Full Obligations and Contracts Digested

Saint Louis University School of Law Department of Civil and Labor Laws In partial fulfillment of the requirements in the subject Obligations and Contracts Submitted to: Atty. Ma. Lulu G. Reyes Submitted by: Dexter Cayadan Frederick Diong-an Jonardo Jonel Dalimag Andrew Gondayao Sidney Kotoken Novelyn Balgonia Jenny A. Sagpa-ey Marjoree Anne S. Sagsago Page 1 of 545 No. Cases Page 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 GENERAL PRINCIPLES Ocampo III v. People Leung Ben v. O’Brien Pelayo v. Lauron ASI Corporation v. Evangelista Ramas v. Quiamco Hotel Nikko v. Reyes St. Mary’s Academy v. Carpitanos Spouses Guanio v. Makati Shangri-la Hotel TSPI, Inc. v. TSPOC Employees Union Regino v. Pangasinan College PSBA v. Court of Appeals Cosmo Entertainment v. La Ville Ayala Corporation v. Rosa Diana Realty Bricktown Development v. Amor Tierra Development Pilipinas Hino v. Court of Appeals Philippine Realty and Holding Corporation v. Ley Construction and Development Titan-Ikeda Construction v. Primetown Property PADCOM v. Ortigas MC Engineering v. Court of Appeals Bank of the Philippine Islands v. Pineda State Investment v. Court of Appeals Abellana v. People People v. Malicsi People v. Sia People v. Doctolero People v. Abulencia Bermudez v. Melecio-Herrera People v. Relova Manantan v. Court of Appeals People v. Bayotas Barredo v. Garcia Philippine Hawk Corporation v. Lee Dy Teban v. Ching Safeguard Security v. Tiangco Villanueva v. Domingo Calalas v. Court of Appeals Ludo & Luym Corporation v. Court of Appeals Thermochem v. Naval Picart v. Smith 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 40 41 42 43 44 45 46 47 48 49 NATURE AND EFFECTS OF OBLIGATIONS Lagon v. Hooven Comalco Francisco v. Court of Appeals Tanguiling v. Court of Appeals Periquet v. Court of Appeals Legaspi oil v. Court of Appeals Titan-Ikeda Construction v. Primetown Property Philippine National Bank Madecor v. Uy Barzaga v. Court of Appeals Tanguiling v. Court of Appeals Tayag v. Court of Appeals 50 51 52 53 54 55 56 57 58 59 Page 2 of 545 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 Periquet v. Court of Appeals Raquel-Santos v. Court of Appeals Rizal Commercial Banking Corporation v. Court of Appeals Bank of the Philippine Islands v. Court of Appeals Leano v. Court of Appeals Heirs of Bacus v. Court of Appeals Integrated Packing v. Court of Appeals Laforteza v. Machuca Regala v. Carin International Corporate Bank v. Gucco Republic v. Court of Appeals Yambao v. Zuniga Smith, Bell Dodwell v. Borja Ilusorio v. Court of Appeals National Power Corporation v. Court of Appeals Muaje-Tuazon v. Wenphil RCPI v. Verchez Victory Liner v. Gammad FGU v. Sarmiento LRTA v. Natividad Rodzssen v. Far East Bank University of the East v. Jader Bayne Adjusters v. Court of Appeals Delsan Transport v. C & A Consortium PCIB v. Court of Appeals SMC and heirs of Ouana v. Court of Appeals Pacis v. Morales Philippine Hawk Corporation v. Tan Lee Mercury Drug v. Spouses Huang Mendoza v. Soriano Cerezo v. Tuazon Filipinas Synthetic v. De Los Santos Viron v. De los Santos Mercury Drug v. Baking Safeguard Security v. Tangco Pleyto v. Lomboy Viron v. De los Santos Sykl v. Begana Yambao v. Zuniga Regino v. Pangasinan College YHT Realty v. Court of Appeals Ramos v. Court of Appeals Reyes v. Sisters of Mercy Nogales v. Capitol Medical Center Proffesional Services v. Agana Professional Services v. Court of Appeals Rubi Li v. Spouses Soliman Diaz v. Davao Light Yasonna v. De Ramos People v. De los Santos Magat v. Medialdea Vda. De Mistica v. Naguiat Co v. Court of Appeals Reyes v. Tuparan G.G. Sportswear Manufacturing v. World Class Properties, Inc. UFC v. Court of Appeals University of the Philippines v. Delos Angeles Raquel-Santos v. Court of Appeals Francisco v. DEAC Construction, Inc. Cannu v. Galang 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 Page 3 of 545 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 Villanueva v. Estate of Gonzaga Paguyo v. Astorga Casino v. Court of Appeals Carrascoso v. Court of Appeals Goldenrod v. Court of Appeals Serrano v. Court of Appeals Gil v. Court of Appeals Reyes v. Lim Ong v. Tiu Equatorial Realty v. Mayfair Theater Velarde v. Court of Appeals Asuncion v. Evangelista Uy v. Court of Appeals Tamayo, et. al. v. Abad Senora Victory Liner v. Heirs GSIS v. Labung Deang BPI Investment v. D.G. Carreon Khe Kong v. Court of Appeals Philippine Realty and Holding Corp. v. Ley Construction and Dev’t. Megaworld Globus Asia, Inc. v. Tanseco Sicam v. Jorge Huibonhoa v. Court of Appeals Ace Agro v. Court of Appeals Dioquino v. Laureano Bachelor Express v. Court of Appeals Vasquez v. Court of Appeals Yobido v. Court of Appeals Juntilla v. Fontanar Philamgen Insurance v. MGG Marine Mindez v. Morillo NAPOCOR v. Phillip Bros. Ong Genato v. Bayhon, et. al. Union Bank v. Santibanez San Agustin v. Court of Appeals Project Builders, Inc. v. Court of Appeals 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 KINDS OF OBLIGATIONS Development Bank of the Philippines v. Court of Appeals Tomimbang v. Tomimbang Gonzales v. Heirs Insular Life v. Young Direct Funders v. Lavina Vda. De Mistica v. Naguiat Hermosa v. Longara Trillana v. Quezon Colleges Visayan Sawmill v. Court of Appeals Leano v. Court of Appeals Heirs of Sandejas v. Lim Commissioner of Internal Revenue v. Primetown NAMARCO v. Tecson Berg v. Magdalena Estates Lirag v. Court of Appeals Daguhoy v. Ponce Victoria Planters v. Victoria Milling Jespajo v. Court of Appeals Morromeo v. Court of Appeals Gonzales v. Jose Baluyut v. Poblete Malayan Realty v. Uy Kasapian ng Manggagawa ng Coca-Cola v. Court of Appeals 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 Page 4 of 545 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 Santos v. Santos Melotindos v. Tobias LL and Company v. Huang Brent School v. Zamora Lim v. People Pacific Banking v. Court of Appeals Agoncillo v. Javier Ong Guan v. Century Legarda v. Miailhe Reyes v. Martinez Quizana v. Redugerio Alipio v. Court of Appeals PH Credit Corporation v. Court of Appeals CDCP v. Estrella Republic Glass Corporation v. Qua Industrial Management v. NLRC Metro Manila Transit v. Court of Appeals Inciong v. Court of Appeals Philippine Blooming Mills v. Court of Appeals Asset Builders v. Stronghold Esparwa Security v. Liceo de Cagayan Dimayuga v. PCIB Cerna v. Court of Appeals Nazareno v. Court of Appeals Alonzo v. San Juan David v. Court of Appeals Republic v. Thi Thu Thuy de Guzman Marques v. far East Bank Prisma Construction v. Menchavez Macalalag v. People Tan v. Court of Appeals Eastern Shipping v. Court of Appeals PCI v. Ng Sheung Ngor NSBC v. Philippine National Bank Polotan v. Court of Appeals New Sampaguita v. Philippine National Bank Prisma Construction v. Menchavez Maceda, Jr. v. DBO/DBP Philippine National Bank v. Encina Imperial v. Jaucian Pabugais v. Sahijwani Lo v. Court of Appeals Ligutan v. Court of Appeals Pascual v. Ramos First Metro Investment v. Este del Sol Domel Trading v. Court of Appeals Medel v. Court of Appeals Reformina v. Tomol 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 215 216 217 218 219 221 222 223 224 225 227 228 216 217 218 219 220 221 222 223 224 225 EXTINGUISHMENT OF OBLIGATIONS Lo v. KJH Philippine National Bank v. Court of Appeals Cathay Pacific v. Vasquez Citibank v. Sabentiano Telengton Bros. v. US Lines CF Sharp v. Northwest Airlines Padilla v. Paredes Tibajia v. Court of Appeals Development Bank of the Philippines v. Court of Appeals Vitarich v. Locsin 229 230 231 232 233 234 235 236 237 238 Page 5 of 545 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 Metrobank v. Cabilzo Almeda v. Bathala Marketing PCI v. Ng Sheung Ngor Palanca v. Guides PCIB v. Court of Appeals Lagon v. Hooven Comalco Bank of the Philippine Islands v. Court of Appeals Republic v. Thi Thu Thuy De Guzman Audio Electric v. NLRC Land Bank of the Philippines v. Ong Binalbagan v. Court of Appeals Lorenzo Shipping v. BJ Marthel Luzon Development Bank v. Enriquez Estanislao v. East-West Banking Corporation Aquintey v. Tibong Vda. De Jayme v. Court of Appeals Caltex v. IAC Lo v. Court of Appeals ASI Corporation v. Evangelista Paculdo v. Regalado CBC v. Court of Appeals Mobil v. Court of Appeals Dalton v. FGR Realty and Development Corporation Benos v. Lawilao People’s Industrial v. Court of Appeals Eternal Gardens v. Court of Appeals Rayos v. Reyes Cebu International v. Court of Appeals De Mesa v. Court of Appeals Occena v. Court of Appeals Ortigas v. Feati Bank So v. Food Fest Land, Inc. Magat v. Court of Appeals PNCC v. Court of Appeals NATELCO v. Court of Appeals Reyna v. Commission on Audit Trans Pacific v. Court of Appeals Dalupan v. Harden Lopez Vito v. Tambunting Estate of Mota v. Serra Yek Ton Lin v. Yusingco EGV Realty v. Court of Appeals Aerospace Chemical v. Court of Appeals Apodaca v. NLRC Spouses Chung v. Ulanday Construction Lao, et. al. v. Special Plans, Inc. United Planters Sugar v. Court of Appeals PNB Management v. R&R Metal Silahis v. IAC Francia v. Court of Appeals Trinidad v. Acapulco Hernandez Nievera v. Hernandez St. James College v. Equitable PCI Bank Tomimbang v. Tomimbang Mindanao Savings v. Willkom Aquintey v. Tibong Swagman v. Court of Appeals Azolla Farms v. Court of Appeals California Bus Lines v. State Investment Ocampo-Paule v. Court of Appeals 239 240 241 242 243 244 245 246 247 248 249 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 Page 6 of 545 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 Reyes v. Court of Appeals Bautista v. Pilar Development Evadel Realty v. Soriano B&I Realty v. Caspe Mersina v. Garcia Heirs of Gaudiane v. Court of Appeals Laureano v. Court of Appeals Banco Filipino v. Court of Appeals Vda. De Delgado v. Court of Appeals Maestrado v. Court of Appeals Tanay Recreation v. Fausto Mendoza v. Court of Appeals Lim v. Queensland Placewell v. Camote Heirs of Ragua v. Court of Appeals Metrobank v. Court of Appeals Spouses Manuel v. Court of Appeals Cuenco v. Cuenco Laurel v. Desierto Hanopol v. SM Terminal Facilities v. PPA Mendoza v. Court of Appeals Roblett Construction v. Court of Appeals Simedarby v. Goodyear Kings Properties Corporation, Inc. v. Galido Metrobank v. Cabilzo Mesina v. Garcia Pahamatong v. Philippine National Bank Shopper’s Paradise v. Roque Meatmasters v. Lelis Integrated Manipor v. Ricafort Larena v. Mapili Santos v. Santos Villanueva Mijares v. Court of Appeals 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 322 325 327 328 330 331 322 333 335 337 338 339 341 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 CONTRACTS Spouses Edralin v. Philippine Veterans Bank Martin, et. al. v. DBS Bank Philippines Heirs of Zabala, et. al. v. Court of Appeals Star Paper v. Simbol Tiu v. Platinum Plans Avon Cosmetics v. Luna Del Castillo v. Richmond Arwood v. DM Consunji Pascual v. Ramos PUP v. Golden Horizon Villegas v. Court of Appeals Equatorial Realty v. Carmelo PUP v. Court of Appeals Litonjua v. L&R Josefa v. Zhandong Saludo v. Security Bank PCI v. Ng Sheung Ngor Dio v. St. Ferdinand Memorial PILTEL v. Tecson PAL v. Court of Appeals Ermitano v. Court of Appeals Uniwide v. Titan-Ikeda Heirs of Salas v. Laperal Medrano v. Court of Appeals 342 344 346 347 348 349 351 352 353 355 357 358 360 362 363 364 366 367 369 370 371 372 373 375 Page 7 of 545 344 345 346 347 348 349 350 351 352 353 354 355 Tan v. Gullas Gozan v. Mercado Sta. Lucia Realty v. Spouses Buenaventura Chan v. Maceda Baluyot v. Court of Appeals Cuyco v. Cuyco Go v. Cordero Tayag v. Court of Appeals So v. Court of Appeals International Freeport v. Danzas Rockland v. Mid Pasig Development MMDA v. JANCOM 376 378 379 381 383 386 388 390 391 393 395 397 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 377 378 379 380 381 382 ESSENTIAL REQUISITES OF CONTRACTS Rockland v. Mid Pasig Land Development Manila Metal v. PNB Montecillo v. Reynes Soler v. Court of Appeals Palattao v. Court of Appeals ABS-CBN v. Court of Appeals Limson v. Court of Appeals Villanueva v. Philippine