CASES G.R. No. L-48006 July 8, 1942 FAUSTO BARREDO v.

SEVERINO GARCIA and TIMOTEA ALMARIO Summary: Civil liability arises not only with criminal action but also, distinctly and independently, from civil action and hence, persons responsible for others can be held liable as principals for the actions of their custodee. Employer Barredo is principally liable for civil damages from the death caused by the negligence of his employee despite the lack of civil action against employee wherein he could be subsidiary liable because Article 1903 also holds employers primarily responsible. *Why apply Civil Code? Because Employer cannot be sued criminally with civil damages where he did not commit any crime. Facts: 1. Pedro Fontanilla, taxi driver of the Malate Taxicab, caused the death of 16 y/o Faustino Garcia by negligence a. He was driving i. on the wrong side of the road ii. at high speed iii. at 1AM on May 3, 1936 b. He hit the carretela where Faustino, among others, was riding in i. It overturned ii. Garcia died on May 5, 1936 from injuries suffered c. He was convicted of reckless imprudence resulting in grave physical injuries i. The right to bring a separate civil action was reserved 2. Parents of Faustino sued Fausto Barredo, the sole proprietor of the Malate Taxicab and employer of Fontanilla, for damages for the death of their son a. Contentions of Barredo: to exhaust the property of Fontanilla first i. Criminally, that his liability is only subsidiary to Fontanilla, and not principally, according to the Revised Penal Code ii. Civilly, that he has no liability because there has been no civil action against Fontanilla and his property has not been exhausted iii. Civilly, that Article 1903 of the Civil Code applies only to those (obligations) arising from wrongful or negligent acts or ommission not punishable by law b. CA Held i. Barredo is civilly liable for his failure to exercise all the diligence of a good father of a family in the selection and supervision of Pedro Fontanilla to prevent damages suffered by the respondents Issue: WON the Employer can be sued and held principally responsible for civil liabilities of his employed absent civil action against the latter

Held: 1.

YES Civil Liability can be separately derived from criminal action and civil action a. Two types of Civil Liability i. Born of a crime: One that is a necessary consequence of the penal liability as a result of every felony (dolo or culpa) or misdemeanour ii. Quasi-delict: A civil responsibility which in no case carries with it any criminal responsibility b. A quasi-delict or culpa aquiliana is... i. an act or omission not punishable by law 1. Crimes affect the public interest; Cuasi-delitos are only of private concern 2. Penal Code punishes or corrects the criminal act; Civil Code, by means of indemnification, merely repairs the damage 3. Delicts are punished only if there is a penal law clearly covering them; Quasi-delicts include all acts in which any kind of fault or negligence intervenes 4. Criminal case requires proof of guilt beyond reasonable doubt; Civil case requires only sufficient preponderance of evidence to make the defendant pay in damages a. In cases of criminal negligence which cannot be shown beyond reasonable doubt but can be proved by a preponderance of evidence, the defendant can and should be made responsible in a civil action under articles 1902 to 1910 of the Civil Code ii. a separate legal institution under the Civil Code iii. with a substantivity all its own and iv. individuality that is entirely apart and independent from delict or crime 1. Civil liability was not intended to be merged in the criminal nor even to be suspended thereby, except as expressly provided in the law 2. Where an individual is civilly liable for a negligent act or omission, it is not required that the injured party should seek out a third person criminally liable whose prosecution must be a condition precedent to the enforcement of the civil right c. An act of negligence may come under both the Penal Code and the Civil Code

d.

i. subject of a criminal action with its consequent civil liability arising from a crime ii. subject of a civil action, an entirely separate and independent civil action for fault or negligence under article 1902 of the Civil Code Purpose of Distinction: To provide remedy for the injured party i. The injury caused by a felony upon civil rights requires restitutions, reparations, or indemnifications which affect public order ii. Usual remedy is criminal action but this does not eliminate civil actions for indemnity in order to avoid devious and cumbersome method of obtaining relief

2.

HENCE, Barredos liability may arise from two sources: Fontanillas criminal act PLUS his own negligence in allowing such act to happen a. As subsidiary liable to civil responsibility by reason of the crime i. Only in default of criminally responsible b. As principally liable for persons whom another is responsible i. ART. 1903. The obligation imposed by the next preceding article is enforceable, not only for personal acts and omissions, but also for those of persons for whom another is responsible. Owners or directors of an establishment or business are equally liable for any damages caused by their employees while engaged in the branch of the service in which employed, or on occasion of the performance of their duties. ii. Action can be brought directly against the person responsible (for another), without including the author of the act 1. not subsidiary in the sense that a. it cannot be instituted till after the judgment against the author of the act b. it is subsidiary to the principal action 2. in itself a principal action iii. Presumption: Whenever anyone of the persons enumerated in the article referred to (minors, incapacitated persons, employees, apprentices) causes any damage, the law presumes that the father, guardian, teacher, etc. have committed an act of negligence in not preventing or avoiding the damage. 1. Liable for the acts of those persons with whom there is a bond or tie which gives rise to the responsibility c. An employer is primarily and directly responsible for the negligent acts of his employee

i. That when an injury is caused by the negligence of an employee there instantly arises a presumption of law that there was negligence on the part of the employer either in the selection of the servant or employee, or in supervision over him after the selection, or both ii. That presumption may be rebutted if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved from liability. iii. Responsibility of the master ultimately on his own negligence and not on that of his servant. 1. It is the masters or employers who principally reap the profits resulting from the services of these servants 2. They should guarantee the latter's careful conduct for the personnel and patrimonial safety of others G.R. No. L-32599 June 29, 1979 EDGARDO E. MENDOZA v. HON. ABUNDIO Z. ARRIETA, FELINO TIMBOL, and RODOLFO SALAZAR Summary: Civil Liability of Timbol as truck owner is not barred by the dismissal of the criminal case against the driver because there is no identity of cause of action and of party to bar the civil case. Civil liability of Salazar is barred by the dismissal of the criminal case because the fact of negligence as the basis of the damage was not proved. *Facts did not arise (preponderance of evidence did not prove allegation against accused) and hence, acquitted Facts: 1. Damage to Edgardo Mendozas Mercedes Benz a. October 22, 1969, 4PM i. Felipino Timbols gravel and sand truck driven by Freddie Montoya BUMPED FROM BEHIND ii. Rodolfo Salazars private jeep WHICH OVERTOOK THE TRUCK AND SWERVED LEFT WHICH WAS STOPPED BY A POLICE AND IN TURN HIT iii. Mendozas Mercedes Benz running in the opposite direction b. Dismissal of Criminal Cases: Reckless Imprudence Causing Damage to Property

c.

i. Against Driver Montoya by Salazar for the damage to his jeep 1. Held Guilty 2. BUT no liability to Mendoza because he was not a complainant ii. Against Salazar by Mendoza for the damage to his Benz 1. Acquitted of criminal and civil liability Institution of Civil Cases AFTER the termination of the criminal cases i. By Mendoza against Salazar and Timbol for indemnification of the damages to his Benz ii. Dismissal of Timbol upon his Motion due to 1. res judicata of criminal case 2. failure to reserve the civil action during the criminal action iii. Dismissal of Salazar due to 1. failure to reserve the civil action during the criminal action 2. that while it is true that an independent civil action for liability under Article 2177 of the Civil Code could be prosecuted independently of the criminal action for the offense from which it arose, the New Rules of Court, which took effect on January 1, 1964, requires an express reservation of the civil action to be made in the criminal action; otherwise, the same would be barred pursuant to Section 2, Rule 111

2.

arising from criminal negligence that damaged Salazars jeep BUT c. Civil case is for damage to Mendozas Benz based on quasi-delict under Article 2180, in relation to Article 2176 i. Cause of action in plaintiffs primary right and defendants delict or wrongful act or omission which violated plaintiffs primary right No Identity of parties a. Mendoza was not a party in the criminal case against Montoya b. Liability is against Owner Timbol i. Negligence and lack of skill of Montoya, Timbol's employee, who was then driving the gravel and sand truck

b.

Issue/s: WON Civil liability can be held against Timbol and Salazar Held: 1. YES to truck-owner Timbol a. Absence of res judicata where civil liability from criminal negligence is distinct from quasi-delict i. it must be a final judgment ii. it must have been rendered by a Court having jurisdiction over the subject matter and over the parties iii. it must be a judgment on the merits iv. there must be, between the first and second actions, Identity of parties, Identity of subject matter and Identity of cause of action 1. No Identity of cause of action a. ALTHOUGH BASED ON THE SAME NEGLIGENT ACT, the b. Criminal case against Driver Montoya was for the enforcement of civil liability

Failure to make a reservation in the criminal action of the right to file an independent civil action IS NOT A BAR to the institution of a separate civil action 1. Section 2, Rule 111, Rules of Court Section 2. Independent civil action. In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of the Philippines, an independent civil action entirely separate and distinct from the criminal action may be brought by the injured party during the pendency of the criminal case, provided the right is reserved as required in the preceding section. Such civil action shau proceed independently of the criminal prosecution, and shall require only a preponderance of evidence. 2. Garcia vs. Florida a. Section 2 of Rule 111 with reference to Articles 32, 33 and 34 of the Civil Code is contrary to the letter and spirit of the said articles, for these articles were drafted ... and are intended to constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111 b. The proviso, which is procedural, may also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil Code, which

3.

do not provide for the reservation required in the proviso Justice Antonio Barredo a. Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different from the civil action arising from the offense of negligence under the Revised Penal Code b. No reservation is required in the criminal case c. Section 2 of Rule 111 is inoperative, it being substantive in character and is not within the power of the Supreme Court to promulgate; and even if it were not substantive but adjective, it cannot stand because of its inconsistency with Article 2177, an enactment of the legislature superseding the Rules of 1940

2.

NO to jeep-owner-driver Salazar a. In claiming indemnification, offended party has two options i. based on culpa criminal under Article 100 of the Revised Penal Code 1. Enforcement of civil liability based on culpa criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the criminal action, unless expressly waived or reserved for separate application by the offended party ii. based on culpa aquiliana under Article 2177 of the Civil Code b. Mendoza had opted to base his cause of action against jeep-ownerdriver Salazar on culpa criminal and not on culpa aquiliana i. Evidenced by his active participation and intervention in the prosecution of the criminal suit against said Salazar ii. Right to file a separate civil action as his action for civil liability was deemed impliedly instituted in the criminal case c. Salazar has no liability for damages as decided in criminal case i. The fact from which the civil might arise did not exist as proven in criminal case 1. ex- delictu, Article 100 of the Revised Penal Code: civil action must be held to have been

extinguished in consonance with Section 3(c), Rule 111 of the Rules of Court Sec. 3. Other civil actions arising from offenses. In all cases not included in the preceding section the following rules shall be observed: xxx xxx xxx c) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil night arise did not exist. ii. Even if acquittal was not based upon reasonable doubt, Article 29 of the Civil Code provides that Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence ... If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground. G.R. No. 84698 February 4, 1992 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO, AND LT. M. SORIANO v. CA, HON. REGINA ORDOEZBENITEZ, SEGUNDA R. BAUTISTA, and ARSENIA D. BAUTISTA Facts: 1. August 30, 1985: Carlitos Bautista was stabbed to death on the premises of PSBA a. Carlitos was a third year student of Commerce of PSBA b. He was stabbed by outsiders, non-members of the schools academic community 2. Suit for damages by his parents against PSBA and its corporate officers Issue/s: WON PSBA can be held liable Held: YES but only if it was found negligent 1. NCC 2180 applies to ALL KINDS of educations institutions a. BUT the damage should have been caused or inflicted by pupils or students of the educational institution sought to be held liable for the acts of its pupils or students while in its custody 2. PSBA and officers can be made liable due to breach of contract

a.

b.

Bilateral obligations between the school and the student upon enrollment i. School is to provide the student with education and an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge ii. Student is to abide by the school's academic requirements and observe its rules and regulations iii. The contractual relation is a condition sine qua non to the school's liability YET, there is no finding yet that the contract between the school and Bautista had been breached by negligence in providing proper security measures i. Proceedings have yet to commence on the substance of the complaint ii. Only the trial court can make such a determination from the evidence still to unfold

Summary: Air France is liable for the moral damages caused to Carrascoso by its Manager in forcing him to vacate his first class seat despite his bought ticket because a contract exists between the carrier and its passenger, which relation is attended by a public duty and the breach of which is a quasi-delict. Since the Manager is an employee of Air France, the latter is responsible for the formers bad faith. *Held: that the case is a QUASI-DELICT ~ Act of breaking a contract is a TORT (American concept) BUT in quasi-delict, there should be no pre-existing contractual relations [Wrong because...] *2176 requires the absence of a pre-existing contractual relation; in the case, there was a contract in the form of a ticket and hence, not a quasi-delict (defense of Air France) Facts: 1. March 30,1958: Rafael Carrascoso, Filipino civil engineer, was forcibly ejected from his first class seat to a tourist class seat by the Manager of Air France in Bangkok during the stopover from Manila a. Carrascoso paid for a first class round trip airplane ticket from Manila to Rome on March 28, 1958 through Philippine Air Lines, Inc., an authorized agent of Air France b. Carrascoso was already seated when the Manager forced him to vacate his seat in order to accommodate a white man who, the Manager alleged, had a better right to the seat c. Carrascoso refused, had an argument with the Manager but eventually ceded 2. Allegations of Air France a. that Carrascoso knew that he did not have confirmed reservations for first class b. that the issuance of a first class ticket was no guarantee that he would have a first class ride c. that his first class seat would depend upon the availability of seats 3. Contentions of Carrascoso a. that his first class ticket had been confirmed with the markings of O.K. b. that the captain of the plane who was asked by the Manager to intervene even refused to do so and that no one on behalf of defendant ever contradicted or denied this evidence Issue/s: WON Air France can be held liable for damages Held: YES because there was a contract between them that Air France breached as employer of employee Contract and Quasi-Delict 1. There was a Contract for a first class seat a. A contract to transport passengers between an air-carrier and the public i. Air line invites people to avail of the comforts and advantages it offers

G.R. No. L-47745 April 15, 1988 JOSE S. AMADORA, et al. v. CA, COLEGIO DE SAN JOSE-RECOLETOS, et al. Facts: Alfredo Amadora was shot and killed by his classmate Pablito Daffon in the auditorium of Colegio de San Jose-Recoletos. Daffon was convicted of homicide through reckless imprudence. Additionally, the victims parents filed an action to recover damages from the rector, the HS principal, the dean of boys, the physics teacher and the parents of the two other boys who were with Daffon at the time of the shooting. Petitioners base the charge on the argument that the victim was under the custody of the private respondents and their liability falls under NCC 2180. On the other hand, private respondents argue that NCC 2180 does not apply because they are not an establishment of arts and trades and that the students were not under the custody of the school at the time. Issue/s: WON School can be held liable Held: Using the principle of reddendo singular singulis, the SC found that the word teacher in Art 2180 is to apply to pupils and students while heads of establishments of arts and trades apply to apprentices. As such the rector, the HS principal and the dean of boys cannot be held liable since none of them exercised direct control but only a general supervision over the students. Neither can the teacher-in-charge be held liable in the absence of any showing that his absence from the scene was due to laxness in enforcing discipline among the students. G.R. No. L-21438 September 28, 1966 AIR FRANCE v. RAFAEL CARRASCOSO and CA

2.

3.

ii. Passengers contract for transportation and the right to be treated by the carrier's employees with kindness, respect, courtesy and due consideration iii. Passengers are entitled to be protected against personal misconduct, injurious language, indignities and abuses from such employees b. Carrascoso was issued, and paid for, a first class ticket i. Air France received from Carrascoso the corresponding amount in payment of first-class tickets ii. Carrascoso had a first class ticket and was entitled to a first class seat at Bangkok iii. It is unlikely that a reputable firm like Air France could have the indiscretion to give out tickets it never meant to honor at all and to allow its passengers to be at the mercy of its employees There was Breach of Contract when Air France failed to furnish Carrascoso a first class passage at Bangkok a. The relation between a carrier and its passenger is attended with a public duty i. Violation of public duty is a case of quasi-delict ii. Neglect or malfeasance of the carrier's employees, naturally, could give ground for an action for damages iii. Any rule or discourteous conduct on the part of employees towards a passenger gives the latter an action for damages against the carrier b. Air France acted in bad faith when the Manager compelled Carrascoso to leave his first class accommodation even after he was already seated and to take a seat in the tourist class There were damages suffered by Carrascoso when he suffered inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental anguish, serious anxiety, wounded feelings, social humiliation, and the like injury Liability of Air France, Employer, for Employee Air France, the employer of the Manager, is liable for the tortious act of its employees a. For the willful malevolent act of the Manager, Air France must answer b. Article 21 of the Civil Code. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. c. Article 2219 (10), Civil Code

4.

G.R. No. L-8024 November 29, 1955 EUSEBIO DE LA CRUZ v. APOLONIO LEGASPI and CONCORDIA SAMPEROY Facts: 1. Eusebio de la Cruz v. Apolonio Legaspi and his wife a. For compulsion of delivery of the parcel of land the spouses had sold to him one year previous b. For execution of the contract c. For acceptance of payment of the purchase price (P450) i. Contention of Legaspi Sps.: 1. That they agreed to the sale and price 2. That before the document (of sale) was made, de la Cruz agreed to pay P450 on the same day of its execution 3. That de la Cruz refused to pay after the notarization and after he had gotten the original copy 4. That the sale contract is null and void for lack of consideration in failing to pay the price after the execution of the document as agreed ii. Judgement: 1. Payment of P450 2. Receipt of P450 3. Delivery of property Issue/s: WON Contract of Sale is void for lack of consideration Held: NO 1. Presence of Consideration a. Cause/Consideration (P450) existed at the time the document was signed i. Document specifically provided for it ii. Such was undoubtedly the agreement b. Subsequent non-payment of the price at the time agreed upon did not convert the contract into one without cause or consideration: a nudum pactum. c. Instead of lack of consideration, there was failure to pay the consideration i. After notarization ii. De la Cruz failed to hand the money as promised 2. Remedy of Sps. Legaspi a. To demand rescission in court (but only after demand had been given to debtor)

b. To demand interest (legal interest) for the delay

Where there was i. no stipulation that contract would be automatically rescinded by failure to pay ii. no agreement nor allegation that payment on time was essential BUT Absence of Demand by Sps. Legaspi i. Trial judge could still allow De la Cruz to enforce the contract ii. In sale of real property... 1. a stipulation that the resolution of the contract shall take place ipso facto in default of the price within the time agreed upon 2. does not bar the vendee to pay even after the expiration of the period 3. as long as payment is made at any time BEFORE DEMAND has been made upon him either by suit or by notarial act 4. Only after demand can the judge grant him further time c.

3.

G.R. No. L-10394 December 13, 1958 CLAUDINA VDA. DE VILLARUEL, ET AL. v. MANILA MOTOR CO., INC. and ARTURO COLMENARES Facts: Leased property of Villaruel to MMC was dispossessed by Japanese forces during the Occupation and hence, MMC refused to pay the rents for that period and hence, Villaruel sued for collection. 1. Contract of Lease by Manila Motor Co., Inc. and Villaruel a. Villaruel conveyed to MMC by way of a 5-year lease the ff: i. 500 sq.m. of floor space of a building for automobile showroom, offices, and store room for automobile spare parts; ii. another building for automobile repair shop iii. 5-bedroom house for residence of the Bacolod Branch Manager of the company b. MMC in return would pay i. P300 monthly rentals before the 5th of every month (building) ii. P50 (max) monthly rentals by the Manager (house) c. Terms of the Contract: i. To commence from the time the building were delivered to lessee company, ready for immediate occupancy (October 31, 1940) ii. Open for renewal for an additional 5 years d. Non-payment of rentals by MMC during the Japanese and American occupations (US paid for rentals during their stay) where the foreign forces held and used the properties until October 31, 1945 2. Renewal of the contract for another 5 years (excluding 7-mo occupancy by the Americans) by MMC through the Branch Manager a. Sublease of the building by MMC to Arturo Colmenares b. Demand of rentals of the leased property for the period during Japanese occupation c. Refusal to pay by MMC d. Notice of rescission of the contract of lease and Payment of Japanese rentals e. Offer of payment for monthly rent with request for a receipt that would state that it was in full payment for the said month f. Willingness to accept amount but without prejudice to their demand for rescission g. Non-payment until November 1946 when MMC paid for December 1946 through Colmenares

3. Villaruel sued Manila Motor Co., Inc. first for rescission of contract and
then changed their relief (during pendency of action) for recovery of unpaid rentals/value of burned buildings a. P11,900 with legal rest from May 18, 1953, the date that the Debt Moratorium was declared invalid b. P38,395 with legal interest from the date of filing of the original complaint on April 26, 1947 c. P30,000 to be paid, jointly and severally with co-defendant, Arturo Colmenares, for recovery of the value of burnt repair-shop-turnedcinema subleased by Colmenares which burned during the pendency of the trial Issue/s: WON MMC is liable for the rentals during the Japanese occupation WON MMC is in default by its refusal to comply with the demand to pay Held: NO, MMC is not liable for rentals and Villaruel unjustly refused to accept its payment Why Unjustly: Villaruel first faulted in the obligation: Peaceful Use and Refusal to Accept Payment Villaruel waived its right to collection of past dues Payment of Debt incurred during Japanese Occupation was barred by law

4.

5.

RECIPROCAL OBLIGATIONS in Lease Contracts = Both liable Failure of Villaruel to guarantee peaceful enjoyment of leased property excused MMCs performance of its obligation to pay (No lessee would agree to pay rent for premises he could not enjoy) Obligations (or prestations) are reciprocal and repetitive (tractum successivum) a. REPETITIVE: Continuous i. Either party must fulfil obligations all throughout the term of the contract (and not only at any given moment) ii. Causa in lease must exist not only at the perfection but throughout the term of the contract b. RECIPROCAL i. substantial failure by a party to fulfill its commitments at any time during the contract period ii. gives rise to a failure of consideration (causa) for the obligations of the other party and iii. excuses the latter from the correlative performance c. Demandable regardless if failure is due to fault or fortuitous events i. Fault: Right to rescind and collect damages

ii. Fortuitous Event: Right to suspension of own commitments RIGHT of the Japanese to dispossession of private property = Lessor Liable but not Lessee Lessor Villaruel, instead of lessee MMC, is liable for lost time during Japanese occupation a. Right of the Japanese to occupy the private property i. Under the Constitution, generally accepted principles of international law are part of the law, thus including the principle that a belligerent occupant (like the Japanese in 1942-1945) may legitimately use (different from confiscate) privately owned land and buildings for all kinds of purposes during war as military necessity should demand (necessity being overcoming the enemy) 1. Confiscation v. Temporary Sequestration of Private Property 2. Haw Pia vs. China Banking Corporation: Japan had the right to sequester or take temporary control over enemy private property in the interest of its military effort b. Obligation of Lessor Villaruel to guarantee the peaceful use and enjoyment of the property leased i. Under Civil Code, ART. 1554, it shall be the duty of the lessor to: 1. To deliver to the lessee the thing which is the subject matter of the contract; 2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable condition for the purpose for which it was intended; 3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the contract. ii. ART. 1560, where lessor is not liable, does not apply because 1. Dispossession of property by Japanese is a perturbacion de derecho or pursuant to a right (recognized by international and domestic law) 2. It was not a mere act of disturbance or a perturbacion de hecho because of such right. 3. HENC, Art. 1560 does not apply to give... a. lessor no liability b. lessee an action against the trespasser

c. BECAUSE: Lessee could not have a

realistic direct action against the military occupant ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the use of the leased property; but the lessee shall have a direct action against the trespasser. It the third person, be it the Government or a private individual, has acted in reliance upon a right, such action shall not be deemed a mere act of disturbance. HENCE, MMC was deprived of the property leased and their obligation to pay rentals ceased during such deprivation

6.

iii.

7.

Refusal without Just Cause to Accept Payment Fault of Lessor in Refusing to Accept Payment a. In default when they refused to accept the current rentals without qualification (mora creditoris or accipiendi) b. Had to bear all supervening risks of accidental injury or destruction of the leased premises c. unless, having offered the thing to the person entitled to receive it, the latter should have refused without reason to accept it FORCE MAJEURE of military seizure = No one liable No one can be held responsible for fortuitous events even if it prevented compliance with obligations Acts of Lessor Villaruel indicating WAIVER OF RENTALS a. Acceptance of lease renewal i. without making any reservation regarding the alleged liability of the lessee ii. without insisting that the non-payment of such rental was a breach of the contract of lease that annulled right of renewal b. Acceptance of rentals due after Japanese occupation

8. 9.

10. Payment of the Rent was BARRED by the "Debt Moratorium" which suspended the enforcement of the obligation up to a certain time 1946 to 1948, Executive Order No. 32, replaced by Rep. Act 342 Common Law v. Civil Law 11. Common Law: lease as a conveyance to the lessee of a temporary estate or title to the leased property so that loss of possession due to war or other fortuitous event leaves the tenant liable for the rent in the absence of stipulation

Common Law grant of an estate for years Right of Lessee: Title in the estate Obligations of Lessee: to pay the stipulated rent for, notwithstanding any injury by flood, fire or external violence, at least unless the injury is such a destruction of the land as to amount to an eviction Obligations of Lessor: No duty to repair or make sure that the premises shall be fit for the purpose for which they are leased

Civil Law transfer of the use and enjoyment of the property

Obligations of Lessor: to keep it in repair and otherwise fit for use and enjoyment for the purpose for which it is leased, even when the need of repair or the unfitness is caused by an inevitable accident, and if he does not do so, the tenant may have the lease annulled, or the rent abated

G.R. No. L-45710 October 3, 1985 CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK v. CA and SULPICIO M. TOLENTINO Facts: Bank breached its loan contract and incurred in delay in its obligations to Tolentino because it failed to deliver the loan promised to Tolentino. Tolentino thus did not pay his promissory note for the first instalment and hence, his mortgaged property was filed for foreclosure. 1. Loan by Island Savings Bank to Sulpicio M. Tolentino for P80k a. Security of the loan: real estate mortgage over Tolentinos 100hectare land b. Payment Scheme: semi-annual installments for a period of 3 years, with 12% annual interest i. Required that Tolentino use the loan for additional capital to develop his other property into a subdivision c. Partial Release of the money i. P17k as partial release and demand of advance interest for 6 mos. ii. Promissory note by Tolentino iii. Failure of the Bank to release the balance and demand for refund of the interest d. Financial difficulty declared by the Monetary Board of the Central Bank i. Resolution No. 1049: Prohibition to make new loans and investments ii. Resolution No. 967: Prohibition to do business in the Philippines and Instruction to Acting Superintendent of Banks to take charge of the assets of Island Savings Bank 2. Extra-Judicial Foreclosure of the Mortgage a. Filed by Island Savings Bank due to the non-payment of the P17,000.00 promissory note b. Tolentino filed for specific performance or rescission and damages i. That Island Savings Bank failed to deliver the P63,000.00 balance of the loan ii. That the real estate mortgage be rescinded if the delivery cannot be made 3. Lower Courts Held: a. Dismissal of Tolentinos petition b. Island Savings Bank cannot foreclose the real estate mortgage or collect the P17,000.00 loan Issue/s: Held:

1. Reciprocal obligations between Bank and Tolentino a. Reciprocal obligations > Consideration is the obligation or promise
of each party for that of the other i. Tolentinos promise to pay was Banks consideration b. Delay incurred when i. one party has performed or is ready and willing to perform his part ii. other party has not performed or is not ready and willing to perform iii. Tolentino executed a real estate mortgage, signifying his willingness to pay the loan > obligation of Bank to furnish the loan accrued > Bank incurred delay c. Prohibition by Monetary Board > Legally impossibility of fulfilment of Banks obligations BUT i. Board Resolution No. 1049 cannot interrupt the obligation of Bank to release loan balance > resolution merely prohibited new loans and not release of funds to pay for existing loan agreements d. Breach of Contract by Bank in Mere pecuniary inability to fulfill an engagement / insolvency of a debtor i. do not discharge the obligation of the contract ii. do not constitute any defense to a decree of specific performance iii. do not excuse the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract Refund of the advance interest for 6 months > NOT A WAIVER OF RIGHT TO DELIVER LOAN a. Person cannot be legally charged interest for a non-existing debt b. Tolentinos refund of the pre-deducted interest was an exercise of his right to it > right exist independently of his right to demand the completion of the loan c. Exercise of one right does not affect, much less neutralize, the exercise of the other Alleged over-valuation of the mortgaged property as loan collateral > not an exemption from compliance with its reciprocal obligation to furnish the entire loan a. Bank officials and employees > exercise caution and prudence in the discharge of their functions b. Bank officials and employees > totally reIy on the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be overvalued

2.

3.

4. RIGHT OF TOLENTINO TO RESCISSION / SPECIFIC PERFORMANCE a. Bank was in default in fulfilling its reciprocal obligation for the loan b. Bank > now prohibited from doing further business > specific performance cannot grant specific performance > NEGLIGENT BECAUSE APPROVED LOAN KNOWING INSUFFICIENCY OF FUND c. Rescission > only alternative remedy left i. only for the P63,000.00 balance of the P80,000.00 loan 5. FAULT on the part of Tolentino: failure to fulfil promissory note for released P17k a. promissory note > Tolentino's reciprocal obligation to pay the P17,000.00 loan > failure to pay overdue amortizations under the promissory note > party in default > not entitled to rescission of the promissory note b. Both liable for damages > Bank for failure to deliver loan balance and Tolentino for failure to pay promissory note 6. Foreclosure of the Property for damages due > Not warranted a. Consideration of an accessory contract of real estate mortgage > same as principal contract i. Debtor: consideration of his obligation to pay > existence of a debt ii. Accessory contract of real estate mortgage > consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt b. Tolentino executed his real estate mortgage > no consideration yet > no debt yet > no release of the loan has been made > HENCE, real estate mortgage is VOID for lack of consideration i. when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay ii. when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure iii. where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due G.R. No. 73867 February 29, 1988 TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC. v. IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR.,

AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE COURT, Facts: 1. Telegram from Sofia C. Crouch to Ignacio Castro to communicate the death of their mother a. Through Telefast Communications in Dagupan office b. Required fees or charges were paid c. Message never reached Ignacio, hence, their father and all children who were all in the US failed to attend her funeral except Sofia who was vacationing in the Philippines 2. Action for Damages due to Breach of Contract a. Contention of Telefast > Unable to transmit the telegram because of "technical and atmospheric factors beyond its control" > BUT no evidence that it informed Sofia of its failure 3. Grant of moral damages to each plaintiff (originally included compensatory and exemplary damages but eliminated by IAC) a. Appeal of Telefast to SC > elimination of moral damages > negligence not due to "fraud, malice or recklessness" > payment should only be the fee charged to Sofia for the telegram Held: 1. Failure of Telefast to perform obligation a. Agreement: Telefast to send telegram overseas; Sofia to pay the required charges b. Telefast guilty of contravening its obligation to Sofia > act or omission amounted to gross negligence > liability for damages c. Damages due: i. Moral damages for suffering of plaintiffs in learning death of mother and failing to attend her internment ii. Compensatory damages to Sofia for expenses she incurred when she came to the Ph from US to testify before court 1. Had Telefast not been remiss in performing its obligation, there would have been no need for the suit iii. Exemplary damages as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers G.R. No. L-15645 January 31, 1964

PAZ P. ARRIETA and VITALIADO ARRIETA v. NATIONAL RICE AND CORN CORPORATION and MANILA UNDERWRITERS INSURANCE CO., INC. Facts: Corporation breached the contract of sale with Arrieta by failing to provide her with letters of credit, as promised, in order for the latter to provide the imported Burmese rice. 1. Public Bidding for Supply of Burmese Rice (20k metric tons) a. Called by NARIC b. Participated in by Paz Arrieta who was awarded the contract for bidding the lowest 2. Contract of Sale a. Between Arrieta and Manila Underwriters Insurance Co., Inc. b. Arrieta promised to deliver 20k metric tons of Burmese rice at $203/mton c. Corporation promised to pay for the rice by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately. d. BUT Corporation sent its Application for Commercial Letter Credit to the Philippine National Bank only a month after the execution of the contract i. Corporation has no sufficient deposit as required to open letters of credit ii. But Corporation asked for consideration given that supplier Arrieta has a deadline to meet with her supplier in Burma e. On the same day, Arrieta advised Corporation > extreme necessity for the immediate opening of the letter credit to meet her deadline > she made a tender (offer) to the supplier already i. Tender price of 5% of the F.O.B. price of 20,000 tons at $180.70 > confiscated if letter of credit is not received on time 3. Conditional Approval of Letter of Credit on the Deadline Date a. Conditional approval > cash deposit of 50% of letter value > application in abeyance pending compliance b. Failure of Corporation to comply due to lack of funds 4. Delay in Opening of the Letter of Credit a. Only two months after the contract with Arrieta i. Contention of Corporation > Delay due to Arrietas failure to furnish necessary data to open letter of credit > (1) amount of the letter of credit, (2) the person, company or corporation in whose favor it is to be opened, and (3) the place and bank where it may be negotiated

5.
Held:

ii. BUT! Such facts were known to Corporation even before the contract > facts were necessarily revealed before Arrieta could qualify as a bidder b. Arrieta lost her share in the allocation of the rice supply and her 5% deposit worth P200k after the 15-day grace period after deadline c. Arrieta offered to substitute Thailand rice instead to NARIC > Rejected Damage Claim by Arrieta as unrealized profit WON Corporation breached the contract Arrieta > sole and principal reason: failure of the letter of credit to be opened by the deadline > sole reason: inability of corporation to pay as required by the Bank BUT MOREOVER its willful and deliberate assumption of contractual obligations despite its known financial incapacity to undertake the prestation > evidenced by its letter to Bank Liability > every debtor who fails in performance of his obligations > How: "any manner contravene the tenor" of the obligation > any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind or defective performance

6. Damage > immediate cause: cancellation of the allocation contracted by

7.

G.R. No. L-37120 April 20, 1983 VICTORINO D. MAGAT v. HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO Facts: Guerrero acted in bad faith in refusing to fulfil his obligation to open a letter of credit in favour of Magat for the payment of the latters order of taximeters and radio transceivers for the formers taxicabs 1. Santiago A. Guerrero applied with the U.S. Navy Exchange > for the operation of taxicabs each with taximeter and a radio transceiver 2. Victorino D. Magat > approached by Isidro Q. Aligada in behalf of Guerrero > proposed that through Magat or his Japanese business associates, the items would be imported from Japan > firm offer put in writing and Magat quoted a total price of $77,620.59 for the delivery of items sixty to ninety days after receipt of advice regarding radio frequency > Notice of acceptance of offer and its terms by Magat 3. Magat advised the Japanese entity entrusted with the manufacture of the items listed > that the contract has been perfected > to facilitate delivery 4. Guerrero acquired radio frequency > communicated to Magat thru Aligada to fulfil order > Magat opened a letter of credit in favour of foreign supplier > Guerrero likewise promised to pay for the ordered goods and applied to open a letter of credit in favour of Magat but refused its opening for unknown reasons

5. Guerrero had been operating the taxicabs without meter and radio > blamed Magat whenever Nave Authorities question him > tainted reputation > demand for fulfilment or cancellation of contract by Magat > no response 6. Damages claimed: a. Radio transceivers, now possessed by Magat, that cost P523,938.98 (purposely made or manufactured solely for Guerreros use and cannot be to the general public) b. Loss of expected profits worth P 52,393.89 or 10% of the purchase price c. Loss of possible profits worth P200k due to loss of confidence in him and his goodwill > impairment of his business dealings with Japanese firms d. Moral and Exemplary damages worth P200k for Guerreros bad faith in inducing Magat to enter into the contract > entered into a contract without the least intention of faithfully complying with his obligation > only in order to obtain the concession from the U.S. Navy of operating taxicabs to his financial benefit and at the expense and prejudice of Magat Held: 1. Cause of Action a. Right of Magat: LEGAL RIGHT where Magat had fulfilled his part of the bargain. CORRELATIVE DUTY OF DEFENDANT where Guerrero failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him. INJURY OF PLAINTIFFS RIGHT where Magat suffered not only loss of his expected profits, but moral and exemplary damages as well In any manner contravene the tenor" of the obligation includes any ilicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance Damages > loss suffered by the obligee [dao emergente] AND loss of profits a. obligor > good faith > liable for damages that are the natural and probable consequences of the breach of the obligation > parties have foreseen or could have reasonably foreseen at the time the obligation was constituted b. obligor > fraud, bad faith, malice or wanton attitude > all damages which may be reasonably attributed to the non-performance of the obligation January 2, 1997

JACINTO TANGUILIG (J.M.T. ENGINEERING AND GENERAL MERCHANDISING) v. CA and VICENTE HERCE JR. Facts: Agreement between Tanguiling and Herce that former would construct a windmill system for the latter for the price of P30k but the latter failed in so doing allegedly due to formers contractfortuitous events. 1. Contract between Jacinto M. Tanguilig (J.M.T. Engineering and General Merchandising) and Vicente Herce Jr. a. Former would construct a windmill system for latter b. Consideration of P60k (for windmill assembly and installation) with a one-year guaranty from the date of completion and acceptance i. Down payment of P30k, Installment payment of P15k ii. Balance of P15k > Refusal/Failure to pay the balance > Action for collection of amount iii. Windmill structure collapsed after a strong wind c. Contention of Herce i. P15k was to be used for construction of deep well > JMT did not have the capacity to install the pump > agreement to have a third party do the work > cost of which was to be deducted from the contract price 1. already constructed by San Pedro General Merchandising, Inc. 2. payment should be credited to his with JMT; OR ii. P15k debt to JMT must be offset by the defects in the windmill system > structure collapsed after a strong wind d. Contention of JMT i. P60k was solely for the windmill assembly and its installation ii. He delivered the windmill in good and working condition > accepted without protest AND collapse was attributable to a typhoon, a force majeure, which relieved him of any liability Issue/s: WON agreement to construct the windmill system included the installation of a deep well WON JMT is under obligation to reconstruct the windmill after it collapsed Held: No. Yes contract regarding installation of a deep well > Payment of P15k to San Pedro SEPARATE from windmill contract

2. 3.

