao)
the contract of sale and ordered petitioner to pay moral and exemplary b. P3,200.00 — geodetic engineer's fee;
damages and attorney's fees. On appeal, the decision of the trial court was c. P500.00 — attorney's fee;
affirmed by the Court of Appeals but deleted the award of attorney's fees. d. the current interest on P53,700.00
Hence, petitioner filed this petition for review asserting that a judicial or 6. Palao stated that he was not amenable to the reimbursements being
notarial act is necessary before one party can unilaterally effect a rescission.
claimed.
Petitioner also claimed that the appellate court erred in finding bad faith on
his part when he resisted the rescission and claimed that he was ready to pay 7. Iringan proposed that the 50,000 which he had already paid be
private respondent. reimbursed or Palao could sell an equivalent portion of the land.
The Supreme Court ruled that the letter written by private respondent 8. Palao sent a reply ststaing that Iringan’s obligatin had reached
declaring his intention to rescind did not operate to validly rescind the contract 61,600.
since a judicial of notarial act is required by law for a valid rescission to take 9. The parties eventually failed to reacyh an agreement.
place. The operative act, which produces the resolution of the contract, is the 10. Palao filed a complaint for Judicial Confirmation of Rescission of
decree of the court and not the mere act of the vendor. Notwithstanding this, Contract and Damages against Iringan and his wife
however, the Court found that private respondent had complied with the 11. The spouses Iringan alleged that the cobtract has already been
requirement of the law for judicial decree of rescission when he filed an action consummated thus, Palo’s remedy was for the collection of the
for Judicial Confirmation of Rescission and Damages. balance and not rescission.
12. The RTC ruled in favor of Palao stating that the rescission was valid.
II. Facts of the Case (Material Facts) 13. The CA affirmed the same.
1
Obligations and Contracts (2020) PETITIONER: Alfonso Iringan
DIGEST AUTHOR: Stephanie Co RESPONDENT: CA and Antonio Palao
III. Issue/s take place, the letter written by

1. W/N the contract of sale was validly rescinded? YES. respondent declaring his intention
to rescind did not operate to
IV. Holding/s validly rescind the contract.
 Notwithstanding the above,
Issue #1 however, in our view when private
YES, the contract of sale was validly rescinded. respondent filed an action for
Judicial Confirmation of
Petitioner’s Arguments Court’s Rebuttals Rescission and Damages 26
 No rescission was effected  Article 1592 requires the before the RTC, he complied with
simply by virtue of the letter sent rescinding party to serve judicial the requirement of the law for
by Palao stating that he or notarial notice of his intent to judicial decree of rescission
considered the contract of sale resolve the contract, whether or  The complaint categorically stated
rescinded. not automatic rescission has been that the purpose was 1) to compel
 A judicial or notarial act is stipulated. appellants to formalize in a public
necessary before any one party  Even though Article 1191 were document, their mutual agreement
can unilaterally effect a applicable in this case as ruled by of revocation and rescission;
rescission. both the RTC and CA, it still and/or 2) to have a judicial
would not entitle petitioner to confirmation of the said
automatic rescission. revocation/rescission under terms
 The article provides that the right and conditions fair, proper and just
to resolve reciprocal obligations, for both parties.
is deemed implied in case one of  In Luzon Brokerage Co., Inc. v.
the obligors shall fail to comply Maritime Building Co., Inc., we
with what is incumbent upon him. held that even a crossclaim found
But that right must be invoked in the Answer could constitute a
judicially. judicial demand for rescission that
 The operative act which produces satisfies the requirement of the
the resolution of the contract is the law
decree of the court and not the
mere act of the vendor. 25 Since a
judicial or notarial act is required
by law for a valid rescission to
2
Overall Ruling The injured party may choose between the fulfillment and the rescission of the
Article 1191 provides that the right to resolve reciprocal obligations, is obligation, with payment of damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible.
deemed implied in case one of the obligors shall fail to comply with what is
The court shall decree the rescission claimed, unless there be just cause authorizing
incumbent upon him. But that right must be invoked judicially. the fixing of a period.
In this case, the Supreme Court ruled that the letter written by private This is understood to be without prejudice to the rights of third persons who have
respondent declaring his intention to rescind did not operate to validly rescind acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
the contract since a judicial of notarial act is required by law for a valid
rescission to take place. The operative act, which produces the resolution of VI. Disposition
the contract, is the decree of the court and not the mere act of the vendor.
Notwithstanding this, however, the Court found that private respondent (WHEREFORE, the petition is DENIED. The assailed decision dated April
had complied with the requirement of the law for judicial decree of rescission 30, 1997 of the Court of Appeals in CA-G.R. CV No. 39949, a􏰁rming the
when he filed an action for Judicial Confirmation of Rescission and Damages. Regional Trial Court decision and deleting the award of attorney's fees, is
The complaint categorically stated that the purpose was 1) to compel hereby AFFIRMED. Costs against the petitioner.
appellants to formalize in a public document, their mutual agreement of
revocation and rescission; and/or 2) to have a judicial confirmation of the said VII. Additional Notes
revocation/rescission under terms and conditions fair, proper and just for both VII. Random Facts
parties.  Ponente: Quisumbing, J.

In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after the expiration of the period,
as long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not grant him a new
term.

obligors should not comply with what is incumbent upon him.
3
G.R. No. 73893 | June 30,1987 Topic (e.g. Irregularities: Fortuitous Events)
Suria v. Intermediate Appellate Court Suria v. Intermediate Appellate Court
I. Recit-ready Summary 1. In March 1975 , Spouses Crispin owned a plot of land in Laguna,
Spouses Crispin owns a plot of land in Laguna. In March 1975, they where they entered into a Deed of Sale with Mortgage with
entered into a Deed of Sale with Mortgage with Petitioner Suria. BUT Petitioner Suria.
Petitioner violated the contact as they failed to pay the installments 2. Petitioner violated the contract by failing to pay the installments,
mentioned, only paying once in July 1975. After several demands from only paying once in July 1975.
Spouses Crispin, which were not heeded by the petitioner, the spouses 3. Multiple demands were made by Spouses Crispin, some of the
decided to file a case in the RTC for rescission of contract and damages. written demands were made from 1981-1983, but to no avail.
Petitioner argues that the remedy of rescission isn’t proper, and that the 4. In June 1983, Spouses Cripsin filed a complaint before the RTC of
correct remedy is foreclosure considering that their Deed of Sale had a
Laguna for rescission of contract and damages.
foreclosure stipulation. Petitioners during the pendency of the case also
5. In July 1984, petitioner Suria filed a motion to dismiss the case, on
offered to pay the outstanding balance but the spouses refused. RTC denied
the grounds that Spouses Crispin are not entitled to the subsidiary
the petitioner’s motion to dismiss, and when the case was elevated to the
Intermediate Appellate Court, they had also denied the motion due to lack of remedy of rescission because of the presence of remedy of
merit. Petitioner Suria then elevated the issue to the SC, but it was denied in foreclosure in the Deed of Sale with Mortgage.
a minute resolution. Petitioner filed an MR, raising the issue of Is The 6. While the case was pending on August 1984, petitioners offered to
Remedy Of Rescission Available In The Presence Of A Remedy Of pay the outstanding balance under the Deed of Sale with Mortgage
Foreclosure In The Light Of The Express Provision Of Article 1383? The but it was rejected by the spouses.
Court rules in favor of petitioner, saying that the IAC erred in applying 7. The RTC denies the motion to dismiss for lack of merit.
Article 1191 of the Civil Code. Article 1191 is about reciprocal obligations, 8. In January 1985, Petitioners Suria filed a motion for
in this case, there is no more reciprocal obligation to speak of as it was reconsideration and elevated the case to the Intermediate Appellate
already perfected and consummated by both parties. This was when they Court.
entered into a contract of sale for the parcel of land, in which initially there 9. The IAC denies the MR for lack of merit, with same reasoning as
was already a transfer of title by the spouses, and execution of the deed of the RTC.
mortgage on the part of the petitioner. The issue of petitioner’s breach of 10. Petitioner Suria raises the case to the SC but it was denied in a
obligation is not with respect to the perfected contract of sale, but with the minute resolution.
obligations created by the mortgage contract. In which case the relationship
11. ALTHOUGH because of another MR, the court decided to rule on
is no longer of a buyer and seller, but that of a mortgagor and mortgagee.
the issue.
Thus based on Article 1384 of the Civil Code, the remedy of rescission is
only subsidiary which is only available in the absence of all legal remedies.
The SC reverses the decision of the IAC and orders petitioners to pay III. Issue/s
the outstanding balance under the Deed of Absolute Sale with Mortgage 1. IS THE SUBSIDIARY AND EQUITABLE REMEDY OF
with legal interests from the second installment until fully paid. RESCISSION AVAILABLE IN THE PRESENCE OF A
II. Facts of the Case (Material Facts) REMEDY OF FORECLOSURE IN THE LIGHT OF THE
EXPRESS PROVISION OF ARTICLE 1383 OF THE CIVIL
1
Obligations and Contracts (2020) PETITIONER: Margarita Suria
DIGEST AUTHOR: Sean Lee RESPONDENT: Intermediate Appellate Court and Spouses Crispin
CODE THAT: 'THE ACTION FOR RESCISSION IS Petitioner’s Arguments Court’s Rebuttals
SUBSIDIARY; IT CANNOT BE INSTITUTED EXCEPT ● Rescission was not the right ● The Court agrees. The breach of
WHEN THE PARTY SUFFERING DAMAGE HAS NO remedy considering what they obligation came from the
OTHER LEGAL MEANS TO OBTAIN REPARATION FOR should have instead done was to mortgage therefore rescission was
THE SAME? foreclose as stipulated in the not proper.
2. MAY THE SELLER LEGALLY DEMAND RESCISSION OF Deed.
THE DEED OF SALE WITH MORTGAGE WITHOUT Overall Ruling
OFFERING TO RESTORE TO THE BUYER WHAT HE HAS According to the appellate court, this stipulation merely recognizes the
PAID, AS REQUIRED BY ARTICLE 1385, OR COMPLYING right of the vendors to foreclose and realize on the mortgage but does not
WITH THE REQUIREMENTS OF THE MACEDA LAW preclude them from availing of other remedies under the law, such as
GRANTING THE BUYER A GRACE PERIOD TO PAY rescission of contract and damages under Articles 1191 and 1170 of the
WITHOUT INTEREST, AND, IN CASE OF CANCELLATION Civil Code in relation to Republic Act No. 6552.
IN CASE THE BUYER STILL COULD NOT PAY WITHIN THE The appellate court committed reversible error, Art. 1191 on reciprocal
GRACE PERIOD, REQUIRING THE SELLER TO ORDER obligations is not applicable.
PAYMENT OF THE CASH SURRENDER VALUE BEFORE By the contract of sale, the vendor obligates himself to transfer the
THE CANCELLATION MAY LEGALLY TAKE EFFECT ( REP. ownership of and to deliver a determinate thing to the buyer, who in turn, is
ACT 6552)? obligated to pay a price certain in money or its equivalent. From the
respondents' own arguments, we note that they have fully complied with
IV. Holding/s their part of the reciprocal obligation. As a matter of fact, they have already
parted with the title as evidenced by the transfer certificate of title in the
Issue #1 petitioners' name as of June 27, 1975. The buyer, in tum, fulfilled his end of
NO, THE SUBSIDIARY AND EQUITABLE REMEDY OF the bargain when he executed the deed of mortgage. The payments on an
RESCISSION IS NOT AVAILABLE IN THE PRESENCE OF A installment basis secured by the execution of a mortgage took the place of a
REMEDY OF FORECLOSURE IN THE LIGHT OF THE EXPRESS cash payment.
PROVISION OF ARTICLE 1383 OF THE CIVIL CODE THAT: 'THE In other words, the relationship between the parties is no longer one of
ACTION FOR RESCISSION IS SUBSIDIARY; IT CANNOT BE buyer and seller because the contract of sale has been perfected and
INSTITUTED EXCEPT WHEN THE PARTY SUFFERING DAMAGE consummated. It is already one of a mortgagor and a mortgagee. The
HAS NO OTHER LEGAL MEANS TO OBTAIN REPARATION FOR petitioners' breach of obligations is not with respect to the perfected contract
THE SAME? of sale but in the obligations created by the mortgage contract. The remedy
of rescission is not a principal action retaliatory in character but becomes a
2
subsidiary one which by law is available only in the absence of any other the Deed of Absolute Sale with Mortgage with legal interests from the
legal remedy. (Art. 1384, Civil Code). second installment due on October 24, 1975 until fully paid, failing which
the respondents may resort to foreclosure.
Foreclosure here is not only a remedy accorded by law but, as earlier
stated, is a specific provision found in the contract between the parties. VII. Additional Notes
a. The petitioners have offered to pay past due accounts.
Considering the lower purchasing value of the peso, the
respondents are correct in stating they have suffered
Issue #2 losses. However, they are also to blame for trusting
N/A not talked about anymore persons who could not or would not comply with their
Petitioner’s Arguments Court’s Rebuttals obligations in time. They could have foreclosed on the
● ● mortgage immediately when it fell due instead of waiting
all these years while trying to enforce the wrong remedy.
Overall Ruling
VII. Random Facts

V. Law or Doctrine Applied ● Ponente: Gutierrez, Jr., J.

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. The
injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case.

The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
VI. Disposition
WHEREFORE, the petition is hereby GRANTED. The Intermediate

Appellate Court's decision dated November 8, 1985 and the resolution dated
December 6, 1985 and February 28, 1986 are REVERSED and SET ASIDE.
The petitioners are ordered to pay the balance of their indebtedness under
3
G.R. No. 81158 | May 2, 1992 Article 1192
Jacinto v. Kaparaz Jacinto v. Kaparaz
I. Recit-ready Summary 3. The balance of 1,000php is to be paid by Jacinto on installment for

Jacinto et. al (Jacinto) and Kaparaz et. al (Kaparaz) entered into an 100php a month to DBP, to be applied to Kaparaz’s loan accounts
Agreement wherein Kaparaz agreed to sell and convey to Jacinto a 600- (particularly the agricultural account)
square meter lot (lot) for a total of 1,800php. The balance of 1,000php is to 4. Kaparaz is also obligated to execute the final deed of absolute sale
be paid by Jacinto on installment for 100php a month to DBP, to be applied of the lot in favor of Jacinto as soon as the settlement or partition of
to Kaparaz’s loan accounts (particularly the agricultural account). Kaparaz the estate of deceased Narcisa Kaparaz is consummated and
is also obligated to execute the final deed of absolute sale of the lot in favor effected, BUT not later than March 31, 1967
of Jacinto as soon as the settlement or partition of the estate of deceased 5. Jacinto paid the downpayment, and was placed in possession of the
Narcisa Kaparaz is consummated and effected, BUT not later than March lot
31, 1967. Jacinto paid DBP a total of 700php which is already in excess of 6. Regarding the 1,000php due to DBP, Jacinto claims that they even
the original price of 1,800, after Kaparaz received 1,200. Regarding the made an excess payment of 100php
1,000php due to DBP, Jacinto claims that they even made an excess 7. Jacinto paid DBP a total of 700php which is already in excess of
payment of 100php. Kaparaz then refused to execute the deed of absolute the original price of 1,800, after Kaparaz received 1,200
sale, testifying that Jacinto did not comply with the agreement to pay 10 8. The excess 100 is due to the balance of 600, which was originally
equal monthly installments to DBP, which caused Kaparaz’s failure to intended to be paid for the surveyor, was instead to be paid by
secure the release of the mortgage on the property. Kaparaz ended up paying Jacinto to cover accumulated interests
DBP himself instead. Jacinto filed complaint for specific performance. Trial 9. Kaparaz then refused to execute the deed of absolute sale,
court ruled in their favor. CA found that, among others, the parties are in testifying that Jacinto did not comply with the agreement to pay 10
pari delicto. Jacinto was the first to incur in delay. Even granting that there equal monthly installments to DBP, which caused Kaparaz’s
was no evidence as to who the first infractor was, contract is deemed failure to secure the release of the mortgage on the property
extinguished pursuant to Article 1192. 10. Kaparaz ended up paying DBP himself instead
The issue is whether contract is considered extinguished? -NO. 11. Estate of Narcisa was already settled with the 600 sq. meter lot
Even if Jacinto was the first infractor, CA should have equitably tempered adjudicated to Kaparaz and currently registered under his name
his liability pursuant to Article 1192. Second sentence of this provision only 12. Jacinto filed complaint for specific performance trial court ruled
applies to cases wherein it cannot be determined which of the parties in their favor
violated the contract. 13. Court of Appeals found that:
a. Jacinto had not yet fully paid total consideration
II. Facts of the Case (Material Facts) i. Agricultural loan to which the unpaid 1,000 was
1. Jacinto et. al (Jacinto) and Kaparaz et. al (Kaparaz) entered into an to be applied was fully settled by Kaparaz instead
Agreement wherein Kaparaz agreed to sell and convey to Jacinto a b. Delay in payments to DBP was not a slight breach
600-square meter lot (lot) for a total of 1,800php i. Timely payments are important because the
2. A downpayment of 800php was to be paid upon execution of the nature of the bank account was that of a loan
Agreement secured by a real estate mortgage demanded
up to date amortization to prevent foreclosure
Obligations and Contracts (2020) PETITIONER: Jacinto 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: Kaparaz
G.R. No. 81158 | May 2, 1992 Article 1192
c. Kaparaz’s failure to protest the delay did not amount to a act

waiver to rescind
d. The parties are in pari delicto
i. Jacinto was the first to incur in delay
ii. Even granting that there was no evidence as to
who the first infractor was, contract is deemed
extinguished pursuant to Article 1192 Overall Ruling
III. Issue/s In the case at bar, the possession of the lot sold was immediately given to
1. W/N Kaparaz protested the delay by demanding rescission of the petitioners, and not held by vendor pending payment (so not a contract
contract? -NO to sell). Kaparaz also did not reserve unto themselves ownership of the
2. W/N delay incurred by Jacinto is a slight breach of obligation? property until full payment of unpaid balance of 1,000. No stipulation
-YES giving Kaparaz the right to unilaterally rescind to the moment the vendee
3. W/N contract is considered extinguished? -NO fails to pay within a fixed period. The Agreement was an absolute sale
which allowed the petitioners to pay the remaining balance of purchase
IV. Holding/s price through installments. Kaparaz neither filed an action for specific
performance nor demanded the rescission of the agreement either judicially
or by a notarial act. It was only in their Answer that they raised defense of
Issue #1
rescission of contract pursuant to Article 1191 because of Jacinto’s breach
NO, KAPARAZ DID NOT DEMAND RESCISSION
in obligation.
• Kaparaz’s failure to protest the • The Agreement is a contract of
delay of payments can be (absolute) sale, wherein the non-
considered estoppel on their part payment of the price is a
and an implied waiver of their resolutory condition, and the
right to rescind the sale remedy of the seller under Article
1191 is fulfillment or rescission
Issue #2
of the contract.
YES, DELAY IS ONLY A SLIGHT BREACH
• Regarding sale of immovables,
Article 1592 states that the
vendee may pay, even after the • Only a slight or casual breach • affirmed
expiration of the period, as long that would not warrant a
as no demand for rescission of the rescission of the sale
contract has been made upon him Overall Ruling
either judicially or by a notarial A mere casual breach does not justify rescission. The prompt payment of

G.R. No. 81158 | May 2, 1992 Article 1192
monthly amortizations of the unpaid 1,000 was not a condition precedent to

the execution of the final deed of sale. Petitioners had already paid 1,000 out WHEREFORE, the petition is GRANTED. The challenged decision of the Court of
Appeals is REVERSED and the judgment of the lower court is hereby
of the 1,8000 or exactly 77.77% of purchase price. They even overpaid by
REINSTATED and AFFIRMED. Costs against private respondent.
100.
Issue #3
NO, CONTRACT IS NOT EXTINGUISHED VII. Random Facts
• Agreement was indeed • No, the contract is not
extinguished extinguished.
Overall Ruling
Even if Jacinto was the first infractor, CA should have equitably tempered
his liability pursuant to Article 1192. Second sentence of this provision only
applies to cases wherein it cannot be determined which of the parties
violated the contract.
SAME FORMAT
Format here is the same.

In case both parties have committed a breach of the obligation, the liability of the
first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after the expiration of the period,
as long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not grant him a new
term.
VI. Disposition
G.R. No. L-45710 | October 3, 1985 Rescission; Damages
Central Bank v CA Central Bank v CA
I. Recit-ready Summary 1. Island Savings Bank approved the loan application for P80k of
Island Savings Bank approved the loan application for P80k of Sulpicio M. Sulpicio Tolentino, who, as security for the loan, executed a real
Tolentino, who, as a security for the loan, executed a real estate mortgage estate mortgage over his 100-hectare land located in Cubo, Las
over his 100-hectare land located in Cubo, Agusan. Loan called for a lump Nieves, Agusan.
sum of P80k, repayable in semi-annual installments for 3 yrs, with 12% 2. Loan application called for a lump sum P80k loan, repayable in
annual interest. After agreement, a mere P17K partial release of the loan was semi-annual installments for 3 years, with 12% annual interest
made by the bank and Tolentino and his wife signed a promissory note for 3. It was required that Tolentino shall use the loan proceeds solely as
the P17kat 12% annual interest payable w/in 3 yrs. An advance interest was
an additional capital to develop his other property into a
deducted from the partial release but this prededucted interest was refunded
subdivision.
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 4. After the agreement, a mere P17k partial release of the loan was
bank was suffering liquidity problems, prohibited the bank from making made by the bank and Tolentino and his wife signed a promissory
new loans and investments. After the bank failed to restore its solvency, the note for P17k at 12% annual interest payable w/in 3 years.
CB prohibited ISB from doing business in the Phils. ISB in view of the non- 5. An advance interest was deducted from the partial release but this
payment of the P17K filed an application for foreclosure of the real estate prededucted interest was refunded to Tolentino after being
mortgage. Tolentino filed petition for specific performance or rescission and informed that there was no fund yet for the release of the P63k
damages with preliminary injunction, alleging that since the bank failed to balance.
deliver P63K, he is entitled to specific performance and if not, to rescind the 6. Monetary Board of Central Bank, after finding that bank was
real estate mortgage. suffering liquidity problems, prohibited the bank from making new
loans and investments.
1. W/N the action of of Tolentino for specific performance will 7. After the bank failed to restore its solvency, Central Bank
prosper? – NO. Considering that the bank is now prohibited from prohibited ISB from doing business in the Philippines. ISB in view
doing business, specific performance cannot be granted. Rescission of the non-payment of the P17K filed an application for foreclosure
is the only remedy left of the real estate mortgage. Tolentino filed petition for specific
2. W/N Tolentino is liable to pay the P17k debt covered by the performance or rescission and damages with preliminary
promissory note? – YES. The promissory note gave rise to injunction, alleging that since the bank failed to deliver P63K, he is
Tolentino's reciprocal obligation to pay the P17k loan when it falls entitled to specific performance and if not, to rescind the real estate
due. mortgage.
3. W/N the real estate mortgage can be foreclosed? – YES but not 8. CFI found unmeritorious the petition of Tolentino, ordering him to
entirely. Since ISB failed to furnish the P63k balance of the P80k pay ISB the amount of P17k plus legal interest and legal charges
loan, the real estate mortgage of Tolentino became unenforceable due thereon.
to such extent 9. CA, on appeal by Tolentino, modified CFI decision by affirming
the dismissal of Tolentino's petition for specific performance, but it
Obligations and Contracts (2020) PETITIONER: Central Bank of the Phils. and Acting Director Antonio 1
Castro, Jr. of the Dept. of Commercial and Savings Bank, in his capacity as
receiver of Island Savings Bank
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: The Honorable Court of Appeals and Suplicio M. Tolentino
ruled that ISB can neither foreclose the real estate mortgage nor Overall Ruling
collect the P17k loan. Hence, this instant petition by the central
Bank. The loan agreement implied reciprocal obligations. When one party is
III. Issue/s willing and ready to perform, the other party not ready nor willing incurs in
A. W/N the action of of Tolentino for specific performance will delay. When Tolentino executed real estate mortgage, he signified
prosper? – NO willingness to pay. That time, the bank’s obligation to furnish the P80K loan
B. W/N Tolentino is liable to pay the P17k debt covered by the accrued. Now, the Central Bank resolution made it impossible for the bank
promissory note? – YES to furnish the P63K balance. The prohibition on the bank to make new loans
is irrelevant because it did not prohibit the bank from releasing the balance
C. W/N the real estate mortgage can be foreclosed? – YES but
of loans previously contracted. Besides, the mere pecuniary inability to
not entirely
fulfill an engagement does not discharge the obligation of the contract, nor
does it constitute any defense to a decree of specific performance.
IV. Holding/s Insolvency of debtor is not an excuse for non-fulfillment of obligation but is
a breach of contract.
Issue #1
NO, specific performance cannot be granted. Rescission is the only Since ISB was in default in fulfilling its reciprocal obligation under their
remedy left. loan agreement, Tolentino, under Article 1191 of the Civil Code, may
Petitioner’s Arguments Court’s Rebuttals choose between specific performance or rescission with damages in either
case. But since ISB is now prohibited from doing further business by
• Alleged discovery by Island • It is the obligation of the bank's
Monetary Board Resolution No. 967, SC cannot grant specific
Savings Bank of the over- officials and employees that
performance in favor of Tolentino. Rescission is the only remedy left,
valuation of the loan collateral before they approve the loan
but the rescission should only be for the P63K balance.
exempted it from complying application of their customers,
with its reciprocal obligation to they must investigate the
furnish the entire P80,000.00 existence and evaluation of the
loan properties being offered as a Issue #2
loan security. YES, Tolentino is liable to pay the P17k debt
• The promissory note gave rise • SC agrees
to Tolentino's reciprocal
obligation to pay the P17k
loan when it falls due.
Overall Ruling foreclosure of the real

estate mortgage
As far as the partial release of P17k, which Tolentino accepted and covering the 100-
executed a promissory note to cover it, the bank was deemed to have hectare land of
complied with its reciprocal obligation to furnish a P17k loan. The Tolentino
promissory note gave rise to Tolentino's reciprocal obligation to pay
the P17k loan when it falls due. His failure to pay the overdue Overall Ruling
amortizations under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil Code). If there Art. 1192 of the Civil Code provides that in case both parties have
is a right to rescind the promissory note, it shall belong to the aggrieved committed a breach of their reciprocal obligations, the liability of the
party, that is, ISB. If Tolentino had not signed a promissory note setting first infractor shall be equitably tempered by the courts. SC ruled that
the date for payment of P17k within 3 yrs, he would be entitled to ask for the liability of ISB for damages in not furnishing the entire loan is
rescission of the entire loan because he cannot possibly be in default as offset by the liability of Tolentino for damages, in the form of penalties
there was no date for him to perform his reciprocal obligation to pay. and surcharges, for not paying his overdue P17k debt. Tolentino’s
liability for interest on his P17k debt shall not be included in offsetting
Since both parties were in default in the performance of their the liabilities of both parties. Since Tolentino derived some benefit for
respective reciprocal obligations, that is, ISB failed to comply with its his use of the P17k, it is just that he should account for the interest
obligation to furnish the entire loan and Tolentino failed to comply with thereon.
his obligation to pay his P17k debt within 3 yrs as stipulated, they are
both liable for damages. SC held, however, that the real estate mortgage of Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt.
Since Island Savings Bank failed to furnish the P63k balance of the
P80k loan, the real estate mortgage of Tolentino became unenforceable
Issue #3 to such extent. P63k is 78.75% of P80k, hence the real estate mortgage
YES, real estate mortgage can be foreclosed but not entirely. 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 P17k debt. 21.25 hectares is more than sufficient to
Petitioner’s Arguments Court’s Rebuttals secure a P17k debt.
• In view of non- • Real estate mortgage of
payment of the P17k Tolentino can be foreclosed but
covered by the not entirely to satisfy his P17k V. Law or Doctrine Applied
promissory note, there debt.
must be extra-judicial
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case 3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS
one of the obligors should not comply with what is incumbent upon him. HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
The injured party may choose between the fulfillment and the rescission of the VII. Additional Notes
obligation, with the payment of damages in either case. He may also seek rescission,
VII. Random Facts
The court shall decree the rescission claimed, unless there be just cause authorizing • Ponente: Makasiar, CJ.
the fixing of a period.
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
Law.
Art. 1192. In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract, the same shall be deemed
VI. Disposition
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED

FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN

FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS
P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985,
AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM
AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL

ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
G.R. No. 167799 | August 29, 2006 Reciprocal Obligations
Yao vs. Matela Yao vs. Matela
I. Recit-ready Summary construction of a two-unit townhouse at a total cost of

Php5,090,560.00.
Spouses Yao contracted the services of Matela to manage and 2. The construction started in the first week of April 1997 and was
supervise the construction of their townhouses at a total cost of completed in April 1998, with additional works costing
Php5,090,560. The construction began in April 1997 and was completed in P300,000.00.
April 1998. 3. Matela alleged that the spouses Yao only paid him the amount of
Matela filed a complaint for sum of money against the spouses for not Php4,649,078.00, thereby leaving a balance of Php741,482.00.
paying the alleged balance of Php741,482.00. In their defense, Spouses Yao 4. Spouses Yao did not heed Matela’s demand for payment, hence
contended that the project was not done in accordance with the agreed Matela filed a complaint for sum of money against the spouses
specifications and that Matela abandoned the project without notice. before the RTC.
According to the spouses, the payment they had made should be sufficient, 5. In their answer, the spouses Yao denied that the project was
considering that Matela used substandard materials which caused damage to completed in April 1998. Instead, they alleged that Matela
the project. abandoned the project without notice. They further claimed that the
payment they had made (in the amount above-stated) should be
Both the RTC and the CA ruled in favor of Matela, based on the sufficient, considering that Matela used substandard materials
documents submitted by the latter which prove, by presumption of causing damage to the project which needed a substantial amount
regularity, that the construction was indeed completed in accordance with of money to repair.
the agreement. 6. The RTC ruled in favor of Matela. According to its ratio, the
documents (see: additional notes) submitted by the plaintiff, as
The SC, however, rules that as this case involves one of reciprocal they were presumed to have been executed in due course and good
obligations, both parties breached their respective duties. Still, however, faith, prove that the construction was indeed completed in April
since it cannot determine which of the parties first violated the contract, the 1998 and was done in accordance with the agreed plans and
SC rules that the contract be deemed extinguished and both parties incur specifications.
their losses, according to Article 1192 of the Civil Code. 7. The CA affirmed the decision of the RTC, but modified the
awarded amount of actual damages from Php741,428.00 to
Php391,582.00.
II. Facts of the Case (Material Facts) 8. Hence, the consolidated petitions.
9. In the present case, Matela is claiming that he is entitled to receive
1. On March 30, 1997, the spouses Yao contracted the services of the additional cost of construction. Spouses Yao, on the other hand,
Matela, a licensed architect, to manage and supervise the is contending that the complaint filed by Matela should be
dismissed because it was actually him who breached his
1
Obligations and Contracts (2020) PETITIONER: Spouses William and Jeanette Yao
DIGEST AUTHOR: Regina Alzaga RESPONDENT: Carlomagno Matela

undertaking by using substandard materials and not completing the cannot be discharged from his
project; hence, the amount they had paid should be considered as obligations by mere delivery of
sufficient payment for the construction project. the same to the spouses Yao.
Overall Ruling
III. Issue/s
Upon revisiting the facts of the case, the SC rules that it cannot rely on
1. W/N Matela failed in his obligation to the Spouses Yao as the submitted documents to justify the project's completion. While the
regards the construction of the townhouses. – YES. Rules of Court provides that the issuance of the documents enjoy the
presumption of regularity, such is only a disputable presumption which
2. W/N Spouses Yao likewise failed to comply with their may be overcome by other evidence.
undertakings as regards the payment to Matela. – YES.
In this case, the agreed construction cost was Php5,090,560.00. However,
3. W/N either of the parties are relieved from their obligation the amounts reflected in findings declared in the documents are far less
because of the non-compliance of the other. – NOT EXACTLY. (i.e., in the Building Permit, the total cost was pegged at
(The contract is extinguished but both parties suffer their Php2,191,700.00; in the Certificate of Completion, the actual cost of
incurred losses). construction was Php2,347,706.81; while in the Certificate of Occupancy,
the cost of the project as built was declared at Php2,341,706.00).
Considering the discrepancies, the conclusiveness of the said documents
IV. Holding/s fall against the other pieces of evidence (i.e., photos of carpentry works).
Issue #1
YES, Matela failed to comply with his obligation to construct the
Issue #2
townhouses based on the agreed specifications.
YES, Spouses Yao likewise failed to comply with their undertakings
Matela’s Arguments / RTC/CA’s Court’s Rebuttals to pay the rightful amount to Matela.
Findings Petitioner’s Arguments Court’s Rebuttals
● Matela's "delivery" of the ● Records reveal that Matela ● Spouses Yao justified their ● (see: overall ruling)
project constitutes a faithful failed to comply with his non-payment by arguing that
discharge of his duties. obligation to construct the Matela abandoned the project
townhouses based on the agreed
specifications. As such, he
2

and that there were defects in Overall Ruling

its construction.
The Court acknowledges the fact that courts have no jurisdiction to look
Overall Ruling into the wisdom of the contract entered into by and between parties, nor
to render a decision different therefrom. They neither have the power to
As alleged by Matela, Spouses Yao made periodic payments based on relieve parties from obligation voluntarily assumed, simply because such
progress billings, as contained in the Summary of Cash Payments and the contracts turned out to be disastrous.
Summary of Invoices that he submitted in his formal offer of evidence.
Spouses Yao refused to pay the balance of the agreed construction cost The instant case, however, involves one of reciprocal obligations. The
despite demands. Court cites the late Justice Desiderio Jurado in defining such:
“Reciprocal obligations are those which are created

Issue #3
or established at the same time, out of the same cause,
NO, neither of the parties is relieved from their obligation to the
and which result in mutual relationships of creditor and
other. However, the subject contract itself is extinguished and both
debtor between the parties. These obligations are
parties incur their respective losses.
conditional in the sense that the fulfillment of an
Petitioner’s Arguments Court’s Rebuttals obligation by one party depends upon the fulfillment of
● Spouses Yao justified their ● The well entrenched doctrine is the obligation by the other. x x x
non-payment by arguing that that the law does not relieve a
Matela abandoned the project party from the effects of an The rule then is that in reciprocal obligations, one
and that there were defects in unwise, foolish or disastrous party incurs in delay from the moment the other party
its construction. contract, entered into with full fulfills his obligation, while he himself does not comply or
awareness of what he was doing is not ready to comply in a proper manner with what is
and entered into and carried out incumbent upon him. If neither party complies or is ready
in good faith. Such a contract to comply with what is incumbent upon him, the default of
will not be discarded even if one compensates for the default of the other.”
there was a mistake of law or
fact. As agreed by the parties, Matela will construct the townhouses in
accordance with the Specification, while spouses Yao will pay Matela the
agreed construction cost based on progress billings. The spouses Yao will
3

not pay Matela the agreed price in full unless the latter has fully complied VII. Additional Notes
with and has discharged his obligations as specified in the contract.
● In this case, the SC finds that the factual findings of the trial court
As the Court cannot conclusively determine which of the parties first and Court of Appeals are contradicted by the evidence on record.
violated the contract, it applies Article 1192 of the Civil Code, by virtue Thus, a review of the facts is in order, as an exception to the rule
of justice and equity. The contract is deemed extinguished, and each shall that SC does not rule on questions of facts.
bear his own damages.
● Among the documents submitted by Matela were: Evaluation Sheet
Occupancy Permit, Certificate of Completion, Certificate of
V. Law or Doctrine Applied Occupancy, and Progress Flow Sheet of Occupancy Permit.
ARTICLE 1192 OF THE CIVIL CODE VII. Random Facts

ART. 1192. In case both parties have committed a breach of the obligation, the ● Ponente: Ynares-Santiago, J.
liability of the first infractor shall be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract, the same shall be deemed
VI. Disposition
WHEREFORE, the Decision dated September 30, 2004 of the Court of

Appeals in CA-G.R. CV No. 75264 which affirmed with modification the
Decision of the Regional Trial Court of Las Piñas City, Branch 275, and its
Resolution dated April 15, 2005 denying reconsideration thereof, are
REVERSED and SET ASIDE. The contract between spouses William and
Jeanette Yao and Carlomagno B. Matela is DEEMED EXTINGUISHED
and each of the parties shall bear their own losses.
4

G.R. No. 7859 | Feb 12, 1913 Time for payment left to the will of the debtor (“little by little)
Seoane v Franco Seoane v Franco
I. Recit-ready Summary 2. The claim for payment was filed 27 years after or in the year 1991 .
A mortgage was executed to secure a payment for P4,876,01 pesos in III. Issue/s
1884 the mortgagor agreeing to pay the sum “little by little”. The Can the claim still prosper? NO.
claim for payment was filed 27 years after (1991). IV. Holding/s
Issue: Can the claim still prosper? NO. Issue #1

The claim cannot prosper since the action to determine a reasonable
The right of action only accrues once an obligation is due and time for performance has prescribed
demandable. But in this case the period for performance was left to the Petitioner’s Arguments Court’s Rebuttals
will of the debtor. N/A • N/A
1128. When the obligation does not fix a term, but it can be
inferred from its nature and circumstance that there was an
intention of granting it to the debtor, the courts shall fix the
duration of such a term. Overall Ruling
The courts shall also fix the duration of a term when it may The obligation in question seems to leave the duration of the period for the
have been left at the will of the debtor. payment thereof to the will of the debtor. It appears also that it was the
intention of the instrument to give the debtor time within which to pay the
An action should have been first brought to the courts to fix a obligation. In such cases this court has held, on several occasions, that the
reasonable time for performance to determine when the obligation obligation is not due and payable until an action has been commenced by
the mortgagee against the mortgagor for the purpose of having the court
shall become due and demandable.
fixed the date on and after which the instrument shall be payable and
the date of maturity is fixed in pursuance thereof.
BUT, the action for fixing a reasonable time for performance has
already prescribed since the right of action to do this accrues from the
time of execution of the contract. Being a written contract the inferred from its nature and circumstance that there was an
prescription period is 10 years to bring the action to court. In this case, intention of granting it to the debtor, the courts shall fix the
the case was filed 27 years after. duration of such a term.
The courts shall also fix the duration of a term when it may
II. Facts of the Case (Material Facts) have been left at the will of the debtor.
1. A mortgage was executed to secure a payment for P4,876,01 pesos An action should have been first brought to the courts to fix a reasonable
in 1884 the mortgagor agreeing to pay the sum “little by little”. time for performance to determine when the obligation shall become due
Obligations and Contracts (2020) PETITIONER VICTORIA SEOANE, administratrix of The Intestate Estate of 1
Eduardo Fargas
DIGEST AUTHOR: Tin Sumaway RESPONDENT: CATALINA FRANCO,
administratrix and The Intestate Estate of Manuel Franco
G.R. No. 7859 | Feb 12, 1913 Time for payment left to the will of the debtor (“little by little)
Seoane v Franco Seoane v Franco
and demandable. Until such action was prosecuted no suit could be

instrument. It is, therefore, clear that this action is
premature. The instrument has been sued upon before it is due. The action
must accordingly be dismissed.
BUT, the action for fixing a reasonable time for performance has already
prescribed since the right of action to do this accrues from the time of
execution of the contract. Being a written contract the prescription period is
10 years to bring the action to court. In this case, the case was filed 27 years
after.
“little by little”- the duration of the period is left to the will of the debtor
inferred from its nature and circumstance that there was an
intention of granting it to the debtor, the courts shall fix the
duration of such a term.
The courts shall also fix the duration of a term when it may
have been left at the will of the debtor.
VI. Disposition
The judgment is affirmed, with cost against the appellant. So ordered.
VII. Random Facts

• Ponente: Moreland, J.
Obligations and Contracts (2020) PETITIONER VICTORIA SEOANE, administratrix of The Intestate Estate of 2
Eduardo Fargas
DIGEST AUTHOR: Tin Sumaway RESPONDENT: CATALINA FRANCO,
administratrix and The Intestate Estate of Manuel Franco
G.R. No. L-38059 | September 14, 1975 Obligation with a Period
Qui v CA Qui v CA
I. Recit-ready Summary 7. The first 5 yrs of the contract of lease expired on Feb 20, 1965, and Qui
Qui and respondents entered into lease contract. In the contract, upon would have to start paying the annual rental of P1.2k in 2 equal installments.
expiration of 20-year period, building to be constructed by Qui shall belong On the other hand, private respondents had not yet paid the loan previously
to respondents. Qui also extended a loan to them (P600). Qui erected a factory extended to them by the petitioner in the amount of P600; so petitioner
building on the property which was burned by fire. After first 5 yrs, Qui had applied the said amount to the payment of the rentals covering the period of
to start paying annual rental in 2 equal installments (P600 each). Respondents from Feb 21,1965 to Aug 20, 1965.
had not yet paid the loan so Qui applied such amount to the payment of rentals 8. Private respondents, through counsel, sent letter of demand to Qui,
from Feb-Aug 1965. Respondents asked for retun of leased premises due to requiring the return of the leased premises due to alleged violation of the
violation of contract. Qui denied the same. CFI ruled in favor of Qui. CA lease contract. Qui, thru counsel, replied denying any violation and at the
reversed it. ISSUE: WON failure to rebuild/replace factory building same time remitted to the private respondents the sum of P600in postal
constitutes violation of contract when there is no fixed perioed therein for money orders in payment of his rentals for the period from Aug 21, 1965, to
replacing the building and courts have not fixed the period? – NO. SC held Feb 20, 1966, or ten days after the filing of their complaint for unlawful
that by the nature and circumstances of their agreement it can be inferred that detainer against the petitioner.
Qui and respondents intended a period within which a building for factory 9. Qui denied having committed any violation of the lease contract since he
purposes is to be built, erected, constructed and maintained, as well as the had paid all rentals due and had constructed a factory building as required in
reconstruction and replacement of the building in case of loss or destruction. their agreement, but it was burned down through no fault of his own
SC agreed with Qui that the only recourse left to the private respondents was 10. CFI-Rizal found petitioner had faithfully paid the stipulated amount of
to institute a judicial action to fix the period for the reconstruction and rentals and hence there was no default or violation of the contract. Further, it
replacement of the burned factory building, in accordance with the provision ruled that there was no such violation despite the failure of petitioner to
of Art 1197 of Civil Code. Only after the courts shall have fixed that period erect another factory building to replace the one burned, for as said by the
can there be a breach or violation of the obligation to do so Court
11. CA reversed it and ordered ejectment of Qui from the premises
1. Respondents leased to petitioner their parcel of land in Caloocan for 20 yrs III. Issue/s
at P1.2k a year payable in 2 equal installments of P600 every six 6 months. WON the failure of a lessee to rebuild, reconstruct or replace a factory
2. Qui paid to private respondents P6k as rentals for the first 5 yrs. building he had previously constructed on the leased premises, but razed to
3. Upon expiration of the period, the building to be constructed by petitioner the ground through no fault of his, constitutes a violation or breach of contract
shall belong to private respondents. when there is no fixed period therein for replacing the building and the courts
4. Qui extended a loan to them in the sum of P600 payable on or before have not fixed such period? - NO
Dec. 1, 1960 IV. Holding/s
5. Immediately after the signing of the lease contract, Qui erected a factory
building on the leased premises which was unfortunately razed to the Issue #1
ground in a fire of undetermined origin sometime in Dec. 1960 NO, private respondents must institute a judicial action to fix the
6. While factory building was not yet rebuilt, Qui engaged in a small-scale
period for the reconstruction and replacement of the burned factory
poultry and piggery business on the leased premises which became vacant
1
Obligations and Contracts (2020) PETITIONER: Jose Qui
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: THE HONORABLE COURT OF APPEALS, TRINIDAD
AUSTRIA and DOMINGO AUSTRIA
G.R. No. L-38059 | September 14, 1975 Obligation with a Period
Qui v CA Qui v CA
building, in accordance with the provision of Article 1197 of the New Overall Ruling
Civil Code. SC rules that there is no stipulation fixing for a period within which a
factory building is to be constructed by the petitioner-lessee, or replaced in
Petitioner’s Arguments Court’s Rebuttals case of its loss or destruction. But by the nature and circumstances of their
• Private respondents should have • SC agrees agreement it can be inferred that petitioner-lessee and respondents-lessors
first brought an action to fix the • No stipulation fixing for a period intended and contemplated a period within which a building for factory
period within which petitioner within which a factory building purposes is to be built, erected, constructed and maintained, as well as the
shall comply with his obligation is to be constructed by Qui, or reconstruction and replacement of the building in case of loss or
to rebuild the factory building replaced in case of its loss or destruction.
that was razed to the ground, destruction. But by the nature
instead of an unlawful detainer and circumstances of their This being the case, SC cannot help but agree with the petitioner that the
suit. That only after such period agreement it can be inferred that only recourse left to the private respondents was to institute a judicial
shall have been fixed by the Qui and respondents intended action to fix the period for the reconstruction and replacement of the
courts and there is failure to and contemplated a period within burned factory building, in accordance with the provision of Article 1197
observe the same that private which a building for factory of the New Civil Code. Only after the courts shall have fixed that period
respondents may bring an action purposes is to be built, erected, can there be a breach or violation of the obligation to do so. The use of the
for the violation thereof, constructed and maintained, as leased premises for poultry and piggery yard in the meantime that the
especially considering the fact well as the reconstruction and building is not yet reconstructed does not alter this conclusion.
that their 20-yr lease contract replacement of the building in
will expire on Feb 20, 1980 case of loss or destruction. V. Law or Doctrine Applied
Art. 1197. If the obligation does not fix a period, but from its nature and the
This being the case, SC agrees circumstances it can be inferred that a period was intended, the courts may fix the
with Qui that the only recourse duration thereof.
left to the private respondents VI. Disposition
was to institute a judicial action
to fix the period for the WHEREFORE, the decision of the Court of Appeals, dated September
reconstruction and replacement 3,1973, in CA-G.R. No. 41413-R, is set aside, and the decision of the Court
of the burned factory building, in of First Instance of Rizal, Caloocan City Branch, in Civil Case No. C-880,
accordance with the provision of dismissing the complaint for ejectment, is hereby affirmed.
Art 1197 of the Civil Code. Costs against the private respondents.
SO ORDERED.
VII. Random Facts
• Ponente: Esguerra, J.
2
Obligations and Contracts (2020) PETITIONER: Jose Qui
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: THE HONORABLE COURT OF APPEALS, TRINIDAD
AUSTRIA and DOMINGO AUSTRIA
G.R. No. L-34338 | November 21, 1984 Obligations with a Period
Lim v. People Lim v. People
I. Recit-ready Summary 3. Of the total value of P799.50, the petitioner had only paid P240.00,
paid on three different times.
Petitioner Lim was charged with estafa due to her failure to deliver the
4. As no further amount was paid, Ayroso filed a complaint for estafa
proceeds of the sale of tobacco to Maria Ayroso. The said sale was based on
against the petitioner.
their agreement, which the petitioner proposed to Ayroso, that the former
will sell the latter’s tobacco consisting of 615 kilos at P1.30 per kilo. Of the
supposed total value of P799.50, only P240.00 was delivered by the
III. Issue/s
petitioner to Ayroso.
1. W/N the agreement “fixed a period” and therefore the
On appeal, the petitioner is claiming that she could not have been
obligation was immediately demandable as soon as the tobacco
guilty of estafa, as the subject agreement did not fix a period as to when she
was sold. – YES.
must deliver the goods or the proceeds thereof to Ayroso; and that, however,
by the nature and circumstances of their agreement, it appears that a period
2. W/N this case involves a contract of agency to sell, as against the
was intended. Hence, Article 1197 applies – which provides that the parties
theory of the petitioner that it is a contract of sale. – YES.
may just ask the Court to fix a duration of the said period.
The Court rules otherwise. Article 1197 does not apply since it is clear
in the agreement that the proceeds of the sale of the tobacco should be
IV. Holding/s
turned over to the complainant as soon as the same was sold, or that the
obligation was immediately demandable as soon as the tobacco was Issue #1
disposed of. The subject agreement clearly provides for a period.
YES, the agreement “fixed a period” for when the obligation will be
demandable - in this case, as soon as the tobacco was sold.
1. On January 10, 1966, petitioner Lim went to the house of Maria
● The obligation does not fix a ● (See Overall Ruling)
Ayroso and proposed to sell the latter’s tobacco consisting of 615
period, but from its nature and
kilos at P1.30 each (kilo), to which Ayroso agreed.
circumstances, it can be
2. The agreement made by and between the parties stipulates that the inferred that a period was
proceeds in the amount of P799.50 will be given to Ayroso as soon intended. Hence, the Court
as it was sold.
1
Obligations and Contracts (2020) PETITIONER: Lourdes Valerio Lim
DIGEST AUTHOR: Regina Alzaga RESPONDENT: People of the Philippines

may just fix the duration Issue #2

thereof.
Yes, this case involves a contract of agency to sell, not a contract of sale.
● The foregoing receipt gives
rise to an obligation wherein Petitioner’s Arguments Court’s Rebuttals
the duration of the period
depends upon the will of the ● Petitioner was not an agent ● The fact that the petitioner
debtor. Hence, the Court may because the agreement does not received the tobacco to be
just fix the duration of the say that she would be paid the sold at P1.30 per kilo, the
period. commission if the goods were proceeds of which shall be
sold. given to complainant as soon
● In any case, Article 1197 as it was sold, strongly
applies. negates transfer of ownership
of the goods to the petitioner.
Overall Ruling
Overall Ruling
It is clear in the agreement that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the same was sold, The lower court correctly found that aside from the fact that the
or that the obligation was immediately demandable as soon as the petitioner asked Ayroso to be her agent in selling her tobacco, the
tobacco was disposed of. petitioner herself admitted that there was an agreement that upon the sale
of the tobacco, Ayroso would be given something.
Hence, Article 1197 does not apply.
The petitioner, being a businesswoman, could not have gone to the extent
of going to Ayroso’s house to take the tobacco with a jeep if she did not
intend to make a profit out of it. The agreement constituted her as an
agent with the obligation to return the tobacco if the same was not sold,
as against the theory that there was a transfer of ownership of the goods
to the petitioner.
2

● Ponente: Relova, J.
ART. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
XXX.
A day certain is understood to be that which must necessarily come, although it may
not be known when.
XXX
ARTICLE 1193 – DOES NOT APPLY!
Article 1197. If the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof. XXX
VI. Disposition
ACCORDINGLY, the petition for review on certiorari is dismissed for lack

of merit. With costs.
3

G.R. No. 138739 | July 06, 2000 Obligations with a Period: Court fixing periods
Radiowealth Finance v Sps. Del Rosario Radiowealth Finance v Sps. Del Rosario
I. Recit-ready Summary every ____ day of each month.” As they were left blank. The note
(Respondent) Spouses Del Rosario executed in favor of (Petitioner) also had acceleration and penal provisions in case there was default
Radioweatlh Finanance a promissory note for P138,948. The note stated that in paying any of the installments.
it would be paid in 12 consecutive monthly installments of P11,579, with each 3. Thereafter, respondents defaulted on the monthly installments.
installment being due every ___ day of each month. However, the date on Despite repeated demands, they failed to pay their obligations under
when the payment of the installments would start were left blank. the promissory note.
Respondents defaulted on the monthly installments; they were unable to 4. Because of this default, Petitioner filed a complaint to collect the
pay their obligations despite repeated demands. Because of this, petitioner
sum of money. Petitioner’s officer, Jasmer Fanatico, presented
filed a complaint to collect the sum of money. The RTC dismissed their
Respondent’s check payments, ledger card, and their demand letters
complaint due to their evidence being hearsay (the petitioners filed a demurrer
of evidence), while the CA reversed the RTC and held that the petitioner’s and dishonor slips as evidence. Fanatico admitted that he did not
admissions in court established their indebtedness. The CA remanded the case have personal knowledge of the transaction of these documentary
for further proceeding. So petitioners appealed to the SC evidence, they were merely endorsed to him
The issue in this case is whether or not the promissory note was left at 5. Respondents filed a demurrer to evidence, citing an alleged lack of
the will of the debtor when the dates on as to when the installments would cause of action.
commence were left blank, thus necessitating an action to fix a period first 6. The trial court dismissed Petitioner for failure to substantiate claims
before one could file a complaint to collect. – saying the evidence was hearsay
Respondents argued that the petitioners should have first filed an action 7. The CA reversed the RTC, remanding the case for further
to fix a period first, theorizing that the obligation was dependent on the will proceedings. CA said that respondent’s judicial admissions
of the debtor due to the commencement date of the installment payments established their indebtedness by admitting the due execution of the
being left blank. The SC held this to be untenable. If that was the intention, promissory note, their only defense was an absence of an
the parties would have indicated so. Leaving the due date blank does not
agreement on when the installment payments were to begin. CA
necessarily mean the debtors would pay when they could, because while the
specific date of each installment was left blank, the note clearly provided said that even without personal knowledge, the evidence was
the installment would be payable each month, thus there was no need to admissible to establish the fact that the document was made.
fix a period. Furthermore, the respondents knew of the intent of the obligation
which was to pay each month, considering that they tried to pay an III. Issue/s
installment, although their check bounced. 1. W/N Radiowealth can file to collect the sum of money without
filing an action to fix a period first despite the date on which the
II. Facts of the Case (Material Facts) installments would commence were left blank in the promissory
1. (Respondent) Spouses Vicente and Maria Sumilang Del Rosario note? YES.
jointly and severally executed in favor of (Petitioner) Radiowealth 2. W/N respondents are deemed to have waived the right to present
Finance Company a promissory note for P138,948. evidence if their demurrer is reversed on appeal? YES.
2. Pertinent in the promissory note were the lines “ ₱11,579.00 payable
for 12 consecutive months starting on ________ 19__ until the IV. Holding/s
amount of ₱11,579.00 is fully paid. Each installment shall be due
1
Obligations and Contracts (2020) PETITIONER: Radiowealth Finance Company
DIGEST AUTHOR: Bryan Antonio RESPONDENT: Spouses Vicente and Ma. Sumilang Del Rosario
Issue #1 Overall Ruling

YES, Radiowealth does not need to file an action to fix a period first The SC ruled that respondent’s claims of petitioner’s action being
despite the date on when the installments would commence being left premature due to the obligation being dependent on the will of the debtor
blank in the promissory note. (making petitioner have to file an action for fixing the period first in
Petitioner’s Arguments Court’s Rebuttals accordance with Art. 1197) was untenable. If that was their intention, they
• The respondents are liable for • The court actually agreed with would have clearly laid that out in the note, which they did not. Leaving
the whole amount of their debt petitioner the due date blank does not necessarily mean debtors would pay when they
and the interest thereon after • (On respondent’s argument) could. While the specific date of when each installment was due was
they defaulted on the monthly Leaving the due date of the first left blank, the note clearly provided that each installment would be
installments installment did not necessarily payable each month.
• (Respondent’s argument – mean that the debtors were
which the court addressed) The allowed to pay when they could. Furthermore, it provided an acceleration clause and a late payment penalty
installments were not yet due If this was the intention of the – showing the intention of paying at a definite date. These would not be
and demandable – supposedly, parties, they should have so needed if dependent on the will of the debtor. Even the acts of the parties
the blank space left for the date indicated. manifest their intention and knowledge of the parties that the monthly
on which installments would • The note expressly stipulated installments were due and demandable each month – respondents started
commence made it dependent on monthly installments of P11,579 paying installments on the note, although their checks were dishonored by
the sole will of the debtor, and for 12 consecutive months. the drawee bank.
Petitioner had to have filed an While specific dates were blank,
action to fix period first in the note clearly provided that
accordance with Art. 1180/1197 each installment would be Issue #2
of the Civil Code. payable each month. YES, respondents have waived the right to present evidence when their
demurrer was lost on appeal.
• If a demurrer is reversed on • If a demurrer is granted by the
appeal, the defendant should be trial court, and the order of
deemed to have waived the right dismissal is reversed on appeal,
to present evidence, and the the movant loses his right to
appellate court should render present evidence in his behalf
judgement based on the and shall be deemed to have
evidence submitted by the elected to stand on the
plaintiff insufficiency of plaintiff’s case
and evidence – in such case, the
2
• (respondents claim) that the appellate court which reversed

petitioner was not entitled to its the dismissal shall proceed to WHEREFORE, the Petition is GRANTED. The appealed Decision is
claim, saying that CA only render judgement on the merits MODIFIED in that the remand is SET ASIDE and respondents are ordered
found them indebted to based on plaintiff’s evidence. TO PAY ₱138,948, plus 2.5 percent penalty charge per month beginning
petitioner, but was silent on • Basically, SC agreed with April 2, 1991 until fully paid, and 10 percent of the amount due as attorney’s
fees. No costs
when their obligation was due petitioner.
and demandable VII. Additional Notes
Overall Ruling VII. Random Facts
the trial court, acting on respondents’ demurrer to evidence, dismissed the • Ponente: Panganiban, J
Complaint on the ground that the plaintiff had adduced mere hearsay
evidence. However, on appeal, the appellate court reversed the trial court
because the genuineness and the due execution of the disputed pieces of
evidence had in fact been admitted by defendants. The CA should have
rendered judgement on the basis of the evidence submitted by the
petitioner, not remand it.
Art. 1197, Civil Code

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 this case, a period was already set, even though the dates for when the installments
start was left blank. It was not left to the will of the debtor, as the notes clearly provided
that each installment was payable each month.
VI. Disposition
3
G.R. No. 198849 | August 7, 2019 Obligations with a Period
CJHDC v. Charter Chemical and Coating Corp. CJHDC v. Charter Chemical and Coating Corp.
CJHDC filed before the CA a Petition for Review on the basis that the
CJHDC entered into a Contractor’s Agreement with Charter Chemical, who arbitral tribunal did not have jurisdiction over the dispute because the arbitration
will complete the interior and exterior painting works of unit 2E of Camp John clause had been superseded by a subsequent dispute resolution clause contained
Hay Manor for the price of P15.5M, inclusive of the price of 2 studio type units in the contracts to sell. It further asserted that it had neither agreed on the
at Camp John Hay suites (total amount based on units chosen). Charter completion date of the units nor admitted that the units were to be completed in
Chemical chose Units 102 and 104. The Contractor’s Agreement did not have a 2006. Instead, they asked for the fixing of the term or period when the units
date of the units’ turnover allowed Charter Chemical to choose the units for would be completed. The CA affirmed the CIAC decision. CA held that the
offsetting. At the time the Agreement was signed in 2001, the construction of arbitration clause in the Contractor’s Agreement was not modified or superseded
the Camp John Hay Suites has not yet commenced. Later on, the contract price by the contracts to sell, since those are merely devices to transfer possession and
was reduced to P13.3M where CJHDC paid P7.3M, and the balance of P5.9M titled over the units to Charter Chemical. The Contractor’s Agreement remained
was to be offset by the 2 units. the principal covenant. Further it was held that CJHDC was already in delay
when Charter Chemicals demanded the transfer of units in 2007, since the suites
In 2003, Charter Chemical completed the painting works. Charter should have been finished by 2006. Hence, this petition.
Chemicals, then, demanded the execution of the deed of sale and delivery of
titles of the 2 units on September 2004 and April 2005. In May 2005, Camp The main issues in this case are 1) W/N the CA correctly rescinded the
John Hay issued a Final Inspection and Acceptance Certificate. On August obligation under Article 1191 of the Civil Code (YES) and 2) W/N a period
2005, CJHDC issued certifications to Charter Chemical that the 2 units were should be fixed under Article 1197 of the Civil Code (NO).
fully paid under the offsetting scheme.
As regards the 1st issue, the Court ruled that rescission is sanctioned since
CJHDC initially estimated that the construction would be completed by under the contract, petitioner and respondent have reciprocal obligations.
2006 but the timetable kept on getting delayed and their Lease Agreement with Respondent, for its part, was bound to render painting services for petitioner’s
Bases Conversion and Development Authority kept on being amended. In the property, which was completed in 2003. Petitioner agreed to pay the contract
2003 revision of the Agreement, CJHDC estimated that the suites will be price with the remaining balance to be paid through offsetting of 2 of the Suites
finished by the end of the 2nd quarter of 2006. Due to various unforeseen units. Petitioner failed to deliver these promised units because their construction
events, CJHDC again failed to complete its construction. In the 2008 revision, had yet to be completed. The law, then, gives respondent the right to seek
Camp John Hay Suites estimated to be completed by 2012. rescission because petitioner could not comply with what is incumbent upon it.
However, even though rescission is the correct action, it cannot be availed of
In 2007, Charter Chemical wrote to Camp John Hay demanding that it anymore. Rescission of the obligation under Article 1191 is a declaration that a
transfer the units or pay the value of the units in the sum of P6.9M. When it felt contract is void at its inception. Its effect is to restore the parties to their original
that further demands would be futile, Charter Chemical filed before the position, insofar as practicable. Here, it is clear that only petitioner benefited
Construction Industry Arbitration Commission (CIAC) a Request for from the contract. Respondent has already performed the painting works in
Arbitration under the arbitration clause of the Contractor’s Agreement. 2003, and it was accepted by petitioner as satisfactory. Since this service cannot
be undone and petitioner has already enjoyed the value of the painting services
The CIAC ordered Camp John Hay to pay the amounts of P5.9M for the over the years, respondent is entitled to the payment of the painting services
monetary value of the 2 units in Camp John Hay Suites. They held that Charter with interest.
Chemical was entitled to its claim for the value of the 2 units because Camp
John Hay Development failed to deliver the units within the targeted completion As to the 2nd issue, the Court ruled that a fixing of the time period is not
date. warranted. Article 1197 applies “when the obligation does not fix a period but
Obligations and Contracts (2020) PETITIONER: Camp John Hay Development Corporation (CJHDC) 1
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Charter Chemical and Coating Corporation
from its nature and circumstances it can be inferred that a period was intended.” 7. In 2003, Charter Chemical completed the painting works, to which CJHDC
This provision allows the courts to fix the duration because the fulfillment of the issued a Final Inspection and Acceptance Certificate belatedly on May
obligation itself cannot be demanded until after the court has fixed the period for 2005
compliance therewith. The power of the Court to fix a period is discretionary. 8. Charter Chemical demanded the execution of the deed of sale and delivery
of the titles of the 2 units in September 2004, with a follow-up in April
In this case, the Court determined that there is no just cause for the 2005
determination of the period of compliance. As can be gleaned from the records
9. In June 2005, CJHDC and Charter Chemical executed contracts to sell
of the case, the obligation of petitioner to build the Suites had been dragging for
which state that:
years even before it entered into the Contractor’s Agreement with respondent.
The MOA that petitioner executed with the Bases Conversion and Development a. Possession of the Unit shall be delivered by Seller to Buyer within a
Authority shows that the construction of the Suites began in 1996. When reasonable period of time from the date of completion of the Unit
respondent demanded the units’ transfer in 2007, more than 10 years had lapsed; either by (a) serving written Notice of Completion to the Buyer or (b)
yet, within those years, petitioner was still not able to complete the construction by delivering to the Buyer the Limited Warranty Deed covering the
of the Suites. Unit
b. Delivery of either of the 2 stated above shall constitute constructive
II. Facts of the Case (Material Facts) delivery of the Unit and immediately thereafter the risk of loss to the
Unit and all obligations and assessments provided in the Contract shall
1. Camp John Hay Development Corporation (CJHDC) is the investment arm pertain to the Buyer
of a consortium engaged in the construction of the Camp John Hay Manor 10. In August 2005, CJHDC issued certifications to Charter Chemical that the
2. CJHDC entered into a Contractor’s Agreement with Charter Chemical, the 2 units were fully paid under their offsetting scheme. The units were not
company awarded to complete the interior and exterior painting works of delivered because the construction of the Suites was not yet complete
unit 2E of the Camp John Hay Manor for the contract price of 11. CJHDC initially estimated that the construction would be completed by
P15,500,000.00. This was inclusive of the price of 2 studio-type units at 2006, but due to alleged mutual delays and force majeure, the estimated
Camp John Hay Suites, the total amount of which would be based on the completion of the Suites was moved to 2012 (The delay here pertains to
units chosen by Charter Chemical both CJHDC and Bases Conversion and Development Authority, the one
3. Although the Contactor’s Agreement contained no date of the units’ contracted to construct the Suites)
turnover, it allowed Charter Chemical to choose the units for offsetting 12. Due to the subsisting construction delay, Charter Chemical, through
under an offsetting scheme counsel, wrote CJHDC, demanding that it transfer the units or pay the value
4. Charter Chemical chose Units 102 and 104 studio type in the second phase of these units in the sum of P6,996,517.48
of the Suites
5. At the time the Contractor’s Agreement was signed in 2001, the actual Before the CIAC
construction of the Suites had not yet commenced
6. Later on, the contract price was reduced to P13,239,734.16, for which 13. When it felt that further demands would be futile, Charter Chemical filed
CJHDC paid P7,339,734.16. The balance of P5,900,000.00 was ought to be before the Construction Industry Arbitration Commission (CIAC) a
settled by offsetting the price of the 2 studio units Request for Arbitration under the arbitration clause in the Contractor’s
Agreement
14. The CIAC ordered CJHDC to pay the amounts of P5,900,000.00, the III. Issue/s
monetary value of the 2 units in the Suites, and P590,000.00 as attorney’s
fees. This award is based on CJHDC’s failure to deliver the units within the 1. W/N the CA correctly rescinded the obligation under Article 1191 of
targeted completion date the Civil Code. YES
2. W/N a period should be fixed under Article 1197 of the Civil Code. NO
Before the Court of Appeals
IV. Holding/s
15. CJHDC filed before the CA a Petition for Review on the basis that the
arbitral tribunal did not have jurisdiction over the dispute because the Issue #1
arbitration clause had been superseded by a subsequent dispute resolution YES, the CA correctly rescinded the obligation under Article 1191 of
clause contained in the contracts to sell. It further asserted that it had the Civil Code
neither agreed on the completion date of the units nor admitted that the
units were to be completed in 2006. Instead, they asked for the fixing of the
term or period when the units would be completed
 
16. The CA affirmed the arbitral tribunal’s award reasoning that: Overall Ruling
a. The arbitration clause in the Contractor’s Agreement was neither
modified nor superseded by the contracts to sell, which were merely Rescission on account of breach of reciprocal obligations is provided
devices by which to transfer possession and title over the units to under Art. 1191 of the Civil Code. The provision can be invoked when there
Charter Chemical is noncompliance by one of the contracting parties in case of reciprocal
b. That CJHDC was already in delay when Charter Chemical demanded obligations. Rescission under this Article will be ordered when a party to a
the transfer of units in August 3, 2007 since the MOA between contract fails to comply with his or her obligation.
CJHDC and their contractor for the Suites stated that the units would
be completed by 2006 The Court ruled that rescission of the contract is sanctioned here. Under
the contract, petitioner and respondent have reciprocal obligations.
Before the Supreme Court (Current Petition) Respondent, for its part, was bound to render painting services for
petitioner’s property, which was completed in 2003. Petitioner agreed to pay
17. CJHDC filed a Petition for Review on Certiorari alleging that there is no the contract price with the remaining balance to be paid through offsetting
specific date determined for the completion or delivery of the 2 units in any
of 2 of the Suites units. Petitioner failed to deliver these promised units
of its contracts with respondent. It argues that the action filed should have
because their construction had yet to be completed. The law, then, gives
been for the fixing of a period under Article 1191 and 1197 of the Civil
respondent the right to seek rescission because petitioner could not comply
Code, and not an action for the rescission of the contract
18. Charter Chemical countered this by pointing out that it only agreed to bid with what is incumbent upon it.
for the painting works because Interpro, Inc., petitioner’s project manager,
assured that under the Master Development Plan, the units would be However, even though rescission is the correct action, it cannot be
available for occupancy 2 to 3 years from negotiations, or sometime in availed of anymore. Rescission of the obligation under Article 1191 is a
2003 declaration that a contract is void at its inception. Its effect is to restore the
parties to their original position, insofar as practicable. Rescission creates Overall Ruling
the obligation to return the object of the contract – it can be carried out only
when the one who demands rescission can return whatever he may be Article 1197 applies “when the obligation does not fix a period but
obliged to restore. from its nature and circumstances it can be inferred that a period was
intended.” This provision allows the courts to fix the duration because the
Article 1385 of the Civil Code further provides that “rescission creates fulfillment of the obligation itself cannot be demanded until after the court
the obligation to return the things which were the object of the contract, has fixed the period for compliance therewith. The power of the Court to fix
together with their fruits, and the price with its interest, consequently, it can a period is discretionary.
be carried out only when he who demands the rescission can return
whatever he may be obliged to restore.” In this case, the Court determined that there is no just cause for the
determination of the period of compliance. As can be gleaned from the
Although, it must be noted that, even if rescission repeals the contract records of the case, the obligation of petitioner to build the Suites had been
from its inception, it does not disregard all the consequences that the dragging for years even before it entered into the Contractor’s Agreement
contract has created. What mutual rescission entails is “the return of the with respondent. The MOA that petitioner executed with the Bases
benefits that each party may have received as a result of the contract.” Conversion and Development Authority shows that the construction of the
Suites began in 1996. When respondent demanded the units’ transfer in
Here, it is clear that only petitioner benefited from the contract. 2007, more than 10 years had lapsed; yet, within those years, petitioner was
Respondent has already performed the painting works in 2003, and it was still not able to complete the construction of the Suites.
accepted by petitioner as satisfactory. Since this service cannot be undone
and petitioner has already enjoyed the value of the painting services over the To tolerate petitioner’s excuses would only cause more delay and
years, respondent is entitled to the payment of the painting services with burden to respondent. Petitioner failed to forward any just cause to convince
interest. this Court to set a period.

Issue #2
NO, a period should not be fixed under Article 1197 of the Civil Code ARTICLE 1191 OF THE CIVIL CODE
Petitioner’s Arguments Court’s Rebuttals Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
 That CJHDC had neither agreed  The Court cannot cure the of the obligors should not comply with what is incumbent upon him.
on the completion date of the deficiency in the case by fixing
units nor admitted that the units the period of the obligation. The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
were to be completed in 2006. There is no just cause for the
Therefore, the court should fix Court to fix the period for the
the term or period when the benefit of CJHDC The court shall decree the rescission claimed, unless there be just cause authorizing
units would be completed the fixing of a period.
(P5,900,000.00) with interest at the rate of twelve percent (12%) per annum
This is understood to be without prejudice to the rights of third persons who have from August 3, 2007 until June 30, 2013, and six percent (6%) per annum from
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage July 1, 2013 until its full satisfaction; and (2) attorney's fees in the amount of
Law. Five Hundred Ninety Thousand Pesos (P590,000.00). SO ORDERED.
ARTICLE 1385 OF THE CIVIL CODE VII. Additional Notes
Art. 1385. Rescission creates the obligation to return the things which were the VIII. Random Facts
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.  Ponente: Leonen, J.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the
loss.
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.
VI. Disposition
WHEREFORE, the Petition for Review on Certiorari is DENIED. The

Court of Appeals May 13, 2011 Decision and September 30, 2011 Resolution in
CA-G.R. SP No. 108335 are AFFIRMED WITH MODIFICATION.
Petitioner Camp John Hay Development Corporation is ordered to pay

respondent Charter Chemical and Coating Corporation: (1) the balance of the
contract price in the amount of Five Million Nine Hundred Thousand Pesos
G.R. No. L-23707 | January 17, 1968 Article 1198 | Lost of the Right of the Debtor to make use of the
Period
Corpus v Alikpala Corpus v Alikpala
I. Recit-ready Summary 2. The CFI rendered judgement in 1964 on the compromise agreement of
Corpus filed a foreclosure of a real estate mortgage against Acme Steel the two parties.
Manufacturing Inc in the CFI. The CFI rendered judgement on the 3. The said agreement stipulated the ff:
compromise agreement which stated that ACME’s obligation to pay Corpus A. The remaining balance of the purchase price of the Nestor de
the remaining balance of the purchase price of P100,000 with a 1% monthly Castro Bldg and 2 lots is P 100, 000.
interest rate or advance payment of P12, 000 payable in two instances. Also, B. ACME pays the said price at any time between the period of
if ACME fails to pay, Corpus may execute the entire balance. ACME paid signing of the agreement until Dec 15, 1965.
with 2 checks. The first one was accepted while the second one bounced due C. Interest at 1% per month or a total of P 12, 000 paid in advance
to a computational error done by the ACME. Corpus moved to execute the (P6,500 in May; P6,000 on or before June) But, in case
entire balance. The trial court granted the execution of the balance but took defendant will pay any sum on the principal amount thereby
it back on Acme’s appeal. The main issue in this case is whether or not correspondingly reducing the unpaid principal, the excess interest
Corpus can enforce the entire balance of the obligation even if the period of already paid shall likewise be credited to the unpaid principal.
payment has not yet lapsed. The Supreme Court ruled that he may be able to D. That failure of the defendant to pay the plaintiff of any of the
do so. This is because in ACME’s failure to pay its obligation according to amounts stated above, the latter shall be entitled to the issuance
the agreement with Corpus, it had lost its right to make use of the period of a writ of execution of the entire balance, including interests
according to fourth instance in Article 1198 of the Civil Code stating that 4. ACME issued two postdated checks of P6,500 and P6,000.
the debtor will lose his right to make use of the period when the debtor 5. The first was duly cashed but the second checked bounced for the reason
violates any undertaking, in consideration of which the creditor agreed to of insufficiency of funds.
the period. The Supreme Court also emphasized that it is Article 1198 and 6. Corpus immediately executed for the entire balance
not Article 1191 that is applicable in this case. Since, in asking for the 7. ACME requested him to redeposit the check since there was a
execution, Corpus was not seeking the resolution of the compromise but its computational error on their part.
enforcement. Also, since the check was dishonored, ACME automatically 8. Corpus filed a motion for execution.
became in default and lost the right to the period for paying the remaining 9. The trial court ordered the writ of execution for P100,000 with 1% mo
balance of P100,000. The Court as well ruled the argument that the interest
acceptance of the check novated the compromise. They ruled that the check 10. ACME appealed which was allowed by the trial court. Hence, the
was issued as a means to comply with the provisions of the compromise; present case.
hence, there was no incompatibility from which a novation could possibly III. Issue/s
be inferred. 1. W/N under the facts, the order of execution is appealable or not or
W/N some discretion may yet be exercised by the court below. (NO)
II. Facts of the Case (Material Facts) 2. W/N Corpus could enforce the entire balance of the obligation even if
1. Corpus filed a foreclosure of a real estate mortgage against Acme Steel the period for payment has not lapsed. (YES)
Manufacturing Inc in the Court of First Instance of Manila. IV. Holding/s
Obligations and Contracts (2020) PETITIONER: Jose Corpus 1

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Hon. Frederico Alikpala, Acme Steel Manufacturing Inc.
Period
Issue #1 agreement and the determination by the judge of whether the conditions
W/N under the facts, the order of execution is appealable or not or W/N precedent were complied with or not was needed before execution could
some discretion may yet be exercised by the court below. (NO) issue.
But, in the case at bar, the terms of the compromise agreement are complete,
Petitioner’s Arguments Court’s Rebuttals definite and certain and no suspensive condition is attached to any of them.
 The respondent judge must be  The terms of the compromise Therefore, insofar as the judgment upon the compromise is concerned, there
prohibited from allowing any agreement are complete, definite was nothing left for judicial determination
further appeal from the decision and certain and no suspensive
and the order of execution and to condition is attached to any of Further, the instant case is an appeal from the order of execution and not an
command him to give due course them. Therefore, insofar as the appeal from the judgment. The general rule is that an order of execution is
to the writ of execution. judgment upon the compromise is not appealable. But there are two exceptions (1) where the order of
concerned, there was nothing left execution varies the tenor of the judgment (2) when the terms of the
for judicial determination. judgment are not very clear and there is room for interpretation. Neither of
 The instant case is an appeal from these two applied to the case at bar.
the order of execution and not an
appeal from the judgment. The
general rule is that an order of Issue #2
execution is not appealable. W/N Corpus could enforce the entire balance of the obligation even if
the period for payment has not lapsed. (YES)
Overall Ruling
Acme relied on Cotton vs. Almeda-Lopez to support its view that the trial  The entire balance must be  Acme lost its right to make use of
court could still exercise some discretion before issuing the order of executed according to the the period for violating an
execution, but the facts therein are dissimilar to the case at bar. In that case, compromise agreement since undertaking in consideration of
the compromise agreement provided for a continuance of the administration ACME failed to pay. which the creditor agreed to the
of certain properties by the defendant subject to his payment of period.
encumbrances thereon, while at the same time providing for the turn-over of
the properties upon the expiration of certain contracts to sell, without stating Overall Ruling
in the compromise agreement itself the dates of expiration of the said Article 1198 is applicable in this case. In asking for the execution, the
contracts; and providing also for the submission of receipts of payment Corpus was not seeking the resolution of the compromise but its
"called for in the contracts" to the judge. There was, therefore, need for the enforcement. Further, his acceptance of the check had suspended his action
exercise of discretion in the interpretation of the terms of the compromise to enforce the payment of the balance of the principal; but it was not a true

Period
payment until the value of the check was realized. Since the check was
dishonored, ACME automatically became in default and lost the right to the (3) When by his own acts he has impaired said guaranties or securities after
period for paying the principal of P100,000 their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
The claim that the acceptance of the check in question novated the original
(4) When the debtor violates any undertaking, in consideration of which the
compromise is untenable. The check was issued as a means to comply with
creditor agreed to the period;
the provisions of the compromise; hence, there was no incompatibility from
which a novation could possibly be inferred. (5) When the debtor attempts to abscond. (1129a)
ACME’s failure to provide adequate funds to back its check resulted not Exceptions to the General Rule that an order of execution is not
only in a delay in payment, but in positive injury to the credit of the appealable.
appellee, who had indorsed the check to a stranger. Further, after its check
was dishonored, appellant could not expect or demand that appellee should 1. Where the order of execution varies the tenor of the judgment
re-deposit the check once more. What assurance did the latter have that it 2. When the terms of the judgment are not very clear and there is room
would not be dishonored again? for interpretation
Also, whether the ACME’s breach was substantial or not is primarily a
question addressed to the discretion of the trial court; and in deciding that VI. Disposition
execution should issue, the Court a quo was clearly intimating that it
For the foregoing reasons, the order to issue execution in case L-23720
regarded the breach as substantial.
is affirmed, and in case L-23707, the writs prayed for in the petition are
The trial court therefore, did not err in issuing the order of execution; it,
granted. Costs in both cases against Acme Steel Manufacturing Co., Inc.
however, gravely abused its discretion, or exceeded its jurisdiction, in So ordered.
allowing the appeal from the same order

V. Law or Doctrine Applied N/A
VII. Random Facts
Art. 1198. The debtor shall lose every right to make use of the period:  Ponente: Reyes, J.
(1) When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;

G.R. No. L-22738 | December 2, 1924 Alternative Obligation
Ong Guan Can vs. Century Insurance Ong Guan Can vs. Century Insurance
I. Recit-ready Summary IV. Holding/s

The plaintiff owned a building that was insured against fire by
the defendant, Century Insurance Co., amounting to P30,000, including Issue #1
the merchandise inside, worth P15,000. Both the house and NO, rebuilding a smaller house is not sufficient indemnity, thus
merchandise were burned in Feb. 28, 1923. Century should pay sum insured.
The Court of First Instance ruled in favor of the plaintiff, Defendant’s Arguments Court’s Rebuttals
ordering Century to pay plaintiff P45,000 as the total value of the  Clause 14 of the conditions of  In effect, this clause makes the
insured house and items. Century appealed that they should be the policies state that the obligation an alternative
permitted to rebuild the house, without paying additional indemnity. Company may at its option obligation. It may pay the insured
The house would be smaller than the previous property, but it should be reinstate or replace the property value or rebuild the house.
sufficient indemnity. damaged or destroyed, instead of  In alternative obligations, the
Issue is W/N defendant Century Insurance can rebuild the paying the amount of the loss or debtor (Century) must notify the
burnt house instead of paying for the sum insured? NO. The Supreme damage, but the Company shall creditor of his election, stating
Court affirmed the decision of the CFI and held that the election alleged not be bound to reinstate exactly which of the two prestations he is
by Century, to rebuild the house instead of paying the value of the or completely, but only as disposed to fulfill, in accordance
insurance, is improper. The CFI held that it would be unjust to compel circumstances permit and in with Article 1201 of the Civil
the plaintiff to accept the rebuilding of a smaller house. reasonable sufficient manner, Code.
and in no case shall the  The notice is necessary to give
II. Facts of the Case (Material Facts) Company be bound to expend the creditor opportunity to
1. The plaintiff owned a building that was insured against fire by the more in reinstatement than it express his consent or to impugn
defendant, Century Insurance Co. (Century), amounting to P30,000, would have cost to reinstate such the decision, subject to proper
including the goods and merchandise therein, worth P15,000. property as it was at the time of declaration of the Court.
2. Both the house and merchandise were burned in Feb. 28, 1923. the occurrence of damage, nor
3. The Court of First Instance of Iloilo granted the case in favor of the more than the sum insured by the
plaintiff, ordering Century to pay plaintiff P45,000 as the total Company thereon.
value of the insured house and items.
4. Century appealed the decision and contended that they should be Overall Ruling
permitted to rebuild the house, without paying additional indemnity. In this case, Century failed to give the plaintiff formal notice of its election
The house would be smaller than the previous property, but it to rebuild. The proposition was presented to the plaintiff but plaintiff did not
should be sufficient indemnity. assent to it because the new house would be smaller and would use
materials of lower kind than previously used.
III. Issue/s
1. W/N defendant Century Insurance can rebuild the burnt house The CFI held that it would be unjust and unequitable to compel the plaintiff
instead of paying for the sum insured? NO. to accept the rebuilding of a smaller house, with lower kind of materials,
Obligations and Contracts (2020) PLAINTIFF/APPELLEE: Ong Guan Can and BPI 1
DIGEST AUTHOR: Nikki DEFENDANT/APPELLANT: Century Insurance Co., Ltd.
G.R. No. L-22738 | December 2, 1924 Alternative Obligation
Ong Guan Can vs. Century Insurance Ong Guan Can vs. Century Insurance
without offering him an additional indemnity for the difference of size VII. Additional Notes
between the two houses, as these circumstances were considered upon the
application of insurance.  Clause 14 of the Contract
The Supreme Court affirmed the decision and held that the election alleged The Company may at its option reinstate or replace
by Century, to rebuild the house instead of paying the value of the the property damaged or destroyed, or any part
thereof, instead of paying the amount of the loss of
insurance, is improper.
damages, or may join with any other Company or
insurers in so doing, but the Company shall not be
V. Law or Doctrine Applied bound to reinstate exactly or completely, but only as
circumstances permit and in reasonable sufficient
ARTICLE 1199 OF THE CIVIL CODE (Alternative Obligation) manner, and in no case shall the Company be bound
Article 1199. A person alternatively bound by different prestations shall to expend more in reinstatement that it would have
completely perform one of them. cost to reinstate such property as it was at the time of
The creditor cannot be compelled to receive part of one and part of the other the occurrence of such loss or damage, nor more than
undertaking. the sum insured by the Company thereon.
ARTICLE 1200 OF THE CIVIL CODE (Right to choose prestation) VII. Random Facts
Article 1200. The right of choice belongs to the debtor, unless it has been  Ponente: Villamor, J.
expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the
obligation
ARTICLE 1201 OF THE CIVIL CODE (Notice of chosen prestation)

Article 1201. The choice shall produce no effect except from the time it has
been communicated.
VI. Disposition
We find in the record nothing to justify the reversal of the finding of the trial
judge, holding that the election alleged by the appellant to rebuild the house
burnt instead of paying the value of the insurance is improper. To our mind,
the judgment appealed from is in accordance with the merits of the case and
the law, and must be, as is hereby, affirmed with the cost against the
appellant. So ordered.
Obligations and Contracts (2020) PLAINTIFF/APPELLEE: Ong Guan Can and BPI 2
DIGEST AUTHOR: Nikki DEFENDANT/APPELLANT: Century Insurance Co., Ltd.
G.R. No. L-6220 | May 7, 1954 Facultative Obligation (Art. 1206)
Quizana v Redugerio Quizana v Redugerio
I. Recit-ready Summary land, upon their failure to pay the debt on a date specified, is valid. -
Redugerio spouses executed a 550 pesos loan from Quizana. They YES
promised to deliver a parcel of land as mortgage in case of non-
payment of their debt. The issue of the case is whether or not the IV. Holding/s
second part of the written obligation, in which the obligors agreed and Issue #1
promised to deliver a mortgage over the parcel of land, upon their Yes, it is valid
failure to pay the debt on a date specified, is valid. It is valid according Overall Ruling
to Article 1206, when only one prestation has been agreed upon, but • According to Article 1206 of Obligation and Contract, When only
the obligor may render another in substitution, the obligation is called one prestation has been agreed upon, but the obligor may render
Facultative obligation. another in substitution, the obligation is called Facultative
obligation.
II. Facts of the Case (Material Facts) • ART. 1206. When only one prestation has been agreed upon, but
1. The Redugerio spouses, defendants –appellants, executed a the obligor may render another in substitution, the obligation is
document containing an acknowledgement of loan from Quizana, called facultative.
plaintiff-appellee. • This is a new provision and is not found in the old Spanish Civil
2. Spouses approached Quizana, asking for a loan of P550.00. To be Code, which was the one in force at the time of the execution of the
paid on January 1949. agreement..
3. In case they were not able to pay: “isasangla sa kanya ang isa • There is nothing in the agreement which would argue against its
naming palagay na niogan sa lugar nang Cororocho, barrio ng enforcement. It is not contrary to law or public morals or public
Balogo, Municipio ng Santa Cruz, Lalawigang Marinduque.” To policy. The parties had freely and voluntarily entered into it, there
deliver a mortgage over a parcel of land in case of non-payment of is no ground or reason why it should not be given effect, according
debt. to Article 2253:
4. The Spouses admit the execution of the document, but claim, as
• “if a right should be declared for the first time in this Code, it shall
special defense, that since the 31st of January, 1949, they offered to
be effective at once, even though the act or event which gives rise
pledge the land and transfer possession thereof to Quizana, but that
thereto may have been done or may have occurred under the prior
the latter refused said offer.
legislation, provided said new right does not prejudice or impair
5. CFI of Marinduque: The acceptance by him of the written
any vested or acquired right, of the same origin.”
obligation without objection and protest, are concrete and positive
proof that he agreed and contested to all its terms, including the
paragraph on the constitution of the mortgage.
Article 1206 of the Civil Code:
III. Issue/s When only one prestation has been agreed upon, but the obligor may render
1. Whether or not the second part of the written obligation, in which the another in substitution, the obligation is called facultative.
obligors agreed and promised to deliver a mortgage over the parcel of
Obligations and Contracts (2020) PETITIONER: Martina Quizana 1

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Gaudencio Redugerio and Josefa Postrado
G.R. No. L-6220 | May 7, 1954 Facultative Obligation (Art. 1206)
Quizana v Redugerio Quizana v Redugerio
The loss or deterioration of the thing intended as a substitute, through o isasangla sa kanya ang isa naming palagay na niogan sa
negligence of the obligor, does not render him liable. But oncethe lugar nang Cororocho, barrio ng Balogo, municipio ng
substitution has been made, the obligor is liable for the loss of the substitute Santa Cruz, lalawigang Marinduque, Kapuluang Filipinas
on account of his delay, negligence or fraud. at ito ay nalilibot ng mga kahanganang sumusunod:
o "Sa Norte, Dalmacio Constantino; sa este, Catalina
Article 2253 of the Civil Code: Reforma; sa sur, Dionisio Ariola; at sa Oeste, Reodoro
. . . But if a right should be declared for the first time in this Code, it shall be Ricamora.no natatala sa gobierno sa ilalim ng Declaracion
effective at once, even though the act or event which gives rise thereto may No. ..... na nasa pangalan ko, Josefa Postrado."
have been done or may have occurred under the prior legislation, provided
said new right does not prejudice or impair any vested or acquired right, of • ABSENCE OF LEGAL PROVISION GOVERNING IT. — An
the same origin. agreement whereby the obligors bound themselves to pay their
indebtedness on a day stipulated, and to deliver a mortgage on a
VI. Disposition property of theirs in case they failed to pay the debt on the day
fixed, is valid and binding and effective upon the parties. It is not
For the foregoing considerations, the judgment appealed from is hereby contrary to law or public morals or public policy, and
revised, and in accordance with the provisions of the written obligation, the notwithstanding the absence of any legal provision at the time it
case is hereby remanded to the Court of First Instance, in which court the was entered into governing it, as the parties had freely and
defendants-appellants shall present a duly executed deed of mortgage over voluntarily entered into it, there is no ground or reason why it
the property described in the written obligation, with a period of payment to should not be given effect.
be agreed upon by the parties with the approval of the court. Without costs. • FACULTATIVE OBLIGATION, ENFORCEABLE
IMMEDIATELY. — The obligations entered into by the parties is
VII. Additional Notes what is known as a facultative obligation. It is not provided by the
• Principal: 550 pesos end of January 1949 old Spanish Civil Code; it is a new right which should be declared
• Substitute: mortgage of the Niogan in Cororocho, Balogo, Santa effective at once, in consonance with the provisions of article 2253
Cruz of the Civil Code of the Philippines.
• Pertinent provisions:
o "Na alang-alang sa aming mahigpit na pangangailangan
ay kaming magasawa ay lumapit kay Ginang Martina
Quizana, balo, at naninirahan sa Hupi, Sta. Cruz,
Marinduque, at kami ay umutang sa kanya ng halagang
Limang Daan at Limang Pung Piso (P550.00), Salaping
umiiral dito sa Filipinas na aming tinanggap na husto at
walang kulang sa kanya sa condicion na ang halagang
aming inutang ay ibabalik o babayaran namin sa kanya sa
katapusan ng buwan ng Enero, taong 1949.
o "Pinagkasunduan din naming magasawa sa sakaling hindi
kami makabayad sa taning na panahon ay aming ipifrenda
Obligations and Contracts (2020) PETITIONER: Martina Quizana 2

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Gaudencio Redugerio and Josefa Postrado
G.R. No. L-55138 || September 28, 1984 Solidary Liability
Ronquillo v. CA Ronquillo v. CA
I. Recit-ready Summary I. Ernesto Ronquillo was one of 4 defendants in a Civil Case

filed by Antonio So for the collection of a sum of money
Petitioner Ernesto V. Ronquillo was one of 4 defendants for the collection a. Triggered by the checks issued by Ronquillo et al for
of the sum of P117,498.98 + attorney's fees and costs. The other defendants payment of foodstuffs; said checks were dishonored
were Offshore Catertrade, Inc., Johnny Tan, and Pilar Tan. On Dec. 13, II. LOWER COURT DECISION BASED ON THE
1979, the lower court rendered its decision based on the compromise COMPROMISE AGREEMENT wherein the
agreement, which stipulates, among others, that the Plaintiff agrees to a. Defendants bound themselves to initially pay 55k out of
reduce its total claim of P117,498.98 to onlyP110,000.00 and defendants the total indebtedness of 110k, on or before Dec 24, 1979
agree to acknowledge the validity of such claim and further bind themselves b. INDIVIDUALLY AND JOINTLY AGREE to pay within
to initially pay out of the total indebtedness of P110,000.00, they agreed to a period of 6 months from Jan 1980 or before June 1980
pay half on or before Dec. 24, 1979,and the remaining balance within the c. Failure on the part of either party to comply, the innocent
period of six months from Jan. 1980 or before June 30, 1980. Upon the party will be entitled to a writ of execution based on this
defendant's default, herein plaintiff filed a motion for execution. Ronquillo compromise agreement + defaulting party agrees to
and another defendant Pilar Tan offered to pay their shares of the amount reimburse innocent party
due. But on Jan. 22, 1980, plaintiff Antonio So moved for the III. Antonio So then filed a Motion for Execution
reconsideration or modification of the aforesaid Order of execution and a. Ground: Ronquillo et al failed to make initial payment on
prayed instead for the execution of the decision in its entirety against all or before Dec 24, 1979
defendants, jointly and severally. Petitioner opposed the said motion arguing IV. Opposed by Ronquillo
that under the decision of the lower court being executed which has already a. Contends: his inability to make payment was due to
become final, the liability of the four defendants was not expressly Antonio So’s own act of making himself scarce and
declared to be solidary, consequently each defendant is obliged to pay only inaccessible on Dec 24, 1979
his own 1/4 of the amount demandable. V. During the hearing for the motion of execution & opposition
a. Ronquillo tendered 13,750 as his pro rata share in the 55k
Issue in this is case is W/N THE DEFENDANTS ARE SOLIDARILY b. Pilar Tan offered to pay same amount too
LIABLE. VI. Antontio So refused to receive payment, demanding
INSTEAD the full 55k
Court held that by express term of the compromise agreement and the VII. Lower court ordered issuance of writ of execution for 55k
decision based upon it, the defendants obligated themselves to pay their balance against 2 other defendants (Offshore Catertrade Inc &
obligation individually and jointly. Individually has the same meaning as Johnny Tan)
‘collectively’, ‘separately’, ‘distinctively’, ‘respectively’ or ‘severally’. An VIII. BUT Antonio So moved for the execution of the decision in its
agreement to be individually liable thus creates a SEVERAL entirety against ALL defendants, JOINTLY & SEVERALLY
OBLIGATION. A several obligation is one by which an individual binds IX. Ronquillo OPPOSED
himself to perform the whole obligation. Thus, the obligation in case at bar a. Lower court’s decision did NOT expressly declare that the
being described as INDIVIDUALLY AND JOINTLY, the same is liability of the 4 defendants was to be solidary
enforceable against any one of the numerous obligors. b. Each defendant is obliged to pay ONLY his pro-rata share
or ¼ of amount due and payable
Obligations and Contracts (2020) PETITIONER: Ronquillo et al. 1

X. Lower court ordered that the remaining balance should still be OBLIGATED
paid, regardless THEMSELVES TO PAY
XI. A writ of execution was then issued for the satisfaction of the THEIR OBLIGATION
sum of 82,500 against the properties of all 4 defendants INDIVIDUALLY AND
SINGLY OR JOINTLY LIABLE JOINTLY
XII. Sheriff issued a notice of sheriff’s sale for sale of certain • THUS! Obligation in case
pieces of furniture and appliances from Ronquillo’s residence at bar being described as
XIII. RONQUILLO APPEALED TO CA INDIVIDUALLY AND
a. Raised the question of the validity of the notice of public JOINTLY, the same is
sale of his properties to satisfy fully the entire unpaid enforceable against any one
obligation payable by all 4 defendants, WHEN THE of the numerous obligors
LOWER COURT’S DECISION DID NOT Overall Ruling
SPECIFICALLY STATE THEIR LIABILITY TO BE
SOLIDARY In the case at bar, the Court examined the compromise agreement as stated
XIV. CA RESOLUTION in the lower court decision. In the compromise agreement, the defendants
a. When respondents defaulted, Antontio So had the right to bound themselves to initially pay 55k out of the total indebtedness of 110k,
move for an execution of the decision based on the on or before Dec 24, 1979. It was stated that they INDIVIDUALLY AND
compromise agreement JOINTLY AGREE(D) to pay within a period of 6 months from Jan 1980 or
before June 1980 and that upon failure on the part of either party to comply,
XV. Issue/s the innocent party will be entitled to a writ of execution based on this
1. W/N THE DEFENDANTS ARE SOLIDARILY LIABLE? – YES! compromise agreement + defaulting party agrees to reimburse innocent
XVI. Holding/s party.
Issue #1 The Court then found that by express term of the compromise agreement
YES DEFENDANTS (RONQUILLO ET AL) ARE SOLIDARILY and the decision based upon it, the defendants obligated themselves to pay
LIABLE their obligation individually and jointly. Individually has the same meaning
as ‘collectively’, ‘separately’, ‘distinctively’, ‘respectively’ or ‘severally’.
An agreement to be individually liable thus creates a SEVERAL
• Lower court’s decision did not OBLIGATION. A several obligation is one by which an individual binds
state that they were solidarily • COURT APPLIED ART himself to perform the whole obligation.
liable (even if it did say 1207-1208
‘individually and jointly’ THUS! Obligation in case at bar being described as INDIVIDUALLY AND
• BY EXPRESS TERM OF JOINTLY, the same is enforceable against any one of the numerous
THE COMPROMISE obligors.
AGREEMENT AND THE
DECISION BASED UPON
IT, DEFENDANTS

XVII. Law or Doctrine Applied

The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire compliance with the prestation.
There is a solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.
If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many shares as there are creditors or debtors, the
credits or debts being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits.
XVIII. Disposition
IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition

is hereby DISMISSED. Cost against petitioner.
XIX.Additional Notes
VII. Random Facts

Cembrano v. City of Butuan Cembrano v. City of Butuan
I. Recit-ready Summary 8. On September 3, 1992, Monico Pag-Ong was elected president and
Isidro Plaza as corporate secretary.
CVC Lumber Industries, Inc. through its manager Cembrano, 9. On May 27, 1996, the trial court ruled in favor of the City of
entered into a contract with the city of Butuan to supply piles and poles for Butuan.
the construction of the City Hall of Butuan. It is stipulated that the deliveries 10. CA reversed the decision of the trial court and ordered the City of
should be made within 60 days from the receipt of the order. On November Butuan to “pay the plaintiffs 926,845 pesos”.
13,1991, the 60-day period for CVC to make deliveries expired. CVC 11. On November 5, 2002, the City Treasurer and Mayor issues a
offered to deliver but the city Engineer refused. CVC and Cembrano filed a
check worth 926,845 to Pag-Ong.
complaint for a breach of contract. On September 3, 1992, Monico Pag-Ong
III. Issue/s
was elected president and Isidro Plaza as corporate secretary. On May 27,
1996, the trial court ruled in favor of the City of Butuan. CA reversed the 1. W/N The remittance made by the City of Butuan to CVC,
decision of the trial court and ordered the City of Butuan to “pay the through its president Pag-Ong, released its obligation under
plaintiffs 926,845 pesos”. On November 5, 2002, the City Treasurer and the CA decision? NO.
Mayor issues a check worth 926,845 to Pag-Ong. The issue in this case is
whether or not the remittance made by the City of Butuan to CVC, through IV. Holding/s
its president Pag-Ong, released its obligation under the CA decision. The
court ruled that it did not release them from their obligation since it is a joint Issue #1
obligation. The City of Butuan should pay Cembrano and CVC P463,422 NO, The remittance to Pag-Ong does not release their obligation under
each. the CA decision.
City of Butuan’s Arguments Court’s Rebuttals
II. Facts of the Case (Material Facts) • The payment to Pag-Ong is • Under the Fallo of the CA
1. CVC Lumber Industries, Inc. through its manager Cembrano, sufficient to satisfy their decision, 926,845 was to be paid
entered into a contract with the city of Butuan to supply piles and obligations under the CA to the plaintiffs in Civil Case No.
poles for the construction of the City Hall of Butuan. decision since Pag-Ong is the 3851.
2. It is stipulated that the deliveries should be made within 60 days president of CVC. • The plaintiffs in that case are
from the receipt of the order. Cembrano and CVC.
3. On May 6, 1991, the City of Butuan issued a purchase order to • When there is concurrence of
“CVC or Cembrano”. several creditors, it is presumed
4. Within the 60-day period, CVC was only able to make two that the obligation is joint and not
deliveries of 117 and 57 pieces out of the total order of 757 timber solidary.
piles.
5. On November 13,1991, the 60-day period for CVC to make
deliveries expired.
6. CVC offered to deliver but the city Engineer refused.
7. CVC and Cembrano filed a complaint for a breach of contract.
Obligations and Contracts (2020) PETITIONER: Cembrano & Go 1

DIGEST AUTHOR: John Joves RESPONDENT: City of Butuan, CVC, Pag-Ong, & Plaza
Cembrano v. City of Butuan Cembrano v. City of Butuan
Overall Ruling V. Law or Doctrine Applied

When there is a concurrence of several creditors or of several debtors
or of several creditors and debtors in one and the same obligation, it is ARTICLE 1207 OF THE CIVIL CODE
presumed that the obligation is joint and not solidary. The effect of joint same obligation does not imply that each one of the former has a right to demand, or
divisible obligations is that each creditor can demand only for the that each one of the latter is bound to render, entire compliance with the prestation.
payment of his proportionate share of the credit, It necessarily follows There is a solidary liability only when the obligation expressly so states, or when the
that a joint creditor cannot act in representation of the others. Neither can law or the nature of the obligation requires solidarity.
a joint debtor be compelled to answer for the liability of the others.
Art. 1208. If from the law, or the nature or the wording of the obligations to which
Under the fallo of the CA decision, respondent City of Butuan was the preceding article refers the contrary does not appear, the credit or debt shall be
ordered to pay P926,845 to the plaintiffs in Civil Case No. 3851. The presumed to be divided into as many shares as there are creditors or debtors, the
plaintiffs in that case are Cembrano and CVC. Considering that this is credits or debts being considered distinct from one another, subject to the Rules of
considered as a joint obligation, Cembrano and CVC are entitled to ½ of Court governing the multiplicity of suits.
P925,845 or P463,422 each.
VI. Disposition
Considering that Pag-ong as CVC president was authorized to receive
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
the money, respondent City's payment discharged respondent City of its
GRANTED. The decision of the Court of Appeals is AFFIRMED with
obligation under the CA decision. However, since petitioner Cembrano MODIFICATION. Petitioner Gil Cembrano is ORDERED to return to
did not receive any out of the P926,845.00 remitted to respondent CVC, respondent City of Butuan the amount of P490,609.955, with 6%
the obligation to remit one-half of the amount, or P463,422.50, to interest per annum to be computed from the finality of this decision.
Cembrano was not extinguished. Respondent CVC is ORDERED to return to respondent Butuan City
the amount of P490,609.955, with 6% interest per annum to be
computed from the date of finality of this
decision. No costs.
Obligations and Contracts (2020) PETITIONER: Cembrano & Go 2

DIGEST AUTHOR: John Joves RESPONDENT: City of Butuan, CVC, Pag-Ong, & Plaza
G.R. No. 207586 | August 17, 2016 Article 1207
AFPRSBS v. Sanvictores AFPRSBS v. Sanvictores
I. Recit-ready Summary a. April 1994: Sanvictores paid downpayment

PEPI (formerly Antonio Properties) sold a parcel of land to Eduardo 2. The parties executed the contract to sell with PEPI and AFPRSBS
Sanvictores for sale on installment basis. The parties executed the contract as “seller” and Sanvictores as buyer
to sell with PEPI and AFPRSBS as “seller” and Sanvictores as “buyer”. 3. Sanvictores paid the full purchase price in Feb 1999
Despite full payment of the purchase price, PEPI and AFPRSBS still failed 4. Despite this, PEPI and AFPRSBS still failed to execute the deed of
to execute the deed of sale and deliver the title. Upon demand by sale and deliver the title
Sancvictores, PEPI claimed that the title was still with PNB and could not 5. When Sanvictores demanded from the execution of the deed of sale
be released due to economic crisis. Several follow-ups were made but PEPI and delivery of the TCT, Pepi claimed that the title was still with
avoided Sanvictores for 4 years. After 4 years, Sanvictores filed a complaint PNB and could not be released due to economic crisis
for rescission of contract to sell against PEPI and AFPRSBS before 6. Despite several follow-ups, Pepi did NOT communicate with
HLURB. HLURB rescinded the contract to sell and ordered PEPI and Sanvictores for 4 years
AFPRSBS to pay Sanvictores jointly and severally. This was affirmed by 7. After 4 years, Sanvictores filed a complaint for rescission of
the HLURB Board, the Office of the President, and the CA. contract to sell against PEPI and AFPRSBS before HLURB
In its petition, AFPRSBS argues that PEPI alone was the seller. The 8. HLURB rewscinded the contract to sell and ordered PEPI and
transaction and the communications were exclusively held between AFPRSBS to pay Sanvictores jointly and severally
Sanvictores and PEPI. Assuming however that it could be held liable to 9. This was affirmed by the HLURB Board, the Office of the
Sanvictores based on Contract to Sell, liability would only be joint. Solidary President, and the CA
liability could not be presumed. a. Pepi and AFPRSBS referred to singly as SELLER
The Court held that Art. 1207 does not presume solidary liability.r the b. Pepi and AFPRSBS came to the contracting table with
nature of the obligation requires solidarity. There is solidary liability ONLY intention to be bound jointly and severally
when the obligation expressly so states, or when the law or the nature of the c. Nature of obligation of Pepi and AFPRSBS = solidary
obligation requires solidarity. In this case, the nature of the obligation points pursuant to Art 1207
to the fact that PEPI and AFPRSBS’s liability is solidary. PEPI and 10. Hence, the present petition.
AFPRSBS were referred to as “SELLER” thus were considered as one III. Issue/s
seller. There are no delineations between their rights and obligations. 1. W/N PEPI and AFPRSBS may he held solidarily liable? YES.
Moreover, Espina represented PEPI while Mena represented AFPRSBS.
Both representatives signed as SELLER and OWNER. In fact, AFPRSBS IV. Holding/s
never denied that Mena was their representative. It clothed Mena with
apparent authority to act on its behalf. Thus, PEPI and AFPRSBS came to Issue #1
the contracting table with the intention to be bound jointly and severally YES, PEPI and AFPRSBS may he held solidarily liable.

1. PEPI (formerly Antonio Properties) offered to Eduardo Sanvictores
for sale on installment basis a parcel of land
Obligations and Contracts (2020) PETITIONER: AFP RETIREMENT AND SEPARATION BENEFITS 1
SYSTEM (AFPRSBS)
DIGEST AUTHOR: Stephanie Co RESPONDENT: EDUARDO SANVICTORES
Petitioner’s Arguments Court’s Rebuttals representative; clothed Mena

 According to AFPRSBS, PEPI  ART 1207 DOES NOT with apparent authority to act
alone was the seller. The PRESUME SOLIDARY on its behalf
transaction and the LIABILITY  Thus, Pepi and AFPRSBS
communications were  The concurrence of 2 or more came to the contracting table
exclusively held between debtors in one and the same with the intention to be bound
Sanvictores and PEPI. obligation does not imply that jointly and severally
 Assuming it could be held liable each one of the former has a Overall Ruling
to Sanvictores based on right to demand, or that each ART 1207 DOES NOT PRESUME SOLIDARY LIABILITY. The
Contract to Sell, liability would one of the latter is bound to concurrence of 2 or more debtors in one and the same obligation does not
only be joint. Solidary liability render entire compliance with imply that each one of the former has a right to demand, or that each one of
could not be presumed the prestation the latter is bound to render entire compliance with the prestation. There is
 There is solidary liability solidary liability ONLY when the obligation expressly so states, or when the
ONLY when the obligation law or the nature of the obligation requires solidarity.
expressly so states, or when the There is solidary liability ONLY when the obligation expressly so
law or the nature of the states, or when the law or the nature of the obligation requires solidarity. In
obligation requires solidarity this case, the nature of the obligation points to the fact that PEPI and
 In this case, the nature of the AFPRSBS’s liability is solidary. PEPI and AFPRSBS were referred to as
obligation points to the fact that “SELLER” thus were considered as one seller. There are no delineations
PEPI and AFPRSBS’s liability between their rights and obligations. Moreover, Espina represented PEPI
is solidary while Mena represented AFPRSBS. Both representatives signed as SELLER
 Pepi and AFPRSBS were and OWNER. In fact, AFPRSBS never denied that Mena was their
referred to as “SELLER” thus representative. It clothed Mena with apparent authority to act on its behalf.
were considered as one seller Thus, PEPI and AFPRSBS came to the contracting table with the intention
 No delineations between their to be bound jointly and severally
rights and obligations
 Moreover, Espina represented
Pepi while Mena represented
AFPRSBS V. Law or Doctrine Applied
 Both representatives signed as
SELLER and OWNER ARTICLE 1207 OF THE CIVIL CODE
 In fact, AFPRSBS never denied same obligation does not imply that each one of the former has a right to demand, or
that Mena was their that each one of the latter is bound to render, entire compliance with the prestation.
SYSTEM (AFPRSBS)
There is a solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.
VI. Disposition
WHEREFORE, the petition is DENIED.

VII. Random Facts
 Ponente: Mendoza, J.
SYSTEM (AFPRSBS)
G.R. No. 160283 | October, 14, 2005 Solidary Obligations
Chan, Jr. v. INC Chan, Jr. v. INC
I. Recit-ready Summary 3. Contracted services of Dioscoro Yoro, retired general of AFP +

former construction contractor in the locality
John Chan owns Aringay Shell Gasoline Station, bounded on the south side 4. They executed a MOA
by INC Chapel. John needed additional sewerage and septic tanks for his a. Terms and covenants included:
washroom. John contracted services of Dioscoro Yoro. They executed a b. In the event that valuable objects are found on the
MOA. In the event that valuable objects are found outside the property line property, the same shall be divided among the parties as
during the said digging, the same shall be divided among the parties as follows: 60-40
follows: 35-65. INC informed John that the digging penetrated a portion of c. In the event that valuable objects are found outside the
the INC land and that the foundation of the chapel was affected because a property line during the said digging, the same shall be
tunnel was dug directly under it . divided among the parties as follows: 35-65
5. After some time, John was informed by INC members that the
RTC found John and Yoro solidarily liable. CA affirmed. John argues that digging penetrated a portion of the INC land
no liability attaches to him because of the MOA. INC argues that MOA a. Foundation of the chapel was affected because a tunnel
does not absolve John from liability. was dug directly under it
6. RTC DECISION
Issue: W/N John and Yoro are solidarily liable?
a. Diggings were not conducted to build sewerage and septic
tanks
SC said yes, They are solidarily liable because they have become
b. WERE MADE TO CONSTRUCT TUNNELS TO FIND
tortfeasors. As a general rule, joint tortfeasors are all the persons who
HIDDEN TREASURE
command, instigate, promote, encourage, advise, countenance, cooperate in,
c. Held John and Yoro solidarily liable to INC on a 35-65
aid or abet the commission of a tort, or who approve of it after it is done, if
basis (Yoro 35)
done for their benefit. The tortious act was the excavation that caused
7. Yoro filed his own notice of appeal but was disallowed by RTC for
damage to INC. The responsibility of two or more persons liable for a
failure to pay docket fees
quasi-delict is solidary.
a. SO RTC issued a writ of execution against him only
8. JOHN ARGUMENTS
1. John Chan owns Aringay Shell Gasoline Station a. No liability should attach to him → lays the blame solely
a. Bounded on the south side by INC Chapel on Yoro
2. John needed supposedly additional sewerage and septic tanks for b. Par 4 of MOA states that any gamage within/outside his
his washrooms property incurred during the digging shall be borne by
Yoro
1
Obligations and Contracts (2020) PETITIONER: JOHN KAM BIAK Y. CHAN, JR.
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: IGLESIA NI CRISTO, INC
9. INC ARGUMENTS Overall Ruling

a. MOA does not absolve John from liability
b. Aim of John and Yoro to intrude and hunt for hidden The SC agreed with the findings of the lower courts regarding the fact that
treasure in the INC premises should make them both John and Yoro were looking for hidden treasure. The basis of their solidary
liable liability is not the MOA because there is solidary liability only when the
III. Issue/s obligation expressly so states, or when law/nature of obligation requires
1. W/N John and Yoro are solidarily liable? (YES) solidarity.
IV. Holding/s They are solidarily liable because they have become tortfeasors. Art. 2176
provides the requisites of quasi-delicts: 1) act or omission, 2) Act or
Issue #1 omission causes damage to another, 3) act or omission if caused by fault or
Yes, John and Yoro are solidarily liable negligence, 4) there is no pre-existing contractual relation between the
parties.
All requisites are met in this case. The act was the excavation that was
● John and Yoro were partners in
secretly done within INC premises and may have affected the foundation of
● No liability should attach to him the endeavor to find hidden
the chapel (damage). The excavation was caused by fault. There is no
→ lays the blame solely on treasure
pre-existing contractual relation between John and Yoro, and INC.
Yoro ● Basis of their solidary liability is
● Par 4 of MOA states that any not in the MOA
John and Yoro are liable as joint tortfeasors. The responsibility of two or
gamage within/outside his ● They are solidarily liable because
more persons liable for a quasi-delict is solidary. As a general rule, joint
property incurred during the they have become joint
tortfeasors are all the persons who command, instigate, promote, encourage,
digging shall be borne by Yoro tortfeasors
advise, countenance, cooperate in, aid or abet the commission of a tort, or
● All requisites of quasi-delicts are
who approve of it after it is done, if done for their benefit.
attendant in this case
● Responsibility of two or more
John and Yoro cooperated in committing the tort. They even had provisions
persons liable for a quasi-delict is
in the MOA on how they would divide the treasure. John even had his
solidary
security guard and engineer observe the diggings.
Hence, the liability is solidary due to the commission of a quasi-delict.
2
RESPONSIBILITY OF TO OR MORE PERSONS LIABLE FOR A

QUASI-DELICT IS SOLIDARY
ART. 2176.
Whoever by act or omission causes damage to another, there being fault or

negligence, is obliged to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a
VI. Disposition
WHEREFORE, the Decision of the Court of Appeals dated 25 September

2003 is AFFIRMED with MODIFICATION as to the award of exemplary
damages, which is hereby increased to P100,000.00. Costs against
petitioner.
VII. Random Facts

3
G.R. No. 107481 | Nov 18, 1993 Solidary Obligations
Tiu v. CA Tiu v. CA
I. Recit-ready Summary Tiu, negotiated a loan of P300k with Juan Go, who then asked for a
George Tiu and Rosalina Tiu negotiated a loan of P300k with Juan Go, mortgage of the two condo units of George, as security for the
mortgaging their 2 condo units, as well as additional pledge of jewelries and payment therefor, and in additional thereto, a pledge of jewelries
two checks, as securities for the loan. A Deed of Sale of Condominium with and checks from Rosalina
Right to Repurchase and a Contract of Lease were executed, despite ● In the transaction, Juan Go agreed to extend the loan without any
George’s suspicion of the involvement of the Spouses Lim in their fixed period of repayment and with the condition that the Tius
documents, which was justified by Go to be not harmful and also necessary should have ample time to pay when demanded, and that they can
for their transaction, since him being a Chinese national forbids him from remain in possession of the two condo units, in the event of
carrying real estate property in his own name. Upon the lapse of the period,
mortgage.
the Tius tried to redeem what they have given to Go as mortgage, but Go
● Juan Go then prepared, based on the copy of the cert titles of the
refused redemption, even counterclaiming that Rosalina should pay her
two units, a deed of sale of a condominium with right to repurchase
dishonored checks, and in relation, George and Joaquin Tiu should also be
solidarily liable with her. This resulted in the Tiu's filing an action for to spouses Juanito Lim and Lim Lee Show Fong, and a contract of
reformation of contract, delivery of personal property, and damages before lease to George Tiu
the RTC against Juan Go and Spouses Lim, on the contention that the deed ● Upon delivery to him of the documents, George Tiu questioned
of sale is in law an equitable mortgage, which means they are entitled to why it was drawn in that form and why there was a need to involve
redeem the property, as sanctioned by Art 1602 of the C.C. The lower the Spouses Lim, who are strangers to the Tius, when the
courts’ decisions did not satisfy the two parties, leading to this present transaction was purely between them and Go. Go replied that since
petition before the SC. he was a Chinese national, he cannot carry real estate property in
Main issue in this case is whether or not Joaquin, along with George, his own name, and while questionable, there was no harm in
should be solidarily liable for the loans of Rosalina, for apparently receiving having them drawn that way.
and using the loans for their tobacco business. The SC resolved in the ● Tiu was persuaded and agreed to sign the contract and deed of sale.
negative, holding that there was no express provision in their receipts that His mother, Rosalina, then proceeded to hand Go the two checks
indicated their solidary liability, and even if they did admit such, they still drawn to the sum of P200k (which were signed but without a stated
could not be held liable since the tenor of their contract should prevail over amount and date, as additional collateral) and jewelries worth
their admission.
P200k. The deed of sale and the contract of lease were later
verified before a notary public, and later registered with the
Register of Deeds in Manila. From the date of execution of said
● George Tiu is the registered owner of 2 condominium units (Unit
documents to the time of filing, the Tius were in possession of the
9-A and Unit 9-B) of the Blue Diamond Tower Condominium
condo units
Project in Manila, covered by Condo Cert of Title Nos. 4583 and
4584 respectively. In Mar 1986, George and his mother, Rosalina
1
Obligations and Contracts (2020) PETITIONER: George Tiu and Rosalina Tiu
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Court of Appeals, Spouses Juanito Lim and Lim Yee Show
Fong
Tiu v. CA Tiu v. CA
● After the lapse of the period, the Tius tried to redeem the 1. W/N the RTC summary judgement, affirmed by the CA, was
mortgaged units, as well as the checks and jewelries, but Go properly rendered; YES (Remedial law)
refused redemption. 2. W/N Joaquin Tiu is solidary liable with George and Rosalina
● In relation to the Tiu’s attempt at redemption, Go encashed the two Tiu; NO
checks, which were dishonored, leading to Tiu demanding payment
from Rosalina Tiu IV. Holding/s
● The Tius then filed an action for reformation of contract, delivery
of personal property, and damages before the RTC against Juan Go Main Issue
and Spouses Lim, on the contention that the deed of sale is in law W/N Joaquin Tiu is solidary liable with George and Rosalina Tiu; NO
an equitable mortgage, which means they are entitled to redeem the
property, as sanctioned by Art 1602 of the C.C. The Spouses Lim
then counterclaimed that the deed of sale was clear and due to the Respondent’s Arguments Court’s Rebuttals
Tiu’s failure to repurchase them within the period set, they have ● Joaquin Tiu and George Tiu ● No express provision in
irrevocably acquired ownership of the units. In Go’s side, he should be jointly and solidarily the receipts that George
argued that the Tius incurred unpaid loans and that he was not liable with Rosalina Tiu for and Joaquin should be
given security for it. Subsequently, Go filed a motion to leave to receiving the said loans and solidarily liable
admit third-party complaint for damages against Joaquin Tiu, using it for their tobacco ● Admission of solidary
alleging that he received the money as loan or advances in business liability does not
connection to his tobacco business, amounting to P700k, for which necessitate liability of the
he should be jointly and severally liable. obligation
● RTC granted this motion to admit third- party complaint. They then
released a summary judgement which dismissed the complaint of
the Tius, while holding Rosalina liable to Go for the unpaid loans
(accumulating P1.06m). The Tius appealed, while the Lims filed a
motion for supplemental/additional relief, and later, Go filed an
MR of the summary judgement. The RTC then settled their
motions, granting the motion of the Lims and dismissing the
motions of Go and Tius for lack of merit.
● The CA affirmed the RTC ruling, leading to this present petition
III. Issue/s
2
Fong
Tiu v. CA Tiu v. CA
Overall Ruling ● The Tius did not aver ultimate facts which would constitute a
Joaquin Tiu could not be severally liable with George and Rosalina Tiu due cause of action, that the RTC can based upon
to the following points ● Based on the evidence and pleadings presented, the RTC correctly
● The receipts did not provide an express provision that stated their rendered the summary judgement of dismissing the case due to the
supposed solidary liability, in accordance to Art 1207 of the Civil Code. lack of cause of action. The evidence shows that the deed of sale
● The Tius’ admission that they received the money is not an admission of and the contract of lease were authentically executed (testified by
solidary liability. It must be noted that they specifically admitted that the the notary public) and that the Tius understood and consented to its
money was received by Rosalina. Even then, there was no confirmation execution
of the allegations that they admitted such liability. ● Overall, as pointed out by the CA, the allegations by the Tius are
● And even if there was an admission of their solidary liability, they are mere conclusions of law or opinion, hence reformation is not
still not liable since as aptly held by the lower courts, the SC has held in feasible, failing to meet the necessary requisite of particularity as
previous jurisprudence that an admission of two debtors of their solidary stated in Sec. 5, Rule 8, Revised Rules of Court.
liability does not convert the joint character of their obligation, for what ● As for Rosalina, the lower courts correctly held her liable for her
determines the nature of their obligation is the tenor of the contract failure to controvert the allegations of the Mario Obar Trading
itself, not their admission Center denying any partnership with Go (debunking her claim that
payments to the trading firm were payments to Go).
Secondary Issue
W/N the RTC summary judgement, affirmed by the CA, was properly V. Law or Doctrine Applied
rendered; YES
Tiu’s Contention Art. 1207
● There are unresolved questions of fact that preclude summary The concurrence of two or more creditors or of two or more debtors in one
judgement and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire
○ whether there was indeed a loan contract contracted
compliance with the prestation. There is a solidary liability only when the
between the parties, secured by a mortgage
obligation expressly so states, or when the law or the nature of the
○ assuming that there was a loan contract, is reformation
obligation requires solidarity.
feasible in order that the true agreement of the parties on
an equitable mortgage may be reflected in the deed of sale VI. Disposition
Overall Ruling WHEREFORE, the decision appealed from is AFFIRMED in toto.
The SC sustains the ruling of the lower courts based on the following points No special pronouncement is made as to costs. SO ORDERED.
3
Fong
Tiu v. CA Tiu v. CA
VII. Random Facts

● Ponente: Melo, J.
4
Fong
G.R. No. 93010 | August 30. 1990 Article 1212 - Solidary Obligations, Solidary Creditors
Quiombing vs CA Quiombing vs CA
I. Recit-ready Summary 3. After that, the same respondent signed a promissory note in favor
of the Petitioner Quiombing
Petitioner Quiombing and Dante Biscocho, jointly and severally, entered 4. However, 2 years later, the Petitioner filed a complaint against the
into an Agreement with the Private Respondents Sps. Saligo for the private respondents for recovery of the unpaid balance, plus
construction of the latter’s house. Then, the respondent signed a promissory charges and interests, since the respondents have failed to pay
note in favor of the Petitioner. But when repeated demands went unheeded, despite repeated demands
the Petitioner filed a complaint against the respondents for recovery of the 5. But instead of filing an answer, the respondents moved to dismiss
unpaid balance. But, the respondents moved to dismiss contending that the complaint contending that Biscocho was an indispensable
Biscocho was an indispensable party and must be included as a co-plaintiff. party, and thus should have been included as a co-plaintiff
Both the Trial Court and CA ruled in favor of the respondents. Thus, the 6. The Trial Court eventually granted the motion to dismiss, after
present petition before the SC. The issue in this case is w/n Quisombing can Reconsideration
file a claim for recovery due to both him and Biscocho, even without the 7. Upon appeal by the Petitioner before the CA, the CA affirmed the
involvement of the latter. The SC ruled in favor of the Petitioner. The SC Trial Court’s Ruling stating that Quiombing and Biscocho had
stated that it did not matter who as between them filed the complaint reciprocal obligations to the private respondents under their
because the private respondents were liable to either of the two as they are contract; thus, No Decision can be rendered without the
both solidary creditors for the full amount of the debt. If Quiombing involvement of Biscocho whose rights would necessarily be
eventually collects the amount due from the solidary debtors, Biscocho may affected, since he is part of the original agreement to construct the
later claim his share thereof. As far as the private respondents are house alongside the Petitioner
concerned, payment of the judgment debt to the complainant or petitioner 8. Hence, the present petition before the SC
will be considered payment to the other solidary creditor even if the latter
was not a party to the suit. III. Issue/s
● W/N one of the two solidary creditors may file a claim for
II. Facts of the Case (Material Facts) recovery of amounts due to both of them, even without the
1. In the present case, the Petitioner Quiombing and Dante Biscocho involvement of the other co-creditor as co-plaintiff? YES
entered into a “Construction and Service Agreement” with the
Private Respondents Sps. Saligo, wherein the former jointly and IV. Holding/s
severally bound themselves to construct a house for the
respondents for the amount of 137,940 pesos Issue #1
2. Then, a few months later, the Petitioner and Manuelita Saligo YES, the petitioner Quiombing, as a solidary creditor, may file a claim
entered into a 2nd Written Agreement, wherein the latter for recovery of amounts even without the involvement of his co-creditor
acknowledged the completion of the house and undertook to pay Biscocho as co-plaintiff
the remaining balance
1
Obligations and Contracts (2020) PETITIONER: Nicencio Tan Quiombing
DIGEST AUTHOR: Larry Abucay RESPONDENT: CA, and Spouses Saligo

● The concept of solidary ● The essence of active
● The petitioner Quiombing obligation and joint solidarity consists in the
argued that as a solidary obligation must be authority of each creditor
creditor he could act by himself distinguished. According to to claim and enforce the
alone in the enforcement of his Tolentino’s commentary of rights of all, with the
claim against the private the Civil Code A joint resulting obligation of
respondents. Moreover, the obligation is one in which paying every one what
amounts due were payable only each of the debtors is liable belongs to him; there is no
to him under the second only for a proportionate merger, much less a
agreement, where Biscocho was part of the debt, and each renunciation of rights, but
not mentioned at all.Lex creditor is entitled only to a only mutual representation
proportionate part of the
credit. A solidary Overall Ruling
obligation is one in which
each debtor is liable for the The SC stated that the question of who should sue the private respondents
entire obligation, and each was a personal issue between Quiombing and Biscocho in which the
creditor is entitled to spouses Saligo had no right to interfere. It did not matter who as between
demand the whole them filed the complaint because the private respondents were liable to
obligation. Hence, in the either of the two as they are both solidary creditors for the full amount of
former, each creditor can the debt. Full satisfaction of a judgment obtained against them by
recover only his share of Quiombing would discharge their obligation to Biscocho, and vice versa;
the obligation, and each hence, it was not necessary for both Quiombing and Biscocho to file the
debtor can be made to pay complaint. Inclusion of Biscocho as a co-plaintiff, when Quiombing was
only his part; whereas, in competent to sue by himself alone, would be a useless formality (Article
the latter, each creditor 1212, Civil Code)
may enforce the entire
obligation, and each debtor Moreover, if Quiombing eventually collects the amount due from the
may be obliged to pay it in solidary debtors, Biscocho may later claim his share thereof, but that
full decision is for him alone to make. It will affect only the petitioner as the
other solidary creditor and not the private respondents, who have absolutely
nothing to do with this matter. As far as the private respondents are
2
concerned, payment of the judgment debt to the complainant or petitioner

will be considered payment to the other solidary creditor even if the latter
was not a party to the suit.
Article 1212 - Each one of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to the latter.
Article 1214 - The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extrajudicial, has been made by one of them,
payment should be made to him
VI. Disposition
WHEREFORE, the petition is GRANTED. The decision of the respondent

court dated March 27, 1990, is SET ASIDE, and the Regional Trial Court of
Antipolo, Rizal, is directed to REINSTATE Civil Case No. 913-A. Costs
against the private respondents.
VII. Random Facts

● Ponente: Cruz, J.
3
G.R. No. L-28046 | May 16, 1983 Joint and Solidary Obligations - Article 1216
PNB v Independent Planters Association PNB v Independent Planters Association
I. Recit-ready Summary 2. The plaintiff presented evidence

PNB, petitioners, filed a complaint against several solidary debtors 3. Ceferino Valencia, one of the defendants, died
for a sum of money. One of the defendants, Ceferino Valencia, died during 4. CFI dismissed the complaint by citing Section 6 of Rule 86 of the
the pendency of the trial. The Court of First Instance of Manila dismissed Rules of Court saying that PNB’S complaint (a money claim based
the complaint. It initially held that the case, because it is for a sum of money on a contract) should be in the proceeding for the settlement of the
based on contract, should be prosecuted in the intestate or testate proceeding estate of the deceased defendant
for the settlement of the estate of the deceased defendant pursuant to the 5. PNB appealed the order of the CFI
Revised Rules of Court (Section 6, Rule 86) which states that:
III. Issue/s
SEC. 6. Solidary obligation of decedent. — Where the
1. W/N in an action to collect a sum of money based on contract
obligation of the decedent is solidary with another debtor,
the claim shall be filed against the decedent as if he were against all solidary debtors, the death of a debtor deprives the
the only debtor, without prejudice to the right of the estate court of jurisdiction to proceed with the case against the
to recover contribution from the debtor. In a joint surviving debtors? NO
obligation of the decedent, the claim shall be confined to IV. Holding/s
the portion belonging to him. Issue #1
2. W/N in an action to collect a sum of money based on contract
Raising the matter to the Supreme Court, PNB cites Article 1216 against all solidary debtors, the death of a debtor deprives the court
of the Civil Code in arguing that it still has the right of recourse against one, of jurisdiction to proceed with the case against the surviving
some, or all of its solidary debtors. debtors? NO
The court held that if, during the pendency of trial, one of the CFI’s Arguments Court’s Rebuttals
defendant dies, the court retains jurisdiction to continue proceedings in
● Section 6, Rule 86 of the Revised ● The case falls under Art 1216 of
respect of the surviving defendants. There is nothing in the Rules of Court
Rules of Court must be applied the Civil Code.
that requires a creditor to go after the estate of the deceased defendant
before an ordinary action against the surviving debtors. The Civil Code
Overall Ruling
clearly states that a creditor is allowed to proceed against one, some, or all
The SC held that to apply Section 6, Rule 86 literary of the Revised
of the debtors simultaneously. The choice whom to go after is with the
Rules of Court would effectively repeal Article 1216 of the Civil Code. It
creditor. In case of the death of one of the debtors, the creditor may choose
to proceed against the surviving solidary debtors. Thus, The SC remanded would leave PNB with no choice but to go after the estate of the deceased
the case to the RTC. defendant only. Article 1216 of the Civil Code expressly allows the creditor
II. Facts of the Case (Material Facts) to go against any one of the solidary debtors, some, or all simultaneously.
1. PNB filed a complaint against several solidary debtors for a Thus, there is nothing improper creditor’s filing against the surviving
collection of a sum of money based on a contract solidary debtors alone, instead of instituting a proceeding for the settlement
of the estate of the deceased debtor.
1
Obligations and Contracts (2020) PETITIONER: Philippine National Bank
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Independent Planters Association, et al.
G.R. No. L-28046 | May 16, 1983 Joint and Solidary Obligations - Article 1216
PNB v Independent Planters Association PNB v Independent Planters Association

Article 1216 provides that:
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
which may subsequently be directed against the others, so
long as the debt has not been fully collected.
In the case of the death of one of the solidary defendants, the
creditor may choose to proceed against the surviving solidary debtors
without necessarily filing a claim in the estate of the deceased debtors. To
apply Section 6, Rule 86 of the Revised Rules of Court literary then it
would effectively repeal Article 1216 and would diminish the rights of the
petitioner as he would have no choice but proceed against the estate of the
deceased defendant only.
VI. Disposition
WHEREFORE, the appealed order of dismissal of the court a quo in ist
Civil Case No. 46741 is hereby set aside in respect of the surviving
defendants; and the case is remanded to their corresponding Regional Court
for further proceedings. No costs.

●
VII. Random Facts

● Ponente: Plana, J.
2
Obligations and Contracts (2020) PETITIONER: Philippine National Bank
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Independent Planters Association, et al.
G.R. No. 144413 | July 30, 2004 Art. 1216, 1217
Republic Glass vs. Qua Republic Glass vs. Qua
I. Recit-ready Summary 3. The three sureties had an Indemnity Agreement, which stated that
they would reimburse one another for any sum any one of them would be
Petitioners Republic Glass Corp (RGC) and Gervel, Inc. as well as respondent made to pay the lenders.
Lawrence C. Qua are sureties for Ladtek, Inc. The three sureties had an 4. Qua pledged 1,892,360 shares of stock of General Milling
Indemnity Agreement that they would reimburse whoever would be held Corporation
liable to pay by Ladtek’s lenders. Ladtek obtained loans from Metrobank and 5. Ladtek defaulted on its obligation.
PDCP, but defaulted on these loans. 6. Metrobank filed a collection case against Ladtek and the three
Metrobank filed for collection against Ladtek and the sureties. RGC and sureties.
Gervel paid P7 million (a part of the debt) and the case against them was 7. RGC and Gervel paid P7 million.
dismissed. Then they demanded reimbursement from Qua, who refused. RGC 8. Metrobank executed a waiver and quitclaim, which caused the
and Gervel sought to foreclose the shares of stock Qua pledged as securities dismissal of the case against RGC and Gervel. Ladtek and Qua were left as
to the Indemnity Agreement, but the RTC ordered the petitioners to return defendants.
these to Qua. 9. RGC and Gervel then demanded reimbursement from Qua.
The RTC reconsidered its decision upon motion for reconsideration of RGC 10. Qua refused and filed at the RTC for injunction to prevent RGC and
and Gervel, but the CA reversed this reconsidered decision. Gervel from foreclosing his pledged shares of stock.
11. RGC and Gervel eventually foreclosed the shares.
The issue is whether or not full payment of the debt is essential for the paying 12. RTC ordered RGC and Gervel to return the foreclosed shares.
surety (debtor) to ask for reimbursement. 13. Upon RGC and Gervel’s motion for reconsideration, the RTC
The SC ruled that no, it is only necessary that the paying surety pay more than reconsidered, stating that any payment of the obligation gives rise to the right
his share for him to have a right to reimbursement from his co-sureties. In this to ask for reimbursement. Since Qua was unable to reimburse, the foreclosure
case, RGC and Gervel were unable to prove that the P7 million they paid of his pledged shares was justified.
exceeded their share in the debt, and so they cannot ask for reimbursement. 14. Qua appealed to the CA.
15. The CA reversed the RTC decision and ordered the return of the
The SC also ruled that there was no novation in the manner of payment (from shares of stock. The CA reasoned that full payment, not just partial payment
payment of the entire obligation to payment of each debtor’s proportionate is necessary for the Indemnity Agreement to apply.
share) as this discretion is given to the creditors, Metrobank and PDCP, who 16. RGC and Gervel filed this petition for review before the SC.
simply chose to ask for proportional payment from the debtors.
III. Issue/s
II. Facts of the Case (Material Facts) 1. W/N Qua is estopped from saying that RGC and Gervel did not pay
1. Republic Glass Corporation (RGC), Gervel Inc., and Lawrence C. the entire amount of the obligation? NO.
Qua were stockholders and sureties of Ladtek, Inc. 2. W/N full payment of the entire obligation is essential for RGC
2. Ladtek obtained loans from Metropolitan Bank and Trust Company and Gervel to demand reimbursement from Qua? NO
(Metrobank) and Private Development Corporation of the Philippines 3. W/N novation of the Surety Agreement, if any, is material? NO
(PDCP).
1
Obligations and Contracts (2020) PETITIONER: Republic Glass Corporation, Gervel, Inc.
DIGEST AUTHOR: Kara Nazario RESPONDENT: Lawrence C. Qua
G.R. No. 144413 | July 30, 2004 Art. 1216, 1217
IV. Holding/s Issue #2

NO, full payment of the obligation is not essential for the paying surety
Issue #1 to demand reimbursement from the other sureties.
NO, Qua is not estopped from saying that RGC and Gervel did not pay the Petitioner’s Arguments Court’s Rebuttals
entire amount of the organization.  GRC and Gervel argue that their  Payment of any amount will not
Petitioner’s Arguments Court’s Rebuttals full payment of the obligation is automatically result in
 Qua made two conflicting  The essential elements of not necessary for them to ask for reimbursement.
statements in two different estoppel are non-existent here. reimbursement from Qua.  If a solidary debtor pays an
cases.  No proof that Qua  They contend that any amount obligation in part, he can
 In his Motion to Dismiss misrepresented material facts. they pay or will pay Metrobank recover from the co-debtors
Collection Case, Qua stated that  No proof that RGC and Gervel warrants a proportionate only in so far as his payment
RGC and Gervel’s payment was relied on Qua’s statements such 42.22% from Qua. exceeded his share in the
for the entire obligation to that they changed their position, obligation.
Metrobank. to their injury.  If the debtor pays less than his
 Now Qua claims the payment  Qua honestly and reasonably share in the obligation, he cannot
was only for part of the believed that RGC and Gervel demand reimbursement because
obligation. paid the entire amount since they his payment is less than his
paid P7 million and the original actual debt.
loan was P6.2 million.
The essential elements of estoppel are non-existent here. RGC and Gervel’s contention is partially meritorious.
Since RGC and Gervel were unable to prove that their payment exceeded
their share of the debt, they cannot seek reimbursement from Qua. Hence,
they cannot validly foreclose the shares which Qua pledged as security for
his obligation to reimburse.
RGC and Gervel are only correct in their contention that payment of the
full amount is essential to demand reimbursement according to the
agreement among the three sureties.
2
G.R. No. 144413 | July 30, 2004 Art. 1216, 1217
Issue #3 V. Law or Doctrine Applied

NO, there was no novation in the agreements (regarding manner of
payment, from payment for the entire obligation to payment of SOLIDARY DEBTOR CAN ONLY BE REIMBURSED WHAT HE PAID IN
EXCESS OF HIS SHARE
proportionate shares only.)
If a solidary debtor pays an obligation in part, he can recover from the co-
debtors only in so far as his payment exceeded his share in the obligation.
 RGC and Gervel argued that  The parties did not constitute a
there was no novation, and if new obligation to substitute the Art. 1217. Payment made by one of the solidary debtors extinguishes the
any, it was immaterial. (The CA Agreements. obligation. If two or more solidary debtors offer to pay, the creditor may
found that there was implied  There was also no complete choose which offer to accept.
novation or substantial incompatibility in the manner or He who made the payment may claim from his co-debtors only the
incompatibility in the mode of payment of obligations. share which corresponds to each, with the interest for the payment
payment by the surety from the  The manner of payment did not already made. If the payment is made before the debt is due, no interest for
entire obligation, to one merely change from one for the entire the intervening period may be demanded.
of proportionate share.) obligation to one merely of When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall be
proportionate share.
borne by all his co-debtors, in proportion to the debt of each.
 Metrobank and PDCDP simply
Art. 1216. The creditor may proceed against any one of the solidary
chose to proceed against RGC debtors or some or all of them simultaneously. The demand made
and Gervel for their against one of them shall not be an obstacle to those which may
proportionate shares only. As subsequently be directed against the others, so long as the debt has not
creditors, been fully collected.
Overall Ruling
VI. Disposition
We find that there was no novation in the agreements.
WHEREFORE, we DENY the petition. The Decision dated 6 March 2000
of the Court of Appeals in CA-G.R. CV No. 54737 is AFFIRMED. Costs
against petitioners.
VII. Random Facts
3
G.R. No. 144413 | July 30, 2004 Art. 1216, 1217
 Ponente: Carpio, J.
4
G.R. No. 97664 | October 10, 1991 Joint and Solidary Obligations
Ouano Arrastre v. Aleonar Ouano Arrastre v. Aleonar

Respondent International Pharmaceuticals, Inc. filed a complaint for the 1. Respondent International Pharmaceuticals, Inc. (IPI) filed a
replacement of certain equipment imported by IPI against Mercantile complaint, before the RTC of Cebu, for the replacement of certain
Insurance Company, Inc. and petitioner Ouano Arrastre Services, Inc. equipment imported by IPI which were insured by Mercantile but
before the RTC of Cebu City. Petitioner was represented by the law firm of were lost on arrival in Cebu City, allegedly because of mishandling
Ledesma, Saludo and Associates, through Atty. Trinidad which was later by petitioner Ouano Arrastre Services, Inc. (OASI) against
then endorsed to Atty. Manalo. The RTC held defendants jointly and Mercantile Insurance Company, Inc. and OASI.
severally liable for the cost amounting to P435,000. Mercantile was the only 2. Petitioner’s answer was filed by the law firm of Ledesma, Saludo
one who appealed from the decision. Respondent filed a motion for and Associates (LSA) and signed by Atty. Manuel Trinidad of the
execution of the decision which was then granted by the respondent judge. Cebu office or branch of LSA. However, the latter was replaced by
In their defense, petitioner’s counsel filed a notice of appeal claiming that Atty. Fidel Manalo, who filed a motion to postpone the hearing
the decision was mistakenly sent to the firm’s main office in Makati and a since he had just been endorsed to petitioner, after he resigned
motion for reconsideration. Both were denied. The CA affirmed the RTC’s from LSA.
decision. The issues in this case are: 1. W/N there was valid service of the 3. In January 1990, the RTC held Mercantile and petitioner OASI
decision of the trial court upon petitioner's counsel; The Court ruled in jointly and severally liable for the cost of replacement of the
affirmative saying that LSA’s main office and branch office do not damaged equipment plus damages, totalling P435,000.00. With
constitute separate law firms with separate and distinct personalities and this, only Mercantile appealed from the decision.
responsibilities. Hence, when the copy of the decision was received in its 4. In June 1990, IPI filed a motion for execution of the decision
Makati office, such receipt binds the two offices. and 2. W/N the which was then granted by the respondent judge. Petitioner's
reasonable appeal filed by petitioner's co-defendant Mercantile should counsel, through Atty. Catipay of the Cebu Branch of the LSA,
stay the execution as against petitioner. The Court again ruled in filed a notice of appeal claiming that the decision was "mistakenly
affirmative stating that IPI, as solidary creditor, has the right to enforce, sent" by the trial court to the law firm's Head Office in Makati, but
given under Article 1216 of the Civil Code, the trial court's decision against it was denied. Also, they filed a motion for reconsideration alleging
petitioner OASI since the former failed to appeal during the reglementary that the failure seasonably to file an appeal was due to excusable
period. Also, for the petitioner to effect the benefits given under Article neglect and slight "oversight" and that the Mercantile's timely
1222 of the Civil Code, the defenses of co-debtors must be similar. In this notice of appeal should benefit them.
case at bar, petitioner's and Mercantile's defenses actually conflict with each 5. The CA held that the RTC’s decision had become final and
other because the former claims that the goods were received by it from the executory as to petitioner because there was a valid service of the
carrier vessel in bad condition, while the latter maintains that the goods did decision and that the Mercantile's appeal does not inure to the
not sustain any damage or loss during the voyage. benefit of petitioner as they do not share common defenses.
1
Obligations and Contracts (2020) PETITIONER: Ouano Arrastre Service, Inc.
DIGEST AUTHOR: Steven Rivera RESPONDENT: The Hon. Peary G. Aleonar, the International
Pharmaceuticals, Inc. and the Court of Appeals
Overall Ruling
III. Issue/s Petitioner's counsel was and is the firm of Ledesma, Saludo and Associates
1. Whether or not there was valid service of the decision of the which firm happens to have a main office in Makati and a branch office in
trial court upon petitioner's counsel; and (YES) Cebu City. The Court notes that both the main and branch offices operate
2. Whether or not the petitioner can raise the defense of Article under one and the same name. Having represented itself to the public as
1222 of the Civil Code. (NO) comprising a single firm, LSA should not be allowed at this point to pretend
that its main office and its branch office in effect constitute separate law
IV. Holding/s firms with separate and distinct personalities and responsibilities. Petitioner
does not deny that Atty. Manalo, a partner in LSA based in its Makati main
Issue #1 office, received the copy of the decision. Hence, such a receipt binds the
Yes, there was a valid service of the RTC’s decision upon petitioner’s LSA law partnership. The trial court's decision was validly served upon
counsel. petitioner's counsel, whether we look to the unjustified refusal by Atty.
Petitioner’s Arguments Court’s Rebuttals Catipay of LSA-Cebu to accept a copy of the trial court's decision on 7
● Petitioner’s counsel stated that ● The Court held the CA’s finding February 1990 and the actual notice received by Atty. Catipay on that date
their Cebu office had never that a copy of the decision was through his acquisition of a photocopy of that decision, or whether we look
officially received a copy of the served upon Atty. Catipay, but he to the receipt of the trial court's decision by LSA-Makati on 21 February
decision. refused to receive it and ordered 1990.
Mr. Lim, lower court’s legal aide,
to send the copy to the Makati Issue #2
office. Also, Mr. Lim left a xerox NO, the petitioner cannot raise Article 1222 of the Civil Code as a
copy of the said decision. defense.
● Petitioner complains that an ● Private respondent is entitled to
immediate execution, pending immediate execution of the
Mercantile's appeal would result decision of the trial court because
in "complexities" if the Court of the same had become final and
Appeals were to absolve executory when they failed to file
Mercantile of its liabilities an appeal during the
because petitioner would have reglementary period. The
no recourse against its solidary defendants are both held jointly
2
co-debtor and would in effect be and severally liable to to benefit from the provisions of Article 1222 of the Civil Code for its
held the only one liable under respondent. Whether or not failure to appeal.
the trial court's judgment. Mercantile is absolved from
● Petitioner also argues that under liability on appeal is of no V. Law or Doctrine Applied
Article 1222 of the Civil Code a moment. The fact remains that
solidary co-debtor can raise the the judgment against OASI had Article 1216 of the Civil Code
defenses personal to his already become final and The creditor may proceed against any one of the solidary debtors or some
co-debtor and that, therefore, executory. or all of them simultaneously. The demand made against one of them shall
petitioner OASI should be not be an obstacle to those which may subsequently be directed against the
exempt from paying the portion others, so long as the debt has not been fully collected.
of the judgment corresponding
to Mercantile.
A solidary debtor may, in actions filed by the creditor, avail himself of all
Overall Ruling
defenses which are derived from the nature of the obligation and of those
The Court ruled that petitioner has only itself to blame because it allowed which are personal to him, or pertain to his own share. With respect to those
the period for appeal to lapse without appealing. Under Article 1216 of the which personally belong to the others, he may avail himself thereof only as
Civil Code, the creditor may proceed against any one of the solidary debtors regards that part of the debt for which the latter are responsible.
or some or all of them simultaneously. Hence, IPI, as solidary creditor, has
the right to enforce the trial court's decision against petitioner OASI since VI. Disposition
the former failed to appeal during the reglementary period. In fine, the trial court's judgment can now be enforced against petitioner
OASI. ACCORDINGLY, the Petition for Review is hereby DENIED for
When petitioner argued that defenses personal to co-debtors are available to lack of merit. Costs against petitioner.
the other co-debtor because "The rights and liabilities of the parties are so
interwoven and dependent on each other, as to be inseparable”. The Court VII. Additional Notes
ruled that that for the rights and liabilities to be interwoven, their defenses ●
must be similar. In the case at bar, petitioner's and Mercantile's defenses
actually conflict with each other because the former claims that the goods VII. Random Facts
were received by it from the carrier vessel in bad condition, while the latter ● Ponente: Feliciano, J.
maintains that the goods did not sustain any damage or loss during the
voyage. Thus, petitioner by its own act or inaction, is no longer in a position
3
G.R. No 151038 | January 18, 2012 Joint and Solidary Obligations
Petron vs. Sps. Jovero Petron vs. Sps. Jovero
I. Recit-ready Summary While delivering the same by Villaruz, Petron was still in the process of
In 1984, Rubin Uy entered into a Contract of Lease with Cesar Jovero fulfilling its obligation to Rubin Uy, hence the delivery was not perfected
to operate a gasoline station for a period of 5 years. Petron entered into a upon payment of Uy. The contract made it clear that the delivery of the
Retail Dealer Contract with Rubin Uy in May 1984 to April 1989. Petron would only be completed upon the complete unloading of the products.
will be delivering its products in quantities as per Uy’s request, as well as, Here, Villaruz was acting as the agent of Petron, hence the acts of Villaruz
deliver products to Uy at the agreed upon place. Petron contracted the and his employees are also the acts of Petron. Therefore, the negligence of
hauling services of Jose Villaruz under Gale Freight Services in 1988; the Villaruz and Igdanis are also attributable to Petron. Meanwhile, Rubin Uy,
contract is to run for three years. Under this contract, Villaruz assigned three acting through Dortina Uy, also had the obligation to maintain the
tank trucks exclusively for the use of Petron. Villaruz and Petron stipulated equipment used in the gasoline station.
a non-liability clause in their contract. In October 1988, Uy executed a Since Petron was no able to prove the proximate cause of the fire,
Special Power of Attorney in favor of Chiong Uy authorizing the same to presumption exists that there was something wrong with the truck or the
manage and administer the gasoline station. Chiong Uy and his wife Dortina underground storage tank, or both. As the employer of Igdanis, Villaruz was
Uy operated the gasoline station as agents of Rubin Uy. In 1990, Chiong left impleaded by the respondents and was held to be in solidary liability with
for Hong Kong leaving Dortina to manage the gasoline station alone. Petron. Absent the appeal to that decision, Villaruz remains to be solidarily
In 1991, Allanaraiz, an employee of Uy, ordered gasoline from Petron. liable with petitioner and his co-defendants.
Petron requested that Villaruz make the delivery. However, the tank truck Since there are four persons liable to pay the damages to the
used to delivery the gasoline requested was not any of the specific tank respondents, the respondents may proceed against any one of the
trucks within the exclusive use of Petron. Petron, nevertheless, allowed the solidary-debtors or some or all of them for damages. The solidary debtors
transport of the products requested. During the unloading of the petroleum are Petron, Villaruz, Dortina Uy, and Rubin Uy. To determine their liability,
from the truck into the fill pipe that led to the gasoline stations underground the amount of damages shall be divided by the four representing the share of
tank, a fire started in the fill pipe and spread to the rubber hose connected to each defendant.
the truck. While this was happening, the driver of the truck Pepito Igdanis
was nowhere to be found. When he saw the fire, he got into the truck and
reversed the same without detaching the rubber hose from the fill pipe, II. Facts of the Case (Material Facts)
dragging it around. Due to this, a conflagration started and consumed the 1. In 1984, Rubin Uy entered into a Contract of Lease with Cesar
properties of Spouses Jovero, Spouse Tan, and Spouses Limpoco. Jovero to operate a gasoline station for a period of 5 years.
The three spouses filed for damages against Petron, Villaruz, Rubin 2. Petron entered into a Retail Dealer Contract with Rubin Uy in May
Uy, and Dortina Uy. 1984 to April 1989. Petron will be delivering its products in
The issue in this case is whether or not co-defendants may be held quantities as per Uy’s request, as well as, deliver products to Uy at
solidarily liable for damages. the agreed upon place.
The Court held that the co-defendants may be held solidarily liable. 3. Petron contracted the hauling services of Jose Villaruz under Gale
Petron held itself obligated to deliver to Rubin Uy the petroleum ordered.
Freight Services in 1988; the contract is to run for three years.
1
Obligations and Contracts (2020) PETITIONER: Petron Corporation
DIGEST AUTHOR: Alex Sulaik RESPONDENT: Sps Jovero, Sps. Tan, Sps. Limpoco
Under this contract, Villaruz assigned three tank trucks exclusively amount of P800,000, Spouses Limpoco in the amount of
for the use of Petron with plate number FVG 605, FVG 581, and P4,112,000.
FVG 583. Delivery includes not only hauling but proper handling
of the items to be delivered. RTC: Co-defendants are solidarily liable for the damages.
4. Villaruz also stated in their contract that it shall save Petron from CA: Affirmed the decision of the RTC.
any and all claims of third persons arising out of, but not
necessarily limited to, his performance of the terms and conditions III. Issue/s
of the contract. The issue in this case is whether or not co-defendants may be
5. In October 1988, Uy executed a Special Power of Attorney in held solidarily liable for damages. YES.
favor of Chiong Uy authorizing the same to manage and administer
the gasoline station. Chiong Uy and his wife Dortina Uy operated IV. Holding/s
the gasoline station as agents of Rubin Uy.
6. In 1990, Chiong left for Hong Kong leaving Dortina to manage the Issue
gasoline station alone. YES. Co-defendants are solidarily liable for damages to the
7. In 1991, Allanaraiz, an employee of Uy, ordered gasoline from respondents.
Petron. Petron requested that Villaruz make the delivery. However,
Petitioner's Argument Court’s Rebuttal
the tank truck used to deliver the gasoline requested was not any of
the specific tank trucks within the exclusive use of Petron. Petron,
Petron alleged that the Petroleum Petitioner and co-defendants are
nevertheless, allowed the transport of the products requested.
was already paid for by Rubin Uy solidarily liable. Petron had the
8. During the unloading of the petroleum from the truck into the fill
and Dortina Uy and hence is obligation to ensure safe delivery
pipe that led to the gasoline stations underground tank, a fire
owned by them. It also alleged that of the products. Villaruz, as an
started in the fill pipe and spread to the rubber hose connected to
it was Villaruz who was agent of Petron, had the obligation
the truck.
responsible for the delivery and
9. While this was happening, the driver of the truck Pepito Igdanis to safely transport the petroleum.
safekeeping of the products that
was nowhere to be found. After a while, Igdanis appeared carrying Dortina Uy as agent of Rubin Uy,
were delivered.
a bag of dried fish. When he saw the fire, he got into the truck and both had the obligation to ensure
reversed the same without detaching the rubber hose from the fill safekeeping and maintenance of
pipe, dragging it around. the products within their gasoline
10. Due to this, a conflagration started and consumed the properties of station.
Spouses Jovero in the amount of P1,500,000, Spouse Tan in the
2
Overall Ruling He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already
The Court held that the co-defendants may be held solidarily liable. Even made. If the payment is made before the debt is due, no interest for the
when Petron and Villaruz had a non-liability clause in their contract, intervening period may be demanded.
Petron no longer appealed the decision of the lower courts in its The share of the solidary debtors is enshrined in Art. 1208, which states:
cross-claims holding the four co-defendants solidarily liable. Hence, the “If from the law, or the nature of the wording of the obligation to which
applicability of the said clause is waived. Additionally, Petron held itself the preceding article refers the contrary does not appear, the credit of
obligated to deliver to Rubin Uy the petroleum ordered. While delivering debt shall be presumed to be divided into as many equal shares as there
the same by Villaruz, Petron was still in the process of fulfilling its are creditors to debtors, the credit or debts being considered distinct from
obligation to Rubin Uy, hence the delivery was not perfected upon one another, subject to the Rules of Court governing the multiplicity of
payment of Uy. The contract made it clear that the delivery of the would suits.”
only be completed upon the complete unloading of the products. Here, Since there are four persons liable to pay the damages to the respondents,
Villaruz was acting as the agent of Petron, hence the acts of Villaruz and the respondents may proceed against any one of the solidary-debtors or
his employees are also the acts of Petron. Therefore, the negligence of some or all of them for damages. The solidary debtors are Petron,
Villaruz and Igdanis are also attributable to Petron. Meanwhile, Rubin Villaruz, Dortina Uy, and Rubin Uy. To determine their liability, the
Uy, acting through Dortina Uy, also had the obligation to maintain the amount of damages shall be divided by the four representing the share of
equipment used in the gasoline station and for making sure that the each defendant.
unloading and the storage of highly flammable products were without
incident. Since both the Uys and Petron were negligent in this aspect,
they are held to be solidarily liable. V. Law or Doctrine Applied
Since Petron was no able to prove the proximate cause of the fire,
presumption exists that there was something wrong with the truck or the Art. 1217
underground storage tank, or both. As the employer of Igdanis, Villaruz
was impleaded by the respondents and was held to be in solidary liability “Payment made by one of the solidary debtors extinguishes the obligation.
with Petron. Absent the appeal to that decision, Villaruz remains to be If two or more solidary debtors offer to pay, the creditor may choose which
solidarily liable with petitioner and his co-defendants. offer to accept.
Art. 1217 states;
He who made the payment may claim from his co-debtors only the share
“Payment made by one of the solidary debtors extinguishes the
which corresponds to each, with the interest for the payment already made.
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.
3
If the payment is made before the debt is due, no interest for the intervening
period may be demanded.”
Art. 1208
“If from the law, or the nature of the wording of the obligation to which the
preceding article refers the contrary does not appear, the credit of debt shall
be presumed to be divided into as many equal shares as there are creditors
to debtors, the credit or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits.”
VI. Disposition
WHEREFORE, in view of the foregoing, we AFFIRM the Decision of the

Court of Appeals in Civil Case No. 50845 insofar as herein petitioner has
been held solidarily liable to pay damages to respondents. The CA Decision
is, however MODIFIED and the actual damages awarded to respondents
shall be subject to the rate of legal interest of 6% per annum from the time
of the filing of Civil Case Nos. 19633, 19684, and 20122 with the Regional
Trial Court of Iloilo City up to the time the judgment becomes final and
executory. Henceforth, the rate of legal interest shall be 12% until the
satisfaction of judgment.
VII. Random Facts

● Ponente: Sereno, J.
4
G.R. No. 47432 | January 27, 1992 Solidary Obligations (Appeal)
Universal Motors Corp. v. CA Universal Motors Corp. v. CA
I. Recit-ready Summary (Universal Motors) two (2) Mercedes Benz trucks at a cash price of
On Dec. 15, 1962, respondents (Rafael Verendia, Teodoro Galicia, & P33,608.27 each payable within 90 days.
Marcelina Galicia) purchased from petitioner (Universal Motors) two (2) Mercedes 2. The private respondents made several payments amounting to the
Benz trucks at a cash price of P33,608.27 each payable within 90 days They initially sum of P7,100.00 which were applied to the principal, interest and to
paid P7,100 for principal, interest and in registering deed of chattel mortgage. the expenses incurred in executing and registering a deed of chattel
Despite failure of respondents in paying for the 2 trucks, their payments were re- mortgage in favor of Universal Motors.
scheduled which allowed them to pay for 30 months to complete payments. On June 3. For failure of the private respondents to pay the cash price of
3. 1963, respondents executed a promissory note for the monthly payment for the re-
P67,216.54 for the two vehicles within the 90-day period, their
scheduled amount of P74,064.40 with 12% interest. Respondents still failed to pay
account was re-scheduled to allow them a period of 30 months within
the balance of P49,945.31 as of Sept. 4, 1966, which prompted the petitioner to file a
complaint before the CFI of Manila. Respondents admitted the allegations but which to complete the payments.
insisted that they only have an outstanding payment of P28,911.10 as of Oct. 31, 4. On June 3, 1963 private respondents executed a promissory note in
1965. Petitioner filed motion for summary judgment but was denied. The favor of Universal Motors for the sum of P74,064.40 covering the re-
respondents and their counsel did not appear despite due notice for the hearing on scheduled account thereby promising to pay the same in monthly
Feb. 9, 1967, and this prompted the petitioner to present evidence ex-parte to which installments at the rates stipulated on the Promissory Note with 12%
the lower court ruled in petitioner’s favor on its decision on Feb. 10. On Apr. 8, interest.
1968, Verendia, one of the respondents filed for motion for rehearing of the case but 5. As of September 16, 1965, the balance of said account was
the lower court only reiterated its Feb. 10 decision. The respondents appealed to the P40,945.31. But despite repeated demands, the private respondents
CA when the lower court did not give merit to respondent Verendia’s attempt to failed to pay.
prove he’s not indebted (lower court allowed execution but pending appeal of 6. On January 4, 1966 Universal Motors filed a complaint for the
Verendia, execution remained unenforced as petitioner could not find any visible
recovery of the unpaid balance with the CFI of Manila.
properties of the respondents that may be levied upon). CA reversed the lower
7. Private respondents, in their Answer with Counterclaim, admitted the
court’s decision and denied the MR filed by the petitioner.
The issues in this case are: (1) W/N CA erred in allowing respondents, who principal allegations of the Complaint, except that they insisted that
admitted their liability, to change their defense when they have not amended their their outstanding account was only P28,911.10 as of October 31,
pleadings; and (2) W/N the appeal filed by Verendia, as a solidary debtor, will inure 1965.
to the benefit of the other respondents, who are also solidary debtors in this case, 8. The Universal Motors then filed a motion for summary judgment, but
who did not file for the appeal. The SC upheld the decision of the CA and said that: the same was denied by the lower court.
(1) No. The trial court decided the case on based only on petitioner’s 9. The case was called for hearing on February 9, 1967 but neither the
evidence while the CA decided the case based on both the petitioner’s and private respondents nor their counsel appeared despite due notice,
respondents’ evidences. Based on Rules of Court, the result of the trial hence upon motion of the Universal Motor's counsel, Universal
will not be affected even if the private respondents failed to amend their Motors was allowed to present evidence ex-parte. On the basis of
pleadings. such evidence, the lower court on February 10, 1967 rendered
(2) Yes. This solidary obligation is so dependent among co-solidary debtors. judgment in favor of Universal Motors.
The release of one who appealed operates as well to those who did not 10. On April 8, 1968, after re-hearing the case on motion filed by one of
appeal so long as the appeal is not personal to that one solidary debtor. the private respondents, Rafael Verendia, wherein he claimed that he
overpaid Universal Motors. The court reiterated their Feb. 10,
judgment1.
11. The private respondents filed an appeal to the CA claiming that the
1. On December 15, 1962 private respondents (Rafael Verendia,
lower court erred when it did not give merit to private respondent
Teodoro Galicia, & Marcelina Galicia) purchased from petitioner
Obligations and Contracts (2020) PETITIONER: Universal Motors Corporation 1

DIGEST AUTHOR: Joses RESPONDENTS: CA, Rafael Verendia, Teodoro Galicia, & Marcelina Galicia
Verendia’s attempt to prove that he was not indebted to Universal applicable; therefore, the of oral and documentary evidence
Motors and when it allowed execution pending appeal. admission of private respondents presented in the case outweighed the
a. However, Universal Motors could not find any visible properties is binding upon them and may findings of fact by the trial court.
belonging to the private respondents that may be levied upon, no longer deny the same nor • Based on Rules of Court, failure of
and, therefore, the writ of execution remained unenforced. claim overpayment. the private respondents to amend
12. CA reversed the lower court’s decision. Universal Motors filed a MR • It is not the natural reaction of a their pleadings in order to conform
which was denied by CA. Hence, this present petition. man who sincerely believes that the evidence presented will not at all
III. Issue/s he has no obligation at all: affect the result of the trial.
1. W/N CA committed an error of law when it allowed private respondents, private respondent Verendia
who have admitted their liability to Universal Motors in their answer, to claiming he overpaid but
change their defense when they have not amended their pleadings at any immediately confirmed to SGV
stage of the proceedings (first five issues in the case is interrelated)? (NO). & Co. that he owed petitioner
2. W/N the appeal interposed by Verendia (being a solidary debtor) will P28k.
inure to the benefit of the other private respondents (Teodoro and Overall Ruling
Marcelina Galicia) who have not appealed? (YES) The apparent conflict between the findings of CA and that of the CFI of
IV. Holding/s Manila is due to the fact that evidence was presented ex parte in the lower
court while the evidence of the private respondents were presented only on
Issue #1 appeal. Hence, the trial court decided the case on the basis solely of the
NO. The CA was correct in allowing private respondents, who have admitted evidence of the petitioner while the CA reached a decision with the advantage of
their liability to Universal Motors in their answer, to change their defense when weighing and analyzing both the evidence of the petitioner and the private
they have not amended their pleadings at any stage of the proceedings. respondents.
• The private respondents filed an • SC stressed in Bustamante v. CA: Absence of any showing that the findings complained of are totally devoid of
answer in the complaint, which findings of fact of CA are final & support in the records, such findings must stand and be admitted as final and
expressly admitted that they conclusive & cannot be reviewed on conclusive.
were indebted to the petitioner in appeal but there are exceptions: (1)
the amount of P28,911.10 as of findings of facts are conclusions On petitioner’s contention that CA committed an error in allowing private
Oct. 23, 1965. without citation of specific evidence; respondents to change their defense when they have not at any stage of the
• Private respondents have not (2) findings of lower court and CA proceedings amended their pleadings, according to Section 5, Rule 10 of ROC:
amended their pleadings and are contrary judgment may still be rendered not on the basis of the issues alleged, but on
when they introduced their • Only question of law may be raised the basis of the issues discussed and proved in the course of the trial. The
evidence to show their on petition for review on certiorari failure of the private respondents to amend their pleadings in order to conform
overpayment, petitioner objected (Rule 45); it is not the function of the the evidence presented will not at all affect the result of the trial.
as the private respondents have SC to analyze or weigh such evidence
not amended their answer all over again, only so when they’re Issue #2
admitting liability of their glaringly erroneous as to constitute YES, the appeal interposed by Verendia (being a solidary debtor) will inure
obligation grave abuse of discretion. to the benefit of the other private respondents (Teodoro and Marcelina
• Principle of estoppel is • CA opined that the record consisting Galicia) who have not appealed.