National Bank Catalan v. Basa Domingo v. Court of Appeals Mendezona v. Ozamiz Lim v. Court of Appeals Ruiz v. Court of Appeals Dela Cruz v. Sison Rural Bank of Sta. Maria v. Court of Appeals Carabeo v. Spouses Dingco Chavez v. PEA Melliza v. City of Ilo-Ilo Catindig v. Vda. De Meneses Orduna, et. al. v. Fuentebella Askay v. Cosalan Heirs of Balite v. Lim Suntay v. Court of Appeals Uy v. Court of Appeals Catly v. Navarro, et. al. Liguez v. Court of Appeals Philbank v. Lui She 399 401 403 405 407 409 411 412 114 416 417 418 419 420 421 422 423 424 425 426 428 429 431 433 434 436 437 383 384 385 386 FORM OF CONTRACTS Londres v. Court of Appeals Spouses Vega v. SSS Balatbat v. Court of Appeals Universal Robina v. Heirs of Teves 438 440 441 442 387 388 REFORMATION OF INSTRUMENTS Sarming v. Dy Cebu v. Court of Appeals 444 445 389 390 391 392 393 394 395 INTERPRETATION OF CONTRACTS ADR Shipping v. Gallardo Movido v. Pastor TSPIC Corp. v. TSPIC Employees Union Estanislao v. East-West Banking Corporation Aquintey v. Tibong Cruz v. Court of Appeals Gonzales v. Court of Appeals 446 447 448 449 450 451 453 Page 8 of 545 396 397 398 399 Almira v. Court of Appeals Philbank v. Lim Rigor v. Consolidated Leasing Velasquez v. Court of Appeals 454 455 456 457 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 419 420 421 422 423 424 425 426 427 428 429 430 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 451 DEFECTIVE CONTRACTS Heirs of Qurong v. Development Bank of the Philippines Lee v. Bangkok Bank Equatorial Realty v. Mayfair Theater Siguan v. Lim Khe Kong v. Court of Appeals Suntay v. Court of Appeals Brobio Mangahas v. Brobio Hernandez v. Hernandez Fuentes, et. al. v. Roca Associated Bank v. Spouses Montano Miailhe v. Court of Appeals First Philippine Holdings v. Trans Middle East Equities, Inc. Sanchez v. Malapad Realty Oesmer v. PDC Vda. De Ape v. Court of Appeals Francisco v. Herrera Braganza v. Villa Abrille Katipunan v. Katipunan Jumalon v. Court of Appeals Cabales, et. al. v. Court of Appeals Vda. De Ouano, et. al. v. Republic Shoemaker v. La Tondena PNB v. Philippine Vegetable Oil Company Vda. De Ouano, et. al. v. Republic Municipality of Hagonoy v. Dumdum Tan v. Villapaz Spouses David v. Tiongson Cordial v. Miranda Villanueva-Mijares v. Court of Appeals Rosencor v. Inquing Firme v. Buka Heirs of M. Doronio v. Heirs of F. Doronio Gurrea v. Suplico Frenzel v. Catito La Bugal B’laan v. Ramos Agan v. PIATCO COMELEC v. Quijano-Padilla Jaworski v. PAGCOR Oesmer v. PDC Heirs of Balite v. Lim Pineda v. Court of Appeals Cruz v. Bancom Cauton v. Salud Infotech v. COMELEC Pabugais v. Sahijwani Liguez v. Court of Appeals Philbank v. Lui She Vigilar v. Aquino EPG Construction v. Vigilar Go Chan v. Young Francisco v. Herrera Mendezona v. Ozamiz 458 460 462 463 465 466 467 469 471 472 473 474 475 476 477 478 479 480 481 482 483 484 485 486 487 488 489 490 491 492 493 494 495 496 497 498 499 500 501 502 503 504 505 506 507 509 510 511 512 513 514 515 NATURAL OBLIGATIONS Page 9 of 545 452 453 Manzanilla v. Court of Appeals Rural Bank of Paranaque v. Remolado 516 517 454 455 456 457 458 459 460 461 462 463 464 465 466 467 468 469 470 471 472 TRUSTS Cojuangco v. Republic Ringor v. Ringor Salvador v. Court of Appeals Huang v. Court of Appeals Vda. De Esconde v. Court of Appeals Ancog v. Court of Appeals Morales v. Court of Appeals Tala Realty v. Banco Filipino Medina v. Court of Appeals Filipinas Port v. Go Mendizabel v. Apao Vda. De Alberto v. Go Heirs of Yap v. Court of Appeals Heirs of Kionisala v. Heirs of Dacut Ramos v. Ramos Intestate Estate of Ty v. Court of Appeals Vda. De Reterto v. Barz Chia Long Tan v. Cour of Appeals O’laco v. Co Cho Chit 518 519 520 521 522 523 524 526 529 532 534 536 538 539 540 541 542 543 544 Page 10 of 545 OCAMPO III. VS. PEOPLE G.R Nos. 156547-51. February 4, 2008 FACTS: The Department of Budget and Management released the amount of Php 100 Million for the support of the local government unit of the province of Tarlac. However, petitioner Ocampo, governor of Tarlac, loaned out more than P 56.6 million in which he contracted with Lingkod Tarlac Foundation, Inc.. thus, it was the subject of 25 criminal charges against the petitioner. The Sandiganbayan convicted the petitioner of the crime of malversation of public funds. However, the petitioner contended that the loan was private in character since it was a loan contracted with the Taralc Foundation. ISSUE: Whether the amount loaned out was private in nature. RULING: Yes, the loan was private in nature because Art. 1953 of the New Civil Code provides that “a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality.” The fact that the petitioner-Governor contracted the loan, the public fund changed its nature to private character, thus it is not malversation which is the subject of this case, instead it must be a simple collection of money suit against the petitioner in case of non payment . therefore, the petitioner is acquitted for the crime of malversation. Page 11 of 545 Leung Ben vs. O’Brien G.R. No. L-13602, April 6, 1918 38 Phil. 182 FACTS: On December 12, 1917 an action was instituted in the CFI of Manila by O’Brien to recover from Leung Ben the sum of P15, 000.00 alleged to have been lost by the plaintiff to the defendant in a series of gambling, banking and percentage games conducted during the two or three months prior to the institution of the suit. In his verified complaint the plaintiff asked for an attachment, under sections 424 and 412 (1) of the Code of Civil Procedure against the property of the defendant on the ground that the latter was about to depart from the Philippine Island with intent to defraud his creditors. The attachment was issued and acting on the authority thereof, the sheriff attached the sum of P15, 000.00 which had been deposited by the defendant with the International Banking Corporation. The defendant moved to quash the attachment; the court however, dismissed said motion. On January 8, 1918, petitioner Leung Ben, the defendant in that action filed his petition for writ of certiorari directed against O’Brien and the judges of CFI. The prayer is that, the honorable James A. Ostrand be required to certify the records for review and that the order of attachment that had been issued should be revoked and discharged with cost. ISSUE: The issue is whether or not the statutory obligation to restore money won at gaming is an obligation from “contract, express or implied.” HELD: The duty of the defendant to refund the money which he won from the plaintiff at gaming is not an obligation from “contract, express or implied” rather it is a duty imposed by statute. Upon general principles, recognized both in civil and common law, money lost at gaming and voluntarily paid by the loser to the winner cannot, in the absence of statute, be recovered in a civil action. But Act No. 1757 of the Philippine Commission, which defines and penalizes several forms of gambling, containing numerous provisions recognizing the right to recover money lost in gambling or in the playing of certain games. The obligation of the defendant to restore or refund the money which he won from the plaintiff at gaming therefore arises ex lege. Page 12 of 545 Arturo Pelayo vs. Marcelo Lauron G.R. No. L-4089, January 12, 1909 12 Phil. 453 FACTS: On or about October 13, 1906, the plaintiff Arturo Pelayo was called to the house of the defendants, Marcelo Lauron and Juana Abella situated in San Nicolas, and that upon arrival he was requested by them to render medical assistance to their daughter-in-law who was about to give birth to a child. After consultation with the attending physician, Dr. Escaño, the plaintiff found it necessary to remove the fetus by means of an operation, in which service he was occupied until the following morning, and had visited the patient several times. The equitable value of the services rendered by the plaintiff was P500.00, which the defendants refused to pay. On November 23, 1906, the plaintiff filed a complaint against the defendants and prayed that the judgment be rendered in his favor as against the defendants, or any of them, for the sum of P500 and costs, together with any other relief that may be deemed proper. In answer, the defendants denied all allegations and alleged as a special defense, that their daughter-in-law died as a consequence of the said childbirth, and when she was still alive she lived with her husband independently and in a separate house and without any relation whatsoever with them, and on the day she gave birth she was in the house of the defendants and her stay there was accidental and due to fortuitous circumstances. Thus, the defendants prayed that they be absolved from the complaint with costs against the plaintiff. The plaintiff demurred the answer and that the lower court sustained the demurrer directing the defendants to amend their answer. In compliance, the defendants amended their answer denying each and every allegation contained in the complaint. The lower court rendered judgment in favor of the defendants absolving them from the complaint. ISSUE: The issue is whether or not the parents-in-law are under any obligation to pay the fees claimed by the plaintiff. HELD: The defendants were not, nor are they now, under any obligation by virtue of any legal provision, to pay the fees claimed, nor in consequence of any contract entered into between them and the plaintiff from which such obligation might have arisen. The rendering of medical assistance in case of illness is comprised among the mutual obligations to which spouses are bound by way of mutual support. When either of them by reason of illness should be in need of medical assistance, the other is under the unavoidable obligation to furnish the necessary services of a physician in order that the health may be restored; the party bound to furnish such support is therefore, liable for all the expenses, including the fees of the medical expert for his professional services. The liability arises from the obligation, which the law has expressly established, between married couples. It is therefore the husband of the patient who is bound to pay for the services of the plaintiff. The fact that it was not the husband who called the plaintiff and requested the medical assistance for his wife is no bar to his fulfillment of such obligation, as the defendants, in view of the imminent danger to which the life of the patient was at that moment exposed, considered that the medical assistance was urgently needed. Therefore, plaintiff should direct his action against the husband of the patient, and not against her parents-in-law. Page 13 of 545 ASI CORPORATION VS. EVANGELISTA G.R No. 158086. February 14, 2008 FACTS: Private respondent Evangelista contracted Petitioner ASJ Corporation for the incubation and hatching of eggs and by products owned by Evangelista Spouses. The contract includes the scheduled payments of the service of ASJ Corporation that the amount of installment shall be paid after the delivery of the chicks. However, the ASJ Corporation detained the chicks because Evangelista Spouses failed to pay the installment on time. ISSUE: Was the detention of the alleged chicks valid and recognized under the law? RULING: No, because ASJ Corporation must give due to the Evangelista Spouses in paying the installment, thus, it must not delay the delivery of the chicks. Thus, under the law, they are obliged to pay damages with each other for the breach of the obligation. Therefore, in a contract of service, each party must be in good faith in the performance of their obligation, thus when the petitioner had detained the hatched eggs of the respondents spouses, it is an implication of putting prejudice to the business of the spouses due to the delay of paying installment to the petitioner. Page 14 of 545 RAMAS VS. QUIAMCO G.R No. 146322. December 6, 2006 FACTS: Quiamco has amicably settled with Davalan, Gabutero and Generoso for the crime of robbery and that in return, the three had