1. Deep well EXCLUDED FROM Windmill system > no stipulation in

G.R. No. 117190

2. Exemption from liability > fortuitous event under Art. 1174 > sole and
proximate cause of the loss or destruction of the object of the contract > no allegation that strong wind was the only cause of the collapse a. the cause of the breach of the obligation must be independent of the will of the debtor; b. the event must be either unforeseeable or unavoidable; c. the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and d. the debtor must be free from any participation in or aggravation of the injury to the creditor e. f. NO EXEMPTION: Strong wind is not a fortuitous event but a given condition Presumption that things have happened according to the ordinary course of nature and the ordinary habits of life > Collapsing not a fortuitous event > Windmill would not have collapsed had there been no inherent defect in it which could only be attributable to the Tanguilig

d.

nullification of their titles > that it was executed to defraud its creditors (Philam) Motion for dismissal > prescription of action to nullify deeds of donation > Registration of the deeds of donation on December 27, 1989 constituted constructive notice > Complaint was filed only on February 25, 1997 > RTC Held: Prescription began on the date of the decision of the trial court > December 29, 1993 > CA: January 1997 when Philam learned that the judgment award could not be satisfied because Cheng had no more properties in his name > Both dismissed petitions for not exhausting all legal means

g.

G.R. No. 144169 March 28, 2001 KHE HONG CHENG @FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE v. CA, HON. TEOFILO GUADIZ and PHILAM INSURANCE CO., INC. Facts: Cheng, owner of Butuan Shipping Lines through which PATC shipped its copra, became liable for damages due to breach of contract when the vessel sank. He was held liable to damages but the writ of execution was not enforced due to the lack of properties in Chengs name which can be levied. Philam, insurer of PATCs insurance company, sought the rescission of the deeds of donation executed by Cheng prior to the judgement of the court because it was made in order to fraud Philam, his creditor. 1. Khe Hong Cheng @Felix Khe > owner of Butuan Shipping Lines a. Philippine Agricultural Trading Corporation > shipped 3,400 bags of copra from Masbate to Zamboanga del Norte > thru the vessel of Khe Hong Cheng > sank > American Home Insurance Company covered the shipment by a marine insurance policy (Insurance Company was in turn covered by Philam) > Philam sued Cheng for recovery of money > breach of contract of carriage b. Pending litigation > Cheng executed deeds of donations of lands in favor of his children and of Sandra Joy c. Judgement four years later > against Cheng > writ of execution were issued but Sheriff found no property under Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy > complaint by Insurance Company for the rescission of the deeds of donation and

Issue/s: WON action to rescind the donations has already prescribed Held: Action to rescind / annul contracts in fraud of creditors (accion pauliana) begins when the legal possibility of bring the action arises > only until after all means have been exhausted; only as a last resort/subsidiary action to satisfy the claim 1. Article 1389 of the Civil Code: The action to claim rescission must be commenced within four years. a. General rule on commencement of prescription > from the moment the cause of action accrues > Art. 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. > Legal possibility of bringing the action > Only until after exhaustion of all possible means > Art. 1383. An 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. > Last resort 2. Requisites for accion pauliana to accrue: a. That the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; i. Credit antedates the fraudulent alienation > decision of the trial court will retroact to the time when the debtor became indebted to the creditor > date of the judgment enforcing it is immaterial b. That the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; c. That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third person; i. MEASURES that can be taken prior to rescission 1. exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt from execution

2. exercise all the rights and actions of the debtor,

save those personal to him (accion subrogatoria / transmissible rights and actions) 3. seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). ii. Presupposes JUDGMENT and the issuance by the trial court of a WRIT OF EXECUTION for the satisfaction of the judgment and UNSATISFIED EXECUTION for the failure of the Sheriff to enforce the judgment > cannot exist when the debt is not yet demandable at the time the rescissory action is brought That the act being impugned is fraudulent; That the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud b.

nullification of new titles by Siguan > as creditor allegedly defrauded by donations because it left Lim with no sufficient properties to pay her obligations Contentions of Lim i. No proof that donations were antedated to defraud Siguan > Deed was notarized > public document > prima facie evidence of the facts therein ii. Siguan cannot invoke the credit of Suarez which was incurred prior to the donation > not a party to this case to support her accion pauliana

d. e.

Issue/s: WON donations were fraudulent WON awards of damages, attorney's fees and expenses of litigation are proper Held: 1. No fraud Not fraudulent because donations were made before debt was incurred a. accion pauliana > action to rescind contracts in fraud of creditors i. Requisites > (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later > existence of creditors at the time of the alleged fraudulent alienation > date of the judgment enforcing it retroacts to date of debt; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. ii. Without any prior existing debt > neither injury nor fraud b. Lack of first 2 requisites > Deed of Donation executed 1 year prior to the constitution of credit to Siguan (criminal charge) > credit of Suarez cannot be invoked to justify rescission > rescission only for recovery of creditors unsatisfied credit > only the creditor who brought the action for rescission can benefit from the rescission c. Lack of 3rd requisite > action for rescission is a subsidiary remedy > the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to > Siguan had neither alleged nor proved that she did so d. Lack of 4th requisite > Art. 1387: All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation > must be established that the donor did not leave adequate properties which creditors might have recourse for the

f. That Khe Hong Cheng expressly declared and represented that he

had reserved to himself property sufficient to answer for his debts contracted prior to the deeds of donation i. January 1997 when Philam accompanied the sheriff to attach the properties of Cheng > discovered that he no longer had any properties in his name > action for rescission of the deeds of donation accrued > Philam had exhausted all legal means to satisfy the trial court's judgment in its favour > Action filed on February 25, 1997 > action for rescission had not yet prescribed G.R. No. 134685 November 19, 1999 MARIA ANTONIA SIGUAN v. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM Facts: One year after a deed of donation was executed by Lim, she incurred debt against Siguan for issuing 2 bouncing checks. The Deed of Donations were registered after the charge was filed and was sought to be rescinded to answer to the debt which was alleged to be fraudulent. 1. July 31, 1990: Victoria Suarez filed a criminal charge against Lim for estafa > convicted but acquitted by SC 2. August 10, 1989: Deed of Donation covering parcels of land > by Rosa Lim in favor of her children > registered only on July 2, 1991 3. August 25&26, 1990: Lim issued 2 checks to Maria Antonia Siguan worth P300,000 and P241,668, respectively, payable to cash > Dishonoured because account closed a. Siguan filed a criminal charge against Lim for issuing bouncing checks > (Registration of Deeds of Donation on July 2, 1991) > Lim convicted (December 29, 1992) > action for rescission and

2.

collection of their credits existing before the execution of the donation i. Siguans credit existed only a year after the donation > could not have been prejudiced or defrauded by such alienation ii. Lim still had parcels of land in Cebu and Leyte > no proof that its actual market value were insufficient to cover her debts existing before the donation was made Fraudulent Acts by Jurisprudence > not exclusive a. The fact that the consideration of the conveyance is fictitious or is inadequate; b. A transfer made by a debtor after suit has begun and while it is pending against him; c. A sale upon credit by an insolvent debtor; d. Evidence of large indebtedness or complete insolvency; e. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; f. The fact that the transfer is made between father and son, when there are present other of the above circumstances; and g. The failure of the vendee to take exclusive possession of all the property. No legal basis > Awards of damages, attorney's fees and expenses of litigation

2.

3. 4. 5.

3.

by its president Roman Ozaeta > building plans and specifications prepared by Juan F. Nakpil & Sons > building completion in June 1966 > unusually strong earthquake in August 2, 1968 > major damage to building > shored up by United Construction, Inc. at the cost of P13,661.28 as temporary remedial measure PBAs action for recovery of damages in November 29, 1968 > against United Construction, Inc. and its President and General Manager Juan J. Carlos > partial collapse of the building allegedly due to defects in the construction > failure of contractors to follow plans and specifications United Constructions third-party complaint against architects Nakpil & Sons and Roman Ozaeta > for damages incurred for having included Juan J. Carlos, President of the United Construction Co., Inc. as party defendant Demolition of the building > it may topple down in case of a strong earthquake > request and expense of PBA > earthquakes damaged it further before it was actually demolished Investigation on the cause of damage > caused directly by the August 2, 1968 earthquake (7.3) > BUT also caused by defects in the plans and specifications prepared by Nakpil & Sons, deviations from said plans and specifications by United Construction and failure of the latter to observe the requisite workmanship in the construction of the building > lack of supervision by the contractors, architects and even the owners a. Contention of United Construction and Nakpil & Sons > earthquake directly cause damage and failure of the building > an act of God which should exempt them from responsibility

G.R. No. L-47851 October 3, 1986 JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL v. CA, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION G.R. No. L-47863 October 3, 1986 THE UNITED CONSTRUCTION CO., INC. v. CA, ET AL. G.R. No. L-47896 October 3, 1986 PHILIPPINE BAR ASSOCIATION, ET AL. v. CA, ET AL. Facts: Due to defects and lack of supervision of the planning in the construction, the PBA building collapsed during an earthquake. Contractor and architect were sued for liability. 1. Philippine Bar Association (civic-non-profit association incorporated under Corporation Law) > to construct an office building on its property in Manila > proposed to be undertaken by the United Construction, Inc. on an "administration" basis > approved by PBAs board of directors and signed

Issue/s: WON Contractor and Architect are liable for damages Held: YES. Earthquake was not the exclusive cause of the damage > No exemption 1. WHEN LIABLE: Article 1723 of the New Civil Code > The engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen years from the completion of the structure the same should collapse by reason of a defect in those plans and specifications, or due to the defects in the ground. The contractor is likewise responsible for the damage if the edifice fags within the same period on account of defects in the construction or the use of materials of inferior quality furnished by him, or due to any violation of the terms of the contract. If the engineer or architect supervises the construction, he shall be solidarily liable with the contractor > Acceptance of the building, after completion, does not imply waiver of any of the causes of action > must be brought within 10 years following the collapse of the building 2. WHEN NOT LIABLE: Article 1174 > No person shall be responsible for events which could not be foreseen or which though foreseen, were inevitable > act of god > an accident, due directly and exclusively to natural causes without human intervention (misconduct or negligence),

3.

which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented a. Requisites i. the cause of the breach of the obligation must be independent of the will of the debtor; ii. the event must be either unforseeable or unavoidable; iii. the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; iv. the debtor must be free from any participation in, or aggravation of the injury to the creditor Fault of the architects Nakpil & Sons and contractor United Construction > fortuitous event CONCURS A CORRESPONDING fraud, negligence, delay or violation of the obligation resulting in loss or damage > participation of man (active intervention or neglect) > obligor has liability a. that defects in the construction (and not in the plans and design) caused the damage to the building b. BUT the deficiency in the original design and lack of specific provisions against torsion in the original plans and the overload on the ground floor columns (found by an the experts including the original designer) certainly contributed to the damage which occurred c. defects in the construction and in the plans > proximate causes for buildings inability to withstand the earthquake > several buildings in the same area withstood the earthquake

2.

avoided or, though foreseen, were inevitable > precautions undertaken by LSC prove that the possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito > JJ: Not foreseeable Presumption of Negligence of LSC by the damage cause / Res ipsa loquitur > Nagtahan bridge was immovable and stationary > uncontrovertedly provided with adequate openings for the passage of water craft > unusual that the barge, exclusively controlled by LSC, rammed the bridge supports > in the ordinary course of events, such a thing does not happen if proper care is used

G.R. No. L-25906 May 28, 1970 PEDRO D. DIOQUINO v. FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO LAUREANO Facts: Borrowed car of Pedro sustained damage on its windshield while Federico was using it because a boy threw a stone at it. 1. Car of Pedro D. Dioquino > on the way to have it registered > met Federico Laureano, employee who could help him with the registration > Laureano borrowed the car but driven by driver to get to his destination > boy threw a stone to the car > damage to the windshield > damage suit against Federico, his wife (for share in cp) and father (for share in inheritance) a. Contentions of Federico > fortuitous event Issue/s: WON throwing of the stone was a fortuitous event Held: YES. The law only speaks of unwillfull circumstances regardless of diligence exercised 2. 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 of risk, no person shall be responsible for those events which could not be, foreseen, or which, though foreseen were inevitable a. Exemption refers to some extraordinary circumstance independent of the will of the obligor > requires no diligence beyond what human care and foresight can provide > NO LIABILITY b. Federico is not liable i. throwing of stone was clearly unforeseen > loss must be borne by the owner of the car ii. riding in car was not an assumption of risk > law contemplates a situation where the party was aware of the risks and may be considered as having assumed the risk incident in the nature of the obligation to be performed > No obligation because there are no obligation that arises according to law

G.R. No. L-21749 September 29, 1967 REPUBLIC OF THE PHILIPPINES v. LUZON STEVEDORING CORPORATION Facts: The barge of LSG barged into a bridge along the Pasig River while it was being towed. 1. Damage to bridge by Luzon Stevedoring Corporation > its barge was being towed by its tugboats along Pasig river > river was then swollen due to downpour > barge rammed against the supports of Nagtahan bailey bridge > damages > sued by the Republic of Ph a. Contention of LSC > damages were caused by force majeure; it exercised due diligence in the selection and supervision of its employees; Republic has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to navigation Issue/s: WON damage was caused by an accident Held: NO, the danger was foreseeable and foreseen by LSG 1. Exercise of Diligence cannot coexist with Fortuitous Events > caso fortuito or force majeure > extraordinary events that cannot be possibly foreseen or

G.R. No. L-29640 June 10, 1971 GUILLERMO AUSTRIA v. CA, PACIFICO ABAD and MARIA G. ABAD Facts: Agent Abad who was carrying the pendant of Austria in order to sell it was robbed. Austria sued for recovery but Abad alleged that it was a fortuitous event that she cannot be held liable for. 1. Contract of agency (consignment of goods for sale) > by Maria G. Abad for one pendant with diamonds (P4,500) from Guillermo Austria > pendant to be sold by Abad on commission basis or to be returned to Austria on demand > Abad lost it to robbers who held her up, hit her and stole her purse containing the pendant > Demand of its return from Austria > Failure to return / pay > Suit for recovery and damages > Liable! > Failure to prove robbery and for acting negligently in going home alone with big money and expensive jewelry Issue/s: WON Robbery is a fortuitous event WON Occurrence of robbery must be proven with criminal conviction Held: YES. Fortuitous events can be man-made as long as it occurred without concurrent/contributory fault 1. Fortuitous events > can be produced by nature or by the act of man provided that the event has all the following characteristics: a. the event must be independent of the human will (or rather, of the debtor's or obligor's); b. the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; c. the obligor must be free of participation in or aggravation of the injury to the creditor d. EFFECT: NO LIABILITY (Art. 1174) > Must prove the event, not on the agents or factors responsible for them > not necessary that persons responsible for the occurrence should be found or punished > sufficient to establish that the event took place without any concurrent fault on the debtor's e. Abad not Negligent > criminality not common in Manila and its suburbs > travelling after nightfall without companion > no risks that could have been avoided with precaution G.R. No. L-47379 May 16, 1988 NATIONAL POWER CORPORATION v. CA and ENGINEERING CONSTRUCTION, INC. G.R. No. L-47481 May 16, 1988 ENGINEERING CONSTRUCTION, INC. v. CA and NATIONAL POWER CORPORATION

Facts: While ECI was constructing the tunnel for NAWASA, a typhoon hit the area. Damages to the construction site and materials were sustained because of the release of water by NPC from the Angat Dam in order to prevent its over-spilling. 1. Contract between Engineering Construction, Inc. and National Waterworks and Sewerage Authority > former to furnish all tools, labor, equipment, and materials and to construct the tunnel in 800 calendar days (from date of gosignal) in 2 phases > completion of phase 1: tunnel excavation > typhoon struck > National Power Corporation opened the spillway gates of Angat Dam > water hit the installations and construction works and stockpile of materials and supplies, camp facilities and permanent structures and accessories either washed away, lost or destroyed > Damage suit a. Contention of NPC: destruction and loss of ECI's equipment and facilities were due to force majeure > rapid rise of the water level in the reservoir of its Angat Dam > heavy rains Issue/s: WON NPC is exempted from liability given the occurrence of a typhoon Held: NO. Proximate cause of loss was negligence and not typhoon 1. Negligence of NPC > opened the spillway gates only at the height of typhoon > knew that it was safer to open it gradually and earlier > knew of the coming typhoon four days prior > proximate cause of the loss/damage and NOT the typhoon > FAILURE TO REGULATE AMOUNT OF WATER > Based on expectation of amount of water coming > But how could they know when to regulate water? 2. Liability a. Damages b. NOT Exemplary damages due to lack of bad faith G.R. No. 113003 October 17, 1997 ALBERTA YOBIDO and CRESENCIO YOBIDO v. CA, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents. Facts: The tire of the bus carrying Tito Tumboy exploded and the bus fell into a ravine, resulting to the death of Tito. 1. Explosion of the left front tire of a Yobido Lines bus bound for Davao > bus fell into a ravine and hit a tree > Tito Tumboy died ~ was aboard with his family > suit for damages and breach of contract a. Allegation: Cause of accident was the driver's failure to exercise the diligence required of the carrier in transporting passengers safely to their place of destination > road was winding, wet and rough with crushed rockes > bus was full of passengers and cargoes > YET running fast b. Contention: Fortuitous event i. exploded tire was brand Goodyear tire mounted just 5 days prior > explosion was caused when the inner tube of

ii.

the left front tire was pressed between the inner circle of the left wheel and the rim which had slipped out of the wheel > mystery why it happened drivers underwent actual driving tests before employed

Issue/s: WON tire blowout is a fortuitous event Held: NO. Fortuitous event does not exempt carrier which must be absent of negligence 1. Not a fortuitous event > concurrence of human fault > failure to check the tire for manufacturing defects or to check its proper mounting on the bus > accident caused by defects in the automobile or through the negligence of its driver 2. Fortuitous event not enough > Necessity to prove absence of negligence > Driver was negligent in driving fast despite testimony that it was not > resulting death which warrants the presumption of negligence favours liability 3. Presumption of Negligence > Art. 1756. In case of death or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755. > WRONG REASONING that it was not fortuitous where the company could have checked for manufacturing defects G.R. Nos. 81100-01 February 7, 1990 BACOLOD-MURCIA MILLING CO., INC. v. CA and ALONSO GATUSLAO BACOLOD-MURCIA MILLING CO., INC. v. CA, ALONSO GATUSLAO, AGRO-INDUSTRIAL DEVELOPMENT OF SILAY-SARAVIA (AIDSISA) AND BACOLOD-MURCIA AGRICULTURAL COOPERATIVE MARKETING ASSOCIATION (BM-ACMA) Facts: Gatuslao, miller of sugarcane, had an agreement with BMMC that the former would mill sugarcanes for the latter which would provide transport to the mill. Because transportation was through a railway system located throughout the properties of its contractors, the non-renewal of some of their contract led to the loss of right of way and hence, the prohibited use of the railway. 1. Extension of Milling Contract between Alonso Gatuslao and BMMC (owner and operator of the sugar central in Bacolod) > Former would continue milling its sugarcane for BMMC > sugarcane to be transported to the mill by means of cane cars through railway system operated by BMMC > cane cars and railway system had not been used due to expiration of contract with the Haciendas wherein the tracks were laid > expiration of right of way > tracks could not be used > Gatuslao requested transportation facilities for purposes of hauling and milling his sugarcane crops > Failure to provide transportation > Action for rescission

Issue/s: WON Termination of right of way in hacienda / closure of the railroad lines is force majeure Held: No 1. No fortuitous event > terms of the contracts were clear > expiration of contracts were forseeable and not inevitable > Central should have anticipated and should have provided for the eventuality of losing its right of way before committing itself > instead took a calculated risk that all the landowners would renew their contracts > Liable for breach of contract G.R. No. 147324 May 25, 2004 PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION v. GLOBE TELECOM, INC. GLOBE TELECOM, INC. v. PHILIPPINE COMMUNICATION SATELLITE CORPORATION Facts: Globe contracted with Philcomsat pursuant to the formers obligations to the USDCA in relation to the communication facilities in the US bases in Subic and Clark. However, Senate Resolution provided for the expiration of the US occupation of the bases. Thus, Globe discontinued the use after Philcomsat had installed the earth station. 1. May 7, 1991: Agreement with Globe and Philcomsat > US Defense Communications Agency contracted with American companies to install, configure and operate the communication facilities of the Americans on Clark and Subic > American companies contracted with Globe for the use of communication facilities > Globe contracted Philcomsat for the establishment, operation and supply of an earth station for the exclusive use of the USDCA for 5 years > Globe and Philcomsat knew that the Military Bases Agreement was to expire in 1991 > NONETHELESS Philcomsat installed and established the earth station > Senate Resolution ending the Treaty of Friendship with US until December 31, 1992 > August 6, 1992: Globe notified Philcomsat of its intention to discontinue the use of the earth station effective November 8, 1992 > Globe reiterated that neither would be liable pursuant to the agreement that Government acts and laws would be fortuitous events > Philcomsat responded that they still expect Globe t to pay the stipulated rentals for the remaining terms of the Agreement Issue/s: WON termination of the RP-US Military Bases Agreement, the nonratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure Held: YES 1. Fortuitous events also include those foreseeable but inevitable

a. Art.1174 > fortuitous events or force majeure, refers not only to

events that are unforeseeable, but also to those which are foreseeable, but inevitable > may either be an "act of God" or an "act of man" > Stipulation in the contract as to what constitutes force majeure, not contrary to law, were allowed > Have the force of law b. Exemption of Globe from liability because the Senate Resolution which (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor > Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991 > No fortuitous event ~ Court thus enforced the contract ~ Contract provides for a definition of force majeure G.R. No. 128721 March 9, 1999 CRISMINA GARMENTS, INC. v. CA and NORMA SIAPNO Facts: Crismina Garments faulted in its payment for the sowing services of Norma Siapno allegedly due to the defects in the pants she sew 1. May 5, 1997: Crismina Garments, Inc. 2. interest rate should be computed at 6 percent per annum as provided under Article 2209 of the Civil Code, not 12 percent per annum as prescribed under Circular No. 416 of the Central Bank of the Philippines 3. Export of girls' denim pants by Crismina Garments, Inc. > Contracted the services of Norma Siapno, sole proprietress of the D'Wilmar Garments > Latter for the sewing of 20,762 pieces of assorted girls denims and former to pay P76,410.00 > sewed and delivered > Notice that some were defective but it was later withdrawn and she was told to come back for payment > Failure to pay allegedly due to damages pants and claimed refund of the damaged pants > Suit for collection > grant to collect with 12% interest per annum from filing of complaint > payment of the price beyond the stipulated period > Art. 1589 that "[t]he vendee shall owe interest for the period between the delivery of the thing and the payment of the price . . . should he be in default from the time of judicial or extrajudicial demand for the payment of the price Issue/s: WON interest rate is 12% Held: NO. 6% applies because the obligation did not concern a loan or forbearance 1. Not applicable - Central Bank Circular No. 416 > rate of interest for the loan or forbearance of any money, goods or credits shall be twelve per cent (12%) per annum > applies to (1) loans; (2) forbearance of money, goods or

2.

credits; or (3) a judgment involving a loan or forbearance of money, goods or credits > "forbearance" in the context of the usury law is a contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable > action here arose from a contract for a piece of work, not from a loan or forbearance of money Applicable law is Art. 2209 > action is for the enforcement of an obligation for payment of money arising from a contract for a piece of work > legal interest, which is six per cent per annum

G.R. No. 116863 February 12, 1998 KENG HUA PAPER PRODUCTS CO. INC. v. CA; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE, INC. Facts: Foreign shipping company licensed to do business in the Philippines > HK received a sealed container, (seventy-six bales of "unsorted waste paper") for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila > receipt of bill of lading by KHPP upon arrival but not of cargo > 6mo. later notice of refusal to accept terms of bill of lading by KHPP (refusal to receive cargo for 481 days) > incurred demurrage charges > held against KHPP Contention of KHPP: that there was overshipment where shipment was (10 tons more) beyond what it ordered from HK > to accept is to violate Central Bank rules and regulations and custom and tariff laws Held: Liable for demurrage > bill of lading > a receipt for the goods shipped and a contract by which three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated obligations > constitutes the contract of carriage even though not signed > paper containing the terms of a proposed contract ~ contract and of all of its terms and conditions ~ acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same was a perfected and binding contract > bill of lading valid in the case of KHPP, HK, Sea-Land > binding contract > Section 17 that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace period allowed by tariff rules > notice of refusal > inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper's failure to comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping documents were returned by the "banks" to the shipper > mere refusal to pick up the cargo, not its rejection of the bill of lading > notice of refusal > knowledge of the terms and conditions > acceptance not refusal

> interest due is 6% > obligation, not constituting a loan or forbearance of money, is breached > interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum > shall not be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty > unliquidated damages or claims are those which are not or cannot be known until definitely ascertained, assessed and determined by the courts after presentation of proof > legal interest rate computed from date of the trial court's decision> 12% shall be charged on the total then outstanding, from the time the judgment becomes final and executory until its satisfaction G.R. No. 113926 October 23, 1996 SECURITY BANK AND TRUST COMPANY v. REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA VENTURA Facts: > Magtanggol Eusebio, co-maker Leila Ventura, executed Promissory Note in favor of Security Bank and Trust Co. > P100k payable in six monthly installments with a stipulated interest of 23% per annum up to the fifth instalment > again executed Promissory Note worth P100k in six (6) monthly installments plus 23% interest per annum > another Promissory Note worth P65k payable in six (6) monthly installments plus interest at the rate of 23% per annum > failure and refusal of Eusebio to pay balance payable > suit for collection > granted but interest lowered to 12% Issue/s: WON 23% is valid Held: YES > Central Bank Circular No. 905 (December 22, 1982) applies > in the absence of express contract as to such rate of interest, shall continue to be twelve per cent (12%) per annum > presence of agreed 23% rate of interest ~ stipulated on the 3 promissory notes signed in 1983 > stipulation valid because parties are free to choose rate under CB 905 that simply suspended the Usury Law G.R. No. 113412 April 17, 1996 Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA v. CA and PHILIPPINE NATIONAL BANK Facts: > Grant of loans by Philippine National Bank to spouses Ponciano L. Almeda and Eufemia P. Almeda > total of P18M payable in a period of six years at an interest rate of 21% per annum > loan security was a Real Estate Mortgage Contract > several partial payments on the loan totaling P7,735,004.66 > Bank, over petitioners objections, raised the interest rate to 28% - 68% (over the years), pursuant to Section III-c (1) of its credit agreement that allowed the Bank to increase it but not beyond those allowed by law > Refusal to payment > Application for execution of property

Issue/s: WON PNB can raise interest Held: NO. Only what is stipulated (23%) despite escalation clause because the increases made were arbitrary and unilateral > Contract > binding because (1) any obligation arising from contract has the force of law between the parties; and (2) there must be mutuality between the parties based on their essential equality > contracts heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void > Article 1956 that "No interest shall be due unless it has been expressly stipulated in writing > agreement only stipulated 21% interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by law; and 3) upon agreement > PNB unilaterally and arbitrarily altered the terms of its contract by increasing the interest rates on the loan without prior assent > escalation clauses valid only if legally valid G.R. No. L-25704 April 24, 1968 ANGEL JOSE WAREHOUSING CO., INC. v. CHELDA ENTERPRISES and DAVID SYJUECO Facts: > Angel Jose Warehousing recovery suit against Chelda Enterprises and David Syjueco (partner) for unpaid loans worth P20,880.00, with legal interest from the filing of the complaint > checks issued by Chelda and David were dishonoured > Contention: that Angel Jose Warehousing charged and deducted from the loan usurious interests at rates of 2% and 2.5% per month > loan was thus void Issue/s: WON invalid interest voids debt Held: No > Validity of Loan > Art. 1411 providing a contract's nullity proceeding from illegality of the cause or object of said contract > BUT contract of loan with usurious interests has 2 obligations > principal stipulation to pay the debt and accessory to pay interest > divisible where former can still stand without the latter > the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal > illegal is the prestation to pay the stipulated interest > delay in payment of principal earns interest from the date of the which is not due to stipulation, for there was none, the same being void G.R. No. L-11827 July 31, 1961 FERNANDO A. GAITE v. ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY Facts: Payment of balance by the debtor conditional to the sale of ore by debtor

> Deed of Assignment as True and Lawful Attorney-in-Fact (September 29, 1952) > by Isabelo Fonacier, owner, holder (11 iron lode mineral claims known as Dawahan Group) to Fernando A. Gaite > latter to contract with any (human, juridical) person > for exploration and development of his mining claims > royalty of at least P0.50 per ton of ore > General Deed of Assignment (March 19, 1954) > Gaite conveyed development and exploitation into Larap Iron Mines (Gaite as single proprietor and sole owner) > same royalty basis > Gaite embarked the development and exploitation of the mining claims > opened and paved roads, made improvements and installed facilities for the development of the mines > extracted 24,000 metric tons of iron ore > (1) Revocation of Power of Attorney and Contract (December 8, 1954) > by Isabelo Fonacier of the authority granted to Gaite > Gaite conditionally assented > CONDITIONS: transfer of mining claims, of the improvements, facilities, right to use the business name Larap Iron Mines and its goodwill, all records and documents, and all rights and interests over the 24k metric tons of iron ore > for P20k + 10% of the royalties + P75k (P10k of P75k to be paid upon signing; P65k out of first letter of credit covering first shipment &/ amount derived from its sale) > (2) Surety bond (December 8, 1954) as security for P65k > Fonacier is principal and Larap Mines and Smelting Co. and its stockholders as sureties >> Gaite refused to sign (1) UNLESS CHANGE in bonding company to secure the payment > (3) Surety bond (December 8, 1954) > Fonacier is principal and Larap Mines and Smelting Co. and its stockholders as sureties + Far Eastern Surety and Insurance Co. > latter liable only for actual sale of iron ore for an amount of at least P65k and until December 8, 1955 > signed > (2) and (3) both attached to (1) as integral parts > (4) Contract of Mining Operation (December 8, 1954) > Gaite ceded, transferred, conveyed to Fonacier all rights stated in (1) > in consideration of the signing by the company and its stockholders of the surety bonds > December 8, 1955 > expiration of Far Eastern security > BUT no sale worth 24k tons of iron ore (only 7,573 so far), P65k balance unpaid by Fonacier and sureties > failure to renew the bond > SUIT for payment of P65k and damages > Contention of Defendants: obligation to pay balance price was conditional > that the amount of P65k would be payable out of the first letter of credit covering the first shipment of iron ore &/ the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc. > no sale had been made > condition unfulfilled > obligation not yet due and demandable Issue/s: > WON Gaite's right to collect payment of the balance of the price of the ore was CONDITIONAL > What is a CONDITIONAL OBLIGATION > efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event > if the suspensive condition does not take place, as if the conditional obligation had never existed

> HELD: Shipment or local sale of the iron ore is not a condition precedent to the payment of the balance of P65k by the security/surety > only a suspensive period or term WHY: > Words of condition (1) express no contingency in the buyer's obligation to pay: "The balance...will be paid out of... > maturity or demandability is deferred/delayed > exact date of payment is undetermined > Contracts of sale is normally commutative and onerous > COMMUTATIVE: correlative obligation of parties > ONEROUS (heavy burden imposed): expectation of performance from the very start > not usual that in a sale, the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives > HENCE contingent character of the obligation must clearly appear > no stipulation that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk > insistence of another bond > Subordinating the obligation to pay P65k (Fonacier to Gaite) to the sale or shipment of the ore (by Gaite) as a condition precedent is leaving the payment at the discretion of the debtor (potestative) > possibility of postponing payment indefinitely > Contract of sale is onerous and hence there is greater reciprocity of interests than indented suspensive condition or a suspensive period (dies ad quem) for the payment of the P65k > Art. 1378: If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests >> THUS sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where Gaite would assume the risk of not being paid at all conditioned on previous sale or shipment *Every time contract is entered into, always the risk that other party will not perform CONDITIONAL (JJ): Condition of sale (and security) but became a pure obligation when it failed to do so NOT CONDITIONAL: Payment not conditional because they were going to pay, just a matter of when (SC) When you enter into a contract, is it not solely dependent on the other party to perform What is not allowed by law:

G.R. No. 131784 September 16, 1999 FELIX I. GONZALES v. THE HEIRS OF THOMAS and PAULA CRUZ (represented by ELENA C. TALENS) Facts: Desire of Cruz to sell her undivided share in inherited property but not without the acquisition of a title showing her name as owner and the portion of the property to be sold > Contract of Lease/Purchase (December 1, 1983) > property of Paula Ao Cruz (still registered in the name of Bernardina Calixto and Severo Cruz, her predecessors-in-interest) to Felix Gonzales (sole proprietor, manager of Felgon Farms) > Stipulation ~ (1) Purchase of property for P1M 1y after signing of contract ~ payable in 2y but 50% upon execution of Deed of Sale and 25% every six months (within the first 10d) with 12% interest per annum; (2) Payment of P2,500 per hectare per year as annual rental upon the signing of contract; **(3a) Paragraph 9: New TCT in the name of the lessors will be provided within a reasonable period of time which shall not in any case exceed 4y; (3b) Paragraph 9: New Contract of Lease/Purchase which would have the same terms and conditions > Gonzales paid P15k pursuant to (2) > Possession of property and instalment of caretaker **(3) Paragraph 9: The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct T.C.T. over the herein leased portion to the LESSEE within a reasonable period of time which shall not in any case exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned. > After 1y > Gonzales did not exercise right to purchase property BUT remained in possession of it WITHOUT payment of purchase price and annual rentals pursuant to (1) and (2) > Letter from Paula Cruz of the decision to rescind Contract of Lease/Purchase due to breach and of the demand to vacate property in 10d from receipt of letter > Refusal of Gonzales to leave > Cruz died before suit was instituted > her heirs with husband Thomas became parties (because of right in partition of property) > Final demand letter (by heirs on July 2, 1986) received but unheeded > SUIT (October 12, 1987) for recovery of possession of property due to BREACH > Allegations: Breach of (3a); Breach of (1) with payment of P50k (instead of P500k) dp; > RTC Held > Paragraph 9 ~ that the lessors-plaintiffs shall obtain TCT in the name of the lessee within 4y before a new contract is to be entered into under the same terms and conditions as the original ~ Transfer Certificate of Title in favor of the defendant PREREQUISITE TO deed of Sale > Art. 1181 ~ happening of the event which constitutes the condition ~ obligation cannot be enforced unless the condition

is complied with > NO RIGHT TO RESCIND for failure to provide TCT which is condition for Contract of Sale Held: > CONFLICT in (1) and (3a) > (1) ~ Purchase AFTER 1y of lease > (3a) ~ New TCT within 4y > Debate: Lessor to rescind due to non-purchase of property after 1y where new TCT is preconditioned on purchase and Lessee to enforce contract where purchase is conditioned on the title to be given in their names > VAGUE CONTRACT > To be sure, this paragraph and the entire agreement, for that matter is not a model of how a contract should be worded. It is an invitation to a litigation > Several meanings to a stipulation in a contract > construe according to what would most adequately render it effectual > New TCT condition precedent to Purchase > 1st paragraph (1) modified by the 9th (3ab) > WHY: at the time of contract, no assurance that property is owned / what part of the property is owned by Cruz ~ undivided property > could not deliver ownership of a specific portion in its contract of sale > Paragraph 9 intended for new titles in the names of *lessors to show right to a specific portion of the property > one can sell only what one owns *TCT over the herein leased portion to the LESSEE, where to the LESSEE refers to the leased portion and not to the name which should appear in the new TCT. > Lessees obligation to purchase can be enforced only upon fulfilment of the condition upon which it is premised > sellers have shown their title to the specific portion of the property being sold >>> CONDITION as (1) every future and uncertain event upon which an obligation or provision is made to depend; (b) a future and uncertain event upon which the acquisition or resolution of rights is made to depend by those who execute the juridical act; (3) without it, contract cannot be perfected, and obligation cannot be enforced when the consent of a party to a contract is given subject to the fulfillment of a suspensive condition If sale cannot be performed because they are not owners, then the lease can also not have been performed because ownership is necessary there also ~ how contract was valid since lease cannot be valid also Registration does not confer ownership It could be that there is demand for title to register the sale How can you tie up issuance of title to right of purchase OWNERSHIP NOT NECESSARY TO SALE: Necessary that at the time of delivery it exists, you own it and you can transfer title