Petitioner’s Arguments Court’s Rebuttals DOCTRINE OF THIS CASE

• In the case of Municipality of • SC ruled in Citytrust Banking Corp. Decision in the case at bar inures to the benefit of all private respondents regardless
Orion v. Concha, the Court v. CA & Samara that a defendant of fact that only one appealed:
declared that the liability of adjudged to be primarily liable for “When the obligation of the other solidary debtors is so dependent on that of
their co-solidary debtor, the release of the one who appealed, provided it be
debtors is joint and several, the sums of money or tort should not be
not on grounds personal to such appealing private respondent, operates as
judgment on appeal will not charged for an amount lesser than
well as to the others who did not appeal. It is for this reason, that a decision or
affect those who do not appeal. what his co-defendants are bound to judgment in favor of the private respondent who appealed can be invoked as
• CA’s decision states that the pay to the common creditor. Such is a res judicata by the other private respondents.”
liability incurred by the principle of solidarity in obligations
obligations under the promissory as between co-defendants. SECTION 5, RULE 10, RULES OF COURT (PARAS COMMENTARY)
note is solidary and should only • The modification made by the CA . . Such amendment of the pleadings as may be necessary to cause them to conform
affect private respondent which ordered not only the appellant to the evidence and to raise these issues may be made upon motion of any party at
Verendia. therein but both "defendants jointly any time. Judgment may still be rendered not on the basis of the issues alleged, but
• Decision of CFI of Manila on and severally" to pay the new on the basis of the issues discussed and proved in the course of the trial.
Galicias, which the latter did not amount. It shall be applied only to the
appellant, as substantial justice and VI. Disposition
appeal, is already final and
All premises considered, the Court is convinced that the respondent court committed
executory upon the latter. equity also demand that the decision
no error in reversing the decision of the trial court and in dismissing the complaint in
should be interpreted to refer to the
favor of the private respondents.
non-appealing defendant as well
ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals
Overall Ruling is AFFIRMED.
The CA committed no error in ruling that its decision inures to the benefit of all
the private respondents regardless of the fact that only one appealed. VII. Additional Notes
• Medialdea, J.
It is erroneous to rule that the decision of the trial court could be reversed as to • Ex-parte decision – one decided by a judge without requiring all of the
the appealing private respondent and continue in force against the other private parties to the dispute to be present
respondents. The latter could not remain bound after the former had been • CFI of Manila’s April 8, 1968 ruling:
released; although the other private respondents had not joined in the appeal, the "IN VIEW OF ALL THE FOREGOING, the Court hereby reiterates its
judgment dated February 10, 1967, and again orders the Defendants,
decision rendered by the CA inured to their benefit. Rafael Verendia, Teodoro Galicia and Marcelina Galicia, to pay, jointly
and severally to the Plaintiff, Universal Motors Corporation, the sum of
When the obligation of the other solidary debtors is so dependent on that of P47,732.35, with interest at the rate of 12% per annum on one-half of
their co-solidary debtor, the release of the one who appealed, provided it be the principal balance of P69,672.66 from February 10, 1957, until fully
not on grounds personal to such appealing private respondent, operates as paid, plus the further sum equivalent to 25% of the amount due as
attorney's fees and the costs of the suit. SO ORDERED."
well as to the others who did not appeal. It is for this reason, that a decision
or judgment in favor of the private respondent who appealed can be
invoked as res judicata by the other private respondents.

G.R. No. L-22108 | Aug. 30, 1967 Art. 1222. Defenses Available to Solidary Debtor
Gov’t of the Phil. V. Tizon Gov’t of the Phil. V. Tizon
I. Recit-ready Summary principal debtor” that it is “considered in law as being the same party as the
In in a bidding conducted by the Bureau of Supply Coordination (BSC) debtor in relation to what is adjudged”. The two defendants are deemed “so
for one Baylift portable heavy-duty truck auto-lift, and two Baylift ramps, interwoven as to be inseparable.” As such, Surety will not incur any liability
Tizon Engineering (Marcelino Tizon, sole owner and proprietor) won the unless Tizon is held liable therefore it is premature at this point to execute
bid for P4,000.00. For faithful compliance, BSC required a Tizon to give a judgement against Surety. The ruling of the lower court is set aside.
bond for P10,000.00, this was executed by Capital Insurance Surety Co.,
Inc. (Surety) in favor of the Republic of the Philippines. Tizon subsequently II. Facts of the Case (Material Facts)
failed to comply with the conditions of the bid by not being able to deliver 1. Bidding was conducted by BSC of the Department of General
the prerequisite equipment stipulated in the Buyer’s order. BSC was Services for one Baylift portable heavy-duty truck auto-lift, and
constrained to buy the equipment from Fema Trading, the second lowest two Baylift ramps. (US Manufacturer)
bidder as at a loss of P2,975.00. 2. Tizon Engineering won the bid for P4000.
In the resulting case, BSC claims the aforementioned sum against both 3. Surety gave a bond to pay P10000 in favor of the Republic of the
Tizon and Surety with the latter interposing cross-claim that if it is liable for Philippines should Tizon fail to comply with the contract.
the bond than Tizon should make the corresponding reimbursement with
4. Tizon failed to comply with the condition by not being able to
interest.
deliver the prerequisite equipment stipulated in the Buyer’s order.
The lower court ruled in favor of BSC and ordered them Tizon and
Surety to pay jointly and severally P2,972.00 with legal interest. 5. BSC was constrained to buy the equipment from Fema Trading, the
Additionally, the lower court also ruled on the cross-claim of Surety second lowest bidder as at a loss of P2,975.00.
ordering defendant Tizon to reimburse Surety for whatever it will pay to 6. In the resulting case, BSC claims the aforementioned sum against
BSC. Only Tizon appealed the decision, though both Tizon and Surety filed both Tizon and Surety.
separate manifestations. In a motion of BSC, the lower court expunged the 7. Tizon averred in in his answer that:
answer of Surety from the records and remanded its specific case for a. The bidding conducted by BSC is in violation of the Rules
execution. and Regulation of its office.
The issue before the SC in this case is whether or not an appeal by b. Buyer’s order was not delivered nor received by him
merely one of the parties sentenced to solidarily pay a sum of money, inures meaning there was never a binding contract.
to the benefit of the one who did not appeal. The citing relevant c. The bond by Surety is only for contracts legally entered
jurisprudence ruled that the effects of an appeal by one solidary debtor upon into by it.
his co-debtors depends upon the facts and conditions of each case. The
8. Defendant Surety in their answer:
general rule is that: reversal of an appealing debtor does not necessitate a
a. Admits to executing a bond in favor of the Republic of the
reversal for the non-appealing co-debtors, but judgement is affirmed and
undisturbed as to them. The exception is when the judgement cannot be Philippines.
reversed as to the appealing party without affecting the rights of his co- b. It is Tizon who has put it on notice not to settle the claim
debtors. The SC also cited Art. 1222 allowing Surety all defenses available as he is not in any way liable to BSC as there was no
by the nature of his obligation. The bond stated that Surety would pay the bindng contract.
bond of P10,000.00 only when Tizon, their co-debtor appellant should fail
to comply with the contract. Therefore, Surety is “so dependent on the
PLAINTIFF-APPELLEE: Gov’t of the Republic of the Phil., Represented by
Obligations and Contracts (2020) Bureau of Supply Coordination
DIGEST AUTHOR: King Manalo DEFENDANTS: Marcelino Tizon, et al. Capital Insurance Surety Co., Inc.
1
c. Surety interposed a cross-claim that if it is liable for the law as to include Surety in view • Exception: Where a judgment
bond than Tizon should make the corresponding of the latter’s cross-claim against cannot be reversed as to the party
reimbursement with interest. the former. appealing without affecting the
9. The lower court ruled in favor of BSC and ordered them Tizon and rights of his co-debtor.
Surety to pay jointly and severally P2,972.00 with legal interest. • Art. 1222 stated that a solidary
10. The lower court also ruled on the cross-claim of Surety ordering debtor may avail himself of all
defendant Tizon to reimburse Surety for whatever it will pay to defenses which are derived from
BSC. the nature of the obligation.
11. Only Tizon appealed the decision, though both Tizon and Surety • Surety is only liable should Tizon
filed separate manifestations. fail to comply with the contract.
12. BSC filed a motion praying for: Overall Ruling – Petition is Meritorious
a. Expunge the answer of Surety from the records The citing relevant jurisprudence ruled that the effects of an appeal by one
b. Remand the case to City Court for execution of itss solidary debtor upon his co-debtors depends upon the facts and conditions
specific judgment. of each case.
13. Lower court acceded to the prayers.
14. Hence this petition. A reversal of a judgment on appeal is binding on the parties to the suit, but
does not inure to the benefit of parties against whom judgment was rendered
III. Issue/s in the lower court who did not join in the appeal, unless their rights and
1. W/N an appeal by merely one of the parties (Tizon) sentenced liabilities and those of the parties appealing are so interwoven and
to solidarily pay a sum of money, inures to the benefit of the dependent as to be inseparable, in which case a reversal as to one operates
ones who did not appeal (Surety)? YES. as a reversal as to all.
IV. Holding/s However, although the defendants bound themselves in solidum, the liability
Issue #1 of the Surety under its bond would arise only if its co- defendant, the
YES, an appeal by Tizon, the appealing solidary debtor inures to the principal obligor, should fail to comply with the contract.
benefit of his co-debtor Surety in this case.
Appellant’s Arguments Court’s Response The liability of the Surety is "consequent upon the liability" of Tizon, or "so
• Surety’s obligation is so • General Rule: Reversal as to dependent on that of the principal debtor" that the Surety "is considered in
law as being the same party as the debtor in relation to whatever is
dependent on the debtor that the parties appealing does not
adjudged, touching the obligation of the latter;" or the liabilities of the two
Surety in law is considered in necessitate a reversal as to parties defendants herein "are so interwoven and dependent as to be inseparable."
law as the same party. not appealing, but that the Changing the expression, if the defendants are held liable, their liability to
• The appeal of co-defendant judgment may be affirmed or left pay the plaintiff would be solidary, but the nature of the Surety's
Tizon should be considered in undisturbed as to them. undertaking is such that it does not incur liability unless and until the
2
principal debtor is held liable. As such, Surety will not incur any liability
unless Tizon is held liable therefore it is premature at this point to execute Albeit it may not personally be allowed to file an answer in the Court of
judgement against Surety. First Instance, having failed to interpose an appeal, the Surety can rely on
the answer of its co-defendant and derive benefit therefrom if the judgment
on appeal should turn out to be favorable to the answering defendant.
VII. Random Facts

• Ponente: Angeles, J.
ARTICLE 1222. OF THE CIVIL CODE (DEFENSES AVAILABLE

TO SOLIDARY DEBTORS)
A solidary debtor may, in actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible.
VI. Disposition
Upon the foregoing considerations, that portion of the appealed order

remanding the record of the case to the City Court of Manila for execution
of the decision of said court is hereby set aside, without costs.

The situation of the Surety may be likened to that of a defaulting defendant
whose right is protected under Section 4, Rule 18 of the Rules of Court as
follows.
Judgment When Some Defendants Answer and Others make

Default. — When a complaint states a common cause of action
against several defendants, some of whom answer, and the others
fail to do so, the court shall try the case against all upon the answer
thus filed and render judgment upon the evidence presented. The
same procedure applies when a common cause of action is pleaded
in a counterclaim, crossclaim and third-party claim.
3
G.R. No. 167615 | January 11, 2016 Divisible and Indivisible Obligations
Spouses Lam v Kodak Spouses Lam v Kodak
I. Recit-ready Summary • The package shall be payable in 48 monthly installments at

Lam Spouses and Kodak Philippines, Ltd. entered into an agreement P35,000.00 with 24% interest rate for the first 12 months,
(Letter Agreement) for the sale of 3 units of the Kodak Minilab System which totals P1,796,000.00 per unit.
22XL (Minilab Equipment) in the amount of P1,796,000.00 per unit to be 3. Kodak Philippines, Ltd. delivered one (1) unit of the Minilab
which is to be delivered to 3 different outlets. Kodak Philippines, Ltd. Equipment in Tagum, Davao Province. The Lam Spouses issued
delivered one unit to Tagum, Davao and the Lam Spouses issued postdated postdated checks amounting to P35,000.00 each for 12 months as
checks amounting to P35,000.00 each as agreed upon. The Lam Spouses
payment for the first delivered unit.
requested that Kodak Philippines withhold from negotiating the checks due
4. Lam Spouses requested that Kodak Philippines, Ltd. not negotiate
to insufficiency of funds. But Kodak Philippines did so and the checks were
honored, which led to the Lam Spouses ordering the depository bank to stop the check dated March 31, 1992 allegedly due to insufficiency of
payment. Kodak Philippines then canceled the sale and demanded the return funds. The same request was made for the check due on April 30,
of the equipment, but the Lam Spouses refused and rescinded the contract 1992. However, both checks were negotiated by Kodak
through a letter. The RTC found that Kodak Philippines, Ltd. defaulted in Philippines, Ltd. and were honored by the depository bank. The 10
the performance of its obligation, while also ruling that the Lam Spouses other checks were subsequently dishonored after the Lam Spouses
were under the obligation to pay when the unit was delivered. The Lam ordered the depository bank to stop payment.
Spouses filed an appeal because the RTC failed to order Kodak Philippines 5. Kodak Philippines, Ltd. canceled the sale and demanded that the
to pay the alleged damages. CA ruled that Kodak Philippines had to pay Lam Spouses return the unit it delivered, while the spouses
P440,000.00 as actual damages, because the parties showed that their rescinded the contract through a letter.
obligations were susceptible of partial performance. So the issue is whether 6. Regional Trial Court found that Kodak Philippines, Ltd. defaulted
or not the obligations in the Letter Agreement are divisible? The SC held in the performance of its obligation under its Letter Agreement
that it was not divisible. The intention of the parties is for there to be a
with the Lam Spouses. Kodak Philippines, Ltd.'s failure to deliver
single transaction covering all 3 units of the Minilab Equipment.
Respondent's obligation was to deliver all products purchased under a two (2) out of the three (3) units of the Minilab Equipment caused
"package," and, in turn, petitioners' obligation was to pay for the total the Lam Spouses to stop paying for the rest of the installments.
purchase price, payable in installments. 7. Court of Appeals agreed with the trial court's Decision, but
extensively discussed the basis for the modification of the
II. Facts of the Case (Material Facts) dispositive portion. The Court of Appeals ruled that the Letter
1. Lam Spouses and Kodak Philippines, Ltd. entered into an Agreement executed by the parties showed that their obligations
agreement (Letter Agreement) for the sale of three (3) units of the were susceptible of partial performance. The Lam Spouses were
Kodak Minilab System 22XL (Minilab Equipment) in the amount ordered to relinquish possession of the Minilab Equipment unit and
of P1,796,000.00 per unit. its standard accessories, while Kodak Philippines, Ltd. was ordered
2. The parties agreed to the delivery of the equipment to the outlets in to return the amount of P270,000.00, tendered by the Lam Spouses
Rizal Avenue (Manila), Tagum (Davao del Norte), and in Cotabato as partial payment.
City. The contract stipulated the following:
• Minilab Equipment Packages was availed for a 19% discount. III. Issue/s
• No Downpayment
Obligations and Contracts (2020) PETITIONER: Alexander and Julie Lam 1

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Kodak Philippines, LTD.
1. W/N the contract between petitioners Spouses Alexander and agreed obligation. individually, consistent with the
Julie Lam and respondent Kodak Philippines, Ltd. pertained New Civil Code.
to obligations that are severable, divisible, and susceptible of
partial performance under Article 1225 of the New Civil Code?
NO. Overall Ruling
2. W/N the parties are entitled to mutual restitution under Article There is no indication in the Letter Agreement that the units petitioners
1191? ordered were covered by three (3) separate transactions. The factors
considered by the Court of Appeals are mere incidents of the execution of
IV. Holding/s the obligation, which is to deliver three units of the Minilab Equipment on
the part of respondent and payment for all three on the part of petitioners.
Issue #1 The intention to create an indivisible contract is apparent from the benefits
NO, the obligation pertained in the Letter Agreement is an indivisible that the Letter Agreement afforded to both parties. Petitioners were given
obligation and not severable or susceptible to partial performance. the 19% discount on account of a multiple order, with the discount being
Petitioner’s Arguments Court’s Rebuttals equally applicable to all units that they sought to acquire. The provision on
• The obligations of the parties • The intention of the parties is "no downpayment" was also applicable to all units. Respondent, in turn, was
were not susceptible of partial for there to be a single entitled to payment of all three Minilab Equipment units, payable by
performance since the Letter transaction covering all three installments.
Agreement was for a package (3) units of the Minilab
deal consisting of three (3) units. Equipment. Respondent's Issue #2
• Obliged to pay 48 monthly obligation was to deliver all YES, both parties will be restored to their original situation before the
payments, the total of which products purchased under a contract was executed.
constituted one debt. "package," and, in turn, Petitioner’s Arguments Court’s Rebuttals
• Petitioners argue that the petitioners' obligation was to • Respondent's failed to comply • The contract between the parties
divisibility of the object does not pay for the total purchase price, with its obligation to deliver the is one of sale, where one party
necessarily determine the payable in installments. two (2) remaining Minilab obligates himself or herself to
divisibility of the obligation • Through the specified terms and Equipment units amounted to a transfer the ownership and deliver
since the latter is tested against conditions, the tenor of the breach. Petitioners claim that the a determinate thing, while the
its susceptibility to a partial Letter Agreement indicated an breach entitled them to the other pays a certain price in
performance. intention for a single remedy of rescission and money or its equivalent. 103 A
• They argue that even if the transaction. This intent must damages under Article 1191 of contract of sale is perfected upon
object is susceptible of separate prevail even though the articles the New Civil Code. the meeting of minds as to the
deliveries, the transaction is involved are physically object and the price, and the
indivisible if the parties intended separable and capable of being parties may reciprocally demand
the realization of all parts of the paid for and delivered the performance of their

respective obligations from that seek rescission, even after he has chosen fulfilment, if the latter should
point on. become impossible.
Overall Ruling VI. Disposition

WHEREFORE, the Petition is DENIED. The Amended Decision dated
The Court of Appeals correctly ruled that both parties must be restored to
September 9, 2005 is AFFIRMED with MODIFICATION. Respondent
their original situation as far as practicable, as if the contract was never
Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and Julie
entered into. Petitioners must relinquish possession of the delivered Minilab Lam:
Equipment unit and accessories, while respondent must return the amount (a) P270,000.00, representing the partial payment made on the Minilab
tendered by petitioners as partial payment for the unit received. Further, Equipment;
respondent cannot claim that the two (2) monthly installments should be (b) P130,000.00, representing the amount of the generator set, plus legal
offset against the amount awarded by the Court of Appeals to petitioners interest at 12% per annum from December 1992 until fully paid;
because the effect of rescission under Article 1191 is to bring the parties (c) P440,000.00 as actual damages;
back to their original positions before the contract was entered into. (d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages; and
V. Law or Doctrine Applied (f) P20,000.00 as attorney's fees.
ARTICLE 1225 OF THE NEW CIVIL CODE
Article 1225. For the purposes of the preceding articles, obligations to give Petitioners are ordered to return the Kodak Minilab System 22XL unit and
definite things and those which are not susceptible of partial performance its standard accessories to respondent.
shall be deemed to be indivisible.
SO ORDERED.
When the obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metrical units, or analogous VII. Additional Notes
things which by their nature are susceptible of partial performance, it shall Lam Spouses prayed for the following to be paid, (1) P2,040,000 in actual
be divisible. damages; (2) P50,000,000 in moral damages; (3) P20,000,000 in exemplary
damages; (4) P353,000 in attorney's fees; and (5) P300,000 as litigation
However, even though the object or service may be physically divisible, expenses. The Lam Spouses did not appeal the Regional Trial Court's award
an obligation is indivisible if so provided by law or intended by the for the generator set and the renovation expenses.
parties.
VII. Random Facts
ARTICLE 1191 OF THE NEW CIVIL CODE • Ponente: Leonen, J.
Article 1191. The power to rescind obligations is implied in reciprocal ones,
him.
The injured party may choose between the fulfilment and the rescission of

G.R. No. 28497 | November 6, 1928 Art. 1226 – Obligations with a Penal Clause
Bachrach Motor Co., Inc. v. Faustino Espiritu Bachrach Motor Co., Inc. v. Faustino Espiritu
I. Recit-ready Summary 3.) Case 28497 – On July 28, 1925 Faustino Espiritu purchased from
This is a consolidated case (Cases no. 28497 and 28948) involving two plaintiff a two-ton White truck secured by the said truck and 3
separate sale transactions of a white truck wherein the defendant Faustino others, including 77197 and 92744 (which are the same trucks in
Espiritu failed to pay in both transactions. Both transactions were secured the first transaction)
by two trucks (numbered 77197 and 92744) among others, payable within 4.) Both transactions are payable within the periods agreed upon with a
the periods agreed upon with a stipulation of 12% interest upon the unpaid stipulation of 12% interest upon the unpaid portion and 25%
portion and 25% penalty in case of non-payment of the debt upon maturity. penalty in case of non-payment of the debt upon maturity.
Faustino also signed a promissory note solidarily with his brother Rosario 5.) The defendant also signed a promissory note solidarily with his
(acting as intervenor), the sums secured by 2 mortgages. Rosario is alleged brother Rosario (acting as intervenor), the sums secured by 2
to be the exclusive owner of the two white trucks no. 77197 & 92744 mortgages.
mortgaged. The brothers contend that trucks 77197 and 92744 were not 6.) Rosario is alleged to be the exclusive owner of the two white trucks
mortgaged because when the defendant signed the mortgage deeds these no. 77197 & 92744 mortgaged.
trucks were not included in those documents, and were only put in later, 7.) While the two cases were pending in the lower court the mortgaged
without defendant's knowledge. They also allege that the defendant sold his trucks were sold by virtue of the mortgage.
rights in said trucks Nos. 77197 and 92744 to the intervenor, and that as the 8.) The lower court ordered the defendant and the intervenor to pay the
latter did not sign the mortgage deeds, such trucks cannot be considered as plaintiffs in both cases the respective sum owed with interest at the
mortgaged. Lastly, they contend that the 25% penalty upon the debt makes rate of 12% per annum and with 25% thereon as penalty.
the contract usurious (This is the main issue). The SC held that no, the 25% 9.) The brothers contend that trucks 77197 and 92744 were not
penalty upon the debt is not usurious. Article 1152 of the Civil Code (or mortgaged because when the defendant signed the mortgage deeds
Article 1226 of the New Civil Code) permits the agreement upon a penalty these trucks were not included in those documents, and were only
apart from the interest. The penalty is not to be added to the interest for the put in later, without defendant's knowledge.
determination of whether the interest exceeds the rate fixed by the law, since 10.) They also allege that the defendant sold his rights in said trucks
said rate was fixed only for the interest. However, considering that the Nos. 77197 and 92744 to the intervenor, and that as the latter did
obligation was partly performed, the penalty is reduced to 10% of the not sign the mortgage deeds, such trucks cannot be considered as
unpaid debt. mortgaged.
11.) They contend that the 25% penalty upon the debt makes the
II. Facts of the Case (Material Facts) contract usurious.
1.) This is a consolidated case (Cases no. 28497 and 28948) involving
two separate sale transactions wherein the defendant Faustino III. Issue/s
Espiritu failed to pay the price secured by mortgage in both 1. W/N the 25% penalty upon the debt in addition to the 12%
transactions. interest per annum is usurious. – NO but reduced to 10% due to
2.) Case 28498 – On February 18, 1925, Faustino Espiritu bought a partial performance of the obligation.
one-ton White truck from plaintiff secured by the said truck and
two others (numbered 77197 and 92744) IV. Holding/s
Obligations and Contracts (2020) PLAINTIFF: Bachrach Motor Co., Inc. 1

DIGEST AUTHOR: Pia Casano DEFENDANT: Faustino Espiritu
G.R. No. 28497 | November 6, 1928 Art. 1226 – Obligations with a Penal Clause
Bachrach Motor Co., Inc. v. Faustino Espiritu Bachrach Motor Co., Inc. v. Faustino Espiritu
Issue #1 Overall Ruling

No, the 25% penalty upon the debt is not usurious. The penalty is not to be Article 1152 of the Civil Code (or Article 1226 of the New Civil Code)
added to the interest for the determination of whether the interest exceeds permits the agreement upon a penalty apart from the interest. Should there
the rate fixed by the law, since said rate was fixed only for the interest. be such an agreement, the penalty does not include the interest, and as such
Espiritu’s Arguments Court’s Rebuttals the two are different and distinct things which 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
• Trucks 77197 and 92744 were • There is positive proof that they
said rate was fixed only for the interest. However, considering that the
not mortgaged because when were included at the time the
obligation was partly performed, the penalty is reduced to 10% of the
the defendant signed the defendant signed these
unpaid debt.
mortgage deeds these trucks documents + evidence from
were not included in those employee.
documents, and were only put
in later, without defendant's
knowledge.
ART. 1226 OF THE NEW CIVIL CODE
In obligations with a penal clause, the penalty shall substitute the indemnity
• On February 4, 1925, the • Intervenor signed the two
for damages and the payment of interests in case of noncompliance, if there
defendant sold his rights in said promissory notes secured by the is no stipulation to the contrary. Nevertheless, damages shall be paid if the
trucks Nos. 77197 and 92744 to mortgages (Court belied obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of
the intervenor, and that as the Rosario’s claim that he did not the obligation.
latter did not sign the mortgage sign the promissory notes.) The penalty may be enforced only when it is demandable in accordance
deeds, such trucks cannot be Intervenor (Rosario) was aware with the provisions of this Code.
considered as mortgaged. of it and consented to the
inclusion of the two trucks in REDUCTION OF PENALTY
the mortgages. Thus, it is When the obligation has been partly performed, the Civil Code authorizes
immaterial w/n he was the the court to reduce the penalty imposed.
exclusive owner.
VI. Disposition
With the sole modification that instead of 25 per cent upon the sum owed,
the defendants need pay only 10 per cent thereon as penalty, the judgment
appealed from is affirmed in all other respects without special
pronouncement as to costs. So ordered.
VIII. Random Facts

• Ponente: AVANCEÑA, C. J.
Obligations and Contracts (2020) PLAINTIFF: Bachrach Motor Co., Inc. 2

DIGEST AUTHOR: Pia Casano DEFENDANT: Faustino Espiritu
G.R. No. L-41093 | October 30,1987 Obligations with a Penal Clause
Robes-Francisco v. CFI Robes-Francisco v. CFI

In May 1962 Robes-Francisco Realty & Development Corporation, 1. In May 1962 Robes-Francisco Realty & Development Corporation,
agreed to sell a 276 square meter parcel of land in Caloocan City to private agreed to sell a 276 square meter parcel of land in Caloocan City
respondent Lolita Millan for and in consideration of the sum of P3,864.00, to private respondent Lolita Millan for and in consideration of the
payable in installments. Millan paid everything and afterwards Millan and sum of P3,864.00, payable in installments.
Robes-Francisco entered into a absolute deed of sale with a provision that 2. Millan paid everything, and it totalled P5,193.63 including interests
says: within 6 months from the date of full payment, Robes-Francisco must and expenses for registration of title.
give the TCT to Millan, if they fail to issue it, they have to refund Millan, 3. Afterwards, Millan sent repeated demands for the execution of the
along with a 4% per annum interest. Robes- Francisco failed to issue the final deed of sale and TCT of the lot.
TCT to Millan, which caused Millan to file a case for specific performance 4. On March 1973, they executed a deed of absolute sale, with a
and damages in August 1974. The corporation countered by saying that the provision that says: within 6 months from the date of full payment,
contract was entered into voluntarily by both parties, and that Millan’s Robes-Francisco must give the TCT to Millan, if they fail to issue
interest was protected by the provision stated above. On Feb 1975, CFI it, they have to refund Millan, along with a 4% per annum interest.
ruled in favor of Millan, and ordered for the issuance of the TCT or for the 5. When the stipulated period lapsed, Robes-Francisco failed to issue
refund, with the 4% interest per annum starting June 1972. the TCT to Millan, thus Millan filed a complaint for specific
The case was directly elevated to the SC with only 1 issue: Was the performance and damages in August 1974. Millan prayed for the
award for nominal damages of P20,000.00 and attorney's fee of P5,000.00 reformation of the deed of sale, delivery of TCT or if not possible,
excessive and unjustified? Petitioner contends that the stipulation in the payment of 27,600 pesos for the lot, and damages.
deed of absolute sale is a penal clause and therefore the vendee is bound by 6. The corporation in its answer saying that the complaint be
the terms of the provision and cannot recover more than what is agreed dismissed as the deed of absolute sale was voluntarily executed
upon. They invoke Article 1226 of the Civil Code to back up their claim. between the parties and the interest of the plaintiff was amply
The foregoing argument of petitioner is totally devoid of merit. SC would protected by the provision for payment of interest at 4% per annum
agree with petitioner if the clause in question were to be considered as a
for the delay.
penal clause, but said clause does not convey any penalty, for even
7. On February 11, 1975, CFI ruled in favor of Millan, after finding
without it, pursuant to Article 2209 of the Civil Code, Millan is entitled
that Robes-Francisco failed to issue the TCT because the parcel of
to recover the amount paid by her with legal rate of interest which is
even more than the 4% provided for in the clause. It is therefore land for Millan was included among other properties of the
inconceivable that the aforecited provision in the deed of sale is a penal corporation mortgaged to the GSIS to secure P10 million.
clause which will preclude an award of damages to the vendee Millan. In 8. They ordered Robes-Francisco to secure the TCT for Millan, or if
fact the clause is so worded as to work to the advantage of petitioner not possible, to pay back Millan, with additional 4% interest
corporation. starting from June 1972, with P20,000 in nominal damages in
SC affirmed the decision of the CFI but modifying the nominal either case.
damages to P10,000 as it was excessive.
1
Obligations and Contracts (2020) PETITIONER: ROBES-FRANCISCO REALTY & DEVELOPMENT CORP
DIGEST AUTHOR: Sean Lee RESPONDENT: CFI of Rizal and Lolita Millan
9. The case was directly elevated to the SC with only 1 issue: Was the Overall Ruling
award for nominal damages of P20,000.00 and attorney's fee of Petitioner contends that the deed of absolute sale executed between the
P5,000.00 excessive and unjustified? parties stipulates that should the vendor fail to issue the transfer certificate
III. Issue/s of title within six months from the date of full payment, it shall refund to the
1. Was the award for nominal damages of P20,000.00 and vendee the total amount paid for with interest at the rate of 4% per annum,
attorney's fee of P5,000.00 excessive and unjustified? NO but hence, the vendee is bound by the terms of the provision and cannot recover
with modifications. more than what is agreed upon. Presumably, petitioner in invoking Article
IV. Holding/s 1226 of the Civil Code which provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the
Issue #1 payment of interests in case of noncompliance, if there is no stipulation to
NO but with modification, Was the award for nominal damages of the contrary.
P20,000.00 and attorney's fee of P5,000.00 excessive and unjustified? The foregoing argument of petitioner is totally devoid of merit. We would
Petitioner’s Arguments Court’s Rebuttals agree with petitioner if the clause in question were to be considered as a
● P etitioner contends that the ● The Court disagrees. The clause penal clause. Nevertheless, for very obvious reasons, said clause does not
stipulation in the deed of is not a penal clause. Respondent convey any penalty, for even without it, pursuant to Article 2209 of the
absolute sale is a penal clause is entitled to recover the amount Civil Code, the vendee would be entitled to recover the amount paid by her
and therefore the vendee is paid+ legal rate of interest, with legal rate of interest which is even more than the 4% provided for in
bound by the terms of the which is higher than the 4% per the clause. It is therefore inconceivable that the aforecited provision in the
provision and cannot recover annum stipulated. deed of sale is a penal clause which will preclude an award of damages to
more than what is agreed upon. the vendee Millan. In fact the clause is so worded as to work to the
They invoke Article 1226 of the advantage of petitioner corporation.
Civil Code to back up their Unfortunately, the vendee, now private respondent, submitted her case
claim. below without presenting evidence on the actual damages suffered by her as
a result of the nonperformance of petitioner's obligation under the deed of
sale. Nonetheless, the facts show that the right of the vendee to acquire title
to the lot bought by her was violated by petitioner and this entitles her at the
very least to nominal damages.
It is generally held that 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
2
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 Art. 2209. If the obligation consists in the payment of a sum of money,
of the existence of a technical injury. and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
In the situation now before Us, We are of the view that the amount of and in the absence of stipulation, the legal interest, which is six per cent per
P20,000.00 is excessive. The admitted fact that petitioner corporation failed annum.
Art. 2221. Nominal damages are adjudicated in order that a right of
to convey a transfer certificate of title to respondent Millan because the
the plaintiff, which has been violated or invaded by the defendant, may be
subdivision property was mortgaged to the GSIS does not in itself show that
vindicated or recognized, and not for the purpose of indemnifying the
there was bad faith or fraud. Bad faith is not to be presumed. Moreover,
plaintiff for any loss suffered by him.
there was the expectation of the vendor that arrangements were possible for
the GSIS to make partial releases of the subdivision lots from the overall Art. 2222. The court may award nominal damages in every obligation
real estate mortgage. It was simply unfortunate that petitioner did not arising from any source enumerated in article 1157, or in every case where
succeed in that regard. For that reason We cannot agree with respondent any property right has been invaded.
Millan Chat the P20,000.00 award may be considered in the nature of
exemplary damages.
To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by
way of nominal damages is fair and just under the following circumstances VI. Disposition
PREMISES CONSIDERED, We modify the decision of the trial court

and reduce the nominal damages to Ten Thousand Pesos (P10,000.00). In all
other respects the aforesaid decision stands.
●
VII. Additional Notes.

VII. Random Facts
Art. 1226. In obligations with a penal clause, the penalty shall ● Ponente: MUÑOZ PALMA, J.
substitute the indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
3
G.R. No. 176425| June 5, 2013 Obligations with a Penal Clause
Heirs of Manuel Uy Ek Liong vs Castillo Heirs of Manuel Uy Ek Liong vs Castillo
I. Recit-ready Summary CA also ruled that both the Agreement and Kasunduan are invalid and
Mauricia Meer Castillo and Felipe Castillo own 4 parcels of land. Upon the unconscionable. The issue in this case is whether or not the CA erred in
death of Felipe, a deed of extrajudicial partition over his estate was executed declaring the Agreement and Kasunduan void, and whether or not
by his heirs. The properties were used as a security for the payment in the damages shall be awarded despite the presence of a penal clause. The
purchase of a tractor by Mauricia’s nephew. The 4 parcels of land were court ruled that the CA erred in ruling on the validity of the Agreement.
eventually sold at public auction to ICP. ICP then sold the properties to Atty. Zepeda was not properly impleaded in the case thus the CA should not
PMPCI. Respondent, Buenaflor filed for the annulment of the transactions have invalidated the Agreement. Both parties are bound by the stipulations
in the CFI of Quezon. Because of lack of funds, respondents and Buenaflor set in the Kasunduan. The court also ruled that the penal clause shall be
entered into an Agreement with Atty. Zepeda for his legal services and implemented in lieu of the awarding of moral and exemplary damages.
Manuel for his financial help. In consideration for the assistance, Atty. In obligations with a penal clause, the penalty generally substitutes the
Zepeda and Manuel would be entitled to 40% of all the awarded properties indemnity for damages and the payment of interests in case of
and monetary benefits which may be awarded by the court. Respondents non-compliance.
entered into another agreement, denoted as Kasunduan, whereby they
agreed to sell their remaining 60% to Manuel for P180,000. The parties in II. Facts of the Case
the Kasunduan stipulated that respondents would retain a portion of the 1. Mauricia Meer Castillo and Felipe Castillo own 4 parcels of land.
land, and those that violate any of the stipulations agreed upon shall be 2. Upon the death of Felipe, a deed of extrajudicial partition over his
liable to the aggrieved party for the penalty charge worth P50,000. Manuel estate was executed by his heirs, Mauricia, Buenaflor, Bertilla,
later on died, and was survived by his heirs. CFI decided in favor of Marietta, Leovina, and Philip.
respondents in the annulment suit. The parcels of land were divided in 3. Properties were used to secure payment for tractor purchased by
accordance with the Agreement, with 60% apportioned to the respondents Mauricia’s nephew. Properties were later sold at a public auction to
while the remaining 40% was registered in the name of Atty. Zepeda. ICP.
Respondents wrote to petitioners offering to sell the 60% share for a price 4. ICP sold the parcels of land to PMPMCI.
different from the stipulated price in the Kasunduan. Acting on the advice 5. Buenaflor filed a case in the CFI of Quezon for the annulment of the
of Atty. Zepeda, respondents wrote to petitioners informing them that they transactions involving the parcels of land.
were willing to sell their 60% share for P500/ sq.m, which is much more 6. Because of financial constraints, respondents and Buenaflor entered
than the price agreed upon by both parties. Petitioners responded by into an Agreement with Atty. Edmundo Zepeda for his legal
insisting on the price stipulated in the Kasunduan. Petitioners filed a services and Manuel Uy Ek Liong who shall finance the suit. The
complaint for specific performance and damage, because of the unjustified latter agreed to underwrite all litigation expenses.
refusal of respondents to comply with the stipulations of the Kasunduan. 7. In consideration to the above conditions, Atty. Zepeda and Manuel
RTC ruled that the Kasunduan is valid. Both parties appealed to the CA, would be entitled to 40% of all the realities and/or monetary benefits
which ruled that the Agreement is void for violating the new civil code. The which may be adjudicated in favor of respondents.
1
Obligations and Contracts (2020) PETITIONER: Heirs of Manuel Uy Ek Liong
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Mauricia Meer Castillo, Heirs of Buenaflor Umal
8. Respondents and Buenaflor entered into another Kasunduan unjustified refusal of respondents to comply with the obligation under
whereby they agreed to sell their remaining 60% share to Manuel for the Kasunduan. Petitioners pray for the execution of Deed of Sale,
P180,000. The parties stipulated that Manuel would pay P1,000 up plus damages.
front upon execution of the Kasunduan. Respondents and Buenaflor 16. Respondents answered with a Counterclaim stating that the
also stipulated that they would retain a 1,750 sq. m. portion of the Agreement and the Kasunduan were illegal for being
land. unconscionable and contrary to public policy.
9. It was agreed that any party who violates the Kasunduan would pay 17. RTC ruled that the Kasunduan was valid and binding. Lower court
the injured party a penalty of P50,000, plus attorney’s fees and ruled that the contract became effective upon finality of the court
litigation expenses. Parties also agreed to enter into such other decision in September 1990 which served as a suspensive condition.
stipulations that would ensure the sale would push through and/or in 18. Respondents were declared estopped from questioning the validity of
the event of illegality or impossibility any part of the Kasunduan. the Agreement because they already benefited from the legal services
10. Manuel died in 1989, he was survived by the petitioners, Heirs of of Atty.Zepeda.
Manuel Uty Ek Liong. 19. Upon appeal by both parties, the CA set aside the ruling of the RTC.
11. CFI decided in favor of respondents and Buenaflor. The parcels of (see additional notes for CA findings)
land were subdivided in accordance with the Agreement, with 60%
equally apportioned among the respondents and Buenaflor. While the
remaining 40% was registered in the name of Atty. Zepeda. III. Issue/s
12. Acting on the advice of Atty. Zepeda, respondents wrote to 1. W/N the CA erred in ruling that the Agreement and Kasunduan are
petitioners informing them that they were willing to sell their 60% void? Yes.
share for P500/ sq.m. 2. W/N moral and exemplary damages should be awarded despite
13. Petitioners responded by insisting on the agreed price as stated in the the presence of a penal clause? No.
Kasunduan, and requesting the respondents to execute within 15
days the Deed of Absolute Sale. IV. Holding/s
14. Informed that petitioners were ready to pay the remaining P179,000
balance, respondents wrote to petitioners reminding them of their Issue #1 (not the main issue relevant to the topic)
refusal of earlier offers to sell the shares of Leovina and Buenaflor Yes. The Agreement and Kasunduan are valid.
who had died. They also reminded petitioner’s that they have the
right to as for additional consideration for the sale pursuant to the
Kasunduan.
15. Petitioners commenced the present suit by filing a complaint for
specific performance and damages hinged on the purported
2

● Civil Code prohibits ● Court ruled that the CA reversibly erred in There is no proof that the respondents were forced to sign the Agreement
lawyers from acquiring ruling on the validity of the Agreement and the Kasunduan. There is no showing of such vitiation of consent.
by purchase the which respondents executed not only with Records show that the main objection to the enforcement of the Kasunduan
property involved petitioners’ predecessor-in-interest, was the perceived inadequacy of the stipulated purchase price in the
which are the object of Manuel, but also with Atty. Zepeda. Kasunduan. Instead of impleading the vitiation of consent, the respondent
the litigation in which ● Atty. Zepeda was not properly impleaded argued instead that the Kasunduan was tantamount to unjust enrichment.
they intervene by in the suit, therefore the CA should not Court ruled that the parties are bound by the original terms embodied in the
virtue of their have invalidated the Agreement and Kasunduan. Obligations arising from contracts, after all, have the force of
profession. holding the attorney’s fees should be law between the contracting parties who are expected to abide in good faith
● Philip repeatedly computed on a quantum meruit basis. with their contractual commitments, not weasel out of them. Moreover,
claimed that ● CA lost sight of the fact that the when the terms of the contract are clear and leave no doubt as to the
respondents had been prohibition applies only during the intention of the contracting parties, the rule is settled that the literal meaning
forced to sign the pendency of the suit and does not cover of its stipulations should govern.
Agreement and the contracts for contingent fees.
Kasunduan. Issue #2
Overall Ruling No. the penal clause shall suffice as petitioner’s indemnity.
The Agreement and Kasunduan are independent. Executed in exchange for Petitioner’s Court’s Rebuttals
the legal services of Atty. Zepeda and the financial assistance of Manuel, Arguments -Parties fixed liquidated damage in the amount of P50,000 in
the Agreement stipulated the respondent’s transfer of 40% of the reward in ● NA case of breach. Court finds that said amount should suffice as
the event of a favorable judgement. The Kasunduan was between the petitioner’s indemnity without need of further compensation.
respondents and Manuel alone, for the purpose of selling the subject 60% Overall Ruling
share for P180,000. While both the Agreement and Kasunduan are subject Since the parties also fixed liquidated damages in the sum of P50,000.00 in
to the same suspensive condition, they are independent of each other. case of breach, the Court found that said amount should suffice as
CA reversibly erred in not determining the validity of the Kasunduan petitioners' indemnity, without further need of compensation for moral and
independent from that of the Agreement. The Kasunduan was correctly exemplary damages. In obligations with a penal clause, the penalty
found by the RTC to be a valid and binding contract. The Kansunduan was generally substitutes the indemnity for damages and the payment of
already partially executed by the respondent’s receipt of the P1,000 interests in case of non-compliance. Usually incorporated to create an
downpayment from Manuel. The Kasunduan being a notarized document effective deterrent against breach of the obligation by making the
carries the evidentiary weight conferred upon it with respect to its due consequences of such breach as onerous as it may be possible, the rule is
execution.
3
settled that a penal clause is not limited to actual and compensatory

damages. VII. Additional Notes
ICP- Insurance Corporation of the Philippines
PMPMCI- Philippine Machinery Parts Manufacturing Co., Inc.
CA findings:
(a) the Agreement and Kasunduan are byproducts of the partnership between Atty.
ARTICLE 1226 OF THE CIVIL CODE Zepeda and Manuel who, as a non-lawyer, was not authorized to practice law;
Art. 1226. In obligations with a penal clause, the penalty shall substitute the (b) the Agreement is void under Article 1491 (5) of the Civil Code of the Philippines
indemnity for damages and the payment of interests in case of noncompliance, if which prohibits lawyers from acquiring properties which are the objects of the
there is no stipulation to the contrary. Nevertheless, damages shall be paid if the litigation in which they have taken part;
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the (c) jointly designed to completely deprive respondents of the subject parcels, the
obligation. Agreement and the Kasunduan are invalid and unconscionable; and
(d) without prejudice to his liability for violation of the Canons of Professional
The penalty may be enforced only when it is demandable in accordance with the Responsibility, Atty. Zepeda can file an action to collect attorney's fees based on
provisions of this Code. quantum meruit.
Art. 1227. The debtor cannot exempt himself from the performance of the VIII. Random Facts
obligation by paying the penalty, save in the case where this right has been ● Perez, J.
expressly reserved for him. Neither can the creditor demand the fulfilment
of the obligation and the satisfaction of the penalty at the same time, unless
this right has been clearly granted to him. However, if after the creditor has
decided to require the fulfilment of the obligation, the performance thereof
should become impossible without his fault, the penalty may be enforced.
VI. Disposition
WHEREFORE, premises considered, the Court of Appeals' assailed 23
January 2007 Decision is REVERSED and SET ASIDE. In lieu thereof, the
RTC's 27 January 2005 Decision is REINSTATED subject to the following
MODIFICATIONS: (a) the exclusion of a 1,750-square meter portion from
the 60% share in the subject parcel respondents were ordered to convey in
favor of petitioners; and (b) the deletion of the awards of moral and
exemplary damages. The rights of the parties under the Agreement may be
determined in a separate litigation. SO ORDERED.
4
G.R. No. 141434 | September 23, 2003 Obligations with a Penal Clause
Lo v. Court of Appeals Lo v. Court of Appeals
I. Recit-ready Summary 5. Upon the expiration of the lease contract, Lo demanded that
Petitioner acquired in an auction sale two parcels of land with an office private respondent vacate the leased premises and surrender its
building constructed thereon, then leased by private respondent. Upon possession to him.
expiration of the lease contract, however, private respondent refused to 6. Private respondent refused on the ground that it was, at the time,
vacate the premises as it was contesting petitioner's acquisition of the land in contesting petitioner's acquisition of the parcels of land in
an action for annulment of sale, redemption and damages. When petitioner question in an action for annulment of sale, redemption and
thereafter led an action for ejectment, both the MTC and the RTC ruled in damages.
favor of petitioner, granting the stipulated penalty of P5,000 per day of
7. Lo then led an action for ejectment before the MTC.
delay in surrendering possession of the property to petitioner. The Court of
8. MTC & RTC – in favor of Antonio Lo
Appeals, on the other hand, while also ruling in favor of petitioner, modified
the amount of penalty to P1,000.aScITE 9. CA – affirmed decision of trial court BUT with the modification
Whether the reduced amount of penalty by the Court of Appeals to that the penalty imposed upon private respondent for the delay in
P1,000.00 was proper, the Court ruled in the affirmative. Per stipulation, the turning over the leased property to petitioner was reduced from P
monthly rental of the premises was P30,000; the daily penalty for delay in 5,000 to P1000 per day
surrendering possession thereof was P5,000 or P150,000 per month. This III. Issue/s
penalty of P150,000.00 per month is not only exorbitant but also 1. W/N the reduced amount of penalty by the CA to P1,000 was
unconscionable, taking into account that the delay in surrendering the leased proper? YES.
premises was because of a well-founded belief that private respondent's
right of pre-emption to purchase the premises had been violated. Also IV. Holding/s
considered is the fact that private respondent is an agricultural cooperative
collectively owned by farmers with limited resources.
Issue #1
YES, the reduced amount of penalty by the CA to P1,000 was proper.
1. Two parcels of land (2,147 sq. meters) with an office building
constructed thereon, (located at Bo. Potrero, Malabon, Metro Petitioner’s Arguments Court’s Rebuttals
Manila and covered by TCT Nos. M-13166 and M-13167). • It was contractually stipulated • The case falls under Article 1229:
2. Antonio Lo (Lo) acquired the subject parcels of land in an that there be a penalty of P5,000 The judge shall equitably reduce the
auction sale on November 9, 1995 for P20,170,000 from the Land per day of delay in surrendering penalty when the principal
Bank of the Philippines. the possession of the property to obligation has been partly or
3. National Onion Growers Cooperative Marketing Association, Inc., him. irregularly complied with by the
(private respondent) an agricultural cooperative, was the debtor. Even if there has been no
occupant of the disputed parcels of land under a subsisting contract performance, the penalty may also
of lease with Land Bank. be reduced by the courts if it is
4. The lease was valid until December 31, 1995. iniquitous or unconscionable.
Obligations and Contracts (2020) PETITIONER: Antonio Lo 1

DIGEST AUTHOR: Steph Naval RESPONDENT: CA and National Onions Growers Cooperative Marketing
Association
G.R. No. 141434 | September 23, 2003 Obligations with a Penal Clause
Lo v. Court of Appeals Lo v. Court of Appeals

Generally, courts are not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see t as long as they are not WHEREFORE, petition is hereby DENIED. The decision of the Court of
contrary to law, morals, good customs, public order or public policy. Appeals reducing the amount of penalty damages against private respondent
Nevertheless, courts may equitably reduce a stipulated penalty in the is AFFIRMED.
contract if it is iniquitous or unconscionable, or if the principal obligation
SO ORDERED.
has been partly or irregularly complied with.
The question of whether a penalty is reasonable or iniquitous is addressed to VII. Random Facts
the sound discretion of the court and depends on several factors, including, • Ponente: Corona, J.
but not limited to, the following: the type, extent and purpose of the penalty,
the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties.
In this case, the stipulated penalty was reduced by the appellate court for
being unconscionable and iniquitous. As provided in the Contract of Lease,
private respondent was obligated to pay a monthly rent of P30,000. On the
other hand, the stipulated penalty was pegged at P5,000 for each day of
delay or P150,000 per month, an amount five times the monthly rent. This
penalty was not only exorbitant but also unconscionable, taking into account
that private respondent's delay in surrendering the leased premises was
because of a well-founded belief that its right of preemption to purchase the
subject premises had been violated. Considering further that private
respondent was an agricultural cooperative, collectively owned by farmers
with limited resources, ordering it to pay a penalty of P150,000 per month
on top of the monthly rent of P30,000 would seriously deplete its income
and drive it to bankruptcy.
ARTICLE 1229
The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
Obligations and Contracts (2020) PETITIONER: Antonio Lo 2

DIGEST AUTHOR: Steph Naval RESPONDENT: CA and National Onions Growers Cooperative Marketing
Association
G.R. No. 190512 | March 13, 2020 Obligations with a Penal Clause
D.M. Ragasa Enterprises Inc. v. Banco De Oro, Inc. D.M. Ragasa Enterprises Inc. v. Banco De Oro, Inc.
1. Recit-ready Summary 2003) because the bank's act of pre-terminating the

1. January 30, 1998: Ragasa and then Equitable Banking Corporation contract was a major breach of its terms.
(Equitable Bank) executed a Contract of Lease (Lease Contract), as lessor ii. Moreover, item 8 (m) expressly provides that the
and lessee, respectively, over the G and 2/F of a commercial building at 175 security deposit shall not be applied to the rentals.
Tomas Morato Avenue cor Scout Castor, Quezon City (subject premises), 2. BDO’s (Respondent) Contention:
for a period of 5 years, commencing on February 1, 1998 up to January i. Item 8 (m) of the Lease Contract is actually a penalty
31, 2003. clause which, in line with Article 1226 of the Civil
2. Equitable Bank paid the amounts of: Code, takes the place of damages and interests in case
1. P367,821.00 three months advance rentals, and of breach. Hence, for breaching the Lease Contract by
2. P367,821.00 three months rentals as security deposit. pre-terminating the same, the bank is liable to forfeit its
3. Equitable Bank entered into a merger with Philippine Commercial security deposit in favor of Ragasa but would not be
International Bank (PCI Bank) thereby forming Equitable PCI Bank, Inc. liable for rentals corresponding to the remaining life of
which would eventually, pending the present case, merge with Banco de the Contract.
Oro, Inc. (BDO) to form the respondent bank. ii. Moreover, the bank is not liable for the penalty at the
1. One of the branches which had to be closed is the branch located rate of 3% under item 8 (n) of the Lease Contract
in the subject premises. because the bank paid the due rentals up to the time it
4. May 28, 2001: The BDO sent a Notice of Pretermination informing pre-terminated the same.
Ragasa that they were pre-terminating their Lease Contract effective June 7. The RTC ruled in Ragasa's favor.
30, 2001. 8. CA granted the BDO's appeal and reversed and set aside the RTC's ruling
1. June 20, 2001: Ragasa responded with a demand letter for 9. Hence, this present petition. The Supreme Court ruled that BDO
payment of monthly rentals for the remaining term of the breached item 2 of the Lease Contract providing for a five-year term
Lease Contract from July 1, 2001 to January 31, 2003 totaling when it served Ragasa the Notice of Pretermination, effective June 30,
P3,146,596.42, inasmuch as there is no express provision in the 2001. Thus, terminating the contract pursuant to the Automatic
Lease Contract allowing pre-termination. Termination Clause provided in item 8 (p).
2. June 26, 2001: BDO countered, through a letter dated that its only 10. The Supreme Court believes and so holds that item No. 8 (m) is a
liability for preterminating the contract is the forfeiture of its penalty or penal clause. The provision or clause that is applicable in
security deposit pursuant to item 8 (m) of the Lease Contract. case of noncompliance of the Term or period of the Lease Contract is
5. June 30, 2001: BDO vacated the subject premises without heeding Ragasa's item 8 (m) which mandates that the full deposit of P367,821.00 or the
demand for payment. equivalent of three months rentals shall be forfeited with the proviso
6. March 11, 2002: After sending 2 more reiterative demand letters, which that the deposit cannot be applied to rental.
were both ignored by BDO, Ragasa finally filed with the RTC the Item 8 (m) seeks to insure or guarantee the completion of the lease period
Complaint for Collection of Sum of Money and Damages. since its non-compliance shall be met with a penalty. As expressed earlier,
1. Ragasa’s (Petitioner) Contention: the amount is purely discretionary on the parties provided that it will pass
i. The forfeiture of the bank's security deposit does not the test of unconscionability or excessiveness. Since the herein parties have
exempt it from payment of the rentals for the agreed on a specific amount of penalty, P367,821.00 or the full deposit, the
remaining term of the lease (amounting to Court will not even second guess whether it is substantial enough to insure
P3,146,596.42 for the period July 1, 2001 to January 31, the compliance of the lease period. The Court will simply rule that it is
reasonable.
1
Obligations and Contracts (2020) PETITIONER: D.M. Ragasa Enterprises Inc.
DIGEST AUTHOR: Princess Alvaran RESPONDENT: Banco De Oro, Inc. (formerly Equitable PCI Bank, Inc.)
Art 1226. In obligations with a penal clause, the penalty shall substitute There is nothing in the Lease Contract which provides that the bank can
the indemnity for damages and the payment of interests in case of exempt itself from the performance of any provision therein, including the
noncompliance, if there is no stipulation to the contrary. Nevertheless, Term or period, by simply paying the penalty. Items 8 (m) and 10 do not
damages shall be paid if the obligor refuses to pay the penalty or is guilty of contain any such exemption. As discussed above, Ragasa cannot insist on
fraud in the fulfillment of the obligation. the performance of the lease, i.e., for the lease to continue until expiration
The penalty may be enforced only when it is demandable in accordance with of its term, because the lease has been automatically terminated when the
the provisions of this Code. bank breached it by pre-terminating its terms. Thus, Ragasa is only entitled
When an obligation or a contract contains a penal clause, the penalty to damages.
shall substitute the indemnity for damages and the payment of interests in That said, that is, even as items 8 (m) and 10 are considered strictly penal
case of noncompliance with or breach of the principal obligation. This or punishment, Ragasa, as the injured party, is nonetheless required to prove
general rule, however, admits three exceptions, namely: the "other damages" that it actually suffered before it can be entitled thereto.
1. when there is a stipulation to the contrary; 13. From the foregoing, the Court accordingly rules that the bank is liable for
Thus, the contract must expressly provide that in addition to the penalty, the forfeiture of the deposit and attorney's fees in the amount of P15,000.00
the guilty party shall be liable for damages or interests resulting from the and such other damages which Ragasa suffered by reason of the breach of
breach of the principal obligation. Item 8 (m) does not expressly make a the lease period by the bank.
reservation for an additional claim for damages and interests occasioned by
the breach of the lease period. Being provisions on default, item 8 (m) and 2. Facts of the Case (Material Facts)
item 10 must be applied jointly and simultaneously. Thus, aside from the 1. January 30, 1998: Ragasa and then Equitable Banking Corporation
forfeiture of the full deposit, the party at fault or in default is liable, pursuant (Equitable Bank) executed a Contract of Lease (Lease Contract), as lessor
to item 10 of the Lease Contract, for the payment of attorney's fees in an and lessee, respectively, over the G and 2/F of a commercial building at 175
amount which is not less than P15,000.00, other damages that the court may Tomas Morato Avenue cor Scout Castor, Quezon City (subject premises),
allow, cost of litigation, and 14% interest per annum on unpaid accounts and for a period of 5 years, commencing on February 1, 1998 up to January
obligations. 31, 2003, with a monthly rental of P122,607.00.
A careful reading of all the pertinent provisions leads the Court to believe 2. See Contract of Lease on Additional Notes. Study this carefully before
that when item 10 provides that "other damages that the court may allow" proceeding with the ff facts*
are recoverable in case of noncompliance of any provision of the Lease 3. Equitable Bank paid the amounts of:
Contract, this only means what it says, that the aggrieved party can be 1. P367,821.00 three months advance rentals, and
awarded damages in addition to the forfeiture of the deposit that is provided 2. P367,821.00 three months rentals as security deposit.
in item 8 (m). Item 8 (m) and item 10, construed together, form a 4. Equitable Bank entered into a merger with Philippine Commercial
complementary and cumulative penal clause; and it is a punishment or International Bank (PCI Bank) thereby forming Equitable PCI Bank, Inc.
strictly penal. which would eventually, pending the present case, merge with Banco de
11. The requisites for the demandability of the penal clause are present in Oro, Inc. (BDO) to form the respondent bank.
this case. 1. Result of the merger: the bank closed and joined the branches of
12. BDO cannot insist on paying only the penalty. This is proscribed under its constituent banks which were in close proximity with each
Article 1227. The debtor cannot exempt himself from the performance other as maintaining said branches would be impractical.
of the obligation by paying the penalty, save in the case where this right 2. One of the branches which had to be closed is the branch located
has been expressly reserved for him. xxx in the subject premises.
2
5. May 28, 2001: The BDO sent a Notice of Pretermination informing 1. The RTC held that the bank may not unilaterally pre-terminate the
Ragasa that they were pre-terminating their Lease Contract effective June Lease Contract; hence, it is still liable to pay the rentals for the
30, 2001. remaining duration of the said contract.
1. June 20, 2001: Ragasa responded with a demand letter for 2. In addition to item 8 (m) of the Lease Contract providing for the
payment of monthly rentals for the remaining term of the forfeiture of the bank's security deposit, item 8 (n), another
Lease Contract from July 1, 2001 to January 31, 2003 totaling penalty clause providing for additional 3% of the monthly rental
P3,146,596.42, inasmuch as there is no express provision in the for each month of delay in payment, also applies.
Lease Contract allowing pre-termination. 3. Pursuant to Section 10, an interest of 14% per annum on the
2. June 26, 2001: BDO countered, through a letter dated that its only amount due was awarded.
liability for preterminating the contract is the forfeiture of its 9. CA granted the BDO's appeal and reversed and set aside the RTC's ruling.
security deposit pursuant to item 8 (m) of the Lease Contract. 1. The CA ruled that the BDO's failure to continue the Lease
6. June 30, 2001: BDO vacated the subject premises without heeding Ragasa's Contract until its expiration constituted a breach of its provision.
demand for payment. As such, the Lease Contract was automatically terminated by
7. March 11, 2002: After sending 2 more reiterative demand letters, which virtue of item 8 (p) thereof providing for its outright termination
were both ignored by BDO, Ragasa finally filed with the RTC the in case of breach of any of its provisions. Hence, there is no legal
Complaint for Collection of Sum of Money and Damages. basis to hold the bank liable for payment of rentals for the
1. Ragasa’s (Petitioner) Contention: unexpired period of the contract.
i. The forfeiture of the bank's security deposit does not exempt 2. However, the bank is liable to forfeit its security deposit pursuant
it from payment of the rentals for the remaining term of to the penalty clause under item 8 (m) of the contract.
the lease (amounting to P3,146,596.42 for the period July 1, 10. Refusing to concede, Ragasa filed this present petition.
2001 to January 31, 2003) because the bank's act of pre-
terminating the contract was a major breach of its terms. 3. Issue/s
ii. Moreover, item 8 (m) expressly provides that the security 1. W/N BDO breached the Lease Contract, therefore terminating the contract?
deposit shall not be applied to the rentals. YES.
2. BDO’s (Respondent) Contention: 2. W/N the item No. 8 is a penalty or penal clause? YES.
i. Item 8 (m) of the Lease Contract is actually a penalty clause
which, in line with Article 1226 of the Civil Code, takes the 4. Holding/s
place of damages and interests in case of breach. Hence, for Issue #1
breaching the Lease Contract by pre-terminating the same, the YES, BDO breached item 2 of the Lease Contract providing for a five-year
bank is liable to forfeit its security deposit in favor of Ragasa term when it served Ragasa the Notice of Pretermination, effective June 30,
but would not be liable for rentals corresponding to the 2001. Thus, terminating the contract pursuant to the Automatic Termination
remaining life of the Contract. Clause provided in item 8 (p).
ii. Moreover, the bank is not liable for the penalty at the rate of Overall Ruling
3% under item 8 (n) of the Lease Contract because the bank *Note the difference of the usage of “Term” and “Provision”
paid the due rentals up to the time it pre-terminated the same. Term – refers to the period of the lease
8. The RTC ruled in Ragasa's favor. Provision – refer to any stipulation, condition, covenant or clause
BREACH OF FIVE-YEAR TERM

3
The Lease Contract has a specific provision in case of non-compliance of its the lease having been automatically resolved or terminated by agreement of
"Term" – "a period of five (5) years, commencing on February 1, 1998.” the parties, Ragasa is entitled only to indemnification for damages.
8. The TENANT voluntarily binds himself and agrees to the following
without any coercion or force by the LESSOR; Entitlement to rentals after the termination of the lease pursuant to an
m) The full deposit shall be forfeited in favor of the LESSOR automatic rescission or termination clause is possible in the case where the
upon non-compliance of the Term of the Contract of Lease by lessor invokes the clause and the lessee refuses to vacate the leased premises. The
the TENANT, and cannot be applied to Rental; lessee will be liable for damages equivalent to the rentals for the duration of its
possession from the termination of the lease until he vacates the premises. That is,
Given the fact that in item 2 and item 8 (g), the words "TERM" and "term” refer to however, not the situation here. The bank did not continue to possess the Leased
the period of the lease, the word "Term" in item 8 (m) should likewise be Premises after its automatic termination, as it vacated the same on June 30,
understood to have the same meaning. The correct interpretation of the word 2001.
"Term" in item 8 (m) is that it refers to the period of the lease, and not to any
other provision of the Lease Contract. It is the word "provisions" which the parties Issue #2
intended to refer to any stipulation, condition, covenant or clause and not the word YES, The Supreme Court believes and so holds that item No. 8 (m) is a penalty
"term." or penal clause.
Overall Ruling
Article 1170 of the Civil Code mandates that those who, in the performance of
their obligations, are guilty of fraud, negligence, or delay, and those who, in any The provision or clause that is applicable in case of noncompliance of the
manner, contravene the tenor thereof, are liable for damages. Term or period of the Lease Contract is item 8 (m) which mandates that the
full deposit of P367,821.00 or the equivalent of three months rentals shall be
Thus, having contravened the tenor of the Lease Contract regarding its term forfeited with the proviso that the deposit cannot be applied to rental. This
or period, BDO should be liable for damages. proviso as to non-application to rental of the deposit means that the forfeiture is
without prejudice to the payment of any unpaid rental at the time of the non-
NON-COMPLIANCE OF ANY PROVISIONS: compliance or breach of the Term or period of the Lease Contract. Since the bank
AUTOMATIC TERMINATION CLAUSE had no unpaid rental as of June 30, 2001, the proviso finds no application in the
present case.
In the present case, there is an express stipulation in item 8 (p) of the Lease
Contract that Item 8 (m) of the Lease Contract is an accessory obligation or prestation to the
p) Breach or non-compliance of any of the provisions of this principal obligation of lease. It specifies the stipulated amount of liquidated
Contract, especially non-payment of two consecutive monthly damages – the full deposit – to be awarded to the injured party in case of breach of
rentals on time, shall mean the termination of this Contract, the Term or period of the principal obligation. Hence, as to source, it is
conventional (where is it provided for by stipulation of the parties).
Pursuant to the automatic termination clause of the Lease Contract, which is in
furtherance of the autonomy characteristic of contracts, the Lease Contract was Item 8 (m) seeks to insure or guarantee the completion of the lease period since
terminated upon its unauthorized pre-termination by the bank on June 30, its non-compliance shall be met with a penalty. As expressed earlier, the amount
2001. Ragasa is, thus, precluded from availing of the second option which is to is purely discretionary on the parties provided that it will pass the test of
claim damages by reason of the breach and allow the lease to remain in force. With unconscionability or excessiveness. Since the herein parties have agreed on a
4
specific amount of penalty, P367,821.00 or the full deposit, the Court will not Being provisions on default, item 8 (m) and item 10 must be applied jointly
even second guess whether it is substantial enough to insure the compliance of and simultaneously. Thus, aside from the forfeiture of the full deposit, the party
the lease period. The Court will simply rule that it is reasonable. at fault or in default is liable, pursuant to item 10 of the Lease Contract, for the
payment of attorney's fees in an amount which is not less than P15,000.00, other
Art 1226. In obligations with a penal clause, the penalty shall substitute damages that the court may allow, cost of litigation, and 14% interest per annum
the indemnity for damages and the payment of interests in case of on unpaid accounts and obligations.
noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of
A careful reading of all the pertinent provisions leads the Court to believe that when
fraud in the fulfillment of the obligation.
item 10 provides that "other damages that the court may allow" are recoverable in
The penalty may be enforced only when it is demandable in accordance with case of noncompliance of any provision of the Lease Contract, this only means
the provisions of this Code. what it says, that the aggrieved party can be awarded damages in addition to
the forfeiture of the deposit that is provided in item 8 (m). Item 8 (m) and item
When an obligation or a contract contains a penal clause, the penalty shall 10, construed together, form a complementary and cumulative penal clause;
substitute the indemnity for damages and the payment of interests in case of and it is a punishment or strictly penal.
noncompliance with or breach of the principal obligation. This general rule,
however, admits three exceptions, namely: The requisites for the demandability of the penal clause are present in this
1. when there is a stipulation to the contrary; case.
2. when the obligor or debtor is sued for refusal to pay the agreed penalty; 1. that the total non-fulfillment of the obligation or the defective fulfillment is
and chargeable to the fault of the debtor; and
3. when the obligor or debtor is guilty of fraud. 2. That the penalty may been forced in accordance with the provisions of law.
Thus, the contract must expressly provide that in addition to the penalty, the guilty As to the second requisite, the penalty is demandable when the debtor is in mora in
party shall be liable for damages or interests resulting from the breach of the regard to obligations that are positive (to give and to do) where demand may be
principal obligation. Item 8 (m) does not expressly make a reservation for an necessary unless it is excused; and with regard to negative obligations, when an
additional claim for damages and interests occasioned by the breach of the act is done contrary to that which is prohibited.
lease period. There is, however, another provision of the Lease Contract that is
triggered by a default in item 8 (m): BDO cannot insist on paying only the penalty. This is proscribed under Article
1227, to wit:
10. In the event that a Court Litigation has been resorted to by the LESSOR or
LESSEE, due to non-compliance of any of the foregoing provisions, the Art. 1227. The debtor cannot exempt himself from the performance of
aggrieved party shall be paid by the other party, no less than fifteen the obligation by paying the penalty, save in the case where this right has
thousand (P15,000) pesos, Philippine Currency, for Attorney's fees, and been expressly reserved for him. Neither can the creditor demand the
other damages that the honorable court may allow; the cost of litigations fulfillment of the obligation and the satisfaction of the penalty at the same
shall be born[e] or paid by the party in fault, or in default. All unpaid accounts time, unless this right has been clearly granted him. However, if after the
and obligations of the TENANT shall earn interest or bear interest at the rate of creditor has decided to require the fulfillment of the obligation, the
14% per annum or at the allowable rate of interest from the date of default. The performance thereof should become impossible without his fault, the penalty
legal suits shall be brought in the town of Quezon City. may be enforced.
5
There is nothing in the Lease Contract which provides that the bank can exempt The penalty may be enforced only when it is demandable in accordance with the
itself from the performance of any provision therein, including the Term or period, provisions of this Code.
by simply paying the penalty. Items 8 (m) and 10 do not contain any such
exemption. As discussed above, Ragasa cannot insist on the performance of the ARTICLE 1127 OF THE CIVIL CODE
lease, i.e., for the lease to continue until expiration of its term, because the lease ART. 1127. The debtor cannot exempt himself from the performance of the obligation
by paying the penalty, save in the case where this right has been expressly reserved
has been automatically terminated when the bank breached it by pre-terminating
for him. Neither can the creditor demand the fulfillment of the obligation and the
its terms. Thus, Ragasa is only entitled to damages.
satisfaction of the penalty at the same time, unless this right has been clearly granted
him. However, if after the creditor has decided to require the fulfillment of the
That said, that is, even as items 8 (m) and 10 are considered strictly penal or obligation, the performance thereof should become impossible without his fault, the
punishment, Ragasa, as the injured party, is nonetheless required to prove the penalty may be enforced.
"other damages" that it actually suffered before it can be entitled thereto. However,
a review of the records shows that Ragasa presented nothing. ARTICLE 2203 OF THE CIVIL CODE
ART. 2203. The party suffering loss or injury must exercise the diligence of a good
In this regard, it must be emphasized that Ragasa could have leased the Leased father of a family to minimize the damages resulting from the act or omission.
Premises as early as July 1, 2001 because the bank had completely vacated the
same as of June 30, 2001. That Ragasa chose not to lease the Leased Premises and 2. Disposition
not earn any rental therefrom in the meantime that its complaint for damages
against the bank was being litigated was its own decision and doing. WHEREFORE, premises considered, the instant petition for review is hereby partly
GRANTED. The Decision dated March 27, 2009 and the Resolution dated November
25, 2009 of the CA are AFFIRMED WITH MODIFICATION, awarding attorney's
Art. 2203 of the Civil Code provides that "the party suffering loss or injury
must exercise the diligence of a good father of a family to minimize the
fees in the amount of P15,000.00 in favor of petitioner D.M. Ragasa Enterprises, Inc.
damages resulting from the act or omission."
3. Additional Notes
Ragasa likewise failed in this respect.
Emphasis on highlighted portions*
1. Law or Doctrine Applied 2. The TERM of this Lease shall be for a period of five (5) years, commencing on
February 1, 1998.
ARTICLE 1170 OF THE CIVIL CODE 3. The TENANT shall pay a monthly rental of ONE HUNDRED TWENTY TWO
ART. 1170. Those who, in the performance of their obligations, are guilty of fraud, THOUSAND SIX HUNDRED SEVEN (122,607) pesos based on P463.16 per square
negligence, or delay, and those who, in any manner, contravene the tenor thereof, are meter per month inclusive of Value Added Tax and withholding tax and payable in
liable for damages. advance in the first five days of the month, that is 1st to 5th of every month. An annual
increase of 10% shall be applied during the term of the lease.
4. The failure to pay two consecutive monthly rentals within the first five (5) days of any
ARTICLE 1126 OF THE CIVIL CODE month, as stated in No. 3, shall automatically terminate this Contract, without need of any
ART. 1126. In obligations with a penal clause, the penalty shall substitute the further notice to the TENANT. The LESSOR is hereby authorized, and has the right to
indemnity for damages and the payment of interests in case of noncompliance, if there show the premises to prospective tenants, and within five (5) days following the last day
is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor of the grace period stated in No. 3, the TENANT shall vacate the premises without the
refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. need of the usual judicial proceedings, and/or the LESSOR shall padlock the premises
until the TENANT settles his obligations. The TENANT agrees to this padlocking as a
sign of his good faith in his compliance with No. 3 of this Contract and the LESSOR is
6
not liable or answerable for any damage that the TENANT may incur or suffer due to his VII. Random Facts
non-entrance to the premises, or the LESSOR may confiscate any property found in the
premises equivalent to the unpaid rental, penalty, and interests thereto, as guaranty and/or • Ponente: Caguioa, J.
pledge, and can be retrieved anytime upon full payment of his accounts but must not be
for more than three (3) months from the date of default [;] otherwise, the confiscated
property or properties shall become permanently owned by the LESSOR as partial
payment of his unpaid rentals, penalties and interests, and in case of any unpaid balance,
the TENANT is still liable.
5. xxx
6. xxx
7. The parties hereby covenant and agree upon the signing of this Contract of Lease that [the]
TENANT shall pay to the LESSOR or his representative, the amount of SEVEN
HUNDRED THIRTY FIVE THOUSAND SIX HUNDRED FORTY TWO (P735,642)
pesos, Philippine Currency, P367,821 as three months advanced rental, and P367,821 as
three months deposit, which deposit shall be refunded to the TENANT only upon
termination of this Lease, that is, after expiration of the lease, paid occupancy of the said
premises, and after vacating the same and also after deducting the unpaid water bills[,] if
any, electric bills, extraordinary wear and tear of the premises, losses and breakages of the
premises, and other damages sustained by the LESSOR.
8. The TENANT voluntarily binds himself and agrees to the following without any
coercion or force by the LESSOR;
m) The full deposit shall be forfeited in favor of the LESSOR upon non-compliance
of the Term of the Contract of Lease by the TENANT, and cannot be applied to
Rental;
n) To pay a penalty of 3% of the monthly rental, for every month of delay of
payment of the monthly rental, [with] a fraction of the month x x xconsidered
[as] one month;
o) xxx
p) Breach or non-compliance of any of the provisions of this Contract, especially
non-payment of two consecutive monthly rentals on time, shall mean the
termination of this Contract, and within five (5) days from the date of breach,
non-compliance, or default, the TENANT shall vacate the premises quietly and
peacefully without need of the required judicial proceedings. If he does not
vacate the premises, the TENANT has agreed that the LESSOR has no liability
whatsoever due to the padlocking of the same;
9. x
10. In the event that a Court Litigation has been resorted to by the LESSOR or LESSEE, due
to non-compliance of any of the foregoing provisions, the aggrieved party shall be paid by
the other party, no less than fifteen thousand (P15,000) pesos, Philippine Currency, for
Attorney's fees, and other damages that the honorable court may allow; the cost of
litigations shall be born[e] or paid by the party in fault, or in default. All unpaid accounts
and obligations of the TENANT shall earn interest or bear interest at the rate of 14% per
annum or at the allowable rate of interest from the date of default. The legal suits shall be
brought in the town of Quezon City.
7
G.R. No. 10149 | November 10, 1915 Obligations with a penal clause
Laureano v. Kilayco Laureano v. Kilayco
I. Recit-ready Summary 2. A chattel mortgage on a drug store will be executed as a security

On February 20, 1913, the defendants obtained a loan amounting to for the loan.
P10.2k from the plaintiff. The terms of the loan are as follows: 3. In case of failure to pay any amount due, a 15% interest will be
• A chattel mortgage on a drug store will be executed as a security applied on all overdue and unpaid installments. Monthly
for the loan. installment amounted to P500
• In case of failure to pay any amount due, a 15% interest will be 4. In case the plaintiff is compelled to resort to court action for the
applied on all overdue and unpaid installments. Monthly collection of the loan, an indemnity amount of P2K shall be
installment amounted to P500 charged against the defendants.
• In case the plaintiff is compelled to resort to court action for the 5. At the time of the trial in 1914, the outstanding amount of the loan
collection of the loan, an indemnity amount of P2K shall be
was P3,433.75 (constituted of the last installment plus 15%
charged against the defendants.
interest). The defendants offered to pay the amount but was refused
At the time of the trial in 1914, the outstanding amount of the loan was by the plaintiff in open court. The said amount was deposit with the
P3,433.75 (constituted of the last installment plus 15% interest). The clerk of court as full settlement of the obligation under the loan
defendants offered to pay the amount but was refused by the plaintiff contract.
in open court. The said amount was deposit with the clerk of court as 6. The plaintiff still claimed for the P2K indemnity because the drug
full settlement of the obligation under the loan contract. store that was subject to the mortgage was sold without his consent.
The trial court dismissed the plaintiff’s complaint and ruled that the
The plaintiff still claimed for the P2K indemnity because the drug store loan was already settled.
that was subject to the mortgage was sold without his consent. The trial
court dismissed the plaintiff’s complaint and ruled that the loan was III. Issue/s
already settled. 1. W/N plaintiff was still entitled for the P2K indemnity (NO)
2. W/N plaintiff was still entitled to the costs of action (NO)
Since a greater part of the debt has already paid by the defendant, the 3. W/N plaintiff was still entitled to the P10K as a fine of the debtor’s
Supreme Court ruled that the trial court properly exercised discretion violation of the agreement for selling the drug store (NO)
conferred upon it under the Civil Code by modifying the penalties
prescribed under the contract so as to limit the right of the plaintiff IV. Holding/s
thereunder to interest at the rate of 15% upon the last installments
which had become overdue under the terms of the contract.
First Issue:
In case there is partial or irregular compliance on the part of the debtor, NO, in case there is partial or irregular compliance on the part of
the penalty may be reduced equitably by the courts. the debtor, the penalty may be reduced equitably by the courts.
Petitioner’s Argument Court’s Rebuttals
II. Facts of the Case (Material Facts) • The indemnity of P2K was • In its decision of November
1. On February 20, 1913, the defendants obtained a loan amounting to provided in the loan 20, 1907, the supreme court
P10.2k from the plaintiff. agreement. of Spain held that even when
Obligations and Contracts (2020) PETITIONER: Felix Laureano 1

DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Eugene Kilayco and Celsa Lizares Kilayco
it is stipulated in the date of the tender tender of payment of the full

instrument that, in a given amount due and thus terminate the
case, the cost, losses and proceedings without
damages shall be chargeable further cost or expense to either
to the debtor and be borne by party.
him, the application of this Third Issue:
penalty shall rest in the sound No, plaintiff is not entitled to the P10K as a fine
discretion of the courts. Petitioner’s Argument Court Rebuttal
• Article 1154 of the Civil Code He is entitled to the fine of P10K The penalties prescribed in section
provides that “the judge shall under sec. 12 of Act No. 508 12 of the Chattel Mortgage
equitably mitigate the penalty because the drug store subject to Law (Act No. 1508) cannot be
if the principal obligation the chattel mortgage was sold imposed in a civil action; and the
should have been partly or without his written consent. recovery by a party, injured by a
irregularly fulfilled by the violation of sections 9, 10 and 11
debtor.” of the Act, of one-half the fine
which may be imposed for such
Overall Ruling violation can be had only in the
Since a greater part of the debt has already been paid by the defendant, course of the criminal action
the last installment plus 15% interest being deposited with the clerk of contemplated in that section.
court, we are of opinion that the trial judge properly exercised the
discretion conferred upon him under article 1164 of the Civil Code by V. Law or Doctrine Applied
modifying the penalties prescribed under the contract so as to limit the Article 1154 of the Old Civil Code
right of the plaintiff thereunder to interest at the rate of 15% upon the The judge shall equitably mitigate the penalty if the principal
last installments which had become overdue under the terms of the obligation should have been partly or irregularly fulfilled by the
contract. debtor.
Second Issue:
Partial Performance: Rules of construction in recovery for indemnity
NO, the plaintiff is not entitled to the costs of action.
It follows that, in any case wherein there has been a partial or irregular
compliance with the provisions in a contract for a special
Petitioner’s Argument Court Rebuttal indemnification in the event of failure to comply with its terms, courts
A tender of payment made after No error was committed by the will rigidly apply the doctrine of strict
action has been instituted does not trial judge in the exercise construction against the enforcement in its entirety of the
necessarily relieve a defendant, in of his discretion in imposing the indemnification, where it is clear from the terms of the contract that the
an action for a sum of money, costs of the trial upon plaintiff, amount and character of the indemnity is fixed without regard to the
from the costs incurred prior to the who declined to accept probable damages which might be anticipated as a result of

a breach of the terms of the contract; or, in other words, where the
indemnity provided for is essentially a mere penalty having for its
principal object the enforcement of compliance with the contract.
But courts will be slow in exercising the jurisdiction conferred

upon them by article 1154 of the Civil Code so as to modify the terms
of an agreed upon indemnification where it appears that in fixing the
indemnification the parties had in mind a fair and reasonable
compensation for actual damages anticipated as a result of a breach of
the contract; or, in other words, where the principal purpose of the
indemnification agreed upon appears to have been to provide for the
payment of actual anticipated and liquidated damages rather than the
penalization of a breach of the contract.
VI. Disposition
We conclude that the judgment entered in the court below should be
affirmed, with the costs of this instance against the appellant. So
ordered.

None
VII. Random Facts

• Ponente: Carson, J.

G.R. No. L-24968 | April 27, 1972 Extinguishment of Obligations
Saura v. DBP Saura v. DBP
Saura, Inc. applied before RFC (now DBP) for an industrial loan 1. Saura to DBP (then RFC, or Rehabilitation Finance Corporation)
amounting to P500,000.00. RFC approved said loan application, provided its applied for an industrial loan of P500,000.00 (see additional notes
proceeds shall be used exclusively for the construction of the factory for details).
building, payment of balance of the purchase price of machinery and 2. RFC approved the mortgaged loan in the said amount through a
equipment, and working capital. Furthermore, its consideration was under resolution which provided that the proceeds of the said loan shall
the premise that the factory to be constructed would utilize locally grown be used exclusively for the construction of the factory building,
raw materials, principally kenaf. payment of balance of the purchase price of machinery and
equipment, and working capital.
Later on, Saura communicated to RFC that the raw material will not be 3. After several hitches on the transaction, another resolution was
available in sufficient quantity any time soon. Saura also requested that passed restoring the original amount of P500,000.00, under two
releases of the loan be made for such purposes and in such a schedule conditions, i.e., (1) that the raw materials needed by Saura to carry
different from the original terms agreed on. The request, however, was out its operation are available in the immediate vicinity; and (2)
denied by RFC. Instead of insisting for the release of the proceeds of the that there is prospect of increased production thereof to provide
approved loan, Saura asked that the mortgage be cancelled, which was done adequately for the requirements of the factory.
in June 1955. 4. Such conditions were communicated to Saura through a letter,
Almost 9 years after the said cancellation, Saura commenced the explaining that the intention of the original approval of the loan is
present suit for damages, alleging that RFC failed to comply with its to develop the manufacture of sacks on the basis of locally
obligation to release the proceeds of the loan applied for and approved. The available raw materials.
trial court ruled in favor of Saura, ruling that there was a perfected contract 5. Saura replied, stating that the raw material (kenaf) will not be
between the parties and that the defendant was guilty of breach thereof. available in sufficient quantity any time soon. Saura also requested
that releases of the loan be made for such purposes and in such a
While the SC agrees that there was indeed a perfected contract, it rules schedule different from the original terms agreed on.
that the same contract was validly cancelled – hence, there was no breach to 6. Saura did not further pursue the matter, and instead executed a
speak of. deed of cancellation of mortgage.
7. Almost 9 years after the said cancellation, Saura commenced the
present suit for damages, alleging that RFC failed to comply with
its obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or
1
Obligations and Contracts (2020) PETITIONER: Saura Import & Export Co., Inc.
DIGEST AUTHOR: Regina Alzaga RESPONDENT: Development Bank of the Philippines

paying contractual commitments it had entered into, in connection that Saura is therefore entitled
with its jute mill project. to recover damages.
8. The trial court rendered judgment in favor of Saura, ruling that
there was a perfected contract between the parties and that the Overall Ruling
defendant was guilty of breach thereof.
It should be noted that RFC entertained the loan application on the
9. Hence, the present petition.
assumption that the factory to be constructed would utilize locally grown
raw materials, principally kenaf.
III. Issue/s
1. W/N RFC is guilty of breach when it did not comply with its
obligation to release the proceeds of the loan applied for and When RFC turned down the request of Saura, the negotiations for the
approved. – NO. implementation of the agreement reached an impasse. Saura was
obviously in no position to comply with RFC's conditions. Instead of
insisting for the release of the proceeds of the approved loan, Saura asked
IV. Holding/s that the mortgage be cancelled, which was done in June 1955. The action
taken by both parties was in the nature of mutual desistance — which is a
Issue #1
mode of extinguishing obligations.
NO, the subject contract was validly cancelled, as initiated by Saura
itself, hence there was no breach to speak of.
Petitioner/Trial Court’s Court’s Rebuttals

Arguments V. Law or Doctrine Applied
● Yes, the contract was a
● There was a perfected contract perfected consensual contract,
between the parties and that as recognized in Article 1934 of
the defendant was guilty of the Civil Code. ARTICLE 1231 OF THE CIVIL CODE
breach thereof. ART. 1231. Obligations are extinguished:
● This alone, however, falls short
(1) By payment or performace;
of resolving the claim that RFC (2) By the loss of the thing due;
failed to fulfill its obligation and (3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
2

(5) By compensation;
(6) By novation. The resolution which restored the original amount of P500,000.00 imposed
two conditions (as mentioned in the facts). Such imposition was by no
means a deviation from the terms of the agreement, but rather a step in its
In addition to the enumerated above, other causes are:
(1) Death of a party in case obligation is a personal one; implementation, nor was there any contradiction in the terms provided for.
(2) Mutual desistance or withdrawal;
(3) Arrival of resolutory period; As for Saura, on the other hand, it deviated from the terms in the resolution
(4) Compromise; when it sought for a part of the proceeds of the loan to be made for purposes
(5) Impossibility of fulfillment; other than those agreed upon.
(6) Happening of a fortuitous event.
VII. Random Facts
Mutual desistance — what Manresa terms "mutuo disenso" — is a mode of
extinguishing obligations. It is a concept that derives from the principle that ● Ponente: Makalintal, J.
since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment.
VI. Disposition
WHEREFORE, the judgment appealed from is reversed and the complaint

dismissed, with costs against the plaintiff-appellee.
P500,000.00 loan-
- P250,000.00 for the construction of a factory building (for the
manufacture of jute sacks);
- P240,900.00 to pay the balance of the purchase price of the jute mill
machinery and equipment; and
- P9,100.00 as additional working capital.
3

G.R. No. 105649 | October 18, 1995 Rescission
Floro v CA Floro v CA
I. Recit-ready Summary 6. Both parties asked for return of equipment and payment. Floro, Inc. wrote
Floro, Inc. and Phil. Rabbit entered into an "Agreement for Equipment Lease, to Phil. Rabbit for return of equipment and payment of back rentals
Service and Maintenance" whereby former agreed to furnish latter with supposedly to be a “least contract” but parties failed to reach an agreement.
certain computer equipment including 4 Model 85 Visual Display Units or 7. Floro, Inc. filed in RTC an action to recover possession of the computer
monitors. Annotation at the end of agreement by sales representative of Floro, equipment through a writ of replevin, unpaid rentals, damages for
Inc.: "After 5 yrs, computer becomes your property.". Upon delivery of depreciation and attorney's fees.
computers, monitors were not delivered but instead Model 82 monitors. 8. RTC ordered Phil. Rabbit to pay Floro, Inc. back rental payments. It
Demands were made by Phil. Rabbit but to no avail. Phil. Parties agreed to characterized the Agreement between the parties as one of lease and ruled
mutual cancellation of their transaction. . Floro, Inc. wrote to Phil. Rabbit for that the handwritten annotation made by Mr. Lagman on the Agreement was
return of equipment and payment of back rentals supposedly to be a “least not authorized by Floro, Inc. RTC also held that Phil. Rabbit was not
contract” but parties failed to reach an agreement. RTC ordered Phil. Rabbit entitled to reimbursement of the amounts it had paid to Floro, Inc. since it
to pay Floro, Inc back rental payments. CA reversed it. WON there was had been able to make use of the computer equipment for its operations
reversible error on the part of CA? – NO. despite the nondelivery of the Model 85 monitors.
9. CA reversed RTC decision. It characterized the agreement as one of sale
SC does not see any real need for resolving this issue in view of the fact that on an installment basis and not of lease.
the parties had agreed to a mutual cancellation of their transaction. Hence,
CA was correct in ordering the parties to restore to each other what each of III. Issue/s
them had received under the contract but taking into account the use by WON there was reversible error on the part of the Court of Appeals? - NO
private respondent Phil. Rabbit of the computer equipment. IV. Holding/s
II. Facts of the Case (Material Facts) Issue #1

1. Floro, Inc. and Phil. Rabbit entered into an agreement denominated as NO, no need to resolve whether the contract entered into by parties is
"Agreement for Equipment Lease, Service and Maintenance" whereby Floro, that of lease of sale on installment basis since the parties had agreed
Inc. agreed to furnish Phil. Rabbit with certain computer equipment including to a mutual cancellation of their transaction
4 Model 85 Visual Display Units or monitors. Annotation at the end of Petitioner’s Arguments Court’s Rebuttals
agreement by sales representative of Floro, Inc.: "After 5 yrs, computer Floro, Inc. takes exception to the • Court does not see any real need
becomes your property." finding of respondent appellate for resolving this issue in view of
2. Downpayment was made upon signing of the Agreement and certain court that the Agreement between the fact that the parties had
monthly payments the parties was one of sale on agreed to a mutual cancellation
3. Upon delivery of computers, monitors were not delivered but instead installment and not of lease. Floro, of their transaction
Model 82 monitors. Inc. maintains that it was not
4. Demands were made by Phil. Rabbit but to no avail bound by the annotation made by
5. Phil. Rabbit wrote to Floro, Inc. asking for the cancellation of the Mr. Lagman on the Agreement as
Agreement alleging that the computers were not placed in full operation due it did not authorize the latter to
to the nondelivery of the Model 85 monitors. Floro, Inc. conformed to the make said annotation.
mutual cancellation.
1
Obligations and Contracts (2020) PETITIONER: Floro Enterprises, Inc.
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: Court of Appeals and Phil. Rabbit Bus Lines, Inc.
G.R. No. 105649 | October 18, 1995 Rescission
Floro v CA Floro v CA
Overall Ruling received from the other so that they may be restored, as far as practicable,
Court does not see any real need for resolving this issue in view of the to their original situation.
fact that the parties had agreed to a mutual cancellation of their
transaction. As established by both appellate court and the trial court,
Phil. Rabbit wrote petitioner Floro, Inc. asking for cancellation of the
Agreement and the latter, communicated to the former its conformity
thereto. Whether the contract is characterized as a sale or a lease, the
consequences of the cancellation would be the same. The parties are to be
restored to their original positions inter se as far as practicable.
When petitioner failed to deliver the Model 85 monitors, Phil. Rabbit V. Law or Doctrine Applied
would have been entitled to refuse to pay the full amount stipulated in the
Agreement. However, Phil. Rabbit opted to cancel the Agreement, to Art. 1385. Rescission creates the obligation to return the things which were the object
which petitioner expressed its conformity. In legal effect, the parties of the contract, together with their fruits, and the price with its interest; consequently,
entered into another contract for the dissolution of the previous one, and it can be carried out only when he who demands rescission can return whatever he
they are bound by that contract. may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract
However, Phil. Rabbit cannot reasonably demand reimbursement for the are legally in the possession of third persons who did not act in bad faith.
full amount it had paid to petitioner because it cannot be gainsaid that
Phil. Rabbit had utilized the computer equipment for its operations and In this case, indemnity for damages may be demanded from the person causing the
benefitted from such use. Phil. Rabbit cannot be allowed to unjustly loss.
enrich itself at the expense of Floro, Inc. VI. Disposition
Hence, CA was correct in ordering the parties to restore to each other WHEREFORE, finding no reversible error on the part of respondent Court of
what each of them had received under the contract but taking into Appeals, the Court Resolved to DENY the Petition for Review on Certiorari
account the use by private respondent Phil. Rabbit of the computer and the decision in CA-G.R. CV No. 27602 is hereby AFFIRMED.VII.
equipment. However, it was not quite correct in invoking, in this Random Facts
connection, Art 1385 of the Civil Code. Art 1385 refers to contracts that • Ponente: Feliciano, J.
are rescissible for causes specified in Art 1381 and 1382 of the Civil
Code but it does not refer to contracts that are dissolved by mutual
consent of the
parties
Rather, the mutual restoration is in consonance with the basic principle

that when an obligation has been extinguished or resolved, it is the duty
of the court to require the parties to surrender whatever they may have
2
Obligations and Contracts (2020) PETITIONER: Floro Enterprises, Inc.
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: Court of Appeals and Phil. Rabbit Bus Lines, Inc.
G.R. No. L-26578 | January 28, 1974 Payment or Performance
Legarda Hermanos vs. Saldaña Legarda Hermanos vs. Saldana
I. Recit-ready Summary • payable over the span of 10 years divided into 120 equal
Legarda Hermanos agreed to sell Felipe Saldaña 2 parcels of land in monthly installments of P19.83 with 10% interest per annum
Sampaloc, Manila subdivision. The agreement was payable over the span of • to commence on May 26, 1948, date of execution of the
10 years divided into 120 monthly installments with 10% interest per contracts
annum. Saldaña paid for 8 continuous years about 95 out of 120 monthly 2. Hermanos then partitioned the subdivision among the brothers and
installments totaling P3,582 and did not make further payments thereafter. sisters, and the two lots were among those allotted to co-petitioner
He owed petitioners P1,311.72 on account of the balance of the purchase Jose Legarda
price (principal) of the two lots (in the total sum of P3,000.00), although he 3. Saldaña paid for 8 continuous years about 95 (of the 120) monthly
had paid more than the stipulated purchase price of P1,500.00 for one lot. installments totaling P3,582.06 up to the month of February 1956
Saldaña wrote to petitioners stating that his desire to build a house on 4. And did not make further payments
the lots was prevented by their failure to introduce improvements on the 5. The account thus shows that he owed petitioners the sum of
subdivision and requesting information of the amount owing to update his P1,311.72 on account of the balance of the purchase price
account as "I intend to continue paying the balance due on said lots." (principal) of the two lots (in the total sum of P3,000.00), although
Petitioners insist on their right of cancellation under the “plainly valid he had paid more than the stipulated purchase price of P1,500.00
written agreements, which constitute the law between the parties” for one lot.
The issue of the case is W/N petitioners may be compelled, to allow 6. Almost five years later, just before the filing of the action, Saldaña
Saldaña to complete payment of the purchase price of the two lots in wrote to petitioners stating that his desire to build a house on the
dispute? (YES.) The SC ruled that, under Article 1234, petitioners may be lots was prevented by their failure to introduce improvements on
compelled, to allow Saldaña to complete payment of purchase price of the the subdivision as "there is still no road to these lots," and
two lots in dispute. Even considering respondent as having defaulted, when requesting information of the amount owing to update his account
he suspended payments after the 95th installment, he had as of the already as "I intend to continue paying the balance due on said lots."
paid by way of principal more than the full value of one lot. 7. Petitioners replied that as respondent had failed to complete total
They ruled that “Regardless, however. Of the propriety of applying payment of the 120 installments by May, 1958 as stipulated in the
said Art. 1592 thereto, we find that plaintiff herein has not been denied contracts to sell, "pursuant to the provisions of both contracts all
substantial justice, for, according to Art. 1234 of said Code: ‘If the the amounts paid in accordance with the agreement together with
obligation has been substantially performed in good faith, the obligor may the improvements on the premises have been considered as rents
recover as though there had been a strict and complete fulfillment, less paid and as payment for damages suffered by your failure," and
damages suffered by the obligee,’” and “that in the interest of justice and "Said cancellation being in order, is hereby confirmed."
equity, the decision appealed from may be upheld upon the authority of TC: sustaining petitioners' cancellation of the contracts and dismissing
Article 1234 of the Civil Code.” respondent's complaint
CA: reversing the lower court's judgment and ordering petitioners "to
II. Facts of the Case deliver to the plaintiff possession of one of the two lots, at the choice of
1. Felipe Saldaña had entered into two written contracts with Legarda defendants, and to execute the corresponding deed of conveyance to the
Hermanos (subdivision owner) plaintiff for the said lot,"
• the latter agreed to sell to him 2 parcels of land in Sampaloc,
Manila the subdivision for the sum of P1,500.00 per lot III. Issue/s
Obligations and Contracts (2020) PETITIONER: Legarda Hermanos and Jose Legarda 1
DIGEST AUTHOR: Steph Naval RESPONDENT: Felipe Saldaña and CA
G.R. No. L-26578 | January 28, 1974 Payment or Performance
Legarda Hermanos vs. Saldaña Legarda Hermanos vs. Saldana
1. W/N petitioners may be compelled, to allow Saldaña to In affirming, the Court held that “Regardless, however. Of the
complete payment of the purchase price of the two lots in propriety of applying said Art. 1592 thereto, We find that plaintiff herein
dispute? has not been denied substantial justice, for, according to Art. 1234 of said
Code: ‘If the obligation has been substantially performed in good faith, the
IV. Holding/s obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee,’” and “that in the interest
Issue #1 of justice and equity, the decision appealed from may be upheld upon the
YES, petitioners may be compelled, to allow Saldaña to complete payment of authority of Article 1234 of the Civil Code.”
the purchase price of the two lots in dispute.

• Insist on their right of cancellation • the appellate court’s judgment
under the “plainly valid written finding that of the total sum of ARTICLE 1234
agreements which constitute the law P3,582.06 (including interests of ‘If the obligation has been substantially performed in good faith, the obligor
between the parties” as against “the P1,889.78) already paid by may recover as though there had been a strict and complete fulfillment, less
broad principles of equity and respondent (which was more than damages suffered by the obligee,’” and “that in the interest of justice and
justice” applied by the appellate the value of two lots), the sum equity, the decision appealed from may be upheld upon the authority of
court applied by petitioners to the Article 1234 of the Civil Code.”
principal alone in the amount of
P1,682.28 was already more than
the value of one lot of P1,500.00 VI. Disposition
• hence one of the two lots as chosen
by respondent would be considered ACCORDINGLY, the appealed judgment of the appellate court is hereby
as fully paid, is fair and just and in affirmed. Without pronouncement as to costs.
accordance with law and equity.
The SC ruled that the monthly payments for 8 years made by • Ponente: Teehankee, J.
respondent were applied to his account without specifying or distinguishing
between the two lots subject of the two agreements under petitioners' own
statement of account. Even considering respondent as having defaulted after
February 1956, when he suspended payments after the 95th installment, he
had as of the already paid by way of principal (P1,682.28) more than the full
value of one lot (P1,500.00). The judgment recognizing this fact and
ordering the conveyance to him of one lot of his choice while also
recognizing petitioners' right to retain the interests of P1,889.78 paid by him
for 8 years on both lots, besides the cancellation of the contract for one lot
which thus reverts to petitioners, cannot be deemed to deny substantial
justice to petitioners nor to defeat their rights under the letter and spirit of
the contracts in question.
Obligations and Contracts (2020) PETITIONER: Legarda Hermanos and Jose Legarda 2
DIGEST AUTHOR: Steph Naval RESPONDENT: Felipe Saldaña and CA
G.R. No. L-28659 | Feb 27, 1970 Payment or Performance of Obligations
J.M Tuason v. Javier J.M Tuason v. Javier
I. Recit-ready Summary ○ P43.92- every month thereafter, in the next 10 years

A contract of sale was entered between the plaintiff, J.M Tuason & Co. ● The sixth paragraph stipulated that:
Inc. and Javier in which a parcel of land in Sta Mesa Subdivision was sold ○ In case Javier fails to satisfy any of the monthly
to the latter for a total sum of P3,691.20, with interest of 10% per annum installments, she is granted a month of grace period
thereon, payable through monthly installments of P43.92 in the next decade, together with the one corresponding to the said month of
after paying P896.12 upon execution of the contract. It was stipulated in grace.
their contract that failure to pay the installments/default, subject to the rules ○ In case Javier still fails to satisfy them within the grace
below, the petitioner has the right to rescind the contract. Upon its period, an additional interest of 10% per annum shall be
execution, Javier complied, until she defaulted payment on the installments,
added on the amount she should have already paid
prompting the present action filed against her. The lower courts ruled that
○ In case 90 days lapse upon the expiration of the grace
the contract cannot be rescinded, Javier should pay all the installments with
period and Javier still fails to satisfy them, the petitioner
interest, and the petitioner should execute the deed of transfer of the land to
Javier. Thus, this current petition. has the right to rescind the contract and may dispose of
The main issue here is whether or not the lower courts erred in their the subject parcel of land as if there was no contract
decision, which the petitioner argued was a misapplication of Art 1592. entered into.
However, notwithstanding the application of Art 1592, the Court still ruled ■ All the amounts paid in accordance to the
that their decisions should still be upheld, by virtue of Art 1234. They contract shall be considered as rents and
reasoned that Javier religiously satisfied the installments, to the point of payments for damages suffered. Javier will then
paying beyond the principal obligation, and the fact that she offered the pay, renounce her right to demand the land and must
as well as compelled by the lower courts to do the same, the plaintiff will peacefully vacate it.
recover everything, including the damages, to his benefit, justifying the
rulings. ●Upon execution and payment of the first installment, Javier was
placed in possession of the land, and thereafter until Jan 5, 1962,
II. Facts of the Case (Material Facts) she paid the stipulated P396.12, aggregated P1,134.08.
● On September 7, 1954, a contract was entered into between the ● However she defaulted, which then led to the petitioner informing
plaintiff, J.M Tuason & Co. Inc. on the one hand, and her that the contract had been rescinded. Since Javier refused to
defendant-appellee, Ligaya Javier, on the other, whereby plaintiff vacate the said lot, plaintiff commenced the present action against
agreed to sell, transfer and convey to the defendant a parcel of land her, in the Court of First Instance of Rizal. In Javier’s defense, she
known as Lot No. 28, Block No. 356, PSD 30328, of the Sta. Mesa alleged that the default was due to “unforeseen circumstances”, and
Heights Subdivision. that she is willing to pay all arrears in installments under the
● This was for a total sum of P3,691.20 with interest thereon at the contract”, and had in fact “ordered the same to the plaintiff”. She
rate of 10% per annum, payable as follows: also contended that the contract cannot be rescinded by a unilateral
○ P896.12- upon execution of the contract act by the plaintiff.
1
Obligations and Contracts (2020) PETITIONER: J. M Tuason & Co. Inc.
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Ligaya Javier
● The lower courts applied Art 1592 and ruled that the contract Overall Ruling
cannot be rescinded and ordered Javier to pay the plaintiff all of the
installment payment in arrears with 10% interest and costs of suit. ● It should be noted that, apart from the initial installment of
At the same time, they also ruled that the plaintiff should execute P396.12, paid upon the execution of the contract, on September 7,
the deed to transfer the title of the parcel land, in favor of Javier. 1954, the defendant religiously satisfied the monthly installments
III. Issue/s accruing thereafter, for a period of almost eight (8) years, to the
1. W/N the lower courts erroneously applied Art 1592 in the case, point that, although the principal obligation under the contract was
as alleged by the plaintiff; NO only P3,691.20, the total payments made by the defendant up to
January 5, 1962, including stipulated interest, aggregated
IV. Holding/s P4,134.08. The defendant even offered to pay all of the
installments overdue including the stipulated interest, apart from
Main Issue reasonable attorney's fees and the costs, which the trial court
W/N the lower courts erroneously applied Art 1592 in the case, as sentenced the defendant to pay accordingly. Thus, the plaintiff
alleged by the plaintiff; NO will thereby recover everything due thereto, pursuant to its
contract with the defendant, including such damages as the
former may have suffered in consequence of the latter's
Respondent’s Arguments Court’s Rebuttals default.
● Plaintiff maintains that Art ● The lower courts’ decision
1592 governs contracts of should be upheld, in the
sale, not contracts to sell, virtue of Art 1234 of the V. Law or Doctrine Applied
such as the one entered into Civil Code
by the parties in this case. Article 1234 of the 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."
In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may pay, even after the
2
expiration of the period, as long as no demand for rescission of the contract

has been made upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term. (1504a)
VI. Disposition
WHEREFORE, said decision is hereby a rmed, with out special
pronouncement as to costs in this instance. It is so ordered.
VII. Random Facts

● Ponente: Concepcion, C.J;
3
G.R. No. 102432 | January 21, 1993 Topic: Payment or Performance – Articles 1234 & 1235
O148 - Presbitero v CA O148 - Presbitero v CA
I. Recit-ready Summary a. Contract 1: "Conformity of Agreement" - Presbitero

(petitioner) hired Cañoso to negotiate with the Land
Ricardo Presbitero, Sr. entered. entered into two (2) written contracts Bank of the Philippines (LBP) and the Ministry of
with private respondent Leonardo Cañoso, in which he hired Cañoso to Agrarian Reform (MAR) in Cotabato City for the
negotiate with the Land Bank of the Philippines (LBP) and the Ministry of sale of the 270-hectare Hacienda Maria, which
Agrarian Reform (MAR) in Cotabato City for the sale of Presbitero’s 270- Presbitero owns. Cañoso (respondent) bound
hectare Hacienda Maria. The contracts stipulated that Cañoso had 120 himself "to finish the processing and submission
days to process the documents and other requirements, and that
of documents to Manila within 120 days to
Presbitero would then pay him 25% of the gross total sales (later
Manila.
lowered to 17% in a third agreement).
Cañoso performed his obligation, albeit with the irregularity of
completing it beyond the 120-day deadline. Presbitero then sent two letters b. Contract 2: "Contract of Service." - Presbitero
to LBP requesting the release of part of the proceeds to Cañoso. However, bound himself to compensate Cañoso "for his efforts,
Cañoso still did not receive his share and subsequently filed a case against services and other related expenses in making the
Presbitero before the RTC of Cotabato City. After Presbitero obtained necessary follow up of the preparation, production of
several postponements, the RTC decided in favor of Cañoso, and ordered pertinent documents required," and "to effect the
Presbitero to pay him the promised amount. recovery of the proceeds of the land transfer
Presbitero appealed to the Court of Appeals, which affirmed the RTC payment from the Land Bank of the Philippines," in
decision but modified the amount owed. He then petitioned the Supreme an amount equivalent to "Twenty Five per cent
Court, arguing that he was not liable to Cañoso due to the latter’s failure to (25%) of the gross total sales of my properties
perform the obligation within the stipulated time period.
described above which is (sic) subject of
The Court held that Cañoso had indeed substantially complied with his
Operation Land Transfer."
obligation. According to Article 1234 of the Civil Code, if an obligation has
been substantially performed in good faith, the obligor (Cañoso) may
recover as though there had been a strict and complete fulfillment, less c. Before Presbitero's claim with the LBP was
damages suffered by the obligee (Presbitero). Additionally, Article 1235 approved, a third agreement was entered into with
states that the obligation is deemed fully complied with if the oblige accepts the private respondent in Bacolod City under which
the performance without protest, knowing that there has been an the latter's original fee of 25% was reduced to 17
irregularity. Presbitero’s letters requesting the release of payment to Cañoso 1/2%.
were thus deemed a waiver of the 120-day deadline.
2. Presbitero’s claim with the LBP was approved.
II. Facts of the Case (Material Facts) 3. Presbitero sent two (2) letters to the LBP concerning the
release of a part of the proceeds to the private respondent.
1. 19 August 1981: Ricardo Presbitero, Sr. entered into two (2)
a. Letter 1 - request that the "amount equivalent to
written contracts with private respondent Leonardo Cañoso.
Seventeen and One Half (17 1/2%) per cent be
released in the name of Leonardo Cañoso,
Obligations and Contracts (2020) PETITIONER: Intestate Estate Of The Late Ricardo P. Presbitero, Sr., 1
Represented By Its Administrator, Ricardo Presbitero, Jr.
DIGEST AUTHOR: Vito Castañeda RESPONDENT: Honorable Court Of Appeals And Leonardo Cañoso
proportionate to (sic) cash and Land Bank Bonds, on 10. Presbitero then appealed to the Supreme Court.
every releases (sic) until the final release of the 11. Petitioner died soon after filing his pleading, and was
claim." substituted in 3 December 1991 by the Intestate Estate of the
b. Letter 2 - Requested that Presbitero be notified in Late Ricardo Presbitero, Sr., represented by Ricardo
writing upon receipt; and that he will "personally Presbitero, Jr. who was duly appointed administrator by the
release the cash and bonds to Mr. Cañoso due to RTC of Negros Occidental
advances made by him during the processing of the
documents." III. Issue/s
1. W/N private respondent has adequately performed the
4. However, when a part of the proceeds was released, the obligation (and is thus entitled to recover payment) YES.
private respondent was not given his share as agreed
upon. Hence, the latter filed a complaint against
Issue #1
Presbitero before the RTC of Cotabato City, which was
YES, respondent Cañoso was able to perform his obligation, and has not
docketed as Civil Case No. 68 and assigned to Branch 15 of
the said court. committed any substantial breach.
5. Several postponements were obtained by the petitioner, for Petitioner’s Arguments Court’s Rebuttals
reasons such as him being “financially handicapped to come • Presbitero claims that the • Evidence presented before
for the hearing.” contract clearly required the RTC and CA clearly
6. The court denied the motion, stating that Rules of Court do the private respondent to show that respondent has
(sic) not recognize financial handicap for the postponement of submit all requirements complied with the
the case. The trial court then allowed the private respondent to needed by the DAR and the obligation.
present his evidence ex-parte. LBP for the land transfer to • Presbitero's letter to the
7. The trial court handed down a decision in favor of the private
effect the payment thereof LBP authorizing the release
respondent (Cañoso), ordering the defendant to pay the
from the LBP, This was to of a portion of the proceeds
plaintiff P65,227.01 in cash, P586,875.00 in bonds which is
25% of the collectible (sic) of the defendant from the Land be completed within a to the private respondent
Bank , P20,000.00 as attorney's fees, and P20,000.00 as stipulated period of 120 was sent AFTER the end of
compensatory damages. days. the 120-day period,
8. Presbitero appealed to the public respondent Court of • In failing to comply with implying a waiver of said
Appeals. Among the issue presented in his Brief, Presbitero the said stipulation, the period and reinforcing
asserted that the trial court erred in granting the contract's private respondent acquired respondent’s assertion that
validity, that the private respondent has fully complied with no right to be compensated. he has actually complied
its terms and conditions. with the terms and
9. The Court of Appeals modified the decision appealed from by conditions of the contract.
reducing the principal award to the private respondent from
25% to 17 1/2% of the amount to be collected by Presbitero
from the LBP
Overall Ruling Gutierrez, Jr., Bidin, Romero and Melo, JJ ., concur.

Petitioner’s own letter to LBP, authorizing the release of part of the
proceeds as payment to respondent constituted acceptance of the
performance, and thus a waiver of the period. Article 1234 of the New Civil VI. Additional Notes
Code, provides that, if the obligation has been substantially performed in
good faith, the obligor (private respondent) may recover as though there had
VII. Random Facts
been a strict and complete fulfillment, less damages suffered by the obligee
• Ponente: Davide, Jr., J.
(Presbitero). Moreover, when the obligee accepts the performance, as what
happened in this case, knowing its incompleteness or irregularity, and Thanks a bunch to the Acads Committee for relaxing the standards on these
without expressing any protest or objection, the obligation is deemed fully digests. Regrettably I procrastinated the SHIT out of this week, and would
complied with. be under quite a bit of stress right now if I had to digest all 29 pages of that
damn NAMARCO case.
My last haircut was maybe 1-2 weeks before the quarantine. It’s starting to
ARTICLE 1234. If the obligation has been substantially performed in good get bushy. Also I haven’t shaved since it started either. I have a rather
faith, the obligor may recover as though there had been a strict and complete unsightly moustache-beard combo going on right now. Feels appropriate
fulfillment, less damages suffered by the obligee. (n) anyway, since I never leave the house and it adds to the “disheveled
quarantine hermit” aesthetic.
ARTICLE 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or I miss my girlfriend and my blockmates. I haven’t left the house in weeks.
objection, the obligation is deemed fully complied with. (n)
A certain senator made a fool of himself for violating protocols and joining
V. Disposition his wife in the Makati Med maternity ward even though he was a PUI for
COVID-19 (and tested positive mere hours later). I’m looking forward to
WHEREFORE, IN THE LIGHT OF THE FOREGOING, the challenged the shitstorm of cases that may be thrown at this guy for his entitlement.
Decision of the respondent Court of Appeals of 6 February 1991 in CA-
G.R. CV No. 18255 is hereby AFFIRMED subject to the above Come to think of it, I wonder how long it’ll take before someone finds these
modifications on the dispositive portion thereof. As modified, the award of easter eggs.
P20,000.00 as compensatory damages and the last sentence of the said
dispositive portion affecting the Land Bank of the Philippines are
DELETED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 96053 | March 3, 1993 Extinguishment of Obligations: Payment or Performance
Tayag v. CA Tayag v. CA
I. Recit-ready Summary conditions. The Supreme Court agreed with decisions of the lower courts and
ruled that NO, the contract should not be rescinded.
The subject matter of the present litigation is the deed of conveyance
executed on May 28, 1975 by Juan Galicia, Sr., who died in 1979, and Celerina The SC ruled that instead of Article 1191 of the Civil Code, the provision
Labuguin, in favor of Albrigido Leyva. This deed of conveyance involves the that applies to the case is Article 1235 of the same Code. The Supreme Court
undivided one-half portion of a piece of land for the sum of P50,000.00 under found the contention of the petitioners without merit because it seems to
the following terms: overlook petitioners’ demeanor who, instead of immediately filing the case
precisely to rescind the instrument due to non-compliance, allowed respondent
a. The sum of P3,000.00 is hereby acknowledged to have been paid upon to effect numerous payments posterior to the grace periods provided in the
the execution of this agreement (1st condition) contract. The apathy of petitioners who even permitted respondent to take the
b. The sum of P10,000.00 shall be paid within 10 days from and after the initiative in filing the suit for specific performance against them, is akin to
execution of this agreement (2nd condition) waiver or abandonment of the right to rescind normally conferred by Article
c. The sum of P10,000.00 represents the Vendors’ indebtedness with the 1191 of the Civil Code. This act of the petitioners estopped them from
Philippine Veterans Bank which is hereby assumed by the Vendee (3rd exercising their alleged right of rescission. Article 1235 of the Civil Code
condition) should be applied instead considering that the heirs of Galicia accommodated
d. The balance of P27,000.00 shall be paid within 1 year from and after respondent by accepting the latter’s delayed payments not only beyond the grace
the execution of this instrument (4th condition) periods but also during the pendency of the case for specific performance.
Because of the apprehension that the heirs of Juan Galicia, Sr. are II. Facts of the Case (Material Facts)
disavowing the contract inked by their predecessor, the respondent filed a
complaint in the trial court for specific performance. As a response, petitioners 1. The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr.,
assert that there was a breach of the conditions because the respondent allegedly who died in 1979, and Celerina Labuguin, in favor of Albrigido Leyva is
fail to complete payments except for the P3,000.00 listed as 1st installment. The the subject matter of the present litigation
trial court ruled in favor of the respondent. The Court of Appeals agreed with 2. The heirs of Juan Galicia, Sr. assert breach of the conditions while the
the trial court except as to the amount to be paid to petitioners and the refund to respondent claims full payment and compliance with the stipulations
respondent. The Court ordered that the amount of P16,870.52 be delivered to the thereof
heirs and excess of P1,649.48 be returned to the respondent. As to how the 3. The deed of conveyance involves the undivided one-half portion of a piece
foregoing directive was arrived at, the Court declared that with respect to the 4th of land for the sum of P50,000.00 under the following terms:
condition, when the heirs accepted the performance, knowing its incompleteness a. The sum of P3,000.00 is hereby acknowledged to have been paid upon
or irregularity and without expressing any protest or objection, the obligation is the execution of this agreement (1st condition)
deemed fully complied with as according to Article 1235 of the Civil Code. b. The sum of P10,000.00 shall be paid within 10 days from and after the
Hence, this petition. execution of this agreement (2nd condition)
c. The sum of P10,000.00 represents the Vendors’ indebtedness with the
The issue in the case is whether or not the contract should be rescinded Philippine Veterans Bank which is hereby assumed by the Vendee (3rd
under Article 1191 of the Civil Code because of the alleged breach of condition)
Obligations and Contracts (2020) PETITIONER: Josefina Tayag, Ricardo Galicia, Teresita Galicia, Evelyn Galicia, Juan Galicia, Jr., and Rodrigo Galicia 1
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Court of Appeals and Albrigido Leyva
d. The balance of P27,000.00 shall be paid within 1 year from and after 10. Furthermore, the trial court noted that respondent consigned P18,520.00, an
the execution of this instrument (4th condition) amount sufficient to offset the remaining balance, leaving the sum of
P1,315.25 to be credited to respondent. Here, the amount of P17,204.75
Before the Regional Trial Court was ordered to be delivered to the heirs of Juan Galicia, Sr. as payment of
the balance
4. Because of the apprehension that the heirs of Juan Galicia, Sr. are
disavowing the contract inked by their predecessor, the respondent filed a Before the Court of Appeals
complaint in the trial court for specific performance
5. There is no dispute that the sum of P3,000.00 listed as 1st installment was 11. The Court of Appeals agreed with the trial court except as to the amount to
received by Juan Galicia, Sr., however, the petitioners assert the following: be paid to petitioners and the refund to respondent
a. Out of the P10,000.000 to be paid within 10 days from execution of 12. The Court ordered that the amount of P16,870.52 be delivered to the heirs
the instrument, only P9,707.00 was received by them on numerous and excess of P1,649.48 be returned to the respondent
occasions from May 29, 1975 up to November 3, 1979 13. As to how the foregoing directive was arrived at, the Court declared that
b. With regards to respondent’s assumption of the obligation to the with respect to the 4th condition, the period indicated therein is deemed
Philippine Veterans Bank, only P6,926.41 out of the P10,000.00 was modified by the parties when the heirs of Juan Galicia, Sr. accepted
paid. The difference in the amount was paid by Celerina Labuguin payments without objection up to November 3, 1979. Thus, when the heirs
c. That not a single centavo of the P27,000.00 representing the remaining accepted the performance, knowing its incompleteness or irregularity and
balance was paid to them without expressing any protest or objection, the obligation is deemed fully
6. The trial court ruled in favor of the respondent. complied with as according to Article 1235 of the Civil Code
7. In addressing the issue of whether the conditions of the instrument were
performed by the respondent, the Court decided to uphold the respondent’s Before the Supreme Court
theory on the basis of constructive fulfillment under Article 1186 and
estoppel through acceptance of piecemeal payments in line with Article 14. It is the contention of the petitioners that the full consideration of the
1235 of the Civil Code agreement to sell was not paid by the respondent and, therefore, the
8. Anent the 2nd condition, the Court counted against the petitioners the candid contract must be rescinded. Hence, this petition
statement of Josefina Tayag who admitted that the check issued as payment
thereof was nonetheless paid on a staggered basis when the check was III. Issue/s
dishonored
9. Regarding the 3rd condition, the respondent paid more than P6,000.00 to the 1. W/N the contract must be rescinded. NO
Philippine Veterans Bank but Celerina Labuquin paid P3,778.77 which
circumstance was construed to be a ploy under Article 1186 of the Civil
Code that “prematurely prevented plaintiff from paying the installment
fully” and “for the purpose of withdrawing the title to the lot.” The
acceptance by petitioners of the various payments even beyond the periods
agreed upon, was perceived by the lower court as tantamount to faithful
performance of the obligation pursuant to Article 1235 of the Civil Code
IV. Holding/s The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
Issue #1
NO, the contract must not be rescinded. The court shall decree the rescission claimed, unless there be just cause authorizing the
Petitioner’s Arguments Court’s Rebuttals fixing of a period.
 That the agreement to sell was not  Instead of Article 1191 of the Civil
paid by the respondent and, Code, the provision that applies to acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
therefore, the contract must be the case is Article 1235 of the same
rescinded Code ARTICLE 1235 OF THE CIVIL CODE
Overall Ruling 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.
The Supreme Court found the contention of the petitioners without merit
because it seems to overlook petitioners’ demeanor who, instead of immediately VI. Disposition
filing the case precisely to rescind the instrument due to non-compliance,
allowed respondent to effect numerous payments posterior to the grace periods WHEREFORE, the petition is hereby DISMISSED and the decision
provided in the contract. The apathy of petitioners who even permitted appealed from is hereby AFFIRMED with the slight modification of Paragraph
respondent to take the initiative in filing the suit for specific performance 4 of the dispositive thereof which is thus amended to read:
against them, is akin to waiver or abandonment of the right to rescind normally
conferred by Article 1191 of the Civil Code. This act of the petitioners estopped "4. ordering the withdrawal of the sum of P18,520.00
them from exercising their alleged right of rescission. consigned with the Regional Trial Court, and that the amount
of P16,870.52 be delivered by private respondent with legal
The Court further opined that Article 1235 of the Civil Code is applicable rate of interest until fully paid to the heirs of Juan Galicia, Sr.
to the case at bar considering that the heirs of Galicia accommodated respondent as balance of the sale including reimbursement of the sum
paid to the Philippine Veterans Bank, minus the attorney's
by accepting the latter’s delayed payments not only beyond the grace periods
fees and damages awarded in favor of private respondent.
but also during the pendency of the case for specific performance. It was held
The excess of P1,649.48 shall be returned to private
that the right to rescind is not absolute and will not be granted where there has respondent also with legal interest until fully paid by
been substantial compliance by partial payments. petitioners. With costs against petitioners."
ARTICLE 1191 OF THE CIVIL CODE VIII. Random Facts

ART. 1504. The power to rescind obligations is implied in reciprocal ones, in case one of  Ponente: Melo, J.
the obligors should not comply with what is incumbent upon him.
G.R. No. L-30597 || June 30, 1987 Article 1235
Azcona v. Jamandre Azcona v. Jamandre
I. Recit-ready Summary i. Azcona claims that there was default in the payment of the
annual rental by Jamandre because he was P200 short of
Azcona leased land to Jamandre. Both parties agreed on the yearly rental of such rental.
P7,200. Jamandre did not pay the first annual rental on its due date because
Azcona failed to deliver possession of the leased property. Jamandre only IV. The deficiency having never been repaired, the contract should
paid 5 years later BUT with 7k instead of 7,200. Azcona notified Jamandre be deemed cancelled in accordance with the stipulations of the
that the contract of lease was deemed cancelled, claiming that there was contract
default in the payment of the annual rental by Jamandre because he was
P200 short of such rental. I. Issue/s
1. W/N THE CANCELLATION OF THE CONTRACT IS VALID?
The issue in this case is W/N THE CANCELLATION OF THE
– NO!
CONTRACT IS VALID? NO.
II. Holding/s
The Court applied Article 1235 with regard to the acceptance of incomplete
payment. It held that the P7,000 paid by Jamandre and received by the Issue #1
petitioner represented payment in full of the rental for the year 1961-1962. NO THE CANCELLATION IS NOT VALID
The signing of the official receipt by Azcona and its acceptance by
Jamandre manifested their agreement on the reduction of the stipulated Petitioner’s Arguments Court’s Rebuttals
annual rental, which modified the lease contract as to the agreed • Jamandre never paid for the • The relative insignificance of
consideration while leaving the other stipulations intact. The parties were the alleged balance seems a
deficiency in payment, thus
deemed to have been fully aware of the reduction and modification of the paltry justification for annulling
warranting the cancellation of
lease contract. THUS! In order to consider the discrepancy as a breach of the contract
contract, Azcona should have included in the official receipt any form of their contract
• Applied Art 1235
reservation or protest to the payment of P7,000.
I. Azcona leased 80 hectares of land to Jamandre, with an agreed

yearly rental of P7,200.
i. Jamandre did not pay the first annual rental on its due date
because Azcona failed to deliver possession of the leased
property.
II. 5 months later, Jamandre paid P7,000 for the first rental.
III. Azcona notified Jamandre that the contract of lease was
deemed cancelled, terminated, and of no further effect.
Obligations and Contracts (2020) PETITIONER: Azcona 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: Jamandre
G.R. No. L-30597 || June 30, 1987 Article 1235
Azcona v. Jamandre Azcona v. Jamandre
Overall Ruling V. Additional Notes
The court first explained the rule on waiver of complete or irregular VII. Random Facts
performance. According to 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.
It subsequently held that the P7,000 paid by Jamandre and received by the
petitioner represented payment in full of the rental for the year 1961-1962.
The signing of the official receipt by Azcona and its acceptance by
Jamandre manifested their agreement on the reduction of the stipulated
annual rental, which modified the lease contract as to the agreed
consideration while leaving the other stipulations intact. There was also no
mention was made in the receipt of the discrepancy. On the contrary, the use
of the words “as per contract” and “payment in full” in the receipt was a
clear indication that the parties were fully aware of the reduction and
modification of the lease contract. THUS! In order to consider the
discrepancy as a breach of contract, Azcona should have included in the
official receipt any form of reservation or protest to the payment of P7,000
III. Law or Doctrine Applied

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.
IV. Disposition
WHEREFORE, the decision of the respondent Court of Appeals is AFFIRMED in full,

with costs against the petitioners.
SO ORDERED. Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano, Gancayco and

Sarmiento, JJ., concur.
Obligations and Contracts (2020) PETITIONER: Azcona 2

DIGEST AUTHOR: Julianna Soberano RESPONDENT: Jamandre
G.R. No. 125862| April 15, 2004 Payment or Performance: Art.1235
Pagsibigan vs CA Pagsibigan vs CA
I. Recit-ready Summary 2. Another loan for the same amount was obtained and secured by the
Petitioner Pilar Pagsibigan, through her daughter, obtained an agricultural same parcel of land.
loan from Planters Development Bank in the sum of P4,500 secured by a 3. The Promissory Note for the second loan stipulated that the first
mortgage over a parcel of land. The loan was eventually paid. Pilar obtained payment would be paid on May 3, 1977 and payments every 6
a similar loan secured by a mortgage of the same parcel of land. The months thereafter at P1,018 plus interest. The Promissory Note also
Promissory Note for the second loan stipulated that the payments of P1,018 contained an acceleration clause.
are to be made every 6 months. The Promissory Note also contained an 4. Initial payment was made, followed by several payments in the total
acceleration clause. The initial payment was made, followed by several amount of P11,900. Only 4 payments were applied to the loan, while
payments totalling P11,900. Only four payments were applied to the loan, the rest were “temporarily lodged to accounts payable since the
the rest were lodged to account payable since the account was past due. account was past due.”
Thereafter the property mortgaged was foreclosed extrajudicially. Petitioner 5. The property mortgaged was foreclosed extrajudicially for failure to
filed an action for annulment of sale and writ of preliminary injunction. The pay balance of P29k. The property was sold to the bank for P8000
lower court sided with the petitioner that there was an overpayment as and the bank claimed a deficiency of P21k
against the property of the foreclosure. The issue in this case is whether or 6. In an action for annulment of sale and writ of preliminary injunction,
not the foreclosure and sale of the property is valid under the circumstances. the lower court sided with petitioner that and ruled that there was an
The Court ruled that the foreclosure sale was not valid because petitioner overpayment as against the property of the foreclosure.
Pagsibigan has substantially performed (paid) the obligation pursuant to 7. Hence the present petition.
Art. 1234 of the Civil Code. Petitioner has already paid P11,900 for the III. Issue/s
agricultural loan amounting P4,500 only. The acceptance of the late 1. W/N the foreclosure and auction sale of the property is valid
payments by Planters Development Bank was tantamount to a waiver of the under the circumstances? - NO
acceleration clause. The Court found that the bank was in bad faith when it
applied the delayed payments to accounts payable instead of applying it to
the principal obligation. The Court ordered for the reconveyance of the
property to petitioner. IV. Holding/s
II. Facts of the Case Issue #1

1. Petitioner Pilar Pagsibigan, through her daughter, obtained an NO, the foreclosure and auction sale is not valid.
agricultural loan from the Planters Development Bank in the sum of
P4,500 secured by a mortgage over a parcel of land. The loan was
eventually fully paid.
1
Obligations and Contracts (2020) PETITIONER: Pilar Pagsibigan
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Court of Appeals and Planters Development Bank
Petitioner’s Arguments Court’s Rebuttals Overall Ruling

● Bank has no right to foreclose ● No question that respondent has ● We hold that the payment amounting to P8,650.00 for the balance of
the mortgage because there has the right to foreclose the mortgage P3,558.20 as of August 26, 1978 8 plus the P1,000.00 it was asked to pay
been full payment of the upon the first default of petitioner, on April 24, 1984 would at the very least constitute substantial
principal obligation. but it did not. performance.
● The payments made by ● Respondent still accepted the ● Article 1234 of the Civil Code, provides:
petitioner totals P11,900 which delayed payment of petitioner. ● "If the obligation has been substantially performed in good faith, the
sufficiently covers the total ● From this act of receiving delayed obligor may recover as though there had been a strict and complete
obligation. There is an payment, it is clear that the fulfillment, less damages suffered by the obligee."
overpayment of either P4,642 or respondent bank had waived the ● Petitioner in this case has the right to move for the cancellation of
P6,106 based on the interest rate right under the acceleration clause the mortgage and the release of the mortgaged property, upon
used. so that instead of claiming of payment of the balance of the loan. Definitely, it would not be in the
● Principal obligation having been penalty charge in the entire amount demanded by the respondent bank, which the trial court held to
extinguished by payment, the amount of P4.5k, it only be P29,554.81.
accessory obligation of computed the penalty bases on the ● Respondent is estopped from enforcing its right to foreclose by virtue of
mortgage should also be defaulted amortization payment its acceptance of the delayed payments for a period of more than 6 years,
extinguished. which is P1,018. the application of such payment to the interest and the principal during
● For more than 4 years, the bank the first 3 payments constitutes a virtual waiver of the acceleration
made petitioner believe that it was clause.
applying her payment on the loan ● There is substantial performance of the obligation on the part of the
and interest just like before when petitioner.
the respondent bank accepted ● Under Article 1235 of the Civil Code, when the creditor accepts
such payment and issued a performance, knowing its incompleteness and irregularity without protest
receipt. or objection, the obligation is deemed complied with.

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.
2
Under Article 1235 of the Civil Code

When the creditor accepts the performance, knowing its incompleteness
and irregularity without protest or objection, the obligation is deemed
complied with.
VI. Disposition
WHEREFORE, the appealed decision is hereby SET ASIDE and a new one
entered ordering the reconveyance of the foreclosed property and the
payment of moral damages, exemplary damages and attorney's fees as
above specified, with costs against private respondent Planters Development
Bank.
SO ORDERED.
VIII. Random Facts

● Ponente: Campos,Jr., J.
3
G.R. No. L-52807 | February 29, 1984
ARAÑAS v. TUTAAN ARAÑAS v. TUTAAN
I. Recit-ready Summary 7. In 1972, the court rendered its decision affirming the in itial
Luisa Quijencio was the owner of 400 shares of stock of respondent decision of the court in 1971.
Universal Textile Mills, Inc. (UTEX). UTEX issued the said stocks in the 8. Manuel and Castañeda appealed the 1972 judgement with the CA.
names of Gene Manuel and B.R. Castañeda, including the stock dividends. 9. In 1979, the CA affirmed the trial court’s judgement.
CFI rendered a decision orderin g UTEX to cancel said cert ificates and issue 10. From 1972 to 1979, UTEX delivered the said cash dividends to
new ones in the name Luisa Quijencio Arañas and to deliver to her all Manuel and Castañeda.
dividends appertaining to same, whether in cash or in stocks. Manuel and III. Issue/s
Castañeda filed for a retrial. In 1972, the court rendered its decision 1. W/N payment made by a judgment debtor to a wrong party
affirming the init ial decision of the court in 1971. Manuel and Castañeda would extinguish the judgment o bligation of such debtor to its
appealed the 1972 judgement with the CA. In 1979, the CA affirmed the creditor? NO.
trial court’s judgement. From 1972 to 1979, UTEX delivered the said cash
dividends to Manuel and Castañeda. The issue in th is case is whether or not IV. Holding/s
payment made by a judgment debtor to a wrong party would extinguish the
judgment obligation of such debtor to its creditor? The court ruled that no, Issue #1
the payment made by a judgment debtor to a wrong party cannot extinguish NO, T he payment made by a judgment debtor to a wrong party cannot
the judgment obligation of such debtor to its creditor. extinguish the judgment obligation of such debtor to its creditor.
UTEX’s Arguments Court’s Rebuttals
II. Facts of the Case (Material Facts) • It is unjust and inequitable to • The court already rendered a
1. Luisa Quijencio was the owner of 400 shares of stock of require the defendant Universal judgement in 1971.
respondent Universal Textile Mills, Inc. (UTEX) Textile Mills, Inc. to pay twice • It was UTEX who decided to pay
2. UTEX issued the said stocks in the names of Gene Manuel and cash dividends on particular the wrong parties, thus.
B.R. Castañeda, including the stock dividends. shares of stocks
3. CFI rendered a decision ordering UTEX to cancel said certificates
and issue new ones in the name Luisa Quijencio Arañas and to
deliver to her all dividends appertaining to same, whether in cash
or in stocks.
4. UTEX filed a motion of clarification to determine the meaning of
the phrase “to deliver to her all div idends appertaining to same,
whether in cash or in stocks”.
5. The court ruled that UTEX was to pay to Luisa Quijencio Arañas
the cash dividends which accrued to the stocks in question after the
rendition of this decision excluding cash dividends already paid to
Manuel and Castañeda.
6. Manuel and Castañeda filed for a retrial.
Obligations and Contracts (2020) PETITIONER: JOSE ARAÑAS and LUISA QUIJENCIO 1
DIGEST AUTHOR: John Joves RESPONDENT: UNIVERSAL TEXTILE MILLS, INC
G.R. No. L-52807 | February 29, 1984
ARAÑAS v. TUTAAN ARAÑAS v. TUTAAN

If UTEX nevertheless chose to pay the wrong parties,
notwithstanding its full knowledge and understanding of the final ACCOR DINGLY , judgment is rendered setting aside the questioned order
judgment, that it was liable to pay all dividends after the trial court's of January 4, 1980 of respondent judge and a writ of mandamus is hereby
judgment in 1971 to petitioners as the lawfully declared owners of the issued commanding said respondent judge to order the execution of his
judgment against respondent Universal Textile M ills, Inc., pursuant to his
questioned shares of stock (but which could not be enforced against it
rst order of June 16, 1971 orderin g it to pay the sum of P100,701.45,
pending the outcome of the appeal led by the co-defendants Castañeda representing the cash dividends that accrued to petitioners' UTEX shares of
and Manuel in the Court of Appeals), it only had itself to blame therefor. stock from 1972 to 1979, with interest thereon at the rate of 12% per annum
from the date of service of the writ of execution on October 3, 1979 until
fully paid, as well as to pay petitioners any subsequent cash dividends that
may have been issued by it thereafter, with interest from due date of
payment until actual payment, and directing the sheriff to satisfy such
judgment out of the properties of respondent UTEX. With costs against
respondent UTEX. This judgment is immediately executory.
PAYME NT OF JUDGMENT DEBT TO WRONG PART Y DOES

NOT EXTINGUISH JUDGME NT DEBTOR'S OBLIGATION
TO RIGHTFUL PARTY.
Payment made by a judgment debtor to a wrong party cannot

extinguish the judgment obligation of such debtor to its creditor.
Moreover, the burden of recovery of the supposed payments made by
the judgement debtor to the wrong parties falls upon the itself by its
own action and cannot be passed by it to the innocent parties
Obligations and Contracts (2020) PETITIONER: JOSE ARAÑAS and LUISA QUIJENCIO 2
DIGEST AUTHOR: John Joves RESPONDENT: UNIVERSAL TEXTILE MILLS, INC
G.R. No. L-49188 | January 30, 1990 Payment/Performance
PAL vs. CA PAL vs. CA
I. Recit-ready Summary 5. The Court denied the issuance of the writ, and instead ordered the
Amelia Tan filed a complaint against Philippine Airlines (PAL) in sheriff to appear and explain why he failed to surrender the amount
1967. The Court found that Tan was wronged by PAL and rendered paid to him. However, Reyes had absconded.
judgement in her favor. Tan won the case after 10 years of litigation. The 6. Respondent Judge ordered the issuance of an alias of writ of
Court ordered PAL to pay damages. Tan moved for the issuance of a writ of execution against PAL.
execution. PAL filed an opposition, claiming that it had already fully paid 7. PAL filed a motion to quash the alias of writ of execution, claiming
its obligation by paying with check through the sheriff, Emilio Reyes. that the judgment debt had already been fully satisfied.
The Court denied the issuance of the writ, and instead ordered the 8. After almost 22 years, Tan has not received payment because PAL
sheriff to appear and explain why he failed to surrender the amount paid to did not issue the checks intended for her, in her name.
him. However, Reyes had absconded.
Respondent Judge ordered the issuance of an alias of writ of III. Issue/s
execution against PAL. PAL filed a motion to quash the alias of writ of 1. W/N payment by check to the sheriff extinguished the
execution, claiming that the judgment debt had already been fully satisfied. judgment debt? NO.
After almost 22 years, Tan has not received payment. IV. Holding/s
The issue is W/N payment by check to the sheriff extinguished the
judgment debt? The Court held that no, it does not. PAL should have made Issue #1
the check payable to respondent, rather than to the sheriff. The obligation is NO, considering the circumstances of this case, it does not extinguish
not extinguished and remains suspended until the payment by commercial the debt.
document is actually realized. Petitioner’s Arguments Court’s Rebuttals
 PAL made the payment through  The theory is where payment is
the deputy sheriff, thus the made to a person authorized and
II. Facts of the Case (Material Facts) judgment debt should be recognized by the creditor, the
1. Amelia Tan filed a complaint against Philippine Airlines (PAL) in considered extinguished. payment to such a person so
1967.  The payment is evidenced by the authorized is deemed payment to
2. The Court found that Tan was wronged by PAL and rendered cash vouchers signed and the creditor. (Art. 1240)
judgement in her favor. Tan won the case after 10 years of receipted by the sheriff.  Under ordinary circumstances,
litigation. The Court ordered PAL to pay P25,000 in damages and payment by the judgment debtor
P5,000 attorney’s fees. in the case at bar, to the sheriff
3. In 1978, Tan moved for the issuance of a writ of execution, stating should be valid payment to
that the judgment remained unsatisfied. extinguish the judgment debt.
4. PAL filed an opposition, claiming that it had already fully paid its
 However, the circumstances in
obligation through the sheriff, Emilio Reyes, with the evidence of
this case call for a different
cash vouchers received by the latter.
conclusion. The Court applied
Art. 1249 of the Civil Code.
Obligations and Contracts (2020) PETITIONER: Philippine Airlines, Inc. 1

DIGEST AUTHOR: Nikki RESPONDENT: Amelia Tan, Court of Appeals, Judge Galano
Overall Ruling Article 1240. Payment shall be made to the person in whose favor the
In this case, the payment made by PAL to the absconding sheriff was not in obligation has been constituted, or his successor in interest, or any person
cash or legal tender but in checks. The checks were not payable to Amelia authorized to receive it.
Tan but to the absconding sheriff.
Article 1249. The payment of debts in money shall be made in the currency
The Court applied Article 1249 of the Civil Code. In the absence of an
stipulated, and if it is not possible to deliver such currency, then in the
agreement, either express or implied, payment means the discharge of a debt
currency which is legal tender in the Philippines.
or obligation in money and unless the parties so agree, a debtor has no
rights, except at his own peril, to substitute something in lieu of cash as
The delivery of promissory notes payable to order, or bills of exchange or
medium of payment of his debt. Consequently, unless authorized to do so by
other mercantile documents shall produce the effect of payment only when
law or by consent of the creditor, a public officer has no authority to accept
they have been cashed, or when through the fault of the creditor they have
anything other than money in payment of an obligation under a judgment
been impaired.
being executed. The acceptance by the sheriff of the petitioner's checks,
does not operate as a discharge of the judgment debt. Since a negotiable
In the meantime, the action derived from the original obligation shall be
instrument is only a substitute for money, the delivery of such an instrument
held in the abeyance.
does not, by itself, operate as payment.
VI. Disposition
A check is not legal tender, and an offer of a check in payment may be
refused receipt by the creditor. The obligation is not extinguished and WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby
remains suspended until the payment by commercial document is actually DISMISSED. The judgment of the respondent Court of Appeals is
realized. This is not to say that the Court recommends payment in cash, but AFFIRMED and the trial court's issuance of the alias writ of execution
having paid in checks, PAL should have done so properly. against the petitioner is upheld without prejudice to any action it should take
against the errant sheriff Emilio Z. Reyes. The Court Administrator is
It is, indeed, out of the ordinary that checks intended for a particular payee ordered to follow up the actions taken against Emilio Z. Reyes.
are made out in the name of another. Making the checks payable to the
judgment creditor would have prevented the encashment or the taking of VII. Separate Opinions
undue advantage by the sheriff. Having failed to employ the proper
safeguards to protect itself, the judgment debtor whose act made possible Dissenting: Narvasa, J.
the loss had but itself to blame. A consideration of the wide latitude of discretion allowed the sheriff as the
ofFcer of the court most directly involved with the implementation and
execution of final judgments and orders persuades me that PAL's payment
V. Law or Doctrine Applied to the sheriff of its judgment debt to Amelia Tan, though made by check
issued in said officer's name, lawfully satisfied said obligation and
ARTICLE 1240 OF THE CIVIL CODE foreclosed further recourse therefor against PAL, notwithstanding the
sheriff's failure to deliver to Tan the proceeds of the check.

creditor. The sheriff could have quite lawfully required PAL to deliver to
One of a sheriff's principal functions is to execute final judgments and him only cash. If the sheriff had done so, and if PAL had complied with
orders. The Rules of Court require the writs of execution to issue to him, such a requirement, as it would have had to, one would have to agree that
directing him to enforce such judgments and orders in the manner therein legal payment must be deemed to have been effected. It requires no
provided (Rule 39). The mode of enforcement varies according to the nature particularly acute mind to note that a dishonest sheriff could easily convert
of the judgment to be carried out the money and abscond. The fact that the sheriff in the instant case required,
not cash to be delivered to him, but rather a check made out in his name,
There is no question that the checks came into the sheriff's possession in his does not change the legal situation. PAL did not thereby become negligent;
official capacity. The court may require of the judgment debtor, in it did not make the loss anymore possible or probable than if it had instead
complying with the judgment, no further burden than his vigilance in delivered plain cash to the sheriff.
ensuring that the person he is paying money or delivering property to is a
person authorized by the court to receive it. Beyond this, further I believe the Petition should be granted and I vote accordingly.
expectations become unreasonable.
Dissenting: Padilla, J.
If payment had been in cash, no question about its validity or of the There is no question that Sheriff Reyes, in enforcing the writ of execution,
authority and duty of the sheriff to accept it in settlement of PAL's judgment was acting with full authority as an officer of the law and not in his personal
obligation would even have arisen. Simply because it was made by checks capacity. Stated differently, PAL had every right to assume that, as an
issued in the sheriff's name does not warrant reaching any different officer of the law, Sheriff Reyes would perform his duties as enjoined by
conclusion. Thus, I submit that her remedy lies, not here and in reviving law. It would be grossly unfair to now charge PAL with advanced or
liability under a judgment already lawfully satisfied, but elsewhere. constructive notice that Mr. Reyes would abscond and not deliver to the
judgment creditor the proceeds of the writ of execution.
Dissenting: Feliciano, J.
I concur in the able dissenting opinions of Narvasa and Padilla, JJ. ACCORDINGLY, I vote to grant the petition and to quash the court a quo's
Narvasa, J. has demonstrated in detail that a sheriff is authorized to receive alias writ of execution.
either legal tender or checks from the judgment debtor in satisfaction of the
judgment debt. The failure of a sheriff to fulfill his obligation and turnover
the funds (or goods) held by him do not have the effect of frustrating TLDR; All the dissenting opinions basically say the sheriff had the
payment by and consequent discharge of the judgment debtor. It seems to authority to execute the judgment and receive payment, thus it is unfair and
me that a judgment debtor who turns over funds or property to the sheriff unreasonable for the Court to say that PAL was at fault for trusting that an
can not reasonably be made an insurer of the honesty and integrity of the officer of the Court would do his job properly.
sheriff and that the risk of the sheriff carrying out his duties.
There is also no dispute with the suggestion apparently made that maximum
safety is secured where the judgment debtor delivers to the sheriff not cash VII. Random Facts
but a check made out in the judgment creditor's name. However, under our  Ponente: Gutierrez, Jr., J.
law, only cash is legal tender and that the sheriff can be compelled to accept
only cash and not checks, even if made out to the name of the judgment

G.R. No. 150843 | March 14. 2003 Article 1232-1261 - Payment or Performance
Cathay Pacific Airways, Ltd. vs Sps. Vazquez Cathay Pacific Airways, Ltd. vs Sps. Vazquez
I. Recit-ready Summary 2. The Respondents-spouses Vazquez are frequent flyers of Cathay.

Petitioner Cathay Pacific accords its frequent flyers members And, together with their 2 friends and mad, they went to Hong
several privileges including upgrading of booking without any extra charge Kong for business and pleasure
whenever an opportunity arises. The Respondents-Spouses were frequent 3. Then, when they were already boarding their return flight home to
flyer members who were boarding their flight home from Hong Kong to Manila, an employee of Cathay, Ms. Chiu, approached the
Manila with their friends. Then, a Cathay employee approached them and respondents-spouses informing them that their accommodations
informed them that their accomodation was upgraded to First Class. But, the were instantly upgraded to First Class from Business Class, since
all the seats in the latter were already fully booked
Spouses initially refused since it would look bad for them as hosts to travel
4. Despite repeatedly being convinced by the Cathay employee, the
in First Class while their companions traveled in Business Class.
Respondents refused the upgrade because it would not look nice
Eventually, the Spouses gave in. Upon their arrival in Manila, the Spouses
for them as hosts to travel in First Class and their guests, in the
sent a letter to Cathay demanding Indemnification and a written apology.
Business Class. Moreover, they were going to discuss business
However, Cathay failed to give any feedback, thus the Spouses instituted an
matters during the flight
action for Damages against Cathay. Both the RTC and CA ruled in favor of
5. Eventually, the Respondents gave in, and the spouses proceeded to
the Spouses. Hence, the present petition. The issue in this case is w/n the
the First Class Cabin
upgrading of the Spouses’ accommodation by Cathay without the former’s
6. Then, upon their return to Manila, the Respondents sent a letter to
consent constituted a breach of contract of carriage. The SC ruled in the
Cathay's Country Manager demanding an Indemnification in the
Affirmative. The Court stated that the Vazquezes should have been
amount of 1M pesos for the “humiliation and embarrassment”
consulted whether they wanted to avail themselves of the privilege or would
caused by their employees. Also, they demanded a written apology
consent to a change of seat accommodation before their seat assignments
from the management of Cathay and its employee, Ms. Chiu
were given to other passengers. And, whatever their reason was and
7. However, Cathay failed to give them any feedback, so the
however odd it might be, the Vazquezes had every right to decline the
Respondents instituted an action for damages against Cathay
upgrade and insist on the Business Class accommodation they had booked
before the RTC, praying for the payment to each of them the
for and which was designated in their boarding passes.
amounts of P250,000 as temperate damages; P500,000 as moral
damages; P500,000 as exemplary or corrective damages; and
P250,000 as attorney's fees
1. In the present case, the Petitioner Cathay Pacific accords its
8. The Trial Court, subsequently the CA as well, ruled in favor of the
frequent flyers members of its Marco Polo Club with several
Respondents-Spouses since The carrier cannot, without exposing
privileges, such as priority for upgrading of booking without any
itself to liability, force a passenger to involuntarily change his
extra charge whenever an opportunity arises. Thus, a frequent flyer
choice. The upgrading of the Vazquezes' accommodation over and
booked in the Business Class has priority for upgrading to First
above their vehement objections was due to the overbooking of the
Class if the Business Class Section is fully booked.
Business Class. Cathay's actuations in this case displayed deceit,
1
Obligations and Contracts (2020) PETITIONER: Cathay Pacific Airways, Ltd.
DIGEST AUTHOR: Larry Abucay RESPONDENT: Spouses Vazquez
gross negligence, and bad faith, which entitled the Vazquezes to like other privileges, such
awards for damages. priority could be waived.
9. Hence, the present petition before the SC
Overall Ruling
III. Issue/s
● W/N Cathay breached its contract of carriage with the The SC stated that the Vazquezes should have been consulted whether they
Vazquezes when it upgraded the seat accommodation of the wanted to avail themselves of the privilege or would consent to a change of
Vazquezes from Business Class to First Class without the seat accommodation before their seat assignments were given to other
latter’s consent? YES passengers. Normally, one would appreciate and accept an upgrading, for it
would mean a better accommodation. But, whatever their reason was and
IV. Holding/s however odd it might be, the Vazquezes had every right to decline the
upgrade and insist on the Business Class accommodation they had booked
Issue #1 for and which was designated in their boarding passes. They clearly waived
YES, the petitioner Cathay breached its contract of carriage with the their priority or preference when they asked that other passengers be given
Spouses Vazquez when the former continued to impose the upgrade the upgrade. It should not have been imposed on them over their vehement
despite the latter’s vehement objections objection. By insisting on the upgrade, Cathay breached its contract of
Petitioner’s Arguments Court’s Rebuttals carriage with the Vazquezes.
● The petitioner Cathay alleged ● The Court stated that in all Moreover, a contract is a meeting of minds between two persons whereby
that it is a practice among their pleadings, the one agrees to give something or render some service to another for a
commercial airlines to upgrade Vazquezes never denied consideration. There is no contract unless the following requisites concur:
passengers to the next better that they were members of (1) consent of the contracting parties; (2) an object certain which is the
class of accommodation, Cathay's Marco Polo Club. subject of the contract; and (3) the cause of the obligation which is
whenever an opportunity arises, They knew that as established. Undoubtedly, a contract of carriage existed between Cathay and
such as when a certain section members of the Club, they the Vazquezes. They voluntarily and freely gave their consent to an
is fully booked. Priority in had priority for upgrading agreement whose object was the transportation of the Vazquezes from
upgrading is given to its their seat accommodation Manila to Hong Kong and back to Manila, with seats in the Business Class
frequent flyers, who are at no extra cost when an Section of the aircraft, and whose cause or consideration was the fare paid
considered favored passengers opportunity arises. But, just by the Vazquezes to Cathay. While, a Breach of Contract is de ned as the
like the Vazquezes "failure without legal reason to comply with the terms of a contract." It is
2
also defined as the "failure, without legal excuse, to perform any promise
which forms the whole or part of the contract.”
Article 1232 - Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation
Article 1233 - A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be
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
CONTRACTS - There is no contract unless the following requisites

concur: (1) consent of the contracting parties; (2) an object certain which is
the subject of the contract; and (3) the cause of the obligation which is
established
VI. Disposition
WHEREFORE, the instant petition is hereby partly GRANTED. The
Decision of the Court of Appeals of 24 July 2001 in CA-G.R. CV No.
63339 is hereby MODIFIED, and as modi ed, the awards for moral
damages and attorney's fees are set aside and deleted, and the award for
nominal damages is reduced to P5,000.
VII. Random Facts

● Ponente: Davide, Jr., C.J.
3
G.R. No. L-50449 | January 30, 1982 Extinguishment of Obligations: Payment; Dacion en Pago
Filinvest v Phil. Acetylene Filinvest v Phil. Acetylene
I. Recit-ready Summary 1. In October 30, 1971, Philippine Acetylene Co.(hereinafter referred

Phil Acetylene(respondent) bought from one Alexander Lim a to as respondent) purchased from one Alexander Lim a Chevrolet
Chevrolet motor vehicle for 55k, with a down payment of 20k and the balance Motor vehicle for 55,247.80, with a down payment of 20,000 and
to be paid off in monthly installments according to a promissory note. the balance of 35,247.80 payable under the terms of a promissory
Respondent also chattel mortgaged the vehicle in favor of Lim as security for note in 34 monthly installments of 1,036.70 – due first day of each
the promissory note. month, 12% interest per annum for each unpaid installment,
Subsequently, Lim assigned all the rights to the note and the mortgage attorney’s fees of 25% for outstanding unpaid amount.
to Filinvest Finance Corporation, who passed on the same to Filinvest Credit
2. The same Chevrolet Motor Vehicle was Chattel Mortgaged in favor
Corporation(petitioner) due to a merger.
of Alexander Lim as security for the payment of the promissory note.
Respondent defaulted on the payments, to which Petitioner demanded
they either pay the balance in full plus the charges, or return the vehicle. Subsequently, through a deed of assignment, Lim assigned all his
Respondent replied by stating that they will return the vehicle as full rights, title, and interest in the Promissory note and chattel mortgage
satisfaction of its indebtedness. They returned the vehicle with a document of to Filinvest Finance Corporation.
“voluntary surrender with special power of attorney to sell”. 3. Filinvest Finance Corporation, due to a merger with another
Later on, petitioner told them they couldn’t sell the vehicle as it had corporation, assigned the rights to the Promissory note and chattel
unpaid taxes on it, so they requested respondent to just pay the installments mortgage to the newly merged corporation, Filinvest Credit
in arrears plus interest. They also offered to return the vehicle to respondent, Corporation (hereinafter referred to as petitioner)
but respondent refused to accept it, causing the petitioners to file to collect 4. Respondent failed to comply with the promissory note and the
money plus damages chattel mortgage by defaulting on nine successive payments.
The CFI sided with petitioner, ordering respondent to pay the balance 5. Because of the default, Petitioner sent a demand letter to respondent
and damages, and also to accept the delivery of the vehicle. stating “"that you (appellant) remit the aforesaid amount in full in
On appeal, respondent avers that the return to and acceptance of
addition to stipulated interest and charges or return the mortgaged
petitioner of the vehicle in compliance with the demand extinguished its
obligation, construing such as dation in payment (dacion en pago) property to my client at its office at … within five (5) days from date
The issue is whether or not the return of the vehicle extinguished the of this letter during office hours."
obligation by Dation in Payment. 6. Respondent replied to the demand letter by letting them know of its
The SC held that respondent merely delivering and petitioner accepting decision to “return the mortgaged property which return shall be in
the mortgaged property cannot be construed as actual payment by dacion en full satisfaction of its indebtedness pursuant to article 1484 of the
pago, since the record does not show clear consent of petitioner to such mode civil code” and thus they returned the mortgaged vehicle to
of extinguishment. In fact, the documents show that the intent was just an petitioner, with a document of “Voluntary surrender with Special
agency to sell, with the petitioner selling the car for respondent, proceeds of Power of Attorney to sell.”
which will be applied to their debt, with the difference still being respondent’s 7. Petitioner later told Respondent through a letter that they can’t sell
liability. the vehicle because there were unpaid taxes on it worth 70,122.
Petitioner also asked respondent to just pay its installments in arrears
plus interest.
1
Obligations and Contracts (2020) PETITIONER: Filinvest Credit Corporation
DIGEST AUTHOR: Bryan Antonio RESPONDENT: Philippine Acetylene Co.
8. Petitioner offered to return the Vehicle to Respondent but • More importantly, they construe of the vehicle to be construed as
respondent refused to accept it, so petitioner filed to collect a sum of the return to and acceptance of actual payment, more
money with damages with the CFI. Petitioner of the vehicle as specifically dacion en pago..
9. Respondent averred that Petitioner had no Cause of action, stating payment – specifically dacion petitioner might have just wanted
that its obligation was extinguished when in compliance with the en pago (dation in payment – to secure possession to forestall
demand letter, it returned the mortgaged vehicle to Petitioner. Art. 1245, CC) its loss at the hands of
Assuming arguendo that the return did not extinguish the obligation, respondent.
refusing payment was justified due to Lim breaching the warranty Overall Ruling
committed. Dacion en Pago is the transmission of the ownership of a thing by the
10. CFI sided with petitioners, ordering respondent to pay for the debtor to the creditor as an accepted equivalent of payment, the debtor
balance of 22,227.91, attorney’s fees, and to accept delivery of offers another thing to the creditor who accepts it as an equivalent of
Petitioner of the motor vehicle. payment of an outstanding debt. It really partakes in the nature of sale –
creditor is really buying the thing/property of the debtor, payment for
III. Issue/s which is charged against the debtor’s debt. As such, essential elements of
1. W/N Respondent returning the motor vehicle to petitioner a contract of sale (consent, object certain, cause or consideration) are
extinguished the obligation? NO. required. Modernly, what actually takes place is an objective novation,
IV. Holding/s where the thing offered as an accepted equivalent of performance of an
obligation is considered as the object of the contract of sale, while the debt
Issue #1 is considered as the purchase price. In any case, common consent is an
NO, the return of the vehicle to petitioner by voluntary surrender of essential requisite, be it sale or novation, to totally extinguish the debt or
respondent does not extinguish the obligation. obligation. Said consent is not present nor supported by the evidence in
Respondent’s Arguments Court’s Rebuttals this case.
• Cites Art. 1484, CC in stating • Mere return of the mortgaged Just because it was delivered to petitioner does not necessarily mean
that after petitioner gave vehicle to petitioner does not the ownership as contemplated in dacion en pago was also transferred. In
respondent an option to either constitute dacion en pago in the fact, the “voluntary surrender with special power of attorney to sell” show
remit payment in full plus absence of the true intention of that it was surrendered by respondent so that petitioner can find a buyer to
interest and charges OR return the parties. Common consent is sell the vehicle on behalf of respondent, with the proceeds of the sale being
the mortgaged vehicle – and an essential requisite, to have the applied to the mortgage indebtedness, with respondent paying any
respondent opting to exercise effect of totally extinguishing the difference between sale price and the indebtedness – so it was actually an
the return of the vehicle as they debt or obligation. “agency to sell” the vehicle.
did, Petitioner is precluded from • Evidence does not show that
exercising any other remedy petitioner intended that the mere
provided for in Article 1484, delivery and acceptance by him V. Law or Doctrine Applied
CC.
2
ARTICLE 1245 of the CIVIL CODE

Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law on sales.
VI. Disposition
WHEREFORE, the judgement appealed from is hereby affirmed in toto with

costs against defendant-appellant.
VII. Random Facts

• Ponente: Abad Santos, J.
3
G.R. No. L-48958 | June 28, 1988 Payment or Performance (Arts. 1232 to 1261)
Citizens Surety v CA Citizens Surety v CA

Citizens Surety and Insurance Company, Inc. (petitioner) issued two 1. Citizens Surety and Insurance Company, Inc. (petitioner) issued
surety bonds to guarantee compliance of principal Pascual M. Perez two surety bonds to guarantee compliance of principal Pascual M.
Enterprises (Perez) to its obligation under a “Contract of Sale of Goods” Perez Enterprises (Perez) to its obligation under a “Contract of Sale
entered into with Singer Sewing Machine Co. (Singer). In consideration of of Goods” entered into with Singer Sewing Machine Co. (Singer).
the bonds, Perez issued two indemnity agreements to pay the petitioner any 2. In consideration of the bonds, Perez issued two indemnity
advances or damages it may pay as Perez’s surety. At the same time, Perez agreements to pay the petitioner any advances or damages it may
also issued two deeds of assignment as collateral security to insure
pay as Perez’s surety.
reimbursement of petitioner for: (1) a stock of lumber valued at P400,000,
3. At the same time, Perez also issued two deeds of assignment as
and, at a later time, (2) a real estate mortgage.
collateral security to insure reimbursement of petitioner for:
Perez failed to comply with its contract with Singer and consequently a. a stock of lumber valued at P400,000, and
petitioner payed P144,000. Petitioner, however, was only reimbursed in b. at a later time, a real estate mortgage. (later cancelled
partial payments and after several demands, the amount of P55,600. seeing as the lumber was enough)
Subsequently, petitioner went against the estate of Perez’s deceased wife, 4. Perez failed to comply with its contract with Singer and
for its money claims. This action was assailed in court. consequently petitioner payed P144,000.
5. Petitioner, however, was only reimbursed in partial payments and
The issue in this case is whether or not Perez’s obligation to reimburse after several demands, the amount of P55,600.
had been extinguished by the execution of the deed of assignment. The case 6. Petitioner filed for a claim for a sum of money against the estate of
of Lopez v CA cited by the court stated that the deed of assignment on its the late Nicasia Sarmiento, wife of Perez.
face caused transfer of ownership amounting to dation in payment satisfying 7. In opposing the claim Perez argued that the surety bonds and
the monetary debt pursuant of Art. 1245.
indemnity agreements were extinguished by the execution of the
deeds of assignment.
However, the court, in this case, agreed with the concurring and
dissenting opinion of the cited case and ruled in the negative as the deed of 8. RTC ruled that Perez should pay the unpaid balance of P88,400 as
assignment cannot be regarded as absolute conveyance of the subject he is the administrator and jointly and severally liable with his
properties whereby the obligation was already extinguished at that point. wife.
This is because the obligation of Perez to pay petitioner had not yet arisen 9. CA reversed and dismissed the money claim of petitioner
and as such, nothing was extinguished on its date of execution. Furthermore, altogether.
the subsequent acts of partial payments and acquiring the second mortgage 10. Hence this petition.
show that the deed was not intended to be for conveyance but for security.
III. Issue/s
Therefore, the court dismissed the petition to claim against the estate 1. W/N Perez’s obligation to reimburse had been extinguished by
of Perez’s deceased wife because they were more than adequately protected the execution of the deed of assignment? NO.
by the two deeds of assignment. Proper procedure would be to sell the
lumber and collect the unpaid balance and return the excess to Perez.
IV. Holding/s
Obligations and Contracts (2020) PETITIONER: Citizens Surety and Insurance Company, Inc.
DIGEST AUTHOR: King Manalo Respondent: Court of Appeals and Pascual M. Perez
1
G.R. No. L-48958 | June 28, 1988 Payment or Performance (Arts. 1232 to 1261)
Citizens Surety v CA Citizens Surety v CA
Issue #1 Overall Ruling – Petition is Unmeritorious

NO, the deed of assignment could not be regarded as absolute While the case of Lopez v. CA indicates that the deed of assignment
conveyance amounting to dation in payment and automatic amounts to dation of payment and extinguishment of obligation pursuant to
extinguishment of the surety bonds and indemnity agreements. Art. 1245 of the Civil Code, the case did not take into account intent and
circumstances of the party.
Respondent’s Arguments Court’s Response
• Surety bonds and indemnity • General Rule: Words of a contract While it is a general rule that when contracts are plain and readily
agreements were extinguished when plain and readily understandable there’s no room for construction, the exception is where the
by the execution of the deeds of understandable leaves no room for words of the contract are contrary to the intent of the parties. In such a case
assignment. construction. intent is derived from the contemporaneous and subsequent acts of said
• Exception: When the words are parties.
contrary to the intent of the parties,
contemporaneous and subsequent The deed of assignment cannot be considered as dation in payment of two
acts govern. grounds: one being that the obligation to pay has not yet arisen at the time of
• On its face the deed of assignment its execution, and two, that the subsequent acts of partial payment and
acquiring a second real estate mortgage. These acts show that the deed of
indicated complete conveyance of
assignments served as collateral security rather than as transfer of
subject lumber amounting to
ownership. Proper action of the parties, instead of going after the estate of
dation in payment extinguishing the late wife of Perez was to sell the assigned lumber for the unpaid amount
the obligation. and return the excess to Perez.
• Circumstance states that the
obligation to pay has not yet V. Law or Doctrine Applied
arisen.
• Intent indicates that it was merely ARTICLE 1245. OF THE CIVIL CODE
for collateral security rather than Dation in payment, whereby property is alienated to the creditor in
payment. satisfaction of a debt in money, shall be governed by the law of sales.
• The deed is not absolute
conveyance. VI. Disposition
WHEREFORE, the petition is hereby DISMISSED. For the reasons
abovestated, the claim of Citizens' Surety and Insurance Co., Inc., against
the estate of Nicasia Sarmiento is DISMISSED
VII. Random Facts

• Ponente: Gutierrez, Jr., J.
Obligations and Contracts (2020) PETITIONER: Citizens Surety and Insurance Company, Inc.
DIGEST AUTHOR: King Manalo Respondent: Court of Appeals and Pascual M. Perez
2
G.R. No. 149420 | October 08, 2003 Extinguishment of Obligations: Payment; Dacion en pago
Lo vs. KJS Eco-Formwork System Phil. Inc. Lo vs. KJS Eco-Formwork System Phil. Inc.
I. Recit-ready Summary 2. Lo made a downpayment of P150,000.00, while the balance was

Petitioner Lo purchased scaffolding equipment from Respondent KJS made payable in 10 monthly installments.
worth P540,425. Lo was able to make a downpayment and was able to pay 3. KJS delivered the scaffoldings to petitioner.
the first two out of the ten monthly installments. When Lo failed to settle his 4. Lo was able to pay the first two monthly installments, however,
obligation due to financial difficulties, he executed a Deed of Assignment in because of financial difficulties, he was unable to settle his
favor of KJS assigning to the latter his receivables from Jomero Realty obligation to KJS despite the demands made against him.
Corporation in the amount of P335,462.14. When KJS tried to collect credit 5. On October 11 1990, the parties executed a Deed of Assignment
from Jomero, the latter refused to honor the Deed because it claimed that Lo
where Lo assigned to KJS his receivables from Jomero Realty
had an outstanding indebtedness to it. When KJS demanded for payment, Lo
Corporation (Jomero) in the amount of P335,462.14.
refused to pay claiming that his obligation had been extinguished when they
executed the Deed of Assignment of Credit. KJS filed an action for recovery 6. In the Deed of Assignment, Lo agreed to expense and do all acts
of a sum of money before the RTC of Makati. The RTC dismissed the necessary to effectually enable KJS to recover the collectibles in
complaint, agreeing with Lo that the assignment of credit extinguished the the stipulated amount.
obligation. On appeal, the Court of Appeals reversed the decision. 7. When KJS tried to collect the credit from Jomero, the latter refused
to honor the Deed of Assignment claiming that Lo was indebted to
The Supreme Court held that since a dation in payment is governed by it.
the law of sales, it is further provided by Article 1628 that the vendor in a 8. KJS sent a letter to Lo demanding payment, but Lo refused on the
contract of sale is likewise “responsible for the existence and legality of the ground that his obligation had been extinguished when they
credit at the time of the sale.” Lo was bound to warrant the existence and executed the Deed of Assignment.
legality of the credit at the time of its assignment. Lo, however, failed to do 9. On January 10 1991, KJS filed an action for recovery of a sum of
so, since the obligation between Lo and Jomero was extinguished by the
money before RTC of Makati.
latter’s claim that Lo also owed him money.
10. The RTC of Makati dismissed the complaint in favor of Lo,
The Court held that the Deed of Assignment did not extinguish the holding that the assignment of credit extinguished the obligation.
obligation of Lo to KJS. By warranting the existence of the credit, Lo should 11. The Court of Appeals reversed the decision of the RTC, holding
be deemed to have ensured the performance thereof in case the same is later that Lo violated the Deed of Assignment when he failed to execute
found to be inexistent. The Court maintained that Lo should be held liable to all acts necessary to effectually enable KJS to recover the
pay KJS the amount of his indebtedness. The Court affirmed the decision of collectibles.
the CA, but deleted the award of Attorney's fees for lack of evidentiary
basis. III. Issue/s
1. W/N the Deed of Assignment extinguished Lo’s obligation to
II. Facts of the Case (Material Facts) KJS? NO.
1. On February 22 1990, Petitioner Sonny Lo (Lo), a building 2. W/N Lo breached his obligation under the Deed of Assignment?
contractor, ordered scaffolding equipment from Respondent KJS YES.
ECO-FORMWORK (KJS) worth P540,425.80.
IV. Holding/s
Obligations and Contracts (2020) PETITIONER: Sonny L. Lo 1

DIGEST AUTHOR: Micah Espion RESPONDENT: KJS ECO-FORMWORK System Phil. Inc.