surrendered to Quiamco a motorcycle with its registration. However, Atty. Ramas has sold to Gabutero the motorcycle in installment but when the latter did not able to pay the installment, Davalon continued the payment but when he became insolvent, he said that the motorcycle was taken by Quiamco’s men. However, after several years, the petitioner Ramas together with policemen took the motorcycle without the respondent’s permit and shouted that the respondent Quiamco is a thief of motorcycle. Respondent then filed an action for damages against petitioner alleging that petitioner is liable for unlawful taking of the motorcycle and utterance of a defamatory remark and filing a baseless complaint. Also, petitioners claim that they should not be held liable for petitioner’s exercise of its right as seller-mortgagee to recover the mortgaged motorcycle preliminary to the enforcement of its right to foreclose on the mortgage in case of default. ISSUE: Whether the act of the petitioner is correct. RULING: No. The petitioner being a lawyer must know the legal procedure for the recovery of possession of the alleged mortgaged property in which said procedure must be conducted through judicial action. Furthermore, the petitioner acted in malice and intent to cause damage to the respondent when even without probable cause, he still instituted an act against the law on mortgage. Page 15 of 545 Nikko Hotel Manila Garden vs. Roberto Reyes G.R. No. 154259, February 28, 2005 452 SCRA 532 FACTS: Respondent herein Roberto Reyes, more popularly known by the screen name “Amay Bisaya,” alleged that while he was having coffee at the lobby of Hotel Nikko, he was spotted by Dr. Violeta Filart, his friend of several years, invited him to join her in a party at the hotel’s penthouse in celebration of the natal day of the hotel’s manager, Mr. Masakazu Tsuruoka. Mr. Reyes asked if she could vouch for him for whom she replied: “of course.” Reyes then went up with the party of Dr. Filart carrying the basket of fruits which was the latter’s present for the celebrant. At the penthouse, they first had their picture taken with the celebrant after which Reyes sat with the party of Dr. Filart. After a couple of hours, when the buffet dinner was ready, Mr. Reyes lined-up at the buffet table but, to his great shock, shame and embarrassment, he was stopped by Ruby Lim, the Executive Secretary of Hotel Nikko. Reyes alleged that Ruby Lim, in a loud voice and within the presence and hearing of the other guests who were making a queue at the buffet table, told him to leave the party because he was not invited. Mr. Reyes tried to explain that he was invited by Dr. Filart but the latter, who was within hearing distance, completely ignored him thus adding to his shame and humiliation. Afterwards, while he was still recovering from the traumatic experience, a Makati policeman approached and asked him to step out of the hotel. Like a common criminal, he was escorted out of the party by the policeman. Claiming damages, Mr. Reyes asked for One Million Pesos actual damages, One Million Pesos moral and/or exemplary damages and Two Hundred Thousand Pesos attorney’s fees. Petitioners Lim and Hotel Nikko contend that pursuant to the doctrine of volenti non fit injuria, they cannot be made liable for damages as respondent Reyes assumed the risk of being asked to leave (and being embarrassed and humiliated in the process) as he was a “gate-crasher.” ISSUE: Whether or not Hotel Nikko and Ruby Lim are jointly and severally liable with Dr. Filart for damages under Articles 19 and 21 of the Civil Code. HELD: The doctrine of volenti non fit injuria (“to which a person assents is not esteemed in law as injury”) refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages by one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in doing so. The Supreme Court agreed with the lower court’s ruling that Ms. Lim did not abuse her right to ask Mr. Reyes to leave the party as she talked to him politely and discreetly. Considering the closeness of defendant Lim to plaintiff when the request for the latter to leave the party was made such that they nearly kissed each other, the request was meant to be heard by him only and there could have been no intention on her part to cause embarrassment to him. In the absence of any proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and expose him to ridicule and shame, it is highly unlikely that she would shout at him from a very close distance. Ms. Lim having been in the hotel business for twenty years wherein being polite and discreet are virtues to be emulated, the testimony of Mr. Reyes that she acted to the contrary does not inspire belief and is indeed incredible. Ms. Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not invited, cannot be made liable to pay for damages under Articles 19 and 21 of the Civil Code. Necessarily, neither can her employer, Hotel Nikko, be held liable as its liability springs from that of its employee. Had respondent simply left the party as requested, there was no need for the police to take him out. Page 16 of 545 St. Mary’s Academy vs. William Carpitanos and Lucia S. Carpitanos G.R. No. 143363, February 6, 2002 426 Phil 878 FACTS: From 13 to 20 February 1995, St. Mary’s Academy of Dipolog City conducted an enrollment drive for the school year 1995-1996. A facet of the enrollment campaign was the visitation of schools from where prospective enrollees were studying. As a student of St. Mary’s Academy, Sherwin Carpitanos was part of the campaigning group. Accordingly, on the fateful day, Sherwin, along with other high school students were riding in a Mitsubishi jeep owned by defendant Vivencio Villanueva on their way to Larayan Elementary School, Larayan, Dapitan City. The jeep was driven by James Daniel II then 15 years old and a student of the same school. Allegedly, the latter drove the jeep in a reckless manner and as a result the jeep turned turtle.Sherwin Carpitanos died as a result of the injuries he sustained from the accident. ISSUE: Whether the petitioner is liable for damages for the death of Sherwin Carpitanos. HELD: For petitioner to be liable, there must be a finding that the act or omission considered as negligent was the proximate cause of the injury caused because the negligence must have a causal connection to the accident. In this case, the respondents failed to show that the negligence of petitioner was the proximate cause of the death of the victim. Respondents Daniel spouses and Villanueva admitted that the immediate cause of the accident was not the negligence of petitioner or the reckless driving of James Daniel II, but the detachment of the steering wheel guide of the jeep. Hence, liability for the accident, whether caused by the negligence of the minor driver or mechanical detachment of the steering wheel guide of the jeep, must be pinned on the minor’s parents primarily. The negligence of petitioner St. Mary’s Academy was only a remote cause of the accident. Between the remote cause and the injury, there intervened the negligence of the minor’s parents or the detachment of the steering wheel guide of the jeep. Hence, with the overwhelming evidence presented by petitioner and the respondent Daniel spouses that the accident occurred because of the detachment of the steering wheel guide of the jeep, it is not the school, but the registered owner of the vehicle who shall be held responsible for damages for the death of Sherwin Carpitanos. Page 17 of 545 SPS. GUANIO v. MAKATI SHANGRI-LA HOTEL GR No. 190601, February 7 2011 FACTS: For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel Makati.Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial and final food tasting. The parties eventually agreed on a final price ─ P1,150 per person.On July 27, 2001, the parties finalized and signed their contract. Petitioners claim that during the reception, respondent’s representatives, Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that they would; their guests complained of the delay in the service of the dinner; certain items listed in the published menu were unavailable; the hotel’s waiters were rude and unapologetic when confronted about the delay; and despite Alvarez’s promise that there would be no charge for the extension of the reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of the event up to 4:00 A.M. the next day. They further claim that they brought wine and liquor in accordance with their open bar arrangement, but these were not served to the guests who were forced to pay for their drinks. Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc.and received an apologetic reply from Krister Svensson, the hotel’s Executive Assistant Manager in charge of Food and Beverage. They nevertheless filed a complaint for breach of contract and damages before the RTC of Makati City. Respondents averred that it was the increase in number of the unexpected guests that led to the shortage claimed by the petitioners. The RTC rendered a decision in favor of the plaintiffs and was reversed by the CA, upon appeal, the latter holding that the proximate cause of petitioners’ injury was an unexpected increase in their guests. ISSUE: Whether or not the CA correctly held that the proximate cause of petitioners’ injury was an unexpected increase in their guests. HELD: Petition is meritorious. The Court finds that since petitioners’ complaint arose from a contract, the doctrine of proximate cause finds no application to it, the latter applicable only to actions for quasi-delicts, not in actions involving breach of contract. Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract. The appellate court, and even the trial court, observed that petitioners were remiss in their obligation to inform respondent of the change in the expected number of guests. The observation is reflected in the records of the case. Petitioners’ failure to discharge such obligation thus excused respondent from liability for “any damage or inconvenience” occasioned thereby. Page 18 of 545 TSPIC CORPORATION VS. TSPIC EMPLOYEES UNION G.R No. 163419. February 13, 2008 FACTS: TSPI Corporation entered into a Collective Bargaining Agreement with the corporation Union for the increase of salary for the latter’s members for the year 2000 to 2002 starting from January 2000. thus, the increased in salary was materialized on January 1, 2000. However, on October 6, 2000, the Regional Tripartite Wage and production Board raised daily minimum wage from P 223.50 to P 250.00 starting November 1, 2000. Conformably, the wages of the 17 probationary employees were increased to P250.00 and became regular employees therefore receiving another 10% increase in salary. In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As a result, the nine employees who were senior to the 17 recently regularized employees, received less wages. On January 19, 2001, TSPIC’s HRD notified the 24 employees who are private respondents, that due to an error in the automated payroll system, they were overpaid and the overpayment would be deducted from their salaries starting February 2001. The Union on the other hand, asserted that there was no error and the deduction of the alleged overpayment constituted diminution of pay. ISSUE: Whether the alleged overpayment constitutes diminution of pay as alleged by the Union. RULING: Yes, because it is considered that Collective Bargaining Agreement entered into by unions and their employers are binding upon the parties and be acted in strict compliance therewith. Thus, the CBA in this case is the law between the employers and their employees. Therefore, there was no overpayment when there was an increase of salary for the members of the union simultaneous with the increasing of minimum wage for workers in the National Capital Region. The CBA should be followed thus, the senior employees who were first promoted as regular employees shall be entitled for the increase in their salaries and the same with lower rank workers. Page 19 of 545 Regino vs. Pangasinan