G.R. No. 103577 October 7, 1996 ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG v. CA, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact > *Receipt of Down Payment (January 19, 1985) ~ Coronels house and lot worth a total of P1,240,000 > Upon execution of Contract of Sale, vendee Ramona Alcaraz is to pay and have paid dp of P50k > Coronels to acquire TCT in their names (from their dead fathers) upon receipt of dp which they have done > Coronels to execute Deed of Absolute Sale immediately after TCT and Alcaraz is to pay the balance then > SALE NOT DONE with Alcaraz but to Catalina Mabanag for P1,580,000, dp of P300k > Coronels rescinded contract with Alcaraz by depositing her dp in the bank in trust for Ramona Patricia Alcaraz > SUIT for specific performance by Alcaraz > Absolute Deed of Sale between Coronels and Mabanag > New TCT in Mabanags name *Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. > Legal significance of Receipt of DP > conditional contract of sale subject to certain suspensive conditions > transfer of ownership has CONDITION: successful transfer of the certificate of title from the name of sellers' father to sellers names (paragraph 3) > already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order > CONDITION WAS FULFILLED > February 6, 1985 ~ issuance of TCT in sellerpetitioners' names > contract became absolute and binding and obligatory > effectivity of contract retroacts to constitution of obligation ~ Art. 1187: The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . . In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with > To Receipt of DP even if sellers were not yet owners at the time > delivery of property via contract of absolute sale and payment of balance to consummate contract > Contract of Sale different from Contract to Sell >> Contract of Sale > Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate

thing, and the other to pay therefor a price certain in money or its equivalent. > consensual ~ perfected by mere consent > ELEMENTS: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price [NOT PRESENT in Contract TO Sell]; b) Determinate subject matter; and c) Price certain in money or its equivalent > bilateral contract ~ CONSENT >>> CONDITIONAL IF prospective seller expressly reserving the ownership of the subject property despite delivery to the prospective buyer > seller keeps title but buyer possesses it > bound to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon ~ full payment of the purchase price ~ partakes of a suspensive condition ~ non-fulfillment prevents the obligation to sell from arising > ownership is retained by the prospective seller without further remedies by the prospective buyer > fulfilment of which automatically transfers ownership to the buyer by operation of law without any further act having to be performed by the seller > contract of sale becomes absolute >> Contract to Sell > suspensive condition but ownership not automatically transferred upon fulfilment > need for contract of sale Confirmed that there was already a perfected contract of sale DOUBLE SALE (1544) ~ register in good faith is owner (Mabanag allegedly bad faith because there was already notice/annotation BUT registered before SALE G.R. No. L-24190 July 13, 1926 GEORGE L. PARKS v. PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and JAMES HILL, her husband > Deed of Donation (October 18, 1910) > land of and by Sps. Concepcion Cirer and James Hill > donated perpetually to the municipality of Tarlac, accepted by municipal president Santiago de Jesus > CONDITIONAL: that one of the parcels donated was to be used absolutely and exclusively for the erection of a central school and the other for a public park ~ to commence within 6m from the date of the ratification by the parties of the document evidencing the donation > land registered in the name of municipality of Tarlac > Sale of Land (January 15, 1921) by Sps. Cirer and Hill to George L. Parks > (August 24, 1923) transfer of property by municipality of Tarlac to the Province of Tarlac > registered in the name of province of Tarlac > (July 5, 1924) SUIT by and Contention of Parks > conditions of donation NOT COMPLIED WITH ~ void donation > that donation was not fulfilled, that he is absolute owner, that the transfer and TCTs be voided Held: > Sale to Parks is VOID > donation is valid for not having been revoked by donors (with consent of donee or by judicial decree) > sale is void because Cirer and Hill were no longer owners > Tarlac became owner by donation first before the

expectation of its obligations fulfilment ~ condition that a public school be erected and a public park made of the donated land could not be complied with except after giving effect to the donation > NONETHELESS, action revocation for noncompliance of the condition has prescribed ~ 10y (sec. 43, Code of Civ. Proc.) ~ action for the revocation of the donation arose on April 19, 1911 or 6m after the ratification of the instrument of donation of October 18, 1910 ~ complaint was presented July 5, 1924 > Condition Precedent v. Subsequent >> condition precedent > acquisition of the right is not effected while said condition is not complied with or is not deemed complied with > condition must be satisfied before a right is acquired >> condition subsequent > when a condition is imposed, the compliance of which cannot be effected except when the right is deemed acquired > right is first acquired before condition can be satisfied G.R. No. 112127 July 17, 1995 CENTRAL PHILIPPINE UNIVERSITY v. CA, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, > Donation of Property (1939) ~ land > by/of Don Ramon Lopez, Sr. (Board of Trustees of CPU) to CPU > New TCT in CPUs name > Conditions annotated at the back of the new title: (a) utilized by the CPU exclusively for the establishment and use of a medical college; (b) college shall not sell, transfer or convey to any third party nor in any way encumber said land; shall be called "RAMON LOPEZ CAMPUS"; college shall erect a cornerstone bearing that name; any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a building > Action for annulment of donation, reconveyance (May 31, 1989) by heirs of Lopez ~ non-compliance by CPU of the conditions (ie intention to trade it with NHA) > Declaration of nullity of donation (May 31, 1991) by RTC > Onerous Donation ~ executed for a valuable consideration which is equivalent of the donation itself ~ burden equivalent to the value of the donation > Voidable/revocable donation > DONATION REVOKED > action for revocation has not prescribed and heirs are thus not yet barred to seek it > no specific time for fulfilment in the donation > the donee has the discretion of determining fulfilment period ~ accepted absolutety by donee > barred by statute of limitations > noncompliance of conditions even after 50y > Art. 1191: when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period > no just cause ~ non-compliance of conditions > ownership with Lopez because no valid transfer of rights after non-compliance of conditions for years

> Condition precedent / resolutory condition > donation became effective even without compliance with condition ~ before the donee could become the owner of the land, otherwise, it would be invading the property rights of the donor After 50y, suit barred by prescription Potestative condition but why not invalidated? How did the court address the issue of statute of limitation 10y to rescind contract G.R. No. 126444 December 4, 1998 ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA, DEMETRIO QUIJADA, ELIUTERIA QUIJADA, EULALIO QUIJADA, and WARLITO QUIJADA v. CA, REGALADO MONDEJAR, RODULFO GOLORAN, ALBERTO ASIS, SEGUNDINO RAS, ERNESTO GOLORAN, CELSO ABISO, FERNANDO BAUTISTA, ANTONIO MACASERO, and NESTOR MAGUINSAY, > Conditional Deed of Donation (April 5, 1956) by Trinidad Quijada and siblings of their inherited property from Pedro Corvera > to Municipality of Talacogon > Condition: used solely and exclusively as part of the campus of the proposed provincial high school in Talacogon > Trinidad remained in possession despite donation > VERBAL sale of land (July 29, 1962) by Trinidad to Regalado Mondejar but without deed of absolute sale only with receipts of payment > complaint for forcible entry (1980) by heirs of Trinidad against Regalado (dismissed for failure to prosecute) > Return of donation to donors (1987) by Sangguniang Bayan of the municipality of Talacogon by resolution (since no school had been put up) > Regalado sold portions of land to other respondents > SUIT for quieting of title, recovery of possession and ownership of property by heirs of Trinidad (July 5, 1988) Held: > Valid contract of sale to Regalado ~ sale perfected by mere consent ~ meeting of the minds on offer and acceptance on subject matter, price and terms of payment of the price > ownership of sold land not a requisite of perfection > law requires sellers right to transfer ownership at the time the thing sold is delivered ~ delivery determines transfer of ownership > SALE IS VALID: (1) Trinidad still had an inchoate interest in the donated property after donation and transfer of ownership to municipality and during subsequent sale to Regalado by virtue of its reversion clause; (2) at the time of return of the land by the municipality to the seller/successors-in-interest, the same had been delivered to the buyer by virtue of the sale > Donation of condition subsequent > that the donated property shall be used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon > School became owner since 1956 > sale of land from 1962-

1968 is VOID for lack of right of ownership > donation valid as long as resolutory condition subsists and is capable of fulfillment > BUT return of donation pursuant to REVERSION CLAUSE: should the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed the donated property shall automatically revert to the donor ~ valid since not contrary to law, morals, good customs, public order/policy Action for reconveyance has expired BUT REVERSION CLAUSE Nothing about statute of limitations G.R. No. 87047 October 31, 1990 FRANCISCO LAO LIM v. CA and BENITO VILLAVICENCIO DY > Contract of Lease b/w Francisco Lao Lim and Benito Villavicencio Dy > 3y, 197679 > Refusal to vacate property upon expiration of lease > Ejectment suit > Compromise agreement: renewal of the leases term every 3, for as long as defendant needed the premises and can meet and pay the increases in rent...to give notice of his intent to renew 60d before the expiration of the term > April 17, 1985, notice from Benito that he would no longer renew the contract effective October > August 5, 1985, notice from Benito that he intends to renew > Francisco did not agree to renew > refusal of Benito to vacate > Ejectment suit (January 15, 1986) Held: > Wrong Interpretation that renewal of lease is at the discretion of lessee: for as long as the defendant needed the premises and can meet and pay said increases ~ (a) purely potestative condition ~ leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee ~ owner would never be able to discontinue it > WHY WRONG: lease is a reciprocal contract for the benefit of both parties unless stipulated ~ unless language showing that the term was deliberately set for the benefit of the lessee or lessor alone > Correct Interpretation that renewal of lease is after 3y with 60d notice to lessor > last portion of par. 3 of the agreement ~ to give notice of intent to renew 60d prior ~ subject to the first portion of said paragraph that the term of the lease shall be renewed every 3y > contract of lease is limited to a specific period and that it is not a continuing lease > rule of construction ~ a covenant for renewal should not be held to create a right to repeated grants in perpetuity, unless by plain and unambiguous terms the parties have expressed such intention NAGA TELEPHONE V. COURT OF APPEALS NOCON, J. / FEBRUARY 24, 1994 NATURE: PETITION for a review of the decision of the CA.

FACTS: - Petitioner, Naga Telephone Co., Inc. (NATELCO), is a telephone company rendering local as well as long distance telephone service in Naga City. On November 1, 1977, it entered into a contract with Camarines Sur II Electric Cooperative, Inc. (CASURECO II), a corporation established for the purpose of operating an electric power service in the same city, for the use by the petitioner in the operation of its telephone service the electric light posts of the respondent. In consideration of such use, NATELCO agreed to provide the respondent with free use of ten telephone connections. - The contract between included, among others, a stipulation to the effect that the contract shall be as long as the party of the first part (NATELCO) has need for the electric post of the second part (CASURECO II) it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part is forced to stop, abandoned its operation as a public service and it becomes necessary to remove the electric post. - After over ten years, the respondent filed on January 2, 1989 with the RTC of Naga City action against the petitioner for reformation of the contract on the grounds that it is too one sided in favor of the petitioner. The action also prayed that petitioner be ordered to pay for the use of electric posts which are not covered by the agreement. And finally, that CASURECO be indemnified no less than P100,000 arising out of the poor servicing of the ten telephone units which had caused it great inconvenience and damages. - The trial court found in favor of the respondents and ordered the reformation of the contract in the interest of justice and equity. As part of the ruling, the court ordered NATELCO to pay respondent a monthly rental of P10.00 per electric post being used from the time of the filing of the case. On the other and, CASURECO was ordered by the same trial court to pay NATELCO for the use and transfers of its telephone units at the same rate that the public are paying. - Appeal to the CA was made and the CA affirmed the ruling of the trial court but this time not based on the reformation but rather on the operation of Article 1267 of the Civil Code and on the potestative condition with rendered the condition void. - The CA held that as reformation only lie or may prosper when the contract failed to express the true intentions of the parties due to error or mistake, accident , or fraud and there is no allegation to this effect, the proper basis is the aforementioned Article. - The section on the continued use of the electric post for so long as these are needed by NATELCO was considered as being purely potestative on the part of the petitioner as it leaves the continued effectivity of the contract to NATELCOs sole and exclusive will. As held in previous jurisprudence, there must be mutuality and equality in any contract. - Hence the appeal. ISSUE: WON the ruling of the CA is valid HELD:

Yes. The agreement between the parties has become too one sided in favor of the petitioner to the great disadvantage of the respondent. Continuing with the agreement will result in the petitioners unjust enrichment at the expense of the respondent . *Casual because obligation is dependent upon others will. G.R. No. 4437 September 9, 1909 TOMAS OSMEA v. CENONA RAMA > Contract (November 15, 1890) > Cenona Rama b/w Victoriano Osmea where former received P200 from latter and latter is to repay in sugar to be delivered on January/February 1891 + interest; sale of all sugar harvested > secured by all her present and future property; special security is another house > Contract (October 27, 1981) > further loan to Cenona and Don Evaristo Peares (20-50) for P70 to be paid in sugar on January 1982 > Victoriano died > Rights and interests of Victoriano were inherited by Agustina Rafols upon his death who then ceded the same to Cenona > Claim of Tomas Osmea (March 15, 1902) for payment from Cenona > Cenona acknowledged responsibility and promised to pay if she could sell her house > Suit for execution and delivery of contract (June 1906) > Contention: Lack of cause of action ~ Prescription Held: > Payment of obligation on the condition that she sold her house > potestative condition imposed ~ dependent upon her exclusive will > VOID but she still has to pay because SHE ACKNOWLEDGED HER DEBT ~ has to pay but not through waiting first for sale of house?!?!?!? G.R. No. L-5267 October 27, 1953 LUZ HERMOSA and FERNANDO HERMOSA, JR. v. EPIFANIO M. LONGARA > Epifanio M. Longara credit loans to Fernando Hermosa, Sr. > P2,341.41 (to the intestate), P12,924.12 (to his son) and P3,772 (to his grandson after he died December 1944) > CONDITION: that their payment should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain and he receive money derived from the sale > payment became due upon receipt of administratix of P20k from the buyer of the property > Debt to Longara thus paid > Suit for claim (October 2, 1948) > Contention > Condition was potestative ~ subject to a condition exclusively dependent upon the will of the debtor ~ null and void Held:

> Condition not potestative but mixed > payment made to depend as soon as he (intestate) receive funds derived from the sale of his property in Spain > obligation (to pay his indebtedness) demandable at consummation of sale and remittance of funds to Ph > does not depend exclusively upon the will of the debtor (potestative) but also chance / other circumstances beyond his power or control > WILL OF intestate to sell his house; OTHER CIRCUMSTANCES being the presence of a buyer, ready, able and willing to purchase the property for the price and under the conditions demanded by the intestate; also suspensive ~ obligation demandable upon receipt of funds from sale of house > Action to recover debt > accrued upon fulfilment of condition ~ only 10y after and after death of debtor > from the time of agreement to happening of suspensive condition ~ all amounts becomes due upon condition > obligation retroacts to the date when the contract was entered into > EXCEPT credit to grandson ~ obligation of Hermosa to support grandson is personal and is extinguished upon death G.R. No. L-16109 October 2, 1922 M. D. TAYLOR v. UY TIENG PIAO and TAN LIUAN (Tan Liuan & Company) > Tan Liuan and Co planned to establish an oil factory (had no machinery yet, merely ordered) and M. D. Taylor offered his services as superintendent (December 12, 1918) > Services for 2y from December 12, 1918, for P600/m during 1st y and P700/m for the 2nd y, residence or P60/m > Hence RESOLUTORY CONDITION: failure of arrival and instalment of machinery in 6m for any reason, contract may be cancelled (but not prior to 6m) > 6m later, no machinery and no equipment ~ Tan Liuan cancelled order or unable to purchase > Tan Liuan rescinded the contract (June 28, 1919) ~ saw no more promise of large returns > Suit for recovery of damages by Taylor > DISMISSED BY SC ***It is understood and agreed that should the machinery to be installed in the said factory fail, for any reason, to arrive in the city of Manila within a period of six months from date hereof, this contract may be cancelled by the party of the second part at its option, such cancellation, however, not to occur before the expiration of such six months. > Not Potestative > right of cancellation does not cover any case of the nonarrival of the machinery, due to whatever cause > must be construed in ordinary meaning ~ applicable only in those cases where such nonarrival is due to causes not having their origin in the will or act of the defendants ~ Art. 1256 operates exclusively to cases where the nonarrival of the machinery may be due to extraneous causes not referable to the will or act of the defendants > does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation > no stipulation that it is Tan Liuans obligation to bring such machineries in the factory ~ dependent upon his will

DOUBLE CHECK READ AGAIN!!! G.R. No. L-16570 March 9, 1922 SMITH, BELL & CO., LTD. v. VICENTE SOTELO MATTI > Contract of Sale (August 1918) ~ Smith Bell to sell two steel tanks, two expellers, and two electric motors for which Vicente Sotelo would pay P21k, P50k, P4k respectively > to be respectively shipped from NY in 3-4m; from SF in the next month or asap; Approximate delivery within ninety days. This is not guaranteed. > Arrival (April 27, 1919; Oct. 26, 1918; Feb. 27, 1919) but refusal to receive delivery and to pay > Contention: that arrival was May 1919 and motors and expellers were incomplete Held: > CONDITIONAL OBLIGATION BUT DEEMED FULFILLED >> Why CONDITIONAL (Potestative): No definite date of delivery >> Why CONDITIONAL (Casual): fulfilment of obligation not just subject to will of obligor ~ export of the machinery in question was contingent upon the sellers obtaining certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to railroad embargoes, American rule that time is immaterial if not fixed in contract, world war context >> Why CONDITIONAL DEEMED FULFILLED > Best Efforts Basis > fulfillment of delivery was subject to a condition which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition > obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality > Smith, Bell done all that it could ~ able to make the delivery but delayed > but stipulation is ASAP ~ not immediately but in reasonable time without unreasonable delay > exercise of diligence in fulfilling obligation > Matti liable for payment because condition not void >> Tanks: To be delivered within 3 or 4 months The promise or indication of shipment carries with it absolutely no obligation on our part Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirement of the United States Government, or a number of causes may act to entirely vitiate the indication of shipment as stated. In other words, the order is accepted on the basis of shipment at Mill's convenience, time of shipment being merely an indication of what we hope to accomplish. >> Expellers: The following articles, herein below more particularly described, to be shipped at San Francisco within the month of September /18, or as soon as possible. Two Anderson oil expellers >> Motors: Approximate delivery within ninety days. This is not guaranteed. This sale is subject to our being able to obtain Priority Certificate, subject to the

United States Government requirements and also subject to confirmation of manufactures. >> Final clause in all: The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes or other causes known as "Force Majeure" entirely beyond the control of the sellers or their representatives G.R. No. 70789 October 19, 1992 RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and ROMEO S. VERGARA v. THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and ROBERTO G. BORROMEO > Contract of Sale (April 1968) > delivery of raw materials (pulp wood) by Lluch (holder of forest products license) to Rustan pulp and paper mill (at P30/ cub.m.) > Stipulation: 3. That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S lumber and/or firewood concession. . . .And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER; 7. That the BUYER shall have the right to stop delivery of the said raw 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 become necessarily provided, however, that the SELLER is given sufficient notice > pulp mill test run ~ major defects ~ pile up of raw materials > stoppage of deliveries > uncertainty from Lluch if termination of contract > Suit for contractual breach (Jan. 23, 1969) > Potestative (facultative) right to stop delivery > condition solely dependent upon the will of Rustan > to stop delivery if the supply at the plant is sufficient as ascertained by it, subject to re-delivery when the need arises as determined likewise by it > defects in manufacture not beyond their will because subsequent acceptance of deliveries from suppliers > Condition VOID > NOT VOID IF both POTESTATIVE AND RESOLUTORY > saving clause is left to the will of the obligor Lawful exercise of option ~ only if there is sufficiency ~ insufficiency of G.R. No. 107207 November 23, 1995 VIRGILIO R. ROMERO v. CA and ENRIQUETA CHUA VDA. DE ONGSIONG > Deed of Conditional Sale (June 9, 1988) of Property of Enriqueta Chua vda. de Ongsiong by Sps. Alfonso Flores to Virgilio R. Romero for use as latters central warehouse for perlite ore business > Land has squatters but Flores proposed to file ejectment suit for P50k, with total purchase price being P800/sq.m. > PAYMENT SCHEME: P50k upon signing; P1,511,600 45d after removal of all squatters; delivery of deed of absolute sale; that if after 60 days from the date of the

signing of this contract the VENDOR shall not be able to remove the squatters from the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by the VENDOR to the VENDEE > 60-day deadline is on Aug. 9, 1988 > Judgement of ejectment suit only February 21, 1989 > writ of execution of the judgment on 30 March 1989 > beyond the 60-day period > Offer of Enriqueta to return P50k dp for inability to remove squatters > Refusal of Romero ~ himself would eject them at her expense Held: > Conditional Obligation of Enriqueta > to evict the squatters on the property > condition to pay the balance of the purchase price > failure to remove the squatters from the property within the stipulated period > right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code > option clearly belongs to petitioner and not to private respondent > mixed condition > not on the vendors will alone but also of third persons like the squatters and government agencies and personnel concerned > MTC even suspended application of the judgement of ejectment as grace period for Presidential Commission of the Urban Poor for relocation Perfected contract of sale > perfection ~ meeting of the minds to transfer title for exchange > WON the agreement is devoid of / subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party > absolute > vendor is not reserved with title or without right to unilaterally rescind the contract > conditional > compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party > vendee for the payment of the agreed purchase price and vendor for the fulfillment of certain express warranties >> on the passing of title > ownership is retained until the fulfillment of a positive condition > EFFECT OF BREACH ~ prevent the duty to convey title from acquiring an obligatory force >> on an obligation of a party > if not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code) >> on the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence G.R. No. 77425 June 19, 1991 THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO v. HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA,

represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO G.R. No. 77450 June 19, 1991 THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO v. HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO > Deed of Donation (August 23, 1930) > Dcsd. Sps. Eusebio de Castro and Martina Rieta to Roman Catholic Archbishop of Manila ~ parcel of land > REVERSION CLAUSE: that the donee shall not dispose or sell the property within a period of one hundred (100) years from the execution of the deed of donation, otherwise a violation of such condition would render ipso facto null and void the deed of donation and the property would revert to the estate of the donors > Deed of Absolute Sale (June 30, 1980) > Roman Catholic Bishop of Imus (admin of donated property) to Sps. Florencio and Soledad C. Ignao for P114k > new TCT > SUIT (November 29, 1984) for nullification of deed of donation, rescission of contract and reconveyance of real property against Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus, Cavite, together with the Roman Catholic Archbishop of Manila Held: > Condition is IMPOSSIBLE AND CONTRARY TO PUBLIC POLICY > Prohibition of alienation for 100y is a deprivation of right indispensable to ownership ~ an emasculation of right of ownership > CHURCH AS OWNER ~ once a donation is accepted, the donee becomes the absolute owner of the property donated ~ donor may impose certain conditions but must not be contrary to law, morals, good customs, public order and public policy > WHY AGAINST PUBLIC POLICY ~ Art. 494: a donor or testator may prohibit partition for a period which shall not exceed twenty (20) years; Art. 870: dispositions of the testator declaring all or part of the estate inalienable for more than twenty (20) years are void > Hence, 100y is impossible and against public policy WRONG: Donor has rights! Also has property rights over the land ~ donation could have been suspensive, not effective until 100y

G.R. No. 156273 October 15, 2003 HEIRS OF TIMOTEO MORENO and MARIA ROTEA v. MACTAN - CEBU INTERNATIONAL AIRPORT AUTHORITY Facts: Land expropriated for the purpose of expanding Lahug Airport > 1949: Mactan-Cebu International Airport Authority (succeeded by National Airport Corporation, then by Civil Aeronautics Administration) wanted to acquire the 2 parcels of land of Sps. Timoteo Moreno and Maria Rotea > for the proposed expansion of the Lahug Airport > with assurance of right of repurchase once Lahug Airport was closed or its operations transferred to Mactan Airport > Sps. Refused offer ~ low price > December 29, 1961: MCIAA acquired the property thru EXPROPRIATION PROCEEDINGS > Just compensation of P7,065 and P9,291 with consequential damages by way of legal interest UNDER THE PRESUMPTION THAT Lahug Airport will continue to be in operation > No appeal since petitioners were promised that they could repurchase the properties if the expansion would not push thru > Final and Executory > New TCTs > 1991: Lahug Airport ceased operations ~ Mactan Airport opened > expropriated land was not utilized > March 11, 1997: action for reconveyance by petitioners pursuant to alleged right to repurchase (after pleas to President and airport manager were unheeded) > MCIAA offered no objection to the evidence of the alleged right of repurchase > Enchuan and DPWH interevened as parties in interests (former acquired rights thru deeds of assignment; latter leased it) > April 12, 1999: Repurchase GRANTED subject to return of just compensation according to expropriation proceedings and subject to the alleged property rights of Enchuan and leasehold of DPWH > Contention: Expropriation decision was absolute and unconditional with no right of repurchase > CA reversed that that mere deviation from the public purpose for which the power of eminent domain was exercised does not justify the reversion of the property to its former owners > Right of Repurchase present in DECISION (although not in dispositive but a judgment must not be read separately but in connection with the other portions of the decision of which it forms a part) > Grant of expropriation for public purpose under the presumption that the Lahug Airport will continue to be in operation > Principle in Fery v. Municpality of Cabanatuan: expropriated for a particular purpose, with the condition that when that purpose is ended or abandoned the property shall return to its former owner, then, of course, when the purpose is terminated or abandoned the former owner reacquires the property so expropriated > HENCE, MCIAA held the land under a constructive trust > Petitioners conveyed Lots to MCIAA > MCIAA temporarily owned the land in order to use it for the expansion of Lahug Airport; MCIAA failed to keep its obligation and can be compelled by petitioners to reconvey the parcels of land to them > Return and Compensation of Each Party > Art. 1190: shall return to each other what they have received > MCIAA to reconvey > Petitioners to repurchase property

subject to existing liens, to repay just compensation received from MCIAA (P7,065.00, P9,291.00, consequential damages by way of legal interest), pay MCIAA the necessary expenses it may have incurred in sustaining the properties and the monetary value of its services in managing them to the extent that petitioners will be benefited > No need to pay: (1) Income and fruits ~ MCIAA to keep what it may have obtained from the land and petitioners need not pay the interests of the amounts they received as just compensation ~ presumed equal > (2) appreciation of value of land ~ Art. 1189: petitioners do not have to settle as part of the process of restitution the appreciation in value of the Lots which is the natural consequence of nature and time > (3) improvements unless petitioners opt to buy them and respondent decides to sell > Right to repurchase good for 365 days > payment by ready money or cash payable within a period of three hundred sixty five (365) days from the date that the amount to be returned by petitioners is determined with finality > Failure to settle accounts is a forfeiture of right of repurchase *Decision: As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although Mactan Airport is being constructed, it does not take away the actual usefulness and importance of the Lahug Airport: it is handling the air traffic both civilian and military. From it aircrafts fly to Mindanao and Visayas and pass thru it on their flights to the North and Manila. Then, no evidence was adduced to show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be closed immediately thereafter. It is up to the other departments of the Government to determine said matters. The Court cannot substitute its judgment for those of the said departments or agencies. In the absence of such showing, the Court will presume that the Lahug Airport will continue to be in operation > What is the obligation subject to suspensive condition ~ How court applied the law ~ What law applies to a set of facts > Obligation to return lots ~ Why not take it as a suspensive condition to be able to apply 1190 > Suspensive condition: If land is no longer needed > 1189: Improvements by nature, by time ~ applies because under 1190 ~ to return to each other what they have received > obligation to return not subject to suspensive obligation ~ obligation to return is a pure obligation? > resolutory OR suspensive? > 1189 not apply to oblig to retrun ~ pure oblig (1) resolutory oblig allows landowner give to state to use land until resolutory condition occurred ~ pure obligation > why apply 1189 ~ applies to suspensive condition > WHY are the heirs not paying for increase in market value? We dont care about equity but we do ~ may result in equitable situation but the law is harsh

G.R. No. L-16109 October 2, 1922 M. D. TAYLOR v. UY TIENG PIAO and TAN LIUAN (Tan Liuan & Company) > Tan Liuan and Co planned to establish an oil factory (had no machinery yet, merely ordered) and M. D. Taylor offered his services as superintendent (December 12, 1918) > Services for 2y from December 12, 1918, for P600/m during 1st y and P700/m for the 2nd y, residence or P60/m > Hence RESOLUTORY CONDITION: failure of arrival and instalment of machinery in 6m for any reason, contract may be cancelled (but not prior to 6m) > 6m later, no machinery and no equipment ~ Tan Liuan cancelled order or unable to purchase > Tan Liuan rescinded the contract (June 28, 1919) ~ saw no more promise of large returns > Suit for recovery of damages by Taylor > DISMISSED BY SC ***It is understood and agreed that should the machinery to be installed in the said factory fail, for any reason, to arrive in the city of Manila within a period of six months from date hereof, this contract may be cancelled by the party of the second part at its option, such cancellation, however, not to occur before the expiration of such six months. > Not Potestative > right of cancellation does not cover any case of the nonarrival of the machinery, due to whatever cause > must be construed in ordinary meaning ~ applicable only in those cases where such nonarrival is due to causes not having their origin in the will or act of the defendants ~ Art. 1256 operates exclusively to cases where the nonarrival of the machinery may be due to extraneous causes not referable to the will or act of the defendants > does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation > no stipulation that it is Tan Liuans obligation to bring such machineries in the factory ~ dependent upon his will

P1,854,311.50; To substitute the Paranaque property with his own property > That "failure to comply with any of the conditions...shall render this contract automatically cancelled and any and all payments made shall be forfeited in favor of the vendor > Herrera possessed the Buendia property, received rentals worth P21k/mo, collecting a total of P800k > BUT failure to pay GSIS loan ~ paid only P300k out of P1854,311.50 > Herreras request for the restructuring of the mortgage obligation was denied by GSIS unless he first substitutes his property for the Paranaque Property, updates the account, and pay 20% thereof to the GSIS > FAILED > June 2, 1974: Notice of foreclosure to Leviste for default in the payment > February 15, 1975: Foreclosure and public auction > November 20, 1975: Redemption of property by Leviste thru Jose Marcelo, Jr.> paid P3,232,766.94 to GSIS, received P250k from Leviste for the Paranaque property > May 6, 1975: Right of redemption invoked by Herrera > Denied > May 13, 1975: SUIT for Injunction, Damages, and Cancellation of Annotation > DENIED > Lack of legal/factual basis > Failure of Herrera to comply with the conditions of the contract > not able to substitute the Paraaque Property even though the GSIS did not require a final deed of sale to be first executed before the assumption of the obligation > No unjust enrichment of GSIS (only received mortgage loan with interest and sundry charges); of Marcelo (paid GSIS the worth of the contract of sale Herrera had with Leviste for the Buendia property); of Leviste (received only P1,854,311.50 from GSIS and P1,895,688.00 from Herrera for his Buendia property) > Herreras loss of P1,895,688.00, paid to Leviste, plus P 300k to GSIS, was attributable to his fault > Failing to substitute Paranaque property as collateral to GSIS; to pay mortgage debt to GSIS when it decided to foreclose the properties; to redeem the property as a possible redemptioner

G.R. No. L-55744 February 28, 1985 JOSE V. HERRERA v. L.P. LEVISTE & CO., INC., JOSE T. MARCELO, GOVERNMENT SERVICE IN- INSURANCE SYSTEM, PROVINCIAL SHERIFF OF RIZAL, REGISTER OF DEEDS OF RIZAL and THE HON. COURT OF APPEALS Facts: Default in payment by vendee of the mortgage of the vendors property which resulted to its foreclosure > June 10, 1969: Loan by L.P. Leviste & Co. from GSIS worth P1,854,311.50 > Security was mortgage of Paraaque Property and Buendia Property > November 3, 1971: Contract of Sale of Buendia Property > Leviste to Jose V. Herrera for P3,750k > To pay Leviste P11,895,688.50; To assume Leviste's obligation to GSIS worth

G.R. No. L-22590 March 20, 1987 SOLOMON BOYSAW and ALFREDO M. YULO, JR. v. INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO, JR. Facts: > May 1, 1961: Contract for a Boxing Contest > Solomon Boysaw and Manager Willie Ketchum, and Interphil Promotions, Inc. represented by Lope Sarreal, Sr. > fight with Gabriel "Flash" Elorde, in Rizal Memorial Stadium, on September 30, 1961 > CONDITION that Boysaw would not, prior to the date of the boxing contest, engage in any other such contest without the written consent of Interphil > Interphil then signed Gabriel "Flash" Elorde to a similar agreement

> Contract Violations: (1) June 19, 1961: Boysaw fought and defeated Louis Avila in Nevada; (2) July 2, 1961: Manager Ketchum assigned to J. Amado Araneta, and then Araneta to Alfredo J. Yulo, Jr. (on September 1, 1961) the managerial rights over Solomon Boysaw > September 5, 1961: informed Interphil of his acquisition of the managerial rights over Boysaw and Boysaw's readiness to comply with the boxing contract > Interphil wrote the Games and Amusement Board for concerns over reports that there had been a switch of managers in the case of Boysaw ~ that they had not been formally notified > GAB decided to reschedule the Elorde-Boysaw fight for November 4, 1961 > Interphil offered to set it on October 28, 1961 (within the 30-day period of allowable postponements provided in the principal boxing contract of May 1, 1961) > Yulo refused but later agreed given that Mamerto Besa, a local boxing promoter, promote it > SUIT for damages by Boysaw and Yulo resulting from alleged breach of contract in postponing the fight > Breach of Contract by Boysaw and Yulo: Fight with Avila and Change of Managers without approval or consent of Interphil > Violation forfeited his right to demand fulfilment of contract > Remedy of Interphil > rescission or fulfilment given to INJURED PARTY > Chose fulfilment but postponed fight date ~ due to an injury that Elorde sustained in a recent bout > RIGHT to renegotiate the original contract (not for unlawful nor unreasonable reasons) > THEY were amending the contract unilaterally ~ ie changing date of fight > What did the Court do to allow Boysaw to lose > SC could just have said fortuitous event in allowing change of dates Application of 1191 > Boysaw has no right because he breached the contract first > option is on injured party; 1191 against Boysaw but in favour of Interphil but not allowing him remedy under 1191 which is to amend > Award of Damages is VALID > Failure to object by wilfully refusing to participate in the final hearing and refused to present documentary evidence > damages neither objected to nor rebutted by appellants > Reciprocal obligations > 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 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 > given to the injured party > where the plaintiff is the party who did not perform the undertaking which he was bound to perform, he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach > Obligation breached was obligation not to fight ~ was it a reciprocal obligation? > YES ~ Same time debtors/creditors to each other > Obligation not to fight (debtorBoysaw, creditor-Interphil) = NOT a reciprocal Obligation ~ when breached, no right to rescind; obligation to hold fight and fight ~ reciprocal obligation; Whos the one in breach is liable for damages; Interphils purpose in delaying is Elorde ~ not Boysaws use

Boysaw should have been granted right to rescind/fulfil *1191 applying to every contract courts do not require that reciprocal obligations ~ but every onerous contracts ~ strictly speaking are not reciprocal obligations > Novation > substituting a new debtor in the place of the original one > may be made without the knowledge or against the will of the latter BUT NOT without the consent of the creditor > ELEMENTS (Ong v. CA): (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract > novation is never presumed, there must be an express intention to novate G.R. No. L-28602 September 29, 1970 UNIVERSITY OF THE PHILIPPINES v. WALFRIDO DE LOS ANGELES, et al. Facts: Logging agreement with ALUMCO rescinded by UP without court order upon failure of ALUMCO to pay > November 2, 1960: Logging Agreement between University of the Philippines and Associated Lumber Manufacturing Company, Inc. transferring exclusive logging rights of UP (to cut, collect and remove timber) over its timber concession (or Land Grant, given as an endowment to UP to be operated and developed for the purpose of raising additional income for its support; Act 3608) for payment of royalties, forest fees, etc. > Expires December 31, 1965 but extendible for another 5y > December 8, 1964: ALUMCO has unpaid account of P219,362.94 > failure to pay despite repeated demands > Notice of intention to rescind the logging agreement > December 9, 1964: ALUMCO executed an "Acknowledgment of Debt and Proposed Manner of Payments," to pay debt no later than June 30, 1965, stating that: In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages > approved by UP > December 9, 1964 July 15, 1965: Additional unpaid debt of P61,133.74 incurred by ALUMCO > July 19, 1965: Notice of rescission from UP> September 7, 1965: Suit for collection of payment > February 16, 1966: Logging Agreement with Sta. Clara Lumber Company, Inc., via public bidding > February 25, 1966: Court order enjoining UP from awarding logging rights over the concession to any other party, pursuant to ALUMCOs petition to enjoin UP > April 12, 1966: Held UP in contempt of court, directed Sta. Clara Lumber Company, Inc., to refrain from exercising logging rights or conducting logging operations in the concession

> Right of UP to rescind the agreement > Valid stipulation in Acknowledgment of Debt and Proposed Manner of Payments that the CREDITOR shall have the right and the power to consider the Logging Agreement...as rescinded without the necessity of any judicial suit > Not necessary for the injured party to resort to court for rescission of the contract > BUT RESCISSION IS PROVISIONAL and subject to judicial review (determination if rescission was proper or not) > if rescission is warranted, indemnity to injured party; if rescission is not warranted, damages against responsible party > > ALUMCOs Delay in payment was without just cause > blamed its former general manager for not turning over management of ALUMCO and the logs it had cut, which turned out to be rotten and could not be sold, as causes for inability to pay > Court acted with grave abuse of discretion in enjoining, without first receiving evidence on the issues, UP's measures to protect its interest

> pledge as transfer of possession of item subject of security to creditor ~ Pawnshop, borrow money, surrender item, pledge item for money ~ breach, pledgee can seell the item ~ like mortgage ~ debtor in the possession of the fee > Pledge was shares of stock 1191 ~ are you supposed to pay what you paid for it? Based on 1385 NOT 1191 > Is there anything from 1191 that calls for restitution? Yes, reference of 1191 to 1385 Court applied 1385 correctly here? -----------------------what if parties allow each other to rescind contract for ANY breach ~ Court can still review? SC wants to impose its own sense of equity in contract between parties which is the law between them > Any basis for the Court to do it? To protect party to an agreement when one is being taken advantage of ~ one party must at least establish himself to be in that position > Rules in contract are supposed to be default rules ~ only when parties disagree can Courts come > BUT SC supplants own ideas despite both parties denying court subjection ~ valid agreement, arbitration agreement YET courts still assume jurisdiction ~ disrespecting rights of the parties > Even though Courts must respect rights of parties where contracts are law between parties, Courts tend to supplant even the will of the parties in favour of what it thinks is correct -------------------------------