Issue #1 • His obligation was extinguished • Lo breached his obligation
NO, the Deed of Assignment did not extinguish the obligation of Lo to with the execution of the Deed of stipulated in the Deed of
KJS. Assignment of credit. Assignment.
• His obligation was extinguished • Although an assignment of credit Overall Ruling
with the execution of the Deed of can produce the effects of a The Deed of Assignment itself provides for the warranty in the existence of
Assignment of credit. dation in payment, Lo is still the subject credit. In the Deed of Assignment, Lo agreed that he shall at his
bound to certain warranties as cost and expense “all such further acts and deeds as shall be reasonably
provided in Art. 1628 of the Civil necessary to effectually enable KJS to recover the collectibles.” The Court
Code. held that by warranting the existence of the credit, Lo should be deemed to
Overall Ruling have ensured the performance thereof in case the same is later found to be
The Court held that the Deed of Assignment did not extinguish the inexistent.
obligation of Lo to KJS. In the Deed of Assignment, Lo transferred his
credit and accessory rights to KJS, by the legal cause of dacion en pago or V. Law or Doctrine Applied
dation in payment. Although an assignment of credit can produce the
effects of a dation in payment which may extinguish an obligation, the ARTICLE 1245 OF THE CIVIL CODE
vendor or assignor is bound by certain warranties. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales.
The Court held that Lo was bound to warrant the existence and legality of
REQUISITES OF A DATION IN PAYMENT
the credit at the time of the sale of assignment under Art. 1628 of the Civil 1. There must be the performance of the prestation in lieu of payment
Code. Jomero’s claim that it was no longer indebted to Lo due to the latter’s which may consist in the delivery of a corporeal thing or a real right or
unpaid obligation, the Jomero’s obligation to Lo has been extinguished by a credit against the third person
compensation. When KJS then alleged the non-existence of the credit 2. There must be some difference between the prestation due and that
and asserted its claim to petitioner's warranty under the deed, Lo had which is given in substitution
to make good his warranty and pay the obligation. Affirming the 3. There must be an agreement between the creditor and debtor that the
decision of the CA, the SC found Lo liable to pay KJS the amount of his obligation is immediately extinguished by reason of the performance of
indebtedness. a prestation different from that due
Issue #2 ASSIGNMENT OF CREDIT

An assignment of credit is an agreement by virtue of which the owner of a
YES, Lo breached his obligation to execute and do all acts and deeds
credit, known as the assignor, by a legal cause, such as sale, dacion en pago,
necessary to effectually enable KJS to recover the collectibles.
exchange or donation, and without the consent of the debtor, transfers his
credit and accessory rights to another, known as the assignee, who acquires

the power to enforce it to the same extent as the assignor could enforce it
against the debtor.

The vendor in good faith shall be responsible for the existence: and legality
of the credit at the time of the sale, unless it should have been sold as
doubtful; but not for the solvency of the debtor, unless it has been so
expressly stipulated or unless the insolvency was prior to the sale and of
common knowledge.
VI. Disposition
WHEREFORE, in view of the foregoing, the Decision of the Court of

Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, ordering
petitioner to pay respondent the sum of P335,462.14 with legal interest of
6% per annum from January 10, 1991 until fully paid is AFFIRMED with
MODIFICATION. Upon finality of this Decision, the rate of legal interest
shall be 12% per annum, inasmuch as the obligation shall thereafter become
equivalent to a forbearance of credit. The award of attorney's fees is
DELETED for lack of evidentiary basis.

• “And the ASSIGNOR further agrees and stipulates as aforesaid
that the said ASSIGNOR, his heirs, executors, administrators, or
assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense,
execute and do all such further acts and deeds as shall be
reasonably necessary to effectually enable said ASSIGNEE to
recover whatever collectibles said ASSIGNOR has in accordance
with the true intent and meaning of these presents.”
VIII. Random Facts

• Ponente: Ynares-Santiago, J

G.R. No. 41607 | August 21, 1990 Art. 1248: Partial Payments
Nasser v. Cuevas Nasser v. Cuevas
I. Recit-ready Summary Issue #1

This case challenges the enforcement of an order of execution for the NO, the proviso does not provide for payment on installment (partial
payment of Atty. Canlas’ Attorney’s fees. During the settlement proceedings payment).
of one Amadeo Molave, an agreement was reached with regard to the Petitioner’s Arguments Court’s Rebuttals
payment of Canlas’ Atty.’s fees. Canlas moved for the execution of the
• The cited provision connotes • The agreement does no more than
agreement, and when such was granted, the heirs challenged that execution
payment of the fees on establish “on all the properties of
was improper without a written agreement on the precise terms of payment.
They stated that a proviso in the agreement connoted the option to pay the installment. the Estate, real and personal,
fees on installment. However, the Court disagreed, citing Art. 1248 wherein • This had been orally agreed upon herein adjudicated and other
a creditor cannot be compelled to accept partial payment in the absence of in the course of the conferences properties not yet adjudicated, a
express stipulation to the contrary. The proviso provides no such stipulation. held in the chambers and in the charging lien… to secure the
Petition DENIED. presence of J. Barredo with a payment of Atty.’s fees;” with the
II. Facts of the Case (Material Facts) view to reach a mutually express agreement of all
1. During the settlement proceedings of the late Amadeo Matute satisfactory settlement of the signatories
Molave, a document embodying a supplemental compromise matter. • The Court finds no proof in the
agreement and project of partition was executed among the heirs. record to substantiate the
2. The agreement providing for the payment of Atty.’s fees for Atty. supposed agreement verbally
Canlas. It contained a provision creating a charging lien on all the made before J. Barredo. The self-
properties, in Canlas’ favor, in order to secure the payment of said serving affidavits of the heirs do
fees. It states that the liability of a party shall only be extinguished not qualify as such proof.
upon full payment of their share. Overall Ruling
3. Such corresponding share in the obligation to pay Canlas’ Atty.’s The cited proviso contemplates the probability that the heirs obliged to
fees was annotated on the new titles over the properties issued to pay Canlas’ fees would pay at different times, and denotes nothing more
the heirs. than that if one of the obligors separately pays his share, the lien on his
4. Shortly after approval by the Court, Canlas moved for execution, share of the estate is extinguished. The clause cannot be construed as
and such was granted by Judge Cuevas (Order). granting any of the obligors the option to pay in installments, or as binding
5. The heirs challenged the Order of the judge, on the ground that the obligee to accept partial payment.
execution was improper in the absence of a written agreement on
the precise terms of payment of Canlas’ Atty.’s fees.
III. Issue/s V. Law or Doctrine Applied
1. W/N the clause “upon full payment of the corresponding
liability of a party the lien on his/her share is extinguished,” (Art. 1248) The legal principle, in any event, is that "the creditor cannot be
connoted payment of the fees on installment? NO. compelled partially to receive the prestations in which the obligation
consists" unless "there is an express stipulation to that effect," in much the
IV. Holding/s
same way that the debtor may not "be required to make partial payments."
Obligations and Contracts (2020) PETITIONER: MARIANO T. NASSER, MANUEL S. NASSER, ROSARIO 1
S. MATUTE, and FORTUNATA ZAMBRANO VDA. DE MATUTE
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: HON. SERAFIN R. CUEVAS (CFI Judge), PATERNO R.
CANLAS, and PROVINCIAL SHERIFF OF DAVAO ORIENTAL
G.R. No. 41607 | August 21, 1990 Art. 1248: Partial Payments
Nasser v. Cuevas Nasser v. Cuevas
VI. Disposition
WHEREFORE, being manifestly without merit, the petition is

DENIED. The restraining order against the enforcement of the challenged
order of execution and writ of execution issued in Special Proceedings No.
25876 of the Court of First Instance of Manila is LIFTED AND
DISSOLVED. Said order and writ are held to have been validly and
lawfully issued, and alias execution may issue to the extent that the
judgment credit of Atty. Paterno R. Canlas remains unsatisfied, with the
proviso that the sums still due him shall bear interest at the legal rate of six
percent (6%) per annum from September 2, 1974 until fully paid. Petitioners
are charged treble costs. This Decision is immediately executory.

- The heirs have succeeded in delaying payment for 16 years.
VII. Random Facts

• Ponente: Narvasa, J.
Obligations and Contracts (2020) PETITIONER: MARIANO T. NASSER, MANUEL S. NASSER, ROSARIO 2
S. MATUTE, and FORTUNATA ZAMBRANO VDA. DE MATUTE
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: HON. SERAFIN R. CUEVAS (CFI Judge), PATERNO R.
CANLAS, and PROVINCIAL SHERIFF OF DAVAO ORIENTAL
G.R. No. 85419 | March 9, 1993 Article 1249 (Payment)
DBP v Sima Wei DBP v Sima Wei
I. Recit-ready Summary 4. To complete the payment, Sima Wei issued two crossed checks
This case is about the two crossed checks issued by herein respondent, drawn against China Banking Corporation in for the amount of
Sima Wei, to fulfill a payment for a loan executed by Development Bank of P550,000 and P500,000.
Rizal (DBP), petitioner Bank. First, Sima Wei executed a promissory note 5. The two checks were not delivered to the petitioner-payee or to any
engaging to pay DBP an amount of P1,820,000 on or before June 24, 1983 of its authorized representatives.
with 32% interest per annum. After making partial payments, Sima Wei 6. For reasons not shown, said checks came into possession of Lee
executed the two crossed checks for full settlement of the debt. However, Kian Huat (alternative respondent) who deposited the checks,
the two checks were not delivered to petitioner-payee or any of its without DBP’s indorsement to the account of Plastic Corporation
authorized representatives. (alternative respondent) at Producers Bank, Balintawak Branch.
The checks, instead, came into the possession of Lee Kian Huat, who 7. Cheng Uy (alternative respondent), the Branch Manager of
deposited the checks to Producers Bank to credit them to the account of Producers Bank, relied on the assurance of Samson Tung
Plastic Corporation. Cheng Uy, the Branch Manager of said bank ordered (alternative respondent), President of Plastic Corporation that the
the cashier to accept the checks relying on the assurance of Samson Tung, transaction was legal and regular.
President of Plastic Corporation that such transaction was legal and regular. 8. It was credited by the cashier to said corporation inspite of the fact
All these were done inspite of the fact that the checks were crossed and that the checks were crossed and payable to DBP and bore no
payable to petitioner Bank and bore no indorsement of the latter. indorsement.
Hence, petitioner filed a complaint for sum of money against the 9. Hence, DBP filed a complaint for sum of money against said
respondents. RTC and CA ruled in favor of the respondents and dismissed respondents.
the case. 10. RTC: Granted the defendants’ Motions to Dismiss
The issue in this case is W/N petitioner Bank has a cause of action 11. CA: Affirmed the RTC Decision
against any or all of the defendants, in the alternative or otherwise.
The Court held that NO, petitioner Bank has no cause of action against III. Issue/s
any or all of the defendants, in the alternative or otherwise because the W/N petitioner Bank has a cause of action against any or all of the
checks were never delivered to DBP, hence, DBP has no privity with them. defendants, in the alternative or otherwise? NO
The Court explained that since DBP acquired no right or interest, alternative
respondents did not commit any violation against DBP. IV. Holding/s
II. Facts of the Case (Material Facts) Issue

1. DBP extended a loan to Sima Wei and consequently, Sima Wei NO, DBP has no cause of action against any or all of the defendants, in
executed a promissory note delivered to DBP the alternative or otherwise because the checks were never delivered to
2. In the promissoty note, Sima Wei promised to pay P1,820,000 on DBP, hence, DBP has no privity with them.
or before June 24, 1983 at 32% per annum
3. Sima Wei made partial payments – leaving a balance of
P1,032,450.02
Obligations and Contracts (2020) PETITIONER: Development Bank of Rizal (DBP) 1

DIGEST AUTHOR: Leslie Castillo RESPONDENT: Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian
Industrial Plastic Corporation and Producers Bank of the Philippines
G.R. No. 85419 | March 9, 1993 Article 1249 (Payment)
DBP v Sima Wei DBP v Sima Wei

First, they sued Sima Wei on the It is a well-settled rule that a party
promissory note and the alternative cannot change his theory on appeal, ARTICLE 1249 of the CIVIL CODE
as this would in effect deprive the The payment of debts in money shall be made in the currency stipulated, and if it is
defendants, including Sima Wei, on
not possible to deliver such currency, then in the currency which is legal tender in
the two checks. On appeal to RTC, other party of his day in court.
the Philippines.
DBP based their cause of action on Regardless, in this case, it cannot be The delivery of promissory notes payable to order, or bills of exchange or other
quasi-delict on the grounds of the said that DBP has privity with other mercantile documents shall produce the effect of payment only when they have been
respondents since DBP never cashed, or when through the fault of the creditor they have been impaired.
fraudulent acts and evident bad faith
received the checks on which it In the meantime, the action derived from the original obligation shall be held in
on the alternative respondents.
based its action against said abeyance. (1170)
respondents, it never owned them
(the checks) nor did it acquire any SECTION 16 OF THE NEGOTIABLE INSTRUMENTS LAW [AS QUOTED
interest therein. Hence, respondents IN THE CASE]
could not be held liable by DBP Every contract on a negotiable instrument is incomplete and revocable until delivery
of the instrument for the purpose of giving effect thereto. . . .
with anything they could have done
with the checks as DBP had no
rights or interest violated by VI. Disposition
respondents. In the light of the foregoing, the judgment of the Court of Appeals
dismissing the petitioner's complaint is AFFIRMED insofar as the second
Overall Ruling cause of action is concerned. On the first cause of action, the case is
DBP has no cause of action towards the respondents as it acquired no right REMANDED to the trial court for a trial on the merits, consistent with this
or interest to the checks because as it was not delivered [this is based on decision, in order to determine whether respondent Sima Wei is liable to the
Article 1249 of the New Civil Code]. If at all, Sima Wei, would have the Development Bank of Rizal for any amount under the promissory note
cause of action against her co-respondents if the allegations are found to be allegedly signed by her.
true.
NOTE: It does not follow that Sima Wei is freed from liability to DBP A negotiable instrument, such as check, is not only a written evidence of a
under the loan evidenced by the promissory note. With respect to checks, it contract right but is also a species of property. Hence, just like deeds, it
does not constitute payment unless they are cashed or their value is impaired must be delivered to the payee in order to evidence its existence as a binding
through the fault of the creditor. Unless respondent Sima Wei proves that contract. Without the initial delivery of the instrument from the drawer to
she has been relieved from liability on the promissory note by some other the payee, there can be no liability on the instrument.
cause, petitioner Bank has a right of action against her for the balance due
thereon. VIII. Random Facts
• Ponente: Campos, Jr., J.
Obligations and Contracts (2020) PETITIONER: Development Bank of Rizal (DBP) 2

DIGEST AUTHOR: Leslie Castillo RESPONDENT: Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian
Industrial Plastic Corporation and Producers Bank of the Philippines
G.R. No. 100290 | June 4, 1993 Extinguishment of Obligations: Payment or Performance (Legal Tender)
Tibajia v CA Tibajia v CA
I. Recit-ready Summary 7. Tan refused to accept the payments & insisted that the finds
Pasig RTC issued a writ of attachment then ordered Sps. Tibajia to pay deposited in Pasig RTC be withdrawn.
an among in excess of P300,000 after the Deputy Sheriff garnished the 8. Sps. Tibajia filed to lift the writ of execution.
deposit of the spouses from another case in Caloocan RTC in a collection 9. Pasig RTC and CA denied the spouses’ petition on the ground that
suit filed by Eden Tan, while the CA removed the moral and exemplary the check is not a legal tender as defined by the laws.
damages. Tan filed for Motion for Execution and garnished the funds
deposited in RTC Pasig while the spouses delivered the amount of III. Issue/s
P398,483.70 partly by cashier’s check and partly by cash. Tan refused to
1. W/N payment by means of check (even by cashier’s check) is
accept the payments and insisted withdrawing the funds deposited in Pasig
considered payment in legal tender as required by the Civil
RTC. Sps. Tibajia filed to lift the writ of execution but the RTC and CA
denied it because the check is not a legal tender as defined by the laws. Code, RA 529, and Central Bank Act? (NO).
The issue in this case is W/N the payment by means of check is
considered payment in legal tender. The SC said no, basing its decision from IV. Holding/s
jurisprudences, Civil Code, RA 529, and Central Bank Act, a check
(manager’s/cashier’s/personal), in this case a cashier’s check, is not a legal Issue #1
tender and that a creditor may validly refuse such payment by check. SC NO, cashier’s check is not legal tender and the creditor may validly
denied the petition of the spouses. refuse payment by check, whether it be a manager’s. cashier’s, or
personal check.
II. Facts of the Case (Material Facts) Petitioner’s Arguments Court’s Rebuttals
1. Eden Tan (Tan) filed a collection suit for a sum of money against • Used the dissenting opinion of • The dissenting in the case does
Spouses Noberto Tibajia Jr. and Carmen Tibajia (Sps. Tibajia). Philippine Airlines Inc., v. CA to not even support that checks are
2. Pasig RTC issued a writ of attachment on Aug. 17, 1987 and the support their claim legal tender & the circumstances
Deputy Sheriff filed a return on Sep. 17, 1987 stating that he had in the case are different
garnished the spouses’ deposit amounting to P442,750 from
• Fortunado v. CA – SC does not
another case in Caloocan RTC.
sanction the use of check for
3. Pasig RTC ordered the spouses to pay Tan an amount in excess of
payment of obligations over the
P300,000.
objection of the creditor
4. CA, in its final decision, removed the moral & exemplary damages.
5. Tan filed for Motion for Execution & garnished the funds
deposited in RTC Pasig.
6. On Dec. 14, 1990, the spouses delivered to Deputy Sheriff Bolima
the total amount of P398,483.70 through:
a. Cashier’s Check – P262,750.00
b. Cash – 135, 733.70
Obligations and Contracts (2020) PETITIONER: Noberto Tibajia, Jr. & Carmen Tibajia 1
DIGEST AUTHOR: Joses RESPONDENT: CA & Eden Tan
G.R. No. 100290 | June 4, 1993 Extinguishment of Obligations: Payment or Performance (Legal Tender)
Tibajia v CA Tibajia v CA
Overall Ruling SECTION 63 OF CENTRAL BANK ACT

Based on RA 1244 of the Civil Code, Section 1 of RA 529, and Section Legal character — Checks representing deposit money do not have legal
tender power and their acceptance in the payment of debts, both public and private,
63 of the Central Bank Act (see Law or Doctrine Applied), the payment of is at the option of the creditor: Provided, however, that a check which has been
public & private debts must be in legal tender. The checks representing the cleared and credited to the account of the creditor shall be equivalent to a delivery to
deposit money do not have legal tender power and upon the option of the the creditor of cash in an amount equal to the amount credited to his account.
creditor whether to accept it or not.
In Philippine Airlines v. CA and Roman Catholic Bishop of Malolos VI. Disposition
Inc., v. IAC, the SC concluded that a check is not a legal tender and the
creditor may validly refuse payment by check. WHEREFORE, the petition is DENIED. The appealed decision is hereby
AFFIRMED, with costs against the petitioners.
VII. Random Facts

• Ponente: Padilla, J.

The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
other mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
held in abeyance.
SECTION 1 OF RA 529
Every provision contained in, or made with respect to, any obligation
which purports to give the obligee the right to require payment in gold or in any
particular kind of coin or currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is hereby declared against
public policy, null and void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation thereafter incurred. Every
obligation heretofore and hereafter incurred, whether or not any such provision as to
payment is contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender for
public and private debts.
Obligations and Contracts (2020) PETITIONER: Noberto Tibajia, Jr. & Carmen Tibajia 2
DIGEST AUTHOR: Joses RESPONDENT: CA & Eden Tan
G.R. No. 156132| Oct. 16, 2006 Article 1249
Citibank v. Sabeniano Citibank v. Sabeniano
I. Recit-ready Summary 1. Sabeniano was a client of both petitioners Citibank and FNCB
2. She has substantial bank deposits and money market placements
Sabeniano was a client of both petitioners Citibank and FNCB and has (short-term investments) with the petitioners.
substantial bank deposits and money market placements (short-term 3. Sabeniano alleged that Citibank refused to return her deposits and
investments) with the petitioners. Sabeniano alleged that Citibank refused to proceeds from the money market placements despite repeated demands.
return her deposits and proceeds from the money market placements despite 4. Citibank alleged that Sabeniano obtained several loans totaling to P2.1
repeated demands. Citibank alleged that Sabeniano obtained several loans million (P1.9 million principal and P200k interest).
totaling to P2.1 million (P1.9 million principal and P200k interest). Pursuant a. Pursuant to Compensation under Article 1278, the savings
to Compensation under Article 1278, the savings account of Sabeniano was account of Sabeniano was used to partially pay for her
used to partially pay for her outstanding loan, which amounted to P31k. outstanding loan, which amounted to P31k.
Pursuant to the Deed of Assignment that Sabeniano executed as security for b. Pursuant to the Deed of Assignment that Sabeniano
the loan, the proceeds from two rolled-over money market placements were executed as security for the loan, the proceeds from two
also used to partially pay for the loan, which amounted to P1.02 million. rolled-over money market placements were also used to
There was still a balance of P1.069 million. Hence, the bank enforced it partially pay for the loan, which amounted to P1.02
against Sabeniano’s remaining money market placements, and her deposits million.
from her dollar-accounts with Citibank-Geneva pursuant to the Declaration c. There was still a balance of P1.069 million. Hence, the
of Pledge she executed as security for the loan. Sabeniano claimed that she bank enforced it against Sabeniano’s remaining money
already paid for her loan, which was allegedly just P1.150 million, by market placements, and her deposits from her dollar-
presenting provisional receipts which acknowledged the receipt of several accounts with Citibank-Geneva pursuant to the Declaration
checks. of Pledge she executed as security for the loan.
5. Sabeniano claimed that she already paid for her loan, which was
allegedly just P1.150 million, by presenting provisional receipts which
In this case, the checks issued by Sabeniano as payment for her loans are acknowledged the receipt of several checks.
not legal tender. While the provisional receipts indicated that Citibank’s
representative received the checks, the receipts failed to specifically identify
which of her loans was actually paid. It was incumbent upon Sabeniano to
prove that the checks were actually applied to the promissory notes attached III. Issue/s
to her loans, which cannot be simply determined from mere provisional 1. W/N Citibank must return Sabeniano’s deposits and proceeds
receipts. Sabeniano failed to prove such a fact. The purpose of the from her money market placements? (Partially yes)
provisional receipt is to merely acknowledge the delivery of the checks to
the possession of the bank, BUT not yet of payment. An issuance of an IV. Holding/s
official receipt by Citibank would have indicated that the checks delivered
were actually cleared and paid out by the drawee banks. No official receipt Issue #1
was presented. Therefore, her obligation to pay her debt of P2.1 million YES, Citibank must partially return Sabeniano’s deposits and proceeds
stands. from her money market placements.

1
Obligations and Contracts (2020) PETITIONER: CITIBANK
DIGEST AUTHOR: Stephanie Co RESPONDENT: MODESTA R. SABENIANO
G.R. No. 156132| Oct. 16, 2006 Article 1249
Petitioner’s Arguments Court’s Rebuttals  The purpose of the provisional

receipt is to merely
 Sabeniano claimed that she  RELEVANT DOCTRINE: A acknowledge the delivery of the
already paid for her loan, which check, whether a manager’s checks to the possession of the
was allegedly just P1.150 check or ordinary check, is not bank, BUT not yet of payment.
million, by presenting legal tender, and an offer of a  An issuance of an official
provisional receipts which check in payment of a debt is receipt by Citibank would have
acknowledged the receipt of not a valid tender of payment indicated that the checks
several checks. and may be refused receipt by delivered were actually cleared
the obligee or creditor. Mere
and paid out by the drawee
delivery of checks does not
banks. No official receipt was
discharge the obligation under a
judgement. The obligation is presented.
not extinguished and remains  Therefore, her obligation to pay
suspended until the payment by her debt of P2.1 million stands
commercial document is ● Citibank successfully set-off
actually realized. P1.05 million pursuant to
 In this case, the checks issued Compensation
by Sabeniano as payment for  under Art. 1278, and pursuant
her loans are not legal tender. to the Deed of Assignment for
 While the provisional receipts the proceeds of two rolled-over
indicated that Citibank’s money market placements.
representative received the  However, the other remaining
checks, the receipts failed to money market placements (still
specifically identify which of outstanding) and the deposits
her loans was actually paid. from the dollar-account
 ○ It was incumbent upon (declaration of pledge was
Sabeniano to prove that the invalid) were deemed
checks were actually applied to unenforceable.
the promissory notes attached to  Sabeniano is ordered to pay the
her loans, which cannot be remaining balance of P1.069
simply determined from mere million with interest.
provisional receipts. Sabeniano  Citibank is ordered to return the
failed to prove such a fact. proceeds of the other remaining
2
G.R. No. 156132| Oct. 16, 2006 Article 1249
money market placements and interest. Citibank is ordered to return the proceeds of the other remaining
the deposit from the dollar- money market placements and the deposit from the dollar-account with
account with Citibank-Geneva, Citibank-Geneva, with interests for both. Citibank is also liable for moral
with interests for both. and exemplary damages, and attorney’s fees. Citibank is not required to
○ Citibank is also liable for return the P1.05 that was validly used to set-off the Sabeniano’s loan
moral and exemplary damages,
and attorney’s fees.
○ Citibank is not required to
return the P1.05 that was validly
used to set-off the Sabeniano’s
loan
Overall Ruling
In this case, the checks issued by Sabeniano as payment for her loans are
not legal tender. While the provisional receipts indicated that Citibank’s
representative received the checks, the receipts failed to specifically identify
which of her loans was actually paid. It was incumbent upon Sabeniano to
prove that the checks were actually applied to the promissory notes attached
to her loans, which cannot be simply determined from mere provisional
receipts. Sabeniano failed to prove such a fact. The purpose of the
provisional receipt is to merely acknowledge the delivery of the checks to
the possession of the bank, BUT not yet of payment. V. Law or Doctrine Applied

An issuance of an official receipt by Citibank would have indicated that the The payment of debts in money shall be made in the currency stipulated, and if it is
checks delivered were actually cleared and paid out by the drawee banks. not possible to deliver such currency, then in the currency which is legal tender in the
No official receipt was presented. Therefore, her obligation to pay her debt Philippines.
of P2.1 million stands.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
Citibank successfully set-off P1.05 million pursuant to Compensation under cashed, or when through the fault of the creditor they have been impaired.
Art. 1278, and pursuant to the Deed of Assignment for the proceeds of two
rolled-over money market placements. However, the other remaining money In the meantime, the action derived from the original obligation shall be held in the
market placements (still outstanding) and the deposits from the dollar- abeyance. (1170)
account (declaration of pledge was invalid) were deemed unenforceable.
Sabeniano is ordered to pay the remaining balance of P1.069 million with VI. Disposition
3
G.R. No. 156132| Oct. 16, 2006 Article 1249
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY

GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. No.
51930, dated 26 March 2002, as already modified by its Resolution, dated 20
November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows
—
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding.
Petitioner Citibank is ORDERED to return to respondent the principal
amounts of the said PNs, amounting to Three Hundred Eighteen Thousand
Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34)
and Two Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00),
respectively, plus the stipulated interest of Fourteen and a half percent
(14.5%) per annum, beginning 17 March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty
Two US Dollars and Ninety-Nine Cents (US$149,632.99) from respondent's
Citibank-Geneva accounts to petitioner Citibank in Manila, and the
application of the same against respondent's outstanding loans with the latter,
is DECLARED illegal, null and void. Petitioner Citibank is ORDERED to
refund to respondent the said amount, or its equivalent in Philippine currency
using the exchange rate at the time of payment, plus the stipulated interest for
each of the fiduciary placements and current accounts involved, beginning 26
October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral damages in the
amount of Three Hundred Thousand Pesos (P300,000.00); exemplary
damages in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00);
and attorney's fees in the amount of Two Hundred Thousand Pesos
(P200,000.00); and
4. Respondent is ORDERED to pay petitioner Citibank the balance of her
outstanding loans, which, from the respective dates of their maturity to 5
September 1979, was computed to be in the sum of One Million Sixty-Nine
Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos
(P1,069,847.40), inclusive of interest. These outstanding loans shall continue
to earn interest, at the rates stipulated in the corresponding PNs, from 5
September 1979 until payment thereof.

VII. Random Facts
4
G.R. No. 157833 | October 15, 2007 Extinguishment of Obligations, Payment or Performance
BPI v Roxas BPI v Roxas
I. Recit-ready Summary 4. Roxas filed a suit with the RTC against BPI. BPI denied allegations of the
complaint, it claimed that the dishonor was due to lack of consideration and
Roxas delivered vegetable oil to sps. Cawili. Cawilis issued a personal that Roxas’ remedy was to sue Rodrigo Cawili who purchased the check.
check but the same was dishonored upon presentment. Rodrigo Cawili
(husband) went with Roxas to BPI and had the bank manager draw a III. Issue/s
cashier’s check payable to Roxas. Roxas accepted the cashier’s check.
1. Is Roxas a holder in due course?
Is Roxas a holder in due course?
2. Is BPI liable to Roxas for the amount of the cashier’s check?
Yes. Roxas is a holder in due course for he received the check as
payment for his vegetable oil. IV. Holding/s
Is BPI liable for the cashier’s check? Issue #1

Yes. Roxas is a holder in due course.
Yes, BPI is liable for the cashier’s check. Case law provides that
business practice treats cashier’s check as cash for the mere issuance of a Petitioner’s Arguments Court’s Rebuttals
cashier’s check is considered acceptance thereof. • Value is not present. Therefore, • BPI’s contention lacks merit, see
Roxas cannot be a HIDC. NIL, Sec. 25.
Petition denied.
• •
1. Gregorio Roxas (Roxas) delivered stocks of vegetable oil to sps. Rodrigo

and Marissa Cawili. As payment, sps. Cawili issued a personal check in the
amount of P348,505.50. However, when Roxas attempted to encash the
check, the drawee bank dishonored the check. Sps. Cawili assured Roxas
that they would replace the check.
2. Rodrigo and Roxas went to BPI Shaw Boulevard. Elma Capistrano, the
bank manager, instructed the bank teller to prepare a CASHIER’S CHECK
drawn against Marissa’s account, payable to Roxas. The check was handed
to Roxas in the presence of the bank manager.
3. Roxas attempted to encash the check but it was dishonored for Marissa’s
account was closed. Roxas’ lawyer advised Roxas to deposit the check to
his account at Citytrust, Ortigas, but it was dishonored for account closed.
Obligations and Contracts (2020) PETITIONER: Bank of the Philippine Islands 1

DIGEST AUTHOR: Jann Amorado RESPONDENT: Gregorio Roxas
Overall Ruling considered acceptance thereof.

The general rule under NIL is that every holder is presumed to be a
holder in due course. The case of Walker Rubber Corp. provides that value BPI became liable to Roxas the moment Roxas accepted the cashier’s
“in general terms may be some right, interest, profit, or benefit to the party check. BPI should have paid the same upon Roxas’ presentment.
who maker the contract or some forbearance, detriment, loan, responsibility,
etc. on the other side.” Here, Roxas received the cashier check as payment V. Law or Doctrine Applied
for Roxas’ vegetable oil. The fact that Rodrio purchased the cashier’s check
will have no effect to Roxas’ status as HIDC since the check was delivered Section 52 of the Negotiable Instruments Law provides:
as payment for the vegetable oil.
SEC. 52. What constitutes a holder in due course. — A holder in due course
is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of person negotiating
it.
NIL
SEC. 25. Value, what constitutes. — Value is any consideration sufficient to
support a simple contract. An antecedent or pre-existing debt constitutes
value; and is deemed as such whether the instrument is payable on demand
Issue #2
or at a future time.
Yes, BPI is liable for the cashier check for it is considered as the bank’s
own check. Civil Code
• • Art. 1249. The payment of debts in money shall be made in the currency
Overall Ruling currency which is legal tender in the Philippines.
The case of International Corporate Bank provides that a cashier’s check The delivery of promissory notes payable to order, or bills of exchange or
may be treated as a promissory note with the bank as the maker. The check other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
becomesthe primary obligation of the bank which issues it and constitutes a
been impaired.
written promise to pay upon demand. In the case New Pacific Time &Supply
Co. the Court said that it is a well-known business practice to consider a In the meantime, the action derived from the original obligation shall be
cashier’s check as cash for the mere issuance of the cashier’s check is held in the abeyance. (1170)
VI. Disposition
WHEREFORE, the petition is DENIED. The assailed Decision of the Court

of Appeals
(Fourth Division) in CA-G.R. CV No. 67980 is AFFIRMED. Costs against
petitioner.
VII. Random Facts

• Sandoval-Gutierrez, J

G.R. No. L-18390 | December 20, 1971 Article 1250 (Extraordinary Inflation)
Velasco vs. Meralco Velasco vs. Meralco
I. Recit-ready Summary Petitioner’s Arguments Court’s Rebuttals

● Damages awarded to him were ● Article 1250 applies to
Velasco filed a motion for reconsideration of the decision wherein he was insufficient given the present obligations arising from contracts
granted damages by the Supreme Court. He claims that the damages high cost of living. and is inapplicable to obligations
awarded him are inadequate considering the present high cost of living and ● Article 1250 entitles him to arising from tort.
anchors his claim on Article 1250 of the Civil Code. The issue in this case is higher damages.
whether or not Velasco is entitled to an increase in the damages awarded to Overall Ruling
him on the basis of Article 1250 and the Court held said no, Article 1250
does not apply in this case. This provision applies to obligations arising Article 1250 does not apply in this case. Article 1250 envisages contractual
from contracts and is inapplicable to obligations arising from tort. Also, no obligations where a specific currency is selected by the parties as the
adequate proof of loss was presented as the market value of the house was medium of payment. Hence, it is inapplicable to obligations arising from tort
not shown to have depreciated. and not from contract. Also, no adequate proof of loss was presented as the
market value of the house was not shown to have depreciated.
1. Velasco filed a motion for reconsideration of the decision wherein
he was granted damages by the Supreme Court
2. He claims that the damages awarded him are inadequate V. Law or Doctrine Applied
considering the present high cost of living.
3. He bases his claim on Article 1250 of the Civil Code ARTICLE 1250
III. Issue/s Art. 1250. In case an extraordinary inflation or deflation of the currency
1. W/N Velasco is entitled to an increase in damages on the basis stipulated should supervene, the value of the currency at the time of the
of Article 1250 of the Civil Code. NO establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary.
IV. Holding/s
VI. Disposition
Issue #1
NO, Velasco is not entitled to higher damages as Article 1250 does not WHEREFORE, appellee’s motion to reconsider is likewise denied.
apply in this case.
VII. Random Facts
● Ponente: Reyes, J.B.K., J
1
Obligations and Contracts (2020) PETITIONER: Pedro Velasco
DIGEST AUTHOR: Myna RESPONDENT: Manila Electric Co.
G.R. No. L-36706 | March 31, 1980 Payment or Performance
Commissioner v Burgos Commissioner v Burgos
I. Recit-ready Summary clippings showing the PHP to USD exchange rate which was PHP
Victoria Amigable was the owner of a parcel of land which was 6.775 to USD 1 (in 1972)
taken by the government for a road right-of way purpose in 1924. In 1959, 7. Thus, the lower court ruled that The Republic should pay Amigable
Amigable complained against this taking to the Court of First Instance PHP 49,459.34 plus PHP 145,410 as interest, and attorney’s fees
(CFI). This matter was raised to the SC which ruled in favor of Amigable (total of PHP 214,356.75)
and remanded the case to the CFI for determining the compensation. 8. The Republic appealed that decision to the SC
Amigable presented newspaper clippings of the current PHP to 9. The Republic argued that the lower court incorrectly computed the
USD exchange rate while the Republic presented documents from the compensation because the respondent judge used the deflated value
Bureau of Records. The CFI used the Amigable’s evidence and ruled that
of the peso in relation of the dollar
she is entitled to PHP 49,459.34 as principal plus interest and attorney's fees
(total of PHP 214, 356.75). The Republic appealed this decision to the SC.
III. Issue/s
The SC held that Article 1250 of the Civil Code was incorrectly
applied by the CFI. The use of Eminent Domain does not give rise to a 1. W/N Article 1250 of the New Civil Code is applicable in
contractual obligation while Article 1250 applies only to contracts or determining the compensation in this case? NO.
agreements. In the absence of any agreement to the contrary, even if there is IV. Holding/s
extraordinary inflation, the value of the peso at the time of the establishment Issue #1
of the obligation must be considered for the purpose of determining just 2. W/N Article 1250 of the New Civil Code is applicable in
compensation. Thus, the SC reduced the principal amount to P14,615.79. determining the compensation in this case? NO.
1. Victoria Amigable is the owner of a parcel of land ● The CFI was incorrect in ● Article 1250 applies where
2. In 1924, the government took this land for a road right-of way computing the compensation contracts or agreements are
purpose. It has become the street known as Mango Avenue involved. Eminent Domain does
3. On February 6, 1959, Amigable filed to the Court of First Instance not give rise to a contractual
a complaint to recover ownership and possession of the land, and obligation
for damages ● Also, Article 1250 is clear in
4. The Republic argued that the right to recover was barred by saying that an “agreement to the
estoppel contrary” is needed for the value
5. The CFI dismissed it so it was raised to the SC which ruled in of the currency to be based on the
favor of Amigable. The SC remanded the case for determining time of payment and not the time
compensation of the establishment of the
6. The government showed documents from the Bureau of Records obligation (the taking in
saying that, at the time of the taking (in 1924), the price of the land expropriation cases)
was PHP 2.37 per square meter. Amigable presented newspaper
1
Obligations and Contracts (2020) PETITIONER: Commissioner of Public Highways
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Hon. Francisco P. Burgos and Victoria Amigable
G.R. No. L-36706 | March 31, 1980 Payment or Performance
Commissioner v Burgos Commissioner v Burgos
Overall Ruling VII. Additional Notes

The SC held that in the absence of any agreement to the contrary, ● The Court declined to declare whether or not there was
even if there is extraordinary inflation, the value of the peso at the time of extraordinary inflation within the meaning of Article 1250
the establishment of the obligation must be considered for the purpose of ● Teehankee Concurred
determining just compensation.
Further, the unusually long delay of the respondent in bringing the
VII. Random Facts
matter to court (almost 25 years) is a circumstance against awarding her a
● Ponente: De Castro, J.
larger amount.

Article 1250 provides that:
In case of extra-ordinary inflation or deflation of the
currency stipulate 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.
In the absence of any agreement to the contrary, even if there is
extraordinary inflation, the value of the peso at the time of the establishment
of the obligation must be considered for the purpose of determining just
compensation.
VI. Disposition
WHEREFORE, the judgment appealed from is hereby reversed as to
the basis in the determination of the price of the land taken as just
compensation for its expropriation, which should be the value of the
land at the time of the taking, in 1924. Accordingly, the same is
hereby fixed at P14,615.79 at P2.37 per square meter, with interest
thereon at 6% per annum, from the taking of the property in 1924,
to be also paid by Government to private respondent, Victoria
Amigable, until the amount due is fully paid, plus attorney's fees of
P5,000.00.
2
Obligations and Contracts (2020) PETITIONER: Commissioner of Public Highways
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Hon. Francisco P. Burgos and Victoria Amigable
G.R. No. L-43446 | May 3, 1988 Extraordinary Inflation
Filipino Pipe v. NAWASA Filipino Pipe v. NAWASA
I. Recit-ready Summary respondent to pay the unpaid balance in NAWASA negotiable

Filipino Pipe and NAWASA entered into a contract wherein the former will bonds. However, the respondent still did not deliver the bonds to
supply the iron pressure pipes worth P270,187.50 which will be used for the the petitioner.
construction of the Anonoy Waterworks to the latter. The latter was able to 3. In February 1971, Filipino Pipe filed another complaint to seek an
pay, in installments, an amount worth P134,680, but no payments were adjustment of the unpaid balance in accordance with the value of
made since then which led the petitioner to file a collection suit against the the Philippine peso in the recent RTC’s decision. As a defense, the
respondent. The RTC ordered NAWASA to pay the unpaid balance in respondent filed a motion to dismiss the complaint because it is
NAWASA negotiable bonds, but the latter still failed to satisfy the decision. barred by the 1967 decision. The RTC denied the motion to
The petitioner filed another complaint to seek an adjustment of the unpaid dismiss because the two complaints have different causes of action
balance in accordance with the value of the Philippine peso in the recent (check additional notes for the difference) and required both parties
RTC’s decision. After the presentation of expert testimonies regarding the to present expert testimonies which will help justify the claim that
economic conditions, the RTC dismissed the complaint because this is just a there is an extraordinary inflation.
worldwide occurrence. The issue in this case is W/N the continuously 4. The RTC dismissed the complaint stating that this is just a
spiralling price index constitutes an extraordinary inflation which worldwide occurrence.
would justify the adjustment of the unpaid balance. The Court ruled that
it is not considered as an extraordinary inflation because despite the III. Issue/s
voluminous records and statistics, presented by the petitioner, which proved 1. W/N the continuously spiralling price index constitutes an
that there has been a decline in the purchasing power of the Philippine peso, extraordinary inflation which would justify the adjustment of
the Court does not still consider this downfall as extraordinary because it is the unpaid balance. (NO)
simply a universal trend that has not spared our country.
IV. Holding/s
1. In June 1961, Petitioner Filipino Pipe and Foundry Corporation Issue #1
(Filipino Pipe) entered into a contract with respondent National NO, it is not considered as an extraordinary inflation.
Waterworks and Sewage Authority (NAWASA) for the former to
supply iron pressure pipes worth P270,187.50 which will be used
● Petitioner claimed that the price ● It is hardly proof that inflation is
for the construction of the Anonoy Waterworks in Masbate and the
index of commodities, as shown extraordinary because it is a
Barrio San Andres-Villareal Waterworks in Samar.
in the evidence present, which is worldwide occurrence.
2. NAWASA made several installments amounting to P134,680,
usually an indicator that the
leaving an unpaid balance worth P135,507. The former failed to
value of the currency has been
pay the remaining balance which led to the filing of a collection
rising.
suit by the petitioner. In November 1961, the RTC ordered the
1
Obligations and Contracts (2020) PETITIONER: Filipino Pipe and Foundry Corporation
DIGEST AUTHOR: Steven Rivera RESPONDENT: National Waterworks and Sewage Authority
G.R. No. L-43446 | May 3, 1988 Extraordinary Inflation
Filipino Pipe v. NAWASA Filipino Pipe v. NAWASA

The Court cited Tolentino Commentaries and Jurisprudence on the Civil ● Ponente: Grino-Aquino, J.
Code Vol. IV wherein extraordinary inflation was defined as “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.” In the instant case, despite the voluminous
records and statistics, presented by the petitioner, which proved that there
has been a decline in the purchasing power of the Philippine peso, the Court
does not still consider this downfall as extraordinary because it is simply a
universal trend that has not spared our country.

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.
VI. Disposition
WHEREFORE, finding no reversible error in the appealed decision of the
trial court, We affirm it in toto. No costs.

● The first complaint filed was for collection of the defendant's
indebtedness for the pipes, while the second complaint was for
adjustment of the value of said judgment due to alleged
supervening extraordinary inflation of the Philippine peso which
has reduced the value of the bonds paid to the plaintiff.
2
Obligations and Contracts (2020) PETITIONER: Filipino Pipe and Foundry Corporation
DIGEST AUTHOR: Steven Rivera RESPONDENT: National Waterworks and Sewage Authority
G.R. No. L-28776 | August 19, 1988 Payment or Performance | Article 1250
Del Rosario v Shell Del Rosario v Shell
I. Recit-ready Summary 4. Because of the EO, Del Rosario demanded to Shell an increase in the
Del Rosario and Shell entered into a Lease Agreement wherein Del Rosario monthly rental to 487.5 pesos.
would lease a plot of land to Shell for 250 pesos a month. Par 14 of the 5. Shell refused to pay
agreements stated that in the event of an official devaluation or appreciation 6. Del Rosario filed a complaint in the CFI of Manila hoping that Shell be
of the Philippine currency the rental specified herein shall be adjusted in ordered to pay the increased monthly rentals and additional damages and
accordance with the provisions of any law or decree. Pres. Macapagal Atty’s Fees.
promulgated EO 195 which changed the Par Value of Peso from $0.5 to 7. CFI dismissed the complaint since EO 195 has not officially devalued the
$0.2564103 in 1965. Del Rosario then wanted to increase the monthly rental peso but only modified its par value .
to 487.7 pesos but Shell Refused. A complaint was filed by Del Rosario in 8. Del Rosario brought forth this petition.
the Court of First Instance but this was dismissed. The main issue in this
case whether or not he trial court erred in holding that EO 195 has not III. Issue/s
officially devalued the peso. The Court reversed the CFI’s decision saying 1. W/N the trial court erred in holding that EO 195 has not officially
that the resultant decrease in the par value of the currency (by Executive devalued the peso. (YES)
Order No. 195) is precisely the situation contemplated by the parties in their IV. Holding/s
contract. The Court differentiated Depreciation and Devaluation wherein it Issue #1
stated that Devaluation is an official act of the government and refers to a The trial court erred in holding that EO 195 has not officially devalued
reduction in metallic content, while Depreciation may take place without an the peso.
official act and does not depend on metallic content. In this case, while no
express reference has been made to metallic content, there is a reduction in Petitioner’s Arguments Court’s Rebuttals
par value or in the purchasing power of Philippine currency which reduced  EO 195 in effect, decreased the  The decrease in the par value
the purchasing power of the peso. worth or value of our currency. of the currency is what was in
fact contemplated by the
II. Facts of the Case (Material Facts) parties in the contract.
1. The two parties entered into a lease agreement on Sep 20, 1960 of a lot Overall Ruling
where Shell will pay 250 pesos monthly rental. The Court came into the conclusion that the resultant decrease in the par
2. Par 14 of the Lease Agreement provides: value of the currency (by Executive Order No. 195) is precisely the situation
“In the event of an official devaluation or appreciation of the or event contemplated by the parties in their contract; accordingly an
Philippine currency the rental specified herein shall be adjusted in upward revision of the rent is called for.
accordance with the provisions of any law or decree declaring such
devaluation or appreciation as may specifically apply to rentals." The Court differentiates the terms “devaluation” and “appreciation”
3. Pres. Diosdado Macapagal promulgated EO 195 (Changing the Par Value (opposite of depreciation) which were used in the contract. Devaluation is
of Peso from $0.5 to $0.2564103) on Nov 6, 1965. “a reduction in its metallic content as determined by law,” which results in
Obligations and Contracts (2020) PETITIONER: Simon Del Rosario 1

DIGEST AUTHOR: Himerio Garcia RESPONDENT: The Shell Company of the Phils.
G.R. No. L-28776 | August 19, 1988 Payment or Performance | Article 1250
Del Rosario v Shell Del Rosario v Shell
the lowering of the value of one nation’s currency in terms of other nations GRANTED, effective on the date the complaint was filed. No award of
(Sloan and Zurcher). They further quoted Samuelson and Nordhaus in damages and no costs.
saying that “when a country's of official exchange rate relative to gold or
another currency is lowered, as from $35 an ounce of gold to $38, we say
the currency has been devalued." Depreciation meanwhile, “occurs when a VII. Additional Notes
N/A
currency’s value falls in relation to foreign countries” (Sicat) In summary,
VII. Random Facts
Devaluation is an official act of the government and refers to a reduction in
 Ponente: Paras, J.
metallic content. Depreciation may take place without an official act and
does not depend on metallic content.
In the case at bar, while no express reference has been made to metallic
content, there is a reduction in par value or in the purchasing power of
Philippine currency. Even assuming there has been no official devaluation,
the fact is that there has been a lessening in the purchasing power of the
peso, thus, there has been a "depreciation." Moreover, when laymen
unskilled in the semantics of economics use the terms "devaluation" or
"depreciation" they certainly mean them in their ordinary signification as a
decrease in value. Hence as contemplated by the parties in their lease
agreement, 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 be proportionately increased.
Article 1250
to the contrary
VI. Disposition
WHEREFORE, the judgment appealed from is REVERSED and SET

ASIDE, and the rental prayed for by the plaintiff-appellant is hereby
Obligations and Contracts (2020) PETITIONER: Simon Del Rosario 2

DIGEST AUTHOR: Himerio Garcia RESPONDENT: The Shell Company of the Phils.
G.R. No 79552| November 29, 1988 Extinguishment of Obligation
Sangrador vs. Sps. Valderrama Sangrador vs. Sps. Valderrama
In 1983, Sps. Valderrama obtained a P500,00 loan from one Manuel II. Facts of the Case (Material Facts)
Asencio to be paid in April 1984. Sps. Valderrama secured a real 1. In 1983, Sps. Valderrama obtained a P500,00 loan from one
estate Manuel Asencio to be paid in April 1984. Sps. Valderrama secured
mortgage on their house and 3 lots for the said debt. Knowing that they a real estate mortgage on their house and 3 lots for the said debt.
cannot pay the debt on its maturity day, they searched for 2. Knowing that they cannot pay the debt on its maturity day, they
money-lenders and met a broker, Wilson Jesena who let them obtain a searched for money-lenders and met a broker, Wilson Jesena who
P1,000,000 loan from Jesena’s aunt, Teresita Sangrador. The spouses let them obtain a P1,000,000 loan from Jesena’s aunt, Teresita
secured such loan with the same property secured to their debt with Sangrador.
Asencio. Such loan was secured by a promissory note. The makers of 3. The spouses secured such loan with the same property secured to
that note, jointly and severally undertake that in the event that an their debt with Asencio. Such loan was secured by a promissory
extraordinary inflation of the Philippine Peso should supervene note.
between now and eight (8) months after date, then the value of the 4. This was stipulated in the promissory note:
Philippine Peso at the time of the establishment of this obligation, FOR VALUE RECEIVED, we jointly and severally promise to
shall be the basis of payment pursuant to Art. 1250 of the Civil Code pay EVELYN J. SANGRADOR, or order, at her address at No. 2
of the Philippines. Upon demand, the spouses again failed to pay their Locsin Street, Molo, Iloilo City, Philippines, the sum of ONE
debt. In court, Sangrador alleged that the Sps. Valderrama failed to MILLION FOUR HUNDRED THOUSAND PESOS
pay their P1,400,000 debt upon maturity. On the other hand, the Sps. (P1,400,000.00) Philippine Currency, EIGHT (8) MONTHS after
Valderrma alleges that their debt is only P1,000,000 as evidenced by date without need of demand.
receipts. The issue in this case (1) whether or not the loan obtained by 5. The makers of that note, jointly and severally undertake that in the
the Sps. Valderrama was P1,400,000 and not P1,000,000 and (2) event that an extraordinary inflation of the Philippine Peso should
whether or not the Court of Appeals was correct in nullifying the supervene between now and eight (8) months after date, then the
escalation clause in the Deed of Real Estate Mortgage and the value of the Philippine Peso at the time of the establishment of this
Promissory Note. The Court held that (1) no, the Spouses have a debt obligation, shall be the basis of payment pursuant to Art. 1250 of
totaling in P1,000,000 to Sangrador as evidenced by computations and the Civil Code of the Philippines.
receipts provided in evidence; as seen in Court, they held that the 6. Two receipts were issued by the Sps. Valderrama to Sangrador in
additional P400,000 was a hidden interest Sangrador wanted the the amount of P625,000 and P375,000 for her payment of the
Spouses to pay upon payment of the debt. (2) Yes, the Court of spouses' debt to Asencio and the spouses’ initial payment for their
Appeals was correct in nullifying the escalation clause in the Deed of debt to Sangrador, respectively.
Real Estate Mortgage and the Promissory Note because Sangrador 7. Upon demand, the spouses again failed to pay their debt. In court,
failed to prove that there was an extraordinary inflation that occurred Sangrador alleged that the Sps. Valderrama failed to pay their
during the pendency of the payment of the debt. P1,400,000 debt upon maturity. On the other hand, the Sps.
1
Obligations and Contracts (2020) PETITIONER: Lucia R. Singson
DIGEST AUTHOR: Alex Sulaik RESPONDENT: Caltex (Philippines) Inc.
Valderrma alleges that their debt is only P1,000,000 as evidenced 2. The Court of Appeals erred in excess P400,000 was hidden
by receipts. nullifying the escalation clause interest within the promissory
in the Deed and the note.
III. Issue/s Promissory Note. 2. There was no evidence leading
1. Whether or not the loan obtained by the Sps.
to an extraordinary inflation
Valderrama was P1,400,000 and not P1,000,000. NO.
that occurred during the
2. Whether or not the Court of Appeals was correct in
nullifying the escalation clause in the Deed of Real pendency of the payment of
Estate Mortgage and the Promissory Note. YES. the debt that can give effect to
IV. Holding/s the escalation clause.
Overall Ruling
Issue
1. NO. The loan obtained by the Sps. Valderrama only 1. Sps. Valderrama only owes Sangrador the amount of
amounted to P1,000,000 and not P1,400,000 as alleged by P1,000,000 as opposed to the amount of P1,400,000. This is
Sangrador. evidenced in the receipts issued by the spouses and offered in
2. YES. The Court of Appeals was correct in nullifying the court, which when computed amounted to:
escalation clause in the Deed of Real Estate Mortgage and
the Promissory Note. P 625,000.00 — to pay Manuel Asencio (first creditor)
50,000.00 — to pay Wilson Jesena (for broker's commission)
Petitioner's Argument Court’s Rebuttal 4,000.00 — to pay Atty. Enrique Arguelles
(for Attorney's fees)
1. Sps. Valderrama owed her 1. Sps. Valderrama only owes 13,398.69 — to pay transfer fees and other expenses in
P1,400,000 as stipulated in the Sangrador the amount of Register of Deeds and BIR
Promissory Note and that she P1,000,000 and not 307,601.40 — to pay respondents as balance of the loan
had loaned the spouses P1,400,000. The receipts ——————
P400,000 without issuing a P1,000,000.09 TOTAL
issued by the Spouses were
receipt as it was already The alleged P400,000 was alleged to be given by Sangrador to
proof that only P1,000,000
evidenced and stipulated in the the Sps. without need of receipt as the said amount was already
were lent to them and not the
promissory note both signed stipulated in the Promissory Note. The Court disagreed and
alleged amount of P1,400,000.
by Sangrador and Sps. found that the excess P400,000 was hidden interest.
The Court later found that the
Valderrama.
2
2. The Court of Appeals was correct in nullifying the escalation

clause in both the Deed and the Promissory note. For such
escalation clause to take effect, an extraordinary inflation of the
Philippine Peso should supervene. Sangrador failed to prove that
such extraordinary inflation did occur, hence, giving no effect to
the escalation clause.
Article 1250.

to the contrary.
VI. Disposition
WHEREFORE, the petition is DENIED. The decision of the Court of

Appeals dated
12 August 1987 is AFFIRMED. With costs against petitioners.
VII. Random Facts

● Ponente: Padilla, J.
3
G.R. No. 132284 | Feb. 28, 2006 Extraordinary Inflation/Deflation: When Applicable (Art. 1250)
Telengtan vs. US Lines Telengtan vs. US Lines
I. Recit-ready Summary 6. US Lines sued Telengtan seeking payment of demurrage (worth

Telengtan contracted US Lines to ship cargo to Manila. Upon arrival, P94,000) plus interest and damages.
Telengtan failed to take deliveries of its cargo in the 10-day free period, so 7. Telengtan countered stating that they presented the pertinent
US Lines unloaded the goods from its container vans and stored these in a documents (including the Bills of Lading) and demanded delivery
warehouse. but found out that US Lines already unloaded the goods from the
US Lines sued Telengtan for the demurrage charge (P94,000) it container vans into a warehouse (as authorized by the Bureau of
incurred because of the latter’s delay. The RTC ruled for US Lines and Customs)
ordered Telengtan to pay P99,408 with legal-rate interest plus atty’s fees at
8. The RTC ruled for US Lines and ordered Telengtan to pay the
20% the total sum due. This entire amount will be recomputed at the time of
demurrage because the latter, in bad faith, did not immediately take
payment in consideration of peso devaluations from the time of filing the
complaint. The CA affirmed. action to have the goods delivered to it.
The issue is whether or not the RTC was correct in ordering said 9. The RTC awarded to US Lines P99,408 with legal-rate interest, plus
recomputation for the award to US Lines. atty’s fees at 20% the total sum due. This amount will be recomputed
The SC ruled that the RTC erred in ordering the recomputation of the at the time of payment to factor in peso devaluations that occurred
award to US Lines at the time of payment in consideration of the peso after the complaint was filed.
devaluation. US Lines was unable to prove the existence of extraordinary 10. The CA affirmed the RTC decision after Telengtan appealed.
inflation. Furthermore, even if there was such extraordinary inflation, the 11. Telengtan filed the present petition.
general rule is that the value of the currency at the time of the establishment
of the obligation shall be the basis of payment unless there is stipulation to III. Issue/s
the contrary. In this case, there was no such stipulation, so the value of the 1. W/N petitioner Telengtan is at fault? YES.
currency at the time of the establishment of the obligation is controlling.
2. W/N the RTC was correct in ordering for a recomputation for
the award to US Lines in accordance with Art. 1250? NO.
1. Petitioner Telengtan is a local business under the name La Suerte
Cigar & Cigarette Factory.
IV. Holding/s
2. Respondent US Lines is a foreign corporation in the business of
overseas shipping.
Issue #1
3. Telengtan availed of the services of US Lines for the 7 shipments of
goods to be delivered from US ports to Manila, inside US Lines’ YES, petitioner Telengtan is at fault.
container vans.
4. At this time, Far East Conference Tariff No. 12 was in effect
 Telengtan argues US Lines  Telengtan is at fault for not
between the parties. This meant that those who failed to take delivery
breached their contract when taking delivery of its cargo from
of their containerized cargo from the port after the 10-day free period
5. Telengtan failed to withdraw its goods within the 10-period after instead of delivering the goods the container vans within the 10-
to Telengtan, US Lines day period.
arrival.
1
Obligations and Contracts (2020) PETITIONER: Telengtan Brothers & Sons, Inc.
DIGEST AUTHOR: Kara Nazario RESPONDENT: United States Lines, Inc.
deposited the goods in a  This inaction led US Lines to inflation/deflation to apply to the
warehouse. deposit said goods in a payment, Art. 1250 requires a
warehouse (as authorized by the stipulation to such effect. This is
Bureau of Customs) because in case of such
 The Bills of Lading allow the extraordinary inflation/deflation,
goods to be delivered to the general rule is that the value
warehouses if the receiver does of the currency at the time of the
not take delivery thereof. establishment of the obligation
Overall Ruling shall be the basis of payment.
The SC confirms the conclusion of the CA that Telengtan is at fault for
failure to take the delivery of its cargo within the 10-day period. Overall Ruling
The Court finds erroneous the RTC’s order for recomputation for the
award to respondent as of the date of payment in accordance with Art.
1250.
Issue #2
NO, the RTC erred in ordering the recomputation of the award to
respondent as of the date of payment in accordance with Art. 1250 (re: V. Law or Doctrine Applied
application of extraordinary inflation/deflation).
Respondent’s Arguments Court’s Rebuttals CONTROLLING VALUE FOR PAYMENT
Article 1520 clearly provides that the value of the peso at the time of the
 Respondent US Lines argued  There has been no extraordinary establishment of the obligation shall control the basis of payment of the contractual
that the Court should take notice inflation within the meaning of obligation unless there is an agreement to the contrary.
of the peso-USD devaluations Art. 1250
since the time proceedings  US Lines was unable to prove the ARTICLE 1250 OF THE CIVIL CODE
began in 1981. happening of such extraordinary Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
 US Lines says the Court should inflation with evidence or establishment of the obligation shall be the basis of payment, unless there is an
factor such devaluations into the testimony. agreement to the contrary.
amount to be awarded.  There was no official
pronouncement from a
competent authority. VI. Disposition
 The rise in the price index cannot
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the
be considered as resulting to MODIFICATION that the order for recomputation as of the date of payment in
extraordinary inflation. accordance with the provisions of Article 1250 of the Civil Code is deleted.
 Most importantly, for the effects Costs against petitioner.
of any extraordinary SO ORDERED.
2

 Bill of Lading - a list of a shipment of goods similar to a receipt
given by the shipping company to the one who had the goods
shipped.
 Demurrage – charge to the owner of a ship for failure to load or
discharge the ship within an agreed time
VII. Random Facts

 Ponente: Garcia, J.
3
G.R. No. G.R. No. 109680 | July 14, 1995 Payment or Performance
Rapanut v. CA Rapanut v. CA
I. Recit-ready Summary The Court also ruled that Flunker’s continued acceptance of Rapanut’s
Diego Rapanut and Susan Flunker executed a Deed of Conditional payments places her in estoppel.
Sale with Mortgage wherein Flunker agreed to sell a parcel of land in Pasay Lastly, the Court applied Article 1253 of the Civil Code. In a contract
City for P42,840.00, payable in monthly installments of P500.00 to be paid involving installment payments with interest chargeable against the
not later than the 5th day of every month and in semi-annual installments of remaining balance of the obligation, it is the duty of the creditor to
P1,000.00 to be paid on June 30 and December 31 of every year, "with an inform the debtor of the amount of interest that falls due and that he is
interest of 10% per annum on the remaining balance until the full amount is applying the installment payments to cover said interest. Otherwise, the
paid." The parties also entered into a Supplemental Agreement wherein creditor cannot apply the payments to the interest and then hold the
Flunker is willing to sell said portion of her lots for P37,485.00 payable in debtor in default for non-payment of installments on the principal.
monthly installments of P500.00 with an interest of 10% per annum on the
remaining balance until the full amount is paid. Payments of the monthly II. Facts of the Case (Material Facts)
installments of P500.00 shall be made not later than the 5th day of every 1. On November 29, 1985, Rapanut and Flunker executed a Deed of
month without need of demand starting January, 1986. Failure to pay any of Conditional Sale with Mortgage.
the monthly installments when due for three months, shall be sufficient 2. Flunker agreed to sell a parcel of land in San Rafael, Pasay City,
cause for rescission of this contract and all payments made shall be applied for P42,840.00, payable in monthly installments of P500.00 to be
as corresponding rentals." paid not later than the 5th day of every month and in semi-annual
Rapanut had been making the P500.00 monthly installments until he installments of P1,000.00 to be paid on June 30 and December 31
received a letter from Flunker’s counsel informing him that the contracts
of every year, "with an interest of 10% per annum on the remaining
were rescinded “as of receipt hereof” and that the payments were considered
balance until the full amount is paid."
rentals because of his failure to pay the monthly installments plus 10% per
annum interest on the balance. 3. In April 1986, the parties entered into a Supplemental Agreement
Flunker filed a complaint against Rapanut in the RTC for rescission of with the following stipulations:
the contracts. The RTC rendered judgment in favor of Flunker. Such "WHEREAS, the VENDOR/MORTGAGEE is willing to
decision was affirmed by the CA with modifications. sell said portion of her lots to the VENDEE/MORTGAGOR for a
The issues before the SC are whether or not the letter resolving the two total price of P37,485.00 payable in monthly installments of
contracts was effective and whether or not Rapanut has substantially P500.00 with an interest of 10% per annum on the remaining
complied with his obligation. balance until the full amount is paid. Payments of the monthly
The SC ruled that the parties intended that Rapanut pay the monthly installments of P500.00 shall be made not later than the 5th day of
installments at predetermined dates, until the full amount, consisting of the every month without need of demand starting January, 1986.
purchase price and the interests on the balance, is paid. The Court Failure to pay any of the monthly installments when due for three
interpreted the contracts to mean that at the end of each year, all the months, shall be sufficient cause for rescission of this contract and
installment payments made shall be deducted from the principal obligation.
all payments made shall be applied as corresponding rentals."
The 10% interest on the balance is then added to whatever remains of the
principal. Thereafter, Rapanut shall pay the monthly installments on the 4. Rapanut had been making the P500.00 monthly installment
stipulated dates. In other words, the interests due are added to and paid like payments until he received a letter dated February 13, 1990 from
the remaining balance of the principal. Flunker’s counsel informing him that for his failure to pay the
monthly installments plus 10% per annum interest on the balance,
Obligations and Contracts (2020) PETITIONER: Diego Rapanut 1

DIGEST AUTHOR: Allyzza Tanhueco RESPONDENT: The Court of Appeals and Susan Flunker
the Deed of Conditional Sale with Mortgage and the Supplemental Court is constrained to determine which interpretation is more in accord
Agreement were rescinded "as of receipt hereof," and that with the intent of the parties. To ascertain the intent of the parties, the Court
payments made were considered rentals. shall look at their contemporaneous and subsequent acts.
5. The letter further demanded that he vacate the premises within 15 The Deed of Conditional Sale with Mortgage categorically provides for the
days from receipt thereof. date of payment. The Supplemental Agreement was likewise specific.
6. Flunker filed a complaint against Rapanut in the RTC for rescission A liberal interpretation of the contracts in question is that at the end of each
of the contracts. year, all the installment payments made shall be deducted from the principal
7. The RTC rendered judgment in favor of Flunker, obligation. The 10% interest on the balance is then added to whatever
a. Ordered the rescission of the Deed of Conditional Sale with remains of the principal. Thereafter, Rapanut shall pay the monthly
Mortgage and Supplemental Agreement installments on the stipulated dates. In other words, the interests due are
b. Rapanut is also ordered to pay the amount of P5,000.00 by added to and paid like the remaining balance of the principal. Thus, the
way of acceptance fee; P1,000.00 for every court appearance Court rules that the parties intended that Rapanut pay the monthly
as attorney's fees; and actual damages in the amount of installments at predetermined dates, until the full amount, consisting of the
P2,000.00, plus costs. purchase price and the interests on the balance, is paid.
8. The CA affirmed the RTC's decision but deleted the award of Significant is the fact that Flunker accepted the payments religiously made
actual damages and attorney's fees. for four years. She cannot rely on the clause in the contract stating that no
demand is necessary to explain her silence for 4 years as to the 10% interest,
III. Issue/s as such clause refers to the P500.00 monthly installments. Even granting as
1. W/N the February 13, 1990 letter resolving the two contracts was acceptable her theory that the monthly amortizations shall first be applied to
effective? NO. the payment of the interests, the Court still rules for Rapanut. The contracts
2. W/N Rapanut has substantially complied with his obligation? provided for Flunker’s right of rescission which may be exercised upon
YES. Rapanut’s failure to pay installments for 3 months. Flunker’s failure to
exercise her right of rescission after Rapanut’s alleged default constitutes a
IV. Holding/s waiver of such right. Her continued acceptance of the installment payments
Issues #1 and #2 places her in estoppel.
The letter resolving the two contracts were not effective because The Court concluded that Article 1253 of the Civil Code means that in a
Rapanut substantially complied with his obligation. contract involving installment payments with interest chargeable
Petitioner’s Arguments Respondent’s Arguments against the remaining balance of the obligation, it is the duty of the
• The P500.00 monthly • The 10% interest must be paid creditor to inform the debtor of the amount of interest that falls due
installments in the Supplemental every year. and that he is applying the installment payments to cover said interest.
Agreement include the 10% Otherwise, the creditor cannot apply the payments to the interest and
interest. then hold the debtor in default for non-payment of installments on the
Overall Ruling principal.
The interpretation of the provision in question having been put in issue, the


ART. 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
VI. Disposition
WHEREFORE, the petition is GRANTED. The Decision of the Court of

Appeals is REVERSED and a new one entered as follows:
1. Private respondent's rescission of the contracts is ANNULLED; and
2. Private respondent is ORDERED to ACCEPT the monthly installments
of petitioner without penalty until the full amount of the contracts,
including the accrued interest, is paid in full.
SO ORDERED.
VII. Random Facts

• Ponente: Quiason, J.

G.R. No. 111797 | July 17, 1995 Extinguishment of Obligations: Payment or Performance
Gobonseng v CA Gobonseng v CA
I. Recit-ready Summary the Gobonsengs had not yet defaulted on the payments of either the
Spouses Gobonseng entered into credit agreements with SIHI where principal or the interest of their loans.
they were granted credit line to the amounts of P900,000 and P800,000.
These were secured by parcels of land in Dumaguete City. Claiming the
Gobonsengs failed to pay the loan agreements on their due dates in May II. Facts of the Case (Material Facts)
1984 SIHI foreclosed the properties. The Gobosengs filed a complaint for 1. 1982 - Spouses Gobonseng executed with Estate Investment House
annulment / reformation of documents and damages with prayer for TRO a P2 million loan. The Gobonsengs constituted a Real Estate
and preliminary injunction against SIHI. The trial court denied the Mortgage over their three parcels of land in Dumaguete City as
application for lack of clear and convincing evidence. The CA likewise collaterals.
dimissed the case. On appeal the SC then remanded the case bask to the 2. Jan 19 1983 - parties agreed to reduce amount of loan to
RTC after new evidence was introduced (SIHI inter-office memos that P900,000Gobonsengs again applied for an additional loan of
suggested a 6-year term) The RTC then ruled in favor of the 6 year term, P800,000. SIHI agreed under the same terms with additional
Hence the loans were not yet mature when SIHI sought foreclosure. The CA collateral.
then reversed the RTC’s decision. 3. The Gobonsengs availed of the full amount of P900,000.00 which
they renewed from time to time. With respect to the loan of
The issues in this case are W/N the term is 60 days and not 6 years, P800,000.00, the Gobonsengs obtained various amounts in
and W/N the foreclosure of the mortgage was premature. installments. The term of each loan granted has an average of 60
days. For each renewal, a corresponding promissory note was
The court ruled that the circumstances of the case support the executed by the Gobonsengs. Their last availment of P900,000.00
conclusion that the credit line applied for was for a longer term or duration, was on March 15, 1984 payable on May 2, 1984. As to the loan of
given that it was for the purpose of financing the Gobonsengs’ businesses. P800,000.00, their last availment thereof was on March 2, 1984
Ultimately, the court ruled that the credit line granted to was for a period payable also on May 2, 1984. These availments are
longer than sixty days but is not the six years as asserted by the correspondingly covered by two promissory notes signed by the
Gobonsengs. Gobonsengs
4. Claiming the Gobosengs failed to pay the two loans on due date
On the matter of W/N the foreclosure was premature, the SC ruled that (May 1984) SIHI instituted an extrajudicial foreclosure proceeding
because it was duly established by the Gobonsengs that the interest of the with co-defendant Sheriff Benjamin Diputado who scheduled the
last renewal were duly paid by them and an amount had in fact been auction.
credited as partial payment of the principal, pursuant to Article 1253 of the 5. Before the scheduled date the Gobosengs filed a complaint for
Civil Code, payment of the principal shall not be deemed to have been annulment / reformation of documents and damages with prayer for
made until the interests have been covered. Hence, the application for TRO and preliminary injunction against SIHI and the sheriff with
foreclosure of the mortgage on 9 June 1984 was premature because by then, the RTC.
Obligations and Contracts (2020) PETITIONER: Carlos Ang Gobonseng, Jr. and Theresita Mimie Ong- 1
Gobonseng
DIGEST AUTHOR: Ryon Rivera RESPONDENT: Hon. Court of Appeals, State Investment House, Inc., and
Benjamin V. Diputado, Clerk of Court of the RTC and Sheriff of the Province
of Negros Oriental
III. Issue/s
1. W/N the term of the loans are 60 days only and not 6 years as The court reasoned that nonetheless, even if the exhibits are to be
allegedly borne out by the evidence. disregarded, the circumstances of the case support the conclusion that the
2. W/N the foreclosure of the mortgage was premature. credit line applied for was for a longer term or duration which is to be
availed of by promissory notes base on the interest period of, normally, sixty
IV. Holding/s days. The court additionally reasoned that because the purpose of obtaining
the credit facility or loan is to finance the working capital of their businesses,
Issue #1 the parties could not have contemplated a short term credit line.
W/N the term of the loans are 60 days only and not 6 years as allegedly Ultimately, the court ruled that the credit line granted to was for a period
borne out by the evidence. longer than sixty days but is not the six years as asserted by the Gobonsengs.

• Carlos Gobonseng declared that •
the loan was for a 6 year term at Issue # 2
the rate of 15.5% per annum. W/N the foreclosure of the mortgage was premature.
• Castro likewise declared that the
Gobonsengs’ loan was a long Petitioner’s Arguments Court’s Rebuttals
term loan because it was in • •
excess of P500,000 and,
therefore, carried a longer Overall Ruling
maturity period of over two The credit line was availed of by promissory notes with an interest
years. duration of normally, sixty days, and as long as the interest was paid, roll-
Overall Ruling overs of the promissory notes within the term of the credit line were
The SC ruled that it could not give credit to the claim of Gobonseng and automatic. It was duly established by the Gobonsengs that the interest of
Castro that they saw the telex indicating the approved loan was for 4.3 M for the last renewal were duly paid by them as indicated in their letter of 25
a term of six years with 15.5% per annum interest. On cross-examination May 1984. As a matter of fact an amount of P7,417 was credited to the
Gobonseng admitted that he saw the telex before he signed the documents in principal in the promissory note per official receipt dated 2 May 1984. This
blank. Clearly then, since the signing of the blank documents took place partial payment for the principal clearly proves that the interest due had
before the approval of the application for a credit line, Carlos Gobonseng Jr. been paid. Article 1253 of the Civil Code provides that if the debt
could not have seen the telex he imagined he saw. The court ruled the produces interest, payment of the principal shall not be deemed to have
Exhibits “GGG” and “EEEE” (which are photocopies of the alleged inter- been made until the interests have been covered. Consequently,
office memorandum of 13 December 1982) could not be admitted because automatic renewal of the loans by way of promissory notes for the
they are mere photocopies, hence are barred by the best evidence rule. succeeding interest period was unavoidable.
Gobonseng
of Negros Oriental
2. ORDERING the petitioners to pay to the private respondent the unpaid

Indisputably, the application for foreclosure of the mortgage on 9 balance of P1,692,582.14 [P1,700,000.00 (P900,000.00 + P800,000.00) —
June 1984 was premature because by then, the Gobonsengs had not yet P7,417.86] less the amount of P327,300.00 erroneously paid as consultancy
defaulted on the payments of either the principal or the interest of their fees, plus interests on the difference at the rate of fifteen and one-half per
loans. The interest on the P800,000 loan had been pre-paid on 2 May 1994 centum (15.5%) per annum commencing on 2 July 1984, within thirty (30)
and the payment for the interest on the P900,000 loan was not due until 13 days from their receipt of a copy of this decision; and AUTHORIZING the
July 1994. foreclosure of the real estate mortgages in question upon the failure of the
petitioners to pay the obligations within the said period; and DISMISSING
Likewise, there is no evidence that the Gobonsengs had made any the counterclaim of the private respondent for lack of merit.
payment on the interest and on the unpaid balance of the principal even after
the filing of Civil Case No. 8428. The payment therefor has long become 3. No pronouncement as to costs. SO ORDERED.
overdue. Justice and equity demand that they be required to pay them within
thirty days from their receipt of this decision, otherwise the real estate
mortgages may be foreclosed.

VII. Random Facts
ARTICLE 1253 – If the debt produces interest, payment of the • Ponente: Davide, Jr., J.
principal shall not be deemed to have been made until the interests have
been covered
VI. Disposition
WHEREFORE, the petition is GRANTED. The challenged decision of the

Court of Appeals in CA-G.R. CV No. 30380 is SET ASIDE, and another is
hereby rendered:
1. DISMISSING the complaint in Civil Case No. 8428 insofar as

reformation of the documents subject thereof is concerned;
Gobonseng
of Negros Oriental
G.R. No. L-58961 | June 28, 1983 Payment or Performance (Consignation)
Soco v. Militante Soco v. Militante
I. Recit-ready Summary account. On May 13, 1975, Francisco wrote the Vice-President of
Soco and Francisco entered into a contract of lease for a monthly rental Comtrust, Cebu Branch requesting the latter to issue checks to
of P800.00 for a period of 10 years. Soco, after having learned that Soco in the amount of P840.00 every 10th of the month, for
Francisco sub-leased a portion of the building to NACIDA at payment of his monthly rentals. This request of Francisco was
P3000.00/month, sought to terminate the contract with Francisco. She complied with by Comtrust.
alleged non-payment of rental of the leased premises and ordered Francisco 4. Soco alleged non-payment of rental of the leased premises
to vacate the premises. Francisco denied Soco’s claims saying that he paid beginning May 1977, and sent a letter to Francisco serving notice
his monthly rentals by issuing checks of the Commercial Bank and Trust
to the latter 'to vacate the premises leased.'
Company (Comtrust). Francisco informed Soco that payments were made
5. Francisco informed Soco that all payments of rental due her were
by Comtrust through the Clerk of Court of the City Court of Cebu.
A Civil Case was filed by Francisco to annul or reform the Contract of in fact paid by Commercial Bank and Trust Company through the
Lease. Francisco argued that he did not fault in his monthly payments to Clerk of Court of the City Court of Cebu.
Soco. In this case, the City Court of Cebu ruled that consignation was not 6. Francisco filed Civil Case No. R-16261 seeking the annulment
valid since Francisco failed to prove the requirements for consignation. and/or reformation of the Contract of Lease.
However, the Court of First Instance reversed the City Court decision and 7. City Court of Cebu ruled that the consignation of the rentals was
ruled that there was substantial compliance with the requisites of not valid. Ordering Francisco to vacate the premises and to pay
consignation. Hence, this issue of whether or not the consignation of the Soco for the rent dating from May 1977 to August 1980.
rentals was valid to discharge effectively the lessee’s obligation to pay the 8. The court of First Instance reversed the ruling of the City Court
same. The Court ruled in the negative. Francisco failed to prove tender of stating that substantial compliance with the requisites of the law on
payment and he has failed to pay the rentals for the months of July and Consignation.
August, 1977 as of the time the complaint was filed for the eviction of the
lessee. The evidence is clear, competent and convincing showing that the
III. Issue/s
lessee has violated the terms of the lease contract and he may be judicially
ejected. 1. W/N consignation of the rentals was valid to discharge
effectively the lessee's obligation to pay the same.
1. Soco and Francisco entered into a contract of lease on January 17, IV. Holding/s
1973, whereby Soco leased her commercial building and lot to
Francisco for a monthly rental of P800.00 for a period of 10 years Issue #1
renewable for another 10 years at the option of the lessee. No, there was no valid consignation of the rentals made by the lessee.
2. Soco learned that Francisco sub-leased a portion of the building to
NACIDA, at a monthly rental of more than P3,000.00, the latter
felt that she was on the losing end of the lease agreement, so she
tried to terminate the contract.
3. Francisco paid his monthly rentals to Soco by issuing checks of the
Commercial Bank and Trust Company where he had a checking
Obligations and Contracts (2020) PETITIONER: Soledad Soco 1

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Hon. Francis Militante and Regino Francisco Jr.

• Comtrust certifications issued • The bank did not send notice to Petitioner’s Arguments Court’s Rebuttals
prove payments for the months Soco that the checks will be • •
of May, June, July and August deposited in consignation with
were made. the Clerk of Court (the first Overall Ruling
• Soco was notified of this notice) and also, the bank did
deposit by virtue of the letter of not send notice to Soco that the
Atty. Pampio Abarientos and checks were in fact deposited V. Law or Doctrine Applied
the letter of Atty. Pampio (the second notice) because no ARTICLE 1249, 1257 AND 1258 OF THE CIVIL CODE
Abarientos as well as in the instructions were given by its ART. 1249. The payment of debts in money shall be made in the currency stipulated,
answer of Francisco in Civil depositor, the lessee. and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
Case R-16261. Soco was further • There was no receipt at all
notified of these payments by showing that defendant The delivery of promissory notes payable to order, or bills of exchange or
consignation in the letter of Francisco has deposited with other mercantile documents shall produce the effect of payment only when they
Atty. Menchavez. the Clerk of Court the monthly have been cashed, or when through the fault of the creditor they have been
rentals corresponding to the impaired.
months of May and June, 1977.
In the meantime, the action derived from the original obligation shall be held in
And for the months of July and abeyance.
August, 1977, the rentals were
only deposited with the Clerk of Art. 1257. In order that the consignation of the thing due may release the obligor, it
Court on 20 November 1979 (or must first be announced to the persons interested in the fulfillment of the obligation.
more than two years later)."
The consignation shall be ineffectual if it is not made strictly in consonance with the
Overall Ruling provisions which regulate payment."
Respondent lessee failed to prove the following: 1) tender of payment
of the monthly rentals to the lessor, 2) first notice to the lessor prior to ART. 1258.
consignation and second notice, that is after consignation has been made, to Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and
the lessor, 3) actual deposit or consignation of the monthly rentals. We hold the announcement of the consignation in other cases.
that the evidence is clear, competent and convincing showing that the lessee
has violated the terms of the lease contract and he may, therefore, be The consignation having been made, the interested parties shall also be notified
judicially ejected. thereof."
VI. Disposition
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the
Issue #2 Court of First Instance of Cebu, 14th Judicial District, Branch XII is hereby

REVERSED and SET ASIDE, and the decision of the City Court of Cebu,
Branch II is hereby reinstated, with costs in favor of the petitioner.

Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment
and it generally requires a prior tender of payment.
Consignation alone shall produce the same effect in the following cases
(Art. 1256):
(1) When the creditor is absent or unknown, or does not appear at
the place of payment;
(2) When he is incapacitated to receive the payment at the time it is
due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.
Requirements:
(1) that there was a debt due;
(2) that the consignation of the obligation had been made because
the creditor to whom tender of payment was made refused to
accept it, or because he was absent or incapacitated, or because
several persons claimed to be entitled to receive the amount due
(Art. 1176, Civil Code);
(3) that previous notice of the consignation had been given to the
person interested in the performance of the obligation (Art. 1177,
Civil Code);
(4) that the amount due was placed at the disposal of the court (Art.
1178, Civil Code); and
(5) that after the consignation had been made the person interested
was notified thereof (Art. 1178, Civil Code). Failure in any of these
requirements is enough ground to render a consignation ineffective.
VII. Random Facts

• Ponente: Guerrero, J.




rentals. payment;
• N/A




rentals. payment;
• N/A

G.R. No. 136409 | March 14, 2008 Art. 1256 – Tender of Payment and Consignation
Pasricha v. Dison Pasricha v. Dison
I. Recit-ready Summary 5.) Because petitioners still refused to comply despite final demand by
Respondents Don Luis Dison Realty and petitioners Pasricha executed two respondent’s lawyer, a complaint for ejectment was filed by private
Contracts of Lease over several units of San Luis Building in Ermita as respondent.
lessor and lessees respectively. Pasricha (lessee) agreed to pay monthly 6.) Petitioners admitted their failure to pay the stipulated rent for the
rentals. While the contracts were in effect, Pacheco, then General Manager leased premises starting July until November 1992, but claimed
of Don Luis Realty was replaced by Bautista. The lessees paid monthly that such refusal was justified because of the internal squabble in
rentals until May 1992 but after that, they refused to pay the rent despite respondent company as to the person authorized to receive
repeated demands. Hence, a complaint for ejectment was filed. Petitioners payment.
admitted their failure to provide for the stipulated rent. However, the 7.) According to petitioners, they were prevented from using the units
Pasrichas claimed that their nonpayment is justified due to the confusion as subject matter of the lease contract, except Room 35.
to the person authorized to receive the payment (due to the change in 8.) To show good faith and willingness to pay the rents, petitioners
management from Pasrichas to Bautista.) The issue is whether or not the alleged that they prepared the check vouchers for their monthly
Pasrichas are justified in not paying the rentals because of the lessors fault. rentals from January 1993 to January 1994.
The SC held that no, their failure to pay the monthly rentals is not justified
because there was a remedy available which is consignation. The Pasrichas III. Issue/s
s should have consigned the payment by depositing the payment due at the 1. W/N the Pasrichas are justified in not paying the rentals due
disposal of a judicial authority. Due to the Pasrichas’ failure to do so, the because of the lessors fault - NO
respondent has every right to exercise his right to eject.
IV. Holding/s
1.) Respondent Don Luis Dison Realty, Inc. and petitioners executed Issue #1
two Contracts of Lease whereby lessor Don Luis Realty agreed to No, their failure to pay the monthly rentals is not justified because there was
lease to the latter Units 22, 24, 32, 33, 34, 35, 36, 37 and 38 of the a remedy available which is consignation.
San Luis Building. Pasrichas’ Arguments Court’s Rebuttals
2.) The lease of Rooms 36, 37 and 38 did not materialize leaving only
Rooms 22, 24, 32, 33, 34 and 35 as subjects of the lease contracts. • The Pasrichas alleged that they • Claim is belied by the evidence
3.) While the contracts were in effect, petitioners dealt with Francis were prevented from using the on record. + They were already
Pacheco, then General Manager of private respondent. Thereafter, units (rooms) subject matter of in default for more than one
Pacheco was replaced by Ms. Bautista. the lease contract. year (And if such claim is
4.) Petitioners religiously paid the monthly rentals until May 1992. proven, they should have
After that, however, despite repeated demands, they continuously demanded specific
refused to pay the stipulated rent. performance)
Obligations and Contracts (2020) PLAINTIFF: Subhash & Josephine Pasricha 1

DIGEST AUTHOR: Pia Casano DEFENDANT: Don Luis Dison Realty
G.R. No. 136409 | March 14, 2008 Art. 1256 – Tender of Payment and Consignation
Pasricha v. Dison Pasricha v. Dison
• Respondents refused to accept • Evidence failed to prove this. V. Law or Doctrine Applied
payment tendered Art. 1256 OF THE CIVIL CODE
If the creditor to whom tender of payment has been made refuses without just cause
(1) When the creditor is absent or unknown, or does not appear at the place of
Overall Ruling payment;
(2) When he is incapacitated to receive the payment at the time it is due;
Failure to pay is not justified because of the internal squabble in respondent (3) When, without just cause, he refuses to give a receipt;
company as to the person authorized to receive payment. The Pasrichas (4) When two or more persons claim the same right to collect;
should have consigned the payment due. Consignation shall be made by
depositing the things due at the disposal of a judicial authority, before whom
VI. Disposition
the tender of payment shall be proved in a proper case, and the
WHEREFORE, premises considered, the petition is DENIED and the Status Quo
announcement of the consignation in other cases. In this case, consignation
Order dated January 18, 1999 is hereby LIFTED. The Decision of the Court of
alone would have produced the effect of payment of the rentals. The Appeals dated May 26, 1998 and its Resolution dated December 10, 1998 in CA-
rationale for consignation is to avoid the performance of an obligation G.R. SP No. 37739 are AFFIRMED.
becoming more onerous to the debtor by reason of causes not imputable to
him. Well-settled is the rule that tender of payment must be accompanied by VII. Additional Notes
consignation in order that the effects of payment may be produced. The CA affirmed the RTC decision but deleted the award of attorney’s fees. RTC
decision ordered defendants-appellees and all persons claiming rights under them to:
With regards to the claim that only one unit was delivered, the SC held that (1) to vacate the leased premised (sic) and restore possession thereof to plaintiff-
there is nothing in the contract which would lead to the conclusion that the appellant;
lease of one or more rooms was to be made dependent upon the lease of all (2) to pay plaintiff-appellant the sum of P967,915.80 representing the accrued rents
in arrears as of November 1993, and the rents on the leased premises for the
the 9 rooms. Respondent demanded payment of rentals only for the rooms
succeeding months in the amounts stated in paragraph 5 of the complaint until fully
actually delivered to, and used by, petitioners. The contract provides that the
paid;
lease of Rooms 36, 37 and 38 was to take effect only when the tenants (3) to pay an additional sum equivalent to 25% of the rent accounts as and for
thereof would vacate the premises. Absent a clear showing that the previous attorney's fees plus the costs of this suit.
tenants had vacated the premises, respondent had no obligation to deliver VIII. Random Facts
possession of the subject rooms to petitioners. Thus, petitioners cannot use • Ponente: Nachura, J.
the non-delivery of the rooms as an excuse for their failure to pay the rentals
due on the other rooms they occupied.
Obligations and Contracts (2020) PLAINTIFF: Subhash & Josephine Pasricha 2

DIGEST AUTHOR: Pia Casano DEFENDANT: Don Luis Dison Realty
G.R. No. 151903 | October 9, 2009 Extinguishment | Payment or performance
Go Cinco v. Court of Appeals Go Cinco v. Court of Appeals
I. Recit-ready Summary • As of 1989, the loan amounted to P1.07 million, inclusive of the
Cinco obtained a loan from Maasin Traders Lending Corporation principal, interest and penalties.
(MTLC) secured by real estate mortgage of land and building. • To cover the said loan, Cinco applied a loan with the Philippine
National Bank and offered the above-mentioned properties as
When the loan already amounted to P1.07 million, Cinco applied for a security. The PNB approved the loan application amounting to
loan with Philippine National Bank (PNB) and offered the above- P1.3 million on the condition that the mortgage in favor of MTLC
mentioned properties as security and intended to use the proceeds to be cancelled.
pay the MTLC loan. PNB granted the application on the condition that • Cinco authorized, via a Special Power of Attorney (SPA) Ester,
mortgage in favor of MTLC be cancelled. MTLC’s president, to collect the proceeds of the loan from PNB.
• When Ester proceeded to PNB to collect the loan, she was
Cinco executed a SPA authorizing Ester to collect the proceeds of his informed that she needs to sign a deed of cancellation of the
PNB loan. When Ester inquired about the loan with PNB, she was mortgage as a condition for the release of the proceeds. Outraged
informed that she needs to sign a deed of cancellation of the mortgage that Cinco used the same properties as collateral, she refused to
as a condition for the release of the proceeds. Outraged that such sign the document and instituted foreclosure proceedings instead.
condition was not disclosed, she refused to receive the proceeds and • To prevent the foreclosure, Cinco filed for specific performance
instituted foreclosure proceedings on the mortgaged properties. with the trial court. Cinco alleged that the assignment of the
proceeds of the PNB loan amounted to the payment of the MTLC
The issue in this case is whether or not the unjustified refusal of Ester loan and Ester’s refusal to collect the proceeds as payment was
can be equated to a payment. unjustified.
• Ester countered that the SPA merely authorized her to collect the
The Court ruled that if the creditor refused without just cause to accept proceeds and not to apply against the outstanding loan and that the
the payment tendered by the debtor, the debtor shall be released from mortgage cannot be canceled because there was no actual payment
responsibility by the consignation of the thing or sum due as provided received by her.
in Art.1256 of the Civil Code.
• The trial court ruled in favor Cinco based on the unjustified
refusal of Ester to collect the proceeds of the PNB loan as
However, the unjustified refusal of creditor entitles the debtor to claim payment.
damages under Art. 19 of the Civil Code.
• Upon appeal, the Court of Appeals reversed the trial court’s
decision and found it significant that there was no explicit
agreement between Ester and Cinco.
• In December 1987, Petitioner Cinco obtained a loan amounting to
P700,000 from Maasin Traders Lending Corporation evidenced III. Issue/s
by a promissory note and secured by a real estate mortgage of a
1. W/N the unjustified refusal of Ester can be equated to a
land and a 4-storey building. The loan bears an interest of 3% per
payment? NO
month and is payable in 180 days, renewable for another 180 days.
Obligations and Contracts (2020) PETITIONER: Manuel Cinco 1

DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Court of Appeals, Ester Servacio
IV. Holding/s was effectively an abusive act

contrary to the duty to act with
NO, Art. 1256 provides that if the creditor to whom tender of payment honesty and good faith in the
has been made refuses without just cause to accept it, the debtor shall exercise of rights and the
be released from responsibility by the consignation of the thing or sum fulfillment of duty.
due.
Overall Ruling
Petitioner’s Argument Court’s Rebuttals
While Ester's refusal was unjustified and unreasonable, we cannot agree
Cinco alleged that the assignment of • Ester’s refusal to accept the
with Cinco's position that this refusal had the effect of payment that
the proceeds of the PNB loan payment was unjustified –
extinguished his obligation to MTLC.
amounted to the payment of the There is nothing legally
MTLC loan and Ester’s refusal to objectionable in a mortgagor's
Art. 1256 of the Civil Code provides that a refusal without just cause is not
collect the proceeds as payment was act of taking a second or
equivalent to payment; to have the effect of payment and the consequent
unjustified. subsequent mortgage on a
extinguishment of the obligation to pay, the law requires the companion acts
property already mortgaged; a
of tender of payment and consignation.
subsequent mortgage is
recognized as valid by law and
Under these circumstances, we hold that while no completed tender of
by commercial practice, subject
payment and consignation took place sufficient to constitute payment, the
to the prior rights of previous
spouses Go Cinco duly established that they have legitimately secured a
mortgages.
means of paying off their loan with MTLC; they were only prevented from
• The unjust refusal cannot be
doing so by the unjust refusal of Ester to accept the proceeds of the PNB
equated to payment – Art. 1256
loan through her refusal to execute the release of the mortgage on the
of the Civil Code provides that
properties mortgaged to MTLC.
a refusal without just cause is
not equivalent to payment; to
We also find that under the circumstances, the spouses Go Cinco have
have the effect of payment and
undertaken, at the very least, the equivalent of a tender of payment that
the consequent extinguishment
cannot but have legal effect. Since payment was available and was
of the obligation to pay, the law
unjustifiably refused, justice and equity demand that the spouses Go Cinco
requires the companion acts of
be freed from the obligation to pay interest on the outstanding amount from
tender of payment and
the time the unjust refusal took place.
consignation.
• Effect of unjust refusal – Under
Article 19 of the Civil Code, V. Law or Doctrine Applied
they should likewise be entitled Art. 1232 of the Civil Code
to damages, as the unjust refusal

Payment means not only the delivery of money but also the The awards under (3) and (4) above shall be deducted from the amount
performance, in any other manner, of an obligation. of the outstanding loan due the respondents as of June 20, 1989. Costs
against the respondents.
Art. 1233 of the Civil Code
A debt shall not be understood to have been paid unless the thing or VII. Additional Notes
service in which the obligation consists has been completely delivered None
or rendered, as the case may be.
Art. 1256 of the Civil Code VII. Random Facts

If the creditor to whom tender of payment has been made refuses • Ponente: Brion, J.
without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
VI. Disposition
WHEREFORE, we GRANT the petitioners' petition for review on
certiorari, and REVERSE the decision of June 22, 2001 of the Court of
Appeals in CA-G.R. CV No. 47578, as well as the resolution of
January 25, 2002 that followed. We REINSTATE the decision dated
August 16, 1994 of the Regional Trial Court, Branch 25, Maasin,
Southern Leyte, with the following MODIFICATIONS:
(1) The respondents are hereby directed to accept the proceeds of the
spouses Go Cinco's PNB loan, if still available, and to consent to the
release of the mortgage on the property given as security for the loan
upon PNB's acknowledgment that the proceeds of the loan, sufficient
to cover the total indebtedness to respondent Maasin Traders Lending
Corporation computed as of June 20, 1989, shall forthwith be released;
(2) The award for loss of savings and unrealized profit is deleted;
(3) The award for moral damages is reduced to P100,000.00; and
(4) The awards for exemplary damages, attorney's fees, and expenses
of litigation are retained.

G.R. No. 172346 | July 24,2013 Payment or Performance
Spouses Bonrostro v. Spouses Luna Spounses Bonrostro v. Spouses Luna
In 1992, respondent Constancia Luna, as buyer, entered into a Contract So the main issue in this case is whether the CA correctly modified
to Sell with Bliss Development Corporation involving a house and lot in the RTC Decision with respect to interests. SC holds that yes it correctly
Diliman, Quezon City. Barely a year after, Constancia, this time as the modified it. The Court disagrees. The spouses Bonrostro’s reliance on the
seller, entered into another Contract to Sell with petitioner Lourdes said factual finding is misplaced. The RTC arrived at the above-quoted
Bonrostro concerning the same property. (Check facts for the stipulation) conclusion based on its mistaken premise that rescission is applicable to the
The Spouses Bonrostro only paid 200,000 pesos out of the total P1.25M. case. In a contract to sell, payment of the price is a positive suspensive
Therefore the Spouses Luna filed a case for rescission of contract with condition, failure of which is not a breach of contract warranting rescission
damages. Bonrostro filed a counterclaim saying they were willing to pay. under Article 1191 of the Civil Code but rather just an event that prevents
On April 4, 1997, the RTC rendered its Decision focusing on the sole issue the supposed seller from being bound to convey title to the supposed buyer.
of whether the spouses Bonrostro’s delay in their payment of the There being no breach to speak of in case of non-payment of the purchase
installments constitutes a substantial breach of their obligation under the price in a contract to sell, as in this case, the RTC’s factual finding loses
contract warranting rescission. The RTC ruled in favor of Spouses significance.
Bonrostro saying that that the delay could not be considered a substantial Regarding the November 1993 letter, SC says that, "Tender of
breach considering that Lourdes (1) requested for an extension within which payment, without more, produces no effect." "To have the effect of payment
to pay; (2) was willing and ready to pay as early as the last week of October and the consequent extinguishment of the obligation to pay, the law requires
1993 and even wrote Atty. Carbon about this on November 24, 1993. the companion acts of tender of payment and consignation." They did not
Spouses Luna elevated the case to the CA, which denied their petition. resort to consignation of the payment with the proper court despite
As rescission in the first place is not a proper remedy for a contract to sell. knowledge that under the contract, non-payment of the installments on the
The contract is governed by Section 4 of the Maceda Law, which talks about agreed date would make them liable for interest thereon.Their claimed
a 60 day grace period and proper procedure (check below). Spouses Luna tender of payment did not produce any effect whatsoever because it was not
sent the letters of rescission within the grace period and it wasn’t notarized accompanied by actual payment or followed by consignation. Hence, it did
which meant it was invalid. The CA also affirmed the RTC’s finding that not suspend the running of interest. The spouses Bonrostro are therefore
Lourdes Bonrostro was ready to pay her obligation on November 24, 1993. liable for interest on the subject installments from the date of default until
And the CA also modified the RTC decision by changing the interest rate of full payment of the sums of ₱300,000.00 and ₱330,000.00.
the amortization and 300,000 peso payment as there was no stipulated
interest rate, which meant the legal interest applied. Facts of the Case (Material Facts)
Spouses Bonrostro elavated the case to the SC, The spouses Bonrostro 1. In 1992, respondent Constancia Luna, as buyer, entered into a
harp on the factual finding of the RTC, as affirmed by the CA, that Lourdes Contract to Sell with Bliss Development Corporation involving a
was willing and ready to pay her obligation as evidenced by her November house and lot in Diliman, Quezon City.
24, 1993 letter saying that the said letter constitutes a valid tender of 2. Barely a year after, Constancia, this time as the seller, entered into
payment on their part. Hence, they argue that their interest should only be another Contract to Sell with petitioner Lourdes Bonrostro
counted from that date. concerning the same property.
1
Obligations and Contracts (2020) PETITIONER: Spouses Bonrostro
DIGEST AUTHOR: Sean Lee RESPONDENT: Spouses Luna

3. The pertinent portion of this is that: In the event the VENDEE fails 10. The CA held that while the spouses Luna sent the spouses
to pay the second installment on time, the VENDEE will pay Bonrostro letters rescinding the contract for non-payment of the
starting May 1, 1993 a 2% interest on the ₱300,000.00 monthly. sum of ₱630,000.00, the same could not be considered as valid and
Likewise, in the event the VENDEE fails to pay the amount of effective cancellation under the Maceda Law since they were made
₱630,000.00 on the stipulated time, this CONTRACT TO SELL within the 60-day grace period and were not notarized.
shall likewise be deemed cancelled and rescinded and 5% of the 11. The CA concluded that there being no cancellation effected in
total contract price of ₱1,250,000.00 shall be deemed forfeited in accordance with the procedure prescribed by law, the contract
favor of the VENDOR. Unpaid monthly amortization shall therefore remains valid and subsisting.
likewise be deducted from the initial down payment in favor of the 12. The CA also affirmed the RTC’s finding that Lourdes Bonrostro
VENDOR. was ready to pay her obligation on November 24, 1993.
4. The Bonrostos only paid 200,000 pesos and then failed to pay 13. The CA also modified the RTC’s decision with respect to the
everything else. So Spouses Luna then decided to file a case for interest rates for the amortization and 300,000 peso payment as
rescission of contract and damages. there was no stipulated interest rate, thus the legal rate should
5. Bonrostro filed a counterclaim saying they were willing to pay. apply pursuant to Article 1956 of the Civil Code.
6. On April 4, 1997, the RTC rendered its Decision focusing on the 14. Spouses Bonrostro filed an MR which was denied, so they elevated
sole issue of whether the spouses Bonrostro’s delay in their the case to the SC.
payment of the installments constitutes a substantial breach of their II. Issue/s
obligation under the contract warranting rescission. 1. Whether the CA correctly modified the RTC Decision with
7. The RTC ruled that the delay could not be considered a substantial respect to interests? YES.
breach considering that Lourdes (1) requested for an extension III. Holding/s
within which to pay; (2) was willing and ready to pay as early as
the last week of October 1993 and even wrote Atty. Carbon about Issue #1
this on November 24, 1993; (3) gave Constancia a down payment YES. Whether the CA correctly modified the RTC Decision with
of ₱200,000.00; and, (4) made payment to Bliss. respect to interests?
8. RTC ruled in favor of Spouses Bonrostro, Spouses Luna elevated it Petitioner’s Arguments Court’s Rebuttals
to CA. ● T he spouses Bonrostro harp on ● The Court disagrees. The spouses
9. CA denied their petition, because rescission in the first place is not the factual finding of the RTC, Bonrostro’s reliance on the said
a proper remedy for a contract to sell. The contract is governed by as affirmed by the CA, that factual finding is misplaced. The
Section 4 of the Maceda Law, which talks about a 60 day grace Lourdes was willing and ready RTC arrived at the above-quoted
period and proper procedure (check below). to pay her obligation as conclusion based on its mistaken
evidenced by her November 24, premise that rescission is
2

1993 letter to Atty. Carbon. applicable to the case. In a Overall Ruling

They also assert that the sending contract to sell, payment of the
of the said letter constitutes a price is a positive suspensive The spouses Bonrostro’s reliance on the said factual finding is thus
valid tender of payment on their condition, failure of which is not misplaced. They cannot invoke their readiness and willingness to pay their
part. Hence, they argue that they a breach of contract warranting obligation on November 24, 1993 as an excuse from being made liable for
should not be assessed any rescission under Article 1191 of interest beyond the said date. The spouses Bonrostro are liable for interest
interest subsequent to the date of the Civil Code but rather just an on the installments due from the date of default until fully paid. The spouses
the said letter. Neither should event that prevents the supposed Bonrostro assert that Lourdes’ letter of November 24, 1993 amounts to
they be ordered to pay interest seller from being bound to tender of payment of the remaining balance amounting to ₱630,000.00.
on the amount of ₱214,492.62 convey title to the supposed Accordingly, thenceforth, accrual of interest should be suspended. "Tender
which covers the amortizations buyer. There being no breach to of payment, without more, produces no effect." "To have the effect of
paid by the spouses Luna to speak of in case of non-payment payment and the consequent extinguishment of the obligation to pay,
Bliss. They point out that it was of the purchase price in a contract the law requires the companion acts of tender of payment and
Constancia who prevented them to sell, as in this case, the RTC’s consignation."
from fulfilling their obligation to factual finding that Lourdes was Here, the subject letter merely states Lourdes’ willingness and readiness to
pay the amortizations when she willing and able to pay her pay but it was not accompanied by payment. She claimed that she made
instructed Bliss not to accept obligation – a conclusion arrived numerous telephone calls to Atty. Carbon reminding the latter to collect her
payment from them at in connection with the said payment, but, neither came to collect the payment. After that, the spouses
court’s determination of whether Bonrostro took no further steps to effect payment. They did not resort to
the non-payment of the purchase consignation of the payment with the proper court despite knowledge
price in accordance with the that under the contract, non-payment of the installments on the agreed
terms of the contract was a date would make them liable for interest thereon. The spouses Bonrostro
substantial breach warranting erroneously assumed that their notice to pay would excuse them from
rescission – therefore loses paying interest. Their claimed tender of payment did not produce any
significance. effect whatsoever because it was not accompanied by actual payment or
followed by consignation. Hence, it did not suspend the running of interest.
The spouses Bonrostro are therefore liable for interest on the subject
installments from the date of default until full payment of the sums of
₱300,000.00 and ₱330,000.00.
3

Under Article 2209 of the Civil Code, "if the obligation consists in the valid consignation of the sum due shall have been made with the proper
payment of a sum of money, and the debtor incurs in delay, the indemnity court.""
for damages, there being no stipulation to the contrary, shall be the payment Consignation is the deposit of the proper amount with a judicial
of the interest agreed upon, and in the absence of stipulation, the legal authority in accordance with rules prescribed by law, after the tender of
interest x x x." There being no stipulation on interest in case of delay in the payment has been refused or because of circumstances which render direct
payment of amortization, the CA thus correctly imposed interest at the legal payment to the creditor impossible or inadvisable."
rate which is now 12% per annum.
Art. 2209. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per
annum.
●
IV. Law or Doctrine Applied V. Disposition

Maceda Law Section 4: In case where less than two years of WHEREFORE, the Petition for Review on Certiorari is DENIED and
installment were paid, the seller shall give the buyer a grace period of not the assailed Decision dated April 15, 2005 and the Resolution dated April
less than sixty days from the date the installment became due. 17, 2006 of the Court of Appeals in CA-G.R. CV No. 56414 are
If the buyer fails to pay the installments due at the expiration of the AFFIRMED.
grace period, the seller may cancel the contract after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission of the VI. Additional Notes.
contract by a notarial act.
Article 1956, Civil Code: No interest shall be due unless it has been VII. Random Facts
expressly stipulated in writing ● Ponente: MUÑOZ PALMA, J.
Tender of payment "is the manifestation by the debtor of a desire to
comply with or pay an obligation. If refused without just cause, the tender of
payment will discharge the debtor of the obligation to pay but only after a
4

G.R. No. 171298 | April 15, 2013 Payment or Performance: Consignation
Spouses Cacayorin v. AFPMBAI Spouses Cacayorin v. AFPMBAI
I. Recit-ready Summary Mutual Homes, San Pedro, Puerto Princesa City (the property), through
Oscar Cacayorin got a loan from the bank to buy a house and lot from a loan facility.
AFPMBAI. The bank later went into receivership. Later, respondent was 3. July 4, 1994 - Oscar and his wife (Thelma), and the Rural Bank of San
able to obtain the loan documents like the promissory note. So petitioner Teodoro (the Rural Bank) executed a Loan and Mortgage Agreement
now did not know to whom they will pay to the bank or respondent. So they with the former as borrowers and the Rural Bank as lender, under the
filed a case for consignation. The contention of respondent is that there is no auspices of Pag-IBIG or Home Development Mutual Fund's Home
proper consignation since petitioner did not first made a tender of payment. Financing Program.
Held: consignation is proper as it appears that there are 2 entities which
4. August 22, 1994 - The Rural Bank issued a letter of guaranty informing
petitioners must deal with in order to fully secure their title to the property –
the bank (the named creditor in the loan agreement) and Respondent (the AFPMBAI that the proceeds of petitioners' approved loan in the amount
holder of the loan documents). Clearly, the allegations in the Complaint of P77,418.00 shall be released to AFPMBAI after title to the property
present a situation where the creditor is unknown, or that two or more is transferred in petitioners' name and after the registration and
entities appear to possess the same right to collect from petitioners. The lack annotation of the parties' mortgage agreement.
of prior tender of payment by the petitioners is not fatal to their consignation 5. On the basis of the Rural Bank's letter of guaranty, AFPMBAI executed
case. Petitioners filed the case for the exact reason that they were at a loss as in petitioners' favor a Deed of Absolute Sale, and a new title —
to which between the two – the Bank or respondent – was entitled to such a Transfer Certificate of Title No. 37017 (TCT No. 37017) — was issued
tender of payment. Article 1256 authorizes consignation alone, without need in their name, with the corresponding annotation of their mortgage
of prior tender of payment, where the ground for consignation is that the agreement with the Rural Bank, under Entry No. 3364.
creditor is unknown, or does not appear at the place of payment; or is 6. Unfortunately, the Pag-IBIG loan facility did not push through and the
incapacitated to receive the payment at the time it is due; or when, without Rural Bank closed and was placed under receivership by the Philippine
just cause, he refuses to give a receipt; or when two or more persons claim
Deposit Insurance Corporation (PDIC).
the same right to collect; or when the title of the obligation has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, 7. AFPMBAI somehow was able to take possession of petitioners' loan
not with the HLURB. Tender of payment must be distinguished from documents and TCT No. 37017, while petitioners were unable to pay
consignation. Tender is the antecedent of consignation, that is, an act the loan/consideration for the property.
preparatory to the consignation, which is the principal, and from which are 8. AFPMBAI made oral and written demands for petitioners to pay the
derived the immediate consequences, which the debtor desires or seeks to loan/consideration for the property.
obtain. Tender of payment may be extrajudicial, while consignation is 9. July 2003 - petitioners filed a Complaint for consignation of loan
necessarily judicial, and the priority of the first is the attempt to make a payment, recovery of title and cancellation of mortgage annotation
private settlement before proceeding to the solemnities of consignation. against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa
City. The case was docketed as Civil Case No. 3812 and raised to
II. Facts of the Case (Material Facts) Branch 47 of the Regional Trial Court (RTC) of Puerto Princesa City
1. Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and (Puerto Princesa RTC).
Police Mutual Benefit Association, Inc. (AFPMBAI) 10. Petitioners alleged in their Complaint that as a result of the Rural
2. He filed an application with AFPMBAI to purchase a piece of property Bank's closure and PDIC's claim that their loan papers could not be
which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan located, they were left in a quandary as to where they should tender full
Obligations and Contracts (2020) PETITIONER: Spouses Oscar and Thelma Cacayorin 1
DIGEST AUTHOR: Tin Dychioco RESPONDENT: Armed Forces and Police Mutual Benefit Association, Inc.
payment of the loan and how to secure cancellation of the mortgage Issue #1
annotation on TCT No. 37017. See notes for prayers of the Petitioner. Yes, the Complaint makes out a case for Consignation
11. AFPMBAI filed a Motion to Dismiss claiming that petitioners'
Complaint falls within the jurisdiction of the Housing and Land Use Petitioner’s Arguments Respondent’s Arguments
Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it was • Petitioners assert that the • The prayer in petitioners'
filed by petitioners in their capacity as buyers of a subdivision lot and it elements which make up a valid Complaint involves the surrender
prays for specific performance of contractual and legal obligations case for consignation are present or delivery of the title after full
decreed under Presidential Decree No. 957 14 (PD 957). It added that in their Complaint. payment of the purchase price,
since no prior valid tender of payment was made by petitioners, the • They add that since a deed of which respondent claims are
consignation case was fatally defective and susceptible to dismissal. absolute sale has been issued in reciprocal obligations in a sale
12. RTC Ruling: RTC denied AFPMBAI's Motion to Dismiss, declaring their favor, and possession of the transaction covered by PD 957.
that since title has been transferred in the name of petitioners and the property has been surrendered to Respondent adds that in effect,
action involves consignation of loan payments, it possessed jurisdiction them, not to mention that title petitioners are exacting specific
to continue with the case. It further held that the only remaining has been placed in their name, performance from it, which
unsettled transaction is between petitioners and PDIC as the appointed the HLURB lost jurisdiction over places their case within the
receiver of the Rural Bank. AFPMBAI filed a Motion for their case. jurisdiction of the HLURB.
Reconsideration, which the trial court denied in its March 19, 2004 Overall Ruling
Order. • The settled principle is that "the allegations of the [C]omplaint
13. CA Ruling: CA held that Civil Case No. 3812 is a case for specific determine the nature of the action and consequently the jurisdiction
performance of AFPMBAI's contractual and statutory obligations as of the courts. This rule applies whether or not the plaintiff is
owner/developer of Kalikasan Mutual Homes, which makes PD 957 entitled to recover upon all or some of the claims asserted therein
applicable and thus places the case within the jurisdiction of the as this is a matter that can be resolved only after and as a result of
HLURB. It said that since one of the remedies prayed for is the delivery the trial."
to petitioners of TCT No. 37017, the case is cognizable exclusively by • It appears that the petitioners' debt is outstanding; that the Rural
the HLURB. Petitioners moved for reconsideration which was denied Bank's receiver, PDIC, informed petitioners that it has no record of
by the CA in its January 12, 2006 Resolution.
their loan even as it took over the affairs of the Rural Bank, which
on record is the petitioners' creditor as per the July 4, 1994 Loan
III. Issue/s and Mortgage Agreement; that one way or another, AFPMBAI
1. W/N the Complaint makes out a case for consignation - YES came into possession of the loan documents as well as TCT No.
2. Does the Complaint in Civil Case No. 3812 fall within the 37017; that petitioners are ready to pay the loan in full; however,
exclusive jurisdiction of the HLURB? - NO under the circumstances, they do not know which of the two — the
IV. Holding/s Rural Bank or AFPMBAI — should receive full payment of the
purchase price, or to whom tender of payment must validly be
made.
• Applying Article 1256 to the petitioners' case as shaped by the obligations under PD 957 as contractual relation as seller and
allegations in their Complaint, the Court finds that a case for nothing more was left to be buyer, respectively, of a
consignation has been made out, as it now appears that there are done in order to perfect or subdivision lot.
two entities which petitioners must deal with in order to fully consolidate their title.
secure their title to the property: 1) the Rural Bank (through PDIC), • Petitioners thus pray that the
which is the apparent creditor under the July 4, 1994 Loan and herein assailed Decision and
Mortgage Agreement; and 2) AFPMBAI, which is currently in Resolution of the CA be set
possession of the loan documents and the certificate of title, and the aside, and that the trial court be
one making demands upon petitioners to pay. ordered to continue with the
• Clearly, the allegations in the Complaint present a situation where proceedings in Civil Case No.
the creditor is unknown, or that two or more entities appear to 3812.
possess the same right to collect from petitioners. Overall Ruling
• Indeed, the instant case presents a unique situation where the • Petitioners' case should be tried in the Puerto Princesa RTC, and
buyer, through no fault of his own, was able to obtain title to real not the HLURB.
property in his name even before he could pay the purchase price in • Consignation is necessarily judicial, as the Civil Code itself
full. There appears to be no vitiated consent, nor is there any other provides that consignation shall be made by depositing the thing or
impediment to the consummation of their agreement, just as it things due at the disposal of judicial authority.
appears that it would be to the best interests of all parties to the sale • Art. 1258 clearly precludes consignation in venues other than the
that it be once and for all completed and terminated. For this courts. Elsewhere, what may be made is a valid tender of
reason, Civil Case No. 3812 should at this juncture be allowed to payment, but not consignation.
proceed. • Tender of payment must be distinguished from consignation.
• The lack of prior tender of payment by the petitioners is not fatal to • Tender is the antecedent of consignation, that is, an act preparatory
their consignation case. They filed the case for the exact reason that to the consignation, which is the principal, and from which are
they were at a loss as to which between the two — the Rural Bank derived the immediate consequences which the debtor desires or
or AFPMBAI — was entitled to such a tender of payment. seeks to obtain.
• Tender of payment may be extrajudicial, while consignation is
Issue #2 necessarily judicial, and the priority of the first is the attempt to
No, Consignation is necessarily judicial; Hence, jurisdiction lies within make a private settlement before proceeding to the solemnities of
the RTC, not with the HLURB consignation. (8 Manresa 325).
Petitioner’s Arguments Respondent’s Arguements • While it may be true that petitioners' claim relates to the terms and
• Petitioners argue that their case • Respondent insists in its conditions of the sale of AFPMBAI's subdivision lot, this is
may not be said to be one for Comment that jurisdiction over overshadowed by the fact that since the Complaint in Civil Case
specific performance of petitioners' case lies with the No. 3812 pleads a case for consignation, the HLURB is without
contractual and legal HLURB, as it springs from their jurisdiction to try it, as such case may only be tried by the regular
courts. • AFPMBAI - a mutual benefit association duly organized and

existing under Philippine laws and engaged in the business of
V. Law or Doctrine Applied developing low-cost housing projects for personnel of the Armed
Forces of the Philippines, Philippine National Police, Bureau of
ARTICLE 1256 OF THE CIVIL CODE Fire Protection, Bureau of Jail Management and Penology, and
Philippine Coast Guard.
Art. 1256. If the creditor to whom the tender of payment has been made refuses • Prayers of the Petitioner:
without just cause to accept it, the debtor shall be released from responsibility by the a) That after the filing of this complaint an order be made
allowing the consignation . . . of Php77,418.00.
Consignation alone shall produce the same effect in the following cases: b) For the court to compute and declare the amount of
(1) When the creditor is absent or unknown, or does not appear at the place of interest to be paid by the plaintiffs and thereafter to allow
payment; the consignation of the interest payments in order to give
(2) When he is incapacitated to receive the payment at the time it is due; way for the full discharge of the loan.
(3) When, without just cause, he refuses to give a receipt; c) To order the AFPMBAI to turn over to the custody of the
(4) When two or more persons claim the same right to collect; court the loan records and title (T.C.T. No. 37017) of the
(5) When the title of the obligations has been lost. plaintiffs if the same are in their possession.
d) To declare the full payment of the principal loan and
interest and ordering the full discharge from mortgage of
the property covered by T.C.T. No. 37017.
Art. 1258. Consignation shall be made by depositing the things due at the e) To order the Register of Deeds of Puerto Princesa City to
disposal of judicial authority, before whom the tender of payment shall be cancel the annotation of real estate mortgage under Entry
proved, in a proper case, and the announcement of the consignation in other cases. No. 3364 at the back of T.C.T. No. 37017. ECcTaH
f) Thereafter, to turn over to the plaintiffs their title free
The consignation having been made, the interested parties shall also be from the aforesaid mortgage loan. 12
notified thereof.
VII. Random Facts
VI. Disposition • Ponente: Del Castillo, J.
WHEREFORE, premises considered, the Petition is GRANTED. The
September 29, 2005 Decision and January 12, 2006 Resolution of the Court
of Appeals in CA-G.R. SP No. 84446 are ANNULLED and SET ASIDE.
The October 16, 2003 and March 19, 2004 Orders of the Regional Trial
Court of Puerto Princesa City, Branch 47, are REINSTATED, and the case
is REMANDED to the said court for continuation of the proceedings.
G.R. No. 137549 | February 11, 2005 Payment
Alonzo v San Juan Alonzo v San Juan
I. Recit-ready Summary An obligation may be extinguished by payment. However, two requisites

must concur: (1) identity of the prestation, and (2) its integrity. The first
Respondents San Juan were occupying a part of Alonzo’s parcel of means that the very thing due must be delivered or released; and the second,
land with no prior knowledge or consent of the owners. A complaint for that the prestation be fulfilled completely. In this case the creditor must
recovery of possession was filed against the San Juans but they agreed to a "receive and acknowledge full payment" from the debtor.
Compromise Agreement during the pendency of the case. However, the San
Juans failed in their obligation to pay in accordance to the Compromise. The
petitioners then filed for a motion for execution to which an order of the trial II. Facts of the Case (Material Facts)
court denied. Such order was then elevated to the SC. 1. A complaint for recovery of possession was filed by Aurelio P.
Alonzo and Teresita A. Sison against Jaime and Perlita San Juan
The SC ruled on the issue of W/N the obligation was extinguished by payment alleging that they are the registered owners of a parcel of land in
– NO Novaliches and that the San Juans were occupying the left side
of their land without their prior knowledge or consent.
The one alleging payment (or non-payment) has the burden of proving 2. A demand letter was sent to the defendants in August of 1996
such was done. A receipt is the best evidence of payment which they only had requiring them to vacate the property but they refused to comply;
for the part of the July 1997 payment. A receipt is a written and signed hence, the filing of the Complaint.
acknowledgment that money has or goods have been delivered. The 3. The During the pendency of the case, the parties agreed to enter into
respondents also used voucher particulars for the May and June payments, a a Compromise Agreement which was allegedly not adhered to by
documentary record of a business transaction. These do not have the same the San Juans.
nature as receipts. 4. Petitioners Alonzo to file a writ of execution due to the
noncompliance with the Compromise Agreement, which was denied
The law provides that the delivery of mercantile documents including by the lower court. The order of the lower court ratiocinated that:
checks "shall produce the effect of payment only when they have been i. The Compromise Agreement expressly stipulated that
cashed." In this case, it was not shown that the checks were encashed by the should any two of the installments of the purchase price be
petitioners. The details of the check issuing do not really reconcile with the not paid by the defendants, the said agreement shall be
dates and amount due as to convince this Court that the payments were really considered null and void.
for the respondents’ obligation under the Compromise since the agreement ii. plaintiffs expressly admitted in their amended motion for
required payments of 40-60k while the checks issued were for the amount of execution that the defendants failed to pay the installments
100k, 50k and 25k. In addition, the relation of Cruz was never explained. The for July 31, 1997 and August 31, 1997 on their due dates;
respondents failed to prove that their payments were actually made hence, the "Compromise Agreement" submitted by the
parties became null and void
1
Obligations and Contracts (2020) PETITIONER: AURELIO P. ALONZO and TERESITA A. SISON
DIGEST AUTHOR: Capeding RESPONDENT: JAIME AND PERLITA SAN JUAN
5. Petitioners Alonzo filed an MR on the order but was denied by the payment. A receipt is a written and
court, affirming that the Compromise Agreement was null and void signed acknowledgment that
6. Petitioners elevated their case to the Supreme Court via petition for money has or goods have been
review on certiorari delivered, while a voucher is a
documentary record of a business
III. Issue/s transaction. The references to
alleged check payments in the
Whether or not the obligation was extinguished by payment – vouchers presented do not vest
NO them with the character of
receipts.
IV. Holding/s ● It should be noted that a voucher
is not necessarily an evidence of
Issue #1 payment. The law provides that
NO. The respondents San Juan failed to discharge burden of proving the delivery of mercantile
payment. documents including checks "shall
produce the effect of payment
Petitioner’s Arguments Court’s Rebuttals only when they have been
cashed." In this case, it was not
● Respondent Spouses San Juan ● THE COURT AGREES – shown that the checks were
failed on their payments required RESPONDENTS SAN JUAN encashed by the petitioners.
by the Compromise Agreements FAILED TO DISCHARGE ● In the present case, the dates,
BURDEN OF PROVING amounts and the person issuing
PAYMENT the checks, which respondents
● The law requires in civil cases that claim were made in their behalf
the party who alleges a fact has the and were issued in satisfaction
burden of proving it. The burden of their obligation, do not really
of proof is on the respondents reconcile with the dates and
because they allege an affirmative amount due as to convince this
defense, namely payment. Court that the payments were
● Well- that a receipt of payment is really for the respondents’
the best evidence of the fact of obligation under the
2
Compromise Agreement as
intended. The checks were all
issued by a certain Cirila Cruz
whose identity and relation to
them the
respondents never explained and
each check reflected an amount so Overall Ruling
much greater than what was due
from the respondents. The one alleging payment (or non-payment) has the burden of proving
Respondents never endeavored to such was done. A receipt is the best evidence of payment which they only had
rationalize or explain the for the part of the July 1997 payment. A receipt is a written and signed
disparity. acknowledgment that money has or goods have been delivered. The
● Verily, an obligation may be respondents also used voucher particulars for the May and June payments, a
extinguished by payment. documentary record of a business transaction. These do not have the same
However, two requisites must nature as receipts.
concur: (1) identity of the
prestation, and (2) its integrity. The law provides that the delivery of mercantile documents including
The first means that the very checks "shall produce the effect of payment only when they have been
thing due must be delivered or cashed." In this case, it was not shown that the checks were encashed by the
released; and the second, that petitioners. The details of the check issuing do not really reconcile with the
the prestation be fulfilled dates and amount due as to convince this Court that the payments were really
completely. In this case the for the respondents’ obligation under the Compromise since the agreement
creditor must "receive and required payments of 40-60k while the checks issued were for the amount of
acknowledge full payment" 100k, 50k and 25k. In addition, the relation of Cruz was never explained. The
from the debtor. No such respondents failed to prove that their payments were actually made
acknowledgment nor proof of full
payment was shown to the An obligation may be extinguished by payment. However, two requisites
satisfaction of the court. For this must concur: (1) identity of the prestation, and (2) its integrity. The first
reason, claim of payment made by means that the very thing due must be delivered or released; and the second,
the respondents must fail. that the prestation be fulfilled completely. In this case the creditor must
"receive and acknowledge full payment" from the debtor.
3
Civil Code, ART. 1232. Payment means not only the delivery of money but
also the performance, in any other manner, of an obligation.
Rule 131, Section 1, Rules of Court: Burden of proof. — Burden of proof

is the duty of a party to present evidence on the facts in issue necessary to
establish his claim or defense by the amount of evidence required by law.
4
G.R. No. 121989 | Jan. 31, 2006 Payment for Performance; Joint payees
PCIB v CA PCIB v CA
Issue: W/N it Atlas is entitled to be credited the full amount it paid
Timeline of getting ownership of the mining machinery and equipment: to NAMAWU which is P4,298,307.77? NO.
(PIM – PCIB and MCB – Atlas)
While the original amount sought to be garnished was P4,298,307.77, the
Assorted mining machinery and equipment were legally garnished due to a partial payment of P601,260.00 naturally reduced it to P3,697,047.77.
labor dispute claim against PIM in favor of NAMAWU. PCIB and MBC Clearly, Atlas overpaid NAMAWU. It will be recalled that upon receipt of
were joint bidders in a foreclosure sale for these properties. Atlas agreed to the writ of garnishment, Atlas immediately paid NAMAWU, without
purchase some of these properties and with a downpayment of P12,000,000 making any investigation or consultation with PCIB. TSADaI
and the balance of P18,000,000 payable in 6 monthly installments. In
compliance with the contract, Atlas issued HSBC check amounting to Article 1236 of the Civil Code applies in this instance. It provides that
P12,000,000 for the downpayment. whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
The contract provides that Atlas would receive the properties from he can recover only insofar as the payment has been beneficial to the debtor.
PCIB and MCB free from claims and incidental action of NAMAWU.
NAMAWU served a writ of garnishment to Atlas to satisfy the judgment II. Facts of the Case (Material Facts)
against PIM. Atlas paid to NAMAWU the amount of P4,298,307.77 in
compliance with the writ of garnishment.
1. PCIB and, Manila Banking Corporation (MBC) were joint
bidders in a foreclosure sale held on 20 December 1975 of
PCIB contends that Atlas should not have complied with the writ of
assorted mining machinery and equipment previously mortgaged to
garnishment since it received the properties free from lien. It was PCIB that
them by the Philippine Iron Mines, Inc. (PIM).
was supposed to pay the garnishment. PCIB alleged that even before the
2. Four (4) years later, Atlas agreed to purchase some of these
writ of garnishment was served on Atlas, the judgment in favor of
properties owned jointly at that time by PCIB and MBC. The sale
NAMAWU had already been partially satisfied in the amount of
was evidenced by a Deed of with the parties agreeing therein to an
P601,260.00.
initial down payment of P12,000,000.00 and the balance of
P18,000,000.00 payable in six (6) monthly installments.
Atlas alleged that there was overpayment, hence the suit against PCIB to
3. The contract provides that Atlas would receive the properties from
obtain reimbursement. PCIB contended that Atlas still owed P908,398.75
PCIB and MCB free from claims and incidental action of
because NAAWU had been partially paid in the amount of P601,260.00.
NAMAWU.
RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the
4. The NAMAWU claim stemmed from a labor dispute docketed as
decision.
RB-VI-3322-75 of the National Labor Relations Commission
(NLRC), where it obtained a favorable judgment against PIM in
Atlas claims that it should be credited the WHOLE(P4,298,307.77) amount
the amount of P4,298,307.77.
it paid to NAMAWU while PCIB contends that Atlas is only entitled to be
5. Atlas paid to NAMAWU the amount of P4,298,307.77. This.
credited the remaining portion (P4,298,307.77-P601,260.00= payment was made in compliance with the writ of garnishment
P3,697,047.77) PCIB has left unpaid to NAMAWU.
Obligations and Contracts (2020) PETITIONER: PCIB 1
DIGEST AUTHOR: Tin Sumaway RESPONDENT: CA, Atlas

PCIB v CA PCIB v CA
issued on the same date against Atlas to satisfy the final judgment Petitioner’s Arguments Court’s Rebuttals
in favor of NAMAWU and against PIM. Atlas insists that the creditable While the original amount sought to
6. PCIB and MBC filed a petition for certiorari with this Court, payment to NAMAWU was be garnished was P4,298,307.77, the
seeking to annul and set aside the order of garnishment and to P4,298,307.77, as upheld by the partial payment of P601,260.00
enjoin Atlas from complying with it. Supreme Court in NAMAWU v. naturally reduced it to
7. The Court dismissed the petition and sustained Atlas's rights as PCIB. P3,697,047.77.
follows: Overall Ruling
. . . Atlas had the right to receive the properties free from Article 1236 of the Civil Code applies in this instance. It provides that
any lien and encumbrance, and when the garnishment was whoever pays for another may demand from the debtor what he has paid,
served on it, it was perfectly in the right in slashing the except that if he paid without the knowledge or against the will of the
P4,298,307.77 from the P30M it had to pay petitioners debtor, he can recover only insofar as the payment has been beneficial to the
(PCIB, MBC) in order to satisfy the long existing and debtor.
vested right of the laborers of financially moribund PIM,
without any liability to petitioners for reimbursement PCIB is the debtor in this case, it having purchased along with MBC legally
thereof." garnished properties, while Atlas is the third person who paid the obligation
of the debtor without the latter's knowledge and consent. Since Atlas readily
8. PCIB posits that Atlas cannot be credited with the payment of the paid NAMAWU without the knowledge and consent of PCIB, Atlas may
full amount of P4,298,307.77 because the remaining outstanding only recover from PCIB or, more precisely charge to PCIB, only the amount
balance with respect to the NAMAWU judgment claim at the time of payment which has benefited the latter.
of the service of the writ of garnishment on Atlas was only
P3,697,047.77 since PCIB already made a partial payment of Generally, the third person who paid another's debt is entitled to recover the
P601,260.00 full amount he had paid. The law, however, limits his recovery to the
9. Atlas, on the other hand, insists that the creditable payment to amount by which the debtor has been benefited, if the debtor has no
NAMAWU was P4,298,307.77, as upheld by the Supreme Court in knowledge of, or has expressed his opposition to such payment. Where the
NAMAWU v. PCIB. defenses that could have been set up by the debtor against the creditor were
existing and perfected, a payment by a third person without the knowledge
III. Issue/s of the debtor cannot obligate the debtor to such third person to an amount
W/N it Atlas is entitled to be credited the full amount it paid to more than what he could have been compelled by the creditor to pay. Thus,
NAMAWU which is P4,298,307.77? NO. if the debt has been remitted, paid, compensated or prescribed, a payment by
IV. Holding/s a third person would constitute a payment of what is not due; his remedy
would be against the person who received the payment under such
Issue #1 conditions, and not against the debtor who did not benefit from the payment.
Atlas is only entitled to the remaining balance or what was beneficial to
PCIB. The trial court correctly ruled that the overpayment amounting to
P601,260.00 should be recovered from NAMAWU. The remedy of Atlas in
this case would be to proceed, not against PCIB, but against NAMAWU

PCIB v CA PCIB v CA
who was paid in excess, applying the principle that no person can unjustly
enrich himself at the expense of another.
Having established that there has been partial satisfaction of the judgment in
the amount of P601,260.00, the remaining obligation of PCIB in the
judgment account stood at P2,334,977.74. Consequently, this is the only
amount which must be credited to Atlas.
VI. Disposition
WHEREFORE, based on the foregoing, the petition is GRANTED in PART.

The Decision of the Court of Appeals is REVERSED and SET ASIDE and
in lieu thereof Atlas is ORDERED to pay PCIB the sum of P146,058.96,
with legal interest commencing from the time of first demand on 22 August
1985.
No costs. EATCcI
SO ORDERED.
Art. 1236. The creditor is not bound to accept payment or performance by a

third person who has no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.
VII. Random Facts

 Ponente: Tinga, J.

G.R. No. 160016 | Feb 27, 2006 Art. 1236
Abacus Securities v. Ampil Abacus Securities v. Ampil
I. Recit-ready Summary Since the principals of the broker are generally undisclosed, the broker is
Ampil opened a cash or regular account with Abacus Securities, a broker personally liable for the contracts made. Hence, Abacus had to advance the
and dealer of securities, for the purpose of buying and selling securities, payments for Ampil’s trades. Brokers have a right to be reimbursed for
Ampil consistently made unpaid purchases, which Abacus had to advance. the sums advanced by them with the express or implied authorization
of the principal.
Despite Ampil’s failure to cover his initial deficiency, Abacus subsequently
purchased and sold securities for Ampil. This violates Sec. 23 Revised Ampil is not liable for the subsequent transactions. By failing to ensure the
Securities Act (RSA) and RSA Rule 25-1, otherwise known as the payment of Ampil’s first transaction within the period, thereby allowing
“mandatory close-out rule” Ampil to make subsequent purchases, Abacus converted Ampil’s cash
account to a credit account. Extension of credits on non margin transactions
Abacus sold Ampil’s securities to set-off the unsettled obligations, 3.3m are prohibited by the RSA
outstanding
Abacus claims that it should be able to recover from Ampil because the 1. On 8 April 1997, Ampil opened a cash or regular account with
latter is liable for his outstanding obligations arising from stock trading. Abacus Securities, a broker and dealer of securities, for the purpose
of buying and selling securities
W/N Ampil is liable for the trades made? 2. Ampil’s purchases were consistently unpaid from April 10-30
1997, eventually accumulating to an outstanding obligation in
SC said yes for the first (April 10 and 11), but not for the subsequent trades. favor of Abacus amounting to 6m, Ampil failed to pay
The Mandatory close-out rule requires that purchases by a customer shall be 3. Ampil failed to pay in full for the transactions on April 10 and 11,
paid in full within 3 business days after the trade AND if full payment is not 1997
received within the 3 days, the broker or dealer SHALL cancel or liquidate 4. Despite Ampil’s failure to cover his initial deficiency, Abacus
the transaction subsequently purchased and sold securities for Ampil
a. This violates Sec. 23 Revised Securities Act (RSA) and
Abacus can still collect from Ampil to the extent of the difference between RSA Rule 25-1, otherwise known as the “mandatory
Ampil’s outstanding obligation as of 11 Apr 1997, less the proceeds from close-out rule”
the mandatory sell out of sales. Abacus’ right to collection is justified by 5. Abacus sold Ampil’s securities to set-off the unsettled obligations,
Art. 1236. The initial transactions were valid and the obligations incurred by 3.3m outstanding
Ampil concerning his stock on these dates subsist. At that time, there was a. Despite demands, Ampil failed to settle the obligation
no violation of the RSA yet.
III. Issue/s
1
Obligations and Contracts (2020) PETITIONER: Abacus Securities v. Ampil
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: Ruben U. Ampil
G.R. No. 160016 | Feb 27, 2006 Art. 1236
1. W/N Ampil is liable for the trades made? (Yes for the first, but not Overall Ruling
for the subsequent trades)
● Margin Requirements [RSA and RSA Rules]
IV. Holding/s ○ Purchases by a customer shall be paid in full within 3
business days after the trade
Issue #1 ○ If full payment is not received within the 3 days, the broker
2. W/N Ampil is liable for the trades made? Yes for the first, but not for or dealer SHALL cancel or liquidate the transaction
the subsequent trades ○ The mandatory close-out rule, that for transactions
Petitioner’s Arguments Court’s Rebuttals subsequent to an unpaid order, the broker should require its
● Abacus should be able to ● Margin requirements are applicable customer to deposit funds into the account sufficient to cover
recover from Ampil because the only to transactions subsequent to each purchase transaction prior to its execution
latter is liable for his outstanding the initial trades of April 10 and 11 ● Margin requirements are applicable only to transactions subsequent to
obligations arising from stock ● Abacus’ right to collection is the initial trades of April 10 and 11
trading justified by Art. 1236 ○ Abacus can still collect from Ampil to the extent of the
● Brokerage relationship is governed difference between Ampil’s outstanding obligation as of 11
by the principles of contract of law Apr 1997, less the proceeds from the mandatory sell out of
● The right of Abacus to collect the sales
initial transaction cannot be denied ● Abacus’ right to collection is justified by Art. 1236
● Since the principals of the broker are ○ “Whoever pays for another may demand from the debtor
generally undisclosed, the broker is what he has paid, except that if he paid without the
personally liable for the contracts knowledge or against the will of the debtor, he can recover
made only insofar as the payment has been beneficial to the
● Ampil is not liable for the debtor.”
subsequent trades ● Brokerage relationship is governed by the principles of contract of
law
● The right of Abacus to collect the initial transaction cannot be denied
○ These transactions were valid and the obligations incurred by
Ampil concerning his stock on these dates subsist
○ At that time, there was no violation of the RSA yet
● Since the principals of the broker are generally undisclosed, the
broker is personally liable for the contracts made
2
G.R. No. 160016 | Feb 27, 2006 Art. 1236
○ Hence, Abacus had to advance the payments for Ampil’s The RTC of Makati, Branch 57 is hereby directed to make a computation of
trades respondent's outstanding obligation using the closing prices of the stocks at
○ Brokers have a right to be reimbursed for the sums T+14 as basis — counted from April 11, 1997 and to issue the proper order
advanced by them with the express or implied for payment if
authorization of the principal
● Ampil is not liable for the subsequent trades VI. Additional Notes
○ By failing to ensure the payment of Ampil’s first transaction
within the period, thereby allowing Ampil to make
VII. Random Facts
subsequent purchases, Abacus converted Ampil’s cash
● Ponente: Panganiban,C J.:
account to a credit account
○ Extension of credits on non margin transactions are
prohibited by the RSA
○ Hence, Abacus was remiss in its duty and cannot be said the
come to the court with clean hands
ART. 1236
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the
debtor
V. Disposition
WHEREFORE, the assailed Decision and Resolution of the Court of

Appeals are hereby MODIFIED. Respondent is ordered to pay petitioner the
difference between the former's outstanding obligation as of April 11, 1997
less the proceeds from the mandatory sell out of shares pursuant to the RSA
Rules, with interest thereon at the legal rate until fully paid.
3
G.R. No. 138703 | June 30, 2006 Article 1249 (Payment)
DBP v CA DBP v CA

This case is about the loan executed by Development Bank of the 1. FIRST LOAN: In March 1968, DBP granted an industrial loan to
Philippines to herein private respondents Philippine United Foundry and Philippine United Foundry and Machineries Corporation
Machineries Corporation (PHUMACO) and Philippine Iron Manufacturing (PHUMACO) and Philippine Iron Manufacturing Company
Company (PHILIMCO). (PHILIMCO) in cash P500,000 in cash and P2,000,000 in DBP
After two loans, respondents asked for the loan to be restructured Progress Bonds.
which was secured by a new promissory note that contained the amount of 2. A promissory note was executed and the loan was secured by
interest, and other additional charges. The loans in this promissory notes are mortgage over the respondents’ present and future properties.
denominated in foreign currencies. 3. SECOND LOAN: P1,700,000 which was reflected in the amended
Despite, the respondents failed to pay on time. DBP initiated the mortgage contract
foreclosure proceedings upon its computation of the total arrears of 4. In 1975, the outstanding accounts of respondents with DBP were
respondent. However, the respondents were able to suspend the proceedings restructured [see additional notes] in view of their failure to pay.
upon their representation that a financial rehabilitation fund arising from a 5. Hence, the outstanding principal balance of the loans and advances
contract with the military was forthcoming. amounting to P4,655,992.35 were consolidated into a single
Respondents allege that the total amount that DBP wants to claim is account.
unconscionable and that they should be released from their obligation 6. RESTRUCTURED LOAN: The restructured loan is evidenced by
because the AFP’s failure to procure armaments (which was the reason for new promissory note payable within 7 years with partial payments
the loan) justified their annulment of mortgage. on the principal to be made beginning on the third year plus a 12%
RTC and CA ruled in favor of the respondents and ordered them to pay interest per annum payable every month.
only P6.2M of their obligation and upheld the injunction to foreclose their 7. A separate promissory note evidenced all accrued interest and
mortgages. charges due amounting to P3,074,672.21 were denominated as
The issues resolved by the Court in this case are 1) W/N CA erred in "Notes Taken for Interests".
declaring that the interest rate on the loans had been unilaterally increased 8. Both notes provided certain additional charges and penalties in
by DBP? And W/N the loans dominated in foreign currencies can be paid in case of failure of respondents to comply.
its peso equivalent? 9. Respondents were unable to comply with the terms and conditions
The Court held that for the first issue YES the CA erred in declaring of the new promissory notes, hence, they requested DBP to
that the interest rate on the loans had been unilaterally increased by DBP refinance [see additional notes] the matured obligation.
when the facts show that the interest charged upon the notes is dependent 10. DBP granted it, pursuant to which three foreign currency
upon the borrowing cost of DBP. denominated loans sourced from DBP’s own foreign borrowings
On the second issue, the Court held that YES the loans denominated in were extended to respondents on various dates – all secured by
foreign currencies can be paid in its peso equivalent because the general rule mortgages.
is that obligations may be paid according to what is stipulated but may also 11. These promissory notes imposed interests, additional charges and
be discharged in Philippine currency. penalties (if respondents defaulted on their payments), 2% annual
service fee, and bank advances for insurance premiums, taxes,
Obligations and Contracts (2020) PETITIONER: Development Bank of the Philippines and Privatization and 1
Management Office (formerly Asset Privatization Trust)
DIGEST AUTHOR: Leslie Castillo RESPONDENT: Hon. Court of Appeals, Philippine United Foundry and
Machinery Corp. and Philippine Iron Manufacturing, Co.,Inc.
DBP v CA DBP v CA
litigation and acquired assets expenses and other out-of-pocket IV. Holding/s
expenses not covered by inspection and processing fees.
12. 1985: DBP initiated foreclosure proceedings upon its computation Issue #1
that the arrears of the respondent amounted to P62,954,473.68, YES, the CA erred in declaring that the interest rate on the loans had been
including the intermittent payments made by respondents in the unilaterally increased by DBP when the facts show that the interest charged
amount of P5,150,827.71. upon the notes is dependent upon the borrowing cost of DBP.
13. The foreclosure proceedings were suspended upon the presentation Petitioner’s Arguments Court’s Rebuttals
of respondents that a financial rehabilitation fund arising from a PMO asserts that the CA erred The significance of the promissory
contract with the military was forthcoming. despite the evidence on record notes should not have been
14. Before DBP could proceed with the foreclosure of proceedings, the (promissory notes and testimonies of overlooked by the trial court and the
respondents instituted the suit for injunction AMENDED to include witnesses for DBP) showing CA. By completely disregarding the
annulment of mortgagee AMENDED again to include to implead otherwise. They claim that CA promissory notes, the lower courts
the Asset Privatization Trust (APT) (now the Privatization and failed to take into account the effect unilaterally modified the contractual
Management Office [PMO]) as a party defendant [successor-in- of the restructuring and refinancing obligations of respondents after the
interest of DBP]. of the loans granted by DBP upon latter already benefited from the
15. Respondents contend that DBP was collecting from them an the request of respondents. Further, extension of the maturity date on
unconscionable if not lawful or usurious obligation of P62M, out of PMO points out that these their original loans, to the damage
a mere P6.2M and that the failure of AFP to purchase military promissory notes specifically and prejudice of PMO which steps
armaments and equipment (which is why the respondents loaned in provide for the rates of interest as into the shoes of DBP as mortgagee-
the first place) would justify the annulment of the mortgage. well as penalty and other charges creditor.
16. RTC issued a TRO. Subsequently, the trial court issued a writ of which were merely applied on
preliminary injunction and rendered a decision in favor of respondents’ outstanding
respondents and pay P6.2M only while the payments initially made obligations.
are to be applied to payment for interest and penalties. Overall Ruling
17. CA affirmed the decision of the trial court.
The promissory notes reveal that the interest charged upon the notes is
dependent upon the borrowing cost of DBP. It also bears emphasis that the
III. Issue/s
second set of promissory notes executed by respondents must govern the
1. W/N CA erred in declaring that the interest rate on the loans had contractual relation of the parties for they unequivocally express the terms
been unilaterally increased by DBP? YES and conditions of the parties’ loan agreement, which are binding and
2. W/N the loans dominated in foreign currencies can be paid in conclusive between them. Due to the variable factors mentioned above, it
its peso equivalent? YES cannot be determined whether DBP did in fact apply an interest rate higher
than what is prescribed under the law. Further, it was shown that DBP was
not given an opportunity to explain its entries in the Statement of Account.
DBP v CA DBP v CA
Issue #2 The delivery of promissory notes payable to order, or bills of exchange or other
YES the loans denominated in foreign currencies can be paid in its peso mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
equivalent because the general rule is that obligations may be paid
In the meantime, the action derived from the original obligation shall be held in
according to what is stipulated but may also be discharged in Philippine abeyance. (1170)
currency.
Petitioner’s Arguments Court’s Rebuttals VI. Disposition
PMO claims that the total Court finds merit in petitioner’s WHEREFORE, the petition is PARTLY GRANTED and the assailed
outstanding obligation of contention. Respondents cannot Decision dated May 7, 1999 rendered by the Court of Appeals in CA-G.R.
respondents reached P62.9 Million protest against the fact that the loans CV No. 49239 is REVERSED AND SET ASIDE. The case is hereby
on September 30, 1985. This amount were denominated in foreign remanded to the trial court for determination of the total amount of the
was purportedly the peso equivalent currency and were to be paid in its respondents’ obligation based on the promissory notes dated December 11,
of the foreign-currency denominated peso equivalent after they had 1980, June 5, 1981 and December 16, 1981 according to the interest rate
loans granted to respondents to already given their consent to such agreed upon by the parties or the interest rate of 12% per annum, whichever
refinance the original loans they terms. is lower.
procured, and is inclusive of interest,
penalties and other surcharges VII. Additional Notes
incurred from that date as a result of • REFINANCING v RESTRUCTURING
respondents’ past defaults. Refinancing is an exchange of an old debt for a new debt, as by
Overall Ruling negotiating a different interest rate or term or by repaying the
There is no legal impediment to having obligations or transactions paid in a existing loan with money acquired from a new loan. On the other
foreign currency as long as the parties agree to such an arrangement. In fact, hand, restructuring, as applied to a debt, implies not only a
obligations in foreign currency may be discharged in Philippine currency postponement of the maturity but also a modification of the
based on the prevailing rate at the time of payment. essential terms of the debt (e.g., conversion of debt into bonds or
into equity, or a change in or amendment of collateral security) in
For this reason, it was improper for the CA to reject outright DBP’s claim order to make the account of the debtor current.
that the conversion of the remaining balance of the foreign currency loans • Application: When the loan was refinanced and restructured, the
into peso accounted for the considerable differential in the total proceeds were understandably not actually given by creditor to
indebtedness of respondents mainly because the exchange rates at the time debtor since the transaction was but a renewal of the first or
of demand had been volatile and led to the depreciation of the peso. original loan and the supposed proceeds were applied as payment
for the latter.
ARTICLE 1249 OF THE CIVIL CODE VIII. Random Facts
The payment of debts in money shall be made in the currency stipulated, and if it is • Ponente: Azcuna, J.
the Philippines.
G.R. No. L-41764 | December 19, 1980 Payment or Performance (Arts. 1232 to 1261)
NEW PACIFIC TIMBER v. SENERIS NEW PACIFIC TIMBER v. SENERIS
I. Recit-ready Summary III. Issue/s

New Pacific Timber & Supply Company, Inc. is the defendant in a 1. W/N whether or not the private respondent can validly refuse
complaint for collection of a sum of money led by Ricardo Tong. On July acceptance of the payment of the judgment obligation made by
19, 1974, a compromise judgment was rendered by the respondent Judge the petitioner? NO.
wherein it was stipulated that New Pacific Timber will pay plaintiff
P54,500. For failure of petitioner to comply with his judgment obligation, IV. Holding/s
the respondent Judge, issued an order for the issuance of a writ of execution
and ordered the sheriff to levy certain properties of New Pacific Timber and Issue #1
to set an auction. Before the auction, New Pacific Timber deposited with the NO, the private respondent can’t validly refuse acceptance of the
clerk of court, P63,130 (P50,000 in Cashier’s Check and P13,130 in cash) payment of the judgment obligation made by the petitioner.
Tong, through counsel, refused to accept the check as well as the cash Respondent’s Arguments Court’s Rebuttals
deposit. The issue in this case is whether or not the private respondent can • Under Section 63 of the Central • The check deposited by the
validly refuse acceptance of the payment of the judgment obligation made Bank Act, checks representing petitioner in the amount of
by the petitioner. The court ruled that the private respondent can’t validly deposit money do not have legal P50,000.00 is not an ordinary
refuse acceptance of the payment of the judgment obligation made by the tender power. check but a Cashier's Check of
petitioner. • Under Article 1249 of the New the Equitable Banking
Civil Code, The payment of debts Corporation.
II. Facts of the Case (Material Facts) in money shall be made in the • It is a well-known and accepted
1. New Pacific Timber & Supply Company, Inc. is the defendant in a currency stipulated, and if it is practice in the business sector that
complaint for collection of a sum of money led by Ricardo Tong. not possible to deliver such a Cashier's Check is deemed as
2. On July 19, 1974, a compromise judgment was rendered by the currency, then in the currency cash.
respondent Judge wherein it was stipulated that New Pacific which is legal tender in the
Timber will pay plaintiff P54,500. Philippines.
3. For failure of petitioner to comply with his judgment obligation, • Under Article 1248 of the New
the respondent Judge, issued an order for the issuance of a writ of Civil Code, he has the right to
execution and ordered the sheriff to levy certain properties of New refuse payment of the amount of
Pacific Timber and to set an auction. P13,130.00 in cash because the
4. Before the auction, New Pacific Timber deposited with the clerk of said amount is less than the
court, P63,130 (P50,000 in Cashier’s Check and P13,130 in cash) judgment obligation
5. Tong, through counsel, refused to accept the check as well as the
cash deposit.
Obligations and Contracts (2020) PETITIONER: NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. 1
DIGEST AUTHOR: John Joves RESPONDENT: RICARDO A. TONG
G.R. No. L-41764 | December 19, 1980 Payment or Performance (Arts. 1232 to 1261)
NEW PACIFIC TIMBER v. SENERIS NEW PACIFIC TIMBER v. SENERIS
Overall Ruling
It is a well-known and accepted practice in the business sector that a VI. Disposition
Cashier's Check is deemed as cash. Moreover, since the said check had
been certified by the drawee bank, the funds represented by the check are WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
transferred from the credit of the maker to that of the payee or holder, and 1. Declaring as null and void the order of the respondent Judge dated
August 28, 1975; 2. Declaring as null and void the auction sale conducted
for all intents and purposes, the latter becomes the depositor of the
on January 16, 1975 and the certificate of sale issued pursuant thereto; 3.
drawee bank, with rights and duties of one in such situation. Where a
Ordering the private respondent to accept the sum of P63,130.00 under
check is certified by the bank on which it is drawn, the certification is deposit as payment of the judgment obligation in his favor; 4. Ordering the
equivalent to acceptance. It is an understanding that the check is good respondent Judge and respondent Sheriff to release the levied properties to
then, and shall continue to be good, and this agreement is as binding on the herein petitioner. The temporary restraining order issued is hereby made
the bank as its notes in circulation, a certificate of deposit payable to the permanent. Costs against the private respondent. SO ORDERED.
order of the depositor, or any other obligation it can assume.
CASHIER'S CHECK GOOD AS CASH
It is a well-known and accepted practice in the business sector that a

Cashier's Check is deemed as cash. Moreover, since the said check had been
certified by the drawee bank, by the certification, the funds represented by
the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of
the drawee bank, with rights and duties of one in such situation.
Obligations and Contracts (2020) PETITIONER: NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. 2
DIGEST AUTHOR: John Joves RESPONDENT: RICARDO A. TONG
G.R. No. 141968 | February 12, 2001 Extinguishment of Obligations: Payment; Checks
International Corp Bank v CA (SPS. Gueco) International Corp Bank v CA (SPS. Gueco)
Respondent Gueco spouses obtained a loan worth from Petitioner II. Facts of the Case (Material Facts)
International Corporate Bank (now unionbank) to purchase a Nissan Sentra. 1. Respondent Gueco Spouses obtained a loan from Petitioner
For this loan, they executed promissory notes and chattel mortgaged the International Corporate Bank (now unionbank) to purchase a car,
Nissan sentra itself. But, Respondents defaulted in paying the installments in specifically a Nissan Sentra.
the promissory notes. This caused Petitioner to file a suit against them. 2. In consideration of the loan, the spouses executed promissory notes
The unpaid balance of the loan was 184k. through negotiations, it was payable in monthly installments, and chattel mortgaged the car to
lowered to 154k. the 154k was still unpaid, so the car was still detained within serve as a security for the loan. The spouses defaulted in paying these
the petitioner’s compound. The balance was further lowered to 150k after
installments.
further negotiations.
3. Due to the default, Petitioner filed a civil action for sum of money
Respondent later on delivered a manager’s check worth 150k to
petitioners. However, the car was not released because Respondent refused to with a prayer for a writ of replevin.
sign the “joint motion to dismiss” which was the SOP of petitioner, stating 4. Dr. Francis Gueco (petitioner) was summoned and fetched by the
that he didn’t need to sign it considering that he has yet to file his answer. The sherriff and bank representatives for a meeting in the bank, where
manager’s check respondent presented was NOT encashed by petitioner. the bank’s assistant Vice President demanded payment of the unpaid
Because the car was not released, respondent filed suit for damages, balance, which was 184,000.
which was first dismissed by the MTC, but was reversed by the RTC and 5. After negotiations, the amount due was lowered to 154,000. But
affirmed by the CA. since it was still not paid, the car was detained inside the bank’s
The RTC and the CA held that the signing of the joint motion to dismiss compound.
was not a condition sine qua non for the effectivity of the compromises to 6. Later on, further negotiated a reduction of the outstanding loan to
lower the balance, and damages were proper due to the existence of fraud. In just 150,000.
affirming, the CA did not provide that respondent provide a new Manager’s 7. Respondent Dr. Gueco later on delivered a manager’s check worth
check to Petitioner, despite the one respondent previously gave already being
150,000, but the car was not released due to Gueco’s refusal to sign
stale.
The issue is w/n CA erred in not making respondent issue a new the joint motion to dismiss. Gueco contented that he didn’t need to
check, considering the old (not-encashed) one already being stale. sign it considering he has yet to file his answer. Petitioner however
The SC agreed with the lower courts in that the signing of the joint insisted it was their SOP, to preclude future filing on claims.
motion to dismiss was not essential to make effective the compromise, but 8. After several demand letters, Respondents filed for damages, which
disagreed in allowing damages, stating that the acts done by petitioner was was dismissed by the MTC.
not to renege on the obligation that would constitute fraud, but was actually 9. On appeal to the RTC, the MTC was reversed, stating that the
beneficial to respondent. Finally, manager’s checks do not need presentment, reduction was a meeting of the minds, and the agreement didn’t
and even if they do, failure to present a check on time will not result in include the signing of a joint motion to dismiss as a condition sine
extinguishment of the obligation, it will only discharge the drawer’s liability qua non for the effectivity of the compromise. Petitioner was
to the extent of the loss caused by the failure to present on time. Respondents ordered to return the car, but they can deposit the manager’s check.
have not alleged or even shown proof of any loss caused by the delay, so They were also ordered to pay damages and costs.
nothing was discharged. Besides, the petitioner has not encashed it.
1
Obligations and Contracts (2020) PETITIONER: The International Corporate Bank (now UnionBank)
DIGEST AUTHOR: Bryan Antonio RESPONDENT: Sps. Francis S. Gueco and Ma. Luz E. Gueco
10. CA affirmed the RTC in toto, relying on the lower court’s finding of or present the bill to the drawee
facts, and the existence of fraud for damages. for acceptance.
11. (relevant fact) the check given by respondents has not been • Even if presentment is needed,
encashed. (read their arguments in number 7) failure to present on time will not
totally wipe out all liability –
III. Issue/s only to the extent of the loss
1. W/N the signing of the joint motion to dismiss was a condition for caused by the delay. Here, it was
the effectivity of the compromise agreement? NO. not even alleged that there was
2. W/N damages were proper? NO. loss caused by the delay for non-
3. W/N the CA erred in requiring petitioner return the car without presentment.
making any provision for the issuance of a new manager’s check Overall Ruling
by respondent in favor of petitioner due to the previous cashier A stale check is one which hasn’t been presented for payment within
check already becoming stale? YES. a reasonable time after its issue, and is thus valueless and should not be
paid. Under negotiable instruments law, an instrument not payable on
IV. Holding/s demand must be presented on the day it falls due. If payable on demand,
it must be presented within a reasonable time after its issue. If a bill of
Issue #1 exchange, presentment is sufficient if made within a reasonable time after
YES, the CA erred in not requiring a new manager’s check from the last negotiation thereof. What constitutes a “reasonable time” depends
respondent in favor of petitioner, considering that the previous one case to case.
already became stale. But in this case, it is not an ordinary bill of exchange, but a manager’s
Respondent’s Arguments Court’s Rebuttals check. In effect, a bill of exchange drawn by the cashier of a bank upon
• Respondents argue that • The SC held that a rudimentary the bank itself, accepted in advance just by the fact of its issuance.
petitioner should return the car sense of justice and fair play Essentially a promissory note with the bank itself as a maker. If treated as
and petitioner should suffer the would not countenance a promissory note, the drawer would be the maker, the holder need not
loss of the check already respondent’s position. prove presentment for payment or present the bill to the drawee for
becoming stale due to its own • The check involved in this case acceptance.
negligence. Respondent claim is not an ordinary bill of Even assuming presentment is needed, failure to present for
that the delivery of the exchange, but a manager’s payment within a reasonable time will only discharge the drawer only to
manager’s check already check. It is a bill of exchange the extent caused by the delay, not automatically wiping out all liability.
produced the effect of payment, drawn by the cashier of the bank The respondents have not alleged or even shown that the bank which issued
and petitioner was negligent in upon the bank itself, and is the check has suffered damage or loss caused by the delay/non-
opting not to use said check accepted in advance by the act of presentment. Thus, the original obligation to pay has not been erased.
(allowing it to become stale) its issuance. The holder need not The check only became stale because of the controversy regarding the
prove presentment for payment motion to dismiss making petitioner bank not encash the check.
2
for fraud. The requiring of the signing was actually beneficial to

V. Law or Doctrine Applied respondents, not a deliberate attempt of petitioner to renege on its
obligation (fraud in 1170 is the deliberate and intentional evasion of
Article 1249 of the Civil Code the normal fulfillment).
Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal VII. Random Facts
tender in the Philippines. • Ponente: Kapunan, J.
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the
abeyance.
- A creditor has a right to refuse commercial documents (such as a bill of

exchange, as in this case. Payment is only produced when the mercantile
document is encashed, and here they didn’t encash it yet. So no payment
yet.
VI. Disposition
WHEREFORE, premises considered, the petition for review is given due

course. The decision of the Court of Appeals affirming the decision of the
Regional Trial Court is SET ASIDE. Respondents are further ordered to pay
the original obligation amounting to P150,000.00 to the petitioner upon
surrender or cancellation of the manager's check in the latter's possession,
after which, petitioner is to return the subject motor vehicle in good working
condition. SO ORDERED.