Colleges of Science and Technology G.R. No. 156109 November 8, 2004 FACTS: Petitioner Khristine Rea M. Regino was a first year computer science student of Pangasinan Colleges of Science and Technology (PCST). Reared in a poor family, Regino went to college mainly through the financial support of her relatives. She enrolled Logic and Statistics subjects under Rachelle Gamurot and Elissa Baladad, respectively as teachers. In February 2002, PCST held a fund raising campaign dubbed “The Rave Party and Dance Revolution” the proceeds which were to go to the construction of the school’s tennis and volleyball courts. Each student was required to pay for two tickets at the price of P100.00 each. The project was allegedly implemented by recompensing students who purchased tickets with additional points in their test scores; those who refused to pay were denied the opportunity to take the final examinations. Financially strapped and prohibited by her religion from attending dance parties and celebration, Regino refused to pay tickets. On March 14 and 15, 2002, the scheduled dates of examinations in Logics and Statistics, the teachers allegedly disallowed her from taking the tests. Petitioner then filed as pauper litigant, a complaint for damages against PCST. She prayed for P500,000.00 as nominal; P500,000.00 as moral and at least P1,000,000.00 as exemplary damages, P250,000.00 as actual damages & cost of litigation and attorney’s fees. The Regional Trial Court dismissed the complaint for lack of merit. It ruled that Commission on Higher Education, not the court, has jurisdiction over the controversy. ISSUES: Whether or not court has jurisdiction over the controversy. Whether or not there was a breach of contract and liability of tort. HELD: The doctrine of exhaustion of administrative remedies is basic. Court for reasons of law, comity and convenience should not entertain suits unless the available administrative remedies have first been resorted to and the proper authorities have been given the appropriate opportunity to act and correct their alleged errors. Exhaustion of administrative remedies is applicable when there is a competence on the part of the administrative bodies to act upon the matter complained of. The terms of the school-student contract are defined at the moment of its inception-upon enrolment of the student. PCST imposed the assailed revenue-raising measure belatedly in the middle of the semester, It exacted the dance party fee as a condition for students in taking the final examinations and ultimately for recognition of their ability to finish a course. The fee, however, was not part of the school-student contract entered into at the start of the school year. Wherefore, the petition is hereby granted, and the assailed orders reversed. The trial court is directed to reinstate the complaint and with all deliberate speed, to continue the proceedings in Civil Case No. U-7541. No costs. Page 20 of 545 PSBA vs. Court of Appeals G.R. No. 84698, February 4, 1992 FACTS: A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-floor premises of the Philippine School of Business Administration (PSBA) prompted the parents of the deceased to file suit in the Regional Trial Court of Manila for damages against the said PSBA and its corporate officers. At the time of his death, Carlitos was enrolled in the third year commerce course at the PSBA. It was established that his assailants were not members of the school's academic community but were elements from outside the school. Substantially, the plaintiffs (now private respondents) sought to adjudge them liable for the victim's untimely demise due to their alleged negligence, recklessness and lack of security precautions, means and methods before, during and after the attack on the victim. Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action against them, as jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are beyond the ambit of the rule in the afore-stated article. The respondent trial court, however, overruled petitioners’ contention and thru an order dated 8 December 1987, denied their motion to dismiss. Said decision of the respondent appellate court was primarily anchored on the law of quasi-delicts, as enunciated in Articles 2176 and 2180 of the Civil Code. Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis. It had been stressed that the law (Article 2180) plainly provides that 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. However, this material situation does not exist in the present case for the assailants of Carlitos were not students of the PSBA, for whose acts the school could be made liable. ISSUE: Whether or not the appellate court's failure to consider such material facts means the exculpation of the petitioners from liability. HELD: It does not necessarily follow. When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations.Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not apply. However, there is, as yet, no finding that the contract between the school and Bautista had been breached thru the former's negligence in providing proper security measures. Even if there be a finding of negligence, the same could give rise generally to a breach of contractual obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact, that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a contractual relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently of the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code. Page 21 of 545 Cosmo Entertainment Management, Inc. vs. La Ville Commercial Corporation G.R. No. 152801, August 20, 2004 437 SCRA 145 FACTS: The respondent, La Ville Commercial Corporation, is the registered owner of a parcel of land covered by TCT No. 174250 of the Registry of Deeds of Makati City together with the commercial building thereon situated at the corner of Kalayaan and Neptune Streets in Makati City. On March 17, 1993, it entered into a Contract of Lease with petitioner Cosmo Entertainment Management, Inc. over the subject property for a period of seven years with a monthly rental of P250 per square meter of the floor area of the building and a security deposit equivalent to three monthly rentals in the amount of P447, 000.00 to guarantee the faithful compliance of the terms and conditions of the lease agreement. Upon execution of the contract, the petitioner took possession of the subject property. The petitioner, however, suffered business reverses and was constrained to stop operations in September 1996. Thereafter, the petitioner defaulted in its rental payments. Consequently, the respondent made a demand on the petitioner to vacate the premises as well as to pay the accrued rentals plus interests which, as of January 31, 1997, amounted to P740, 478.91. In reply to the demand, the petitioner averred that its unpaid rentals amounted to P698, 500 only and since it made a security deposit of P419, 100 with the respondent, the said amount should be applied to the unpaid rentals; hence, the outstanding accounts payable would only be P279, 400. The respondent requested that the interest charges be waived and it be given time to find a solution to its financial problems. After negotiations between the parties failed, the respondent, on May 27, 1997, reiterated its demand on the petitioner to pay the unpaid rentals as well as to vacate and surrender the premises to the respondent. When the petitioner refused to comply with its demand, the respondent filed with the Metropolitan Trial Court of Makati City a complaint for illegal detainer. The petitioner, in its answer to the complaint, raised the defense that, under the contract, it had the right to sublease the premises upon prior written consent by the respondent and payment of transfer fees. However, the respondent, without any justifiable reason, refused to allow the petitioner to sublease the premises. ISSUE: Whether or not the petitioner has the right to sublease the premises. HELD: The Court is convinced that the findings and conclusions of the court a quo and the RTC are in order. These courts uniformly found that, under the terms of the contract of lease, the respondent, as the owner-lessor of the premises, had reserved its right to approve the sublease of the same. The petitioner, having voluntarily given its consent thereto, was bound by this stipulation. And, having failed to pay the monthly rentals, the petitioner is deemed to have violated the terms of the contract, warranting its ejectment from the leased premises. The Court finds no cogent reason to depart from this factual disquisition of the courts below in view of the rule that findings of facts of the trial courts are, as a general rule, binding on this Court. Page 22 of 545 Ayala Corporation vs. Rosa Diana Realty G.R. No. 134284, December 1, 2000 346 SCRA 663 FACTS: Petitioner Ayala Corporation (Ayala) was the registered owner of a parcel of land located in Alfaro Street, Salcedo Village, Makati City with an area of 840 square meters more or less and covered by TCT no. 233435 of the Register of Deeds of Rizal. On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po and Sy Ka Kieng married to Rosa Chan. The Deed of Sale executed between Ayala and the buyers contained Special Conditions of Sale and Deed Restrictions. Manuel Sy and Sy Ka Kieng failed to construct the building in violation of the Special Conditions of Sale. Notwithstanding the violation, Manuel Sy and Sy Ka Kieng were able to sell the lot to respondent Rosa-Diana Realty and Development Corp. with Ayala’s approval. As a consideration for Ayala to release the certificate of title of the subject property, Rosa-Diana, executed an undertaking promising to abide by said Special Condition of Sale executed between Ayala and the original vendees. Upon the submission of the undertaking, together with the building plans for a condominium project, known as the Peak, Ayala released title to the lot, thereby enabling Rosa-Diana to register the Deed of Sale on its favor and obtain certificate of Title in its name. Thereafter, Rosa-Diana submitted to the building official of Makati another set of building plans which were substantially different from those that it earlier submitted to Ayala for approval. During the construction of Rosa-Diana’s condominium project, Ayala filed an action with the RTC of Makati for specific performance with application for a writ of preliminary injunction seeking to compel the latter to comply with the contractual obligations under the Deed of Restriction annotated on the title as well as with the building plans it submitted to the latter. In the alternative, Ayala prayed for rescission of the sale of the subject lot to Rosa-Diana Realty. The lower court denied Ayala’s prayer for injunctive relief; thus, enabling Rosa-Diana to complete the construction of the building. Ayala tried to cause the annotation a notice of lis pendens on Rosa-Diana’s title but the Register of Deed of Makati refused registration on the ground that the case pending before the trial court being an action for specific performance and or rescission is an action in personam which does not involve the title, use or possession of the property. The Land Registration Authority reversed the ruling of the Register of Deeds. The decision of the LRA, however, was reversed by the CA. ISSUE: The issue is whether or not respondent Rosa-Diana has the obligation to enforce the Deed of Restrictions contained in the contract it entered with Ayala. HELD: Contractual obligations between parties have the force of law between them and absent any allegation that the same are contrary to law, morals, good customs, public order or public policy, they must be complied with in good faith. Hence, Article 1159 of the new Civil Code provides “obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Hence, respondent Rosa-Diana has the obligation to enforce the Deed of Restrictions contained in the contract it entered with Ayala. Page 23 of 545 Bricktown Development vs. Amor Tierra Development G.R. No. 