G.R. No. 47206 September 27, 1989 GLORIA M. DE ERQUIAGA, et al v. HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO, JR., EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO Facts: Rescission of contract of sale of shares of stock after non-payment. > November 4,1968: Contract of Sale: Santiago de Erquiaga to Jose L. Reynoso > 100% (3,100) of the shares of stock of the Erquiaga Development Corporation, and its Hacienda San Jose > for P900k payable in installments on definite dates fixed in the contract but not later than November 30, 1968 > failure to pay > extended to December 17, 1969 but amount increased (brokers' commission and interest) > December 17, 1968: Transfer of shares and possession of Hacienda upon payment of P410k, and pledge of 1,500 shares in favor of Erquiaga as security for the balance > Failure to pay the balance > action for rescission of sale > May 31, 1976: CA Held affirmed by SC > rescission decreed in the final judgment > simultaneous mutual restitution of the principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000) > return of Hacienda and 1,500 (of the 3,100) shares of stock to Erquiaga (DONE March 3, 1975); YET TO DO: return of 1,600 shares of stock to Erquiaga, return by Erquiaga of P410k payment for sale> not conditioned upon mutual restitution of the fruits: legal interest earned by Reynoso's P410k while in possession of Erquiaga and the fruits of Hacienda San Jose which Reynoso received from the time the hacienda was delivered to Reynoso > WHILE full accounting of the fruits received by Reynoso from the Hacienda has not yet been given, Erquiaga cannot be compelled for payment of the legal interest earned by Reynosos money(computed from September 30,1972, the date of judgment of rescission)

G.R. No. 97347 July 6, 1999 JAIME G. ONG v. CA, Sps. MIGUEL K. ROBLES and ALEJANDRA M. ROBLES Facts: Failure to pay purchase price renders contract to sell ineffective > May 10, 1983: Agreement of Purchase and Sale > Jaime Ong and Sps. Miguel and Alejandro Robles over 2 parcels of land for P2M > Payable in: P600k dp (P103,499.91 to sps. on March 22, 1983; P496,500.09 to BPI for the loan of sellers), P1,400k balance (P350k every quarter from June 15, 1983 > Delivery of possession of land upon execution of contract and delivery of deed of sale and conveyance upon full payment > Subsequent payment of P103,499.91 to sps. but only P393,679.60 for the P496,500.09 loan to BPI > checks for quarterly payments from June 15, 1983 to March 15, 1984 were dishonoured for insufficiency of funds > BPI intended to foreclose mortgage of sps. > Sps. sold transformers of the rice mill (with knowledge of Ong) to avoid foreclosure > September 2, 1985: Action for rescission of contract and recovery of properties by sps. upon failure of Ong to return the properties > Pending litigation ~ Ong constructed cemented fence around the properties and expanded the piggery > June 1, 1989: Decree of rescission ~ return of properties to sps. and return of P497,179.51 (P103,499.91 + P393,679.60) to Ong

> Contract is to sell and hence, not one for Rescission nor for Resolution > CONTRACT TO SELL BECAUSE: delivery of deed of absolute sale was reserved until the full payment of the purchase price > payment of the purchase price is a positive suspensive condition > its failure is NOT A BREACH but A SITUATION that renders the contract ineffective and without force > prevents the obligation of the vendor to convey the title from acquiring an obligatory force > NO BREACH, No rescission > No obligation, NO RESOLUTION > return of payment by sps. and of properties by vendee DOUBLE CHECK if Resolution/Rescission applies > Contract to Sell > breach ~ forfeiture of payment and no sale of land > 1191, rescind/fulfilment of contract > BUT not really applying 1191 but enforcing terms of the contract > Allowed to apply 1191? Yes but dangerous ~ potential breach in contract to sell involves default on the part of the buyer ~ Court can say in applying 1191 that its not a substantial breach > Dont apply 1191 and just enforce terms of contract to sell (if provision is present that default in payment cancels contract) > Contract to sell ~ Seller of the land refuses to transfer title despite full payment by buyer ~ buyer seeks enforcement of contract ~ can resort to 1191 to exact fulfilment of obligation *Rescission (Art. 1380-1383), a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract; it implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone. *Rescission of reciprocal obligations or Resolution (Art. 1191), a principal action which is based on breach of a party *contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold *contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price; 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 prevents the obligation of the vendor to convey title from acquiring an obligatory force

> March 22, 1985: Deed of Sale over an undivided portion of lot > From Antonio Palao to Alfonso Iringan for P295k > Payable in: 10k upon execution of Deed of Sale, 140k by April 30, 1985, P145k by December 31, 1985 > Failure to pay in full 2nd instalment ~ only P40k out of P140k > July 18, 1985: Notice of rescission thru Letter by Palao > August 20, 1985: Response that he was not opposing the revocation but asked for the reimbursement of P50k and attorneys fee and geodetic engineers fee and interest > Palao refused > Iringan proposed the reimbursement of P50k or the sale of an equivalent portion of the land > Palao responded that Iringans obligation reached P61,600 (rentals from October 1985 up to March 1989) > July 1, 1991: Complaint for Judicial Confirmation of Rescission of Contract and Damages > September 25, 1992: RTC affirmed rescission > Remedy of Palao > RESCISSION BY JUDICIAL DECLARATION > Letter of July 18, 1985 not enough but Complaint for Judicial Confirmation of Rescission of Contract suffices > Sale of real property > governed by Art. 1592 > rescission only judicially or by a notarial act > necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated > Art. 1191 NOT APPLICABLE > not for sale of REAL/IMMOVABLE PROPERTY > BUT EVEN IF IT APPLIES > NECESSITY FOR JUDICIAL DECREE > petitioner not entitled to automatic rescission > right must be invoked judicially > obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him > right cannot be exercised solely on a party's own judgment that the other committed a breach of the obligation > operative act which produces the resolution of the contract is the decree of the court and not the mere act of the vendor *Prescription in Art. 1144: action upon a written contract should be brought within ten years from the time the right of action accrues WHY IS IT A BAD CASE: Rescission only by judicial decree ~ denies injured party immediate remedy > Contrary to UP v. De los Angeles where extrajudicial rescission is valid but provisional How to harmonize with UP v. De los Angeles > automatic rescission has been stipulated; otherwise, only via judicial decree

G.R. No. 129107 September 26, 2001 ALFONSO L. IRINGAN v. HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact, FELISA P. DELOS SANTOS Facts: Failure to pay instalment for sale of real property rescissible only by judicial decree

G.R. No. 83851 March 3, 1993 VISAYAN SAWMILL COMPANY, INC., and ANG TAY v. CA and RJH TRADING, represented by RAMON J. HIBIONADA Facts: Failure to open letter of credit made the contract to sell unenforceable

> May 1, 1983: Purchase and Sale of Scrap Iron > from RJH Trading to Visayan Sawmill Company, Inc. > for P250k via an irrevocable and unconditional Letter of Credit to be opened by VSCI at the Consolidated Bank and Trust Company by May 15, 1983 > May 23, 1983: RJH rescinded the contract by telegram to VSCI ~ for failure to open the letter of credit > May 24, 1983: Response that letter of credit was opened May 12, 1983 at BPI > May 26, 1983 > Receipt of letter from BPI that the Letter of Credit was opened for P250k in favor of ANG TAY c/o Visayan Sawmill Co., Inc., from the account of ARMACO-MARSTEEL ALLOY CORPORATION, expiring on July 24, 1983 > July 29, 1983: Complaint for action for specific performance and damages by VSCI when RJH refused to enforce contract *That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P0.50) per kilo on the following terms and conditions: 2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable and unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company, Dumaguete City, Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00), Philippine Currency. 3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER's barge. All expenses for labor, loading and unloading shall be for the account of the BUYER. > CONTRACT TO SELL > seller bound and promised itself to sell the scrap iron upon the fulfillment by the private respondent of his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the purchase price > obligation to sell subject to a positive suspensive condition, i.e., opening, making or indorsing of an irrevocable and unconditional letter of credit > FAILURE > (1) it was not opened, made or indorsed by VSCI but by a corporation which is not a party to the contract; (2) it was not opened with the bank agreed upon; and (3) it is not irrevocable and unconditional, for it is set to expire on a specific date > Not a breach but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force > RJH cannot be compelled by specific performance to comply with an obligation that is not obligatory > NO RIGHT TO RESCISSION > Agreement was a Contract to Sell and Subject is Movable Property > Movable Property > Art. 1593, with respect to movable property, the automatic rescission of the sale cannot take place because delivery had already been made > intervention of the court is necessary to annul the contract > mere notice of resolution by the defendants untenable and not conclusive on the rights of the plaintiff

G.R. No. 96643 April 23, 1993 ERNESTO DEIPARINE, JR. v. CA, CESARIO CARUNGAY and ENGR. NICANOR TRINIDAD Facts: > August 13, 1982: Contract of Construction > Sps.Cesario and Teresita Carungay to pay P970k and Ernesto Deiparine, Jr. to construct the 3-story dormitory > Action for Rescission by Sps. Carungay when the building so far constructed failed the core testing later required by Carungay when Deiparine was reported to have been deviating from the General Conditions and Specifications which was understood to be given to him later by the Sps. thru Trinidad, their appointed engineer > Breach of Contract by Deiparine: Failure to comply with the General Conditions and Specifications > (1) that the building constructed deviated from the General Conditions and Specifications, based on the failed results of the core testing; (2) that Deiparine commenced the construction even before the Carungays had submitted the General Conditions and Specifications (November 1982); (3) that Deiparine instructed his project engineer and some of the other workers to ignore the specific orders or instructions of Carungay; (4) that Deiparine is not a civil engineer or an architect but a master mariner and former ship captain and that the real supervisor of the construction was the project engineer who was only a third year civil engineering student at the time and that his understudy had then not yet passed the board examinations and that the supposed project engineer was a full-time teacher who had entered the construction site only 2m after the construction had already begun > Deiparine obviously wanted to avoid additional expenses which would reduce his profit > Resulted to the poor quality of the building, as evidenced by the core testing later agreed to be conducted by the party to determine if the contractor had been faithfully complying with his presentations under their agreement > Breach sufficient for Rescission > Art. 1191 governs BECAUSE OBLIGATIONS ARE RECIPROCAL > imposes upon Deiparine the obligation to build the structure and upon the Carungays the obligation to pay for the project upon its completion > PREMISED on breach of faith by one of them that violates the reciprocity between them *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 obliged to restore. *Art. 1725: The owner may withdraw at will from the construction of the work, although it may have been commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness which the owner may obtain therefrom, and damages

G.R. No. L-27482 September 10, 1981 GRACE PARK ENGINEERING CO., INC. v. MOHAMAD ALI DIMAPORO Facts: > April 1, 1954: Contract for the Sale of Cassava Flour and Starch Processing Machinery and Equipment > Grace Park Engineering, Inc., and Mohamad Ali Dimaporo > Former to sell and install machinery and equipment in such a manner as to process at least 6 tons of cassava flour and starch per 24-hour day operation, at Dimaporos place within 70 working days; Latter to pay P52k (P5,750 upon signing; P10,000 within 30d from the signing but before machinery and equipment is loaded at Manila Harbor and P36,750 in 12 monthly installments) and to supply at his own expenses the building to house the machinery and equipment, laborers needed to complement the operation of the mill, food, foundation materials, and effective water system > Dimaporo failed to supply the equipment and labourers for the installation > Corporation was forced to provide the necessary materials and labor, expenses for which were advanced with Dimaporos knowledge and consent (worth P19,628.93 and Dimaporo was short of funds) > Completion of instalment 1y3m > Refusal by Dimaporo to pay the balance > October 1, 1955: Action for rescission and mutual restitution > Violations of Dimaporo > failure to supply the equipment and labourers needed to complete the operations of the mill, food, foundation materials and effective water systems > Violations of Corporation > Delay of the completion of the installation as well as the incapacity of the mill to produce the desired amount of flour/starch as warranted under the contract attributable to Dimaporo yet instalment was of defective and inadequate machinery and equipment > Restitution: duty of the court to require the parties to surrender that which they have severally received and to place each as far as practicable in his original situation > Dimaporo must pay Corporation P19,628.93and return to Corporation the machinery and equipment and bear the transportation expenses > Corporation must return P15,750.00 (partial payment of the purchase price) and bear the freight charges for its shipment to Manila *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 obliged to restore 1191 v. 1385 > Restitution required in 1385 and not in 1191 yet 1385 mentioned in 1191 > WHY?

G.R. No. L-32811 March 31, 1980 FELIPE C. ROQUE v. NICANOR LAPUZ and THE COURT OF APPEALS Facts: > June 25, 1954: Agreement of Sale via Receipt of Initial Deposit > Rockville Subdivision 2 lots of Felipe C. Roque to Nicanor Lapuz > > deposit of P150 and P740.56 to complete the payment of four monthly installments ~ payable in 120 equal monthly installments at the rate of P16.00, P15.00 per square meter Substitute of lots at P17.00 per square (meter) payable in 120 equal monthly installments, with interest at 8% annually on the balance unpaid > Possession and enclosure of property and construction of house by Lapuz > Failure to pay despite demand to pay the stipulated monthly installments in arrears and to make up-to-date his payments and to sign the contract to sell > Requests for extensions > November 3, 1957: Formal letter demanding to vacate the lots and to pay the reasonable rentals at the rate of P60 per month from August, 1955 > January 22, 1960: action for rescission and cancellation > Held: Real intention of the parties is for the payment of the purchase price of the lots in question on an equal monthly installment basis for the period of ten years > Fixing of 90d period within which to pay the balance of the purchase price in the amount of P11,434,44 with interest thereon at the rate of 8% per annum from August 17, 1955 until fully paid > Contention: right or option to pay the purchase price at anytime within a period of ten years from 1954 and that the agreement is not rescindable because Roque did not comply with his obligation to put up the requisite facilities in the subdivision > Contract to Sell > absence of a formal deed of conveyance is a very strong indication that the parties did not intend immediate transfer of ownership and title, but only a transfer after full payment of the price > full payment of the price through the punctual performance of the monthly payments is a condition precedent to the execution of the final sale and to the transfer of the property from the owner to the proposed buyer > failure to pay is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force > Applicable is Art. 1191 where the oblige can rescind or cancel his obligation to deliver the ownership of the two lots in question for failure of the respondent to pay the purchase price > RESCISSION WARRANTED (plus damages in the form of rental at the rate of P60/m from August, 1955 until respondent shall have actually vacated the premises) > No justification for fixing a period > Lapuz had paid only P150 (deposit) + P740.46 (4 months instalment) = P890.46 (8%) out of the total P12,325; also constructed valuable improvements on the land; also defaulted in paying the remaining 116 monthly interest and further installments on the purchase price; insisted that he had the option to pay the purchase price any time in ten years inspite of the clearness and certainty of his agreement; refused to sign the necessary contract of sale on the pretext that he will sign later when he shall have updated his monthly

payments in arrears but which he never attempted to update, and his failure to deposit or make available any amount since the execution G.R. No. 73893 June 30, 1987 MARGARITA SURIA and GRACIA R. JOVEN v. IAC, HON. JOSE MAR GARCIA (Presiding Judge of the RTC of Laguna, Branch XXIV, Bian, Laguna), and SPOUSES HERMINIO A. CRISPIN and NATIVIDAD C. CRISPIN, Facts: Reparation for failure to pay purchase price of property is not via rescission because the obligation no longer arises from sale but mortgage. > March 31, 1975: DEED OF SALE WITH MORTGAGE over land of Sps. Crispin to Suria and Joven > Failure to pay instalments after the 1st > June 20, 1983: Action for rescission of contract and damages > Contention: Remedy should not have been rescission but Foreclosure of Mortgage > Not Art. 1191 but Art. 1383 is applicable ~ rescission only if no other legal remedy is available for reparation > WHY: No longer an action against a Contract of Sale but against a Deed of Mortgage > Contract of sale was perfected when vendor Sps. Crispin issued TCT in favour of vendee Suria and Joven, latter paid by way of executing a deed of mortgage > remedy of rescission is not a principal action but a subsidiary one which by law is available only in the absence of any other legal remedy > HELD: to pay the balance of their indebtedness under the Deed of Absolute Sale with Mortgage with legal interests, else resort to foreclosure *WRONG! SALE NOT YET PERFECT ~ Nonpayment of sale > contract not entirely performed because payment was simply thru mortgage and can still be breached > 1191 can still apply > No change of nature of contract G.R. No. L-3316 October 31, 1951 JOSE PONCE DE LEON v. SANTIAGO SYJUCO, INC. and PHILIPPINE NATIONAL BANK Facts: De Leon attempted to pay his debt to Syjuco before its maturity as agreed upon by both parties. > March 9, 1936: Contract to Sell > over 2 parcels of land of PNB to Jose Ponce de Leon > for P26,300 (P2,630 upon execution of deed + P23,670 in 10 annual amortizations) > May 5, 1944: Loan from Santiago Syjuco, Inc. by de Leon for P200k (Japanese Military Notes) payable, with interests, in 1y from May 5, 1948 in Ph currency ~ until then, de Leon could not pay and Syjuco could not demand >

security of payment: mortgage of purchase land from PNB in favour of Syjuco > May 6, 1944: Absolute Deed of Sale upon full payment of de Leon of balance to PNB over land > TCT with annotated mortgage with Syjuco > July 31, 1944: Additional loan from Syjuco worth P16k payable, with interests, in 1y from May 5, 1948 in Ph currency ~ until then, de Leon could not pay and Syjuco could not demand > November 15, 1944: Willingness of de Leon to pay all debts to Syjuco; contrary to due date of May 5, 1948 > Refusal of Syjuco > Action for Consignation by de Leon to compel Syjuco to accept the payment > May 15, 1946: Reconstitution of the TCT in favour of PNB > August 16, 1946: Receipt of Overdraft Account from PNB by de Leon and Mortgage of the property to PNB for payment of the account > September 28, 1946: Complaint by Syjuco > Action for Consignation > No debt was due and demandable yet (must be within 1y from May 5, 1048) > de Leon not justified in accelerating the payment of the obligation > in a monetary obligation contracted with a period, the presumption is that the same is deemed constituted in favor of both the creditor and the debtor > creditor may want to keep his money invested safely instead of having it in his hands; creditor by fixing a period protects himself against sudden decline in the purchasing power of the currency loaned specially at a time when there are many factors that influence the fluctuation of the currency > unless the creditor consents, the debtor has no right to accelerate the time of payment even if the premature tender "included an offer to pay principal and interest in full" > HELD: de Leon to pay Syjuco P216,000, Philippine currency, value of two promissory notes, with interest thereon at the rate of 6% per annum from May 6, 1949, until said amount is paid in full (mortgage to Syjuco prioritized over BPI) *Consignation: (1) that there was a debt due; (2) that the consignation of the obligation had been made bacause the creditor to whom tender of payment was made refused to accept it, or because he was absent for 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 have 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 G.R. No. 136913 May 12, 2000 ANITA C. BUCE v. THE HONORABLE COURT OF APPEALS, SPS. BERNARDO C. TIONGCO and ARACELI TIONGCO, SPS. DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE M. TIONGCO Facts: Renewal of the contract of lease was not automatic but subject to the agreement of both the parties

> Contract of Lease > Land of Tiongco to Buce > for 15y from June 1, 1979 to June 1, 1994 "subject to renewal for another ten (10) years, under the same terms and conditions" > Buce constructed a building and paid monthly rental of P200 which Tiongcos increased to P400, then P1000 then P1,576.58 in 1985, 1991 and December 6, 1991 respectively > Before latter increase took effect on January 1992, Buce attempted to paid the lease (October-December 1991, January 1992, May 1992, January 1993) at the rate of P400 > August 9, 1993: Action for consignation > Expiration of lease > Demand to pay rentals in arrears worth P33k > August 29, 1995: RTC Held automatic renewal of lease > CA reversed > NOT an extension of the period of the lease BUT A RENEWAL OF THE CONTRACT > NOT AUTOMATIC > death of the old contract and the birth or emergence of a new one > contemplates the cessation of the old contract > necessary that a new one be executed between the parties > period of the lease contract is deemed to have been set for the benefit of both parties > only upon the parties mutual agreement > Tiongcos were not amenable to a renewal and cannot be compelled to execute a new contract when the old contract terminated on June 1, 1994 > owner-lessor's prerogative to terminate the lease at its expiration > continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee > no mutuality/equality exists since the life of the contract would be dictated solely by the lessee

comply with its obligation to construct and complete the streets > CA: Grant of 2y period > No period fixed in the contract > Complaint premised on the theory that the period for performance had already elapsed > Court could not have fixed the duration because the complaint did not seek it ~ no legal basis ~ complaint should have been amended > Conditions for fixing of period: (1) that "the obligation does not fix a period" and (2) that the nature and the circumstances infer that a period was intended > Court must set the time that the parties are shown to have intended > INTENTION OF PARTIES > to defer the performance of the obligations under the contract until the squatters were duly evicted from the property G.R. No. L-13768 May 30, 1961 FLORENCIO DEUDOR, ET AL. v. J. M. TUASON & CO., INC., ET AL Facts: Failure of Deudors to deliver complete possession of their property to JM Tuason warranted the fixing of the court of duration for performance especially when it was implied that such duration was intended but not stipulated in their compromise agreement. > Petitioners Florencio, Pedro, Aniana and Maria Deudor claimed ownership over a portion of the Santa Mesa Heights Subdivision of J.M. Tuason & Co., Inc. and Gregorio Araneta & Co., Inc. > subdivided (50 quinones) to lots and sold it to several persons (30) and to J.M. Tuason and Araneta (20) > from Tuason and Araneta, for P1,201,063 where P486,137.26 would be deducted, leaving the balance of P714,295.74 ~ to be paid: P100k within 60d from finality of approval of compromise agreement (judgement on April 10, 1953) conditioned on the delivery of possession of 20 quinones of the land; payment of the following upon delivery of the possession of 30 quinones of the land: P99.408.79 on 1955; P99,408.70 1y after; P69,510.50 1y after for 5yl P68m555.66 1y after > Delayed delivery of 20 quinones and Failure of Deudors to deliver 30 quinones of land > Withholding of payment until delivery of land on which squatters are increasing > February 28, 1957: Court set a period of 4m for the delivery by the Deudors of the 30 quinones ~ already been 4y since Compromise Agreement which has no fixed duration > but nature of agreement and the circumstances surrounding the same that a period was intended by the parties > Fixing of period > not an amendment or modification of the obligation > only reinforcement of an implied stipulation ~ inferred that a period was intended by the parties > ascertains the will of the parties and gives effect thereto

G.R. No. L-22558 May 31, 1967 GREGORIO ARANETA, INC. v. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD Facts: Obligation of Araneta to construct street around Church in subdivision is not yet demandable absent a definite period for its performance, given that complaint did not seek fixing of the period and given that it can be inferred that the eviction of squatters deferred the performance of the obligations > July 28, 1950: Contract of Purchase and Sale with Mortgage > J.M. Tuason & Co., Inc. sold part of its Sta. Mesa Heights Subdivision to Philippine Sugar Estates Development Co., Ltd. Thru Gregorio Araneta, Inc. for P430,514.00 > Condition that Sugar would build the Sto. Domingo Church and Convent therein and that JM would build the streets around it > No period stipulated > Construction of Church but failure of Araneta to construct a street for the refusal of a Manuel Abundo to vacate > May 7, 1958: Complaint by Sugar against JM > Contention of JM and Araneta: Obligation not due and demandable absent a definite period ~ to be fixed by the court in a proper suit for that purpose > Response: that the contract gave Araneta, Inc. "reasonable time within which to

G.R. No. L-7721 March 25, 1914 INCHAUSTI & CO. v. GREGORIO YULO Facts: Ichausti & Co. can sue against one debtor despite existence of debtors not sued because the obligation was acquired solidarily. > Teodoro Yulo (then widow and children) borrowed money from Inchausti & Company for the exploitation and cultivation of their haciendas > Children continued account with Inchausti (Hijos de T. Yulo) until balance amounted to P200k > June 26, 1908: Notarial Document all admitting indebtedness and mortgaging undivided 6/9 of their 38 properties > January 11, 1909: New document for mortgage credit for the balance > August 12, 1909: Notarial Document severally and jointly admitting indebtedness and promising to pay in 5 installments at the rate of P50k every June 30 with maturity and demandable upon failure to pay > March 27, 1911: Action for Recovery of a sum of money against Gregorio Yulo (one of the children) > May 12, 1911: Notarial Document (entered into a new agreement) by Francisco, Manuel and Carmen Yulo recognizing their debt but alleging that it has been reduced to P225k > Inchausti plea to recover P253,445.42 GRANTED > Inchausti can sue just one obligor even if there are other obligors > debtors obligated themselves in solidum > when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound to perform in full the undertaking which is the subject matter of such obligation > creditor can bring its action in toto against any one of them > Different amounts of debt with different debtors > May 12, 1911 where Inchausti & Company stipulated with some of the solidary debtors (Manuel, Francisco, and Carmen Yulo) diverse installments and conditions > did not break the solidarity stipulated in the instrument of August 12, 1909 > solidarity may exist even though the debtors are not bound in the same manner and for the same periods and under the same conditions Contention of Yulo as Defense: (1222) avail of defenses available to him even if not personal to him but personal to co-debtors ~ solidary debtor with co-debtors and hence, decrease in one, decrease in all > BUT! Solidarity may exist even if they are bound in different manners Agreement of reduction was only changed in relation to the partys share of the debt > that 3 of them are liable only for 225 and not 253 total > Claim of creditor against one who is not party to reduction is only 3/6 of 28k (28k ~ difference of price) > liability of 3 is only 1/6 of 225 and difference in price is paid by other co-debtor not party to reduction > others not bound to decrease That the nature of the obligation has changed ~ from 253 to 225 > that there was no novation but 3 were not authorized to reduce debt for everyone ~ COURT MISAPPLIED 1215 ~ Co-debtors not agents of each other G.R. No. 96405 June 26, 1996 BALDOMERO INCIONG, JR. v. CA and PHILIPPINE BANK OF COMMUNICATIONS Facts: Debt of 3 signatories of promissory note can be held against just one debtor because the debt was acquired jointly and severally where as co-maker of the debt, one is liable for the entire debt. > February 3, 1983: Promissory Note worth P50k by Atty. Baldomero Inciong, Jr., Rene Naybe and Gregorio Pantanosas as solidary co-makers for a loan from/for payment to Philippine Bank of Communications to engage in logging operation business > note due on May 5, 1983 > Failure to pay > Demand by Bank by letter for payment > January 24, 1986: Complaint for Collection of sum of P50k against 3 by Bank > Dismissal against Pantanosas (prayed for by Bank), migration to Saudi Arabia of Naybe > Contention: Fraudulent promissory note since he was made to believe that the blank promissory note he signed was only for P5k > not established > Dismissal of Pantanosas and Naybe not a release of his obligation > signed as a solidary co-maker and not guarantor > promissory note expressly states that the 3 are jointly and severally liable > one debtor can be held liable for the entire obligation > creditor determines against whom he will enforce collection *Solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation *Guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code G.R. No. 85396 October 27, 1989 RIZAL COMMERCIAL BANKING CORPORATION v. COURT OF APPEALS, PHILIPPINE BLOOMING MILLS, INC. and ALFREDO CHING Facts: Surety Ching can be held liable for the debt of PBM because he is declared as jointly and severally liable and hence, the order suspending PBMs obligations does not apply to surety Ching whom RCBC, creditor, can pursue.

> May 4, 1979: Comprehensive Surety Agreement by Alfredo Ching as surety of Philippine Blooming Mills, jointly and severally liable for the latters obligations to RCBC worth P40M > PBM applied for letters of credit > Granted > Import of various goods, obligations amounting to P7,982,649.08 > August 7, 1981: RCBCs Complaint for collection against PBM and Ching > July 6, 1982: Order of Suspension by Securities and Exchange Commission of all pending claims against PBM in any court/tribunal upon petition of PBM (pursuant to Petition on April 1, 1982 for revised rehabilitation plans and for Suspension of Payments) > November 25, 1982: CFI granted claim of RCBC against Ching > that right of creditor to proceed against surety Ching is not affected by the Order BECAUSE Ching signed in his personal capacity and not as an officer of the corporation > Solidary Liability > concurrence of two or more creditors or two or more debtors in one and the same obligation implies 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 > creditor may proceed against any one of the solidary debtors or some or all of them simultaneously > Ching can be sued separately to enforce his liability as Surety for PBM Rehabilitation ~ ability to redeem profitability > to stop collectors to collect debts ~ suspension of payments while corporation redeem profitability > Separate legal personality of Ching ~ signed not as an officer of the obligation but in his personal capacity > HENCE, suspension of Blooming Mills do not apply to him G.R. No. 155173 November 23, 2004 LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP ROSEBERG v. CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO Facts: President and Secretary of CCC can be held liable for the counterclaim of petitioners against CCC because of their acts in bad faith from which the claim arose. However, the Court must have first acquired jurisdiction over them by serving summons before they are impleaded to the case. > August 11, 1998: Letter of Intent by Lafarge Cement Philippines, Inc., Luzon Continental Land Corporation, and Continental Operating Corporation > to purchase the cement business of Continental Cement Corporation > October 21, 1998: Sale and Purchase Agreement with stipulation for vendees to keep portion of the purchase price worth P117,020,846.84 for payment to Asset Privatization Trust whom CCC is

liable to > Failure to pay APT > June 20, 2000: Complaint by CCC for payment to APT > Inclusion of CCC president and stockholder Gregory Lim and corporate secretary Anthony Mariano in counterclaim (by Lafarge) for forum shopping against CCC ~ already made a claim before the International Chamber of Commerce > Corporate officer or stockholder is impleaded not because of the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with individual defendants > BUT based on the allegations of fraud and bad faith on the part of the corporate officer or stockholder > HOWEVER, summons should have first been serve to Lim and Mariano in order for the court to have obtain jurisdiction over them *quasi-delict ~ liability is quasi-delict G.R. No. L-11307 October 5, 1918 ROMAN JAUCIAN v. FRANCISCO QUEROL, administrator of the intestate estate of the deceased Hermenegildo Rogero, Facts: Surety Rogero is solidarily liable with principal Dayadante because she bound herself as jointly and severally liable for his debt. > October 1908: Private Writing by Lino Dayadante and Hermenegilda Rogero (supposedly as surety) acknowledging their indebtedness, jointly and severally, to Roman Jaucian worth P13,332.33 > November 1909: Action for cancellation of document by Rogero, alleging fraud because she was made to sign believing that she was only a surety > Counterclaim for payment of the sum which had become demandable > Granted Rogero that the claim against her was invalid > Appeal by Jaucian > Rogero died > SC Granted validity of claim > September 3, 1912: committee on the estate proceedings of Rogero made its report to pass upon claims against the estate > March 24, 1914: Jaucian filed a claim against the estate of Rogero for payment due to insolvency of Dayadante > As surety, Rogeros liability is absolute > NOT SUBSIDIARY where Jaucian should first exhaust the remedy against principal Dayadante before impugning Rogero for Dayadantes deficiency > SHE BOUND HERSELF JOINTLY WITH principal *Art. 1822: By security a person binds himself to pay or perform for a third person in case the latter should fail to do so. If the surety binds himself jointly with the principal debtor, the provisions of section fourth, chapter third, title first, of this book shall be observed. Art. 1144: A creditor may sue any of the joint and several (solidarios) debtors or all of them simultaneously. The claims instituted against one shall not be an obstacle for

those that may be later presented against the others, as long as it does not appear that the debt has been collected in full. *Art. 1830: The surety can not be compelled to pay a creditor until application has been previously made of all the property of the debtor. *Art. 1831: This application can not take place (1) . . . (2) If he has jointly bound himself with the debtor

G.R. No. 93010 August 30, 1990 NICENCIO TAN QUIOMBING v. COURT OF APPEALS, and Sps. FRANCISCO and MANUELITA A. SALIGO Facts: Solidary creditor Quiombing can exercise action for payment against debtor even without the other solidary creditor because either one can mutually represent the other to whom the debtor are both liable > August 30, 1983: Construction and Service Agreement where Nicencio Tan Quiombing and Dante Biscocho jointly and severally bound themselves to construct a house of Sps. Francisco and Manuelita Saligo for P137,940.00, > October 10, 1984: Agreement where sps. acknowledged house completion and undertook to pay the balance > November 19, 1984: Promissory note by Saligo for P125,363.50 > October 9, 1986: Action for recovery of amount by Quiombing due to failure of sps. to pay the balance > Contention of Sps: that Biscocho was an indispensable party and should have been included as co-plaintiff > Appeal by Quiombing that as a solidary creditor he could act by himself alone in the enforcement of his claim against the private respondents > SOLIDARITY BETWEEN Quiombing and Biscocho > authority of each creditor to claim and enforce the rights of all, with the resulting obligation of paying every one what belongs to him > no merger, much less a renunciation of rights, but only mutual representation > Immaterial who sued the sps. who were liable to either of the 2 creditors > full satisfaction of a judgment obtained against them by Quiombing would discharge their obligation to Biscocho, and vice versa > not necessary for both Quiombing and Biscocho to file the complaint > either one is indispensable > Sps. to pay and be concerned only with Quiombing > Art. 1214 that "the debtor may pay any of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by any one of them, payment should be made to him" > Biscocho may later claim his share from Quiombing but that decision is for him alone to make > as far as the debtors are concerned, payment of the judgment debt to the complainant will be considered payment to the other solidary creditor even if the latter was not a party to the suit *A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt, and each creditor is entitled only to a proportionate part of the credit. A solidary obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. Hence, in the former, each creditor can recover only his share of the obligation, and each debtor can be made to pay only his part; whereas, in the latter, each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in full. *Art. 1212: Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudice to the latter.

G.R. No. L-7185 August 31, 1955 REHABILITATION FINANCE CORPORATION v. COURT OF APPEALS and REALTY INVESTMENTS, INC. Facts: RFC solely liable for the purchase price due to seller even if it is not the principal debtor because it had assumed the obligation upon fulfilment of the condition that the title be made in favour of principal free of liens and encumbrances and mortgage registered thereon. > June 17, 1948: Contract of Sale > Delfin Dominguez and Realty Investments, Inc. where former would purchase property of the latter for dp of P39.98 and balance in 119 monthly instalments > Loan from Rehabilitation Finance Corporation worth P10k to shoulder house expenses IN EXCHANGE FOR mortgage of the house and lot > Payment/assumption by RFC of the purchase price to RII upon TCT in favour of Dominguez and registration of mortgage (title to the lot be first conveyed to Dominguez and RFC's mortgage lien thereon registered) > September 20, 1948: TCT to Dominguez and registration of mortgage in registry of deeds > Relase of P6,500 from loan but remainder not released ~ due to default of Dominguez for payment of what he had already received > Foreclosure of the mortgage by RFC > Suit for payment of the purchase price by RII against RFC when latter refused > Liability of RFC > Absolute and Exclusive > Why exclude Dominguez: obligation was assumed by RFC upon the condition that the title to the lot be first conveyed to Dominguez and RFC's mortgage lien thereon registered > already fulfilled > Dominguez was induced to part with his title to a piece of real property upon RFC's assurance that it would itself pay the balance of the purchase price due from the purchaser after its mortgage lien thereon had been registered

*Indispensable parties are those with such an interest in the controversy that a final decree would necessarily affect their rights, so that the court cannot proceed without their presence. Necessary parties are those whose presence is necessary to adjudicate the whole controversy, but whose interests are so far separable that a final decree can be made in their absence without affecting them.

G.R. No. L-7721 March 25, 1914 INCHAUSTI & CO. v. GREGORIO YULO Facts: Ichausti & Co. can sue against one debtor despite existence of debtors not sued because the obligation was acquired solidarily. > Teodoro Yulo (then widow and children) borrowed money from Inchausti & Company for the exploitation and cultivation of their haciendas > Children continued account with Inchausti (Hijos de T. Yulo) until balance amounted to P200k > June 26, 1908: Notarial Document all admitting indebtedness and mortgaging undivided 6/9 of their 38 properties > January 11, 1909: New document for mortgage credit for the balance > August 12, 1909: Notarial Document severally and jointly admitting indebtedness and promising to pay in 5 installments at the rate of P50k every June 30 with maturity and demandable upon failure to pay > March 27, 1911: Action for Recovery of a sum of money against Gregorio Yulo (one of the children) > May 12, 1911: Notarial Document by Francisco, Manuel and Carmen Yulo recognizing their debt but alleging that it has been reduced to P225k > Inchausti plea to recover P253,445.42 GRANTED > Inchausti can sue just one obligor even if there are other obligors > debtors obligated themselves in solidum > when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound to perform in full the undertaking which is the subject matter of such obligation > creditor can bring its action in toto against any one of them > Different amounts of debt with different debtors > May 12, 1911 where Inchausti & Company stipulated with some of the solidary debtors (Manuel, Francisco, and Carmen Yulo) diverse installments and conditions > did not break the solidarity stipulated in the instrument of August 12, 1909 > solidarity may exist even though the debtors are not bound in the same manner and for the same periods and under the same conditions G.R. No. 134100 September 29, 2000 PURITA ALIPIO v. COURT OF APPEALS and ROMEO G. JARING Facts: Death of a sublessor spouse > June 19, 1987Contract of Sublease over a Fishpond among Romeo Jaring and Sps. Placido and Purita Alipio and Bienvenido and Remedios Manuel ~ bound themselves as spouses > Over a 5-year-leased fishpond of Jaring > Valid until September 12, 1990 or the remaining period of his lease > Rent: P485,600.00 (P300k upon signing PAID; P185,600 on June 30, 1989 PARTIALLY PAID WITH BALANCE OF P50,600 > Demand but Failure to Pay > October 13, 1989: Suit by Jaring against Sps. for collection or rescission > RTC (February 26, 1991) and CA favoured Jaring

and ordered Sps. Manuel and Mrs. Alipio to pay the balance, at the exclusion of Mr. Alipio who had died > Contention of Alipio Wife ~ SC UPHELD: Dismissal due to death of her Husband on December 1, 1988 > that the obligation is chargeable against the Sps. and not the individual (NCC 161(1)) > must be held against the conjugal partnership which is primarily bound for its repayment through an action for settlement of estate ~ conjugal partnership was automatically dissolved and debts chargeable against it are to be paid in the settlement of estate proceedings > hence, she cannot be sued as an independent party in an action for collection > Calma v. Taedo: after the death of either of the spouses, no complaint for the collection of indebtedness chargeable against the conjugal partnership can be brought against the surviving spouse > powers of administration of the surviving spouse ceases and is passed to the administrator > surviving spouse is not even a de facto administrator > Sps. are being impleaded in their capacity as representatives of the conjugal partnership and not as independent debtors > REMEDY OF JARING AGAINST ALIPIO SPOUSES: > Sec. 6, Rule 78 of the Revised Rules of Court: Creditor may (1) file a claim against the Alipios in the proceeding for the settlement of the estate of petitioner's husband; (2) apply in court for letters of administration in his capacity as a principal creditor; (3) the allowance of will, depending on whether petitioner's husband died intestate or testate. > LIABILITY OF SPOUSES AND WIDOW > JOINT not solidary > RTC ordered payment of the P50,600 balance without specifying whether it is joint or solidarity (NCC 1207) > P50,600 divided between spouses ~ P25,300 each couple > Solidary only if sublessees refuse to vacate the leased property after the expiration of the lease period and despite due demands by the lessor ~ not from contract but as tortfeasors > ONLY APPLIES TO dismissals of collection suits because of the death of the defendant during the pendency of the case and the subsequent procedure to be undertaken > Rule 3, 21 of the 1964 Rules of Court which then provided that "when the action is for recovery of money, debt or interest thereon, and the defendant dies before final judgment in the Court of First Instance, it shall be dismissed to be prosecuted in the manner especially provided in these rules." > Rule 3, 20 of the 1997 Rules of Civil Procedure: When the action is for the recovery of money arising from contract, express or implied, and the defendant dies before entry of final judgment in the court in which the action was pending at the time of such death, it shall not be dismissed but shall instead be allowed to continue until entry of final judgment. A favorable judgment obtained by the plaintiff therein shall be enforced in the manner especially provided in these Rules for prosecuting claims against the estate of a deceased person.