• For the first issue: the SC reiterated the usual “findings of fact of the
lower courts are binding on this court unless exception, but there was
no exception in this case” – so they agreed that the signing of the
joint motion to dismiss was not required to release the car.
• For the second issue: The SC disagreed with the CA citing “the
refusal of releasing the car despite the payment in form of a
manager’s check” intentionally evading its obligation” as as a basis
3
Far East Bank & Trust Company v. Diaz Realty, Inc. Far East Bank & Trust Company v. Diaz Realty, Inc.
Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in Meanwhile, the transfer of credit from Pacific Bank to the petitioner
the amount of P720,000 at 12% interest p.a. which was increased did not involve an effective novation but an assignment of credit. As
thereafter. The said loan was secured with a real estate mortgage over such, the petitioner has the right to collect the full value of the credit
two parcels of land owned by Diaz Realty, herein respondent. from the respondent subject to the conditions of the promissory note
Subsequently, the loan account was purchased by the petitioner Far previously executed.
East Bank (FEBTC). Two years after, the respondent through its
President inquired about its obligation and upon learning of the II. Facts of the Case (Material Facts)
outstanding obligation, it tendered payment in the form of an Interbank • Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974
check in the amount of P1,450,000 in order to avoid the further in the amount of P720,000 at 12% interest p.a. which was
imposition of interests. The payment was with a notation for the full increased thereafter. The said loan was secured with a real estate
settlement of the obligation. mortgage over two parcels of land owned by Diaz Realty, herein
respondent. Subsequently, the loan account was purchased by the
The petitioner accepted the check but it alleged in its defense that it petitioner Far East Bank (FEBTC). Two years after, the
was merely a deposit. When the petitioner refused to release the respondent through its President inquired about its obligation and
mortgage, the respondent filed a suit. The lower court ruled that there upon learning of the outstanding obligation, it tendered payment in
was a valid tender of payment and ordered the petitioner to cancel the the form of an Interbank check in the amount of P1,450,000 in
mortgage. Upon appeal, the appellate court affirmed the decision. order to avoid the further imposition of interests. FEBTC did not
accept it as payment; that instead, Diaz was asked to deposit the
The issue is whether or not there was a valid tender of payment to amount with the defendant's Davao City Branch Office. The
extinguish the obligation of the respondent. payment was with a notation for the full settlement of the
obligation.
The Court ruled that there was a valid tender of payment in this case. • Diaz wrote the defendant, asking that the interest rate be reduced
Although jurisprudence tells us that a check is not a legal tender and a from 20% to 12% per annum, but no reply was ever made; that
creditor may validly refuse it, this dictum does not prevent a creditor subsequently, the defendant told him to change the P1,450,000.00
from accepting a check as payment. Herein, the petitioner accepted the deposit into a money market placement, which he did; that the
check and the same was cleared. money market placement expired on April 14, 1989; that when
there was still no news from the defendant whether or not it
A tender of payment is the definitive act of of offering the creditor [would] accept his tender of payment, he filed this cass.
what is due him or her, together with the demand that he accepts it. • The petitioner responded that it accepted the check but it alleged
More important is that there must be a concurrence of intent, ability in its defense that it was merely a deposit.
and capability to make good such offer, and must be absolute and must • When the petitioner refused to release the mortgage, the
cover the amount due. The acts of the respondent manifest its intent, respondent filed a suit. The lower court ruled that there was a
ability and capability. Hence, there was a valid tender of payment.
Obligations and Contracts (2020) PETITIONER: Far East Bank & Trust Company 1
DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Trust Company v. Diaz Realty, Inc.
valid tender of payment and ordered the petitioner to cancel the intent, ability and capability to
mortgage. Upon appeal, the appellate court affirmed the decision. make good such offer, which
must be absolute and must
III. Issue/s cover the amount due.
1. W/N there is valid legal tender of payment? YES

A check does not constitute legal tender, and that a creditor may validly
refuse it. It must be emphasized, however, that this dictum does not prevent
YES, the creditor has the option and the discretion of refusing or
a creditor from accepting a check as payment. Meaning, the creditor has the
accepting the payment of a check tendered as payment and Far East
option and the discretion of refusing or accepting it. Therefore, since the
Bank, in this case, accepted the check tendered as payment.
petitioner bank did not refuse respondent’s check, and since the check was
Petitioner’s Argument Court’s Rebuttal
cleared, it served as a valid tender of payment.
Petitioner resolutely argues that the • True, jurisprudence holds that,
CA erred in upholding the validity in general, a check does not
tender of payment is the definitive act of offering the creditor what is due
of the tender of payment made by constitute legal tender, and that
him or her, together with the demand that the creditor accept the same. More
respondent. What the latter had a creditor may validly refuse it.
important, there must be a fusion of intent, ability and capability to make
tendered to settle its outstanding It must be emphasized,
good such offer, which must be absolute and must cover the amount due. 14
obligation, it points out, was a check however, that this dictum does
which could not be considered legal not prevent a creditor from
That respondent intended to settle its obligation with petitioner is evident
tender. accepting a check as payment.
from the records of the case. After learning that its loan balance was
In other words, the creditor has
P1,447,142.03, it presented to petitioner a check in the amount of
the option and the discretion of
P1,450,000, with the specific notation that it was for full payment of its
refusing or accepting it. In the
Pacific Bank account that had been purchased by petitioner. The latter
present case, petitioner bank did
accepted the check, even if it now insists that it considered the same as a
not refuse respondent's check.
mere deposit. The check was sufficiently funded, as in fact it was honored
On the contrary, it accepted the
by the drawee bank. When petitioner refused to release the mortgage,
check which, it insisted, was a
respondent instituted the present case to compel the bank to acknowledge
deposit. As earlier stated, the
the tender of payment, accept payment and cancel the mortgage. These acts
check proved to be fully funded
demonstrate respondent's intent, ability and capability to fully settle and
and was in fact honored by the
extinguish its obligation to petitioner.
drawee bank. Moreover,
FEBTC was in possession of
That respondent subsequently withdrew the money from petitioner-bank is
the money for several months.
of no moment, because such withdrawal would not affect the efficacy or the
There must be a fusion of
legal ramifications of the tender of payment made on November 14, 1988. Art. 1232 of the Civil Code
As already discussed, the tender of payment to settle respondent's obligation Payment means not only the delivery of money but also the
as computed by petitioner was accepted, the check given in payment thereof performance, in any other manner, of an obligation.
converted into money, and the money kept in petitioner's possession for
several months.
The payment of debts in money shall be made in the currency
Finally, petitioner points out that, in any case, tender of payment
extinguishes the obligation only after proper consignation, which respondent currency which is legal tender in the Philippines.
did not do.
The delivery of promissory notes payable to order, or bills of exchange
The argument does not persuade. For a consignation to be necessary, the or other mercantile documents shall produce the effect of payment
creditor must have refused, without just cause, to accept the debtor's only when they have been cashed, or when through the fault of the
payment. However, as pointed out earlier, petitioner accepted respondent's creditor they have been impaired.
check.
In the meantime, the action derived from the original obligation shall
To iterate, the tender was made by respondent for the purpose of settling its be held in abeyance.
obligation. It was incumbent upon petitioner to refuse, or accept it as
payment. The latter did not have the right or the option to accept and treat it VI. Disposition
WHEREFORE the Petition is hereby DENIED. The assailed Decision
as a deposit. Thus, by accepting the tendered check and converting it into
of the Court of Appeals is AFFIRMED with the following
money, petitioner is presumed to have accepted it as payment. To hold
modifications: Respondent Diaz Realty Inc. is ORDERED to pay Far
otherwise would be inequitable and unfair to the obligor. East Bank and Trust Co. its principal loan obligation in the amount of
P1,067,000, with interest thereon computed at 20 percent per annum
Petitioner bank as assignee of respondent’s credit is entitled to the full until November 14, 1988, less any interest payments made to PaBC,
interest rate of 20% in the computation of debt of Diaz as stipulated in the petitioner's assignor. Thereafter, interest shall be computed at 12
August 26, 1983 agreement. However, since there was a valid tender f percent per annum until fully paid.
payment made on November 14, 1988, the accrual of interest shall stop at
that date. Thus, Diaz should pay FEBTC the principal amount of VII. Additional Notes
P 1,067,000 plus accrued interet thereon at 20% until November 14, 1988 None
less interest payments given to PaBc from December 1986-July 8, 1988.
After that, interest should be computed at 12% per annum until full VII. Random Facts
payment. • Ponente: Panganiban, J.
G.R. No. 156846 | February 23, 3004 Consignation
Pabugais vs. Sahijwani Pabugais vs. Sahijwani
I. Recit-ready Summary 3. Their Agreement and Undertaking stipulated that in case of default
Pabugais was to sell a lot to Sahijwani. Sahijwani paid the P600,000 of Pabugais in paying the balance, the P600,000 reservation fee
reservation fee but Pabugais failed to deliver the necessary documents, and will be forfeited. On the other hand, in case of Pabugais’ non-
so as per their agreement he must return the reservation fee with 18% delivery of the pertinent documents, he shall return the reservation
interest. After two attempts to deliver the amount to Sahijwani, Pabugais fee to Sahijwani with 18% annual interest.
consigned the amount to the RTC. 4. Pabugais failed to deliver the documents, so he returned the
The RTC ruled that the consignation was invalid because there was no P600,000 reservation fee through a check, which was dishonoured.
proof that Pabugais tendered payment.
5. Pabugais claimed to have attempted twice to return the amount plus
On appeal to the CA, Pabugais’ counsel died and was replaced by
interest (P672,900) to Sahijwani. Due to the latter’s refusal,
Atty. De Guzman. Pabugais assigned the consigned money as Atty. De
Guzman’s atty’s fees and moved for its withdrawal. The CA affirmed the Pabugais informed him of his consigning the amount with the RTC
RTC decision, but on motion for reconsideration, ruled that the consignation by filing a complaint for resignation.
was valid. It also disallowed the withdrawal of the consigned amount. 6. On the other hand, Sahijwani claimed that no check was appended
The issues are W/N the consignation is valid, and W/N Pabugais can to the letter he received, and that the computation of the amount is
withdraw the consigned money. insufficient because Pabugais agreed to pay 3% monthly interest
The SC ruled that yes, the consignation is valid, and no, Pabugais can and 25% attorney’s fees as penalty for default, in addition to the
no longer withdraw the consigned money. The consignation is valid because 18% annual interest.
Pabugais made a valid tender or payment which Sahijwani refused, and 7. The RTC ruled that the consignation was invalid because there was
because the amount Pabugais deposited is sufficient to extinguish the no proof that Pabugais tendered payment and Sahijwani refused the
obligation. With the valid consignation of the amount, Pabugais is relieved same. The RTC ordered Pabugais to pay Sahijwani P600,000 with
of his obligation and to allow him to withdraw the consigned amount would
18% annual interest.
be unjust enrichment.
8. Pabugais appealed to the CA. During the pendency, his counsel
Art. 1260 states that “Before the creditor has accepted the
consignation, or before a judicial confirmation has been properly made, the Atty. Joven died and was substituted by Atty. De Guzman.
debtor may withdraw the thing or the sum deposited, allowing the obligation 9. Pabugais executed a Deed of Assignment assigning in favor of
to remain in force.” Atty. De Guzman part of the P672,900 consigned with the RTC as
partial payment of attorney’s fees. Pabugais also filed an Ex Parte
II. Facts of the Case (Material Facts) Motion to Withdraw Consigned Money.
1. Petitioner Pabugais agreed to sell a lot to respondent Sahijwani for 10. The CA affirmed the RTC decision and the motion to withdraw
P15,487,500. consigned money was rejected.
2. Sahijwani paid Pabugais a reservation fee of P600,000. He would 11. On motion for reconsideration, the CA declared the consignation
pay the balance of P14,887,500 within 60 days from the execution valid.
of their contract. Simultaneously, Pabugais would deliver a 12. Pabugais’ obligation was extinguished and he can no longer
duplicate Transfer Certificate of Title in Sahijwani’s name, the withdraw the consigned amount.
Deed of Absolute Sale, and other pertinent documents.
III. Issue/s
Obligations and Contracts (2020) PETITIONER: Teddy G. Pabugais 1

DIGEST AUTHOR: Kara Nazario RESPONDENT: Dave P. Sahijwani
1. W/N there was a valid consignation? YES. refused to accept it

2. W/N petitioner can withdraw the amount consigned as a 3. that he notified Sahijwani beforehand of the consignation
matter of right? NO. 4. that the sufficient amount due (P672,900) was handed over to the court,
and
IV. Holding/s 5. that notice was again given to Sahijwani after the fact.
Issue #1 Since the dispute was anchored on the existence of valid tender of payment,
YES, there was a valid consignation. and such payment was proven in an amount sufficient to extinguish the
obligation, the consignation is valid.
 (Pabugais has no arguments for  There was valid of tender of Issue #2
this, he just wants to withdraw payment in the form of manager’s No, Pabugais cannot withdraw the consigned money.
his consigned money) check. Although a manager’s Petitioner’s Arguments Court’s Rebuttals
check is generally not legal  Pabugais contends he can still  See Art. 1260
tender, the creditor can choose to withdraw the consigned money  Pabugais did not manifest
refuse or accept it. Sahijwani did because at the time of the intention to comply with
not object to the check as to form, withdrawal: agreement by delivering the
hence the manager’s check as  (1) The CA has yet to rule on the necessary documents and the lot;
form is valid. consignation’s validity, and to allow him to withdraw the
 Respondent Sahijwani’s  (2) Sahijwani had yet to accept consigned money would be unjust
contention that the amount was the consigned money. enrichment to the prejudice of
insufficient does not stand Sahijwani.
because under the Agreement
And Undertaking, the parties Overall Ruling
agreed upon only the 18% annual
interest, not on the additional 3% The amount consigned with the trial court can no longer be withdrawn by
monthly interest and 25% atty’s petitioner because respondent's prayer (in his answer) that the amount
fees. The amount of P672,900 is consigned be awarded to him is equivalent to an acceptance of the
sufficient. consignation, which has the effect of extinguishing petitioner's obligation.
Overall Ruling
Sahijwani accepted the valid consignation. Art. 1260 provides that the
Pabugais met all the requisites of consignation, namely: debtor may withdraw the sum or thing deposited before the creditor accepts
1. that there is a debt due it, or before judicial confirmation of such consignation.
2. that he, as debtor, tendered payment to Sahijwani, the creditor, who

CONSIGNATION
authorities whenever the creditor cannot accept or refuses to accept payment. It
generally requires a prior tender of payment.
REQUISITES OF CONSIGNATION
1. debt due
2. creditor to whom tender of payment was made but refused to accept it
3. previous notice of the consignation
4. amount due placed at the disposal of the court
5. post-consignation notice to person interested.

Once the consignation has been duly made, the debtor may ask the judge to
order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
confirmation that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain
in force.
VI. Disposition
WHEREFORE, in view of all the foregoing, the instant petition for review is
DENIED. The January 16, 2003 Amended Decision of the Court of Appeals in CA-
G.R. CV No. 55740, which declared the consignation by the petitioner in favor of
respondent of the amount of P672,900.00 with the Clerk of Court of the Regional
Trial Court of Makati City valid, and which declared petitioner's obligation to
respondent under paragraph 5 of the "Agreement And Undertaking" as having been
extinguished, is AFFIRMED. No costs.
SO ORDERED.
VII. Random Facts

 Ponente: Ynares-Santiago, J.

G.R. No. 137798 | October 4, 2000 Extinguishment of Obligation
Singson vs. Caltex Singson vs. Caltex
I. Recit-ready Summary of the Supervising and Examining Sector of the Central Bank who
Petitioner Singson and Respondent Caltex Philippines Inc. entered a attested that the inflation rate increased abruptly during the period
contract of lease for a parcel of land in Quezon City to be used as a gasoline 1982 to 1985, caused mainly by the devaluation of the peso and
station. The contract stipulated that such lease is to last for 20 years and that also presented certification of the official inflation rates from 1966
a monthly rental of P3,5000 is to be paid for the first 10 years, and a to 1986 prepared by the National Economic Development
monthly rental of P4,2000 for the remaining 10 years. Five years before the Authority ("NEDA") based on consumer price index,
expiration of the contract of ease, petitioner Singson requested an which reflected that at the time the parties entered into the subject
adjustment on the price of the original rental fees due to extraordinary contract, the inflation rate was only 2.06%; then, it soared to
inflations that the country was facing. Respondent Caltex refused and
34.51% in 1974, and in 1984, reached a high of 50.34%.
alleged that it was clear in their contract of lease that such amount stipulated
5. Respondent Caltex refused and alleged that it was clear in their
thereon was the maximum amount to be paid by the Caltex. Petitioner filed
contract of lease that such amount stipulated thereon was the
a complaint to adjust said rental fees, invoking Art. 2150. The issue in this
maximum amount to be paid by the Caltex.
case is whether or not an adjustment to the rental fees may be allowed due
6. Petitioner filed a complaint to adjust said rental fees, invoking Art.
to extraordinary inflation. The Court held that Petitioner did not
1250.
significantly prove that there was an extraordinary inflation within the
country, the Court merely ruled that such inflation being experienced in the
III. Issue/s
country is not an extraordinary inflation but that of a simple universal trend
that has not spared our country. Whether or not an adjustment to the rental fees may be
allowed due to extraordinary inflation. NO.
II. Facts of the Case (Material Facts) IV. Holding/s
1. Petitioner Singson and Respondent Caltex Philippines Inc. entered
a contract of lease for a parcel of land in Quezon City to be used as Issue
a gasoline station. NO. There may be no adjustment to the rental fees as there
2. The contract stipulated that such lease is to last for 20 years and was no proof of an extraordinary inflation in the country.
that a monthly rental of P3,5000 is to be paid for the first 10 years,
and a monthly rental of P4,2000 for the remaining 10 years. Petitioner's Argument Court’s Rebuttal
3. Five years before the expiration of the contract of ease, petitioner
Singson requested an adjustment on the price of the original rental Singson alleges that there has been Singson failed to provide sufficient
fees due to extraordinary inflations that the country was facing. extraordinary inflation within the proof to prove that there was
4. Singson alleges that there has been extraordinary inflation within country, presenting witness Mr. extraordinary inflation in the
the country, presenting witness Mr. Narciso Uy, Assistant Director Narciso Uy, Assistant Director of country, this is a mere universal
the Supervising and Examining
1
G.R. No. 137798 | October 4, 2000 Extinguishment of Obligation
Singson vs. Caltex Singson vs. Caltex
Sector of the Central Bank and trend. The Court further noted that, “Article 1250 was inserted in the Civil
certification of the official inflation Code of 1950 to abate the uncertainty and confusion that affected
rates from 1966 to 1986 prepared contracts entered into or payments made during World War II, and to
by the National Economic help provide a just solution to future cases. 10 The Court has, in more
Development Authority ("NEDA") than one occasion, been asked to interpret the provisions of Article 1250,
based on consumer price index, and to expound on the scope and limits of "extraordinary inflation."
which reflected that at the time the
parties entered into the subject Since Singson failed to prove such, she cannot invoke Art. 1250 of the
contract, the inflation rate was only Civil Code to increase or adjust rent prices within their contract of lease.
2.06%; then, it soared to 34.51% in
1974, and in 1984, reached a high
of 50.34%.
Overall Ruling Article 1250.
The Court held that there was no extraordinary inflation within the In case an extraordinary inflation or deflation of the currency stipulated
country, this was merely a universal trend that also affected the country. should supervene, the value of the currency at the time of the establishment
to the contrary.
“We have held extraordinary inflation to exist when there is a decrease or
increase in the purchasing power of the Philippine currency which is
VI. Disposition
unusual or beyond the common fluctuation in the value of said currency,
and such increase or decrease could not have been reasonably foreseen or WHEREFORE, the petition seeking the reversal of the decision of the Court
was manifestly beyond the contemplation of the parties at the time of the of Appeals in CA-G.R. CV No. 54115 is DENIED.
establishment of the obligation.”
The Court held that there fluctuation of prices is a mere economic trend
and was not considered an extraordinary inflation. The Court also gave VII. Random Facts
no credence to the petitioner’s contention that Benigno Aquino’s ● Ponente: Gonzaga-Reyes, J.
assassination and the martial law affected prices.
2
G.R. No. 72703 | November 13, 1992 Extinguishment of Obligations – Payment/Performance
Caltex, Inc. v IAC Caltex, Inc. v IAC
I. Recit-ready Summary Parties had no intention to limit the amount. IAC also failed to take into
Asia Pacific Airways Inc. entered into agreement with petitioner Caltex, Inc., consideration the subsequent acts of the parties which clearly show that they
whereby petitioner agreed to supply private respondent's aviation fuel did not intend the Deed of Assignment to totally extinguish the obligation
requirements for 2 years. Private respondent had outstanding obligation of
around P4M, representing the unpaid price of the fuel supplied. To settle this, II. Facts of the Case (Material Facts)
private respondent executed a Deed of Assignment wherein it assigned to 1. Asia Pacific Airways Inc. entered into agreement with petitioner Caltex,
petitioner its receivables/refunds of Special Fund Import Payments from the Inc., whereby petitioner agreed to supply private respondent's aviation fuel
National Treasury to be applied as payment of the said amount. Treasury requirements for 2 years, covering the period from Jan 1, 1978 until Dec 31,
Warrant of around P5M was issued by the National Treasury in favor of 1979. Pursuant thereto, petitioner supplied private respondent's fuel supply
petitioner. Private respondent, having learned that the amount remitted to requirements.
petitioner exceeded the amt covered by the Deed of Assignment requested a 2. Private respondent had an outstanding obligation to petitioner in the total
refund of said excess. Petitioner made a refund of P900k plus in favor of amount (amt.) of P4,072,682.13, representing the unpaid price of the fuel
private respondent. Private respondent believing that it was entitled to a larger supplied. To settle this outstanding obligation, private respondent executed a
amt demanded refund of the remaining amt. Petitioner informed private Deed of Assignment wherein it assigned to petitioner its receivables or
respondent that the amt not returned (P500k+) represented interest and service refunds of Special Fund Import Payments from the National Treasury to be
charges at rate of 18% per annum on the unpaid and overdue account of applied as payment of the said amount.
respondent. RTC dismissed complaint. IAC reversed RTC decision and 3. Pursuant to the Deed of Assignment, Treasury Warrant in the amt of
ordered petitioner to return the amount of P500k+ to private respondent. WON P5,475,294.00 representing the refund to respondent of Special Fund Import
there is a valid dation in payment in this case – NO, Deed of Assignment Payment on its fuel purchases was issued by the National Treasury in favor
executed by the parties is not a dation in payment and did not totally of petitioner.
extinguish respondent's obligations as stated therein. 4. Private respondent, having learned that the amt remitted to petitioner
exceeded the amount covered by the Deed of Assignment, wrote a letter to
Dation in payment does not necessarily mean total extinguishment of the petitioner, requesting a refund of said excess.
obligation. The obligation is totally extinguished only when the parties, by 5. Petitioner made a refund in the amt of P900k plus in favor of private
agreement, express or implied, or by their silence, consider the thing as respondent.
equivalent to the obligation. 6. Private respondent believing that it was entitled to a larger amt by way of
refund demanded refund of the remaining amt.
Deed of Assignment mentioned “in payment of ASSIGNOR's outstanding 7. In response, petitioner informed private respondent that the amt not
obligation plus any applicable interest charges on overdue account and returned (P510,550.63) represented interest and service charges at rate of 18%
other avturbo fuel lifting and deliveries that ASSIGNOR may from time to per annum on the unpaid and overdue account of respondent from June 1980
time receive from the ASSIGNEE, and ASSIGNEE does hereby accepts such - July 1981.
assignment in its favor”
1
Obligations and Contracts (2020) PETITIONER: Caltex (Philippines), Inc.
DIGEST AUTHOR: Wisch Gabriel RESPONDENT: THE INTERMEDIATE APPELLATE COURT and ASIA
PACIFIC AIRWAYS, INC.
8. Private respondent filed a complaint against petitioner in RTC to collect Overall Ruling
sum of P510,550.63.00. SC ruled that the Deed of Assignment executed by the parties is not a
9. Petitioner filed answer, reiterating that the amt not returned represented dation in payment and did not totally extinguish respondent's obligations
interest and service charges on the unpaid and overdue account at the rate of as stated therein
18% per annum.
10. RTC rendered decision dismissing the complaint, as well as the Dation in payment does not necessarily mean total extinguishment of the
counterclaim filed by defendant therein. obligation. The obligation is totally extinguished only when the parties,
11. Private respondent appealed to the Intermediate Appellate Court (IAC). by agreement, express or implied, or by their silence, consider the thing
12. IAC reversed the decision of RTC and ordered petitioner to return the as equivalent to the obligation.
amount of P510,550.63 to private respondent.
III. Issue/s Deed of Assignment states:
WON there is a valid dation in payment in this case - NO
IV. Holding/s “That Whereas, ASSIGNOR has an outstanding obligation with
ASSIGNEE in the amount of P4,072,682.13 as of June 30, 1980, plus any
Issue #1 applicable interest on overdue account.
NO, Deed of Assignment executed by the parties is not a dation in
payment and did not totally extinguish respondent's obligations as Now therefore in consideration of the foregoing premises, ASSIGNOR
stated therein. by virtue of these presents, does hereby irrevocably assign and transfer
Petitioner’s Arguments Court’s Rebuttals unto ASSIGNEE any and all funds and/or Refund of Special Fund
IAC erred when it ruled that the 3 • SC ruled that the Deed of Payments, including all its rights and benefits accruing out of the same,
requisites of dacion en pago are all Assignment executed by the that ASSIGNOR might be entitled to in payment of ASSIGNOR's
present in the instant case, and parties is not a dation in payment outstanding obligation plus any applicable interest charges on overdue
concluded that the Deed of and did not totally extinguish account and other avturbo fuel lifting and deliveries that ASSIGNOR may
Assignment constitutes a dacion in from time to time receive from the ASSIGNEE, and ASSIGNEE does
respondent's obligations as stated
payment provided for in Art 1245 hereby accepts such assignment in its favor.”
therein
of the Civil Code which has the
effect of extinguishing the In this case, the Deed of Assignment speaks of 3 obligations — (1)
obligation, thus supporting the outstanding obligation of P4,072,682.13; (2) applicable interest charges
claim of private respondent for the on overdue accounts; and (3) other avturbo fuel lifting and deliveries that
return of the amount retained by assignor (private respondent) may from time to time receive from
petitioner. assignee (Petitioner).
2
As aptly argued by petitioner, if it were the intention of the parties to VI. Disposition
limit or fix respondent's obligation to P4,072.682.13; they should have so WHEREFORE, the decision of the then Intermediate Appellate Court dated
stated. August 27, 1985 is hereby SET ASIDE, and the November 7, 1983 decision
of the trial court is REINSTATED.
Likewise, IAC failed to take into consideration the subsequent acts of the
parties which clearly show that they did not intend the Deed of SO ORDERED.
Assignment to totally extinguish the obligation — (1) After the execution
of the Deed of Assignment, petitioner continued to charge respondent VII. Random Facts
with interest on its overdue account; and (2) In its letter, respondent • Ponente: Bidin, J.
addressed the requests to petitioner.
In order to judge the intention of the contracting parties, their

contemporaneous and subsequent acts shall be principally considered.
The foregoing subsequent acts of the parties clearly show that they did
not intend the Deed of Assignment to have the effect of totally
extinguishing the obligations of private respondent without payment of
the applicable interest charges on the overdue account.
Finally, the payment of applicable interest charges on overdue account,

separate from the principal obligation was expressly stipulated in the
Deed of Assignment. Law provides that "if the debt produces interest,
payment of the principal shall not be deemed to have been made until the
interests have been covered." (Art. 1253, Civil Code).
Dation in payment does not necessarily mean total extinguishment of the obligation.
The obligation is totally extinguished only when the parties, by agreement, express or
implied, or by their silence, consider the thing as equivalent to the obligation.
Article 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
3
G.R. No. 90676 | June 19, 1991 Payment | Tender of Payment | Consignation | Interest
SIHI v CA SIHI v CA
As for the second issue, Art. 1256 requires that payment be consigned with the
Respondent Spouses Aquino pledged certain shares of stock to petitioner SIHI in court in case there is unjust refusal of a creditor to accept payment in order to
order to secure a loan designated as Agreement X. Prior to the execution of the effect payment. In this case, there was a written tender of payment and unjust
pledge, spouses Aquino signed Agreement Y with SIHI as an accommodation to refusal of SIHI to accept this. However, the Aquinos failed to consign their
and together with the spouses Jose and Marcelina Aquino for the latter's purchase payment with the court. Therefore, the obligation is still efficacious.
of receivables amounting to P375,000.00. When the Aquino’s loan became due,
part of their payment was another loan (Agreement Z) they obtained from SIHI As for the third issue, the respondent spouses Aquino are liable for REGULAR
which was secured by the same pledge in Agreement X. When Agreement Z INTEREST only and not of penalty or compensatory interest. They are not liable
matured, the Aquinos showed tender of payment but such was denied since for the latter as they were not in delay (as they were willing and able to pay the
Agreement Y was still unpaid. The Aquinos were told that their shares of stock loan). However, the obligation was still efficacious due to their failure to consign
will be sold at public auction which prompted them to file a case with the RTC. with the court. Therefore, the principal still accrued regular interest. This is
Fortun of the RTC eventually rendered in favor of the Aquinos ordering SIHI to because it would be unjust for the Aquinos to retain possession and usage of the
release the shares upon payment of respondents' loan without stipulation principal at the expense of SIHI.
of interest since they were not in delay. However, there became confusion on
what amount the Aquinos should pay to release the shares of stock. A new
decision by Judge Tirona clarifying the previous decision ordered that the shares II. Facts of the Case (Material Facts)
be released “without interest, penalties and other charges.” SIHI ended up
elevating this case to the SC 1. Respondent spouses Rafael and Refugio Aquino pledged certain shares of stock
to petitioner SIHI in order to secure a loan of P120,000.00 designated as Account
The issues are: No. IF 82-0631-AA.
1. Whether or not the clarificatory order could be made despite the 2. Prior to the execution of the pledge, spouses Aquino, signed an agreement
judgement being final and executory – YES (Account No. IF-82-1375AA) with petitioner SIHI for the latter's purchase of
2. Whether or not the obligation was extinguished through payment - NO receivables amounting to P375,000.00, as an accommodation to and together
3. Whether or not the obligation still accrued interest? – YES with the spouses Jose and Marcelina Aquino.
3. When Account No. IF-82-0631-AA fell due, respondent spouses Aquino paid
Regarding the first issue, jurisprudence dictates that, despite a decision being partially with proceeds of another loan which they obtained also from petitioner
final and executory, a clarificatory order may be made in case there is a clerical SIHI designated as Account No. IF-82-0904-AA. This new loan was secured by
error or an ambiguity caused by inadvertent omission. Such error or ambiguity the same pledge agreement for stocks executed for Account No. IF-820631-AA.
may be remedied by referring to the decision of the court or even the pleadings 4. When the new loan matured, SIHI demanded payment to which respondents
filed by the parties. In this case, it can be gleamed from Fortun’s decision that he expressed willingness to pay and requested release of the stocks. Petitioner
ruled in favor of respondent spouses Aquino that they were not in delay due to SIHI denied payment since that the loan which it had extended to the spouses
SIHI’s unjust refusal to accept tender of payment. However, it was ambiguous Jose and Marcelina Aquino (Account No. IF-82-1379-AA) were still unpaid.
from his disposition as to what constituted the price to be paid by the Aquinos 5. A Notice of Notarial Sale stating the shares of stock pledged to SIHI was to be
(what he meant by not including stipulation on interest). Therefore, a clarificatory auctioned off was sent to respondents Aquino. This caused them to file a case
order is allowed.
1
Obligations and Contracts (2020) PETITIONER: STATE INVEST MENT HOUSE, INC.
DIGEST AUTHOR: Capeding RESPONDENT: THE HONORABLE COURT OF APPEALS, HON. JUDGE PERLITA J.
TRIA TIRONA, Presiding Judge of the Regional Trial Court of Quezon City, Branch CII, and
SPS. RAFAEL and REFUGIO AQUINO
SIHI v CA SIHI v CA
before the RTC of QC, alleging that they had been able and willing to pay the IV. Holding/s
same.
6. RTC (presided by Judge Fortun), initially dismissed the complaint. Issue #1
7. Respondent spouses filed a MR to this, praying that SIHI release the shares upon YES. In case of clerical errors or ambiguities caused by inadvertent omissions,
payment of respondents' loan without interest, as they weren’t in delay since this may be done.
they showed tender of payment. SIHI countered that the agreement with Jose
and Marcelina Aquino be paid off first. Procedural Question Court’s Rebuttals
8. Fortun rendered a new judgement in favor of the Aquino’s MR ordering SIHI to
release the pledge and deliver the share of stock "upon payment of the loan under ● Could there be a clarificatory order ● The dispositive portion of the
Code No. 82-0904-AA" without any stipulation on interest. on a judgement that has become final judgment may contain an error clearly
9. On appeal, the Court of Appeals affirmed the new decision of the trial court and executory? clerical in nature or an ambiguity
holding that Account No. IF-82-1375AA was not covered since the pledge only arising from inadvertent omission,
covered loans made subsequent to it. which error may be fixed or ambiguity
10. Upon remand of records for execution, there developed disagreement regarding clarified and the omission supplied by
what respondent spouses Aquino should pay to secure the release of the shares reference primarily to the body of the
of stock with SIHI contending that it should include interest. decision itself. (Reinsurance
11. Respondent spouses then filed a motion with the trial court to clarify Company of the Orient, Inc. v. Court
the Fortun decision. of Appeals)
12. The trial court (this time through Judge Tirona) clarified the decision of ● The court may resort to the pleadings
Judge Fortun and ruled that petitioner SIHI shall release respondents' shares of filed by the parties, the court's findings
stock upon payment by respondents of the principal in PN No. 82-0904-AA in of facts and conclusions of law as
the amount of P110,000.00, “without interest, penalties and other charges”. expressed in the body of the decision.
13. Petitioner SIHI appealed Judge Tirona's decision to the CA which was dismissed. (Filipino Legion Corporation vs.
The CA agreed with Judge Tirona that no interest should be paid and added that Court of Appeals)
the clarificatory (Tirona) decision of the trial court merely restated what had been
provided for in the earlier (Fortun) decision; that Tirona’s decision did
not go beyond what had been adjudged in the earlier decision. The motion for
reconsideration filed by petitioner was then denied.
14. Hence, this Petition for Review elevated to the SC
III. Issue/s
4. Whether or not a clarificatory order could be made despite the

judgement being final and executory – YES
5. Whether or not the obligation was extinguished through payment - NO
6. Whether or not the obligation still accrued interest? – YES
2
SIHI v CA SIHI v CA
The question that should be asked is if there is an ambiguity or clerical error or According to Art. 1256, when the creditor unjustly refuses to accept payment, the
inadvertent omission in the dispositive portion of the decision of Judge Fortun which debtor wanting to be released from the obligation must comply with two (2)
can be inferred from the body of his decision. In this case, it was evident that Judge conditions: (a) tender of payment; and (b) consignation of the sum due. Tender of
Fortun ruled in favor of spouses Aquino and accepted respondent spouses' argument payment must be accompanied or followed by consignation in order that the effects of
that they weren’t in delay due to unjust refusal of SIHI to accept payment. payment (such as stopping accrual of interest) may be produced.
However, it isn’t clear to what precise extent Judge Fortun meant to grant the MR. In the instant case, although respondent spouses Aquino gave a written tender of
The promissory note in Account No. IF82-0904-AA had three components: (a) payment to SIHI. They failed to consign in court the amount due at the time of the
principal of the loan; (b) regular interest 17% per annum; and (c) additional or penalty maturity of Account No. IF-820904-AA. The obligation is therefore still efficacious.
interest at 24% per annum. In the dispositive part of his resolution, Judge Fortun did
not specify which of these components of the loan he was ordering respondent spouses
to pay and which component or components he was intended to exclude.
Issue # 3
The Fortun decision was ambiguous and therefore clarifications must be done to YES. Since the obligation was still efficacious, REGULAR INTEREST still
supply what Fortun intended with accordiance with the law. accrued.
Petitioners Arguments Court’s Ruling

Issue #3
NO. Tender of payment of debtor and unjust refusal of the creditor are not
enough, the payment must be consigned with the court. ● SIHI contends that respondents ● While the Aquinos are released from
should also pay interest along with paying penalty or compensatory
the principal amount interest, they are still liable for
Respondents Arguments Court’s Rebuttals to Respondent REGULAR INTEREST.
● Since they failed to consign payment
• The Aquinos’ willingness to pay and • In case there is unjust refusal of the
with the court (see previous issue), it
SIHI’s unjust refusal to pay creditor to accept tender of payment
follows that their obligation to pay
extinguished their obligation. from the debtor, the debtor must
principal with regular or monetary
consign payment with the court to
interest under the terms and conditions
effect payment.
of Account No. IF-82-0904-AA
was not extinguished by their written
tender of payment alone.
● Even if they were not in delay, it
would be unjust enrichment on the
part of the Aquinos to continue
possession of the principal amount
3
SIHI v CA SIHI v CA
and its usage at the expense of SIHI. It (3) When demand would be useless, as when the obligor has rendered it beyond his
is precisely this which Article 1256 power to perform.
prevents by requiring. The In reciprocal obligations, neither party incurs in delay if the other does not comply or
consignation in court which would is not ready to comply in a proper manner with what is incumbent upon him. From the
then be deposited by the Clerk of moment one of the parties fulfills his obligation, delay by the other begins.
Court in a bank and earn interest to
which the creditor would be entitled.
Civil Code, Article 2209. ". . . [i]f the obligation consists in the payment of a sum of
Overall Ruling money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
In case of refusal of the creditor to accept tender of payment, it is incumbent for the absence of stipulation, the legal interest, which is six per cent per annum."
debtor to consign the payment with the court. Without proof of consignation in the
court, interest on the principal amount of the obligation continues to accrue. Civil Code, Article 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from responsibility
The fact that respondents Aquino weren’t in delay didn’t mean that they were relieved by the consignation of the thing or sum due.
of their obligation to pay regular interest. Since the Aquinos did not consign payment Consignation alone shall produce the same effect in the following cases:
with the court, the obligation was still existing and made them liable for interest. (1) When the creditor is absent or unknown, or does not appear at the place of payment
The regular or monetary interest continued to accrue under the terms of the promissory (2) When he is incapacitated to receive the payment at the time it is due;
note until actual payment is made. They are only relieved of paying penalty or (3) When, without just cause, he refuses to give a receipt;
compensatory interest (4) When two or more persons claim the same right to collect;
VI. Disposition
WHEREFORE, the Petition for Review is hereby GRANTED DUE COURSE.
(The case repeatedly mentions Art. 69 but it talks about in conjuction delay, so they The Decision of the Court of Appeals dated 30 August 1989 in C.A.-G.R. No.
actually mean 1169) 17954 and the Decision of the Regional Trial Court dated 17 February 1989 in
ARTICLE 1169. Those obliged to deliver or to do something incur in delay from the Civil Case No. Q-42188 are hereby REVERSED and SET ASIDE. The
time the obligee judicially or extrajudicially demands from them the fulfillment of dispositive portion of the decision of Judge Fortun is hereby clarified so as to
their obligation. read as follows:
However, the demand by the creditor shall not be necessary in order that delay may
exist: "(1) Ordering defendants to immediately release the pledge and to deliver to the
(1) When the obligation or the law expressly so declare; or plaintiff spouses Rafael and Refugio Aquino the shares of stock enumerated and
(2) When from the nature and the circumstances of the obligation it appears that the described in paragraph 4 of said spouses' complaint dated 17 July 1984, upon
designation of the time when the thing is to be delivered or the service is to be rendered full payment of the amount of P110,000.00 plus seventeen percent (17%) per
was a controlling motive for the establishment of the contract; or annum regular interest computed from the time of maturity of the
4
SIHI v CA SIHI v CA
plaintiffs' loan (Account No. IF-82-0904-AA) and until full payment of such
principal and interest to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to the plaintiff
spouses Rafael and Refugio Aquino P10,000.00 as moral damages, P5,000.00
as exemplary damages, P6,000.00 as attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit and making the
preliminary injunction permanent."
SO ORDERED.
5
G.R. No. L-57552 | October 10, 1986 Extinguishment of Obligations: Payment of Obligations
McLaughlin v. CA McLaughlin v. CA
Petitioner McLaughlin and Respondent Flores entered into a contract 1. In February 1977, Luisa McLaughlin and Ramon Flores entered
of conditional sale of real property with the total purchase price of into a contract of conditional sale of real property with the total
P140,000.00. McLaughlin initially filed a complaint for rescission of purchase price of P140,000.00, at an interest rate of 1% per month
contract due to Flores’ failure to pay the balance price on the due date. The until fully paid.
parties, however, entered into a compromise agreement, which provided that 2. As agreed, the said purchase price was payable as follows: (a)
Flores shall pay P50,000.00 upon signing of the agreement, and the balance P26,550.00 upon execution of the deed, and (b) the balance of
of P69,059.71 in two equal installments on June 30 and December 31, 1980. P113,450 must be paid not later than May 31,1977.
Flores also agreed to pay P1,000.00 monthly rental for the use of the subject 3. McLaughlin filed a complaint for rescission of the deed due to
property, until the obligation is duly paid. Flores’ failure to pay the balance due on the said date.
4. In December 1979, the parties entered into a compromise
Flores delayed in his payment of the installment of the balance; hence, agreement, which provided that Flores shall pay P50,000.00 upon
McLaughlin demanded its full payment. Flores tendered certified checks, signing of the agreement, and the balance of P69,059.71 in two
covering not only the balance of the purchase price, but also the arrears in equal installments on June 30 and December 31, 1980.
the rental payments from June to December. However, McLaughlin refused 5. Under paragraph 3 of the Compromise Agreement, Flores agreed
to accept the same. Instead, she filed a motion for a writ of execution, which to pay P1,000.00 monthly rental beginning December, 1979 until
the trial court granted. The CA, however, set aside the said order. the obligation is duly paid, for the use of the property subject
The SC agrees with the CA, ruling that the tender of checks made by matter of the deed of conditional sale.
Flores was indeed a valid tender of payment. However, Flores is still liable 6. In October 1980, McLaughlin demanded the full payment of the
for the payment of said obligation because he did not deposit the amount balance of P69,059.71 on or before the end of the same month.
due with the court. 7. On November 3 1980, Flores tendered payment to McLaughlin but
the latter refused to accept the same.
8. The said payment was through a certified check, covering not only
the balance of the purchase price in the amount of P69,059.71, but
also the arrears in the rental payments from June to December,
1980 in the amount of P7,000.00, or a total of P76,059.71.
9. McLaughlin filed a Motion for Writ of Execution, alleging that
Flores failed to pay the installment due on June 1980, and that
since the same month, he had failed to pay the monthly rental of
P1,000.00.
1
Obligations and Contracts (2020) PETITIONER: Luisa McLaughlin
DIGEST AUTHOR: Regina Alzaga RESPONDENTS: CA, Ramon Flores

10. The trial court granted the motion for writ of execution. expiration of the grace period,
11. The CA nullified and set aside the disputed order of the trial court. the seller may cancel the
12. Hence, the present petition. contract after thirty days from
receipt by the buyer of the
notice of the cancellation or the
demand for rescission of the
III. Issue/s contract by a notarial act.”
1. W/N Flores failed in its obligation to pay the subject amount Overall Ruling
which warrants for the rescission of the subject contract – NO.
The tender made by respondent Flores of a certified bank manager was a
valid tender of payment, and was made within the grace period.
According to Article 1256 of the Civil Code of the Philippines, if the

IV. Holding/s creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the
Issue #1 consignation of the thing or sum due, and that consignation alone shall
NO, the certified check tendered by Flores was a valid tender of produce the same effect in the five cases enumerated therein.
payment. Hence, the contract may not be rescinded. However, although respondent Flores had preserved his rights as a
Petitioner/Trial Court’s Court’s Rebuttals vendee in the subject contract by a timely valid tender of payment
Arguments although not accepted, he remains liable for the payment of his
● The same law also provides obligation because of his failure to deposit the amount due with the court.
● McLaughlin as the vendor has that, “In case where less than
a right to cancel the contract to two years of installments were
sell upon breach and paid, the seller shall give the
non-payment of the stipulated buyer a grace period of not less
installments, as recognized by than sixty days from the date the
RA 6552 (Maceda Law) installment became due. If the
buyer fails to pay the
installments due at the
2


VII. Random Facts
ART. 1231. Obligations are extinguished:
(1) By payment or performace; ● Ponente: Feria, Actg. C.J.
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
VI. Disposition
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

the following modifications:
(a) Petitioner is ordered to accept from private respondent the Metrobank

Cashier's Check No. CC 004233 in her favor in the amount of P76,059.71 or
another certified check of a reputable bank drawn in her favor in the same
amount;
(b) Private respondent is ordered to pay petitioner, within sixty (60) days
from the finality of this decision, the rentals in arrears of P1,000.00 a month
from January 1, 1981 until full payment thereof; and
(c) Petitioner is ordered to execute a deed of absolute sale in favor of private

respondent over the real property in question upon full payment of the
amounts as provided in paragraphs (a) and (b) above. No costs.
3

G.R. No. L-45510 || May 27, 1986 Payment or Performance (Consignation)
O190 - Legaspi v CA O190 - Legaspi v CA
I. Recit-ready Summary extension of one year to repurchase the two parcels of land, which
Bernardo Legaspi (petitioner) sold two parcels of land to Leonardo respondent refused.
Salcedo (respondent) for P25,000.00 with the right to repurchase the same 3. Petitioner filed a complaint with the Court of First Instance of
within 5 years. Petitioner tendered the sum P25,000.00 for the repurchase Cavite for reconveyance to enforce his right to repurchase two
but private respondent refused without justifiable or legal cause. Petitioner parcels of land.
then deposited in the Office of the Clerk of First Instance of Cavite City the 4. Trial Court rendered a decision in favor of petitioner who retains
amount of P25,125.00. Private respondent denies any tender of payment ownership of the two lots by automatic operation of law when
made and compromise proposed by the petitioner and claimed that petitioner
payment of the obligation has been effected by depositing the
is no longer entitled to repurchase the properties. The trial court rendered a
decision in favor of petitioner who retains ownership of the two lots by whole amount with the Clerk of Court in spite of the refusal to
automatic operation of law when payment of the obligation has been receive the same.
effected, however the Court of Appeals reversed the decision and dismissed 5. Court of Appeals reversed the decision and dismissed the
the complaint holding that the appellee never made a valid tender of complaint holding that the appellee never made a valid tender of
payment that amount to lawful exercise of the right to repurchase the payment that amount to lawful exercise of the right to repurchase
property nor was a valid consignation made seasonably in court. Hence, this the property nor was a valid consignation made seasonably in
petition by certiorari. The issue to be resolved is whether or not there was a court.
valid tender of payment made and that the respondent court erred in ruling 6. Hence, this appeal by certiorari. Petitioners assails the conclusion
that there wasn’t. The Court reversed the CA ruling. Records show that the of the CA that "no valid consignation was seasonably made of the
right of repurchase was seasonably exercised. The records clearly manifest amount of P25,000.00 with which to make the repurchase" despite
that the petitioner was able to make a valid tender of payment on the 14th of the Official Receipt of the Clerk of Court evidencing the deposit of
October 1970 by offering personally the amount of P25,000.00.
said amount on the last day of the repurchase period, that is, on
October 15, 1970.
7. The issue is whether the petitioner validly exercised his right to
1. Petitioner sold two parcels of land to his son-in-law, Leonardo B.
repurchase the properties within the five-year period as
Salcedo, on October 15, 1965 for the sum of P25,000.00 with the stipulated in the sale with pacto de retro entered into between the
right to repurchase the same within five years from the execution petitioner as vendor a retro and private respondent as vendee a
of the deed of sale; that before the expiry date of the repurchase retro. This issue is resolved through answering whether or not there
period which was on October 15, 1970, Legaspi offered and was a valid tender of payment made.
tendered to Salcedo the sum of P25,000.00 for the repurchase of
the two parcels of land; that the tender of payment was refused by III. Issue/s
Salcedo without justifiable or legal cause; that Salcedo refused to 1. W/N the tender of payment was valid, and amounted to a
convey the properties to Legaspi as requested by the latter; that on lawful exercise of the right to repurchase? NO.
October 15, 1970, Legaspi deposited in the Office of the Clerk of
Court of First Instance of Cavite City the amount of P25,125.00.
2. Private respondent denied that there was ever an offer made to him
by petitioner. Respondent also alleges that petitioner asked for an IV. Holding/s
Obligations and Contracts (2020) PETITIONER: Bernardo B. Legaspi 1

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Court of Appeals and Leonardo B. Salcedo
Overall Ruling
Issue #1 The Court ruled that it was erroneous on the part of the respondent
No, the respondent court erred when they disturbed the findings of fact court to reverse the factual finding of the trial court that a valid tender of
and reversed the ruling made by the trial court and held that there was payment was made seasonably. The records do not show that this finding is
no tender of payment made by the petitioner. grounded entirely on speculation, surmises, or conjectures.
Records show that the right of repurchase was seasonably exercised.
Petitioner’s Arguments Court’s Rebuttals The records clearly manifest that the petitioner was able to make a valid
• Respondent court departed from • The discrepancy regarding the tender of payment on the 14th of October 1970 by offering personally the
the accepted and usual course of time the consignation was made amount of P25,000.00 to the private respondent who refused to accept it
judicial proceedings contrary to is not substantial. It’s plausible claiming that the money was devalued. Thereafter, the petitioner informed
the well-settled rule that as to the exact time cannot be the private respondent that he would be depositing the same amount with the
the matter of credibility of recalled. There is no proper court. (tsn., pp. 6 & 9, February 8, 1972 hearing).
witnesses, the appellate court discrepancy in the date that It has been held that consignation is NOT REQUIRED to preserve the
cannot substitute its own consignation was effected. right of repurchase as a mere tender of payment is enough if made on time
discretion with that of the lower Moreover, there is an official as a basis for an action to compel the vendee a retro to sell the property.
court for the latter court is in a receipt evidencing the
better position to gauge such transaction.
credibility of witnesses • The case involves the exercise
• Disagrees that there was no of the right to repurchase, a V. Law or Doctrine Applied
ARTICLE 1249, 1257 AND 1258 OF THE CIVIL CODE
valid consignation was showing that petitioner made a ART. 1249. The payment of debts in money shall be made in the currency stipulated,
seasonably made of the amount valid tender of payment is and if it is not possible to deliver such currency, then in the currency which is legal
of P25,000.00 with which to sufficient. The fact that he tender in the Philippines.
make the repurchase" despite deposited the amount of the
the Official Receipt of the Clerk repurchase money with the The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they
of Court evidencing the deposit Clerk of Court was simply an have been cashed, or when through the fault of the creditor they have been
of said amount on the last day additional security for the impaired.
of the repurchase period, that is, petitioner. It was not an
on October 15, 1970. essential act that had to be In the meantime, the action derived from the original obligation shall be held in
performed after tender of abeyance.
payment was refused by the
private respondent although it
may serve to indicate the
veracity of the desire to comply
with the obligation.

Art. 1257. In order that the consignation of the thing due may release the obligor, it Consignation alone shall produce the same effect in the following cases
must first be announced to the persons interested in the fulfillment of the obligation. (Art. 1256):
(1) When the creditor is absent or unknown, or does not appear at
The consignation shall be ineffectual if it is not made strictly in consonance with the the place of payment;
provisions which regulate payment."
(2) When he is incapacitated to receive the payment at the time it is
ART. 1258. due;
Consignation shall be made by depositing the things due at the disposal of judicial (3) When, without just cause, he refuses to give a receipt;
authority, before whom the tender of payment shall be proved, in a proper case, and (4) When two or more persons claim the same right to collect;
the announcement of the consignation in other cases. (5) When the title of the obligation has been lost.
The consignation having been made, the interested parties shall also be notified Requirements:
thereof." (1) that there was a debt due;
(2) that the consignation of the obligation had been made because
VI. Disposition the creditor to whom tender of payment was made refused to
WHEREFORE, the decision of the former Court of Appeals is hereby accept it, or because he was absent or incapacitated, or because
REVERSED and SET ASIDE. The decision of the Court of First Instance of several persons claimed to be entitled to receive the amount due
Cavite, 7th Judicial District, Branch III is REINSTATED but MODIFIED (Art. 1176, Civil Code);
by the deletion of the award of P20,000.00 for moral, punitive, exemplary (3) that previous notice of the consignation had been given to the
and corrective damages. In all other respects, the trial court's decision is person interested in the performance of the obligation (Art. 1177,
AFFIRMED. No costs. Civil Code);
(4) that the amount due was placed at the disposal of the court (Art.
VII. Additional Notes 1178, Civil Code); and
Tender of payment is the manifestation made by the debtor to the creditor (5) that after the consignation had been made the person interested
of his desire to comply with his obligation, with the offer of immediate was notified thereof (Art. 1178, Civil Code). Failure in any of these
performance. (Tolentino, Civil Code of the Philippines, Vol. IV [1985]). requirements is enough ground to render a consignation ineffective.
Generally, it is an act preparatory to consignation as an attempt to make a
private settlement before proceeding to the solemnities of consignation. (8 VII. Random Facts
Manresa 325). Consignation is the act of depositing the thing due with the • Ponente: Gutierrez, J.
court or judicial authorities whenever the creditor cannot accept or refuses
to accept payment and it generally requires a prior tender of payment.
(Limkako v. Teodoro, 74 Phil. 313). In instances where no debt is due and
owing, consignation is not proper.
authorities whenever the creditor cannot accept or refuses to accept payment
and it generally requires a prior tender of payment.

G.R. No. L-56196 | January 7, 1986 Tender of Redemption Price not essential
Hulganza v CA Hulganza v CA
I. Recit-ready Summary 1. W/N it is necessary that the offer to redeem the land sold be
accompanied by a bona fide tender of redemption price or the
Spouses Nicomedez Hulganza and Matilde Collamar sold their property to redemption price be consigned in Court. NO
Basilia Gemarino. A year after, Matilde and her children filed a complaint
to repurchase the property under the provisions of the Public Land Act. The IV. Holding/s
RTC ruled that Matilde has the right of redemption but this was reversed by
the CA saying that the act of merely filing the complaint without Issue #1
consignation of proper amount due within prescribed period was an NO, a bona fide tender of redemption price or the consignation of
ineffective and incomplete redemption. The issue in this case is whether or redemption price in Court is not necessary.
not it is necessary that the offer to redeem the land sold be accompanied by Respondent’s Arguments Court’s Rebuttals
a bona fide tender of redemption price or the redemption price be consigned ● Act of merely filing the ● The Right of Redemption is
in Court. The Court said no. The Right of Redemption is exercised by filing complaint without consignation exercised by filing a judicial
a judicial action within the period of redemption. The formal offer to in Court of the redemption price action within the period of
redeem, accompanied by a bona fide tender of redemption price might be within prescribed period was an redemption. The formal offer to
proper but it is not essential. ineffective and incomplete redeem, accompanied by a bona
redemption. fide tender of redemption price
II. Facts of the Case (Material Facts) might be proper but it is not
1. Spouses Nicomedez Hulganza and Matilde Collamar sold their essential.
property to Basilia Gemarino.
2. A year after, Matilde and her children filed a complaint to
repurchase the property under the provisions of Section 119 of
Public Land Act 141.
3. The RTC ruled that Matilde has the right of redemption.
4. This was reversed by the CA saying that Matilde failed to consign
the amount due within the redemption period. The CA said that the
act of merely filing the complaint without consignation of proper
amount due within prescribed period was an ineffective and
incomplete redemption.
III. Issue/s
1
Obligations and Contracts (2020) PETITIONER: Matilde Collamar, Restituta, Jesus and Joel, all surnamed
Hulganza
DIGEST AUTHOR: Myna RESPONDENT: The Honorable Court of Appeals and Basilia Gemarino
G.R. No. L-56196 | January 7, 1986 Tender of Redemption Price not essential
Hulganza v CA Hulganza v CA
Overall Ruling The consignation shall be ineffectual if it is not made strictly in consonance
with the provisions which regulate payment.
The formal offer to redeem, accompanied by a bona fide tender of the
redemption price, within the period of redemption prescribed by law, is only Article 1258 of the Civil Code
essential to preserve the right of redemption for future enforcement beyond
Consignation shall be made by depositing the things due at the disposal of
such period of redemption and within the period prescribed for the action by
judicial authority, before whom the tender of payment shall be proved, in a
the statute of limitations. Where, as in the instant case, the right to redeem is
proper case, and the announcement of the consignation in other cases.
exercised thru the filing of judicial action within the period of redemption
prescribed by the law, the formal offer to redeem, accompanied by a bona
The consignation having been made, the interested parties shall also be
fide tender of the redemption price, night be proper, but is is not essential.
notified thereof.
The filing of the action itself, within the period of redemption, is equivalent
to a formal offer to redeem. VI. Disposition
PREMISES CONSIDERED, the assailed decision of the Court of Appeals

is hereby REVERSED and SET ASIDE and the decision of the trial court
dated February 25, 1975 is hereby AFFIRMED or REINSTATED.
Section 119 of Public Land Act 141 (Right of Redemption)
VII. Random Facts
● Ponente: Paras, J.
Every conveyance of land acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant, his
widow, or legal heirs, within the period of five years from the date of the
conveyance, regardless of its nature.
In order that the consignation of the thing due may release the obligor, it
must first be announced to the persons interested in the fulfillment of the
obligation.
2
Obligations and Contracts (2020) PETITIONER: Matilde Collamar, Restituta, Jesus and Joel, all surnamed
Hulganza
DIGEST AUTHOR: Myna RESPONDENT: The Honorable Court of Appeals and Basilia Gemarino
G.R. No. L-52326 |Feb 12, 1986 Payment or Performance
Valdellon v. Tengco Spounses Bonrostro v. Spouses Luna
Basically, Geraldez is the new owner of a plot of land that Facts of the Case (Material Facts)
Valdellon’s house is in, and Geraldez wants Valdellon gone so Geraldez can 1. Sometime in 1965, Original owner of the lot had an oral agreement
build a building on his land. Geraldez told Valdellon that he would have to with Valdellon, in which Valdellon would pay monthly rentals, and
pay 200 pesos a month until he vacates the land. Valdellon refused to he could build a house on the owner's land.
vacate, which caused an ejectment suit which Geraldez won. Meanwhile, the 2. In 1968, Geraldez bought the land, and notified Valdellon to
case was elevated to SC and while that was happening, Valdellon was remove his house as Geraldez was gonna build a 3 storey building.
paying the monthly rentals to the CA. But since the SC dismissed the 3. They also demanded the payment of P 200.00 a month from
petition and the CA’s decision was final, Geraldez wrote a letter in Feb 1979 August 15, 1968 until Valdellon shall have actually vacated the
to Valdellon asking him to direct the monthly rentals directly to him in his land.
residence instead. Valdellon was being stubborn and he still kept paying to
4. Valdellon refused to vacate the premises and this compelled
the CA which is why now, Geraldez is trying to get him ejected again.
Geraldez to file the first ejectment case on September 28, 1968.
The issue now is whether the monthly rentals paid to the CA can be
5. Courts decided in favor of Geraldez, and Valdellon was compelled
considered as valid consignation as required and contemplated by law?
NO. Under Art. 1257 of our Civil Code, in order that consignation of to pay 200 pesos a month in rentals from July 1968.
the thing due may release the obligor, it must first be announced to the 6. The case was raised to the SC but it was dismissed, while that was
persons interested in the fulfillment of the obligation. The consignation shall happening Valdellon was paying his monthly rentals to the Court
be ineffectual if it is not made strictly in consonance with the provisions of Appeals.
which regulate payment. In said Article 1258, it is further stated that the 7. By reason of the finality of the decision of the Court of Appeals
consignation having been made, the interested party shall also be notified and the remand of the record of the case to the SC, Geraldez wrote
thereof. The CA was no longer the proper place to be making the monthly in February 1979 a letter to Valdellon requesting that the monthly
payments to, and Valdellon was completely aware of this fact as he had rentals starting March, 1979 be paid to them directly at their
received the letter from Geraldez. Plus there was no notification to Geraldez. residence.
The insistence of petitioner to continue making the belated deposit of his 8. BUT, in March 1979, Valdellon still paid to the CA. On June 11,
arrears in rentals in the Court of Appeals was not only unjustified. Batas 1979, plaintiffs wrote another letter demanding payment of all
Pambansa Blg. 25, specifically directs, which is that notice of the deposit so accrued rentals and to vacate the premises within ten days from
made should thereafter be given to the person in whose favor such deposits notice, otherwise, an ejectment suit will be filed.
are made. Petitioner can, therefore, obtain no gain from such improper
9. The next day, Valdellon’s son offered to pay the missing 3 months
deposits made by him. His stubbornness in making said deposits, belated as
rental, but Geraldez refused to accept it as apparently Valdellon
these already are, and contrary to the proper advise received by him from
paid to the CA again.
the private respondents, is illustrative of petitioner's apparent bad faith.
1
Obligations and Contracts (2020) PETITIONER: Lorenzo Valdellon
DIGEST AUTHOR: Sean Lee RESPONDENT: HON. TENGCO, AMBROSIO M. GERALDEZ and HERMINIA Y.
GERALDEZ
10. So then Geraldez filed another ejectment suit to the City Court. Overall Ruling
City Court ruled in favor of Geraldez and the case was elevated to
the SC. Under Art. 1257 of our Civil Code, in order that consignation of the thing
II. Issue/s due may release the obligor, it must first be announced to the persons
1. Whether the monthly rentals paid to the CA can be considered interested in the fulfillment of the obligation. The consignation shall be
as valid consignation as required and contemplated by law? ineffectual if it is not made strictly in consonance with the provisions which
NO. regulate payment. In said Article 1258, it is further stated that the
III. Holding/s consignation having been made, the interested party shall also be notified
thereof.
Issue #1
YES. Whether the CA correctly modified the RTC Decision with It is pertinent to further consider that the petitioner's deposit made in the
respect to interests? Court of Appeals on June 13, 1979 was for his arrears in rentals for four (4)
Petitioner’s Arguments Court’s Rebuttals months in 1979, and that said appellate court at that time was no longer the
● completely useless ● Valdellon paying to the CA, proper entity which should receive such deposits inasmuch as the case
without notice thereof to the which was appealed to that court (CA-G.R. No. 44536-R) had already been
private respondents and despite long decided by a judgment decreed as final and executory on January 17,
petitioner's receipt of said 1977. As a matter of fact, the case records appears to have been already
respondent's letter of February remanded by the Court of Appeals to the Court of First Instance of Manila
19, 1979, cannot be considered as since September 19, 1978. Patently, the consignation alleged by the
valid consignation as required petitioner under those circumstances would be legally ineffectual.
and contemplated by law.
The claim of petitioner that the deposits he made in the Court of Appeals
were mere continuations of the procedure practised by him for over ten
years can serve him no benefit. Petitioner was undoubtedly aware of the fact
that the case pending between him and respondents in said appellate court
had already been terminated and, therefore, there was no justifiable cause
for him to continue making said deposits in that court as private respondents
had in fact so advised petitioner by letter on February 19, 1970. The
insistence of petitioner to continue making the belated deposit of his arrears
in rentals in the Court of Appeals was not only unjustified. Batas Pambansa
2
GERALDEZ
Blg. 25, specifically directs, which is that notice of the deposit so made
should thereafter be given to the person in whose favor such deposits are V. Disposition
made. Petitioner can, therefore, obtain no gain from such improper deposits
made by him. His stubborness in making said deposits, belated as these WHEREFORE, the petition in this case is hereby dismissed for lack
already are, and contrary to the proper advise received by him from the of merit, with costs against petitioner herein.
private respondents, is illustrative of petitioner's apparent bad faith.
VI. Additional Notes.
VII. Random Facts

● Ponente: MUÑOZ PALMA, J.
●
Art. 1257. In order that the consignation of the thing due may release
the obligor, it must first be announced to the persons interested in the
fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment. (1177)
Art. 1258. Consignation shall be made by depositing the things due at

the disposal of judicial authority, before whom the tender of payment shall
be proved, in a proper case, and the announcement of the consignation in
other cases.
Consignation is the deposit of the proper amount with a judicial

authority in accordance with rules prescribed by law, after the tender of
payment has been refused or because of circumstances which render direct
payment to the creditor impossible or inadvisable."
3
GERALDEZ
G.R. No. 132287 | January 24, 2006 Extinguishment of Obligations: Payment or Performance (Pledge)
Paray v. Rodriguez Paray v. Rodriguez
I. Recit-ready Summary corporation known as the Quirino-Leonor-Rodriguez Realty Inc.,

The respondents were individual owners of shares of stock (aggregate and secured by way of pledge their stocks to Bonifacio & Faustina
total of 4645 shares) in a corporation known as the Quirino-Leonor- Paray (Parays)
Rodriguez Realty Inc. Respondents secured by way of pledge of some of 2. Parays forclosed the pledges because of the respondents’ failure to
their shares of stock to petitioners Bonifacio and Faustina Paray (Parays) the close pay their loans with Cebu RTC while the respondents sought
payment of certain loan obligations. When the Parays attempted to foreclose to nullify the pledge agreements.
the pledges on account of respondents’ failure to pay their loans, 3. RTC, CA, and SC dismissed the complaint and allowed the
respondents filed complaints which sought the declaration of nullity of the
foreclosure and sale at public auction of the pledges (see
pledge agreements. But the RTC, CA, and SC dismissed the complaint and
allowed the foreclosure and sale at public auction of the pledges. Additional Notes3 for the full SC disposition).
When the respondents were notified that their pledged shares were 4. Respondents were notified of the scheduled public auctioning of
to be sold at public auction, they consigned to RTC Clerk of Court by their pledged shares, so they consigned to RTC Clerk of Court,
depositing a total amount of P2,874,195.42, which they interpreted as before the scheduled public auction, by depositing a total amount
redemption. The public auction took place as scheduled, with petitioner of P2,874,195.42, which they interpreted as redemption.
Vidal Espeleta successfully bidding the amount of P6,200,000.00 for all of 5. The public auction commenced and Vidal Espeleta successfully
the pledged shares. This prompted the respondents to file a complaint to bidding the amount of P6,200,000.00 for all the pledged shares.
declare the public auction as nullified. Cebu RTC dismissed the complaint 6. The respondents filed a complaint to declare the auction null and
by saying that the petitioners did not consign payments within a reasonable void, but the Cebu RTC dismissed the complaint arguing that the
period after default and they should have just joined the public auction. CA petitioners did not consign the payments within a reasonable time
reversed the RTC ruling and said that consignation extinguished loan after default and they should have just joined the public auction.
obligations, the auction was null and void for having fault in not selling the 7. CA reversed the RTC ruling and said that consignation
shares individually as they belonged to different pledgors, and respondents’
extinguished loan obligations, the auction was null and void for
attempts of payment were made in the exercise of right of redemption.
The main issue in this case is W/N the petitioners were authorized to having fault in not selling the shares individually as they belonged
refuse the tender of payment by the respondents since they were undertaking to different pledgors, respondents’ attempts of payment were made
the auction sale pursuant to the final and executory decision in the initial in the exercise of right of redemption, and Espeleta does not
civil cases. The SC ruled in favor of petitioners by arguing that the right of become the owner of pledged shares pending lapse of one year
redemption is only applicable to execution sales of real property and not redemptive period.
personally property such as in this case, and the pledged shares was an
extrajudicial sale (notarial sale) which merely upheld the right of the III. Issue/s
petitioners to conduct such sale. Additionally, it is the pledgee and not the 1. W/N right of redemption exists over personal properties like
pledgor who has the right to choose which of the items to be sold. Lastly, the subject pledged shares? NO.
the respondents should have participated in the auction sale and would have 2. W/N the consignations made by the respondents prior to the
better right if their bid matched the terms of the highest bidder. auction sale are sufficient to extinguish the obligations and the
subject pledged contracts and were deemed done in exercise of
1. The respondents were individual owners of shares of stock
their right to redemption? NO
(aggregate total of 4645 shares; see Additional Notes1) in a
Obligations and Contracts (2020) PETITIONER: Sps. Bonifacio & Faustina Paray, Vidal Espeleta 1
DIGEST AUTHOR: Joses RESPONDENT: Rodriguez, Jariol, Nolasco, Generoso, Natividad, Soronio
3. W/N a buyer at a public auction ipso facto becomes owner of the satisfied in due time, is to proceed before a Notary Public to the sale of
pledged share pending the lapse of one-year redemption period? the thing pledged.
YES. In this case, petitioners attempted to proceed extrajudicially with the
4. W/N the various shares of stocks should be individually sold as sale of the pledged shares by public auction. However, extrajudicial sale
they belonged to different pledgors? NO. was stayed with the filing of Civil Cases which sought to annul the
pledge contracts. The final and executory judgment in those cases
IV. Holding/s affirmed the pledge contracts and disposed them. Said judgment did not
direct the sale by public auction of the pledged shares, but instead
Issue #1 upheld the right of the Parays to conduct such sale at their own volition.
NO, right of redemption does not exist over personal properties like
the subject pledged shares.
CA’s Arguments Court’s Rebuttals Issue #2
• The respondents have the right • No law or jurisprudence NO, the consignations made by the respondents prior to the auction
of redemption over the pledged establishes or affirms such sale are not sufficient to extinguish the obligations and the subject
shares right. pledged contracts and were deemed done in exercise of their right to
• The disposition in the first redemption
civil cases already allowed CA’s Arguments Court’s Rebuttals
Parays to conduct the auction • The respondents were • The pledged shares in this case
of the pledged shares but not sufficient to extinguish the are not subject to redemption.
did not direct them to do so, obligations and the pledged Thus, the consigned payments
which can be done contracts since they have the should not be treated with
extrajudicially by proceeding right to redemption. liberality, or somehow construed
before Notary Public as having been made in the
Overall Ruling exercise of the right of
Act No. 3135, and Act No. 1508, or the Chattel Mortgage Law as were redemption.
silent in vesting the right of redemption over personal property. The • The respondents should have
right of redemption as affirmed under Rule 39 of the Rules of Court have participated in the auction
applies only to execution sales, more precisely execution sales of real sale and would have better right
property. if their bid matched the terms of
It must be clarified that the subject sale of pledged shares was an the highest bidder
extrajudicial sale, specifically a notarial sale, as distinguished from a
judicial sale as typified by an execution sale. Under the Civil Code, the Overall Ruling
foreclosure of a pledge occurs extrajudicially, without intervention by There is no doubt that if the principal obligation is satisfied, the
the courts. All the creditor needs to do, if the credit has not been pledges should be terminated as well. The right of the creditor to retain
possession of the pledged item exists only until the debt is paid. The CA’s Arguments Court’s Rebuttals
debtor cannot ask for the return of the thing pledged against the will of • These shares were owned by • No provision in Rules of Court
the creditor, unless and until he has paid the debt and its interest. At several people and selling them or in any law requires that
the same time, the right of the pledgee to foreclose the pledge is also in bulk would deny the pledgors pledged properties sold at
established under the Civil Code. When the credit has not been the opportunity to know exactly auction be sold separately
satisfied in due time, the creditor may proceed with the sale by public how much they would need to
auction under the procedure provided under Article 2112 of the Code. exercise the right of redemption
In order that the consignation could have the effect of extinguishing Overall Ruling
the pledge contracts, such amounts should cover not just the principal Under Article 2119 of the Civil Code, it is the pledgee, and not the pledgor
loans, but also the monthly interests thereon. who is given the right to choose which of the items should be sold if two
In the case at bar, while the amounts consigned by respondents could or more things are pledged.
answer for their respective principal loan obligations, they were not A different ruling would be obtained if at the auction, the bidder expressed
sufficient to cover the interests due on these loans, which were pegged the desire to bid on a portion of the pledged shares. In such, there may lie
at the rate of 5% per month or 60% per annum. the need to ascertain which of the shares are covered by the bid price.
However, in this case, none of the pledgors participated in the auction and
Issue #3 the sole bidder cast his bid for all of the shares.
YES, a buyer at a public auction ipso facto becomes owner of the
pledged share pending the lapse of one-year redemption period
CA’s Arguments Court’s Rebuttals V. Law or Doctrine Applied
• The respondents have the • Right of redemption is not
right of redemption and applicable to personal properties RULE 39 OF RULES OF COURT
Right of redemption applies only to execution sales, more precisely the execution
there must be a lapse of one (in this case the subject pledged sales of real property
year. shares), only real properties.
ART. 2098 OF CIVIL CODE
Overall Ruling The contract of pledge gives a right to the creditor to retain the thing in his
Since there is no right to redeem personal property, the rights of possession or in that of a third person to whom it has been delivered, until the debt is
paid.
ownership vested unto the purchaser at the foreclosure sale are not
entangled in any suspensive condition that is implicit in a redemptive ART. 2105 OF CIVIL CODE
period. The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a
Issue #4 proper case.
NO, the various shares of stocks should not be individually sold.
The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public to the sale of the thing pledged. This sale shall be made at a
public auction, and with notification to the debtor and the owner of the thing pledged
in a proper case, stating the amount for which the public sale is to be held. If at the
first auction the thing is not sold, a second one with the same formalities shall be
held; and if at the second auction there is no sale either, the creditor may appropriate
the thing pledged. In this case he shall be obliged to give an acquittance for his entire
claim.

If two or more things are pledged, the pledgee may choose which he will cause to be
sold, unless there is a stipulation to the contrary. He may demand the sale of only as
many of the things as are necessary for the payment of the debt. • 3Disposition in the first Civil Cases (R-20120 & 20131)
affirming the pledge contracts and disposed them
WHEREFORE, premises considered, judgment is hereby rendered
VI. Disposition
dismissing the complaints at bar, and —
(1) Declaring the various pledges covered in Civil Cases Nos. R-20120
WHEREFORE, the petition is GRANTED. The assailed decision of the and R-20131 valid and effective; and
Court of Appeals is SET ASIDE and the decision of the Cebu City RTC, (2) Giving due course to the foreclosure and sale at public auction of the
Branch 16, dated 18 November 1992 is REINSTATED. Costs against various pledges subject of these two cases.
respondents. SO ORDERED. Costs against the plaintiffs. SO ORDERED.
VII. Additional Notes VII. Random Facts

• 1Pledged shares of the respondents: • Ponente: Tinga, J.
• 2
Amounts deposited by the respondents consigned with the
RTC Clerk of Court:
G.R. No. 90358 | August 19, 1988 Payment or Performance | Article 1260 and Consignation with
Reservations or Qualifications
Riesenbeck v CA Riesenbeck v CA
I. Recit-ready Summary amount of P113,750 which is consigned by plaintiff, provided that the
Risenbeck filed a complaint in the Regional Trial Court of Cebu for present complaint be dismissed outright with cost against plaintiff."
consignation against Maile. He then consigned a check with the Clerk of 4. Judge Risos then issued an order stating that the Clerk of Court deliver
Court for 113, 750 pesos. Maile accepted the consignation without Maile to sum of 113,750 pesos saying that there was a valid consignation.
necessarily admitting the correctness of the obligation of plaintiff to 5. Riesenbeck’s Motion for Reconsideration was denied by Judge Risos,
defendant. Judge Risos, issued an order to deliver the amount to Maile while his petition for certiorari that he filed in the CA was dismissed.
which was assailed by Riesenbeck. Riesenbeck’s Motion to reconsider and III. Issue/s
appeal to the Court of Appeals were denied and dismissed respectively. The 1. W/N Maile’s acceptance of the amount consigned by Riesenbeck with
main issues in raised case whether Maile’s acceptance of the amount reservations and qualifications is legally allowed. (YES)
consigned with reservations is valid and whether Riesenbeck may still 2. W/N Riesenbeck may withdraw the amount he consigned after the
withdraw the amount he consigned even after the lower court declared it lower court had declared the consignment to be valid. (NO)
valid. In the first issue, the Supreme Court ruled that such could be valid IV. Holding/s
based on jurisprudence. It stated that an acceptance of the money consigned, Issue #1
unconditionally and without reservation by the creditor, was a waiver of his Maile’s acceptance of the amount consigned by Riesenbeck with
other claims under the contract. However, when the creditor accepts the reservations and qualifications is legally allowed.
money consigned with conditions and with reservations, then he is not Petitioner’s Arguments Court’s Holding
deemed to have waived the claims he reserved against his debtor and  None  There is legal basis for the
reserved his right to the balance. For the second issue, they Court held that validity of Maile’s acceptance
Riesenbeck can no longer withdraw the amount he consigned because of the amount consigned with
consignation is completed at the time the creditor accepts the same without reservations and qualifications.
objections, or, if he objects, at the time the court declares that it has been
validly made in accordance with law. In this case, since the lower court Overall Ruling
already declared the consignation to be valid, and Maile had already The Court ruled that Maile's acceptance of the amount consigned by
accepted it with reservations, Riesenbeck can no longer withdraw it. Riesenbeck with a reservation or qualification is legally permissible. The
II. Facts of the Case (Material Facts) CA relied on case of Sing Juco vs. Cuaycong to justify the validity of the
1. Riesenbeck filed in the RTC of Cebu a complaint for consignation and consignation and Maile’s acceptance of the amount with a reservation of his
damages against Maile on July 27, 1988. damages and other claims. The Supreme Court ruled in that case that an
2. Two days after, Riesenbeck consigned and deposited a check with the acceptance of the money consigned, unconditionally and without reservation
Clerk of Court in the RTC with a sum of 113,750 pesos. by the creditor, was a waiver of his other claims under the contract.
3. Maile filed a manifestation accepting consignation and motion to dimiss
stating that “without necessarily admitting the correctness of the obligation On the other hand, when the creditor accepts the money consigned with
of plaintiff to defendant, the latter hereby manifests to accept the said conditions and with reservations, then he is not deemed to have waived the
Obligations and Contracts (2020) PETITIONER: Johannes Riesenbeck 1

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Court of Appeals and Juergen Maile
G.R. No. 90358 | August 19, 1988 Payment or Performance | Article 1260 and Consignation with
Reservations or Qualifications
Riesenbeck v CA Riesenbeck v CA
claims he reserved against his debtor. Thus, when the amount consigned money in court, or when it was placed at the disposal of the judicial
does not cover the entire obligation, the creditor may accept it, reserving his authority, In this case, such payment was made on July 27, 1988.
right to the balance.
V. Holding/s VI. Law or Doctrine Applied

Issue #2 Art. 1260
Riesenbeck may not withdraw the amount he consigned after the lower
court had declared the consignment to be valid Once the consignation has been duly made, the debtor may ask the judge to
order the cancellation of the obligation.
 He is still the owner of the  Consignation is completed at Before the creditor has accepted the consignation, or before a judicial
amount consigned and that he the time the creditor accepts declaration that the consignation has been properly made, the debtor
can still withdraw it. the same without objections, may withdraw the thing or the sum deposited, allowing the obligation to
or, if he objects, at the time the remain in force.
court declares that it has been
validly made in accordance Consignation with Reservations and Qualifications
with law.
When the creditor's acceptance of the money consigned is conditional and
Overall Ruling with reservations, he is not deemed to have waived the claims he reserved
The Court ruled that consignation is completed at the time the creditor against his debtor. Thus, when the amount consigned does not cover the
entire obligation, the creditor may accept it, reserving his right to the
accepts the same without objections, or, if he objects, at the time the court
balance.
declares that it has been validly made in accordance with law.
VII. Disposition
In this case, the lower court declared on September 28, 1988 that there was
a valid consignation by the petitioner, Riesenbeck can no longer claim that WHEREFORE, the instant petition is hereby DISMISSED for lack of
he is still the owner of the amount consigned and that he can still withdraw merit.
it.
Further, the court stated that consignation has a retroactive effect. Stating N/A
that payment is deemed to have been made at the time of the deposit of the VII. Random Facts
 Ponente: GRIÑO-AQUINO, J.
Obligations and Contracts (2020) PETITIONER: Johannes Riesenbeck 2

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Court of Appeals and Juergen Maile
G.R. No. L-42230 | April 15, 1988 consignation
Immaculata v. Navarro Immaculata v. Navarro
I. Recit-ready Summary If the creditor to whom tender of payment has been made refuses without
The sale between Immaculata and Navarro was originally executed in Dec. just cause to accept it, the debtor shall be released from responsibility by the
1696 but the deed of conveyance was executed only in Feb. 1974. The offer consignation of the thing or sum due.
to redeem was made in March 1975. This was within the 5- year period of Consignation alone shall produce the same effect in the following cases:
legal redemption allowed by the Public Land Act. The issue here is w/n
petitioner there was a sincere offer to redeem even though there was no (1) When the creditor is absent or unknown, or does not appear at the place
consignation in court? of payment;
The allegation that the offer to redeem was not sincere because there was no (2) When he is incapacitated to receive the payment at the time it is due;
consignation of the amount is devoid of merit. The right to redeem is a (3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
RIGHT, not an obligation. THUS, CONSIGNATION IS NOT REQUIRED.
(5) When the title of the obligation has been lost. (1176a)
.
VI. Disposition
1. The sale between Immaculata and Navarro was originally executed
in Dec. 1696 but the deed of conveyance was executed only in Feb. WHEREFORE, as prayed for by the petitioner Lauro Immaculata
1974. (represented by his wife, Amparo Velasco, as Guardian ad litem) the
2. The offer to redeem was made in March 1975 decision of this Court dated November 26, 1986 is hereby MODIFIED, and
3. This was within the 5- year period of legal redemption allowed by the case is remanded to the court a quo for it to accept payment or
the Public Land Act consignation 2 (in connection with the legal redemption which We are
hereby allowing the petitioner to do) by the herein petitioner of whatever he
III. Issue/s received from respondent at the time the transaction was made
1. W/N PETITIONER THERE WAS A SINCERE OFFER TO
REDEEM EVEN THOUGH THERE WAS NO VII. Additional Notes
VII. Random Facts
CONSIGNATION IN COURT? YES
IV. Holding/s
Overall Ruling
The allegation that the offer to redeem was not sincere because there was no
consignation of the amount is devoid of merit. The right to redeem is a
RIGHT, not an obligation. THUS, CONSIGNATION IS NOT REQUIRED.
Obligations and Contracts (2020) PETITIONER: LAURO IMMACULATA 1

DIGEST AUTHOR: Stephanie Co RESPONDENT: HON. PEDRO C. NAVARRO
G.R. No. 205578 | March 01, 2017 Payment or Performance (Arts. 1232 to 1261)
Osmeña-Jalandoni v. Encomienda Osmeña-Jalandoni v. Encomienda
I. Recit-ready Summary pages in the original – it included payment for her driver, security
Carmen Encomienda (Encomienda) met petitioner Georgia Osmeña- guard, house help, and bills for her cellular phone, cable television,
Jalandoni (Jalandoni) in Cebu as she was purchasing a condo and the latter pager, gasoline, food, and other utilities)
was a real estate broker. They, thereafter, became close friends. Jalandoni, 7. When Jalandoni returned to Cebu she did not inform Encomienda.
two years later, asked to borrow money for her search and rescue mission 8. She was given six weeks to settle her debts.
for her children in Manila, allegedly taken by their father, Luis. Encomienda 9. Despite several demands, no payment was made.
initially gave P100,000 but this ballooned to P3,245,836.02 and $6,638.20 10. In barangay conciliation no settlement was reached.
while she was in Manila. The money was used for living expenses, phone
a. Jalandoni admitted having borrowed the money and was
bills, and salaries of drivers and helpers among many others.
willing to return it here.
When Jalandoni returned to Cebu she did not inform Encomienda and
was then later given six weeks to settle her debts. Despite several demands, b. She said she’d talk to her lawyer but never returned.
no payment was made. Thus Encomienda went to court to for the money 11. Encomienda filed her complaint for the sum of money.
claims. 12. Jalandoni’s Defense
The issue in this case is whether or not Encomienda is entitled to a. There was never a discussion or allusion of a loan.
reimbursement for the amounts defrayed to Jalandoni. The court ruled in the b. Encomienda said she just wanted to help and that it was
affirmative pursuant to the second paragraph of Art. 1236 stating that she NOT a loan
may recover only insofar as the payment was beneficial to the debtor. In this c. Encomienda wanted to fetch her at the airport upon her
case Jaladoni greatly benefited from the alleged charitable payments even if return to Cebu but when she refused Encomienda
they were against her will and without her knowledge. The court, in effect, demanded payment for the initially gratuitous amounts.
dismissed the petition. 13. RTC dismissed Encomienda’s complaint.
14. CA reversed and granted the appeal ordering Jalandoni to pay the
defrayed amounts and attorney’s fees.
1. Carmen Encomienda (Encomienda) met petitioner Georgia
15. Hence this petition.
Osmeña-Jalandoni (Jalandoni) in Cebu as she was purchasing a
condo and the latter was a real estate broker.
III. Issue/s
2. They, thereafter, became close friends.
1. W/N Encomienda is entitled to reimbursement for the amounts
3. Jalandoni, two years later, asked to borrow money for her search
defrayed to Jalandoni? YES.
and rescue mission for her children in Manila, allegedly taken by
their father, Luis.
IV. Holding/s
4. Encomienda initially gave P100,000, which she gave in a sealed
Issue #1
envelope to her security guard.
YES, she is entitled to reimbursement.
5. The amount ballooned in total to P3,245,836.02 and $6,638.20
while she was in Manila. Petitioner’s Arguments Court’s Response to Petitioner
6. The money was used for living expenses, phone bills, and salaries • There was never a discussion or • Giving away millions of pesos is
of drivers and helpers among many others. (The detailed list is 2 allusion of a loan. She never incredible, highly unusual and
Obligations and Contracts (2020) PETITIONER Georgia Osmeña-Jalandoni

DIGEST AUTHOR: King Manalo Respondent: Carmen A. Encomienda
1
G.R. No. 205578 | March 01, 2017 Payment or Performance (Arts. 1232 to 1261)
Osmeña-Jalandoni v. Encomienda Osmeña-Jalandoni v. Encomienda
borrowed any money. It was an contrary to common experience.

act of gratuity. • She was also married to one of the As for the RTC, surely, there can be a verbal loan. Contracts are binding
• Money was given to her richest hacienderos in Iloilo and between the parties, whether oral or written. The law is explicit that
without her prior knowledge didn’t need the money. contracts shall be obligatory in whatever form they may have been entered
and thus she could not have • Second paragraph of Art. 1236 into, provided all the essential requisites for their validity are present. A
consented to the loan simple loan or mutuum exists when a person receives a loan of money or
stating that Encomienda may still
any other fungible thing and acquires its ownership.
recover the money insofar as the
RTC’s Argument payment was beneficial to the Lastlty There is unjust enrichment under Article 22 of the Civil Code when
• Human experience dictates that debtor. (1) a person is unjustly benefited, and (2) such benefit is derived at the
loans prompt written expense of or with damages to another. The principle of unjust enrichment
acknowledgement or a Court’s Response to RTC essentially contemplates payment when there is no duty to pay, and the
promissory note when parting • Handwritten acknowledgement person who receives the payment has no right to receive it. The CA is then
with the money. typically applies to business correct when it ruled that allowing Jalandoni to keep the amounts received
dealings, in this case, however, from Encomienda will certainly cause an unjust enrichment on Jalandoni's
they were close friends. part and to Encomienda's damage and prejudice.
• Principle of Unjust enrichment in
Article 22 also applies in this case V. Law or Doctrine Applied
as Jalandoni would be unjustly ARTICLE 1236 OF THE CIVIL CODE
enriched otherwise.
Overall Ruling – Petition is Unmeritorious debtor, he can recover only insofar as the payment has been beneficial to the
Jalandoni would have the court believe that that Encomienda volunteered to debtor.
spend about P3,245,836.02 and $6,638.20 of her hard-earned money in a
span of eight (8) months for her and her family simply out of pure VI. Disposition
generosity and the kindness of her heart, without expecting anything in WHEREFORE, PREMISES CONSIDERED, the Court DISMISSES the
return. It is also a notable fact that Jalandoni was married to one of the petition for lack of merit and AFFIRMS the Decision of the Court of
richest hacienderos of Iloilo and belong to the privileged and Appeals, Cebu City dated March 29, 2012 and its Resolution dated
affluent Osmeña family. December 19, 2012 in CA-G.R. CV No. 01339, with MODIFICATION as
to the interest which must be twelve percent (12%) per annum of the
It cannot be denied that Jalandoni benefitted from the money. Furthermore, amount awarded from the time of demand on August 14, 1997 to June 30,
when Jalandoni learned about the payments, she did nothing to express her 2013, and six percent (6%) per annum from July 1, 2013 until its full
satisfaction.
objection to or repudiation of the same, within a reasonable time. Even
when she claimed that she was prepared with her own money, she still
VII. Random Facts
accepted the financial assistance and actually made use of it. • Ponente: Gutierrez, Jr., J.
Obligations and Contracts (2020) PETITIONER Georgia Osmeña-Jalandoni

DIGEST AUTHOR: King Manalo Respondent: Carmen A. Encomienda
2
G.R. No. 190755 | November 24, 2010 Art. 1236 – Payment or Performance of Obligation
Land Bank v. Ong Land Bank v. Ong
I. Recit-ready Summary prospective mortgagor, it is therefore clear that par. 2 of Art. 1236 is
Spouses Johnson and Evangeline Sy secured a loan from Land Bank inapplicable. Since Alfredo was not paying for another, he cannot demand
Legazpi branch in the amount of PhP 16 million. The loan was secured by 3 from the debtors, the Spouses Sy, what he has paid. The SC held that not all
residential lots, 5 cargo trucks, and a warehouse. Spouses Sy found they the elements of novation were present. By accepting Alfredo's payment and
could no longer pay their loan so they sold 3 of their mortgaged parcels of keeping silent on the status of Alfredo's application, Land Bank misled
land for PhP 150,000 to Angelina Gloria Ong, Evangeline's mother, under a Alfredo to believe that he had for all intents and purposes stepped into the
Deed of Sale with Assumption of Mortgage. Atty. Edna Hingco, the shoes of the Spouses Sy. Alfredo, having been deemed disqualified from
Legazpi City Land Bank Branch Head, told Alfredo that there was nothing assuming the loan, had no duty to pay and Land Bank had no right to
wrong with the agreement with the Spouses Sy but provided them with receive payment.
requirements for the assumption of mortgage. They were also told that
Alfredo should pay part of the principal which was computed at PhP
II. Issue/s
750,000 and to update due or accrued interests on the promissory notes so
1. W/N the CA erred in holding that Art. 1236 of the Civil Code
that Atty. Hingco could easily approve the assumption of mortgage. Alfredo
does not apply. – NO.
issued a check for PhP 750,000 and personally gave it to Atty. Hingco. Atty.
2. W/N there was novation - NO
Hingco then informed Alfredo that the certificate of title of the Spouses Sy
would be transferred in his name but this never materialized. No notice of
III. Facts of the Case (Material Facts)
transfer was sent to him. Alfredo later found out that his application for
1. On Mar. 18, 1996, spouses Johnson and Evangeline Sy secured a
assumption of mortgage was not approved by Land Bank due to a credit
loan from Land Bank Legazpi City in the amount of PhP 16million.
investigation report which showed that the Ongs had a real estate mortgage
The loan was secured by 3 residential lots, 5 cargo trucks, and a
in the amount of PhP 18,300,000 with another bank that was past due. Land
warehouse.
Bank foreclosed the mortgage of the Spouses Sy after several months.
Thereafter, Alfredo initiated an action for recovery of sum of money with 2. PhP 6 million of the loan would be short-term and would mature on
damages against Land Bank as Alfredo's Php 750,000 payment was not February 28, 1997, while the balance of PhP 10 million would be
returned. payable in 7 years. The Notice of Loan Approval contained an
acceleration clause wherein any default in payment of
The issues are: W/N Art. 1236 applies and W/N there was novation. SC said
amortizations or other charges would accelerate the maturity of the
no for both. The SC, following par. 1 of Art. 1236, held that Land Bank was
loan.
not bound to accept Alfredo's payment, since as far as Land Bank was
concerned, Alfredo did not have an interest in the payment of the loan of the 3. Spouses Sy found they could no longer pay their loan so on
Spouses Sy. However, Alfredo was not making payment to fulfill the December 9, 1996, they sold 3 of their mortgaged parcels of land
obligation of the Spouses Sy. Alfredo made a conditional payment so that for PhP 150,000 to Angelina Gloria Ong, Evangeline's mother,
the properties subject of the Deed of Sale with Assumption of Mortgage under a Deed of Sale with Assumption of Mortgage.
would be titled in his name. Because he paid not as a debtor but as a
Obligations and Contracts (2020) PLAINTIFF: Land Bank 1

DIGEST AUTHOR: Pia Casano DEFENDANT: Alfredo Ong
4. Evangeline's father, petitioner Alfredo Ong, later went to Land 12. The CA held that Alfredo's recourse is not against the Sy spouses
Bank to inform it about the sale and assumption of mortgage. and that Alfredo and Land Bank's active preparations for Alfredo's
assumption of mortgage essentially novated the agreement.
5. Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told
Alfredo that there was nothing wrong with the agreement with the
Spouses Sy but provided them with requirements for the IV. Issue/s
assumption of mortgage. They were also told that Alfredo should 1. W/N the CA erred in holding that Art. 1236 of the Civil Code
pay part of the principal which was computed at PhP 750,000 and does not apply and in finding that there is no novation. – NO.
to update due or accrued interests on the promissory notes so that 2. W/N there was novation - NO
Atty. Hingco could easily approve the assumption of mortgage.
V. Holding/s
6. Two weeks later, Alfredo issued a check for PhP 750,000 and
personally gave it to Atty. Hingco.
Issue #1
7. Atty. Hingco then informed Alfredo that the certificate of title of No, CA did not err in holding that Art. 1236 does not apply because Alfredo
the Spouses Sy would be transferred in his name but this never Ong is not a debtor / had no obligation to pay the loan.
materialized. No notice of transfer was sent to him. Petitioner’s Arguments Court’s Rebuttals
8. Alfredo later found out that his application for assumption of • Land Bank contends that • Art. 1236 par. 2 does not
mortgage was not approved by Land Bank. The bank learned from Art. 1236 of the Civil Code apply. (To be explained
its credit investigation report that the Ongs had a real estate backs their claim that more below)
mortgage in the amount of PhP 18,300,000 with another bank that Alfredo should have sought
was past due. recourse against the
9. Land Bank foreclosed the mortgage of the Spouses Sy after several Spouses Sy instead of Land
months. Bank.
10. Thereafter, Alfredo initiated an action for recovery of sum of

money with damages against Land Bank as Alfredo's Php 750,000
payment was not returned.
11. The RTC held that the contract approving the assumption of
mortgage was not perfected as a result of the credit investigation
conducted on Alfredo. CA affirmed this.

Overall Ruling SC held Land Bank liable for the return of the PhP 750,000 based on the
principle of unjust enrichment. By accepting Alfredo's payment and keeping
The SC, following par. 1 of Art. 1236, held that Land Bank was not bound silent on the status of Alfredo's application, Land Bank misled Alfredo to
to accept Alfredo's payment, since as far as the former was concerned, he believe that he had for all intents and purposes stepped into the shoes of the
did not have an interest in the payment of the loan of the Spouses Spouses Sy. Alfredo, having been deemed disqualified from assuming the
Sy. However, Alfredo was not making payment to fulfill the obligation of loan, had no duty to pay petitioner bank and the latter had no right to receive
the Spouses Sy. Alfredo made a conditional payment so that the properties it.
subject of the Deed of Sale with Assumption of Mortgage would be titled in
his name. Because he paid not as a debtor but as a prospective mortgagor, it
is therefore clear that par. 2 of Art. 1236 is inapplicable. Since Alfredo was VI. Law or Doctrine Applied
not paying for another, he cannot demand from the debtors, the Spouses Sy,
ART. 1236 OF THE NEW CIVIL CODE
what he has paid.
The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there
Issue #2 is a stipulation to the contrary.
There was no novation. Whoever pays for another may demand from the debtor what he has paid,
Petitioner’s Arguments Court’s Rebuttals debtor, he can recover only insofar as the payment has been beneficial to the
debtor.
• A substitution of debtors • NA (Court agreed there
was made without its was no novation) VII. Disposition
consent; thus, it was not WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-
bound to recognize the CV No. 84445 is AFFIRMED with MODIFICATION in that the amount of
substitution under the rules PhP 750,000 will earn interest at 6% per annum reckoned from December
on novation. 12, 1997, and the total aggregate monetary awards will in turn earn 12% per
Overall Ruling annum from the finality of this Decision until fully paid.
Not all the elements of novation were present. Novation must be expressly VIII. Additional Notes
consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with VIII. Random Facts
which to deduce a clear and unequivocal intent by the parties to novate the • Ponente: Velasco, Jr., J.
old agreement.

G.R. No. 125862| April 15, 2004 Payment or Performance: Article.1240
Spouses Culaba vs CA Spouses Culaba vs CA
I. Recit-ready Summary 1. Francisco and Demetria Culaba were the owners of Culaba Store,
Spouses Culaba owns Culaba Store, which sells San Miguel beer engaged in the sale and distribution of San Miguel (SMC) beer
products. SMC sold beer products on credit to Culaba worth P28,650. products.
Spouses Culaba made a partial payment, but later on failed to pay the 2. SMC sold beer products on credit to Culaba in the amount of P28,650
remaining balance. SMC filed an action for collection of sum of money evidenced by Temporary Credit Invoice.
against the Spouses Culaba. Spouses Culaba claim that they have already 3. Sps. Culaba made a partial payment of P3,740, but failed to pay the
paid the P24k+ balance to an SMC agent who issued a genuine SMC P24K+ balance.
receipt. SMC avers that the entire booklet, where the issued receipts 4. SMC filed an action for collection of sum of money against the
originated from, was lost and that a subsequent notice to the public was
Culabas.
published in a newspaper of general circulation (Daily Press). RTC ruled in
5. Culaba denied liability, and claimed that they had already paid SMC
favor of SMC, and ordered Spouses Culaba to pay the balance of P24k. The
in full.
CA affirmed the RTC decision. Hence the present petition. The two issues
in this case are: whether or not SMC had proven that they had properly 6. Culaba argues that they made 4 payments in good faith to an SMC
notified the petitioner that the booklet of receipts were lost and whether or supervisor who wore an SMC uniform and drove an SMC van. The
not SMC had proven that petitioner was remiss in the payment of his SMC supervisor showed the Culabas’ a list of customer’s
account to its agent. The Court ruled that YES, the Culabas were properly accountabilities and issued a genuine SMC receipt upon payment of
notified by the publication of SMC that the receipts were lost and would not the spouses.
be honored by the company. The Court also ruled that YES, the Culabas 7. SMC avers that the entire booklet of receipts where the issued receipt
were remiss in the payment of his account. Using Art. 1240, the Court originated was lost. The publication of notice of loss, contained a
said that payment shall be made to the person in whose favor the obligation warning that the use of any of the lost receipts would not be honored
has been constituted, or his successor-in-interest, or any person authorized by SMC.
to receive it. The payment to the “supervisor” who was in an SMC uniform 8. RTC ruled in favor of SMC. RTC ordered Culabas to pay SMC the
and drove an SMC van did not extinguish their obligation because the balance of P24,910 + interest +atty. fees
supervisor did not have the authority to accept payment. The Culabas did 9. CA affirmed the decision of the RTC
not properly ascertain the identity of the purported supervisor before paying. 10. Hence, the instant petition.
The Culabas were negligent in their failure to be circumspect with their
obligation to pay. Being negligent, the petitioners cannot seek relief on the
III. Issue/s
basis of a supposed agency. Thus, the payments the petitioners claimed they
1. W/N the respondent had proven that it had properly notified the
made were not the payments that discharged their obligation to SMC.
petitioner that the booklet of receipts were lost? - YES.
II. Facts of the Case 2. W/N respondent had proven that petitioner was remiss in the
payment of his account to its agent? - YES
1
Obligations and Contracts (2020) PETITIONER: Francisco and Demetria Culaba (Culaba Store)
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Court of Appeals and San Miguel Corp.

IV. Holding/s ● The agent to whom the accounts ● The issue raised by the
were paid had all the physical and petitioners does not
Issue #1 material attributes or indications involve a question of law,
YES, SMC properly notified the petitioner of its lost booklet. of a representative of SMC. but a question of fact, not
● It is the common attitude of cognizable by this Court.
Petitioner’s Arguments Court’s Rebuttals customers to not check the ● The receipts were not
● Receiving receipts from ● The issues raised the petitioner receipt. issued in order. A receipt
respondent’s agents instead of does not involve a question of ● The payment was made in good issued earlier had a higher
salesmen was a usual law, but a question of fact, not faith. serial number than a
occurrence. cognizable by this court receipt issued later.
● The receipts issued were similar ● SMC gave sufficient notice to ● The salesman’s name was
to what he used to receive petitioner when they advertised in left blank in the four
before. newspapers that a booklet of receipts, and petitioner
● The advertisements were only receipts was lost. could not remember the
published after the damage was name of the salesman.
done.
● Receipts Nos. 27331, 27318, 27339 and 27346 were included in the Payment is a mode of extinguishing an obligation. Article 1240 of the Civil
private respondent's lost booklet, which loss was duly advertised in a Code provides that payment shall be made to the person in whose favor the
newspaper of general circulation; thus, the private respondent could obligation has been constituted, or his successor-in-interest, or any person
not have officially issued them to the petitioners to cover the alleged authorized to receive it.
payments on the dates appearing thereon. In this case, the payments were purportedly made to a "supervisor" of the
private respondent, who was clad in an SMC uniform and drove an SMC
van. He appeared to be authorized to accept payments as he showed a list of
Issue #2 customers' accountabilities and even issued SMC liquidation receipts which
YES, Petitioner was remiss in the payment of his account. looked genuine. Unfortunately for petitioner Francisco Culaba, he did not
ascertain the identity and authority of the said supervisor, nor did he
ask to be shown any identification to prove that the latter was, indeed,
an SMC supervisor. The petitioners relied solely on the man's
representation that he was collecting payments for SMC. Thus, the
2
payments the petitioners claimed they made were not the payments that
discharged their obligation to the private respondent.
In the case at bar, the most prudent thing the petitioners should have done
was to ascertain the identity and authority of the person who collected their
payments. Failing this, the petitioners cannot claim that they acted in good
faith when they made such payments. Their claim therefore is negated by
their negligence, and they are bound by its consequences. Being negligent
in this regard, the petitioners cannot seek relief on the basis of a supposed
agency.
Article 1240 of the Civil Code provides that payment shall be made to the
person in whose favor the obligation has been constituted, or his
successor-in-interest, or any person authorized to receive it.
VI. Disposition
WHEREFORE, the instant petition is hereby DENIED. The assailed
Decision dated April 16, 1996, and the Resolution dated July 19, 1996 of
the Court of Appeals are AFFIRMED. Costs against the petitioners. SO
ORDERED.
VIII. Random Facts

● Ponente: Calleja, Sr. J.
3
G.R. No. 175863 | February 18, 2015 Payment or Performance
National Power Corp. v Ibrahim National Power Corp. v Ibrahim

The Petitioner took possession of a parcel of land for the 1. Petitioner took possession of a parcel of land in Marawi City in
construction of a hydroelectric power plant, believing that the land was 1978 for the construction of a hydroelectric power plant.
public land. The land was part of the estate of Mangondato. They were 2. The land was a part of the estate of Respondent Mangondato who
unable to reach an agreement regarding compensation so Mangondato filed discovered the occupation of the land in 1979 (the construction was
with the RTC a complaint for reconveyance. The RTC ruled that to begin)
Mangondato is entitled to compensation but that the petitioner was already 3. Mangondato sent letters to the Petitioner showing that he was the
the owner of the land. The petitioner appealed to the CA. owner of the land
During the pendency of that case, the Ibrahims and Maruhoms filed 4. In the 1990s Petitioner eventually conceded that the land belonged
a complaint against both parties above with the RTC. They claim that they to Mangondato and that Mangondato is entitled to receive
are the rightful owners of the land. The RTC issued a TRO with the compensation.
petitioner to enjoin them from paying Mangondato until the finality of this 5. However, the parties were unable to reach an agreement as they
case. could not agree on the amount of the just compensation which
The CA and SC dismissed the appeal of the petitioner in the first prompted Mangondato to file a complaint with the RTC for
case. Thus, Mangondato filed for a writ of execution which the RTC reconveyance and payment of a monthly rental in 1992.
granted. The petitioner, thus, paid Mangondato the full amount of PHP 6. The RTC ruled for the petitioner but made it pay monthly rentals
21,801,951.00. and the price of the property
The RTC in the case of the Ibrahims and Maruhoms ruled that they 7. The petitioner appealed to the CA.
are the real owners of the lot, recipients of any payment, and made the 8. Meanwhile, the Ibrahims and Maruhoms filed with the RTC a
petitioner and Mangondato solidarily liable. The petitioner appealed. The complaint against Mangondato and the Petitioner. They allege that
CA also ruled in favor of the Ibrahims and Maruhoms. Hence, this appeal. they are the real owners of the contested land, and that
The issue is W/N the petitioner can be held liable in favor of the Mangondato holds no claim over the land except that of a trustee
Ibrahims and Maruhoms for rent and expropriation indemnity? who merely holds the lands in trust for them
The SC ruled in the negative. There was no bad faith on the part of 9. The RTC issued a TRO enjoining the petitioner from making any
the petitioner as it was merely acting pursuant to a writ of execution based payment to Mangondato during the pendency of this trial
on a final decision. Absent bad faith, the petitioner cannot be held liable to 10. Returning to the initial case, the CA denied the appeal of the
pay. Article 1242 of the Civil Code is clear and says that any person who in petitioner and the SC would uphold the CA’s decision.
good faith pays to a person who appears to be the true creditor (even if he is 11. Thus, Mangondato filed a motion for execution which the
not) releases the debtor. Mangondato is a person in possession of credit so petitioner opposed because of the TRO.
the petitioner’s obligation to pay is extinguished. The Ibrahims and 12. The RTC granted the motion for execution and ordered the
Maruhoms, if they are the real owners, may go after Mangondato but not the petitioner to pay the total amount of PHP 21,801,951.00 to
petitioner for indemnification. Mangondato
1
Obligations and Contracts (2020) PETITIONER: National Power Corporation
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Lucam M. Ibrahim and Atty. Omar G. Maruhom et al.
13. The Petitioner paid the amount in full. ● Article 1242 applies in this case
14. Returning to the case filed by the Ibrahims and Maruhoms, the as even if the Ibrahims and
RTC ruled that they are the rightful owners of the land in question Maruhoms are the owners of the
and, thus, are the rightful recipients of any rent and indemnity. It land, the obligation is
also said that Mangondato and the petitioner are solidarily liable extinguished as the petitioner
for payment. paid in good faith to the person in
15. The petitioner appealed to the CA possession of credit
16. While it was pending, the Ibrahims and Maruhoms were able to Overall Ruling
secure a writ of execution pending appeal. The SC held that there was no bad faith on the part of the
17. This led to the garnishment of Mangondato’s money in the SSS petitioner. His payment to Mangondato was not the product of a deliberate
(PHP 2,700,000.00) which was paid to the Ibrahims and choice as he was merely following the stipulation of the writ of execution.
Maruhoms. The essence of bad faith consists of deliberate commission of a wrong. The
18. The CA denied the petitioner’s appeal which prompted the concept has also been equated with malicious or fraudulent motives, yet
petitioner to raise the matter to the SC distinguished from mere unintentional wrongs resulting from simple
negligence or oversight.
III. Issue/s Further, the obligation has been extinguished pursuant to Article
1. W/N the petitioner can be held liable in favor of the Ibrahims 1242 because the petitioner paid in good faith to the party in possession of
and Maruhoms for rent and expropriation indemnity? NO. the credit.
IV. Holding/s If Mangondato is the real owner then the Ibrahims and Maruhoms
Issue #1 are not entitled to anything. However, if the Ibrahims and Maruhoms are
2. W/N the petitioner can be held liable in favor of the Ibrahims found to be the real owners, then they can recover rental fees and
and Maruhoms for rent and expropriation indemnity? NO. expropriation indemnity against Mangondato.
Lower Courts’ Arguments Court’s Rebuttals
● Petitioner should still pay even if ● There is no bad faith as the V. Law or Doctrine Applied
he already paid Mangondato petitioner paid Mangondato ARTICLE 1242 of the Civil Code
because he allowed the payment pursuant to the final decision of Article 1242 provides that:
despite a TRO and knowledge the court and a writ of execution. Payment made in good faith to any person in possession
that Mangondato is not the real Bad faith requires (1) knowledge of the credit shall release the debtor
owner of the land. All of that that the act is wrong or illegal Article 1242 is an exception to the rule that a valid payment of an
constitutes bad faith and (2) deliberate commision of obligation can only be made to the person whom such obligation is
the act rightfully owed. A possessor in credit is someone who in not the real
creditor but appears, under the circumstances, to be the real creditor.
2
VI. Disposition
WHEREFORE, premises considered, the instant petition is GRANTED.
The Decision dated 24 June 2005 and Resolution dated 5 December
2006 of the Court of Appeals in CAG.R. CV No. 68061 is hereby
SET ASIDE SET ASIDE. The Decision dated 16 April 1998 of the
Regional Trial Court in Civil Case No. 967-93 is MODIFIED in that
petitioner is absolved from any liability in that case in favor of the
respondents Lucman M. Ibrahim, Atty. Omar G. Maruhom, Elias G.
Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G.
Maruhom, Hidjara G. Maruhom, Rocania G. Maruhom, Potrisam G.
Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G.
Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and
Caironesa M. Ibrahim. Civil Case No. 967-93 is DISMISSED as
against petitioner.

●
VII. Random Facts

● Ponente: De Castro, J.
3
G.R. No. 231053| April 4, 2018 Extinguishment of Obligations: Payment or Performance
Desiderio Dalisay Investment v SSS Desiderio Dalisay Investment v SSS
I. Recit-ready Summary validly acquired title or interest over the land, DDII’s action should not
Respondent Social Security System (SSS) filed a case against petitioner prosper. In particular it ruled that the corporation bound itself to the
Desiderio Dalisay Investments Inc. (DDII) for collection of representation of Atty. Cabarroguis and any agreements made by him,
unremitted SSS premium contributions of DDII’s employees. Desiderio that the acceptance of the offer by SSS was absolute and unqualified,
Dalisay, President of DDII, sent a letter to the SSS offering the subject and that there was no indication that when they turned over the
land and building to offset the Dalisay Group of Company’s properties to the SSS, the company reserved its ownership over the
(DGC) liabilities, however, the parties failed to arrive at an agreement property.
as to the appraised value of the land and building.
Desiderio sent a letter seeking further negotiation suggesting that Joson, 1. Respondent Social Security System (SSS) filed a case against
Capili and Associates make the appraisal, which the Social petitioner Desiderio Dalisay Investments Inc. (DDII) for
Security Commission (SSC) agreed. The appraisers sent a letter to DDII collection of unremitted SSS premium contributions of DDII’s
stating the total value of the lot. employees.
2. Desiderio Dalisay, President of DDII, sent a letter to the SSS
However, in a meeting between the SSS committee on buildings and offering the subject land and building to offset the Dalisay
DGC, the latter’s counsel stated that DGC is in financial distress and is Group of Company’s (DGC) liabilities, however, the parties
in no way capable of settling its obligation in cash and stated that the failed to arrive at an agreement as to the appraised value of the
authority to offer the properties would be their way of settling land and building.
their obligation. The offer was accepted. The SSC informed DDII of
its acceptance of the proposed dation in payment. 3. Desiderio sent a letter seeking further negotiation suggesting
that Joson, Capili and Associates make the appraisal, which
Desiderio Dalisay then passed away. Eddie Jara, assistant vice- the Social Security Commission (SSC) agreed.
president of SSS executed an affidavit of adverse claim over
the properties stating that the Dalisay Investments failed to turn over the 4. The appraisers sent a letter to DDII stating the total value
certificates of title to SSS. Jara sent a demand letter to Dalisay but to no of the lot at P 1,955,000.
avail, the properties subject of the dacion were being claimed by
the estate of Desiderio Dalisay. DDII then filed a complaint for 5. However, in a meeting between the SSS committee
Quieting of title, recovery of possession and damages against the SSS. on buildings and DGC, the latter’s counsel stated that DGC is
in financial distress and is in no way capable of settling
The issue in the case is W/N there was a perfected dacion en pago. If its obligation in cash. When asked what the DGC's offer is, he
there is a perfected dacion, and if title or interest was transferred to stated that the authority to offer the properties would be their
SSS, the action for quieting of title filed by DDII will not prosper. way of settling their obligation.
The court resolved to deny the petition. The court ruled that all the facts 6. The offer was accepted. The SSC informed DDII of
of the case correspond to the three stages of a contract of sale, and that its acceptance of the proposed dation in payment by a letter of
dation in payment was perfected, and hence that the SSS validly acceptance which listed the following conditions:
acquired title or interest over the properties and that because SSS had
Obligations and Contracts (2020) PETITIONER: Desiderio Dalisay Investments, Inc. 1

DIGEST AUTHOR: Ryon Rivera RESPONDENT: Social Security System
a. The P2 million consideration in this transaction shall 13. DDII then filed a complaint for Quieting of title, recovery
be applied first to the premium contribution in arrears of possession and damages against the SSS
which amounts to P1.5 million, more or less, and 14. The RTC resolved the case in favor of DDII, holding that there
whatever amount in excess of the P2 million after was no perfected dation in payment between the parties.
premium contribution shall then be applied to the Consequently, SSS has no legal personality to own, possess,
payment of penalties. and occupy the property.
b. Part of the P2 million shall also be applied to its 15. The CA reversed the RTC ruling. The CA held that the records
outstanding education/salary loan obligations. establish that DGC has an outstanding obligation in favor of
c. The criminal cases against the Dalisay Group of SSS that it proposed to pay the amount via dacion en pago,
Companies shall not be withdrawn as the penalties said offer was categorically accepted by SSS, and the
have not as yet been valid (sic) in full and it is up to agreement was consummated by DDII's delivery of the
them to make the necessary representations with the property to SSS.
Fiscal's Office.
7. The acting president of Dalisay Investment informed SSS that III. Issue/s
they were already preparing the property for turnover and that 1. W/N There was a perfected dacion en pago.
an Affidavit of Consent for the Sale of Real Property was
already executed by the surviving heirs of Regina Dalisay IV. Holding/s
Issue #1
8. Desiderio Dalisay then passed away. W/N There was a perfected dacion en pago.
9. Eddie Jara, assistant vice-president of SSS executed an

affidavit of adverse claim over the properties stating that the
• DDI argues that its offer to SSS • In order to determine w/n there is
Dalisay Investments failed to turn over the certificates of title
was never categorically a perfected, or even
to SSS.
accepted. consummated, dation in payment
• It maintains that for there to be it is necessary to see whether the
10. Jara sent a demand letter to Dalisay but to no avail, since the
an acceptance of the offer, it evidence correspond to the three
properties subject of the dacion were being claimed by
should be identical in all respects stages of a contract of sale
the estate of Desiderio Dalisay, and the SSS' pending petition
and not contain any modification (negotiation, perfection,
covering the properties where the accuracy and propriety of
or variation from the terms of the consummation). This is so
the amount of P15,605,079.25 contained therein has yet to be
offer because as provided in Art 1245,
substantiated and verified.
• DDI claims no document or dacion en pago agreements are
instrument proving they accepted governed, among others, by the
11. DDI wrote a letter to SSS containing a request for reevaluation
SSS’s counter-offer exists. law on sales.
12. A letter was sent to SSS to offset the SSS obligations with the
back rentals since SSS has been using the land from July 1982 • DDI points out that in SSS’ • While DDI argued that Atty.
brief, it admitted that it made a Cabarroguis did not have

counter-offer to DDI. authority to offer the properties, petitioner would have it, but an
• DDI argues that the TCT’s so there was a defect in the first acceptance of the new reduced
remain in the name of the stage, the court found that even offer communicated by the
original owner and clearly assuming Atty. Cabarroguis company's representative, Atty.
indicate that no dation in exceeded his authority, the lack Cabarroguis, which acceptance
payments ever occurred. of opposition is sufficient proof perfected the proposed dation in
• Atty. Cabarroguis did not have that they tacitly ratified his acts payment.
the requisite authority to make during the meeting assuming he • The third stage, consummation,
representations and thereby bind went beyond his authority. was also ruled to be present as
the coroporation. DDII argues Additionally, the absence of any even after a review of the records
the offer to SSS remained at P allegation or proof that SSS relied of the case, the court found no
3.5M. upon Atty. Cabarroguis’ actions indication that when they turned
• SSS’ “acceptance” was qualified in bad faith convince the court over the properties to the SSS, the
and is tantamount to a counter- that the corporation bound itself company reserved its ownership
offer and not absolute to said representations and over the property. Hence,
acceptance. agreements reached durig the contrary to petitioner’s
• The turnover of the properties meeting via implied ratification. arguments, the court is of the
was simply done to show Thus the court concludes that view that the turnover was in fact
goodwill on the part of DDI. during the first stage tantamount to tradition and was
(negotiation), the offer was not simply done to show goodwill
validly reduced from 3.5M to 2M. on the part of the company.
• Regarding the second stage,
perfection, the court ruled that the
acceptance was absolute and
unqualified. Hence, when
possession of the property was
delivered to SSS, this signified a
transfer of ownership. Applying
said principles to the case at bar
convinces us that SSS' acceptance
of the offer at P2,000,000 resulted
in a perfected dation. As
discussed earlier, the offer was
validly reduced from P3,500,000
to P2,000,000. Consequently,
SSS' agreement to the P2,000,000
offer was not a counter-offer as

Overall Ruling perform their respective undertakings under the contract of sale, culminating
The court held that for an action to quiet title to prosper, two indispensable in the extinguishment thereof.
requisites must concur. First, the plaintiff or complainant must have a legal
or an equitable title to or interest in the real property subject of the action
and the deed, claim, encumbrance, or proceeding claimed to be casting
cloud on his title must be shown to be in fact invalid or inoperative despite
its prima facie appearance of validity or legal efficacy. VI. Disposition
In this case, the presence or absence of these two requisites is hinged on WHEREFORE, the instant petition is DENIED. The assailed August 12,
the question of whether or not the proposed dacion en pago was indeed 2016 Decision and March 10, 2017 Resolution of the Court of Appeals in
perfected, thereby vesting unto SSS a legitimate title and interest over the CA-G.R. CV No. 03233-MIN are hereby AFFIRMED. The complaint for
properties in question. In other words, if it can be proved that the quieting of title, recovery of possession and damages, docketed as Civil
proposed dacion was perfected, or even consummated, then SSS’ claim Case No. 29,353-02, is DISMISSED for lack of merit.
which allegedly casts a cloud on DDII’s title is valid and operative, and
consequently, the action for quieting of title filed by DDII will not prosper. Petitioner Desiderio Dalisay Investments, Inc. is hereby ordered to:
In this case the court ruled that all the facts of the case correspond to the 1. Execute the Deed of Sale over the properties in favor of
three stages of a contract of sale, and that dation in payment was perfected, respondent Social Security System, consistent with the terms and conditions
and hence that the SSS validly acquired title or interest over the properties. of the dación en pago agreed upon by the parties as embodied in SSC
Resolution No. 849- s. 82 within ten (10) days from finality of this
Decision; and
2. Surrender the Owner's Duplicate of Transfer Certi cate of Title

V. Law or Doctrine Applied Nos. T- 18203, T-18204, T-255986, and T-255985, as well as the Tax
Declarations over said properties to respondent Social Security System
within ten (10) days from finality of this Decision.
ART. 1245. Dation in payment, whereby property is alienated to the creditor
Should petitioner Desiderio Dalisay Investments, Inc. refuse to execute said
in satisfaction of a debt in money, shall be governed by the law of sales.
Deed of Sale, the Clerk of Court shall execute such in favor of respondent
Social Security System.
Stages of a Contract of Sale
Briefly, the stages of a contract of sale are: (1) negotiation, covering the
The Register of Deeds of Davao City is directed to cancel the subject titles
period from the time the prospective contracting parties indicate interest in
and issue new ones in the name of respondent Social Security System.
the contract to the time the contract is perfected; (2) perfection, which takes
place upon the concurrence of the essential elements of the sale, which is
Respondent Social Security System is ordered to re-compute petitioner's
the meeting of the minds of the parties as to the object of the contract and
obligations accordingly, reckoned from June 17, 1982, the date when
upon the price; and (3) consummation, which begins when the parties
respondent communicated its acceptance of the offer. SDHTEC

SO ORDERED. Bersamin, Leonen, Martires and Gesmundo, JJ., concur.
VII. Random Facts

• Ponente: Velasco, Jr., J.

G.R. No. 130972 | January 23, 2002 Payment or Performance
Phil Lawin Bus v. CA Phil Lawin Bus v. CA

Advance Capital Corporation extended an P8,000,000.00 loan to 1. On August 7, 1990, Advance Capital Corporation, a licensed
Philippine Lawin Bus Company (Lawin) and an additional loan of lending investor, extended an P8,000,000.00 loan to Philippine
P2,000,000.00. Despite the loan restructuring, Lawin failed to pay the total Lawin Bus Company payable within a period of 1 year, as
amount of the loans so a suit for sum of money was then filed against the evidenced by a Credit Agreement.
petitioners. In their answer, petitioners asserted that there was already an 2. Lawin, through Marciano Tan, its Executive Vice President,
arrangement as to the full settlement of the loan obligation by way of: sale executed Promissory Note No. 003, for the amount of
of the 9 units of passenger buses, the proceeds of which will be credited
P8,000,000.00.
against the loan amount as full payment thereof or in alternative, Advance
3. To guarantee payment of the loan, Lawin executed in favor of
Capital Corporation will shoulder and bear the cost of rehabilitating the
buses, with the amount thereof to be included in the total obligation of Advance Capital Corporation the following documents:
Lawin and the bus operated, with the earnings thereof to be applied to the (1) A Deed of Chattel Mortgage wherein 9 units of buses were
loan obligation of petitioner Lawin. The RTC dismissed the complaint. The constituted as collaterals;
CA reversed and set aside the trial court's decision. In this appeal, the issue (2) A joint and several UNDERTAKING of Master Tours and
raised is whether there was dacion en pago between the parties upon the Travel Corporation signed by Isidro Tan and Marciano Tan; and
surrender or transfer of the mortgaged buses to the private respondent. (3) A joint and several UNDERTAKING executed and signed by
In affirming the decision of the CA with modification, the Court ruled Esteban, Isidro, Marciano and Henry, all surnamed Tan.
that Article 1245 of the Civil Code provides that the law on sales shall 4. Out of the P8,000,000.00 loan, P1,800,000.00 was paid.
govern an agreement of dacion en pago. In this case, there was no meeting 5. On November 2, 1990, Lawin was able to avail an additional loan
of the minds between the parties on whether the loan of the petitioners of P2,000,000.00 for 1 month under Promissory Note 00028.
would be extinguished by dacion en pago. The petitioners anchored their 6. Lawin failed to pay the aforementioned promissory note and the
claim solely on the testimony of Marciano Tan that he proposed to
same was renewed on December 3, 1990 to become due on or
extinguish their obligation by the surrender of the 9 buses to the respondent
acceded to as shown by receipts its representative made. However, the before February 1, 1991, under Promissory Note 00037.
receipts executed by Advance Capital Corporation's representative as proof 7. On May 15, 1991 for failure to pay the two promissory notes,
of an agreement of the parties that delivery of the buses would result in Lawin was granted a loan re-structuring for 2 months to mature on
extinguishing petitioners' obligation did not in any way reflect the intention July 31, 1991.
of the parties that ownership thereof by the corporation would be complete 8. Despite the restructuring, Lawin failed to pay.
and absolute. The receipts showed that the 2 buses were delivered to 9. Advance Capital Corporation foreclosed the mortgaged buses and
respondent in order that it would take custody for the purpose of selling the as the sole bidder thereof, P2,000,000.00 was accepted by the
same. The receipts themselves in fact showed that petitioners deemed deputy sheriff conducting the sale and credited to the account of
respondent as their agent in the sale of the 2 vehicles whereby the proceeds defendant Lawin.
thereof would be applied in payment of petitioners' indebtedness to 10. On May 27, 1992, identical demand letters were sent to the
respondent. Such an agreement negated the transfer of absolute ownership defendants to pay their obligation.
over the property to respondent, as in a sale.
Obligations and Contracts (2020) PETITIONER: Philippine Lawin Bus, Co., Master Tours & Travel Corp., 1
Marciano Tan, Isidro Tan, Esteban Tan and Henry Tan
DIGEST AUTHOR: Allyzza Tanhueco RESPONDENT: Court of Appeals and Advance Capital Corporation
11. Despite repeated demands, they failed to pay their indebtedness III. Issue/s
which totaled P16,484,992.42 as of July 31, 1992. 1. W/N there was dacion en pago between the parties upon the
12. Advance Capital Corporation filed the suit for sum of money. surrender or transfer of the mortgaged buses to Advance
13. On September 4, 1993, a writ of preliminary injunction was issued Capital Corporation? NO.
with respect to movable and immovable properties of the
defendants. IV. Holding/s
14. The RTC rendered a decision dismissing the complaint.
a. Dismissing the complaint for lack of merit; Issue #1
b. Declaring the foreclosure and auction sale null and void; NO, there was no dacion en pago between the parties upon the
c. Declaring the obligation or indebtedness of defendants surrender or transfer of the mortgaged buses to Advance Capital
EXTINGUISHED; Corporation.
d. Declaring the writ of attachment issued in this case null and Petitioner’s Arguments
void and, therefore, is hereby declared dissolved; and • There was already an arrangement as to the full settlement of the loan
e. Ordering the Sheriff of this Branch or whoever is in obligation by way of:
possession, to return all the personal properties attached in this o 17.A. Sale of the 9 units passenger buses the proceeds of which
case to the owner/s thereof within 1 week from the finality of will be credited against the loan amount as full payment thereof; or
this decision; in the alternative.
f. Dismissing defendant's counterclaim for lack of sufficient o 17.B. Plaintiff will shoulder and bear the cost of rehabilitating the
merit. buses, with the amount thereof to be included in the total obligation
15. The CA reversed the decision of the RTC, ordering the defendants- of defendant Lawin and the bus operated, with the earnings thereof
appellees to pay, jointly and solidarily, in favor of plaintiff- to be applied to the loan obligation of defendant Lawin.
appellant Advance Capital Corporation, the following amounts: • The foreclosure sale was in violation of the aforequoted arrangement
a. P16,484,994.42, the principal obligation under the 2 and prayed for the nullification of the same and the dismissal of the
promissory note Nos. 003 and 00037 plus interest and complaint
penalties; Overall Ruling
b. P100,000.00 for loss of goodwill and good reputation; There was no dacion en pago that took place between the parties.
c. An amount equivalent to 10% of the collectible amount, plus In dacion en pago, property is alienated to the creditor in satisfaction of
P50,000, as acceptance fee and P500 per appearance, as and a debt in money. It is "the delivery and transmission of ownership of a thing
for attorney's fees: and by the debtor to the creditor as an accepted equivalent of the performance of
d. P100,000 as litigation expenses. the obligation." It "extinguishes the obligation to the extent of the value of
the thing delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement, express or implied, or by their
silence, consider the thing as equivalent to the obligation, in which case the payment of petitioners' indebtedness. Such an agreement negates transfer of
obligation is totally extinguished." absolute ownership over the property to respondent, as in a sale.
Article 1245 of the Civil Code provides that the law on sales shall Where machinery and equipment were repossessed to secure the payment of
govern an agreement of dacion en pago. A contract of sale is perfected at a loan obligation and not for the purpose of transferring ownership thereof
the moment there is a meeting of the minds of the parties thereto upon the to the creditor in satisfaction of said loan, no dacion en pago was ever
thing which is the object of the contract and upon the price. accomplished. (Philippine National Bank v. Pineda)
". . . . In dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor who accepts it as equivalent of payment V. Law or Doctrine Applied
of an outstanding obligation. The undertaking really partakes in one sense of
the nature of sale, that is, the creditor is really buying the thing or property ARTICLE 1245 OF THE CIVIL CODE
of the debtor, payment for which is to be charged against the debtor's debt. ART. 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales.
As such, the essential elements of a contract of sale, namely, consent, object
certain, and cause or consideration must be present. In its modern concept, VI. Disposition
what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the IN VIEW WHEREOF, the Court DENIES the petition and AFFIRMS the
performance of an obligation is considered as the object of the contract of decision of the Court of Appeals with MODIFICATION as follows:
sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or novation, to have WHEREFORE, the appealed decision is hereby REVERSED and SET
the effect of totally extinguishing the debt or obligation." (Filinvest Credit ASIDE. In lieu thereof, judgment is hereby rendered ordering defendants-
Corporation v. Philippine Acetylene Co., Inc.,) appellees to pay, jointly and severally, plaintiff-appellant Advance Capital
In this case, there was no meeting of the minds between the parties on Corp. the following amounts:
whether the loan would be extinguished by dacion en pago. The petitioners (1) P16,484,994.42, the principal obligation under the two
promissory notes plus 12% per annum from the finality of this
anchor their claim solely on the testimony of Marciano Tan that he proposed
decision until fully paid;
to extinguish their obligation by the surrender of the 9 buses. The receipts
(2) P50,000.00 as attorney's fees;
executed by respondent's representative as proof of an agreement of the (3) Costs of suit.
parties that delivery of the buses would result in extinguishing the obligation All other monetary awards are deleted.
do not in any way reflect the intention of the parties that ownership thereof SO ORDERED.
by Advance Capital Corporation would be complete and absolute. The
receipts show that the 2 buses were delivered to the corporation in order that VII. Random Facts
it would take custody for the purpose of selling the same. The receipts • Ponente: Pardo, J.
themselves in fact show that petitioners deemed respondent as their agent in
the sale of the 2 vehicles whereby the proceeds thereof would be applied in
G.R. No. 158361 | April 10, 2013 Payment for Performance; Quantum Meruit
International Hotel v Joaquin International Hotel v Joaquin
I. Recit-ready Summary The 2M allocated was not solely for the compensation of Joaquin but was
allocated for the expenses of the whole project.
Joaquin offered to render technical assistance to International Hotel Corp
(IHC) in procuring a foreign loan for construction of a hotel, to be Issue: W/N he can claim the whole 500k from the resolution of the board of
guaranteed by Development Bank of the Philippines (DBP). The proposal directors allocated for his services? NO
composed of 9 stages and International hotel approved of the first 6
allocating 2M for the expenses of the agreement. The resolution of the BOD states:
Joaquin was able to procure MHC as a probable financier. While “RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a compensation
negotiations with MHC were on going, IHC met with another financier, in the amount of Five Hundred Thousand (P500,000.00) Pesos for his
Weston. MHC failed to release the loan, so IHC presented Weston as their PAST services AND services STILL TO BE RENDERED in the future
foreign financier to DBP. DBP then resolved to cancel the guaranty. to the corporation up to the completion of the Project.”
In turn, IHC resolved to cancel the 17,000 shares issued to Joaquin and The 500k allocated contemplated his future services as well and since there
Suarez supposedly as compensation for their services. Joaquin filed with the was no full performance, he cannot be entitled to the full amount.
RTC alleging that the cancelation of shares were illegal
Quantum meruit applies in this case as there is no express agreement of the
Only 5 phases were complied with and Joaquin claims that he is entitled to amount of compensation. Compensation will be based on the reasonable
the 2M as compensation for his services. value of the services performed. In this case it was ruled that 200k was
sufficient.
Issue: W/N Joaqin and Suarez were entitled to compensation due to
substantial fulfillment under Art 1234? NO Under the established circumstances, we deem the total amount of
P200,000.00 to be reasonable compensation for respondents' services under
The principle of substantial performance is inappropriate when the the principle of quantum meruit. The court orders that (a) International
incomplete performance constitutes a material breach of the contract. Hotel Corporation to pay Francisco G. Joaquin, Jr. and Rafael Suarez
Finding the foreign financier that DBP would guarantee was the essence of P100,000.00 EACH as compensation for their services, and (b) the award
the parties' contract, so that the failure to completely satisfy such obligation of P20,000.00 as attorney's fees is deleted.
could not be characterized as slight and unimportant as to have resulted in
Joaquin and Suarez's substantial performance that consequentially benefitted II. Facts of the Case (Material Facts)
IHC. Whatever benefits IHC gained from their services could only be
minimal, and were even probably outweighed by whatever losses IHC 1. On February 1, 1969, respondent Francisco B. Joaquin, Jr.
suffered from the delayed construction of its hotel. Consequently, Article submitted a proposal to International Hotel Corporation (IHC) for
1234 did not apply. him to render technical assistance in securing a foreign loan for the
construction of a hotel, to be guaranteed DBP.
Issue: W/N Joaquin was entitled to the whole 2M as compensation for his 2. The proposal encompassed nine phases. The IHC Board of
services? NO Directors approved phase one to phase six of the proposal and
Obligations and Contracts (2020) PETITIONER: International Hotel Corp 1
DIGEST AUTHOR: Tin Sumaway RESPONDENT: Francisco Joaquin; Rafael Suarez

earmarked P2,000,000.00 for the project. DBP approved it on IV. Holding/s

subject to several conditions.
3. Shortly, after submitting the application to DBP, Joaquin wrote to Issue #1
IHC to request the payment of his fees in the amount of Failure to secure a foreign financier is a material breach that would not
P500,000.00 for the services that he had provided and would be allow Joaquin to recover under Art 1234.
providing to IHC in relation to the hotel project that were outside
the scope of the technical proposal. Joaquin intimated his CA’s ruling Court’s Rebuttals
amenability to receive shares of stock instead of cash in view of Joaquin had substantially performed The CA erroneously relied on Art
IHC’s financial situation. his obligations and had become 1234 since in order that there may
4. IHC granted Joaquin’s request. entitled to be paid for his services be substantial performance of an
5. Joaquin started negotiating Materials Handling Corp and later on obligation, there must have been an
with its principal, Barnes international. attempt in good faith to perform,
6. While the negotiations with Barnes were ongoing, Joaquin and Jose without any willful or intentional
Valero, the Executive Director of IHC, met with another financier, departure therefrom. The deviation
the Weston International Corporation (Weston), to explore possible from the obligation must be slight,
financing. and the omission or defect must be
7. When Barnes failed to deliver the needed loan, IHC informed DBP technical and unimportant, and must
that it would submit Weston for DBP’s consideration. As a result, not pervade the whole or be so
DBP cancelled its previous guaranty. material that the object which the
8. Due to Joaquin’s failure to secure the needed loan, IHC, through its parties intended to accomplish in a
President Bautista, canceled the 17,000 shares of stock previously particular manner is not attained.
issued to Joaquin and Suarez as payment for their services. The The non-performance of a material
latter requested a reconsideration of the cancellation, but their part of a contract will prevent the
request was rejected. performance from amounting to a
9. Consequently, Joaquin and Suarez commenced this action for substantial compliance.
specific performance, annulment, damages against IHC and the
members of its BOD. In this case, failure to secure a
foreign financier being the essence
III. Issue/s of the contract did not merely
constitute a slight breach.
1. Issue: W/N Joaqin and Suarez were entitled to compensation due to Overall Ruling
substantial fulfillment under Art 1234? NO
2. Issue: W/N Joaquin was entitled to the whole 2M as compensation The principle of substantial performance is inappropriate when the
for his services? NO incomplete performance constitutes a material breach of the contract. A
3. Issue: W/N he can claim the whole 500k from the resolution of the contractual breach is material if it will adversely affect the nature of the
board of directors allocated for his services? NO obligation that the obligor promised to deliver, the bene�ts that the obligee
expects to receive after full compliance, and the extent that the non-

performance defeated the purposes of the contract. Accordingly, for the Petitioner’s Arguments Court’s Rebuttals
principle embodied in Article 1234 to apply, the failure of Joaquin and The petitioner contends that he is
Suarez to comply with their commitment should not defeat the ultimate entitled to 2M as allocated and
purpose of the contract. approved the Board of Directors for
the first 6 phases of his services.
The primary objective of the parties in entering into the services agreement
was to obtain a foreign loan to finance the construction of IHC's hotel Overall Ruling
project. This objective could be inferred from IHC's approval of phase 1 to
phase 6 of the proposal. Phase 1 and phase 2, respectively the preparation of Anent the P2,000,000.00, the CA rightly concluded that the full amount of
a new project study and the settlement of the unregistered mortgage, would P2,000,000.00 could not be awarded to respondents because such amount
pave the way for Joaquin and Suarez to render assistance to IHC in applying was not allocated exclusively to compensate respondents, but was intended
for the DBP guaranty and thereafter to look for an able and willing foreign to be the estimated maximum to fund the expenses in undertaking phase 6 of
financial institution acceptable to DBP. All the steps that Joaquin and the scope of services. Its conclusion was unquestionably borne out by the
Suarez undertook to accomplish had a single objective — to secure a loan to minutes of the February 11, 1969 meeting, viz.:
fund the construction and eventual operations of the hotel of IHC. In that
regard, Joaquin himself admitted that his assistance was specifically sought The estimated expenses for this particular phase would be contingent,
to seek financing for IHC's hotel project. i.e., upon DBP's approval of the plan now being studied and prepared,
is somewhere around P2,000,000.00.
Finding the foreign financier that DBP would guarantee was the essence of
the parties' contract, so that the failure to completely satisfy such obligation After a brief discussion on the matter, the Board on motion duly made and
could not be characterized as slight and unimportant as to have resulted in seconded, unanimously adopted a resolution of the following tenor:
Joaquin and Suarez's substantial performance that consequentially benefitted RESOLUTION NO. _______
IHC. Whatever benefits IHC gained from their services could only be (Series of 1969)
minimal, and were even probably outweighed by whatever losses IHC "RESOLVED, as it is hereby RESOLVED, that if the Reparations
suffered from the delayed construction of its hotel. Consequently, Article allocation and the plan being negotiated with the DBP is realized
1234 did not apply. the estimated maximum expenses of P2,000,000.00 for this
phase is hereby authorized
Issue #3
Issue #2 International Hotel Corporation to pay Francisco G. Joaquin, Jr. and
The 2M allocated was not solely for the compensation of Joaquin but Rafael Suarez P100,000.00 EACH as compensation for their services
was allocated for the expenses of the whole project.

Petitioner’s Arguments Court’s Rebuttals under the principle of quantum meruit. The court orders that (a)
The petitioner contends that he is International Hotel Corporation to pay Francisco G. Joaquin, Jr. and
entitled to 500k pursuant to a Rafael Suarez P100,000.00 EACH as compensation for their services,
resolution by the board of directors. and (b) the award of P20,000.00 as attorney's fees is deleted.

Overall Ruling
QUANTUM MERUIT
The resolution states: Latin: as much as is deserved.
RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a legal principle under which a person should not be obliged to pay, nor
compensation in the amount of Five Hundred Thousand should another be allowed to receive, more than the value of the goods or
(P500,000.00) Pesos for his past services and services still to be services exchanged; hence, as much as is deserved only.
rendered in the future to the corporation up to the completion
of the Project. 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
The amount purportedly included services still to be rendered that fulfillment, less damages suffered by the obligee.
supposedly extended until the completion of the construction of the hotel. It
is basic, however, that in obligations to do, there can be no payment VI. Disposition
unless the obligation has been completely rendered.
ACCORDINGLY, the Court DENIES the petition for review on certiorari;
It is notable that the confusion on the amounts of compensation arose from and AFFIRMS the decision of the Court of Appeals promulgated on
the parties' inability to agree on the fees that respondents should receive. November 8, 2002 in C.A.- G.R. No. 47094 subject to the
Considering the absence of an agreement, and in view of respondents' MODIFICATIONS that: (a) International Hotel Corporation is ordered
constructive fulfillment of their obligation, the Court has to apply the to pay Francisco G. Joaquin, Jr. and Rafael Suarez P100,000.00 each as
principle of quantum meruit in determining how much was still due and compensation for their services, and (b) the award of P20,000.00 as
owing to respondents. Under the principle of quantum meruit, a contractor is attorney's fees is deleted.
allowed to recover the reasonable value of the services rendered despite the
lack of a written contract. The measure of recovery under the principle No costs of suit.
should relate to the reasonable value of the services performed. The
principle prevents undue enrichment based on the equitable postulate that it SO ORDERED.
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 VII. Additional Notes
contract was entered into, and no specific statutory provision was
applicable.
VII. Random Facts
Under the established circumstances, we deem the total amount of  Ponente: Bersamin, J.
P200,000.00 to be reasonable compensation for respondents' services

Barons Marketing v. CA Barons Marketing v. CA
I. Recit-ready Summary 2. As such dealer, Barons was given 60 days credit for its purchases
Phelps Dodge Phils., Inc. (Phelps Dodge) appointed Barons Marketing of Phelps Dodge’s electrical products. This credit term was to be
Corp. (Barons) as one of its dealers of electrical wires and cables. Barons reckoned from the date of delivery by plaintiff of its products to
purchased on credit from respondent various electrical wires and cables in defendant.
the total amount of around P4M. Barons then paid PDP P300K out of its 3. Barons purchased, on credit, from Phelps Dodge various electrical
P4M. On several occasions, Phelps Dodge wrote to Barons demanding wires and cables in the total amount of P4,102,438.30.
payment of its outstanding obligations due. In response, petitioner wrote 4. These wires and cables were in turn sold, pursuant to previous
back requesting if it could pay its outstanding account in monthly
arrangements, by defendant to MERALCO, the former being the
installments of P500,000.00 plus 1% interest per month.
accredited supplier of the electrical requirements of the latter.
Phelps Dodge, however, rejected the offer and reiterated its demand
for full payment of petitioner's account. Phelps Dodge then led a complaint 5. Under the sales invoices issued by Barons to Phelps Dodge for the
before the Pasig RTC against Barons for the recovery of P3,802,478.20 subject purchases, it is stipulated that interest at 12% on the amount
representing the value of the wires and cables the former had delivered to due for attorney's fees and collection.
the latter, including interest. Barons invokes Articles 19 and 21 of the Civil 6. On September 7, 1987, defendant paid plaintiff the amount of
Code, claiming that private respondent abused its rights when it rejected P300,000.00 out of P4,102,438.30. (unpaid: P3,802,478.20)
petitioner's offer of settlement and subsequently filed the action for 7. On several occasions, plaintiff wrote defendant demanding
collection. The main issue of the case is W/N private respondent is guilty of payment of its outstanding obligations due.
‘creditor’s abuse’? NO. 8. In response, defendant wrote plaintiff on October 5, 1987
The SC found petitioner's theory untenable. The Court held that to requesting the latter if it could pay its outstanding account in
constitute an abuse of rights under Article 19 the defendant must act with monthly installments of P500,000.00 plus 1% interest per month
bad faith or intent to prejudice the plaintiff. In the case at bar, petitioner has
commencing on October 15, 1987 until full payment.
failed to prove bad faith on the part of private respondent. Petitioner's
9. Phelps Dodge, however, rejected the offer and reiterated its
allegation that private respondent was motivated by a desire to terminate its
agency relationship with petitioner so that private respondent itself may deal demand for full payment of petitioner's account.
directly with Meralco is not supported by the evidence. At most, such
supposition is considered by the Court merely speculative. The Court having III. Issue/s
ruled that private respondent's acts did not transgress the provisions of 1. W/N private respondent is guilty of ‘creditor’s abuse’? NO.
Article 21, petitioner cannot be entitled to moral damages or for that matter, 2. W/N petitioner is liable to private respondent for interest and atty.
exemplary damages. The Court, however, found the amount of attorney's fees? Reduced it to 10%
fees and collection fees of 25% of the principal to be manifestly exorbitant,
and, accordingly, reduced it to 10%. IV. Holding/s
II. Facts of the Case Issue #1

1. Phelps Dodge, Philippines, Inc. (Phelps Dodge) appointed Barons NO, private respondent is not guilty of ‘creditor’s abuse’.
Marketing Corp. (Barons) as one of its dealers of electrical wires
and cables.
Obligations and Contracts (2020) PETITIONER: Barons Marketing Corp. 1

DIGEST AUTHOR: Steph Naval RESPONDENT: CA and Phelps Dodge Phils., Inc.
Petitioner’s Arguments Court’s Rebuttals Overall Ruling

• invokes Article 19 and Article 21 • We hold in the negative. It is an The SC ruled that private respondent was driven by very legitimate reasons
of the Civil Code, claiming that elementary rule in this for rejecting petitioner's offer and instituting the action for collection before
private respondent abused its jurisdiction that good faith is the trial court. As pointed out by private respondent, the corporation had its
rights when it rejected presumed and that the burden of own "cash position to protect in order for it to pay its own obligations." This
petitioner's offer of settlement proving bad faith rests upon the is not such "a lame and poor rationalization" as petitioner purports it to be.
and subsequently filed the action party alleging the same. For if private respondent were to be required to accept petitioner's offer,
for collection considering • In the case at bar, petitioner has there would be no reason for the latter to reject similar offers from its other
• petitioner exerted its outmost failed to prove bad faith on the debtors. Clearly, this would be inimical to the interests of any enterprise,
efforts to settle its obligations part of private respondent. especially a profit-oriented one like private respondent. It is plain to see that
and avoid a suit, that the • Petitioner's allegation that private what we have here is a mere exercise of rights, not an abuse thereof. Under
petitioner did not evade in the respondent was motivated by a these circumstances, we do not deem private respondent to have acted in a
payment of its obligation to the desire to terminate its agency manner contrary to morals, good customs or public policy as to violate the
private respondent, and that the relationship with petitioner so provisions of Article 21 of the Civil Code.
petitioner was just asking a small that private respondent itself may
concession that it be allowed to deal directly with Meralco is It may not be amiss to state that petitioner's contract with private respondent
liquidate its obligation to 8 simply not supported by the has the force of law between them. Petitioner is thus bound to fulfill what
installments of P500,000.00 plus evidence. At most, such has been expressly stipulated therein. In the absence of any abuse of right,
1% interest per month supposition is merely speculative. private respondent cannot be allowed to perform its obligation under such
• It is always wiser and more contract in parts. Otherwise, private respondent's right under Article 1248
prudent to accept an offer of will be negated, the sanctity of its contract with petitioner defiled. The
payment in installment rather principle of autonomy of contracts must be respected.
than let an action in court to
settle the dispute
• Why then did private respondent Issue #2
elect a suit for collection rather Found the amount of attorney's fees and collection fees of 25% of the
than accept petitioner's offer? principal to be manifestly exorbitant, and, accordingly, reduced it to 10%.
The answer is obvious. The Petitioner’s Arguments Court’s Rebuttals
action of private respondent in • Petitioner prays that the Court • It may also be noted that the
filling a suit for collection was order private respondent to pay above stipulation, insofar as it
an abuse of right and exercised petitioner moral and exemplary provides for the payment of "25%
for the sole purpose of damages, attorney's fees, as well on said amount for attorney's fees
prejudicing and injuring the as the costs of suit. It likewise and collection (sic)," constitutes
petitioner. asks that it be allowed to what is known as a penal clause.
liquidate its obligation to private • Petitioner is thus obliged to pay
respondent, without interests, in such penalty in addition to the
8 equal monthly installments. 12% annual interest, there being

an express stipulation to that Every person must, in the exercise of his rights and in the performance of
effect. his duties, act with justice, give everyone his due, and observe honesty and
• Petitioner nevertheless urges this good faith.
Court to reduce the attorney's fees
for being "grossly excessive," ARTICLE 21
"considering the nature of the Any person who willfully causes loss or injury to another in a manner that is
case which is a mere action for contrary to morals, good customs or public policy shall compensate the
collection of a sum of money." It latter for the damage.
may be pointed out however that
the above penalty is supposed to ARTICLE 1248
answer not only for attorney's Unless there is an express stipulation to that effect, the creditor cannot be
fees but for collection fees as compelled partially to receive the prestations in which the obligation
well. consists. Neither may the debtor be required to make par al payments.
Overall Ruling
Courts are empowered to reduce such penalty if the same is "iniquitous or ARTICLE 1229
unconscionable." Article 1229 of the Civil Code states thus: The judge shall equitably reduce the penalty when the principal obligation
ART. 1229. The judge shall equitably reduce the penalty when the has been partly or irregularly complied with by the debtor. Even if there has
principal obligation has been partly or irregularly complied with by the been no performance, the penalty may also be reduced by the courts if it is
debtor. Even if there has been no performance, the penalty may also be iniquitous or unconscionable.
reduced by the courts if it is iniquitous or unconscionable. The sentiments of the law are echoed in Article 2227 of the same Code:
The sentiments of the law are echoed in Article 2227 of the same Code:
ART. 2227. Liquidated damages, whether intended as an indemnity or ARTICLE 2227
a penalty, shall be equitably reduced if they are iniquitous or Liquidated damages, whether intended as an indemnity or a penalty, shall be
unconscionable. equitably reduced if they are iniquitous or unconscionable.
It is true that we have upheld the reasonableness of penalties in the form of VI. Disposition
attorney's fees consisting of 25% of the principal debt plus interest. 20 In
the case at bar, however, the interest alone runs to some four and a half WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED
million pesos (P4.5M), even exceeding the principal debt amounting to in that the attorney's and collection fees are reduced to ten percent (10%) of
almost four million pesos (P4.0M). 25% of the principal and interest the principal but is AFFIRMED in all other respects.
amounts to roughly two million pesos (P2M). In real terms, therefore, the SO ORDERED.
attorney's fees and collection fees are manifestly exorbitant. Accordingly,
we reduce the same to ten percent (10%) of the principal. VII. Random Facts
• Ponente: Kapunan, J.
ARTICLE 19

G.R. No. 173090-91 | September 7, 2011 Novation
Union Bank v. Spouses Tiu Union Bank v. Spouses Tiu

Union Bank and Spouses Tiu entered into a Credit Line Agreement (CLA) 1. Petitioner Union Bank of the Philippines (Union Bank) and
whereby Union Bank agreed to make available to the spouses Tiu credit respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (Spouses
facilities. The spouses were able to take out loans amounting to Tiu) entered into a Credit Line Agreement whereby Union Bank
US$3,632,000.00. Both parties agreed to redenominate the amount of loan agreed to make available to the spouses Tiu credit facilities in such
at P41.40 per dollar with interest of 19% per year. The parties entered into a amounts as may be approved. Between September 1997 to March
Restructuring Agreement wherein the restructured amount was computed at 1998, spouses Tiu took out loans amounting to US$3,632,000.00.
P155,364,800.00. However, after deducting the dacion price of properties 2. In June 1998, Union Bank advised the respondents to redenominate
ceded by the Tiu spouses and adding the taxes, registration fees and other the loans to their equivalent Philippine peso amount in which
expenses advanced by Union Bank in registering the Deeds of Dation in Spouses Tiu authorized the loans to be redenominated at the rate of
Payment, the total restructured amount became P104,668,741. The P41.40 per dollar with interest of 19% per year.
respondents promised to pay the amount in three loans and executed a real 3. The former and the latter entered into a Restructuring Agreement
estate mortgage to cover the debt, but still they failed to pay. Hence, the wherein the Spouses Tiu’s outstanding principal is
Union Bank initiated extrajudicial foreclosure proceedings, while the P155,364,800.00 (see Additional Notes). After deducting the
respondents filed a complaint seeking to make the foreclosure null and void. dacion price of properties ceded by the Tiu spouses and adding the
The RTC dismissed the complaint of the respondents for their failure to taxes, registration fees and other expenses advanced by Union
present any detailed accounting as to the total amount they have paid after Bank in registering the Deeds of Dation in Payment, the total
the execution of the Restructuring Agreement and proof of their consent to restructured amount is P104,668,741. With this, the respondents
the Restructuring Agreement being vitiated. On appeal, the CA held that the executed a real estate mortgage in favor of the petitioner and
loan transactions were in pesos, since there was supposedly no stipulation undertook to pay the restructured amount in three loan facilities.
the loans will be paid in dollars and since no dollars ever exchanged hands However, between August 1999 to May 2001, the respondents
and ruled that the Restructuring Agreement is void since it attempts to were able to pay P15M and P13,197,546.90 respectively. Adding
create a novation of the original loan, was not clearly authorized by the the amounts paid under the Deeds of Dation in Payment, the
debtors and was not supported by any cause or consideration. Hence, the spouses Tiu postulate that their payments added up to
original loan amounting to P94,432,000.00 should subsist. The issue in this P89,407,546.79.
case is W/N the Restructuring Agreement is a valid and binding 4. For the respondent’s failure to pay the restructured amount, the
novation of the original loan entered into by the Spouses Tiu. The Court Union Bank initiated extrajudicial foreclosure proceedings on the
ruled that even before the Restructuring Agreement, the spouses Tiu were residential property of the spouses Tiu. The former together with
already bound to pay Union Bank the amount of US$3,632,000.00, plus the Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young
interest stipulated in the promissory notes, without converting the same to and Rosenda T. Tiu, filed a complaint to have the extrajudicial
pesos. The Restructuring Agreement was signed at the height of the foreclosure declared null and void before the RTC of Mandaue
financial crisis when the Philippine peso was rapidly depreciating. City. As a defense, the respondents presented a witness, Lilia
1
Obligations and Contracts (2020) PETITIONER: Union Bank of the Philippines
DIGEST AUTHOR: Steven Rivera RESPONDENT: Spouses Rodolfo T. Tiu and Victoria N. Tiu
Gutierrez, who testified that the spouses Tiu merely received the 1. W/N the Restructuring Agreement is a valid and binding
peso equivalent of their US$3,632,000.00 loan at the rate of novation of the original loan entered into by the Spouses Tiu.
US$1=₱26.00, and claimed that they were merely forced to sign (YES)
the Restructuring Agreement and take up an additional loan of
₱5,000,000.00, the proceeds of which they never saw because this IV. Holding/s
amount was immediately applied by Union Bank to interest Issue #1
payments. YES, the Restructuring Agreement was a valid and binding novation of
5. The RTC dismissed the complaint of the respondents for their loans of the spouses Tiu entered into from September 22, 1997 to
failure to present any detailed accounting as to the total amount March 26, 1998 which had a total amount of US$3,632,000.00.
they have paid after the execution of the Restructuring Agreement Respondent’s Arguments Court’s Rebuttals
and proof of their consent to the Restructuring Agreement being ● They claimed that the Union ● The Court ruled that even if the
vitiated. Bank does not dispute that the Spouses Tiu received peso
6. The spouses Tiu received from Sheriff Oano a Second Notice of spouses Tiu received the loaned equivalents of the borrowed
Extra-judicial Foreclosure Sale of Lot No. 639. To prevent the sale, amount of US$3,632,000.00 in amounts, the loan documents, as
the Tiu spouses filed with the Court of Appeals a Petition for Philippine pesos, not dollars, at evidenced by the promissory
Prohibition and Injunction with Application for TRO/Writ of the prevailing exchange rate of notes, the expressed amount of
Preliminary Injunction. The CA held that the loan transactions US$1=₱26. the loans to be paid was in US
were in pesos, since there was supposedly no stipulation the loans dollars.
will be paid in dollars and since no dollars ever exchanged hands Overall Ruling (please take note of the statutes’ date of effectivity)
and ruled that the Restructuring Agreement is void since it attempts
to create a novation of the original loan, was not clearly authorized At first, the Court held that under Section 1 of R.A. No. 529, which took
by the debtors and was not supported by any cause or effect in June 1950, any agreement to pay an obligation in a currency other
consideration. The original loan of P94,432,000.00 (US$3,632,000 than the Philippine currency is void. However, the statute was repealed by
x ₱26 - the rate when they entered the CLA agreement) should R.A. No. 8183, which took effect in July 1996, when it allowed the parties
subsist. Hence, the Union Bank is liable to Spouses Tiu for the to agree that the obligation or transaction shall be settled in a currency other
amount of P927,546.79 because the latter have already paid than Philippine currency at the time of payment. Under Article 1249 of the
P89,407,546.79, and the additional P5,952,000, which was Civil Code, it states that the payment of debts in money shall be made in the
considered an illegal collected rental on the part of the Union currency stipulated, and if it is not possible to deliver such currency, then in
Bank, should be credited to their obligation. the currency which is legal tender in the Philippines. In the instant case, the
III. Issue/s credit line agreement between the parties was entered into in November
1995, which would make the agreement to pay in foregin currency void, but
2
the promissory notes were issued from September 1997 to March 1998, obligation or transaction shall be settled in any other currency at the
hence R.A. No. 8183 was already in effect and the borrowed amounts can time of payment.
be paid in US dollars. Since it was expressed in the promissory notes, issued
by Spouses Tiu, that the borrowed amounts will be paid in US dollars, the VI. Disposition
WHEREFORE, the Petition is PARTIALLY GRANTED . The Joint
SC ruled that even before the Restructuring Agreement, the spouses Tiu
Decision of the Court of Appeals in CA-G.R. CV No. 00190 and CA-G.R.
were bound to pay Union Bank the amount of US$3,632,000.00 plus the
SP No. 00253 dated February 21, 2006 is hereby AFFIRMED insofar as it
interest stipulated in the promissory notes, without converting the same to
ordered petitioner Union Bank of the Philippines to return to the respondent
pesos. spouses Rodolfo T. Tiu and Victoria N. Tiu all the certificates of shares of
stock and titles to real properties that were submitted to it or, in lieu thereof,
The Restructuring Agreement was signed at the height of the financial crisis to pay the cost for the replacement and issuance of new certificates and new
when the Philippine peso was rapidly depreciating. Since the spouses Tiu titles over the said properties. The foregoing Joint Decision is hereby SET
were bound to pay their debt in dollars, the cost of purchasing the required ASIDE: (1) insofar as it permanently enjoined Union Bank of the
currency was likewise swiftly increasing. If the parties did not enter into the Philippines from foreclosing the mortgage of the residential property of
Restructuring Agreement in December 1999 and the peso continued to respondent spouses Rodolfo T. Tiu and Victoria N. Tiu which is covered by
deteriorate, the ability of the spouses Tiu to pay and the ability of Union Transfer Certificate of Title No. 11951; (2) insofar as it ordered Union Bank
Bank to collect would both have immensely suffered. of the Philippines to return to the respondent spouses Rodolfo T. Tiu and
Victoria N. Tiu the amount of P927,546.79 representing illegally collected
V. Law or Doctrine Applied rentals; and (3) insofar as it ordered Union Bank of the Philippines to pay
Article 1249 of the Civil Code the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu P100,000.00 in
The payment of debts in money shall be made in the currency stipulated, moral damages, P100,000.00 in exemplary damages, P50,000.00 in
attorney's fees and cost, both in the lower court and in this Court.
and if it is not possible to deliver such currency, then in the currency which
is legal tender in the Philippines.
● The restructured amount (P155,364,800.00) is the sum of the
Section 1 of Republic Act No. 529 following figures: (1) P150,364,800.00, which is the value of the
Any agreement to pay an obligation in a currency other than the US$3,632,000.00 loan as redenominated under the
Philippine currency is void; the most that could be demanded is to pay above-mentioned exchange rate of US$1=P41.40; and (2)
said obligation in Philippine currency to be measured in the prevailing rate P5,000,000.00, an additional loan given to the... spouses Tiu to
of exchange at the time the obligation was incurred. update their interest payments.
Section 1 of Republic Act No. 8183 VII. Random Facts

All monetary obligations shall be settled in the Philippine currency which is
● Ponente: Leonardo-De Castro, J.
legal tender in the Philippines. However, the parties may agree that the
3
G.R. No. 105188 | January 23, 1998 Art. 1249
Papa v. AU Valencia Papa v. AU Valencia
1. Valencia gave Papa the amounts of P5k in cash and P40k in check
Valencia gave Papa 5k in cash and 40k in check as payment for the as payment of the purchase price of a parcel of land (previously
purchase of land. 10 years elapsed and Papa still refused and failed to owned by Angela Butte).
deliver the title of the said property, despite Valencia’s demands. Valencia a. More than 10 years later, Papa still refused and failed to
et al. filed a complaint for specific performance, as administrator of Angela. deliver the title of the property despite repeated demands
Papa Argued that the sale was never consummated because the check from Valencia.
amounting to 40k was never encashed, hence it did not produce the effect of 2. Valencia et al. filed a complaint for specific performance against
payment pursuant to Art. 1249. Papa admits receipt of the check, but argues Papa, in his capacity as administrator of Angela Butte.
that there must be a clear showing that he encashed it
a. They prayed that Papa be ordered to deliver the title of the
subject property, and to turn over the total accrued rentals
Issue: W/N the delivery of the check produced payment?
Papa collected from the time the sale was executed.
The Supreme Court finds no merit in petitioner's arguments. Granting that 3. Papa argued that the sale was never consummated because the
petitioner had never encashed the check, his failure to do so for more than P40k in check was allegedly never encashed, and so, according to
ten (10) years resulted in the impairment of the check through his Art. 1249, the delivery of the check did not produce the effect of
unreasonable and unexplained delay. While it is true that the delivery of a payment.
check produces the effect of payment only when it is cashed, pursuant to a. He admits that he issued a receipt but he further argues
Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced that there must be a clear showing that he encashed the
by the creditor's unreasonable delay in presentment. The acceptance of a check.
check implies an undertaking of due diligence in presenting it for payment, 4. CA
and if he from whom it is received sustains loss by want of such diligence, it a. Papa did not encash the check, so the sale was not
will be held to operate as actual payment of the debtor or obligation for consummated
which it was given. III. Issue/s
1. W/N the delivery of the check produced payment? (YES)
IV. Holding/s
1
Obligations and Contracts (2020) PETITIONER: MYRON C. PAPA, Administrator of the Testate Estate of
Angela M. Butte,
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: A.U. VALENCIA and CO. INC., FELIX PEÑARROYO,
SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO,
G.R. No. 105188 | January 23, 1998 Art. 1249
Overall Ruling
Issue #1
1. W/N the delivery of the check produced payment? (YES) ● After more than 10 years from the payment in part by cash and in part
by check, the presumption is that the check had been encashed.
○ Papa’s assertion that he never encashed the check is not
substantiated and is at odds with his statement that “he can
Petitioner’s Arguments Court’s Rebuttals no longer recall the transaction which is supposed to have
happened more than 10 years ago”.
● Sale was never consummated ● After more than 10 years from ● Assuming that the check was actually never encashed, the failure to
because the P40k in check was the payment in part by cash do so for more than 10 years undoubtedly results in the impairment of
allegedly never encashed, and and in part by check, the the check through unreasonable and unexplained delay.
so, according to Art. 1249, the presumption is that the check ○ Art. 1249(2) provides: The delivery of promissory notes payable
delivery of the check did not had been encashed. to order, or bills of exchange or other mercantile documents shall
produce the effect of payment. produce the effect of payment only when they have been cashed, or
when through the fault of the creditor they have been impaired.
○ The rule provided in Art. 1249 does not apply if the debtor is
prejudiced by the creditor’s unreasonable delay in
presentation.
● The acceptance of a check implies an undertaking of due diligence in
presenting it for payment.
○ If the debtor suffers loss from the creditor’s lack of due
diligence, the check will be held to operate as actual payment
of debt or obligation for which the check was given.
○ If no presentment was made at all, the drawer cannot be held
liable UNLESS presentment is otherwise excused.
2
Angela M. Butte,
G.R. No. 105188 | January 23, 1998 Art. 1249
● If the non-payment is caused by negligence of the payee or creditor,

payment will be deemed effected and the obligation for which the
check was given as conditional payment will be discharged. If no presentment was made at all, the drawer cannot be held liable
● Therefore, Papa is obliged to deliver to Valencia et al. the owner’s UNLESS presentment is otherwise excused.
duplicate of the subject property, along with the peaceful possession
and enjoyment of the lot. If the non-payment is caused by negligence of the payee or creditor,
payment will be deemed effected and the obligation for which the check
was given as conditional payment will be discharged.