112182, December 12, 1994 239 SCRA 126 FACTS: On 31 March 1981, petitioner Bricktown Development Corporation executed two contracts to sell in favor of petitioner Tierra Corp. covering a total of 96 residential lots situated at the Multinational Village Subdivision, La Huerta, Parañaque, Metro Manila. The total price of P21,639,875.00 was stipulated to be paid by private respondent in such amount and maturity dates, as follows; P2,200,000.00 on March 31, 1981, P3, 209, 965.75 on 30 June 1981, P4, 729, 906.25 on 31 December 1981, and the balance of P11, 500,000.00 to be paid by means of an assumption by private respondent of petitioner’s corporation’s mortgage liability to the Philippine Saving Bank or, alternatively, to be made payable in cash. On even date 31 March 1981, the parties executed a supplemental agreement providing that private respondent would additionally pay to petitioner the amount of P55, 364.68 or 21% interest on the balance of downpayment for the period from 31 March to 30 June 1981 and of P390, 367.37 representing interest paid by petitioner corporation to the Philippine Savings Bank in updating the bank loan for the period from 1 February to 31 March 1981. On 12 October 1981, Petitioner Corporation sent notice of cancellation of contract to private respondent on account of the latter’s continued failure to pay the installment due 30 June 1981 and interest on the unpaid balance of the stipulated initial payment. On 26 September 1983, private respondent demanded the refund of its various payment to petitioner amounting to P2, 445, 497.71. However, petitioner did not heed the demand, so private respondent filed an action with the court a quo. The lower court ruled in favor of private respondent and it was affirmed in toto by the appellate court. ISSUE: The issue is whether or not the contracts to sell were validly rescinded or cancelled by Petitioner Corporation. HELD: The contracts to sell were validly rescinded by Petitioner Corporation. In fine, while we must conclude that petitioner corporation still acted within its legal right to declare the contracts to sell rescinded or cancelled, considering, nevertheless, the peculiar circumstances found to be extant by the trial court, confirmed by the Court of Appeals, it would be unconscionable to likewise sanction the forfeiture by petitioner corporation of payments made to it by private respondent. Indeed, the Court has intimated that the relationship between parties in any contract must always be characterized and punctuated by good faith and fair dealing. Judging from what the court below have said, petitioners did fall well behind that standard. The Court does not find it equitable to adjudge any interest payment by petitioners on the amount to be thus refunded computed from judicial demand, for indeed, private respondent should not be allowed to totally free itself from its own breach. Page 24 of 545 Pilipinas Hino vs. Court of Appeals G.R. No. 126570, August 18, 2000 338 SCRA 355 FACTS: The plaintiff, Pilipinas Hino, Inc., is a corporation duly organized and existing under the laws of the Philippines, with office address at PMI Building EDSA, Mandaluyong, Metro Manila, The plaintiff filed an action for sum of money and damages against the defendants. The contract of lease was entered into between herein parties, under which the defendants, as lessor, leased real property located at Bigaa, Balagtas Bulacan, to plaintiff for a term of 2 years. Pursuant to the contract of lease, plaintiff-lessee deposited with the defendants-lessor the amount of P400, 000.00 to answer for repairs and damages that may be caused by the lessee on the leased premises during the period of the lease. After the expiration of the lease contract, the plaintiff and defendants made a joint inspection of the premises to determine the extent of the damages thereon. Both agreed that the cost of repairs would amount to P60, 000.00 and that the amount of P340, 000.00 shall then be returned by the defendants to plaintiff. However, defendants returned to plaintiff only the amount of P200, 000.00 still having a balance of P140, 000.00. On August 10, 1990, plaintiff and defendants entered into a contract to sell denominated as a memorandum of agreement to sell whereby the latter agreed to sell to the former the leased property subject of this suit in the amount of P45, 611,000.00. The aforesaid memorandum of agreement to sell granted the owner (defendants) the option to rescind the same upon failure of the buyer (plaintiff) to pay any of the six installments with the corresponding obligation to return to the buyer any amount paid by the buyer in excess of the down payment. Pursuant to the said memorandum of agreement, plaintiff remitted on August 10, 1990 to the defendants the amount of P1, 811,000.00 as down payment. Subsequently, plaintiff paid the first and second installments in the amount of P1, 800,000.00 and P5, 250,000.00 with the total amount of P7, 050,000.00. Unfortunately, plaintiff failed to pay the third and subsequent installments; and thereupon, defendants decided to, and in fact did rescind and terminate, the contract promised to return to the plaintiff all the amounts paid in excess of the down payment after deducting the interest due from the third to sixth installments, inclusive. The trial court rendered a decision ruling in favor of respondents Reyes, et. al. Petitioner Pilipinas Hino elevated the case to the Court of Appeals. The appellate court, however, sustained the findings of the trial court. ISSUE: Whether or not the private respondent has the right to retain the interest due for the unpaid installments, despite the fact that the respondent has exercised his option to rescind the memorandum of agreement. HELD: In justifying the withholding of the amount of P924, 000.00 representing the interest due of the unpaid installments, both the trial and the appellate court relied on paragraph 6 of the memorandum of agreement entered into by the parties. However, both courts failed to consider paragraph 9 contained in the same memorandum of agreement which provides in very clear terms that “when the owners exercise their option to forfeit the down payment, they shall return to the buyer any amount paid by the buyer in excess of the down payment with no obligation to pay interest thereon.” This should include all amounts paid, including interest. Had it been the intention of the parties to exclude the interest from the amount to be returned to the buyer in the event that the owner exercises its option to terminate or rescind the agreement, then such should have been stated in categorical terms. Thus, there is no basis in the conclusion reached by the lower courts that “interest paid” should not be returned to the buyer. Moreever, the private respondents’ withholding of the amount corresponding to the interest violated the specific and clear stipulation in paragraph 9 of the memorandum of agreement that except for the down payment, all amounts paid shall be returned to the buyer “with no obligation to pay interest thereon.” The parties are bound by their agreement. Thus Article 1159 of the Civil Code expressly provides: Obligation arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Page 25 of 545 PHILIPPINE REALTY and HOLDING CORP. v. LEY CONST. and DEV. CORP. G. R. No. 165548, June 13, 2011 FACTS: Ley Construction and Development Corporation (LCDC) was the project contractor for the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations. Sometime between April 1988 and October 1989, the two corporations entered into four major construction projects, as evidenced by four duly notarized "construction agreements." These were the four construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building. LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. In the course of the construction of the Tektite Building, it became evident to both parties that LCDC would not be able to finish the project within the agreed period. LCDC explained that the unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. Both parties agreed to enter into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. Abcede replied that he would take this matter up with the board of directors of PRHC.The board of directors turned down the request for an escalation agreement. However, On 9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PRHC. LCDC then proceeded with the construction of the Tektite Building, expending the entire amount necessary to complete the project. From August to December 1991, it infused amounts totaling P 38,248,463.92. These amounts were not deposited into the joint account of LCDC and PRHC, but paid directly to the suppliers upon the instruction of Santos.LCDC religiously submitted to PRHC monthly reports that contained the amounts of infusion it made from the period August 1991 to December 1991. PRHC never replied to any of these monthly reports.On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had already complied with its commitment as of 31 December 1991 and was requesting the release of P 2,248,463.92. In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price of P 36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. ISSUE: Whether or not LCDC was delayed in the performance of its obligation to construct the buildings for PRHC . HELD: The Court held that A subsequent escalation agreement was validly entered into by the parties, but only to the extent of P 36 million. LCDC was able to establish that Abcede and Santos, on behalf of PRHC, had signed the letter-agreement containing the stipulation on the escalation. PRHC does not question the validity of these agreements; it thereby effectively admits that these two individuals had actual authority to sign on its behalf with respect to these construction projects. Thus, the lack of authority on their part should not be used to prejudice it, considering that the two were clothed with apparent authority to execute such agreements. In addition, PRHC is allegedly barred by promissory estoppel from denying the claims of the other corporation. The Court further held that LCDC is not liable for liquidated damages for delay in the construction of the buildings for PRHC. There is no question that LCDC was not able to fully construct the Tektite Building and Projects 1, 2, and 3 on time. The shortage in supplies and cement may be characterized as force majeure. In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Page 26 of 545 TITAN-IKEDA VS. PRIMETOWN G.R No. 158768 February 12, 2008 FACTS: The respondent Primetown Property Corporation entered into contract weith the petitioner Titan-Ikeda Construction Corporation for the structural works of a 32-storey prime tower. After the construction of the tower, respondent again awarded to the petitioner the amount of P 130,000,000.00 for the tower’s architectural design and structure. Howevere, in 1994, the respondent entered inot a contract of sale of the tower in favor of the petitioner in a manner called full-swapping. Since the respondent had allegedly constructed almost one third of the project as weel as selling some units to third persons unknown to the petitioner. Integrated Inc. took over the project, thus the petitioner is demanding for the return of its advanced payment in the amount of P2, 000,000.00 as weel as the keys of the unit. ISSUE: Whether the petitioner is entitled to damages. RULING: No, because in a contract necessarily that there is a meeting of the minds of the parties in which this will be the binding law upon them. Thus, in a reciprocal obligation. Both parties are obliged to perform their obligation simultaneously and in good faith. In this case, petitioner, Titan-Ikeda can not recover damages because it was found out there was no solutio indebiti or mistake in payment in this case since the latter is just entitled to the actual services it rendered to the respondent and thus it is ordered to return the condominium units to the respondent. Page 27 of 545 PADCOM Condominium