G.R. No. L-21780 June 30, 1967 MAKATI DEVELOPMENT CORPORATION v. EMPIRE INSURANCE CO. and RODOLFO P. ANDAL Facts: Forfeiture of the P12k surety bond in favour of MDC (vendor) upon failure of vendee to construct 50% of the house on the purchased lot, as a special condition to sale of lot, is a PENAL CLAUSE that is meant to compel the conditions performance. Failure of the vendee to comply grants vendor the operation of such penalty as a substitute for damages and interest. But the Court can mitigate the liability and because second vendee has constructed 50% of the house just a month after the expiration, the bond was validly reduced. > Deed of Sale (March 31, 1959) > by Makati Development Corporation to Rodolfo P. Andal over a lot in Urdaneta Village, Makati > SPECIAL CONDITION: VENDEE/S shall commence the construction and complete at least 50% of his/her/their/its residence on the property within 2y from March 31, 1959 to the satisfaction of the VENDOR and, in the event of his/her/their/its failure to do so, the bond which the VENDEE/S has delivered to the VENDOR in the sum of P11,123.00 and evidenced by a cash bond receipt dated April 10, 1959 will be forfeited in favor of the VENDOR by the mere fact of failure of the VENDEE/S to comply with this special condition > Surety bond worth P12k (April 10, 1959) by Andal as principal with Empire Insurance Company as surety, jointly or severally > Andal did not build house and sold lot to Juan Carlos (January 18, 1960) > Notice of Claim (April 3, 1961) by MDC to Empire re: Andals failure > Refusal of Empire to pay > Suit for Collection against Empire (May 22, 1961) > Third party complaint against Andal > RTC Held Empire liable (March 28, 1963) to pay MDC P1,500, with interest at the rate of 12% from the time of the filing of the complaint until the amount was fully paid > Once paid by Empire, Andal should in turn pay [Empire] the sum of P1,500 with interest at 12% from the time of the filing of the complaint to the time of payment > Appeal by MDC > Reduction of Andals liability from P12k to P1,500 > HELD: Special Condition is a PENAL CLAUSE but not for indemnity for damages that might result from a breach of contract but for COMPULSION OF PERFORMANCE (Resolutory Obligation) > GENERAL RULE FOR OBLIGATIONS WITH PENAL CLAUSES > penalty takes the place of damages and the payment of interest in case of non-compliance > obligee is entitled to recover upon the breach of the obligation without the need of proving damages BUT Court can mitigate liability (NCC 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) > Partial Performance by Carlos > that where there has been partial or irregular

compliance with the provisions in a contract for special indemnification in the event of failure to comply with its terms, courts will rigidly apply the doctrine of strict construction against the enforcement in its entirety of the indemnification, where it is clear from the contract that the amount or character of the indemnity is fixed without regard to the 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 object the enforcement of compliance with the contract > Reduction of Andals liability from P12k to P1,500 due to little delay in fulfilment of obligations ~ that area has been fenced, building materials has been stocked in the premises > Juan Carlos was able to construct 50% of the house by the end of April 1961 ~ just a month after expiration > LIABILITY of Andal cannot be construed as a personal obligation > not to limit Andal's right to dispose of the lot where there is nothing in the deed of sale restricting Andal's right to sell > Carloss construction as Andals construction Option of penalty in lieu of performance is with creditor If it is indemnity for damages ~ tied to losses suffered by creditor, penalty cannot be reduced > but if intended to insure performance of obligation ~ court can reduce >

G.R. No. 116285 October 19, 2001 ANTONIO TAN v. COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES Facts: Default in payment effected penalty interest and its interest, different and separate from principal interest, as stipulated in the promissory note. > Promissory Notes for two Loans granted by CCP to Antonio Tan worth P2M each > Maturity dates: May 14, 1979 and July 6, 1979 > Defaulted but with partial payments > Restructure of Loan (August 31, 1979) with promissory note worth P3,411,421.32 ~ payable in 5 installments, last on December 31, 1980 ~ COMPOUNDING INTERESTS FOR PENALTY: With interest at the rate of 14% per annum from the date hereof until paid...In case of non-payment of this note at maturity/on demand or upon default of payment of any portion of it when due, I/We jointly and severally agree to pay additional penalty charges at the rate of 2% per month on the total amount due until paid, payable and computed monthly. Default of payment of this note or any portion thereof when due shall render all other installments and all existing promissory notes made by us in favor of the CCP immediately due and demandable > Defaulted in all > Letter (January 26, 1982) by Tan proposing payment scheme for restructured loan (20% upon approval and 60% in 36 equal monthly instalments) > Request (October 20, 1983) by Tan to postpone loan payments due to business failures > Letter Demand (May 30, 1984) by CCP for

full payment in 10d of restructured loan, worth P6,088,735.03 > Default > Suit for Collection (August 29, 1984) by CCP > RTC and CA in favour of CCP, charging interest, surcharges, attorneys fees and exemplary damages > Contention of Tan > acquired loan only to help Wilson Lucmen who had suddenly disappeared > RTC: little evidence to prove it and should filed a third party complaint instead > Abandoned on CA Appeal but appealed interest, surcharge and the principal which were added together and the total sum interest that was imposed and asked reduction of the penalties and charges on his loan obligation > PENALTY IN Promissory note > imposition of 2 interests > Monetary Interest on the Principal (14%) v. Penalty Interest (2%) in case of default > 2% partakes of the nature of a penalty clause/penalty charge/penalty/compensatory penalty > NCC2209 permits an agreement upon a penalty apart from the monetary interest ~ If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such the two are different and distinct from each other and may be demanded separately > Interest on penalty provided in paragraph 5 of promissory note ~ Any interest which may be due if not paid shall be added to the total amount when due and shall become part thereof, the whole amount to bear interest at the maximum rate allowed by law ~ unpaid penalty interest shall earn the legal interest of 12% per annum > FROM WHEN: DEMAND ~ upon the filing of the complaint in court by CCP on August 29, 1984 > Reduction in penalty for partial payment ~ NCC1229 > From 2% monthly (for 21y since default) to 12% annually on total amount due from August 28, 1986 (Last Statement of Accounts) > Interest and Surcharge NOT Conditional to Assistance of CCP in Tans application in COA ~ September 18, 1988 Letter from CCP: With reference to your appeal for condonation of interest and surcharge, we wish to inform you that the center will assist you in applying for relief of liability through the (recommendation of) Commission on Audit and Office of the President (to House of Rep for approval)...While your application is being processed and awaiting approval, the center will be accepting your proposed payment scheme with the downpayment of P160,000.00 and monthly remittances of P60,000.00 > NOT SUSPENSIVE CONDITIONAL OBLIGATION ~ responsibility of Tan to inform and bring his administrative appeal to COA and OP of his application for condonation of interest and surcharge G.R. No. 85161 September 9, 1991 COUNTRY BANKERS INSURANCE CORPORATION and ENRIQUE SY v. COURT OF APPEALS and OSCAR VENTANILLA ENTERPRISES CORPORATION

Facts: Default of lessee warranted the penalty of forfeiture of the cash deposit in favour of lessor because such stipulation in agreement is a penal clause that is valid in order to punish the lessee for non-payment. However, penalty was not substituted for damage claim by lessor as a result of breach of contract because it arose not from breach of contract per se but from damages resulting from non-fulfillment of principal obligation, ie lost opportunity costs of lessor. > Contract of Lease (June 11, 1977) > Lessor Oscar Ventanilla Enterprises Corporation to Lessee Enrique F. Sy over Avenue, Broadway and Capitol Theaters and its land > from June 13, 1977 to June 12, 1983 ~ 6y > 2y after ~ arrears in monthly rentals and non-payment of amusement taxes by Lessee Sy > demands by Lessor OVEC for repossession > Supplemental Agreement (August 12, 1979) where Lessor OVEC allowed Sy to continue operating the leased properties subject to conformity with certain conditions ~ Reduction of Sys arrears in rentals (P125k to P71k) but Deduction of P4k from monthly rental to pay for accumulated amusement tax liability > Demands for Payment by OVEC (January 7, 1980, February 3, 1980) for payment of arrears and amusement tax delinquency otherwise OVEC would repossess the premises on February 11, 1980 > Sy failed > OVEC padlocked and repossessed the properties ~ denied entry to Sys employees > Action for Reformation of the Lease Agreement by Sy (February 11, 1980) > Sy filed a P500k bond, supplied by CBISCO, for the suit > Contentions of Sy > that deposit of P600k was too big; that OVEC assured him that no forfeiture will happen; that he had spent P100k for major repairs on the theaters; that he had paid P48k for electricity which OVEC used thru an illegal connection > RTC in favour of OVEC ~ valid repossession pursuant to a valid stipulation plus damages > for Sy to pay damages worth P10k/m from February to November 1980, totaling P100k with interest on each amount of P10k from the time the same became due ~ Opportunity Costs against OVEC > Valid Forfeiture Clause ~ forfeiture of the remaining deposit still in the possession of the lessor, without prejudice to any other obligation still owing, in the event of the termination or cancellation of the agreement by reason of the lessee's violation of any of the terms and conditions of the agreement > A PENAL CLAUSE ~ that the deposit of P600k shall be deemed forfeited, without prejudice to any other obligation still owing by the lessee to the lessor > Forfeiture penalty PLUS Damages worth P100k (due to OPPORTUNITY COSTS in P10k monthly increase in rental from P50k to P60k because RTG Productions, Inc. offered to lease the property at P60k which OVEC failed to realize for 10m from February to November 1980, totaling P100k ~ P100k not redeemed due to the issuance of the injunction against the P290,000.00 remaining cash deposit) ~ cannot be substituted ~ penalty for punishment of obligor, damages for loss of obligee > Penal Clause is an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by 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 irregularly or inadequately fulfilled > PURPOSE: To punish the obligor > generally, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance ~ proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded > EXCEPTIONS: (1) when there is a stipulation to the contrary; (2) when the obligor is sued for refusal to pay the agreed penalty; (3) when the obligor is guilty of fraud > Obligee can recover not only the penalty but also the damages resulting from non-fulfillment of the principal obligation G.R. No. L-15645 January 31, 1964 PAZ P. ARRIETA and VITALIADO ARRIETA v. NATIONAL RICE AND CORN CORPORATION and MANILA UNDERWRITERS INSURANCE CO., INC. Facts: Corporation breached the contract of sale with Arrieta by failing to provide her with letters of credit, as promised, in order for the latter to provide the imported Burmese rice. 1. Public Bidding for Supply of Burmese Rice (20k metric tons) a. Called by NARIC b. Participated in by Paz Arrieta who was awarded the contract for bidding the lowest 2. Contract of Sale a. Between Arrieta and Manila Underwriters Insurance Co., Inc. b. Arrieta promised to deliver 20k metric tons of Burmese rice at $203/mton c. Corporation promised to pay for the rice by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately. d. BUT Corporation sent its Application for Commercial Letter Credit to the Philippine National Bank only a month after the execution of the contract i. Corporation has no sufficient deposit as required to open letters of credit ii. But Corporation asked for consideration given that supplier Arrieta has a deadline to meet with her supplier in Burma e. On the same day, Arrieta advised Corporation > extreme necessity for the immediate opening of the letter credit to meet her deadline > she made a tender (offer) to the supplier already i. Tender price of 5% of the F.O.B. price of 20,000 tons at $180.70 > confiscated if letter of credit is not received on time 3. Conditional Approval of Letter of Credit on the Deadline Date

4.

5. Held: 6.

Conditional approval > cash deposit of 50% of letter value > application in abeyance pending compliance b. Failure of Corporation to comply due to lack of funds Delay in Opening of the Letter of Credit a. Only two months after the contract with Arrieta i. Contention of Corporation > Delay due to Arrietas failure to furnish necessary data to open letter of credit > (1) amount of the letter of credit, (2) the person, company or corporation in whose favor it is to be opened, and (3) the place and bank where it may be negotiated ii. BUT! Such facts were known to Corporation even before the contract > facts were necessarily revealed before Arrieta could qualify as a bidder b. Arrieta lost her share in the allocation of the rice supply and her 5% deposit worth P200k after the 15-day grace period after deadline c. Arrieta offered to substitute Thailand rice instead to NARIC > Rejected Damage Claim by Arrieta as unrealized profit WON Corporation breached the contract Damage > immediate cause: cancellation of the allocation contracted by Arrieta > sole and principal reason: failure of the letter of credit to be opened by the deadline > sole reason: inability of corporation to pay as required by the Bank BUT MOREOVER its willful and deliberate assumption of contractual obligations despite its known financial incapacity to undertake the prestation > evidenced by its letter to Bank Liability > every debtor who fails in performance of his obligations > How: "any manner contravene the tenor" of the obligation > any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind or defective performance

a.

7.

G.R. No. L-27782 July 31, 1970 OCTAVIO A. KALALO v. ALFREDO J. LUZ Facts: Kalalos service for IRRI to be paid in Philippine currency because RA 529 prohibits payment in dollars, to be converted at the rate of exchange during execution of judgement for payment. > Agreement (November 17, 1959) > Octavio A. Kalalo (licensed civil engineer; owner of O.A. Kalalo and Associates) with Alfredo J. Luz (licensed architect; owner of A.J. Luz and Associates) > Former to render engineering design services; Latter to pay > Clarification to Letter-Proposal ~ that the schedule of engineering fees in the agreement does not cover D. Foundation soil exploration, testing and evaluation; E. Projects that are principally engineering works such as industrial plants and that O. A. Kalalo and Associates reserve the right to increase fees on projects, which cost less than P100k > Projects accomplished > Itemized Statement of Accounts (December 11, 1961) ~ total of P116,565 minus previous payments worth P57k; balance of P59,565 > Resume of Fees (May 18, 1962) ~ Luz to Kalalo that the balance was P10,861.08 instead of P59,565 > (June 14, 1962) Luz sent a check worth P10,861.08 but Kalalo refused to accept > Complaint (August 10, 1962) by Kalalo ~ services rendered worth $28k and P100,204.46, excluding interests, of which sums only P69,323.21 had been paid > Payment for the (1) balance of $28k and the balance of P30,881.25; (2) P17k for consequential and moral damages; (3) P55; for moral damages, attorney's fees and expenses of litigation; (4) P25k as actual damages, and also for attorney's fees and expenses of litigation > Contention of Luz: that Kalalos services were not in accordance with the agreement; that the claims were not justified by the services actually rendered; that the aggregate amount actually due was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08 > Submission of the issues to a Commissioner > Report that the amount due was $28k as Kalalos fee in the International Research Institute Project which was 20% of the $140 that was paid to Kalalo, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by Luz > Facts not questioned by parties but questioned legality of the fee due in dollars ~ if not, what rate of exchange it should be paid in pesos > RTC in favour of Kalalo (February 10, 1967) ~ P51,539.91 and $28k to be converted into the Ph currency, current rate of exchange at the time of the payment of judgment, as certified to by the Central Bank of the Philippines > Payment in Ph Currency > balance should be paid on the basis of the rate of exchange at the time of execution of the judgment, and not at the time of the constitution of the obligation > Payment in dollars is prohibited by Republic Act (RA) No. 529 which provides that if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was

incurred. RA No. 529 was enacted on June 16, 1950. Obligation of appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of RA No. 529. It follows that the provision of RA No. 529 which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. RA No. 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment (Engel vs. Velasco & Co.) > Estoppel > if an act, conduct or misrepresentation of the party sought to be estopped is due to ignorance founded on innocent mistake, estoppel will not arise > Statements which are not estoppels nor judicial admissions have no quality of conclusiveness > Statement of accounts only prima facie evidence > An account stated or settled is a mere admission that the account is correct. It is not an estoppel. The account is still open to impeachment for mistakes or errors. Its effect is to establish, prima facie, the accuracy of the items without other proof; and the party seeking to impeach it is bound to show affirmatively the mistake or error alleged. The force of the admission and the strength of the evidence necessary to overcome it will depend upon the circumstances of the case > if one of the parties carelessly makes a wrong interpretation of the words of his contract, or performs more than the contract requires (as reasonably interpreted independently of his performance), as happened in the instant case, he should be entitled to a restitutionary remedy, instead of being bound to continue to his erroneous interpretation or his erroneous performance and "the other party should not be permitted to profit by such mistake unless he can establish an estoppel by proving a material change of position made in good faith > that Exhibit 1-A was written through mistake by appellee and that the latter is not estopped by it

G.R. No. L-27796 March 25, 1976 ST. PAUL FIRE & MARINE INSURANCE CO. v. MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC., WILHELM WILHELMSEN, MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY Facts: St. Paul insured the shipment thru Wilhelmsen and paid Winthrop, consignee, for the bad condition of some goods. It sought reimbursement in dollars in its peso equivalent on the date of discharge of the cargo and not on the date of the decision > Shipment of drugs and medicines (June 29, 1960) by Winthrop Products, Inc. (consignor in New York) thru the SS "Tai Ping" (of Wilhelm Wilhelmsen) which consigned Winthrop-Stearns Inc. (consignee in Manila) > Arrival of Tai Ping in Manila (August 7, 1960) > Bill of Lading by Barber Steamship Lines, Inc. (agent of Wilhelmsen) ~ arrival notice of shipment with Winthrop Products, Inc. as shipper to consignee Winthrop-Stearns, Inc. > St. Paul Fire & Marine Insurance Company insured the shipment (June 23, 1960) > Discharge of the shipment except 1 drum and several cartons in bad condition > (September 26, 1960) Claim by consignee worth Fl,109.67 ($226.37 and $324.33) representing the C.I.F. value of the damaged drum and cartons of medicine with the carrier ~ filed claim with the insurer > St. Paul Fire & Marine paid to the consignee the insured value of the lost and damaged goods worth $1,134.46 > Suit for Recovery (August 5, 1961) by St. Paul Fire & Marine Insurance Co. against the defendants (Manila Port Service and Manila Railroad Company, Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen) for the recovery of $1,134.46 > RTC Held (March 10, 1965) in favour of St. Paul ~ Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay P300 and Manila Railroad Company and Manila Port Service to pay, jointly and severally, the sum of P809.67 > Contention of St. Paul (April 12, 1965) ~ that it should recover the amount of $1,134.46, or its equivalent in pesos at the rate of P3.90 (value during the decision), instead of P2.00 (value during the obligation) > Right of St. Paul to recover as subrogee of the consignee > $1,134.46 which it actually paid to the consignee and which represents the value of the lost and damaged shipment > EXCHANGE RATE should follow the date the obligation occurred ~ commenced on the date it failed to deliver the shipment in good condition to the consignee > Shippers not insurers of the goods and as such they should not be made to pay the insured value BUT the obligation established as of the date of discharge > Value according to the Claim (September 26, 1960) converted to P2.015 to $1.00 which was the rate existing at that time > bill of lading > to provide for the rights and liabilities of the parties in reference to the contract to carry > stipulation in the bill of lading limiting the common carrier's liability to the value of the goods appearing in the bill, unless the shipper or owner declares a greater value, is valid and binding > provided it is (a) reasonable and just under the circumstances, and (b) has been fairly and freely agreed upon > shipper,

owner, consignee or holder are all bound by its stipulations, exceptions and conditions, whether written, stamped or printed > subrogee can recover only the amount that is recoverable by the shipper G.R. No. 105188 January 23, 1998 MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte v. A.U. VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO Facts: Sale of parcel of land by Papa (representing Butte) to Valencia and Penarroyo but before the title was released by the Bank in whom the property was mortgaged, Butte died and Papa denied consummating the sale with Valencia and Penarroyo because of his failure to encash the check with which they have paid the purchase price. However, no evidence was presented that such check was not cashed; presumption that check is encashed; and failure to encash it is due to Papas fault, thus effecting the check. > Mortgage of Properties by Angela M. Butte to Associated Banking Corporation > Contract of Sale (June 15, 1973) > by Myron C. Papa (for Angela M. Butte) to A.U. Valencia and Co., Inc. (for Felix Pearroyo) over a parcel of mortgaged land > Butte died before title was released > Sale of Bought Property (August 20, 1973) by Valencia and Penarroyo to Delfin Jao > Demand by Valencia and Penarroyo for release of title against Bank > Bank refused until mortgaged properties were redeemed > Release of Title (April 1977) BUT Banks mortgage rights assigned (April 12, 1977) to Tomas L. Parpana (special administrator of the Estate of Ramon Papa, Jr.) > Auction of Properties (January 21, 1980) to spouses Arsenio B. Reyes and Amanda Santos due to non-payment of real estate tax > Collection of monthly rentals from tenants and Refusal to deliver title by Papa despite knowledge of sale of the property and repeated demands by Valencia and Penarroyo > Complaint for Specific Performance (June 1982) against Papa as administrator of the Testate Estate of Angela M. Butte to deliver title and turn over rentals > RTC Held (June 29, 1987) in favour of Valencia and Penarroyo > Contention of Papa: Sale not consummated > ADMITTED payment by Valencia and Penarroyo of P5k cash on (May 24, 1973) of P40k check (June 15, 1973) > BUT ALLEGED that he did not encash the check (P40k) given by Valencia and Pearroyo in payment of the full purchase price of the subject lot > Sale Consummated because of PRESUMPTION THAT CHECK WAS ENCASHED > (1) no evidence that check was not enchashed yet Papa admitted having issued receipts for the sale (but alleged that these are not proof of payment); (2) presumption that the check was encashed ~ that payment by checks shall produce the effect of payment ONLY when they have been cashed EXCEPT when through the fault of the creditor they have been impaired (Art. 1249) > payment by check was not denied by Papa who merely alleged that he can no longer recall the transaction

which is supposed to have happened 10 years ago; (3) EVEN IF PAPA had never encashed the check, his failure to do so for more than 10y undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay ~ acceptance of a check implies an undertaking of due diligence in presenting it for payment ~ debtor is prejudiced by the creditor's unreasonable delay in presentment by want of such diligence > SUCH CHECK will be held to operate as actual payment of the debt or obligation for which it was given > obligation for which the check was given as conditional payment will be discharged ~ fulfilment of Valencia and Penarroyo of their obligation to deliver payment > right to compel petitioner to deliver to them the owner's duplicate of TCT *Checks become stale after 6m of issue *Delivery of instrument results in payment once it has been cleared > Retroactive effect G.R. No. L-49188 January 30, 1990 PHILIPPINE AIRLINES, INC. v. HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA TAN, Facts: Tan was granted damages against PAL but PAL made payment to Sheriff by issuing a check in Sheriffs favour instead of aggrieved Tan. Hence, when Sheriff absconded with PALs money, latter is made to bear the loss because it allowed such possibility of misappropriation to happen when it improperly issued the check to the wrong person. > Complaint for Damages (November 8, 1967) by Amelia Tan (of Able Printing Press) against Philippine Airlines, Inc. > RTC Held (June 29, 1972) in favor of Amelia Tan ~ Payment of P75k as actual damages, P18,200 as unrealized profit, P20k as moral damages, P5k as damages > CA affirmed (February 3, 1977) > Final and Executory (May 31, 1977) > Remanded to RTC for execution > Motion for issuance of writ of execution (September 2,1977) > Issuance of writ of execution (October 11, 1977) > Writ referred to Deputy Sheriff Emilio Z. Reyes for enforcement > Motion for issuance of an alias writ of execution (February 11, 1978) > Opposition Motion (March 1, 1978) by PAL alleging that they had already fully paid its obligation through check payment in favour of the deputy sheriff ~ receipts issued by Reyes > CA Order (March 3,1978) denying issuance of alias writ but ordering sheriff Reyes to surrender amounts paid to him > Order unserved ~ Sheriff Reyes absconded or disappeared > Motion for the issuance of a partial alias writ of execution (March 28, 1978) then substituted by Motion Substitute Motion for Alias Writ of Execution (April 19, 1978) > RTC Granted (May 1, 1978) ~ Directed Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25k > Urgent motion to quash (May 23, 1978) by PAL alleging that no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the judgment debt had

already been fully satisfied > Notice of Garnishment (May 26,1978) on PALs deposit in Far East Bank and Trust Company worth P64,408.00 > Contention: Fulfillment of payment by PAL via Sheriff Reyes > Issuance of an alias writ of execution without the prior return of the original writ by the implementing officer (Sheriff Reyes) > due to fact that such a return is incapable of being obtained ~ officer who is to make the said return has absconded and cannot be brought to the Court despite the earlier order of the court for him to appear for this purpose > necessity for such a return as a condition precedent for the issuance of an alias writ was justifiably dispensed with by the court > judgment cannot be rendered nugatory by the unreasonable application of a strict rule of procedure > where the return cannot be expected to be forthcoming, to require the same would be to compel the enforcement of rights under a judgment to rest on an impossibility, thereby allowing the total avoidance of judgment debts > HENCE so long as a judgment is not satisfied, a plaintiff is entitled to other writs of execution ~ Tan has waited for 22y yet payment has not been made (1967 to 1990); that she has been deprived of what, technically, she should have been paid from the start, before 1967, without need of her going to court to enforce her rights > OTHERWISE, requiring such will produce an abhorent situation whereby the mischief of an erring officer of the court could be utilized to impede indefinitely the undisputed and awarded rights which a prevailing party rightfully deserves to obtain and with dispatch > merely to inform the court and the parties, of any and all actions taken under the writ of execution but such information can be established in some other manner > execution is the fruit and end of the suit and is very aptly called the life of the law > Payment made to Sheriff Reyes DID NOT SATISFY THE JUDGEMENT DEBT > Payment was made thru a check addressed to Sheriff Reyes where PAL knew the aggrieved to be Tan and should have issued the check to her > NORMALLY, Payment must be made to (1) the obligee himself or to (2) an agent having authority, express or implied, or to (3) one who by law is authorized to act for the creditor, or to (4) one having apparent authority to receive the particular payment as authorized by law or by consent of the oblige > Payment to Sheriff could have satisfied the debt BUT NOT IN THIS CASE due to payment thru check issued in his name > (1) Sheriff not authorized by consent of obligee to accept payment; (2) Check only a substitute for money and its delivery does not operate as payment ~ cash would have been considered as payment; (3) Check issued in the Sheriffs name ~ PAL made possible the misappropriation of money, which goes to the wrong party ~ PAL must bear the fault > Payment in checks is precisely intended to avoid the possibility of the money going to the wrong party > Payment > the discharge of a debt or obligation in money > unless the parties so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment of his debt > negotiable instrument is only a substitute

for money and not money, the delivery of such an instrument does not, by itself, operate as payment > A check, whether a manager's check or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor ~ mere delivery of checks does not discharge the obligation under a judgment ~ obligation is not extinguished and remains suspended until the payment by commercial document is actually realized > Execution > process which carries into effect a decree or judgment > for the sheriff to accomplish > Satisfaction of a judgment > payment of the amount of the writ, or a lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that due, and, it may be done otherwise than upon an execution > for the creditor to achieve >> The implementing officer's duty should not stop at his receipt of payments but must continue until payment is delivered to the obligor or creditor Giving him cash or check payable to him is making the same risk! Why payment if in cash and not in check >> Why the distinction? None but they were just insisting A.M. No. 21901-96 June 27, 1978 REPARATIONS COMMISSION v. UNIVERSAL DEEP-SEA FISHING CORPORATION and MANILA SURETY AND FIDELITY CO., INC. MANILA SURETY & FIDELITY CO., INC. v. PABLO S. SARMIENTO Facts: > 3 Sales between Universal Deep-Sea Fishing Corporation and Reparations Commission over 6 fishing boats (delivered in twos) > (1) Contract of Conditional Purchase with Schedule of Payments (February 12, 1960) > Total of P536,428.44 where 1st installement or 10% of F.O.B. Cost due on May 8, 1961 and balance in 10 equal yearly instalments > Delivery of 2 boats (November 20,1958) > Performance Bond worth P53,643 with UNIVERSAL as principal and the Manila Surety & Fidelity Co., Inc. as surety ~ Indemnity Agreement to indemnify the surety company for any damage, loss charges, etc., which it may sustain or incur as a consequence of having become a surety upon the performance bond > (2) Contract of Conditional Purchase and Sale Reparations Goods (November 25, 1959) > Total of P687,777.76 where 1st installement or 10% of F.O.B. Cost due on July 1961 and balance in 10 equal yearly instalments > Delivery of 2 boats (April 20, 1959) > Performance Bond worth P68,777.77 with UNIVERSAL as principal and the Manila Surety & Fidelity Co., Inc. as surety > (3) Contract for the Utilization of Reparations Goods (February 12, 1960) > Total of P54,500 where 1st installement or 10% of F.O.B. Cost due on October 17, 1961 and balance in 10 equal yearly instalments > Delivery of 2 boats> Performance Bond worth P54,500 with UNIVERSAL as principal and the Manila

Surety & Fidelity Co., Inc. as surety > Suit for Recovery of Sums of Money (August 10, 1962) by Reparations Commission > Contention of UNIVERSAL: Not yet due and demandable > DEBT DUE AND DEMANDABLE > Last instalment of first sale was due on May 8, 1961 and of second sale on July 31, 1961 and of third on October 17, 1961 ~ Suit was filed August 10, 1962 > Arts. 1252-1254 DO NOT APPLY ~ desire to apply because of choice to which debt the payment will accrue > APPLY to a person owing several debts of the same kind to a single creditor > CANNOT APPLY to a person whose obligation as a mere surety is both contingent and singular ~ full and faithful compliance with the terms of the contract of conditional purchase and sale of reparations goods > OBLIGATION OF SURETY > payment of the first installment and the 10 equal yearly installments of the first sale > P10k deducted from P53,643 paid as first instalment BUT THEN 10 equal yearly installments had also accrued > surety company to pay still the full extent of its undertaking > WHY DEDUCT P10k FROM DP OF FIRST SALE ~ where there is no imputation of payment made by either debtor or creditor, the debt which is the most onerous to the debtor shall be deemed to have been satisfied

G.R. No. 123855 November 20, 2000 NEREO J. PACULDO v. BONIFACIO C. REGALADO Facts: > Contract of Lease (December 27, 1990) > by Bonifacio C. Regalado to Nereo J. Paculdo over a parcel of land in Fairview with wet market building > for 25y from January 1, 1991 to December 31, 2015 ~ Monthly rental of P450k during the first 5y of the contract beginning December 27, 1990 within the first 5d of each month at Bonifacios office > Lease and Sale of other properties (Quirino) and equipment and vehicles > Failure to pay rentals from May-June 1992 > Demand Letter (July 6, 1992) for payment of back rentals in 15d from receipt of letter; otherwise, cancellation of the lease contract > Demand Letter (July 17, 1992) > Mortgage of the Property (August 3, 1992) by Paculdo to Monte de Piedad Savings Bank as security for P20M loan, unknown to Regalado > Refusal of Regalado to accept rental payments starting August 12, 1992 > Action for Injunction and Damages (August 20, 1992) by Paculdo against Regalado to prevent him from disturbing his possession of the property subject of the lease contract > Complaint for Ejectment (August 20, 1992 and then April 22, 1993 after former was withdrawn) by Regalado > MTC Held (January 31, 1994) in favor of Regalado > Repossession of the property by Regalado (February 19, 1994) > Writ of Execution against and Voluntary Leave of Paculdo > Complete Repossession (July 12, 1994)

> Contention of Paculdo: Payment of P11,478,121.85 for security deposit and rentals on the wet market building BUT Regalado, without his consent, applied portions of the payment to his other obligations > Receipts that payments made were for rentals > Security deposit ~ lease property, real estate sale ~ security deposit at the start to pay for interests > Response of Regalado > Letter of July 15, 1991 ~ informed Paculdo that the payment for wet market property was to be applied not only to his accounts under both the subject land and the Quirino lot but also to heavy equipment bought by the latter > Letter of November 19, 1991 ~ proposed that the security deposit for Quirino lot (P643,276.48) be applied as partial payment for his account under the subject lot as well as to real estate taxes of Quirino lot > no objection, as evidenced by his signature signifying his conformity > LEGAL BASIS 1252 ~ does it apply here ~ creditor applies if debtor does not indicate ~ binding to debtor and no consent necessary; BUT Consent necessary here because debt not yet due > Does 1252 apply in the first place? NO, 1252 contemplates a situation wherein obligs are already due > MISAPPLIED 1252 > MTC Held: Total payment of P10,949,447.18 cannot be applied purely to the rentals on the Fairview wet market building since there would be an excess payment of P1,049,447.18 (monthly rentals only P 8,550,000 and security deposit only P 1,350,000.00; thus excess of P 1,049,447.18) > NO CONSENT OF PACULDO THAT PAYMENT MADE APPLIES TO DEBT OTHER THAN FAIRVIEW RENTALS > Paculdo made it clear that payment were to be applied to his rental obligations and security deposit on the Fairview wet market property > no clear assent to the change in the manner of application of payment > no meeting of the minds > NO CONTRACT ~ though an offer may be made, the acceptance of such offer must be unconditional and unbounded in order that concurrence can give rise to a perfected > ABSENT choice which obligation to be satisfied first, Regalado may have exercised the right to apply the payments to the other obligations of Paculdo BUT subject to the condition that the latter must give his consent > silence is not tantamount to consent which must be clear and definite > follow the law that no payment is to be made to a debt that is not yet due and the payment has to be applied first to the debt most onerous to the debtor ~ purchase price of the heavy equipment was not yet due at the time the payment was neither was there a demand by the creditor to make the obligation to pay the purchase price due and demandable ~ Fairview wet market property is the most onerous G.R. No. 118342 January 5, 1998 DEVELOPMENT BANK OF THE PHILIPPINES v. COURT OF APPEALS and LYDIA CUBA G.R. No. 118367 January 5, 1998

LYDIA P. CUBA v. COURT OF APPEALS, DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL Facts: > September 6, 1974; August 11, 1975; and April 4, 1977: Loans obtained by Lydia Cuba from Development Bank of the Philippines worth P109,000.00; P109,000.00; and P98,700.00 > Deed of Assignment of her Leasehold Rights to a Fishpond as Security > Defaulted > DBP appropriated the leasehold rights without foreclosure proceedings, whether judicial or extra-judicial > Deed of Conditional Sale of the Leasehold Rights in favor of Lydia Cuba over after negotiation for repurchase of her leasehold rights > New Fishpond Lease Agreement (March 24, 1980) issued by the Ministry of Agriculture and Food in favor of Lydia Cuba > Defaulted in amortizations > Notice of Rescission thru Notarial Act (March 13, 1984) by DBP > Repossession of Leasehold Rights > Public Auction and Deed of Conditional Sale (August 16, 1984) in favor of Agripina Caperal > Fishpond Lease Agreement (December 28, 1984) awarded to Caperal > Property as Security for loan was a MORTGAGE > ASSIGNMENT WAS BY WAY OF SECURITY FOR PAYMENT OF THE LOANS ~ assignment to guarantee an obligation is in effect a mortgage > provision in promissory notes that In the event of foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, if any; provisions in Assignment of Leasehold Rights that failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed and that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed > No provision that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time ~ merely provided for the appointment of DBP as attorney-in-fact with authority to sell or otherwise dispose of the said real rights, in case of default > Not reassignment of ownership where the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond > assignment being in its essence a mortgage, was but a security and not a satisfaction of indebtedness ~ obligation to pay a sum of money remained, and the assignment merely served as security for the loans covered by the promissory notes > DBP never acquired lawful ownership of CUBA's leasehold rights > Necessity for foreclosure proceedings before DBP could have acquired ownership > Art. 2088 forbids a credit or from appropriating, or disposing of, the thing given as security for the payment of a debt > VOID! all acts of ownership and possession by the bank > BAD FAITH! in falsely representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBA's leasehold rights that resulted to termination of CUBA's leasehold rights > Payment by cession > existence of two or more creditors and the assignment of all the debtor's property