V. Disposition
ART. 1249
WHEREFORE, the petition for review is hereby DENIED and the Decision
The payment of debts in money shall be made in the currency stipulated, and if it is of the Court of Appeals, dated 27 January 1992 is AFFIRMED.
the Philippines.
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired. VII. Random Facts
● Ponente: Kapunan, J.:
In the meantime, the action derived from the original obligation shall be held in the
abeyance.
PRESUMPTION THAT CHECK IS ENCASHED
If the debtor suffers loss from the creditor’s lack of due diligence, the check
will be held to operate as actual payment of debt or obligation for which the
check was given.
3
Angela M. Butte,
G.R. No. L-22578 | January 31, 1973 Topic: Payment or Performance – Articles 1249
O206 - NAMARCO v Federartion of United NAMARCO O206 - NAMARCO v Federartion of United NAMARCO
I. Recit-ready Summary Code, letters of credit, draft letters, and other such documents are not
considered payment for an obligation until they are realized. NAMARCO
Federation of United Namarco Distributors, Inc. (FEDERATION) had not actually been paid in the first place, since the letters of credit did not
entered into a Contract of Sale with National Marketing Corporation count as payment and The Court also held that NAMARCO had not
(NAMARCO), in which NAMARCO was obligated to deliver impaired the instruments by trying to redeem the letters in good faith.
$2,001.031.00 worth of goods, and FEDERATION would pay 200,000
pesos in advance as well as the value of the merchandise upon delivery. II. Facts of the Case (Material Facts)
To insure the payment, NAMARCO accepted three domestic letters of
credit from FEDERATION, with each letter stipulating a specific value to 1. The respondent NAMARCO is a government owned and controlled
be released to NAMARCO upon delivery of the merchandise specified. corporation duly organized and existing under and by virtue of
NAMARCO delivered a great portion of the promised merchandise, but the Republic Act No. 1345, as amended; and the petitioner, hereinafter
deliveries were still incomplete when it tried to redeem the letters of credit. to be called the FEDERATION, is a non-stock corporation duly
Because FEDERATION did not yet accept the sight drafts drawn on the organized and existing under and by virtue of the laws of the
letters (i.e., they refused to accept that NAMARCO had completed Philippines.
delivery), the Philippine National Bank could not release any money to
NAMARCO. 2. NAMARCO and the FEDERATION entered into a Contract of
Concurrently, FEDERATION filed a complaint for specific action and Sale with the following stipulations, terms and conditions:
damages against NAMARCO for their failure to completely deliver the a. NAMARCO would import Two Million One Thousand
merchandise. NAMARCO counter-claimed, arguing that the contracts were Thirty One Dollars ($2,001.031.00) worth of goods
invalid. NAMARCO also demanded payment of P611,053.35 from
FEDERATION for the value of delivered goods, but the latter refused. b. FEDERATION would pay Two Hundred Thousand Pesos
The civil case for specific action and damages was decided in favor of (P200,000.00) as part payment of the items and/or
FEDERATION, and was affirmed by the Supreme Court. NAMARCO was merchandise above-mentioned, and deposited by the
ordered to deliver the remaining goods. FEDERATION with the NAMARCO upon signing of the
Nevertheless, NAMARCO filed another civil case to recover items and/or merchandise above enumerated items and/or
payment for the goods it had previously delivered. FEDERATION moved to merchandise shall be paid on cash basis upon delivery
dismiss the case on the grounds of res judicata, but the Court of First of the duly indorsed negotiable shipping document
Instance ruled in favor of NAMARCO. covering the same, the NAMARCO agrees to sell the
FEDERATION petitioned the Supreme Court, which held that said items and/or merchandise subject to the following
NAMARCO still has a cause of action because its complaint arose from a terms and conditions (see notes; stipulations are not
different source than in the first civil case. FEDERATION’s contention that relevant to the topic)
NAMARCO had impaired the letters of credit due to failure to comply with
conditions was deemed to be irrelevant. Under Article 1249 of the Civil
Obligations and Contracts (2020) PETITIONER: Federation Of United Namarco Distributors, Inc., defendant- 1
appellant.
DIGEST AUTHOR: Vito Castañeda RESPONDENT: National Marketing Corporation, plaintiff-appellee

3. Among the goods covered by the Contract of Sale were 2,000 b. On January 29, 1960, the FEDERATION received from
cartons of PK Chewing Gums, 1,000 cartons of Juicy Fruit the NAMARCO the 2,000 cartons of PK Chewing Gums,
Chewing Gums, 500 cartons of Adams Chicklets, 168 cartons of 1,000 cartons of Juicy Fruit Chewing Gums, and 500
Blue Denims, and 138 bales of Khaki Twill. cartons of Adams Chicklets, all with a total value of
P277,357.91, under the condition that the cost thereof
4. To insure the payment of those goods by the FEDERATION, the would be paid in cash through PNB Domestic L/C No.
NAMARCO accepted three domestic letters of credit: 600570 (one of the letters of credit); and on February 20,
1960, the FEDERATION received from the NAMARCO
a. PNB Domestic L/C No. 600570, available by draft up to the 168 cartons of Blue Denims and 183 bales of Khaki
the aggregate amount of P277,357.91, covering the full Twill, with a total value of P135,891.82 and
invoice value of the 2,000 cartons PK-5 Chewing Gums, P197,804.12, respectively, under the condition that the
1,000 cartons of Juicy Fruit Chewing Gums, and 500 cost thereof would be paid in cash through the
cartons of Adams Chicklets; remaining two letters of credit.
b. PNB Domestic L/C No. 600606, available by draft up to
the aggregate amount of P135,891.82, covering the full 6. On March 2, 1960, the FEDERATION and some of its members
invoice value of the 168 cartons of Blue Denims; and filed a complaint for specific performance and damages against the
c. PNB Domestic L/C No. 600586, available by draft up to NAMARCO, alleging that although the NAMARCO had delivered
the aggregate amount of P197,804.12, covering the full a great portion of of the goods listed in the Contract of Sale, it
invoice value of the 183 bales of Khaki Twill/ refused to deliver the other goods mentioned in the said contract.
7. On March 10, 1960, the NAMARCO presented to the Philippine
5. The goods arrived in Manila and were delivered to National Bank, Manila, the three letters of credit to claim payment
FEDERATION. for the goods delivered to FEDERATION.
a. Upon arrival of the goods in Manila in January, 1960, 8. "On May 19, 1960, the Philippine National Bank informed the
the NAMARCO submitted to the FEDERATION NAMARCO that could not negotiate and effect payment on the
Statement of Account for P277,357.91, covering shipment sight drafts, (P277,357.91, P135,891.82 and P197,804.12),
of the 2,000 cartons of PK Chewing Gums, 1,000 cartons respectively, as the requirements of the covering letters of credit
of Juicy Fruit Chewing Gums, and 500 cartons of Adams had not been complied with. The common condition of the
Chicklets; Statement of Account of P135,891.32, covering three letters of credit is that the sight drafts drawn on them
shipment of the 168 cartons of Blue Denims; and must be duly accepted by the FEDERATION before they will
Statement of Account of P197,824.12, covering shipment be honored by the Philippine National Bank. But the said
of the 183 bales of Khaki Twill or a total of P611,053.35, drafts were not presented to the FEDERATION for
for the FEDERATION to pay. acceptance.
appellant.

9. NAMARCO demanded from the FEDERATION the payment of III. Issue/s

the total amount of P611,053.35, but the latter failed and refused to 1. W/N FEDERATION is still obliged to pay for the merchandise
pay. even though NAMARCO had not completely delivered: YES.
10. Court of First Instance of Manila ruled in favor of FEDERATION,
ordering NAMARCO to deliver the remaining goods.
11. NAMARCO appealed alleging that the invalidity of the contract Issue #1
relieved them of their liability to deliver the remaining goods. YES, FEDERATION must pay NAMARCO was able to perform his
12. The Supreme Court held that the Contract of Sale was valid. obligation, and has not committed any substantial breach.
(separate case, irrelevant to the current topic) Petitioner’s Arguments Court’s Rebuttals
13. NAMARCO instituted the present action alleging, among others, • NAMARCO has neither • the failure of the latter to
that the FEDERATION'S act or omission in refusing to satisfy the alleged nor proved that it comply with the
former's valid, just and demandable claim has compelled it to file has complied with the requirements of the
the instant action; and praying that the FEDERATION be ordered conditions contained in the domestic letters of
to pay the NAMARCO the sum of P611,053.35, representing the three domestic letters of credit, was never
cost of merchandise mentioned in the preceding paragraph, with credit invoked by
interest thereon at the legal rate from the date of delivery of the • the sight drafts drawn upon FEDERATION as a
merchandise in question, until the whole obligation is paid; them be presented to basis for its "Motion to
P20,000.00 as attorney's fees and other expenses of litigation, plus FEDERATION for Dismiss"
costs. acceptance before they can • There was no mention of
14. On February 7, 1961, the FEDERATION moved to dismiss the be honored by the Bank. the failure to comply
complaint on the ground that the cause of action alleged therein is • In failing to comply with with the conditions, in
barred forever, pursuant to Section 6 of Rule 10 of the Rules of the said stipulation, the either the lower court’s
Court. (They claim res judicata). private respondent acquired trial or the appealed
15. The Court of First Instance of Manila ruled in favor of no right to be compensated. decision (settled rule:
NAMARCO, ordering FEDERATION to pay P609,014.73, questions which were
representing the cost of merchandise delivered to, and not paid for not raised in the lower
by, the defendant, with interest thereon at the legal rate from the court cannot be raised
date of delivery of the merchandise, until the whole obligation is for the first time on
paid; and the sum of P5,000.00, for and as attorney's fees and other appeal)
expenses of litigation, plus costs. • NAMARCO's action is
not based on the
16. FEDERATION then petitioned the Supreme Court. domestic letters of
credit, but on its legal
appellant.

right to the cost of the FEDERATION remains indebted to them for the value of the delivered
goods delivered to the good.
FEDERATION the
correlative obligation of
the latter to pay for the
same, and its default or
refusal to make such
payments.
Overall Ruling
The FEDERATION is obligated to pay NAMARCO for the value of the
goods delivered. ARTICLE 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency, then in
The mere delivery by the FEDERATION of the domestic letters of the currency which is legal tender in the Philippines.
credit to NAMARCO did not operate to discharge the debt. NAMARCO
accepted the three letters of credit "to insure the payment of those goods by other mercantile documents shall produce the effect of payment only when
the FEDERATION," and thus the letters are mere guarantee for the they have been cashed, or when through the fault of the creditor they have
payment of the merchandise. been impaired.
Article 1249 of the New Civil Code provides that the delivery of held in the abeyance. (1170)
promissory notes payable to order, or bills of exchange or drafts or other
mercantile document shall produce the effect of payment only when
realized, or when by the fault of the creditor, the privileges inherent in
their negotiable character have been impaired. V. Disposition
NAMARCO, acting as creditor, has not impaired the draft documents in ACCORDINGLY, with the modifications above indicated, the appealed
judgment is hereby affirmed, with costs against defendant-appellant.
any way. The clause referring to impairment only applies to instruments
executed by third persons and delivered by the debtor to the creditor, and
Fernando and Esguerra, JJ., concur.
does not apply to instruments executed by the debtor himself and delivered Concepcion, C.J., took no part.
to the creditor. Makalintal, Zaldivar and Castro, JJ., concur in the result.
Makasiar, J., concurs solely on the basis of reason No. II.
As NAMARCO had not yet collected any payment as recognized by law,
appellant.

VII. Random Facts

• Ponente: Antonio, J.
If my calendar is correct, we’ve been in quarantine for about a month

already. Ateneo Law School started quarantine a few days earlier before
classes were universally suspended across Metro Manila.
The days seem to blur into each other. The weeks seem fast and slow at the
same time. I wake up, eat, study a bit, spend too much time on the internet,
and then sleep. The next day is pretty much the same. I watch a pre-recorded
mass with my family on a Sunday, and before I know it, it’s Sunday again.
Meanwhile, if Dean Maita streams an Oblicon class on a Wednesday, an
eternity seems to pass before it’s Wednesday again. My mind is just
selective of what it keeps track of across time, I suppose.
I’ve been procrastinating my studies too much. I’m submitting this Digest
on March 27, 2020. It’s a Friday today, and I have not studied Oblicon at all
this week. I was halfway-productive in that subject’s review prior to this
week, but my motivation just fell away.
appellant.

G.R. No. 132768 | September 09, 2005 Extinguishment of Obligations : Payment (Art. 1249)
Biana v. Gimenez Biana v. Gimenez

In a labor case, Respondent Gimenez and his co-defendants were 1. In a labor case before the Naga City District Office of DOLE,
ordered to pay Mendones the total judgment obligation of P5,248.50. Upon Respondent George Gimenez and his co-defendants were ordered
his failure to pay, Sheriff Madera levied and thereafter publicly auctioned to pay Santos Mendones the total judgment obligation of
four parcels of land, where Mendones emerged as the winning bidder. P5,248.50.
2. For defendants’ failure to pay the judgment obligation, Sheriff
Within the 1-year redemption period, Gimenez issued four postdated Madera levied 4 parcels of urban land, which were then publicly
checks to Sheriff Garchitorena for the purpose of paying the redemption auctioned.
price. However, a Deed of Sale was executed in favor of Mendones upon 3. Mendones was the winning bidder for P8,908.50, and was then
the expiration of the redemption period by reason of Gimenez’ alleged issued a Provisional Certificate of Sale.
unpaid balance. When Gimenez requested for a Deed of Redemption, the 4. Gimenez contended that he was not notified of the sale, and only
same was refused by the sheriffs. Gimenez the filed a civil action for learned of it when he was asked to pay the publication fee of
mandamus with damages to compel sheriffs to execute the desired Deed of P3,510.00, which he paid in full.
Redemption, and if a Deed of Sale been issued to Mendones, to declare it 5. For the purpose of paying the redemption price, Gimenez issued
null and void. The RTC and the CA ruled in favor of Gimenez, finding that four postdated checks to Sheriff Garchitorena for the balance
there had been a valid payment of the redemption price. thereof amounting to P6,615.89.
6. On July 19 1979 or four months before the expiration of the
Petitioner contended that no valid redemption was effected by redemption period, Sheriff Garchitorena issued a receipt
Gimenez, relying on the case of PAL v. CA, where it was held that a acknowledging the sum received from Gimenez in full payment
payment in check issued in the name of an absconding sheriff did not and satisfaction of the judgment.
operate as payment of the judgment obligation. Over the pendency of the 7. On December 3 1979, Sheriff Madera informed counsel of
case, Mendones assigned his right over the land to Petitioner Biana. Gimenez that the redemption period was expiring on December
7th, and that Gimenez still had an unpaid balance of P4,367.8.
The Court ruled that the case involves the exercise of a right i.e. the
8. Gimenez contended that he had already paid the full cost of
right of redemption, not the payment of an obligation. In view of this, the
publication to the publisher.
Civil Code provisions on payment of obligations, particularly Article 1249,
9. On December 8 1979, Sheriff Madera executed a Definite Deed of
cannot be applied. The Court held that the mere tender of a check is
Sale in favor of Mendones.
sufficient to compel redemption, however, this is not in itself a payment that
10. For allegedly having paid the full redemption price, Gimenez
relieves the ‘redemptioner’ from his liability to pay the redemption price.
requested Sheriff Garchiterona to execute a Deed of Redemption in
his favor, which was refused by the latter.
The Court affirmed the ruling of the CA in toto, in holding that there
11. Gimenez filed a special civil action for mandamus with damages to
has been a valid payment of the redemption price, which would entitle
compel Sheriff Garchitorena/Sheriff Madera to execute the Deed of
Gimenez to the issuance of a Deed of Redemption in his favor.
Redemption, with the alternative prayer that if a Deed of Sale had
Obligations and Contracts (2020) PETITIONER: Jaime Biana 1

DIGEST AUTHOR: Micah Espion RESPONDENT: George Gimenez
already been issued to Mendones, the same be declared null and Overall Ruling
void. The SC ruled that the instant case involves the exercise of a right i.e.
12. Mendones contends that no valid redemption was effected within the right of redemption, not the payment of an obligation. The Civil Code
the 1-year redemption period. provisions on payment of obligations, particularly Article 1249, are not
13. Over the pendency of the case, Mendones assigned his right over applicable in the case. The Court held that what applies is the settled
the subject parcels to Petitioner Jaime Biana for P1M. rule that a mere tender of a check is sufficient to compel redemption.
14. The RTC of Naga City ruled in favor of Gimenez, rendering the
Deed of Sale null and void and ordering the Provincial Sheriff to Relying instead on Fortunato et al v. Court of Appeals, the Court held
execute the Deed of Redemption to Gimenez. that a check may be used for an exercise of the right of redemption. It was
15. The Court of Appeals (CA) affirmed the decision in toto. maintained that although the tender of a check is sufficient to compel
redemption, but is not in itself a payment that relieves the ‘redemptioner’
III. Issue/s from his liability to pay the redemption price. While the ‘redemptioner’ may
1. W/N there has been a valid payment of the redemption price? properly exercise his right of redemption, he remains liable for the payment
of the redemption price.
IV. Holding/s
Issue #1 The Court upheld the ruling of the two courts below that there has
YES, the tender of the postdated checks is a valid payment that is been a valid payment of the redemption price which would entitle
sufficient to compel redemption. respondent to the issuance of a Deed of Redemption in his favor.
• The tender of postdated checks • Civil Code provisions on V. Law or Doctrine Applied
did not operate as payment of the payment of obligations do not
redemption price, hence apply to the case at bar, the right
The payment of debts in money shall be made in the currency stipulated,
respondent is not entitled to a of redemption being a right and
and if it is not possible to deliver such currency, then in the currency which
deed of redemption not an obligation. is legal tender in the Philippines.
• In PAL v. CA, the Court held • Petitioner’s reliance on PAL is
that a payment in check issued in misplaced, as the peculiar The delivery of promissory notes payable to order, or bills of exchange or
the name of an absconding circumstances pronounced therein other mercantile documents shall produce the effect of payment only when
sheriff did not operate as are absent in the instant case. they have been cashed, or when through the fault of the creditor they have
payment of the judgment been impaired.
obligation.
held in abeyance.

VI. Disposition
WHEREFORE, the instant petition is DENIED and the assailed Decision

and Resolution of the Court of Appeals AFFIRMED in toto.
VII. Random Facts

• Ponente: Garcia, J.

G.R. No. 171545 | December 19, 2007 Payment/Performance
Equitable PCIB vs. Ng Sheung Ngor Equitable PCIB vs. Ng Sheung Ngor
I. Recit-ready Summary 3. However, they were unaware that the documents contained
Respondents Ng Sheung Ngor et. al., filed for an annulment and/or identical escalation clauses granting Equitable authority to increase
reformation of documents and contracts against Equitable PCIB and its interest rates without their consent.
employees. They claim that Equitable induced them to avail of its peso and 4. Equitable claims that the respondents knowingly accepted all the
dollar credit facilities by offering low interest rates, so they accepted and terms and conditions.
signed Equitable’s pre-printed promissory notes. 5. RTC upheld the validity of the promissory notes but invalidated the
They were unaware of the escalation clauses granting Equitable escalation clause for violation of the principle of mutuality of
authority to increase interest rates without their consent, but Equitable contracts.
claims that the respondents knowingly accepted all the terms and conditions. 6. Considering the steep depreciation of the peso during the
RTC upheld the validity of the promissory notes but invalidated the intervening period, RTC declared the existence of extraordinary
escalation clause for violation of the principle of mutuality of contracts. deflation and ordered the use of the 1996 dollar exchange rate in
Considering the steep depreciation of the peso during the intervening period, computing respondents’ dollar-denominated loans.
RTC declared the existence of extraordinary deflation and ordered the use of 7. RTC directed respondents to pay Equitable the unpaid principal for
the dollar exchange rate at the time the obligation was incurred in the peso loan as well as for the dollar-denominated loan, following
computing respondents’ dollar-denominated loans. the conversion rate at the time of incurring the obligation, in
RTC directed respondents to pay Equitable the unpaid principal accordance with Art. 1250 of the Civil Code.
obligation for the peso loan as well as for the dollar-denominated loan, 8. RTC also ordered Equitable to pay damages, because the business
following the said conversion rate. reputation of respondents was (allegedly) severely damaged when
The issue is W/N respondents should pay their dollar-denominated Equitable froze their accounts.
loans following the conversion rate at the time of incurring of the obligation?
NO. The SC held that there was no extraordinary deflation because the III. Issue/s
requisites for such were not all present. Thus, respondents should pay their 2. W/N respondents should pay their dollar-denominated loans
dollar-denominated loans at the exchange rate fixed by the BSP on the date following the conversion rate at the time of incurring of the
of maturity. obligation? NO.
IV. Holding/s
1. Respondents Ng Sheung Ngor, Ken Appliance Division Inc., and Issue #1
Benjamin Go filed for an annulment and/or reformation of NO, respondents should pay their dollar-denominated loans at the
documents and contracts against Equitable PCI Bank (Equitable) exchange rate fixed by the BSP on the date of maturity.
and its employees. Petitioner’s Arguments Court’s Rebuttals
2. Respondents claim that Equitable induced them to avail of its peso  Respondents knowingly accepted  RTC upheld the validity of the
and dollar credit facilities by offering low interest rates, so they all terms and conditions in the promissory notes, except the
accepted and signed Equitable’s pre-printed promissory notes. promissory note. escalation clause, and declared
that there was an extraordinary
Obligations and Contracts (2020) PETITIONER: Equitable PCI Bank, Aimee Yu, Bejan Lionel Apas 1
DIGEST AUTHOR: Nikki RESPONDENT: Ng Sheung Ngor
deflation. Thus, RTC ordered V. Law or Doctrine Applied

respondents to use the conversion
rate at the time the obligation was ARTICLE 1250 OF THE CIVIL CODE (Inflation/Deflation)
incurred. Article 1250. In case an extraordinary inflation or deflation of the currency
 The Supreme Court reversed this stipulated should supervene, the value of the currency at the time of the
and said that there was no establishment of the obligation shall be the basis of payment, unless there is
extraordinary deflation, citing an agreement to the contrary.
Art. 1250 of the Civil Code.
VI. Disposition
Overall Ruling
The Court held that there was no extraordinary deflation.
ACCORDINGLY, the petition is hereby GRANTED.
Extraordinary inflation exists when there is an unusual decrease in the The October 28, 2005 decision and February 3, 2006 resolution of the Court
purchasing power of currency (that is, beyond the common fluctuation in of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET
the value of currency) and such decrease could not be reasonably foreseen ASIDE.
or was manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation involves an inverse situation. The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16,
Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being
Applying Art. 1250, for extraordinary inflation (or deflation) to affect an rendered with grave abuse of discretion amounting to lack or excess of
obligation, the following requisites must be proven: jurisdiction. All proceedings undertaken pursuant thereto are likewise
1. that there was an official declaration of extraordinary inflation declared null and void.
or deflation from the Bangko Sentral ng Pilipinas (BSP);
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu
2. that the obligation was contractual in nature; and
City in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of
3. that the parties expressly agreed to consider the effects of the
petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is
extraordinary inflation or deflation. therefore given due course.
Despite the devaluation of the peso, the BSP never declared a situation of The February 5, 2004 decision of the Regional Trial Court, Branch 16 of
extraordinary inflation. Moreover, although the obligation in this instance Cebu City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New
arose out of a contract, the parties did not agree to recognize the effects of judgment is hereby entered:
extraordinary inflation (or deflation). The RTC never mentioned that there
was a such stipulation either in the promissory note or loan agreement. 1. ordering respondents Ng Sheung Ngor, doing business under the name
Therefore, respondents should pay their dollar- denominated loans at the and style of "Ken Marketing," Ken Appliance Division, Inc. and Benjamin
exchange rate fixed by the BSP on the date of maturity. E. Go to pay petitioner Equitable PCI Bank the principal amount of their
dollar- and peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the name

and style of "Ken Marketing," Ken Appliance Division, Inc. and Benjamin
E. Go to pay petitioner Equitable PCI Bank interest at:
a) 12.66% p.a. with respect to their dollar-denominated loans from
January 10, 2001 to July 9, 2001;
b) 20% p.a. with respect to their peso-denominated loans from
January 10, 2001 to July 9, 2001;
c) pursuant to our ruling in Eastern Shipping Lines v. Court of
Appeals, 9922 the total amount due on July 9, 2001 shall earn
legal interest at 12% p.a. from the time petitioner Equitable PCI
Bank demanded payment, whether judicially or extra-judicially;
and
d) after this Decision becomes Cnal and executory, the applicable
rate shall be 12% p.a. until full satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall
compute the exact amounts due on the respective dollar-denominated and
peso- denominated loans, as of July 9, 2001, of respondents Ng Sheung
Ngor, doing business under the name and style of "Ken Marketing," Ken
Appliance Division and Benjamin E. Go.
SO ORDERED.
VII. Random Facts

 Ponente: Corona, J.
G.R. No. 176246 | February 13, 2009 Payment or Performance – Art. 1252
Premiere Dev Bank v Central Surety Premiere Dev Bank v Central Surety
I. Recit-ready Summary the subsequent demand made by Premiere Bank cannot be equated with a
Respondent Central Surety & Insurance Company (Central Surety) acquired waiver of the right to demand payment of all the matured obligations of
an industrial loan worth P6M from petitioner Premiere Development Bank, Central Surety to Premiere Bank. The Court also recognized the standard
evidenced by Promissory Note. Should Central Surety fail to pay, it would practice in commercial transactions to send demand letters before default
be liable to Premiere Bank for: (1) unpaid interest up to maturity date; (2) may set in. The demand cannot be considered a waiver for a waiver must be
unpaid penalties up to maturity date; and (3) unpaid balance of the principal. positively demonstrated, and voluntary, made knowingly, intelligently and
To Secure Payment for the loan Central Surety executed a Deed of with sufficient awareness of relevant circumstances and likely
Assignment with Pledge in favor of Premier Bank its proprietary share in consequences. Also any inference of a waiver made by Premiere Bank is
Wack Wack and golf and country Club. Central Surety had another denied by the provision of the Promissory Note that no failure on the part of
commercial loan with Premiere Bank worth P40.898M pesos, again by Premiere Bank to exercise, and no delay in exercising any right hereunder,
Promissory Note. To secure payment of the loan they were secured a real shall operate as a waiver thereof. When Central Surety issued a check as
estate mortgage over a Condominium Certificate. This was availed through payment to Premiere Bank, it knew very well that it had several loans which
a renewal of Central Surety s prior loan. It was stipulated in the contract that granted Premiere Bank the right to apply its payment.
Premiere Bank as creditor would have the right to decide to which the
payment would be applied, and that there is no need for an express demand II. Facts of the Case (Material Facts)
from the creditor to make the obligations due and demandable. Central 1. August 20, 1999 - Central Surety & Insurance Company
Surety issued a check worth 6,000,000.00 pesos and payable to Premiere (Central Surety) obtained an industrial loan of P6,000,000.00
Bank. However, the latter returned such check and sent a letter, as part of a from Premiere Development Bank (Premiere Bank) with a
normal bank procedure, demanding payment and threatening foreclosure of maturity date of August 14, 2000.
Central Surety s securities, the pledge and real estate mortgage, should it fail 2. This loan (evidenced by Promissory Note (PN) No. 714-Y)
to pay within ten days from date of receipt. This was alleged by the latter to stipulates payment of:
be an act of waiving Premiere Bank s right to apply payments. Central
a. 17% interest per annum payable monthly in arrears
Surety moves for the release of the Wack Wack Membership pledge for
and the principal payable on due date; and
their supposed paid loan. The lower court ruled in favor of Premiere Bank,
while the Court of Appeals reversed the prior decision of the lower b. a penalty charge of 24% interest per annum based on
court. The issue in this case is W/N Premiere Bank waived its right of the unpaid amortization/installment or the entire
application of payments on the loans of Central Surety. The SC held No. unpaid balance of the loan should Central Surety fail
Relevant to the case is the statutory provision on application of payments, to pay, it would be liable to Premiere Bank for: (1)
particularly Article 1252 of the Civil Code. He who has various debts of the unpaid interest up to maturity date; (2) unpaid
same kind in favor of one and the same creditor, may declare at the time of penalties up to maturity date; and (3) unpaid balance
making the payment, to which of them the same must be applied. xxx The of the principal.
debtor s right to apply payment is only directory, and not mandatory, as 3. To secure payment, Central Surety executed in favor of
manifested by the use of the word may . Such right may be waived or even Premiere Bank a Deed of Assignment with Pledge covering
granted to the creditor if both parties agree on such circumstance. In the Central Surety's Membership Fee Certificate No. 217
instant case, it was stipulated in the contract that the right to apply payments representing its proprietary share in Wack Wack Golf and
would be enjoyed by the Premiere Bank. It cannot be understood that such
Country Club Incorporated (Wack Wack Membership).
granted right was waived by Premiere Bank. As all debts were already due,
Obligations and Contracts (2020) PETITIONER: Premiere Development Bank 1

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Central Surety & Insurance Company Inc.
4. In both PN No. 714-Y and Deed of Assignment, Constancio 11. In the same letter, Premiere Bank threatened foreclosure of
T. Castañeda, Jr. and Engracio T. Castañeda, president and the loans' respective securities, the pledge and real estate
vice- president of Central Surety, respectively, represented mortgage, should Central Surety fail to pay these within ten
Central Surety and solidarily bound themselves to the days from date
payment of the obligation. 12. September 29, 2000 – Central Surety wrote Premiere Bank
5. Central Surety had another commercial loan with Premiere and re-tendered payment of the check
Bank in the amount of P40,898,000.00 maturing on October 13. On even date, a separate letter with another BC Check No.
10, 2001 and evidenced by a PN numbered 376-X 5 and 08115 in the amount of P2,600,000.00 was also tendered to
secured by a real estate mortgage over Condominium in Premiere Bank as payment for the Spouses Engracio and
Makati City. Lourdes Castañeda's (Spouses Castañeda's) personal loan
6. PN No. 376-X was availed of through a renewal of Central covered by PN No. 717-X and secured by Manila Polo Club,
Surety's prior loan, then covered by PN No. 367-Z. As with Inc. membership shares.
the P6,000,000.00 loan and the constituted pledge over the 14. October 13, 2000 - Premiere Bank responded and signified
Wack Wack Membership, the P40,898,000.00 loan with real acceptance of Central Surety's checks.
estate mortgage was transacted by Constancio and Engracio 15. P8,600,000.00 check payments were not applied in full to
Castañeda on behalf of Central Surety. Central Surety's P6,000,000.00 loan under PN No. 714-Y and
7. It appears that on August 22, 2000, Premiere Bank sent a the Spouses Castañeda's personal loan of P2,600,000.00 under
letter to Central Surety demanding payment of the PN No. 717-X.
P6,000,000.00 loan. 16. Premiere Bank also applied proceeds thereof to a commercial
8. September 20, 2000 - Central Surety issued Bank of loan under PN No. 235-Z taken out by Casent Realty and
Commerce (BC) Check No. 08114 9 dated September 22, Development Corporation (Casent Realty), 17 and to Central
2000 in the amount of P6,000,000.00 and payable to Premiere Surety's loan originally covered by PN No. 367-Z, renewed
Bank. under PN No. 376-X, maturing on October 20, 2001.
9. The check was received by Premiere Bank's Senior Account 17. Strongly objecting to Premiere Bank's application of
Manager, Evangeline Veloira, with the notation "full payment payments, Central Surety's counsel wrote Premiere Bank and
of loan-Wack Wack", as reflected in Central Surety's reiterated Central Surety's demand for the application of the
Disbursement Voucher. check payments to the loans covered by PN Nos. 714-X and
10. However, for undisclosed reasons, Premiere Bank returned 714-Y.
BC Check No. 08114 to Central Surety, and in its letter dated 18. Additionally, Central Surety asked that the Wack Wack
September 28, 2000, demanded from the latter, not just Membership pledge, the security for the P6,000,000.00 loan,
payment of the P6,000,000.00 loan, but also the should be released.
P40,898,000.00 loan which was originally covered by PN No. 19. In the final exchange of correspondence, Premiere Bank,
367-Z. through its SAVP/Acting Head-LGC, Atty. Pacita Araos,
responded and refused to accede to Central Surety's demand.

Premiere Bank insisted that the PN covering the III. Issue/s

P6,000,000.00 loan granted Premiere Bank sole discretion 1. W/N Permiere Bank waived its right of application of
respecting: (1) debts to which payments should be applied in payments on the loans of Central Surety - NO
cases of several obligations by an obligor and/or debtor; and 2. Whether the release of the Wack Wack Membership pledge is in
(2) the initial application of payments to other costs, order – NO (not related to the topic)
advances, expenses, and past due interest stipulated
thereunder. IV. Holding/s
20. As a result, Central Surety filed a complaint for damages and
release of security collateral, specifically praying that the Issue #1 and 2
court render judgment: (1) declaring Central Surety's NO, Permiere Bank did not waive its right of application of payments
P6,000,000.00 loan covered by PN No. 714-Y as fully paid; on the loans of Central Surety
(2) ordering Premiere Bank to release to Central Surety its Overall Ruling
membership certificate of shares in Wack Wack; (3) ordering • Relevant to the case is the statutory provision on application of
Premiere Bank to pay Central Surety compensatory and actual payments, particularly Article 1252 of the Civil Code. Such right
damages, exemplary damages, attorney's fees, and expenses may be waived or even granted to the creditor if both parties agree
of litigation; and (4) directing Premiere Bank to pay the cost on such circumstance.
of suit. • In the case at bench, the records show that Premiere Bank and
21. RTC Ruling: RTC rendered a decision dismissing Central Central Surety entered into several contracts of loan, securities by
Surety's complaint and ordering it to pay Premiere Bank way of pledges, and suretyship agreements. In at least two (2)
P100,000.00 as attorney's fees and ruled that the stipulation in promissory notes between the parties, Promissory Note No. 714-Y
the PN granting Premiere Bank sole discretion in the and Promissory Note No. 376-X, Central Surety expressly agreed
application of payments, although it partook of a contract of to grant Premiere Bank the authority to apply any and all of Central
adhesion, was valid. Surety's payments.
22. CA Ruling: CA reversed and set aside the trial court's ruling. • it was stipulated in the contract that the right to apply payments
The appellate court held that with Premiere Bank's letter dated would be enjoyed by the Premiere Bank. It cannot be understood
August 22, 2000 specifically demanding payment of Central that such granted right was waived by Premiere Bank.
Surety's P6,000,000.00 loan, it was deemed to have waived
• As all debts were already due, the subsequent demand made by
the stipulation in PN No. 714-Y granting it the right to solely
Premiere Bank cannot be equated with a waiver of the right to
determine application of payments, and was, consequently,
demand payment of all the matured obligations of Central Surety to
estopped from enforcing the same. In this regard, with the
Premiere Bank. The Court also recognized the standard practice in
holding of full settlement of Central Surety's P6,000,000.00
commercial transactions to send demand letters before default may
loan under PN No. 714-Y, the CA ordered the release of the
set in. The demand cannot be considered a waiver for a waiver
Wack Wack Membership pledged to Premiere Bank.
must be positively demonstrated, and voluntary, made knowingly,
intelligently and with sufficient awareness of relevant

circumstances and likely consequences. He who has various debts of the same kind in favor of one and the same creditor,
• Also any inference of a waiver made by Premiere Bank is denied may declare at the time of making the payment to which of them the same must be
applied. Unless the parties so stipulate, or when the application of payment is made
by the provision of the Promissory Note that no failure on the part by the party for whose benefit the term has been constituted application shall not be
of Premiere Bank to exercise, and no delay in exercising any right made as to debts which are not yet due.
hereunder, shall operate as a waiver thereof. When Central Surety If the debtor accepts from the creditor a receipt in which an application of
issued a check as payment to Premiere Bank, it knew very well that the payment is made, the former cannot complain of the same, unless there is a cause
it had several loans which granted Premiere Bank the right to apply for invalidating the contract.
its payment
VI. Disposition
Issue #2 (minor issue only) WHEREFORE, the instant petition is PARTIALLY GRANTED. The
No, release of the Wack Wack Membership pledge is not in order assailed Decision of the Court of Appeals in CA-G.R. CV No. 85930 dated
Overall Ruling July 31, 2006, as well as its Resolution dated January 4, 2007, are
• Considering that the parties are bound by a contract of adhesion, REVERSED and SET ASIDE. The Decision of the Regional Trial Court of
where Central Surety imposed a readymade contract on Premiere Makati City, Branch 132, in Civil Case No. 00-1536, dated July 12, 2005, is
Bank, the latter had freedom to reject or adhere to the contract. REINSTATED with the MODIFICATION that the award of attorney's fees
Central Surety, being a well-established personality, would also not to petitioner is DELETED. No pronouncement as to costs. EDHCSI
be considered as a disadvantaged party. SO ORDERED.
• The contract between the parties falls on the dragnet clause, which
VII. Random Facts
is one specifically phrased to subsume all debts of past and future
• Ponente: Nachura, J.
origins.
• The security clause in the instant case is that of a continuing
pledge, wherein the Wack Wack Membership served as security for
the standing obligation, also for future advancements. Such
security worth 15,000,000.00 pesos was clearly worth more than
the industrial loan worth 6,000,000.00 pesos, which was
understood to secure the ballooning debt of the Central Surety.
• As all demandable obligations are yet to be fulfilled, the release of
the Wack Wack membership as security cannot yet to be done as
prayed for by Central Surety.

G.R. No. 194642 || April 6, 2015 Article 1235
Marquez v. Elisan Credit Marquez v. Elisan Credit
I. Recit-ready Summary The issue in this case is W/N THE DAILY PAYMENTS SHOULD BE
APPLIED TO THE INTEREST? YES.
Nunelon Marquez (Marquez) obtained a loan from Elisan Credit
Corporation (Elisan Credit) for PHP 53,000.00 payable in 180 days. The The Court distinguished between Articles 1176 and 1235. Article 1176 falls
petitioner signed a promissory note which provided that it is payable in under Chapter I (Nature and Effect of Obligations) while Article 1253 falls
weekly installments and subject to 26 % annual interest. In case of non- under Subsection I (Application of Payments), Chapter IV (Extinguishment
payment, the petitioner agreed to pay a 10% monthly penalty based on the of Obligations) of Book IV (Obligations and Contracts) of the Civil Code.
total amount unpaid and another 25% of such amount for attorney’s fees. To The structuring of these provisions, properly taken into account, means that
further secure payment of the loan, the petitioner executed a chattel Article 1176 should be treated as a general presumption subject to the more
mortgage over a motor vehicle. Subsequently, the petitioner obtained specific presumption under Article 1253. Article 1176 is relevant on
another loan from the respondent for PHP 55,000.00 evidenced by a questions pertaining to the effects and nature of obligations in general, while
promissory note and a cash voucher. The promissory note covering the Article 1253 is specifically pertinent on questions involving application of
second loan contained exactly the same terms and conditions as the first payments and extinguishment of obligations.
promissory note. When the second loan matured, the petitioner had only
paid PHP 29,960.00. Due to liquidity problems, Marquez asked Elisan Correlating the two provisions, the rule under Article 1253 that payments
Credit if he could pay in daily installments until the second loan is paid shall first be applied to the interest and not to the principal shall govern if
which was granted. As of September 1994 or 21 months after the second two facts exist: (1) the debt produces interest (e.g., the payment of interest is
loan’s maturity, the petitioner had already paid a total of PHP 56,440.00, an expressly stipulated) and (2) the principal remains unpaid. The exception is
amount greater than the principal but despite this, Elisan Credit filed a a situation covered under Article 1176, i.e., when the creditor waives
judicial complaint for judicial foreclosure of the chattel mortgage because payment of the interest despite the presence of (1) and (2) above. In such
the petitioner allegedly failed to settle the balance of the second loan despite case (1176), the payments shall obviously be credited to the principal.
demand. The respondent further alleged that pursuant to the terms of the However, in this case, there was no waiver of interest on the part of Elisan
promissory note, the petitioner’s failure to fully pay upon maturity triggered Credit. The fact that the official receipts did not indicate whether the
the imposition of 10% monthly penalty and 25% attorney’s fees. The payments were made for the principal or the interest does not prove that
Municipal Trial Court (MTC) found for the petitioner and held that the Elisan Credit waived the interest.
second loan was fully extinguished as of September 1994. The court held
that when a creditor accepts the performance or payment of an obligation,
knowing its incompleteness or irregularity and without expressing any II. Facts of the Case (Material Facts)
protest or objection, the obligation is deemed fully complied with. The
Regional Trial Court initially affirmed the decision of the MTC but reversed I. Marquez obtained two loans from Elisan (he obtained the 2nd
itself acting on Elisan Credit’s motion for reconsideration and ruled that, loan after full payment of the first)
pursuant to Article 1253 of the Civil Code, if the debt produces interest, II. Marquez issued promissory notes for each loan, which had
payment of the principal shall not be deemed to have been made until the identical terms and conditions
interests have been covered. The Court of Appeals appealed the trial court’s a. Payable in weekly installments and subject to 26% annual
ruling. interest
Obligations and Contracts (2020) PETITIONER: Marquez 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: Elisan Credit
b. In case of non-payment, a 10% monthly penalty based Issue #1

on total amount unpaid and another 25% of such YES THE DAILY PAYMENTS SHOULD BE CREDITED AGAINST
amount for Atty. Fees THE INTEREST
III. A chattel mortgage on a vehicle was also secured
IV. The first loan was fully paid, while the second load, with a
principal balance of 55k, had an unpaid balance of 25.04k • the daily payments should have • the payments should be applied
V. Marquez asked if he could pay in daily installments, he was been credited to the principal to the interest
allowed to do so because the official receipts • Applied Art 1235
a. 21 months after the maturity of the second loan, Marquez issued were silent with respect to • there is no waiver of interest in
had already paid 56.44k which is greater than the principal the payment of interest and this case
VI. Despite receipt of more than the amount of the principal, penalties
Elisan filed a complaint for judicial foreclosure of the chattel Overall Ruling
mortgage
a. Elisan claims that the terms of the promissory note The Court distinguished between Articles 1176 and 1253. Art. 1176
contained a penal clause which took effect when Marquez provides: “The receipt of the principal by the creditor, without reservation to
defaulted the interest, shall give rise to the presumption that said interest has been
VII. MTC ruled in favor of Marquez applying art. 1235, RTC paid”. Art. 1253 provides: “If the debt produces interest, payment of the
reversed and applied art. 1253, CA affirmed principal shall not be deemed to have been made until the interests have
VIII. Marquez been covered.” The Court then explained that Art. 1176 should be treated as
a. Claims that the daily payments should have been credited the general presumption subject to the more specific presumption under Art.
to the principal because the official receipts issued were 1253.
silent with respect to the payment of interest and penalties
b. Cites Art. 1176 and 1235 Art. 1176 is relevant on questions pertaining to the effect and nature of the
IX. Elisan obligations in general, while Art. 1253 is specifically pertinent on questions
a. Daily payments were properly credited against the interest involving application of payments. Under Art. 1176, the amount received by
b. Interest and penalties became due and demandable when the creditor is payment for the principal. Doubt arises on w/n interest is
Marquez defaulted waived because the creditor accepts payment for the principal without
reservation with respect to the interest. This doubt is resolved by the article
c. Relies on Art. 1253 by presuming that the creditor waives the interest because of his acceptance
X. Issue/s of the principal without reservation
1. W/N THE DAILY PAYMENTS SHOULD BE CREDITED
AGAINST THE INTEREST? – YES! Art. 1253 resolves doubts involving payment of interest-bearing debts. The
doubt pertains to the application of payment; w/n the amount received by
XI. Holding/s the creditor is for the payment of the principal or the interest. This doubt is
resolved by providing a hierarchy: that payment shall FIRST be applied to
the INTEREST, payment to the principal shall only be applied when the
principal is fully paid. Art. 1253 is applied when two facts exist: (1) The

debt produces interest (2) The principal remains unpaid. Art. 1176 is applied WHEREFORE, in view of the foregoing ndings and legal premises, we PARTIALLY GRANT
only when the creditor waives the payment of interest in the presence of the PARTIALLY GRANT the petition. We MODIFY MODIFY the May 17, 2010 Decision and the
November 25, 2010 Resolution of the Court of Appeals in CA G.R. SP No. 102144.
two aforementioned facts.
ACCORDINGLY ACCORDINGLY, petitioner Nunelon R.
Since the doubt that is present in this case pertains to the application of the Marquez is ORDERED ORDERED to pay:
daily payments, Art. 1253 should apply.
1. Twenty- five thousand forty pesos (P25,040.00) representing the amount of
The SC ruled that Elisan properly applied the payment to the interest the unpaid balance of the second loan; 2. Interest of two percent (2%) per
because: the debt produces interest, a portion of the second loan was unpaid, annum on the unpaid balance to be computed
and Elisan did not waive payment of interest. from December 15, 1992 until full
payment;
There was also no waiver of interest. The fact that the receipts were silent as
to whether the payments were made on the principal or on the interest does 3. Penalty of two percent (2%) per annum on the unpaid balance to be
not prove Elisan waived the interest. Art.1253 covers both the stipulated computed
monetary interest (26%) and interest in default (10%), the law makes no from December 15, 1992; 4. Attorney's Fees of two percent (2%) of
distinction. For there to be a valid waiver of the payment of interests, the the total amount to be recovered.
issued receipts must expressly refer to the payment of the principal, without
any reservation with respect to the interest The total amount to be recovered shall further be subject to the legal interest
rate of six percent (6%) per annum from the finality of this Decision until fully
In this case, it was not proven that Elisan accepted the payment for the paid.
principal, the silence of the receipts on w/n payments were credited against
the unpaid balance of the principal or accrued interest does not mean that Respondent Elisan Credit Corporation, on the other hand, is ORDERED
payment of the interest was waived. ORDERED to return/deliver the seized motor vehicle with Plate No. UV-
TDF-193, subject of the chattel mortgage, to the possession of the petitioner;
in the event its delivery is no longer possible, to pay the petitioner the amount
of P30,000.00 corresponding to the value of the said vehicle. No
XII. Law or Doctrine Applied pronouncement as to the costs.
SO ORDERED SO ORDERED. Carpio, Del Castillo, Mendoza and
ARTICLE 1235 OF THE CIVIL CODE Leonen, JJ., concur.
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. XIV.Additional Notes
XIII. Disposition VII. Random Facts

G.R. No. L-18411 | December 17, 1966 Extinguishment of Obligations: Payment or Performance
Magdalena Estates v. Rodriguez Magdalena Estates v. Rodriguez
I. Recit-ready Summary Therefore, it cannot be said that there was a waiver or condonation of the
interest due.
The respondents bought from the petitioner a 2,191 sqm. parcel of land
in the amount of 5,000.00. In view of the purchase price of the lot, the II. Facts of the Case (Material Facts)
respondent executed a promissory note which states that the spouses jointly
and severally promise to pay the Magdalena Estate without any demand the 1. The respondents bought from the petitioner a 2,191 sqm. parcel of land
sum of P5,000.00 within 60 days from January 7, 1957. On the same date in the amount of P5,000.00
that they executed the promissory note, respondents and the Luzon Surety 2. In view of the purchase price of the lot, the respondent executed on
Co., Inc. executed a bond in favor the petitioner which states that Luzon
January 4, 1957 a promissory note which states that the spouses jointly
Surety shall comply with the obligation to pay the amount of P5,000.00
and severally promise to pay the Magdalena Estate without any demand
representing the balance of the purchase price of a parcel of land.
the sum of P5,000.00 within 60 days from January 7, 1957.
On June 20, 1958, when the obligation of the respondents became due 3. On the same date, respondents and the Luzon Surety Co., Inc. executed
and demandable, the Luzon Surety Co., Inc. paid the petitioner the sum of a bond in favor of the petitioner which states that:
P5,000.00. Subsequently, petitioner demanded from the respondents the a. They shall comply with the obligation to pay the amount of
payment of P655.89 as interests on the principal amount. Due to the refusal P5,000.00 representing the balance of the purchase price of a parcel
of the respondents to pay the said interest, the petitioner filed a case in the of land within a period of 60 days from January 7, 1957.
Municipal Court to enforce the collection thereof. The Court rendered b. The Surety shall be notified in writing within 10 days from
judgment in favor of the petitioner and ordered the respondents to pay moment of default, otherwise, the undertaking is automatically null
P655.89 with interest. The Court of First Instance affirmed the decision of and void
the Municipal Court. Hence, this petition. 4. On June 20, 1958, when the obligation of the respondents became due
and demandable, the Luzon Surety Co., Inc. paid the petitioner the sum
The issue in this case is W/N the acceptance of the petitioner of the of P5,000.00
principal amount of P5,000.00 without demanding for the interest 5. Subsequently, the petitioner demanded from the respondents the
amounting to P655.89 is tantamount to a waiver or condonation of the payment of P655.89 corresponding to the alleged accumulated interests
interests due. The Court held that NO, the acceptance of the petitioner of the on the principal of P5,000.00
payment of the principal amount made by the surety without demand for the 6. Due to the refusal of the respondents to pay the said interest, the
interest is not a waiver or condonation of the interests due. petitioner filed a case in the Municipal Court of Manila to enforce the
collection thereof
In arriving at such decision, the court opined that the petitioner did not 7. The Municipal Court rendered judgment in favor of the petitioner and
protest nor object when it accepted the payment of P5,000.00 because it ordered the respondents to pay jointly and severally the petitioner the
knew that was the complete amount undertaken by the surety as appearing sum of P655.89 with interest
in the contract. The liability of a surety is not extended, by implication, 8. The Court of First Instance affirmed the decision of the Municipal
beyond the terms of his contract. It is for the same reason that the petitioner Court. Hence, this petition
cannot apply a part of the P5,000.00 as payment of the accrued interest.
Obligations and Contracts (2020) PETITIONER: Magdalena Estates, Inc. 1

DIGEST AUTHOR: Pam Madrigal RESPONDENT: Antonio Rodriguez and Herminia Rodriguez
G.R. No. L-18411 | December 17, 1966 Extinguishment of Obligations: Payment or Performance
Magdalena Estates v. Rodriguez Magdalena Estates v. Rodriguez
9. In the current petition, the respondents claim that the pleadings do not Overall Ruling
show that there was demand made by the petitioner for the payment of
accrued interest and what could be deduced therefrom was merely that The Supreme Court does not agree with the contention of the
that petitioner demanded from the Luzon Surety Co., Inc. the payment respondents. It is very clear that 1) in the promissory note that the principal
of the obligation of the respondents, and said petitioner accepted obligation is the balance of the purchase price of the parcel of land, which is
unqualifiedly the amount of P5,0.000 as performance by the obligors of the sum of P5,000.00, and 2) in the surety bond, the Luzon Surety Co., Inc.
the obligation in its favor undertook to pay the amount of P5,000.00 representing balance of the
10. It was further claimed by the petitioners that the unqualified acceptance purchase price of a parcel of land. The petitioner did not protest nor object
of payment without the exercise of the petitioner’s right to apply a when it accepted the payment of P5,000.00 because it knew that was the
portion of P655.89 thereof to the payment of the alleged interest due complete amount undertaken by the surety as appearing in the contract. The
despite its presumed knowledge of its right to do so, the petitioner liability of a surety is not extended, by implication, beyond the terms of his
waived or condoned the interests due as according to Articles 1235 and contract. It is for the same reason that the petitioner cannot apply a part of
1253 of the Civil Code. the P5,000.00 as payment of the accrued interest. Therefore, it cannot be
said that there was a waiver or condonation of the interest due.
III. Issue/s
1. W/N the acceptance of the petitioner of the principal amount of
P5,000.00 without demanding for the interest amounting to P655.89 is ARTICLE 1235 OF THE CIVIL CODE
tantamount to a waiver or condonation of the interests due. NO
ART. 1235. When the obligee accepts the performance, knowing its incompleteness
IV. Holding/s or irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.
Issue #1 ARTICLE 1253 OF THE CIVIL CODE (FORTUITOUS EVENTS)

NO, the acceptance of the petitioner of the principal amount without
demand for the interest is not a waiver or condonation of the interests due. ART. 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until interests have been recovered.
 The petitioners waived or  Article 1253 is not applicable to the VI. Disposition
condoned the interests due when case. The liability of a surety is not
they accepted the principal extended, by implication, beyond the WHEREFORE, the judgment appealed from should be, as it is hereby, affirmed,
payment made by Luzon Surety terms of his contract. The petitioner with costs against the appellant.
Co., Inc without demanding did not protest nor object when it
from them the interests accepted the payment of P5,000.00 VII. Random Facts
because it knew that was the complete
amount undertaken by the surety as  Ponente: Austria-Martinez, J.
appearing in the contract.
Obligations and Contracts (2020) PETITIONER: Magdalena Estates, Inc. 2

DIGEST AUTHOR: Pam Madrigal RESPONDENT: Antonio Rodriguez and Herminia Rodriguez
G.R. No. L-9073 | November 17, 1958 Article 1232-1261 - Payment or Performance
Traders Insurance & Surety Company vs Dy Eng Giok Traders Insurance & Surety Company vs Dy Eng Giok
I. Recit-ready Summary 4. From August 4, 1951 to August 3, 1952, agent Dy Eng Giok contracted
Dy Eng Giok, a provincial sales agent of a distillery company, had an obligations in favor of the Destilleria Lim Tuaco & Co., in the total
outstanding running account in favor of the said company. Then, he executed a amount of P41,449.93; and during the same period, he made remittances
Surety Bond with Traders Insurance wherein they solidarily bound themselves to amounting to P41,864.49
pay P10,000 in favor of the distillery company. On the same date, he executed an 5. However, the distillery company applied said remittances first to Dy Eng
Indemnity Agreement with 2 counter-bondsmen. When the distillery company Giok's outstanding balance before the suretyship agreement was executed
started demanding payment, the agent and the Surety company failed to pay. Thus, in the sum of P12,898.61; and the balance of P28,965.88 to Dy's
the distillery company filed an action for collection. The CFI absolved the 2 obligations between August 4, 1951 and August 3, 1952
counter-bondsmen bound in favor of the Surety company since the payments already 6. Then, the distillery company demanded payment of the remainder
made by Dy Eng Giok exceeded the obligation. However, the Surety company was (P12,484.05) from the agent, and later, from the appellant Surety
unsatisfied with the absolution of the counter-bondsmen. The issue in this case is Company
w/n the counter-bondsmen should be absolved from their obligation to reimburse the 7. However, upon their failure their failure to pay, the distillery company
surety company. The SC ruled in the Affirmative. The Court stated that, first, in the filed an action for collection
absence of express stipulation, a guaranty or suretyship operates prospectively and 8. The CFI absolved the counter-bondsmen on the theory that payments
not retroactively; that is to say, it secures only the debts contracted after the guaranty made by Dy Eng Giok in the sum of P41,862.49 should have been applied
takes effect. And second, the obligation of Dy Eng Giok were guaranteed, while his to his obligations during that period, which were covered by the surety
indebtedness prior to that period was not secured, then in the absence of express bond and counter-guaranty; and as these obligations only amounted to
application by the debtor, or of any receipt issued by the creditor specifying a P41,449.93, so that the payments exceeded the obligations; THUS, the
particular imputation of the payment. Any partial payments made by him should be Surety Company incurred no liability and the counter-bondsmen in turn
imputed or applied to the debts that were guaranteed, since they are regarded as the had nothing to answer for
more onerous debts from the standpoint of the debtor 9. Not satisfied with the Decision, Traders Insurance filed the present petition
before the SC
1. In the present case, Dy Eng Giok was a provincial sales agent of a III. Issue/s
distillery company, with the duty of turning over the proceeds to the said ● W/N the counter-bondsmen Pedro Lopez Dee and Pedro E. Dy-Liacco
company. As an agent, he had an outstanding running account in the sum should be absolved from their obligation to reimburse the Plaintiff
of P12,898.61 Traders Insurance and Surety Company? YES
2. Then, Dy Eng Giok, as principal, executed a Surety Bond with Traders
Insurance, as solidary guarantor; wherein they bound themselves, jointly IV. Holding/s
and severally, in the sum of P10,000.00 in favor of the distillery company
3. Moreover, on the same date, Dy Eng Giok, as principal, with Pedro Lopez Issue #1
Dee and Pedro Dy- Liacco, as counter-bondsmen, executed an Indemnity YES, the counter-bondsmen Pedro Lopez Dee and Pedro e. Dy-Liacco should
Agreement in favor of Traders Insurance; wherein the three agreed to be be absolved from their obligation to reimburse the Plaintiff
obligated to the surety company
1
Obligations and Contracts (2020) PETITIONER: Traders Insurance & Surety Company
DIGEST AUTHOR: Larry Abucay RESPONDENT: Dy Eng Giok, Pedro Lopez Dee, and Pedro E. Dy-Liaco
Petitioner’s Arguments Court’s Rebuttals of the payment (Civil Code, Art. 1252). Any partial payments made by him should
be imputed or applied to the debts that were guaranteed, since they are regarded as
● N/A ● The Court stated that the the more onerous debts from the standpoint of the debtor (Civil Code, Art. 1254).
decision appealed from to be Debts covered by a guaranty are deemed more onerous to the debtor than the simple
correct. There are two reasons obligations because, in their case, the debtor may be subjected to action not only by
why the remittances by Dy the creditor, but also by the guarantor, and this even before the guaranteed debt is
Eng Giok in the sum of paid by the guarantor. Hence, the payment of the guaranteed debt liberates the
P41,864.49 should be applied debtor from liability to the creditor as well as to the guarantor, while payment of the
to the obligation of unsecured obligation only discharges him from possible action by only one party,
P41,449.93 contracted by him the unsecured creditor.
during the period covered by
the suretyship agreement
Overall Ruling
Article 1252 - He who has various debts of the same kind in favor of one and the
The SC stated that the First, in the absence of express stipulation, a guaranty or same creditor, may declare at the time of making the payment, to which of them the
suretyship operates prospectively and not retroactively; that is to say, it secures only same must be applied. Unless the parties so stipulate, or when the application of
the debts contracted after the guaranty takes effect. This rule is a consequence of the payment is made by the party for whose benefit the term has been constituted,
statutory directive that a guaranty is not presumed, but must be express, and can not application shall not be made as to debts which are not yet due.
extend to more than what is stipulated. To apply the payments made by the principal
If the debtor accepts from the creditor a receipt in which an application of the
debtor to the obligations he contracted prior to the guaranty is, in effect, to make the
payment is made, the former cannot complain of the same, unless there is a cause for
surety answer for debts incurred outside of the guaranteed period, and this can not
invalidating the contract
be done without the express consent of the guarantor. In the present suretyship
agreement did not guarantee the payment of any outstanding balance due from the Article 1254 - When the payment cannot be applied in accordance with the
principal debtor, Dy Eng Giok; but only that he would turn over the proceeds of the preceding rules, or if application can not be inferred from other circumstances, the
sales to the distillery company, and this he has done, since his remittances during the debt which is most onerous to the debtor, among those due, shall be deemed to have
period of the guaranty exceed the value of his sales. There is no evidence that these been satisfied.
remittances did not come from his sales.
If the debts due are of the same nature and burden, the payment shall be applied to
Moreover, the second reason is that since the the obligations of Dy Eng Giok all of them proportionately
between August 4, 1951 to August 4, 1952, were guaranteed, while his indebtedness
prior to that period was not secured, then in the absence of express application by
the debtor, or of any receipt issued by the creditor specifying a particular imputation
2
VI. Disposition
Finding no error in the judgment appealed from, the same is affirmed. Costs against
appellant. So ordered.
VII. Random Facts

● Ponente: Reyes, J.B.L., J.
3
G.R. No. 123855 | November 20, 2000 Art. 1252: Application of Payment
Paculdo v. CA Paculdo v. CA
I. Recit-ready Summary 6. In 1992, petitioner allegedly failed to pay rentals for the months of
After judgment was rendered ordering the petitioner to vacate the May, June, and July. Respondent sent out demand letters, to no
leased wet market building and to pay back rentals, he paid the amount of avail.
P11,478,121.85 for security deposit and rentals but the respondent, without 7. Aug 20: Respondent filed with the MTC a complaint for ejectment
petitioner's consent, applied portions of the payment to his other obligations against petitioner.
with the respondent. The petitioner filed a petition for review with the CA, 8. The MTC ruled in favor of respondent and ordered petitioner to
but such was dismissed. The CA held that the petitioner impliedly consented vacate the premises and pay back rentals. Petitioner appealed but
to the respondent’s application of payment to heavy equipment bought by
the RTC affirmed the decision.
petitioner from respondent.
9. July 21, 1994: petitioner appealed to the CA. He alleged that he
Petitioner submits that his silence is not consent but is in fact a
rejection. paid P11,478,121.85 for security deposit and rentals on the subject
The SC held: that at the time petitioner made the payments, he made it lot, but respondent, without his consent, applied portions of the
clear to respondent that they were to be applied to his rental obligation on payment to his other obligations. The vouchers and receipts
the wet market property; that there was no clear assent by petitioner to the indicated that the payments made were for rentals. This means
change in the manner of application of payment; and that even if petitioner that, at the time of payment, petitioner declared which obligation
did not declare to which of his debts the payment is to be applied, the the payment must be applied.
application made by respondent to pay the purchase price of equipment that III. Issue/s
was not yet due and demandable is contrary to the provisions of the law. 1. W/N petitioner’s failure to object to the proposed application
of payments in the July letter amount to consent to such
II. Facts of the Case (Material Facts) application. NO.
1. Dec. 27 1990: Petitioner and respondent entered into a contract of IV. Holding/s
lease over a large parcel of land with a wet market building
(subject lot). Issue #1
2. In addition to the above, petitioner leased 11 other properties from NO, petitioner’s silence does not amount to consent to such application
respondent. The former also purchased 8 units of heavy equipment by respondent.
from the latter, with no set date for payment.
3. Petitioner made payment to respondent.
• Petitioner’s silence implies his • The right to specify which among
4. July 15, 1991: respondent informed petitioner via letter that the
consent. various obligations to the same
payment was to be applied not only to petitioner’s accounts under
• Petitioner is estopped from creditor is to be satisfied first
the subject lot and Quirino lot, but also to the heavy equipment that
claiming prior application by rests with the debtor, as provided
petitioner bought. Petitioner said that the amount was equivalent to
such assent to the July Letter, by Art. 1252.
more than 2 months rental of the subject property. (So he basically
which contains a statement of the • This statement of account
said no, that money is for the subject lot’s rentals, not heavy
application of payments that’s prepared by respondent is not the
equipment.)
different from the application receipt contemplated under par. 2
5. The above letter did not contain petitioner’s signature.
made by petitioner, and therefore of Art. 1252. Receipt is the
Obligations and Contracts (2020) PETITIONER: Nereo Paculdo 1

DIGEST AUTHOR: Maxi Asuncion RESPONDENT: CA and Bonifacio Regalado
G.R. No. 123855 | November 20, 2000 Art. 1252: Application of Payment
Paculdo v. CA Paculdo v. CA
is a receipt. evidence of payment executed

at the time of payment, and not V. Law or Doctrine Applied
the statement of account executed
several days later. There was no Art. 1252.
clear assent by petitioner to the He who has various debts of the same kind in favor of one and the same
change in application of payment. creditor, may declare at the time of making the payment, to which of them
the same must be applied. Unless the parties so stipulate, or when the
Overall Ruling
application of payment is made by the party for whose benefit the term has
At the time petitioner made the payments, he made it clear to
been constituted, application shall not be made as to the debts which are not
respondent that they were to be applied to his rental obligations on the yet due.
subject lot. Though he entered into various lease agreements with
respondent, all the payments made were to be applied to the rentals and If the debtor accepts from the creditor a receipt in which an application of
security deposit on the subject lot. Respondent claims that petitioner’s the payment is made, the former cannot complain of the same, unless there
assent can be inferred from his silence on the on the July Letter. Petitioner’s is a cause for invalidating the contract.
silence cannot amount to consent; there was no meeting of the minds. There
was an offer, but such must be accepted in unconditional and unbounded in VI. Disposition
order so that it can give rise to a perfected contract. Further, even assuming WHEREFORE, the Court GRANTS the petition. The Court REVERSES
that respondent is correct, that petitioner did not choose which obligation and SETS ASIDE the decision of the Court of Appeals in CA-G.R. SP No.
were to be satisfied first at the time the payments were made, this means 34634. ACCORDINGLY, the Court REVERSES the decision of the
that respondent may exercise his right to apply the payments to petitioner’s Regional Trial Court, Quezon City, Branch 220 in Civil Case No. 94-20813,
and dismisses the complaint
other obligations. However, this is subject to the condition that the petitioner
must give his consent. Petitioner’s silence does not amount to consent, as
such must be clear and definite. Further, if the debtor did not declare at the If the payment made by respondent applied to petitioner's other obligations
time he made the payment to which of his debts with the creditor the is set aside, and the amount petitioner paid be applied purely to the rentals
payment is to be applied, the law provides that no payment is to be made to on the Fairview wet market building, there would be an excess payment of
a debt that is not yet due, and the payment has to be applied first to the P1,049,447.18 as of July 2, 1992.
debt most onerous to the debtor.
In this case, respondent applied a big chunk of the payment to an VII. Random Facts
obligation that wasn’t due and demandable yet at the time of payment: the • Ponente: Pardo, J.
payment of the 8 heavy equipment. This application by respondent is
contrary to law. The lease over the subject lot is the most onerous among all
the obligations of petitioner to respondent. It was established that the wet
market is a going concern and that petitioner has invested about
P35,000,000.00, in the form of improvements, on the property. Hence,
petitioner would stand to lose more if the lease would be rescinded, than if
the contract of sale of heavy equipment would not proceed.
Obligations and Contracts (2020) PETITIONER: Nereo Paculdo 2

DIGEST AUTHOR: Maxi Asuncion RESPONDENT: CA and Bonifacio Regalado
I. Recit-ready Summary situated at Crestwood Court Subdivision, Bakakeng Norte,

1. In 1992, Efren E. Bartolome entered into a Contract to Sell with the Baguio City, for 2 Million Pesos.
Sps. Biesterbos. b. The property was mortgaged to the Philippine National Bank
a. Bartolome agreed to sell to the Sps. Biesterbos a one (1) unit of a (PNB).
duplex residential house and lot for 2 Million Pesos. 2. The contract to sell provided that: (Only pertinent parts lifted)
b. Bartolome also agreed to advance to petitioners the sum of 1. The BUYER shall pay to the OWNER the sum of P1 Million,
P600,000 for their purchase of an adjacent lot owned by Philippine Currency, as down payment upon signing of this
Bartolome's brother.
Contract to Sell; the balance of P1 Million shall be paid by the
c. Sps. Biesterbos, in turn, obligated themselves to reimburse
respondent the said amount. Thus, a contract of loan or BUYER to the OWNER on or before July 30, 1992;
forbearance was created. 2. xxx
2. Sps. Biesterbos made subsequent payments totaling P2,081,208.24. 3. xxx
3. Several demands were made by respondent for the full settlement by 4. xxx
petitioners of their due obligation. 5. That the OWNER, in addition to the sale of the house and lot
4. On July 3, 1993 – Sps. Biesterbos informed Bartolome that they had subject of this contract, will advance for the BUYER the cost
already deposited the amount of P521,691.76, “In Trust For Mr. Efren of the adjacent vacant lot belonging to his brother at an
Bartolome,” at the PNB branch in Baguio City, and that that the money agreed price of P600,000.
could be withdrawn by him at any time during banking hours. 6. The BUYER shall reimburse to the OWNER, the Six Hundred
5. Although the deposit did not constitute a valid tender of payment and Thousand Pesos including the cost of transfer, documentation and
consignation, it could be considered an act of good faith to fully settle registration fee, within a reasonable time or on/or before July 30,
petitioners' obligation and, hence, suspend the running of the interest 1992, after ownership of the lot is transferred into the name of the
on the outstanding amount.
BUYER.
6. To settle the conflict of the parties on this issue, the SC ruled: the legal
interest to be paid on the principal amount of P518,791.76 (unpaid 3. April 23, 1992 – Bartolome received, by way of a down payment, the
balance of the P600,000 in issue) is 12% per annum from May 18, amount of P972,486.00 from Sps. Biesterbos. Conformably with
1993 (date when extrajudicial demand was made on petitioners) up paragraph 5 of the agreement, Bartolome advanced the sum of
until July 3, 1993 (when petitioners notified respondent of the deposit P600,000.00 for the purchase by Sps. Biesterbos of an adjacent lot
with the PNB). owned by Bartolome's brother.
7. Another 12% interest per annum is to be paid on the amount due and 4. Sps. Biesterbos failed to pay the amounts due and owing to Bartolome
owing as of, and from the date of finality of the Court's decision until under the contract as so agreed.
full payment would have actually been made. 5. August 5, 1992 – Bartolome received from Sps. Biesterbos the amount
of P319,612.65; subsequent payment are as follows:
II. Facts of the Case (Material Facts) Due Date Amount Date Actually Received
1. April 18, 1992 – Efren E. Bartolome entered into a Contract to Sell
April 17, 1992 P972,486.80
with the Sps. Hendrik and Alice Biesterbos.
a. Bartolome agreed to sell to the Sps. Biesterbos a one (1) unit of a July 30, 1992 P319,612.65
duplex residential house and lot with an area of three 345 sqm, September 11, 1992 P348,849.43 September 15, 1992
October 10, 1992 P345,259.36 October 12, 1992 a. Bartolome failed to comply with his obligation for the immediate
February 9, 1993 P50,000.00 transfer of possession of the property and the construction and
March 23, 1993 P10,000.00 March 24, 1993
installation of a driveway.
b. They also asserted that they had paid the amounts even after July
March 20, 1993 P30,000.00 Paid by Sps. Biesterbos at PNB
30, 1992 (See table in #5 above) and claimed that the deadline for
April 6, 1993 P5,000.00 As evidenced by Exh. ‘5’ the payment of the balance of the due obligation was novated
Total Payment Made P2,081,208.24 when private respondent continued to receive payments even
6. Several demands were made by respondent for the full settlement by deadline.
petitioners of their due obligation. c. The Sps. Biesterbos being unaware of the loan obligation to the
7. In a letter, dated December 20, 1992 – Bartolome demanded the PNB, should not be held liable for any alleged bank charges and
payment of the still unpaid balance of P710,713.16, interests.
8. Bartolome claimed to have sent another letter on March 25, 1993 – the 13. Sps. Biesterbos prayed that the consignation of the amount of
summary of the amount due and payable, totaling 718, 407.92, P521,691.76, representing what they averred to be the amount due
inclusive of: from them under the contract to sell, be meanwhile approved by the
Bank Interest and Bank Charges P94,021.80 RTC and respondent be made to transfer to them the absolute
(From August 1 to October 1992) ownership of the property.
Accrued Interest and Bank Charges P64,693.36 14. On July 21, 1994 – the RTC initially denied the prayer for
(From October 14, 1992 to March 30, 1993) consignation for lack of merit. In time, the RTC rendered its decision:
Cost of Maintenance and Caretaker P3,000.00
a. Declaring Sps. Biesterbos to have complied with their obligation
9. May 18, 1993 - Bartolome reiterated his demand and informed under the contract to sell with respect to the townhouse and lot;
petitioners that, because of the delay, Sps. Biesterbos had to pay b. Ordering Bartolome to execute the corresponding deed of sale
additional interests on his bank loan thereby increasing to P918,407.92 transferring the townhouse and lot to the defendants Biesterbos;
the sum due. c. Ordering the plaintiff Bartolome to deliver the TCT to Sps.
a. Sps. Biesterbos denied having received any other demand-letter Biesterbos free from all liens and encumbrances as committed by
except for this. him in the contract to sell;
10. On July 3, 1993 – Sps. Biesterbos informed Bartolome that they had d. Ordering the Sps. Biesterbos to reimburse to the plaintiff
already deposited the amount of P521,691.76, “In Trust For Mr. Efren P518,791.60 representing the balance of the P600,000.00 which
Bartolome,” at the PNB branch in Baguio City, and that that the money the latter had advanced to the owner of the adjacent lot;
could be withdrawn by him at any time during banking hours. e. xxx
11. On July 9, 1993 – Not satisfied with the arrangement with the bank, f. xxx
Bartolome filed a complaint for specific performance and damages g. xxx
against Sps. Biesterbos before the RTC of Baguio City. h. xxx
12. Sps. Biesterbos’s (Petitioners’) Contentions in their answer: 15. Still feeling aggrieved, Bartolome appealed to the CA.
16. The CA rendered a decision affirming that of the RTC except insofar (b) Sps. Biesterbos to, in turn, reimburse to Bartolome the P600,000.00 was
as the latter had ordered the payment of interest on "P518,791.76 in the nature of a contract of loan or a forbearance.
representing the balance of the P600,000.00 which the latter
(Bartolome) had advanced for petitioners as payment to the owner of The SC considered the demand-letter of 18 May 1993 sent to Sps.
the adjacent lot, with an interest of 12% per annum from the time the Biesterbos, absent any contrary showing, as the demand to occasion default.
defendants-appellees defaulted in their payment up to the time of
the filing of the complaint being in the nature of a contract of loan." On July 3, 1993, the Sps. Biesterbos informed Bartolome that they had
17. On December 21, 2001, the CA granted the motion for already deposited the amount of P521,691.76, “In Trust for Mr. Efren
reconsideration of Bartolome and ordered that the interest of 12% per Bartolome,” at the PNB branch in Baguio City, and that that the money
annum awarded to him should be paid from the time of default until could be withdrawn by him at any time during banking hours. The SC held
full payment of the principal. that while such a procedure did not strictly constitute a valid tender of
18. Hence, present petition questioning the interest payment decreed by payment and consignation, still, it could be considered an act of good
the CA. faith on the part of petitioners to fully settle their obligation. Equity and
justice would demand that such an act, placing at the disposal of Bartolome
III. Issue/s the deposited sum, should have the effect of suspending the running of the
1. W/N there was a valid tender of payment and consignation interest on said outstanding amount.
made by the Sps. Biesterbos? NO, it was technically defective,
but still, it should be considered an act of good faith. The SC cited the case of Gregorio Araneta, Inc. vs. De Paterno and Vidal:
2. W/N Sps. Biesterbos should pay the 12% interest per annum of the "The matter of the suspension of the running of interest on the loan is
amount of P518,791.76, when no such or any interest was agreed governed by principles which regard reality rather than technicality,
upon by the parties? YES. substance rather than form. Good faith of the offeror or ability to make
good the offer should in simple justice excuse the debtor from paying
IV. Holding/s interest after the offer is rejected. A debtor cannot be considered
delinquent who offered checks backed by sufficient deposit or ready to pay
Issue #1 cash if the creditor chose that means of payment. Technical defects of the
No, while such a procedure did not strictly constitute a valid tender of offer cannot be adduced to destroy its effects when the objection to accept
payment and consignation, still, it could be considered an act of good the payment was based on entirely different grounds. Thus, although the
faith on the part of petitioners to fully settle their obligation. defective consignation made by the debtor did not discharge the mortgage
Overall Ruling debt, the running of interest on the loan is suspended by the offer and tender
The RTC and the CA correctly concluded that the agreement between the of payment."
parties insofar as it had obligated:
(a) Sps. Biesterbos to "advance for the buyer the cost of the adjacent vacant The legal interest to be paid on the principal amount of P518,791.76 is
lot belonging to Bartolome’s brother at an agreed price of Six Hundred 12% per annum which shall commence from 18 May 1993 when
Thousand (P600,000.00) Pesos," and extrajudicial demand was made on petitioners up until 03 July 1993 when
petitioners notified respondent that the amount of P521,691.76. 1) When the creditor is absent or unknown, or does not appear at the
place of payment;
2) When he is incapacitated to receive the payment at the time it is
due;
Issue #2 3) When without just cause, he refuses to give a receipt;
Yes, Sps. Biesterbos should pay the 12% interest per annum of the amount 4) When two or more persons claim the same right to collect;
of P518,791.76 in accordance with provisions under Title XVIII on 5) When the title of the obligation has been lost.
‘Damages’ of the Civil Code.
Overall Ruling II. Disposition
Regarding the payment of interest, the SC cited the ruling on Eastern
WHEREFORE, the petition is partly GRANTED. The questioned decision
Shipping Lines, Inc. vs. Court of Appeals for guidance. and resolution of the appellate court are hereby AFFIRMED with
MODIFICATION, i.e., that the legal interest to be paid on the principal
1. When the obligation is breached, and it consists in the payment of a sum amount of P518,791.76 is TWELVE PERCENT (12%) per annum which
of money, i.e., a loan or forbearance of money, the interest due should be shall commence from 18 May 1993 when extrajudicial demand was made
that which may have been stipulated in writing. Furthermore, the interest on petitioners up until 03 July 1993 when petitioners notified respondent
due shall itself earn legal interest from the time it is judicially demanded. that the amount of P521,691.76 had been deposited in his name with the
In the absence of stipulation, the rate of interest shall be 12% per annum Philippine National Bank withdrawable by him at any time during banking
to be computed from default, i.e., from judicial or extrajudicial demand hours. Another 12% interest per annum shall be paid on the amount due and
under and subject to the provisions of Article 1169 of the Civil Code. owing as of, and from, the date of finality of this decision until full payment
2. xxx would have actually been made. No costs.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
• N/A
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
VII. Random Facts
then an equivalent to a forbearance of credit." • Ponente: Vitug, J.
I. Law or Doctrine Applied
ART. 1256 OF THE CIVIL CODE

Art. 1256. If the creditor to whom payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the
G.R. No. L-21507 | June 07, 1971 Extinguishment of Obligations: Loss of the Thing Due
People v Frankin, Asian Surety & Insurance People v Frankin, Asian Surety & Insurance
I. Recit-ready Summary from the negligence of the Philippine Government. Surety Company
Franklin jumped bail. Surety company who posted the bail argued that invoked Art. 1266 as support of its case.
it should not be liable for the bail for the PH Government gave Franklin a III. Issue/s
passport. Surety company used Art. 1266 of the Civil Code as their legal 1. Can the surety company be released from all liabilities under
basis. the bail bond? - NO
Can the surety company be released from all liabilities under the bail IV. Holding/s
bond? NO
Art. 1266 of the Civil Code does not apply to the present case for the Issue #1
relationship in the article is that of the debtor and creditor which does not No, Art. 1266 (the basis of the surety company) does not apply to the
exist in the bail bond. Case law provides: case because the article speaks of the relation between a debtor and a
creditor which does not exist in the case of a surety upon a bail bond
The rights and liabilities of sureties on a recognizance or bail bond are, and the State.
in many respects, different from those of sureties on ordinary bonds or Petitioner’s Arguments Court’s Rebuttals
commercial contracts. The former can discharge themselves from • Art. 1266 • Art. 1266 does not apply. The
liability by surrendering their principal; the latter, as a general rule, can • debtor-creditor relation does not
only be released by payment of the debt or performance of the act exist in the case.
stipulated. •
Appealed decision is affirmed in all parts.

1. Natividad Franklin was charged with estafa. Asian Surety &
Insurance posted a bail bond. Franklin was released from custody
2. Her arraignment was set on a date, but she failed to appear on the
date. The arraignment was postponed, but on the new date, she again failed
to appear. The Court granted the surety company 30 days to produce
Franklin which was subsequently extended for another 30 days. However,
surety company failed to produce Franklin. The Court had no other
alternative but to render the judgment of forfeiture.
3. The surety company said that it was the Philippine Government’s
fault for it allowed her to leave the country to proceed to US by giving
Franklin her passport. Surety company contends that it should be released
from all liability under the bailbond for its failure to produce Franklin was
Obligations and Contracts (2020) PETITIONER: People of the Philippines 1

DIGEST AUTHOR: Jann Amorado RESPONDENT: Natividad Franklin, Asian Surety & Insurance
Overall Ruling
No, Art. 1266 (the basis of the surety company) does not apply to the
case because the article speaks of the relation between a debtor and a
creditor which does not exist in the case of a surety upon a bail bond and the
State.
In the case of Bonoan, the Court held that
The rights and liabilities of sureties on a recognizance or bail bond are,

in many respects, different from those of sureties on ordinary bonds or
commercial contracts. The former can discharge themselves from
liability by surrendering their principal; the latter, as a general rule, can
only be released by payment of the debt or performance of the act
stipulated.
In the case of Uy, the Court said that the surety becomes the legal
custodian and jailer of the accused, thereby assuming the obligation to keep
the latter at all times under his surveillance and to produce and surrender
him to the court upon the court’s demand.
The fact that Franklin got a passport is not the Government’s fault. Tit V. Law or Doctrine Applied
was the duty of the company to inform the agencies of the government of
the status of the accused. Had the surety company have done this, Franklin Civil Code, Article 1266. The debtor in obligations to do shall also be released when
would not have gotten her passport. the prestation becomes legally or physically impossible without the fault of the
obligor. (1184a)
US v Bonoan
The rights and liabilities of sureties on a recognizance or bail bond are,
in many respects, different from those of sureties on ordinary bonds or
commercial contracts. The former can discharge themselves from
liability by surrendering their principal; the latter, as a general rule, can
only be released by payment of the debt or performance of the act
stipulated.

VI. Disposition
UPON ALL THE FOREGOING, the decision appealed from is affirmed in

all its parts, with costs.
VII. Random Facts

• Ponente: Dizon, J

G.R. No. 78603 | Jan 28, 1991 Article 1266: Impossibility of Performance
PNCC v. NLRC PNCC v. NLRC
I. Recit-ready Summary ● After serving for his first 2 yr term, he was entered into another
Romeo Buan was hired by PNCC to work as a civil engineer in Saudi similar 2 yr contract with PNCC in which he was now promoted to
Arabia for 2 years, specifically for the Mecca Stormwater Drainage Project, Senior Engineer with a higher salary of $1,350.
in which PNCC was a sub- contractor for REDEC, the principal contractor. ● The new contract (Para. 13) specifically provided that the company
After 2y, they had a new contract, which had a specific stipulation that (PNCC) shall assist the employee in the renewal of his residence
stated that should the renewal of his work permit be denied, the contract will permit during the contract’s term, and should the renewal be
be cancelled. Upon the expiration of his permit, PNCC then notified denied, the contract shall be cancelled as of the end of the
REDEC for a request for extension of his permit. Unfortunately, REDEC residence period without prejudice to the rights of the
denied its extension, which resulted in the cancellation of the contract and
employee, benefits or privileges accrued at the time of
his repatriation. This led to the filing of a case for contract breach or illegal
cancellation.
dismissal against PNCC, which the POEA and NLRC agreed to be the case,
● On Aug 21, 1981, Buan arrived in Saudi Arabia on a re-entry visa
thus this current petition.
The main issue here is whether or not PNCC committed a breach of sponsored by REDEC. By Sept, his residence and work permit
contract against Buan. The SC ruled that there was no breach of contract, expired. PNCC then transmitted to the project manager of REDEC,
specifically because REDEC’s refusal to extend Buan’s permit was a a letter requesting extension of Buan’s payment. Unfortunately,
fulfilled resolutory condition that confirmed the cancellation of the contract, this was denied by one Mr. Ziad Yamut on the reason that they
and being subject to Saudi law and REDEC, it rendered it impossible for were dissatisfied with the performance, thus causing them to refuse
PNCC to continue insisting the continuance of the contract and his sponsorship of his renewal. As a result, he was repatriated on Nov
employment. To insist it would impose an unfair burden on them legally and 26, 1981.
financially. Since its impossibility is not due to PNCC, PNCC should be ● Buan then filed a complaint against PNCC before POEA for breach
relieved from the obligation. of contract or illegal dismissal. POEA sided with Buan, which led
to an appeal to the NLRC, who affirmed POEA’s ruling, leading to
II. Facts of the Case (Material Facts) this current petition.
● On May 22, 1979, Romeo Buan was hired by the Philippine ● PNCC’s argument: No breach of contract because:
National Construction Corp (PNCC) to work as a Civil Engineer ○ when REDEC refused to sponsor the renewal of Buan’s
III in Saudi Arabia for 2 years, with a monthly salary of $1,024. permits, it could not insist on Buan’s employment
While there, Buan was assigned to work in the Mecca Stormwater anymore
Drainage Water Project by Saudi, where PNCC was a sub- ○ the refusal of REDEC to deny his permit was an
contractor of Saudi Research and Dev’t Corp (REDEC), the main unforeseeable event for which reason no negligence could
contractor. be ascribed to PNCC in entering into a second overseas
contract with Buan
1
Obligations and Contracts (2020) PETITIONER: Philippine National Construction Corp.
DIGEST AUTHOR: Jayvee Ala RESPONDENT: National Labor Relations Commission (2nd Div), POEA,
Ruben Buen
III. Issue/s did was merely refuse the ● Cannot be attributed as

1. W/N PNCC committed a breach of contract against Buan, as sponsorship of its renewal, Saudi negligence to PNCC since
determined by NLRC; NO Gov’t was not even involved REDEC did not give any
indication of its
IV. Holding/s disapproval of Buan’s
performance> being
Main Issue subject to REDEC, there
NO, PNCC did not commit a breach of contract against Buan was no way for PNCC to
know that a revocation
Respondent’s Arguments Court’s Rebuttals was coming
● PNCC is a construction ● PNCC is only a sub ● Since it was impossible
constructor and under policy contractor of REDEC, the for PNCC to perform its
instruction nos. 22 and 34 of our principal contractor, in obligation= no breach
Ministry of Labor and effect becoming (better explained in the
Employment= direct employer technically the employer overall ruling)
of Buan and as such its liability of Buan. Therefore, the Overall Ruling
to the latter is primary and direct overseas employment ● There are 3 reasons why PNCC could not be held liable for breach of the
● it was incumbent upon PNCC contract is only bound to second contract (the court’s rebuttals were for the general arguments of
before entering the second Saudi Arabian law NLRC)
contract, to have the matter ● Under Saudi law, a o Para.13 of the contract already explains that the renewal
verified with REDEC, its main foreigner must be of the permit is a resolutory condition that would
contractor. Not having done so= sponsored by a Saudi determine whether the contract would be cancelled. Since
it is accountable for whatever Arabian company to the condition was fulfilled, the contract was obviously
consequences brought by the secure a work and cancelled as a result
breach residence permit, subject o The refusal of REDEC to sponsor the renewal of
● REDEC is estopped since they to the approval of the Buan’s permits had rendered it legally impossible for
still sponsored his re-entry visa Minister of Labor and in PNCC to continue its employment contract with him
+ even promoted him accordance to its rules and in Saudi Arabia. To its effect, PNCC should be
● PNCC cannot invoke Para. 13 procedures released from its obligation with Buan, since its
(in the facts) since what REDEC impossibility was not PNCC’s fault
2
Ruben Buen
▪ As stated earlier, PNCC is subject to As explained in the case:

REDEC’s control.
▪ To insist that the PNCC should continue on “An obligor shall be released from his obligation when the prestation has
with the contract would impose an unfair become legally or physically impossible without fault on his part. The
burden upon them, since it would imply the supervening impossibility of performance, based upon some factor
sanctioning of unjust enrichment of Buan at independent of the will of the obligor, releases the obligor from his
obligation after restitution of what he may have received, if any, in advance
their expense (due to him still being paid
from the other contracting party; the obligor incurs no liability for damages
despite being unable to work)
for his inability to perform.”
▪ It would even endanger them if they
continued on with the contract because it VI. Disposition
would require them to violate Saudi’s labor ACCORDINGLY, the Court resolved to GRANT due course to the
laws. Petition for Certiorari and to REVERSE and SET ASIDE the Decision
dated 21 April 1987 of the NLRC in POEA Case No. (L)84-11-1047. The
● PNCC was not in bad faith when it ended its contract Temporary Restraining Order earlier issued by this Court is hereby made
with Buan as a result of his repatriation. PERMANENT. No pronouncement as to costs.
○ Para. 13 already speaks of a resolutory
condition, which Buan knows. VII. Additional Notes
○ On the moment that his first permit expired,
Buan should’ve known the possibility that he VII. Random Facts
might be denied renewal ● Ponente: Feliciano, J.
○ Basically, PNCC was transparent with Buan and
did not conceal the legal and practical situation
from him.

ARTICLE 1266
The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.
(1184a)
3
Ruben Buen
G.R. No. 116896 | May 5, 1997 Extinguishment of Obligations: Loss of thing due
PNCC v CA PNCC v CA
Petitioner Philippine National Construction Corporation entered a II. Facts of the Case (Material Facts)
contract of lease over a parcel of land with respondent Raymundos, for the 1. This case stems from (PNCC) petitioner’s refusal to pay the rentals
purpose of a rock-crushing project. This contract was stipulated to commence on a parcel of land owned by private respondents (the raymundos)
from the issuance of an industrial clearance by the ministry of human as stipulated in the lease contract.
settlements, with the rent being paid yearly in advance, the first installment 2. Pertinent in the contract of lease was the stipulation of it being for a
being paid upon execution of the contract. period of 5 years, commencing on the date of the issuance of an
On January 1987, Petitioner obtained a “temporary use permit” valid for industrial clearance by the ministry of human settlements. The rent
two years from the ministry. Later that month, respondents wrote petitioner
(which increased yearly by 5%) was also to be paid yearly in
requesting payment of the first annual rent of 240k, which was already due
advance, with the first annual rent worth 240k being due upon the
and payable since the contract was executed. Petitioner argued that rent would
only commence from the issuance of the industrial clearance by the ministry, execution of the contract. The land was leased to be used as a rock
not from the execution of the contract (so this first letter-reply didn’t contest crushing plant.
that the “temporary use permit” was the industrial clearance). Petitioner also 3. On January 1986, Petitioner obtained a “temporary use permit” for
expressed intention to pre-terminate the contract, because it has decided to the rock crushing project, valid for two years unless sooner revoked.
cancel the project due to financial and technical difficulties. Respondent (the first stipulation of the contract had the lease commencing on the
refused this proposed pre-termination and insisted on performance, date of the issuance of an industrial clearance)
demanding the rent for the first year – to which petitioner refused, saying it 4. Private respondents then wrote petitioner later that month requesting
only had to pay the 20k for the one-month time period when it got the permit payment of the first annual rent of 240k, which was due and payable
up to their notice of pretermination to respondent. This led to respondents of the execution of the contract.
filing for specific performance with damages. 5. Petitioner argued that under the first paragraph of their lease
The RTC ordered petitioner to pay 492k – equivalent of two years’ rent, contract, rental payments would commence on the date of the
which the CA affirmed. Petitioner now comes to the SC raising once again
issuance of an industrial clearance by the ministry of human
the stipulation, but more pertinently article 1266 and the doctrine of rebus sic
stantibus (said to be the basis of 1267) in saying that he should be released settlements, not from the date of signing the contract. Petitioner also
from the obligatory force of the contract since the purpose did not materialize expressed intention to terminate the contract because it has decided
due to unforeseen events, specifically the political climate after EDSA I and to cancel the rock-crushing project due to financial and technical
financial difficulties. Is petitioner correct? difficulties.
The SC disagreed with petitioner regarding the applicability of 1266 and 6. Private respondents refused the pretermination, and insisted on
rebus sic stantibus. 1266 only applies in obligations to do, and payment of performance, reiterating their demand for the rent.
rentals is an obligation to give. 1267 is not an absolute application of rebus 7. Petitioner objected to private respondent’s refusal, saying it only has
sic stantibus, as that would endanger the security of contractual relations. it to pay 20k, for a period of one month (from the issuance of the
only applies to absolutely exceptional situations where equity demands temporary use permit up to the time it sent notice of termination to
assistance to the debtor. Such is not the case here, because despite the political private respondents). So, Private respondents filed an action for
turmoil at the time due to ninoy’s assassination, petitioner still entered into specific performance with damages against petitioner.
the contract with open eyes of the deteriorating conditions of the country.
1
Obligations and Contracts (2020) PETITIONER: Philippine National Construction Corporation
DIGEST AUTHOR: Bryan Antonio RESPONDENT: Court of Appeals, The Raymundos(private respondents)
PNCC v CA PNCC v CA
8. There were postponements and eventually a waiver of evidence for Petitioner’s Arguments Court’s Rebuttals
the defendant(herein petitioner) in the lower court due to the • Petitioner invokes 1266 and • Article 1266 reads “the debtor in
changing and non-appearance of counsel. But eventually, the trial rebus sic stantibus (said to be obligations to do shall also be
court decided to order petitioner to pay private respondents 492k – the basis of 1267) in arguing released when the prestation
representing rent for two years. The CA affirmed this. that he is released from the becomes legally or physically
9. (these issues are irrelevant to this topic, their resolution can be found contract due to the purpose of impossible without the fault of
in the additional notes section of this digest – so skip lang) On appeal the contract not materializing the debtor.” – it applies in
to SC, petitioner reiterates the stipulation of “commencing on the due to unforeseen events/causes obligations “to do”, not in one
date of issuance of the industrial clearance…” as a suspensive beyond its control. (specifically “to give”. An obligation to pay
condition without which the rights under the contract would not have change in political climate after rentals/deliver thing in a lease
acquired. Petitioner argues that the “temporary use permit” is NOT EDSA rev and financial contract is an obligation to give,
the industrial clearance referred to in the contract, so the contract difficulties so 1266 is inapplicable.
should be ineffective. Petitioner also claims he was denied due • Rebus sic stantibus, (where the
process, and the award of 2 years’ rent was excessive considering it parties stipulate in light of
didn’t benefit from the property. prevailing conditions, and once
10. Pertinently, Petitioner invokes Article 1266 and the principle of these conditions cease to exist, so
rebus sic stantibus in asserting that it should be released from the does the contract, is said to be
obligatory force of the lease contract because the purpose of the the basis of 1267) is inapplicable
contract did not materialize due to unforeseen events beyond its here, because petitioner entered
control – specifically, the abrupt change in political climate after into the contract with open eyes
EDSA revolution and financial difficulties. of the deteriorating conditions of
III. Issue/s the country.
1. W/N petitioner is correct in invoking Article 1266 and rebus sic • finally, mere pecuniary inability
stantibus (basically article 1267) that would release him from the to fulfill an engagement does not
lease contract because the purpose of the contract did not discharge a contractual
materialize due to unforeseen events beyond his control? NO. obligation, nor is it a defense
IV. Holding/s against specific performance.
Issue #1
NO, petitioner is not released from the obligatory force of the contract
of lease.
2
PNCC v CA PNCC v CA
Overall Ruling
Petitioner cannot take refuge in article 1266, because it only applies in VI. Disposition
obligations “to do”, not to obligations “to give”, which rental payment is.
Besides, his cited causes are not the “physical impossibilities” Wherefore, the instant petition is Denied, and the challenged decision of the
contemplated in the article, and petitioner failed to state specifically the CA is affirmed in toto.
circumstances brought about by this “abrupt change in political climate”
except for the uncertainties in gov’t policies on infrastructure projects.
• Regarding the applicability of the stipulation that the lease
Article 1267, said to be based on rebus sic stantibus, states “when the
commences from the date of issuance of the industrial clearance
service has become so difficult as to be manifestly beyond the (making the issuance a suspensive condition needed for the lease to
contemplation of the parties, the obligor may also be released therefrom, commence), petitioner is estopped from claiming that the mere
in whole or in part”. It enunciates the doctrine of unforeseen events, but it issuance of just a “temporary use permit” is not the industrial
is not an absolute application of rebus sic stantibus. The parties of a clearance contemplated in the contract. Such permit is the clearance
contract are presumed to have assumed the risks of unfavorable contemplated, based on its letter-reply to petitioner when petitioner
developments, so it is only in absolutely exceptional changes of asked them to pay rent with them saying they only owe 20k. since
circumstance that equity demands assistance for the debtor especially in they acknowledged in that letter that the temporary use permit was
this case, since notwithstanding the political turmoils brought about by the the clearance, the suspensive condition was fulfilled. Why else
aquino assassination, Petitioner entered into the contract of lease with would they ask through letter for petitioner to conform to
private respondents with open eyes to the deteriorating conditions of the pretermination if the suspensive condition was not fulfilled?
country. • Due process was heard, the court was very liberal in allowing the
postponements of the trials, it was just petitioner’s counsel that
Finally, poor financial condition doesn’t discharge, or is a defense in an
didn’t appear despite due notice – he was given opportunity to be
action for specific performance
heard multiple times.
• Petitioner cannot complain now that the award is excessive. They
V. Law or Doctrine Applied were awarded a 2-year permit, and the non-use and non-entry into
the property was imputable to petitioner and therefore cannot be
Civil Code Article 1266. The debtor in obligations to do shall also be released when
used to lessen his monetary obligation. His not doing so caused
the prestation becomes legally or physically impossible without the fault of the
obligor. (1184a) damages to respondents due to their inability to use the premises. In
- Cannot be raised in this case, as it only applies in obligations to do, not accordance with 1659 of the CC, 492k is fair.
obligations to give.
VII. Random Facts
Civil Code Article 1267. When the service has become so difficult as to be manifestly • Ponente: Davide, JR., J.
beyond the contemplation of the parties, the obligor may also be released therefrom,
in whole or in part. (n)
- although based on rebus sic stantibus, 1267 is not an absolute application of
it, only applicable when there are absolutely exceptional changes of
circumstance that equity demands assistance for the debtor.
3
G.R. No. L-23546 | August 29, 1974 Loss of the Thing Due
LTBC vs. Manabat LTBC vs. Manabat
I. Recit-ready Summary 2. Each certificate covers a transportation line. The monthly rental is
Biñan Transporation Company leased their certificates of public P2500 for a 5-yr period from the approval of the lease contract by
convenience to Laguna-Tayabas Bus Company and Batangas Transportation the Public Service Commission on the same date.
Company. LTBC and Batangas filed at the Public Service Commission asking 3. Thereafter, Biñan was declared insolvent.
for authority to suspend operations on the lines covered by the certificates due 4. Petitioners LTBC and Batangas paid rentals up to December 1957.
to high operations costs, difficulty in acquiring truck parts, among other However, there was a deduction of P1836.92 from the August 1957
reasons. Meanwhile, Biñan filed at the CFI a complaint against LTBC and rental because:
Batangas asking for the rentals they failed to pay as well as the deductions
a. they suffered losses worth P1000 when their employees
they made to a previous rental payments.
went on strike in June and July
The PSC allowed the suspension of operations. However, the CFI
ordered LTBC and Batangas to pay the unpaid rentals and deductions. The b. Biñan owed Batangas P836.92 as judgment award in a
CA affirmed the CFI decision. LTBC and Batangas appeal to the SC with an previous civil case.
amended petition now asking for reduction of rentals after the original was 5. Respondent Francisco Manabat (Manabat), assignee of Biñan,
denied. opposed the deduction because:
The issue is W/N the Court should grant an equitable reduction of the a. It was the lessees LTBC’s and Batangas’ employees who
unpaid rentals. went on strike, not lessor Biñan’s.
The SC ruled that it should not grant a reduction of rentals. LTBC and b. any judgment award in the civil case should have been filed
Batangas cite Art. 1680 which allows reduction of rentals on lease of rural as a claim in the same case
lands in case of extraordinary fortuitous event. Even if Art. 1680 was 6. LTBC and Batangas neither refunded the deductions nor paid rentals
applicable to this case, the reason for the suspension of operations on the lines from January 1958. They promised to pay rentals but failed to
leased was to lessen operations costs and not due to any extraordinary comply.
fortuitous event as required by Art. 1680 to entitle the lessee to reduced 7. LTBC and Batangas filed with the Public Service Commission
rentals to pay. Also, LTBC and Batangas were in bad faith for reneging on (PSC) petitions for authority to suspend the operation on the lines
their promise to pay the unpaid rentals. Their cause for suspending operations covered by the certificates. They reasoned difficulty in procuring
cannot excuse them from performance of their obligation to pay rentals. truck parts, high operations costs, lack of passenger traffic, and
financial losses. They asked for permission to suspend operations
until operating expenses returned to normal levels.
II. Facts of the Case (Material Facts) 8. In the pendency of the PSC case, Biñan filed at the CFI against
1. LEASE CONTRACT: Biñan Transportation Company (Biñan) LTBC and Batangas for their unpaid rentals since January 1958 plus
leased 3 of its certificates of public convenience to petitioner the P1836.92 previpusly deducted.
Laguna-Tayabas Bus Company (LTBC), and 1 other certificate of 9. In the PSC case, the PSC ruled for LTBC and Batangas. It allowed
public convenience to co-petitioner Batangas Transportation the suspension of operation of trips along the affected lines.
Company (Batangas) on January 20, 1956. 10. In the CFI case, the CFI ruled for Biñan and ordered LTBC and
Batangas to pay the unpaid rentals and the previous deduction.
1
Obligations and Contracts (2020) PETITIONER: Laguna-Tayabas Bus Company (LTBC) and Batangas
Transportation Company
DIGEST AUTHOR: Kara Nazario RESPONDENT: Francisco Manabat (assignee of Biñan Transportation Co.)
11. The CA affirmed the CFI ruling on appeal. costs, etc.) already existed at the
12. LTBC and Biñan again appealed to the SC presenting three execution of the contract. Hence,
questions of law but it was dismissed for lack of merit. there was no such fortuitous
13. They submitted an amended petition with a new prayer: asking for event.
equitable reduction of rentals payable. Reconsideration on the  LTBC and Batangas were in bad
previous three issues was denied for no new arguments were faith for promising to pay rentals
presented. but failing to comply, effectively
III. Issue/s staining their plea for equity.
1. W/N the Court should grant an equitable reduction of the  They asked for the suspension of
rentals payable? NO. operation to lessen operation
costs with expectation of greater
IV. Holding/s profit.
 The lease contract still brought
Issue #1 advantage to LTBC and
NO, the Court sees no reason to grant an equitable reduction on the Batangas during the suspension
rentals payable. because they have no
Petitioner’s Arguments Court’s Rebuttals competition from Biñan
 LTBC and Batangas plea for a  Art. 1680 is a special provision according to the latter’s
reduction because the subject of for the lease of rural lands meant commitment. The lease contract
the lease was allegedly not used to allow social justice for poor included a forbearance on the
by them due to the suspension of farmers against consequences of part of Biñan, meaning it may
operations on the affected lines. contracts with rich landowners. not operate transportation
 Art. 1680 of the Civil Code Art. 1680 is not a general rule on business along the same lines.
grants lessees of rural lands a lease, and thus not applicable to Overall Ruling
right to reduction of rentals the case.
whenever harvest is  Even if Art. 1680 was applicable The cause of LTBC and Batangas’ inability to operate on the leased lines
considerably damaged by an to this case, the loss of fruits of cannot be ascribed to a fortuitous event. The suspension on operations was
extraordinary fortuitous event. the leased property should be due due to high prices of spare truck parts and reduction of dollar allocations,
Reyes v Caltex supposedly to extraordinary and unforeseen etc. were already present when the lease was executed. The suspension of
applies tis rule by analogy to fortuitous event. Here, the cause operation on the leased lines was conceived as a scheme to lessen operation
other leases. of suspension of operations on costs with the expectation of greater profit.
the leased lines (high operating
2
The lease contract still brought material advantage to lessees LTBC and unprofitable or impracticable ill-advised or even foolish, or less profitable or
Batangas because the lease contract included a forbearance on the part of unexpectedly burdensome.” (Reyes vs. Caltex)
Biñan, meaning it cannot operate transportation business along the same
lines. HAZARD OF LOSSES – FROM REYES V. CALTEX
Further, they were in bad faith for reneging on their promise to pay the “Since, by the lease, the lessee was to have the advantage of casual profits
of the leased premises, he should run the hazard of casual losses during the
accrued rentals.
term and not lay the whole burden upon the lessor.”
Their cause for suspending operations cannot excuse them from
performance of their obligation to pay rentals. VI. Disposition
WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE

V. Law or Doctrine Applied HEREBY DISMISSED, AND THE DECISION OF THE COURT OF
APPEALS DATED AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH
LOSS OF THE THING DUE – ART. 1262 COSTS AGAINST PETITIONERS.|||
Art. 1262. An obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the fault VII. Additional Notes
of the debtor, and before he has incurred in delay. … 1. The 3 certificates of public convenience leased to LTBC cover
these lines:
ARTICLE 1680 – ON LEASE OF RURAL LANDS a. Manila-Biñan
Art. 1680. The lessee shall have no right to a reduction of the rent on b. Manila-Canlubang
account of the sterility of the land leased, or by reason of the loss of fruits c. Sta. Rosa-Manila
due to ordinary fortuitous events; but he shall have such right in case of the 2. The certificate of public convenience leased to Batangas covers
loss of more than one-half of the fruits through extraordinary and the Manila-Batangas Wharf line. The lease includes one
unforeseen fortuitous events, save always when there is a specific ‘international’ truck.
stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war, pestilence,
unusual flood, locusts, earthquake, or others which are uncommon, and VII. Random Facts
which the contracting parties could not have reasonably foreseen. (1575)  Ponente: Makasiar, J.
PERFORMANCE: WHEN NOT EXCUSED
“…performance is not excused…by unusual or unexpected expenses,…by
failure of a party to avail himself of the benefits to be had under the contract
by weather conditions by financial stringency of by stagnation of
business…. by the fact that the contract turns out to be hard and improvident
3
G.R. No. L-44349 | October 29, 1976 Art. 1267
Occena v. Jabson Occena v. Jabson
I. Recit-ready Summary a. Wants the court to fix the proper shares that should
Tropical Homes Inc is in a contract with Occena, wherein Occena pertain to the parties
guaranteed Tropical’s share, an amount equivalent to 40% of all cash b. Because its further performance under the contract would
receipts from the sale and subdivision of lots. Tropical Homes petitioned to result in a situation where Occena would be unjustly
the court to modify the terms and conditions of the contract because its enriched at their expense due to the worldwide increase in
further performance under the contract would result in a situation where prices which are beyond the control and contemplation of
Occena would be unjustly enriched at their expense due to the worldwide the parties
increase in prices which are beyond the control and contemplation of the
3. Court dismissed Occena’s petition to dismiss Tropical Homes’
parties. CFI dismissed Occena’s petition pursuant to Art. 1267
complaint
a. Ground: Art 1267
Issue: W/N the court should modify the terms and conditions of the contract
III. Issue/s
W/N the court should modify the terms and conditions of the contract?
The SC said no, it should not modify the terms and conditions of the
NO
contract. Art 1267 does NOT grant the courts the authority to remake,
IV. Holding/s
modify, or revise the contract, so as to substitute its own terms for those
originally stipulated by the parties. Respondent's complaints for
modification of contract manifestly has no basis in law and therefore states Issue #1
no cause of action.
W/N the court should modify the terms and conditions of the contract?
II. Facts of the Case (Material Facts) NO
1. Tropical Homes Inc is in a contract with Occena
a. Occena guaranteed as Tropical Homes’ share an amount
No, the court should not modify the terms and conditions of the contract
equivalent to 40% of all cash receipts from the sale and
subdivision of lots
2. But, Tropical Homes petitioned the court to render judgment
modifying the terms and conditions of the contract
1
Obligations and Contracts (2020) PETITIONER: JESUS V. OCCEÑA and EFIGENIA C. OCCEÑA
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: vs. HON. RAMON V. JABSON, Presiding Judge of the
Court of First Instance of Rizal, Branch XXVI; COURT OF APPEALS and
TROPICAL HOMES, INC.,
G.R. No. L-44349 | October 29, 1976 Art. 1267
Occena v. Jabson Occena v. Jabson

● Worldwide increase in IV. Law or Doctrine Applied
prices cited by the ● Art. 1267 does not permit the
respondents does not court to modify contracts ART. 1267
constitute a sufficient cause
When the service has become so difficult as to be manifestly beyond the
of action for modification
contemplation of the parties, the obligor may also be released therefrom, in
of the contract
whole or in part
Overall Ruling
Art 1267 provides: When the service has become so difficult as to be

V. Disposition
manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part. ACCORDINGLY, the resolution of respondent appellate court is reversed
and the petition for certiorari is granted and private respondent's complaint
● General Rule: impossibility of performance releases the obligor in the lower court is ordered dismissed for failure to state a sufficient cause
of action. With costs in allinstances against private respondent.
● Exception: when the service has become to so difficult as to be
manifestly beyond the contemplation of the parties, the court is
authorized to release the obligor in whole or in part VI. Additional Notes
● Art 1267 does NOT grant the courts the authority to remake,
modify, or revise the contract, so as to substitute its own terms
VII. Random Facts
for those originally stipulated by the parties ● Ponente: Teehankee, J.:
● Respondent's complaints for modification of contract
manifestly has no basis in law and therefore states no cause of
action.
2
Obligations and Contracts (2020) PETITIONER: JESUS V. OCCEÑA and EFIGENIA C. OCCEÑA
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: vs. HON. RAMON V. JABSON, Presiding Judge of the
Court of First Instance of Rizal, Branch XXVI; COURT OF APPEALS and
TROPICAL HOMES, INC.,
G.R. No. 107112 | February 24, 1994 Extinguishment of Obligation
Naga Telephone Co. Inc. v. CA Naga Telephone Co. Inc. v. CA
I. Recit-ready Summary their previous contract was too one-sided and in favor of
National Telephone Co. Inc. (NATELCO) and Camarines Sur II NATELCO. Such was not in compliance with the National
Electric Cooperative, Inc. (CASURECO) entered into a contract for Electrification Administration which pegged the compensation cost
the use by NATELCO in the operation of its telephone service the for the use of posts at P10.00 a month.
electric light posts of CASURECO within the city of Naga. As per 5. CASURECO further alleges that after eleven years of petitioner’s
their agreement, NATELCO agreed to install ten telephone use of the posts, the telephone cables of NATELCO have become
connections for the use by CASURECO in different units of much heavier with the increase in the volume of their subscribers.
CASURECO. After 10 years, CASURECO filed a case against NATELCO also bore holes through the posts, and said posts were
NATELCO for the following cause of action: (1) the contract had broken during a typhoon. Each post costs P2,630. CASURECO
become iniquitous and is thus a cause of action for reformation, (2) wishes to reform their contract to correct and abolish inequities in
NATELCO used posts outside of Naga and did not pay for such, (3) their contract.
and NATELCO provides poor service. The issue in this case is 6. Rebuttal of NATELCO annent the First cause of action: Such
whether or not Art. 1267 is applicable in this case. The Court held that complaint must be dismissed due to lack of cause of action. Such is
yes, Art. 1267 is applicable in this case. The Court stated that just also barred by prescription, as CASURECO only filed a case in the
because a contract had become iniquitous in the long run did not mean 11th year of the execution of the contract. Such was also barred by
that a cause of action for reformation should arise, instead, they found estoppel. Their utilization of CASURECO's post could not have
that the elements of Art. 1267 was present and hence applied such caused deterioration because they have already been in use for
doctrine even when the parties did not stipulate such in their eleven years and that the value of their expenses for ten telephone
pleadings. lines long enjoyed by CASURECO free of charge are far in excess
of amounts claimed by them for the use of their posts, so that if
II. Facts of the Case (Material Facts) there was inequity, it was suffered by NATELCO.
1. National Telephone Co. Inc. (NATELCO) and Camarines Sur II 7. Second cause of action: CASURECO alleged that since 1981,
Electric Cooperative, Inc. (CASURECO) entered into a contract NATELCO had used 319 posts in Pili and Milaor, said cities are
for the use by NATELCO in the operation of its telephone service outside of Naga. And that upon demand, NATELCO refused to
the electric light posts of CASURECO within the city of Naga. pay for the amount.
2. As per their agreement, NATELCO agreed to install ten telephone 8. Rebuttal of NATELCO annent the Second cause of action: It was
connections for the use by CASURECO in different units of CASURECO themselves that had asked for telephone lines in
CASURECO (see additional notes for this). areas outside Naga City for which its posts were used by
3. After 10 years, CASURECO filed a case against NATELCO for NATELCO; and that if NATELCO had refused to comply with
the following cause of action: CASURECO's demands for payment for the use of the posts
4. First cause of action: CASURECO filed for a reformation of outside Naga City, it was probably because what is due to them
contract with damages against NATELCO on the grounds that from CASURECO is more than its claim against them.
1
Obligations and Contracts (2020) PETITIONER: Naga Telephone Co. Inc.
DIGEST AUTHOR: Alex Sulaik RESPONDENT: Court of Appeals / Camarines Sur II Electric Cooperative, Inc.
9. Third cause of action: CASURECO alleged that NATELCO had 2. No, prescription only runs from the time the cause of action
provided poor servicing of the 10 telephone units it had installed accrues.
for free, causing damages amounting to P100,000. 3. No, the conditions did not depend solely on the will of either
10. Rebuttal of NATELCO annent the Third cause of action: party.
NATELCO claims that their telephone service has been Petitioner's Argument Court’s Rebuttal
categorized by NTC as “very high” and of “superior quality.”
NATELCO alleges that Art. 1267 Art. 1267 is applicable in this case
RTC Ruling: Ordered the NATELCO to pay CASURECO’s electric poles in does not apply since their contract because the provision speaks
Naga City and in the towns of Milaor, Canaman, Maragao and Pili, did not involve rendition of
Camarines Sur and in other places where NATELCO uses CASURECO's performance of an obligation
service. NATELCO also points out which has become so difficult. It
electric poles, the sum of TEN (P10.00) PESOS per CASURECO's pole,
that said contract did not involve does not require that the contract
per month and ordering also the CASURECO to pay NATELCO the
any future service with a future
monthly dues of all its telephones including those installed at the residence be for future service with a future
of its officers. unusual change.
unusual change.
CA Ruling: Affirmed RTC decision but based on different grounds:
(1) that Article 1267 of the New Civil Code is applicable and
(2) that the contract was subject to a potestative condition which rendered Overall Ruling
said condition void.
III. Issue/s 1. Art. 1267 is applicable in this case.
1. Whether or not Art. 1267 is applicable in this case. YES. “In applying Article 1267, respondent court rationalized:
2. Whether or not cause of action has prescribed. NO. "We agree with appellant that in order that an action for
3. Whether or not the prestations in the contract are purely potestive. reformation of contract would lie and may prosper, there must
NO. be sufficient allegations as well as proof that the contract in
IV. Holding/s question failed to express the true intention of the parties due to
error or mistake, accident, or fraud. Indeed, in embodying the
Issue equitable remedy of reformation of instruments in the New Civil
1. Yes, Art.1267 is applicable in this case. The provision Code…”
provides for unforeseen events or the discredited theory of
rebus sic stantibus, wherein parties stipulate that in light of The Court stated that just because the contract had become
certain prevailing conditions and once these conditions cease iniquitous in the long run did not mean that there was a cause of
to exist, then the contract ceases to exist.
action for reformation of the contract. Instead, although it was
2
not alleged, the court found that all the elements of Art. 1267
was present in this case and hence applied said doctrine: V. Law or Doctrine Applied
“Article 1267 speaks of "service" which has become so difficult. Article 1267
Taking into consideration the rationale behind this provision,
term "service" should be understood as referring to the "When the service has become so difficult as to be manifestly beyond the
"performance" of the obligation. In the present case, the contemplation of the parties, the obligor may also be released therefrom, in
whole or in part."
obligation of CASURECO consists in allowing NATELCO to
use its posts in Naga City, which is the service contemplated in
VI. Disposition
said article. XXX This is said to be based on the discredited
theory of rebus sic stantibus in public international law; under WHEREFORE, the petition is hereby DENIED. The decision of the Court
this theory, the parties stipulate in the light of certain prevailing of Appeals
conditions, and once these conditions cease to exist the contract
also ceases to exist. Considering practical needs and the dated May 28, 1992 and its resolution dated September 10, 1992 are
demands of equity and good faith, the disappearance of the basis AFFIRMED.
of a contract gives rise to a right to relief in favor of the party
prejudiced.” VII. Additional Notes
● CASURECO Units to be used by NATELCO:
2. The cause of action has not yet prescribed. According to the (a) 3 units — The Main Office of (private respondent);
Civil Code, an action upon a written contract must be brought (b) 2 Units — The Warehouse of (private respondent);
within 10 years from the time the cause of action accrues. In the (c) 1 Unit — The Sub-Station of (private respondent) at
case, cause of action only arose in 1982/1983 upon Concepcion Pequeña;
CASURECO’s request that their contract be reviewed. The case (d) 1 Unit — The Residence of (private respondent's) President;
(e) 1 Unit — The Residence of (private respondent's) Acting
was filed 1989, well within the 10 year period mark.
General Manager; &
(f) 2 Units — To be determined by the General Manager.
3. The prestations in the contract are not purely potestative. The
contract is actually a casual condition which depends on chance, VII. Random Facts
hazard, or will of a third person. The contract is subject to mixed
● Ponente: Nocon, J.
conditions which do not render said contract void.
3
G.R. No. 124221 | August 4, 2000 Article 1267 of the Civil Code
Magat v CA Magat v CA
I. Recit-ready Summary also went to the Office of the President in which Secretary Zamora
explained to them that the radios were “banned like guns because of martial
Guerrero Transport Services won a bid wherein they are to provide law.” Guerrero also testified that this prevented him from securing a letter of
radio-controlled taxi service within the US Naval Base in Subic, Olongapo. credit from the Central Bank. Thus, in this case, Guerrero’s inability to
Guerrero (President and Chairman of Guerrero Transport Services) then secure a letter of credit and to comply with this obligation was a direct
executed a letter-contract with Victorino Magat (General Manager of consequence of the denial of the permit to import. For this, the court said he
Spectrum Electronic Laboratories) for the purchase of transceivers which cannot be faulted.
will be used in the naval base. Magat subsequently placed an order for the
transceivers with his Japanese supplier. II. Facts of the Case
1. Sometime in 1972: Guerrero Transport Services won a bid wherein
Meanwhile, with the advent of Martial Law, Former Dictator Ferdinand they are to provide radio-controlled taxi service within the US
Marcos issued Letter of Instruction No. 1. Pursuant to this LOI, the Radio Naval Base in Subic, Olongapo.
Control Office issued Administrative Order No. 4 which suspended the 2. September 22, 1972: with the advent of Martial Law, Former
acceptance and processing of applications for permits to possess, own, Dictator Ferdinand Marcos issued Letter of Instruction No. 1.
transfer, purchase and sell transceivers. (hereinafter referred to as “the LOI”)
3. September 25, 1972: pursuant to the LOI, the Radio Control Office
Guerrero failed to secure a letter of credit from the bank due to the refusal of issued Administrative Order No. 4 which states that acceptance and
the Philippine government to issue a permit to import transceivers and was processing of applications for permits to possess, own, transfer,
unable to comply with his obligation to Magat. Magat then cancelled his purchase, and sell radio transmitters and transceivers as well as
order with the Japanese supplier from which he incurred expenses due to the manufacturers’ and dealers’s permits of said equipment are
cancellation fee. Magat later filed an action for damages arising from breach suspended.
of contract against Guerrero. The issue in this case is whether or not 4. September 25, 1972: Santiago Guerrero (President and Chairman
Guerrero breached the contract therefore entitling Magat to damages. The of Guerrero Transport Services) and Victorino Magat (General
Court said no. Manager of Spectrum Electronic Laboratories) executed a
letter-contract for the purchase of transceivers by the former from
Article 1267 of the Civil Code provides that “when the service has become the latter at the price of $77,620.
so difficult as to be manifestly beyond the contemplation of the parties, the 5. The parties agreed that Magat was to deliver the transceivers
obligor may also be released therefrom, in whole or in part.” The Court took within 60 to 90 days from the receipt of notice from Guerrero of
note of the fact that Guerrero, along with Aligada and Magat, personally their assigned radio frequency.
went to the Radio Control Office and were denied a permit to import. They
1
Obligations and Contracts (2020) PETITIONER: Victorino Magat, Jr. substituted by heirs Olivia D. Magat, and
minors Ma. Dulce, Ma. Magnolia, Ronald and Dennis Magat
DIGEST AUTHOR: Myna RESPONDENT: CA and Santiago Guerrero
6. Magat placed an order for the transceivers from his Japanese within Subic Naval Base, using radio units borrowed from the US
supplier. government.
7. October 4, 1972: Isidro Aligada which served as their broker and 13. Magat cancelled his order with his Japanese supplier and filed a
middleman wrote a letter to Magat informing him that no radio complaint for damages arising from breach of contract against
frequency has been assigned to Guerrero yet and that government Guerrero.
regulations might complicate the importation of the transceivers. In 14. Magat died in 1985 and his heirs were substituted in the
the same letter, Magat was advised to advise his supplier to prosecution.
proceed with production pending frequency information. Magat 15. Both the RTC and the CA ruled in favor of the heirs, ordering
was also assured of Guerrero’s capacity to comply with the Guerrero to pay them temperate, moral and exemplary damages as
contract. well as attorney’s fees.
8. October 7, 1972: Guerrero informed Magat of the assigned III. Issue/s
frequency number. Aligada also advised Magat to proceed with the 1. W/N the contract was breached. NO
order upon receipt of letter of credit.
9. January 10, 1973: Guerrero applied for a letter of credit with the IV. Holding/s
Metropolitan Bank and Trust Company. This application was not Issue #1
pursued. NO, the contract was not breached.
10. March 27, 1973: Magat informed Guerrero through his lawyer that
the order with the Japanese supplier was not canceled. Magat also CA’s Decision Court’s Rebuttals
said that the Japanese supplier would forfeit 30% of the deposit and ● CA said Guerrero was liable for ● There was no breach based on
would charge a yet unknown amount of cancelation fee should the damages based on their findings Article 1267 of the Civil Code.
contract be canceled. Magat said Guerrero would bear such loss. that he breached the contract. ● Even if there was, there was no
Further, Magat would also demand an additional amount bad faith. Hence, Guerrero is not
equivalent to 10% of the contract price should the contract be liable for damages.
canceled.
11. Because of the government’s refusal to issue a permit to import the
transceivers, Guerrero failed to get a letter of credit from the
Central Bank.
12. Unable to get a letter of credit from the Central bank due to the
refusal of the PH government to issue a permit to import the
transceivers, Guerrero commenced operation of the taxi cabs
2
Overall Ruling When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in
Article 1267 of the Civil Code provides that “when the service has become whole or in part.
so difficult as to be manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in part.” The Court took VI. Disposition
note of the fact that Guerrero, along with Aligada and Magat, personally
WHEREFORE, we AFFIRM the decision of the Court of Appeals
went to the Radio Control Office and were denied a permit to import. They
promulgated on October 11, 1995, in CA-G. R. CV No. 34952, dismissing
also went to the Office of the President in which Secretary Zamora
the complaint.
explained to them that the radios were “banned like guns because of martial
law.” Guerrero also testified that this prevented him from securing a letter VII. Additional Notes
of credit from the Central Bank. Thus, in this case, Guerrero’s inability to VII. Random Facts
secure a letter of credit and to comply with this obligation was a direct ● Ponente: Pardo, J.
consequence of the denial of the permit to import. For this, the court said he
cannot be faulted.
The Court further stated that even if there was a breach of contract, damages
cannot be awarded because there was no bad faith on Guerrero’s part. True,
Guerrero borrowed equipment from the Subic Naval Base authorities but
this does not automatically translate to bad faith. Guerrero was faced with
the danger of the cancellation of his contract with Subic Naval Base. He
borrowed equipment as a prudent and swift alternative. There was no proof
that he resorted to this option with a deliberate and malicious intent to
dishonor his contract with Magat.
V. Law or Doctrine Applied.
3
G.R. No. 183794 | June 13, 2016 Loss of the thing due: Article 1267.
O222 - Sps Poon v Prime Savings Bank O222 - Sps Poon v Prime Savings Bank
I. Recit-ready Summary b. the advance payment was to be applied immediately,

while the rentals for the remaining period of the Contract
Petitioners owned a commercial building in Naga City, and were to be paid on a monthly basis.[5]
executed executed a 10-year Contract of Lease with Prime Savings c. In addition, paragraph 24 of the Contract provides:
Bank over the building for the bank’s use as its branch office. Soon
afterwards, Prime Savings Bank was placed under receivership. The 24. Should the lease[d] premises be closed, deserted or vacated
Philippine Deposit Insurance Corporation filed a case for rescission by the LESSEE, the LESSOR shall have the right to terminate
and the recovery of 3.4 million pesos advance rentals paid by Prime the lease without the necessity of serving a court order and to
immediately repossess the leased premises. Thereafter the
Savings to the spouses.
LESSOR shall open and enter the leased premises in the
The respondent bank argued that its status under receivership
presence of a representative of the LESSEE (or of the proper
was an “unforeseen circumstance” as contemplated by Article authorities) for the purpose of taking a complete inventory of all
1267 of the Civil Code. The RTC ruled in favor of the bank, and the furniture, fixtures, equipment and/or other materials or property
CA affirmed the decision. However, the basis of the CA decision was found within the leased premises.
the equity principle of Art. 1229 (reducing penalty of a penal clause),
as it believed that Prime Savings had acted fraudulently and The LESSOR shall thereupon have the right to enter into a new
therefore the receivership was not an unforeseen circumstance. contract with another party. All advanced rentals shall be
The Supreme Court denied the Spouses’ petition and affirmed the forfeited in favor of the LESSOR.
CA, holding that the text of the contract and the testimony of Jaime
Poon clearly show how the parties contemplated the possibility of 3. Barely three years later, the BSP placed Prime Savings Bank
deterioration or loss of business. under the receivership of the Philippine Deposit Insurance
Corporation (PDIC) by virtue of BSP Monetary Board Resolution
II. Facts of the Case (Material Facts) No. 22. (Stating that Prime Savings had become unable to pay its
liabilities, and “has wilfully violated cease and desist orders under
1. Petitioners owned a commercial building in Naga City, which they Section 37 that has become final, involving acts or transactions
used for their bakery business. Matilde Poon and Prime Savings which amount to fraud or a dissipation of the assets of the
Bank executed a 10-year Contract of Lease (Contract) over the institution”).
building for the bank’s use as its branch office in Naga City.
4. Prime Savings Bank (respondent) vacated the leased premises and
2. The terms agreed to: surrendered them to petitioners.[10] PDIC issued then petitioners
a. Fixed monthly rental of P60,000, with an advance (Spouses Poon) a demand letter[11] asking for the return of the
payment of the rentals for the first 100 months in the unused advance rental amounting to P3,480,000 on the ground
amount of P6,000,000. As agreed, that paragraph 24 of the lease agreement had become
Obligations and Contracts (2020) PETITIONER: Spouses Jaime And Matilde Poon 1
DIGEST AUTHOR: Vito Castaneda RESPONDENT: Prime Savings Bank Represented By The Philippine
Deposit Insurance Corporation
inoperative, because respondent's closure constituted force

majeure. The PDIC likewise invoked the principle of rebus sic III. Issue/s
stantibus under Article 1267 of Republic Act No. 386 (Civil Code) 1. W/N The issues to be resolved are whether (1) respondent may
as alternative legal basis for demanding the refund. be released from its contractual obligations to petitioners on
grounds of unforeseen event under Article 1267 of the Civil
5. Petitioners, however, refused the PDIC's demand.[12] They Code; NO.
maintained that they were entitled to retain the remainder of
the advance rentals following paragraph 24 of their Contract. IV. Holding/s
6. Prime Savings Bank sued petitioners before the RTC of Naga City
for a partial rescission of contract and/or recovery of a sum of Issue #1
money. NO, the placement of Prime Savings Bank under receivership does not
7. The RTC ordered a partial rescission of the lease agreement constitute an unforeseen event that releases it from the obligation to
a. Spouses Poon had to return or refund to the Plaintiff the pay.
sum of One Million Seven Hundred Forty Thousand Pesos Petitioner’s Arguments Court’s Rebuttals
(P1,740,000) representing one-half of the unused portion • The argument presented in this • Article 1267 is not an absolute
of the advance rentals. section are mostly those of the application of the principle
b. the premature termination of the lease due to the RESPONDENT bank of rebus sic stantibus, otherwise,
BSP's closure of respondent's business was actually • Note: Petitioners want Prime it would endanger the security of
involuntary. Savings to forfeit their advance contractual relations.
c. Second clause in paragraph 24 of the Contract was penal rentals, and Prime Savings wants • Parties to a contract are presumed
in nature; under the equity principle of Article 1229 of the to recover the rentals by to have assumed the risks of
Civil Code, it is unfair for the petitioners to forfeit the proving that such payments unfavorable developments.
entire amount are NOT owed (because of loss • It is only in absolutely
8. The Court of Appeals affirmed the RTC, but applied a different of the thing due) exceptional changes of
rationale for Article 1229: • Respondent lessee invokes the circumstance, therefore, that
a. The closure of respondent's business was not a fortuitous doctrine of unforeseen event equity demands assistance for the
event. Unlike Provident Savings Bank,[20] the instant case under Article 1267 of the Civil debtor
was one in which respondent was found to have Code
committed fraudulent acts and transactions (not
independent of debtor’s will).
b. The petitioners’ Motion for Reconsideration was denied,
and they petitioned the Supreme Court.
Overall Ruling
The requisites for applying Art. 1267 are laid down in the case of Tagaytay
Realty Co., Inc. v. Gacutan: ARTICLE 1267 OF THE CIVIL CODE
1. The event or change in circumstance could not have been foreseen at the Art. 1267. When the service has become so difficult as to be manifestly
time of the execution of the contract. beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
2. It makes the performance of the contract extremely difficult but not
impossible. Rebus Sic Stantibus (Latin: “things standing thus”) stipulates that, where
there has been a fundamental change of circumstances, a party may
3. It must not be due to the act of any of the parties. withdraw from or terminate the treaty in question (this is the partial basis of
Art. 1267).
4. The contract is for a future prestation.
VI. Disposition
[39]
Mere inconvenience, unexpected impediments, increased expenses, or
WHEREFORE, premises considered, the Petition for Review on Certiorari
even pecuniary inability to fulfil an engagement,[40] will not relieve the
is DENIED. The Court of Appeals Decision dated 29 November 2007 and
obligor from an undertaking that it has knowingly and freely its Resolution dated 10 July 2008 in CA-G.R. CV No. 75349 are hereby
contracted. MODIFIED in that legal interest at the rate of 6% per annum is imposed on
the monetary award computed from the finality of this Decision until full
The first and the third requisites, however, are lacking. It must be noted that payment. No costs.
the lease agreement was for 10 years. As shown by the unrebutted testimony
of Jaime Poon during trial, the parties had actually considered the SO ORDERED.
possibility of a deterioration or loss of respondent's business within that
period: Leonardo-de Castro, Bersamin, Perlas-Bernabe and Caguioa, JJ., concur.
Clearly, the closure of respondent's business was not an unforeseen VII. Additional Notes
event. As the lease was long-term, it was not lost on the parties that such an
VII. Random Facts
eventuality might occur, as it was in fact covered by the terms of their
• Ponente: Sereno, C.J, J.
Contract. Besides, as We have previously discussed, the event was not
independent of respondent's will
G.R. No. 104726 | February 11, 1999 Condonation and Remission of Debt | Article 1270
Yam v CA Yam v CA
I. Recit-ready Summary 3. Yam and Lent obtained a second loan of 300, 000 pesos evidenced by
Yam and Lent, representing Phil. Printing Works (PPW) entered two promissory notes (dated July 3 and Sep 30, 1981) through a new loan
into a first loan agreement (called Industrial Guarantee Loan Fund IGLF) for agreement with identical provisions to the first one except that the p.a.
500,000 pesos. This was secured with a chattel mortgage on printing interest is now 14% while the service charge was reduced to 1%.
machinery. A second loan was obtained for 300,000 pesos with the same 4. Yam and Lent paid the first loan of 500, 000 pesos by Apr 2, 1985. While
provision except for the increase of per annum interest from 12% to 14% in Nov 4 1985, ManPhil was placed under receivership where Ricardp Lirio
and a reduction of service charges to 1%. In April 1985, the first loan was and Cristina Destajo were appointed as receivers and in house examiners,
fully paid. In Nov 1985, ManPhil was placed under receivership. In 1986, respectively.
Yam and Lent partially paid the second loan with 50,000 pesos. Come July 5. In 1986, Yam and Lent made a partial payment of 50, 000 for their
of the same year, the balance was around 700,000 pesos where Yam and second loan. They later wrote ManPhil that they will settle their obligation
Lent paid about 410,000 of it. ManPhil sent a letter to collect a balance of while ManPhil provided an offer to reduce penalty charges of up to 140, 000
266,000 pesos and then filed a suit at RTC. Yam and Lent claim that the pesos if Yam and Lent can pay before June 30, 1986.
penalties and services charges were waived by ManPhil’s president. The 6. As of July, Yam and Lent’s outstanding liability is 727,001.35 pesos.
RTC ruled that Yam and Lent are still liable to pay the amount which was 7. Yam and Lent paid 410,854.47 pesos through a check which was
affirmed by the CA. The issue in this case is whether or not Yam and Lent acknowledged by Destajo. Such amount was the sum of the principal plus
are liable for payment of the penalties and service charges on their loan. The the interest of the amount due less the 50, 000 Yam and Lent paid earlier.
court ruled that they are still liable to pay as there was no valid condonation 8. ManPhil sent two demand letters to Yam and CA to collect a balance of
on thier debts. First, as Article 1270 states that condonation must comply 266, 146.88. Being there no response, ManPhil filed a case in the RTC.
with the forms of donation, it must be in writing. In this case, the 9. In the Answer of Yam and Lent, they claimed to have fully paid the
condonation was not put to writing and is therefore void. Also, the voucher obligation since they had met the President of ManPhil (Sobrepenas) who
being used by Yam and Lent to serve as documentary evidence only shows agreed to waive penalties and services charges.
their intent to pay and does not bind ManPhil. Secondly, Destajo had no 10. RTC ordered Yam and Lent to pay.
authority to condone the debt, being the examiner designated by the Central 11. On appeal to the CA, it affirmed the RTC.
Bank, her signature on the voucher does not amount to anything more than III. Issue/s
an acknowledgement of the receipt of payment. Lastly, the alleged 1. W/N Yam and Lent are liable for payment of the penalties and
condonation happened after ManPhil was placed under receivership by the service charges on their loan? (YES)
Central Bank which Yam and Lent were aware of. This means that IV. Holding/s
Sobrepenas had no authority to condone the debt and that Yam and Lent Issue #1
could not claim good faith and ignorance. Yam and Lent are liable for payment of the penalties and service
II. Facts of the Case (Material Facts) charges on their loan
1. Yam and Lent through PPW entered in a Loan Agreement (denominated Petitioner’s Arguments Court’s Rebuttal
as IGLF) with ManPhil for 500,000 pesos. It provided 12% p.a., 2%  They have fully paid the  Yam and Lent are liable for the
monthly penalty and 1.5% monthly service charge. obligation. balance
2. The loan was secured by a chattel mortgage on printing machinery  ManPhil’s President condoned  No condonation of debt since it
Obligations and Contracts (2020) PETITIONER: Victor Yam, Yek Sunt Lent (Philippine Printing Works) 1
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Court of Appeals and ManPhil Investment Corp
G.R. No. 104726 | February 11, 1999 Condonation and Remission of Debt | Article 1270
Yam v CA Yam v CA
to the waiver of penalty and was not reduced in writing and Condonation or remission is essentially gratuitous, and requires the
interest charges. the ManPhil’s President had no acceptance by the obligor. It may be made expressly or impliedly.
 Written documentation was authority to condone.
with the voucher stating “full One and the other kind shall be subject to the rules which govern inofficious
payment of IGLF loan” donations. Express condonation shall, furthermore, comply with the forms
of donation.
Overall Ruling
The court stated that under Article 1270, condonation must first comply
Art. 748.
with the forms of donation (Art 748: Donation acceptance of movable over The donation of a movable may be made orally or in writing.
5,000 pesos must be made in writing). In this case, the alleged agreement of
condonation was not reduced to writing and is void. The reliance of Yam An oral donation requires the simultaneous delivery of the thing or of the
and Lent on the voucher as proof of documentary evidence is without merit document representing the right donated.
as it only states their intention to make payment and does not bind ManPhil
in anyway. If there was really a condonation, Yam and Lent should have If the value of the personal property donated exceeds five thousand pesos,
asked for a certificate of fully payment. the donation and the acceptance shall be made in writing, otherwise, the
donation shall be void.
Yam and Lent also aver that Destajo, the assigned examiner, had signed the
voucher. However, such signing is only an acknowledgement of the receipt
VII. Disposition
of payment. She cannot be held to have assented to the payment of the full
balance as she had no authority to condone any indebtedness.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
The court notes that the alleged condonation was entered in July 1986, after
ManPhil was placed under receivership. Jurisprudence held that the VIII. Additional Notes
appointment of a receiver operates to suspend the authority of a N/A
[corporation] and of its directors and officers over its property and effects, VII. Random Facts
such authority being reposed on the receiver. This would mean that  Ponente: Mendoza, J.
Sobrepenas, the president of ManPhil, had no authory to condone the debt.
Yam and Lent can’t plead ignorance and good faith as well since Mrs. Yam
they were told that the Central Bank was in fact the receiver.
V. Holding/s
VI. Law or Doctrine Applied
Art. 1270
Obligations and Contracts (2020) PETITIONER: Victor Yam, Yek Sunt Lent (Philippine Printing Works) 2
DIGEST AUTHOR: Himerio Garcia RESPONDENT: Court of Appeals and ManPhil Investment Corp
G.R. No. 109172 | Aug 19, 1994 Extinguishment of Obligations
Trans-Pacific v. CA Trans-Pacific v. CA
I. Recit-ready Summary ● Unable to settle the obligation in full, Trans-Pacific requested a

Trans- Pacific applied for P1.3m loans from Associated Bank, who restructuring of the remaining indebtedness (amounting to P1.05
then granted it. Four promissory notes were then issued, along with a real million), which was granted by Assoc. Bank , as all the previous
estate mortgage (3 parcels) and a chattel mortgage. They couldn't pay it so payments made were applied to penalties and interests.
they then requested for restructure of the debt, which Assoc. Bank granted ● To secure the restructured loan of P1.2134 million, three (3) new
as well. The loan was restructured to P1.2134m which is now newly secured promissory notes were then executed by Trans-Pacific. The
by three promissory notes, with the mortgage substituted with another mortgaged parcels of land were then substituted by another
mortgage, and another chattel mortgage. The released parcels of land were mortgage covering two other parcels of land and a chattel
then sold, amounting to proceeds of P1.386m, which were applied to the
mortgage on the petitioner's stock inventory. The released parcels
newly restructured loan. The bank then returned the duplicate copies of the
of land were then sold, amounting to proceeds of P1,386,614.20
promissory notes (with “PAID” stamped), yet despite returning it, they still
million, and were then turned over to the bank who then applied
demanded the payment of the P492.1k accrued interest by Trans-Pacific.
Initially willing to pay for it, they instead filed a case against the bank. The them to the restructured loan.
RTC sided with them, while the CA reversed to side with the bank, thus this ● The bank returned the duplicate original copies of the three (3)
current petition. promissory notes to Trans-Pacific, with the word “PAID” stamped
The main issue here is whether or not Trans-Pacific has indeed paid in thereon. Despite its return, the bank still demanded from
full its obligation to Associated bank. The SC ruled that they have indeed Trans-Pacific payment of the amount of P492.1k representing
failed to pay its obligation fully since the evidence presented rebuts the accrued interest. As claimed by the bank, the promissory notes
presumption that they were trying to invoke via Art 1271, to relieve were erroneously released.
themselves from the obligation. The presumption that the bank renounced its ● Initially T-P expressed its willingness to pay the amount demanded
claim due to their delivery of the restructured promissory notes is merely by the bank, however it suddenly had a change of heart, and
prima facie and can be rebutted. The evidence that showed that there was an instead initiated an action before the Makati RTC for specific
admission of such failure to pay, when it asked for a settlement of the performance and damages, to pray that the mortgage over the two
obligation, as well as the lack of proof through receipts by Trans-Pacific, parcels of land be released and its stock inventory be lifted, and to
sufficiently rebuts the presumption, concluding that the petitioner is still declare its obligation as having been fully paid.
liable and the bank has not renounced its claim against Trans-Pacific.
● The RTC rendered judgement in favor of Trans- Pacific
○ There is a legal presumption created that the bank has
● In 1979, Trans-Pacific applied for loans amounting to P1.3 million,
renounced its actionable claim against T-P, when they
which were then granted by Associated Bank. To secure it, four (4)
returned and surrendered to the plaintiffs, the promissory
promissory notes were issued, along with a real estate mortgage
notes evidencing their obligation as “restructured” (Art
covering three parcels of land, and a chattel mortgage over
1271, Civil Code)
petitioner’s stock and inventories.
● The CA reversed the RTC ruling and rendered judgement in favor
of the bank
1
Obligations and Contracts (2020) PETITIONER: Trans-Pacific Industrial Supplies Inc.
DIGEST AUTHOR: Jayvee Ala RESPONDENT: Court of Appeals, Associated Bank
○ the documents found in possession of T-P (given by the renunciation of credit

bank) are mere duplicates and cannot be the basis of instead of payment
petitioners’ claim that its obligation has been paid ● Based on the evidence
○ Art 1271 could not be applicable as a result= meaning no presented, it was clear that
presumption arises Trans-Pacific failed to pay
III. Issue/s the interest to the bank
1. W/N Trans-Pacific has indeed paid in full its obligation Overall Ruling
(accrued interest) to Associated Bank; NO (important issue) - The presumption in Art 1271 is not conclusive but merely prima
2. W/N the duplicate copies by the Trans- Pacific are inadmissible, as facie
ruled by the CA; NO (secondary issue) o there must be evidence to the contrary to rebut it
a. SUMMARY: A duplicate copy of the original may be o applying it in the case, there is sufficient justification to
admitted in evidence when the original is in possession of overthrow that presumption generated by the delivery of
the party whom the evidence is offered and the latter fails documents evidencing their indebtedness
to produce it after reasonable notice (Sec 2(b), Rule 130), - The presumption involved here is not of payment but of the
as in the case of the bank. renunciation of credit where more convincing evidence would be
IV. Holding/s required than what normally would be called to prove payment.
● the rationale for allowing the presumption of
Main Issue renunciation in the delivery of a private instrument is that
NO, Trans-Pacific has not paid its obligation to Associated Bank in full unlike a public document, there could be just one copy of
the evidence of credit (allowing it to be duplicated)
Petitioner’s Arguments Court’s Rebuttals ● The intent of the law (Art 1271) is to refer to delivery
● There is a legal presumption ● The presumption arising only of the original rather than the original duplicate of
created that the bank has from Art 1271 is merely which the debtor would normally retain a copy.
renounced its actionable claim prima facie, meaning that
against T-P, when they returned it is not conclusive, and - The facts reviewed show that the petitioner indeed did not pay the
and surrendered to the should there be no proof to interest in its obligation to the bank
plaintiffs, the promissory notes the contrary, the ● Trans-Pacific’s assertion that the trial court findings
evidencing their obligation as presumption stands should be sustained since they observed the demeanor of
“restructured” (Art 1271, Civil ● The presumption in Art the witnesses would not stand since the case itself does
Code) 1271 is involved with not concern with the demeanor of witnesses
2
● The petitioner’s evidence does not prove that the If in order to nullify this waiver it should be claimed to be inofficious, the
contested interest payment has been paid (no receipts debtor and his heirs may uphold it by proving that the delivery of the
presented at all) document was made in virtue of payment of the debt.
● The RTC erred in ignoring an earlier testimony by Mr.
Mesina who testified that the interest was not paid at all, VI. Disposition
rebutting the presumption of Art 1271 automatically WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
● The letter submitted by Trans- Pacific to the bank bares it
all
○ Basically they are aware that they have not
fulfilled their obligation entirely due to non VII. Random Facts
payment of the interest.
● Ponente: Bidin, J.
○ Then they basically offered a settlement for
their obligations. While generally, a
compromise is not considered as an admission.
However it's not an ironclad rule. It can be
determined whether it was admissible or
inadmissible, depending on the intention of the
settlement.
■ If the intention was to avoid litigation=
not admissible
■ If the intention was to settle the
obligation amicably= admissible
○ In this case, the intention was the second one,
thus there was an admission of the petitioners’
loan balance
ARTICLE 1271 CIVIL CODE

The delivery of a private document evidencing a credit, made voluntarily by
the creditor to the debtor, implies the renunciation of the action, which the
former had against the latter.
3
G.R. No. L-25350| October 4, 1988 Merger
Chittick v CA Chittick v CA
William and Muriel Chittick were American citizens who moved to Manila. They had 1. Spouses petitioner William Chittick and respondent Muriel Chittick were
four children all born in the Philippines. Their marriage didn’t go well so they entered American citizens who moved to Manila in 1924.
into an agreement of separation which stipulated that William provide monthly 2. They had four children Patricia, William Jr., Dagmar and Mary.
support of P550.00 until their youngest child turned 18. After the Japanese occupation 3. Their marriage was unsuccessful and they entered into an agreement of
in the country, they all moved to the US in May 1945. From this time until Jan 1951 separation which stipulates:
(when their youngest turned 18), William gave a total of 8,145.00 USD out of the a. The husband agrees that he will pay or cause to be paid to said wife
18,717.71 USD due to Muriel, therefore leaving a balance of 10,572.71 USD. In 1948, monthly the sum of P550.00 for the support of the wife and the minor
Muriel filed a case in the CFI to recover support in arrears which she won. In 1964, children until the youngest turns 18, provided that the wife will not
she died while an appeal by William was pending in the CA. On July 31, 1965, the remarry
CA rendered a decision affirming the CFI. Subsequently, on August 5, her counsel b. In case she remarries, payments shall be reduced by 20%
filed a motion to substitute her in the case due to her death which was approved by the c. The conjugal assets of the parties (consisting of share of stock in
CA. corporations, together with cash) have a net realizable value of
P22,500.00 which is agreed to be divided equally and delivered to wife
The issues before the court are: once a final decree of divorce. The husband may deliver to the wife the
1. Whether or not there was a valid substitution – NO sum of P11,250.00 in full and complete discharge.
2. Whether or not the obligation was extinguished through merger - 4. Muriel went back to the States to obtain a divorce on the ground of desertion and
YES subsequently went back to Manila.
5. William complied with the payment of monthly support of P550.00, even during
As for the first issue, Sec. 16 and 17 of Rule 3 of the Rules of the Court require that the time of the Japanese occupation when they were interred in a concentration
the counsel must promptly inform the court in case of death of the party they are camp. A total of P4,716.00. which according William, was extended as a loan to
representing as well as the informed substitution of a representative in lieu of the the Muriel. William obtained this by borrowing from his friends.
deceased. In this case, the motion for substitution was filed on Aug 5, 1965 more than 6. Upon liberation in 1945, the family went back to the US and arrived in May.
a year after Muriel’s death in April 1964. Her counsel only realized he overlooked 7. From their arrival in May 1945 to January 1951 (when the youngest turned 18),
filing the motion once he already received the July 31 decision of the CA. This William gave a total of 8,145.00 USD. However, the total sum due to Muriel was
negligence was not excused by the court. In addition, there was no notice to the 18,717.71 USD, therefore there was still a balance of 10,572.71 USD.
representatives as required by Sec. 17 as William presented a letter from his son that 8. Muriel filed an action to recover from William support in arrears and her share
their children did not consent to the substitution. This was therefore not a valid in the conjugal partnership in CFI Manila on October 2, 1948. A decision was
substitution. rendered in her favor.
9. She died on April 25, 1964.
As for the second issue, regardless if the substitution was valid or not, the obligation 10. The CA, on appeal, affirmed the decision of the CFI and rendered judgement on
was extinguished since there was a merger of the creditor and debtor as the Chittick July 31, 1965.
children are heirs of both respondent-creditor Muriel and petitioner-debtor William 11. Due to Muriel’s death in the previous year, her counsel filed with the CA a motion
to substitute her with her new husband (de Prida) and her children on August 5,
1965. This was granted in November 3, 1965.
1
Obligations and Contracts (2020) PETITIONER: WILLIAM A. CHITTICK,.
DIGEST AUTHOR: Capeding RESPONDENT: HONORABLE COURT OF APPEALS and LAURENCE F. DE PRIDA,
PATRICIA CHITTICK LANE, WILLIAM A. CHITTICK, JR., DAGMAR CHITTICK
GILDERSLEEVE, and MARY CHITTICK LYMAN, as alleged substituted parties for MURIEL
M. CHITTICK, original party plaintiff,
12. William filed an MR on the decision July 31 CA decision which was denied and days, or within such time as may be
eventually elevated to the SC. granted. (Sec. 17, Rule 3)
13. William filed a manifestation that the SC take cognizance of two letters from his
son William, Jr. stating that the case was filed by de Prida without his consent
and his desire to not to be made a party to the case against his father. • William presented a letter from his son • Consent must be obtained from the
that the substitution was done without ones who would be substituting the
III. Issue/s their consent party in the case.
3. Whether or not there was a valid substitution – NO

4. Whether or not the obligation was extinguished through merger - Overall Ruling
YES
Sec. 16 and 17 of Rule 3 which requires the prompt and immediate substitution of a
IV. Holding/s dead party to a claim, as well as due notice to the new representative, applies to this
case.
Issue #1
NO. The substitution was done contrary to the rules laid down in the Rules of Muriel died in 1964. The motion for substitution was only filed on August 5, 1965
Court. which was five days after the CA promulgated their decision on July 31. The counsel
himself admitted that he only realized he overlooked filing substitution once he
Petitioners Arguments Court’s Ruling received the decision. In addition, all of the Chittick children who claim that they
have no knowledge of such substitution, expressly and vehemently objected to their
● Since the relation between attorney ● The court agrees. being included as plaintiffs against petitioner, their own father.
and client ceased with the death of ● Whenever a party to a pending case
Muriel, counsel cannot present any dies, it shall be the duty of his attorney The motion for substitution was null and void because Muriel was already dead, and
motion for and in behalf of the to inform the court promptly of such therefore, the authority of the attorney to represent her had ceased. This was also done
children of the deceased client death, and to give the name and without the authority of the legal heirs (apart from de Prida whose heirship was
residence of his executor, questionable). Jurisdiction was therefore never obtained over the Chittick children or
administrator, guardian or other legal de Prida.
representative. (Sec. 16, Rule 3 of the
Rules of Court)
● After a party dies and the claim is not
thereby extinguished, the court shall
order, upon proper notice, the legal
representative of the deceased to
appear and to be substituted for the
deceased, within a period of thirty 30
2
Issue #2 legal representative of the deceased within a time to be specified by the court, and the
YES. The children are both heirs of the creditor and the debtor. representative shall immediately appear for and on behalf of the interest of the
deceased. The court charges involved in procuring such appointment, if defrayed by
the opposing party, may be recovered as costs. The heirs of the deceased may be
Issue Court’s Ruling allowed to be substituted for the deceased, without requiring the appointment of an
executor or administrator and the court may appoint guardian ad litem for the minor
• Whether or not the obligation was • Since the Chittick children are heirs heirs."
extinguished through merger ? of respondent-creditor Muriel are
also the heirs of petitioner-debtor Art. 1275 of the Civil Code
William, the obligation sued upon
had been extinguished by the merger “The obligation is extinguished from the time the characters of creditor and debtor
in their persons of the character of are merged in the same person.”
creditor and debtor of the same
obligation (Art. 1275, Civil Code)
VI. Disposition
(NOTE: this is literally the only sentence that
the ponencia wrote that mentions merger) WHEREFORE, the appealed decision of the Court of Appeals is hereby Reversed and
Set Aside and the complaint filed against defendant-petitioner is Dismissed.
V. Law or Doctrine Applied No costs.
Section 16, Rule 3 of the Rules of Court states: SO ORDERED
"Duty of attorney upon death, incapacity, or incompetency of party . Whenever a party

to a pending case dies, becomes incapacitated or incompetent, it shall be the duty of
his attorney to inform the court promptly of such death, incapacity or incompetency,
and to give the name and residence of his executor, administrator, guardian or other
legal representative."
Section 17 of the same Rule likewise, states:
"Death of a party. — After a party dies and the claim is not thereby extinguished, the
court shall order, upon proper notice, the legal representative of the deceased to
appear and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. If the legal representative fails to appear within
said time, the court may order the opposing party to procure the appointment of a
3
G.R. No. L-41621 | February 18, 1999 Confusion or Merger of Rights
Valmonte vs. CA Valmonte vs. CA
I. Recit-ready Summary 2. P16k Crop Loan - A few days later, Pastora obtained a crop loan
of P16,000.00 from Philippine National Bank (PNB)
Joaquin Valmonte sold to his daughter, Pastora Valmonte, the a. As security for payment thereof, she executed a Real
subject land located in Jaen, Nueva Ecija. Petitioners obtained a crop loan Estate Mortgage, in favor of appellee bank involving the
from Philippine National Bank (PNB) and as security for payment thereof, same parcels of land.
Pastora executed a real estate mortgage in favor of PNB involving the 3. P5k Loan - On September 19, 1952, Pastora executed a Special
subject land. The same land was again mortgaged with PNB by Pastora's Power of Attorney in favor of one Virginia V. del Castelo for the
attorney-in- fact to obtain an additional loan. PNB granted the second loan. purpose of borrowing money in the amount of P5,000.00 from
Petitioners failed to pay the loan in time. As a result, PNB extrajudicially appellee bank with authority to mortgage the same parcels of
foreclosed the mortgaged land. The auction sale was conducted and PNB land.
was the sole and only bidder. After the period of redemption expired, PNB a. As a result thereof, a loan of P5,000.00 payable on
offered the property for sale. Private respondent Artemio Valenton offered demand was granted by appellee bank, PNB.
to purchase the said property. Petitioner Joaquin Valmonte, however, sent a b. Virginia Castelo executed a Real Estate Mortgage in its
letter-request to PNB to give them additional time within which to redeem favor.
the property. PNB gave them two months or up to December 31, 1955 to 4. Publication - The bank sent a "Notice of Extra-Judicial Sale of
purchase the properties in cash but they failed to purchase the properties. Mortgaged Properties" to the Provincial Sheriff of Nueva Ecija
Hence, respondent Valenton deposited the purchase price on January 3, for publication.
1956, which PNB accepted. The next day, PNB executed a Deed of 5. Deed of Sale - Pastora then executed a Deed of Sale in favor of
Absolute Sale in favor of Valmonte as well as an Affidavit of Consolidation her father Joaquin Valmonte selling unto the latter the 3 parcels
of Ownership. Petitioner led a case against private respondent before the of land.
trial court for annulment of the sale between PNB and Valenton. a. Condition – “These lands are at present mortgage to PNB,
The main issue is “W/N the CA erred on the application of the and this obligation shall be the subject of future
principle of merger?”. The SC ruled YES due to the fact that PNB was the arrangement between the vendor and vendee herein on the
purchaser of subject properties and it did so with full knowledge that it had one hand and PNB on the other before this deed of Sale
a mortgage thereon. Obligations are extinguished by the merger of the shall be operative.”
rights of the creditor and debtor. The merger took place in the person of 6. Auction Sale – On Aug 19, 1954, the auction sale was conducted
PNB, the principal creditor in the case. The merger was brought about and PNB was the sole and only bidder for P5,524.40.
when during the auction sale, PNB purchased the properties on which it 7. Redemption Period - The period of redemption expired on
had another subsisting mortgage credit. Consequently, the mortgage for August 19, 1955.
the P16,000.00 loan was deemed extinguished. a. Aug 31 (of that same year), Jose Talens offered to
purchase the properties in question.
II. Facts of the Case (Material Facts) b. Sept 28, Artemio Valenton offered to purchase the
1. 3 parcels of land - On November 5, 1951, Joaquin Valmonte properties in question as well.
sold to his daughter, Pastora, 3 parcels of land (situated in the c. Oct 10, Joaquin Valmonte sent a request to PNB for
Municipality of Jaen, Province of Nueva Ecija). additional time for him to repurchase the properties in
question
Obligations and Contracts (2020) PETITIONER: Pastora Valmonte, Jose De Leon, and Joaquin Valmonte 1
DIGEST AUTHOR: Steph Naval RESPONDENT: CA, Philippine National Bank, Artemio Valenton,
Areopagita J. Joson
d. By reason of request of a congressman (Celestino Juan), were constituted between the (1) the merger of the characters of
appellants were given up to Dec. 31, 1955 to purchase in same parties and on the same the creditor and debtor must be in
cash the bank’s total claim. properties. Being a single and the same person;
e. Bank’s Total Claim (as of Sept 1955) = ~26,900 + indivisible obligation, the (2) it must take place in the person
including the P16k loan foreclosure sale in connection of either the principal creditor or
8. Failed - BUT Appellants failed to purchase the properties by with the P5,000.00 loan the principal debtor; and
Dec 31, 1955. necessarily included the other (3) it must be complete and definite.
9. P34k Deposit - Hence, on January 3, 1956, Valenton deposited loan of P16,000.00.
the balance of P34,000 which the bank accepted . • Therefore, there was no
10. Artemio Valenton - PNB then executed the Deed of Absolute outstanding mortgage credit for
Sale in favor of Valenton and an Affidavit of Consolidation of the P16,000.00 loan, and PNB
Ownership being the purchaser at the
TC (dismissed) – Petitioner filed a case against private respondent before auction sale, was not subrogated
the trial court for annulment of the sale between PNB and Valenton (the substitution of one person/
CA – affirmed dismissal of TC for lack of merit group by another in respect of a
Petitioners contend the CA’s approval for the transfer from PNB to debt claim + by the transfer of
Valenton of Pastora’s property, which had not been validly foreclosed. any rights and duties) to answer
for any encumbrance on subject
III. Issue/s properties.
1. W/N the CA erred on the application of the principle of Overall Ruling
merger? NO. (several issues were discussed in the case, but this As can be gleaned from the attendant facts and circumstances, there were
was the one most related to Merger of Rights) two mortgages (for a loan of P16K and a loan of P5K) constituted on
subject properties. What the PNB did was to foreclose (take possession of a
IV. Holding/s mortgaged property when the mortgagor fails to keep up their payments) the
Issue #1 second mortgage embodied in a separate mortgage contract. Under
NO, the CA erred not on the application of the principle of merger. ordinary circumstances, if a person has a mortgage credit over a property,
which was sold in an auction sale, the only right left to him was to collect its
Petitioner’s Arguments Court’s Rebuttals mortgage credit from the purchaser during the sale conducted. This is so
• Petitioners contend that the • The Court of Appeals erred because a mortgage directly and immediately subjects the property on which
respondent court erred in not on the application of it is constituted, whoever its possessor may be, to the fulfillment of the
applying the principle of the principle of merger. obligation for the security of which it was created.
merger. • Merger as one of the
However, these steps need not be taken in the present case because PNB
• Mortgagors averred that the two means of extinguishing an
was the purchaser of subject properties and it did so with full knowledge
loans should be considered as obligation has the
that it had a mortgage thereon. Obligations are extinguished by the merger
one mortgage credit since they following elements:
of the rights of the creditor and debtor. The merger took place in the person
Areopagita J. Joson
of PNB, the principal creditor in the case. The merger was brought about ELEMENTS OF MERGER
when during the auction sale, PNB purchased the properties on which it had (1) the merger of the characters of the creditor and debtor must be in the
another subsisting mortgage credit. same person;
(2) it must take place in the person of either the principal creditor or the
This court is bound by the finding of respondent court that the two loans principal debtor; and
referred to are separate and distinct and the mere allegation by petitioners (3) it must be complete and definite.
that said loans constitute a single indivisible obligation should be stricken
off as the said allegation is not supported by evidence. In effect, the ARTICLE 1275
mortgage for the P16,000.00 loan was deemed extinguished. While it is true The obligation is extinguished from the time the characters of creditor and
that there was still an annotation on the Transfer Certificate of Title issued debtor are merged in the same person.
to respondent Artemio Valenton, the said annotation or encumbrance was
already discharged by operation of law. Consequently, petitioners' VI. Disposition
contention that the said title issued to Valenton was not valid by reason of
the said annotation, is devoid of any legal basis. WHEREFORE, for lack of merit, the petition is DENIED and the decision
of the Court of Appeals AFFIRMED. No pronouncement as to costs.
V. Law or Doctrine Applied SO ORDERED.
EXTINGUISHMENT OF OBLIGATIONS; SAID MERGER TOOK VII. Random Facts

PLACE WHEN DURING THE AUCTION SALE, RESPONDENT • Ponente: Purisma, J
BANK PURCHASED THE PROPERTIES ON WHICH IT HAD
ANOTHER SUBSISTING MORTGAGED CREDIT
Under ordinary circumstances, if a person has a mortgage credit over a
property, which was sold in an auction sale, the only right left to him was to
collect its mortgage credit from the purchaser thereof during the sale
conducted. This is so because a mortgage directly and immediately subjects
the property on which it is constituted, whoever its possessor may be, to the
fulfillment of the obligation for the security of which it was created.
However, these steps need not be taken in the present case because
PNB was the purchaser of subject properties and it did so with full
knowledge that it had a mortgage thereon. Obligations are extinguished by
the merger of the rights of the creditor and debtor. The merger was brought
about when during the auction sale, PNB purchased the properties on which
it had another subsisting mortgage credit.
Areopagita J. Joson
G.R. No. L22490 | May 21, 1969 Obligations-Legal Compensation
Gan Tion v CA Gan Tion v CA
I. Recit-ready Summary 5. Upon appeal, the Court of First Instance reversed the judgment and
dismissed the complaint, and ordered the plaintiff to pay the
[The case is a page long so it’s like the chi ming choi of oblicon cases this is defendant the sum of P500 as attorney's fees. That judgment
as long as it can get] became final.
6. Gan Tion served notice on Ong Wan Sieng that he was increasing
Sieng-Tenant the rent to P180 a month, effective November 1st, and at the same
time demanded the rents in arrears at the old rate in the aggregate
Gan Tion-Land lord
amount of P4,320.00, corresponding to a period from August 1961
to October 1963.
Sieng (tenant) was idebted to Gan Tion (landlord) for rentals 7. In the meantime, over Gan Tion's opposition, Ong Wan Sieng was
amounting to P4,320. While Gan Tion was obligated to pay Sieng the sum able to obtain a writ of execution of the judgment for attorney's
of P500 as attorneys fees due to a judgment rendered by the CFI. fees in his favor. Gan Tion went on certiorari to the Court of
Appeals, where he pleaded legal compensation, claiming that Ong
W/N There can be legal compensation between the two? NO Wan Sieng was indebted to him in the sum of P4,320 for unpaid
rents.
The sum of P500 could not be the subject of legal compensation, it
being a "trust fund for the bene􀀽t of the lawyer, which would have to be III. Issue/s
turned over by the client to his counsel." In the opinion of said Court, the
requisites of legal compensation, namely, that the parties must be creditors 1. Can there be legal compensation between Gan Tion and Sieng?
and debtors of each other in their own right (Art. 1278, Civil Code) and that
NO.
each one of them must be bound principally and at the same time be a
principal creditor of the other (Art. 1279), are not present in the instant case,
since the real creditor with respect to the sum of P500 was the defendant's IV. Holding/s
counsel.
Issue #1
II. Facts of the Case (Material Facts) No legal compensation can take place
1. Ong Wan Sieng was a tenant in certain premises owned by Gan CA’s ruling Court’s Rebuttals
Tion. Ruled in favor on legal This is not an accurate statement of
2. Gan Tion filed an ejectment case against the former, alleging non- compensation the nature of an award for attorney's
payment of rents for August and September of that year, at P180 a fees. The award is made in favor of
month, or P360 altogether. the litigant, not of his counsel, and is
3. Sieng denied the allegation and said that the agreed monthly rental justified by way of indemnity for
was only P160, which he had offered to but was refused by the damages recoverable by the former
plaintiff. in the cases enumerated in Article
4. Gan Tion obtained a favorable judgment in the municipal court (of 2208 of the Civil Code. It is the
Manila). litigant, not his counsel, who is the
Obligations and Contracts (2020) PETITIONER: Gan Tiong 1
DIGEST AUTHOR: Tin Sumaway RESPONDENT: Ong Wan Sieng

G.R. No. L22490 | May 21, 1969 Obligations-Legal Compensation
Gan Tion v CA Gan Tion v CA
judgment creditor
and who may enforce the judgment (4) That they be liquidated and demandable;
by execution. Such credit, therefore,
may properly be the subject of legal (5) That over neither of them there be any retention or controversy,
compensation. Quite obviously it commenced by third persons and communicated in due time to the debtor.
would be unjust to compel petitioner (1196)
to pay his debt for P500 when
admittedly his creditor is indebted to VI. Disposition
him for more than P4,000.
Overall Ruling WHEREFORE, the judgment of the Court of Appeals is reversed, and the
writ of execution issued by the Court of First Instance of Manila in its Civil
The sum of P500 could not be the subject of legal compensation, it Case No. 49535 is set aside. Costs against respondent.
being a "trust fund for the bene􀀽t of the lawyer, which would have to be SO ORDERED.
turned over by the client to his counsel." In the opinion of said Court, the VII. Additional Notes
requisites of legal compensation, namely, that the parties must be creditors
and debtors of each other in their own right (Art. 1278, Civil Code) and that
each one of them must be bound principally and at the same time be a VII. Random Facts
principal creditor of the other (Art. 1279), are not present in the instant case, Ponente: Makalintal, J.
since the real creditor with respect to the sum of P500 was the defendant's
counsel.
Article 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. (1195)
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;

Obligations and Contracts (2020) PETITIONER: Gan Tiong 2
DIGEST AUTHOR: Tin Sumaway RESPONDENT: Ong Wan Sieng

G.R. No. L-69255 | February 27, 1987 Compensation
PNB vs. Ong Acero PNB vs. Ong Acero
I. Recit-ready Summary 5. An Order issued on February 15, 1980 directed PNB to hand over
Isabela Wood Construction & Development Corporation (Isabela) the amount to the sheriff for delivery to the Aceros.
opened with the Philippine National Bank, a savings account in the amount 6. The final judgment against Isabela and in favor of the Aceros was
of P2 million. This account is now the subject of two conflicting claims: (1) promulgated on April 8, 1980.
The Aceros, as judgment creditor of Isabela, seeks to enforce the judgment 7. PNB claims it had a credit agreement with Isabela, which precludes
on the account; (2) PNB claims a mutual set-off or compensation occurred the claim of the Aceros, wherein:
between PNB and Isabela. a. The deposit was made by Isabela as "collateral" in
The Intermediate Appellate Court ruled against PNB. This decision connection with its indebtedness to PNB as to which it
is now being contended by PNB. had assumed certain contractual undertakings;
The claim of the Aceros is based on a judgment ordering Isabela to b. In case Isabela fails to fulfill those undertakings, PNB was
pay P1.5M to the Aceros. An order was issued directing PNB to hand over empowered to apply the deposit to the payment of that
the amount to the sheriff for delivery to the Aceros. PNB claims it had a indebtedness.
credit agreement with Isabela, which precludes the claim of the Aceros.
The Court affirmed the decision of the IAC and held that PNB III. Issue/s
failed to prove the indebtedness of Isabela. Thus, compensation is not 1. W/N PNB and Isabela had extinguished their obligation by way
possible. of compensation? NO.