Corporation vs. Ortigas Center Association, Inc., G.R. No. 146807, May 9, 2002 FACTS: Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the Padilla Office Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas Center, Pasig City. The land on which the building stands was originally acquired from the Ortigas & Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC) under a Deed of Sale dated 4 September 1974. Among the terms and conditions in the deed of sale was the requirement that the transferee and its successor-in-interest must become members of an association for realty owners and long-term lessees in the area later known as the Ortigas Center. Subsequently, the said lot, together with improvements thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer dated 25 February 1975. In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was organized to advance the interests and promote the general welfare of the real estate owners and long-term lessees of lots in the Ortigas Center. It sought the collection of membership dues in the amount of two thousand seven hundred twenty-four pesos and forty centavos (P2, 724.40) per month from PADCOM. The corporate books showed that PADCOM owed the Association P639, 961.47, representing membership dues, interests and penalty charges from April 1983 to June 1993. The letters exchanged between the parties through the years showed repeated demands for payment, requests for extensions of payment, and even a settlement scheme proposed by PADCOM in September 1990. In view of PADCOM's failure and refusal to pay its arrears in monthly dues, including interests and penalties thereon, the Association filed a complaint for collection of sum of money before the trial court. The Association averred that purchasers of lands within the Ortigas Center complex from OCLP are obligated under their contracts of sale to become members of the Association. This obligation was allegedly passed on to PADCOM when it bought the lot from TDC, its predecessor-in-interest. The trial court dismissed the case. However, the Court of Appeals reversed the same in favor of the Association. ISSUE: Whether or not PADCOM is a member of the Ortigas Center Association, Inc. HELD: As a lot owner, PADCOM is a regular member of the Association. No application for membership is necessary. If at all, acceptance by the Board of Directors is a ministerial function considering that PADCOM is deemed to be a regular member upon the acquisition of the lot pursuant to the automatic membership clause annotated in the Certificate of Title of the property and the Deed of Transfer. PADCOM’s contention that the automatic membership clause is a violation of its freedom of association because it was never forced to join the association is likewise untenable. Nobody forced it to buy the land when it bought the building with the annotation of the condition or lien on the Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the Association. Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues incidental thereto as mandated by Article 1159 of the Civil Code which states that “obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith”. Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot evade payment without violating the equitable principles underlying quasi-contracts. Article 2142 of the Civil Code provides that “certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another”. Page 28 of 545 MC Engineering, Inc., vs. Court of Appeals G.R. No. 104047, April 3, 2002 380 SCRA 116 FACTS: Mc Engineering, Inc. and Surigao Coconut Development Corporation signed a contract, for the restoration of the latter’s building, land improvement, electrical, and mechanical equipment located at Lipata, Surigao City, which was damaged by typhoon Nitang. Defendant Mc Engineering and plaintiff Gerent Builders, Inc. entered into an agreement wherein defendant subcontracted to plaintiff the restoration of the buildings and land improvement phase of its contract with Sucodeco. On January 2, 1985, plaintiff received from defendant the amount of P1, 339,720.00 as full payment of the sub-contract price, after deducting earlier payments made by defendant to plaintiff, as evidenced by the affidavit executed by plaintiff’s president, Mr. Narciso C. Roque, wherein the latter acknowledged complete satisfaction for such payment on the basis of the Statement of Account which plaintiff had earlier forwarded to defendant. Nevertheless, plaintiff is still claiming from defendant the sum of P632, 590.13 as its share in the adjusted contract cost in the amount of P854, 851.51, alleging that the sub-contract is subject to the readjustment provided for in Section VII of the agreement, and also the sum of P166, 252.00 in payment for additional electrical and civil works outside the scope of the sub-contract. Petitioner refused to pay respondent Gerent. Thus, on March 21, 1985, respondent Gerent filed the complaint against petitioner. On March 28, 1985, the trial court issued the corresponding writ of preliminary attachment upon the filing by respondent Gerent of a P632, 590.13 bond issued by respondent Surety. On April 24, 1985, petitioner moved to quash the writ on the ground that it was improperly issued. The trial court denied the motion. On July 13, 1987, the trial court ordered the return of petitioner’s properties that deputy sheriff Cristobal C. Florendo attached and seized. The sheriff reported to the court that he never seized a single property of petitioner but merely conducted a “paper levy”. On January 5, 1988, petitioner filed an application against the attachment bond to recover damages it suffered due to the wrongful issuance of the writ of attachment. Respondent Surety opposed the application. In its Answer, petitioner vigorously denied respondent Gerent’s causes of action. Petitioner counterclaimed for damages and attorney’s fees due to the improper issuance of the writ of attachment. ISSUE: Whether or not petitioner is entitled to actual moral and exemplary damages due to the wrongful issuance of the writ of preliminary attachment. HELD: Since no moral damages is due to appellee and it appearing that no actual damages was awarded by the lower court, the grant of exemplary damages has no leg on which to stand (Art. 2234, Civil Code). If at all, the wrongful issuance of the writ of attachment, as ruled out by this Court, merely resulted in actual damages to appellee. But such is not automatically awarded for it is subject to proof. Appellee’s claim that it lost major contracts after a credit investigation revealed that its accounts were garnished is a bare allegation not merely unsupported by solid evidence but is also speculative. The alleged $35,000.00 remittance refused by the Hongkong and Shanghai Bank does not inspire belief for failure of appellee to produce documentary proof to buttress its claim.” We agree with the Court of Appeals that the trial court erred in awarding moral and exemplary damages to petitioner. The mere fact that a complaint is dismissed for lack of legal basis will not justify an award of moral damages to the prevailing party. Even the dismissal of a “clearly unfounded civil action or proceeding” will not entitle the winning party to moral damages. For moral damages to be awarded, the case must fall within the instances enumerated in Article 2219, or under Article 2220, of the Civil Code. Moreover, in the absence of fraud, malice, wanton recklessness or oppressiveness, exemplary damages cannot be awarded. Page 29 of 545 Bank of the Philippine Islands vs. Benjamin Pineda G.R.No. L-62441, December 14, 1987 156 SCRA 404 FACTS: Through financing of Peoples Bank and Trust Company, now BPI, three vessels were bought by Southern Industrial Project (SIP) and/or Bacong Shipping Company. SIP is a corporation whose majority stockholder belongs to Concon Family. Bacong Shipping Company is a Panamanian corporation. The said vessels were mortgaged to the bank as a security of their payment of their bank loans. Interocean Shipping Corporation, a booking agency, handled the operation of said vessels. It undertook the freight revenues from their charter and operation which shall be deposited with Trust Department of PBTC and disbursements made therefrom shall be covered by vouchers bearing the approval of SIP. SIP and PBTC became doubtful of the amount of revenues being deposited with the bank as diversions of payments were being made. Gregorio Concon of SIP and/or Bacong and Ramon Azanza of PBTC organized SA Gacet Inc. to manage and supervise the vessels’ operation with Ezekiel Toeg as its manager. A management contract was entered into between SIP and Gacet Inc. placing the supervision and management of said vessels in the hands of Gacet for a specified period, renewable at the will of the parties without however terminating the booking agency of Interocean Shipping Corp. Gacet and Interocean, in accordance with the management contract, contracted services of Benjamin Pineda doing business in the name and style Pioneer Iron Works to carry out repairs, fabrication and installation of necessary parts in said vessels in order to make them seaworthy and in good working condition. Unable to pay their mortgage indebtedness to PBTC hich became past due, SIP and/or Bacong sold said vessels to PBTC by way of dacion en pago.Pineda filed an action against SIP, Gacet, Interocean and PBTC for payment and interest of the cost of repairs, fabrication and installation of necessary parts of the vessels. ISSUE: Who should be liable for the payment of the cost of repairs undertaken in the subject vessels? HELD: The Deed of Confirmation of Obligation is but a part or corollary to the Deeds of Sale of the vessels. In fact, specific reference thereto was made by said Deeds of Sale as to the settlement of obligations, among which are repairs in question. The stipulation with the Deed of Confirmation leaves no room for doubt while the bank may indeed pay certain obligations. The primary purpose of the contracts is the protection of the vessels. Among them are liens on the same under which the obligation to private respondent properly belongs. Private respondent was paid certain sum of money and its balance through the issuance of three checks by Interocean. Under the circumstances, private respondent has no basis or necessity at that time to exercise his right of retention under 1731 of the Civil Code. The checks were dishonored thus the private respondent could not give validity to petitioner’s argument that the former has waived or abandoned his liens on the vessels. To pursue such view would put a premium on an act of deception which led private respondent to believe that he will be fully paid. Furthermore, when the checks were dishonored, it was impossible for private respondent to enforce his liens because the vessels were already in Japan, outside the territorial jurisdiction of Philippine waters. If there was no intention on the part of PBTC (BPI) to assume responsibility for these obligations at the time of the sale of the vessels, there is no sense in executing said Deed of Confirmation together with the Deeds of Sale and the stipulations thereunder would be pointless. The repairs made on the vessels ultimately redounded to the benefit of the new owner (BPI) for without said repairs, those vessels would not be seaworthy. Under Article 2124 of the Civil Code, such acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.The petitioner bank is answerable to Pineda for the services contracted on the vessels. Page 30 of 545 State Investment vs. Court of Appeals G.R. No. 90676, June 19, 1991 198 SCRA 392 FACTS: Respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to petitioner State Investment House Inc. in order to secure a loan of P120, 000.00. Prior to the execution of the pledge, respondent spouses Jose and Marcelina Aquino signed an agreement with Petitioner for the latter’s purchase of receivables amounting to P375, 000.00. When the 1st Account fell due, respondent spouses paid the same