> Dation > property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales > Pactum commissorium > ELEMENTS: (1) there should be a property mortgaged by way of security for the payment of the principal obligation; (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period > VOID because it is a conflict of interest ~ creditor normally takes property that is more valuable than value of debt > creditor still protected if value of security goes down > VOID ~ if lender appropriates it for himself, debtor is cheated because excess of the appropriation goes to creditor > LEGAL: foreclosure ~ sale ~ excess is returned to debtor > contemplates automatic appropriation ~ automatic transfer of title ~ If made into a dation en pago, is it valid if there is a deed of sale > depends

G.R. No. L-50449 January 30, 1982 FILINVEST CREDIT CORPORATION v. PHILIPPINE ACETYLENE, CO., INC. Facts: > Deed of Sale (October 30, 1971) > Alexander Lim to Philippine Acetylene Co., Inc. over a 1969 Chevrolet for P55,247.80 with dp of P20k and the balance of P35,247.80 payable at a monthly installment of P1,036.70 for 34m due and payable on the first day of each month starting December 1971 to September 1, 1974 > Chattel Mortgage over the same vehicle as Security > Deed of Assignment (November 2, 1971) by Lim to Filinvest Finance Corporation, and then latter to Filinvest Credit Corporation, all his rights, title, and interests in the promissory note and chattel mortgage > PACI defaulted > Demand letter by FFC > Voluntary Surrender with Special Power of Attorney To Sell (March 12, 1973) by PACI in favour of FCC so it could sell the vehicle > Letter (April 4, 1973) from FFC that it could not sell the motor vehicle as there were unpaid taxes on the said vehicle and request to pay instalments in arrears > Letter (May 8, 1973) by FFC to deliver back the motor vehicle to PACI but the latter refused to accept it > Action for collection of a sum of money with damages (September 14, 1973) by FFC > Return of Vehicle NOT dation in payment or dacion en pago, express or implied > Not equivalent of payment of its debt > NO CONSENT FROM FCC TO ACCEPT VEHICLE AS PAYMENT IN LIEU OF DEBT > no proof that mortgaged motor vehicle be construed as actual payment > only transfer of possession of the mortgaged motor vehicle took place > Voluntary Surrender with Special Power of Attorney To Sell only authorized FCC to sell the motor vehicle as an agent of PACI ~ not as its property, for if it were, he would have full power of disposition of the property, not only to sell it as is the limited authority given him in the special power of attorney > had FCC intended to completely release PACI of its mortgage obligation, there would be no necessity of executing the document > Dacion en pago > transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation > debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt > Partakes the nature of sale ~ creditor is really buying the thing of the debtor, payment for which is to be charged against the debtor's debt > an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price > essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present

G.R. No. L-52733 July 23, 1985 PILAR DE GUZMAN, ROLANDO GESTUVO, and MINERVA GESTUVO v. THE HON. COURT OF APPEALS, THE HON. JUDGE PEDRO JL. BAUTISTA, Presiding Judge of the Court of First Instance of Rizal, Branch III, Pasay City, and LEONIDA P. SINGH Facts: > Contract to Sell (February 17, 1971) by PILAR DE GUZMAN, ROLANDO GESTUVO, and MINERVA GESTUVO to LEONIDA P. SINGH over 2 parcels of land > balance of the purchase price worth P133,640.00 due February 17, 1975 > Request by Singh (February 15, 1975) for a statement of account of the balance due; copies of the certificates of title covering the two parcels of land subject of the sale; and a copy of the power of attorney > Request denied > Complaint for specific performance with damages > Dismissed for failure to prosecute > Refile alleging breach of contract for deliberate non-fulfillment of their obligations under the contract to sell > Compromise Agreement (November 29, 1977) ~ Payment of P240k by December 18, 1977 or by January 27, 1978 but worth P250k; Otherwise, Contract shall be deemed rescinded, right of possession shall be enforced; Lim shall voluntarily surrender and vacate the same without further notice or demand > Defaulted > Motion for issuance of a writ of execution (January 28, 1978) > Opposition (March 27, 1978) alleging that she had complied and demanded that they immediately execute the necessary documents to transfer the title to the properties > Compliance by Singh > Failure to pay the full amount by January 27, 1978 was due to fault of appellees > She went to the sala of Judge Bautista on the appointed day to make payment, as agreed upon in their compromise agreement but the appellees were not there to receive it; their counsel informed her that he had no authority to receive and accept payment but invited her to the house of the petitioners to effect payment but the petitioners were not there either until 4PM but never did arrive > She returned the next day (January 28, 1978 to the office of the Clerk of the to deposit the balance of the purchase price but cashier was not there to receive it because it was Saturday > Returned Monday and deposited the amount of P30k to complete the payment of the purchase price of P250k > Non-appealable of Compromise Agreements > the rule is that a judgment rendered in accordance with a compromise agreement is not appealable > immediately executory unless a motion is filed to set aside the compromise agreement on the ground of fraud, mistake or duress, in which case an appeal may be taken from the order denying the motion > that an order of execution of judgment is not appealable > EXCEPTION: if terms does not conform to the essence or when the terms of the judgment are not clear and there is room for interpretation and the interpretation given by the trial court as contained in its order of execution is wrong in the opinion of the defeated party

G.R. No. L-35381 October 31, 1972 TLG INTERNATIONAL CONTINENTAL ENTERPRISING, INC. v. HON. DELFIN B. FLORES, Presiding Judge, Court of First Instance of Rizal, Branch XI Facts: > Action for declaratory relief involving the rights of Bearcon Trading Co., Inc. as lessee of the premises of Juan Fabella > to make a consignation of the monthly rentals as it was at a loss as to who is lawfully and rightfully entitled to receive payments of the monthly rentals > Order (October 5, 1971) by Hon. Delfin B. Flores granted motion to intervene of Delfin B. Flores as sublessee > Deposit with the Clerk of Court total of P3,750 by way of rentals, which deposits are properly covered by official receipts ~ not required by the Court > Dismissal of Complaint (April 24, 1972) > Motion to withdraw sums deposited (May 27, 1972) ~ dismissal left the intervenor without any recourse but to withdraw the amount and turn over the same to Bearcon in accordance with the understanding arrived at between the parties > Denied > Certiorari > Consignation > debtor is entitled as a matter of right to withdraw the deposit made with the court, before the consignation is accepted by the creditor or prior to the judicial approval of such consignation > Art. 1260 that: Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force > Right to Withdraw > case was dismissed before the amount deposited was either accepted by the creditor or a declaration made by the Court approving such consignation > Dismissal rendered the consignation ineffectual

and December 31, 1980 > Willingness to pay but demand to see certificate of title and tax payment receipts > Tendered payment but was refused (November 3, 1980) > Motion for Writ of Execution (November 7, 1980) ~ that Ramon defaulted > Motion granted (November 14, 1980) > Motion for reconsideration (November 17, 1980), tendering a Pacific Banking Corporation certified manager's check covering the entire obligation > Denied (November 21, 1980) > Issuance of writ of execution (November 25, 1980), rescinding the deed of conditional sale of real property (November 27, 1980) > NOT EQUITABLE TO RESCIND CONTRACT > substantial compliance with the compromise agreement > Notice of cancellation on November 7, 1980 ~ cancellation should be only 30d after receipt of notice > Tender of payment on November 17, 1980 > CONSIGNATION/DEPOSIT OF SUM DID NOT EXEMPT LUISA FROM PAYMENT TO RAMON ARISING FROM REDEMPTION OF OBJECT > no consignation or deposit of the sum due with the court pursuant to Paez v. Magno ~ that although consignation of the redemption price is not necessary in order that the vendor may compel the vendee to allow the repurchase within the time provided by law or by contract and that a mere tender of payment is enough, if made on time, as a basis for action against the vendee to compel him to resell, such tender does not in itself relieve the vendor from his obligation to pay the price when redemption is allowed by the court > tender of payment is sufficient to compel redemption but is not in itself a payment that relieves the vendor from his liability to pay the redemption price > HENCE, necessity to pay P76,059.71 (purchase price) and the rentals in arrears before Flores shall be entitled to a deed of absolute sale in his favor ~ respondent had preserved his rights as a vendee in the contract of conditional sale of real property by a timely valid tender of payment of the balance of his obligation which was not accepted by Luisa but he remains liable for the payment of his obligation because of his failure to deposit the amount due with the court > Art. 1256 that 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 by the consignation of the thing or sum due, and that consignation alone shall produce the same effect in the five cases enumerated therein > Art. 1257 that in order that the consignation of the thing (or sum) due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation > Art. 1258 that consignation shall be made by depositing the thing (or sum) due at the disposal of the judicial authority and that the interested parties shall also be notified thereof. > Republic Act No. 6552 (September 14, 1972) > Section 4: In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of the

G.R. No. L-57552 October 10, 1986 LUISA F. MCLAUGHLIN v. THE COURT OF APPEALS AND RAMON FLORES Facts: > Contract of Conditional Sale of Real Property (February 28, 1977) between Luisa F. McLaughlin and Ramon Flores for P140k (P26,550.00 upon the execution of the deed and balance of P113,450.00 to be paid not later than May 31, 1977) > Default of Ramon > Complaint for Rescission (June 19, 1979) by Luisa > Compromise Agreement (December 27, 1979) ~ Ramon acknowledged his indebtedness and agreed he would pay as follows: a) P50,000.00 upon signing of the agreement; and b) the balance of P69,059.71 in two equal installments on June 30, 1980 and December 31, 1980 >That failure to comply will entitle Luisa to the issuance of a writ of execution rescinding the Deed of Conditional Sale of Real Property, waiving his right to appeal > Demand (October 15, 1980) of balance due on June 30, 1980

cancellation or the demand for rescission of the contract by a notarial act > Section 7: Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void. G.R. No. L-58961 June 28, 1983 SOLEDAD SOCO v. HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First Instance of Cebu, Branch XII, Cebu City and REGINO FRANCISCO, JR. Facts: Lessee Francisco failed to validly consign his rents to the Clerk of Court for want of notice to lessor who allegedly refused to accept payment in order to eject lessee. > Contract of Lease (January 17, 1973) between Soledad Soco and Regino Francisco, Jr. over formers commercial building and lot > for 10y with monthly rental of P800, renewable for another 10y > Payment of Rents by Collector > Sublease of Francisco to NACIDA at P3k/m > No more collector and receipts for payments > Letter by Francisco (February 7, 1975) that payment would be coursed thru Commercial Bank and Trust Company by check (Bank instructed to pay P840/10th of the month) > From May 1977: Non-payment of rents > Payments allegedly deposited with Clerk of Court thru Commercial Bank BUT Soco received none and even went to the residence/office of Francisco > Notice (November 23, 1978) by Soco to vacate property > Complaint for illegal detainer (January 8, 1979) allegedly due to failure of payments of the rentals > ISSUE: Validity of Consignation of Rental Payments > Contentions of Francisco: that Soco refused to accept the rents in order to evict Francisco for subleasing the property at a higher price > Compelled to make all payments due through Commercial Bank and deposited with Clerk of Court > Contentions of Soco: that she had received no payment > REQUIREMENTS OF A VALID CONSIGNATION: (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); Tender and refusal of payment (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code) ~ FIRST NOTICE in order to give the creditor an opportunity to reconsider his unjustified refusal and to accept payment thereby avoiding consignation and the subsequent litigation; (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) ~ SECOND NOTICE to enable the creditor to withdraw the goods or money deposited ~ unjust to make him suffer the risk for any deterioration, depreciation or loss of such goods or money by reason of lack of knowledge of

consignation > TRIAL for validity of consignation > Failure in any makes consignation ineffective > language of Articles 1256 to 1261 > "shall" and "must" which are imperative ~ mandatory nature ~ full and strict compliance not just substantial compliance > APPLICATION OF CONSIGNATION (in order to release debtor from responsibility) > (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 NO VALID CONSIGNATION: No First and Second Notice and No Proof of Payment > Alleged Proof of First Notices to Consign: (1) Letter by Atty. Pampio Abarientos dated June 9, 1977 where you are hereby requested to please get and claim the rental payment aforestated from the Office within 3d from receipt hereof otherwise we would be constrained to make a consignation of the same with the Court in accordance with law; (2) Letter by Atty. Abarientos dated July 6, 1977 to advise and inform you that my client, Engr. Regino Francisco, Jr., has consigned to you, through the Clerk of Court...the total amount of Pl,852.20, as evidenced by cashier's checks...dated May 11, 1977 and June 15, 1977 respectively and payable to your order...Please be further notified that all subsequent monthly rentals will be deposited to the Clerk of Court >> BUT LETTERS only refer to particular monthly rentals of May, June, July 1977 > No indication/proof that rentals would then be deposited with the court and that Soco was notified; (3) Answer of Francisco in Eviction Suit >> But MERE ALLEGATIONS; (4) Letter by Atty. Menchavez dated November 28, 1978 that It is not true that my client has not paid the rentals...has been religiously paying the rentals in advance... by Commercial Bank and Trust Company to the Clerk of Court... receipt of payment made by him for the month of November, 1978 which is dated November 16, 1978 >> only proves payment of November 1978 and no other > No Proof of Second Notice > that consignation has been made and that the checks were in fact deposited > No official receipt allegedly issued by the Clerk of Court was presented EXCEPT for July and August 1977 > That these had been paid only on November 20, 1979 > HENCE, testimony of Soco on October 24, 1979 that Francisco had not paid the monthly rentals for these months > Francisco had to make a hurried deposit on the following month to repair his failure > Alleged Instruction of Payment by Francisco to Bank > Francisco: Please immediately notify us everytime you have the check ready so we may send somebody over to get it BUT CLARIFIED BY BANK THAT you shall send

somebody over to pick up the cashier's check from us > lessee's duty to send someone to get the cashier's check from the bank and to make and tender the check to the lessor > lessees obligation to tender payment and notify lessor which he failed to do > Alleged evidence of payment: (1) Debit Memorandum issued by Comtrust accounting payment for May-August 1977 > deducted check amounts from account of Francisco > merely internal banking practices or office procedures > not binding upon a third person such as the lessor; (2) Certification issued by Comtrust dated October 29, 1979 >>> Consignation > 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 >>> Tender of payment > antecedent of consignation, that is, an act preparatory to the consignation > consignation is principal while tender of payment from which are derived the immediate consequences which the debtor desires or seeks to obtain > tender of payment is extrajudicial while consignation is necessarily judicial > priority of the tender of payment is the attempt to make a private settlement before proceeding to the solemnities of consignation > must be made in lawful currency > payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made G.R. No. L-23563 May 8, 1969 CRISTINA SOTTO v. HERNANI MIJARES, ET AL. Facts: Debtors Mijares, et al admitted debt to Sotto and expressed willingness to pay amount by depositing it in court but subject to the condition that the mortgage they had executed as security be cancelled. Such condition is valid because the right to consign belongs to the debtor exclusively who cannot be compelled by the court to make such deposit against its will. > Admitted Debt of Mijares, et al to Sotto from contractual transactions worth P5,106.00 > Debt secured by a mortgage > Refusal of Sotto to receive amount from Mijares despite latters willingness to pay > Motion for Deposit (November 13, 1962) by Mijares to pay P5,105 by depositing amount with the Clerk of Court > Granted by Court > Mijares, et al filed motion for reconsideration of the Order because of their failure to allege in their Opposition that the sum of P5,106.00 was actually secured by a real estate mortgage and that they would thus premise their willingness to deposit said amount upon the condition that Sotto will cancel the mortgage and return the TCT > Court denied (March 20, 1963) > Right to Consign belongs to the Debtors EXCLUSIVELY > a deposit is in the nature of consignation, and consignation is a facultative remedy which debtor may or

may not avail himself of > If debtor refuses to consign, he may not be compelled to do so, and the creditor must fall back on the proper coercive processes provided by law to secure or satisfy his credit, as by attachment, judgment and execution > If made by the debtor, the creditor merely accepts it, if he wishes; or the court declares that it has been properly made, in either of which events the obligation is ordered cancelled > If debtor has right of withdrawal, he surely has the right to refuse to make the deposit in the first place > Court committed grave abuse of discretion in ordering deposit without granting cancellation of mortgage G.R. No. 90359 June 9, 1992 JOHANNES RIESENBECK v. THE HON. COURT OF APPEALS, and JUERGEN MAILE Facts: Acceptance by creditor of consignation with reservation is valid. Thus, creditor can make further claims on other obligations if amount consigned is proven or deemed to be insufficient. > Complaint for Consignation and Damages (July 25, 1988) by Riesenbeck against Juergen Maile > Consignation and Deposit of P113,750 with Clerk of Court (July 27, 1988) > Manifestation Accepting Consignation and Motion to Dismiss (August 1, 1988) by Maile ~ that he accepts consigned amount but without necessarily admitting the correctness of the obligation and provided that the present complaint for damages be dismissed > Riesenbeck opposed > Mailes Answer with Special Defenses and Counterclaim > Riesenbecks Answer > RTC Held (September 28, 1988) that consignation was valid and Maile could legally accept the payment by consignation with reservation to prove damages > Acceptance of consignation with reservation of the amount is LEGALLY VALID > that before a consignation can be judicially declared proper, the creditor may prevent the withdrawal of the amount consigned by the debtor, by accepting the consignation, even with reservations > creditor is not deemed to have waived the claims he reserved against his debtor > creditor is not barred from raising his other claims ~ that when the amount consigned does not cover the entire obligation, the creditor may accept it, reserving his right to the balance > THUS, acceptance with reservation did not completely extinguish the entire indebtedness of the debtor ~ consignation is completed at the time the creditor accepts the same without objections or if the court declares that it has been validly made in accordance with law > Retroactive Effect of Consignation > payment is deemed to have been made at the time of the deposit of the money in court, or when it was placed at the disposal of the judicial authority G.R. No. L-32116 April 2l, 1981

RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR. v. THE COURT OF APPEALS and MAXIMA CASTRO Facts: Consignation made by Castro worth P3k with Clerk of Court covering her obligation to Bank for her loan was valid despite lack of notice because the Bank had already foreclosed her property and scheduled the sale and had not made any claim to the deposit made by Castro. It would have been futile for her to offer payment only worth P3k because of fraudulent additional P3k where Bank is demanding from her also the additional P3k. > Application for Industrial Loan in Rural Bank of Caloocan (December 7, 1959) by Maxima Castro, with Severino Valencia who arranged everything > Approval of the Loan (December 11, 1959) ~ Promissory Note by Castro with Sps. Valencia worth P3k in favour of Bank > Loan from the Bank by Sps. Valencia also worth P3k ~ Promissory Note by Sps. Valencia where Castro signed as co-maker, also worth P3k > Loans secured by Mortgage of Castros house and lot > Notice of Public Auction (February 13, 1961) scheduled on March 10, 1961 for non-payment of promissory notes ~ Postponed to April 10, 1961 but held on April 11, 1961 after former was declared a holiday > Sale to Arsenio Reyes > Suit for Sum of Money (April 4, 1961) by Castro against Bank, Desiderio, Sps. Valencia, Basilio Magsambol and Arsenio Reyes > Contention of Castro that she was defrauded into signing the promissory note of Sps. Valencia as co-maker ~ only learned of her P6k liability on February 13, 1961 > Cash Deposit of P3,383 with Clerk of Court upon filing of complaint in full payment of her personal loan plus interest > Amended Complaint for annulment of promissory note and mortgage insofar as it exceeds P3,000 > Counterclaim by Bank, et al that Bank was also defrauded by Sps. Valencia but claim not made during trial and no evidence presented > Castros Liability only P3k / Promissory Note valid only up to amount of P3k > Additional P3k for Loan of Sps. Valencia was obtained thru fraud > HENCE, additional P3k contract is INVALID > a contract may be annulled on the ground of vitiated consent if deceit by a third person, even without connivance or complicity with one of the contracting parties, resulted in mutual error on the part of the parties to the contract > both Castro and the bank committed mistake in giving their consents to the contracts ~ that they would not have given their consents to the contract > Valid Consignation by Castro of P3,383 for Promissory Note > made without prior offer or tender of payment to the Bank > Bank was holding Castro liable for the sum of P6k plus 12% interest per annum WHILE the amount consigned was only P3,000.00 plus 12% interest > BUT LIBERAL CONSIDERATIONS OF EQUITY > at the time of consignation, the Bank had long foreclosed the mortgage and about to sell the property of Castro extrajudicially for non-payment of the obligation > Bank already knew of the deposit made by Castro because the receipt of the deposit was attached to the record of the case but had not made any claim of such deposit >

Castro was right in thinking that it was futile and useless for her to make previous offer and tender of payment directly to the Bank only in the aforesaid amount of P3,000 plus 12% interest > consignation made by Castro was valid > Banks Negligence > relied on representations made by the Sps. Valencia when it should have directly obtained the needed data from Castro who was the acknowledged owner of the property offered as collateral > Highest order of care and prudence demanded from Bank in its business dealings with the Valencias considering that it is engaged in a banking business a business affected with public interest > should have ascertained Castro's awareness of what she was signing or made her understand what obligations she was assuming > Bank witness testified that Castro was interviewed several times but age was made 61 instead of 70, profession as drug manufacturer when in fact she was not, income of P20k when she was being paid only P1.20 per picul of the sugarcane production in her hacienda and 500 cavans on the palay production > Sps. Valencia acted not as AGENT of Castro > authority of the Valencias was only to follow-up Castro's loan application and not authorized to borrow for her > OTHERWISE Castro would not have went to the Bank to sign the promissory note for her loan of P3k if her act had been understood by the Bank to be a grant of an authority to the Valencia to borrow in her behalf > Bank should have required a special power of attorney executed by Castro in favour of Sps. > Sps. Valencias acted for their own behalf > Valencias appeared as principal borrowers of loan but mortgaged property was Castros ~ Bank should have exercised due care and prudence by making proper inquiry if Castro's consent to the mortgage was without any taint or defect > Public Auction was INVALID > pretermission of a holiday applies only "where the day, or the last day for doing any act required or permitted by law falls on a holiday," or when the last day of a given period for doing an act falls on a holiday > does not apply to a day fixed by an office or officer of the government for an act to be done, as distinguished from a period of time within which an act should be done, which may be on any day within that specified period > April 10, 1961 was not the day or the last day set by law for the extrajudicial foreclosure sale, nor the last day of a given period but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next succeeding business day without the notices of the sale EXCEPTION OF TENDER OF PAYMENT: 1256 > Not advisable to not do tender of payment

G.R. No. L-59805 July 21, 1989 LEONILA J. LICUANAN v. HON. RICARDO D. DIAZ, Judge, Branch XXVII Court of First Instance of Manila, and AIDA PINEDA Facts: Consignation by debtor Pineda in Office of Civil Relations of AFP was invalid because such office is not authorized by law to receive such; only courts or banks can entertain deposits. Also, creditor was not given notices of the consignation. > Lease Contract (January 22, 1974) between Leonila Licuanan and Aida Pineda over an apartment from March, 1973 with monthly rental of P180 due within first 5d of each month > Alleged occupation by Pineda of the garage, excluded from the contract > Letter from Counsel of Licuanan (April 4, 1978) demanding Pineda to vacate in 5d or else, ejectment suit > Pineda approached the Civil Relations Service which instructed her to deposit the amount of rental due with the Office of the Civil Relations, AFP ~ so that she could not be charged with non-payment given that Licuanan refused the rental being tendered > Pineda deposited rentals for April to September 1978, inclusive at P80/m and she was issued the corresponding receipt > Letter by Counsel of Licuanan (received August 30,1978) demanding payment of the April to August, 1978 rentals worth P900 > Suit for Illegal Detainer (September 13, 1978) alleging that Pineda failed to pay the monthly rentals from April to September 1978, amounting to Pl,080 > Contention of Pineda that she had deposited the rentals and called Licuanans counsel after receipt of Demand Letter (August 30) to inform him about the deposit > RTC Held (August 8, 1979) in favor of Pineda, dismissing illegal detainer suit > CONSIGNATION BY PINEDA WAS INVALID > (1) deposit made with the Office of Civilian Relations of the Armed Forces at Camp Aguinaldo and NOT with a court or with a bank as provided by law ~ Landicho v. Tensuan: law prescribes that such consignation or deposit of rentals should be made with the Court and/or under Batas Pambansa Blg. 25 in the bank and not elsewhere; (2) no second notice ~ Licuanan not informed after consignation had been made ~ never notified that a deposit was made in the said office; and in the succeeding monthly rentals, no tender of payment was made to petitioner, nor was she given any notice that consignation will be made or that consignation had been made G.R. No. 109020 March 3, 1994 FELISA CHAN v. HON. COURT OF APPEALS, and GRACE CU Facts: > Contract of Lease (February 1, 1983) between Felisa Chan and Grace Cu where latter will occupy for residential purposes Room 401 and the roof top of Room 442 of a building owned by the former > 1y (until February 1, 1984) with monthly rental of P2,400 > Renewed until February 1, 1986 > After February 1, 1986, there was no

written contract of lease executed by the parties, but Grace has continuously occupied the premises as a learning center > Chan padlocked the property (November, 1989) and terminated the lease, giving Grace until January 1, 1990 to vacate the premises > Suit for Collection of Rental for December, 1989 > Grace tendered to Chan a check worth P3,310.56 but latter refused to accept the check until Grace offered the payment in cash and notified her that she will deposit the amount in court by way of consignation if she refuses > Felisa allowed Grace to hold classes only until March, 1990 > Action for Consignation (January 15, 1990) by Grace ~ that Chan refused to accept, without justifiable cause, the rentals for the premises > Chan counterclaimed for ejectment, contending that the lease, being month to month, had expired but that despite demand, Grace refused to vacate > MTC Held (December 18, 1990) ~ consignation was valid, among others > ISSUE WAS validity of extension of the lease by MTC but CA ruled on the validity of the consignation and the propriety of the counterclaim for ejectment which were not raised before the Court of Appeals > Validity of Consignation > Filed with the MTC (not CFI as in Ching Pue vs. Gonzales ~ that CFI have no jurisdiction over ejectment cases; necessarily, no counterclaim for ejectment could have been interposed therein ~ that consignation is not proper where the refusal of the creditor to accept tender of payment is with just cause) > Valid extension by MTC of lease until June 30, 1992 > Article 1687 grants the court the authority to fix the term of the lease depending on how the rentals are paid and on the length of the lessee's occupancy of the leased premises > Counterclaim is any claim for money or other relief which a defending party may have against an opposing party > need not diminish or defeat the recovery sought by the opposing party, but may claim relief exceeding in amount or different in kind from that sought by the opposing party's claim > designed to enable the disposition of a whole controversy of interested parties' conflicting claims, at one time and in one action, provided all the parties can be brought before the court and the matter decided without prejudicing the rights of any party > "is in itself a distinct and independent cause of action, so that when properly stated as such, the defendant becomes, in respect to the matter stated by him, an actor, and there are two simultaneous actions pending between the same parties, wherein each is at the same time both a plaintiff and a defendant . . . A counterclaim stands on the same footing and is to be tested by the same rules, as if it were an independent action > defendant is a plaintiff with respect to his counterclaim. G.R. No. 103068 June 22, 2001 MEAT PACKING CORPORATION OF THE PHILIPPINES v. THE HONORABLE SANDIGANBAYAN, THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT and PHILIPPINE INTEGRATED MEAT CORPORATION

Facts: > Contract of Lease (November 3, 1975) between Meat Packing Corporation of the Philippines (owned by Government Service Insurance System) and Philippine Integrated Meat Corporation where 3 parcels of land of former was leased to latter for 28y with annual rental rate of P1,375,563.92, totalling P38,515,789.87 > Automatic Rescission Clauses: (1) default in payment of rentals equivalent to the cumulative sum total of 3 annual instalments; (2) Violation of any of the terms and conditions > PCGG sequestered all the assets, properties and records of PIMECO (March 17, 1986) > MPCP rescinded the lease agreement with PIMECO (notice dated November 17, 1986) for alleged non-payment of rentals of more than P2M for the year 1986 > PCGG acquired lease agreement > PCGG, after sequestration, tendered to MPCP two checks in the amounts of P3M and P2M, or a total of P5M representing partial payment of accrued rentals on the meat packing plant > MPCP refused to accept on the theory that the lease-purchase agreement had been rescinded > Sandiganbayan ordered MPCP to accept the payment and issue the corresponding receipt > MPCP unjustly refused acceptance of payment > prior tender by PCGG of the amount of P5M for payment of the rentals in arrears which MPCP refused to accept the same on the ground merely that its lease-purchase agreement with PIMECO had been rescinded > PIMECO paid, and GSIS/MPCP received, several amounts due under the lease-purchase agreement, such as annual amortizations or rentals, advances, insurance, and taxes, in total sum of P15,921,205.83 > acceptance by MPCP and GSIS of such payments for rentals and amortizations negates any rescission of the lease-purchase agreement > 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.33 It should be distinguished from tender of payment. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation.34 Tender and consignation, where validly made, produces the effect of payment and extinguishes the obligation.

G.R. No. L-44349 October 29, 1976 JESUS V. OCCENA and EFIGENIA C. OCCENA v. HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal, Branch XXVI; COURT OF APPEALS and TROPICAL HOMES, INC. Facts: Remedy sought by Tropical Homes, Inc., which is for the court to modify its contract with Occenas allegedly due to unanticipated rise in prices that would leave the former at a loss, cannot be granted for lack of legal basis. Impossibility of performance which Art. 1267 speaks of is for the release from obligation by the debtor but not the modification of contract which has the force of law between the parties. > Subdivision Contract between landowners Jesus and Efigenia Occena and developer Tropical Homes, Inc. where latter guaranteed former 40% share, fixed and sole, of all cash receipts from the sale of subdivision lots owned by former > Complaint for Modification of the Terms and Conditions of the Contract by Tropical (February 25, 1975) > Contentions of Tropical: That increase in prices of oil and its derivatives and concomitant worldwide spiralling of prices made the cost of development [rise] to levels which are unanticipated, unimagined and not within the remotest contemplation of the parties at the time said agreement was entered into and to such a degree that the conditions and factors which formed the original basis of said contract have been totally changed WITHOUT SPECIFYING HOW EXACTLY > Relief prayed for was modification of the terms and conditions of the contract by fixing the proper shares that should pertain to the parties out of the gross proceeds from the sales of subdivided lots of subjects subdivision > Invoked ART. 1267 ~ 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 whole or in part > General Rule of Art. 1267 ~ impossibility of performance releases the obligor, or when the service has become so difficult as to be manifestly beyond the contemplation of the parties, the court should be authorized to release the obligor in whole or in part > Intention of the parties should govern ~ that service turns out to be so difficult as have been beyond their contemplation > it would be doing violence to that intention to hold the obligor still responsible > that performance will result in situation where other party would be unustly enriched at the expense of the other > inequitous distribution of proceeds and exposure of plaintiff to implacable losses, resulting in an unconscionable, unjust and immoral situation > ART. 1267 CANNOT APPLY > REMEDY HAS NO LEGAL BASIS > Seeks NOT THE RELEASE from compliance of the obligation as contemplated by Art. 1267 that gives a positive right in favor of the obligor to be released from the performance of an obligation in full or in part when its performance has become so difficult as to be manifestly beyond the contemplation of the parties > Seeks modification of the terms and conditions of the Contract by fixing the proper shares

that should pertain to the parties out of the gross proceed > Art. 1267 does not grant the courts this authority to remake, modify or revise the contract which has the force of law between the parties, so as to substitute its own terms for those covenanted by the parties themselves > no legal basis; no cause of action

G.R. No. 107112 February 24, 1994 NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY v. THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II), Facts: Contemplated situation in which CASURECO entered into an agreement with NATELCO has changed so much that reformation of contract had been warranted. > (November 1, 1977) Contract between Naga Telephone Co., Inc. and Camarines Sur II Electric Cooperative, Inc. where former can use the electric light posts of the latter for its operation of its telephone service in Naga City while latter would be given free installation and use of 10 telephone connections > Period shall be as long as [NATELCO] has need for the electric light posts of [CASURECO II], it being understood that this contract shall terminate when for any reason whatsoever, [CASURECO II] is forced to stop, abandon its operation as a public service and it becomes necessary to remove the electric lightpost > Prepared by Atty. Luciano M. Maggay, member of the Board of Directors of CASURECO II and legal counsel of NATELCO > January 2, 1989, 10y later, Action for Reformation of the Contract with damages by CASURECO II > Difficulty Beyond Contemplation > Contemplation of CASURECOs President in November 1, 1977: that we will allow NATELCO to utilize the posts of CASURECO II only in the City of Naga because at that time the capability of NATELCO was very limited, as a matter of fact we did not expect it to be able to expand because of the legal squabbles going on in the NATELCO > (1) Increase in the volume of NATELCOs subscribers in Naga City ~ stringing of more and bigger telephone cable wires by NATELCO to CASURECOs electric posts without a corresponding increase in the 10 telephone connections given of charge in the agreement; (2) use by NATELCO of electric posts outside Naga City although this was not provided for in the agreement ~ while very few electric posts were being used by in 1977 and they were all in the City of Naga, the number of electric posts that NATELCO was using in 1989 had jumped to 1,403,192 of which are outside Naga City; (3) destruction of some of the poles during typhoons like the strong typhoon Sisang in 1987 because of the heavy telephone cables attached; (4) escalation of the costs of electric poles from 1977 to 1989 > HELD: Pay CASURECO for the use of electric posts in Naga City at the reasonable monthly rental of P10.00 per post; Pay NATELCO for the telephones in the same City that it was formerly using free of charge under the terms of the

agreement at the same rate being paid by the general public UNTIL parties can renegotiate another agreement over the same subject-matter > Why did the Court impose obligations: Public Intereset ~ compromise of telephone and electrical services ~ risk of interruption > Art. 1267 > "service" as "performance" of the obligation > doctrine of unforseen events > rebus sic stantibus where the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist > practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced > Article 1267: 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 whole or in part. > Intent: impossibility of performance releases the obligor ~ manifestly beyond the contemplation of the parties that it would be doing violence to that intention to hold their contemplation to hold the obligor still responsible G.R. No. 116896 May 5, 1997 PHILIPPINE NATIONAL CONSTRUCTION CORPORATION v. COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S. RAYMUNDO Facts: PNCC still obligated to pay rentals for 2y lease with Raymundos because there were no legal or physical impossibilities that have prevented them from paying rents. The alleged non-issuance of permit was false because they have actually been issued one but they merely did not use it. The alleged political instability of the country was actually foreseen because the events had happened before the contract was entered into. The alleged poor financial conditions do not suffice as impossibility and not an exception for performance. > Contract of Lease (November 18, 1985) between landowners Raymuno and lessee PNCC for land crushing pland and field office > 5y renewable for 5y; monthly rental of P20k, increased yearly by 5% ~ DP of P240k upon execution of contract, balance by annual rents payable every 12m; Termination clause is by mutual agreement > Temporary Use Permit for the proposed rock crushing project (January 7, 1986) from Ministry of Human Settlements > Letter Request (January 16, 1986) from Landowners Raymundo for payment of DP ~ that they had already stopped considering the proposals of other aggregates plants to lease the property > ReplyLetter from PNCC that under par.1 of the lease contract, payment of rental would commence on the date of the issuance of an industrial clearance and not from the date of signing of the contract ~ NOTICE of intention to terminate the contract, as it had decided to cancel or discontinue with the rock crushing project due to financial, as well as technical, difficulties > Landowners Raymundo refused ~ Insisted the

performance of the obligation and demanded payment for first annual rental > Action for Specific Performance (May 19, 1986) by Ramundo > RTC Held (April 12, 1989) for PNCC to pay P492k, covering 2y rental > Contention of PNCC: (1) that the obligation has not risen because the issuance of an industrial clearance is a suspensive condition without which the rights under the contract would not be acquired ~ Temporary Use Permit not the industrial clearance referred to in the contract ~ Actual permit requires a clearance first from the National Production Control Commission while TUP had a finding that the proposed project does not conform to the Zoning Ordinance of Rizal ~ HENCE without the industrial clearance the lease contract could not become effective and PNCC could not be compelled to perform its obligation under the contract; (2) that it was was obligated to pay only P20k as rental payments for the one-month period of lease, counted from January 7, 1986 when the Industrial Permit was issued up to February 7, 1986 when the Notice of Termination was served on them > Art. 1266 NOT APPLICABLE ~ "The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor" ~ that purpose of the contract did not materialize due to unforeseen events and causes beyond its control > BUT (1) 1266 applies only to obligations "to do," and not to obligations "to give," ie to pay rentals; (2) ACTUAL REASON for discontinuing project is not legal or physical impossibilities BUT financial as well as technical difficulties and abrupt change in political stability after EDSA (without specifying which circumstances) AND NOT the alleged insufficiency of the Temporary Use Permit > Mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation, nor does it constitute a defense to an action for specific performance > Ninoy assassination on August 21, political upheavals, Marcos declaration of snal election on November 3, Contract on November 18 ~ PNCC knew about political climate > PNCC ESTOPPED FROM CLAIMING THAT THE TPU WAS NOT THE INDUSTRIAL CLEARANCE > (1) Letter (April 24, 1986) ~ We wish to reiterate PNCC Management's previous stand that it is only obligated to pay your clients the amount of P20k as rental payments for the one-month period of the lease, counted from 07 January 1986 when the Industrial Permit was issued by the Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination was served on your clients ~ "Industrial Permit" mentioned could only refer to the Temporary Use Permit ~ PNCC could have simply told Raymundi that its obligation to pay rentals has not yet arisen because the Temporary Use Permit is not the industrial clearance contemplated by them; (2) Reply-Letter to January 16, 1986 Letter ~ that the suspensive condition issuance of industrial clearance has already been fulfilled and that the lease contract has become operative OTHERWISE PNCC did not have to solicit the conformity of Raymundo to the termination of the contract for the simple reason that no juridical relation was created because of the non- fulfillment of the condition