1. Isabela Wood Construction & Development Corporation (Isabela)
opened with the Philippine National Bank, a savings account in the Issue #1
amount of P2 million. NO, there is no indebtedness to PNB on Isabela’s part, thus no
2. This account is now the subject of two conflicting claims: compensation is possible.
a. The Aceros, as judgment creditor of Isabela, seeks to
enforce the judgment on the account
 When PNB opened the Savings  Article 1278 and 1279 of the
b. PNB claims a mutual set-off or compensation occurred
Account for Isabela, PNB Civil Code cannot apply in this
between PNB and Isabela, as the deposit was considered a
became indebted to Isabela in case.
loan to PNB, thus Isabela was a debtor-creditor at some
that amount.  PNB failed to prove by competent
point.
 Isabela became indebted to PNB evidence that it is a creditor of
3. The Intermediate Appellate Court ruled against PNB. This decision
due to Isabela’s breach of the Isabela.
is now being contended by PNB.
Credit Agreement.  The evidence presented by PNB
4. The claim of the Aceros is based on a partial judgment ordering
Isabela to pay P1,532,000.07 to the Aceros. Notice of garnishment  Thus, PNB claims there was an do not prove any indebtedness by
by the sheriff was served on the PNB on January 9, 1980. automatic compensation between Isabela. All they prove is that a
them and, by operation of law, letter of credit might have been
their respective credits had been opened for Isabela by PNB, but
Obligations and Contracts (2020) PETITIONER: Philippine National Bank 1

DIGEST AUTHOR: Nikki RESPONDENT: Gloria Vda. De Ong Acero, Arnolfo Ong Acero, Soledad Ong Acero Chua
G.R. No. L-69255 | February 27, 1987 Compensation
PNB vs. Ong Acero PNB vs. Ong Acero
extinguished. not that the credit was ever ARTICLE 1279 OF THE CIVIL CODE
 As this took place automatically, availed of or that the goods Article 1279. In order that compensation may be proper, it is necessary:
the P2M in the account could not covered were in fact shipped, and (1) That each one of the obligors be bound principally, and
be levied by another creditor of received by Isabela. that he be at the same time a principal creditor of the other;
Isabela. (2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and
Overall Ruling also of the same quality if the latter has been stated;
The Court held that Isabela was not proven to be indebted to PNB, thus (3) That the two debts be due;
there can be no compensation. (4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
As there is held to be no indebtedness to PNB on Isabela’s part, there is also controversy, commenced by third persons and
no occasion to speak of any mutual set-off, or compensation, whether it be communicated in due time to the debtor.
legal, i.e., which automatically occurs by operation of law, or voluntary, i.e.,
which can only take place by agreement of the parties which Isabela did not VI. Disposition
agree upon, as attested by lack of evidence.
WHEREFORE, the judgment of the Intermediate Appellate Court subject of
Even assuming that there was such an assignment, and PNB had been really
the instant appeal, being fully in accord with the facts and the law, is hereby
authorized to apply the deposit to the satisfaction of Isabela's indebtedness,
affirmed in toto. Costs against petitioner.
the application was attempted by PNB only on February 26, 1980. That
time, the deposit was already in custodia legis as notice of garnishment has VII. Separate Opinions
been served on PNB on January 9, 1980.
On the assumption that the P2M deposit was a "collateral" to PNB, the
claim that PNB had been authorized to assume ownership of the fund upon Pactum Commisorium
Isabela's indebtedness is void ab initio, because it is in the nature of a Automatic appropriation by the creditor of the thing pledged or
pactum commisorium, proscribed as contrary to public policy. mortgaged upon the failure of the debtor to pay the principal obligation
VII. Random Facts

V. Law or Doctrine Applied  Ponente: Narvasa, J.

Article 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.
Obligations and Contracts (2020) PETITIONER: Philippine National Bank 2

DIGEST AUTHOR: Nikki RESPONDENT: Gloria Vda. De Ong Acero, Arnolfo Ong Acero, Soledad Ong Acero Chua
G.R. No. 67649 | June 28, 1988. Compensation
O229 - Francia v IAC O229 - Francia v IAC
I. Recit-ready Summary 4. Ho Fernandez was the highest bidder for the property. Francia was
This case is about petitioner filing a complaint to set aside the auction not present during the auction sale since he was in Iligan City at
sale of his property which took place on December 5, 1977, and to allow that time helping his uncle ship bananas.
him to recover a 203 square meter lot which was sold at public auction to 5. On March 3, 1979, Francia received a notice of hearing of LRC
Ho Fernandez and ordered titled in the latter's name. Case No. 1593-P "In re: Petition for Entry of New Certificate of
Engrancio Francia (petitioner) is the registered owner of a residential Title" filed by Ho Fernandez, seeking the cancellation of TCT No.
lot. On October 15, 1977, a portion of Francia’s property was expropriated 4739 (37795) and the issuance in his name of a new certificate of
by the government for the sum of P4,116.00. Since 1963 to 1977 inclusive, title.
Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his 6. On March 20, 1979, Francia filed a complaint to annul the auction
property was sold at a public auction and Ho Fernandez (respondent) was sale. He later amended his complaint on January 24, 1980.
the highest bidder of the property. Francia received a notice of hearing that 7. The lower court rendered a decision dismissing the complaint and
was filed by Ho Fernandez seeking the cancellation of the TCT and to issue ordering the issuance of a new Transfer Certificate of Title in favor
a new certificate of title under the respondent’s name. Francia filed a of the defendant Ho Fernandez.
complaint to annul the auction sale. The lower court rendered a decision 8. The Intermediate Appellate Court affirmed the decision of the
dismissing the complaint. The intermediate appellate court affirmed the lower court in toto.
decision of the lower court. Hence, the petition for review. The main issue is 9. Hence, this petition for review.
whether the respondent court erred in not holding petitioner’s obligation was
set-off by the expropriation. The Court affirmed the decision of the III. Issue/s
respondent court since it has been consistently ruled that there can be no off- 1. W/N respondent intermediate appellate court committed a
setting of taxes against the claims that the taxpayer may have against the grave error of law in not holding that petitioner’s obligation to
government. pay P2,400.00 for supposed tax delinquency was set-off by the
amount of P4,116.00 which the government is indebted to the
II. Facts of the Case (Material Facts) owner? NO.
1. Engracio Francia is the registered owner of a residential lot, with
an area of about 328 square meters, and a two-story house built
IV. Holding/s
upon it situated at Barrio San Isidro, now District of Sta. Clara,
Pasay City, Metro Manila.
2. On October 15, 1977, a 125 square meter portion of Francia's Issue #1
property was expropriated by the Republic of the Philippines for No, the respondent intermediate appellate court did not commit any
the sum of P4,116.00 representing the estimated amount equivalent error in holding that the P2,400.00 was set-off by the amount of
to the assessed value of the aforesaid portion. P4,116.00.
3. Since 1963 up to 1977 inclusive, Francia failed to pay his real
estate taxes. Thus, on December 5, 1977, his property was sold at
public auction by the City Treasurer of Pasay City pursuant to
Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of
P2,400.00.
Obligations and Contracts (2020) PETITIONER: Engracio Francia 1

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Intermediate Appellate Court and Ho Fernandez
G.R. No. 67649 | June 28, 1988. Compensation
O229 - Francia v IAC O229 - Francia v IAC

• Francia contends that his tax • We have consistently ruled that ARTICLE 1278 and 1279 OF THE CIVIL CODE
Art. 1278. Compensation shall take place when two persons, in their own right, are
delinquency of P2,400.00 has there can be no off-setting of
creditors and debtors of each other. (1195)
been extinguished by legal taxes against the claims that the
compensation. He claims that taxpayer may have against the Art. 1279. In order that compensation may be proper, it is necessary:
the government owed him government. A person cannot
P4,116.00 when a portion of his refuse to pay a tax on the (1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
land was expropriated on ground that the government
October 15, 1977. Hence, his owes him an amount equal to or (2) That both debts consist in a sum of money, or if the things due are consumable,
tax obligation had been set-off greater than the tax being they be of the same kind, and also of the same quality if the latter has been stated;
by operation of law as of collected. The collection of a tax
October 15, 1977. cannot await the results of a (3) That the two debts be due;
lawsuit against the government.
Overall Ruling
We stated that a taxpayer cannot refuse to pay his tax when called upon (5) That over neither of them there be any retention or controversy, commenced by
by the collector because he has a claim against the governmental body not third persons and communicated in due time to the debtor. (1196)
included in the tax levy.
This rule was reiterated in the case of Cordero v. Gonda (18 SCRA VI. Disposition
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is
331) where we stated that: ". . . internal revenue taxes cannot be the subject
DISMISSED. The decision of the respondent court is affirmed.
of compensation: Reason: government and taxpayer 'are not mutually
creditors and debtors of each other' under Article 1278 of the Civil Code and VII. Additional Notes
a "claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off."
Moreover, the amount of P4,116.00 paid by the national government for the VII. Random Facts
125 square meter portion of his lot was deposited with the Philippine • Ponente: Gutierrez, J.
National Bank long before the sale at public auction of his remaining
property. Notice of the deposit dated September 28, 1977 was received by the
petitioner on September 30, 1977.
Obligations and Contracts (2020) PETITIONER: Engracio Francia 2

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Intermediate Appellate Court and Ho Fernandez
G.R. No. 174882 | January 21, 2013 Extinguishment of Obligations: Compensation
Mondragon v. Sola Mondragon v. Sola
I. Recit-ready Summary facilities, i.e. bodego cum office, to petitioner’s products, sales
force, and customers; and as such he shall be entitled to a
Petitioner Mondragon and Respondent Sola entered into a service commission or service fee at a certain rate based on Mondragon’s
contract whereby the latter shall provide service facilities (office cum monthly sales.
bodega), and as such he shall be entitled to a commission or service fee at a 2. Prior to the execution of the said contract, Respondent’s wife, Lina
certain rate of Mondragon’s monthly sales. Sola, had an existing obligation with petitioner arising from a
Prior to said contract, respondent’s wife had an existing obligation franchise distributorship agreement in the amount of P1,973,154.73
with petitioner, which the respondent not only acknowledged and (another in the amount of P1,490,091.15 but such was still subject
confirmed, but also bound himself liable to. Consequently, the petitioner to reconciliation).
withheld the service fees due to respondent and applied the same as partial 3. In January 1995, Respondent wrote a letter to Petitioner,
payments to the said debt. Respondent closed and suspended the operation acknowledging and confirming his wife’s indebtedness to
of his office cum bodega and subsequently filed a complaint for accounting Petitioner, and bound himself together with his wife to pay the said
and rescission against the petitioner. debt on an installment basis.
4. Consequently, Petitioner withheld the payment of Respondent’s
The RTC ruled in favor of Mondragon. The CA reversed the RTC service fees from February to April 1995, and applied the same as
ruling and ordered for the rescission of the subject contract. Hence, the partial payments to the said abovesaid debt.
present petition. 5. In April 1995, Respondent closed and suspended the operation of
his office cum bodega used by Petitioner.
The SC rules that Petitioner’s act of withholding Respondent's service 6. Respondent filed a Complaint for accounting and rescission against
fees/commissions and applying them to the latter's outstanding obligation Petitioner, alleging that the latter withheld the service fees due to
amounts to a legal compensation that occurred by operation of law between him in the aggregate amount of P222,202.84 (covering portions of
the parties, under Articles 1278 and 1279 of the Civil Code. his service fees from October 1994 to January 1995, and his whole
service fees for the months of February to April 1995).
7. In its Answer with Counterclaim, Petitioner contended that
Respondent, through his letter, confirmed and obligated himself to
pay the accountability of his wife, thus the service fees/commission
II. Facts of the Case (Material Facts) earned was applied by way of compensation to the amounts owed
by the latter.
1. Petitioner Mondragon and Respondent Victoriano Sola entered into
8. The RTC ruled in favor of the respondent.
a service contract (commencing on October 2, 1994, covering a
9. The CA reversed the RTC ruling.
period of three years) whereby the latter shall provide service
1
Obligations and Contracts (2020) PETITIONER: Mondragon Personal Sales, Inc.
DIGEST AUTHOR: Regina Alzaga RESPONDENTS: Victoriano Sola, Jr.

III. Issue/s Overall Ruling

1. W/N legal compensation applies to this case and hence Petitioner’s act of withholding respondent's service fees/commissions
Petitioner is justified in withholding the service fees due to and applying them to the latter's outstanding obligation with the former is
Respondent and applying the same to the debts owed by the merely an acknowledgment of the legal compensation that occurred by
latter. – YES. operation of law between the parties.
IV. Holding/s
The Court finds the presence of all the requisites for legal compensation
Issue #1 as enumerated under Article 1279. Petitioner and respondent are both
principal obligors and creditors of each other. Their debts to each other
YES, legal compensation applies, hence, Petitioner is justified in
consist in a sum of money. Respondent acknowledged and bound himself
withholding the service fees due to Respondent and applying the
to pay petitioner the amount of P1,973,154.73 which was already due,
same to the debts owed by the latter.
while the service fees owing to respondent by petitioner become due
Petitioner/Trial Court’s Court’s Rebuttals every month. Respondent's debt is liquidated and demandable, and
Arguments petitioner's payments of service fees are liquidated and demandable every
● (see overall ruling) month as they fall due. Finally, there is no retention or controversy
● The respondent has solidarily commenced by third persons over either of the debts. Thus,
bound himself to pay the compensation is proper up to the concurrent amount where petitioner
obligation of his wife to the owes respondent P125,040.01 for service fees, while respondent owes
petitioner, thus the petitioner P1,973,154.73.
respondent's service
fees/commission earned for the
subject period was applied by
way of compensation to the
amounts owed.
2

VII. Random Facts

ARTICLES 1278 OF THE CIVIL CODE
ART. 1278. Compensation shall take place when two persons, in their own
● Ponente: Peralta, J.

(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
commenced by third persons and communicated in due time to
the debtor.
VI. Disposition
WHEREFORE, the petition for review is GRANTED. The Decision dated

February 10, 2006 and the Resolution dated September 6, 2006 of the Court
of Appeals are hereby REVERSED and SET ASIDE. Respondent is hereby
ordered to pay petitioner the amount of P1,543,643.96 with 6% per annum
from June 14, 1995 until finality of this Decision and 12% per annum
thereafter until full payment.
3

G.R. No. L-50638 | July 25, 1983 Compensation
Solinap v Del Rosario Solinap v Del Rosario
I. Recit-ready Summary 1. On June 2, 1970, the spouses Tiburcio Lutero and Asuncion
The spouses Tiburcio Lutero and Asuncion Magalona, owners of Magalona, owners of Hacienda Tambal, leased the hacienda to
Hacienda Tambal, leased the hacienda to Loreto Solinap, the petitioner, for Loreto Solinap, the petitioner, for a PHP50,000.00 per year for 10
a PHP50,000.00 per year for 10 years. Out of the rental sum, PHP25,000 years. Out of the rental sum, PHP25,000 should be paid by
should be paid by petitioner to the PNB to amortize the indebtedness of the petitioner to the PNB to amortize the indebtedness of the spouses.
spouses. Tiburcio, however, died a year later. 2. Tiburcio died on January 21, 1971.The heirs instituted testate estate
His heirs instituted testate proceedings. The respondents judge proceedings.
ordered the administrator to find heirs to pay the obligations of the 3. The respondent judge, after learning about mounting interest on the
deceased. Thus, respondent Juanito paid PHP25,000.00 to PNB as partial unpaid account of the estate, issued an order to the administrator to
payment, Juanito would then file with the testate court for reimbursement scout among the heirs for who is able to pay all the unpaid
from the petitioner as the petitioner was the one obligated to pay the PNB. obligations of the estate, including interest.
Before that case was decided, the petitioner would file with the 4. Juanito Lutero (respondent and grandson of the deceased) paid the
Court of First Instance a claim for PHP71,000.00 against the private PNB the sum of PHP25,000.00 as partial settlement of the
respondent. The respondents filed a counterclaim for PHP125,000.00 deceased’s obligations.
representing unpaid rentals on the hacienda. 5. Lutero filed a motion for reimbursement from the petitioner of the
The first case was ruled in favor of Jacinto and Solinap was amount paid to the PNB as the amount should have been paid by
ordered to pay the PHP25,000.00 Respondents would file a Motion to the petitioner per the lease contract.
Reiterate Motion for Execution. However, the petitioner would raise the 6. Before that motion was resolved, the petitioner filed in the Court of
contention that the amount payable to the private respondents should be First Instance against private respondents for the collection of a
compensated against the latter’s indebtedness to him (the PHP71,000.00). sum of money (totalling PHP 71,000.00). Petitioner alleges that
Petitioner’s motion was denied by the respondent judge. Hence, this respondents borrowed sums of money from him and also issued
petition. dishonored checks.
The issue is W/N the amount payable to private respondents should 7. The respondents set up legal and factual defenses and pleaded a
be compensated against the petitioner’s indebtedness? counterclaim of PHP 125,000.00 representing unpaid rentals on the
The SC ruled in the negative. It cited Article 1279 of the Civil hacienda.
Code which states that for a compensation to be proper, it must be, among 8. The initial case (for reimbursement) was decided in favor of the
others, liquidated and demandable. In the present case, the petitioner’s claim respondents. Solinap was directed to pay the spouses PHP
against the respondents is still pending. Compensation cannot take place 25,000.00 and interest.
where one's claim against the other is still the subject of court 9. Petitioner would file a motion for reconsideration with the SC but
litigation. the court denied.
II. Facts of the Case (Material Facts) 10. Respondents would file a Motion to Reiterate for Execution
1
Obligations and Contracts (2020) PETITIONER: Loreto J. Solinap
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Hon. Amelia K. Del Rosario, Hardevi R. Lutero and the
Provincial Sheriff of Iloilo
G.R. No. L-50638 | July 25, 1983 Compensation
Solinap v Del Rosario Solinap v Del Rosario
11. Petitioner would file for an enjoinder, raising the defense that the Article 1279 provides that:
amount payable should be compensated against the respondent’s In order that compensation may be proper, it is necessary:
indebtedness to him (PHP 71,000.00) (1) That each one of the obligors be bound principally,
12. This was denied by the respondent judge. and that he be at the same time a principal creditor of the
13. Hence, this petition. other;
(2) That both debts consist in a sum of money, or if the
III. Issue/s things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
1. W/N the amount payable to private respondents should be
compensated against the petitioner’s indebtedness? NO.
IV. Holding/s
(5) That over neither of them there be any retention or
Issue #1 controversy, commenced by third persons and
2. W/N the amount payable to private respondents should be communicated in due time to the debtor.
compensated against the petitioner’s indebtedness? NO.
Petitioner’ Arguments Court’s Rebuttals Compensation cannot take place where one's claim against the
● Article 1278 of the Civil Code ● The argument fails to consider other is still the subject of court litigation. It is a requirement, for
states that compensation takes Item 4, Article 1279 of the Civil compensation to take place, that the amount involved be certain and
place when two persons, in their Code which provides that liquidated.
own right, are creditors and compensation can take place only
debtors of each other. if both obligations are liquidated VI. Disposition
and demadable. WHEREFORE, the petition is dismissed, with costs against petitioner.
Overall Ruling
In the present case, the petitioner’s claim against the respondents is VII. Additional Notes
still pending. Further, the counterclaim of the respondents can, if found to ●
be meritorious, defeat the petitioner’s demand. Thus, the petitioner’s claim
VII. Random Facts
in that case cannot be considered as liquidated credit. Compensation cannot
● Ponente: Escolin, J.
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.

2
Obligations and Contracts (2020) PETITIONER: Loreto J. Solinap
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: Hon. Amelia K. Del Rosario, Hardevi R. Lutero and the
Provincial Sheriff of Iloilo
G.R. No. L-38711 | January 31, 1985 Extinguishment of Obligations: Compensation
Sycip v CA Sycip v CA
I. Recit-ready Summary P5,000.00 which was “never made good” causing Lapuz to pay Albert
Smith the cost of the 500 shares of stock, and to proceed with his estafa
Jose Lapuz received from Albert Smith 2,000 shares of stocj of the case.
Republic Flour Mills, Inc. in the name of Dwight Mill. Lapuz was supposed
to sell the shares at present market value. According to Lapuz, Sycip The CFI of Manila rendered a decision convicting Sycip of the crime
approached him and told him that he had good connections in the Stock of estafa which was affirmed by the CA minus the imposition of subsidiary
Exchange, assuring him that he could sell them at a good price. Before penalty. Hence, this petition.
accepting the offer, Lapuz made it clear to him that the shares of stock did
not belong to him and were only entrusted to him for sale. He, then, gave the The relevant issue in this case is W/N the provisions on compensation
shares of stock to Sycip. or setting-off debts under Articles 1278 and 1279 of the Civil Code applies
in the case. The Court held that NO, the provisions on compensation or
Lapuz received a letter from Sycip informing him that 1,758 shares setting-off debts under Articles 1278 and 1279 of the Civil Code do not
have been sold for a net amount of P29,000.00 but the transaction could not apply in the case at bar, because it does not satisfy the requirements.
be concluded until certain requirements were fulfilled. Lapuz, then,
provided what was asked for the commencement of the sale. However, the Sycip’s contention about the applicability of Articles 1278 and 1279 of
power of attorney that was provided authorized the sale of only 1,758 the Civil Code was untenable. Compensation cannot take place in this case
shares, thus, the 242 shares were given back. since the evidence shows that Lapuz is only an agent of Albert Smith and/or
Dwight Dill. According to the cited articles, compensation takes place only
Of the 1,758 shares, Sycip sold 758 shares for P12,128.00 for which when two persons in their own right are creditors and debtors of each other,
Lapuz issued a receipt. Lapuz, then, turned over to Albert Smith the amount and that each one of the obligors is bound principally and is at the same time
minus his commission. Few days after, Lapuz received a letter from Sycip a principal creditor of the other.
informing him that although the deal (relative to the remaining 1,000 shares)
has been closed, actual delivery has been withheld pending receipt of II. Facts of the Case (Material Facts)
payment. Thus, Sycip chose to return the shares with the promise to issue a
check for the shares “within the next few days.” As a response, Lapuz sent 1. Jose Lapuz received from Albert Smith 2,000 shares of stock of the
Sycip a letter authorizing him to sell 1,000 shares of Republic Flour Mills. Republic Flour Mills, Inc. in the name of Dwight Dill who had left for
Sycip, then wrote Lapuz a letter confirming that 500 shares out of the 1,000 Honolulu
shares of the Republic Flour has been sold. Sycip sold and paid for the other 2. Lapuz was supposed to sell the shares at present market value out of
500 shares of stock. which he was supposed to get a certain commission
3. According to Lapuz, Sycip approached him and told him that he had
The check with the amount of P8,000.00, which is the full value of the
good connections in the Stock Exchange, assuring him that he could
500 shares, was dishonored by the bank for lack of funds which caused
Lapuz to hunt down Sycip. When Sycip was found, he issued a check in the sell them at a good price
amount of P5,000.00 issued by his daughter. However, this check was also 4. Before accepting the offer of Sycip to sell the shares of stock, Lapuz
dishonored for lack of sufficient funds. As a final attempt, Lapuz sent Sycip made it clear to him that the shares of stock did not belong to him and
a wire telling him that he would file an estafa case against him unless he were only entrusted to him for sale. He, then, gave the shares of stock to
pays the P8,000.00 debt. Sycip answered him by sending another check for Sycip who put them in the market
Obligations and Contracts (2020) PETITIONER: Francisco Sycip 1

DIGEST AUTHOR: Pam Madrigal RESPONDENT: Honorable Court of Appeals and People of the Philippines
5. Lapuz received a letter from Sycip informing him that 1,758 shares him the shares corresponding to Felix Gonzales and Trans Oceanic
have been sold for a net of amount of P29,000.00 but the transaction Factors and Company
could not be concluded until they received: 13. Sycip sold and paid for the other 500 shares of stock, for the payment of
a. Power of Attorney duly executed by Dwight Dill, appointing a which Lapuz issued in his favor a receipt
person to endorse the certificate of stock 14. The draft for P8,000.00 which is the full value of the 500 shares
b. A resolution from the Biochemical Research Laboratory, Inc., mentioned in the letter of Sycip was dishonored by the bank for lack of
authorizing the transfer of the certificate funds
6. Lapuz signed his conformity to the contents of the letter. He also 15. Lapuz then “discovered from the bookkeeper that he got the money and
declared that he was able to secure a power of attorney of Dr. Dwight he pocketed it already”, so he started hunting for Sycip.
Dill and gave it to Sycip 16. When he found Sycip, Sycip gave him a check in the amount of
7. The power of attorney authorized the sale of 1,758 shares only and the P5,000.00 issued by his daughter. However, this check was also
difference of 242 shares were given back to Biochemical Research dishonored by the bank for lack of sufficient funds to cover it
Laboratory, Inc. 17. Lapuz sent a wire to Sycip, telling him that he would file an estafa case
8. Of the 1,758 shares of stock, Sycip sold 758 shares for P12,128.00 at in the fiscals office against him unless he raise the balance of
16.00 a share, for which Lapuz issued a receipt on May 23, 1961. On P8,000.00. Sycip answered him by “sending a wire, P5,000.00 remitted
the same day, Lapuz turned over to Albert Smith the sum of P9,981.40 ask boy check Equitable.”
in payment of 758 shares of P14.00 a share 18. The check was “never made good” so Lapuz filed the case. Lapuz had
9. On May 30, 1961, Lapuz received a letter from Sycip informing him to pay Albert Smith the value of the 500 shares of stock
that although the deal (relative to the 1,000 shares) has been closed, 19. The Court of First Instance of Manila rendered a decision convicting
actual delivery has been withheld pending receipt of payment. Thus, Sycip of the crime of estafa and ordered him to indemnify Lapuz the
Sycip chose to return the following shares: sum of P5,000.00, with subsidiary imprisonment in case of insolvency
a. 500 shares 20. The Court of Appeals affirmed the trial court’s decision but deleted that
b. 50 shares belonging to Felix Gonzales part of the sentence imposing subsidiary imprisonment. Hence, this
c. 208 shares belonging to Trans Oceanic Factors and Company petition
10. Sycip promised that a check for the stated shares would be issued 21. Sycip avers that the Court of Appeals erred in not applying the
‘within the next few days’, and promised to deliver the 242 shares as provisions on compensation or setting-off debts under Articles 1278
soon as he would have received them from one Vicente Chua and 1279 of the New Civil Code, despite evidence showing that Lapuz
11. On May 31, 1961, Lapuz wrote Sycip a letter, stating therein, “per our still owed him an amount of more than P5,000.00
conversation this morning, I hereby authorize you to sell 1,000 shares
of Republic Flour Mills” III. Issue/s
12. On June 1, 1961, Sycip wrote a letter to Lapuz confirming their
conversation on that that date that 500 shares out of the 1,000 shares of 1. W/N the provisions on compensation or setting-off debts under
the Republic Flour has been sold. He also asked in that letter to give Articles 1278 and 1279 of the Civil Code applies in the case. NO.

IV. Holding/s (1) That each one of the obligors be bound principally, and that he be at the
Issue #1 consumable, they be of the same kind, and also of the same quality if the
NO, the provisions on compensation or setting-off debts under Articles latter has been stated;
1278 and 1279 of the Civil Code do not apply in the case at bar. (3) That the two debts be due;
Petitioner’s Arguments Court’s Rebuttals (4) That they be liquidated and demandable;
 Articles 1278 and 1279 of the  The cited provisions is not commenced by third persons and communicated in due time to the debtor.
Civil Code should apply in the applicable since the case at bar
case since Lapuz is indebted to does not fulfill all the VI. Disposition
Sycip with an amount sufficient requirements
to cover the amount of the shares WHEREFORE, for lack of merit the petition is hereby DISMISSED.
Overall Ruling
The Court found Sycip’s contention about the applicability of Articles
1278 and 1279 of the Civil Code untenable. They opined that compensation VII. Random Facts
cannot take place in this case since the evidence shows that Lapuz is only an
agent of Albert Smith and/or Dwight Dill. According to the cited articles,  Ponente: Relova, J.
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, Lapuz did not consent to the off-setting of his obligation with
Sycip’s obligation to pay for the 500 shares.
ART. 1278. Compensation shall take place when two persons, in their own

G.R. No. L-50900 April 9, 1985 Legal Compensation
Maritima v. CA Maritima v. CA
I. Recit-ready Summary until fully paid”, MINUS the amount of P59k representing the
unpaid rentals due to Maritima.
In the relevant portion of this case, the CA ordered Maritima to pay Pan- a. NOTE that Maritima’s debt to Pan-Oriental existed only
Oriental the sum of 40k to represent the expenses for repairs incurred by after the court ruled such liability.
Pan-Oriental, with legal interest. The Court also subtracted the 59k from IV. Maritima argues that legal compensation took place
such ruling, which represents the unpaid rentals due to Maritima from Pan- between Maritima and Pan-Oriental when Maritima was
Oriental. However, Maritima argues that legal compensation took place dispossessed of the vessel.
between Maritima and Pan-Oriental when Maritima was dispossessed of the a. Maritima claims that Pan-Oriental’s claim for
vessel. It claims that Pan-Oriental’s claim for reimbursement (P40k) was reimbursement (P40k) was extinguished by compensation
extinguished by compensation since the unpaid rentals owed by Pan- since the unpaid rentals owed by Pan-Oriental was greater
Oriental was greater (P59k). (P59k).
Issue: W/N LEGAL COMPENSATION TOOK PLACE AT THE TIME OF b. In fact, Maritima is claiming that Pan-Oriental would still
DISPOSSESION OF THE VESSEL? – NO. be liable for P19k since the compensation is only partial
The Court ruled that legal compensation did NOT take place. Two of the I. Issue/s
elements of legal compensation were not present. Maritima’s debt was not 1. W/N LEGAL COMPENSATION TOOK PLACE AT THE TIME
yet liquidated, and it was not yet due and demandable. OF DISPOSSESION OF THE VESSEL? – NO!
Although compensation by operation of law (legal compensation) did not II. Holding/s
take place, the rentals payable by Pan-Oriental in the amount of P59k
should still be deducted from the sum of useful expenses PLUS legal
Issue #1
interest due (assuming the latter amount would still be greater). This is an
NO, LEGAL COMPENSATION DID NOT TAKE PLACE.
example of judicial compensation.
• Pan-Oriental’s claim for • 2 elements for legal
I. This case involves a factual background where the ownership reimbursement (P40k) was compensation to take place
and various contractual undertakings over a single shipping extinguished by compensation were not present on the date of
vessel got extremely complicated. since the unpaid rentals owed by dispossession
Pan-Oriental was greater (P59k)
II. For the purpose of this digest for which we will NOT use for
recitation anyway, let’s go straight to the decision of the CA.
III. The CA ruled that Maritima is ordered to pay Pan-Oriental the
sum of P40k representing the expenses for repairs incurred by
Pan-Oriental, “with legal interest from time of dispossession
Obligations and Contracts (2020) PETITIONER: Compania Maritima 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: CA & Pan Oriental Shipping Co.
G.R. No. L-50900 April 9, 1985 Legal Compensation
Maritima v. CA Maritima v. CA
Overall Ruling (1) That each one of the obligors be bound principally, and that he
In this case, some elements for legal compensation to take place were not
present on the date of dispossession (the alleged day when compensation (2) That both debts consist in a sum of money, or if the things due
took place).The debt owed to Pan-Oriental was not liquidated yet. The are consumable, they be of the same kind, and also of the same
amount expended for repairs and improvements made by Maritima had yet quality if the latter has been stated;
to be determined by the courts. Also, the legal interest on the reimbursement
for the expenses was not yet liquidated because interest does not stop (3) That the two debts be due;
accruing until expenses are fully paid.
The debt owed to both Maritima and Pan-Oriental was also not yet due and
demandable. At the time of dispossession, Pan-Oriental was still insisting
on its right to purchase the vessel. The obligation of Maritima to reimburse (5) That over neither of them there be any retention or controversy,
Pan-Oriental for expenses arose only after this Court had so ruled. The commenced by third persons and communicated in due time to the
unpaid rentals of the use of the vessel by Pan-Oriental was only due and debtor.
demandable after this Court issued its resolution.
IV. Disposition
Hence, there is no basis to Maritima’s allegation that since Pan-Oriental
owed the former unpaid rentals amounting to P59k, then Pan-Oriental’s ACCORDINGLY, the judgment appealed from is hereby affirmed. No
claim of reimbursement for expenses in the amount of P40k was costs.
extinguished by virtue of compensation.
SO ORDERED.
Although compensation by operation of law (legal compensation) did not
take place, the rentals payable by Pan-Oriental in the amount of P59k
V. Additional Notes
should still be deducted from the sum of useful expenses PLUS legal
interest due (assuming the latter amount would still be greater). This is an
VII. Random Facts
example of judicial compensation. Since legal interest is still accruing, it
is still possible for Pan-Oriental to claim from Maritima if the 40k + interest
becomes greater than P59k. Otherwise, Pan-Oriental would be, at most,
liable for P19k.
In order that compensation may be proper, it is necessary:
Obligations and Contracts (2020) PETITIONER: Compania Maritima 2

DIGEST AUTHOR: Julianna Soberano RESPONDENT: CA & Pan Oriental Shipping Co.
G.R. No. 69560 | June 30, 1988 Compensation
International Corp. Bank v. IAC International Corp. Bank v. IAC
I. Recit-ready Summary the sale of Fajardo’s foreclosed properties with the alleged deficiency claim
Private respondent Fajardo secured a loan worth P50M from the petitioner’s of the bank is still pending consideration which is why the validity of the
predecessors-in-interest and mortgaged two real properties to secure the foreclosure sale and deficiency claim are still in question. Hence, legal
loan. However, only P20M was approved to be released and the same compensation cannot take place because Article 1279 requires that the debts
amount was applied to the former’s other obligations to the petitioner. must be liquidated and demandable.
Fajardo made a money market placement with the petitioner in the amount
of P1,062,063.83. The latter refused to pay the proceeds of Fajardo’s money II. Facts of the Case (Material Facts)
market placement, instead they applied the proceeds to the deficiency in the 1. Private respondent Natividad M. Fajardo secured a loan worth
proceeds of the auction sale of the mortgaged properties because Fajardo P50M from petitioner International Corporation Bank’s
was still indebted to the Bank in the amount of P6.81M. Private respondent predecessors-in-interest and mortgaged her real properties in
filed a complaint before the RTC for the recovery of the proceeds of her Manila and Bulacan to secure this loan. From the P50M loan, only
money market investment amounting to P1,062,063.83. As a defense, P20M was approved for release, but the same amount was applied
petitioner asserted that they have the right to apply or set off Fajardo’s to pay for the former’s other obligations to the latter, including
money market claim and that she is still indebted to the petitioner in the bank charges and fees.
amount of P5,763, 741.23 after deducting the proceeds of the money market 2. In September 1980, Fajardo made a money market placement with
placement. The respondent judge granted the motion and ordered the ATRIUM (one of the petitioner’s predecessors-in-interest) in the
petitioner to deliver the amount of P1,062,063.83 to Fajardo. Petitioner filed amount of P1,046,253.77 at 17% interest per annum until October
a motion for reconsideration, but it was denied, so they filed a special civil 13, 1980, its maturity date. However, it was alleged by the
action for certiorari and prohibition with preliminary injunction before the petitioner that Fajardo failed to pay her mortgaged indebtedness to
CA. The CA ruled that this circumstance prevented legal compensation the bank. Hence, the mortgaged properties were sold in an auction
because the debt of private respondent Fajardo amounting to P6.81M which for P20M only, leaving Fajardo still indebted to the petitioner for
represents the deficiency balance after the foreclosure of the mortgage P6.81M. With this, the bank refused to pay the proceeds of the
executed to secure the loan extended to her, is vigorously disputed. The money market placement and applied it instead to the said
issue in this case W/N there is legal compensation in the instant case. The deficiency. Private respondent filed a complaint before the RTC for
Court ruled that under Article 1279 of the Civil Code, the law requires the the annulment of the sheriff’s sale of the mortgaged properties, the
two debts to be due, liquidated, and demandable. In the case at bar, whether release of the balance of her loan worth P30M, and the recovery of
the private respondent is indebted to petitioner in the amount of P6.81 the proceeds of her money market investment amounting to
million representing the deficiency balance after the foreclosure of the P1,062,063.83. Also, she alleged that the mortgage was not yet due
mortgage executed to secure the loan extended to her, is vigorously and demandable which means that the foreclosure was illegal. In
disputed. Also, the Court ruled that since the case about the annulment of their defense, petitioner asserted that they have the right to apply or
1
Obligations and Contracts (2020) PETITIONER: The International Corporate Bank, Inc.
DIGEST AUTHOR: Steven Rivera RESPONDENT: The Intermediate Appellate Court, Hon. Zoilo Aguinaldo,
Natividad M. Fajardo, and Silvino R. Pastrana.
set off Fajardo’s money market claim and that she is still indebted Issue #1
to the petitioner in the amount of P5,763, 741.23 after deducting NO, the circumstance prevented legal compensation to take place.
the proceeds of the money market placement.
Petitioner’s Arguments Court of Appeal’s Rebuttals
3. The RTC subsequently dismissed the private respondent's cause of
● Petitioner claims that they have ● The Court stated that whether
action concerning the annulment of the foreclosure sale, for lack of
the right to set off Fajardo’s private respondent is indebted to
jurisdiction, but left the other causes of action to be resolved after
proceeds from the money market petitioner in the amount of P6.81
trial. In her answer to the RTC’s decision, Fajardo filed two
placement, since the latter is still million representing the
separate complaints in Manila and Bulacan for annulment of the
indebted to the Bank in the deficiency balance after the
foreclosure sale of the said properties. The private respondent filed
amount of P6.81M. foreclosure of the mortgage
a motion to order the petitioner to release in her favor the proceeds
executed to secure the loan
of the money market placement. Petitioner filed an opposition
extended to her, is vigorously
thereto, claiming that the proceeds of the money market investment
disputed.
had already been applied to partly satisfy its deficiency claim, and
Overall Ruling
that to grant the motion would be to render judgment in her favor
Under Article 1279 of the Civil Code, the law requires the two debts to
without trial and make the proceedings moot and academic.
be due, liquidated, and demandable. In the case at bar, it was admitted
4. The respondent judge Zoilo Aguinaldo granted the motion and
that the petitioner was indebted to private respondent Fajardo in the amount
ordered the petitioner to deliver the amount of P1,062,063.83 to
of P1,062,063.83 which represented the proceeds of her money market
Fajardo. In effect, the petitioner filed a motion for reconsideration,
investment, but the whether private respondent is indebted to petitioner in
but the respondent judge denied it. The former filed a special civil
the amount of P6.81 million representing the deficiency balance after the
action for certiorari and prohibition with preliminary injunction
foreclosure of the mortgage executed to secure the loan extended to her, is
before the CA, but it was dismissed because the circumstances of
vigorously disputed. The Court, in citing the CA’s decision, ruled that
this case prevent legal compensation from taking place because the
compensation is not proper where the claim of the person asserting the
question of whether private respondent is indebted to petitioner in
set-off against the other is not clear nor liquidated; compensation
the amount of P6.81M which represents the deficiency balance
cannot extend to unliquidated, disputed claim arising from breach of
after the foreclosure of the mortgage executed to secure the loan
contract. Hence, there can be no legal compensation. The SC also ruled
extended to her, is vigorously disputed.
that the Civil Case No. 83-19717, which is about the annulment of the sale
of the foreclosed properties with the alleged deficiency, is still pending
III. Issue/s
consideration. As such, the validity of the foreclosure sale and the bank’s
1. W/N there is legal compensation in the instant case. (NO)
claim for deficiency are still in question. Hence, the requirement of Article
IV. Holding/s
1279 was not met because the debts were not liquidated and demandable.
2

(4) That they be liquidated and demandable; and
commenced by third persons and communicated in due time to the debtor.
VI. Disposition
PREMISES CONSIDERED, the questioned Decision and Resolution of the
respondent Court of Appeals are hereby AFFIRMED.
VII. Random Facts

3
G.R. No. 75819 | September 8, 1989 ARTICLE 1279 & 1283
ONG v. CA ONG v. CA
I. Recit-ready Summary 6. On the other hand, Mariano claims that the original loan was for
Fermin claims he borrowed from Mariano P160,000.00 and secured its P200,000.00 and this was reduced with the payment of the said
payment with three post-dated checks totaling the same amount. On January check, leaving a balance of P160,000.00.
23, 1979, Fermin issued a fourth check for P40,000.00 in partial settlement 7. Fermin was then claiming that his outstanding loan was set off by
of the loan, which was thereby reduced to P120,000.00. Fermin says that he the cost of the zippers, which he said Mariano had unjustly
stored in Mariano's warehouse a quantity of zippers valued at P181,000.00 retained.
but denied that they were intended to guarantee the payment of his loan.
When Fermin tried to get the rest of his zippers, Mariano refused to release
them on the ground of non-payment of the loan. Mariano sued Fermin after III. Issue/s
sending him a demand for the amount of P160,000.00. On the other hand, 1. W/N The balance of the debt of Fermin is deemed set off by the
Mariano claims that the original loan was for P200,000.00 and this was price of the zippers in the possession of Mariano? NO.
reduced with the payment of the said check, leaving a balance of
P160,000.00. Fermin was then claiming that his outstanding loan was set off IV. Holding/s
by the cost of the zippers, which he said Mariano had unjustly retained. The
issue is whether or not the balance of the debt of Fermin is deemed set off Issue #1
by the price of the zippers in the possession of Mariano. The court ruled that NO, The balance of the debt of Fermin is not deemed to be set off by the
the balance of the debt of Fermin is not set off by the price of the zippers price of the zippers in the possession of Mariano.
II. Facts of the Case (Material Facts) • Fermin, claims the balance of his • The instant case does not fall
1. Fermin claims he borrowed from Mariano P160,000.00 and debt is deemed set off by the under Article 1279 and 1283 of
secured its payment with three post-dated checks totaling the same price of the zippers in the the Civil Code.
amount. possession of Mariano, who had
2. On January 23, 1979, Fermin issued a fourth check for P40,000.00 the obligation to return them to
in partial settlement of the loan, which was thereby reduced to him in accordance with Article
P120,000.00. 1279 of the Civil Code.
3. Fermin says that he stored in Mariano's warehouse a quantity of • Fermin also claims that there
zippers valued at P181,000.00 but denied that they were intended was a judicial set-off under
to guarantee the payment of his loan.
Article 1283 of the Civil Code.
4. When Fermin tried to get the rest of his zippers, Mariano refused to
release them on the ground of non-payment of the loan.
5. Mariano sued Fermin after sending him a demand for the amount
of P160,000.00.
Obligations and Contracts (2020) PETITIONER: FERMIN ONG 1

DIGEST AUTHOR: John Joves RESPONDENT: COURT OF APPEALS & MARIANO ONG
G.R. No. 75819 | September 8, 1989 ARTICLE 1279 & 1283
ONG v. CA ONG v. CA
Overall Ruling (5) That over neither of them there be any retention or controversy,
First, the court ruled that what happened was that Mariano extended commenced by third persons and communicated in due time to the debtor.
Fermin a loan of P200,000.00 for which the latter issued four post-dated (1196)
checks to cover the said amount. With the encashment of the fourth check
for P40,000.00, the loan was reduced by that amount, leaving the ARTICLE 1283 OF THE CIVIL CODE
remaining first three checks to guarantee the balance of the loan.
If one of the parties to a suit over an obligation has a claim for damages
against the other, the former may set it off by proving his right to said
The court said that Article 1279 would not apply since one, appellant is damages and the amount thereof. (n)
not a debtor of appellee, it is only the latter who is indebted to appellant.
Two, the debts, even admitting that the delivery of the zippers to plaintiff VI. Disposition
is a debt do not both consist in a sum of money nor are they of the same
quality and kind, WHEREFORE, the petition is DENIED, with costs against the petitioner. It
is so ordered.
The court held that Article 1283 would not apply since Fermin has not
proved the right to any damage as a result of the claimed retention of the
zippers by Mariano.


Obligations and Contracts (2020) PETITIONER: FERMIN ONG 2

DIGEST AUTHOR: John Joves RESPONDENT: COURT OF APPEALS & MARIANO ONG
G.R. No. 84197 | July 28, 1989 Extinguishment of Obligations: Compensation
Pioneer Insurance v CA Pioneer Insurance v CA
I. Recit-ready Summary The SC ruled that that Pioneer is not entitled to recover form
respondents BORMAHECO and Maglana. Rebutting petitioner’s arguments
Lim is an owner-operator of Southern Airlines (SAL). Japan the court held that 1. The records show that the issue on the reinsurance
Domestic Airlines (JDA) and Lim entered into a sales contract. Pioneer money had been raised in the lower courts 2. That there is no basis to
Insurance and Surety Corp. as surety executed its surety bond in favor petitioner's argument that the respondents had no interest in the reinsurance
of JDA on behalf of its principal Lim. Border Machinery and Heacy contract as this is strictly between the petitioner as insured and the
Equipment Co, Inc., Francisco and Modesto Cervantes, and Constancio reinsuring company pursuant to the Insurance Code, because the fact that
Maglana contributed funds based on the misrepresentation of Lim that the reinsurers had paid petitioners was not disputed in the lower courts, and
they will form a new corporation to expand his business. They executed 3. Petitioner’s argument that the petitioner is entitled to recover from
two separate indemnity agreements in favor of Pioneer, one signed by respondents Bormaheco and Maglana pursuant to the indemnity agreement
Maglana and the other jointly signed by Lim for SAL, Bormaheco and is lacking in grounds and evidence while the trial court’s findings on the
the Cervanteses. The indemnity agreements stipulated that the matter are replete with evidence to substantiate its finding. Additionally the
indemnitors principally agree and bind themselves jointly and severally court ruled that Bormaheco and Maglana were not aware of the
to indemnify and hold and save Pioneer from and against any/all mermorandum modifying the maturity dates of the obligations leading to the
damages, losses, etc. of whatever kind and nature may incur in extinguishment of the obligations and of the surety bond secured by the
consequence of having become surety. indemnity agreement.
Lim executed in favor of Pioneer a deed of chattel mortgage as

security. Upon default on the payments, Pioneer paid for him and filed II. Facts of the Case (Material Facts)
a petition for the foreclosure of chattel mortgage as security. 1. Jacob S. Lim owned (single proprietorship) Southern Air Lines
(SAL).
Pioneer Insurance is now seeking to recover from respondents 2. On May 17, 1965, Japan Domestic Airlines (JDA) and Lim entered
Bormaheco and Maglana. Pioneer brings the issue on appeal given that into and executed a sales contract for the sale and purchase of 2
the lower court had dismissed the appeal of petitioner on the ground DC-3A Type aircrafts and 1 set of necessary spare parts for the
that petitioner had already collected the proceeds of the reinsurance on total agreed price of US $109,000.00 to be paid in installments.
its bond in favor of the JDA and that it cannot represent a reinsurer to Both aircrafts came in June and July 1965.
recover the amount from herein private respondents as defendants. (the 3. On May 22, 1965, Pioneer Insurance and Surety Corporation as
issue is W/N the Petitioner, Pioneer Insurance, is entitled to recover surety executed and issued its Surety Bond No. 6639 in favor of
from respondents Bormaheco and Maglana. JDA, in behalf of its principal, Lim, for the balance price of the
aircrafts and spare parts.
Obligations and Contracts (2020) PETITIONER: PIONEER INSURANCE & SURETY CORPORATION 1
DIGEST AUTHOR: Ryon Rivera RESPONDENT: THE HON. COURT OF APPEALS, BORDER
MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO),
CONSTANCIO M. MAGLANA and JACOB S. LIM,
4. It appears that Border Machinery and Heavy Equipment Company, 9. In their Answers, Maglana, Bormaheco and the Cervanteses filed
Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) cross-claims against Lim alleging that they were not privies to the
and Constancio Maglana contributed some funds used in the contracts signed by Lim and, by way of counterclaim, sought for
purchase of the above aircrafts and spare parts. The funds were damages for being exposed to litigation and for recovery of the
supposed to be their contributions to a new corporation proposed sums of money they advanced to Lim for the purchase of the
by Lim to expand his airline business. aircrafts in question.
5. They executed 2 separate indemnity agreements in favor of 10. CFI - decision was rendered holding Lim liable to pay Pioneer but
Pioneer, one signed by Maglana and the other jointly signed by dismissed Pioneer's complaint against all other defendants.
Lim for SAL, Bormaheco and the Cervanteses (stipulated that the 11. CA - modified the trial court's decision in that the plaintiff’s
indemnitors principally agree and bind themselves jointly and complaint against all the defendants was dismissed. In all other
severally to indemnify and hold and save harmless Pioneer from respects the trial court's decision was affirmed.
and against any/all damages, losses, costs, damages, taxes, 12. The CA ruled that Pioneer can not be considered as the real party
penalties, charges and expenses of whatever kind and nature which in interest as it had already been paid by the reinsurer the sum of
Pioneer may incur in consequence of having become surety upon P295,000 - the bulk of defendants’ alleged obligation to Pioneer.
the bond/note and to pay, reimburse and make good to Pioneer, its Additionally, Pioneer was able to extra-judicially foreclose one of
successors and assigns, all sums and amounts of money which it or the airplanes and its spare engine, realizing the sum of 37,050 and
its representatives should or may pay or cause to be paid or become that the plaintiff has been overpaid in the amount of 33,383.71
liable to pay on them of whatever kind and nature). considering the total amount it had paid to JDA totals to only
6. On June 10, 1965, Lim doing business under the name and style of 298,666.28. Hence, to allow Pioneer to recover from defendants
SAL executed in favor of Pioneer a deed of chattel mortgage as the amount in excess of P298,666.29 would be unjust enrichment.
security for the suretyship (stipulated therein that Lim transfer and
convey to the surety the two aircrafts). The deed was duly III. Issues
registered with the Office of the Register of Deeds of the City of a. W/N the Petitioner, Pioneer Insurance, is entitled to
Manila and with the Civil Aeronautics Administration pursuant to recover from respondents Bormaheco and Maglana.
the Chattel Mortgage Law and the Civil Aeronautics Law. IV. Holding/s
7. Lim defaulted on his subsequent installment payments. JDA
requested payments from the surety. Pioneer paid a total sum of Issue #1
P298,626.12. W/N the Petitioner, Pioneer Insurance, is entitled to recover from
8. On July 19, 1966, Pioneer filed an action for judicial foreclosure respondents Bormaheco and Maglana.
with an application for a writ of preliminary attachment against Petitioner’s Arguments Court’s Rebuttals
Lim and respondents, the Cervanteses, Bormaheco and Maglana. • 1. The matter of the reinsurance 1. The records belie the petitioner's
money was never raised by any contention that the issue on the that the counter-indemnitors are not
of the parties. They are at a loss reinsurance money was never raised liable to the petitioner. In the
where respondent court based its by the parties. original complain Pioneer averred:
finding that Pioneer was paid by "'The various confl︎icting claims over
its reinsurer in the amount of 2. The payment to the petitioner the mortgaged properties have
295,000. made by the reinsurers was not impaired and rendered insuffi︎cient
• 2. Even assuming that it was disputed in the appellate court. the security under the chattel
paid by its reinsurer, none of the Considering this admitted payment, mortgage and there is thus no other
respondents had any interest in the only issue that cropped up was sufficient security for the claim
the matter since the reinsurance the effect of payment made by the sought to be enforced by this
is strictly between Pioneer and reinsurers to the petitioner. action.'" The court said that "This is
the re-insurer. Therefore, the petitioner's argument judicial admission and aside from
• 3. Pursuant to the indemnity that the respondents had no interest the chattel mortgage there is no
agreements, the petitioner is in the reinsurance contract as this is other security for the claim sought to
entitled to recover from strictly between the petitioner as be enforced by this action, which
respondents Bormaheco and insured and the reinsuring company necessarily means that the indemnity
Maglana. pursuant to Section 91 (should be agreement had ceased to have any
Section 98) of the Insurance Code force and effect at the time this
has no basis. action was instituted.” "Prescinding
from the foregoing, Pioneer, having
3. The petitioner argues that the foreclosed the chattel mortgage on
appeal as regards the counter the planes and spare parts, no longer
indemnitors should not have been has any further action against the
dismissed on the premise that the defendants as indemnitors to recover
evidence on record shows that it is any unpaid balance of the price. The
entitled to recover from the counter indemnity agreement was ipso jure
indemnitors. It does not, however, extinguished upon the foreclosure of
cite any grounds. The SC on the the chattel mortgage.
other hand, found the trial court's
findings on the matter replete with
evidence to substantiate its finding
Overall Ruling Pioneer's liability as surety to JDA had already prescribed when Pioneer
paid the same. Consequently, Pioneer has no more cause of action to
The SC held that Pioneer is not entitled to recover form respondents recover from these defendants, as supposed indemnitors what it has paid to
BORMAHECO and Maglana. Rebutting petitioner’s arguments the court JDA. By virtue of an express stipulation in the surety bond, the failure of
held that 1. The records show that the issue on the reinsurance money had JDA to present its claim to Pioneer within ten days from default of Lim or
been raised in the lower courts 2. That there is no basis to petitioner's SAL on every installment, released Pioneer from liability from the claim.
argument that the respondents had no interest in the reinsurance contract as Therefore, Pioneer is not entitled to exact reimbursement from these
this is strictly between the petitioner as insured and the reinsuring company defendants thru the indemnity. "Art. 1318. Payment by a solidary debtor
pursuant to Section 91 (should be Section 98) of the Insurance Code, shall not entitle him to reimbursement from his co-debtors if such payment
because the fact that the reinsurers had paid petitioners was not disputed in is made after the obligation has prescribed or became illegal."
the lower courts, and 3. Petitioner’s argument that the petitioner is entitled
to recover from respondents Bormaheco and Maglana pursuant to the
indemnity agreement is lacking in grounds and evidence while the trial
court’s findings on the matter are replete with evidence to substantiate its
finding.
Additionally, at the trial of this case, Pioneer produced a memorandum

executed by SAL, or Lim and JDA, modifying the maturity dates of the
obligations. Pioneer's official Numeriano Carbonel, would have it believed
that these defendants and defendant Maglana knew of and consented to the
modification of the obligations. But if that were so, there would have been V. Law or Doctrine Applied
the corresponding documents in the form of a written notice to as well as
written conformity of these defendants, and there are no such documents. Art. 1218. Payment by a solidary debtor shall not entitle him to
The consequence of this was the extinguishment of the obligations and of reimbursement from his co-debtors if such payment is made after the
the surety bond secured by the indemnity agreement which was thereby also obligation has prescribed or became illegal.
extinguished. Citing previous jurisprudence the court quoted "'Art. 2079.
An extension granted to the debtor by the creditor without the consent of the Art. 2079. An extension granted to the debtor by the creditor without the
guarantor extinguishes the guaranty. The mere failure on the part of the consent of the guarantor extinguishes the guaranty. The mere failure on the
creditor to demand payment after the debt has become due does not of itself part of the creditor to demand payment after the debt has become due does
constitute any extension of time referred to herein, (New Civil Code).' not of itself constitute any extension of time referred to herein.
VI. Disposition
WHEREFORE, the instant petitions are DISMISSED. The questioned

decision of the Court of Appeals is AFFIRMED.
VII. Random Facts

• Ponente: Gutierrez, Jr., J.
G.R. No. 89252 | May 24, 2020 Compensation (Art. 1279 & 1285)
Sesbreño v. CA Sesbreño v. CA
his favor as soon as that assignment or sale was effected on 9 February On Feb 9, 1981, Raul Sesbreno
made a money market placement in the
1981. He could have also notified Delta as soon as his money market amount of P300,000 with the
Philippine Underwriters Finance Corporation
placement matured on 13 March 1981 without payment thereof being made (PhilFinance), with a term of
32 days. PhilFinance issued to Sesbreno the
by PhilFinance; at that time, compensation had yet to set in and discharge Certificate of Confirmation of
Sale of a Delta Motor Corporation
DMC PN No. 2731. Again, petitioner could have notified Delta on 26 Promissory Note (2731), the
Certificate of Securities Delivery Receipt
March 1981 when petitioner received from PhilFinance the Denominated indicating the sale of the note
with notation that said security was in the
Custodianship Receipt ("DCR") No. 10805 issued by private respondent custody of Pilipinas Bank, and
postdated checks drawn against the Insular
Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta Bank of Asia and America for
P304,533.33 payable on 13 March 1981. The
at any time before the maturity date of DMC PN No. 2731. Because checks were dishonored for having
been drawn against insufficient funds.
petitioner failed to do so, and because the record is bare of any indication Pilipinas Bank never released
the note, nor any instrument related thereto, to
that PhilFinance had itself notified Delta of the assignment to petitioner, the Sesbreno; but Sesbreno
learned that the security was issued 10 April 1980,
Court is compelled to uphold the defense of compensation raised by private maturing on 6 April 1981, has
a face value of P2,300,833.33 with
respondent Delta. Of course, PhilFinance remains liable to petitioner under PhilFinance as payee and
Delta Motors as maker; and was stamped “non-
the terms of the assignment made by Philfinance to petitioner. negotiable” on its face. As Sesbreno was
unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors
II. Facts of the Case (Material Facts) and Pilipinas Bank.
1. Feb. 9, 1981- Raul Sesbreno (petitioner) made a money market The issue in this case is W/N there
was compensation or offsetting between
placement in the amount of P300,000 with PhilFinance, with a term DMC PN No. 2731 and PhilFinance
PN No. 143-A. The SC held Yes. It is important to note that at the time PhiFinance sold part of its rights
under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and
indeed none could have taken place. The essential requirements of compensation are listed in the Civil
Code. On 9 February 1981, neither DMC PN No. 2731 nor PhilFinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with PhilFinance, where Delta
acknowledged that the relevant promissory notes were "to be off settled (sic) against [PhilFinance] PN
No. 143-A upon co-terminal maturity." The record shows, however, that
of 32 days. 2. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note (DMC PN No. 2731), the Certificate of Securities Delivery Receipt indicating
the sale of the Note with notation that said security was in the custody of Pilipinas Bank, and postdated
checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981.
3. The checks were dishonored for having been drawn against petitioner notified Delta of the fact of the
assignment to him only on 14 July
insufficient funds. 1981, that is, after the maturity not only of the money market placement
4. Philfinance delivered to petitioner Denominated Custodian Receipt made by petitioner but also of both
DMC PN No. 2731 and PhilFinance PN
(DCR). No. 143-A. In other words, petitioner notified Delta of his rights as assignee
5. Petitioner approached Ms. Elizabeth de Villa of private respondent after compensation had taken place
by operation of law because the offsetting instruments had both reached maturity. At the time that Delta
was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. It bears some emphasis that petitioner could have notified
Delta of the assignment in
Obligations and Contracts (2020) PETITIONER: Raul Sesbreño
DIGEST AUTHOR: Tin Dychioco RESPONDENT: C.A. and Delta Motors Corporation and Pilipinas Bank
Pilipinas, and handed her a demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR had remained unpaid and outstanding, and that he in effect was asking for the
physical delivery of the underlying promissory note.
1
6. Petitioner then examined the original of the DMC PN No. 2731 and
Overall Ruling found: that the security had been issued on 10 April 1980; that it
• It is important to note that at the time PhilFinance sold part of its rights would mature on 6 April 1981;
that it had a face value of
under DMC PN No. 2731 to petitioner on 9 February 1981, no P2,300,833.33, with the Philfinance as
“payee” and private
compensation had as yet taken place and indeed none could have taken respondent Delta Motors
Corporation (“Delta”) as “maker;” and
place. that on face of the promissory note was stamped “NON
• On 9 February 1981, neither DMC PN No. 2731 nor PhilFinance PN NEGOTIABLE.” Pilipinas did not
deliver the Note, nor any
No. 143-A was due. This was explicitly recognized by Delta in its 10 certificate of participation in respect
thereof, to petitioner.
April 1980 "Letter of Agreement" with PhilFinance, where Delta 7. Petitioner later made similar demand
letters again asking private
acknowledged that the relevant promissory notes were "to be offsetted respondent Pilipinas for physical
delivery of the original of DMC
(sic) against [Philfinance] PN No. 143-A upon co-terminal maturity." PN No. 2731. 8. Petitioner also made
a written demand upon private respondent Delta for the partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33.
Delta, however, denied any liability to petitioner on the promissory note. 9. As petitioner had failed to
collect his investment and interest thereon, he filed an action for damages against private respondents
Delta and Pilipinas. 10. RTC: Dismissed the complaint and counterclaims for lack of merit
and for lack of cause of action, with costs against petitioner. 11. CA: Denied the appeal and upheld the
RTC’s decision.
• As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before
the "co-terminal maturity" date, that is to say, before any compensation had taken place.
• Further, the assignment to petitioner would have prevented compensation from taking place between
PhilFinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of
petitioner, PhilFinance and Delta would have ceased to be creditors and debtors of each other in their own
right to the extent of the amount assigned by PhilFinance to petitioner.
• Thus, we conclude that the assignment effected by PhilFinance in favor of petitioner was a valid one and
that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof
III. Issue/s
1. W/N there was compensation or offsetting between the DMC
PN No. 2731 and Philfinance PN No. 143? - YES
assigned to him.
• The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14
July 1981, 19 that is, after the maturity not only of the money market placement made by petitioner
IV. Holding/s
but also of both DMC PN No. 2731 and PhilFinance PN No. 143-A.
• In other words, petitioner notified Delta of his rights as assignee after
Issue #1 YES, the Court is compelled to uphold the defense of compensation raised by private
respondent Delta. Of course, PhilFinance remains liable to petitioner under the terms of the
assignment made by Philfinance to petitioner.
compensation had taken place by operation of law because the offsetting instruments had both reached
maturity.
• It is a firmly settled doctrine that the rights of an assignee are not any greater than the rights of the
assignor, since the assignee is merely substituted in the place of the assignor and that the assignee
acquires his rights subject to the equities — i.e., the defenses — which the debtor
2
could have set up against the original assignor before notice of the assignment was given to the debtor.
• At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same qualify if the latter has been stated; (3) That the two debts are due; discharged by
compensation.
• Since the assignor PhilFinance could not have then compelled payment anew by Delta of DMC PN No.
2731, petitioner, as assignee of
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated
in due time to the debtor."
PhilFinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
ARTICLE 1285 OF THE CIVIL CODE ART. 1285. The debtor who has consented to the assignment of rights made
by a
• It bears some emphasis that petitioner could have notified Delta of the assignment in his favor as soon
as that assignment or sale was effected on 9 February 1981.
• He could have also notified Delta as soon as his money market
creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him
against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved
his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent
placement matured on 13 March 1981 without payment thereof being
thereto, the latter may set up the compensation of debts previous to the cession, but made by PhilFinance; at that
time, compensation had yet to set in and discharge DMC PN No. 2731.
• Again, petitioner could have notified Delta on 26 March 1981 when petitioner received from
PhilFinance the Denominated Custodianship
not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had knowledge of the assignment.
Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in
VI. Disposition favor of petitioner.
• Petitioner could, in fine, have notified Delta at any time before the
WHEREFORE, for all the foregoing, the Decision and Resolution of the maturity date of DMC PN No.
2731.
• Because petitioner failed to do so, and because the record is bare of any indication that PhilFinance had
itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of
compensation raised by private respondent Delta. Of course, PhilFinance remains liable to petitioner
under the terms of the assignment made by Philfinance to petitioner.
Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 March 1989 and 17 July 1989, respectively, are
hereby MODIFIED and SET ASIDE, to the extent that such Decision and Resolution had dismissed
petitioner's complaint against Pilipinas Bank. Private respondent Pilipinas Bank is hereby ORDERED to
indemnify petitioner for damages in the amount of P304,533.33, plus legal interest thereon at the rate of six
percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and Resolution of the
Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.
VII. Random Facts
• Ponente: Feliciano, J. ARTICLE 1279 OF THE CIVIL CODE Art. 1279. In order that compensation may be
proper, it is necessary:
3
his favor as soon as that assignment or sale was effected on 9 February On Feb 9, 1981, Raul Sesbreno
made a money market placement in the
1981. He could have also notified Delta as soon as his money market amount of P300,000 with the
Philippine Underwriters Finance Corporation
placement matured on 13 March 1981 without payment thereof being made (PhilFinance), with a term of
32 days. PhilFinance issued to Sesbreno the
by PhilFinance; at that time, compensation had yet to set in and discharge Certificate of Confirmation of
Sale of a Delta Motor Corporation
DMC PN No. 2731. Again, petitioner could have notified Delta on 26 Promissory Note (2731), the
Certificate of Securities Delivery Receipt
March 1981 when petitioner received from PhilFinance the Denominated indicating the sale of the note
with notation that said security was in the
Custodianship Receipt ("DCR") No. 10805 issued by private respondent custody of Pilipinas Bank, and
postdated checks drawn against the Insular
Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta Bank of Asia and America for
P304,533.33 payable on 13 March 1981. The
at any time before the maturity date of DMC PN No. 2731. Because checks were dishonored for having
been drawn against insufficient funds.
petitioner failed to do so, and because the record is bare of any indication Pilipinas Bank never released
the note, nor any instrument related thereto, to
that PhilFinance had itself notified Delta of the assignment to petitioner, the Sesbreno; but Sesbreno
learned that the security was issued 10 April 1980,
Court is compelled to uphold the defense of compensation raised by private maturing on 6 April 1981, has
a face value of P2,300,833.33 with
respondent Delta. Of course, PhilFinance remains liable to petitioner under PhilFinance as payee and
Delta Motors as maker; and was stamped “non-
the terms of the assignment made by Philfinance to petitioner. negotiable” on its face. As Sesbreno was
unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors
II. Facts of the Case (Material Facts) and Pilipinas Bank.
1. Feb. 9, 1981- Raul Sesbreno (petitioner) made a money market The issue in this case is W/N there
was compensation or offsetting between
placement in the amount of P300,000 with PhilFinance, with a term DMC PN No. 2731 and PhilFinance
PN No. 143-A. The SC held Yes. It is important to note that at the time PhiFinance sold part of its rights
under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and
indeed none could have taken place. The essential requirements of compensation are listed in the Civil
Code. On 9 February 1981, neither DMC PN No. 2731 nor PhilFinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with PhilFinance, where Delta
acknowledged that the relevant promissory notes were "to be off settled (sic) against [PhilFinance] PN
No. 143-A upon co-terminal maturity." The record shows, however, that
of 32 days. 2. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note (DMC PN No. 2731), the Certificate of Securities Delivery Receipt indicating
the sale of the Note with notation that said security was in the custody of Pilipinas Bank, and postdated
checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981.
3. The checks were dishonored for having been drawn against petitioner notified Delta of the fact of the
assignment to him only on 14 July
insufficient funds. 1981, that is, after the maturity not only of the money market placement
4. Philfinance delivered to petitioner Denominated Custodian Receipt made by petitioner but also of both
DMC PN No. 2731 and PhilFinance PN
(DCR). No. 143-A. In other words, petitioner notified Delta of his rights as assignee
5. Petitioner approached Ms. Elizabeth de Villa of private respondent after compensation had taken place
by operation of law because the offsetting instruments had both reached maturity. At the time that Delta
was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. It bears some emphasis that petitioner could have notified
Delta of the assignment in
Pilipinas, and handed her a demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR had remained unpaid and outstanding, and that he in effect was asking for the
physical delivery of the underlying promissory note.
1
6. Petitioner then examined the original of the DMC PN No. 2731 and
Overall Ruling found: that the security had been issued on 10 April 1980; that it
• It is important to note that at the time PhilFinance sold part of its rights would mature on 6 April 1981;
that it had a face value of
under DMC PN No. 2731 to petitioner on 9 February 1981, no P2,300,833.33, with the Philfinance as
“payee” and private
compensation had as yet taken place and indeed none could have taken respondent Delta Motors
Corporation (“Delta”) as “maker;” and
place. that on face of the promissory note was stamped “NON
• On 9 February 1981, neither DMC PN No. 2731 nor PhilFinance PN NEGOTIABLE.” Pilipinas did not
deliver the Note, nor any
No. 143-A was due. This was explicitly recognized by Delta in its 10 certificate of participation in respect
thereof, to petitioner.
April 1980 "Letter of Agreement" with PhilFinance, where Delta 7. Petitioner later made similar demand
letters again asking private
acknowledged that the relevant promissory notes were "to be offsetted respondent Pilipinas for physical
delivery of the original of DMC
(sic) against [Philfinance] PN No. 143-A upon co-terminal maturity." PN No. 2731. 8. Petitioner also made
a written demand upon private respondent Delta for the partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33.
Delta, however, denied any liability to petitioner on the promissory note. 9. As petitioner had failed to
collect his investment and interest thereon, he filed an action for damages against private respondents
Delta and Pilipinas. 10. RTC: Dismissed the complaint and counterclaims for lack of merit
and for lack of cause of action, with costs against petitioner. 11. CA: Denied the appeal and upheld the
RTC’s decision.
• As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before
the "co-terminal maturity" date, that is to say, before any compensation had taken place.
• Further, the assignment to petitioner would have prevented compensation from taking place between
PhilFinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of
petitioner, PhilFinance and Delta would have ceased to be creditors and debtors of each other in their own
right to the extent of the amount assigned by PhilFinance to petitioner.
• Thus, we conclude that the assignment effected by PhilFinance in favor of petitioner was a valid one and
that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof
III. Issue/s
1. W/N there was compensation or offsetting between the DMC
PN No. 2731 and Philfinance PN No. 143? - YES
assigned to him.
• The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14
July 1981, 19 that is, after the maturity not only of the money market placement made by petitioner
IV. Holding/s
Issue #1 YES, the Court is compelled to uphold the defense of compensation raised by private
respondent Delta. Of course, PhilFinance remains liable to petitioner under the terms of the
assignment made by Philfinance to petitioner.
compensation had taken place by operation of law because the offsetting instruments had both reached
maturity.
• It is a firmly settled doctrine that the rights of an assignee are not any greater than the rights of the
assignor, since the assignee is merely substituted in the place of the assignor and that the assignee
acquires his rights subject to the equities — i.e., the defenses — which the debtor
2
could have set up against the original assignor before notice of the assignment was given to the debtor.
• At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same qualify if the latter has been stated; (3) That the two debts are due; discharged by
compensation.
• Since the assignor PhilFinance could not have then compelled payment anew by Delta of DMC PN No.
2731, petitioner, as assignee of
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated
in due time to the debtor."
PhilFinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
ARTICLE 1285 OF THE CIVIL CODE ART. 1285. The debtor who has consented to the assignment of rights made
by a
• It bears some emphasis that petitioner could have notified Delta of the assignment in his favor as soon
as that assignment or sale was effected on 9 February 1981.
• He could have also notified Delta as soon as his money market
creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him
against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved
his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent
placement matured on 13 March 1981 without payment thereof being
thereto, the latter may set up the compensation of debts previous to the cession, but made by PhilFinance; at that
time, compensation had yet to set in and discharge DMC PN No. 2731.
• Again, petitioner could have notified Delta on 26 March 1981 when petitioner received from
PhilFinance the Denominated Custodianship
not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had knowledge of the assignment.
Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in
VI. Disposition favor of petitioner.
• Petitioner could, in fine, have notified Delta at any time before the
WHEREFORE, for all the foregoing, the Decision and Resolution of the maturity date of DMC PN No.
2731.
• Because petitioner failed to do so, and because the record is bare of any indication that PhilFinance had
itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of
compensation raised by private respondent Delta. Of course, PhilFinance remains liable to petitioner
under the terms of the assignment made by Philfinance to petitioner.
Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 March 1989 and 17 July 1989, respectively, are
hereby MODIFIED and SET ASIDE, to the extent that such Decision and Resolution had dismissed
petitioner's complaint against Pilipinas Bank. Private respondent Pilipinas Bank is hereby ORDERED to
indemnify petitioner for damages in the amount of P304,533.33, plus legal interest thereon at the rate of six
percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and Resolution of the
Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.
VII. Random Facts
• Ponente: Feliciano, J. ARTICLE 1279 OF THE CIVIL CODE Art. 1279. In order that compensation may be
proper, it is necessary:
3
I. Recit-ready Summary his favor as soon as that assignment or sale was effected on 9 February
On Feb 9, 1981, Raul Sesbreno made a money market placement in the 1981. He could have also notified Delta as soon as his money market
amount of P300,000 with the Philippine Underwriters Finance Corporation placement matured on 13 March 1981 without payment thereof being made
(PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the by PhilFinance; at that time, compensation had yet to set in and discharge
Certificate of Confirmation of Sale of a Delta Motor Corporation DMC PN No. 2731. Again, petitioner could have notified Delta on 26
Promissory Note (2731), the Certificate of Securities Delivery Receipt March 1981 when petitioner received from PhilFinance the Denominated
indicating the sale of the note with notation that said security was in the Custodianship Receipt ("DCR") No. 10805 issued by private respondent
custody of Pilipinas Bank, and postdated checks drawn against the Insular Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta
Bank of Asia and America for P304,533.33 payable on 13 March 1981. The at any time before the maturity date of DMC PN No. 2731. Because
checks were dishonored for having been drawn against insufficient funds. petitioner failed to do so, and because the record is bare of any indication
Pilipinas Bank never released the note, nor any instrument related thereto, to that PhilFinance had itself notified Delta of the assignment to petitioner, the
Sesbreno; but Sesbreno learned that the security was issued 10 April 1980, Court is compelled to uphold the defense of compensation raised by private
maturing on 6 April 1981, has a face value of P2,300,833.33 with respondent Delta. Of course, PhilFinance remains liable to petitioner under
PhilFinance as payee and Delta Motors as maker; and was stamped “non- the terms of the assignment made by Philfinance to petitioner.
negotiable” on its face. As Sesbreno was unable to collect his investment
and interest thereon, he filed an action for damages against Delta Motors II. Facts of the Case (Material Facts)
and Pilipinas Bank. 1. Feb. 9, 1981- Raul Sesbreno (petitioner) made a money market
The issue in this case is W/N there was compensation or offsetting between placement in the amount of P300,000 with PhilFinance, with a term
DMC PN No. 2731 and PhilFinance PN No. 143-A. The SC held Yes. It is of 32 days.
important to note that at the time PhiFinance sold part of its rights under 2. PhilFinance issued to Sesbreno the Certificate of Confirmation of
DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had Sale of a Delta Motor Corporation Promissory Note (DMC PN No.
as yet taken place and indeed none could have taken place. The essential 2731), the Certificate of Securities Delivery Receipt indicating the
requirements of compensation are listed in the Civil Code. On 9 February
sale of the Note with notation that said security was in the custody
1981, neither DMC PN No. 2731 nor PhilFinance PN No. 143-A was due.
of Pilipinas Bank, and postdated checks drawn against the Insular
This was explicitly recognized by Delta in its 10 April 1980 "Letter of
Agreement" with PhilFinance, where Delta acknowledged that the relevant Bank of Asia and America for P304,533.33 payable on 13 March
promissory notes were "to be off settled (sic) against [PhilFinance] PN No. 1981.
143-A upon co-terminal maturity." The record shows, however, that 3. The checks were dishonored for having been drawn against
petitioner notified Delta of the fact of the assignment to him only on 14 July insufficient funds.
1981, that is, after the maturity not only of the money market placement 4. Philfinance delivered to petitioner Denominated Custodian Receipt
made by petitioner but also of both DMC PN No. 2731 and PhilFinance PN (DCR).
No. 143-A. In other words, petitioner notified Delta of his rights as assignee 5. Petitioner approached Ms. Elizabeth de Villa of private respondent
after compensation had taken place by operation of law because the Pilipinas, and handed her a demand letter informing the bank that
offsetting instruments had both reached maturity. At the time that Delta was his placement with Philfinance in the amount reflected in the DCR
first put to notice of the assignment in petitioner's favor on 14 July 1981, had remained unpaid and outstanding, and that he in effect was
DMC PN No. 2731 had already been discharged by compensation. It bears asking for the physical delivery of the underlying promissory note.
some emphasis that petitioner could have notified Delta of the assignment in
Obligations and Contracts (2020) PETITIONER: Raul Sesbreño 1

6. Petitioner then examined the original of the DMC PN No. 2731 and Overall Ruling
found: that the security had been issued on 10 April 1980; that it • It is important to note that at the time PhilFinance sold part of its rights
would mature on 6 April 1981; that it had a face value of under DMC PN No. 2731 to petitioner on 9 February 1981, no
P2,300,833.33, with the Philfinance as “payee” and private compensation had as yet taken place and indeed none could have taken
respondent Delta Motors Corporation (“Delta”) as “maker;” and place.
that on face of the promissory note was stamped “NON • On 9 February 1981, neither DMC PN No. 2731 nor PhilFinance PN
NEGOTIABLE.” Pilipinas did not deliver the Note, nor any No. 143-A was due. This was explicitly recognized by Delta in its 10
certificate of participation in respect thereof, to petitioner. April 1980 "Letter of Agreement" with PhilFinance, where Delta
7. Petitioner later made similar demand letters again asking private acknowledged that the relevant promissory notes were "to be offsetted
respondent Pilipinas for physical delivery of the original of DMC (sic) against [Philfinance] PN No. 143-A upon co-terminal maturity."
PN No. 2731. • As noted, the assignment to petitioner was made on 9 February 1981 or
8. Petitioner also made a written demand upon private respondent from forty-nine (49) days before the "co-terminal maturity" date, that is
Delta for the partial satisfaction of DMC PN No. 2731, explaining to say, before any compensation had taken place.
that Philfinance, as payee thereof, had assigned to him said Note to • Further, the assignment to petitioner would have prevented
the extent of P307,933.33. Delta, however, denied any liability to compensation from taking place between PhilFinance and Delta, to the
petitioner on the promissory note. extent of P304,533.33, because upon execution of the assignment in
9. As petitioner had failed to collect his investment and interest favor of petitioner, PhilFinance and Delta would have ceased to be
thereon, he filed an action for damages against private respondents creditors and debtors of each other in their own right to the extent of the
Delta and Pilipinas. amount assigned by PhilFinance to petitioner.
10. RTC: Dismissed the complaint and counterclaims for lack of merit • Thus, we conclude that the assignment effected by PhilFinance in favor
and for lack of cause of action, with costs against petitioner. of petitioner was a valid one and that petitioner accordingly became
11. CA: Denied the appeal and upheld the RTC’s decision. owner of DMC PN No. 2731 to the extent of the portion thereof
assigned to him.
III. Issue/s • The record shows, however, that petitioner notified Delta of the fact of
1. W/N there was compensation or offsetting between the DMC the assignment to him only on 14 July 1981, 19 that is, after the
PN No. 2731 and Philfinance PN No. 143? - YES maturity not only of the money market placement made by petitioner
IV. Holding/s
compensation had taken place by operation of law because the
Issue #1 offsetting instruments had both reached maturity.
YES, the Court is compelled to uphold the defense of compensation
• It is a firmly settled doctrine that the rights of an assignee are not any
raised by private respondent Delta. Of course, PhilFinance remains
greater than the rights of the assignor, since the assignee is merely
liable to petitioner under the terms of the assignment made by
substituted in the place of the assignor and that the assignee acquires his
Philfinance to petitioner.
rights subject to the equities — i.e., the defenses — which the debtor

could have set up against the original assignor before notice of the (1) That each one of the obligors be bound principally, and that he be at the same
assignment was given to the debtor. time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
• At the time that Delta was first put to notice of the assignment in they be of the same kind, and also of the same qualify if the latter has been stated;
petitioner's favor on 14 July 1981, DMC PN No. 2731 had already been (3) That the two debts are due;
discharged by compensation. (4) That they be liquidated and demandable;
• Since the assignor PhilFinance could not have then compelled payment (5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor."
anew by Delta of DMC PN No. 2731, petitioner, as assignee of
PhilFinance, is similarly disabled from collecting from Delta the ARTICLE 1285 OF THE CIVIL CODE
portion of the Note assigned to him. ART. 1285. The debtor who has consented to the assignment of rights made by a
• It bears some emphasis that petitioner could have notified Delta of the creditor in favor of a third person, cannot set up against the assignee the
assignment in his favor as soon as that assignment or sale was effected compensation which would pertain to him against the assignor, unless the assignor
was notified by the debtor at the time he gave his consent, that he reserved his right
on 9 February 1981. to the compensation.
• He could have also notified Delta as soon as his money market If the creditor communicated the cession to him but the debtor did not consent
placement matured on 13 March 1981 without payment thereof being thereto, the latter may set up the compensation of debts previous to the cession, but
made by PhilFinance; at that time, compensation had yet to set in and not of subsequent ones.
discharge DMC PN No. 2731. If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
• Again, petitioner could have notified Delta on 26 March 1981 when knowledge of the assignment.
petitioner received from PhilFinance the Denominated Custodianship
Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in VI. Disposition
favor of petitioner.
• Petitioner could, in fine, have notified Delta at any time before the WHEREFORE, for all the foregoing, the Decision and Resolution of the
maturity date of DMC PN No. 2731. Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 March 1989 and 17
• Because petitioner failed to do so, and because the record is bare of any July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the
indication that PhilFinance had itself notified Delta of the assignment to extent that such Decision and Resolution had dismissed petitioner's
complaint against Pilipinas Bank. Private respondent Pilipinas Bank is
petitioner, the Court is compelled to uphold the defense of
hereby ORDERED to indemnify petitioner for damages in the amount of
compensation raised by private respondent Delta. Of course,
P304,533.33, plus legal interest thereon at the rate of six percent (6%) per
PhilFinance remains liable to petitioner under the terms of the annum counted from 2 April 1981. As so modified, the Decision and
assignment made by Philfinance to petitioner. Resolution of the Court of Appeals are hereby AFFIRMED. No
pronouncement as to costs.

• Ponente: Feliciano, J.
Art. 1279. In order that compensation may be proper, it is necessary:

G.R. No. L-62169 | February 28, 1983 Compensation (Arts. 1278 to 1290)
Mindanao Cement v CA Mindanao Cement v CA
I. Recit-ready Summary III. Issue/s

Petitioner Mindanao Portland Cement Corporation (MPCC) and 1. W/N the two obligations reciprocally offset one another and are
respondent Atty. Casiano P. Laquihon in behalf of Pacweld Steel thus both extinguished by operation of law? YES.
Corporation (Pacweld) are creditors and debtors of each other, their debts to
each other consisting in final and executory judgments of the Court of First IV. Holding/s
Instance in two separate cases, ordering the payment to each other of the Issue #1 YES, both obligations are extinguished.
sum of P10,000 by way of attorney's fees.
Petitioner’s Arguments Court’s Response to Petitioner
MPCC argues that the P10,000 requested by Atty, Laquihon is set-off • The circumstance calls for the • Petitioner is correct in the
by the P10,000 ordered in their respective case. The CA denied this motion application of Arts. 1278, 1279 application of the articles.
and ordered payment of the attorney’s fees. and 1290 of the Civil Code. • All requisites of Art. 1279 are
• The order of the CA on June fulfilled therefore there is
The issue in this case is whether or not the two obligations were 26, 1976 constitutes a change or automatic compensation and the
extinguished by operation of law. The court ruled that the petition has merit alteration in a decision that was obligations are extinguished.
and that the obligations were extinguished. It is clear that the two rendered final and executory. • The order allowing Atty. Laquihon
obligations respectively offset each other, compensation having taken effect amendment of final judgement is
by operation of law and extinguished both debts to the concurrent amount of void as it is a substantial change in
P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the
judgement not within the lower
Civil Code, since all the requisites provided in Art. 1279 of the said Code
court’s jurisdiction.
for automatic compensation "even though the creditors and debtors are not
aware of the compensation" were duly present. Overall Ruling – Petition is meritorious
The two obligations respectively offset each other, compensation having
II. Facts of the Case (Material Facts) taken effect by operation of law and extinguished both debts to the
1. Atty. Laquihon in behalf of Pacweld filed a pleading against concurrent amount of P10,000.00 pursuant to the provisions of Arts. 1271,
MPCC to amend the final judgement in their case to have the 1279 and 1290 of the Civil Code, since all the requisites provided in Art.
P10,000 attorney’s fees payable directly to himself. 1279 of the Civil Code for automatic compensation "even though the
2. MPCC filed an opposition stating that the P10,000 is set off by creditors and debtors are not aware of the compensation'' were duly present.
their other case in the same court which already has a writ of
execution. Furthermore, the appealed order of June 26, 1978 granting Atty. Laquihon's
3. Court issued an order granting the amendment in favor of Atty. motion for amendment of the judgment against MPCC so as to make the
Laquihon. They subsequently denied the MR by MPCC. award of P10,000 attorney's fees payable directly to himself as counsel of
4. Hence, this petition. Pacweld instead of payable directly to said corporation as provided in the
judgment, was a void alteration of judgment. It was a substantial change or
amendment beyond the trial court's jurisdiction.
PETITIONER: Mindanao Portland Cement Corporation

Obligations and Contracts (2020) RESPONDENTS: Court of Appeals, Pacweld Steel Corporation, & Atty.
1
DIGEST AUTHOR: King Manalo Casiano P. Laquihon
G.R. No. L-62169 | February 28, 1983 Compensation (Arts. 1278 to 1290)
Mindanao Cement v CA Mindanao Cement v CA

The delivery of a private document evidencing a credit, made voluntarily by
the creditor to the debtor, implies the renunciation of the action which the
former had against the latter.

(1) That each one of the obligors be bound principally, and that he
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
debtor. (1196)

When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of
the compensation.
VI. Disposition
ACCORDINGLY, the appealed orders are hereby annulled and set aside.
No costs.
VII. Random Facts

• Ponente: Teehankee, J.
PETITIONER: Mindanao Portland Cement Corporation

Obligations and Contracts (2020) RESPONDENTS: Court of Appeals, Pacweld Steel Corporation, & Atty.
2
DIGEST AUTHOR: King Manalo Casiano P. Laquihon
EGV Realty Development Corporation v Court of Appeals EGV Realty Development Corporation v Court of Appeals
I. Recit-ready Summary 4. Unisphere withheld payment for its monthly dues. CCC demanded
payment of past dues. When EGV Realty sold the unit to Unisphere the
Unisphere’s unit in Cristina Condominium was robbed twice. certficiate of title contained an annotation of a lien in favor of EGV Realty
Unisphere demanded compensation from Cristina Condominium for the unpaid condominium dues in the amount of P13,142.67.
Corporation but CCC denied any liability stating that the items lost belonged 5. SEC Ruling. While initially, SEC ruled that both parties pay their claims
to a third party. Unisphere thus did not pay its monthly dues. EGV Realty to one another. The SEC upon reconsideration made only Unisphere to pay
and CCC now sought for collection of Unisphere’s unpaid dues. its dues.
6. CA Ruling. CA allowed off-setting to take place since it has been proven
Has compensation or set-off taken place? NO
that Unisphere suffered losses from the robbery and Unisphere had
No, compensation or set-off has not taken place for what is present in payments due which Unisphere did not contest.
the instance case is a claim, not a debt, which is not enforceable in court.
Art. 1279 provides for the requisites for compensation or set-off. The first of III. Issue/s
which is that “That each one of the obligors be bound principally, and that 1. Has set-off or compensation taken place? NO
he be at the same time a principal creditor of the other.” However,
Unisphere was not able to prove in the instant case that its claim is a debt IV. Holding/s
which is enforceable in court. Case law provides the distinction between a
claim and a debt wherein a claim is a mere evidence of debt and has yet to Issue #1
pass through the process defined by law to become a debt. While a debt is No. offsetting or compensation cannot take place since a claim (which is
enforceable in courts, a claim is not. present in this case), is not enforceable in court.
While Unisphere agrees that it is liable for the monthly dues, Petitioner’s Arguments Court’s Rebuttals
Unisphere did not prove that CCC and EGV are liable for the loss from the • [The petitioner’s argument that •
robbery. the items that were robbed
belong to a third party was not
Thus, the Court granted the petition. used as a basis for the court’s
opinion]
1. Unisphere International is the occupant of a unit in Cristina
Condominium.
2. Unisphere’s unit was allegedly robbed twice and the total value lost is
P12,295. Unisphere reported the same to Cristina Condominium
Corporation (CCC).
3. Unisphere demanded compensation from CCC for the losses incurred
from the robbery. However, Cristina Condominium denied any liability
stating that the goods belonged to Amtrade, a third party.
Obligations and Contracts (2020) PETITIONER: EGV Realty Dev. Corp., Cristina Condominium Corp. 1
DIGEST AUTHOR: Jann Amorado RESPONDENT: Court of Appeals, Unisphere International
Overall Ruling
Article 1278. Compensation shall take place when two persons, in their own right,
Art. 1278 of the Civil Code provides that compensation is said to take are creditors and debtors of each other.
place when two persons, in their own right, are creditors and debtors of each Article 1279. In order that compensation may be proper, it is necessary:
other. Compensation is a mode of extinguishing to the concurrent amount,
the obligations of those persons who in their own right are reciprocally (1) That each one of the obligors be bound principally, and that he be at the
debtors and creditors of each other and the offsetting of two obligations same time a principal creditor of the other;
which are reciprocally extinguished if they are of equal value, or
extinguished to the concurrent amount if of different values. (2) That both debts consist in a sum of money, or if the things due are
Art. 1279 of the Civil Code provides for the requirements in order for latter has been stated;
compensation to be proper. Absent any, compensation may not take place.
(See doctrines for the provisions) (3) That the two debts be due;

Unisphere does not deny liability from its unpaid dues. However,
Cristina Condominium and EGV Realty do not admit responsibility from
the loss from the robbery. At best, what Unisphere has against CCC and commenced by third persons and communicated in due time to the debtor.
EGV is a claim, not a debt, which is not enforceable in court. In Vallarta v (1196)
CA, the Court held that:
Vallarta v CA (Use with Art. 1279, (1))
[A] debt is a claim which has been formally passed upon by the highest
authority to which it can in law be submitted and has been declared to [A] debt is a claim which has been formally passed upon by the highest
be a debt. A claim on the other hand, is a debt in embryo. It is mere authority to which it can in law be submitted and has been declared to
evidence of a debt and must pass thru the process prescribed by law be a debt. A claim on the other hand, is a debt in embryo. It is mere
before it develops into what is properly called a debt. evidence of a debt and must pass thru the process prescribed by law
before it develops into what is properly called a debt.
Tested by this, it has not been fully established that compensation or
set-off is proper as there is lack of evidence to show that petitioners EGV VI. Disposition
Realty and CCC and Unisphere are mutually debtors and creditors to each
other. WHEREFORE, for all the foregoing , the instant petition is hereby
GRANTED. The Decision of the Court of Appeals dated February 17, 1995
is REVERSED and SE ASIDE. The Order of the Securities and Exchange
Commission dated August 21, 1990 reiterating the Hearing Officer's
Decision dated January 11, 1989, as amended by the Order of July 17, 1989,
Civil Code:
is hereby REINSTATED.
Additional Notes
VII. Random Facts

• Ponente: Kapunan J
G.R. No. 129598 | August 15, 2001 Extinguishment | Compensation
PNB Madecor v. Uy PNB Madecor v. Uy
I. Recit-ready Summary legal compensation could not have occurred because of the absence of
PNB MADECOR, herein petitioner, assailed before the Court of one requisite: that both debts must be due and demandable. The Court
Appeals the order of the Regional Trial Court of Manila which directed found that petitioner's obligation to PNEI is payable on demand.
the garnishment of the credits and receivables of Pantranco North However, records showed that PNEI did not demand payment from
Express, Inc. (PNEI), in the possession of PNB MADECOR, and if petitioner. Hence, there being no demand made, it follows that the
these were insufficient to cover the debt of PNB MADECOR to PNEI, obligation is not yet due. Therefore, this obligation may not be subject
to levy upon the assets of PNB MADECOR. to compensation for lack of a requisite under the law. Without
compensation having taken place, petitioner remains obligated to PNEI
Petitioner maintained that there was nothing that could be subject of to the extent stated in the promissory note. This obligation may
attachment or execution in favor of respondent since compensation had undoubtedly be garnished in favor of respondent to satisfy PNEI's
already taken place as between its debt to PNEI and the latter's judgment debt.
obligation to it. Petitioner admitted its indebtedness to PNEI in the
amount of P7,884,921, per promissory note executed by it precursor Petition denied.
NAREDECO in favor of PNEI. Petitioner, however, claimed that
PNEI is indebted to it in the amount of P8,784,227 representing unpaid II. Facts of the Case (Material Facts)
rentals, inclusive of interest, from October 1990 to March 24, 1994. • Guillermo Uy assigned his receivables from PNEI to Gerardo Uy
Petitioner and PNEI are therefore creditors and debtors of each other. amounting to P4,660,558.
Hence, by force of law on compensation, both obligations of PNB • Gerardo Uy filed with the RTC a collection suit with an
MADECOR and PNEI were already considered extinguished to the application for the issuance of a writ of preliminary attachment
concurrent account. against PNEI. He sought to collect from PNEI the amount of
P8,397,440. He alleged that PNEI was guilty of fraud in
The Court of Appeals affirmed the decision of the RTC, ruling that contracting the obligation sued upon, hence his prayer for a writ of
there could not be any compensation between PNEI's receivables from preliminary attachment.
PNB MADECOR and the latter's obligation to the former because • On January 27, 1995, the sheriff issued a notice of garnishment
PNB MADECOR's supposed debt to PNEI is the subject of attachment addressed to the Philippine National Bank (PNB) attaching the
proceedings initiated by a third party, herein respondent Gerardo Uy. "goods, effects, credits, monies and all other personal properties"
This is a controversy that would prevent legal compensation from of PNEI in the possession of the bank. PNB MADECOR received
taking place, per the requirements set forth in Article 1279 of the Civil a similar notice.
Code. • In its position paper dated April 3, 1995, PNB MADECOR
alleged the following:
Hence, this petition for review on certiorari. ▪ It was the owner of the parcel of land located in that was
leased to PNEI for use as bus terminal.
Legal compensation takes place by operation of law when all the ▪ It has outstanding rent and interest receivables from PNEI
requisites are present. In the case at bar, the Supreme Court found that amounting to P8,784,227.
Obligations and Contracts (2020) PETITIONER: PNB Madecor 1

DIGEST AUTHOR: Kerwin C. Aguilar RESPONDENT: Gerardo C. Uy.
▪ It has an outstanding promissory note payable amounting to that would prevent legal compensation from taking place, per the
P7,884,000. requirements set forth in Article 1279 of the Civil Code.
▪ Considering they owed each other some amount, they are
deemed debtors and creditors of each other. III. Issue/s
▪ By force of the law on compensation, both obligations of 1. W/N legal compensation should be applied in this case? NO
PNB MADECOR and PNEI are already considered
extinguished to the concurrent amount or up to P7,884,000 so 2. W/N a demand was made by PNEI to PNB MADECOR for the
that PNEI is still obligated to pay PNB MADECOR the payment of the promissory note?
amount of P900,227.
• Gerardo Uy alleged however, that the amount P7,884,000 IV. Holding/s
promissory note liability of PNB MADECOR refers only to the
principal debt. It should’ve have included the penalties and 18% NO, Art. 1278 and 1279 of the Civil Code should not be applied in this
annual interest accruing from the time the note became due in 1984 case
up to 1995. The total amount payable should’ve been P75,813,508, Petitioner’s Argument Court’s Rebuttals
inclusive of the principal, interest and penalties. Hence, even if the Petitioner, however, maintains that Legal compensation could not have
alleged debt of PNEI to PNB MADECOR amounting to there is nothing now that could be occurred because of the absence of
P8,784,227 shall be compensated and deducted from PNB subject of attachment or execution in one requisite in this case: that both
MADECOR's debt to PNEI, there shall still be a remainder of favor of respondent since debts must be due and demandable.
P67,029,380, largely sufficient enough to cover complainant's compensation had already taken
claim. place as between its debt to PNEI We agree with petitioner that this
• PNB MADECOR opposed the claim that its obligation to PNEI and the latter's obligation to it, letter was not one demanding
earned an interest of 18% annually. It argued that PNEI's letter consistent with Articles 1278, 1279, payment, but one that merely
dated September 28, 1984 was not a demand letter but merely a and 1290 of the Civil Code. informed petitioner of (1) the
request for the implementation of the dacion en pago arrangement conveyance of a certain portion of
for set-off of receivables between PNEI and PNB. its obligation to PNEI per a dacion
• RTC ruled in favor of Uy and ordered the garnishment/levy of the en pago arrangement between PNEI
receivables of PNEI from PNB MADECOR and for PNB and PNB, and (2) the unpaid balance
MADECOR to be liable for the deficiency. The decision was of its obligation after deducting the
affirmed by the CA. amount conveyed to PNB. The
• According to the CA, there could not be any compensation import of this letter is not that PNEI
between PNEI's receivables from PNB MADECOR and the latter's was demanding payment, but that
obligation to the former because PNB MADECOR's supposed debt PNEI was advising petitioner to
to PNEI is the subject of attachment proceedings initiated by a settle the matter of implementing the
third party, herein respondent Gerardo Uy. This is a controversy earlier arrangement with PNB.

Overall Ruling 1994 at the latest. Obviously, this was before petitioner received notice of
Since petitioner's obligation to PNEI is payable on demand, and there being the pendency of this litigation in 1995. The controversy communicated to
no demand made, it follows that the obligation is not yet due. Therefore, this petitioner in 1995 could not have affected the legal compensation that would
obligation may not be subject to compensation for lack of a requisite under have taken place in 1994.
the law. Without compensation having taken place, petitioner remains
obligated to PNEI to the extent stated in the promissory note. This
obligation may undoubtedly be garnished in favor of respondent to satisfy
PNEI's judgment debt. V. Law or Doctrine Applied
As to respondent's claim that legal compensation could not have taken place Compensation shall take place when two persons, in their own right,
due to the existence of a controversy involving one of the mutual are creditors and debtors of each other.
obligations, we find this matter no longer controlling. Said controversy was
not seasonably communicated to petitioner as required under Article 1279
of the Civil Code. The controversy, i.e., the action instituted by respondent
• That each one of the obligors be bound principally, and that he be
against PNEI, must have been communicated to PNB MADECOR in due at the same time a principal creditor of the other;
time to prevent compensation from taking place. By "in due time" should be • That both debts consist in a sum of money, or if the things due are
meant the period before legal compensation was supposed to take place, consumable, they be of the same kind, and also of the same quality
considering that legal compensation operates so long as the requisites if the latter has been stated;
concur, even without any conscious intent on the part of the parties • That the two debts be due;
• That they be liquidated and demandable;
Petitioner had notice of the present controversy when it received the • That over neither of them there be any retention or controversy,
subpoena duces tecum issued by the trial court. The exact date when commenced by third persons and communicated in due time to the
petitioner received the subpoena is not on record, but petitioner was allowed debtor.
to submit a position paper regarding said subpoena per order of the trial
court dated March 27, 1995. We assume that petitioner had notice of the Art. 1290 of the Civil Code
pending litigation at least no later than this date. Now, was this date before When all the requisites mentioned in article 1279 are present,
that period when legal compensation would have occurred, assuming all compensation takes effect by operation of law, and extinguishes both
other requisites to be present? Clearly, it is not. PNB MADECOR's debts to the concurrent amount, even though the creditors and debtors
are not aware of the compensation.
obligation to PNEI was contracted in 1982 and the alleged demand letter
was sent by PNEI to petitioner on September 1984. On the other hand,
VI. Disposition
PNEI's obligation to petitioner, the payment of monthly rentals, accrued WHEREFORE, the petition is DENIED. The assailed decision and
during the period October 1990 to March 1994 and a demand to pay was resolution of the Court of Appeals are AFFIRMED. Costs against
sent in 1993. Assuming the other requisites to be present, legal petitioner.
compensation of the mutual obligations would have taken place on March


None
VII. Random Facts

• Ponente: Quisumbing, J.

G.R. No. 176425| June 5, 2013 Compensation
Trinidad vs Acapulco Trinidad vs Acapulco
I. Recit-ready Summary when its requisites are fulfilled, legal compensation has already taken place
Estrella Acapulco filed a complaint in the RTC seeking to nullify the at the time of the sale.
sale of a Mercedes Benz car to Hermenegildo Trinidad. Acapulco alleges II. Facts of the Case
Primitivo Canete requested her to sell a Mercedes Benz car for P580,000. 1. Estrella Acapulco filed a complaint in the RTC seeking the
Canete offered that if she will be the one to buy the car the sale price will be nullification of a sale made in favor of Hermenegildo M. Trinidad.
discounted down to P500,000. Hermenegildo Trinidad borrowed the car 2. Acapulco alleges that a certain Primitivo Canete requested her to sell
from Acapulco. Instead of returning the car, he instructed Acapulco to a Mercedes Benz for P580,000. Canete said that if Acapulco was the
purchase the car for him, and that he will pay Acapulco back upon returning buyer, the selling price would be P500,000.
from Davao. Acapulco issued three checks in favor of Canete. Canete 3. Hermenegildo Trinidad borrowed the car. Instead of returning the
executed a Deed of Sale in favor of Acapulco. Upon returning, Trinidad car, he instructed Acapulco to buy the car for P500,000 and that he
refused to pay Acapulco. Trinidad told Acapulco to deduct the purchase
would later pay for it upon returning from Davao.
price from the existing obligation of the later to him. Acapulco’s checks
4. Acapulco issued three checks in favor of Canete for the car. Canete
issued to Canete bounced because of the non-payment of Trinidad. A
executed a Deed of Sale in favor of Acapulco.
criminal case was filed by Canete against Acapulco. Respondent prayed
that the deed of sale be declared null and void. In his Answer, the petitioner 5. Upon returning from Davao, petitioner refused to pay Acapulco
contends that Acapulco’s claims are false, and that a valid dation in payment P500,000 for the payment of the car. He stated that the amount would
extinguished his obligation with Acapulco. RTC ruled in favor of Acapulco. just be deducted from the P566,000 outstanding obligation
The RTC found that no valid dation in payment is present. A supplemental respondent had with petitioner.
motion was filed by petitioner invoking for the first time that his obligation 6. Acapulco’s checks issued to Canete bounced. Canete later on filed
to respondent was extinguished by way of legal compensation. CA affirmed criminal charges against Acapulco.
the decision of the RTC, and ruled that the issue of legal compensation was 7. Respondent prayed for the nullification of the Deed of Sale and the
filed too late. return of the car to her.
The issue in the present petition is, whether or not there was valid legal 8. Petitioner argues that the claims of petitioner were all false. He
compensation, though not expressly stated in the Answer to the complaint argues that Canete has already sold the car to the respondent way
before the trial court. before the alleged transaction at P500,000. He also argues that the
The SC ruled that YES there was valid compensation even if it was amount of P500,000 was fully paid by dation in payment to partially
only invoked for the first time in the supplemental motion, because extinguish Acapulco’s obligation to him.
compensation takes effect by operation of law even without the consent or
9. RTC ruled in favor of Acapulco and that there was no dation in
knowledge of the parties concerned when all the requisites mentioned in
payment because of the lack of common consent between the parties.
Art. 1279 of the CC are present. In the present case, the amounts owed by
10. Supplemental Motion was filed by petitioner averring that the
each party is proven, both debts are due and liquidated, and neither of the
debts or obligations are subject of a controversy commenced by a third obligations owed by both parties to each other were extinguished by
person. As legal compensation takes place ipso jure, and retroacts to the date operation of legal compensation.
1
Obligations and Contracts (2020) PETITIONER: Hermenegildo Trinidad
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: Estrella Acapulco
11. CA affirmed the decision of the trial court. CA ruled that the issue of Overall Ruling
legal compensation was filed too late as it was brought up only in the According to Art.1290, “When all the requisites mentioned in Art.1279 are
supplemental MR. present, compensation takes effect by operation of law, and extinguishes
12. Hence, the present petition. both debts to the concurrent amount, even though the creditors and debtors
are not aware of the compensation.”
III. Issue/s
1. W/N legal compensation should be appreciated, even if it was Since it takes place ipso jure (meaning “by the law itself”) when used as a
not expressly stated in his Answer to the Complaint before the defense, it retroacts to the date when all its requisites are fulfilled. While it
trial court? YES. is true that petitioner failed to raise the issue of legal compensation at the
earliest opportunity, this should not preclude the courts from appreciating
IV. Holding/s the same.
Issue #1
Yes. There was valid legal compensation. All the requisites of Article 1279 of the Civil Code is present in the case at
Petitioner’s Arguments Court’s Rebuttals bar. While the proceedings in the RTC focused on ascertaining the presence
● Legal Compensation takes place ● Compensation takes effect by of the elements of dacion en pago, it was likewise proven that petitioner
by operation of law even without operation of law even without the owed respondent the amount of P500,000.00 while respondent owed
consent of the interested parties consent or knowledge of the petitioner P566,000.00; that both debts are due, liquidated and demandable,
● The purchase price of the car parties concerned when all the and; that neither of the debts or obligations are subject of a controversy
had been automatically offset by requisites mentioned in Art.1279 commenced by a third person.
respondent’s own monetary of the Civil Code are present.
obligation, even if he and
respondent had not agreed to the The claim of respondent that there could be no legal compensation in this
offsetting following Art. 1290 case as one of the obligations consists of delivery of a car and not a sum of
money must also fail. As legal compensation takes place ipso jure, and
retroacts to the date when its requisites are fulfilled, legal compensation has
already taken place at the time of the sale. At such time, petitioner owed
respondent the sum of P500,000.00 which is the price of the vehicle.
2
● Ponente: Austria-Martinez, J.


When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of
the compensation.
VI. Disposition
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals dated February 16, 2001 is REVERSED and SET ASIDE. The
P500,000.00 which Hermenegildo M. Trinidad owed Estrella Acapulco is
offset against the P566,000.00 which Acapulco owed Trinidad. Acapulco is
ordered to pay Trinidad the amount of P66,000.00 plus interest at 12% per
annum from May 20, 1992 until full payment. AHCETa
VIII. Random Facts
3
G.R. No. 104612 | May 10, 1994 Compensation
BPI v. CA BPI v. CA
I. Recit-ready Summary under no duty or obligation to make the application. To apply the deposit to
Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim), an the payment of a loan is a privilege, a right of set-off which the bank has the
officer and stockholder of Eastern, held at least one joint bank account option to exercise. What it provides is an alternative, not an exclusive,
("and/or" account) with the Commercial Bank and Trust Co. (CBTC), the method of enforcing its claim on the note.
predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). A It also ruled that BPI cannot be relieved of its duty to pay Eastern (the
joint checking account ("and" account) with Lim in the amount of proven and established real owner of the account) simply because it already
P120,000.00 was opened by Mariano Velasco with funds withdrawn from allowed the heirs of Velasco to withdraw the whole balance of the account.
the account of Eastern and/or Lim. When Velasco died, the outstanding
balance of the account was P662522.87. One-half of this amount was II. Facts of the Case (Material Facts)
provisionally released and transferred to one of the bank accounts of Eastern 1. Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim),
with CBTC. an officer and stockholder of Eastern, held at least one joint bank
Eastern obtained a loan of P73,000 from CBTC. A promissory note account ("and/or" account) with the Commercial Bank and Trust
payable on demand was issued for this loan. Eastern and Lim and CBTC Co. (CBTC), the predecessor-in-interest of petitioner Bank of the
also signed a Holdout Agreement. (see facts) Philippine Islands (BPI).
A case for the settlement of Velasco's estate was filed wherein the 2. In March 1975, a joint checking account ("and" account) with Lim
whole balance of P331,261.44 in the aforesaid joint account of Velasco and
in the amount of P120,000.00 was opened by Mariano Velasco
Lim was being claimed as part of Velasco's estate. The intestate court
with funds withdrawn from the account of Eastern and/or Lim.
granted the urgent motion of the heirs of Velasco to withdraw the deposit
under the joint account of Lim and Velasco and authorized the heirs to 3. Various amounts were later deposited or withdrawn from the joint
divide among themselves the amount withdrawn. account of Velasco and Lim.
CBTC was then merged with BPI. BPI filed a complaint against Lim 4. Velasco died on April 7, 1977.
and Eastern demanding payment of the promissory note for P73,000.00. 5. At the time of his death, the outstanding balance of the account
Defendants Lim and Eastern, in turn, filed a counterclaim against BPI for stood at P662,522.87.
the return of the balance in the disputed account subject of the Holdout 6. On May 5, 1977, by virtue of an Indemnity Undertaking executed
Agreement and the interests thereon after deducting the amount due on the by Lim for himself and as President and General Manager of
promissory note. Eastern, one-half of this amount was provisionally released and
The issues are whether BPI can demand payment of the loan of transferred to one of the bank accounts of Eastern with CBTC.
P73,000.00 despite the existence of the Holdout Agreement and whether 7. On August 18, 1978, Eastern obtained a loan of P73,000.00 from
BPI is still liable to the private respondents on the account subject of the CBTC as "Additional Working Capital.”
Holdout Agreement after its withdrawal by the heirs of Velasco.
8. For this loan, Eastern issued on the same day a negotiable
The SC ruled that CBTC, or BPI as its successor-in-interest, had every
right to demand that Eastern and Lim settle their liability under the promissory note for P73,000.00 payable on demand to the order of
promissory note. It cannot be compelled to retain and apply the deposit in CBTC with interest at 14% per annum.
Lim and Velasco's joint account to the payment of the note. What the 9. The note was signed by Lim both in his own capacity and as
agreement conferred on CBTC was a power, not a duty. Generally, a bank is President and General Manager of Eastern.
Obligations and Contracts (2020) PETITIONER: Bank of the Philippine Islands (successor-in-interest of 1
Commercial Bank and Trust Co..)
DIGEST AUTHOR: Allyzza Tanhueco RESPONDENT: Hon. Court of Appeals, Eastern Plywood Corp. and Benigno
D. Lim
BPI v. CA BPI v. CA
10. No reference to any security for the loan appears on the note. b. The promissory note in question is subject to the 'hold-out'
11. In the Disclosure Statement, the box with the printed word agreement," and that based on this agreement, "it was the
"UNSECURED" was marked with "X". — meaning unsecured, duty of plaintiff Bank [BPI] to debit the account of the
while the line with the words "this loan is wholly/partly secured defendants under the promissory note to set off the loan
by" is followed by the typewritten words "Hold-Out on 1:1 on C/A even though the same has no fixed maturity."
No. 2310-001-42," which refers to the joint account of Velasco and c. As to the defendants' counterclaim, it was denied
Lim with a balance of P331,261.44. i. Recognizing the fact that the entire amount in question had
12. Eastern and Lim, and CBTC signed another document entitled been withdrawn by Velasco's heirs pursuant to the order
"Holdout Agreement," wherein it was stated that "as security for of the intestate court in Sp. Proc. No. 8959
the Loan [Lim and Eastern] have offered [CBTC] and the ii. The "said claim cannot be awarded without disturbing the
latter accepts a holdout on said [Current Account No. 2310- resolution" of the intestate court
011-42 in the joint names of Lim and Velasco] to the full extent 20. CA Decision
of their alleged interests therein as these may appear as a result a. Affirmed the decision of the RTC
of final and definitive judicial action or a settlement between b. The settlement of Velasco's estate had nothing to do with the
and among the contesting parties thereto." claim of the defendants for the return of the balance of their
13. A case for the settlement of Velasco's estate was filed. account with CBTC/BPI as they were not privy to that case,
14. In the said case, the whole balance of P331,261.44 in the aforesaid and that the defendants, as depositors of CBTC/BPI, are the
joint account of Velasco and Lim was being claimed as part of latter's creditors;
Velasco's estate. c. Hence, CBTC/BPI should have protected the defendants' interest
15. The intestate court granted the urgent motion of the heirs of in Sp. Proc. No. 8959 when the said account was claimed by
Velasco to withdraw the deposit under the joint account of Lim and Velasco's estate.
Velasco and authorized the heirs to divide among themselves the d. Ordered BPI "to pay defendants the amount of P331,261.44
amount withdrawn. representing the outstanding balance in the bank account of
16. Sometime in 1980, CBTC was merged with BPI. defendants."
17. BPI filed a complaint against Lim and Eastern demanding payment
of the promissory note for P73,000.00. III. Issue/s
18. Defendants Lim and Eastern, in turn, filed a counterclaim against 1. W/N BPI can demand payment of the loan of P73,000.00
BPI for the return of the balance in the disputed account subject of despite the existence of the Holdout Agreement? YES.
the Holdout Agreement and the interests thereon after deducting 2. W/N BPI is still liable to the private respondents on the account
the amount due on the promissory note. subject of the Holdout Agreement after its withdrawal by the heirs
19. Decision of the RTC of Velasco? YES.
a. Dismissed the complaint because BPI failed to make out its case.
D. Lim
BPI v. CA BPI v. CA
IV. Holding/s required for the note and must

return the rest.
Issue #1
YES, BPI can demand payment of the loan of P73,000 despite the Overall Ruling
existence of the Holdout Agreement. The collection suit of BPI is based on the promissory note for P73,000.
BPI’s Arguments Eastern’s Rebuttals On its face, the note is an unconditional promise to pay the said amount, and
• The Holdout Agreement in • Eastern and Lim dispute the as stated by the CA, "[t]here is no question that the promissory note is a
question was subject to a "suspensive condition" negotiable instrument." BPI was not a holder in due course because the note
suspensive condition stated argument was not indorsed to BPI by the payee, CBTC. Only a negotiation by
therein: • The money deposited in the joint indorsement could have operated as a valid transfer to make BPI a holder in
• that the "P331,261.44 shall account of Velasco and Lim due course. It acquired the note from CBTC by the contract of merger or
become a security for came from Eastern and Lim's sale between the two banks. BPI, therefore, took the note subject to the
respondent Lim's promissory own account as a finding that Holdout Agreement.
note only if respondents' Lim the money deposited in the joint The CA, however, erred in its interpretation of the Holdout Agreement.
and Eastern Plywood account of Lim and Velasco It is clear from par. 2 thereof that CBTC, or BPI as its successor-in-interest,
Corporation's interests to that "rightfully belong[ed] to had every right to demand that Eastern and Lim settle their liability under
amount are established as a Eastern Plywood Corporation the promissory note. It cannot be compelled to retain and apply the
result of a final and definitive and/or Benigno Lim." deposit in Lim and Velasco's joint account to the payment of the note.
judicial action or a settlement • Because the latter are the rightful What the agreement conferred on CBTC was a power, not a duty.
between and among the owners of the money in Generally, a bank is under no duty or obligation to make the application. To
contesting parties thereto." question, the suspensive apply the deposit to the payment of a loan is a privilege, a right of set-off
• BPI asserts, the CA erred in condition does not apply which the bank has the option to exercise. Also, par. 5 of the Holdout
affirming the trial court's • The bank had the duty to set off Agreement itself states that notwithstanding the agreement, CBTC was not
decision dismissing the this deposit with the loan. in any way precluded from demanding payment from Eastern and from
complaint on the ground that it • The ruling of the lower court that instituting an action to recover payment of the loan. What it provides is an
was the duty of CBTC to debit they own the disputed amount is alternative, not an exclusive, method of enforcing its claim on the note.
the account of the defendants to the final and definitive judicial When it demanded payment of the debt directly from Eastern and Lim, BPI
set off the amount of action required by the Holdout had opted not to exercise its right to apply part of the deposit subject of the
P73,000.00 covered by the Agreement; Holdout Agreement to the payment of the promissory note for P73,000.00.
promissory note. • Hence, BPI can only hold the The "suspensive condition" theory of the petitioner is, therefore, untenable.
amount of P73,000.00
representing the security Issue #2
D. Lim
BPI v. CA BPI v. CA
YES, BPI is still liable to the private respondents on the account subject of authority to receive payment is indisputable. The payment of the money
the Holdout Agreement after its withdrawal by the heirs of Velasco deposited with BPI that will extinguish its obligation to the creditor-
Overall Ruling depositor is payment to the person of the creditor or to one authorized by
The counterclaim of Eastern and Lim for the return of the P331,261.44 him or by the law to receive it. Payment made by the debtor to the wrong
was equivalent to a demand that they be allowed to withdraw their deposit party does not extinguish the obligation as to the creditor who is without
with the bank. Article 1980 of the Civil Code expressly provides that fault or negligence, even if the debtor acted in utmost good faith and by
"[f]ixed, savings, and current deposits of money in banks and similar mistake as to the person of the creditor, or through error induced by fraud of
institutions shall be governed by the provisions concerning simple loan." a third person. The payment then by BPI to the heirs of Velasco, even if
Bank deposits are in the nature of irregular deposits; they are really done in good faith, did not extinguish its obligation to the true depositor,
loans because they earn interest. The relationship then between a depositor Eastern.
and a bank is one of creditor and debtor. The deposit under the questioned
account was an ordinary bank deposit; hence, it was payable on demand of
the depositor. (Serrano v. Central Bank of the Philippines) V. Law or Doctrine Applied
The account was proved and established to belong to Eastern even if it
was deposited in the names of Lim and Velasco. As the real creditor of the ARTICLE 1278 OF THE CIVIL CODE
ART. 1278. Compensation shall take place when two persons, in their own right, are
bank, Eastern has the right to withdraw it or to demand payment thereof.
creditors and debtors of each other.
BPI cannot be relieved of its duty to pay Eastern simply because it
already allowed the heirs of Velasco to withdraw the whole balance of VI. Disposition
the account. The petitioner should not have allowed such withdrawal
because it had admitted in the Holdout Agreement the questioned ownership WHEREFORE, the instant petition is partly GRANTED. The challenged
of the money deposited in the account. The order of the court in Sp. Proc. amended decision in CA-G.R. CV No. 25735 is hereby MODIFIED. As
No. 8959 merely authorized the heirs of Velasco to withdraw the account. modified:
BPI was not specifically ordered to release the account to the said heirs; (1) Private respondents are ordered to pay the petitioner the
hence, it was under no judicial compulsion to do so. The authorization given promissory note for P73,000.00 with interest at:
to the heirs of Velasco cannot be construed as a final determination or (a) 14% per annum on the principal, computed from 18
adjudication that the account belonged to Velasco. When the ownership of a August 1978 until payment;
particular property is disputed, the determination by a probate court of (b) 12% per annum on the interest which had accrued up to
the date of the filing of the complaint, computed from that
whether that property is included in the estate of a deceased is merely
date until payment pursuant to Article 2212 of the Civil
provisional in character and cannot be the subject of execution. Code.
Because the ownership of the deposit remained undetermined, BPI, as (2) The award of P331,264.44 in favor of the private respondents
the debtor with respect thereto, had no right to pay to persons other than shall bear interest at the rate of 12% per annum computed from
those in whose favor the obligation was constituted or whose right or the filing of the counterclaim.
D. Lim
BPI v. CA BPI v. CA
SO ORDERED.

• This case is Commercial Bank & Trust Co. v BPI in the case list
(number 18 under Compensation)
• The relevant ruling is about banks having the option to set-off
liabilities. It can’t be compelled to do so because it’s only an
alternative method of enforcing their claim.
VIII. Random Facts

• Ponente: Davide, Jr., J.
D. Lim
G.R. No. L-56101 | Feb 20, 1984 Compensation
Perez v. CA Perez v. CA
I. Recit-ready Summary changed without prior notice. Petitioner Corazon contends that the CA erred
in applying the third parag. of Article 1285 of the Civil Code allowing
CONGENERIC issued 2 promissory notes to MOJICA amounting to compensation of credits if assignment of credit is made without knowledge
P111,973.58 and P208,666.67. MEVER borrowed P500,000 from of the debtor, and in not applying the first paragraph of said Article 1285
CONGENERIC, a money market. CORAZON PEREZ gave P200,000 to barring the defense of compensation where the debtor has consented to the
CONGENERIC. MEVER paid P100k of its loan to CONGENERIC, in assignment of rights in favor of a third person. Plus Corazon argues that the
which CONGENERIC gave that 100k to CORAZON PEREZ. By doing so, compensation had not yet set in and that the amount should not have been
MEVER’s loan was now P400k. Meanwhile MOJICA transferred their 2 reduced to P79, 359.75.
promissory notes to MEVER, in which MEVER surrendered the originals of The Court ruled that there was no legal compensation. Mojica was still
the transferred promissory notes to CONGENERIC to request for a the holder of the bills on August 6, 1974 and August 13, 1974, respectively,
recomputation of their balance. Afterwards CONGENERIC got into therefore he was the one who asked for the roll-overs on the said dates.
lawsuits with other creditors, in which they made MEVER pay for the MEVER was bound by the roll-overs since it only received the bills in
garnishments since they still owe them money. MEVER paid the September. The result of the roll-overs then was that were not yet due and
garnishments to the amount of P79,359.75 which MEVER computed to be demandable as of when it was assigned to MEVER on September 9, 1974,
what was left of their loan (considering the compensation brought by the 2 nor as of October 3, 1974 when MEVER surrendered said Bills to
promissory notes). But while that was happening, CONGENERIC also CONGENERIC. As a consequence, no legal compensation could have taken
advised them that 200k of their debt was sold to CORAZON PEREZ place because, for it to exist, the two debts, among other requisites, must be
(without telling them it was CORAZON). CONGENERIC filed a petition due and demandable.
for Suspension of Payments, and listed MEVER as a debtor. In subsequent
proceedings in that case, the Court promulgated an Order that MEVER was Regarding the sub-issue of lack of consent, the impersonal character of
not a debtor of CONGENERIC, and said Order has become final. This was the money market device overlooks the individuals or entities concerned.
due to the fact that the garnishments paid by MEVER was considered by the The issuer of a commercial paper in the money market necessarily knows in
court to be what was left of their debt to CONGENERIC, thus their advance that it would be transacted and transferred to any investor/lender
obligation to CONGENERIC was extinguished. without need of notice to said issuer. Accordingly then, the 3rd paragraph of
Thus, CORAZON filed suit before the Court of First Instance of Rizal Article 1285 is not applicable; rather, it is the first paragraph of the same
against MEVER for the recovery of P100,000.00, plus interest, damages, legal provision that is applicable. As it can be seen, the moment MEVER
and attorney's fees. The Trial Court rendered judgment in favor of entered into the money market it had already given its consent to have the
CORAZON and, upon her filing a bond, she was able to have execution rights assigned to a third person. Therefore, no such compensation had taken
pending appeal. MEVER had to pay her P131,166.00 under the Trial Court's place.
judgment. But on MEVER's appeal, the Court of Appeals reversed the
judgment of the Trial Court.
Main issue is whether or not there was legal compensation, and there is Facts of the Case (Material Facts)
a sub-issue as to whether or not there was consent when the creditor was
1
Obligations and Contracts (2020) PETITIONER: Corazon Perez
DIGEST AUTHOR: Sean Lee RESPONDENT: CA and MEVER Films

1. In May 1974, CONGENERIC (the money market) issued 2 9. On October 7, 1974, CONGENERIC made MEVER pay for two
promissory notes in favor of MOJICA. First one was for the collection cases filed against CONGENERIC which totaled to
amount of P111,973.58 to mature on August 6, 1974. Second one P185,693.78. This was because MEVER still owed money to
was for the amount of P208,666.67 to mature on August 13,1974. CONGENERIC thus even though MEVER was not involved in the
2. In June 1974, MEVER (respondent in this case) borrowed case, they had to pay.
P500,000 from CONGENERIC to mature on August 5,1984, if not 10. On the same date of October 7, 1974, CONGENERIC advised
paid by then, they have to pay interest of 14% per annum. This was MEVER by telephone that of the original amount of P500,000.00
denominated as NCI-0352 of their loan, the sum of P200,000.00 was sold on July 3, 1974 to a
3. In June also, CORAZON PEREZ gave P200,000 to third party, but not naming CORAZON as the third party.
CONGENERIC. CONGENERIC then issued a confirmation of 11. On October 8, 1974, CONGENERIC confirmed in writing to
sale in which, CORAZON was to be paid P203,483.33 on August MEVER the previous "sale" of P200,000.00 out of the P500,000.00
5, 1974, CONGENERIC would make collection on behalf of amount of their loan; and advised that it could not take account of
CORAZON; and ALL OF CONGENERIC'S INTEREST IN the assignment to MEVER of the 2 promissory notes.
NCI-0352 WAS BEING TRANSFERRED TO HER. It may also 12. On November 15, 1974, MEVER turned over to the Provincial
be noted that while NCI-0352 was not subject to interest prior to Sheriff of Rizal (Exhibit "5"), the sum of P79,359.75, which
August 5, 1974, CONGENERIC obligated itself to pay MEVER had computed as the amount it was still owing
CORAZON interest on August 5, 1974 in the amount of P3,483.33, CONGENERIC and which was subject to garnishment.
or roughly an interest rate of 19% per annum. 13. On October 23, 1974, CONGENERIC filed a Petition for
4. On August 5, 1974, MEVER paid P100,000.00 to CONGENERIC. Suspension of Payments in Civil Case No. 20212 of the Court of
5. On the same date of August 5, 1974, CONGENERIC paid First Instance of Rizal. In that petition, MEVER was listed as a
CORAZON the sum of P103,483.33, the P3,483.33 coming from debtor.
its own funds. 14. On November 11, 1974, the Court issued an order enjoining
6. On August 6 and 13, 1974, CONGENERIC paid the interests due CONGENERIC from making any payment to creditors.
on both promissory notes to MOJICA, the principal amount then 15. In subsequent proceedings in Civil Case No. 20212, the Court
being rolled over to October 4 and 11, 1974 respectively. promulgated an Order, dated January 24, 1975 (Exhibit "10"), to
7. On September 9, 1974, MOJICA transferred the 2 promissory the effect that MEVER was not a debtor of CONGENERIC, and
notes to MEVER through a notarized deed. said Order has become final.
8. On October 3, 1974, MEVER surrendered the originals of the 16. The Civil case basically says that MEVER was no longer a debtor
trasferred promissory notes to CONGENERIC, and asked the latter of CONGENERIC after paying the amount leftover of its debt after
to compute the balance MEVER would then pay. partial compensation.
2

17. On July 14, 1975, CORAZON filed suit before the Court of First Issue #1
Instance of Rizal against MEVER for the recovery of P100,000.00, NO. W/N there was legal compensation?
plus interest, damages, and attorney's fees. (this was from
CORAZON giving CONGENERIC 200k, in which Petitioner’s Arguments Court’s Rebuttals
CONGENERIC paid 100k already before making CORAZON a ● Respondent Court of Appeals ● The Court agrees. First, the debt
creditor of MEVER). erred gravely in completely was not yet due and demandable,
18. The Trial Court rendered judgment in favor of CORAZON and, disregarding the vital which is a requisite for
upon her filing a bond, she was able to have execution pending circumstance that respondent compensation to be proper.
appeal. MEVER had to pay her P131,166.00 under the Trial Mever Films, Inc. necessarily Additionally, notification was not
Court's judgment. consented in advance to the needed as it is in the nature of
19. On Mever's appeal, the Court of Appeals reversed the judgment of purchase by petitioner Corazon money markets to transfer these
the Trial Court. this was because the Court of Appeals had decided Perez of part of its obligation commercial papers to third
the 2 transferred promissory notes, and the debt of MEVER were under its Negotiable Certificate parties.
both due and demandable, thus there is partial compensation as of Indebtedness (NCI).
MEVER had become both debtor and creditor to CONGENERIC. ● CA erred in applying the third
Thus the total balance left was P79,359.75. parag. of Article 1285 of the
20. Additionally, the Court of Appeals ruled that the telephone advice Civil Code allowing
to the appellant which was confirmed in writing on October 8, compensation of credits if
1974 was too late. By that time the entire obligation of appellant assignment of credit is made
was already extinguished by payment, compensation and novation. without knowledge of the
And also, because MEVER was not notified of the change in debtor, and in not applying the
creditors, there was no consent. In which case, Article 1285, 3rd first paragraph of said Article
paragraph applies. 1285 barring the defense of
II. Issue/s compensation where the debtor
1. W/N there was legal compensation? NO. has consented to the assignment
a. Sub-issue: W/N there was consent when the creditor of rights in favor of a third
was changed without notice? YES person.
III. Holding/s ● Respondent Court of Appeals
erred gravely in holding that
compensation had set in and
reduced respondent Mever's
3

obligation to P79,359.75. ●
Respondent Court of Appeals
erred gravely in holding that The impersonal character of the money market device overlooks the
payment by respondent Mever of individuals or entities concerned. The issuer of a commercial paper in the
P79,359.75 to the Sheriff in money market necessarily knows in advance that it would be expeditiously
connection with garnishment in transacted and transferred to any investor/lender without need of notice to
certain civil cases against said issuer. In practice, no notification is given to the borrower or issuer of
Congeneric extinguished commercial paper of the sale or transfer to the investor. Accordingly, we
Mever's obligation and could be find no applicability herein of Article 1285, 3rd paragraph of the Civil
set up as another defense to the Code. Rather, it is the first paragraph of the same legal provision that is
claim of petitioner Corazon applicable, as it can be seen, the moment MEVER entered into the money
Perez. market it already had given its consent to have the rights assigned to a third
Overall Ruling person. Therefore, no such compensation had taken place.
Since, on the respective dates of maturity, August 6, 1974 and

August 13, 1974, respectively, Ramon C. Mojica was still the owner of the IV. Law or Doctrine Applied
two bills, it is assumed that he had asked for the roll-overs on the said dates.
MEVER was bound by the roll-overs since the assignment to it was made Art. 1279. In order that compensation may be proper, it is necessary:
only on September 9, 1974. The inevitable result was that Bill No. 1298 and (1) That each one of the obligors be found principally, and that he be
Bill No. 1419 were not yet due and demandable as of the date of their at the same time a principal creditor of the other;
assignment by MOJICA to MEVER on September 9, 1974, nor as of (2) That both debts consist in a sum of money, or if the things due are
October 3, 1974 when MEVER surrendered said Bills to CONGENERIC. consumable, they be of the same kind, and also of the same quality if the
As a consequence, no legal compensation could have taken place because, latter has been stated;
for it to exist, the two debts, among other requisites, must be due and
demandable.
ART. 1285. (1) The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
SUB-ISSUE: YES. W/N there was consent when the creditor was assignee the compensation which would pertain to him against the assignor,
changed without notice?
4

unless the assignor was noticed by the debtor at the time he gave his
consent, that he reserved his right to the compensation."
V. Disposition
WHEREFORE, the judgment of respondent Appellate Court, dated

September 3, 1979 as well as its Resolution dated January 16, 1981 is
hereby reversed, and that of the then Court of First Instance of Manila,
Branch XXXI, dated December 27, 1976, hereby reinstated.
VII. Random Facts

● Ponente: MELENCIO-HERRERA, J
5

G.R. No. 111890 | May 7, 1997 Extinguishment of Obligations - Compensation
CKH Industrial and Development v. CA CKH Industrial and Development v. CA
I. Recit-ready Summary 1. Cheng Kim Heng (Cheng), an immigrant of Chinese descent, was owner
Cheng Kim Heng was owner of CKH. After his death, Rubi Saw, his second of CKH, a corporation established under PH law.
wife, took over CKH. Rubi Saw executed Deed of Absolute Sale whereby she 2. CKH owns 2 parcels of land in Valenzuela.
agreed to sell subject properties to Century-Well, a corporation owned in part 3. After his death, Rubi Saw, his second wife, took over CKH.
by Lourdes Chong (wife of Cheng’s son Kei), Kei, and Choi with the 4. Before second marriage, CKH was married to Hung Yuk Wah who lived
consideration of P800k in cash. When parties met, manager’s check could not in Hong Kong with their children Chong Tak Kei, Chong Tak Choi and
be produced since it was a Sunday. But a certain Uy Chi Kim, representing Chong Tak Yam.
the vendees managed to persuade Rubi to sign the Deed in consideration of a 5. After immigrating and marrying Rubi Saw, Cheng Kim Heng brought the
personal check and P20k cash. He assured Rubi that he would have the entire first family into Manila. The family became naturalized citizens of the
amount ready by the next day when the banks would be open. Rubi in turn Philippines.
surrendered the TCTs to Chong. In the succeeding days though, none of them 6. On May 1988, Rubi Saw executed a Deed of Absolute Sale whereby Rubi
could be reached for the payment. CHK and Rubi Saw filed a complaint Saw, representing CKH corporation, agreed to sell the subject properties to
against respondents claiming that consideration was not paid despite several Century-Well, a corporation owned in part by Lourdes Chong (wife of
demands with a prayer for annulment/rescission of the Deed of Absolute Sale. Cheng’s son Kei), Kei, and Choi with the consideration of P800,000 in the
Century-Well contended that consideration was paid by means of off- form of a cash to be delivered upon execution of the deed of sale.
setting/legal compensation in the amount of P700k through alleged 7.When parties met, a manager’s check could not be produced since it was a
promissory notes executed by plus payment of P100k cash. RTC found that Sunday. Nonetheless, a certain Uy Chi Kim, representing the vendees
the annulment of the Deed of Absolute Sale was merited, as there was no managed to persuade Rubi to sign the Deed of Absolute Sale in consideration
payment of the stipulated consideration for the sale of the real properties of a personal check and P20,000 cash. He assured Rubi that there was no
involved to Rubi Saw. CA reversed it ruling that there was payment of the cause for her to worry as he was certain he would have the entire amount
purchase price, partially in cash for P100k and partially by compensation by ready by the next day when the banks would be open. Rubi in turn surrendered
off-setting the debt of Cheng Kim Heng to his sons Choi and Kei for P500k the TCTs to Chong.
and P200k respectively, against the remainder of the stipulated price. W/N 8. In the next and succeeding days though, none of them could be reached for
there was valid compensation of the obligations of Cheng Kim Heng to his the payment. CHK and Rubi Saw filed a complaint against respondents
sons with the purchase price of the sale? claiming that consideration was not paid despite several demands with a
prayer for annulment/rescission of the Deed of Absolute Sale.
SC held that there can be no valid compensation of the purchase price with 9. Contention of Century-Well: Consideration was paid by means of
the obligations of Cheng Kim Heng reflected in the promissory notes, for the ofsetting/legal compensation in the amount of P700,000 through alleged
reason that CKH and Century-Well, the principal contracting parties, are not promissory notes executed by Heng in favor of his sons Choi and Kei plus
mutually bound as creditors and debtors in their own name. A close scrutiny payment of P100,000 cash.
of the promissory notes does not indicate the late Cheng, as then president of 10. RTC found that the annulment of the Deed of Absolute Sale was merited,
CKH, acknowledged any indebtedness to Century-Well. As worded, the as there was no payment of the stipulated consideration for the sale of the real
promissory notes reveal CKH’s indebtedness to Choi and Kei. properties involved to Rubi Saw.
11. CA reversed the decision of RTC. It ruled that there was payment of the
II. Facts of the Case (Material Facts) purchase price, partially in cash for P100,000 and partially by compensation
by off-setting the debt of Cheng Kim Heng to his sons Choi and Kei for
1
Obligations and Contracts (2020) PETITIONER: CKH INDUSTRIAL AND DEVELOPMENT
CORPORATION and RUBI SAW
DIGEST AUTHOR: Wischelle Gabriel RESPONDENT: Court of Appeals
P500,000 and P200,000 respectively, against the remainder of the stipulated

price. In this case, there can be no valid
compensation of the purchase price with
III. Issue/s the obligations of Cheng Kim Heng
1. W/N there was valid compensation of the obligations of Cheng reflected in the promissory notes
Kim Heng to his sons with the purchase price of the sale? because CKH and Century-Well, the
principal contracting parties, are not
IV. Holding/s mutually bound as creditors and debtors
in their own name. A close scrutiny of
the promissory notes does not indicate
Issue #1
the late Cheng, as then president of
NO, there can be no valid compensation of the purchase price with CKH, acknowledging any indebtedness
the obligations of Cheng Kim Heng reflected in the promissory notes to Century-Well. As worded, the
promissory notes reveal CKH’s
Petitioner’s Arguments Court’s Rebuttals indebtedness to Chong Tak Choi and
• Deed of Absolute Sale [check notes below for the provision of Chong Tak Kei.
does not provide for the deed]
payment by
compensation, thereby Provision in the deed is clear enough in
ruling out the intention of manifesting the vendor’s admission of
the parties to provide for receipt of the purchase price, thereby
such mode of payment and giving credence to private respondents’
that it had not received submission that payment had been made
payment of the stipulated by off-setting P700k of the purchase
cash payment of P800,000 price with the obligation of Cheng Kim
Heng to his sons Choi and Kei. By
signing the Deed of Absolute Sale,
petitioner Rubi Saw has given her
imprimatur to the provisions of the deed,
and she cannot then challenge its
veracity.
However, agreements affecting the civil

relationship of the contracting parties
must come under the scrutiny of the
provisions of law.
2
Overall Ruling (5) That over neither of them there be any retention or controversy, commenced by
There can be no valid compensation of the purchase price with the third persons and communicated in due time to the debtor.
obligations of Cheng Kim Heng reflected in the promissory notes, for the
The requirements of conventional compensation : (1) that each of the parties can
reason that CKH and Century-Well, the principal contracting parties, are dispose of the credit he seeks to compensate, and (2) that they agree to the mutual
not mutually bound as creditors and debtors in their own name. A close extinguishment of their credits.
scrutiny of the promissory notes does not indicate the late Cheng, as then
president of CKH, acknowledged any indebtedness to Century-Well. As VI. Disposition
worded, the promissory notes reveal CKH’s indebtedness to Choi and Kei. IN VIEW WHEREOF, the Court hereby RESOLVED to GRANT the present
petition. The decision of the Court of Appeals dated April 21, 1993, is hereby
[this one is corporate law related already but just in case] REVERSED and SET ASIDE. The decision of the Regional Trial Court of
Their interest in the promissory notes cannot be off-set against the Valenzuela, Branch 173 dated February 4, 1991, is hereby REINSTATED,
obligations between CKH and Century-Well arising out of the deed of with the MODIFICATION that the award of moral damages and attorney’s
absolute sale, absent any allegation that Choi and Kei’s interest in Century- fees to Rubi Saw, and the order for payment of costs are DELETED.
Well are so considerable as to merit a declaration of unity of their civil
personalities. Under present law, corporations, such as Century-Well, have The parties shall bear their respective costs.chanroblesvirtuallawlibrary:red
personalities separate and distinct from their stockholders, except only
when the law sees it fit to pierce the veil of corporate identity, particularly SO ORDERED.
when the corporate fiction is shown to be used to defeat public
convenience, justify wrong, protect fraud or defend crime, or where a VII. Additional Notes
corporation the mere alter ego or business conduit of a person.
Pertinent provisions of the deed:
V. Law or Doctrine Applied "That for and in consideration of the sum of EIGHT HUNDRED
THOUSAND (P800,000.00) PESOS, Philippine Currency, paid by VENDEE
Art. 1279. In order that compensation may be proper, it is necessary: to VENDOR, receipt of which is hereby acknowledged by the latter to its
entire satisfaction, said VENDOR, by these presents, has SOLD, CEDED,
(1) That each one of the obligors be bound principally, and that he be at the same time TRANSFERRED, and CONVEYED by way of absolute sale unto said
a principal creditor of the other;
VENDEE, its successors and assigns, the two parcels of land above described
(2) That both debts consist in a sum of money, or if the things due are consumable, and any and all improvements therein;"
they be of the same kind, and also of the same quality if the latter has been stated;
VII. Random Facts
(3) That the two debts be due; • Ponente: Torres, Jr., J.
3
G.R. No. 126890 | 2007, 2009, 2010 Compensation (Article 1279)
United Planters v CA United Planters v CA
I. Recit-ready Summary The issues resolved in the following resolutions are: 1) W/N
Author’s note: This is a consolidated digest of three resolutions (July 11 2007, April condonation was total that extinguished all obligations, 2) W/N the
2 2009, and March 9 2010) rendered by the Court on three different motions for condonation had a retroactive effect, 3) W/N APT had the right to collect
reconsiderations. It is important to note that in the 2010 Decision, the Court said: payments, and 4) W/N compensation between APT and UPSUMCO was
The doctrine of stare decisis et no quieta movere or principle of adherence to proper [The issue related to our class based on the syllabus is issue #4]
precedents does not apply to the present case so as to bar the Court en banc from
taking cognizance over the case which rectified the disposition of the case and
reversed and set aside the Decision rendered by a Division thereof.That being said, The Court held that:
for finality’s sake, the disposition is based on the latest decision, 2010 ,while the all 1) In all its decisions, the Court held that NO, only the take-off loans
other parts are consolidated. were condoned as expressly stated in the Deed of Assignment
2) In the 2009 and 2010 decision, the Court held that NO, there is no
This case is about Philippine United Planters Sugar Milling Co. such express declaration of the deed’s retroactivity and in any case
(UPSUMCO) which obtained two sets of loans, namely “take-off loans” and that ambiguous terms are used, parol evidence bars any other
“operational loans” from Philippine National Bank. On February 1987, PNB evidence than the one in writing.
through a Deed of Transfer, assigned to Asset and Privatization Trust (APT) 3) In 2007, the Court faulted APT for not alleging that there was an
its “take-off loans” to UPSUMCO as of January 30, 1986 (pursuant to existing loan. But the Court reversed this decision and held in the
Presidential Proclamation No. 50). Subsequently, on August 1987, APT 2009 and 2010 decision that YES, APT had the right to collect
foreclosed the mortgages that secured the “take-off loans” and obtained a payments because there is still a deficiency in the take-off loans
price of ₱450M. A week after, UPSUMCO executed a Deed of Assignment and the condonation only took effect 7 days after the day of
wherein it assigned APT its right to redeem the foreclosed properties, in execution of sale. Moreover, operational loans remained existing.
exchange for or in consideration of APT "condoning any deficiency amount 4) In 2007, the Court held that set-offs were not proper under legal
it may be entitled to recover from the Corporation under the Credit compensation. But the Court reversed this decision and held in the
Agreement and the Restructuring Agreements. 2009 and 2010 decision that YES it was proper by virtue of
PNB, on the other hand, [based on their answer in the 2007 resolution] conventional compensation and not legal compensation.
set-off UPSUMCO funds "under the covering instruments executed by
UPSUMCO in favor of PNB" to pay for a "deficiency claim" of APT. From II. Facts of the Case (Material Facts)
27 August 1987 to 3 September 1987, a period of seven days, PNB set-off The facts are undisputed for all three resolutions:
₱80M. After 3 September 1987, PNB set-off ₱17M. PNB and APT never 1. Philippine United Planters Sugar Milling Co. (UPSUMCO) was
informed UPSUMCO of these set-offs, and UPSUMCO learned of these set- engaged in the business of milling sugar
offs only during the trial of the case. 2. 1974: USUMPCO obtained “take-off loans” from Philippine
Petitioner then filed for a complaint of sum of money and damages for National Bank (PNB) to finance the construction of a sugar milling
the alleged illegal appropriations of its funds. RTC ruled in favor of plant
UPSUMCO and stated that all obligations were deemed condoned. But CA 3. Take-off loans:
held in the opposite and declared that the subject Deed of Assignment has a. Embodied in a Credit Agreement (Nov 5, 1974)
not condoned all of UPSUMCO’s obligations to APT as assignee of PNB. b. Restructured thrice (June 24 1982, December 1982, and
May 9, 1984)
Obligations and Contracts (2020) PETITIONER: United Planters Sugar Milling Co., Inc. (UPSUMCO) 1
DIGEST AUTHOR: Leslie Castillo RESPONDENT: The Honorable Court of Appeals, Philippine National Bank (PNB),
and Asset Privatization Trust (APT), as trustee of the Republic of the Philippines
c. Secured by a real estate mortgage over two parcels of land Corporation under the Credit Agreement and the Restructuring
d. UPSUMCO agreed to "open and/or maintain a deposit Agreements[s]
account with the [PNB] and the bank is authorized at its 12. UPSUMCO later filed a complaint for sum of money and damages
option to apply to the payment of any unpaid obligations against PNB and APT wherein it alleged the illegal appropriation
of the client any/and all monies, securities which may be of funds belonging to UPSUMCO through the following means:
in its hands on deposit." a. withdrawals made from the bank accounts opened by
4. Between 1984-1987: USUMPCO obtained “operational loans” to UPSUMCO beginning 27 August 1987 until 12 February
finance operations of the company 1990;
5. Operational loans: b. the application of the proceeds from the sale of the sugar
a. Also contained set-off clauses [same with d of #3] of UPSUMCO beginning 27 August 1987 until 4
b. Secured by pledge of contracts whereby UPSUMCO December 1987;
assigned to PNB all its sugar produce for PNB to sell and c. the payment from of the funds of UPSUMCO with PNB
apply the proceeds to satisfy the indebtedness arising from for the operating expenses of the sugar mill after 3
the operational loans. September 1987, allegedly upon the instruction of APT
6. February 27, 1987: PNB, through a Deed of Transfer, assigned to with the consent of PNB.
Asset and Privatization Trust (APT) its “take-off loans” to 13. ANSWER of APT and PNB: They claimed that the extrajudicial
UPSUMCO as of January 30, 1986 including mortgages – this did foreclosure sale was unconditional and mandatory under
not include assignment of “operational loans” Presidential Decree No. 385. They denied the allegation regarding
7. The Deed acknowledged that such assignment was being done the execution of the 3 September 1987 Deed of Assignment due to
pursuant to Presidential Proclamation No. 50 – PNB transferred "lack of knowledge or information sufficient to form a belief as to
“rights, titles, and interests” over UPSUMCO to APT the truth thereof."
8. June 30, 1987: Total indebtedness of UPSUMCO on the take-off 14. ANSWER of PNB [on the alleged illegal withdrawal of
loans was ₱2,137,076,433.15 UPSUMCO’s money]: It submitted that the transfer of the deposits
9. There is an alleged agreement of the "uncontested or 'friendly in the name of APT was valid, "since PNB has all the prerogatives
foreclosure' of these mortgaged assets, in exchange for over the same after foreclosure on August 27, 1987 and a
UPSUMCO's waiver of its right of redemption." [not so important deficiency claim arose."
as all SC decisions did not focus on this but on #11 instead] 15. COUNTERCLAIM of APT [claiming that they are entitled to
10. August 27, 1987: APT foreclosed mortgages on the take-off loans recovery]: An amount of 1.6B Pesos was determined as total
for the price of ₱450 million leaving a deficiency of amount since they claim that there was no condonation at all. This
₱1,687,076,433 amount is the total indebtedness less the P450M for which the
11. [ACT of CONDONATION] foreclosed properties were sold.
September 3, 1987: UPSUMCO executed a Deed of Assignment 16. RTC: Ruled in favor of UPSUMCO; based its decision on the
wherein it assigned APT its right to redeem the foreclosed premise that all of UPSUMCO’s loans were condoned in the Deed
properties, in exchange for or in consideration of APT "condoning of Assignment
any deficiency amount it may be entitled to recover from the
a. Obligation of UPSUMCO with PNB was novated by a period of seven days, PNB set-off ₱80,200,806.41. After 3
subrogation of creditors [APT] September 1987, PNB set-off ₱17,773,185.24. PNB and APT
b. The right of PNB to set-off the outstanding indebtedness never informed UPSUMCO of these set-offs, and UPSUMCO
from UPSUMCO'S bank accounts ceased the moment learned of these set-offs only during the trial of the case.
PNB assigned its rights to APT on 27 February 1987. 20. Subsequently, motions for reconsiderations were filed. The
Thus, only APT could be considered as the foreclosing Supreme Court rendered a decision on 2006 (mentioned here),
creditor. 2007, 2009, and 2010. The ruling for each issue will be discussed
c. Assuming there remained any deficiency claim in favor of in the next part. [Ma’am only assigned the 2007, 2009, and 2010
PNB or APT, the same was condoned by the Deed of cases]
Assignment dated 3 September 1987. It could not be
deemed that the Deed of Assignment had a retroactive III. Issue/s
effect. As of the date of foreclosure, UPSUMCO was a 1. W/N condonation was total that extinguished all obligations? NO
creditor as to the deposits and proceeds of sugar sale. 2. W/N the condonation had a retroactive effect? NO
Neither [PNB] nor [APT] cannot [sic] simply appropriate 3. W/N APT had the right to collect payments? YES
the things of plaintiff. If at all, such deficiency claim did 4. W/N compensation between APT and UPSUMCO was proper?
exist and subsist, foreclosing creditor should have initiated YES
proper actions to recover the same.
17. CA: held in the opposite and declared that the subject Deed of IV. Holding/s
Assignment has not condoned all of UPSUMCO’s obligations to
APT as assignee of PNB. Should there be any deficiency due APT Issue #1
after deducting the foregoing amounts from UPSUMCO’s total
No, only the take-off loans were condoned as expressly stated in the Deed
obligation in the amount of the latter is hereby ordered to pay the
of Assignment
same.
18. 2006 SUPREME COURT DECISION: The Court then held that Petitioner’s Arguments Court’s Rebuttals
(1) both "operational loans" and "take-off loans" had been Petitioner argues that such “friendly No evidence that such agreement of
condoned by the Deed of Assignment; and (2) the Deed of foreclosure” had all its accounts friendly foreclosure existed. It is by
Assignment dated 3 September 1987 had retroacted to the date of condoned. the very language of the Deed of
the foreclosure sale on 28 August 1987. Assignment that proved
19. [ACT of COMPENSATION] UPSUMCO’s allegation was of no
In the 2007 case, it was revealed: What PNB contended in its merit. Even if neither of the
Answer was that it set-off UPSUMCO funds "under the covering respondents filed an answer, there
instruments executed by UPSUMCO in favor of PNB" to pay for a
would still be no basis to concluded
"deficiency claim" of APT. This is an admission by PNB that it
that all loans were condoned.
effected the set-off right after the foreclosure on 27 August 1987 to
satisfy the deficiency. From 27 August 1987 to 3 September 1987,
Overall Ruling • It appears that between 27 • Since UPSUMCO was

No variation in the Court’s decision on this issue for all three MR, August 1987 and 3 September released from its take-off
specifically: 1987. APT applied payments loans only on 3 September
a. 2007: The Court acknowledged that only the "take-off loans" had been from UPSOMCO’s bank 1987, then APT’s application
condoned by the Deed of Assignment accounts in the amount of of payments is perfectly legal
b. 2009: The Deed of Assignment condoned only the take-off loans, and around 80 Million Pesos. [the dates were not specified on the
Court’s decision, however, so it is
not the operational loans. The decision was based on the provisions in UPSUMCO obviously desires presumed that the allegations in
the Deed of Assignment in its operative part [check additional notes] the return of the said amount. petitioner’s complaint were valid
c. 2010: There is no question that the Deed of Assignment condoned the • In the 2010 decision, petitioner dates]
outstanding take-off loans of UPSUMCO due then to APT. The Deed argued that the use of the word • The court concedes that the
of Assignment was executed on 3 September 1987 as was the "any" in "any deficiency use of the word “any” that
UPSUMCO Board Resolution authorizing its President to sign the amount" sufficiently The phrase "any deficiency
Deed of Assignment. establishes the retroactive amount" could refer not only
nature of the condonation. to the remaining deficiency
amount after the 27 August
foreclosure sale, but also the
Issue #2 remaining deficiency amount
No, there is no such express declaration of the Deed’s retroactivity and in as of 3 September 1987, when
any case that ambiguous terms are used, parol evidence bars any other the Deed of Assignment was
evidence than the one in writing. executed and after APT had
Petitioner’s Arguments Court’s Rebuttals exercised its right as creditor
• Despite the absence of any terms • Again, under the terms of the loan to apply payments from
to that effect in the Deed of arguments, APT as successor-in- petitioner’s PNB accounts.
The Deed of Assignment was
Assignment, it is UPSUMCO’s interest of PNB, had the right to
not cast in intractably precise
position that the condonation seize any amounts deposited in
terms, and both interpretations
actually had retroacted to 27 UPSUMCO’S bank accounts as can certainly be
August 1987. long as UPSUMCO remained accommodated. Hence, the
indebted under the loan question of parol evidence is
agreements. applied.
Overall Ruling
a. 2007: had no ruling for this issue.
b. 2009: The agreement itself did not indicate any date of effectivity other
than the date of the execution of the agreement, namely 3 September PNB accounts. • The first was for the repayment
1987. There was no allegation in petitioner’s Amended Complaint on • UPSUMCO argues that after of the operational loans, which
whether or not the Deed of Assignment had a retroactive effect as of that date, respondents no longer were never condoned.
the date of the foreclosure of sale [27 August 1987]. If petitioner were had the right to collect monies • The second was for the
truly mindful to invoke the exception to the parol evidence rule and from the PNB bank accounts repayment of the take-off loans
intent on claiming that the condonation had such retroactive effect, it which UPSUMCO had opened which APT could obtain until 3
should have employed more precise language to that effect in their and maintained as collateral for September 1987, the day the
original and amended complaints. Moreover, there is simply no its operational take-off loans. condonation took effect.
evidence which unequivocally establishes such retroactive effect.
Overall Ruling
c. 2010: The parol evidence rule states that generally, when the terms of There is a conflict between the 2007 decision and the subsequent decisions.
an agreement have been reduced into writing, it is considered as a. 2007: Nonetheless, it was held that respondents had failed to establish
containing all the terms agreed upon and there can be no evidence of that there still remained outstanding obligations due from UPSUMCO
such terms other than the contents of the written agreement. with respect to the take-off loans. [This was corrected by the 2010 decision
Assuming that the Deed of Assignment failed to accurately reflect an because it should not have put the respondents at fault.]
intent of the parties to retroact the effect of condonation to the date of
the foreclosure sale, none of the parties, particularly UPSUMCO, b. 2009: For as long as there remained outstanding obligations due to
availed of its right to seek the reformation of the instrument to the end APT (as PNB's successor-in-interest), APT would be entitled to apply
that such true intention may be expressed. As there is nothing in the payments from the bank accounts of PNB. That right had been granted
text of Deed of Assignment that clearly gives retroactive effect to the in favor of PNB, whether on account of the take-off loans or the
condonation, the parol evidence rule generally bars any other evidence operational loans. The decision quoted provisions from the Deed of
of such terms other than the contents of the written agreement, such as Assignment which are clear and leave no room for interpretation - the
evidence that the said Deed had retroactive effect. Bank has all the right to apply the proceeds of UPSUMCO's deposits
with it and its affiliated banks, as well as the proceeds of the sale of
UPSUMCO's sugar and molasses, in satisfaction of UPSUMCO's
Issue #3 obligations. This right was never waived by PNB and was
Yes, because there is still a deficiency in the take-off loans and the subsequently transferred to APR by virtue of the Deed of
condonation only took effect 7 days after the day of execution of sale. Transfer executed between them. Neither did APT ever waive such
Moreover, operational loans remained existing. right. Thus, the same should be considered as valid and binding
Petitioner’s Arguments Court’s Rebuttals between it and UPSUMCO.
• The challenged acts of • UPSUMCO is wrong. After 27
respondents all occurred on or August 1987, there were at least c. 2010: Between 27 August to 3 September 1987, APT had the right to
apply payments from UPSUMCO’s bank accounts maintained with
after 27 August 1987, the day of two causes for the application
PNB as repayment for the take-off loans and/or the operational loans.
the execution sale. of payments from UPSUMCO’s
It was only on 3 September 1987 that the take-off loans were condoned iii. Even if PNB did set-off the funds for itself, such would also violate
by APT, which lost only on that date too the right to apply payments Article 1279 of the Civil Code since PNB failed to prove that
from UPSUMCO’S bank accounts to pay the take-off loans. After 3 UPSUMCO’s alleged debt arising from the operational loans is
September 1987, APT retained the right to apply payments from the due, liquidated and demandable, as required under Article 1279. If
bank accounts of UPSUMCO with PNB to answer for the outstanding indeed, there remained an unpaid portion of the operational loans
indebtedness under the operational loan agreements. Moreover, APT which UPSUMCO owed to PNB, PNB, to protect its interest, could
had the right to obtain payment of the operational loans by simply have set-off UPSUMCO funds against such obligation, before or
applying payments from UPSUMCO’s bank accounts, without need of immediately after the foreclosure of UPSUMCO’s mortgaged
filing an action for collection with the courts. The bank accounts were assets on 27 August 1987. The operational loans on record
established precisely to afford PNB (and later APT) extrajudicial and uniformly provide, that in any event where the BANK may
legal means to obtain repayment of UPSUMCO’s outstanding loans adversely affect to a material extent the ability of the CLIENTS to
without hassle. perform their obligations, the BANK may declare any and/or all
obligations due and payable. The BANK may immediately take the
Issue #4 necessary legal action without further notice. The foreclosure falls
Yes, by virtue of conventional compensation and not legal under this event, however, PNB did not avail of this opportunity to
compensation. declare it due and demandable.
b.
2009: PNB then assigned all its rights, titles and interests over
• There is no legal basis for the • See overall ruling (there is a UPSUMCO to APT. As between UPSUMCO and APT or PNB and
withdrawals of UPSUMCO’s conflict between the 2007 APT, there no longer existed the mutual creditor-debtor relationship.
deposit on the ground decision and the subsequent No conventional subrogation could have taken place herein since such
of conventional compensation. decisions requires "the consent of the original parties and of the third person",
and there is no evidence that the consent of debtor UPSUMCO was
Overall Ruling secured when PNB assigned its rights to APT.
a. 2007: Such set-offs were not proper for the following reasons: Even if conventional subrogation did not take place, there was still a
i. APT had condoned UPSUMCO’s deficiency claim, thus perfected assignment of credit as between PNB and APT, under Article
UPSUMCO had no more obligation to APT for which PNB could 1624 of the Civil Code. The assignment of a credit includes all the
set-off UPSUMCO funds. accessory rights, such as a guaranty, mortgage, pledge or
ii. PNB set-off UPSUMCO funds not for itself but as APT’s preference. By virtue of the assignment of credit, APT was entitled to
collecting agent. Legal compensation under Article 1279 cannot pursue the rights and remedies granted to the previous creditor, PNB.
exist between an agent of the principal creditor on one hand, and It might seem that APT has no right to set-off payments with
the principal debtor on the other, where the agent holds funds of the UPSUMCO for under Article 1279 (1), it is necessary for
principal debtor. Compensation can take place only if both parties compensation that the obligors "be bound principally, and that he be at
are principal creditors and principal debtors of each other; and the same time a principal creditor of the other." There is, concededly,
no mutual creditor-debtor relation between APT and UPSUMCO.
However, we recognize the concept of conventional compensation, V. Law or Doctrine Applied

defined as occurring "when the parties agree to compensate their
mutual obligations even if some requisite is lacking, such as that ARTICLE 1270 of the NEW CIVIL CODE
provided in Article 1282." It is intended to eliminate or overcome ARTICLE 1270. Condonation or remission is essentially gratuitous, and requires the
obstacles which prevent ipso jure extinguishment of their acceptance by the obligor. It may be made expressly or impliedly.
One and the other kinds shall be subject to the rules which govern inofficious
obligations. Legal compensation takes place by operation of law when
donations. Express condonation shall, furthermore, comply with the forms of
all the requisites are present, as opposed to conventional compensation donation. (1187)
which takes place when the parties agree to compensate their mutual
obligations even in the absence of some requisites. The only requisites ARTICLE 1279 of the NEW CIVIL CODE
of conventional compensation are (1) that each of the parties can ARTICLE 1279. In order that compensation may be proper, it is necessary:
dispose of the credit he seeks to compensate, and (2) that they agree to (1) That each one of the obligors be bound principally, and that he be at the same
the mutual extinguishment of their credits. time a principal creditor of the other;
c. Both 2009 and 2010: The right of PNB to set-off payments from they be of the same kind, and also of the same quality if the latter has been stated;
UPSUMCO arose out of conventional compensation rather than legal
compensation, even though all of the requisites for legal compensation (5) That over neither of them there be any retention or controversy, commenced by
were present as between those two parties. The determinative factor is third persons and communicated in due time to the debtor. (1196)
the mutual agreement between PNB and UPSUMCO to set-off
payments. Even without an express agreement stipulating CONVENTIONAL SUBROGATION v ASSIGNMENT
compensation, PNB and UPSUMCO would have been entitled to set- (notes from 2019 De Leon Commentary)
off of payments, as the legal requisites for compensation under Article Conventional Assignment
1279 were present. Subrogation
As soon as PNB assigned its credit to APT, the mutual creditor-debtor Required consent All parties (debtor, old Old and new creditor,
relation between PNB and UPSUMCO ceased to exist. However, PNB and new creditor) debtor is only notified
Extinguishment of credit Yes, and another Transfer only
and UPSUMCO had agreed to a conventional compensation, a
obligation appears
relationship which does not require the presence of all the requisites Takes effect Immediately Upon notification to
under Article 1279. And PNB too had assigned all its rights as creditor debtor
to APT, including its rights under conventional compensation. The Cure nullity by novation Yes No
absence of the mutual creditor-debtor relation between the new
creditor APT and UPSUMCO cannot negate the conventional
compensation. Accordingly, APT, as the assignee of credit of PNB, VI. Disposition
had the right to set-off the outstanding obligations of UPSUMCO on WHEREFORE, the Motion for Reconsideration filed by petitioner United
the basis of conventional compensation before the condonation took Planters Sugar Milling Company, Inc. (UPSUMCO) is DENIED WITH
effect on 3 September 1987. FINALITY for lack of merit.
VII. Additional Notes APT six months earlier on 27 February 1987. Hence, at the time of the
a. Deed of Assignment [important part] supposed application of payments, PNB had already reverted to its default role
RESOLVED, … in consideration of the Asset Privatization Trust ("APT") as UPSUMCO’s debtor, in its capacity as holder of UPSUMCO’s bank
condoning any deficiency amount it may be entitled to recover from the deposits.
Corporation after having foreclosed the real estate and chattel mortgages • Further, PNB did not use UPSUMCO funds to apply payments for itself but
assigned to APT, through the National Government, by the Philippine National for APT. Thus, what controls is not the law on compensation but the rules on
Bank ("PNB"), which mortgages were executed in favor of PNB by the Corporation payment by third parties. As we noted in the Resolution of 11 July 2007:
to secure its obligations under the Credit Agreement dated November 5, 1974 • What PNB did to conclude that there is compensation: [P]NB, in setting-off,
and the Restructuring Agreements dated June 24 and December 10, 1982, and acted as a third person using its own funds to pay the debt of UPSUMCO to its
May 9, 1984, respectively, executed by the Corporation and PNB, the Corporation creditor APT. PNB can recover from UPSUMCO to the extent that the
is hereby authorized to irrevocably sell, assign, and transfer to APT the Corporation's payment benefited UPSUMCO. (Emphasis supplied) However, PNB is
right to redeem the foreclosed real properties covered by Transfer Certificates of precluded from invoking this rule because by the time it made the alleged
Title Nos. T-16700 and T-16701; payments to APT (starting 27 August 1987), APT had agreed (in the Deed of
Assignment) to wipe-out UPSUMCO’s post-foreclosure deficiency obligation
b. Separate Opinion (in exchange for UPSUMCO’s waiver of its redemption right, allowing APT to
Author’s note: I no longer included everything since I only focused on compensation. immediately sell the foreclosed assets to Universal Universal Robina Sugar
2010: Carpio, Dissenting: Milling Corporation even during the one-year redemption period which
• Indeed, the "operating loans" remained with PNB and contained their own UPSUMCO agreed to waive). As there were no more debts to pay, none of the
security mechanisms in the form of pledge agreements obliging UPSUMCO to alleged payments PNB made to APT benefited UPSUMCO. Thus, UPSUMCO
assign all its produce to PNB which UPSUMCO simultaneously authorized to has every right to recover its wrongfully diverted funds.
sell and apply the proceeds to satisfy UPSUMCO’s unpaid operating loans.
Thus, the issue on UPSUMCO’s supposed unpaid "operating loans owing to VIII. Random Facts
APT" is not only factually inaccurate but also alien to this litigation on
• Ponente July 11 2007: Carpio, J.
UPSUMCO’s post-foreclosure deficiency obligation to APT arising from the
"take-off" loans. • Ponente April 2 2009: Tinga, J.
• On why PNB cannot claim compensation: Third. The only way for PNB to • Ponente March 9 2010: Peralta, J.
justify its unilateral diversion of huge sums of depositor’s money
(UPSUMCO) is to claim compensation (otherwise, it would expose itself to, at
best, suits to recover the illegally applied funds, as here). Unfortunately for
PNB, the law on compensation, as a short-cut to the tedious collection process,
is stacked with safety features indispensable to a creditor’s exercise of this
option. Regardless of the type of compensation exercised (that is, whether
legal or conventional), the irreducible minimum requirement is that the parties
must be creditor and debtor of each other. Otherwise, the remedy for the
creditor to satisfy its credit is to initiate collection proceedings.
• The trouble for PNB is that when it diverted UPSUMCO’s deposits starting 27
August 1987 as supposed compensation, PNB was no longer a creditor of
UPSUMCO’s "take-off loans," having assigned its credit under these loans to
G.R. No. L-28377 | Oct. 1, 1984 Art. 1279: Compensation
In Re: Uy Tong v. Silva In Re: Uy Tong v. Silva
I. Recit-ready Summary debt of claimants, which arose prior to bankruptcy, cannot be set off
This case questions the decision of the lower court, which declared the against the installments of rent falling due from the insolvent after
indebtedness of insolvent Uy Tong, in favor of Eduardo Lopez, et al., in the bankruptcy. The reason therefore is quite evident: with respect to the
amount of P100,575 with legal interest from August 10, 1954, but denied difference between the debt of claimants Eduardo Lopez, et al., in the
the setoff of such amount against the indebtedness of Lopez, et al., to amount of P55,000.00 plus interest, and the rentals corresponding to the
insolvent Uy Tong amounting P55,000 with legal interest from Feb. 24, period from February 28 to May 25, 1955, retention or controversy had
1954, until the preferred claims have been fully satisfied. The SC held that been effectivity commenced by third persons upon their filing of claims
such setoff should be allowed from Feb. 28, 1955 up to May 25, 1955. in the insolvency proceedings of which claimants Lopez, et al., had due
notice. For compensation to take place, it is necessary, among other legal
II. Facts of the Case (Material Facts) requisites, "that over neither of them (the two debts) there be any
1. Insolvent Uy Tong is indebted to Lopez, et al., in the amount of retention or controversy, commenced by third persons and
P100,575. communicated in due time to the debtor." This essential element of
2. Lopez, et al., is indebted to insolvent Uy Tong in the amount of compensation being absent, the same cannot take place. Besides, to allow
P55,000 compensation to the concurrent amount of the mutual debts and credits
would in effect give claimants Lopez, et al., undue preference over other
3. Feb 28, 1955 – June 16, 1961: the dates representing all the rentals
creditors, as such setoff will totally deplete the estate of the insolvent, a
that should be paid by Lopez, et al., to Uy Tong.
situation entirely contrary to the purpose of insolvency proceedings, which
4. May 25, 1955: petition for voluntary insolvency of Uy Tong was is to effect an equitable distribution of the insolvent's estate among his
filed. creditors.
III. Issue/s
1. W/N the principle of compensation or setoff is applicable to the V. Law or Doctrine Applied
case at bar? YES to an extent.
IV. Holding/s ARTICLE 1279.
Overall Ruling In order that compensation may be proper, it is necessary:
The amount which claimants Eduardo Lopez, et al., may setoff against their (1) That each one of the obligors be bound principally, and that he be
indebtedness in favor of insolvent Uy Tong is limited only to the rentals of at the same time a principal creditor of the other;
the Benavides Building due from the latter for the period from February (2) That both debts consist in a sum of money, or if the things due are
28, 1955 up to May 25, 1955, the date when the petition for voluntary consumable, they be of the same kind, and also of the same quality
insolvency was filed, and not the whole amount representing rentals from if the latter has been stated;
February 28, 1955 to June 16, 1961. It is a settled principle that "a debt of (3) That the two debts be due;
the bankrupt arising prior to the bankruptcy cannot be set off against (4) That they be liquidated and demandable;
installments of rent falling due after bankruptcy, although the (5) That over neither of them there be any retention or controversy,
installments are payable under a written lease in effect before the commenced by third persons and communicated in due time to the
bankruptcy." Upon this premise, the conclusion is easily reached that the debtor.
Obligations and Contracts (2020) PETITIONER: Petition for Voluntary Insolvency of Uy Tong alias Teodoro 1
Uy. Uy Tong alias Teodoro Uy
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Mario Silva, assignee, Eduardo Lopez, et al., claimants-
appellants
G.R. No. L-28377 | Oct. 1, 1984 Art. 1279: Compensation
In Re: Uy Tong v. Silva In Re: Uy Tong v. Silva
VI. Disposition
WHEREFORE, the orders appealed from are hereby modified in the sense
that claimants Eduardo Lopez, et al., are allowed to set off from their
indebtedness of P55,000.00 plus interest, whatever amount was due
from insolvent Uy Tong as rentals of the Benavides Building from
February 28 to May 25, 1955. The difference shall be paid pro rata with
other unpreferred claims, but only after the preferred claims, it any, shall
have been satisfied. Let the records of this case be remanded to the court a
quo for further proceedings. No costs.