partly with their own funds and partly from the proceeds of another loan which they obtained also from Petitioner designated as the 2nd Account. This new loan was secured by the same pledge agreement executed in relation to the 1st Account. When the new loan matured, State demanded payment. Respondents expressed willingness to pay, requesting that upon payment, the shares of stock pledged be released. State denied the request on the ground that the loan which it had extended to the spouses Jose and Marcelina Aquino has remained unpaid. On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of Notarial Sale stating that upon request of State and by virtue of the pledge agreement, he would sell at public auction the shares of stock pledged to State. This prompted respondents to file a case before the Regional Trial Court of Quezon City alleging that the intended foreclosure sale was illegal because from the time the obligation under the 2nd Account became due, they had been able and willing to pay the same, but petitioner had insisted that respondents pay even the loan account of Jose and Marcelino Aquino, which had not been secured by the pledge. It was further alleged that their failure to pay their loan was excused because State itself had prevented the satisfaction of the obligation. On January 29, 1985, the trial court rendered a decision in favor of the plaintiff ordering State to immediately release the pledge and to deliver to respondents the share of stock upon payment of the loan. The Court of Appeals affirmed in toto the decision of the trial court. ISSUES: Whether or not the conditions to be complied with by the debtor desirous of being released from his obligation in cases where the creditor unjustly refuses to accept payment have been met by the spouses Aquino. HELD: The conditions had not been complied with. Article 1256 of the civil code states 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 consignation of the thing or sum due.” Where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation must comply with two (2) conditions: (a) tender of payment; and (b) consignation of the sum due. Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced. In the instant case, respondent spouses Aquino, while they are properly regarded as having made a written tender of payment to petitioner state, failed to consign in court the amount due at the time of the maturity of the 2nd Account No. It follows that their obligation to pay principal-cum-regular or monetary interest under the terms and conditions of the said Account was not extinguished by such tender of payment alone. Page 31 of 545 ABELLANA V. PEOPLE G.R. No. 174654, August 17, 2011 FACTS: In 1985, petitioner Felixberto A. Abellana extended a loan to private respondents spouses Diaga and Saapia Alonto (spouses Alonto), secured by a Deed of Real Estate Mortgage over Lot Nos. 6471 and 6472 located in Cebu City.Subsequently, or in 1987, petitioner prepared a Deed of Absolute Sale conveying said lots to him. The Deed of Absolute Sale was signed by spouses Alonto in Manila. However, it was notarized in Cebu City allegedly without the spouses Alonto appearing before the notary public. Thereafter, petitioner caused the transfer of the titles to his name and sold the lots to third persons.On August 12, 1999, respondent spouses filed a complaint charging petitioner with Estafa through Falsification of Public Document. The RTC found that petitioner did not intend to defraud the spouses Alonto and that petitioner can only be held guilty of Falsification of a Public Document by a private individual under Article 172(1)in relation to Article 171(2) of the Revised Penal Code and not Estafa through falsification of public document as charged in the Information. Petitioner, upon appeal, raised the issue of whether an accused who was acquitted of the crime charged may nevertheless be convicted of another crime or offense not specifically charged and alleged and which is not necessarily included in the crime or offense charged. The CA held that petitioner who was charged with and arraigned for estafa through falsification of public document under Article 171(1) of the RPC could not be convicted of Falsification of Public Document by a Private Individual under Article 172(1) in relation to Article 171(2). Thus, the CA opined that the conviction of the petitioner for an offense not alleged in the Information or one not necessarily included in the offense charged violated his constitutional right to be informed of the nature and cause of the accusation against him. Nonetheless, the CA affirmed the trial court's finding with respect to petitioner's civil liability. ISSUE: Whether or not petitioner could still be held civilly liable notwithstanding his acquittal. HELD: NO. It is an established rule in criminal procedure that a judgment of acquittal shall state whether the evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. The "extinction of the penal action does not carry with it the extinction of civil liability unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil liability might arise did not exist." Civil liability arises when one, by reason of his own act or omission, done intentionally or negligently, causes damage to another. Hence, for petitioner to be civilly liable to spouses Alonto, it must be proven that the acts he committed had caused damage to the spouses.Based on the records of the case, we find that the acts allegedly committed by the petitioner did not cause any damage to spouses Alonto. Even assuming that the spouses Alonto did not personally appear before the notary public for the notarization of the Deed of Absolute Sale, the same does not necessarily nullify or render void ab initio the parties' transaction. Such non-appearance is not sufficient to overcome the presumption of the truthfulness of the statements contained in the deed. And since the defective notarization does not ipso facto invalidate the Deed of Absolute Sale, the transfer of said properties from spouses Alonto to petitioner remains valid. Hence, when on the basis of said Deed of Absolute Sale, petitioner caused the cancellation of spouses Alonto's title and the issuance of new ones under his name, and thereafter sold the same to third persons, no damage resulted to the spouses Alonto. Page 32 of 545 PEOPLE VS. MALICSI G.R No. 175833 January 29, 2008 FACTS: The accused-appellant was accused for the crime of rape against his niece. The incident was repeated trice by the appellant. The appellant contended that he and the victim were sweethearts but the trial court did not give weight to that theory. The trial court found appellant guilty of the crime of four counts of qualified rape and was sentenced to suffer the penalty of death for each count of rape, to pay P300,000.00 as civil indemnity (P75,000.00 for each count), and P200,000.00 as moral damages (P50,000.00 for each count). The CA however modified the findings of the RTC declaring that appellant is guilty of four counts of simple rape and to suffer the penalty of reclusion perpetua. ISSUE: Whether the award of damages was properly made. RULING: No, because the Supreme Court declared that the crime committed was four count of simple rape only and not qualified rape because the special aggravating circumstances of minority and relationship must be alleged in the information but the prosecution failed to do so. Since it is not included, four counts of simple rape should be undertaken. The penalty imposed then should be reclusion perpetua. The appellate court also correctly affirmed the award by the trial court of P200,000.00 for moral damages. Moral damages are automatically granted to rape victim. However, the award of civil indemnity is reduced to P200,000.00 in the amount of P50,000.00 for each count of simple rape is automatically granted. Page 33 of 545 People of the Philippines vs. Rosauro Sia G.R. No. 137457, November 21, 2001 370 SCRA 123 FACTS: This is an automatic review of a decision of the Regional Trial Court finding the accused Johnny Balalio y Deza and Jimmy Ponce y Tol guilty beyond reasonable doubt as principals by conspiracy for violation of RA 6539 (Anti- Carnapping law) as amended, and sentenced them to suffer the penalty of death. Accused are likewise adjudged jointly and severally liable to pay Agripina Bermudez, the mother of the deceased Christian Bermudez the sums of: (a) P50, 000.00 as compensatory damages for the death of Christian Bermudez; (b) P200, 000.00 as burial and other expenses incurred in connection with the death of Christian; and (c) P3, 307,199.60 (2/3 x [80-27] x 300 per day x 26 days (excluding Sundays) x 12 months) representing the loss of earning capacity of Christian Bermudez as taxi driver. ISSUE: The issue is whether or not the trial courts’ award for damages is proper. HELD: The decision is partly correct. The Court finds the amount of P50, 000.00 as death indemnity proper, following prevailing jurisprudence, and in line with controlling policy. The award of civil indemnity may be granted without any need of proof other than the death of the victim. Though not awarded by the trial court, the victim’s heirs are likewise entitled to moral damages, pegged at P50, 000.00 by controlling case law, taking into consideration the pain and anguish of the victim’s family brought about by his death. However, the award of P200, 000.00 as burial and other expenses incurred in connection with the death of the victim must be deleted. The records are bereft of any receipt or voucher to justify the trial court’s award of burial and other expenses incurred in connection with the victim’s death. The rule is that every pecuniary loss must be established by credible evidence before it may be awarded. Credence can be given only to claims, which are duly supported, by receipts or other credible evidence. The trial court was correct in awarding damages for loss of earning capacity despite the non-availability of documentary evidence. The court based on testimony in several cases has awarded damages representing net earning capacity. However the amount of the trial court’s award needs to be re computed and modified accordingly. In determining the amount of lost income, the following must be taken into account: (1) the number of years for which the victim would otherwise have lived; and (2) the rate of the loss sustained by the heirs of the deceased. The second variable is computed by multiplying the life expectancy by the net earnings of the deceased meaning total earnings less expenses necessary in the creation of such earnings or income less living and other incidental expenses considering that there is no proof of living expenses of the deceased, net earnings are computed at fifty percent of the gross earnings. In this case, the court notes that the victim was 27 years old at the time of his death and his mother testified that as a driver of the Tamaraw FX taxi, he was earning P650.00 a day. Based on the foregoing computation, the award of the trial court with regard to lost income is thus modified accordingly. The court ordered the accused to pay the heirs of the victim Christian Bermudez the sum of P50, 000.000 as civil indemnity, the sum of P50, 000.00 as moral damages, and the sum of P2, 996,867.20 representing lost earnings. The award of P200, 000.00 as burial and other expenses is deleted for lack of substantial proof. Page 34 of 545 People of the Philippines vs. Carlos Doctolero, Sr G.R. No. 131866, August 20, 2001 363 SCRA 404 FACTS: This is an appeal of the accused from the decision of the Regional Trial Court of Baguio City finding him guilty beyond reasonable doubt of the crime of murder and ordering him to indemnify the heirs of the victim the sum of P50, 000.00 as indemnity for his death; the sum of P227, 808.80 as actual damages for expenses incurred for hospitalization, doctor’s fees, funeral expenses, vigil and burial as a result of his death, and P300, 000.00 as moral damages for the pain and mental anguish suffered