> EVEN IF PURPOSE OF PNCC TO USE LAND DID NOT MATERIALIZE, CONTRACT VALID > not using the leased premises as a site of a rock crushing > motive or particular purpose of a party in entering into a contract does not affect the validity nor existence of the contract EXCEPT when the realization of such motive or particular purpose has been made a condition upon which the contract is made to depend > temporary permit was valid for two years but was automatically revoked because of its non-use within one year from its issuance > non-use of the permit and the non-entry into the property subject of the lease contract were both imputable to PNCC >> obligation "to do" > all kinds of work or service >> obligation "to give" is a prestation which consists in the delivery of a movable or an immovable thing in order to create a real right, or for the use of the recipient, or for its simple possession, or in order to return it to its owner >> principle of rebus sic stantibus or doctrine of unforeseen events > parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to (basis of Article 1267) > BUT parties to the contract must be presumed to have assumed the risks of unfavorable developments OTHERWISE it would endanger the security of contractual relations > APPLIES ONLY TO absolutely exceptional changes of circumstances that equity demands assistance for the debtor >> Can 1267 amend contracts according to equity? What justified NAGA? > Under what circumstances can you apply 1267? Principle of Rebus sic stantibus ~ > At what point do you invoke 1267? *Judgment-Proof Defendants > no resources hence judgment cannot be literally rendered against them G.R. No. 104726 February 11, 1999 VICTOR YAM & YEK SUN LENT (Philippine Printing Works) v. CA and MANPHIL INVESTMENT CORPORATION Facts: Alleged condonation by MANPHIL President of penalties and interests on the second loan of PPW is not valid because it was not written, as required by Art. 1270 in relation to Art. 748. Notation on the check paid that it was for full payment does not suffice as writing because it merely express intention to pay and does not bind creditor while signature for acceptance on voucher of MANPHIL representative merely acknowledges receipt of payment. Moreover, alleged condonation by President would still not have been valid since MANPHIL had already been placed under receivership then, leaving president without authority to condone. > Loan Agreement (May 10,1979) between Victor Yam and Yek Suk Lent (solidary) and MANPHIL Investment Corporation where latter loaned P500k to former and former secured the loan with a chattel mortgage on their printing machinery >

Second (New) Loan Agreement worth P300k, evidenced by two promissory notes (July 3, 1981 and September 30, 1981) with same 2% monthly penalty, 10% attorneys fees, annual interest increased to 14% and the service charge reduced to 1% per annum > PAYMENT OF FIRST LOAN worth P500k (April 2, 1985) > MANPHIL placed under receivership (November 4, 1985) by Central Bank (Ricardo Lirio as receiver and Cristina Destajo as in-house examiner) > Partial Payment of Second Loan (May 17, 1986) worth P50k > Letter by PPW (June 18, 1986) proposing to settle their obligation > Counter-Offer by MANPHIL (July 2, 1986) that it would reduce the penalty charges up to P140 provided petitioners can pay their obligation on or before July 30, 1986 > Meeting between Victor Yam and wife Elena Yam and Carlos Sobrepeas (MANPHIL President) where latter agreed to waive the penalties and service charges, provided they pay the principal and interest, computed as of July 31, 1986 ~ P410,854.47 (Principal and Interest) (Total of Principal, Interest, Penalties and Service Charges is P727,001.35; Penalties and Service Charges is P266,146.88) > Payment (July 31, 1986) by PPW of P410,854.47 thru Pilipinas Bank check with notation "full payment of IGLF LOAN" > Receipt acknowledged by Destajo > Demand Letters (September 4, 1986, September 25, 1986) for payment of balance worth P266,146.88 > Non-response and non-payment > Suit for the collection of P266,146.88 or foreclosure of the mortgaged machineries > Contention of PPW: Condonation of Penalties and Service Charges > NO CONDONATION BECAUSE IT WAS NOT IN WRITING > Art. 1270, par. 2: express condonation must comply with the forms of donation and Art. 748, par. 3: donation and acceptance of a movable (including obligations under Art. 417, par. 1), the value of which exceeds P5,000,00, must be made in writing > Voucher with notation full payment of IGLF loan is NOT SUFFICIENT ~ merely states PPWs intention in making the payment but in no way does it bind MANPHIL > acceptance and signature of the voucher by Destajo merely acknowledged receipt of the payment ~ she had no authority to condone any indebtedness (acceptance of notation if in receipt would have been valid as an admission against interest) > BUT EVEN IF CONDONATION WAS WRITTEN, it was made after MANPHIL had been placed under receivership and thus, President had no authority to condone the debt ~ suspension of the authority of a corporation and of its directors and officers over its property and effects, such authority being reposed in the receiver > What is a nature of a condonation: Donation (an act, not a contract) ~ a contract in the sense that acceptance by the donee is necessary > Inofficious donations >

G.R. No. L-22490

May 21, 1969

GAN TION v. HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of the Court of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF Facts: Attorneys fees granted in favour of tenant Ong can be the subject of legal compensation in terms of Ongs debt to landowner Gan comprising of unpaid rents because the monetary award is made in favour of the litigant and not his counsel as misunderstood by CA. Hence, Ong is the creditor of the debt of Gan. Gan cannot be made to pay for attorneys fees first before he can collect debt of Ong because debt of Gan to Ong covering attorneys fees may be deducted from Ongs debt to Gan covering unpaid rents. > Ejectment Case (1961) by Landowner Gan Tion against Tenant Ong Wan Sieng for alleged non-payment of rents (covering August and September 1961) worth P360 (P180/m) > Contention of Ong that rent was P160/m and that he had offered to pay but was refused > CFI Held initially in favour of Gan but reversed upon appeal in favour of Ong, ordering payment by Gan to Ong of P500 as attorney's fees > Demand by Gan by way of Notice (October 10, 1963) of payment of rents in arrears worth P4,320 (covering August 1961 to October 1963) > Writ of Execution obtained by Ong of the judgment for attorney's fees in his favour > Certiorari by Gan in CA pleading legal compensation ~ that Ong was indebted to him in the sum of P4,320 for unpaid rents ~ CA held that P500 as attorneys fee is for the counsel, and not defendants Ong ~ fee could not be the subject of legal compensation because its real creditor was the defendant's counsel ~ the parties are not creditors and debtors of each other in their own right (Art. 1278, Civil Code) and each one of them is not bound principally and at the same time not a principal creditor of the other (Art. 1279) > ATTORNYEYS FEES CAN BE SUBJECT OF LEGAL COMPENSATION > award is made in favor of the litigant, not of his counsel ~ an indemnity for damages recoverable by the litigant > Hence, litigant, not his counsel, is the judgment creditor and who may enforce the judgment by execution > Such credit, therefore, may properly be the subject of legal compensation > Gan cannot be made to pay for attorneys fees first before he can collect debt of Ong because debt of Gan to Ong covering attorneys fees may be deducted from Ongs debt to Gan covering unpaid rents G.R. No. 116792 March 29, 1996 BANK OF THE PHILIPPINES ISLAND and GRACE ROMERO v. COURT OF APPEALS and EDVIN F. REYES Facts: Debt of Reyes to Bank arising from the dishounour of a check deposited in it as monthly pension of dead grandmother was validly debited by the Bank from his other account with wife as legal compensation which operates automatically without consent of the parties as long as the requisites of which has arisen

> Two Joint and/or Savings Accounts in BPI of Edvin F. Reyes with his wife Sonia S. Reyes (opened September 25, 1985) and with grandmother Emeteria M. Fernandez (February 11, 1986) > Emeterias monthly pension or U.S. Treasury Warrants were deposited in the joint account > Death of Fernandez (December 28, 1989) unknown to Bank and US Treasury Department > Issuance of monthly pension dated January 1, 1990 > Deposited by Edvin in account (January 4, 1990) which he cloased on March 8, 1990 ~ transferred all funds to joint account with wife > U.S. Veterans Administration Office, Manila conditionally cleared the check but was dishounoured by the US Treasury Department on January 16, 1991 due to the death of Fernandez 3d prior to its issuance > Request for refund by US Treasury against Bank > Bank (Manager and Assistant Manager) informed Edvin and he verbally authorized them to debit it from his other joint account and promised to give written confirmation or authorization later > Bank debited the amount and presented to Edvin the refund documents on February 21, 1991 > Edvin demanded restitution of the amount and sued for damages > Valid verbal authorization by Edvin > Testimony by Manager and Assistant Manager that Reyes instructed Assistant Manager Mrs. Bernardo to debit the amount from his joint account with his wife and then promised to drop by to give us a written confirmation > That Manager did not authorize the debit but merely followed the instruction of Reyes > Reyes testimony was uncorroborated and he is deemed to be uncredible because of past fraudulent acts (concealed Fernandez death from Bank and US Treasury, received and deposited mothly pension to an account he later closed, in which application he declared Fernandez to still be alive) > DEBIT OF DEBT FROM ACCOUNT AS VALID COMPENSATION > Bank is debtor of Reyes who is creditor as a depositor of the Bank while Reyes is debtor of Bank who is creditor because of the dishonoured pension tha Reyes needed to refund > Debts involved a sum of money which are due, liquidated and demandable > Mutuality of parties EVEN without the wife as co-owner of account ~ she never asserted her right and has never objected to the debit > The rule as to mutuality is strictly applied at law. But not in equity, where to allow the same would defeat a clear right or permit irremediable injustice >> Compensation > when two persons, in their own right, are creditors and debtors of each othe > 1290: 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 > takes place ipso jure > HENCE operates even against the will of the interested parties and even without the consent of them > effects arise on the very day on which all its requisites concur >> Why legal compensation > COURT could have just stopped with the authorization of Edvin

G.R. No. 108052 July 24, 1996 PHILIPPINE NATIONAL BANK v. CA and RAMON LAPEZ (SAPPHIRE SHIPPING) Facts: Double credit erroneously made in Lapezs account in PNB was deducted by PNB from his later 2 remittances. Legal compensation cannot apply to the first remittance because it was meant for delivery to Citibank and hence, PNB and Lapez were not creditors and debtors of each other where PNB is simply a trustee of Lapez to deliver the amount to creditor Citibank. Second remittance can be subject to legal compensation because it was to be deposited to Lapezs account in PNB. Hence, they are debtors and creditors of each other. > Two remittances by Ramon Lapez, first on November 1980 worth $5,679.23 and second on January 1981 worth $5,885.38 to his PNB Account in the Philippines > Lapezs account in PNB was doubly credited, amounting to the total of P87,380.44 > PNB demanded by letter (October 23, 1986) the refund of the duplicated credits erroneously made on Lapezs account, 5y later > Lapez made two more remittances from NBC of Jeddah to be sent to Citibank and then from Libya to Lapezs account in PNB > PNB deducted $2,627.11 and P34,340.38, respectively, from these remittances without Lapezs knowledge and consent but issued him a receipt February 18, 1987 > Lapez demanded recovery of the remittances > BUT Later remittance of $2,627.11 cannot be subject of legal compensation > PNB and Lapez were not creditors and debtors of each other > Lapez remitted money thru National Commercial Bank of Jeddah to Citibank by way of PNB as the local correspondent > trustee-beneficiary relationship where PNB was trustee of the obligation to deliver to beneficiary Citibank the amount remitted > PNB not the debtor but trustee > BUT Later remittance of P34,340.38 can be subject of legal compensation > fund transfer from Brega Petroleum Marketing Company of Libya (from where the P34,340.38 was deducted) was intended for deposit in Lapezs account in PNB > Art. 1279 can apply > RE: DOUBLE CREDIT: PNB and Lapez are debtors and creditors of each other ~ Lapez creditor as a depositor while PNB creditor due to double credits erroneously made on Lapezs account > Prescription of legal compensation > Art. 1145, which fixes the prescriptive period for actions upon a quasi contract (such as solution indebiti) at six years >> Art. 1279: In order that compensation may prosper, 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 consists 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 by any retention or controversy, commenced by third persons and communicated in due time to the debtor. > Principle of solutio indebiti: If something is received when there is no right to demand it, and it was unduly delivered through (sic) mistake, the obligation to return it arises. (Article 2154, Civil Code of the Phil.) >> Stipulation pour autrui is a stipulation in favor of a third person > Art. 1453: When the property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated G.R. No. 111890 May 7, 1997 CKH INDUSTRIAL AND DEVELOPMENT CORPORATION and RUBI SAW v. CA, THE REGISTER OF DEEDS OF METRO MANILA DISTRICT III (VALENZUELA), CENTURY-WELL PHIL. CORPORATION, LOURDES CHONG, CHONG TAK KEI and UY CHI KIM Facts: Debt of Century-Well to CKH comprising of the purchase price of land sold by the latter to them cannot be compensated by the debt of CKH to Choi and Kei who happen to be the stockholders of Century-Well because such debt of CKH was not proven to be contracted from the two as stockholders of the corporation. Hence, interest was personal to them and distinct from the corporation. There can be no compensation where there is no mutuality in parties as both creditors and debtors of each other. > Three promissory notes (April 15, 1978, July 17, 1978, November 24, 1981) issued by CKH Industrial and Development Corporation (represented by owner Cheng Kim Heng) in favour of Chengs sons, Chong Tak Choi and Chong Tak Kei worth P700k (P400k, P100k, P200k) > May 8, 1988: Deed of Absolute Sale between CKH (represented by Rubi Saw, 2nd wife of Cheng) and Century-Well Phil. Corporation (represented by Lourdes Chong, 1st wife of Cheng; owned by Chengs sons, Kei and Choi and Chois wife) covering two parcels of land worth P800k > TCT handed to Century-Well > Alleged non-payment by Century-Well > Complaint for Rescission of the Deed of Absolute Sale > Contention of Century-Well: payment by way of compensation, exchanging the purchase price with the P700k debt from earlier promissory notes + P100k cash > Compensation is admitted by vendor CKH in deed of sale ~ in consideration of the

sum of P800k, Ph Currency, paid by VENDEE to VENDOR, receipt of which is hereby acknowledged by the letter to its entire satisfaction, said VENDOR, by these presents, has SOLD, CEDED, TRANSFERRED, and CONVEYED by way of absolute sale unto said VENDEE, its successors and assigns, the two parcels of land > COMPENSATION INVALID > Parties not mutually bound as debtors and creditors of each other > Sale: CKH (represented by Rubi) and Century-Well (by Lourdes) while Promissory Notes: CKH (by Cheng) and Choi and Kei > Promissory notes without indication that the debt was contracted from Choi and Kei as stockholders of Century-Well > Sale does not include Choi and Kei as parties distinct from corporation > HENCE, Choi and Keis personal interest in the promissory notes cannot be off-set against the obligations between CKH and Century-Well arising out of the deed of absolute sale > Stockholders Choi and Keis interests are not considerable interest as to merit a declaration of unity of their civil personalities ~ corporations have personalities separate and distinct from their stockholders

SPOUSES ALEJANDRO MlRASOL and LILIA E. MIRASOL v. THE COURT OF APPEALS, PHILIPPINE NATIONAL and PHILIPPINE EXCHANGE CO., INC. Facts: There can be no compensation between PNB and Mirasols covering the debt of latter for the loans granted by the former because PNB is not a debtor to Mirasols who is obliged to give them profits from sale of sugar because such proceeds go to the national government by virtue of PD5792. Hence, there was nothing with which PNB can offset the debt of Mirasols. > Crop Loan Financing Scheme between sugarland owners and planters Mirasols and financier Philippine National Bank > PNB financed sugar production for crop years 1973-1974 and 1974-1975 as secured by Credit Agreements, a Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in its favor ~ Chattel Mortgage empowered PNB as Mirasols attorney-in-fact to negotiate and to sell the latters sugar in both domestic and export markets and to apply the proceeds to the payment of their obligations to it > PD 5792 (November 1974) required PNB to finance Philippine Exchange Co., Inc. and latter is to purchase sugar allocated for export where whatever profit PHILEX might realize from sales of sugar abroad was to be remitted to a special fund of the national government, after commissions, overhead expenses and liabilities had been deducted ~ Proceeds of PNB all went to national government leaving nothing with which to deduct from the Mirasols debt > Demand by Mirasols of an account of the proceeds of their sugar sales to PNB ~ believed that there were more than enough to pay their obligations > ignored until PNB demanded the Mirasols to settle their due and demandable accounts (P15,964,252.93 for crop years 1973-1974 and 1974-1975) > Mirasols conveyed to PNB real properties valued at P1,410,466 by way of dacion en pago (August 4, 1977) and foreclosure of their mortgaged properties amounting to P3,413,000 > Deficiency still of P12,551,252.93 > Refusal of PNB to give an account of their alleged proceeds from export of sugar > Suit for accounting, specific performance, and damages against PNB (August 9, 1979) > Contention of Mirasols: Payment of loans by way of legal compensation using the proceeds of export sales of sugar > Invalidity of foreclosure and dacion en pago > NO LEGAL COMPENSATION: (1) Neither of the parties are mutually creditors and debtors of each other > Under P.D. No. 579, neither PNB nor PHILEX could retain any difference claimed by the Mirasols in the price of sugar sold by the two firms ~ HENCE, PNB no longer a debtor to Mirasols because all its proceeds went to the Government and not to be returned to Mirasols > there was nothing with which PNB was supposed to have off-set Mirasols admitted indebtedness; (2) Claim is unliquidated ~ compensation cannot take place where one claim is still the subject of litigation, as the same cannot be deemed liquidated > If profit cannot be subject of legal compensation, what about the compensation of the costs of sugar by the non-profit of its sales? ~ Why not include the obligation in the deduction of costs

>> Parol evidence rule > forbids any addition to or contradiction of the terms of a written instrument by testimony or other evidence purporting to show that, at or before the execution of the parties written agreement, other or different terms were agreed upon by the parties, varying the purport of the written contract > when agreement reduced to writing, parties cannot be permitted to adduce evidence to prove alleged practices which to all purposes would alter the terms of the written agreement > Whatever is not found in the writing is understood to have been waived and abandoned > EXCEPT: (a) An intrinsic ambiguity, mistake or imperfection in the written agreement; (b) The failure of the written agreement to express the true intent and agreement of the parties thereto; (c) The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement >> Compensation > (1) LEGAL ~ take place by operation of law when two persons, in their own right, are creditors and debtors of each other ~ Requirements (1279): (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That 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 > (2) VOLUNTARY / CONVENTIONAL ~ when the parties, who are mutually creditors and debtors agree to compensate their respective obligations, even though not all the requisites for legal compensation are present ~ Requirements: (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits G.R. No. 128448 February 1, 2001

> Should the whole amount be liquidates first?

>>> Did the chattel mortgage give PNB ownership of the sugar which it can sell abroad and merely allowed Mirasols to deduct from it their obligation in relation to the loan? Or was it just an authority to sell but not to profit where profit still principally owned by Mirasols but as way of commission, PNB gets share as payment?
G.R. No. 156940 December 14, 2004 ASSOCIATED BANK (Now WESTMONT BANK) v. VICENTE HENRY TAN Facts: Associated Bank has a right to setoff a dishounoured check deposited from the account of client Tan but it must do so properly. Otherwise, it is liable for damages. > Vicente Henry Tan deposited a postdated UCPB check worth P101,000 in his Associated Bank account (September 1990) ~ Balance of P196,000 was increased to P297,000 as of October 1, 1990 > Tan withdrew P240,000 upon advise from the BANK that the check was already cleared > Tan deposited P50k ~ balance increased to P107,793.45 from P57,793.45 > Tan issued checks to his clients > UCPB Check bounced > BANK deducted the withdrawal of Tan from his account > Checks Tan issued bounced for insufficiency of funds > BANK did not bother nor offer any notice or apology > Complaint for Damages (December 19, 1990) by Tan > ISSUE: Not the right of BANK to debit dishounoured checks from clients account but the Manner by which it does so thereby warranting damage > Banks Right to Setoff > BANKs right to debit the amount of the dishonored check from the account of Tan is clear and unmistakable > Right of setoff over the deposits for the payment of any withdrawals on the part of a depositor > right of a collecting bank to debit a clients account for the value of a dishonored check that has previously been credited > Relationship between banks and depositors is that of creditor and debtor where legal compensation (Art. 1278) may take place > BANK did not properly exercise the remedy warranting damages > (1) as depositary bank > highest degree of diligence and high standards of integrity and performance are expected in treating the accounts of its depositors with meticulous care > BANK allowed the withdrawal of the face value of the deposited check prior to its clearing > certainly disregarded the clearance requirement of the banking system > unusual practice because a check is not legal tender or money and its value can properly be transferred to a depositors account only after the check has been cleared by the drawee bank > HENCE, before the check shall have been cleared for deposit, the collecting bank can only "assume" at its own risk -- as BANK did -- that the check would be cleared and paid out > BANK should not have authorized the

withdrawal of P240,000 AND should have informed Tan about the debiting of the P101,000 from his existing balance of P170,000; (2) as collecting agent for the check > relationship between the payee or holder of a commercial paper and the collecting bank is that of principal and agent > BANK is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment

G.R. No. L-53585 February 15, 1990 ROMULO VILLANUEVA v. HON. FRANCISCO TANTUICO, JR., and EMILIANA CRUZ Facts: Set-off of debt by a government employee against his government salaries is valid only if such debt is admitted by both parties. > Romulo Villanueva, assigned as Administrative Officer and Training Coordinator by Bureau of Records Management for its two seminars on updating records management techniques > Custody of seminar fees collected from the participants and Authority to disburse the fees for the seminar expenses ~ Collected P43,000.00 and authorized disbursements of P41,148.20 for food, snacks, transportation, seminar kits and hand-outs, hauling services, allowance for training staff, hotel bills and honoraria of resource speakers > Balance of P1,851.80 was deposited with the Cashier of the Bureau of Records Management after the seminars > Participant employees and officers had earlier collected from their respective offices or corporations their transportation expenses and other allowances > Emiliana Cruz, Auditor of the Bureau of Records Management, disallowed the disbursement of seminar funds in the total amount of P31,949.15 which Villanueva had authorized for the transportation expenses, food and other expenses of said employees and officers > Cruz issued a Certificate of Permanent Disallowance against Villaueva, pursuant to Sec. 624 (When any person is indebted to the Government of the Philippine Islands, the Insular Auditor may direct the proper officer to withhold the payment of any money due him or his estate, the same to be applied in satisfaction of such indebtedness) > HENCE, all money collectible by Villanueva from the Government would be applied in satisfaction of the amount of P31,949.15 ~ (1) his salaries (P13,313.30), (2) transportation and representation expenses as Administrative Officer and Training Coordinator of the seminars (P2,205.00), and (3) terminal leave (P14,796.29) > INVALID COMPENSATION PURSUANT TO Section 624 of the Revised Administrative Code > Set-off of a person's indebtedness to the Government against "any money due him or his estate to be applied in satisfaction of such indebtedness is authorized ONLY IF admitted by the alleged debtor or pronounced by final judgment of a competent court > There must be a categorical admission by an obligor or final adjudication OTHERWISE no legal compensation can take place >

Conclusion that he is in truth indebted to the Government cannot be definitely and finally pronounced by a Government auditor > NO ILLEGAL DISBURSEMENT > Expenses made within the letter and contemplation of the Seminar Operation Plans > disbursements were for items explicitly specified as authorized expenditures, i.e., food, snacks, transportation, hauling services, additional allowances for the training staff, acquisition costs of seminar kits and hand-outs, and grocery items for the snacks of the training staff who had worked overtime without pay, or for items which were allowable as reasonably necessary expenses for the seminars upon approval (actually given) of the Director of the Bureau of Records Management, such as hotel bills and honoraria for resource speakers > no showing that Villanueva had knowledge at the time of making the disputed disbursements, that some of the seminar participants had already collected from their home offices or agencies certain amounts to cover some of their expenses > liability for that duplication in disbursements should be exacted from the participants concerned, not from Villanueva > Money collected was PUBLIC FUND and hence subject to audity > seminar fees collected pursuant to President's Memorandum Circular No. 830.

> (September 9, 1974) MOJICA (one of the creditors) assigned to MEVER its rights as assignor to two Congeneric bills, No. 1298 and No. 1419, worth and interests maturing respectively on P111,973.58 / August 6, 1974 and P208,666.67 / August 13, 1974 but principals rolled over to October 4 and October 11, 1974, respectively > (October 3, 1974) MEVER surrendered Bills No. 1298 and No. 1419 to CONGENERIC for payment of MEVERs debt > (October 7, 1974) Suit with garnishment against MEVER in two collection cases filed against CONGENERIC by two of its creditors ~ CONGENERIC advised MEVER that of the original amount of P500k, the sum of P200k was sold on July 3, 1974 to a third party, but not naming CORAZON as the third party > (October 23, 1974) CONGENERIC filed a Petition for Suspension of Payments to its creditors > (November 15, 1974) MEVER surrendered to the Sheriff the sum of P79,359.75 which it owed to CONGENERIC > (July 14, 1975) Suit by CORAZON against MEVER for the recovery of P100k > Contention of MEVER > that MEVER was both the debtor (by virtue of its promissory note, balancing P400k) and creditor (by virtue of the Congeneric bills, worth P320,640.25) of Congeneric by August 13, 1974 (maturity of Congeneric bill) > Legal Compensation to the extent of P320,640.25 > Reduction of debt to P79,359.75 by the time of garnishment or MEVERs payment to the Sheriff on November 15, 1974 > NO LEGAL COMPENSATION BY MEVER > Congeneric Bills not yet due and demandable > Upon maturity of the Bills, the principal obligation still remained with Mojico due tot he roll-over > the inevitable result of the roll-overs of the principals was that Bill No. 1298 and Bill No. 1419 were not yet due and demandable as of the date of their assignment by MOJICA to MEVER on September 9, 1974, nor as of October 3, 1974 when MEVER surrendered said Bills to CONGENERIC > no legal compensation could have taken place because, for it to exist, the two debts, among other requisites, must be due and demandable

G.R. No. L-56101 February 20, 1984 CORAZON PEREZ v. HON. COURT OF APPEALS and MEVER FILMS, INCORPORATED Facts: No legal compensation because MEVER was not a creditor of CONGENERIC at the time of the maturity of the Bills because the latters principals were rolled-over and hence, it was still being held by Mojica. They were not yet due and demandable. > CONGENERIC Development & Finance Corporation, engaged in "money market" operations, owed Ramon C. MOJICA by virtue of two promissory notes in his favour (May 8, 1974 and May 15, 1974) worth P111,973.58 and P208,666.67, respectively, with maturity on August 6, 1974 and August 13, 1974 > (June 5, 1974) MEVER Films, Inc. owed CONGENERIC by virtue of a promissory note in the latters favour, covering a loan worth P500k with maturity on August 5, 1974 > Payment by MEVER worth P100k upon maturity date; Balance of P400k > The same payment to CONGENERIC was made by the latter to one of its creditors, CORAZON Perez (payment worth P103,483.33 where P3,483.33 came from its own funds) pursuant to a confirmation of sale CONGENERIC issued to CORAZON on July 3, 1974 where it promised to pay P203,483.33 also on August 5, 1974

G. R. No. L-74027 December 7, 1989 SILAHIS MARKETING CORPORATION v. INTERMEDIATE APPELLATE COURT and GREGORIO DE LEON, doing business under the name and style of "MARK INDUSTRIAL SALES"

Facts: Silahis debt to De Leon arising from sale of various merchandise cannot be offset by de Leons alleged debt to Silahis arising from an alleged 20% commission due to Silahis by de Leons sale to Dole because the latter claim is disputed and hence, unliquidated. > October, November and December, 1975: Sale and Delivery by Gregorio de Leon (Mark Industrial Sales) to Silahis Marketing Corporation of various items of merchandise > Covered by several invoices worth P22,213.75 payable within 30d from date of the invoices > Silahis' failure to pay > Complaint for the collection by de Leon > Contention of Silahis: Legal Compensation by virtue of (1) Silahis 20% commission in de Leons sale of sprockets worth P111k to Dole Philippines, Incorporated in August 1975, made directly by him without coursing the same through Silahis ~ unrealized profit of P22,200 as stated in a debit memo; (2) reimbursement of P6k for a stainless steel screen which it got from de Leon and which it sold to its client ~ Dismissed by CA because claim was made only on April 1, 1976 and the return to Silahis by client Borden was made on December 22, 1975 > NO LEGAL COMPENSATION >> de Leon and Silahis not a debtor/creditor of each other > Alleged debit memo where de Leon is alleged to be bound to give Silahis 20% commission for the sale is non-existent > No agreement, verbal or otherwise, nor was there any contractual obligation between De Leon and Silahis prohibiting any direct sales to Dole Philippines, Inc. by de Leon >> Though debt is admitted, Claim is disputed/non-existent > 20% commission on the subject sale to Dole Philippines, Inc. is vigorously disputed/unliquidated/unclear > Nothing in the debit memo obligating de Leon to pay a commission to Silahis for the sale of P 111,000.00 worth of sprockets to Dole > Legal Compensation operates automatically when all the requisites in Art. 1279 of the Civil Code are present ~ even without the consent or knowledge of the creditors and debtors

April 30, 1971 G.R. No. L-29981 EUSEBIO S. MILLAR v. CA and ANTONIO P. GABRIEL Facts: The chattel mortgage executed by oblige Millar and obligor Gabriel did not novate the debt of Gabriel to Millar because the mortgage only served to secure and confirm the original debt and the changes it brought about were not substantial and incompatible enough to warrant implied novation. > Judgement (February 11, 1956) in favour of Eusebio S. Millar where Antonio P. Gabriel is required to pay P1,746.98, interest at 12% /year, P400 as attorney's fees, and the costs of suit > Petition for Writ of Execution (February 15, 1957) for enforcement of judgement > Granted > Levy on and Seizure of Gabriels Willy's Ford jeep > Compromise between Millar and Gabriel: Deed of Chattel Mortgage ~ to release the jeep but to mortgage the vehicle in favor of Millar (February 22, 1957) > TERMS: (1) Security for the debt ~ mortgage is given as security for the payment to said MILLAR, mortgagee, of the judgment other incidental expenses in Civil Case No. 27116 of the Court of First Instance of Manila against Gabriel, MORTGAGOR; (2) amount of P1,700 payable in two instalments (March 31, 1957 for P850 and April 30, 1957 for P850); (3) amount of P800 for attorneys fees > Failure > Writs of Execution but returned unsatisfied > Levy on certain personal properties > Motion for Suspension (November 10, 1961) ~ CONTENTION: Payment of the debt by novation (mortgage impliedly novated the judgement debt because of the incompatibility between the judgment debt and the obligation in the deed of chattel mortgage ~ CA HELD) > SC HELD: NO IMPLIED NOVATION > Only if the changes introduced by the new obligation are essential and principal as to alter or modify the essence of the old obligation > The new obligation merely reiterates or ratifies the old obligation, although the former effects but minor alterations or slight modifications with respect to the cause or object or conditions of the latter > For implicit novation to take place, there must be clear and convincing proof of complete incompatibility between the two obligations > second obligation novates the first if they cannot stand together > Chattel Mortgage only confirmed the Judgement Debt > (1) Alleged limitation of the principal obligation (from P1,746.98 + 12% interest + P400 + suit costs) to P1700 ~ Partial payments made by Gabriel before the Deed was executed ~ P1700 is only a specification of the balance left from the judgement debt; (2) Alleged imposition of a specific mode of payment (two instalments) in Mortgage where the judgment mentions nothing ~ no substantial incompatibility ~ Mortgage only provided an express and specific method for the debts extinguishment and more time to enable him to fully satisfy the judgment indebtedness; (3) Alleged imposition of liquidated damages worth P300 in case of default where judgement mentioned none ~ Judgment imposed P400 as attorneys fees and omits any reference to liquidated damages where under the Mortgage, as admitted by Gabriel, he is obliged

to pay P300 as liquidated damages and P800 of attorneys fees ~ P300 and P400 only as balance from judgment debt due to partial payments; (4) Alleged new security under the mortgage whereas the judgment debt was unsecured ~ Parties constituted the chattel mortgage purposely to secure the satisfaction of the then existing liability ~ as a security, mortgage agreement effectuated no substantial

G.R. No. L-25897 August 21, 1976 AGUSTIN DORMITORIO and LEONCIA D. DORMITORIO v. HONORABLE JOSE FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch Bacolod City, and SERAFIN LAZALITA Facts: The Agreed Stipulation of Facts by the parties had novated the decision of the lower court which ordered Lazalita to pay Sps. Dormitorio for the land he had mistakenly occupied. But because it has been submitted that it was by mistake and that the Sps. were willing to pay Lazalita for the improvements he had made, the agreement which became the basis of the CAs decision of setting aside the lower courts order created new rights and obligations which superceded the first judgement. > Judgment of CFI in favour of Sps. Dormitorio in an ejectment suit filed against Lazalita where latter erroneously occupied the land owned by the Sps. thinking it his > AGREED STIPULATION OF FACTS by the Parties (after Lazalita filed a suit against Victorias and Dormitorios) > Sale of Land to Serafin Lazalita by Municipality of Victorias over Lot 1, Block 16 which the latter owned (December 7, 1948), payable in 10y > Lazatin had been in full and peaceful possession of the land (which turned out to be Lot 2 as delivered to him by the persons designated by the Municipality to take charge of the sale because Lot 1 had been converted into a Municipal Road unknown to the parties) and had introduced permanent and valuable improvements (trees and fruits) valued at P5000, since February 7, 1948 until full payment on 1958 > Execution of a Deed of Definite Sale and Issuance of a Certificate of Title > Sale of Land to Sps. Agustin Dormitorio and Leoncia D. Dormitorio by Municipality over Lot 2, Block 16 (1955) ~ Issued a Title but had not been in possession of the property > Suit for Ejectment by Sps. Dormitorio against Lazatin (December 12, 1958) > Private Land Surveyor hired by Municipality reported that the Lot sold by the to Lazalita was converted into the new Municipal Road and that the lot presently occupied by him, is supposed to be the lot No. 2, bought by the spouses Dormitorio > Prior to Agreed Stipulation of Facts > CFI Held in favor of Dormitorio, ordering Lazalita, to vacate the land and to pay a monthly rental of P20 > Ex-Parte Motion for Writ of Execution granted by SC > Certiorari by Lazalita in CA against the Municipality and the Dormitorios ~ CONTENTION: that the parties had entered into an Agreed Stipulation of Facts where the Municipality was willing to amicably settle the case by giving him another lot or paying him back the amount necessary and just

for him to acquire another lot for his residence, and for the expenses of transferring his present residential house and the Sps. Dormitorio agreed that Lazalita should be reimbursed for his expenses in transferring his house to another Lot to be assigned to him by the Municipality, that the Decision in Civil Case for Ejectment shall not be enforced and executed anymore and that by means of fraud, misrepresentation and concealment of the true facts of the case, the Sps. were able to mislead the SC thru an Ex-Parte Motion to issue by mistake an Order for the issuance of a Writ of Execution by making this Honorable Court believe that the Decision of September 5, 1961 is still enforceable and executory > CA set aside writ of execution > Judgment in Ejectment Suit against Lazalita had been novated by the Agreed Stipulation of Facts > The agreement filed by the parties after the judgment created as between them new rights and obligations which both parties accepted and which naturally superseded the judgment of the lower court (Barretta v. Lopez) > a lower court decision was novated by subsequent agreement of the parties especially where the subsequent arrangements was entered into with the unqualified intention to discard or replace the judgment but without such intent or animus novandi, no substitution of obligations could possibly take place (Santos v. Acua) > Decision of CA, as the result of a compromise, was later than the lower courts and thus had the effect of res judicata > Sps. had been givent the opportunity to file a motion for reconsideration and they did > failure to give notice of the petition had been cured >> Ruling in Molina v. De la Riva (1907) that, when, after judgment has become final, facts and circumstances transpire which render its execution impossible or unjust, the interested party may ask the court to modify or alter the judgment to harmonize the same with justice and the facts had been superseded

by Sps. Rodriguez (January 4, 1957) where they jointly and severally promise to pay P5k with 9% interest per annum within 60d from January 7, 1957; (b) Bond with Luzon Surety Co., Inc. in favour of Magdalena Estates where Luzon complies with the obligation to pay the amount of P5,000 representing balance of the purchase price of a parcel of land to Magdalena Estates > Payment by Luzon of P5k to Magdalena Estates (June 20, 1958) > Demand by Magdalena Estates for payment of P655.89 as accumulated interests on the principal of P5k > Refusal by Sps. Rodriguez > Suit for Collection > CFI Held in favour of Magdalena Estates for Sps. Rodriguez to pay P655.89, among others > Contention of Sps. Rodriguez > Bond Payment novated the Obligation for Promissory Note > that there was no demand made by Magdalena Estates for the payment of accrued interest in the bond payment, that it demanded from the Luzon Surety Co., Inc., in the capacity of the latter as surety, the payment of the obligation, and that it accepted unqualifiedly the amount of P5,000 as performance by the obligor and/or obligors of the obligation in its favour > that the unqualified acceptance of payment without exercising its right to apply P655.89 to the payment was a waiver/condonation of the interests due > Promissory Note was not novated by the Bond Payment > (a) Bond Payment was only to pay the amount of P5,000.00 representing balance of the purchase price > Magdalena Estates did not protest nor object when it accepted the payment of P5,000 because it knew that that was the complete amount undertaken by the surety as appearing in the contract ~ Magdalena cannot thus protest for non-payment of the interest when it accepted the amount of P5,000 from the Luzon Surety Co., Inc., nor apply a part of that amount as payment for the interests > (b) acceptance of the bond payment without reservation despite the surety bonds failure to provide that it also guaranteed payment of accruing interest does not clearly establish intent to novation > mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility does not constitute a novation, and the creditor can still enforce the obligation against the original debtor > novation by presumption has never been favoured ~ it needs to be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import; (c) surety bond is not a new and separate contract but an accessory of the promissory note > obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified, by changing only the terms of payment and adding other obligations not incompatible with the old one, or wherein the old contract is merely supplemented by the new one > Art. 1253 is NOT APPLICABLE because it applies to a person owing several debts of the same kind of a single creditor and NOT to a person whose obligation as a mere surety is both contingent and singular; Article 1253 is merely directory, and not mandatory