- It’s a short case, there were no arguments presented for either side,
the Court just decided.
VII. Random Facts

• Ponente: NONE. It’s a Resolution.
Obligations and Contracts (2020) PETITIONER: Petition for Voluntary Insolvency of Uy Tong alias Teodoro 2
Uy. Uy Tong alias Teodoro Uy
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: Mario Silva, assignee, Eduardo Lopez, et al., claimants-
appellants
G.R. No. 181692 | August 14, 2013 Extinguishment of Obligations: Compensation (Arts. 1279 & 1290)
Soriano v People Soriano v People
I. Recit-ready Summary Judicial Proceedings” in favor of Soriano as lender-mortgagee for

Evelyn Alagao (Evelyn) as borrower-mortgagor, daughter of the loan amount of P40,000.
Consolacion Alagao (Alagao) contracted a loan secured by real estate 2. The agreement was that the loan was to be paid two years from the
mortgage in favor of Adelaida Soriano (Soriano) as lender-mortgagee for execution of the contract, plus Evelyn will give Soriano ¼ of every
the loan amount of P40,000 to be paid in 2 years from execution and to give harvest from her cornland until the loan is fully paid.
¼ of every harvest of corn grain. Algao claimed that there was only one 3. Based on Alagao, only the first harvest made in September 1994,
harvest that ocurred but Soriano claimed that there were already four from but Soriano contended that there were already four harvests from
Evelyn’s obtainment of the loan. Algao admitted that she received P40,000
the time the loan was obtained.
and P51,730 from the cash advances and fertilizers. When Algao and her
companions delivered 398 sacks of corn grain, Soriano made her sign a cash 4. Alagao admitted that she did not only receive P40,000 but also
voucher amounting to P85,607 but she claimed she only received P3,000. P51,730 from the fertilizers and cash advances.
Moreover, Algao claimed that only 64 of the sacks were for the payment of 5. Alagao and her companions delivered 398 sacks of corn grains to
the P40,000 while the balance of P85,607 in cash that she was supposed to Soriano to which the latter prepared a voucher indicating that the
receive as payment for the corn grains was so that she can redeem her former received P85,607 as full payment, and although the former
daughter’s land title. Alagao still demanded for the payment but Soriano only received P3,000, she still signed the voucher.
moved to an unknown place with the corn grains already disposed. 6. Alagao contended that 64 of 398 sacks will serve as the partial
Misamis Oriental RTC found Soriano guilty of estafa, sentenced her to payment of her P40,000 loan while the balance will be from the
suffer imprisonment and ordered her to pay P85,607 for the 398 sacks. CA P85,607 cash she was supposed to receive as payment for the corn
set aside the imprisonment as deceit was absent when Alagao admitted that grains so she can redeem Evelyn’s land title.
she delivered the sacks to pay her obligation and get the land title of her 7. Perplexed, Alagao demanded payment from Soriano but the latter
daughter. CA said that Soriano only had civil liability and ordered the latter transferred to an unknown location and had already disposed of the
to pay P74,807 for the remaining cash value of the 398 sacks1.
398 sacks of corn grains.
Soriano contended that her indebtedness only offset P40,000 instead of
P51,730 (amount stipulated in pre-trial) 2, which she claims should be the 8. Misamis Oriental RTC found Soriano guilty beyond reasonable
latter. The issue is whether or not the legal compensation of the CA is doubt for the crime of estafa, sentenced her to suffer imprisonment
proper? The SC agreed there is legal compensation as it complied with the and ordered Soriano to pay P85, 607 for the 398 sacks of corn
requisites of Articles 1279 and 1290 of the Civil Code, however, based on grains.
its computation3, Soriano’s net civil liability is only P30,877, and with 9. CA set aside Soriano’s conviction as the prosecution failed to
respect to the ¼ share in harvests due petitioner, it is not capable of establish fraudulent means to induce Alagao to deliver the sacks
determination as it cannot be considered legal compensation nor it was and emphasized that Alagao admitted that she delivered the sacks
liquidated. to pay her obligation when Soriano demanded, and get the land title
of her daughter. With absence of deceit, Soriano’s liability is only
II. Facts of the Case (Material Facts) civil and was ordered to pay P74,807 (see Additional Notes) 1.
1. Evelyn as borrower-mortgagor, daughter of private complainant 10. Soriano contended that her indebtedness only offset P40,000
Alagao, executed a “Contract of Loan Secured by Real Estate instead of P51,730, (amount stipulated in pre-trial; see Additional
Mortgage with Special Power to Sell Mortgage Property without Notes) 2 which should be the latter that must be offset.
Obligations and Contracts (2020) PETITIONER: Adelaida Soriano 1

DIGEST AUTHOR: Joses RESPONDENT: People of the Philippines, Evelyn, & Consolacion Alagao
11. “People” contends that Alagao’s loan is only P40,000 not P51,713, Overall Ruling
that she only owns 154 sacks of the 398, and the amount of the 64 The SC determined if compensation was proper by applying Article
sacks should be P13,765.95. 1279 of the Civil Code:
First, petitioner and Alagao are debtors and creditors of each other. Soriano
III. Issue/s owes P85,607 for the value of the corn grains delivered to her by Alagao
1. W/N the legal compensation is proper? PARTLY YES. while the latter owes Soriano P51,730 by virtue of a loan. Second, both
debts consist in a sum of money. Third, both debts are due. Upon delivery of
IV. Holding/s the 398 sacks to Soriano, she was under the obligation to pay for the value
thereof as buyer. As to Alagao’s debt, though it was not yet due in when she
Issue #1 delivered the 398 sacks of corn grains to petitioner, it eventually became
PARTLY YES, compensation is a mode of extinguishing to the concurrent due at the time of trial of the instant case. Fourth, both debts are liquidated
amount, the debts of persons who in their own right are creditors and debtors and demandable as the amount is known or is determinable by inspection of
of each other. However, the ¼ share in the harvest due to the petitioner is still in the terms and conditions of relevant documents. There is no dispute that the
dispute as it was not yet liquidated. value of the 398 sacks of corn grains is P85,607. And lastly, neither of the
Petitioner’s Arguments Court’s Rebuttals debts are subject of a controversy commenced by a third person. As to
• Based on Soriano’s • SC agreed that Soriano’s Soriano’s P85,607 debt representing the 398 sacks of corn grains, the
computation2, since Alagao is indebtedness is P30,877 alleged other owners have not commenced any action to protect their claim
indebted in the amount of • With respect to the ¼ share in over it.
P43,930, deducting her harvests due petitioner, it is not Since all requisites of compensation in Article 1279 is present, the SC
indebtedness of P74,807 to capable of determination as it applied Article 1290 of the Civil Code and based on its computation (see
Alagao, she should only be cannot be considered legal Additional Notes)3, and found that Soriano’s civil liability is P30,887.
indebted in the amount of compensation nor was it With respect to the ¼ share in harvests due petitioner, it is not capable
P30,877 liquidated. of determination as it cannot be considered legal compensation nor was it
• CA failed to consider Alagao’s liquidated.
obligation to deliver to her ¼ of
every harvest, and her ¼ share in
the harvest amounted to 57,200
for four harvests and must set V. Law or Doctrine Applied
off. Thus, it is Alagao who is
indebted to Soriano the amount ARTICLE 1279 OF THE CIVIL CODE
of P26,323 (57,200-30,877) Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same

(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

Article 1290. When all the requisites mentioned in article 1279 are present, • 3
SC’S COMPUTATION OF SORIANO’S CIVIL LIABILITY:
compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of the
compensation.
VI. Disposition
WHEREFORE, the May 19, 2005 Decision and January 11, 2008
Resolution of the Court of Appeals in CA-G.R. CR No. 23108 are hereby
AFFIRMED with MODIFICATION. Petitioner Adelaida Soriano is hereby
ordered to pay P30,877 as payment for the remaining balance of the cash VII. Random Facts
value of the 398 sacks of corn grains, plus legal interest at the rate of 6% per
• Ponente: Villarama, Jr., J.
annum computed from finality of this Decision until its full satisfaction.
SO ORDERED.

• 1
CA COMPUTATION OF SORIANO’S CIVIL LIABILITY
85,607 (total value of 398 sacks delivered)
– 3,000 (petitioner had paid Alagao)
– 7,800 (value of 64 sacks intended for partial payment of
P40,000 loan)
________________
= P74,807 (balance)
• 2
SORIANO CONTENDS THAT THE COMPENSATION SHOULD
BE AS FOLLOWS:

G.R. No. 168251. July 27, 2011 Compensation
Montemayor v. Millora Montemayor v. Millora
Vicente Millora obtained a 400K loan from Jesus Montemayor.
Vicente was supposed to pay 42K as interest but only paid 24K. II. Facts of the Case (Material Facts)
Montemayor made several demands but to no avail. Montemayor filed a 1. Vicente Millora obtained a 400K loan from Jesus Montemayor
case before the RTC. Vicente interposed a counterclaim for attorney's fees 2. Vicente was supposed to pay 42K as interest but only paid 24K
arguing that he handled several cases for Montemayor but he was dismissed 3. Montemayor made several demands but to no avail
when the complaint was filed. The RTC ordered Millora to pay 4. Montemayor filed a case before the RTC
Montemayor “the sum of P300,000.00 ...and whatever amount recoverable 5. Vicente interposed a counterclaim for attorney's fees arguing that
from defendant shall be set off by an equivalent amount awarded by the he handled several cases for Montemayor but he was dismissed
court on the counterclaim representing attorney's fees of defendant on the when the complaint was filed
basis of "quantum meruit" for legal services previously rendered to a. RTC DECISION: WHEREFORE, premises above-
plaintiff.” This was affirmed by the CA. On appeal, Montemayor contends considered [sic], JUDGMENT is hereby rendered
that offsetting cannot be made because the October 27, 1999 judgment of ordering defendant Vicente D. Millora to pay plaintiff
the RTC failed to specify the amount of attorney's fees. The debts were not Jesus M. Montemayor the sum of P300,000.00 ...and
ascertainable or liquidated. whatever amount recoverable from defendant shall be set
For legal compensation to take place, the requirements under Arts. off by an equivalent amount awarded by the court on the
1278 and 1279 of the CC must be present. One requisite is that both debts counterclaim representing attorney's fees of defendant on
must be due. A debt is liquidated when its existence and amount are the basis of "quantum meruit" for legal services
determined. It is not necessary that it be admitted by the debtor. Nor is it previously rendered to plaintiff.
necessary that the credit appear in a final judgment in order that it can be b. CA affirmed
considered as liquidated; it is enough that its exact amount is known. In Lao
v. Special Plans, Inc., the court held that when the defendant, who has an III. Issue/s
unliquidated claim, sets it up by way of counterclaim, and a judgment is 1. W/N compensation is possible? YES.
rendered liquidating such claim, it can be compensated against the plaintiff's
claim from the moment it is liquidated by judgement. IV. Holding/s
In the present case, BOTH OBLIGATIONS ARE LIQUIDATED. Millora
has the obligation to pay Montemayor 300K with interest while Issue #1
Montemayor has the obligation to pay attorney's fees which the RTC had YES, compensation is possible.
already determined to be equivalent to whatever amount recoverable from
Vicente. Whatever amount due to Jesus as payment of Vicente's debt is
equivalent to the amount awarded to the latter as his attorney's fees. Legal
compensation or set-off then takes place between Jesus and Vicente and
both parties are on even terms such that there is actually nothing left to
execute and satisfy in favor of either party.
Obligations and Contracts (2020) PETITIONER: Jesus Montemayor 1

DIGEST AUTHOR: Stephanie Co RESPONDENT: Vicente Millora
Petitioner’s Arguments Court’s Rebuttals Jesus

• Montemayor contends that • In the present case, BOTH • Whatever amount due to Jesus
offsetting cannot be made OBLIGATIONS ARE as payment of Vicente's debt is
because the October 27, 1999 LIQUIDATED equivalent to the amount
judgment of the RTC failed to • Millora has the obligation to awarded to the latter as his
specify the amount of pay Montemayor 300K w attorney's fees.
attorney's fees → not interest while Montemayor has Overall Ruling
ascertainable or liquidated the obligation to pay attorney's For legal compensation to take place, the requirements under Arts. 1278
fees which the RTC had already and 1279 of the CC must be present. One requisite is that both debts
determined to be equivalent to must be due. A debt is liquidated when its existence and amount are
whatever amount recoverable determined. It is not necessary that it be admitted by the debtor. Nor is it
from Vicente. necessary that the credit appear in a final judgment in order that it can be
• The attorney’s fees were considered as liquidated; it is enough that its exact amount is known. In
awarded by the RTC on a Lao v. Special Plans, Inc., the court held that when the defendant, who
quantum meruit basis has an unliquidated claim, sets it up by way of counterclaim, and a
• The RTC decision has two parts judgment is rendered liquidating such claim, it can be compensated
to be executed: against the plaintiff's claim from the moment it is liquidated by
o FIRST: P300,000.00 x judgement.
interest rate of 12 x the In the present case, BOTH OBLIGATIONS ARE LIQUIDATED.
number of years that had Millora has the obligation to pay Montemayor 300K with interest while
lapsed from the filing of the Montemayor has the obligation to pay attorney's fees which the RTC had
complaint on August 17, already determined to be equivalent to whatever amount recoverable
1993 up to the date when from Vicente. The RTC decision has two parts to be executed:
the judgment is to be • FIRST: P300,000.00 x interest rate of 12 x the number of years that
executed. The result thereof had lapsed from the filing of the complaint on August 17, 1993 up to
plus the principal of the date when the judgment is to be executed. The result thereof plus
P300,000.00 is the total the principal of P300,000.00 is the total amount that Millora must
amount that Millora must pay Montemayor.
pay Montemayor • SECOND: Vicente is entitled to attorney's fees which is equivalent
o SECOND: Vicente is to whatever amount recoverable from him by Jesus
entitled to attorney's fees Whatever amount due to Jesus as payment of Vicente's debt is equivalent
which is equivalent to to the amount awarded to the latter as his attorney's fees. Legal
whatever amount compensation or set-off then takes place between Jesus and Vicente and
recoverable from him by both parties are on even terms such that there is actually nothing left to

execute and satisfy in favor of either party.

(1) That each one of the obligors be bound principally, and that he be at the same
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor. (1196)

ART 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. (1195)
VI. Disposition
WHEREFORE, the instant Petition for Review on Certiorari is DENIED.

The assailed Decision of the Court of Appeals dated May 19, 2005 in CA-
G.R. SP No. 81075 which dismissed the petition for certiorari seeking to
annul and set aside the Orders dated September 6, 2002 and October 2, 2003
of the Regional Trial Court of Quezon City, Branch 98 in Civil Case No. Q-
93-17255, is hereby AFFIRMED.

VII. Random Facts
• Ponente: Del Castillo, J.

G.R. No. 164985 | January 15, 2014 Legal Compensation
First United Corp v. Bayanihan Corp First United Corp v. Bayanihan Corp
I. Recit-ready Summary 1. Petitioners FUCC & Blue Star were associate construction firms
sharing financial resources, equipment and technical personnel on a
Petitioners FUCC & Blue Star were associate construction firms sharing
case-to-case basis.
financial resources, equipment and technical personnel on a case-to-case
basis. Petitioners ordered 6 units of dump trucks from respondent 2. From May 27-July 8, 1992, petitioners ordered 6 units of dump trucks
Bayanihan. Following this, they ordered a unit of Hino Prime Mover and 10 from respondent Bayanihan Automotive Corp (Bayanihan).
days after, a unit of Isuzu Transit Mixer both delivered by Bayanihan. For
3. On September 19, 1992, FUCC ordered from Bayanihan one unit of
the two purchases, FUCC partially paid in cash, and the balance through
Hino Prime Mover that Bayanihan delivered on the same date.
post-dated checks. Upon presentment of the checks for payment, the
respondent learned that FUCC had ordered the payment stopped. Bayanihan 4. On September 29, 1992, FUCC again ordered one unit of Isuzu Transit
immediately demanded the full settlement of their obligation from the Mixer that was also delivered to the petitioners.
petitioners, but to no avail. Petitioners informed Bayanihan that they were 5. For the two purchases, FUCC partially paid in cash, and the balance
withholding payment of the checks due to the breakdown of one of the through post-dated checks.
dump trucks they had earlier purchased from respondent, specifically the
second dump truck delivered on May 27, 1992. Due to the refusal to pay, 6. Upon presentment of the checks for payment, the respondent learned
Bayanihan sought for collection. RTC ordered petitioners to pay the unpaid that FUCC had ordered the payment stopped.
balance and declared Bayanihan liable to pay P71,350 as costs of the repairs 7. Bayanihan immediately demanded the full settlement of their obligation
incurred by petitioners. CA affirmed. Both courts ruled that there can be no from the petitioners, but to no avail.
compensation / set-off because petitioners’ claims against respondent are
not liquidated and demandable. 8. Petitioners informed Bayanihan that they were withholding payment of
the checks due to the breakdown of one of the dump trucks they had
The issue is W/N the petitioners can avail themselves of compensation. The earlier purchased from respondent, specifically the second dump truck
SC held that yes, legal compensation was permissible. There is delivered on May 27, 1992. Petitioners claimed that they justifiably
preponderant evidence that petitioners spent P71,350 for the repairs and stopped paying because Bayanihan refused to repair the second dump
spare parts of the second dump truck within the warranty period of three truck and comply with its warranty, compelling them to incur expenses
months. A debt is liquidated when its existence and amount are determined. for the repair and spare parts.
Accordingly, an unliquidated claim set up as a counterclaim by a defendant
can be set off against the plaintiff’s claim from the moment it is liquidated 9. Due to the refusal to pay, Bayanihan sought for collection.
by judgment. When all the requisites mentioned in Article 1279 of the Civil 10. RTC ordered petitioners to pay the unpaid balance and declared
Code are present, compensation takes effect by operation of law, and Bayanihan liable to pay P71,350 as costs of the repairs incurred by
extinguishes both debts to the concurrent amount. petitioners. CA affirmed.
Obligations and Contracts (2020) PLAINTIFF: First United Constructors Corp & Blue Star Construction Corp 1
DIGEST AUTHOR: Pia Casano DEFENDANT: Bayanihan Automotive Corp
G.R. No. 164985 | January 15, 2014 Legal Compensation
First United Corp v. Bayanihan Corp First United Corp v. Bayanihan Corp
11. The lower courts, however, ruled that there can be no compensation / ₱663,650.00, the amount petitioners still owed to respondent.
set-off allegedly because petitioners’ claims against respondent are not
liquidated and demandable.
III. Issue/s ARTICLE 1278, NCC
1. W/N the petitioners can avail themselves of compensation - YES Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.
IV. Holding/s ARTICLE 1279, NCC
Issue #1 In order that compensation may be proper, it is necessary:
Yes, petitioners can avail themselves of compensation following Art. 1278 (1) That each of the obligors be bound principally, and that he be at the same time a
and 1279 of the NCC. principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable,
Petitioner’s Arguments Court’s Rebuttals they be of the same kind, and also of the same quality if the latter has been stated;
• They are justified in • Petitioners could not validly (4) That they be liquidated and demandable;
withholding the payment; resort to recoupment against (5) That over neither of them there be any retention or controversy, commenced by
They exercised their right respondent (See VII. Additional third persons and communicated in due time to the debtor.
of recoupment Notes)
VI. Disposition
WHEREFORE, the Court AFFIRMS the decision promulgated on July 26, 2004 in
Overall Ruling all respects subject to the MODIFICATION that petitioners are ordered, jointly and
severally, to pay to respondent the sum of P663,650.00, plus interest of 6% per
There is preponderant evidence that petitioners spent P71,350 for the repairs annum computed from February 11, 1993, the date of the first extrajudicial demand,
and spare parts of the second dump truck within the warranty period of three until fully paid; and ORDERS the petitioners to pay the costs of suit.
months. A debt is liquidated when its existence and amount are determined.
Accordingly, an unliquidated claim set up as a counterclaim by a defendant VII. Additional Notes
Recoupment issue: The issue re recoupment is w/n the petitioners validly exercised
can be set off against the plaintiff’s claim from the moment it is liquidated
the right of recoupment when they withheld the payment of the unpaid balance of the
by judgment. When all the requisites mentioned in Art. 1279 of the NCC are
Hino Prime Mover and Isuzu Transit Mixer. RTC, CA and SC said NO. Recoupment
present, compensation takes effect by operation of law, and extinguishes is the act of rebating a part of a claim upon which one is sued by means of a legal or
both debts to the concurrent amount. Since the lower courts established and equitable right resulting from a counterclaim arising out of the same transaction. In
determined with certainty petitioners’ expenses for the repair, it follows that this case, the subject of the repair was the second dump truck (a separate/different
legal compensation could take place because all the requirements were transaction)
present. Hence, the amount of ₱71,350.00 should be set off against
petitioners’ unpaid obligation of ₱735,000.00, leaving a balance of VIII. Random Facts Ponente: Bersamin, J.
Obligations and Contracts (2020) PLAINTIFF: First United Constructors Corp & Blue Star Construction Corp 2
DIGEST AUTHOR: Pia Casano DEFENDANT: Bayanihan Automotive Corp
G.R. No. 76902 | January 30, 1990 Novation (Article 1291)
Land Bank vs. CA Land Bank vs. CA

Spouses Suarez (private respondents) were former owners of 1. Spouses Rafael and Africa Suarez (Private respondents) were
agricultural lands which were subjected to Operation Land Transfer of the former owners of agricultural lands which were subjected to
Government under P.D. Nos. 2 and 127. As part of the financing support of Operation Land Transfer of the Government under P.D. Nos. 2 and
the transfer, Land Bank of the Philippines (Petitioner) issued 3 Land Bank 127.
Interim Bond Certificates as partial payment for their agricultural lands. 2. Land Bank of the Philippines (Petitioner) issued 3 Land Bank
Interim Bond Certificates as partial payment for their agricultural
In March 1975, Sps Suarez requested Land Bank to convert their
lands, amounting to a total of P623,340.
bonds from registered bonds to bearer bonds, in preparation for transfer to
3. The subject bonds have a maturity of 25 years from date of issue
third parties. In each of the three sets of LBP Form 64 that they were
required to fill up, the Sps Suarez inserted the notation: “It is understood and bear interest at 6% per annum, payable semi-annually on May
that the interest from November 21 1974 to March 17 1975 shall accrue to 20 and November 20 of each year.
the transferor.” The notation was typed in, processed, and signed by the 4. In March 1975, Sps Suarez requested Land Bank to convert their
Land Bank personnel. bonds from registered bonds to bearer bonds, in preparation for
their intended transfer to third parties.
On May 20 1975, Sps demanded the payment of P11,877.24 from 5. Sps Suarez were required to fill up 3 sets of LBP Form No. 64 for
Land Bank, representing the accrued interest on the three bonds the Sps the Request for Transfer/Redenomination of Bonds.
formerly held. Land Bank declined when the Sps failed to present the Bearer 6. In each set, Sps Suarez inserted the notation, which provided that
Bond Certificates required by their Implementing Guidelines and “It is understood that the interest from November 21 1974 to
Procedures. Sps Suarez filed a complaint with the CFI of Manila, which March 17 1975 shall accrue to the transferor.”
ordered Land Bank to pay the sum demanded by the Sps as accrued interest.
7. The notation was typed in by a Land Bank clerk upon the request
The CA affirmed the decision, holding that Land Bank was bound by the
of the Sps, and was subsequently processed and signed by the
notation inserted by Sps Suarez in the forms.
manager of Land Bank’s Cash Department, Mr. Bajada.
The pertinent issue is whether or not the notation inserted by the Sps 8. On May 20 1975, the first interest payment date after the
Suarez novated the printed terms of the new bearer bonds. The Supreme conversion, Sps demanded the payment of P11,877.24 from Land
Court ruled in the negative, finding that none of the requirements of Bank, representing the accrued interest on the three bonds formerly
novation were present in the case at bar. held by the Sps.
9. Land Bank declined to honor the demand when the Sps refused or
The Court firmly rejected the argument of the Sps Suarez that the failed to present the Bearer Bond Certificates as required by
printed terms of the new bearer bonds were somehow novated by the Land Bank Implementing Guidelines and Procedures.
notation they had inserted in the LBP Forms 64, obliging LandBank to pay 10. Sps Suarez filed a complaint with Court of First Instance of Manila
the Sps instead of the holders of the bonds. The Court ruled that novation to compel payment by Land Bank of the claimed amount.
was not present, absent the requisites either of the subject matter of the bond 11. CFI Manila ordered Land Bank to pay the sum demanded by the
agreement or of subrogation of the creditor thereunder is visible in the Sps as accrued interest.
instant case. Thus, Land Bank was not liable to pay the interest to the Sps.
Obligations and Contracts (2020) PETITIONER: Land Bank of the Philippines 1

DIGEST AUTHOR: Micah Espion RESPONDENT: Court of Appeals, Sps Rafael and Africa Suarez
12. Court of Appeals affirmed the decision of the trail court, holding substituting the person of the debtor; (3) subrogating a third person in the
that Land Bank was bound by the notation inserted by Sps Suarez rights of the creditor. In the absence of the foregoing, the Court held that
in the forms. novation is not present in the case at bar.
III. Issue/s
1. W/N the notations inserted by Sps Suarez novated the printed Issue #2
terms of the new bearer bonds? NO, the notation unilaterally inserted by Sps Suarez does not make Land
2. W/N Petitioner Land Bank is liable to Sps Suarez for Payment of Bank liable to the Sps.
interest on the three bonds for the period of November 21 1974 to Respondent’s Arguments Court’s Rebuttals
March 17 1975? • The Implementing Guidelines • The unilateral notation made by
and Procedures of Land Bank Sps on LBP Form 64 does not
IV. Holding/s cannot prevail over the notation bind Land Bank.
they caused to be written into the
Issue #1 LBP Forms 64.
NO, none of the requirements of novation are visible in the instant case. • Land Bank is estopped from
disclaiming any liability for the
Respondent’s Arguments Court’s Rebuttals payment of interest, which it has
• Novation had taken place in • The requirements of novation are implicitly accepted when it
respect of their bonds when they not present in the case. signed the forms with knowledge
had their registered bonds of the notations and without any
converted into bearer bonds. objections.
Overall Ruling
Overall Ruling The Court held that the notation unilaterally inserted by Sps Suarez is NOT
The Supreme Court ruled that none of the requirements of novation, either an undertaking by LandBank to pay the subject interest to the spouses.
of the subject matter of the bond agreement or of subrogation of the creditor
thereunder is visible in the instant case. The notation addressed the allocation of the interest during the period, as
between the Sps Suarez as transferors and the unknown transferees as
The respondent spouses argued that Land Bank was obligated to pay a holders of the bonds. Sps Suarez were allocating to themselves as
portion of the Nov 21 1974 – Mar 17 1975 interest to them, and not to the transferors the subject interest. The Court noted that there was nothing in the
holder or bearer of such bonds. The Court firmly rejected the contention of record to show that the unknown transferees likewise agreed to the
the Sps Suarez that the printed terms of the new bearer bonds were unilateral allocation.
somehow novated by the notation they had inserted in the LBP Forms 64.
The Court further noted that Land Bank did not reject the demand
According to Article 1291 of the Civil Code on Novation, obligations may absolutely, but only required the Sps Suarez to produce the relevant bond
be modified by: (1) changing their object or principal conditions; (2)

certificates in bearer form. It was held that the Implementing Guidelines are
binding upon the holders of Land Bank bonds, and cannot be modified
without the consent of Land Bank.
The Court held that Land Bank did not consent to a modification of its rules
and regulations, which requires an explicit language beyond mere
processing and approval of the forms in which the Sps had inserted the
subject notations.

ART. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
NOVATION (FROM DE LEON)

Novation is the total or partial extinction of an obligation through the creation of a
new one which substitutes it. Novation is a contract containing two stipulations: one
to extinguish or modify an existing obligation, and the other to substitute a new one
in its place.
VI. Disposition
WHEREFORE, the Petition for Review is hereby GRANTED. The Decision

of the Court of Appeals dated 29 October 1986 and its Resolution dated 17
December 1986, as well as the Decision of the trial court dated 10
November 1979, are hereby SET ASIDE and NULLIFIED. No
pronouncement as to costs.
VII. Random Facts


G.R. No. 120817 | November 4, 1996 Article 1291-1304 - Novation
Elsa B. Reyes vs CA, AFP-MBAI, Eleazar Elsa B. Reyes vs CA, AFP-MBAI, Eleazar
respondent, is the president of BERMIC, a dometic
corporation engaged in real estate development. While,
I. Recit-ready Summary the other Respondent AFP-MBAI is a corporation duly
BERMIC loaned P215,053,126.80, from EUROTRUST organized
in order to construct its condominium and park. In turn, primarily to perform welfare services for the Armed
BERMIC issued 21 PDCs, but were later dishonored by Forces of the Philippines 2. Then, the Petitioner Reyes
the drawee bank due to the stop order payment by alleged that EUROTRUST and BERMIC entered into a
Respondent Eleazar (BERMIC’s president). As such, the loan agreement, wherein the latter loaned
failure to pay by the Respondent, despite repeated P215,053,126.80, with no collateral but with high
notices and demands, prompted the Petitioner to file an interest rates for the construction of the latter’s
action for violation of BP 22 and Estafa. But, the condominium and park 3. In turn, BERMIC issued 21
Respondent argued that upon learning that the funds post-dated checks, but the same were later dishonored
originally belonged to AFP-MBAI, she met and by RCBC, due to the stop payment order made by the
eventually agreed with the EUROTRUST Respondent Eleazar (BERMIC’s president) 4. Despite
representatives that BERMIC would directly pay its the Petitioner’s notices and repeated demands, the
obligation to AFP-MBAI. However, when the Petitioner Respondent still failed to pay, which prompted the
Reyes still continued to collect the PDCs, the Petitioner to file an action for violation of BP 22 and
Respondent Eleazar had the payment stopped. As such, Estafa before the Office of the Provincial Prosecutor 5.
the OPP and SOJ dismissed the petitioner’s complaints But, the Respondent Eleazar (BERMIC’s president)
since Novation occurred when the Respondent assumed contended that when she found out that the funds
the obligation of Petitioner Reyes to AFP-MBAI. Hence, originally belonged to the other Respondent AFP-
the present petitioner. The issue in this case is w/n the MBAI, she met with the EUROTRUST representatives;
Respondent’s assumption of the obligation from the AND they agreed that BERMIC would directly settle its
Petitioner constituted a Novation. The SC ruled in the obligation with the real owners of the fund - AFP-
negative. The Court stated that no new agreement for MBAI 6. However, the Respondent Eleazar learned that
substitution of creditor was forged among all the parties the Petitioner still continued to collect the PDCs
concerned which would take the place of the preceding contrary to their latest agreement. So, the Respondent
contract. It is essentially an agreement between Eleazar had the payment stopped 7. As such, the Office
petitioner and respondent Eleazar only. There was no of the Provincial Prosecutor, and subsequently the SOJ,
mention whatsoever of AFP-MBAI's consent to the new dismissed the Petitioner’s complaints on the ground that
agreement between petitioner and respondent Eleazar when the Respondent Eleazar assumed the obligation of
much less an indication of AFP-MBAI's intention to be the Petitioner to AFP-MBAI, it constituted Novation,
the substitute creditor in the loan contract. extinguishing any criminal liability on the part of the
Respondent Eleazar - the novation of the loan
agreement prevents the rise of any incipient criminal
liability since the novation had the effect of canceling
1. In the present case, the Petitioner Reyes is the
the checks and rendering without effect the subsequent
president of EUROTRUST, a domestic corporation
dishonor of the already cancelled checks 8. Hence, the
engaged in credit financing. Graciela Eleazar, private
present petition before the SC
1 Obligations and Contracts (2020) PETITIONER: Elsa B. Reyes
DIGEST AUTHOR: Larry Abucay RESPONDENT: CA, SOJ, AFP-MBAI, and Graciela Eleazar
III. Issue/s
● W/N the Respondent Eleazar’s assumption of the obligation of the Petitioner Reyes to AFP-MBAI constituted a Novation, which
criminal liability on the part of the Respondent Eleazar? NO
IV. Holding/s
Issue #1 No, the agreement between EUROTRUST and BERMIC that the latter would directly settle its obligation with the real owne
AFP-MBAI, did not constitute a Novation Respondent’s Arguments
● The Respondent Eleazar contended that when she came to know that the funds originally belonged to AFP-MBAI, she, as President of B
meeting, wherein they agreed that Bermic would directly settle its obligations with the real owners of the fund. This agreement was formalized in
to this understanding, Bermic negotiated with AFP-MBAI, and made payments to the latter
● Novation, according to the Respondent, occurred when
they agreed that the Respondent Eleazar should settle BERMIC’s loan obligation directly to AFP-MBAI. Thus, there was a substitution of
Eleazar assumed the obligation, and to pay the “real owners” of the fund - AFP-MBAI
of the following requisites is indispensable: (1) there must be a valid obligation, (2) there must be an agreement among all the parties concerned
(3) there must be the extinguishment of the old contract, (4) there must be validity of the new contract
Court’s Rebuttals
Overall Ruling
● The Court, however, stated
The SC stated that there is no doubt that the last 3 essential requisites of that it failed to see how
novation are wanting in the instant case (see ). No new agreement for novation can take place
substitution of creditor was forged among all the parties concerned which considering the
would take the place of the preceding contract. The absence of a new surrounding circumstances
contract extinguishing the old one destroys any possibility of novation by which negate the same.
conventional subrogation. In concluding that a novation took place, the The principle of novation
respondent court relied on the two letters which, according to it, formalized by substitution of creditor
petitioner's and respondent Eleazar's agreement that BERMIC would was erroneously applied in
directly settle its obligation with the real owners of the funds, AFP-MBAI. the rst questioned
However, a cursory reading of these letters clearly and unmistakably shows resolution involving the
that there was nothing therein that would evince that respondent contract of loan between
AFP-MBAI agreed to substitute for the petitioner as the new creditor of the Petitioner and the
respondent Eleazar in the contract of loan. It is evident that the two letters Respondent Eleazar
merely gave respondent Eleazar an authority to directly settle the obligation of petitioner to AFP-MBAI. It is essentially an agreement between
● In order that a novation can
petitioner and respondent Eleazar only. There was no mention whatsoever take place, the concurrence
of AFP-MBAI's consent to the new agreement between petitioner and 2 Obligations and Contracts (2020) PETITIONER: Elsa B. Reyes
express intention to novate, “animus novandi”. Novation
is never presumed. Article 1300 of the Civil Code
respondent Eleazar much less an indication of AFP- provides inter alia that conventional subrogation must be
MBAI's intention to be the substitute creditor in the loan clearly established in order that it may take effect.
contract. Well settled is the rule that novation by
substitution of creditor requires an agreement among the
three parties concerned - the original creditor, the debtor V. Law or Doctrine Applied
and the new creditor. It is a new contractual relation
based on the mutual agreement among all the necessary NOVATION - In order that a novation can take place,
parties. Hence, there is no novation if no new contract the concurrence of the following requisites is
was executed by the parties. indispensable:
Moreover, the fact that respondent Eleazar made 1) There must be a valid obligation 2) There must be an
payments to AFP-MBAI and the latter accepted them agreement among all the parties concerned to a
does not ipso facto result in novation. There must be an new contract 3) There must be the extinguishment of
the old contract 4) There must be validity of the new this Code; the latter must be clearly established in order
contract that it may take effect
Article 1293 - Novation which consists in substituting a VI. Disposition

new debtor in the place of the original one, may be made
even without the knowledge or against the will of the ACCORDINGLY, finding no reversible error in the
latter, but not without the consent of the creditor. decision appealed from dated May 12, 1995, the same is
Payment by the new debtor gives him the rights hereby AFFIRMED in all respects.
mentioned in Articles 1236 and 1237
Article 1300 - Subrogation of a third person in the rights
of the creditor is either legal or conventional. The former VII. Random Facts
is not presumed, except in cases expressly mentioned in
● Ponente: Torres, Jr., J.
3 Obligations and Contracts (2020) PETITIONER: Elsa B. Reyes
I. Recit-ready Summary primarily to perform welfare services for the Armed Forces of the
BERMIC loaned P215,053,126.80, from EUROTRUST in order to Philippines
construct its condominium and park. In turn, BERMIC issued 21 PDCs, but 2. Then, the Petitioner Reyes alleged that EUROTRUST and
were later dishonored by the drawee bank due to the stop order payment by BERMIC entered into a loan agreement, wherein the latter loaned
Respondent Eleazar (BERMIC’s president). As such, the failure to pay by P215,053,126.80, with no collateral but with high interest rates for
the Respondent, despite repeated notices and demands, prompted the the construction of the latter’s condominium and park
Petitioner to file an action for violation of BP 22 and Estafa. But, the 3. In turn, BERMIC issued 21 post-dated checks, but the same were
Respondent argued that upon learning that the funds originally belonged to later dishonored by RCBC, due to the stop payment order made by
AFP-MBAI, she met and eventually agreed with the EUROTRUST the Respondent Eleazar (BERMIC’s president)
representatives that BERMIC would directly pay its obligation to 4. Despite the Petitioner’s notices and repeated demands, the
AFP-MBAI. However, when the Petitioner Reyes still continued to collect Respondent still failed to pay, which prompted the Petitioner to file
the PDCs, the Respondent Eleazar had the payment stopped. As such, the an action for violation of BP 22 and Estafa before the Office of the
OPP and SOJ dismissed the petitioner’s complaints since Novation occurred Provincial Prosecutor
when the Respondent assumed the obligation of Petitioner Reyes to 5. But, the Respondent Eleazar (BERMIC’s president) contended that
AFP-MBAI. Hence, the present petitioner. The issue in this case is w/n the when she found out that the funds originally belonged to the other
Respondent’s assumption of the obligation from the Petitioner constituted a Respondent AFP-MBAI, she met with the EUROTRUST
Novation. The SC ruled in the negative. The Court stated that no new representatives; AND they agreed that BERMIC would directly
agreement for substitution of creditor was forged among all the parties settle its obligation with the real owners of the fund - AFP-MBAI
concerned which would take the place of the preceding contract. It is 6. However, the Respondent Eleazar learned that the Petitioner still
essentially an agreement between petitioner and respondent Eleazar only. continued to collect the PDCs contrary to their latest agreement.
There was no mention whatsoever of AFP-MBAI's consent to the new So, the Respondent Eleazar had the payment stopped
agreement between petitioner and respondent Eleazar much less an 7. As such, the Office of the Provincial Prosecutor, and subsequently
indication of AFP-MBAI's intention to be the substitute creditor in the loan the SOJ, dismissed the Petitioner’s complaints on the ground that
contract. when the Respondent Eleazar assumed the obligation of the
Petitioner to AFP-MBAI, it constituted Novation, extinguishing
II. Facts of the Case (Material Facts) any criminal liability on the part of the Respondent Eleazar - the
1. In the present case, the Petitioner Reyes is the president of novation of the loan agreement prevents the rise of any incipient
EUROTRUST, a domestic corporation engaged in credit financing. criminal liability since the novation had the effect of canceling the
Graciela Eleazar, private respondent, is the president of BERMIC, checks and rendering without effect the subsequent dishonor of the
a dometic corporation engaged in real estate development. While, already cancelled checks
the other Respondent AFP-MBAI is a corporation duly organized 8. Hence, the present petition before the SC
1
Obligations and Contracts (2020) PETITIONER: Elsa B. Reyes
III. Issue/s they agreed that the Respondent of the following requisites
● W/N the Respondent Eleazar’s assumption of the obligation of Eleazar should settle is indispensable: (1) there
the Petitioner Reyes to AFP-MBAI constituted a Novation, BERMIC’s loan obligation must be a valid obligation,
which extinguishes any criminal liability on the part of the directly to AFP-MBAI. Thus, (2) there must be an
Respondent Eleazar? NO there was a substitution of the agreement among all the
Creditor when Eleazar assumed parties concerned to a new
IV. Holding/s the obligation, and to pay the contract, (3) there must be
“real owners” of the fund - the extinguishment of the
Issue #1 AFP-MBAI old contract, (4) there must
No, the agreement between EUROTRUST and BERMIC that the latter be validity of the new
would directly settle its obligation with the real owners of the fund, contract
AFP-MBAI, did not constitute a Novation
Respondent’s Arguments Court’s Rebuttals Overall Ruling
● The Respondent Eleazar ● The Court, however, stated The SC stated that there is no doubt that the last 3 essential requisites of
contended that when she came that it failed to see how novation are wanting in the instant case (see ). No new agreement for
to know that the funds novation can take place substitution of creditor was forged among all the parties concerned which
originally belonged to considering the would take the place of the preceding contract. The absence of a new
AFP-MBAI, she, as President surrounding circumstances contract extinguishing the old one destroys any possibility of novation by
of Bermic, requested a meeting, which negate the same. conventional subrogation. In concluding that a novation took place, the
wherein they agreed that The principle of novation respondent court relied on the two letters which, according to it, formalized
Bermic would directly settle its by substitution of creditor petitioner's and respondent Eleazar's agreement that BERMIC would
obligations with the real owners was erroneously applied in directly settle its obligation with the real owners of the funds, AFP-MBAI.
of the fund. This agreement was the rst questioned However, a cursory reading of these letters clearly and unmistakably shows
formalized in 2 letters. Pursuant resolution involving the that there was nothing therein that would evince that respondent
to this understanding, Bermic contract of loan between AFP-MBAI agreed to substitute for the petitioner as the new creditor of
negotiated with AFP-MBAI, the Petitioner and the respondent Eleazar in the contract of loan. It is evident that the two letters
and made payments to the latter Respondent Eleazar merely gave respondent Eleazar an authority to directly settle the obligation
of petitioner to AFP-MBAI. It is essentially an agreement between
● Novation, according to the ● In order that a novation can petitioner and respondent Eleazar only. There was no mention whatsoever
Respondent, occurred when take place, the concurrence of AFP-MBAI's consent to the new agreement between petitioner and
2
respondent Eleazar much less an indication of AFP-MBAI's intention to be Payment by the new debtor gives him the rights mentioned in Articles 1236
the substitute creditor in the loan contract. Well settled is the rule that and 1237
novation by substitution of creditor requires an agreement among the three
parties concerned - the original creditor, the debtor and the new creditor. It Article 1300 - Subrogation of a third person in the rights of the creditor is
is a new contractual relation based on the mutual agreement among all the either legal or conventional. The former is not presumed, except in cases
necessary parties. Hence, there is no novation if no new contract was expressly mentioned in this Code; the latter must be clearly established in
executed by the parties. order that it may take effect
Moreover, the fact that respondent Eleazar made payments to AFP-MBAI VI. Disposition
and the latter accepted them does not ipso facto result in novation. There
ACCORDINGLY, finding no reversible error in the decision appealed from
must be an express intention to novate, “animus novandi”. Novation is
dated May 12, 1995, the same is hereby AFFIRMED in all respects.
never presumed. Article 1300 of the Civil Code provides inter alia that
conventional subrogation must be clearly established in order that it may VII. Additional Notes
take effect.
VII. Random Facts
● Ponente: Torres, Jr., J.
NOVATION - In order that a novation can take place, the concurrence of

the following requisites is indispensable:
1) There must be a valid obligation

2) There must be an agreement among all the parties concerned to a
new contract
3) There must be the extinguishment of the old contract
4) There must be validity of the new contract
Article 1293 - Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor.
3
G.R. No. 126712 | 14 April 1999 Novation
Quinto v People Quinto v People
I. Recit-ready Summary Cariaga. Mrs. Camacho also bought a “marques” worth P16,000
Petitioner Leonida Quinto took some jewelries from private complainant and a ring worth P4,000, however she was unable to pay the full
Amelia Cariaga for selling purposes. After 6 months, however, Quinto amount and left a balance of P13,000.
failed to return the jewelries or pay the value thereof. Hence, a case of estafa 4. Quinto brought Camacho to Cariaga, and Cariaga agreed to allow
was filed against Quinto. Quinto admitted that she took some jewelries from Camacho to pay the balance in installments.
Cariaga but she sold the same to Mrs. Camacho and Mrs. Ramos. 5. Quinto also sold the 2-karat diamond ring worth P17,000 to Mrs.
Unfortunately, both were unable to pay the whole amount and promised to Ramos, who was also unable to pay the full amount.
pay the balance in installment to Cariaga. Quinto thus alleged that the
6. Quinto brought Ramos to Cariaga and they agreed to a manner of
agreement between her and Cariaga was effectively novated when the latter
payment. Ramos gave Quinto a ring worth P3,000, and P5,000.
consented to receive payment on installments directly from Mrs. Camacho
and Mrs. Ramos. The changes alluded to by petitioner consists only in the Then Quinto herself paid P2,000.
manner of payment. There was really no substitution of debtors since
Cariaga merely acquiesced to the payment but did not give her consent to III. Issue/s
enter into a new contract. Thus, Cariaga's acceptance of Ramos and 1. W/N the agreement between Quinto and Cariaga was novated
Camacho's payment on installment basis cannot be construed as a case of when the latter consented to receive payment on installments
either expromision or delegacion sufficient to justify the attendance of directly from Camacho and Ramos.
extinctive novation. Further, the defense of novation cannot avoid the IV. Holding/s
incipient criminal liability for estafa. It is a public offense, which must be
prosecuted and punished by the State on its own. Issue #1
NO, the agreement was not novated; the new agreement merely
changed the manner of payment, and did not extinguish the old one.
1. 23 March 1977: Quinto went to see Cariaga. She asked Cariaga if
she could have some of the latter’s jewelry in order to sell them.
• The previous agreement was • Novation is never presumed, and
Cariaga agreed, and handed over 1 set of marques with briliantitos,
extinguished when Cariaga must always be made expressly or
1 solo ring of 2.30 karats, and 1 rosetas ring. Quinto signed a
agreed to be paid directly by the impliedly. Further, the old and
receipt that reflected the items and their value, and indicated a 5-
buyers (Camacho and Ramos) new obligation must be
day period for Quinto to sell the jewelry, or, if unsold, return the
and on installment basis. There incompatible on every point. In
same to Cariaga.
was a substitution of the debtor, this case, the changes were only
2. 5-day period elapsed: Quinto asked for an extension, which was
in this case. made in the manner of payment.
granted. After 6 months still without any sale, Cariaga asked for
There was no substitution of
the return of the jewelry, but Quinto ignored the demand. Cariaga
debtors, since Cariaga only
then filed this case for estafa.
accepted payment by the third
3. HOWEVER, according to the defense: Quinto sold the solo ring
parties and did not consent to
worth P40,000 to Mrs. Camacho, who paid P20,000 in check and
enter into a new contract.
the balance of P20,000 in installments later paid directly to
Obligations and Contracts (2020) PETITIONER: Leonida Quinto 1
DIGEST AUTHOR: Maxi Asuncion RESPONDENT: People of the Philippines (Amelia Cariaga, private
respondent)
G.R. No. 126712 | 14 April 1999 Novation
Quinto v People Quinto v People
Overall Ruling
The extinguishment of the old obligation by the new one is an essential V. Law or Doctrine Applied
element of novation. It may be effected either expressly (such that the NOVATION: It is never presumed. Further, the mere fact that a stranger to
contracting parties disclose that their object in executing the new contract is a contract agrees to assume an obligation does not imply the extinguishment
to extinguish the old one) or impliedly (there is no specific form, only that of the liability of the first debtor. Neither would the fact alone that the
there is an incompatibility between the old and new contracts on every creditor receives guaranty or accepts payment from a third person who has
point). The test of incompatibility is whether or not the two obligations can agreed to assume the obligation constitute an extinctive novation, unless
there was also an agreement that the first debtor shall be released from
stand together, each one having its independent existence. The changes that
responsibility.
breed such incompatibility must be essential in nature, and not just
accidental. That is, there must be a change in any of the essential elements Four essential requisites of extinctive novation:
of the obligation (object, cause or principal conditions). (1) a previous valid obligation
The two forms of novation that involve substituting the person of the (2) an agreement of all parties concerned to a new contract
debtor are EXPROMISION and DELEGACION. The key difference (3) the extinguishment of the old obligation
between the two is on whose initiative the change comes from. In the (4) the birth of a valid new obligation
former, the initiative is not from the debtor, and only consent and
knowledge of the third person and the creditor is needed. In the latter, the VI. Disposition
initiative comes from the debtor, and the consent and knowledge of all WHEREFORE, the assailed decision of the Court of Appeals is
parties (creditor, debtor, and third person) is needed. In either of the two AFFIRMED except that the imprisonment term is MODIFIED by now
forms, the creditor’s consent is indispensable. In this case, Cariaga’s sentencing petitioner to an indeterminate penalty of from two (2) years,
assent to Ramos and Camacho’s payment on installment basis cannot be eight (8) months and one (1) day of prision correccional to seven (7) years
and one (1) day of prision mayor. The civil liability of appellant for
construed as either form of novation. It merely added to the number of
P36,000.00 in favor of private complainant is maintained. Costs against
persons liable, and did not release the first debtor, Quinto, from the
petitioner.
obligation. There was merely a change in the manner of payment. Further,
such assent to the change in payment cannot be consent to a change of VII. Additional Notes
debtor because Cariaga was essentially forced to receive the payment of
Camacho in order to avoid the situation where Cariaga would end up with VII. Random Facts
nothing, since Quinto, because of her debts, was avoiding her. • Ponente: Vitug, J.
Lastly, novation is not one of the means enumerated in the RPC
whereby criminal liability can be extinguished. Novation may only either
prevent the rise of such or cast doubt on the true nature of the original
transaction. Criminal liability for estafa already committed is not affected by
subsequent novation of the contract. Estafa is a public offense, which must
be prosecuted and punished by the State.
Obligations and Contracts (2020) PETITIONER: Leonida Quinto 2

DIGEST AUTHOR: Maxi Asuncion RESPONDENT: People of the Philippines (Amelia Cariaga, private
respondent)
G.R. No. 170674 | August 24, 2009 Novation
Foundation Specialists v. Betonval Foundation Specialists v. Betonval

1. FSI and Betonval executed three contracts for the delivery of ready
mixed concrete by Betonval to FSI.
FSI and Betonval executed three contracts for the delivery of ready mixed a. They agreed that FSI must pay within 7 days after
concrete by Betonval to FSI. They agreed that FSI must pay within 7 days presentation of the invoices plus an interest rate of 30%
after presentation of the invoices plus an interest rate of 30% p.a. in case of p.a. in case of overdue payment.
overdue payment. FSI failed to pay its outstanding balance. As an 2. FSI failed to pay its outstanding balance. As an accommodation to
accommodation to FSI, Betonval extended the 7 day credit period to 45 FSI, Betonval extended the 7 day credit period to 45 days.
days. FSI failed to fully settle its obligation. Betonval filed an action for a 3. FSI sent Betonval a proposed schedule of payments devised with a
sum of money and damages. FSI acknowledged its indebtedness to liability for payments fixed at 24% p.a.
Betonval, but it opposed the imposition of a 24% p.a. interest because the a. FSI partially paid Betonval according to the terms of its
grant to FSI of a 45-credit extension novated the contracts insofar as FSI’s proposed schedule of payments.
obligation to pay interest was concerned. b. However, it failed to fully settle its obligation.
4. Betonval filed an action for a sum of money and damages.
W/N the credit extension awarded to FSI novated FSI’ obligation to pay 5. FSI acknowledged its indebtedness to Betonval, but it opposed the
interest? NO imposition of a 24% p.a. Interest because:
a. The grant to FSI of a 45-credit extension novated the
Novation is merely modificatory where the change brought about by any
contracts insofar as FSI’s obligation to pay interest was
subsequent agreement is merely incidental to the main obligation such as:
concerned.
change in interest rates and extension of time to pay. The grant by Betonval
b. Betonval waived its right to enforce payment of the
to FSI of a 45-day credit extension DID NOT novate the contracts so as to
interest rate.
extinguish the obligations from the latter. It merely modified the contracts
c. Betonval’s prayer for a 24% interest rate, instead of 30%,
by extending the period within which FSI was allowed to settle its
resulted in a situation where no interest was supposedly
obligation.
stipulated.
1
Obligations and Contracts (2020) PETITIONER: FOUNDATION SPECIALISTS, INC.
DIGEST AUTHOR: Mikhail Macasaet RESPONDENT: BETONVAL READY
CONCRETE, INC. and STRONGHOLD INSURANCE CO., INC.,
Issue/s to pay interest was merely incidental to the main

concerned. obligation
W/N the credit extension awarded to FSI novated FSI’ obligation to pay ● Betonval waived its right ● The obligation to pay a sum of
interest? NO to enforce payment of the money is not novated by an
interest rate. instrument that expressly
● Betonval’s prayer for a recognizes the old, changes
IV. Holding/s 24% interest rate, instead only the terms of payment,
of 30%, resulted in a adds other obligations not
Issue #1
situation where no interest incompatible with the old one,
was supposedly stipulated. or the new contract merely
● supplements the old one.
W/N the credit extension awarded to FSI novated FSI’ obligation to pay
● The grant by Betonval to FSI
interest? NO
of a 45-day credit extension
DID NOT novate the
contracts so as to extinguish
No, the credit extension awarded did not novate the obligation. the obligations from the latter.
● Since the contracts remained
Petitioner’s Arguments Court’s Rebuttals the source of FSI’s obligation
to Betonval, the stipulation to
● The grant to FSI of a ● Novation is merely pay interests remained.
45-credit extension modificatory where the
novated the contracts change brought about by any
insofar as FSI’s obligation subsequent agreement is
2
Overall Ruling ○ However, since Betonval’s statements of accounts contained

computations of FSI’s arrears at 24% interest rate, then it is
● Novation is one of the modes of extinguishing obligations concluded that both parties agreed to the reduction of the
● Novation is merely modificatory where the change brought about by interest rate from 30% to 24%.
any subsequent agreement is merely incidental to the main obligation
such as:
○ Change in interest rates III. Law or Doctrine Applied
○ Extension of time to pay
○ Obligation is not extinguished in this instance
REQUISITES OF NOVATION
■ new agreement merely supplements some
provisions of the first agreement
● Previous valid obligation
● The obligation to pay a sum of money is not novated by an instrument
● Agreement of all parties concerned to a new contract
that expressly recognizes the old, changes only the terms of payment,
● Extinguishment of old obligation
adds other obligations not incompatible with the old one, or the new
● Birth of a valid new obligation
contract merely supplements the old one.
● The grant by Betonval to FSI of a 45-day credit extension DID NOT WHEN NOVATION IS MERELY MODIFICATORY
novate the contracts so as to extinguish the obligations from the latter.
○ It merely modified the contracts by extending the period ● Novation is merely modificatory where the change brought about
within which FSI was allowed to settle its obligation. by any subsequent agreement is merely incidental to the main
○ In fact, the intention of such extension was precisely to obligation such as:
revive the old obligation after the original period had expired ○ Change in interest rates
with the obligation unfulfilled. ○ Extension of time to pay
● Since the contracts remained the source of FSI’s obligation to
Betonval, the stipulation to pay interests remained.
IV. Disposition
3
WHEREFORE, the petition is hereby DENIED. Costs against petitioner. SO

ORDERED.
V. Additional Notes
VII. Random Facts

● Ponente: Corona, J.:
4
G.R. No. 48797. July 30, 1943 Novation
Fua v. Yap Fua v. Yap
I. Recit-ready Summary a. Stipulated that their obligation under the judgment was
Vicente Fua obtained a judgment sentencing Yap to pay 1,500 with legal reduced to 1200 and made payable in installments
interest and costs. By virtue of a writ of execution, a parcel of land owned b. A camarin was also mortgaged to secure payment
by Yap was levied upon by the sheriff. Yap executed a mortgage in favor of 4. Pursuant to the writ of execution, sheriff sold the land at public
Fua. in the mortgage, it was stipulated that their obligation under the auction to Fua
judgment was reduced to 1200 and made payable in installments. A camarin 5. Yap refused to vacate the land
was also mortgaged to secure payment. Pursuant to the writ of execution, 6. Fua filed an action against the appellants in view of their refusal to
sheriff sold the land at public auction to Fua. However, Yap refused to recognize appellee's title and to vacate the land
vacate the land. Fua filed an action against the appellants in view of their a. YAP DEFENSE: Obligation under the judgment was
refusal to recognize appellee's title and to vacate the land. According to him, novated by the mortgage
the new agreement merely extended the time of payment and did not take b. FUA ARGUMENT: New agreement merely extended the
away his concurrent right to have the judgement rendered. Yap argued that time of payment and did not take away his concurrent
his obligation under the judgment was novated by the mortgage. The trial right to have the judgment executed
court declared Fua as the owner of the land and ordered Yap to deliver the 7. The trial court declared Fua as the owner of the land and ordered
same to him. Hence, this appeal. The issue here is whether or not novation Yap to deliver the same to him
took place. 8. Hence, this appeal where the appellants are seeking a reversal of
The Court held that appellants' liability under the judgment in civil case No. said judgement
42125 had been extinguished by the settlement evidenced by the mortgage III. Issue/s
executed by them in favor of the appellee on December 16, 1933. THERE 1. W/N there was novation? YES.
WAS IMPLIED NOVATION by reason of the incompatibility resulting
from the fact that, judgment was for 1538.04 payable at one time, did not IV. Holding/s
provide for attorney’s fees, and was not secured, the new obligation was for
1200, payable in installments, stipulates for attorney’s fees, and is secured Issue #1
by a mortgage. The new agreement’s purpose was not for extension of
payment. It was therein cited that Yap promised to pay 1200 to Fua as a
settlement of the judgment. Said judgment cannot be said to have been Petitioner’s Arguments Court’s Rebuttals
settled UNLESS it was extinguished. • •

1. Vicente Fua obtained a judgment sentencing Yap to pay 1,500 with
legal interest and costs
2. By virtue of a writ of execution, a parcel of land owned by Yap Overall Ruling
was levied upon by the sheriff Appellants' liability under the judgment in civil case No. 42125 had been
3. Yap executed a mortgage in favor of Fua extinguished by the settlement evidenced by the mortgage executed by
Obligations and Contracts (2020) PETITIONER: Yap Fauco & Yap Singco 1
DIGEST AUTHOR: Stephanie Co RESPONDENT: Fua Cam Lu
G.R. No. 48797. July 30, 1943 Novation
Fua v. Yap Fua v. Yap
them in favor of the appellee on December 16, 1933. THERE WAS

IMPLIED NOVATION by reason of the incompatibility resulting from
the fact that, judgment was for 1538.04 payable at one time, did not
provide for attorney’s fees, and was not secured, the new obligation was
for 1200, payable in installments, stipulates for attorney’s fees, and is
secured by a mortgage. The new agreement’s purpose was not for
extension of payment. It was therein cited that Yap promised to pay 1200
to Fua as a settlement of the judgment. Said judgment cannot be said to
have been settled UNLESS it was extinguished

In order that an obligation may be extinguished by another which substitute 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. (1204)
VI. Disposition
The appealed judgment is; therefore, reversed and the defendants-

appellants, who are hereby declared to be the owners of the land in question,
are absolved from the complaint, with costs against the appellee. So
ordered.

VII. Random Facts
Obligations and Contracts (2020) PETITIONER: Yap Fauco & Yap Singco 2
DIGEST AUTHOR: Stephanie Co RESPONDENT: Fua Cam Lu
G.R. No. L-29981 | April 30, 1971 Novation
Millar v. CA Millar v. CA
I. Recit-ready Summary 5. Several alias writs were then issued but all falling unsatisfied and
Eusebio Millar (petitioner) obtained a favorable judgement from the upon the fifth alias writ, the sheriff levied certain personal
CFI in civil case 27116, condemning Gabriel (respondent) to pay the sum of properties of Gabriel and scheduled them for execution sale.
P1,746.98. Petitioner moved for the issuance of the writ of execution to 6. Gabriel filed an urgent motion for the suspension of the execution
enforce the judgement, which led to the seizure of respondent’s Ford Jeep. sale on the ground of payment of the judgement obligation. The
Respondent pleaded to petitioner to release the jeep. A chattel mortgage was lower court ordered the suspension to afford Gabriel to prove his
then executed on the jeep upon agreement between petitioner and allegation of payment of the judgement debt.
respondent. However, respondent failed to pay the installment due, which
7. Lower Court ruled that no novation had taken place, and that the
compelled petitioner to obtain an alias writ of execution. Upon the fifth alias
parties had executed the chattel mortgage only “to secure or get
writ, the sheriff levied certain personal properties of respondent and
scheduled them for execution sale. Respondent filed a suspension of the better security for the judgement”.
execution sale, which was granted by the lower court so that respondent can 8. Court of Appeals held that the subsequent agreement of the parties
prove his allegation of payment. The lower court ruled that no novation had impliedly novated the judgment obligation in civil case 27116.
taken place, and that the parties had executed the chattel mortgage only “to 9. Millar presented this petition for certiorari to review the decision of
secure or get better security for the judgement.” The CA, however, held that the Court of Appeals, seeking reversal of the appellate court’s
the chattel mortgage impliedly novated the judgement obligation. The Court decision and affirmance of the order of the lower court.
ruled that the subsequent agreement did not novate the judgement
obligation, since its purpose was merely to secure the existing liability of III. Issue/s
respondent and that the two agreements did not show any signs of 1. W/N the subsequent agreement (The Deed of Chattel
incompatibility. Hence, the two obligations did not warrant a finding of an Mortgage) of the parties impliedly novated the judgement
implied novation. obligation in civil case 27116? NO.

1. Millar obtained a favorable judgement from the Court of First
Instance of Manila, in civil case 27116, condemning Gabriel to pay Issue #1
the sum of P1,746.98 with interest at 12% per annum. No, the deed of chattel mortgage did not novate the judgement
2. Millar moved ex parte for the issuance of the writ of execution to obligation.
enforce the judgement. Acting upon the motion, the sheriff of Petitioner’s Arguments Court’s Rebuttals
Manila seized Gabriel’s Willy’s Ford jeep.
• This does not constitute a • The mere reduction of the
3. Gabriel pleaded to Millar to release the jeep under an arrangement,
circumstance in implying amount due in no sense
to secure the payment of the judgement debt, agreed to mortgage
novation of the judgment debt, constitutes a sufficient indicium
the vehicle in favor of Millar. A chattel mortgage was executed on
stating that in the interim — of incompatibility, especially in
the jeep upon agreement of the two parties.
from the time of the rendition of the light of (a) the explanation
4. Upon failure of Gabriel to pay the first installment due on March
the judgment in civil case by the petitioner that the
31, 1957, the petitioner obtained an alias writ of execution.
27116 to the time of the reduced indebtedness was the
Obligations and Contracts (2020) PETITIONER: Eusebio S. Millar 1

DIGEST AUTHOR: Antonio Enrile-Inton III RESPONDENT: Court of Appeals and Antonio P. Gabriel
execution of the deed of chattel result of the partial payments Overall Ruling
mortgage — the respondent made by the respondent before The chattel mortgage’s purpose was to secure the satisfaction of the existing
made partial payments, the execution of the chattel liability of the respondent arising from the judgment in civil case 27116.
necessarily resulting in the mortgage agreement and (b) the The defense of implied novation requires clear and convincing proof of
lesser sum stated in the deed of latter's admissions bearing complete incompatibility between the two obligations. The law requires no
chattel mortgage. thereon. specific form for an effective novation by implication. The test is whether
• Respondent filed with the Court • The Court cannot agree with the the two obligations can stand together. If they cannot, incompatibility arises,
of Appeals admitting his CA, because absent of clear and and the second obligation novates the first.
obligation, under the deed of convincing proof in stipulating If they can stand together, no incompatibility results and novation does not
chattel mortgage, to pay the the payment of P300 as take place. We do not see any substantial incompatibility between the two
amount of P800 by way of attorney's fees in the deed of obligations as to warrant a finding of an implied novation. Nor do we find
attorney's fees and not as chattel mortgage intended the satisfactory proof showing that the parties, by explicit terms, intended the
liquidated damages. Similarly, same as an obligation for the full discharge of the respondent's liability under the judgment by the
the judgment makes mention of payment of liquidated damages obligation assumed under the terms of the deed of chattel mortgage so as to
the payment of the sum of P400 in case of default on the part of justify a finding of express novation.
as attorney's fees and omits any the respondent.
reference to liquidated • The stipulation for the payment V. Law or Doctrine Applied
damages. of the obligation under the ARTICLE 1292 OF THE NEW CIVIL CODE
• Appellate court considered said terms of the deed of chattel Article 1292. In order that an obligation may be extinguished by another
circumstances in a way not in mortgage serves only to provide which substitute the same, it is imperative that it be so declared in
accordance with law or an express and specific method unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other.
accepted jurisprudence. The for its extinguishment. The
appellate court stated that while chattel mortgage simply gave
VI. Disposition
the judgment specified no mode the respondent a method and ACCORDINGLY, the decision of the Court of Appeals of October 17, 1968
for the payment of the judgment more time to enable him to fully is set aside, and the order of the Court of First Instance of Manila of January
debt, the deed of chattel satisfy the judgment 25, 1962 is affirmed, at respondent Antonio Gabriel's cost.
mortgage provided for the indebtedness. The deed of
payment of the amount fixed chattel mortgage expressly VII. Additional Notes
therein in two equal ratified and confirmed the Requisites of Novation
installments. existence of the same, 1. The existence of a previous valid obligation;
amplifying only the mode and 2. The intention or agreement and capacity of the parties to extinguish or
period for compliance by the modify the obligation;
respondent. 3. The extinguishment or modification of the obligation; and
4. The creation or birth of a valid new obligation.

Novation of Judgement
A final judgement of a court that had been executed but not yet fully
satisfied, may be novated by compromise.
VIII. Random Facts

• Ponente: Castro, J.
• Chattel Mortgage: This mortgage is given as security for the
payment to said EUSEBIO S. MILLAR, mortgagee, of the
judgment other incidental expenses in Civil Case No. 27116 of the
Court of First Instance of Manila against Antonio P. Gabriel,
MORTGAGOR, in the amount of ONE THOUSAND SEVEN
HUNDRED (P1,700.00) PESOS, Philippine currency, which
MORTGAGOR agrees to pay as follows:
o "March 31, 1957 — EIGHT HUNDRED FIFTY
(P850.00) PESOS;
o "April 30, 1957 — EIGHT HUNDRED FIFTY (P850.00)
PESOS.

G.R. No. L-26115| November 29, 1971 Novation
Sandico v. Piguing Sandico v. Piguing

Petitioners Spouses Sandico and Timbol obtained a judgment in their favor 1. In an easement case filed by spouses Carlos Sandico and Enrica
against respondent Paras in an action for easement and damages. The CA Timbol (petitioners) against Desiderio Paras(respondent), the CFI
ordered Paras to recognize the easement and to pay P6,000 as damages. of Pampanga ruled in favor of the spouses. The CA modified the
After the CA’s decision had acquired finality, the parties entered into a said decision and ordered Paras to recognize the easement and to
settlement which reduced the payment of damages to P4,000 only and pay P6,000 for damages. However, the parties reached a settlement
ordered Paras to reconstruct the canal. Paras paid the P4,000. The spouses which reduced the payment of damages to P4,000 only. The receipt
demanded Paras to comply with the judgment relating to the reconstruction also stated that there should be a “reconstruction of the irrigation
and reopening of the irrigation canal. Upon the failure of the sheriff to canal”. In effect, Paras paid the amount in two payments.
satisfy the writ of execution, the spouses filed a motion with the court to 2. Spouses Sandico sent a letter to Paras which demands the latter to
declare Paras in contempt of court. Respondent Judge Piguing denied the comply with the CA’s judgement to reconstruct and reopen the
motion because the CA’s decision only ordered Paras to recognize the irrigation canal. Upon the failure of the sheriff to satisfy the writ
easement and to pay P6,000 as damages, and not to reconstruct the canal. of execution and the refusal of Paras to comply with the
Spouses Sandico moved for the issuance of the writ of execution, but the judgement, the spouses filed a motion with the court to declare
same was quashed because Judge Piguing held that since the money Paras in contempt of court. In Paras’s defense, there was
judgement has been satisfied, there is nothing left to satisfy. The spouses recognition on his part already since he dug a one-and-a-half feet
filed a petition for certiorari before the Court. The main issue in this case is deep canal for the spouses Sandico’s use. Respondent Judge
W/N the settlement regarding the reduction of damages to P4,000 Saguing denied the motion because the CA’s decision only ordered
novated the money judgement rendered by the CA. Petitioners Paras to recognize the easement and to pay P6,000 as damages, and
contended that there was a settlement between the parties to reduce the not to reconstruct the canal.
money judgement of P6,000 to P4,000 only. However, the Court ruled that 3. Spouses Sandico moved for the issuance of the writ of execution of
reduction of the amount of money to be paid does not amount to novation. the CA’s decision. In defense, Paras moved to set aside since there
Novation effects a substitution or modification of an obligation by another was full satisfaction of the money judgement on his part. The
or an extinguishment of one obligation by the creation of another. Article respondent judge issued a rule directing the quashal of the writ of
1292 provides in order to sustain novation, it must be declared in execution because the agreement between the parties novated the
unambiguous terms or that there is complete and substantial incompatibility money judgement in the CA’s decision, and since the money
between the two obligations. In this case, the Court failed to see what new judgment has been satisfied, there is nothing left to satisfy.
or modified obligation arose out of the payment by the respondent of the 4. Spouses Sandico filed a petition for certiorari before the Court to
reduced amount of P4,000 and substitute the monetary liability for P6,000 set aside the respondent Judge’s orders in not declaring Paras in
of the said respondent under the appellate court's judgment. contempt and in not granting the writ of execution.
1
Obligations and Contracts (2020) PETITIONER: Carlos Sandico, Sr. and Teopisto P. Timbol
DIGEST AUTHOR: Steven Rivera RESPONDENT: Honorable Minerva R. Inocencio Piguing and Desiderio
Paras
III. Issue/s Issue #2

1. W/N the CA’s decision requires Paras to reconstruct and to reopen NO, Paras cannot be held in contempt of court.
the irrigation canal; (YES)
2. W/N Paras can be held in contempt of court for his failure to
● Under Section 9, Rule 39 of the ● This case falls within the
comply with his obligation; (NO)
Rules of Court, Paras can be contemplation of section 10, and
3. W/N the settlement regarding the reduction of damages to
held in contempt of court for his not of section 9 as the petitioners
P4,000 novated the money judgement rendered by the CA.
failure to reconstruct and reopen contend.
(NO)
the irrigation canal.
a. W/N the payment of P4,000 by Paras extinguished the
Overall Ruling
money judgement. (YES)
The Court, in comparing the two sections, ruled that section 9 refers to the
IV. Holding/s
performance of an act which requires the party to personally do it for
1. In the CA’s decision, the Court ruled that the two obligations of
personal qualifications and circumstances, while section 10 refers to
Paras were to recognize the easement and to pay the damages.
performance of a specific act which is susceptible of execution/can be done
However, the receipt, which was evidence of the settlement made
by some other person. In section 10, the Court can designate a person, who
between the two parties, provides for the reduction of the money
is not a party, to do the act ordained at the cost of the disobedient party
judgement to P4,000 only and the reconstruction of the irrigation
without him being held in contempt of court. In this case, the reconstruction
canal. The Court ruled that the obligation “to reconstruct the canal”
and reopening of the irrigation canal may be done by some other person
in the receipt (settlement) was embodied in precise and clear terms.
designated by the court, at the cost of the respondent. Hence, Paras incurs
Hence, it binds Paras, since he was a signatory, and requires him
no liability for contempt because the applicable provision is Section 10.
for full compliance. Also, Paras’s attempt to rebuild the irrigation
canal, partially and not in conformity with the dimensions of the
original one, does not constitute satisfactory and substantial Issue #3
compliance with his obligation to recognize the easement per the NO, there was no novation.
appellate court's judgment and to reconstruct the irrigation canal
pursuant to his agreement with the petitioners in August, 1964.
● There was a settlement between ● The Court ruled that the
the parties to reduce the money reduction of the amount of
judgement of P6,000 to P4,000 money to be paid does not
only. amount to novation.
2
Paras
Overall Ruling and quashing the said alias writ) and the order dated March 30, 1966
The Court held that novation results in the extinguishment of an existing (denying the petitioners' motion for reconsideration of the order dated
obligation and the substitution of a new one. It effects a substitution or February 3, 1966); and (2) remanding the case to the court a quo with
modification of an obligation by another or an extinguishment of one instructions that the respondent court (a) conduct an ocular inspection of the
obligation by the creation of another. Under Article 1292 of the Civil Code, irrigation canal passing through the respondent's land to determine whether
in order to sustain novation necessitates that the same be so declared in or not the said canal has been rebuilt in accordance with its original
dimensions; (b) in the event that the said canal fails to meet the
unequivocal terms — clearly and unmistakably shown by the express
measurements of the original one, order the respondent to reconstruct the
agreement of the parties or by acts of equivalent import — or that there is
same to its former condition; and (3) in the event of the respondent's further
complete and substantial incompatibility between the two obligations. In
refusal or failure to do so, appoint some other person to reconstruct the
this case, the Court failed to see what new or modified obligation arose out canal in accordance with its original dimensions, at the cost of the said
of the payment by the respondent of the reduced amount of P4,000 and respondent, pursuant to section 10 of Rule 39 of the Rules of Court. Without
substitute the monetary liability for P6,000 of the said respondent under the pronouncement as to costs.
appellate court's judgment.
4. Yes, the payment of P4,000 by Paras completely extinguished the Separate Opinions
judgment debt and released him from liability because the payment was TEEHANKEE, J., concurring:
accepted by the spouses Sandico without any protests or objections, and Any ambiguity in the receipt (settlement between the parties) prepared by
acknowledged by them as full satisfaction of the money judgement. Atty Timbol, counsel for petitioners, must be construed against petitioners
as the parties responsible for the ambiguity. In this case, the condition or
V. Law or Doctrine Applied clause provided in the said receipt vis, "that portion of the final judgment
Article 1292 of the Civil Code rendered in the said case ordering him (respondent Paras) to reconstruct
In order that an obligation may be extinguished by another which substitutes the irrigation canal in question shall be complied with by him immediately"
the same, it is imperative that it be so declared in unequivocal terms, or that is ambiguous being premised on an erroneous statement of fact. Hence,
the old and the new obligations be on every point incompatible with each remand the case.
other.
VII. Random Facts
VI. Disposition ● Ponente: Castro, J.
ACCORDINGLY, judgment is hereby rendered, (1) declaring that the
respondent judge did not act in excess of jurisdiction or with grave abuse of
discretion in issuing the order dated February 3, 1966 (granting the
respondent's motion to set aside the alias writ of execution, and recalling
3
Paras
G.R. No. L-62845-46 | November 25, 1983 Article 1291-1304 - Novation
NPC vs Judge Dayrit, Daniel Roxas NPC vs Judge Dayrit, Daniel Roxas
I. Recit-ready Summary the contract of security services with the same terms and
The present case is a petition to set aside the order of the conditions, and (4) the parties shall waive the claims and
Respondent Judge, wherein the Respondent Daniel Roxas sued the NPC to counterclaims in favor of each other
compel the NPC to restore their contract for security services which NPC 3. Then, on May 14, 1982, the NPC executed another contract for
had terminated. Eventually, the parties entered into a Compromise security services with Josette L. Roxas (no shown relationship with
Agreement wherein it stated that the parties shall continue with the contract Daniel). After that, NPC refused to implement its contract with the
of security services with the same terms and conditions. Then, on May 14, Private Respondent Daniel. Thus, Daniel filed a Motion for
1982, the NPC executed another contract for security services with Josette Execution in the aforementioned Civil Case; since the NPC,
L. Roxas. Later, NPC refused to implement its contract with Daniel, which through bad faith by reason of excuses made one after another, has
prompted Daniel to file a Motion for Execution of the contract. The yet to comply with the aforementioned terms of the Decision
Respondent Judge ruled in favor of Daniel. However, NPC assailed the such 4. The Respondent Judge ruled in favor of the Private Respondent
Order since Novation had taken place when the May 14, 1982 contract with Daniel Roxas
Josette Roxas was executed. Hence, the present petition before the SC. The 5. However, the NPC assailed the Order of the Respondent Judge on
issue in this case is w/n there was a valid Novation on the part of the the ground that it directs execution of a contract which had been
Petitioner NPC. The SC ruled in the negative. The Court stated that novated by that of May 14, 1982 contract with one Josette Roxas.
Novation is never presumed; it must be explicitly stated or there must be Upon the other hand, Roxas claims that said contract was executed
manifest incompatibility between the old and the new obligations in every precisely to implement the compromise agreement for which
aspect. In the present case, there is neither explicit novation nor reason there was no novation
incompatibility on every point between the "old" and the "new" agreements. 6. Hence, the present petition by the NPC before the SC
II. Facts of the Case (Material Facts) III. Issue/s

1. In the present case, it is a petition to set aside the Order of the ● W/N there was a valid Novation on the part of NPC as to have
Respondent Judge in a Civil Case wherein the Private Respondent extinguished its obligation with the Private Respondent Daniel
Daniel Roxas, doing business under the name and style of United Roxas? NO
Veterans Security Agency and Foreign Boats Watchmen, sued the
NPC and 2 of its officers in Iligan City to compel NPC to restore
IV. Holding/s
the contract of the Private Respondent Roxas for security services
which NPC had terminated
2. After several incidents, the parties entered into a Compromise Issue #1
Agreement which stated that: (1) the NPC shall pay to the private NO, the execution of a contract by NPC on May 14, 1982 did not
respondent the amount due to him for the services of his constitute a valid Novation as to have extinguished its obligation with
supervisors, (2) the NPC shall pay the value of the line materials the Private Respondent Daniel Roxas
which were stolen but recovered, (3) the parties shall continue with
1
DIGEST AUTHOR: Larry Abucay RESPONDENT: Judge Dayrit, Daniel Roxas
G.R. No. L-62845-46 | November 25, 1983 Article 1291-1304 - Novation
NPC vs Judge Dayrit, Daniel Roxas NPC vs Judge Dayrit, Daniel Roxas
Petitioner’s Argument/s Court’s Rebuttals

VI. Disposition
● The Petitioner NPC assails the ● The Court, however,
Order of the Respondent Judge sustained the arguments of WHEREFORE, the petition is denied for lack of merit with costs against the
on the ground that it directs the Private Respondent petitioner.
execution of a contract which since Article I of their
had been novated by that of Agreement supports the VII. Additional Notes
May 14, 1982 contract with one Respondent's contentions
VII. Random Facts
Josette Roxas
● Ponente: Abad Santos, J.
● Moreover, the Court stated
that it is elementary that
Novation is never
presumed
Overall Ruling
The SC stated that 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 (Article 1292 of the Civil Code)
In the present case, there is nothing in the May 14, 1982 agreement which
supports the Petitioner NPC’s contention. There is n either explicit novation
nor incompatibility on every point between the "old" and the "new"
agreements.
Article 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.
2
DIGEST AUTHOR: Larry Abucay RESPONDENT: Judge Dayrit, Daniel Roxas
G.R. No. L-47369 | June 30, 1987 Novation
Cochingyan vs. R&B Surety Cochingyan vs. R&B Surety
I. Recit-ready Summary b. PNB had the right to proceed directly against R&B Surety
Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and “without the necessity of first exhausting the assets” of the
was granted an increase in its line of credit from P400K to P800K principal obligor (PAGRICO)
(“principal obligation”) with the Philippine National Bank (PNB). But to c. R&B Surety’s liability was not only P400K (principal sum) but
secure approval, PAGRICO had to give a bond in the amount of P400K also “accrued interest plus all expenses, charges or other legal
(representing the line of credit increase). PAGRICO submitted a surety bond costs incident to collection of the obligation.”
issued by R&B Surety and Insurance Co., Inc. (R&B Surety). Two 4. Two identical indemnity agreements – were entered into with R&B Surety
identical indemnity agreements were then entered by R&B Surety with a. Agreement 1 – executed by the Catholic Church Mart (CCM) &
Joseph Chochingyan, Jose Villanueva and Liu Tua Beh. PAGRICO failed to by Joseph Cochingyan, Jr (Joseph) (not only signed as CMM’s
president but also in his personal and individual capacity)
comply with its obligation to PNB hence R&B Surety made a series of
b. Agreement 2 – executed by PAGRICO with Pacific Copra
payments to PNB totaling P70K. R&B Surety then demanded from Joseph
Export (PACOCO), Jose Villanueva (Jose) and Liu Tua Beh
and Jose for reimbursement of the payments. The petitioners Joseph and
(Liu). Jose signed as Manager of PAGRICO, while Liu signed
Jose argue that the Trust Agreement had extinguished, by novation, the
as President of PACOCO. Both signed in their personal and
obligation of R&B Surety to the PNB under the Surety Bond, which, in turn,
individual capacity as well.
extinguished the obligations of the petitioners under the Indemnity 5. Terms of indemnity agreements - Indemnitors bound themselves jointly
Agreements. and severally to R&B Surety to pay an annual premium and “for the
The main issue of the case was W/N the Trust Agreement had faithful compliance of the terms and conditions set forth in said SURETY
extinguished, by novation. The SC ruled that there was no novation since BOND for a period beginning…until the same is CANCELLED and/or
petitioners failed to establish there was a discharge of the old debt by the DISCHARGED.
express terms of the new agreement, or by the acts of the parties whose 6. PAGRICO failed to comply with its principal obligation to PNB
intention to dissolve the old obligation as a consideration of the emergence 7. PNB demanded the P400K payment from R&B Surety, then R&B Surety
of the new one. In fact, the Trust Agreement expressly provides for the made a series of payments to PNB totaling P70K.
continuing subsistence of that obligation 8. R&B Surety in turn sent demand letters to Joseph and Jose for
reimbursement of the payments they made to PNB, and for a discharge of
its liability to PNB under the Surety Bond
9. CFI of Manila - When Joseph and Jose did not follow the demand, R&B
1. Premise - In Nov. 1963, Pacific Agricultural Suppliers, Inc.
Surety brought suit against them. CFI ruled against Joseph and Jose.
(PAGRICO) applied for and was granted an increase in its line of credit
from P400K to P800K (“principal obligation”) with the Philippine
III. Issue/s
National Bank (PNB).
1. W/N the Trust Agreement had extinguished, by novation, the
2. Securing Surety Bond - But to secure approval, PAGRICO had to give a
obligation of R&B Surety to the PNB under the Surety Bond which, in
bond in the amount of P400K (representing the line of credit increase)
turn, extinguished the obligations of the petitioners under the
a. PAGRICO submitted a surety bond (Surety Bond No. 4765)
Indemnity Agreements? NO.
issued by R&B Surety and Insurance Co., Inc. (R&B Surety)
2. W/N the Trust Agreement extended the term of the Surety Bond so as to
3. Terms of Surety Bond
release petitioners from their obligation as indemnitors thereof as they did
a. PAGRICO and R&B Surety bound themselves jointly and
not give their consent to the execution of the Trust Agreement? NO.
severally to comply with the “terms and conditions of the
advance line (of credit) established by the PNB”
Obligations and Contracts (2020) PETITIONER: Joseph Cochingyan, Jr. and Jose K. Villanueva 1
DIGEST AUTHOR: Steph Naval RESPONDENT: R&B and Insurance Company, Inc.
3. W/N the filing of this complaint was premature since the PNB had not yet Overall Ruling
filed a suit against R & B Surety for the forfeiture of its Surety Bond? NO. The SC discussed further about Novation:
• the extinguishment of an obligation by the substitution or change of the
IV. Holding/s obligation by a subsequent one which terminates it,
• either by changing its object or principal conditions, or by substituting a
Issue #1 new debtor in place of the old one, or by subrogating a third person to
NO, the Trust Agreement had NOT extinguished, by novation the rights of the creditor.
Objective novation – a change of the object/ principal conditions of an
Petitioner’s Arguments Court’s Rebuttals existing obligation
• The Trust Agreement • Applying the principles of novation, it is • if this novation takes place, the new obligation must expressly declare
had extinguished, by evident that the Trust Agreement does not that the old obligation is extinguished OR the new obligation be on
novation, the expressly terminate the obligation of R&B every point incompatible with the old one
obligation of R&B Surety Subjective novation – the change of either the person of the debtor or of
Surety to the PNB • Novation is never presumed: it must be the creditor
under the Surety established either by the discharge of the old • if this novation takes place, the old debtor be released from the
Bond debt by the express terms of the new obligation, and the third person or new debtor take his place in the new
• Which as a result agreement, or by the acts of the parties relation.
extinguished the whose intention to dissolve the old • If the old debtor is not released, no novation occurs and the third person
obligations of the obligation as a consideration of the who has assumed the obligation of the debtor becomes merely a co-
petitioners under the emergence of the new one must be clearly debtor or surety or a co-surety.
Indemnity discernible. In both objective and subjective novation, a dual purpose is achieved: (1) an
Agreements • In fact, the Trust Agreement expressly obligation is extinguished and (2) a new one is created in lieu thereof.
• Used the defense of provides for the continuing subsistence of
implied novation that obligation by stipulating that “the Trust The SC further cites the case of Magdalena Estates v. Rodriguez, “the mere
Agreement shall not in any manner release fact that the creditor receives a guaranty or accepts payments from a third
R&B Surety from its obligation under the person who has agreed to assume the obligation, when there is no agreement
Surety” that the rst debtor shall be released from responsibility, does not constitute a
• Legal effect: increase of the number of novation, and the creditor can still enforce the obligation against the original
persons liable to the obligee, and NOT the debtor.”
extinguishment of the liability of the first
debtor. For the case at bar, 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.
Given this, PNB could proceed against any of the three, in any order or
sequence. PNB never intended to release, and never did release, R&B Overall Ruling
Surety. Thus, R&B Surety, which was not a party to the Trust Agreement, • Indemnity Agreements are contracts of indemnification (against
could not have intended to release any of its own indemnitors simply actual loss and against liability)
because one of those indemnitors, the Trustor under the Trust Agreement, • While in a contract of indemnity against loss, an indemnitor will
became also directly liable to the PNB. not be liable until the person to be indemnified makes payment or
sustains loss, in a contract of indemnity against liability.
• For this case, the indemnitor's liability arises as soon as the liability
of the person to be indemnified has arisen without regard to w/n he
Issue #2
has suffered actual loss.
NO, the Trust Agreement did not release petitioners from their
obligation as indemnitors.
• Indemnity • The petitioner-indemnitors are second-tier NOVATION
Agreement with parties so far as the PNB was concerned and The extinguishment of an obligation by the substitution or change of the obligation
R&B Surety was any extension of time granted by PNB to any by a subsequent one which terminates it, either by changing its object or principal
extinguished when of the first-tier obligors (PAGRICO, R & B 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. (refer to Issue #1 overall ruling for the
the PNB agreed in Surety and the trustor) could not prejudice the
types of novation)
the Trust Agreement second-tier parties
"to hold in abeyance • The mere failure on the part of the creditor to ARTICLE 2079 OF CC
any action to enforce demand payment after the debt has become An extension granted to the debtor by the creditor without the consent of the
its claims against due does not of itself constitute any extension guarantor extinguishes the guaranty. The mere failure on the part of the creditor to
• Applying Art. 2079 of time referred to herein demand payment after the debt has become due does not of itself constitute any
extension of me referred to herein.
of the CC • The mere delay or negligence in proceeding
against the principal will not discharge a VI. Disposition
surety unless such is stipulated
Overall Ruling WHEREFORE, the petitioners' appeal is DENIED for lack of merit and the
The clause "hold in abeyance any action to enforce its claim" against R & B decision of the trial court is AFFIRMED in toto. Costs against the
Surety did not amount to an "extension granted to the debtor" without petitioners. SO ORDERED.
petitioners' consent so as to release petitioners from their undertaking as
indemnitors of R&B Surety under the Indemnity Agreements. VII. Random Facts
Issue #3
NO, the filing of this complaint was not premature.
G.R. No. L-68477 | October 29, 1987 Novation
Balila v IAC Balila v IAC
I. Recit-ready Summary 1. Petitioners were defendants and private respondents were plaintiffs
Petitioners were defendants and private respondents were plaintiffs in a in a Civil Case. They entered into an amicable settlement in
Civil Case. They entered into an amicable settlement on December 11, 1980 December 11, 1980 wherein petitioners admitted “having sold
wherein petitioners admitted “having sold under a pacto de retro sale 3 under a pacto de retro sale 3 parcels of land (Lot 965, Lot 16, Lot
parcels of land (Lot 965, Lot 16, Lot 52) in the amount of P84,000” and that 52) in the amount of P84,000” and that they “hereby promise to
they “hereby promise to pay the said amount within the period of 4 months pay the said amount within the period of 4 months but not later
but not later than May 15, 1981.” More than 7 months after the last day for than May 15, 1981.”
making payments, petitioners redeemed from private respondent Guadalupe
2. December 30, 1981 or more than 7 months after the last day for
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 making payments, petitioners redeemed from private respondent
remaining 2 parcels of land remained unenforced for non-payment of the Guadalupe Lot No. 52 by paying the amount of P20,000.
total obligation. Petitioners opposed, alleging that they had made partial 3. On August 4, 1982, Guadalupe filed a motion for a hearing on the
payments to Guadalupe’s attorney-in-fact and son, Waldo, as well as to the consolidation of the title over the remaining 2 parcels of land
Sheriff. Lower court issued an order affirming consolidation. On June 8, namely Lot 965 and Lot 16 alleging that the earlier court decision
1983, while the lower court order had not yet been enforced, petitioners paid (approving the amicable settlement) remained unenforced for non-
P28,800 to Guadalupe’s son Waldo, thus leaving an unpaid amount of payment of the total obligation. Petitioners opposed, alleging that
P35,200. A certification dated June 8, 1983 and signed by Waldo showed they had made partial payments to Guadalupe’s attorney-in-fact
that petitioners were given a period of 45 days from date or up to July 23, and son, Waldo, as well as to the Sheriff.
1983 within which to pay the balance. Such certification supported 4. Lower court issued an order affirming consolidation
petitioners’ MR of the order of consolidation. MR was however denied. 5. On June 8, 1983, while the lower court’s order had not yet been
The main issue in this case is W/N the judgment by compromise by the enforced, petitioners paid Guadalupe by tendering the amount of
lower court, approving the amicable settlement by the parties, was novated
P28,800 to her son Waldo, thus leaving an unpaid amount of
upon subsequent mutual agreements of the parties? The SC affirmed. The
judgment by compromise was novated by these subsequent mutual P35,200.
agreements and transactions of the parties that took place during the 6. A certification dated June 8, 1983 and signed by Waldo showed
pendency of the MR before the lower court, during pendency of petition for that petitioners were given a period of 45 days from date or up to
certiorari before the IAC, and after filing the petition before the SC. This July 23, 1983 within which to pay the balance. Such certification
was shown by the fact that the respondents accepted the payment from the supported petitioners’ MR of the order of consolidation.
petitioners after the deadline and even gave the petitioners extensions to pay 7. MR was however denied by the lower court and the IAC sustained
their remaining balance to their obligation eight times. In this situation, after the lower court.
judgment has become final, where the facts and circumstances transpire 8. Petitioners raised the issue of whether or not the Dec. 11, 1980
which render its execution impossible or unjust, the interested party may ask decision was novated upon subsequent mutual agreements of the
the court to modify or alter the judgment to harmonize the same with justice said parties.
and the facts. 9. Respondents did not deny that they received the amounts but
asserted that she did not appoint her son, Waldo, to receive for her
Obligations and Contracts (2020) PETITIONER: Spouses Balila 1

DIGEST AUTHOR: Joses RESPONDENT: IAC, Guadalupe vda. de Del Castillo & Waldo del Castillo
any sum of money, and questioned the alleged receipts by the the lands, which compelled them
petitioners for not offering it as evidence. to deposit the said amounts with
the RTC.
III. Issue/s
1. W/N IAC erred in not declaring the contract between the
petitioners and respondents as equitable mortgage and not a pacto
de retro sale thus, erred in not declaring that the Dec. 11, 1980 Overall Ruling
decision was novated upon subsequent mutual agreements of The judgment by compromise rendered by the lower court based on the
the said parties? (YES) terms of the amicable settlement of the parties were not contrary to law,
2. W/N Waldo del Castillo was a person duly authorized by his good morals, or public policy thus, such agreement binds the parties. There
mother, Guadalupe vda. de del Castillo, as her attorney-in-fact to is no question that the petitioners tendered several payments to Waldo even
represent her in transactions involving the questioned properties. after redeeming Lot No. 52. It is seen that the total of the payments reveals
(YES) that the petitioners have fully paid the amount based in the judgment by
compromise.
IV. Holding/s The judgment by compromise was novated by these subsequent
mutual agreements and transactions of the parties. The SC mentioned the
principle that, “after judgment has become final, facts and circumstances
Issue #1 transpire which render its execution impossible or unjust, the interested
YES, the IAC erred in not declaring the contract between the party may ask the court to modify or alter the judgment to harmonize the
petitioners and respondents as equitable mortgage, thus erred in not same with justice and the facts.” This was shown by the fact that the
declaring the Dec. 11, 1980 decision as novated by the subsequent respondents accepted the payment from the petitioners after the deadline and
mutual agreement of the parties. even gave the petitioners extensions to pay their remaining balance to their
Petitioner’s Arguments Court’s Rebuttals obligation eight times. The obligation was indeed novated, as by granting
• Despite the rendition of the said • As a general rule, the lower the extensions of time, it changed the nature of the obligation far from the
decision by the IAC, respondent, court’s judgment by compromise one contemplated in the compromise agreement.
represented by her son Waldo as based on the amicable settlement
her attorney-in-fact, accepted of the parties were binding as Issue #2
payments from petitioners and such amicable settlement were YES, Waldo del Castillo, as the attorney-in-fact of Guadalupe vda. de del
gave several extensions to pay not contrary to law, good Castillo, is authorized to represent Guadalupe and to receive any sum of
the balances (see Additional customs, or public policy. money paid by the petitioners involving the transaction of the questioned
Notes1) • However, records show that lands.
• Respondents Guadalupe and her petitioners made partial payments Overall Ruling
son Waldo were nowhere to be to private respondent Waldo after The SC believes that Waldo del Castillo was so authorized by his
found on the last day to pay their May 15, 1981 redeeming Lot No. mother, Guadalupe vda de del Castillo as her attorney-in-fact to represent
P10,000 balance and to reconvey 52. her in transactions involving the properties in question based on the

cognizance of the fact embodied in the decision of the IAC (see Additional DORMITORIO v. FERNANDEZ
Notes2). "What was done by respondent Judge in setting aside the writ of execution
The claim of the respondents on failure of the petitioners to present in Civil Case No. 5111 finds support in the applicable authorities. There is
proofs of payment was negated by the transactions that took place during this relevant excerpt in Barretto v. Lopez, this Court speaking through the
the pendency of the MR before the lower court, during pendency of petition then Chief Justice Paras: "Allegating that the respondent judge of the
municipal court had acted in excess of her jurisdiction and with grave abuse
for certiorari before the IAC, and after filing the petition before the SC.
of discretion in issuing the writ of execution of December 15, 1947, the
petitioner has filed the present petition for certiorari and prohibition for the
V. Law or Doctrine Applied purpose of having said writ of execution annulled. Said petition is
meritorious. The agreement filed by the parties in the ejectment case created
ART. 2028 OF THE CIVIL CODE – COMPROMISE
as between them new rights and obligations which naturally superseded the
Art. 2028. A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced. judgment of the municipal court." In Santos v. Acuna, it was contended that
a lower court decision was novated by the subsequent agreement of the
Like any other contract, a compromise agreement must comply with the requisites in parties. Implicit in this Court's ruling is that such a plea would merit
Article 1318 of the Civil Code, to wit: (a) consent of the contracting parties; (b) approval if indeed that was what the parties intended. . .”
object certain that is the subject matter of the contract; and (c) cause of the
obligation that is established. Like any other contract, the terms and conditions of a VI. Disposition
compromise agreement must not be contrary to law, morals, good customs, public
policy and public order. WHEREFORE, finding merit in the petition, the same is hereby given
DUE COURSE and the assailed decision, SET ASIDE. Private respondents
DE LOS SANTOS v. RODRIGUEZ
"As early as Molina vs. De la Riva, the principle has been laid down that, when, are hereby ordered to reconvey and deliver Lot No. 965 and Lot No. 16 as
after judgment has become final, facts and circumstances transpire which covered by TCT Nos. 146360 and 146361 respectively in favor of
render its execution impossible or unjust, the interested party may ask the petitioners. Should private respondents fail to do so, the Clerk of Court of
court to modify or alter the judgment to harmonize the same with justice and the the Regional Trial Court concerned is ordered to execute the necessary deed
facts. of reconveyance, conformably with the provisions of the Rules of Court.
"For this reason, in Amor vs. Judge Jose, we used the following language: The local Register of Property is ordered to register said deed of
"The Court cannot refuse to issue a writ of execution upon a final and reconveyance. Private respondents are hereby authorized to withdraw the
executory judgment, or quash it, or order its stay, for, as a general rule, balance in the amount of P10,000 consigned by petitioners on January 9,
parties will not be allowed, after final judgment, to object to the execution
1985 with the trial court as per OR No. 9764172 (Annex "O") a full
by raising new issues of fact or of law, except when there had been a
change in the situation of the parties which makes such execution payment of petitioners' obligation.
inequitable; or when it appears that the controversy has never been This decision is immediately executory and no motion for extension of
submitted to the judgment of the court, or when it appears that the writ of the period within which to file a motion for reconsideration will be granted.
execution has been improvidently issued, or that it is defective in SO ORDERED.
substance, or issued against the wrong party or that judgment debt has
been paid or otherwise satisfied; or when the writ has been issued without VII. Additional Notes
authority.”

• 1
RESPONDENTS ACCEPTED PAYMENTS & GAVE
EXTENSIONS TO PAY PETITIONERS’ BALANCES DESPITE
IAC’S DECISION:
• 2
IAC’S DECISION WHICH TOOK COGNIZANCE OF WALDO TO
REPRESENT GUADALUPE IN HER TRANSACTIONS
INVOLVING THE PROPERTIES:
"It may be mentioned that on May 25, 1981, Guadalupe Vda. de Del
Castillo, represented by her attorney in fact Waldo Castillo, filed a
complaint for consolidation of ownership against the same petitioners
herein before the Court of First Instance of Pangasinan, docketed as Civil
Case No. U-3650, the allegations of which are identical to the complaint
filed in Civil Case No. U-3501 of the same court. This case (U-3650) was,
however, dismissed in an Order dated May 27, 1983, in view of the order
of consolidation issued in Civil Case No. U- 3501."
VII. Random Facts

• Ponente: Paras, J.

G.R. No. L-29280 | August 11, 1988 Novation
People vs Syvel’s Incorporated People vs Syvel’s Incorporated
I. Recit-ready Summary its stocks of goods, personal properties and other materials owned
People’s Bank and Trust Company granted Syvel’s Incorporated a credit by it and located at its stores or warehouses.
commercial line in the amount of 900,000. A chattel mortgage was executed 3. Antonio Syyap and Angel Syyap both agreed to guarantee
by Syvel’s Inc. in favor of People’s Bank to secure the credit line. Antonio absolutely and unconditionally and without the benefit of
Syyap and Angel Syyap also both agreed to guarantee any indebtedness to excussion the full and prompt payment of any indebtedness to be
be incurred on account of the said credit line. Syvel’s Inc drew advances incurred on account of the said credit line.
against the credit line but later failed to make payments. 4. Syvel’s Inc drew advances against the credit line granted to it but
later failed to make payment based on the terms of the Commercial
People’s Bank then filed a foreclosure action against the respondents and Credit Agreement.
the respondents, in turn, filed a counterclaim for damages. During the 5. People’s Bank started to foreclose extrajudicially the chattel
pendency of the case, both parties held a conference where they agreed that mortgage but this did not push thru due to an attempt to settle the
People’s Bank will dismiss the case in return for the execution of a Real matter. Since no payment was made, this action for foreclosure of
Estate Mortgage by Mr. Syyap. People’s Bank prepared a motion to dismiss chattel mortgage was eventually filed in Court.
the case, however, the respondents did not want to agree if the dismissal 6. People’s Bank claims that respondents are disposing of their
would mean also the dismissal of their counterclaim for damages. Trial then properties with intent to defraud their creditors. A writ of
proceeded. preliminary attachment was then issued. As a consequence of the
issuance of the writ of attachment, respondents filed a counterclaim
The issue in this case is whether or not the execution of the real estate for damages.
mortgage resulted in the novation of the obligation secured by the chattel 7. During the pendency of this case in the trial court, Antonio Syyap
mortgage subject of this foreclosure action. The court said no. Novation is proposed to have the case settled amicably.
never presumed; it must be explicitly stated or there must be manifest 8. A conference was held by both parties where Mr. Syyap requested
incompatibility between the old and the new obligations in every aspect. In that People’s Bank dismiss this case because he did not want to
this case, there was neither explicit provision nor incompatibility between have the goodwill of Syvel’s Inc. impaired and offered to execute a
the old and new obligations to prove novation. The real estate mortgage was real estate mortgage on his real property.
executed merely as additional security. 9. The Real Estate Mortgage was executed by Mr. Syyap and his
wife.
II. Facts of the Case 10. People’s Bank, in turn, complied with their promise and prepared a
1. People’s Bank and Trust Company granted Syvel’s Incorporated a motion to dismiss the case. However, the respondents did not want
credit commercial line in the amount of 900,000. to agree if the dismissal would mean also the dismissal of their
2. In connection with this credit commercial line, a chattel mortgage counterclaim for damages against People’s Bank. Trial then
was executed by Syvel’s Inc. in favor of People’s Bank covering proceeded.
1
Obligations and Contracts (2020) PETITIONER: People’s Bank and Trust Company
DIGEST AUTHOR: Myna RESPONDENT: Syvel’s Incorporated, Antonio Syyap and Angel Syyap
11. Respondents filed their own motion to dismiss on the ground that Overall Ruling
by the execution of the real estate mortgage, the obligation secured
by the chattel mortgage subject of this case was novated and Novation takes place when the object or principal obligation is changed or
therefore, the cause of action of People’s Bank was extinguished. altered. It is elementary that novation is never presumed; it must be
III. Issue/s explicitly stated or there must be manifest incompatibility between the old
1. W/N the execution of the real estate mortgage resulted in the and the new obligations in every aspect.
novation of the obligation secured by the chattel mortgage
which is the subject of this foreclosure action. NO In this case, there is nothing in the Real Estate Mortgage which supports the
Respondents’ argument. The contract on its face does not show the
IV. Holding/s existence of an explicit novation nor incompatibility on every point between
Issue #1 the “old” and “new” agreements as the second contract evidently indicates
NO, the obligation was not novated by the execution of the Real Estate that the same was executed as new additional security to the chattel
Mortgage. mortgage previously entered into by the parties.
● The obligation secured by the ● In this case, there was neither Records show that in the real estate mortgage, respondents agreed that the
Chattel Mortgage was novated explicit provision nor chattel mortgage shall remain in force and shall not be impaired by the real
by the subsequent execution of incompatibility to prove estate mortgage. The provision says:
the Real Estate Mortgage novation. The real estate “that the chattel mortgage executed by Syvel’s; real estate mortgage
during the pendency of the mortgage was executed merely as executed by Angel and Rita Syyap shall remain in full force and shall not be
case. additional security. impaired by this mortgage.”
It is clear therefore that a novation was not intended. The Real Estate
Mortgage was taken as an additional security for the performance of the
contract.
V. Law or Doctrine Applied.
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
2
the old and the new obligations be on every point incompatible with each
other.
VI. Disposition
PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit

and the judgment appealed from is AFFIRMED.

VII. Random Facts
3
G.R. No. 79642 | July 5, 1993
BROADWAY CENTRUM v. TROPICAL HUT BROADWAY CENTRUM v. TROPICAL HUT
I. Recit-ready Summary 6. Broadway then sent a letter to Tropical stating that the monthly
On November 1980, Broadway Centrum Condominium Corporation rentals would now be increased.
("Broadway") and Tropical Hut Food Market, Inc. ("Tropical") executed a 7. Tropical made multiple counter offers but were rejected by
contract of lease. Broadway agreed to lease a portion of the Broadway Broadway.
Centrum Commercial Complex for a ten years. Tropical Supermarket in the 8. This prompted Tropical to file a complaint against Broadway.
Broadway Centrum then experienced low sales volume due to the temporary
closure of Dona Juana Rodriguez Avenue. On April 1982, Tropical and III. Issue/s
Broadway agreed to a "provisional and temporary agreement" which 1. W/N the letter-agreement dated April 1982 had novated the
reduces the monthly rental of Tropical on the basis of 2% of gross receipts Lease Contract dated November 1980? NO.
or P60,000.00 whichever is higher. Months later, the road expansion project
at the Dona Juana Rodriguez Avenue was completed. Broadway then sent a IV. Holding/s
letter to Tropical stating that the monthly rentals would now be increased.
Tropical made multiple counter offers but were rejected by Broadway. This Issue #1
prompted Tropical to file a complaint against Broadway. The issue in this NO, the letter-agreement dated April 1982 had not novated the Lease
case is whether or not the letter-agreement dated April 1982 had novated the Contract dated November 1980.
Lease Contract dated November 1980. The court ruled that the letter- Tropical’s Arguments Court’s Rebuttals
agreement had not novated the contract of lease. • The letter-agreement novated the • Novation is never presumed; it
contract of lease. must be established either by the
II. Facts of the Case (Material Facts) discharge of the old debt by the
1. On November 1980, Broadway Centrum Condominium express terms of the new
Corporation ("Broadway") and Tropical Hut Food Market, Inc. agreement, or by the acts of the
("Tropical") executed a contract of lease. parties.
2. Broadway agreed to lease a portion of the Broadway Centrum
Commercial Complex for a ten years.
3. Tropical Supermarket in the Broadway Centrum then experienced
low sales volume due to the temporary closure of Dona Juana
Rodriguez Avenue.
4. On April 1982, Tropical and Broadway agreed to a "provisional
and temporary agreement" which reduces the monthly rental of
Tropical on the basis of 2% of gross receipts or P60,000.00
whichever is higher.
5. Months later, the road expansion project at the Dona Juana
Rodriguez Avenue was completed.
Obligations and Contracts (2020) PETITIONER: BROADWAY CENTRUM CONDOMINIUM CORP. 1

DIGEST AUTHOR: John Joves RESPONDENT: TROPICAL HUT FOOD MARKET, INC.
G.R. No. 79642 | July 5, 1993
BROADWAY CENTRUM v. TROPICAL HUT BROADWAY CENTRUM v. TROPICAL HUT

The court ruled that for objective novation to take place, it is essential that
the new obligation expressly declare that the old obligation is to be WHEREFORE, for all the foregoing, the Petition for Review on Certiorari
extinguished. Novation is never presumed, it must be established either by is hereby GIVEN DUE COURSE, and the Comment filed by private
the discharge of the old debt by the express terms of the new agreement, or respondent Tropical is hereby TREATED as its Answer and the Decision
dated 30 January 1987 of the Court of Appeals and the Decision dated 14
by the acts of the parties.
March 1985 of the trial court are hereby R E V E R S E D and S E T A S I
D E . A new judgment is hereby entered dismissing the complaint filed by
Applying this to the case, it is clear that the letter-agreement did not private respondent Tropical, and requiring private respondent Tropical to
extinguish or alter the obligations of Tropical under the contract of lease. pay to petitioner Broadway the following rental rates: 1. P80,000.00 per
First, the letter-agreement of 20 April 1982 was, by its own terms, a " month from 1 January 1983 up to 30 June 1983;
provisional and temporary agreement to a reduction of Tropical's monthly 2. P100,000.00 per month from 1 July 1983 up to 31 January 1984;
rental. Second, the formal notarized Lease Contract of November 1980 3. P140,000.00 per month from 1 February 1984 to 1 February 1987; and.
made it clear that a temporary and provisional concessional reduction of 4. P160,000.00 per month from 1 February 1987 to 31 January 1991. The
rentals which Broadway might grant to Tropical was not to be construed as penalty of 2% per month on unpaid rentals specified in Section 5 of the 28
alteration or waiver of any of the terms of the Lease Contract itself. Third, November 1980 Contract of Lease is, in the exercise of the Court's
the course of negotiations between Broadway and Tropical before the discretion, hereby equitably REDUCED to ten percent (10%) per annum
execution of their letter-agreement of 20 April 1982, quite clearly indicated computed from accrual of such rentals as above specified until fully paid. In
that they were negotiating was a temporary and provisional reduction of addition, private respondent Tropical shall pay to petitioner Broadway
attorney's fees in the amount of ten percent (10%) (and not twenty percent
rentals. Lastly, the course of discussions between Broadway and Tropical,
[20%] as specified in Section 33 of the Contract of Lease) of the total
as disclosed in their correspondence, after the execution of the letter- amount due and payable to petitioner Broadway under this Decision. Costs
agreement, shows that the reduction of rentals agreed upon in the letter- against private respondent. SO ORDERED.
agreement was not to persist for the rest of the ten (10)-year Contract of
Lease.
NOVATION IS NOT PRESUMED
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 manifested.
Obligations and Contracts (2020) PETITIONER: BROADWAY CENTRUM CONDOMINIUM CORP. 2

DIGEST AUTHOR: John Joves RESPONDENT: TROPICAL HUT FOOD MARKET, INC.
G.R. No. 118585 | September 14, 1995 Novation
Ajax Marketing v. CA Ajax Marketing v. CA
I. Recit-ready Summary that the mortgaged property shall also answer for future loans or
The petitioners are questioning the validity of the extrajudicial advancements. Hence, there was no need to execute a new real estate
foreclosure sale of their property in the District of Paco. The same real mortgage for the consolidated loan.
estate mortgage secured 3 separate loans obtained by a partnership which
changed its composition and name from Ylang-Ylang Merchandising II. Facts of the Case (Material Facts)
Company to Ajax Marketing Company and finally to a corporation 1. Ylang-Ylang Merchandising Company, a partnership between
denominated as Ajax Marketing and Development Corporation. The 3 Angelita Rodriguez and Antonio Tan, obtained a loan in the
separate loans were restructured and consolidated into one single loan of P1 amount of P250,000.00 from the Metropolitan Bank and Trust
million. A promissory note was executed for such aggregate amount. Company.
The relevant issue is whether or not the consolidation of the 3 loans into 2. To secure payment of the same, spouses Marcial See and Lilian
a single loan was a mere restructuring that did not effect a novation as to Tan constituted a real estate mortgage in favor of said bank over
extinguish the accessory mortgage contracts. The Court ruled that there is their property in the District of Paco.
nothing in the records to show the intent of the parties to novate the 3 loan 3. The mortgage was annotated at the back of the title.
agreements through the execution of the promissory note. Moreover, the 4. Subsequently, after the partnership had changed its name to Ajax
real estate mortgages contained a provision showing that petitioners agreed Marketing Company albeit without changing its composition, it
to apply the real estate property to secure obligations that they may obtained a P150,000.00 loan from Metropolitan Bank and Trust
thereafter obtain including their renewals or extensions with the principals. Company.
The promissory note merely restructured and renewed the 3 previous loans 5. Again to secure the loan, spouses Marcial See and Lilian Tan
to expediently make the loans current. There was no change in the object executed in favor of said bank a second real estate mortgage over
of the prior obligations. The consolidation of the 3 loans, contrary to the same property duly annotated at the back of TCT No. 105233.
petitioners' contention, did not release the mortgaged real estate property 6. The partnership (Ajax Marketing Company) was converted into a
from any liability because the mortgage annotations at the back of the title, corporation denominated as Ajax Marketing and Development
in fact, all remained uncancelled. Neither can it be validly contended that Corporation, with the original partners (Angelita Rodriguez and
there was a change or substitution in the persons of either the creditor or the Antonio Tan) as incorporators and 3 additional incorporators.
debtor. The bare fact of petitioner's conversion from a partnership to a 7. Ajax Marketing and Development Corporation obtained from
corporation did not make AJAX, with its new corporate personality, a third Metropolitan Bank and Trust Company a loan of P600,000.00, the
person or new debtor within the context of a subjective novation. If at all, payment of which was secured by another real estate mortgage
petitioner AJAX only became a co-debtor or surety. Without express release executed by spouses Marcial See and Lilian Tan in favor of said
of the debtor from the obligation, any third party who may thereafter assume bank over the same realty located in the District of Paco, Manila.
the obligation shall be considered merely as co-debtor or surety. 8. Again, the third real estate mortgage was annotated at the back of
Another issue is whether or not the extrajudicial foreclosure sale was TCT No. 105233.
invalid as it included 2 unsecured loans. The Court ruled that the
extrajudicial foreclosure was valid because the parties expressly intended
Obligations and Contracts (2020) PETITIONER: Ajax Marketing & Development Corporation, Antonio Tan, 1
Elisa Tan, Tan Yee, and Sps. Marcial See and Lilian Tan
DIGEST AUTHOR: Allyzza Tanhueco RESPONDENT: Hon. Court of Appeals, Metropolitan Bank and Trust
Company, and The Sheriff of Manila
9. The 3 loans with an aggregate amount of P1,000,000.00 were re- Overall Ruling
structured and consolidated into 1 loan and Ajax Marketing and The attendant facts herein do not make a case of novation. There is
Development Corporation, represented by Antonio Tan as Board nothing in the records to show the unequivocal intent of the parties to novate
Chairman/President and in his personal capacity as solidary co- the 3 loan agreements through the execution of the promissory note. Its
obligor, and Elisa Tan as Vice-President/Treasurer and in her provisions yield no indication of the extinguishment of, or an
personal capacity as solidary co-obligor, executed a Promissory incompatibility with, the 3 loan agreements secured by the real estate
Note (PN) No. BDS-3605. mortgages. On its face, the promissory note has these words typewritten:
10. The Court of Appeals affirmed the trial court's judgment upholding "secured by REM" and "9. COLLATERAL. This is wholly/partly secured by:
the validity of the extrajudicial foreclosure of the real estate (x) real estate," which strongly negate petitioners' asseveration that the
property of petitioners-spouses Marcial See and Lilian Tan, located consolidation of the 3 loans effected the discharge of the mortgaged real
at Paco District, Manila covered by TCT 105233, by private estate property. Otherwise, there would be no sense placing these material
respondent Metropolitan Bank and Trust Company (Metrobank). provisions.
Moreover, the real estate mortgages contained a provision showing that
III. Issue/s petitioners agreed to apply the real estate property to secure obligations that
1. W/N the consolidation of the 3 loans granted separately to 3 they may thereafter obtain including their renewals or extensions with the
entities into a single loan of P1.0 Million was a mere principals fixed at P600,000, P150,000, and P250,000 which when added
restructuring and did not effect a novation of the loan as to have an aggregate sum of P1 million. The promissory note merely
extinguish the accessory mortgage contracts? YES. restructured and renewed the 3 previous loans to expediently make the loans
2. W/N the extrajudicial foreclosure is invalid as it included 2 current. There was no change in the object of the prior obligations. The
unsecured loans? NO. consolidation of the 3 loans, contrary to petitioners' contention, did not
release the mortgaged real estate property from any liability because the
IV. Holding/s mortgage annotations at the back of the title, in fact, all remained
Issue #1 uncancelled, thus indicating the continuing subsistence of the real estate
YES, the consolidation of the 3 loans into a single loan was a mere mortgages.
restructuring and did not effect a novation of the loan as to extinguish Neither can it be validly contended that there was a change or
the accessory mortgage contracts. substitution in the persons of either the creditor (Metrobank) or more
Petitioner’s Arguments specifically the debtors (petitioners) upon the consolidation of the loans.
• Petitioners argue that a novation occurred when their 3 loans which are The bare fact of petitioner's conversion from a partnership to a corporation,
all secured by the same real estate property were consolidated into a without sufficient evidence, either testimonial or documentary, that they
single loan of P1 million under Promissory Note No. BDS-3605, were expressly released from their obligations, did not make petitioner
thereby extinguishing their monetary obligations and releasing the AJAX, with its new corporate personality, a third person or new debtor
mortgaged property from liability. within the context of a subjective novation. If at all, petitioner AJAX only
became a co-debtor or surety. Without express release of the debtor from the No. 3605 only, plus interests, expenses and other charges accruing thereto.
obligation, any third party who may thereafter assume the obligation shall It is Metrobank's duty as mortgagee to return the surplus in the selling price
be considered merely as co-debtor or surety. Novation arising from a to the mortgagors.
purported change in the person of the debtor must be clear and express
because it is never presumed. Clearly then, neither objective nor subjective V. Law or Doctrine Applied
novation occurred in this case.
NOVATION
Novation is the extinguishment of an obligation by the substitution or
Issue #2 change of the obligation by a subsequent one which extinguishes or modifies the
NO, the extrajudicial foreclosure is valid. first, either by changing the object or principal conditions, or by substituting another
Petitioner’s Arguments in place of the debtor, or by subrogating a third person in the rights of the creditor.
• The consolidated loan was not accompanied by the execution of a new Novation, unlike other modes of extinction of obligations, is a juridical act with a
real estate mortgage, as was done by the Bank in the earlier 3 loans, and dual function, namely, it extinguishes an obligation and creates a new one in lieu of
the old. It can be objective, subjective, or mixed. Objective novation occurs when
hence, was, to all legal intents/purposes, unsecured. there is a change of the object or principal conditions of an existing obligation while
• The extrajudicial foreclosure is invalid as it included 2 unsecured loans: subjective novation occurs when there is a change of either the person of the debtor,
one, the consolidated loan of P1 million under PN BDS No. 3605, and or of the creditor in an existing obligation. When the change of the object or
two, the P970,000.00 loan under PN BDS No. 3583 subsequently principal conditions of an obligation occurs at the same time with the change of
either in the person of the debtor or creditor a mixed novation occurs.
extended by Metrobank.
Overall Ruling The well settled rule is that novation is never presumed. Novation will not be
An action to foreclose a mortgage is usually limited to the amount allowed unless it is clearly shown by express agreement, or by acts of equal import.
mentioned in the mortgage, but where on the four corners of the mortgage Thus, to effect an objective novation it is imperative that the new obligation
contracts, as in this case, the intent of the contracting parties is manifest that expressly declare that the old obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the new one. In the same vein, to
the mortgaged property shall also answer for future loans or advancements effect a subjective novation by a change in the person of the debtor it is necessary
then the same is not improper as it is valid and binding between the parties. that the old debtor be released expressly from the obligation, and the third person or
For merely consolidating and expediently making current the 3 previous new debtor assumes his place in the relation. There is no novation without such
loans, the loan of P1 million under PN BDS No. 3605, secured by the real release as the third person who has assumed the debtor's obligation becomes merely
estate property, was correctly included in the foreclosure's bid price. The a co-debtor or surety.
inclusion of the unsecured loan of P970,000.00 under another promissory
VI. Disposition
note, however, was found to be improper by the CA which ruling the SC did
WHEREFORE, the decision appealed from is hereby AFFIRMED in toto.
not disturb for Metrobank's failure to appeal therefrom. Nonetheless, the
SO ORDERED.
inclusion of the other promissory note in the bid price did not invalidate the
foreclosure proceedings. As correctly pointed out by the CA, the proceeds VII. Random Facts
of the auction sale should be applied to the obligation pertaining to PN BDS • Ponente: Francisco, J.
G.R. No.126713 | July 27, 1998 Novation
Cruz v CA Cruz v CA
I. Recit-ready Summary partitioned but the former co-owner intended to share with the petitioners
Delfin I. Cruz and Adracion Cruz were spouses and their children the proceeds of any sale of the land.
were Thelma, Nerissa, Amel, and Gerry Cruz. Upon the death of Delfis, his The MOA does not express a clear intent to dissolve the old
surviving spouse and children executed a notarized Deed of Partial Partition obligation. It is also not incompatible with the DPP. The DPP granted the
(DPP) where each one was given a share of several parcels of land. The next title to the lots in question to the co-owner to whom they were assigned
day, they executed a Memorandum of Agreement (MOA) which has a while the MOA merely created an obligation on the part of the co-owner to
stipulation that the parties are common co-owners pro-indiviso in equal share with the others the proceeds of the sale.
shares. The parties then caused the consolidation and subdivision of the II. Facts of the Case (Material Facts)
lands they inherited from Delfin. The lands in question were issued to 1. Delfin I. Cruz and Adracion Cruz were spouses and their children
Nerissa Cruz Tamayo. were Thelma, Nerissa, Amel, and Gerry Cruz. Upon the death of
Meanwhile, the Spouses Malolos filed a case against the spouses Delfis, his surviving spouse and children executed a notarized
Nerissa and Nelson Tamayo for a sum of money. The Court of First Deed of Partial Partition (DPP) where each one was given a share
Instance (CFI) ruled in favor of the Maloloses. This decision later became of several parcels of land.
final. Pursuant to a writ of execution, the sheriff of the court to levy upon 2. The next day, they executed a Memorandum of Agreement (MOA)
the lands in question. The property was sold to the Maloloses. The which provided that the parties are common co-owners
Maloloses asked Nerissa for the owner’s duplicate copy for the land in pro-indiviso in equal shares, and that the parties are bound to one
question but she refused. Thus, the Maloloses asked the court to declare the another that they shall receive equal shares from the proceeds of
titles null and void the sale of any of the lots.
Adoracion, Thelma, Gerry, and Arnel Cruz filed a motion with the 3. The MOA was registered and annotated in the titles of the lands
CFI for leave to intervene and oppose the Maloloses’ motion. They alleged covered by the DPP
that they were co-owners of Nerissa over the lands in question. 4. The parties then caused the consolidation and subdivision of the
The RTC ruled in favor of the petitioners and ordered the partition lands they inherited from Delfin. The lands in question were issued
of the seven parcels of land among the plaintiffs and defendants.The CA to Nerissa Cruz Tamayo.
reversed the RTC’s decision and dismissed the case. The petitioners 5. The Spouses Malolos filed a case against the spouses Nerissa and
appealed. Hence, this petition Nelson Tamayo for a sum of money. The Court of First Instance
The pertinent issue in this case is W/N the Memorandum of (CFI) ruled in favor of the Maloloses. This decision later became
Agreement novated or cancelled the Deed of Partial Partition? final
The SC ruled in the negative. The stipulation that the petitioners 6. A writ of execution was executed, prompting the sheriff of the
and Spouses Tamayo were co-owners was merely the introductory part of court to levy upon the lands in question. The property was sold to
the MOA. Following that is a stipulation that the parcels of land had been the highest bidders, the Maloloses.
1
Obligations and Contracts (2020) PETITIONER: Adoracion E. Cruz, Thelma Debbie E. Cruz, and Gerry E.
Cruz
DIGEST AUTHOR: Alfonso Fernandez RESPONDENT: CA and Spouses Eliseo and Virginia Malolos
Cruz v CA Cruz v CA
7. Nerissa failed to exercise her right of redemption so the final deed Overall Ruling
of sale was executed. The Maloloses asked Nerissa for the owner’s If the MOA novated the DPP, the petitioners would be the
duplicate copy for the land in question but she refused. Thus, the co-owners with the spouses Tamayo of the land in question and partition
Maloloses asked the court to declare the titles null and void should ensue upon motion of the petitioners. If not, then the Spouses
8. Adoracion, Thelma, Gerry, and Arnel Cruz filed a motion with the Tamayo are the absolute owners and no partition should be made.
CFI for leave to intervene and oppose the Maloloses’ motion. They The MOA does not noavate the DPP. Novation requires the
alleged that they were co-owners of Nerissa over the lands in concurrence of the following elements: (1) there is a previous valid
question. obligation, (2) the parties concerned agree to a new contract, (3) the old
9. The RTC ruled in favor of the petitioners and ordered the partition contract is extinguished, and (4) there is a valid new contract. Further,
of the seven parcels of land among the plaintiffs and defendants. Article 1292 provides that novation may be expressed or implied.
10. The CA reversed the RTC’s decision and dismissed the case. The The stipulation that the petitioners and Spouses Tamayo were
petitioners appealed. Hence, this petition co-owners was merely the introductory part of the MOA. Following that is a
stipulation that the parcels of land had been partitioned but the former
III. Issue/s co-owner intended to share with the petitioners the proceeds of any sale of
1. W/N the Memorandum of Agreement novated or cancelled the the land.
Deed of Partial Partition? NO. The MOA does not express a clear intent to dissolve the old
IV. Holding/s obligation. It is also not incompatible with the DPP. The DPP granted the
Issue #1 title to the lots in question to the co-owner to whom they were assigned
2. W/N the Memorandum of Agreement novated or cancelled the while the MOA created an obligation on the part of the co-owner to share
Deed of Partial Partition? NO. with the others the proceeds of the sale.
Petitioner’ Arguments Court’s Rebuttals
● The MOA names the petitioners ● The MOA fails to produce V. Law or Doctrine Applied
as co-owners of the parcels of novation as it does not dissolve Novation
land, thus, novating their earlier the old obligation. Novation requires the concurrence of the following elements: (1)
agreement. ● The DPP and MOA can exist there is a previous valid obligation, (2) the parties concerned agree to a new
● The DPP and MOA are together and must be interpreted contract, (3) the old contract is extinguished, and (4) there is a valid new
materially and substantially as to give life to both. contract. Further, Article 1292 provides that novation may be expressed or
incompatible with each other. implied.
Contracts
2
Cruz
Cruz v CA Cruz v CA
When the text of a contract is explicit and leaves no doubt as to its

intention, the court may not read into it any other intention that would
contradict its plain import.
VI. Disposition
WHEREFORE, the petition is hereby DENIED and that assailed Decisions
is AFFIRMED. Cost against petitioners.

● The SC also discussed estoppel and res judicata in support of their
ruling.
VII. Random Facts

● Ponente: Panganiban, J.
3
Cruz
G.R. No. 162826 | October 14, 2013 Novation
Degaños v. People Degaños v. People
I. Recit-ready Summary 1. The accused Narciso Deganos received from Spouses Jose
The accused Narciso Degaños and Brigida Luz entered into a and Lydia Bordador gold and pieces of jewelry under express
business transaction with complainants Jose and Lydia Brodador, obligation to sell on commission and remit the proceeds or
whereby Degaños and Luz would collect gold and jewelry from the return the unsold items.
spouses and sell on their behalf. The transactions were covered by 2. Lydia Bordador, a jeweler, testified that accused Narciso
“Katibayan at Kasunduan” receipts which provide that if accused & Degaños and Brigida Luz are siblings. According to Lydia,
Luz could not pay in cash, they should pay it after one month or Luz was the one who gave instructions to Narciso Degaños
return the unsold items. Degaños and Luz were able to pay up to a to get the items from Lydia for them to sell.
certain point. However, after some time they failed to pay their 3. Lydia testified that Luz called her to ask if she could trust
obligation amounting to Php 725,000. The accused failed and refused Narciso Degaños to get the pieces of jewelry from her for
to pay and return the jewelry despite repeated demands. RTC found Luz to sell. Lydia agreed on the condition that if they could
Degaños guilty of estafa under Art. 315 of the RPC while Luz was not pay it in cash, they should pay it after one month or
acquitted. Accused Degaños categorically admitted that he is the only return the unsold jewelry within the said period.
one who is indebted to the private complainants, and out of his 4. Lydia then delivered the jewelry starting sometime in 1986
indebtedness, he already made partial payments in the amount of as evidenced by several documents entitled “Katibayan at
P53,307. Deganos asserts that his partial payments to the Kasunduan”
complainants novated his contract with them from agency to loan, 5. Everytime Narciso Degaños got jewelry from her, he signed
thereby converting his liability from criminal to civil. the receipts in her presence.
6. Deganos and Luz were able to pay only up to a certain point.
The issue is W/N the CA erred in not finding that novation had However, after some time they no longer paid and the
converted the liability of the accused into a civil one. SC held that no, accused failed to return the jewelry covered by such receipts.
since novation did NOT transpire as to prevent the incipient criminal 7. Despite oral and written demands, the accused failed and
liability from arising. The partial payments Deganos made and his refused to pay and return the subject jewelry.
purported agreement to pay the remaining obligations did not equate 8. Jose Bordador corroborated the testimony of his wife, Lydia.
to a novation of the original contractual relationship of agency to one He confirmed that their usual business practice with the
of sale. Novation is not a ground under the law to extinguish criminal accused was for Degaños to receive the items in behalf of
liability. Novation is limited in its effect only to the civil aspect of Luz and for Degaños to sign the “Kasunduan at Katibayan”
the liability, and, for that reason, is not an efficient defense in estafa. receipts while Luz will pay for the price later on. For the last
Only the State may validly waive the criminal action against an one year, the “Kasunduan at Katibayan” receipts were signed
accused. in his presence.
9. Luz contended that she had no participation in the
II. Facts of the Case (Material Facts) transactions covered by the “Katibayan at Kasunduan”
receipts.
Obligations and Contracts (2020) PLAINTIFF: Narcisso Deganos 1

DIGEST AUTHOR: Pia Casano DEFENDANT: People of the Philippines
10. Accused Degaños categorically admitted that he is the unsold items. As such, he
the only one who is indebted to the private was the agent of the
complainants, and out of his indebtedness, he already complainants in the sale.
made partial payments in the amount of P53,307.
11. RTC Malolos found Degaños guilty of estafa under Art. 315 • That his partial payments to • The partial payments he
of the RPC while Brigida Luz was acquitted for insufficiency the complainants novated his made and his purported
of evidence. contract with them from agreement to pay the
12. On appeal, the CA held that the transaction was an agency, agency to loan, thereby remaining obligations did not
not a sale on credit and that novation did not transpire as to converting his liability from equate to a novation of the
prevent the incipient criminal liability from arising. criminal to civil. He insists original contractual
that his failure to complete relationship of agency to one
III. Issue/s his payments prior to the of sale.
1. W/N the CA erred in not finding that novation had filing of the complaint-
converted the liability of the accused into a civil one. – NO. affidavit by the complainants
notwithstanding, the fact that
IV. Holding/s the complainants later
required him to make a
Issue #1 formal proposal before the
No, novation did NOT transpire as to prevent the incipient barangay authorities on the
criminal liability from arising. payment of the balance of his
Degaños Arguments Court’s Rebuttals outstanding obligations
confirmed the novation.
• That his agreement with the • Based on the express terms
complainants relative to the and tenor of the Kasunduan Overall Ruling
items of jewelry and gold at Katibayan, Degaños
subject of the amended received and accepted the Novation is the extinguishment of an obligation by the substitution or
information as embodied in items under the obligation to change of the obligation by a subsequent one that terminates the first,
the relevant Kasunduan at sell them in behalf of the either by (a) changing the object or principal conditions; or (b)
Katibayan was a sale on complainants. Plainly, the substituting the person of the debtor; or (c) subrogating a third person
credit, not a consignment to transaction was a in the rights of the creditor. In order that an obligation may be
sell on commission basis. consignment under the extinguished by another that substitutes the former, it is imperative
obligation to account for the that the extinguishment be so declared in unequivocal terms, or that
proceeds of sale, or to return the old and the new obligations be on every point incompatible with

each other. Novation is not a ground under the Revised Penal Code to VI. Disposition
extinguish criminal liability. Not being included in the list, novation WHEREFORE, the Court AFFIRMS the decision of the Court of
is limited in its effect only to the civil aspect of the liability, and, for Appeals promulgated on September 23, 2003;
that reason, is not an efficient defense in estafa. This is because only and ORDERS petitioner to pay the costs of suit.
the State may validly waive the criminal action against an accused.
The role of novation may only be either to prevent the rise of VII. Additional Notes
criminal liability, or to cast doubt on the true nature of the original
basic transaction, whether or not it was such that the breach of the VIII. Random Facts
obligation would not give rise to penal responsibility. • Ponente: Bersamin, J.

ARTICLE 89, RPC
How criminal liability is totally extinguished. — Criminal liability is totally
extinguished:
(1) By the death of the convict, as to the personal penalties and as to pecuniary
penalties, liability therefor is extinguished only when the death of the offender
occurs before final judgment.
(2) By service of the sentence;
(3) By amnesty, which completely extinguishes the penalty and all its effects;
(4) By absolute pardon;
(5) By prescription of the crime;
(6) By prescription of the penalty;
(7) By the marriage of the offended woman, as provided in Article 344 of this Code.
ARTICLE 94, RPC

Partial Extinction of criminal liability. — Criminal liability is extinguished partially:
(1) By conditional pardon;
(2) By commutation of the sentence; and
(3) For good conduct allowances which the culprit may earn while he is serving his
sentence.
WHEN IS THERE NOVATION?

1.) When novation has been explicitly stated and declared in unequivocal terms.
2.) When the old and the new obligations are incompatible on every point. The test
of incompatibility is whether or not the two obligations can stand together, each one
having its independent existence. If they cannot, they are incompatible and the latter
obligation novates the first.

G.R. No. L-22958 | January 30, 1971 Novation (Arts. 1291 to 1304)
Rodriguez v Reyes Rodriguez v Reyes

Petitioners in this case are some of the children of the late spouses, 1. Petitioners in this case are some of the children of the late spouses,
Donato Benipayo Jr., and Pura Disonglo. They filed a complaint against Donato Benipayo Jr., and Pura Disonglo.
their brother respondent Alberto D. Benipayo for partition of properties held 2. They filed a complaint against their brother respondent Alberto D.
by the heirs in common. The parties then agreed to have certain properties in Benipayo for partition of properties held by the heirs in common.
Albay and Manila sold at a public auction. The two Manila lots were 3. The parties then agreed to have certain properties in Albay and
mortgaged to the Development Bank of the Philippines with an alleged Manila sold at a public auction.
outstanding balance of P37,121.76. In the auction for the Manila lots, notice
4. The two Manila lots were mortgaged to the Development Bank of
of their mortgage was duly posted and published.
the Philippines with an alleged outstanding balance of P37,121.76.
Respondents Jose N. Dualan and Vicente Sayson were the highest
bidders for the two lots at the public auction paying P235,000 and P173,000 5. In the auction for the Manila lots, notice of their mortgage was
respectively. Subsequently, respondent Judge Reyes approved the sale with duly posted and published.
the condition that vendors shall clear the properties of all encumbrances. 6. Respondents Jose N. Dulaan and Vicente Sayson were the highest
Petitioners then submitted a compromise agreement with Vicente bidders for the two lots at the public auction paying P235,000 and
Sayson and Alberto Benipayo cancelling the former’s initial sale leaving P173,000 respectively.
Jose N. Dualan as party respondent with Judge Reyes. 7. Subsequently, respondent Judge Reyes approved the sale with the
The issue is this case is whether or not purchaser Dulaan is liable for condition that vendors shall clear the properties of all
the payment of the debt guaranteed by the mortgage. encumbrances.
The court ruled in the negative as the mortgage is merely an accessory 8. Petitioners, in this petition for certiorari, sought:
undertaking and exists independent of the principal obligation to a. Judge to order a re-bidding of the properties at public
Development Bank to pay the debt. Purchasing the property Dulaan only auction cancelling the prior sales;
undertook either to pay the mortgage or allow foreclosure in case of non-
b. or to approve the sales but without the condition that
payment by the principal debtor. The buyer could not obligate himself to
vendors be should clear the property of its encumbrances.
replace the debtor in the principal obligation without the creditor’s consent
pursuant to Article 1293 of the Civil Code. Since there is no evidence of the 9. Petitioners then submitted a compromise agreement with Vicente
creditor’s consent, the obligation to pay still remained with the original Sayson and Alberto Benipayo cancelling the former’s initial sale
debtors and their heirs. leaving Jose N. Dualan as party respondent with Judge Reyes.
However, the buyer may not demand that the vendors discharge the
encumbrance aforesaid. Dualan is presumed to know via the notice that the
property was subject to a mortgage lien meaning he would eventually be III. Issue/s
liable to pay mortgage should the original debtors fail to satisfy the debt. 1. W/N purchaser Dulaan is liable for the payment of the debt
Thus, order of approving the sale of Dualan is set aside and reversed insofar guaranteed by the mortgage? NO.
that it requires the petitioners to clear the property sold from the mortgage in
favor of the Development Bank.
PETITIONER: Estrella Benipayo Rodriguez, et al.

Obligations and Contracts (2020) RESPONDENTS: Hon. Juan O. Reyes, , Alberto D. Benipayo, Dr. Jose N.
1
DIGEST AUTHOR: King Manalo Dualan And Vicente Sayson, Jr.
IV. Holding/s an accessory undertaking for the convenience and security of the mortgage
Issue #1 creditor, and exists independently of the obligation to pay the debt secured
NO, he is not liable to pay though the property may still be foreclosed by it.
by the creditor in case of non-payment by the principal debtor.
Petitioner’s Arguments Court’s Response to Petitioner By buying the property with notice that it was mortgaged, respondent
• The doctrine of caveat emptor • Caveat emptor does not apply as it Dualan only undertook either to pay or else allow the land's being sold if the
(“Let the buyer beware”) only for execution sales. mortgage creditor could not or did not obtain payment from the principal
applies in this case. • Purchaser is not liable to pay the debtor when the debt matured. Nothing else. The buyer also could not
• There was no meeting of minds debt as mortgage is merely an obligate himself to replace the debtor in the principal obligation without the
and so there should’ve been a accessory undertaking and exists creditor’s consent pursuant to Article 1293 of the Civil Code. The obligation
re-bidding. independent of the principal to discharge the mortgage indebtedness, therefore, remained on the
• Atty. Padilla participated in the obligation to Development Bank to shoulders of the original debtors and their heirs, petitioners herein, since the
sale while still the counsel of pay the debt. record is devoid of any evidence of contrary intent.
respondent Benipayo. • Lack of the meeting of minds is
inconsistent with petitioner’s first However, the buyer may not demand that the vendors discharge the
argument and is belied by their encumbrance aforesaid. Dualan is presumed to know via the notice that the
conduct. property was subject to a mortgage lien meaning he would eventually be
• The order allowing Atty. Laquihon liable to pay mortgage should the original debtors fail to satisfy the debt.
amendment of final judgement is
void as it is a substantial change in V. Law or Doctrine Applied
judgement not within the lower
court’s jurisdiction. ARTICLE 1293 OF THE CIVIL CODE
Novation which consists in substituting a new debtor in the place of the
Overall Ruling – Petition is partially meritorious
original one, may be made even without the knowledge or against the will
The maxim "caveat emptor' applies only to execution sales, and this was not of the latter, but not without the consent of the creditor. Payment by the new
one such. The mere fact that the purchaser of an immovable has notice that debtor gives him the rights mentioned in articles 1236 and 1237.
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 ARTICLE 1236 OF THE CIVIL CODE
absence of stipulation or condition that he is to assume payment of the The creditor is not bound to accept payment or performance by a third
mortgage debt. The reason is plain: the mortgage is merely an encumbrance person who has no interest in the fulfillment of the obligation, unless there
on the property, entitling the mortgagee to have the property foreclosed, i.e., is a stipulation to the contrary.
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

2
debtor, he can recover only insofar as the payment has been beneficial to the
debtor.

Whoever pays on behalf of the debtor without the knowledge or against the
will of the latter, cannot compel the creditor to subrogate him in his rights,
such as those arising from a mortgage, guaranty, or penalty.
VI. Disposition
FOR THE FOREGOING REASONS, the petition for certiorari is hereby

granted and the orders complained of are reversed and set aside in so far as
they require petitioners to clear the property sold from the mortgage in favor
of the Development Bank. The writ of preliminary injunction heretofore
issued is made permanent. No costs.

• The case was confusing to read and the ruling may seem
contradicting at first.
• Overall, though the buyer did not replace the principle debtor for
their debt to Development Bank, the creditor may still choose to
foreclose the property he bought if the principal debtors do not pay
the sum.
• Since the buyer cannot obligate the vendor-heirs to clear the
property of encumbrances, the vendor-heirs may choose not to pay
the obligation and the creditor may still choose to foreclose the
land bought by the third possessor, herein, Dualan.
VIII. Random Facts

• Ponente: Reyes, J.B.L., J.

3
G.R. No. 112191 | February 7, 1997 Surety and Future Obligations (Art. 2053 NCC) and Novation
Fortune Motors (Phils.) Corporation v. Court of Appeals Fortune Motors (Phils.) Corporation v. Court of Appeals
I. Recit-ready Summary 8. Petitioner’s Contention:

1. On August 4, 1981, Chua and Rodrigueza (sureties) executed an a. Fortune Motors argue that future debts which can be
undated “Surety Undertaking” wherein they absolutely, guaranteed under Article 2053 of the NCC refer only to
unconditionally and solidarily guarantee the full, faithful and "debts existing at the time of the constitution of the guaranty
prompt performance, payment and discharge of all obligations of but the amount thereof is unknown," and that a guaranty being
Fortune Motors with respect to any and all contracts and other an accessory obligation cannot exist without a principal
agreements with Filinvest in force at that time or thereafter made. obligation.
2. On August 5, 1982 – Fortune Motors, Filinvest and CARCO b. Fortune Motors claim that the “surety undertakings” cannot
entered into an “Automotive Wholesale Financing Agreement” be made to cover the AWFA executed by Fortune, Filinvest
(AWFA) and CARCO since the AWFA contract was not yet in
a. CARCO will deliver motor vehicles to Fortune for the existence when the surety undertaking were entered into.
purpose of resale in the latter's ordinary course of business; c. Fortune Motors aver that the AWFA would effect a novation
b. Fortune, in turn, will execute trust receipts over said of the surety contracts since it changed the principal terms of
vehicles and accept drafts drawn by CARCO, the surety contracts and imposed additional and onerous
c. CARCO will discount the same together with the trust obligations upon the sureties.
receipts and invoices and assign them in favor of Filinvest, 9. The Court affirmed the decision of the CA.
which will pay the motor vehicles for Fortune. a. RTC: A guaranty may also be given as security for future
d. Under the same agreement, Fortune, as trustee of the motor debts, the amount of which is not known (Article 2053 of the
vehicles, was to report and remit proceeds of any sale for NCC).
cash or on terms to Filinvest immediately without necessity SC: The “surety undertakings” executed by Chua and
of demand. Rodrigueza were continuing guaranties/suretyships covering
3. However, the demand drafts matured. Not all the proceeds of the all future obligations of Fortune Motors with Filinvest. This is
vehicles sold were remitted to Filinvest, and Fortune failed to turn evident from the written contract.
over to Filinvest several unsold motor vehicles covered by the trust A continuing guaranty is one which is not limited to a
receipts. single transaction, but which contemplates a future course of
4. Filinvest sent a demand letter to Fortune Motors for the payment of dealing, covering a series of transactions, generally for an
the unsettled account in the amount of P1,302,811.00 and similar indefinite time or until revoked.
demand letters separately to the sureties. b. There was no novation.
5. The demands were left unheeded. Prompting Filinvest to file a RTC: What happened was really an assignment of credit,
complaint for a sum of money with preliminary attachment against and not a novation of contract, which does not require the
Fortune Motors and Rodrigueza in the RTC. consent of the debtors. The fact of knowledge is enough.
6. RTC rendered its decision ordering Fortune, Chua and Rodrigueza The mother/principal contract was the AWFA, whereas the
(Sureties) to pay Filinvest, jointly and severally. trust receipts, sight drafts, and Deeds of assignment were only
7. The CA affirmed the RTC’s decision. collaterals or accidental modifications which do not
Obligations and Contracts (2020) PETITIONER: Fortune Motors (Phils.) Corporation and Edgar Rodrigueza 1
DIGEST AUTHOR: Princess Andrea S. Alvaran RESPONDENT: Court of Appeals and Filinvest Credit Corporation
extinguish the original contract by way of novation. This b. These trust receipts/drafts are then assigned and/or
holds true even if the subsequent agreement would provide for discounted by the manufacturer to/with financing
more onerous terms for, at any rate, it is the principal or companies, which assume payment of the vehicles but
mother contract that is to be followed. When the changes refer with the corresponding right to collect such payment from
to secondary agreements and not to the object or principal the car dealers and/or the sureties.
conditions of the contract, there is no novation; such changes c. When the vehicles are eventually resold, the car dealers
will produce modifications of incidental facts but will not are supposed to pay the financing companies.
extinguish the original obligation. 2. August 4, 1981 – Chua and Rodrigueza executed an undated
SC: Novation must be established either by the express “Surety Undertaking”
terms of the new agreement or by the acts of the parties a. "absolutely, unconditionally and solidarily guarantee(d)"
clearly demonstrating the intent to dissolve the old obligation to Filinvest and its affiliated and subsidiary companies the
as a consideration for the emergence of the new one. The will b. "full, faithful and prompt performance, payment and
to novate, whether totally or partially, must appear by express discharge of any and all obligations and agreements" of
agreement of the parties, or by their acts which are too clear Fortune Motors
and unequivocal to be mistaken. c. "under or with respect to any and all such contracts and
There is no incompatibility of obligations to speak of in the any and all other agreements (whether by way or guaranty
two contracts. They can stand together without conflict. or otherwise)" of the latter with Filinvest and its affiliated
Furthermore, the parties have not performed any explicit and and subsidiary companies
unequivocal act to manifest their agreement or intention to d. "now in force or hereafter made."
novate their contract. Neither did the sureties object to the 3. August 5, 1982 – Fortune Motors, Filinvest and CARCO entered
AWFA nor try to avoid liability thereunder at the time of its into an “Automotive Wholesale Financing Agreement” (AWFA)
execution. a. (See Process in #1) Under the same agreement, Fortune
Motors, as trustee of the motor vehicles, was to report and
II. Facts of the Case (Material Facts) remit proceeds of any sale for cash or on terms to
*Car Dealer: Fortune Motors (Phils.) Corp. Filinvest immediately without necessity of demand.
*Sureties: Joseph L.G. Chua (Corporate President of Fortune Motors Corp.) and 4. However, the demand drafts matured.
Edgar Lee Rodrigueza a. Not all the proceeds of the vehicles sold were remitted to
*Financing Company: Filinvest Credit Corp. Filinvest, and
*Manufacturer/Assembler: Canlubang Automotive Resources Corp.
b. Fortune failed to turn over to Filinvest several unsold
motor vehicles covered by the trust receipts.
1. Wholesale Automotive Financing Schemes (Process):
5. December 12, 1983 – Filinvest sent a demand letter to Fortune
a. Vehicles are delivered by the manufacturer/assembler on
Motors for the payment of the unsettled account in the amount of
the strength of trust receipts/drafts executed by the car
P1,302,811.00. Filinvest sent a similar demand letters separately to
dealers, which are backed up by sureties.
the sureties.
6. The demands were left unheeded. Hence, Filinvest filed a • Fortune Motors claim that the the creditor
complaint for a sum of money with preliminary attachment against “surety undertakings” cannot be • RTC: The obligation of the sureties
Fortune Motors and Rodrigueza in the RTC. made to cover the AWFA executed on future obligations of Fortune is
a. September 26, 1984 – RTC ordered to resolve the correct by Fortune, Filinvest and CARCO apparent from a proviso under the
since the AWFA contract was not “Surety Undertakings”
balance of Fortune Motors’ account with Filinvest.
yet in existence when the surety o (See #2 of Facts)
b. Fortune Motors filed a “Motion for Judgment on
undertaking were entered into. o …now in force or hereafter
Demurrer to Evidence” on the ground that Surety made
Undertakings were null and void because, at the time they • CA: “Surety Undertakings” did not
were executed, there was no principal obligation existing. provide that after a period the same
c. RTC denied the motion. will lose its force and effect.
d. December 17, 1985 – RTC rendered its decision ordering • Chua and Rodrigueza could have
Fortune, Chua and Rodrigueza (Sureties) to pay Filinvest, simply terminated the “Surety
jointly and severally. Undertakings” by serving ten (10)
7. The CA affirmed RTC’s decision. Hence, this recourse. days written notice to Filinvest as
expressly allowed in said surety
agreements if they did not want to
III. Issue/s
guarantee the AWFA.
1. W/N the surety can exist even if there was no existing indebtedness
Overall Ruling
at the time of its execution? YES.
A continuing guaranty is one which is not limited to a single transaction,
2. W/N there was novation? NO.
but which contemplates a future course of dealing, covering a series of
transactions, generally for an indefinite time or until revoked.
IV. Holding/s
A continuing guaranty is one which covers all transactions, including
those arising in the future, which are within the description or contemplation
Issue #1 of the contract, of guaranty, until the expiration or termination thereof. A
YES, Surety may secure future obligations.
guaranty shall be construed as continuing when by the terms thereof it is
evident that the object is to give a standing credit to the principal debtor to
• Fortune Motors argue that future • RTC: A guaranty may also be
be used from time to time either indefinitely or until a certain period;
debts which can be guaranteed given as security for future debts,
the amount of which is not known especially if the right to recall the guaranty is expressly reserved.
under Article 2053 of the NCC
refer only to "debts existing at the (Article 2053 of the NCC).
time of the constitution of the • Naric v. Fojas: a bond posted to Indicators: 'from time to time', payment of 'any debt,' 'any indebtedness,'
guaranty but the amount thereof is secure additional credit that the 'any deficiency,' or 'any sum,' or the guaranty of 'any transaction' or money
unknown," and that a guaranty principal debtor had applied for, is to be furnished the principal debtor 'at any time,' or 'on such time' that the
being an accessory obligation not void just because the said bond principal debtor may require
cannot exist without a principal was signed and led before the
obligation. additional credit was extended by The “surety undertakings” executed by Chua and Rodrigueza were
continuing guaranties or suretyships covering all future obligations of to be followed.

Fortune Motors with Filinvest. This is evident from the written contract (See • When the changes refer to
#2 of Facts). secondary agreements and not to
Sureties knew exactly where they stood when they executed their the object or principal conditions of
the contract, there is no novation;
respective surety undertakings in favor of Fortune. Their undertaking by
such changes will produce
way of the surety contracts was critical in enabling Fortune to acquire credit modifications of incidental facts
facility from Filinvest and to procure cars for resale, which was the business but will not extinguish the original
of Fortune. Filinvest relied on the surety contracts when it agreed to be the obligation.
assignee of CARCO with respect to the liabilities of Fortune with CARCO.
This is a clear case of estoppel by deed. By the acts of petitioners, Overall Ruling
Filinvest was made to believe that it can collect from Chua and/or There are only two ways to effect novation and thereby extinguish an
Rodrigueza in case of Fortune's default. Filinvest relied upon the surety obligation.
contracts when it demanded payment from the sureties of the unsettled 1. Novation must be explicitly stated and declared in unequivocal
liabilities of Fortune. A refusal to enforce said surety contracts would terms. Novation is never presumed.
virtually sanction the perpetration of fraud or injustice. 2. The old and new obligations must be incompatible on every point.
The test of incompatibility is whether the two obligations can stand
Issue #2 together, each one having its independent existence. If they cannot, they are
No, there was no Novation. incompatible, and the latter obligation novates the first.
Petitioner’s Arguments Court’s Rebuttals Novation must be established either by the express terms of the new
• Fortune Motors aver that the • RTC: what happened was really an agreement or by the acts of the parties clearly demonstrating the intent to
AWFA would effect a novation of assignment of credit, and not a dissolve the old obligation as a consideration for the emergence of the new
the surety contracts since it novation of contract, which does one. The will to novate, whether totally or partially, must appear by express
changed the principal terms of the not require the consent of the
agreement of the parties, or by their acts which are too clear and
surety contracts and imposed debtors. The fact of knowledge is
unequivocal to be mistaken.
additional and onerous obligations enough.
upon the sureties. • The mother/principal contract was
the AWFA, whereas the trust Under the surety undertakings, there were no qualifications, conditions
receipts, sight drafts, and Deeds of or reservations stated therein as to the extent of the suretyship. The AWFA,
assignment were only collaterals or on the other hand, merely detailed the obligations of Fortune to CARCO
accidental modifications which do (succeeded by Filinvest as assignee).
not extinguish the original contract The allegation of novation by Fortune Motors is, therefore, misplaced.
by way of novation. This holds true There is no incompatibility of obligations to speak of in the two contracts.
even if the subsequent agreement They can stand together without conflict. Furthermore, the parties have not
would provide for more onerous
performed any explicit and unequivocal act to manifest their agreement or
terms for, at any rate, it is the
principal or mother contract that is
intention to novate their contract. Neither did the sureties object to the
AWFA nor try to avoid liability thereunder at the time of its execution.
Chua and Rodrigueza elected or chose not to answer said demand letters
instead of informing Filinvest that the surety undertakings should not cover
Fortune’s obligations under the AWFA which the court find uncharacteristic
of persons who have just been asked to pay an obligation to which they are
not liable.

Art. 2053. A guaranty may also be given as security for future debts, the amount of
which is not yet known; there can be no claim against the guarantor until debt is
liquidated. A conditional obligation may also be secured.
VI. Disposition
WHEREFORE, premises considered, the petition is DENIED and the

assailed Decision of the Court of Appeals concurring with the decision of
the trial court is hereby AFFIRMED. Costs against petitioners.

• N/A
VII. Random Facts

• Ponente: Panganiban, J.
G.R. No. 125347| June 19, 1997 Novation | Article 1292
Rillo v CA Rillo v CA
I. Recit-ready Summary 4. Rillo failed to pay the initial monthly amortization on July 18, 1985. He
Rillo signed a contrsct to sell of a condominium unit with CORB again defaulted on August of the same year. Rillo paid his first monthly
Realty. The total price is 150 000 pesos, half of which is payable upon installment on September, his second payment on October, while his third
execution while the other half is payable under equal monthly installments payment was in February of the next year but only paying 5000 pesos of the
for 12 months. The outstanding balance would have a 24% per annum 7,092 pesos.
interest and a 1.5% penalty for every month of default. Rillo only paid about 5. 17 months after Rillo’s last payment, CORB in 1987 informed Rillo by
3 months worth of installments until February of 1986. After 17 months letter that they are canceling their contact due to Rillo’s failure to pay on
from his last payment, CORB informed Rillo that they will cancel the time. CORB expressed willingness to refund the amount paid by Rillo. But
contract but this did not materialize as Rillo paid 60, 000 pesos. When Rillo CORB did not cancel contract and received 60,000 pesos from Rillo.
defaulted again on his monthly installments, CORB informed him of their 6. Rillo again defaulted in monthly payment prompting CORB to proceed
attempt to rescind the contract which again did not materialized and instead with rescission of contract which again did not materialize. Instead Rillo
entered into a compromise agreement with Rillo. Upon Rillo’s failure to and CORB entered into a compromise to restructure the balance of Rillo.
honor their agreement, CORB sent Rillo a statement of account worth 7. Rillo again failed to honor agreement. CORB then sent Rillo a statement
155,129 pesos. When Rillo did not pay, CORB filed a complaint in the RTC. of accounts including interests, arrears and penalties totaling 155,129 pesos.
The RTC ruled that CORB cannot rescind the contract because Rillo did not A complaint was filed in the RTC of Pasig when Rillo failed to pay the
commmit any substantial breach. On appeal to the CA, it reversed the amount.
decision of the RTC and stated that recission is the proper remedy on 8. Rillo averred that he had already paid 149, 000 pesos and that CORB did
contracts which are perfected and consummated. The main issue in the case not deliver the title to the subject property. He also averred that CORB
is whether or not the old contract of the parties was superseded by the new could no longer claim any right under the old agreement since it was
one through novation. The Court ruled that there was no novation stating novated by the new one.
that it cannot be presumed. The parties to a contract must expressly agree 9. RTC ruled that CORB cannot rescind the contract because petitioner did
that they are abrogating their old contract in favor of a new one. In the not commit a substantial breach of its terms. Since Rillo substantially
absence of an express agreement, novation takes place only when the old complied by paying 154, 184 pesos.
and the new obligations are incompatible on every point. 10. On appeal to the CA, the court reversed the RTC’s decision.
II. Facts of the Case (Material Facts) III. Issue/s
1. Rillo signed a Contract to Sell of a 65.7 sqm Condominium Unit with 1. W/N the CA erred in holding that recission is the property remedy on
CORB on June 18, 1995. a perfected and consummated contract.
2. The contract price 150, 000 pesos in which half of the amount was 2. W/N the CA erred in not holding that the old contract was
payable upon execution of contract while the other half is to be paid in equal superseded by the new one through novation.
installments for 12 months starting July 18, 1985. IV. Holding/s
3. It is stipulated that all outstanding balance would have a 24% p.a. Issue #2
Installment in arrears would be subject to a 1.5% liquidated penalty per The CA did not err in holding that recission is the property remedy on
month of default. If Rillo fails to pay 3 or 4 monthly installments, forfeiture a perfected and consummated contract
proceeding is governed by the Condominium Act. Petitioner’s Arguments Court’s Rebuttal
Obligations and Contracts (2020) PETITIONER: Emiliano Rillo 1

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Court of Appeals and CORB Realty
G.R. No. 125347| June 19, 1997 Novation | Article 1292
Rillo v CA Rillo v CA
 The CA erred because it did  The contract in the case at bar, Overall Ruling
not apply recission as the is a contract to sell, there can Article 1292 of the Civil Code provides that "In order that an obligation may
proper remedy to the case at be no recession in a still non- be extinguished by another which substitutes the same, it is imperative that
bar. existent obligation with the it be so declared in unequivocal terms, or that the old and the new
suspensive condition not obligations be on every point incompatible with each other." Novation is
having happened. never presumed. Parties to a contract must expressly agree that they
are abrogating their old contract in favor of a new one. In the absence
Overall Ruling of an express agreement, novation takes place only when the old and the
CA did not err when it did not apply Articles 1191 and 1592 on rescission to new obligations are incompatible on every point.
in the case. The contract between the parties is not an absolute
conveyance of real property but a contract to sell. In a contract to sell In the case at bar, the parties executed their May 12, 1989 "compromise
real property on installments, the full payment of the purchase price is a agreement" which merely clarified the total sum owed by Rillo to CORB
positive suspensive condition, the failure of which is not considered a with the view that the former would find it easier to comply with his
breach but simply an event which prevented the obligation of the vendor to obligations under the Contract to Sell.
convey title from acquiring any obligatory force. The transfer of ownership
and title would occur after full payment of the purchase price. V. Law or Doctrine Applied
Jurisprudence has held that there can be no rescission of an obligation
that is still non-existent, the suspensive condition not having happened. Art. 1292.
The CA correctly applied the Maceda Law which recognized the right of the In order that an obligation may be extinguished by another which substitute
seller to cancel the contract upon payment of an installment by the buyer. In 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
this case, Rillo paid less than two years in installment payments, he is only
other.
entitled to a grace period of 60 days. CORB has the right to cancel to
contract after 30 days from receipt by Rillo of the notice of cancellation. VI. Disposition
VII.
IN VIEW WHEREOF, the decision appealed from is AFFIRMED with
Issue #2 the MODIFICATION that the refund of 50% P158,184.00 or
The CA did not err in not holding that the old contract was superseded P79,092.00 made in favor of petitioner Emiliano Rillo is deleted. No
by the new one through novation. costs.
Petitioner’s Arguments Court’s Rebuttal SO ORDERED.
 The contract has been novated  Novation is never presumed. VIII. Additional Notes
N/A
by the parties’ agreement on Parties in the contract must
VII. Random Facts
March 1989. expressly agreement that they
 Ponente: Puno, J.
are abrogating the old contact.
Obligations and Contracts (2020) PETITIONER: Emiliano Rillo 2

DIGEST AUTHOR: Himerio Garcia RESPONDENT: Court of Appeals and CORB Realty
G.R. No. 116805 | June 22, 2000 Novation: When Takes Place
Espina vs. Court of Appeals Espina v. Court of Appeals
I. Recit-ready Summary 6. Diaz paid Espina P200,000 as partial payment for the condo unit on
Petitioner Espina was leasing a condo unit to private respondent Diaz. Jan. 25, 1992, but this was late and insufficient compared to the
Espina then executed a Provisional Deed of Sale, where he sold the condo to original postdated checks issued. (see Addtl. Notes)
Diaz for a price payable in installments. Diaz’s payments were late and 7. Espina sent Diaz a Notice of Cancellation of the Provisional Deed
insufficient. Espina cancelled the Provisional Contract of Sale but of Sale.
subsequently accepted a P100,000 payment by encashing a check. Espina then 8. However, Espina accepted payment from Diaz by encashing a check
asked Diaz to vacate the premises and pay back rentals. Diaz refused. worth P100,000 on Oct. 28, 1992.
Thus, Espina filed a complaint for Unlawful Detainer against Diaz. The
9. Espina gave Diaz notice to vacate the premises and pay his back
MTC ruled in his favor. The RTC affirmed. However, the CA reversed and
rentals on Feb. 13, 1993.
ruled for Diaz.
The issue in this case is whether or not the Provisional Deed of Sale is a 10. Espina filed a complaint for Unlawful Detainer against Diaz at the
novation of the existing lease contract. Diaz argues that there is such novation MTC on Feb. 24, 1993.
and as such, Espina does not have a cause of action for his ejectment. 11. The MTC ruled for Espina and ordered Diaz to vacate and pay
The SC held that no, the deed of sale is not a novation of the lease unpaid back rentals. It also ordered that Espina may refund from the
contract because novation is not presumed. There must be either express P400,000 already paid by Diaz aftering deducting Diaz’s total
stipulation or an irreconcilable incompatibility between the two contracts so obligations to him.
as to imply novation. Neither was present in this case. 12. Diaz appealed to the RTC. The RTC affirmed the MTC decision.
The SC also ruled that Espina’s acceptance of the subsequent P100,000 13. Espina appealed to the CA. The CA reversed the RTC decision and
payment does not withdraw the cancellation of the Provisional Deed of Sale, ruled for Espina.
since the application of such payment is not expressly indicated, and hence 14. Espina filed the current petition.
shall apply to the most onerous debt, the unpaid rentals. Also, this amount
III. Issue/s
does not even cover all the unpaid rentals. Hence, Espina has a cause of action
1. W/N the provisional deed of sale novated the existing lease
for the ejectment of Diaz.
contract? NO.
1. Petitioner Mario S. Espina (Espina) was leasing a condominium unit IV. Holding/s
he owned to Rene G. Diaz (Diaz). Issue #1
2. Espina executed a Provisional Deed of Sale where he sold the said NO, the provisional deed of sale is not a novation of the existing lease
condo unit to Diaz on Nov. 29, 1991. contract.
3. Diaz was to pay P100,000 upon the execution of the contract and the Respondent’s Arguments Court’s Rebuttals
P140,000 balance through postdated checks.  Respondent Diaz argued that  The agreement to sell was
4. Diaz was able to comply with the P100,000 upfront payment. Espina has no cause of action provisional as the consideration
5. Diaz informed Espina on Jan. 22, 1992 that the postdated checks for his ejectment. was payable in installments.
issued will be replaced with new ones because his checking account  He argues that the subsequent  The novation must be clearly
had been closed. provisional deed of sale novated proved since its existence is not
1
Obligations and Contracts (2020) PETITIONER: Mario S. Espina, lessor-owner
DIGEST AUTHOR: Kara Nazario RESPONDENT: Francisco Rene G. Diaz, lessee-buyer
G.R. No. 116805 | June 22, 2000 Novation: When Takes Place
Espina vs. Court of Appeals Espina v. Court of Appeals
the original contract of lease. presumed. In this case, novation

Thus, the lease contract is no was not expressly stipulated. V. Law or Doctrine Applied
longer effective. Also, the lease contract and the
 Espina’s subsequent acceptance Provisional Deed of Sale are not NOVATION NOT PRESUMED
irreconcilably incompatible as to Novation is never presumed; it must be proven as a fact either by express
of the P100,000 payment via
stipulation of the parties or by implication derived from an irreconcilable
check encashment withdraws imply novation.
incompatibility between old and new obligations or contracts.
the Notice of Cancellation of the  The P100,000 payment accepted
Provisional Deed of Sale sent by via check encashment does not APPLICATION OF PAYMENTS – WHEN NOT EXPRESSLY INDICATED
Espina. Thus, the Provisional withdraw the cancellation Unless expressly indicated, payment shall be applied to obligations most onerous to
Deed of Sale is reinstated. because the application of the debtor.
payments is not expressly
indicated. Thus, it shall apply to VI. Disposition
the most onerous debt of Diaz to
WHEREFORE, the Court GRANTS the petition for review on certiorari, and
Espina, which is the unpaid
REVERSES the decision of the Court of Appeals. Consequently, the Court
rentals. Even so, this does not
REVIVES the decision of the Regional Trial Court, Antipolo, Rizal, Branch
cover all the unpaid rentals, and 71, affirming in toto the decision of the Municipal Trial Court, Antipolo,
thus Espina has a cause of action
Rizal, Branch 01.
for Diaz’s ejectment.
|||
Overall Ruling
1. Diaz was to pay P100,000 upfront and a P140,000 balance in
The Provisional Deed of Sale is not a novation of the lease contract. A postdated checks.
novation must be clearly proved by either an express stipulation or 2. The postdated checks issued by Diaz for the balance on the sale
irreconcilable incompatibility between the two contracts. Since neither was of the condo is as follows:
present here, the lease contract is still in effect. a. P400,000 on Jan 15, 1992
Espina’s acceptance of subsequent payment does not withdraw the b. P200,000 on Feb. 1, 1992
cancellation of the deed of sale, as this application for this payment is not c. P200,000 on Feb. 22, 1992
expressly indicated. Thus, it applies to the unpaid rentals, the most onerous d. P200,000 on Mar. 14, 1992
of the debts. Even so, it is insufficient to cover the entire amount of unpaid e. P200,000 on Apr. 4,1992
rentals. f. P200,000 on Apr. 25, 1992
Thus, Espina as lessor, has a cause of action for ejectment against Diaz as
VII. Random Facts
lessee, who failed to pay rentals and back rentals.
 Ponente: Pardo, J.
“Thus, a deed of cession of the right to repurchase a piece of land does not
supersede a contract of lease over the same property.”
2
Obligations and Contracts (2020) PETITIONER: Mario S. Espina, lessor-owner
DIGEST AUTHOR: Kara Nazario RESPONDENT: Francisco Rene G. Diaz, lessee-buyer
G.R. No. 149840-41 | March 31, 2006 Extinguishment of Obligation Sps. Reyes v BPI Family Sps. Reyes v
BPI Family
agreement. They claimed that this new loan agreement novated their
previous loan agreement of March 24, 1996.
I. Recit-ready Summary 5. Because the novation was without their knowledge and consent, they were
On March 24, 1995, Spouses Reyes executed a real estate mortgage on their allegedly released from their obligation under the mortgage.
property in Iloilo in favor of respondent BPI Family Savings Bank, Inc. to 6. BPI Family refused to cancel the mortgage, prompting the petitioners to
secure a P15M loan of Transbuilders Resources and Development file separate petitions for mandamus and prohibition. 7. BPI Family
Corporations. Transbuilers failed to pay its P15M loan when its obligation instituted extrajudicial foreclosure proceedings on the Spouses’ property.
to pay had become due and demandable. Hence, BPI Family restructured
the loan agreement through a promissory note. Sps. Reyes alleged that they
III. Issue/s
were not informed of the restructuring of the loan agreement and alleged
that this has novated their previous contract, thus, stating that they should Whether or not the restructuring of the loan agreement resulted into a
be relieved of their obligation from the previous contract before its novation of their previous contract, hence, extinguishing the Spouses’
restructuring. The issue in this case is whether or not there was a novation liability to the bank. NO.
of the mortgage loan contract, hence extinguishing the Spouses’ liability to
the bank. The Court held that no, there was no novation as it was not IV. Holding/s
expressly stipulated so by the parties. In the absence of an express
Issue
agreement, novation takes place only when the old and the new obligations
are incompatible on every point. In this case, the restructured loan NO, the restructuring of the loan agreement did not result into a novation
agreement was not incompatible with the previous one, in fact, it only of their previous contract. It had only extended its payment terms.
extended the repayment term of the loan from one year to twenty quarterly
installment sat 18% interest per annum.
Petitioner's Argument Court’s Rebuttal
1. On March 24, 1995, Spouses Reyes executed a real estate mortgage on The restructuring of the loan The restructuring of the loan
their property in Iloilo in favor of respondent BPI Family Savings Bank, agreement resulted into a novation agreement did not result into
Inc. to secure a P15M loan of Transbuilders Resources and of their previous loan agreement, a novation of their previous
Development Corporations. hence, extinguishing them of their agreement as it was not expressly
2. Transbuilers failed to pay its P15M loan when its obligation to pay had liability to BPI Family.
stipulated so by the parties. In
become due and demandable.
fact,
3. Due to Transbuilder’s inability to pay the P15M loan, BPI Family
restructured the loan agreement through a promissory note, which states
“The new obligation of Transbuilders to respondent Bank for fifteen
million (P15,000,000.00) shall be paid in twenty (20)
quarterly installments commencing on September 28, 1996 and at an 1
interest rate of eighteen (18%) per annum.”
4. Spouses Reyes aver that they did not know of the restructuring of the loan
Obligations and Contracts (2020) PETITIONER: Sps. Francisco and Ruby Reyes. DIGEST AUTHOR: Alex Sulaik RESPONDENT:
BPI Family Savings Bank, Inc.
G.R. No. 149840-41 | March 31, 2006 Extinguishment of Obligation Sps. Reyes v BPI Family Sps. Reyes v
BPI Family
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
it had only extended with each other.”
Transbuilder’s payment from a
year to twenty quarterly VI. Disposition
installments. This
restructuring did is not WHEREFORE, the petition is hereby DENIED for lack of merit. VII.
incompatible with their old
agreement. Additional Notes

● Ponente: Corona, J.
A novation of an old agreement to a completely new one only occurs upon
the express stipulation of the parties.
Art. 1292 states “In order that an obligation may be extinguished by another
which substitute 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.”
The express stipulation of the parties that the restructuring of the original
loan agreement would novate the same in lacking in this case. Further, such
restructuring was only to extend Transbuilder’s payment terms, which is not
devoid of the spirit of their original contract. Without the express stipulation
of the parties and the restructured agreement not being incompatible with
the old agreement, a novation did not occur. Hence, the Spouses Reyes’s
liability to the bank is not extinguished.

ART. 1292 2
“In order that an obligation may be extinguished by another which substitute the
Obligations and Contracts (2020) PETITIONER: Sps. Francisco and Ruby Reyes. DIGEST AUTHOR: Alex Sulaik RESPONDENT:
BPI Family Savings Bank, Inc.
G.R. No. 149840-41 | March 31, 2006 Extinguishment of Obligation
Sps. Reyes v BPI Family Sps. Reyes v BPI Family
I. Recit-ready Summary quarterly installments commencing on September 28, 1996 and at

On March 24, 1995, Spouses Reyes executed a real estate mortgage on an interest rate of eighteen (18%) per annum.”
their property in Iloilo in favor of respondent BPI Family Savings 4. Spouses Reyes aver that they did not know of the restructuring of
Bank, Inc. to secure a P15M loan of Transbuilders Resources and the loan agreement. They claimed that this new loan agreement
Development Corporations. Transbuilers failed to pay its P15M loan novated their previous loan agreement of March 24, 1996.
when its obligation to pay had become due and demandable. Hence, 5. Because the novation was without their knowledge and consent,
BPI Family restructured the loan agreement through a promissory they were allegedly released from their obligation under the
note. Sps. Reyes alleged that they were not informed of the mortgage.
restructuring of the loan agreement and alleged that this has novated 6. BPI Family refused to cancel the mortgage, prompting the
their previous contract, thus, stating that they should be relieved of petitioners to file separate petitions for mandamus and prohibition.
their obligation from the previous contract before its restructuring. 7. BPI Family instituted extrajudicial foreclosure proceedings on the
The issue in this case is whether or not there was a novation of the Spouses’ property.
mortgage loan contract, hence extinguishing the Spouses’ liability to
the bank. The Court held that no, there was no novation as it was not III. Issue/s
expressly stipulated so by the parties. In the absence of an express Whether or not the restructuring of the loan agreement resulted into a
agreement, novation takes place only when the old and the new novation of their previous contract, hence, extinguishing the Spouses’
obligations are incompatible on every point. In this case, the liability to the bank. NO.
restructured loan agreement was not incompatible with the previous
one, in fact, it only extended the repayment term of the loan from one IV. Holding/s
year to twenty quarterly installment sat 18% interest per annum.
Issue
NO, the restructuring of the loan agreement did not result into a novation
1. On March 24, 1995, Spouses Reyes executed a real estate
of their previous contract. It had only extended its payment terms.
mortgage on their property in Iloilo in favor of respondent BPI
Family Savings Bank, Inc. to secure a P15M loan of Transbuilders Petitioner's Argument Court’s Rebuttal
Resources and Development Corporations.
2. Transbuilers failed to pay its P15M loan when its obligation to pay The restructuring of the loan The restructuring of the loan
had become due and demandable. agreement resulted into a novation agreement did not result into a
3. Due to Transbuilder’s inability to pay the P15M loan, BPI Family of their previous loan agreement, novation of their previous
restructured the loan agreement through a promissory note, which hence, extinguishing them of their
states “The new obligation of Transbuilders to respondent Bank for agreement as it was not expressly
liability to BPI Family. stipulated so by the parties. In fact,
fifteen million (P15,000,000.00) shall be paid in twenty (20)
1
Obligations and Contracts (2020) PETITIONER: Sps. Francisco and Ruby Reyes.
DIGEST AUTHOR: Alex Sulaik RESPONDENT: BPI Family Savings Bank, Inc.
G.R. No. 149840-41 | March 31, 2006 Extinguishment of Obligation
Sps. Reyes v BPI Family Sps. Reyes v BPI Family
it had only extended Transbuilder’s terms, or that the old and the new obligations be on every point
payment from a year to twenty incompatible with each other.”
quarterly installments. This
restructuring did is not VI. Disposition
incompatible with their old
WHEREFORE, the petition is hereby DENIED for lack of merit.
agreement.
Overall Ruling VII. Additional Notes
A novation of an old agreement to a completely new one only occurs VII. Random Facts
upon the express stipulation of the parties. ● Ponente: Corona, J.
Art. 1292 states “In order that an obligation may be extinguished by

another which substitute 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.”
The express stipulation of the parties that the restructuring of the original
loan agreement would novate the same in lacking in this case. Further,
such restructuring was only to extend Transbuilder’s payment terms,
which is not devoid of the spirit of their original contract. Without the
express stipulation of the parties and the restructured agreement not being
incompatible with the old agreement, a novation did not occur. Hence,
the Spouses Reyes’s liability to the bank is not extinguished.

ART. 1292
“In order that an obligation may be extinguished by another which

substitute the same, it is imperative that it be so declared in unequivocal
2
Obligations and Contracts (2020) PETITIONER: Sps. Francisco and Ruby Reyes.
DIGEST AUTHOR: Alex Sulaik RESPONDENT: BPI Family Savings Bank, Inc.
Ong vs. Bogñalbal Ong vs. Bogñalbal
I. Recit-ready Summary 4. Petitioner refused to pay the 4th partial billing equivalent to
Respondent Bogñalbal, an architect-contractor, and petitioner Ong 15.47% of the total job. Respondent contends that her refusal to
entered into an “Owner-Contractor” agreement for the construction of the pay was linked to the petitioner’s request to rush the flooring which
latter’s boutique. The Agreement stipulates a contract price of P200,000 and caused damage to the tile color. Ong, on the other hand, contends
that payments shall be made by progress billing to be collected every 2 that her refusal to pay was due to an excess of the value of the
weeks based on value of work accomplishment. work accomplished.
Partial billing nos. 1, 2, and 3 were paid by the petitioner. 5. The petitioner and the respondent made a compromise agreement
Petitioner refused to pay the 4th partial billing equivalent to 15.47% of the that the petitioner shall pay the respondent the 4th billing payment
total job. Respondent contends that her refusal to pay was linked to the if the flooring is finished by 24 April 1995.
petitioner’s request to rush the flooring which caused damage to the tile 6. When it became apparent that he could not complete the flooring
color. Ong contends that her refusal to pay was due to an excess of the value on or before said date, the respondent abandoned the job.
of the work accomplished. 7. The petitioner’s continued refusal to pay brought the respondent to
The petitioner and the respondent made a compromise agreement file a complaint.
that the petitioner shall pay the 4th billing payment if the flooring is finished 8. The MeTC ruled in favor of the respondent while the RTC ruled in
by 24 April 1995. When it became apparent that he could not complete the favor of the petitioner. The CA, on the other hand, reversed and set
flooring on or before said date, the respondent abandoned the job. aside the RTC decision.
The petitioner’s refused to pay, prompting respondent to file a complaint.
The MeTC ruled in favor of the respondent while the RTC ruled in III. Issue/s
favor of the petitioner. The CA, on the other hand, reversed and set aside the 1. W/N Ong’s refusal to pay is grounded on a novation of the
RTC decision. agreement? NO.
The SC held that Ong’s defense was not valid as there was no
novation of Ong’s obligation. The Court reinstated the decision of the CA. IV. Holding/s
Issue #1
II. Facts of the Case (Material Facts) NO, there was no novation.
1. On 2 January 1995, Respondent Bogñalbal, an architect-contractor, Petitioner’s Arguments Court’s Rebuttals
and petitioner Ong, a businesswoman, entered into an “Owner-  Ong claims a defense that the  CA ruled that respondent’s
Contractor” agreement for the construction of the latter’s boutique respondent agreed to finish the stoppage of work prior to
called “Les Galeries de Paris” at Shangri-La Plaza. flooring before the 4th billing completion cannot justify Ong's
2. The Agreement stipulates a contract price of P200,000 and that shall be paid. She contends that refusal to pay billing no. 4. On
payments shall be made by progress billing to be collected every 2 this obligation was not fulfilled the contrary, respondent was
weeks based on value of work accomplishment, submitted by the hence payment is not due. justified to refuse to continue the
contractor to the owner as certified for payment by the architect project due to petitioner Ong's
assigned on site. failure to pay.
3. Partial billing nos. 1, 2, and 3 were paid by the petitioner.  If true, this would constitute a
Obligations and Contracts (2020) PETITIONER: Victoria Ong 1

DIGEST AUTHOR: Nikki RESPONDENT: Ernesto Bogñalbal
Ong vs. Bogñalbal Ong vs. Bogñalbal
novation of obligation but the VI. Disposition

evidence preponderates in favor WHEREFORE, the Decision of the Court of Appeals reinstating the
of respondent that there had been Decision of the Metropolitan Trial Court holding petitioner Victoria Ong
no novation of the contract. liable for damages is affirmed. The instant Petition for Certiorari is hereby
Overall Ruling DISMISSED for lack of merit. Costs against petitioner.
If the parties indeed had a verbal agreement that said billing will not be
payable until after respondent finished the work, there would have been a
novation of Ong's obligation to pay by changing the principal conditions. VIII. Additional Notes
This falls under Article 1291 of the Civil Code. This would constitute a
partial novation. There is partial novation when there is only a modification • Even assuming that there had been a novation of Ong’s
or change in some principal conditions of the obligation. The term principal obligation, the additional condition would have been deemed
conditions should be construed to include a change in the period. fulfilled, pursuant to Article 1186 of the Civil Code. This is
due to the fact that Ong hired a new contractor to finish the job.
If petitioner Ong's allegation was true, then partial billing no. 4's principal
condition, that the balance should be collected every 2 weeks based on the Article 1186. The condition shall be deemed fulfilled when the
accomplishment of work value, would have been modified to include the obligor voluntarily prevents its fulfillment.
condition of completion of the flooring.
• The agreement provides that in consideration of the sum of two
Novation is never presumed. It must be clearly shown by express agreement hundred thousand pesos (P200,000.00), the contractor agrees to
furnish labor, tools and equipment to complete the work on the
of the parties or by acts of equivalent import. Otherwise, this defense will
boutique as per specification within forty-five (45) days
not be allowed. As such, the SC held that there was no novation in this case.
excluding Sundays from the date of delivery of the
The fact that respondent's 4th partial billing demand letters dated 21 April construction materials. Payment by the owner shall be made by
1995 and 15 May 1995 were served upon petitioner Ong after the alleged 20 progress billing to be collected every two (2) weeks based on
April 1995 meeting, is inconsistent with the theory that the meeting had the accomplishment of work value submitted by the contractor
produced a novation of Ong's obligation. to the owner as certified for payment by the architect assigned
on site. The agreement likewise provides for a change order as
V. Law or Doctrine Applied a result of fluctuation in the cost of labor. Moreover, should the
owner require the contractor to perform work over and above
ARTICLE 1291 OF THE CIVIL CODE that required, the additional cost shall be added to the contract
Article 1291. Obligations may be modified by: amount and if ordered to omit work as required by their
(1) Changing their object or principal conditions; agreement, the cost of work omitted shall be deducted from the
(2) Substituting the person of the debtor; contract amount.
(3) Subrogating a third person in the rights of the creditor.
VII. Random Facts
 Ponente: Chico-Nazario, J.
Obligations and Contracts (2020) PETITIONER: Victoria Ong 2

DIGEST AUTHOR: Nikki RESPONDENT: Ernesto Bogñalbal
G.R. No. 74553 | June 8. 1989 Novation
Servicewide Specialists v. IAC Servicewide Specialists v. IAC
I. Recit-ready Summary both debtors. If there is no agreement as to solidarity, the first and new debtors
Galicano Siton purchased from Car Traders. a vehicle and paid P25k are considered obligated jointly.
downpayment of the price. Remaining balance includes remaining principal
obligation + advance interests and premiums for motor vehicle insurance II. Facts of the Case (Material Facts)
policies. Siton executed a promissory note in favor of Car Traders 1. Galicano Siton purchased from Car Traders Philippines, Inc. a vehicle and
Philippines, Inc. expressly stipulating that the face value of the note shall be paid P25,000 downpayment of the price. The remaining balance of P68,400
payable, without need of notice of demand, in instalments. As further includes not only the remaining principal obligation but also advance interests
security, Siton executed a Chattel Mortgage over the vehicle in favor of Car and premiums for motor vehicle insurance policies.
Traders. The credit covered by the promissory note and chattel mortgage 2. Siton executed a promissory note in favor of Car Traders Philippines, Inc.
executed by respondent Galicano Siton was first assigned by Car Traders expressly stipulating that the face value of the note shall “be payable, without
Philippines, Inc. in favor of Filinvest Credit. Filinvest Credit reassigned said need of notice of demand, in instalments”. There are additional stipulations
credit in favor of petitioner. Siton was advised of this assignment. When Siton in the Promissory Note consisting of, among others, that if default is made in
failed to pay, Servicewide Specialists filed action, seeking a relief of a writ of the payment of any of the installments or interest thereon, the total principal
replevin, against Siton and “John Doe”, who was later on identified as sum then remaining unpaid, together with accrued interest thereon shall at
Justiniano de Dumo. De Dumo claimed that he bought the vehicle from Siton; once become due and demandable.
that as such successor, he stepped into the rights and obligations of the seller; 3. As further security, Siton executed a Chattel Mortgage over the subject
and that he has religiously paid the installments as stipulated in the motor vehicle in favor of Car Traders.
promissory note. RTC ordered defendants to pay jointly and severally the 4. The credit covered by the promissory note and chattel mortgage executed
plaintiff the remaining balance of the motor vehicle. IAC affirmed RTC by respondent Galicano Siton was first assigned by Car Traders in favor of
decision. W/N the deed of sale executed over the mortgaged vehicle by Siton Filinvest Credit Corporation.
in favor of de Dumo constituted novation which extinguished the obligation 5. Filinvest Credit likewise reassigned said credit in favor of petitioner. Siton
of Siton to Servicewide? – NO was advised of this second assignment.
6. When Siton failed to pay, Servicewide Specialists filed an action, seeking
SC held both Siton and de Dumo liable for their obligations to petitioner. The a relief of a writ of replevin, against Galicano Siton and “John Doe.” After
purchase of car by de Dumo from Siton does not necessarily imply the the service of summons, Justiniano de Dumo, identifying himself as the “John
extinguishment of liability of the latter. Since it was neither established nor Doe” in the Complaint, inasmuch as he is in possession of the subject vehicle,
shown that Siton was released from responsibility under the promissory note, filed his Answer with Counterclaim and with Opposition to the prayer for a
the same does not constitute novation by substitution of debtors. Also, the Writ of Replevin.
fact that petitioner company accepts payments from a third person like de 7. De Dumo claimed that he bought the motor vehicle from Siton; that as such
Dumo, who has assumed the obligation, will result merely to the addition of successor, he stepped into the rights and obligations of the seller; and that he
debtors - not novation. Hence, the creditor may enforce the obligation against has religiously paid the installments as stipulated upon in the promissory note.
1
Obligations and Contracts (2020) PETITIONER: SERVICEWIDE SPECIALISTS, INCORPORATED
DIGEST AUTHOR: Wischelle Gabriel RESPONDENT: THE HONORABLE INTERMEDIATE APPELLATE
COURT, GALICANO SITON AND JUDGE JUSTINIANO DE DUMO
G.R. No. 74553 | June 8. 1989 Novation
Servicewide Specialists v. IAC Servicewide Specialists v. IAC
He also manifested that the Answer he has filed in his behalf should serve as company accepts payments from a third person like de Dumo, who has
a responsive pleading for his co-defendant Siton. assumed the obligation, will result merely to the addition of debtors and
8. RTC ordered defendants to pay jointly and severally the plaintiff the not novation. Hence, the creditor may enforce the obligation against
remaining balance of the motor vehicle. both debtors. If there is no agreement as to solidarity, the first and new
9. IAC affirmed in toto the decision of RTC. debtors are considered obligated jointly.
III. Issue/s
1. W/N the deed of sale executed over the mortgaged vehicle by
Siton in favor of de Dumo constituted novation which V. Law or Doctrine Applied
extinguished the obligation of Siton to Servicewide? - NO
Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter,
IV. Holding/s but not without the consent of the creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237.
Issue #1
NO, the fact that petitioner company accepts payments from a VI. Disposition
third person like de Dumo, who has assumed the obligation, will
result merely to the addition of debtors and not novation. ACCORDINGLY, the petition is GRANTED and the assailed decision of the
Court of Appeals dated April 25, 1986 is hereby REVERSED and SET
ASIDE, and a new one entered, ordering the private respondents Galicano
• Despite the deed of absolute • Both Siton and de Dumo are Siton and Justiniano de Dumo, jointly to pay to petitioner Servicewide
sale executed over the liable for the obligation to Specialists, Incorporated, the total sum of the remaining unpaid balance on
mortgaged vehicle between Servicewide the promissory note with interest thereon at fourteen percent per annum from
Siton and de Dumo, Siton is • It was not shown that Siton was January 25, 1982 until fully paid, as well as stipulated attorney's fees and
still liable for his obligation released from responsibility liquidated damages; and to reimburse to petitioner the sum of P 3,859.90 for
with Servicewide the premium payments on the insurance policies over the subject vehicle.
Costs against private respondents.
Overall Ruling
SO ORDERED.
SC held both the Siton and de Dumo liable for their obligations to VII. Additional Notes
petitioner herein. The purchase of the car by de Dumo from Siton does
not necessarily imply the extinguishment of the liability of the latter. VII. Random Facts
Since it was neither established nor shown that Siton was released from • Ponente: Medialdea, J.
responsibility under the promissory note, the same does not constitute
novation by substitution of debtors. Also, the fact that petitioner
2
Obligations and Contracts (2020) PETITIONER: SERVICEWIDE SPECIALISTS, INCORPORATED
DIGEST AUTHOR: Wischelle Gabriel RESPONDENT: THE HONORABLE INTERMEDIATE APPELLATE
COURT, GALICANO SITON AND JUDGE JUSTINIANO DE DUMO
G.R. No. 142838 || August 9, 2001 Conventional Subrogation
Licaros v. Gatmaitan Licaros v. Gatmaitan
I. Recit-ready Summary I. Licaros decided to make a fund placement with Anglo-Asean Bank
sometime in the 1980's.
Licaros made investments in a foreign bank (Anglo-Asean). Unable to a. encountered tremendous and unexplained difficulties in
collect from Anglo-Asean, Licaros sought the help of Gatmaitan, a retrieving the interest or profits as well as the principal
rebutable banker and investment manager. To Licaros’ relief, Gatmaitan amount he invested
voluntarily offered to assume the payment of Anglo-Asean’s indebtedness II. He decided to seek the counsel of Antonio P. Gatmaitan
to Licaros. The two executed a notarized Memorandum of Agreeement. III. Gatmaitan voluntarily offered to assume the payment of Anglo-
Anglo-Asean did not give its consent with the MOA. Unfortunately, Asean's indebtedness to Licaros subject to certain terms and
Gatmaitan was not able to collect from Anglo-Asean so he refused to pay conditions (notarized MOA)
Licaros. Licaros felt that he had a right to collect on the basis of the a. Gatmaitan issued a promissory note to Licaros
promissory note regardless of the outcome of Gatmaitan's recovery efforts. i. Promised to pay 3.15M (as total amount of
When the case reached the CA, it held that Gatmaitan did not at any point Anglo’s indebtedness) and as security, assigned
become obligated to pay to petitioner Licaros the amount stated in the his cash dividends that may be due him from his
promissory note. shares of stock in Prudential
IV. Gatmaitan presented the memorandum of agreement for the
Issue: W/N THE MEMORANDUM OF AGREEMENT BETWEEN purpose of collecting Licaros' placement to Anglo-Asean
PETITIONER AND RESPONDENT WAS ONE OF ASSIGNMENT OF a. No formal response was ever made by bank to either
CREDIT? NO. Licaros or Gatmaitan.
b. Because of his inability to collect from Anglo-Asean,
The Supreme Court ruled that it was conventional subrogation, thus null and Gatmaitan did not bother anymore to make good his
void without Anglo-Asean’s consent. The SC based its decision on two promise to pay Licaros the amount stated in his
provisions of the MOA (1) whereas clause which states with the express promissory note
conformity of the third parties concerned (which third party is admittedly V. Licaros felt that he had a right to collect on the basis of the
Anglo-Asean Bank) and (2) the signature page, right under the place promissory note regardless of the outcome of Gatmaitan's recovery
reserved for the signatures of petitioner and respondent, there is, efforts.
typewritten, the words “with our conforme” Under this notation, the words a. demanded payment of the Gatmaitan’s obligations under
“Anglo-Asean Bank and Trust” were written by hand. It explained that the promissory note
conventional subrogation REQUIRES an agreement among ALL parties b. Gatmaitan, however, did not accede to these demands.
concerned - original creditor, new creditor, debtor. While in an assignment VI. Licaros filed a complaint against Gatmaitan → RTC ruled in
of credit, consent of the debtor is NOT necessary but merely notice of the Licaros’ favor
assignment. VII. Gatmaitan appealed the trial court's decision to the Court of
Appeals.
II. Facts of the Case (Material Facts) a. CA reversed the decision of the trial court
i. held that respondent Gatmaitan did not at any

point become obligated to pay to petitioner
Licaros the amount stated in the promissory note
Obligations and Contracts (2020) PETITIONER: Licaros 1

DIGEST AUTHOR: Julianna Soberano RESPONDENT: Gatmaitan
Overall Ruling
I. Issue/s
W/N THE MEMORANDUM OF AGREEMENT BETWEEN An assignment of credit is the process of transferring the right of the
PETITIONER AND RESPONDENT WAS ONE OF ASSIGNMENT OF assignor to the assignee who would have the right to proceed against the
CREDIT? – NO debtor (similar to a sale). Thus, consent of the debtor is NOT necessary but
merely notice of the assignment. This takes effect only upon debtor’s
II. Holding/s KNOWLEDGE of the assignment. It does not extinguish the obligation; the
same right being passed on from one person to another.
Issue #1
Subrogation has been defined as the transfer of rights of the creditor to a
NO, IT WAS ONE OF CONVENTIONAL SUBROGATION
third person who substitutes him all his rights. Legal subrogation takes place
by operation of law while conventional subrogation takes place by
Petitioner’s Arguments Court’s Rebuttals agreement of the parties. Conventional subrogation REQUIRES an
• Gatmaitan still has the • Gatmaitan does not have to pay agreement among ALL parties concerned - original creditor, new creditor,
obligation to pay anymore because conventional debtor (1301 of CC). Essentially, this extinguishes the old obligation.
subrogation had taken effect.
In the case at bar, the MOA was in the nature of a conventional subrogation
which required Anglo-Asean’s (debtor) consent. The contract stated that it
must be “with the express conformity of third parties concerned” which is
Anglo-Asean. If the agreement was merely an assignment of credit, then the
agreement would not have been conditioned on the consent of Anglo-Asean.
Aside from the whereas clause, the words “ANGLO_ASEAN BANK AND
TRUST” were written by hand in the signature page.
The extinguishment of the old obligation is the EFFECT of the

establishment of a contract for conventional subrogation AND NOT A
REQUISITE. It is not determinative of whether a contract of conventional
subrogation was created. If conventional subrogation had taken place, then
Anglo-Asean would have the obligation to give payment to Gatmaitan.
Conventional subrogation of a third person requires the consent of the

original parties and of the third person.

IV. Disposition
WHEREFORE, the instant petition is DENIED and the Decision of the

Court of Appeals dated February 10, 2000 and its Resolution dated April 7,
2000 are hereby AFFIRMED.
V. Additional Notes
VII. Random Facts

G.R. No. 176425| June 5, 2013 Novation
Babst v CA Babst v CA
I. Recit-ready Summary can be implied consent of the creditor to the substitution of debtors. The
Elizalde Steel Consolidated (ELISCON) obtained from Commercial court found that the account officer had the authority to represent the bank
Bank and Trust Company (CBTC) a loan of P8M. ELISCON defaulted on in the creditor’s meeting, therefore could have expressed objection to the
its payments, leaving an outstanding debt in the amount of P2.8M. Letters of substitution of debtors. The Court in ruling that BPI gave its consent for the
credit were opened for ELISCON by CBTC using the credit facilities of substitution of debtors, therefore extinguishing the original obligation, the
Pacific Multi-Commercial Corporation (MULTI) with the bank. Chester contracts of suretyship executed separately by Babst and MULTI, being
Babst and Chua executed a Continuing Suretyship, where they bound accessory obligations, are likewise extinguished.
themselves solidarily to pay for the debts of MULTI to CBTC to the extent
of P8M each. ELISCON loaned money from CBTC in order to buy
materials. ELISCON defaulted on its payments. BPI and CBTC merged, II. Facts of the Case
whereby BPI acquired all the assets and liabilities of CBTC. ELISCON 1. Elizalde Steel Consolidated (ELISCON) obtained from Commercial
became heavily indebted to DBP. To pay its debts, ELISCON conveyed to Bank and Trust Company (CBTC) a loan amounting P8M with
DBP by way of dacion en pago all its assets as payment for the P201M interest at 14% per annum, evidenced by a promissory note.
outstanding debt. BPI instituted a complaint for sum of money against 2. ELISCON defaulted on its payments, leaving an outstanding debt
ELISCON, MULTI and Babst in the RTC. Babst, in filing his Answer, amounting to P2.8M.
alleged that he signed the Continuing Suretyship only up to the amount of 3. Three domestic letters of credit were opened for ELISCON by CBTC
the obligation which MULTI incurred solely for its benefit. RTC ordered using the credit facilities of Pacific Multi-Commercial Corporation
ELISCON to pay BPI P2.8M due and the amount of P3.9M due on the 3
(MULTI) with the bank.
domestic letters of credit. RTC also ordered defendants MULTI and Chester
4. Antonio Roxas Chua and Chester Babst executed a Continuing
Babst to pay solidarily the total sum of P3.9M due on the 3 domestic letters
Suretyship, where they bound themselves solidarily to pay any
of credit. The CA modified the RTC decision upon appeal, ordering
ELISCON to reimburse MULTI and Babst whatever amount they paid in existing debts of MULTI to CBTC to the extent of P8M each.
behalf of ELISCON. The issues in the case at bar, are: 5. CBTC opened for ELISCON in favor of National Steel Corporation
three domestic letters of credit totalling P1.9M, P1.7M, and P200k
W/N BPI consented to the assumption by DBP of the obligations of which ELISCON used to purchase products.
ELISCON? and If yes, W/N the contract of suretyship between Babst 6. ELISCON defaulted on its payments, leaving an outstanding balance
and MULTI is also extinguished?. in the amount of P3.9M.
7. BPI and CBTC merged. BPI acquired all the assets and liabilities of
The SC ruled that there was a valid novation between ELISCON and BPI. CBTC.
The Court finds merit to the argument of Babst, Multi and ELISCON. There
1
Obligations and Contracts (2020) PETITIONER: Chester Babst
DIGEST AUTHOR: Reynaldo Reveche RESPONDENT: COURT OF APPEALS, BANK OF THE PHILIPPINE
ISLANDS, ELIZALDE STEEL CONSOLIDATED, INC., and PACIFIC
MULTI-COMMERCIAL CORPORATION,
8. ELISCON became heavily indebted to DBP. In order to pay its debts, 18. Hence the present, petition by Babst
ELISCON proposed to convey to DBP by way of dacion en pago all III. Issue/s
its assets mortgaged with DBP, as payment for the P201M 1. W/N BPI consented to the assumption by DBP of the
outstanding debt. obligations of ELISCON? - YES.
9. In October 1981, DBP took over the assets of ELISCON, including 2. If YES, W/N the contract of suretyship between Babst and
its indebtedness to BPI. MULTI is also extinguished? - YES
10. BPI instituted a complaint for sum of money against ELISCON, IV. Holding/s
MULTI and Babst in the RTC
11. Babst, in filing his Answer, alleged that he signed the Continuing
Suretyship only up to the amount of the obligation which MULTI Issue #1
incurred solely for its benefit. Babst claims that he had no knowledge Yes, there was a valid novation of contract between ELISCON and
of any transaction between MULTI and ELISCON. BPI.
12. MULTI denied knowledge of the merger between BPI and CBTC. Respondent’s Arguments Court’s Rebuttals
13. RTC ordered ELISCON to pay BPI P2.8M due on the promissory ● BPI contends that in order to ● According to jurisprudence, Art.
note, and the amount of P3.9M due on the 3 domestic letters of credit have a valid novation there must 1293 of the CC does not state
+ interest + attorney’s fees. be an express consent of the that the creditor’s consent to the
14. RTC also ordered defendants MULTI and Chester Babst to pay creditor. substitution of the new debtor for
solidarily with defendant ELISCON, the total sum of P3.9M due on ● CA ruled that the account officer the old be express or given at the
the 3 domestic letters of credit +interest +attorney’s fees. Chester who attended the creditor’s time of the substitution.
Babst is only liable up to P8M. meeting had no authority to give ● BPI did not object to the
15. ELISCON, MULTI and Babst appealed to the CA. consent. substitution of debtors, although
16. CA modified the assailed RTC decision. The CA ordered ELISCON it objected to the payment
to reimburse MULTI and Babst whatever they paid in behalf of formula submitted by DBP. The
ELISCON. account officer had authority to
17. Chester Babst filed a Comment with Manifestation, wherein he represent the bank.
contends that the suretyship agreement he executed with Antonio
Roxas Chua was in favor of MULTI; and that there is nothing therein
which authorizes MULTI, in turn, to guarantee the obligations of
ELISCON.
2
Overall Ruling It must be remembered, however, that while a surety is solidarily liable with
Court finds merit to the argument of Babst, Multi and ELISCON. There can the principal debtor, his obligation to pay only arises upon the principal
be implied consent of the creditor to the substitution of debtors. Due to the debtor's failure or refusal to pay. A contract of surety is an accessory
failure of BPI to register its objection to the take-over by DBP of promise by which a person binds himself for another already bound, and
ELISCON’s assets, at the creditors’ meeting, it is deemed to have consented agrees with the creditor to satisfy the obligation if the debtor does not. A
to the substitution of DBP for ELISCON as debtor. There is clear surety is an insurer of the debt; he promises to pay the principal's debt if the
indication that BPI was aware of the assumption by DBP of the obligations principal will not pay
of ELISCON.
The original obligation having been extinguished, the contracts of
BPI's conduct evinced a clear and unmistakable consent to the substitution suretyship executed separately by Babst and MULTI, being accessory
of DBP for ELISCON as debtor. Hence, there was a valid novation which obligations, are likewise extinguished. Hence, BPI should enforce its cause
resulted in the release of ELISCON from its obligation to BPI, whose cause of action against DBP.
of action should be directed against DBP as the new debtor.

Issue #2
YES, the contract of suretyship between Babst and MULTI is also
ARTICLE 1296
extinguished.
When the principal obligation is extinguished in consequence of a novation,
Petitioner’s Court’s Rebuttals accessory obligations may subsist only insofar as they may benefit third
Arguments -The original obligation having been extinguished, the persons who did not give their consent.
● NA contracts of suretyship executed separately by Babst and
MULTI, being accessory obligations, are likewise VI. Disposition
extinguished. WHEREFORE, the consolidated petitions are GRANTED. The appealed
Decision of the Court of Appeals, which held ELISCON, MULTI and Babst
solidarily liable for payment to BPI of the promissory note and letters of
Overall Ruling credit, is REVERSED and SET ASIDE. BPI's complaint against ELISCON,
MULTI and Babst is DISMISSED.
3
VIII. Random Facts

● Ponente: YNARES-SANTIAGO, J.
4
G.R. No. 169407 | March 25, 2015 Novation; Article 1293
O275 - BPI v Domingo O275 - BPI v Domingo
I. Recit-ready Summary debtor. Jurisprudence (e.g. Garcia vs. Khu Yek Chiong) affirms the well-
settled rule that novation is never presumed, and that it is imperative that
Respondent Amador Domingo and his wife, the late Mercy Maryden the new obligation expressly declare that the old obligation is thereby
Domingo, executed a Promissory Note for P629,856.00, payable in 48 extinguished, or that the new obligation be on every point incompatible
successive monthly installments, in favor of Makati Auto Center, Inc. The with the new one. Additionally, the ruling in Babst v CA is inapplicable in
loan was secured with a Deed of Chattel Mortgage over the spouses’ car, this case because the facts are substantially different (the creditor bank in
a 1993 Mazda 323. The creditor rights over the promissory note and that case had been given a clear opportunity to object).
mortgage were eventually transferred to Far East Bank and Trust Company Having failed to prove that BPI had returned the post-dated checks
(FEBTC), which later merged with Bank of the Philippine Islands (BPI). issued by the spouses, or that the bank had expressly accepted Gonzales as
The spouses eventually defaulted on their loan, failing to pay 21 the new debtor in place of Domingo, the respondent remains bound by the
monthly installments. BPI sent them several letters demanding the payment obligation.
of the balance or the return of the mortgaged vehicle for foreclosure. The
spouses, through legal counsel, asserted that they had sold the car to one II. Facts of the Case (Material Facts)
Carmelita Gonzales, who had agreed to assume payment of the loan
balance. 1. On September 27, 1993, respondent Amador Domingo (Amador)
BPI filed a complaint before the Metropolitan Trial Court (MeTC), and his wife, the late Mercy Maryden Domingo
which ruled in favor of the bank. The MeTC held that novation is never (Mercy), (collectively referred to as the spouses Domingo)
presumed and must be clearly shown by express agreement or by acts executed the following in favor of Makati Auto Center, Inc:
of equal import (Mercy Domingo died during the proceedings, leaving
Amador as the sole respondent in subsequent cases). a. Promissory Note
Domingo appealed to the Regional Trial Court (RTC), which reversed i. in the sum of P629,856.00
the MeTC decision, holding that substitution of the debtor need not be by ii. payable in 48 successive monthly installments
express agreement, and can be merely implied through the acts and (P13,122.00 each).
omissions of BPI. The bank had knowledge of the sale of the vehicle,
accepted checks from the car’s new owner, and had not demanded payment b. Deed of Chattel Mortgage over a 1993 Mazda 323
from the spouses for 30 months after the payments were made by Gonzales. (subject vehicle) to secure the payment of their
The Court of Appeals (CA) affirmed the decision, relying on the Promissory Note.
holding in Babst v. Court of Appeals. However, they deleted the damages
awarded by the RTC. 2. The rights over these documents were eventually transferred to
BPI then petitioned the Supreme Court, raising the sole issue of BPI:
whether or not there has been a novation that released Domingo from a. Makati Auto Center transferred all its rights and interests
his obligation and substituted Carmelita Gonzales in his place. The over the said Promissory Note and chattel mortgage to Far
Court held that no novation has occurred. Article 1293 of the Civil Code East Bank and Trust Company (FEBTC).
states that the consent of the creditor is necessary for the substitution of a
Obligations and Contracts (2020) Petitioner: Bank Of The Philippine Islands 1

DIGEST AUTHOR: Vito Castaneda Respondent: Amador Domingo
b. On April 7, 2000, all the assets and liabilities of FEBTC checks that bounced and these are payments from the
were transferred to and absorbed by BPI. new buyer of the car.
c. One of these checks presented as evidence was issued by
3. The spouses Domingo defaulted when they failed to pay 21 a certain Miss Gonzales.
monthly installments that had fallen due consecutively from d. The employee testified that anyone can pay the monthly
January 15, 1996 to September 15, 1997. amortization as long as the payment is for the account
of Maryden Domingo.
4. BPI demanded that the spouses Domingo pay the balance of the e. Witness further testified that he found the photocopy of
Promissory Note including accrued late payment charges/interests the Deed of Sale in the records of Maryden Domingo.
or to return the possession of the subject vehicle for the There was no assumption of obligation of the spouses
purpose of foreclosure in accordance with the undertaking stated Domingo. (or at least no documents proving the same
in the chattel mortgage. were found. The employee stated that not all documents
were turned over by FEBTC to BPI)
5. The spouses Domingo still failed to comply, and BPI filed a
Complaint for Replevin and Damages (or in the alternative, for the 7. Amador himself testified for the defense. (His wife and co-
collection of sum of money, interest and other charges, and defendant Mercy Maryden Domingo died on November 27, 2003.)
attorney's fees) before the Metropolitan Trial Court (MeTC) of
Manila. a. He admitted that his wife bought a car and mortgaged it to
Far East Bank and Trust Company.
7. In her defense, Defendant Maryden Domingo claimed that the i. He recalled that his wife issued forty-eight (48)
car was later sold to Carmelita S. Gonzales with the bank's checks.
conformity and the buyer subsequently assumed payment of ii. The twelve (12) checks were cleared by the bank
the balance of the mortgaged loan. and his wife was able to obtain a discount for
prompt payments up to October 1994.
6. Vicente Magpusao, a former employee of FEBTC and now an b. While they were still paying for the car, Carmelita
Account Analyst of BPI, testified on the following details of the Gonzales expressed interest in buying the car and was
payments made towards the loan obligation: willing to assume the mortgage.
c. Carmelita Gonzales subsequently furnished the bank with
a. Based on the bank’s records, the spouses Domingo issued the Deed of Sale (duly notarized), and issued a check
several postdated checks but not for the entire term. There payable to Far East Bank and Trust Company.
were payments made from October 30, 1993 up to d. Carmelita Gonzales made payments from November 14,
September 14, 1994. 1995 to December 1995, and also issued a check to Far
b. Computer records of further payments (during the period East Bank in the amount of P385,431.60.
when the spouses had stopped paying) there were three (3)

e. Amador claims that, from the time Ms. Gonzales started 10. The RTC reversed the MeTC and ruled in favor of Amador,
to pay, they never received any demand letter from Far holding that:
East Bank. a. in novation, consent of the creditor to the substitution of
f. They received at least two demand letters from BPI, to the debtor need not be by express agreement, it can be
which the spouses’ lawyer replied, stating that the motor merely implied.
vehicle for which the loan was obtained had been sold to b. The consent is not required to be in any specific or
Carmelita Gonzales as of July 5, 1994 with the particular form; the only requirement being that it must be
knowledge and approval of their client. given by the creditor in one way or another.
g. Amador elaborated that when his wife presented to Far c. The following circumstances demonstrated the implied
East Bank the Deed of Sale with Assumption of consent of BPI to the novation:
Mortgage, the bank made no objection and returned all i. BPI had knowledge of the Deed of Sale and
their postdated checks (a fact later dismissed by the SC). Assumption of Mortgage executed between
h. Aside from the aforesaid Deed of Sale, there is no other Mercy and Carmelita, but did not interpose any
document which shows the conformity of the bank. objection to the same;
ii. BPI returned the personal checks of the spouses
8. On June 10, 2004, the MeTC rendered a Decision in favor of BPI. Domingo and accepted the payments made by
a. According to the MeTC, novation is never presumed Carmelita.
and must be clearly shown by express agreement or by d. The RTC also noted that BPI made a demand for payment
acts of equal import. upon the spouses Domingo only after 30 months from
b. Without such release, there is no novation and the third the time Carmelita assumed payments for the
person who assumes the debtor's obligation merely installments due.
becomes a co-debtor or surety.
c. The MeTC found Amador's bare testimony as insufficient 11. BPI filed a Petition for Review with the Court of Appeals, which
evidence to prove that he and his wife Mercy had been affirmed the finding of the RTC that novation took place.
expressly released from their obligations and that a. The CA cited the holding in Babst v. Court of Appeals:
Carmelita Gonzales (Carmelita) assumed their place as the that consent of the creditor to the substitution of
new debtor within the context of subjective novation; and debtors need not always be express and may be
if at all, Carmelita only became the spouses Domingo's inferred from the acts of the creditor.
co-debtor or surety. b. The CA only deleted the damages awarded to Amador.
9. Amador appealed his case before the Regional Trial Court (RTC) 12. BPI then petitioned the Supreme Court, raising the sole issue
of Manila. discussed below.
III. Issue/s

1. W/N there was a novation that released the spouses Domingo creditor bank was represented at a
from loan obligation to BPI, and substituted Carmelita as creditor’s meeting where it was
debtor: NO. given a clear opportunity to
object.
IV. Holding/s • The acceptance by a creditor of
payments from a third person,
Issue #1 who has assumed the obligation,
will result merely to the
NO, there was no novation and Domingo remains bound by the
addition of debtors and not
obligation to BPI. novation (holding in Magdalena
Petitioner’s Arguments Court’s Rebuttals Estates, Inc. v. Rodriguez).
(respondent’s arguments in this • Absent proof that BPI gave its
case; as the Court sided with • BPI’s possession of the Deed of clear and unmistakable consent to
petitioner) Sale and Assumption of release the spouses Domingo
Mortgage executed between from the obligation to pay the car
• In novation, consent of the Mercy and Carmelita in its file loan, Carmelita is simply
creditor to the substitution of the does not mean that it had considered an additional
debtor need not be by express consented to the same. debtor. The bank may file a case
agreement, it can be merely • The mortgage document itself against either party and the 30-
implied. even provides that Mercy and months that lapsed between
• BPI had knowledge of the Deed Carmelita should have sought the Carmelita’s payment and the
of Sale and Assumption of conformity of the mortgagee demand sent to Domingo are of
Mortgage executed between (BPI), but the documents for the no significance.
Mercy and Carmelita, but did car loan and chattel mortgage are • There was no sufficient evidence
not interpose any objection to still in the name of the spouses to prove that the checks had been
the same (Babst v. CA). Domingo. No new promissory returned. Amador’s testimony
• BPI returned the personal checks note or chattel mortgage had was deemed to be hearsay.
of the spouses Domingo and been executed between BPI (or Overall Ruling
accepted the payments made by FEBTC) and Carmelita.
Carmelita. • The absence of objection on the The holding in this case rests on Article 1293 of the New Civil Code, which
• The RTC also noted that BPI part of BPI cannot be presumed provides that novation cannot occur without the consent of the creditor
made a demand for payment as consent. Jurisprudence (in this case, BPI). In both modes of substituting debtors (see part V), the
requires presentation of proof consent of the creditor is an indispensable requirement (Garcia vs. Khu
upon the spouses Domingo only
of consent, not mere absence of
after 30 months from the time Yek Chiong).
objection.
Carmelita assumed payments
• The ruling in Babst v. CA is NOT
for the installments due. applicable; in that case, the The well settled rule is that novation is never presumed. Novation will

not be allowed unless it is clearly shown by express agreement, or by acts of (1) expromision - the initiative for the change does not come from
equal import. Thus, to effect an objective novation it is imperative that the the debtor and may even be made without his knowledge, since it
new obligation expressly declare that the old obligation is thereby consists in a third person assuming the obligation.
extinguished, or that the new obligation be on every point incompatible (2) delegacion - the debtor offers and the creditor accepts a
with the new one. In the same vein, to effect a subjective novation by a third person who consents to the substitution and assumes the
change in the person of the debtor it is necessary that the old debtor be obligation, so that the intervention and the consent of these
released expressly from the obligation, and the third person or new debtor three persons are necessary.
assumes his place in the relation. There is no novation without such
release as the third person who has assumed the debtor's obligation VI. Disposition
becomes merely a co-debtor or surety.
WHEREFORE, in view of the foregoing, the Petition is GRANTED. The
The issue in this case lies in whether or not BPI’s actions or omissions are Decision dated July 11, 2005 and Resolution dated August 19, 2005 of the
Court of Appeals in CA-G.R. SP No. 88836, affirming with modification
indicative of express consent, and the Court holds that they are not. Without
the Decision dated February 10, 2005 of the RTC of Manila, Branch 26 in
an express declaration that Amador Domingo has been released from the
Civil Case No. 04-111100, is REVERSED and SET ASIDE. The Decision
obligation and substituted as debtor by Carmelita Gonzales, they are deemed dated June 10, 2004 and Order dated September 6, 2004 of the MeTC of
to be co-debtors and BPI may recover damages from Domingo. Manila, Branch 9 in Civil Case No. 168949-CV,
is REINSTATED with MODIFICATIONS. The heirs of respondent
V. Law or Doctrine Applied Amador Domingo are ORDERED to pay petitioner Bank of the Philippine
Islands the following:
(1) the P275,562.00 balance on the Promissory Note, plus legal interest of
Art. 1293 - "Novation which consists in substituting a new debtor in the 12% from January 29, 1997 to June 30, 2013 and 6% from July 1, 2013
place of the original one, may be made even without the knowledge or until fully paid; (2) attorney's fees of 10%; and (3) costs of suit. However,
against the will of the latter, but not without the consent of the creditor." the liability of Amador Domingo's heirs is limited to the value of the
inheritance they received from the deceased.
NOVATION - According to Manresa, novation is the extinguishment of an
obligation by the substitution or change of the obligation by a subsequent SO ORDERED.
one which extinguishes or modifies the first, either by changing the object
or principal conditions, or by substituting the person of the debtor, or by Sereno, C. J., (Chairperson), Bersamin, Perez, and Perlas-Bernabe, JJ.,
subrogating a third person to the rights of the creditor. concur.
Two forms of novation by substituting the person of the debtor: VII. Additional Notes
VII. Random Facts

• Ponente: Leonardo-De Castro, J.:

G.R. No. 71889 | Apr 17, 1990 Novation
Vda. De Mondragon v. IAC Vda. De Mondragon v. IAC
I. Recit-ready Summary ● ½ of the agreed price (P1,500) was paid by the Bayonas, and
The Mondragons and the Bayonas had two contracts to sell further payments were made by them in cash and in kind,
involving lots. One contract for the lots in lot 995 in which the Bayonas amounting to an additional sum of P297 (total of P1,797), leaving
paid P1,797 out of the agreed P3,000 price, and another contract for the lots an unpaid balance of P1,203. This transaction was evidenced by a
in lot 901 in which the Bayonas paid P7,900 out of P15,000 agreed price. memo receipt signed by the parties
The conflict arose when the Mondragons failed to execute the deeds on the ● On Apr 11, 1975, the Mondragons agreed to sell to the Bayonas an
ground that Bayonas failed to settle the balance of the first contract unsold portion of their Lot 901 of the Tacloban Cadastre, covered
concerning lot 995. The Bayonas then filed a case against them on the by T-760, for P15,000, of which P7,900 was admittedly received
contention that despite numerous demands, the deeds were not executed and by the Mondragons from the Bayonas.
the lots were even disposed of and sold by the Mondragons. There was an ● Later on, the Bayonas filed a complaint for specific performance
attempt to create a compromise agreement which unfortunately did not and damages with prelim attachment in the CFI of Leyte against
result in an amicable settlement, which led to the CFI filing and in the end, the Mondragons, on the allegations that:
the CFI ruled that there was novation of the lot 995 contract due to the ○ despite demanding several times that the Mondragons
failure to settle the balance of the Bayonas. The IAC reversed the decision execute the deeds of sale of the portions of lots 995 and
leading to the current petition. 901 that has been sold to them, the Mondragons failed to
The issue is whether or not the first contract for lot 995 was ○ And instead, it was discovered that the Mondragons have
novated by the second contract for lot 901, and the SC ruled that it did not. been selling their lots to other persons, and may dispose of
As found by the IAC, the CFI only presumed the novation which should not the subject properties, with intent to defraud them=
be the case, in light of the rules set by Art 1292 which states that the contractual breach
novation should either be expressly stipulated by the parties, or implied due ● In their defense, in their move to dismiss the case, the Mondragons
to the incompatibility of the two contracts. In this case, the demand letters, countered that:
the receipts and the actions of the parties showed that there was no ○ the Bayonas failed to pay the balance for lot 995, decided
expressed intention to novate, nor was there any implied intention to novate. to abandon the transaction and buy lot 901 instead
○ it was agreed that the amount paid for lot 995 would be
II. Facts of the Case (Material Facts) considered as partial payment for lot 901, so they could
● On Aug 22, 1960, The Mondragons agreed to sell to their relatives, not possibly execute a deed of sale for lot 901 since the
the Bayonas a 1000 sq.m portion of their Lot 995 of the Tacloban balance was not yet paid
Cadastre, for the price of P3 per sq.m or a total of P3,000. ● Both parties submitted their proposed compromise agreements.
For the Bayonas, they proposed that they deduct the paid 99 sq.
1
Obligations and Contracts (2020) PETITIONER: Socorro Vda De Mondragon, the Heirs of the Estate of
Dominador Mondragon
DIGEST AUTHOR: Jayvee Ala RESPONDENT: IAC, Manuel and Helen Bayona
ms (excess of lot 995/P1,797), leaving 279 sq.ms to account for so Petitioner’s Arguments Court’s Rebuttals
they will only pay P3,970. For the Mondragons, they proposed ● (well the trial court) The ● There was no express or
that the Bayonas can still get the lots concerned in lot 901 (lot agreement for lot 995 was implied novation of the
995’s lots were already sold), provided that they pay the balance of novated by the agreement for first contract to sell, by the
P7,900 minus the P1,797 advanced payment for lot 995= P6,103 lot 901 second contract meaning
● The trial court decided that there was a novation of the first that there was no novation
contract to sell lot 995, on the basis that the selling of lot 995 lots and that both contracts are
by the Mondragons couldn't have not been known independent from each
● The trial court also reasoned that the Bayonas couldn't have not other and can stand alone
consented to the selling since they were neighbors and the Bayonas Overall Ruling
only made a move 2y later through a demand letter. They held that ● Novation is never presumed and there must be an express stipulation, or
only the second contract concerning lot 901 existed, in which the irreconcilable difference (express/implied novation)
only balance to be paid is P5,303 [P15,000 agreed price- (P7,900 o The express mandate of Art 1292 already sets the
advance payment +P1,797 advance for lot 995)] guideline that the novation will be expressed in
● The IAC reversed the trial court ruling, dismissing the novation unequivocal terms, or that the two obligations be
theory and ordered the Mondragons to execute the deeds for lot incompatible with each other on every point.
995 and lot 901, with the latter after the Bayonas paid the balance ▪ In implied novation, it must be that the two
P7,603. distinct and successive binding contracts take
III. Issue/s place with the later one designed to replace the
1. W/N the agreement to sell a portion of lot 995 was novated by older contract, meaning that there was
the agreement to sell a portion of lot 901; NO incompatibility between the two which can be
inferred as an intention to novate the previous
IV. Holding/s contract.
● No intention to novate found in receipts, statements of accounts,
Main Issue demand letters, letters responding to the demand
NO, the agreement for lot 995 was not novated by the agreement for o Had it been their intention to extinguish the first contract,
lot 901 they should've stated that intention in their receipts, but
no such stipulation was included. The receipts and
2
Dominador Mondragon
statement of accounts for the two lots were maintained (1) Changing their object or principal conditions;
separately (no annotations whatsoever) (2) Substituting the person of the debtor;
o This interpretation was further supported by the demand (3) Subrogating a third person in the rights of the creditor. (1203)
letters sent by the Bayonas, which stated the demand of Art. 1292. In order that an obligation may be extinguished by another which
the execution of both deeds separately covering the two substitutes the same, it is imperative that it be so declared in unequivocal
(not lot 901 alone). No mention of novation at all terms, or that the old and the new obligations be on every point
incompatible with each other. (1204)
▪ The fact that the Mondragons never replied to
those letters showed that there was no intention
VI. Disposition
of novation. If there was, they would have
WHEREFORE, the assailed decision is affirmed in all respects.
refuted the letters for the conveyance of both
lots VII. Additional Notes
● No novation proved during trial
o only alleged in the Mondragons’ answer, which is not VII. Random Facts
proof ● Ponente: Griño- Aquino, J.
o the testimonies of the Mondragons regarding the
payment of the two lots does not make mention of any
novation or change of subject matter of the first proposed
sale
o The Mondragon’s explanation that they were actuated to
demand payment for the 2 lots when they failed to
collect the balances of lot 901 is untenable, since if there
was indeed an expressed novation of the first contract, to
consolidate all payments in the second contract, even out
of exasperation, Mondragon would have no right to
revive and collect the first contract over lot 995 all over
again

Art. 1291. Obligations may be modified by:
3
Dominador Mondragon
SBTC v Cuenca SBTC v Cuenca
I. Recit-ready Summary 2. In 1980, SBTC granted SIMC’s a credit line for the amount of PHP 8 million,
effective until 30 Nov. 1981, to meet the capitalization requirements of the
In 1980, SBTC granted SIMC a credit line of PHP 8 million in order for the latter to company
meet capitalization requirements. This loan was secured by an Indemnity Agreement 3. As security, SIMC executed a Chattel Mortgage over some of their machinery
issued by then SIMC President and Chairman, Cuenca, solidarily binding him with and equipment in favor of SBTC.
SIMC. In 1981, SIMC made their first draw down in the amount of PHP 6.1 million 4. As further security, Rodolfo Cuenca issued an Indemnity Agreement in favor of
secured by a promissory note. In 1985, Cuenca stepped down and sold his shares via SBTC wherein he solidarily bound himself with SIMC “ by virtue of aforesaid
public auction. SIMC subsequently obtained six other loans amounting to PHP credit accommodation(s) including the substitutions, renewals, extensions,
6,369,019.50. In 1989, they had difficulty in meeting amortization payments so they increases, amendments, conversions and revivals of the aforesaid credit
requested for debt restructuring from SBTC which was agreed upon, resulting in the accommodation(s)”
1989 Loan Agreement, without Cuenca’s knowledge or consent. In this new loan 5. In 1981, SIMC made their first drawdown on the credit line in the amount of PHP
structure, the first 1981 loan of PHP 6.1 million secured by Cuenca’s Indemnity 6,100,000.00 and issued a promissory note to cover for it
Agreement was lumped together with the six subsequent loans made by SIMC not 6. In 1985, Cuenca stepped down as President and Chairman of the Board of SIMC
covered by the Indemnity Agreement. Eventually, SIMC and Cuenca failed to make and his shares were sold to Adolfo Angala via public auction.
further payments. Therefore, SBTC filed a case in the trial court which ordered for the 7. SIMC subsequently obtained six other loans totaling the amount of PHP
SIMC and Cuenca to pay the SBTC. Cuenca appealed before the CA which ruled in 6,369,019.50
his favor, releasing him from the obligation due to extinguishment of the original loan 8. In 1989, SIMC had trouble making amortization payments on their loans on
via novation. SBTC elevated this CA decision to the SC via petition for review. SBTC and requested for a restructuring of debt which was agreed upon without
prior knowledge and consent of Cuenca
The issue in this case was whether or not the 1989 Loan Agreement novated the a. Note that the only loan covered by Cuenca’s Indemnity Agreement
original 1980 Credit Accommodation and Cuenca’s liability under the Indemnity (initial PHP 6,100,000.00) was lumped together with subsequent loans
Agreement – YES not secured by the agreement
9. In order to formalize their agreement to restructure, they executed a Loan
In order for novation to extinguish an obligation according to Art. 1292, the old and Agreement with the following terms:
new obligations must be incompatible on every point. In the present case, the inclusion a. Amount - The Lender agrees to grant loan to the Borrower in the
of a stipulation in the 1989 Loan Agreement that the previous 1980 Credit aggregate amount of PHP 12,200,000.00, The loan shall be released in
Accommodation was “liquidated” suggests that it was already extinguished. In two tranches of PHP 8,800,000.00 for The First Loan and PHP
addition, it contained conditions and positive and negative “covenants” not found in 3,400,000.00 for The Second Loan to be applied in the manner and for
the original loan. Also, the previous loan was for PHP 8 million while the new loan the purpose stipulated hereinbelow.
was for PHP 12.2 million. These serve as proof that the 1989 Loan Agreement novated b. The First Loan shall be applied to liquidate the principal portion of the
and extinguished the obligations of the 1980 Credit Accommodation. In effect, the SIMC present total outstanding indebtedness to the SBTC while the
accessory obligations attached to the 1980 Credit Accommodation were also Second Loan shall be applied to liquidate the past due interest and
extinguished pursuant to Art. 1296, releasing Cuenca from liability. penalty portion of the Indebtedness.
10. SIMC made further payments of PHP 1,757,000.00
11. SIMC failed to pay the restructured debt despite letter demands from SBTC upon
II. Facts of the Case (Material Facts) the former and Cuenca
12. SBTC filed a complaint for collection of sum of money in the trial court which
1. Sta. Ines (SIMC) is a corporation engaged in logging and was granted a Timber was disposed of by ordering SIMC and Cuenca to pay SBTC.
License Agreement from the DENR
1
Obligations and Contracts (2020) PETITIONER: SECURITY BANK AND TRUST COMPANY, Inc.
DIGEST AUTHOR: Capeding RESPONDENT: RODOLFO M. CUENCA

13. Cuenca appealed the RTC decision to the CA who released Cuenca from the debt "negative covenants" not found in the
ratiocinating that: earlier obligation.
a. The 1989 Loan Agreement had novated the 1980 Credit
Accommodation earlier granted by the bank to SIMC which ● The 1989 Agreement did not change ● NO. While the 1980 Credit
extinguished the Indemnity Agreement the original loan with respect to the Accommodation had stipulated that
b. The Credit Approval Memorandum had specified that the Credit parties involved or the obligations the amount of loan was not to exceed
Accommodation was for a total amount of PHP 8 million, and that its incurred PHP 8 million, the 1989 Agreement
expiry date was November 30, 1981. Hence, Cuenca was liable only provided that the loan was PHP 12.2
for loans obtained prior to November 30, 1981, and only for an amount million.
not exceeding PHP 8 million
i. ● Since the original Credit • NO. The 1989 Loan Agreement was
III. Issue/s Accommodation was not extinguished, thus, the Indemnity
extinguished, it concludes that Agreement, an accessory obligation,
Whether the 1989 Loan Agreement novated the original 1980 Credit Cuenca was still liable under the was also extinguished, as per Article
Accommodation and Cuenca’s liability under the Indemnity Agreement - YES Indemnity Agreement. 1296.
Issue #1 One of the methods of extinguishing an obligation is novation provided by Art. 1292
YES. The original Credit Accommodation was extinguished, in effect, the of the Civil Code. It is never presumed. It has been held that "in the absence of an
Indemnity Agreement (an accessory obligation) was extinguished. express agreement, novation takes place only when the old and the new obligations
are incompatible on every point." The following requisites must then be established:
Petitioners Arguments Court’s Ruling (1) there is a previous valid obligation; (2) the parties concerned agree to a new
contract; (3) the old contract is extinguished; and (4) there is a valid new contract.
● There was no absolute ● NO. It is evident from the usage of the
incompatibility between the old and term “liquidate” that the original loan Thus: (1) the 1980 Credit Accommodation was valid; (2) SIMC and SBTC agreed to
the new obligations, and that the was extinguished. The Loan a loan restructuring without Cuenca’s knowledge and consent; (3) the 1980 Credit
latter did not extinguish the earlier Agreement stated that: “The First Accommodation was “liquidated”; (4) the 1989 Loan Agreement was made.
one Loan shall be applied to liquidate the
principal portion of the Borrower’s The original credit line agreement was extinguished by novation in this case. It follows
present total outstanding that its accessory obligations, such as the Indemnity Agreement which bound Cuenca,
Indebtedness to the Lender (the was extinguished as well. This is pursuant to Article 1296 of the Civil Code, which
"Indebtedness") while the Second provides that “when the principal obligation is extinguished in consequence of a
Loan shall be applied to liquidate the novation, accessory obligations may subsist only insofar as they may benefit third
past due interest and penalty portion persons who did not give their consent." Therefore, Cuenca was correctly released
of the Indebtedness." from the obligation by the CA.
● The 1989 Loan Agreement contained
conditions, "positive covenants" and
2

ART. 1292. In order that an obligation may be extinguished by another which

substitute 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.
ART. 1296. When the principal obligation is extinguished in consequence of

a novation, accessory obligations may subsist only insofar as they may benefit
third persons who did not give their consent.
VI. Disposition
WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED. Costs against petitioner.
3

G.R. No. 186196 | August 15, 2018 Extinguishment of Obligations: Novation
Yujuico v Far East Bank and Trust Company Yujuico v Far East Bank and Trust Company
I. Recit-ready Summary 1. In 1993 Far East Bank and Trust approved the renewal of appellee GTI
Far East Bank and Trust approved an Omnibus Credit Line with GTI secured Sportswear Corporation’s Omnibus Credit Line with a total amount of
by a Comprehensive Surety Agreement secured by GTI’s president, Yujuico, in his P35,000,000.00 secured by a Comprehensive Surety Agreement executed
personal capacity. GTI requested their loan be converted to US Dollars but no by Yujuico in his personal capacity. He was also president of GTI.
definite agreement was made. They later entered into a Loan Restructuring 2. Negotiations were undertaken to settle appellee GTI's trust receipt
Agreement. After signing such they again requested for re-domination to US Dollars. obligation under the OCL. GTI requested for the conversion of its peso
In 1997 Far East Bank demanded that GTI update its unpaid amortizations with a loan to US dollar-denominated loan but no definite agreement on the said
balance of around P11M. conversion was put to writing.
3. Yujuico, in behalf of appellee GTI and in his personal capacity as surety,
GTI filed a complaint for specific performance against appellant bank alleging and appellant's First Vice President, Lazatin, in behalf of appellant bank,
that during the signing of the restructuring agreement they were assured by officers signed a Loan Restructuring Agreement. The subject of the loan was GTI’s
of the bank that after a few payments the loan would be converted to US dollars. outstanding balance of P 25,208, 874 as of May 31 1995 and expressly
And that sometimes in October 1996 an officer of the bank confirmed by phone that stated that the restructured loan continues to be secured by the
the conversion to US dollars had been approved by the bank. Comprehensive Surety Agreement previously executed.
4. After signing the restructuring agreement GTI reiterated its request for the
The RTC ruled that appellant bank indeed agreed to convert to US dollar re-domination to US dollars. The bank denied the request.
GTI’s peso loan and the conversion also resulted in the novation of GTI’s loan 5. In September 22, 1997 the bank demanded GTI update its unpaid
obligation. As a result, Yujuico was released from his obligation as surety pursuant amortizations with a principal balance of P11,376,666 not later than
to Article 1215 and 1291. On appeal, the CA ruled on the loan issue of W/N the September 30,1997 and to settler all its other past due obligations to avert
conversion was tantamount to a novation and thus extinguished Yujuico’s any legal action.
obligations as a surety. The CA ruled that no, the Omnibus Credit Line and Loan 6. GTI filed a complaint for specific performance against appellant bank
Restructuring Agreementwere not novated and hence Yujuico remained liable as alleging that during the signing of the restructuring agreement they were
surety. The petitioner then raised the issue of W/N the CA has legal basis to resolve assured by officers of the bank that after a few payments the loan would be
and declare that there was no novation between GTI and respondent and W/N the converted to US dollars. And that sometimes in October 1996 an officer of
CA has legal basis to resolve and declare that petitioner Yujuico remains liable as the bank confirmed by phone that the conversion to US dollars had been
surety of the obligation of GTI. approved by the bank. They also claimed that they would pay lower
interest under a US dollar-denominated loan and would save the total of
The SC ruled that it completely agrees with the ruling of the CA that "the P2,844,228.00.
attendant facts do not make out a case of novation" in the sense of a total or 7. The bank denied that it made assurances that it would approve the request
extinctive novation and that without a total or extinctive novation, the surety for conversion to US dollar. The bank informed appellees that the
agreement subsists. conversion would be considered depending on GTI’s performance on the
restructuring agreement. They said that they informed GTI that the request
was approved in principle, subject to some conditions. However GTI was
II. Facts of the Case (Material Facts) not able to comply with the requirements resulting in the denial of their
request for conversion.
Obligations and Contracts (2020) PETITIONER: Benedict V. Yujuico 1
DIGEST AUTHOR: Ryon Rivera RESPONDENT: Far East Bank and Trust Company (now BPI), substituted
by Philippine Investment One, Inc
8. The court a quo ruled that appellant bank indeed agreed to convert to US [respondent] that the other terms of the
dollar GTI’s peso loan and the conversion also resulted in the novation of restructuring agreement would be complied with.
GTI’s loan obligation. As a result, Yujuico was released from his Verily, where the parties to the new obligation
obligation as surety pursuant to Article 1215 and 1291. expressly recognize the continuing existence and
9. A motion for reconsideration was partly granted by the CA. The CA no validity of the old one, there can be no novation.
longer ruled on the issue of W/N the parties perfected a contract to • Neither do We see any substantial incompatibility
restructure the loan to US dollars. Instead the court ruled on W/N the between the obligations of the parties under the
conversion is tantamount to novation warranting the extinguishment of restructuring agreement and the agreement to
Yujuico’s obligations as a surety. The CA ruled that the Omnibus Credit convert the loan as to warrant a finding of an
Line and the Loan Restructuring Agreement were not novated and that implied novation.
Yujuico remained liable as surety under the Comprehensive Surety • The only modification that the conversion
Agreement. agreement introduced was that [GTI's and
petitioner Yujuico's] loan obligation would be
payable in US dollars instead of Philippine pesos.
III. Issue/s • The well-settled rule is that, with respect to
1. W/N the CA has legal basis to resolve and declare that there was no obligations to pay a sum of money, the obligation
novation between GTI and respondent; is not novated by an instrument that expressly
2. W/N the CA has legal basis to resolve and declare that petitioner Yujuico recognizes the old, changes only the terms of
remains liable as surety of the obligation of GTI; payment, adds other obligations not incompatible
with the old ones, or the new contract merely
IV. Holding/s supplements the old one.
Issue #1
YES, the CA was correct to rule that there was no novation.

• • there is no document that states in unequivocal
terms that the agreement to convert the loan from
peso to US dollar would abrogate the loan
restructuring agreement or the omnibus credit line.
• In fact, in the letter dated September 5, 1995 sent
by x x x GTI to [respondent] reiterating the
former's request to re-dominate its loan obligation
from peso to US dollar, x x x GTI even assured

Overall Ruling generally for an indefinite time or until revoked."

The Court agrees with the finding of the CA that "the attendant facts do not make
out a case of novation" in the sense of a total or extinctive novation. The SC added
that at best, the agreement to convert the Peso-denominated restructured loan into a Overall Ruling
US Dollar-denominated one is an implied or tacit, partial, modi︎catory novation. The Court fully agrees with the CA. While Article 1215 of the Civil Code provides
There was merely a change in the method of payment. that novation, compensation or remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall extinguish the obligation, the
novation contemplated therein is a total or extinctive novation of the old obligation.
Also, the Comprehensive Surety Agreement that petitioner Yujuico executed in

favor of respondent is so worded that it covers "any and all other indebtedness of
every kind which is now or may hereafter become due or owing to [respondent] by
the Borrower.

Issue #2 ART. 1291. Obligations may be modified by:
YES, The CA was correct in ruling that Yujuico remains liable as surety of the
obligation. (1) Changing their object or principal conditions;
• • without a total or extinctive novation, the surety (2) Substituting the person of the debtor;
agreement subsists.
• Aside from the absence of a "perfect" novation, the (3) Subrogating a third person in the rights of the creditor.
CA said that "another circumstance that militates
against the release of [petitioner] Yujuico as surety
is the fact that he executed a comprehensive or ARTICLE 1292 OF THE CIVIL CODE
continuing surety, one which is not limited to a ART. 1292. In order that an obligation may be extinguished by another which
single transaction, but which contemplates a future substitutes the same, it is imperative that it be so declared in unequivocal terms, or
course of dealing, covering a series of transactions, that the old and the new obligations be on every point incompatible with each other.
SDHTEC
VI. Disposition
WHEREFORE, the Petition is hereby DENIED. The Decision dated January 23,
2009 of the Court of Appeals in CA-G.R. CV No. 87836 is AFFIRMED.
VII. Random Facts

• Ponente: Caguioa, J.

G.R. No. 226088 | February 27, 2019 Extinguishment of Obligations: Novation
Food Fest Land v Siapno Food Fest Land v Siapno
I. Recit-ready Summary The petitioners admit the existence of an unpaid balance under the
Contract of Lease but disagree with the decisions of the RTC and CA on 2
The respondents are the registered owners of a 521 sqm. parcel of land. points. The first point mainly revolves around the amount due to the
In 1997, respondents entered into a Contract of Lease involving the land respondents. The petitioners allege that instead of the sum of P988,907.74,
with petitioner Food Fest Land, Inc. The contract states that the rent for 1st the award should have been just for P382,055.22. On the other hand, the
year shall be P43,901.00 per month, but for the succeeding years, the rate of second point is about the respective liabilities for the unpaid balance. The
monthly rate shall escalate by 10% annually. The contract also contains a petitioners’ plea is, in substance, an invocation of the concept of novation of
non-waiver clause which states that “no waiver by the parties of any of their an obligation by the substitution of the person of the debtor. They allege that
rights under this Contract of Lease shall be deemed to have been made the assignment of rights to Tucky Foods and then to Joyfoods ought to have
unless expressed in writing and signed by the party concerned.” resulted in Food Fest’s release from its obligations under the Contract of
Lease and its substitution therein by Joyfoods.
In 1998, Food Fest assigned all its rights and obligations under the
Contract of lease unto one Tucky Foods, Inc., and in 2001, Tucky Foods The main issue in the case is W/N liability for the unpaid balance rests
assigned all the said rights and obligations under such contract to petitioner solely with Joyfoods because of novation. The Court held that NO, the
Joyfoods Corporation. From the 1st up to 5th year of the lease, Food Fest and liability for the unpaid balance should rest on both Food Fest and
its assignees paid rent at the monthly rate prescribed for under the Contract Joyfoods. This is such because according to Article 1293 of the Civil Code,
of Lease. By the 5th year of the lease, Joyfoods was paying the respondents a to validly effect the novation of an obligation by the substitution of the
monthly rent of P64,275.45. The rental escalation clause, however, was not person of the debtor, it is not enough for the debtor to merely assign his debt
observed during the 6th year up to the 10th year of the lease that by the 10th to a third person, or for the latter to assume the debt of the former; the
year, the rate of rent was only at P68,774.71 per month. consent of the creditor to the substitution of the debtor is essential and must
be had. The settled facts do not show that such was fulfilled. First, nowhere
At the start of the 11th year, respondents called the attention of the in the facts state that respondents had expressly consented in writing to the
petitioners regarding its intent to enforce the rental escalation clause so that substitution of Food Fest by Joyfoods. Without the consent of the
Food Fest and Joyfoods should be paying P113,687.89 per month, unless respondents – conveyed in the form required under the Contract of Lease –
such amount is renegotiated. In reply, the petitioners sent two letters to the there can be no substitution of Food Fest by Joyfoods. Second, even if the
respondent proposing the amount be reduced to P80,000.00 and P85,000.00, non-waiver clause of the Contract of Lease were to be set aside, Food Fest
respectively, and both were met with rejection. During the 12th year of the and Joyfoods’ claim of novation is still doomed to fail. Such is the case
lease, Joyfoods sent a letter to respondents conveying its intent to pre- because the consent of respondents to the substitution of Food Fest, just the
terminate the lease “due to severe and irreversible business losses.” same, cannot be deduced or implied from any of the established acts of the
former. Under the settled facts, the respondents did nothing in the way of
Respondents filed a case before the RTC for sum of money against the releasing Food Fest from its obligations other than its acceptance of rental
petitioners for the payment of the sum of P988,907.74 which sum payments from Joyfoods. The consent of the respondents to the substitution
respondents refer to as the escalation for the years 2007 and 2008. RTC and cannot be presumed from the sole fact that they accepted payments from
CA ruled in favor of the respondents. Hence, the current petition. Joyfoods.
Obligations and Contracts (2020) PETITIONER: Food Fest Land, Inc. and Joyfoods Corporation 1
DIGEST AUTHOR: Pam Madrigal RESPONDENT: Romualdo Siapno, Teodoro Siapno, Jr., and Felipe Siapno
II. Facts of the Case (Material Facts) escalation clause of the Contract of Lease for the said year.
Accordingly, respondents informed Food Fest and Joyfoods that the
1. Respondents Romualdo Siapno, Teodoro Siapno and Felipe Siapno are rent for the 11th year of the lease shall be P113,867.89 per month,
the registered owners of a 521 sqm. parcel of land unless such amount is renegotiated
2. On April 14, 1997, respondents entered into a Contract of Lease 10. In reply, Food Fest and Joyfoods sent to respondents a letter wherein
involving the subject land with petitioner Food Fest Land, Inc., a local they acknowledged that the applicable rate of rent following the
corporation who wanted to use such land as site of a fast food restaurant Contract of Lease would indeed be P113,867.89 per month, but
3. The contract contains the following important provisions: proposed that the same be reduced to only P80,000.00 per month. The
a. Term of the lease shall be 15 years. On the 3rd year of the lease, proposal was rejected by the respondents
however, Food Fest shall have the right to pre-terminate the lease 11. Joyfoods sent another letter to respondents wherein it proposed the
b. Food Fest shall pay respondents rent in the following amounts: amount of P85,000.00 as monthly rental for the 11th and 12th years of
i. For the first year, the rate of rent shall be P43,901.00 per month the lease. This, too, was met with rejection
ii. For the succeeding years, the rate of monthly rent shall escalate 12. During the lease’s 12th year, Joyfoods sent a letter to respondents
by 10% annually conveying its intent to pre-terminate the lease “due to severe and
iii. No waiver by the parties of any of their rights under this irreversible business losses”. It was stated that the business will cease
Contract of Lease shall be deemed to have been made unless its operations on November 29, 2008 and will turnover the subject land
expressed in writing and signed by the party concerned to the respondents on December 13, 2008
4. Food Fest proceeded to build and operate its restaurant within the
subject land Before the RTC and the CA
5. In October 1998, Food Fest assigned all its rights and obligations under
the Contract of Lease unto one Tucky Foods, Inc. In September 2001, 13. Respondents filed a case before the RTC for sum of money against
Tucky Foods assigned all the said rights and obligations under such Food Fest and Joyfoods. Respondents mainly seek payment of the sum
contract to petitioner Joyfoods Corporation P988,907.74 from Food Fest and Joyfoods – which sum respondents
6. From the 1st up to 5th year of the lease, Food Fest and its assignees paid refer to as the “escalation for the years 2007 and 2008”
rent at the monthly rate prescribed for under the Contract of Lease. 14. RTC rendered a decision in favor of respondents ordering Food Fest
Thus, by the 5th year of the lease, Joyfoods was paying the respondents and Joyfoods to, among others, pay respondents the unpaid balance in
a monthly rent of P64,275.45 the amount of P988,907.74
7. The rental escalation clause, however, was not observed during the 6th 15. CA affirmed the decision of the RTC. Hence, the current appeal
up to the 10th year of the lease
8. For the 6th up to 9th year of the lease, respondents continued to receive Before the Supreme Court
rent at the rate of P64,275.45 per month. On the 10th year, respondents
were paid rent at the rate of P68,774.71 per month 16. Food Fest and Joyfoods admit the existence of an unpaid balance under
9. At the start of the 11th year, however, respondents called the attention of the Contract of Lease. They, however, deviate from the decisions of the
Food Fest and Joyfoods regarding its intent to enforce the rental RTC and the CA on 2 points
First Point 24. Under such circumstances, it is postulated that the liability for the
unpaid balance now solely rests with Joyfoods
17. They challenge the amount of the unpaid balance awarded by the RTC
and CA. Instead of the sum of P988,907.74 claimed by the respondents, III. Issue/s
Food Fest and Joyfoods assert that the proper award should have been
just for P382,055.22 1. W/N liability for the unpaid balance rests solely with Joyfoods
18. Food Fest and Joyfoods allege that by reason of an unwritten agreement because of novation. NO
between Joyfoods and the respondents, the rental escalation clause of
the contract was actually suspended indefinitely beginning from the 6th IV. Holding/s
year. Hence, the monthly rent payable from the 6th year of the lease
onwards is no longer determined by the stipulations of the Contract of Issue #1
Lease, but by negotiation between Joyfoods and respondents NO, the liability for the unpaid balance rests on both Food Fest and
19. For the 11th and 12th year, they aver that respondents and Joyfoods ad Joyfoods
actually come to an agreement fixing the monthly rentals thereon at Petitioner’s Arguments Court’s Rebuttals
P90,000.00 per month. Such agreement was precipitated, according to  Food Fest and Joyfoods’ plea is,  The Court does not agree
them, by Joyfoods’ letter dated July 4, 2007 to respondents in substance, an invocation of the  Novation cannot be presumed and
20. Food Fest and Joyfoods assert that the respondents replied to the July 4, concept of novation of an as such there needs to be an
2007 letter and made a counterproposal of P90,000.00 monthly rent for obligation by the substitution of express declaration that the
the 11th and 12th years of the lease. The counterproposal was supposedly the person of the debtor original debtor was released from
handwritten by the respondents, and Joyfoods, apparently, agreed to  They allege that the assignment the obligation, and the new debtor
this counterproposal of rights to Tucky Foods and assumes his place in the relation
21. Food Fest and Joyfoods point out that when the rate of monthly rent for then to Joyfoods ought to have
the 11th and 12th year is reckoned at P90,000.00, the unpaid balance resulted in Food Fest’s release
would have amounted only to P382,055.22 from its obligations under the
Contract of Lease and its
Second Point substitution therein by Joyfoods
22. Food Fest and Joyfoods also disagree with their respective liabilities for
the unpaid balance as held by the RTC and the CA
23. They submit that both of them cannot be held liable for the said
balance, in light of Food Fest’s assignment of its rights and obligation
under the contract to Tucky Foods in 1998 and of Tucky Fodds’
assignment of the same rights and obligations to Joyfoods in 2001
Overall Ruling Verily, without the consent of the respondents – conveyed in the form
required under the Contract of Lease – there can be no substitution of Food
Novation is the extinguishment of an obligation by its modification and Fest by Joyfoods.
replacement by a subsequent one. Novation of an obligation by substitution
the person of the debtor, as the term suggests, entails the replacement of the Second, even if the non-waiver clause of the Contract of Lease were to
debtor by a third person. When validly made, it releases the debtor from the be set aside, Food Fest and Joyfoods’ claim of novation is still doomed to
obligation which is then assumed by the third person as the new debtor. To fail. Such is the case because the consent of respondents to the substitution
validly effect such kind of novation, however, it is not enough for the debtor of Food Fest, just the same, cannot be deduced or implied from any of the
to merely assign his debt to a third person, or for the latter to assume the established acts of the former. Under the settled facts, the respondents did
debt of the former; the consent of the creditor to the substitution of the nothing in the way of releasing Food Fest from its obligations other than its
debtor is essential and must be had as according to Article 1293 of the Civil acceptance of rental payments from Joyfoods. The consent of the
Code. Such is required because the substitution of another in place of the respondents to the substitution cannot be presumed from the sole fact that
debtor may prevent or delay the fulfillment or performance of the obligation they accepted payments from Joyfoods. The acceptance of the respondents
by reason of the inability or insolvency of the new debtor. of the payments, sans any agreement that Food Fest will also be released
from his obligation, does not result in novation but merely the addition of
The consent of the creditor to the substitution of a debtor, as a rule, may debtors.
be given expressly or impliedly. The law also does not require that the
creditor’s consent to the substitution to come at a particular time or in a It is a well-settled rule that novation is never presumed. It will not be
particular form. What it only demands is that the consent of the creditor be allowed unless it is clearly shown by express agreement, or by acts of equal
given one way or another. import. Thus, to effect a subjective novation by a change in the person of
the debtor, it is necessary that the old debtor be released expressly from the
Applying the foregoing in the case at bar, the Court found that the obligation, and the third person or new debtor assumes his place in the
established facts do not permit the conclusion that novation had take place. relation. There is no novation without such release as the third person who
has assumed the debtor's obligation becomes merely a co-debtor or surety.
First, the settled facts do not show that respondents had expressly
consented in writing to the substitution of Food Fest by Joyfoods. The Accordingly, Food Fest cannot be considered as released from its
consent of respondents to such substitution has to be in writing, in light of obligations under the Contract of Lease.
the non-waiver clause of the Contract of Lease. As can be recalled, the non-
waiver clause of the Contract of Lease required the parties thereto to express V. Law or Doctrine Applied
any waiver of their rights under said contract in writing lest their waiver be
considered null. Respondents’ consent to the substitution of Food Fest falls ARTICLE 1293 OF THE CIVIL CODE
within the ambit of the foregoing clause, because a novation by the
ART. 1293. Novation which consists in substituting a new debtor in the place of the
substitution of the person of the debtor implies a waiver on the part of the original one, may be made even without the knowledge or against the will of the
creditor of his right to enforce the obligation as against the original debtor.
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in articles 1236 and 1237.
VI. Disposition
WHEREFORE, premises considered, the instant appeal is DENIED.

The Decision dated January 6, 2016 and the Resolution dated July 22, 2016
of the Court of Appeals in CA-G.R. CV No. 101302 are AFFIRMED.
VII. Random Facts
 Ponente: Peralta, J.
G.R. No. 183804 | September 11, 2013 Extinguishment of Obligations: Novation
S.C. Megaworld v. Parada S.C. Megaworld v. Parada
Petitioner Megaworld bought electrical lighting materials from 1.

Petitioner S.C. Megaworld Construction and Development
respondent Genlite Industries for its Read-Rite project. Petitioner failed to Corporation bought electrical lighting materials from respondent
pay for its purchase on its due date since it failed to collect under its Genlite Industries for its Read-Rite project.
sub-contract with Enviro Kleen Technologies (Enviro Kleen). Although 2. Petitioner was unable to pay for the said purchase on its due date,
Enviro Kleen agreed to settle the said purchase, it only paid the amount of and claimed that such was because of its failure to collect under its
P250,000.00, leaving an outstanding balance of P816,627.00. Hence, the sub-contract with Enviro Kleen Technologies, Inc. (Enviro Kleen).
respondent filed a suit against the petitioner. 3. Enviro Kleen agreed to settle said purchase. However, after paying
the respondent the amount of P250,000.00, Enviro Kleen stopped
The RTC ruled in favor of the respondent. On appeal, the CA making further payments, leaving an outstanding balance of
concurred, noting that the respondent did not expressly or impliedly consent P816,627.00.
to the alleged novation, neither did he intend to release the petitioner from 4. After various demands, Respondent filed a suit against the
its obligation. petitioner before the RTC.
The SC agrees with the findings of the lower courts. According to the 5. The RTC rendered its judgment in favor of the respondent.
Court, novation is never presumed but must be clearly and unequivocally 6. On appeal to the CA, the petitioner maintained that a novation of
shown. As found in facts of this case, there was no showing that the the contract took place through the substitution of Enviro Kleen as
respondent consented to the substitution of the obligation by Enviro Kleen, the new debtor, which became binding when the respondent
and that any acquiescence which the respondent had made was limited to accepted the partial payment of Enviro Kleen in behalf of the
merely accepting Enviro Kleen as an additional debtor, but without releasing petitioner.
the petitioner as the principal debtor. 7. However, the CA noted that there is nothing in the two (2) letters
of the respondent to Enviro Kleen which would imply that he
consented to the alleged novation, nor that he intended to release
the petitioner from its primary obligation.
8. Furthermore, the CA concurred with the RTC that by retaining his
option to seek satisfaction from the petitioner, any acquiescence
which the respondent had made was limited to merely accepting
Enviro Kleen as an additional debtor, but without releasing the
petitioner as the principal debtor.
1
Obligations and Contracts (2020) PETITIONER: S.C. Megaworld Construction and Development Corporation
DIGEST AUTHOR: Regina Alzaga RESPONDENTS: Engr. Luis Parada, represented by Engr. Leonardo Parada
of Genlite Industries
III. Issue/s fact, from the letters of the respondent to Enviro Kleen, it can be said that
the respondent retained his option to go after the petitioner if Enviro
1. W/N a binding novation took place between the parties, which
Kleen failed to settle the petitioner's debt.
thus released the petitioner from its obligation. – NO.
Mere substitution of debtors will not result in novation. The fact that the
creditor accepts payments from a third person will only result in the
IV. Holding/s addition of debtors - and not novation - and the creditor may enforce the
Issue #1 obligation against both debtors.
NO, there was no novation that took place between the parties, hence
the petitioner is still liable to pay the respondent.
Petitioner/Trial Court’s Court’s Rebuttals V. Law or Doctrine Applied

Arguments
● Novation is never presumed but
● A binding novation of the must be clearly and
contract between the parties unequivocally shown. ARTICLE 1293 OF THE CIVIL CODE
took place when the respondent Art. 1293. Novation which consists in substituting a new debtor in the place of
accepted the partial payment of In this case, there was no clear
the original one, may be made even without the knowledge or against the will of
Enviro Kleen in its behalf and and unequivocal consent by the
the latter, but not without the consent of the creditor. Payment by the new
thus acquiesced to the respondent to the release of the debtor gives him rights mentioned in Articles 1236 and 1237.
substitution by Enviro Kleen as petitioner from its obligation.
the new debtor. Novation is a mode of extinguishing an obligation by changing its objects or
principal obligations, by substituting a new debtor in place of the old one, or by
Overall Ruling subrogating a third person to the rights of the creditor. It is "the substitution of a new
contract, debt, or obligation for an existing one between the same or different
Novation must be clearly and unequivocally shown, as expressly agreed parties."
to by the parties to a contract. From the facts of this case, there could not Article 1293 speaks of substitution of the debtor, which may either be in the form of
be a clear and unequivocal consent by the respondent to the release of the expromision or delegacion. In both cases, the old debtor must be released from the
petitioner from the obligation to pay the cost of the lighting materials. In obligation, otherwise, there is no valid novation. As explained in Garcia:
2
In expromision, the initiative for the change does not come from — and
may even be made without the knowledge of — the debtor, since it
consists of a third person's assumption of the obligation. As such, it
logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who
consents to the substitution and assumes the obligation; thus, the consent
of these three persons are necessary. Both modes of substitution by the
debtor require the consent of the creditor.
VI. Disposition
WHEREFORE, premises considered, the Decision dated April 30, 2008 of

the Court of Appeals in CA-GR CV No. 83811 is AFFIRMED with
MODIFICATION. Petitioner S.C. Megaworld Construction and
Development Corporation is ordered to pay respondent Engr. Luis A.
Parada, represented by Engr. Leonardo A. Parada, the principal amount due
of P816,627.00, plus interest at twelve percent (12%) per annum, reckoned
from judicial demand until June 30, 2013, and six percent (6%) per annum
from July 1, 2013 until finality hereof, by way of actual and compensatory
damages. Thereafter, the principal amount due as adjusted by interest shall
likewise earn interest at six percent (6%) per annum until fully paid. The
award of attorney’s fees is DELETED.
VII. Random Facts
● Ponente: Reyes, J.
3
G.R. No. 193068 | February 1, 2017 Obligations-Novation
DBP v Sta Ines et. Al DBP v Sta Ines et al
W/N NDC (new debtor) through novation susbstituted the
(the issue in this case is if there was a valid substitution of the debtor) stockholders (old debtor) in their liability towards DBP (creditor)? NO
Galleon shipping was organized to operate as a liner between the Susbstitution of the debtor may happen with or without the consent
Philippines and its trading partners. Galleon’s major stockholders or knowledge of the original debtor BUT ALWAYS needs the consent
include Sta Ines, Cuenca Investment Universal Holdings, it’s President of the CREDITOR. In this case, DBP was not able to validly give its
Rodolfo Cuenca, Tinio, and PNCC (hereinafter, stockholders). consent to the susbstitution of NDC as the new debtor because Ongpin
was not validly authorized to act on it’s behalf.
Galleon’s experienced financial difficulties and sought to contract
loans with foreign creditors. DBP undertook to guarantee these loans
while the stockholders undertook to guarantee DBP. II. Facts of the Case (Material Facts)
Foreign Creditor
1. National Galleon Shipping Corporation (Galleon) was organized to
operate a liner service between the Philippines and its trading
Galleon partners." Its major stockholders were respondents Sta.Ines Melale
Forest Products Corporation (Sta. Ines), Cuenca Investment
DBP (creditor) Corporation (Cuenca Investment), among others.
2. Galleon experienced difficulties in its financial conditions.
Stockholders 3. Galleon took out several loans from different sources such as
("old debtor") foreign financial institutions, its shareholders and other entities.
4. DBP guaranteed Galleon's foreign loans. Galleon and its
stockholders Sta. Ines, Cuenca Investment, Universal Holdings,
Despite this, Galleon’s financial condition did not improve and so Cuenca, and Tinio, obligated themselves to guarantee DBP's
they wrote a letter to President Marcos for help. President Marcos then potential liabilities. Galleon undertook to secure a first mortgage on
instructed National Development Company (NDC) to take over the its five new vessels and two second-hand vessels.
operations and 100% of all the shares of Galleon to sustain its 5. Despite the loans, Galleon’s financial condition did not improve.
operations. 6. Galleon wrote a letter to President Marcos seeking help.
7. On July 21, 1981, President Marcos issued Letter of Instructions
A memorandum of agreement was executed between NDC (new No. 1155 addressed to the NDC, DBP, and the Maritime Industry
debtor) and Galleon (debtor) extinguishing the liability of the Authority that pursuant to the policy of government to provide are
liable liner service between the Philippines and its major trading
stockholders to DBP. The CA ruled that DBP (creditor) was privy to
partners, NDC shall acquire 100% of the shareholdings of Galleon
the MOA since the signing party Ongpin was both the governor of
Shipping Corporation from its present owners.
DBP and the chairman of NDC. 8. On August 10, 1981, Galleon's stockholders, represented by
Cuenca, and NDC, through its then Chairman of the Board of
Obligations and Contracts (2020) PETITIONER: DBP 1
DIGEST AUTHOR: Tin Sumaway RESPONDENT: Sta Ines and other stockholders of Galleon
Directors, Roberto V. Ongpin (Ongpin) entered into a CA’s ruling Court’s Rebuttals
Memorandum of Agreement (MOA), where NDC and There was novation since DBP (the (Corporation Law)
Galleon undertook to prepare and sign a share purchase agreement creditor) expressed its consent Ongpin was not validly authorized
covering 100% of Galleon's equity. through Ongpin. Ongpin being a by DBP. It cannot be said that just
9. DBP paid off Galleon's debts to its foreign bank creditor. party to the MOA because he was because of his personality as both
10. The stockholders claimed that "DBP can no longer go both the governor of DBP and the governor of DBP and chairman of
after them for any deficiency judgment since NDC had been chairman of NDC. NDC, he validly expressed consent
subrogated in their place as borrowers, hence the Deed of on behalf of DBP.
Undertaking between [Sta. Ines, Cuenca Investment, Universal
Holdings, Cuenca, and Tinio and DBP] had been extinguished and As a general rule, corporations being
novated. an artificial person can only act
11. RTC ruled that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and through the board of directors or any
Universal Holdings' liability to DBP under the Deed of person thereby authorized by the
Undertaking had been extinguished due to novation, with NDC BOD to act on it’s behalf.
replacing them and PNCC as debtors.
12. The Court of Appeals affirmed the RTC's ruling. It held that DBP In this case, Ongpin was not
was privy to the MOA between NDC and Sta. Ines, Cuenca, Tinio, authorized by the BOD.
Cuenca Investment, and Universal Holdings, since Ongpin was Overall Ruling
concurrently Governor of DBP and chairman of the NDC Board at
the time the Memorandum of Agreement was signed Novation is a mode of extinguishing an obligation by changing its object or
principal conditions, substituting the person of the debtor or subrogating a
III. Issue/s third person in the rights of the creditor." While novation, "which consists in
substituting a new debtor in the place of the original one may be made even
1. Were the stockholders replaced by NDC in their liability towards without the knowledge or against the will of the latter, [it must be with] the
DBP due to novation? NO consent of the creditor."
IV. Holding/s In this case, the consent of the creditor was lacking. DBP was not able to
express its consent in the substitution of NDC in leiu of the stockholders of
Issue #1 Galleon. This is because DBP was not privy to the MOA which allegedly
No novation took place, the consent of the creditor was lacking. novated the obligation.
Article 1293. Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in articles 1236
and 1237. (1205a)
VI. Disposition
WHEREFORE, the March 24, 2010 Decision and July 21, 2010 Resolution
of the Court of Appeals in CA-G.R. CV No. 85385 are AFFIRMED with
the following MODIFICATIONS:
(1) Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca,
Manuel I. Tinio, Cuenca Investment Corporation, Universal Holdings
Corporation, and the Philippine National Construction Corporation are
declared LIABLE to the National Development Corporation, the
Development Bank of the Philippines, and the Asset
Privatization Trust under the deed of undertaking, pledge, mortgages, and
other accessory contracts among the parties; and
(2) The award of the advances made by Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel L. Tinio, Cuenca Investment
Corporation, and Universal Holdings Corporation in Galleon's favour, as
well as the award of the payment for their shares of stocks in Galleon, shall
earn an interest rate of 12% per annum from the date of the filing of this
case on April 22, 1985 until June 30, 2013, after which, they shall earn
interest at the rate of 6% per annum until the Decision becomes final and
executory.
These amounts shall earn interest at the rate of 6% per annum from the
finality of this Decision until its satisfaction.
VII. Random Facts

Ponente: Leonen, J.
G.R. No.158891 | June 27, 2012 Novation
Garcia v. Villar Garcia v. Villar
I. Recit-ready Summary such mortgage or allow the subject property to be sold upon failure of the
Lourdes Galas owned a plot of land in Quezon City. On July 6, mortgage creditor to obtain payment from the principal debtor once
1993, Galas with her daughter Pingol, mortgaged the land to Yolanda Villar, the debt matures. Villar did not obligate herself to replace the debtor in
as security for a loan of P2.2M. On October 10, 1994, Galas once again the principal obligation, and could not do so in law without the
mortgaged the same land, this time to Pablo Garcia, to secure a loan of creditor’s consent. This is in line with Article 1293 of the Civil Code.
P1.8M. On November 21, 1996, Galas sold the land to Villar, for the Thus, since there was no express stipulation or condition that Villar would
amount of P1.5M. Garcia then demanded payment from Villar, but Villar be in charge of the mortgage debt, the obligation still belongs to Galas and
refused to pay which prompted Garcia to file a case. Pingol. Garcia then has no cause of action towards Villar, as Garcia had
On October 27, 1999, Garcia filed a petition for Foreclosure of Real Estate failed to show that the terms of the mortgage were violated by Galas and
Mortgage with Damages against Villar, stating that Villar acted in bad faith Pingol, considering that Garcia has not demanded payment from Galas and
in buying the property when she disregarded the laws on foreclosure. Garcia Pingol.
also claims that Villar had relieved Galas of her contractual obligation to
Garcia and that Villar had subsequently taken on the mortgage when Villar
bought the land. Garcia used to be a secondary mortgagee, but he had been Facts of the Case (Material Facts)
subrogated to Villar’s status as the first mortgagee, in which the first 1. Lourdes Galas owned a plot of land in Quezon City.
mortgagee has the right to foreclose as the result of Villar’s actions. 2. On July 6, 1993, Galas with her daughter Pingol, mortgaged the
Meanwhile Villar states that Garcia has no cause of action, as he should be land to Yolanda Villar, as security for a loan of P2.2M.
going after Galas and Pingol instead. On May 27, 2002, RTC ruled in favor 3. On October 10, 1994, Galas once again mortgaged the same land,
of Garcia, in which the RTC ordered Villar to pay Garcia P1.8M or have the this time to Pablo Garcia, to secure a loan of P1.8M.
property foreclosed. RTC stated that since the 2nd mortgage (Garcia’s) had 4. On November 21, 1996, Galas sold the land to Villar, for the
not yet been discharged, Villar as the new property owner was liable for it. amount of P1.5M.
Villar appealed to the CA in which the CA had reversed the ruling of the 5. Garcia then demanded payment from Villar, but Villar refused to
RTC, stating that Garcia had no cause for action, as the terms of the 2nd pay which prompted Garcia to file a case.
mortgage had not been violated, and that Garcia should have first gone after 6. On October 27, 1999, Garcia filed a petition for Foreclosure of
Galas for the payment of the mortgage, and NOT Villar. As Galas was the Real Estate Mortgage with Damages against Villar, stating that
one who had contracted the mortgage. Villar acted in bad faith in buying the property when she
Garcia elevated the petition to the SC, in which the relevant issue disregarded the laws on foreclosure.
for this topic is W/N Garcia’s action for foreclosure of mortgage on the 7. Garcia also claims that Villar had relieved Galas of her contractual
subject property can prosper. SC rules in favor of Villar, reasoning out that obligation to Garcia and that Villar had subsequently taken on the
while the 2nd mortgage has not yet been discharged, Villar, in buying the mortgage when Villar bought the land.
subject property with notice that it was mortgaged, only undertook to pay
1
Obligations and Contracts (2020) PETITIONER: Pablo P. Garcia
DIGEST AUTHOR: Sean Lee RESPONDENT: Yolanda Villar

8. Garcia used to be a secondary mortgagee, but he had been obligation to pay for the said of satisfying the mortgage, as
subrogated to Villar’s status as the first mortgagee, in which the mortgage. And because Villar there was no express stipulation
first mortgagee has the right to foreclose as the result of Villar’s refuses to pay, Garcia has the or condition that such would
actions. right to foreclose the property. happen. Thus, Garcia has no
9. Meanwhile Villar states that Garcia has no cause of action, as he cause of action against Villar
should be going after Galas and Pingol instead. until he goes after Galas and
10. On May 27, 2002, RTC ruled in favor of Garcia, in which the RTC Pingol first.
ordered Villar to pay Garcia P1.8M or have the property Overall Ruling
foreclosed.
11. RTC stated that since the 2nd mortgage (Garcia’s) had not yet been SC rules in favor of Villar, reasoning out that while the 2nd mortgage has
discharged, Villar as the new property owner was liable for it. not yet been discharged, Villar, in buying the subject property with notice
12. Villar appealed to the CA in which the CA had reversed the ruling that it was mortgaged, only undertook to pay such mortgage or allow the
of the RTC, stating that Garcia had no cause for action, as the subject property to be sold upon failure of the mortgage creditor to obtain
terms of the 2nd mortgage had not been violated, and that Garcia payment from the principal debtor once the debt matures. Villar did not
should have first gone after Galas for the payment of the mortgage, obligate herself to replace the debtor in the principal obligation, and could
and NOT Villar. As Galas was the one who had contracted the not do so in law without the creditor’s consent. This is in line with Article
mortgage. 1293 of the Civil Code. Thus, since there was no express stipulation or
13. Thus, Garcia raised the petition to the SC. condition that Villar would be in charge of the mortgage debt, the obligation
II. Issue/s still belongs to Galas and Pingol. Garcia then has no cause of action towards
1. W/N Garcia’s action for foreclosure of mortgage on the subject Villar, as Garcia had failed to show that the terms of the mortgage were
property can prosper? NO. violated by Galas and Pingol, considering that Garcia has not demanded
III. Holding/s payment from Galas and Pingol. In short, no novation happened, which
means the mortgage still belongs to Galas and Pingol despite having sold
Issue #1 the property for Villar. And Villar can only be held liable for the mortgage
NO. W/N Garcia’s action for foreclosure of mortgage on the once it is proven that Galas and Pingol are unable to pay.
subject property can prosper?
● Garcia’s mortgage has not yet ● The Court disagrees. Villar being
been discharged, and since the new owner of the encumbered
Villar is the new owner of the property does not necessarily
property, it is now Villar’s mean they now carry the burden IV. Law or Doctrine Applied
2

Art. 1293. Novation which consists in substituting a new

debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor
gives him the rights mentioned in articles 1236 and 1237.
V. Disposition
WHEREFORE, this Court hereby AFFIRMS the February 27, 2003

Decision and March 8, 2003 Resolution of the Court of Appeals in CA-G.R.
SP No. 72714.
VII. Random Facts

● Ponente: MELENCIO-HERRERA, J
3

G.R. No. 149040 | July 4, 2007 Novation [Kinds of Subrogation]
Ledonio v Capitol Dev. Corp. Ledonio v Capitol Dev. Corp.
I. Recit-ready Summary o PN 2 – Dated 10 Nov 1988 with principal amount of

Petitioner obtained two loans totaling P60, 000.00 from Ms. Picache, for P30,000 with 36% interest per annum
which he executed promissory notes, dated 9 November 1988 and 10 o In case of default of both PN:
November 1988. He failed to pay any of the said loans. Ms. Picache § Petitioner shall be liable for a penalty
executed on 1 April 1989 an Assignment of Credit covering petitioner's equivalent to 20% of the total outstanding
loans in favor of respondent for the consideration of P60,000.00; Petitioner balance
had knowledge of the assignment of credit. Petitioner still failed to pay his § Unpaid interest shall be compounded or
indebtedness despite repeated demands by respondent and its counsel. The
added to the balance of the principal amount
RTC ruled in favor of the respondent herein. The CA confirmed the ruling
of the RTC. Petitioner argued that he never gave consent to such assignment and shall bear the same rate of interest as
of credit and therefore it should have no effect. The issue in this case is W/N the latter
consent of the debtor is required in an assignment of credit. The SC held § Pay attorney’s fees and liquidated damages
NO. The Court herein ruled that in an assignment of credit, consent is the sum equivalent to 20% of the total
immaterial. Consent is not a requirement in assignment of credit in order for amount sought to be recovered but in no case
the said assignment to have full legal effects. What the law requires is that shall the sum be less than P10,000.
the debtor would be duly notified upon the issuance of an assignment of • He failed to pay any of the said loans;
credit to a third person. The said assignment of credit takes effect only from • Ms. Picache executed on 1 April 1989 an Assignment of
the time he (the debtor) has knowledge thereof. In the case at bar, the Credit covering petitioner's loans in favor of respondent for the
petitioner cannot deny that he wasn’t notified by the respondent when the consideration of P60,000.00;
assignment of credit happened. It can be reasonably presumed that when the
• Petitioner had knowledge of the assignment of credit;
respondent, together with their counsel, sent demand letters to the petitioner
herein, the same had received them. The letters were sent through registered • Petitioner still failed to pay his indebtedness despite repeated
mail and the return cards were signed by the petitioner’s agent. Further, demands by respondent and its counsel.
petitioner never questioned why it was respondent seeking payment of the • The RTC ruled in favor of the respondent herein and gave
loans and not the original creditor. Foregoing the said circumstances, it can more credence to the respondent’s version of the facts. RTC
be concluded that the petitioner was duly notified and had knowledge of the sustained the validity and enforceability of the Assignment of
assignment of credit that took place between respondent herein and Ms. Credit executed by Ms. Picache in favor of the respondent,
Picache. even in the absence of petitioner’s consent to the said
assignment.
• The CA confirmed the ruling of the RTC
• Petitioner obtained two loans totaling P60, 000.00 from Ms.
• Petitioner argued that he never gave consent to such
Picache, for which he executed promissory notes, dated 9
assignment of credit and therefore it should have no effect.
November 1988 and 10 November 1988.
• Terms of the promissory notes (PN): III. Issue/s
o PN 1 – Dated 9 Nov 1988 for P30,000 with monthly 1. W/N consent of the debtor is required in an assignment of
installments of P3,000 due on 9 Jan 1989 credit - NO
Obligations and Contracts (2020) PETITIONER: Edgar Ledonio 1

DIGEST AUTHOR: Tin Dychioco RESPONDENT: Capitol Development Corporation
original parties to the loan Court still cannot de nitively

IV. Holding/s contract, namely, Ms. Picache rule that assignment of credit and
(the creditor) and petitioner (the conventional subrogation are one
Issue #1 debtor); and the third person, the and the same.
NO, Consent of the debtor is not required in an assignment of credit. respondent (the assignee).
• Since petitioner never gave his
Petitioner’s Arguments Court’s Rebuttals consent to the assignment of
• Petitioner asserts the position • Court cannot sustain petitioner's credit, then the subrogation of
that consent of the debtor to the contention and hereby declares respondent in the rights of Ms.
assignment of credit is a that the transaction between Ms. Picache as creditor by virtue of
basic/essential element in order Picache and respondent was an said assignment is without force
for the assignee to have a cause assignment of credit, not and effect.
of action against the debtor. conventional subrogation, and Overall Ruling
• Without the debtor's consent, the does not require petitioner's Consent is not a requirement in assignment of credit in order for the said
recourse of the assignee in case consent as debtor for its validity assignment to have full legal effects. What the law requires is that the debtor
of non-payment of the assigned and enforceability. would be duly notified upon the issuance of an assignment of credit to a
credit, is to recover from the • An assignment of credit has been third person. The said assignment of credit takes effect only from the time
assignor. defined as an agreement by virtue he (the debtor) has knowledge thereof. Article 1300 of the Civil Code
• Petitioner further argues that of which the owner of a credit provides that conventional subrogation must be clearly established in order
even if there was indeed an (known as the assignor), by a that it may take effect. Since it is petitioner who claims that there is
assignment of credit, as alleged legal cause — such as sale, dation conventional subrogation in this case, the burden of proof rests upon him to
by the respondent, then there had in payment or exchange or establish the same by a preponderance of evidence.
been a novation of the original donation — and without need of In the case at bar, the petitioner cannot deny that he wasn’t notified by the
loan contracts when the the debtor's consent, transfers that respondent when the assignment of credit happened. It can be reasonably
respondent was subrogated in the credit and its accessory rights to presumed that when the respondent, together with their counsel, sent
rights of Ms. Picache, the another (known as the assignee), demand letters to the petitioner herein, the same had received them. The
original creditor. who acquires the power to letters were sent through registered mail and the return cards were signed by
• In support of said argument, enforce it, to the same extent as the petitioner’s agent. Further, petitioner never questioned why it was
petitioner invokes the Art. 1300 the assignor could have enforced respondent seeking payment of the loans and not the original creditor.
and Art. 1301 of the Civil Code. it against the debtor. Foregoing the said circumstances, it can be concluded that the petitioner
• According to petitioner, the • Although it may be said that the was duly notified and had knowledge of the assignment of credit that took
assignment of credit constitutes effect of the assignment of credit place between respondent herein and Ms. Picache.
conventional subrogation which is to subrogate the assignee in the Moreover, this Court had already noted previously that there does not
requires the consent of the rights of the original creditor, this appear to be anything in Philippine statutes or jurisprudence which prohibits

a creditor, without the consent of the debtor, from making an assignment of enforce it to the same extent as the assignor could have enforced it
his credit and the rights accessory thereto; and, certainly, an assignment of against the debtor.
credit and its accessory rights does not at all obliterate the obligation of the • Subrogation – is the transfer of all rights of the creditor to a third
debtor to pay, but merely puts the assignee in the place of the assignor. person, who substitutes him in all rights It may be either legal or
Hence, the obligation of petitioner to pay his debt subsists despite the conventional.
assignment thereof; only, his obligation after he came to know of the said • Legal Subrogation – takes place without agreement but by
assignment would be to pay the debt to the respondent (the assignee), operation of law because of certain acts.
instead of Ms. Picache (the original creditor). • Conventional Subrogation – which takes place by agreement of
parties.
VII. Random Facts

V. Law or Doctrine Applied • Ponente: Chico-Nazario, J.
ART. 1300. Subrogation of a third person in the rights of the creditor is either legal
or conventional. The former is not presumed, except in cases expressly mentioned in
this Code; the latter must be clearly established in order that it may take effect.
ARTICLE 1301 OF THE CIVIL CODE (FORTUITOUS EVENTS)

ART. 1301. Conventional subrogation of a third person requires the consent of the
original parties and the third person.
VI. Disposition
WHEREFORE, premises considered, the instant Petition for Review is

hereby DENIED, and the Decision, dated 20 March 2001, of the Court of
Appeals in CA-G.R. CV No. 43604, a rming in toto the Decision, dated 6
August 1993, of the Quezon City Regional Trial Court, Branch 91, in Civil
Case No. Q-90-5247, is hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.

• Assignment of credit – an agreement by virtue of which the owner
of a credit (known as the assignor) by legal cause – such as sale,
dation in payment or exchange or donation – and without need of
the debtor’s consent, transfers that credit and its accessory rights to
another (known as the assignee), who acquires the power to

G.R. No. 159097 | July 05, 2010 Extinguishment of Obligations: Novation Art. 1302-3
Metropolitan Bank and Trust Company v Rural Bank of Metropolitan Bank and Trust Company v Rural Bank of
Gerona Gerona
I. Recit-ready Summary Metrobank will receive the credit advice then Metrobank will credit the
proceeds to RBG’s account for the latter’s release to the farmers-borrowers.
Metrobank acted as conduit to a loan agreement in which the Central Bank 2. CB released P178,652, P189,052, and P220,000 to Metrobank which then
and Rural Bank of Gerona are parties to. The loan agreement provides that gave the amount to RBG’s special savings account. RBG completely
the Central Bank will give loans to farmers having the farmers primarily withdrew the first two amounts while it only withdrew P75,375 for the third.
liable to the loan while RBG, another conduit, is solidarily liable. There 3. CB issued debit advices reversing the loan. CB implemented the reversal
were three loans granted to three farmers. However, the CB reversed the by debiting from Metrobank’s demand deposit account.
loans and deducted the loans from Metrobank instead of the farmers or
4. Metrobank debited P189,052, P115,000, and P8,000.41 from RBG’s
RBG. Metrobank now wants to claim the amount from RBG.
special savings account. Metrobank however claimed that what it debited
The RTC held that there was legal subrogation between CB and Metrobank. was insufficient to cover all credit advices. Metrobank claimed that RBG
Thus, Metrobank has assumed the rights of the CB against RBG. While the had an outstanding balance of P334,220. Thus, Metrobank complained for
CA held that there was no legal subrogation, Metrobank should be collection against RBG for the outstanding balance.
reimbursed for it incurred loss from the agreement. The CB should also be 5. RTC’S RULING. The RTC said that legal subrogation ensued and ruled
impleaded as a necessary party to shed light on the agreement. in favor of Metrobank. It thus ordered RBG to pay the outstanding sum plus
interest at 14%/year until the amount is fully paid.
Can Metrobank claim from RBG the outstanding sum of the loans? YES. 6. CA’S RULING. The CA said that no legal subrogation took place.
However, the CA said that Metrobank should be reimbursed as it suffered
Metrobank was subrogated to the rights of CB against RBG (Art. 1302, par. loss from an agreement only CB and RBG was party to. CA declared that
2). Metrobank was a third person and had the approval of the debtor, RBG, CB should be impleaded as a necessary party so that it could shed light on
when the latter did not object to when Metrobank withdrew from RBG’s
the loan reversal. Thus, the CA set aside RTC’s decision and remanded the
account with Metrobank. It could also be seen to have been approved when
case for further proceedings after the implication of the CB as a necessary
RBG sent a letter to Metrobank hoping to set a payment scheme for the
amount. Thus, Metrobank now with the right to the amount can claim from party.
RBG. SC remanded the case to the RTC for determination of the proper III. Issue/s
amount to be paid. 1. Can Metrobank recover from RBG the outstanding sum? YES.
1. Was Metrobank subrogated to the rights of CB? YES.
II. Facts of the Case (Material Facts) 2. What are the effects of the subrogation?
1. Rural Bank of Gerona (RBG) and the Central Bank (CB) entered into an IV. Holding/s
agreement where RBG shall facilitate the loan applications of farmers-
borrowers under Central Bank-International bank for Reconstruction and Issue #1
Development’s 4th Rural Credit Project. RBG opened a separate bank Can Metrobank recover from RBG the outstanding sum?
account with Metrobank where the loan proceeds shall be deposited.
Obligations and Contracts (2020) PETITIONER: Metropolitan Bank and Trust Company 1
DIGEST AUTHOR: Jann Amorado RESPONDENT: Rural Bank of Gerona
Gerona Gerona
Petitioner’s (Metrobank’s) Court’s Rebuttals Overall Ruling

Arguments • 1. Metrobank’s petition is impressed with merit.
• Metrobank argued that 2. While the farmer-borrowers are primarily liable for the payment of
impleading CB is not necessary the borrowed amounts, RBG under the Project Terms and Conditions is not
for RBG already admitted a mere conduit for it bound itself solidarily with the principal debtors to
liability in two letters. Even if no fulfill the obligation. Thus, CB’s immediate recourse should have been
legal subrogation took place, against the farmers-borrowers and the RBG. CB erred when it deducted the
amounts from Metrobank which had no responsibility other than serving as
RBG’s letters are more than
a conduit and was simply an outsider to the agreement.
sufficient to prove liability.
3. WAS METROBANK SUBROGATED TO THE RIGHTS OF CB?
• Metrobank did not want to go Yes. Civil Code, Art. 1302, par. 2 provides that it is presumed that there is
bank to the RTC since the legal subrogation when “a third person not interested in the obligation, pays
transactions took place in 1978. with the express or tacit approval of the debtor.” As stated in (2), Metrobank
It was only resolved in the RTC had no interest to the agreement except as a conduit. Despite this, CB
in 1994 and in the CA in 2002. deducted the amount from Metrobank’s account.
The amount is long overdue. 4. WAS THERE AN EXPRESS OR TACIT APPROVAL OF THE
DEBTOR? Yes. This can be seen when Metrobank debited the amounts it
could from RBG’s account without any objection from RBG. It could also
be seen when the president and manager of RBG wrote to Metrobank
proposals regarding means of settling the debited amounts.
5. WHAT ARE THE EFFECTS OF THE SUBROGATION? Civil
Code, Art. 1303 provides that subrogation transfers to the subrogated the
credit with all the rights thereto pertaining, either against the debtor or
against third persons. Thus, Metrobank, the subrogated, has a cause of
action to recover from RBG the outstanding amount. It is also immaterial
that CB be impleaded in the case for subrogation already has taken place.
5. The SC granted Metrobank’s petition. However, it remanded the case
to the trial court for the determination of the actual amounts due to
Metrobank.
Civil Code, Art. 1302
Article 1302. It is presumed that there is legal subrogation:
Gerona Gerona
• Ponente: Brion
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays

with the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person

interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter's share. (1210a)
Civil Code, Art. 1303
Article 1303. Subrogation transfers to the persons subrogated the credit

with all the rights thereto appertaining, either against the debtor or
against third person, be they guarantors or possessors of mortgages,
subject to stipulation in a conventional subrogation. (1212a)
VI. Disposition
WHEREFORE, we GRANT the petition for review on certiorari, and

REVERSE the decision and the resolution of the Court of Appeals, in CA-
G.R. CV No. 46777, promulgated on December 17, 2002 and July 14, 2003,
respectively. We AFFIRM the decision of the Regional Trial Court, Branch
65, Tarlac, promulgated on July 7, 1994, insofar as it found respondent
liable to the petitioner Metropolitan Bank and Trust Company, but order the
REMAND of the case to the trial court to determine the actual amounts due
to the petitioner. Costs against respondent Rural Bank of Gerona, Inc.
SO ORDERED.
Carpio Morales, Bersamin, Abad * and Villarama, Jr., JJ., concur.
VII. Random Facts
G.R. No. 112438-39 | December 12, 1995 Extinguishment of Obligations: Novation (1302(2))
Chemphil v CA Chemphil v CA
that they garnished the disputed sales as early as 1985, while the FCI This case is to determine the
proper ownership of 1.7m shares of
assignment was done in 1989. Petitioner countered by claiming it was CIP,known as the disputed
shares. These shares were initially owned by
subrogated SBTC’s rights (SBTC garnished the sale earlier as a creditor, so it Garcia, it is disputed who
owned it later on.
has better rights) because FCI paid for Garcia’s debt pursuant to 1302(2) of Dynetics Inc. and Garcia
sought a judicial declaration on the validity of
the Civil Code. a surety agreement it entered into with the Consortium (PISO, BPI, LBP,
RTC sided with petitioner, holding that the consortium’s 1985 PCIB, RCBC), the former also sought to
enjoin any enforcement of such
garnishment was without notice as it was not annotated in the books of CIP, agreement. The consortium
claimed the agreement to be valid and binding,
therefore it should not affect third parties such as petitioner. asking for a writ of preliminary attachment
against Dynetics and Garcia. This
CA Reversed RTC, holding that the law does not require annotation for is the consortium case. The writ
was granted and on 19 July 1985, properties
attachment of shares. CA also rejected the subrogation theory of Petitioner, of Dynetics and Garcia were
garnished – but they were not annotated in CIP’s
holding that it was Garcia’s money which was made to pay SBTC, with the stock and transfer books.
FCI being merely an agent, making the ‘priority between two attachment In a different case (SBTC case)
also concerning Dynetics and Garcia,
creditors’ rule inapplicable. So petitioner appealed SBTC was allowed to garnish Garcia’s properties,
which included the
w/n Petitioner was subrogated SBTC’s rights considering that its disputed shares on 2 July 1985. Note
that this was earlier than the consortium
predecessor in interest, FCI, was the one who issued the check paying for case’s garnishment, and
SBTC’s garnishment was annotated in CIP’s books.
Garcia’s debt (thus subrogating FCI SBTC’s rights according to 1302(2))? The RTC finally decided to
dismiss Dynetics and Garcia’s complaint
SC basically upheld the CA.1302(2) is inapplicable. Garcia sold the and the consortium’s counterclaims.
So, the Consortium appealed to the CA.
disputed shares to FCI for 79m. FCI was to deliver part of the purchase price during this appeal, a
compromise agreement was approved between
to SBTC pursuant to the deed of sale. When FCI issued the check to SBTC of While the Consortium
appeal was pending, Garcia sold the disputed
35m, it was in effect paying with Garcia’s money, not its own, since the shares and other properties to
FCI, wherein it was stipulated that part of the
amount was part of the purchase price which FCI owed Garcia for the sale of purchase price was to be
paid directly to SBTC for whatever judgement
the disputed shares. The money “paid” belonged to Garcia, as if he himself credits SBTC gets in the
SBTC case. FCI complied, issuing a 35m check to
paid his SBTC debt through a third party – FCI. FCI was also not a SBTC as payment. (SBTC refused to
accept, the payment was consigned in
disinterested party as 1302(2) requires, as the extinguishment of the court.) FCI later assigned the shares
it acquired from the sale to CEIC
obligation would redound to its benefit, giving it a “clean title” to the shares. (petitioner).
Garcia did not comply with the compromise agreement, so the
II. Facts of the Case (Material Facts) consortium moved for and was granted a writ of execution on the
garnished
1. The case is about the determination of the proper ownership of over properties, which included the
disputed shares. The consortium later bought
1,717,678 shares of stock in the Chemical Industries of the these shares in the auction of the levied
properties. an order was given to the CIP secretary to enter in its books the sale, and to issue new stock
certificates to the consortium
Petitioner moved to intervene, claiming itself the rightful owner of the shares. This was allowed by the trial
court. The trial court ordered the CIP secretary to refrain from applying the earlier order. The consortium
opposed this intervention, claiming that their attachment should prevail, considering
Philippines (CIP) and hereafter will be referred to as the disputed shares. 2. On September 1984,
Dynetics, inc. and Antonio Garcia filed a complaint against the [Philippine Investment System
Organization(PISO), BPI, LBP, PCIB, and RCBC – hereinafter referred to as the consortium] consortium
with RTC Makati, seeking a judicial declaration on the validity of the Surety Agreement the 1 Obligations
and Contracts (2020) PETITIONER: Chemphil Export and Import Corporation (CEIC)
DIGEST AUTHOR: Bryan Antonio RESPONDENT: Jaime Gonzales, as assignee of the Consortium
former entered into with the consortium. The former also sought to
for whatever judgement credits may be adjudged in SBTC’s favor in enjoin the consortium from enforcing
any obligation the former may
the SBTC case. have undertaken in the agreement. The consortium alleged the
a. With this, FCI issued a check in favor of SBTC, amounting agreement to be valid and binding, applying
for a writ of preliminary
to 35m. SBTC refused to accept, claiming such amount attachment against Dynetics and Garcia after
answering. – this case
wasn’t sufficient to discharge the debt. The check was shall be known as the consortium case.
consigned in court as payment. This was in march 1989. 3. (a different case but related matter) Dynetics,
Garcia, and Matrix
b. In June 1989, FCI assigned its 4m shares in CIP (including Management & trading corporation filed a
complaint for declaratory
the disputed shares) to (Petitioner) CEIC. These shares relief against Security Bank, known as the
SBTC case. On 2 July
were registered and recorded in CIP’s books under CEIC’s 1985, Trial court granted SBTC’s prayer for
preliminary attachment,
name, stock certificates were issued to it. with a notice of garnishment of Garcia’s CIP shares including
the
9. Garcia failed to comply with his compromise agreement with the disputed shares. This garnishment
was duly annotated in the stock
consortium. Due to this, the Consortium filed to execute, which was and transfer books of CIP.
granted. Among Garcia’s properties which were levied upon were 4. While the consortium case was
pending, the RTC denied
the disputed shares previously garnished in July 1985 (see number Dynetics/Garcia’s WPI and granted
the consortium’s writ of
4). The consortium acquired the disputed shares at the public auction preliminary attachment. On 19 July
1985, Properties of Dynetics and
of the levied properties for 85m. later, they filed a motion to order Garcia were garnished, including the
disputed shares, but the
the CIP’s secretary to enter in its books the sale, and to issue new garnishment was not annotated in
Chemphil’s stock and transfer
certificates in the names of the consortium members. The trial court book.
granted the motion in an order dated 4 September 1989. 5. While the consortium case was pending,
PCIB filed to dismiss
10. Petitioner CEIC filed to intervene in the consortium case, seeking Dynetics and Garcia’s complaint.
the recall of the 4 Sep 89 Order, claiming itself to be the rightful 6. The consortium case was decided by
the RTC in 1988, where they
owner of the disputed shares. (look at Number 8.b) trial court granted the motion to dismiss Dynetics and
Garcia’s complaint, but
allowed the intervention, ordering CIP secretary to temporarily it also dismissed the consortium’s
counterclaims citing case where
refrain from implementing the said order. “a person cannot eat his cake and have it at the same time”.
MR’s
11. The Consortium opposed this intervention, claiming that their were denied.
attachment must prevail, considering that the disputed shares were 7. The consortium appealed. While
the appeal was pending, Garcia
garnished in their favor as early as 19 July 1985. They moved to lift entered into a Compromise
Agreement with the Consortium, which
the order ordering the secretary to refrain from implementing the was approved by the CA. the
compromise would have dropped
earlier order. Garcia as a party to the appeal if Garcia complied, leaving only
12. Trial Court granted CEIC’s intervention, nullifying the order Dynetics as the other party in the
consortium’s appeal.
ordering the secretary to enter the sale in the CIP’s books and issuing 8. Garcia, under a deed of sale,
transferred to Ferro Chemicals Inc
a certificate in the consortium’s names. It dismissed the (FCI) the disputed shares and other properties for
79m. it was agreed
Consortium’s motions because its 19 July 1985 garnishment was not upon that part of the purchase price
shall be paid directly to SBTC
annotated and registered in the stock and transfer books of CIP,
Obligations and Contracts (2020) PETITIONER: Chemphil Export and Import Corporation (CEIC)
2
while SBTC’s 2 July 1985 garnishment was annotated. This was
Issue #1 important because petitioner acquired the disputed shares without
NO, CEIC is not entitled to the disputed CIP shares. knowledge of the garnishment of the consortium.
RTC held that for a levy on corporate stock to be binding on third persons, there should be notice
(annotated or recorded in the books). Since there was no notice on the disputed shares, they cannot be
levied upon in execution.
a. Petitioner also claims it was subrogated SBTC’s rights by operation of law since its predecessor FCI
paid SBTC 35m pursuant to Garcia’s sale to FCI. As between two attaching creditors, the one whose
claims was first enjoys priority – and since SBTC was first, it and its subrogees should enjoy priority over
the Consortium. 13. The consortium appealed to CA, with PCIB filing separately a petition for certiorari.
CA reversed the RTC, confirming that the consortium owned the disputed shares. In doing so, it held that
attachment of shares of stock need not be recorded in the books in order to bind third persons. It also
rejected the subrogation theory, holding that Garcia’s funds in FCI were used to pay off SBTC, even
though it was a corporate check – it was just an attempt by Garcia to deny the consortium of its rights.
Reinstate in toto the 4 September 1989 order. The CA however dnied the PCIB’s certiorari for forum
shopping. 14. The consortium (except PISO) assigned all its rights to Jaime
Petitioner’s Arguments
• Petitioner anchors its rights to SBTC’s attachment lien (which was earlier than the consortium’s
attachment, so it should be superior). Since its predecessor in interest paid SBTC that due obligations of
Garcia pursuant to the deed of sale and purchase of stock, FCI (and later petitioner) should have been
subrogated SBTC’s rights over the disputed shares.
• Petitioner’s basis is Art. 1302(2) of the CC “it is presumed that there is legal subrogation; (2) when a third
person, not interested in the obligation, pays with the express or tacit approval of the debtor.
Gonzales, which is why he is a respondent in this case. Petitioner appealed, so did PCIB.
III. Issue/s
1. W/N petitioner CEIC is legally entitled to the disputed CIP
shares? NO. IV. Holding/s
Court’s Rebuttals
• 1302(2) is inapplicable. Garcia sold the disputed shares to FCI for 79m. FCI was to deliver part of the
purchase price to SBTC pursuant to the deed of sale. In effect, when FCI issued the check to SBTC of 35m,
it was in effect paying with Garcia’s money, not its own, since the amount was part of the purchase price
which FCI owed Garcia for the sale of the disputed shares. The money “paid” belonged to Garcia, as if he
himself paid his SBTC debt through a third party – FCI.
• The contractual stipulation was merely to prevent needless chaning of hands of the money.
• FCI was also not a disinterested party as 1302(2) requires, as the extinguishment of the obligation would
redound to its benefit, giving it a “clean title” to the shares.
3
Overall Ruling
Since the money used to discharge Garcia’s obligation to SBTC belonged to him, FCI cannot be
considered a third party payor under
(3) When, even without the knowledge of the debtor, a person interested in the fulllment of the obligation pays, without
prejudice to the effects of confusion as to the latter's share.
1302(2), FCI is an agent merely fulfilling its obligation under the deed of sale terms. Since Garcia himself
paid SBTC, FCI was not subrogated any
In this case, 1302(2) is inapplicable as it was Garcia’s money that was used, with FCI being merely an agent, to
satisfy the debt with SBTC. So CEIC, who acquired the right, thus Petitioner was also not subrogated any right.
So the priority
shares from FCI, was not subrogated as FCI was not a third person as envisioned by doctrine between two
attaching creditors in inapplicable – because in this
1302. case, FCI/Petitioner were purchasers, while the Consortium was an attaching creditor.
VI. Disposition
As regards the attachment lien of the consortium, it is valid as the Rules of Court and the Corporation code
do not require the annotation in the corporation’s stock and transfer books for the attachment to be valid
and binding on a third party. It does not matter that the notice of
WHEREFORE, premises considered the appealed decision in G.R. Nos. 112438- 39 is hereby
AFFIRMED and the appealed decision in G.R. No. 113394, insofar as it adjudged the CEIC the rightful
owner of the disputed shares, is hereby REVERSED. Moreover, for wantonly resorting to forum-
garnishment was only received by the CIP president’s secretary, as
shopping, PCIB is hereby REPRIMANDED and WARNED that a repetition jurisprudence considers a
secretary of the president as an “agent” binding
of the same or similar acts in the future shall be dealt with more severely. the corporation.
SO ORDERED. Petitioner’s only basis then would be its rights as a purchaser. But it is a rule that a
purchaser of an attached property acquires it subject to
VII. Additional Notes attachment legally and validly levied thereon.
The Consortium’s attachment lien was valid despite the dismissal of
• PCIB’s appeal was rejected, it was held that It deliberately resorted to forum shopping. the case due to
the compromise agreement. Its purpose is to secure a contingent lien until plaintiff can obtain a
judgement in its favor, which would be defeated if the debtor is simply allowed to buy time to dispose
VII. Random Facts
properties by entering into a compromise agreement with no intention of honoring it.
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the
debtor;
4
I. Recit-ready Summary that they garnished the disputed sales as early as 1985, while the FCI
This case is to determine the proper ownership of 1.7m shares of assignment was done in 1989. Petitioner countered by claiming it was
CIP,known as the disputed shares. These shares were initially owned by subrogated SBTC’s rights (SBTC garnished the sale earlier as a creditor, so it
Garcia, it is disputed who owned it later on. has better rights) because FCI paid for Garcia’s debt pursuant to 1302(2) of
Dynetics Inc. and Garcia sought a judicial declaration on the validity of the Civil Code.
a surety agreement it entered into with the Consortium (PISO, BPI, LBP, RTC sided with petitioner, holding that the consortium’s 1985
PCIB, RCBC), the former also sought to enjoin any enforcement of such garnishment was without notice as it was not annotated in the books of CIP,
agreement. The consortium claimed the agreement to be valid and binding, therefore it should not affect third parties such as petitioner.
asking for a writ of preliminary attachment against Dynetics and Garcia. This CA Reversed RTC, holding that the law does not require annotation for
is the consortium case. The writ was granted and on 19 July 1985, properties attachment of shares. CA also rejected the subrogation theory of Petitioner,
of Dynetics and Garcia were garnished – but they were not annotated in CIP’s holding that it was Garcia’s money which was made to pay SBTC, with the
stock and transfer books. FCI being merely an agent, making the ‘priority between two attachment
In a different case (SBTC case) also concerning Dynetics and Garcia, creditors’ rule inapplicable. So petitioner appealed
SBTC was allowed to garnish Garcia’s properties, which included the w/n Petitioner was subrogated SBTC’s rights considering that its
disputed shares on 2 July 1985. Note that this was earlier than the consortium predecessor in interest, FCI, was the one who issued the check paying for
case’s garnishment, and SBTC’s garnishment was annotated in CIP’s books. Garcia’s debt (thus subrogating FCI SBTC’s rights according to 1302(2))?
The RTC finally decided to dismiss Dynetics and Garcia’s complaint SC basically upheld the CA.1302(2) is inapplicable. Garcia sold the
and the consortium’s counterclaims. So, the Consortium appealed to the CA. disputed shares to FCI for 79m. FCI was to deliver part of the purchase price
during this appeal, a compromise agreement was approved between to SBTC pursuant to the deed of sale. When FCI issued the check to SBTC of
While the Consortium appeal was pending, Garcia sold the disputed 35m, it was in effect paying with Garcia’s money, not its own, since the
shares and other properties to FCI, wherein it was stipulated that part of the amount was part of the purchase price which FCI owed Garcia for the sale of
purchase price was to be paid directly to SBTC for whatever judgement the disputed shares. The money “paid” belonged to Garcia, as if he himself
credits SBTC gets in the SBTC case. FCI complied, issuing a 35m check to paid his SBTC debt through a third party – FCI. FCI was not a third party
SBTC as payment. (SBTC refused to accept, the payment was consigned in payor under 1302(2), but was merely an agent as defined in Art. 1868 of the
court.) FCI later assigned the shares it acquired from the sale to CEIC Civil Code. FCI was also not a disinterested party as 1302(2) requires, as the
(petitioner). extinguishment of the obligation would redound to its benefit, giving it a
Garcia did not comply with the compromise agreement, so the “clean title” to the shares – another reason on why subrogation is inapplicable.
consortium moved for and was granted a writ of execution on the garnished
properties, which included the disputed shares. The consortium later bought II. Facts of the Case (Material Facts)
these shares in the auction of the levied properties. an order was given to the 1. The case is about the determination of the proper ownership of over
CIP secretary to enter in its books the sale, and to issue new stock certificates 1,717,678 shares of stock in the Chemical Industries of the
to the consortium Philippines (CIP) and hereafter will be referred to as the disputed
Petitioner moved to intervene, claiming itself the rightful owner of the shares.
shares. This was allowed by the trial court. The trial court ordered the CIP 2. On September 1984, Dynetics, inc. and Antonio Garcia filed a
secretary to refrain from applying the earlier order. The consortium opposed complaint against the [Philippine Investment System
this intervention, claiming that their attachment should prevail, considering
Organization(PISO), BPI, LBP, PCIB, and RCBC – hereinafter
1
referred to as the consortium] consortium with RTC Makati, seeking 8. Garcia, under a deed of sale, transferred to Ferro Chemicals Inc
a judicial declaration on the validity of the Surety Agreement the (FCI) the disputed shares and other properties for 79m. it was agreed
former entered into with the consortium. The former also sought to upon that part of the purchase price shall be paid directly to SBTC
enjoin the consortium from enforcing any obligation the former may for whatever judgement credits may be adjudged in SBTC’s favor in
have undertaken in the agreement. The consortium alleged the the SBTC case.
agreement to be valid and binding, applying for a writ of preliminary a. With this, FCI issued a check in favor of SBTC, amounting
attachment against Dynetics and Garcia after answering. – this case to 35m. SBTC refused to accept, claiming such amount
shall be known as the consortium case. wasn’t sufficient to discharge the debt. The check was
3. (a different case but related matter) Dynetics, Garcia, and Matrix consigned in court as payment. This was in march 1989.
Management & trading corporation filed a complaint for declaratory b. In June 1989, FCI assigned its 4m shares in CIP (including
relief against Security Bank, known as the SBTC case. On 2 July the disputed shares) to (Petitioner) CEIC. These shares
1985, Trial court granted SBTC’s prayer for preliminary attachment, were registered and recorded in CIP’s books under CEIC’s
with a notice of garnishment of Garcia’s CIP shares including the name, stock certificates were issued to it.
disputed shares. This garnishment was duly annotated in the stock 9. Garcia failed to comply with his compromise agreement with the
and transfer books of CIP. consortium. Due to this, the Consortium filed to execute, which was
4. While the consortium case was pending, the RTC denied granted. Among Garcia’s properties which were levied upon were
Dynetics/Garcia’s WPI and granted the consortium’s writ of the disputed shares previously garnished in July 1985 (see number
preliminary attachment. On 19 July 1985, Properties of Dynetics and 4). The consortium acquired the disputed shares at the public auction
Garcia were garnished, including the disputed shares, but the of the levied properties for 85m. later, they filed a motion to order
garnishment was not annotated in Chemphil’s stock and transfer the CIP’s secretary to enter in its books the sale, and to issue new
book. certificates in the names of the consortium members. The trial court
5. While the consortium case was pending, PCIB filed to dismiss granted the motion in an order dated 4 September 1989.
Dynetics and Garcia’s complaint. 10. Petitioner CEIC filed to intervene in the consortium case, seeking
6. The consortium case was decided by the RTC in 1988, where they the recall of the 4 Sep 89 Order, claiming itself to be the rightful
granted the motion to dismiss Dynetics and Garcia’s complaint, but owner of the disputed shares. (look at Number 8.b) trial court
it also dismissed the consortium’s counterclaims citing case where allowed the intervention, ordering CIP secretary to temporarily
“a person cannot eat his cake and have it at the same time”. MR’s refrain from implementing the said order.
were denied. 11. The Consortium opposed this intervention, claiming that their
7. The consortium appealed. While the appeal was pending, Garcia attachment must prevail, considering that the disputed shares were
entered into a Compromise Agreement with the Consortium, which garnished in their favor as early as 19 July 1985. They moved to lift
was approved by the CA. the compromise would have dropped the order ordering the secretary to refrain from implementing the
Garcia as a party to the appeal if Garcia complied, leaving only earlier order.
Dynetics as the other party in the consortium’s appeal. 12. Trial Court granted CEIC’s intervention, nullifying the order
ordering the secretary to enter the sale in the CIP’s books and issuing
2
a certificate in the consortium’s names. It dismissed the Issue #1

Consortium’s motions because its 19 July 1985 garnishment was not NO, CEIC is not entitled to the disputed CIP shares.
annotated and registered in the stock and transfer books of CIP,
while SBTC’s 2 July 1985 garnishment was annotated. This was Petitioner’s Arguments Court’s Rebuttals
important because petitioner acquired the disputed shares without • Petitioner anchors its rights to • 1302(2) is inapplicable. Garcia
knowledge of the garnishment of the consortium. RTC held that for SBTC’s attachment lien (which sold the disputed shares to FCI
a levy on corporate stock to be binding on third persons, there should was earlier than the for 79m. FCI was to deliver part
be notice (annotated or recorded in the books). Since there was no consortium’s attachment, so it of the purchase price to SBTC
notice on the disputed shares, they cannot be levied upon in should be superior). Since its pursuant to the deed of sale. In
execution. predecessor in interest paid effect, when FCI issued the
a. Petitioner also claims it was subrogated SBTC’s rights by SBTC that due obligations of check to SBTC of 35m, it was in
operation of law since its predecessor FCI paid SBTC 35m Garcia pursuant to the deed of effect paying with Garcia’s
pursuant to Garcia’s sale to FCI. As between two attaching sale and purchase of stock, FCI money, not its own, since the
creditors, the one whose claims was first enjoys priority – (and later petitioner) should amount was part of the purchase
and since SBTC was first, it and its subrogees should enjoy have been subrogated SBTC’s price which FCI owed Garcia for
priority over the Consortium. rights over the disputed shares. the sale of the disputed shares.
13. The consortium appealed to CA, with PCIB filing separately a • Petitioner’s basis is Art. 1302(2) The money “paid” belonged to
petition for certiorari. CA reversed the RTC, confirming that the of the CC “it is presumed that Garcia, as if he himself paid his
consortium owned the disputed shares. In doing so, it held that there is legal subrogation; (2) SBTC debt through a third party
attachment of shares of stock need not be recorded in the books in when a third person, not – FCI.
order to bind third persons. It also rejected the subrogation theory, interested in the obligation, • The contractual stipulation was
holding that Garcia’s funds in FCI were used to pay off SBTC, even pays with the express or tacit merely to prevent needless
though it was a corporate check – it was just an attempt by Garcia to approval of the debtor. changing of hands of the money.
deny the consortium of its rights. Reinstate in toto the 4 September • FCI was also not a disinterested
1989 order. The CA however dnied the PCIB’s certiorari for forum party as 1302(2) requires, as the
shopping. extinguishment of the obligation
14. The consortium (except PISO) assigned all its rights to Jaime would redound to its benefit,
Gonzales, which is why he is a respondent in this case. Petitioner giving it a “clean title” to the
appealed, so did PCIB. shares.
III. Issue/s
1. W/N petitioner CEIC is legally entitled to the disputed CIP
shares? NO.
IV. Holding/s
3
Overall Ruling (3) When, even without the knowledge of the debtor, a person interested in
Since the money used to discharge Garcia’s obligation to SBTC the fulllment of the obligation pays, without prejudice to the effects of confusion as to
the latter's share.
belonged to him, FCI cannot be considered a third party payor under
1302(2), FCI is an agent merely fulfilling its obligation under the deed of In this case, 1302(2) is inapplicable as it was Garcia’s money that was used, with FCI
sale terms. Since Garcia himself paid SBTC, FCI was not subrogated any being merely an agent, to satisfy the debt with SBTC. So CEIC, who acquired the
right, thus Petitioner was also not subrogated any right. So the priority shares from FCI, was not subrogated as FCI was not a third person as envisioned by
doctrine between two attaching creditors in inapplicable – because in this 1302.
case, FCI/Petitioner were purchasers, while the Consortium was an
VI. Disposition
attaching creditor.
As regards the attachment lien of the consortium, it is valid as the
WHEREFORE, premises considered the appealed decision in G.R. Nos.
Rules of Court and the Corporation code do not require the annotation in 112438- 39 is hereby AFFIRMED and the appealed decision in G.R. No.
the corporation’s stock and transfer books for the attachment to be valid 113394, insofar as it adjudged the CEIC the rightful owner of the disputed
and binding on a third party. It does not matter that the notice of shares, is hereby REVERSED. Moreover, for wantonly resorting to forum-
garnishment was only received by the CIP president’s secretary, as shopping, PCIB is hereby REPRIMANDED and WARNED that a repetition
jurisprudence considers a secretary of the president as an “agent” binding of the same or similar acts in the future shall be dealt with more severely.
the corporation. SO ORDERED.
Petitioner’s only basis then would be its rights as a purchaser. But it
is a rule that a purchaser of an attached property acquires it subject to VII. Additional Notes
attachment legally and validly levied thereon. • PCIB’s appeal was rejected, it was held that It deliberately resorted
The Consortium’s attachment lien was valid despite the dismissal of to forum shopping.
the case due to the compromise agreement. Its purpose is to secure a
VII. Random Facts
contingent lien until plaintiff can obtain a judgement in its favor, which
would be defeated if the debtor is simply allowed to buy time to dispose
properties by entering into a compromise agreement with no intention of
honoring it.
Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
4
G.R. No. 204264 | June 29, 2016 Article 1291-1304 - Novation
Jennefer Figuera vs Maria Remedios Ang Jennefer Figuera vs Maria Remedios Ang
I. Recit-ready Summary Respondent repeatedly refused to accept such payment despite

Respondent Ang, owner of EIDC, executed a Deed transferring her rights multiple attempts by the Petitioner
to the Petitioner Figuera for the amount of P150,000, which also included an 4. As such, the Petitioner filed a complaint for specific performance
agreement that the Respondent shall pay the utility bills until December 2004. before the RTC against the Respondent. At the same time, the
However, without the Respondent’s consent, the Petitioner paid the utility bills. Petitioner consigned the amount of P42,096.79 to the RTC which
Thus, the Petitioner only tendered the amount of P42,096.79 to the Respondent, the Respondent refused to accept
which the Respondent repeatedly refused to accept. As such, the Petitioner filed a
5. However, the Respondent argued that the amount agreed upon in
complaint for specific performance. The RTC, and eventually the CA, ruled in favor
their Deed was P150,000; thus, she cannot be compelled to accept
of the Respondent Ang, and explained that there was no valid tender of payment and
an amount that was not agreed upon
consignation on the part of the Petitioner since the payment was insufficient and not
the amount agreed upon. Hence, the present petitioner before the SC. The issue in 6. The RTC ruled in favor of the Respondent Ang, and explained that
this case is w/n there was a valid tender of payment and consignation. The SC ruled for Tender of Payment and Consignation of to be valid, the
in the Affirmative. The Court stated that Figuera based her claim on the third type of Petitioner must tender the full amount agreed upon. The
subrogation. She claims that as the EIDC's new owner, she is interested in fulfilling Respondent cannot be obliged to accept anything less
Ang's obligation to pay the utility bills. Since these utilities are obviously necessary 7. Upon appeal to the CA, the CA affirmed the RTC’ Decision since
for the continuation of Figuera's business transactions, it became absolutely (1) there was nothing in the Deed which grants the Petitioner the
necessary for Figuera to pay the bills since Ang did not do so when the obligation option to pay the utility bills and deduct the same in the agreed
became due. Moreover, the consent or approval of the debtor is required only if a upon payment, and (2) the Petitioner’s payment of P42,096.79 is
third person who is not interested in the fulfilment of the obligation pays such. And not a valid tender of payment nor consignation because it is
lastly, all the elements of legal compensation are present in this case, thus even insufficient to cover the consideration due to the Respondent
without the knowledge and consent of Ang or Figuera, their obligation as to the 8. Hence, the present petition before the SC
amount of P107,903.21 had already been extinguished.
III. Issue/s
II. Facts of the Case (Material Facts) ● W/N there was a valid Tender of Payment and Consignation on
1. In the present case, the Respondent Ang, who is the owner of the part of the Petitioner Figuera? YES
“Enhance Immigration and Documentation Consultants” (EIDC),
executed a Deed of Assignment which transferred her business IV. Holding/s
rights to the Petitioner Figuera for the amount of P150,000.
2. In addition to the Deed, the parties also agreed that the Respondent
Issue #1
Ang shall pay for the utility bills until December 2004
Yes, the Petitioner’s payment of P42,096.79 can be considered as a
3. However, without the Respondent’s consent, the Petitioner paid the
Tender of Payment and Consignation
utility bills as of December 2004. Thus, the Petitioner only
tendered the amount of P42,096.79 to the Respondent - which the
1
Obligations and Contracts (2020) PETITIONER: Jennefer Fuiguera, Enhance Visa, Ma. Eden Dumont
DIGEST AUTHOR: Larry Abucay RESPONDENT: Maria Remedios Ang
Respondent’s Arguments Court’s Rebuttals subrogated the credit, with

all the rights appertaining
● The Respondent Ang contends ● The Court, however, stated thereto, either against the
that the CA correctly dismissed that to rule on whether debtor or against third
the Petitioner Figuera’s there was a valid tender of persons
argument that her debt payment and consignation,
amounting to P107,903.21 has there must first be a Overall Ruling
been extinguished through legal determination of the
subrogation and compensation amount that Figuera should The SC stated that Subrogation of a third person in the rights of a creditor
have tendered. To do so, may either be legal or conventional. There is legal subrogation when: (a) a
the appellate court must creditor pays another preferred creditor, even without the debtor's
examine whether the knowledge; (b) a third person who is not interested in the obligation pays
principles of legal with the express or tacit approval of the debtor; and (c) a person interested
subrogation and in the ful lment of the obligation pays, even without the knowledge of the
compensation, as Figuera debtor. IN THE PRESENT CASE, Figuera based her claim on the third type
argued, should be applied of subrogation. She claims that as the EIDC's new owner, she is interested
in fulfilling Ang's obligation to pay the utility bills. Since the payment of
● Article 1291 of the Civil the bills was long overdue prior to the assignment of business rights to
Code provides that the Figuera, the failure to settle the bills would eventually result in "the
subrogation of a third disconnection of the electricity and telephone services, ejectment from the
person to the rights of the office premises, and resignation by some, if not all, of the company's
creditor is one of the means employees with the possibility of subsequent labor claims for sums of
to modify obligations. money." Since these utilities are obviously necessary for the continuation of
Subrogation, sometimes Figuera's business transactions, it became absolutely necessary for Figuera
referred to as substitution, to pay the bills since Ang did not do so when the obligation became due.
is "an arm of equity that
may guide or even force Moreover, in terms of Ang’s lack of consent, the Court stated that under
one to pay a debt for which Article 1302, the consent or approval of the debtor is required only if a third
an obligation was incurred person who is not interested in the fulfilment of the obligation pays such.
but which was in whole or On the other hand, no such requirement exists in cases of payment by a
in part paid by another." It creditor to another creditor who is preferred, and by a person interested in
transfers to the person
2
the fulfilment of the obligation. Notably, Article 1302 (1) and (3) does not 2) That both debts consist in a sum of money, or if the things due are
require the debtor's knowledge. consumable, they be of the same kind, and also of the same quality if the
3) That the two debts be due;
Lastly, in terms of Figuera’s argument that legal compensation took place, 4) That they be liquidated and demandable;
the Court stated that there is compensation when two persons, in their own 5) That over neither of them there be any retention or controversy,
right, are creditors and debtors of one another (Article 1278). And that, all commenced by third persons and communicated in due time to the debtor
the elements must concur for legal compensation to occur (Article 1279). IN
Article 1302 - It is presumed that there is legal subrogation:
THE PRESENT CASE, all the elements are present in this case since: 1) When a creditor pays another creditor who is preferred, even without the
FIRST, in the assignment of business rights, Figuera stood as Ang's debtor debtor's knowledge;
for the consideration amounting to P150,000.00. Figuera, on the other hand, 2) When a third person, not interested in the obligation, pays with the express
became Ang's creditor for the amount of P107,903.21 through Figuera's or tacit approval of the debtor;
subrogation to the rights of Ang's creditors against the latter. SECOND, 3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of
both debts consist of a sum of money, which are both due, liquidated, and confusion as to the latter's share.
demandable. LASTLY, neither party alleged that there was any claim raised
by third persons against said obligation. IN EFFECT, even without the VI. Disposition
knowledge and consent of Ang or Figuera, their obligation as to the amount
of P107,903.21 had already been extinguished. Consequently, Figuera owes WHEREFORE, the Court GRANTS the petition for review on certiorari. The
decision dated June 29, 2012 and resolution dated September 28, 2012 of the Court
Ang the remaining due amount of P42,096.79. of Appeals in CA-G.R. CV. No. 02480 are hereby REVERSED.

Article 1291 - Obligations may be modified by: VII. Random Facts
1) Changing their object or principal conditions; ● Ponente: Brion, J.
2) Substituting the person of the debtor;
3) Subrogating a third person in the rights of the creditor
Article 1278 - Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other
Article 1279 - In order that compensation may be proper, it is necessary:

1) That each one of the obligors be bound principally, and that he be at the
3

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G.R. No.

L-3756 Sources of Obligation

I. Recit-ready Summary II. Facts of the Case

Block B 2023 PETITIONER/APPELLANT: ​Sagrada Orden de Predicadores del Santisimo

III. Issue/s Law or Doctrine Applied

Block B 2023 PETITIONER/APPELLANT: ​Sagrada Orden de Predicadores del Santisimo

is hereby reversed. In all other aspects the judgment is affirmed. Costs of

VI. Additional Notes

VII. Random Facts

Block B 2023 PETITIONER/APPELLANT: ​Sagrada Orden de Predicadores del Santisimo

III. Issue/s VI. Disposition

ACCORDINGLY, the judgment appealed from is hereby reversed and

V. Law or Doctrine Applied

OBLIGATIONS AND CONTRACTS (2020) PETITIONER:​ ​FGU Insurance Corporation

Culpa Aquiliana vs. Culpa Contractual

OBLIGATIONS AND CONTRACTS (2020) PETITIONER:​ ​FGU Insurance Corporation

Oblicon 2020 PETITIONER/APPELLANT: LRTA and Rodolfo Roman

Oblicon 2020 PETITIONER/APPELLANT: LRTA and Rodolfo Roman

WHEREFORE, the assailed decision of the appellate court is AFFIRMED

VII. Separate Opinions

VII. Random Facts

Oblicon 2020 PETITIONER/APPELLANT: LRTA and Rodolfo Roman

IV. Law or Doctrine Applied

ART. 20.​-Every person who, contrary to law, wilfully or negligently causes

NEGLIGENCE OF THE EMPLOYEE

VI. Additional Notes

precaution on the part of the person performing or failing to perform

• that the offender has done or failed to do an act

WHEREFORE, the petition is DENIED. The Decision of the Court of

VII. Additional Notes

VII. Random Facts

OBLICON 1B 2020 PETITIONER/APPELLANT: Dr. Antonio Cabugao, Dr. Clenio Ynzon

OBLICON 1B 2020 PETITIONER/APPELLANT: Dr. Antonio Cabugao, Dr. Clenio Ynzon

b) Contracts VI. Separate Opinions

e) Quasi-delicts VII. Random Facts

OBLICON 1B 2020 PETITIONER/APPELLANT: Dr. Antonio Cabugao, Dr. Clenio Ynzon

I. Recit-ready Summary II. Facts of the Case

On February 6, 2003, Rosales accompanied an impostor of Liu Chiu IV. Holding/s

V. Law or Doctrine Applied

ART. 1157. OBLIGATIONS ARISE FROM:

WHEREFORE, the Petition is hereby DENIED. The assailed April 2,

Block B 2023 PETITIONER/APPELLANT: Jose Cangco

Procedural CULPA AQUILIANA. The provisions of cupla aquiliana or extra-

Block B 2023 PETITIONER/APPELLANT: Jose Cangco

Block B 2023 PETITIONER/APPELLANT: Jose Cangco

TEST OF NEGLIGENCE FOR PASSENGERS ATTEMPTING TO

Block B 2023 PETITIONER/APPELLANT: Jose Cangco

railway train, is that of ordinary or reasonable care. It is to be considered

The decision of lower court is reversed, and judgment is hereby rendered

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

VII. Separate Opinions

MALCOLM (DISSENTING). Justice Malcolm agrees with the majority

Thus, Manila Railroad should be absolved from the complaint.

VIII. Additional Notes

VII. Random Facts

Block B 2023 PETITIONER/APPELLANT: Jose Cangco

Block B 2023 PETITIONER/APPELLANT: Viron Transport Co.

Block B 2023 PETITIONER/APPELLANT: Viron Transport Co.

V. Law or Doctrine Applied

Article 2176. Whoever by act or omission causes damage to another, there

Block B 2023 PETITIONER/APPELLANT: Sagrada Orden de Predicadores del Santisimo

Block B 2023 PETITIONER/APPELLANT: Sagrada Orden de Predicadores del Santisimo

Block B 2023 PETITIONER/APPELLANT: Sagrada Orden de Predicadores del Santisimo

OBLIGATIONS AND CONTRACTS (2020) PETITIONER: FGU Insurance Corporation

OBLIGATIONS AND CONTRACTS (2020) PETITIONER: FGU Insurance Corporation

ART. 20.-Every person who, contrary to law, wilfully or negligently causes

Res Ipsa Loquitur: the mere existence of an injury justifies a

Life x GAI - Reasonable - Living Expenses

1. NO, the petitioners are not negligent. The trial court’s