G.R. No. L-18411 December 17, 1966 MAGDALENA ESTATES, INC. v. ANTONIO A. RODRIGUEZ and HERMINIA C. RODRIGUEZ Facts: The surety bond issued in favour of Magdalena Estates where Luzon Surety promised to pay the balance of P5k did not novate the earlier obligation of the Sps. worth P5k plus interests because the surety bond did not expressly stipulate the payment of the entire debt and in fact included only the balance of the principal (P5k). Hence, the bond was not a new contract but a mere accessory to the promissory note absent express stipulation and incompatibility. Magdalena could not have demanded from Surety the payment of interests because the contract of the bond only included the payment of the principal. > Sale of Land of/by Magdalena Estates, Inc. to Sps. Antonio and Herminia Rodriguez > Unpaid Balance of P5000 > Sps. Rodriguez issued: (a) Promissory Note

G.R. No. 120817 November 4, 1996 ELSA B. REYES v. COURT OF APPEALS, SECRETARY OF JUSTICE, AFP-MUTUAL BENEFIT ASSOCIATION, INC., and GRACIELA ELEAZAR Facts: There were no novations by substitution of creditor and debtor in Reyes respective contract of loan with Eleazar and contract of sale between AFP-MBAI because the substitutions were without knowledge and consent of AFP-MBAI as third party and as creditor. > Two obligations of Elsa Reyes (President, Eurotrust Capital Corporation; credit financing): (1) Sale of Securities to Armed Forces of the Philippines Mutual Benefit Asso., Inc. worth P120M > Eurotrust delivered to AFP-MBAI treasury notes amounting to P73 million, fraudulently borrowed all those treasury notes allegedly for purposes of verification with the Central Bank and failed to return the said treasury notes but instead delivered 21 postdated checks in favor of AFP-MBAI which were dishonored > Debt of P73M worth of treasury notes > Partial payment worth P30M but balance of P43M; (2) Loan Agreement with Graciela Eleazar (President, B.E. Ritz Mansion International Corporation or BERMIC, real estate development) where Eurotrust loaned BERMIC P216.053,126.80 (Reyes) / P190,336,388.86 (Eleazar) to finance latters condominium construction > Funds of the loan were the payment made by AFP-MBAI > Agreement between Eurotrust and BERMIC (dated March 19, 1991) that Bermic would directly settle its obligations with the real owners of the fund-AFP-MBAI and DECS-IMC > Bermic paid AFPMBAI P31,711.11 and a check of P1M > Reyes continued to collect on the other postdated checks issued by Eleazar thus the latter had the payment stopped > Checks were dishounoured and Reyes sued for violation of B.P. 22 and estafa > AFP-MBAI failed to receive P43M balance of purchased treasury notes and filed complaints for estafa and a violation of BP 22 against Reyes > Contentions of Reyes: (1) No novation of Loan Agreement by Substitution of Creditor; (2) Novation of Sale of Securities by Substitution of Debtor > Raised 17m after the Decision had become final and executor > NO NOVATION in both cases > (1) No novation by substitution of creditor in Loan Agreement > Contract of loan between Reyes and Eleazar had not been novated when they agreed that Eleazar should settle BERMICs loan obligations directly with AFP-MBAI and DECS-IMC instead of settling it with Reyes by way of substitution of creditor because AFP-MBAI did not consent to it nor was it a party to the agreement > novation by substitution of creditor requires an agreement among the three parties concerned the original creditor, the debtor and the new creditor > Agreement merely gave Eleazar an authority to directly settle the obligation of petitioner to AFP-MBAI and DECS-IMC > Despite payment by Eleazar and acceptance of AFP-MBAI, novation is never presumed and there must be an express intention to novate animus novandi (1300, 1301); (2) No novation by substitution

of debtor in Contract of Sale > AFP-MBAI did not agree/give consent to release Reyes from her obligation to pay under the contract of sale of securities > Substitution of debtor must always be made with the consent of the creditor (1293) > Agreement between Eleazar and Reyes and formers payment to AFP-MBAI only creates a juridical relation of co-debtorship or suretyship on the part of Eleazar to the contractual obligation of Reyes to AFP-MBAI and the latter can still enforce the obligation against the petitioner > Indispensable Requisites of Novation: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; (4) there must be the validity of the new contract > Novatio > to make new > principle novatio non praesumitur that novation is never presumed > for novation to be a jural reality, its animus must be ever present, debitum pro debito basically extinguishing the old obligation for the new one > DISMISSAL UPHELD DESPITE MISAPPLICATION OF PRINCIPLE OF NOVATION > Laches > Unjustified delayed by Reyes to institute actions against the judgment > Judgment of novation by substitution of creditor (January 23, 1992) became final and executor on July 9, 1992 after Reyes received the denial of his motion for reconsideration > made no prompt attempt to question the said resolutions until after seventeen months (from July 9, 1992 to February 2, 1994) when she filed the petition for certiorari > bound by such adverse judgment on account of finality of judgment >> Laches is the failure or neglect for an unreasonable and unexplained length of time to do that which by exerting due diligence could/should have been done earlier > presumption that she abandoned it or declined to assert it

G.R. No. L-47369 June 30, 1987 JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA v. R & B SURETY AND INSURANCE COMPANY, INC. Facts: The Trust Agreement where CCM bound itself directly to PNB did not novate the obligations of R&B Surety and, moreover, of R&Bs indemnitors Villanueva and Cochingyan who were still liable for payment of the bond. There were no express terms of novation and neither were the two agreements incompatible where the Trust Agreement merely made CCM directly liable as co-debtor to PAGRICO and R&M Surety > Increase of Line Credit (November 1963) granted by the Philippine National Bank to Pacific Agricultural Suppliers, Inc., from P400k to P800k > PAGRICO secured it with a Surety Bond worth P400k where PAGRICO and R & B Surety and Insurance Co., Inc. were jointly and severally liable to PNB for the principal sum of P400k, the accrued interests and other costs > Surety Bond was secured by two Indemnity Agreements, one by Catholic Church Mart and its president Joseph Cochingyan, Jr. (December 23, 1963); another by Pacific Copra Export Inc., Jose K. Villanueva and Liu Tua Ben (December 24, 1963) ~ all persons signed as officers and in their personal capacities > Indemnitors bound themselves jointly and severally to pay R & B Surety as annual premium of P5,103.05 > Failure of PAGRICO > Demand of P400k by PNB from R & B Surety > Payment by R & B Surety worth P70k > Demand for reimbursements by R & B Surety against Cochingyan and Villanueva > Failure of Cochingyan and Villanueva > Trust Agreement (December 28, 1965) between Jose and Susana Cochingyan, Sr. (CCM) as trustors, Tomas Besa (PNB) as trustee, and PNB as beneficiary where the trustor issued bonds worth P400k and P900k in favour of PNB to secure credits granted to PAGRICO and PACOCO and to be liable in case of default by PAGRICO and PACOCO > Suit by R & B Surety against Cochingyan, Villanueva and Liu Tua Ben (latter dismissed) for collection of P20,412.20 (unpaid premiums), P5,103.05 yearly until payment of Surety Bond with 12% annual interest, P400k for the total amount of the Surety Bond with 12% annual interest > Contention of Villanueva and Cochingyan > (1) that the Principal Obligation of PAGRICO to the PNB which was secured by the Surety Bond had already been novated and assumed by CCM by virtue of a Trust Agreement entered into with the PNB > novation arising from the change of debtor under the Principal Obligation; (2) that the Indemnity Agreements do not express the true intent of the parties thereto in that they had been asked by R & B Surety to execute the Indemnity Agreement merely in order to make it appear that R & B Surety had complied with the requirements of the PNB that credit lines be secured > No Novation of the Surety Bond by the Trust Agreement > Trustor CCM only became directly liable to PNB > effect of the Trust Agreement was that where there had been only two, there would now be three obligors directly and solidarily bound: PAGRICO, R & B Surety and the Trustor CCM > PNB never intended to release,

and never did release, R & B Surety > Trust Agreement does not expressly terminate the obligation of R & B Surety under the Surety Bond ~ expressly provides for the continuing subsistence of that obligation ~ that This agreement shall not in any manner release the R & B and CONSOLACION from their respective liabilities under the bonds mentioned above > no unequivocal declaration of extinguishment of a pre-existing obligation and no showing of complete incompatibility between the old and the new obligation >> Novation > the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its object or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor > DUAL PURPOSE: obligation is extinguished and a new one is created in lieu thereof >> Objective (or real) novation is through a change of the object (prostration) or principal conditions of an existing obligation > new obligation must expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every point incompatible with the old one ~ novation is never presumed but must be established either by the discharge of the old debt by the express terms of the new agreement, or by the acts of the parties whose intention to dissolve the old obligation as a consideration of the emergence of the new one must be clearly discernible >> Subjective (or personal) novation is by change of either the person of the debtor or of the creditor > juridical relation between the parties to the original contract is extended to a third person > old debtor be released from the obligation and the third person or new debtor take his place in the new relation otherwise the third person becomes merely a co-debtor or surety or a co-surety >> Mixed is by both >> Indemnity Agreements are contracts of indemnification not only against actual loss but against liability as well > Contract of indemnity against loss ~ indemnitor will not be liable until the person to be indemnified makes payment or sustains loss; >> Contract of indemnity against liability ~ indemnitor's liability arises as soon as the liability of the person to be indemnified has arisen without regard to whether or not he has suffered actual loss

G.R. No. 79642 July 5, 1993 BROADWAY CENTRUM CONDOMINIUM CORPORATION v. TROPICAL HUT FOOD MARKET, INC. and THE HONORABLE COURT OF APPEALS Facts: Broadway did not novate its contract lease with Tropical Hut by its LetterAgreement wherein it agreed to reduce the rental rates of Tropical. The latter expressly stipulates that such arrangement is only temporary without prejudice to the terms of the contract and its effectivity subject to Broadways discretion. > Contract of Lease (November 1980) between Broadway Centrum Condominium Corporation and Tropical Hut Food Market. Inc. over formers commercial complex > Demand for monthly rental > Request (February 5, 1982) by Tropical to reduce the rental fees to P50,000.00 or 2.0% of their monthly sales whichever is higher, up to the end of the third year of their instalment, due to its low income and the temporary closure of Doa Juana Rodriguez Avenue > Provisional and Temporary Agreement (April 20, 1982): reduction of the monthly rental on the basis of 2% of gross receipts or P60,000.00 whichever is higher ~ This Provisional arrangement should not be interpreted as amendment to the lease contract entered into between us ~ The temporary alteration in rental is conditioned on your good faith implementation an the suggestions we conveyed to you > Increase by Broadway of the monthly rental to P100k (December 15, 1982) effective on July 1983 > Appeal by Tropical > Denial of Broadway > Complaint for Restraining Order and Injunction by Tropical: that Broadway cannot unilaterally increase the rentals and (on appeal) that the LetterAgreement dated April 20, 1982 had novated the Lease Contract ~ that the rental provided for in the letter-agreement of 20 April 1982 should subsist while the low volume of sales of Tropical still continues > NO NOVATION > Letter-Agreement did not extinguish or alter the obligations of Tropical and the rights of Broadway under their lease contract > Express stipulation that Letter-Agreement (1) did not alter or modify the Contract of Lease; (2) was only provisional, temporary and conditional (upon good faith implementation by Tropical of the 6 principal suggestions Broadway had conveyed to Tropical concerning improvement of the operations of Tropical's supermarket at the Broadway Centrum); (3) negotiated a temporary reduction of rentals > Lack of stipulation regarding the period of time during which the reduced rentals would remain in effect only meant that Broadway retained for itself the discretionary right to return to the original contractual rates of rental whenever Broadway felt it appropriate to do so > Tropical's theory that Broadway had agreed in the 20 April 1982 letter-agreement to maintain the reduced rental so long as Tropical was suffering from a "low volume of sales" appears to us as an afterthought > reduction in space and rental fee > NOT REASONABLE because the law says that when parties contemplated a period for the obligation but none is stipulated, they should ask the Court to set one > Bway should have said that it was a waiver of collection but only for a time period

> NO PARTIAL NOVATION in reduction of rental space > Tropical surrendered 15% of its floor space YET Broadway reduced the rentals by 50% > No substantial relationship existed between the amount of the reduction of rental and the area of the space returned by Tropical > Floor space immaterial to rental rates ~ No novation G.R. No. 136780 August 16, 2001 JEANETTE D. MOLINO v. SECURITY DINERS INTERNATIONAL CORPORATION Facts: Danilo Alto applied for a Regular Diners Club and had her sister-in-law, Jeanette Molino, sign as his surety. Both were jointly and severally liable. He upgraded his membership to a Diamond Card and Molino signed a note approving the same. Alto defaulted and Diners Club sued him and Molino for collection of sum of money. Alto failed to answer and Diners Club dismissed the complaint against him without prejudice to future actions. Held: Although the contract of Danilo Alto with Diners Club had been novated when he upgraded his Regular Card to a Diamond Card, the obligations of his surety, Jeanette Molino, remained because of the stipulation in the Surety Undertaking that that Any change or novation in the agreement or any extension of time granted by SECURITY DINERS to pay such obligations, charges and fees, shall not release me/us from this Surety Undertaking, it being understood that said undertaking is a continuing one and shall subsist and bind me/us until all such obligations, charges and fees have been fully paid and satisfied. Hence, she is still liable under the Dimaond Card despite the lack of express undertaking in the approval note she signed for the upgrade. She is liable for the entire debt because they are jointly and severally liable. G.R. No. 154127 December 8, 2003 ROMEO C. GARCIA v. DIONISIO V. LLAMAS Facts: Romeo Garcia and Eduarde de Jesus obtained a loan from Dionisio Llamas and they issued a promissory note whereby they bound themselves jointly and solidarily. They defaulted in full payment and thus, Llamas sued for collection. Garcia contended that his obligation had been novated by substitution of debtor when De Jesus paid the debt and its interests and by substitution of the promissory note by the check issued by De Jesus. Held: There was no novation because there had been no substitution of debtors when De Jesus alone paid the interests and attempted to pay the debt with a dishounourable check. De Jesus did not become the lone debtor because the two had bound themselves jointly and solidary and thus, only one of the debtors can pay for the

entire obligation. Furthermore, the check did not substitute the promissory note absent express extinguishment of and incompatibility with the promissory note. In fact, the check had been issued precisely to answer for the obligation in the promissory note.

> Loan by Dionisio Llamas to Romeo Garcia and Eduardo de Jesus (December 23,
1996) for P400k > Garcia and de Jesus issued a promissory note payable on January 23, 1997, binding themselves jointly and severally > Failure to Pay > Suit by Llamas for Sum of Money and Damages > Contention of Garcia: that the issuance of the check by de Jesus and Llamas acceptance of it novated or superseded the promissory note > Contention of de Jesus: that he received only P360k and paid P120k by way of interests where Llamas allegedly agreed to accept the benefits de Jesus would receive for his retirement for the satisfaction of the debt > Contention of Llamas: that no novation -- express or implied -- had taken place when he accepted the check from De Jesus ~ CA held that the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by Garcia and De Jesus where the acceptance of the check did not serve to make De Jesus the sole debtor because (a) the obligation incurred by him and Garcia was joint and several; (b) the check -- which had been intended to extinguish the obligation -bounced upon its presentment > No novation by substitution of debtor > alleged substitution of De Jesus as sole debtor > novation must be clear and express > old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation > Acceptance of his check did not change the person of the debtor, because a joint and solidary obligor is required to pay the entirety of the obligation ~ De Jesus was not a third person to the obligation > No novation by the replacement of the promissory note by the check > check could not have extinguished the obligation, because it bounced upon presentment > the delivery of a check produces the effect of payment only when it is encashed > (a) parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take the place of the note; (b) no incompatibility between the promissory note and the check ~ can stand together where note evidences the loan obligation andthe check answers for it >> Novation > 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 subrogating a third person to the rights of the creditor > 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 >> Two modes of substituting the person of the debtor: (1) 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 persons assumption of the obligation > requires the consent of the third person and the creditor; (2) delegacion > the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation > consent of these three persons are necessary >> Both modes of substitution by the debtor require the consent of the creditor since novation implies a waiver of the right the creditor had before the novation and HENCE such waiver must be express >> Extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. >> Modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. >> Objective or real novation by changing the object or the principal conditions >> Subjective or personal novation by substituting the person of the debtor or subrogating a third person to the rights of the creditor >> Express when the new obligation declares in unequivocal terms that the old obligation is extinguished >> Implied when the new obligation is incompatible with the old one on every point > test of incompatibility is whether the two obligations can stand together, each one with its own independent existence >> Requisites must concur: 1) There must be a previous valid obligation. 2) The parties concerned must agree to a new contract. 3) The old contract must be extinguished. 4) There must be a valid new contract G.R. No. 147950 December 11, 2003 CALIFORNIA BUS LINES, INC. v. STATE INVESTMENT HOUSE, INC. Facts: CBLIss obligation (promissory notes) to SIHI by way of reassignment of the formers promissory notes issued to Delta which Delta reassigned to SIHI was not novated by the restructuring agreement and compromise agreement between CBLI and Delta because the first did not expressly novate the notes nor were the two incompatible and the second did not include SIHI as a party and excluded the 5 promissory notes due to SIHI. > Loan Agreement (May 11, June 19, August 22, 1979) by Delta Motors Corporation from State Investment House, Inc. covering a credit line worth P25M > Debt of Delta amounted to P24,010,269.32 > Sale (April 1979 to May 1980) of 35 bus units and 2 engines by Delta to California Bus Lines, Inc. > Purchase price of P2,314,000 was covered by 16 promissory notes dated January 23 and April 25, 1980 (by CBLIs President to Delta), payable in 60 monthly installments from August 31, 1980, with 14% interest pa > Promissory notes secured by chattel mortgages over the 35 buses > CBLI defaulted > Restructuring Agreement (October 7, 1981) between Delta and CBLI covering the past due instalments and implementing (a) a new schedule of payments (extending the period to pay and including a daily remittance instead of the previously agreed monthly remittance of payments) (b) additional security that in case of default, it would have the authority to take over the

management and operations of CBLI until CBLI remitted and/or updated its account > Continuing Deed of Assignment of Receivables (December 23, 1981) by Delta to SIHI as security for its loan obligation > Memorandum of Agreement (March 31, 1982) between Delta and SIHI where loan agreements were restructured and where Delta would assign to SIHI P8M worth of receivables to be deducted from Deltas account > Default of CBLI ~ Threat of Takeover by Delta > Complaint for Injunction (May 3, 1982) by CBLI against Delta and Application by Delta for an issuance of a writ of preliminary mandatory injunction to enforce the management takeover clause and a writ of preliminary attachment over the buses it sold to CBLI > CFI granted Deltas writ of attachment (December 27, 1982) on account of the fraudulent disposition by CBLI of its assets > Deed of Sale (September 15, 1983) between Delta and SIHI where former assigned to the latter 5 of its 16 promissory notes from CBLI, worth P16,152,819.80 > Demand Letter (December 13, 1983) by SIHI to CBLI for payment directly to it of the 5 promissory notes > Refusal by CBLI alleging Deltas take over of its management > Balance of P27,067,162.22 for Deltas loan obligations were paid by transfer of ownership of Deltas buses which SIHI accepted and acknowledged as full payment of Deltas obligation (December 29, 1983) ~ SIHI obtained a writ of replevin for possession of the buses ~ took possession and sold 17 buses worth P12,870,526.98, reducing Deltas debt to P20,061,898.97 which the latter was ordered to pay (December 5, 1984) > Compromise Agreement (July 24, 1984) between Delta and CBLI where Delta would extrajudicially foreclose the chattel mortgages over the 35 bus units sold to CBLI, approved on July 25, 1984 and actually petitioned for (December 28, 1984) and executed on April 2, 1987 where 14 buses were sold to Delta for P3,920,000 ~ same 14 buses were later attached for sale by SIHI against CBLI because... > Refusal of CBLI to pay SIHI the value of the 5 promissory notes ~ that the compromise agreement was in full settlement of all its obligations to Delta including its obligations under the promissory notes > Suit for Collection of the value of the 5 promissory notes (December 26, 1984) by SIHI against CBLI > Writ for preliminary attachment granted and attached 32 buses of CBLI and motion for sale of 16 buses (December 16, 1987) ~ same 14 buses sold to Delta > Contention of CBLI: that Restructuring Agreement novated the Promissory Notes whereby at the time Delta assigned the five promissory notes to SIHI, the notes were already merged in the restructuring agreement and cannot be enforced against CBLI by SIHI > Restructuring Agreement and Compromise Agreement did not novate and discharge, respectively, Deltas Obligation of Payment of the Purchase Price of the 35 Bus Units Expressed in the Promissory Notes >> Restructuring Agreement between Delta and CBLI > No stipulation that the agreement novated the promissory notes > (a) No unequivocal declaration of extinguishment of the pre-existing obligation; (b) No incompatibility > In fact, promissory notes expressly ratifies the obligation ~ Par.8 ~ Except as otherwise modified in this Agreement, the terms and conditions stipulated in [the promissory notes] shall continue to govern the relationship between the parties and that the Chattel Mortgage...shall continue to secure the obligation until full payment >

expressly recognize the continuing existence and validity of the old one > different schedule and manner of payment, to restructure the mode of payments by the buyer so that it could settle its outstanding obligation in spite of its delinquency in payment, is not tantamount to novation >Agreement merely provided for a new schedule of payments and additional security (take-over clause) > Compromise Agreement did not discharged the 5 promissory notes > (1) Reassignment came first than the Agreement ~ 5 Promissory Notes excluded from Agreement where (2) SIHI was not a party and not bound by the Agreement > HENCE, Deltas action against CBLIs pursuant to Agreement did not serve to also include SIHI ~ Delta did not have the authority to collect (needs special power of attorney) > CBLIs obligations to SIHI embodied in the five promissory notes became separate and distinct from CBLIs obligations in 11 other promissory notes that remained with Delta >> Novation > extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor > two functions: one to extinguish an existing obligation, the other to substitute a new one in its place > four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation >> extinctive > when an old obligation is terminated by the creation of a new obligation that takes the place of the former > results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal) >> modificatory > when the old obligation subsists to the extent it remains compatible with the amendatory agreement. >> Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken > Express Novation > that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one ~ when novation has been explicitly stated and declared in unequivocal terms > Implied Novation > that there is an incompatibility between the two contracts ~ an irreconcilable incompatibility between the old and the new obligations ~ when the old and the new obligations are incompatible on every point, at least on points essential in nature (object, cause or principal conditions) and not merely accidental ~ whether the two obligations can stand together, each one having its independent existence >> Obligations to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not incompatible with the old ones, or where the new contract merely supplements the old one ~ mere extension of payment and the addition of another

obligation not incompatible with the old one is not a novation (Inchausti & Co. v. Yulo, Tible v. Aquino and Pascual v. Lacsamana)

preserve intact its causes of action and legal recourse against Pacific MultiCommercial Corporation and Babst as sureties of ELISCON and not of DBP > ELISCONs obligation to BPI had been novated by substitution of debtors from ELISCON to DBP > Consent of creditor (BPI) need not be express (Asia Banking Corporation v. EIser) > Art. 1293 does not state that the creditor's consent to the substitution of the new debtor for the old be express, or given at the time of the substitution, does not mean or require that the creditor's consent to the change of debtors must be given simultaneously with the debtor's consent to the substitution; latter's consent may be given at any time and in any form whatever, while the agreement of the debtors subsists ~ express consent is not absolute and there can be implied consent of the creditor to the substitution of debtors > BPIs implied consent in: (1) its failure to object to the take-over by DBP of ELISCON's assets, at the creditors' meeting held in June 1981 ~ deemed to have consented to the substitution of DBP for ELISCON as debtor ~ even if it was just the account officer who attended, he is deemed to have represented BPI but even if he was not authorized, BPI could have subsequently registered its objection to the substitution, especially after it had already learned that DBP had taken over; (2) admission that the DBP for a time, had proposed a formula for the settlement of Eliscon's past obligations to its creditors...but the formula was expressly rejected by the plaintiff as not acceptable > no cogent reason in withholding its consent to the substitution, other than its desire to preserve its causes of action and legal recourse against the sureties of ELISCON ~ BUT BPI cannot go against the sureties where (a) the original obligation having been extinguished, the contracts of suretyship executed separately by Babst and MULTI, being accessory obligations, are likewise extinguished; (b) no indication that the principal debtor will default in payment but is actually able and willing to pay >> contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not >> surety is an insurer of the debt; he promises to pay the principal's debt if the principal will not pay

G.R. No. 99398 & 104625 January 26, 2001 CHESTER BABST v. CA, BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL CONSOLIDATED, INC., and PACIFIC MULTICOMMERCIAL CORPORATION ELIZALDE STEEL CONSOLIDATED, INC. v. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, PACIFIC MULTI-COMMERCIAL CORPORATION and CHESTER BABST Facts: BPI cannot go against the sureties of ELISCON because the obligation of the latter with the former had already been novated when DBP substituted ELISCON as the debtor with BPIs consent implied in its non-objection to the substitution. Hence, where the original obligation had been extinguished by the new one, its accessory obligations (surety) have likewise been extinguished. > Loan Agreement (June 8, 1973) granted by Commercial Bank and Trust Company to Elizalde Steel Consolidated, Inc. covering P8,015,900.84 worth of line credit > Promissory Note by ELISCON and Guaranty by Pacific Multi-Commercial Corporation, and Continuing Suretyship (September 26, 1978) by MULTI President and General Manager Antonio Roxas Chua and Chester G. Babst whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8M > Default by ELISCON with debt of P3,963,372.08 as of October 31, 1982 from letters of credit issued to National Steel Corporation for purchase of tin black plates > Heavy debt of ELISCON to the Development Bank of the Philippine ~ Deed of Cession of Property in Payment of Debt (December 28, 1978) whereby ELISCON conveyed to DBP by way of dacion en pago all its fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16 > Merger of BPI and CBTC (December 22, 1980) ~ BPI, as the surviving corporation, acquired all the assets and assumed all the liabilities of CBTC > Meeting with ELISCONs creditors (June 1981) to announce the take-over by DBP of its assets > Actual take-over by DBP of ELISCONs assets (October 1981) ~ proposals by DBP to settle the account with BPI was rejected by the latter as unacceptable > DBP later sold all ELISCONs assets to the National Development Company, including the obligations to the creditors (May 4,1983)> Complaint for sum of money (January 17, 1983) by BPI against ELISCON and its sureties, MULTI and Babst > Contention of ELISCON and sureties ~ obligation to BPI by virtue of the loan had been novated by substitution of debtor (ELISCON to DBP) > Contention of BPI ~ Take-over by DBP of ELISCONs obligations was not a valid novation because of the lack of the creditors consent (CBTCT/BPI)~ must appear in its books where BPI intentionally did not consent to the assumption by DBP of the obligations of ELISCON because it wanted to

G.R. No. 154127 December 8, 2003 ROMEO C. GARCIA v. DIONISIO V. LLAMAS Facts: Romeo Garcia and Eduarde de Jesus obtained a loan from Dionisio Llamas and they issued a promissory note whereby they bound themselves jointly and solidarily. They defaulted in full payment and thus, Llamas sued for collection. Garcia contended that his obligation had been novated by substitution of debtor when De Jesus paid the debt and its interests and by substitution of the promissory note by the check issued by De Jesus. Held:

There was no novation because there had been no substitution of debtors when De Jesus alone paid the interests and attempted to pay the debt with a dishounourable check. De Jesus did not become the lone debtor because the two had bound themselves jointly and solidary and thus, only one of the debtors can pay for the entire obligation. Furthermore, the check did not substitute the promissory note absent express extinguishment of and incompatibility with the promissory note. In fact, the check had been issued precisely to answer for the obligation in the promissory note.

> Loan by Dionisio Llamas to Romeo Garcia and Eduardo de Jesus (December 23,
1996) for P400k > Garcia and de Jesus issued a promissory note payable on January 23, 1997, binding themselves jointly and severally > Failure to Pay > Suit by Llamas for Sum of Money and Damages > Contention of Garcia: that the issuance of the check by de Jesus and Llamas acceptance of it novated or superseded the promissory note > Contention of de Jesus: that he received only P360k and paid P120k by way of interests where Llamas allegedly agreed to accept the benefits de Jesus would receive for his retirement for the satisfaction of the debt > Contention of Llamas: that no novation -- express or implied -- had taken place when he accepted the check from De Jesus ~ CA held that the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by Garcia and De Jesus where the acceptance of the check did not serve to make De Jesus the sole debtor because (a) the obligation incurred by him and Garcia was joint and several; (b) the check -- which had been intended to extinguish the obligation -bounced upon its presentment > No novation by substitution of debtor > alleged substitution of De Jesus as sole debtor > novation must be clear and express > old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation > Acceptance of his check did not change the person of the debtor, because a joint and solidary obligor is required to pay the entirety of the obligation ~ De Jesus was not a third person to the obligation > No novation by the replacement of the promissory note by the check > check could not have extinguished the obligation, because it bounced upon presentment > the delivery of a check produces the effect of payment only when it is encashed > (a) parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take the place of the note; (b) no incompatibility between the promissory note and the check ~ can stand together where note evidences the loan obligation andthe check answers for it >> Novation > 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 subrogating a third person to the rights of the creditor > 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 >> Two modes of substituting the person of the debtor: (1) 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 persons assumption of the obligation > requires the consent of the third person and the creditor; (2) delegacion > the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation > consent of these three persons are necessary >> Both modes of substitution by the debtor require the consent of the creditor since novation implies a waiver of the right the creditor had before the novation and HENCE such waiver must be express >> Extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. >> Modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. >> Objective or real novation by changing the object or the principal conditions >> Subjective or personal novation by substituting the person of the debtor or subrogating a third person to the rights of the creditor >> Two ways which could indicate the presence of novation >> Express when the new obligation declares in unequivocal terms that the old obligation is extinguished >> Implied when the new obligation is incompatible with the old one on every point > test of incompatibility is whether the two obligations can stand together, each one with its own independent existence >> Requisites must concur: 1) There must be a previous valid obligation. 2) The parties concerned must agree to a new contract. 3) The old contract must be extinguished. 4) There must be a valid new contract G.R. No. 126712 April 14, 1999 LEONIDA C. QUINTO v. PEOPLE OF THE PHILIPPINES Facts: Acceptance by oblige Cariaga of the payment by customers Ramos and Camacho did not novate the obligation of obligor Quinto by substitution of debtors because of the absence of express intention to extinguish Quintos obligation where the two customers were merely added as persons liable. Moreover, the obligation of the two customers arose from a different transaction than that which Quinto is being held liable. > Aurelia Cariaga gave Leonida Quinto jewelries worth P36k for the latter to sell on commission basis and with the express obligation on the part of Quinto to turn over the proceeds of the sale or to return the said jewelries if not sold in 5 days (from March 23, 1977) ~ Evidenced by a Receipt > Failure of Quinto to sell and return the jewelries after 5 days ~ Extension of time ~ Demand for return 6m later ~ Ignored >

Complaint for Estafa against Quinto > Contention of Quinto: that her obligation to pay for the jewelries was effectively novated when Cariaga consented to receive payment on installments directly from Mrs. Camacho and Mrs. Ramos ~ Mrs. Camacho bought a marques and ring worth P20k where a balance of P13k had been allowed by Leonida to be paid in instalments WHILE Mrs. Concordia Ramos purchased a ring worth P17k where latter paid with P3k worth of ring, P5k cash and Leonida paid P2k > No Novation by substitution of debtors > (1) changes consists only in the manner of payment where Cariaga merely acquiesced to the payment but did not give her consent to enter into a new contract ~ only to prevent the situation where she would end up with nothing because the customers had no money to immediately pay with and so she was forced to receive the tender of Camacho > (2) ALSO, payment was for the purchase, not of the jewelry subject of this case, but of some other jewelry subject of a previous transaction > NEITHER expromision or delegacion > strangers to a contract agrees to assume an obligation have the effect only of adding to the number of persons liable BUT does not necessarily imply the extinguishment of the liability of the first debtor > acceptance by the creditor of payments from a third person does not constitute an extinctive novation absent an agreement that the first debtor shall be released from responsibility > there must be a clear intention on the part of the parties to release the accused from her responsibility

MEMORANDUM OF AGREEMENT (executed on July 29, 1988) > Conditions: (1) payment by Gatmaitan of $150k in Ph currency; (2) issuance of a promissory note with security of 70% of Gatmaitans cash dividends in Prudential Life Plan, Inc.; (3) Transfer (Sell, assign, transfer and set over) of Licaros right over the debt to Gatmaitan; (4) Full power and authority to Gatmaitan, for his own use and benefit but at his own cost and expense, to demand, collect, receive, compound, compromise and give acquittance for the debt > Non-response and non-payment of Bank to Gatmaitan > Non-payment of Gatmaitan of the promissory note > Demand and Suit by Licaros (August 1, 1996) > Contention of Gatmaitan ~ subrogation as creditor in MOA/Promissory Note was invalid due to the lack of consent of Bank > Contention of Licaros ~ no subrogation but only an assignment of credit where debtors consent is unnecessary and hence, MOA is valid > MOA is INVALID ~ it was a Conventional Subrogation which never became effective > (I) Conventional Subrogation from language of the MOA: (a) Whereas clause that the parties have come to an agreement with the express conformity of the third parties concerned ~ Anglo-Asean Bank > If it was intended as an assignment of credit, there would have been no sense to have stipulated in their agreement that the same is conditioned on the express conformity Bank > only accentuates their intention to treat the agreement as one of conventional subrogation; (b) Signature page where Bank was listed as a signatory WITH OUR CONFORME > both parties intended that Bank should signify its agreement and conformity to the contractual arrangement > (II) Subrogation ineffective: (1) lack of Banks consent; (2) that no new obligation was created is immaterial because it is not a requisite for conventional subrogation > BUT if conventional subrogation had taken place with the consent of Anglo-Asian Bank to effect a change in the person of its creditor, there is necessarily created a new obligation whereby Anglo-Asean Bank must now give payment to its new creditor

G.R. No. 142838 August 9, 2001 ABELARDO B. LICAROS v. ANTONIO P. GATMAITAN Facts: Gatmaitan is not bound under the MOA with Licaros because the MOA which they intended to be a conventional subrogation of creditors (Gatmaitan subrogating Licaros for the Banks debt to the latter) never became effective for lack of the debtors consent. Hence, MOA is invalid. > Abelardo Licaros (businessman) ventured into business with Anglo-Asean Bank and Trust Limited (international private bank engaged in receiving fund placements by way of deposits from institutions and individuals investors from different parts of the world and thereafter investing such deposits in money market placements and potentially profitable capital ventures in Hongkong, Europe and the United States for the purpose of maximizing the returns on those investments) > Failure of the business and indebtedness of Bank to Licaros worth $150k > Difficulty by Licaros to collect the debt > Sought counsel of Antonio P. Gatmaitan (reputable banker and investment manager) who voluntarily assumed the payment of Anglo-Asean's indebtedness to Licaros subject to certain terms and conditions of a

>> Assignment of credit > process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor ~ may be done gratuitously or onerously > debtors consent is not required ~ BUT notice to him is required because the assignments takes effect only from the time he has knowledge > no extinguishment of obligation because it refers to the same right which passes from one person to another > does not cure nullity of an obligation > assignment has an effect similar to that of a sale >> Subrogation > transfer of all the rights of the creditor to a third person, who substitutes him in all his rights > extinguishes the obligation and gives rise to a new one > cures nullity of an old obligation >> Legal subrogation > takes place without agreement but by operation of law because of certain acts

>> Conventional subrogation > takes place by agreement of parties > debtor's consent is necessary > the extinguishment of the old obligation is not a requisite without which a contract for conventional subrogation may not be created ~ not determinative of whether or not a contract of conventional subrogation was constituted G.R. No. 136729 September 23, 2003 ASTRO ELECTRONICS CORP. and PETER ROXAS v. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION Facts: Guarantor Philguarantee subrogated the rights of creditor Philtrust by way of legal subrogation when it paid of the loan obligations of Astro to the latter. The consent of Astro was not necessary since the subrogation took effect by operation of law, by the payment of a guarantor. Hence, it can collect the sum from the debtor. > Loan Agreement between Philippine Trust Company and Astro Electronics Corp. worth P3M, > Secured by three promissory notes where Peter Roxas signed twice, as President of Astro and in his personal capacity, and signed as President and surety in a Continuing Suretyship Agreement in favor of Philtrust > Guaranteed by Philippine Export and Foreign Loan Guarantee Corporation, paying 70% of Astros loan subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro > Default by Astro > Payment by Philguarantee > Complaint for sumof money by Philguarantee against Astro and Roxas > Legal Subrogation by Philguarantee of Philtrusts rights as creditor against Astro > Legal subrogation as it took place by opration of law by its payment of the value of 70% of Roxas and Astros loan obligation > guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor > Roxas acquiescence/knowledge is not necessary > Philguarantee subrogated the rights of Philtrust to demand for and collect payment from both Roxas and Astro > had all the right to proceed against Astro it is > Liability of Roxas as Principal Co-Debtor > (1) Two Signatures in the Promissory Notes > Sign as President and in Personal Capacity > In personal capacity, he became a co-maker of the note ~ that persons who write their names on the face of promissory notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor > intention to be jointly and severally liable is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal; > (2) Presence even of the typewritten words personal capacity indicating with certainty that the typewritten words were already existing at the time Roxas affixed his signatures thus demolishing his claim that the typewritten words were just inserted after he signed the promissory notes; (3) Provision that I/We jointly, severally and solidarily, promise to pay makes either

of the signatories solidary liable; > (4) Absent satisfactory explanation by Roxas why he had signed twise in the contract >> Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional >> Legal subrogation is that which takes place without agreement but by operation of law because of certain acts ~ 1302 > guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor >> Conventional subrogation is that which takes place by agreement of the parties