by the heirs by reason of his death, all indemnifications being without subsidiary imprisonment in case of insolvency, and to pay the costs. ISSUE: Whether or not the trial court’s award of damages is proper. HELD: The Supreme Court modified the award for damages by the trial court. It reduced the award to P112, 413.40 representing funeral expenses, which were duly proven and covered by receipts Expenses relating to the 9th day, 40th day and 1st year anniversaries cannot be considered in the award of actual damages as these were incurred after a considerable lapse of time from the burial of the victim. With respect to the award of moral damages, the same is reduced to P50, 000.00 in accordance with existing jurisprudence. Based on the above modifications the court ordered the accused to pay the heirs of the victim P112, 413.40 as actual damages P50, 000.00 as civil indemnity, and P50, 000.00 as moral damages plus costs. Page 35 of 545 People of the Philippines vs. Rolly Abulencia G.R. No. 138403, August 22, 2001 363 SCRA 496 FACTS: This is an automatic review of a decision of the Regional Trial Court of Urdaneta City, Pangasinan finding the accused guilty beyond reasonable doubt of the crime of Aggravated Rape with Homicide sentencing the accused to suffer the penalty of death, and ordering him to indemnify the heirs of the victim, the sum of P75, 000.00 damages, and another sum of P20, 000.00 for exemplary damages plus P6, 425.00 as actual damages. ISSUE: Whether or not the trial court’s award for damages is proper. HELD: The Supreme Court modified the trial court’s award for damages. The trial court awarded only 75,000.00 as civil indemnity, but current jurisprudence has fixed at P100, 000.00 the civil indemnity in cases of rape with homicide, which is fully justified and properly commensurate with the seriousness of the special complex crime. The trial court did not award moral damages to the victim’s family. Based on prevailing jurisprudence, moral damages may be awarded to the heirs of the victim without need for pleading or proof of its basis for their mental, physical and psychological sufferings are too obvious to still require their recital at the trial. Hence, moral damages in the amount of P50, 000.00 must be awarded. In People v. Lagarto, the court held that attendant circumstances may be considered to determine civil liability. Thus, in view of the evident cruelty inflicted upon the victim, as shown by the multiple burns and contusions on her body, the court granted the award of exemplary damages in the amount of P25, 000.00. Based on the above modifications, the Court ordered the accused to pay the heirs of the victim P100, 00.00 as civil indemnity; P50, 000.00 as moral damages; P25, 000.00 as exemplary damages; and P6, 425.00 as actual damages. Page 36 of 545 Reynaldo Bermudez vs. Hon. Judge A. Melencio-Herrera G.R. No. L-32055, February 26, 1988 158 SCRA 168 FACTS: A cargo truck driven by Domingo Pontino and owned by Cordova Ng Sun Kwan bumped a jeep on which Rogelio, a six-year old son of plaintiff-appellants, was riding. The boy sustained injuries which caused his death. As a result, a criminal case for Homicide through Reckless Imprudence was filed against Domingo Pontino by the Manila City Fiscal’s Office. Plaintiffappellants filed in the said criminal case “A Reservation to File Separate Civil Action.” Subsequently, the plaintiff-appellants filed a civil case for damages with the Court of First Instance of Manila. Finding that the plaintiffs instituted the action “on the assumption that defendant Pontino’s negligence in the accident constituted a quasi-delict,” the trial court stated that the plaintiffs had already elected to treat the accident as a “crime” by reserving in the criminal case the right to file a separate civil action. That being so, the trial court decided to order the dismissal of the complaint against defendant Cordova Ng Sun Kwan and to suspend the hearing of the case against Domingo Pontino until after the criminal case for Homicide Through Reckless Imprudence is finally terminated. From said order, plaintiffs filed the present appeal. ISSUE: Whether or not the plaintiff-appellants had already elected to treat the accident as a “crime” by reserving in the criminal case the right to file a separate civil action. HELD: According to the Supreme Court, in case of negligence, the injured party or his heirs has a right to choose between an action to enforce civil liability arising from crime under Article 100 of the Revised Penal Code and an action for quasi-delict under Article 2176-2194 of the Civil Code. If the party chooses the latter, he may hold the employer solidarily liable for the negligent act of his employee, subject to the employer’s defense of exercise of the diligence of a good father of the family. In the case at bar, the action filed by appellant was an action for damages based on quasidelict. The fact that appellants reserved their right in the criminal case to file an independent civil action did not preclude them from choosing to file a civil action for quasi-delict. Page 37 of 545 People of the Philippines vs. Relova G.R. No. L-45129, March 6, 1987 148 SCRA 293 FACTS: On February 1, 1975, members of the Batangas City Police together with personnel of the Batangas Electric Light System, equipped with a search warrant, searched the premises of the Opulencia Carpena Ice Plant and Cold Storage owned and operated by private respondent Manuel Opulencia. The police discovered that electric wiring devices and contraptions had been installed without the necessary authority from the city government. These electric devices were designed purposely to lower or decrease the readings of electric consumption in the electric meter of the said electric and cold storage ice plant. Consequently, an Assistant City Fiscal of Batangas filed an information against Opulencia for violation of Ordinance No. 1 Series of 1974, Batangas City. However, subsequently, the accused filed a motion to dismiss the information upon the grounds that the crime there charged had already prescribed. Fourteen (14) days later, the Acting City Fiscal of Batangas filed before the Court of First Instance of Batangas another information against Opulencia this time for theft of electric power under Article 308 in relation to Article 309 of the Revised Penal Code. However, the case was likewise dismissed on the ground of the constitutional right against double jeopardy. As regards the civil aspect of the case, no right to file a separate civil action was filed by the Batangas City Electric Light System. ISSUE: Whether or not the extinction of criminal liability whether by prescription or by the bar of double jeopardy carries with it the extinction of civil liability based on the offense charged. HELD: In the present case, accused Opulencia freely admitted during the police investigation having stolen electric current through the installation and use of unauthorized electric connections or devices. While the accused pleaded not guilty before the City Court of Batangas City, he did not deny having appropriated electric power. However, there is no evidence in the record as to the amount or value of the electric power appropriated by the accused. Accordingly, the civil action which has not been waived impliedly or expressly should be remanded to the Court of First Instance of Batangas City for reception of evidence on the amount or value of the electric power appropriated and converted by Manuel Opulencio and rendition of judgment conformably with such evidence. Page 38 of 545 Manantan vs. Court of Appeals G.R. No. 107125, January 29, 2001 350 SCRA 387 FACTS: After going from one place to another and consuming large amounts of beer, the accused, the deceased, and two others boarded on the car of the accused where he was the driver. Driving at a high speed at the middle portion of the highway and trying to overtake tricycle. At such speed, the accused was not able to avoid the passenger jeepney and thus collided with it. The accused immediately tried to swerve the car to the right and move his body away from the steering wheel but he was not able to avoid the oncoming vehicle and the two vehicles collided with each other at the center of the road. The trial court decided in favor of the accused. However, the Court of Appeals modified the decision of the lower court, in that defendant-appellee is held civilly liable for his negligent and reckless act of driving his car which was the proximate cause of the vehicular accident and sentenced to indemnify plaintiff-appellants in the amount of P174, 400.00 for the death of Ruben Nicolas ISSUES: (1) Whether or not the trial court erred in finding that petitioner’s acquittal did not extinguish his civil liability. (2) Whether or not the Court a quo erred in finding that petitioner’s acquittal did not extinguish his civil liability. (3) Whether or not the appellate court committed reversible error in finding to apply the Manchester doctrine. HELD: The court of appeals in determining whether Article 29 of the Civil Code applied was not precluded by the petitioners’ acquittal, from looking into the question of petitioners’ negligence or reckless imprudence. What was elevated to the Court of Appeals by private respondents was the civil aspect of Criminal Case No. 066. Petitioner was not charged anew with a second criminal offense identical to the first offense. Therefore, there was no second jeopardy to speak of. The decision in Criminal Case No 066 supports the conclusions of the appellate court that the acquittal was based on reasonable doubt; hence, the civil liability was not extinguished by his discharge. It clearly shows that petitioner’s acquittal was predicated on the conclusion that his guilt had not been established with moral centainty. At the time of the filing of the information in 1983, the implied institution of civil actions with criminal actions was governed by Rule III, Section 1 of the 1964 Rules of Court. Where the civil action is impliedly instituted together with the criminal action, the actual damages claimed by the offended parties, as in this case, are not included in the computation of the filing fees. Filing fees are to be paid only if other items of damages such as moral, nominal, temperate or exemplary damages are alleged in the complaint or information, or if they are not so alleged, shall constitute a first lien on the judgment. The filing fees are deemed paid from the filing of the criminal complaint or information. WHEREFORE, the instant petition is DISMISSED for lack of merit. The assailed decision of the Court of Appeals in CA-G.R. CV No. 19240 promulgated on January 31, 1992, as well as its resolution dated August 24, 1992, denying herein petitioner's motion for reconsideration, are AFFIRMED. Costs against petitioner. Page 39 of 545 People of the Philippines vs. Rogelio Bayotas G.R. No. 102007, September 2, 1994 236 SCRA 239 FACTS: Rogelio Bayotas was charged with rape and eventually convicted thereof on June 19, 1991 in a decision penned by Judge Manuel Autajay. Pending appeal of his conviction, Bayotas died on February 4, 1992 at the National Bilibid Hospital due to cardio respiratory arrest. Consequently, the Supreme Court in its resolution of May 20, 1992, dismissed the criminal aspect of the appeal. However, it required the Solicitor General to file its comment with regard to Bayotas civil liability arising from his commission of the offense charged. In his comment, the Solicitor General expressed his view that the death of the accused did not extinguish his civil liability as a result of his commission of the offense charged. The Solicitor General insists that the appeal should still be resolved for the purpose of reviewing his conviction by the lower court on which the civil liability is based. Counsel of the accused, on the other hand, opposed the view of the Solicitor General arguing that the death of the accused while pending appeal extinguishes both his criminal and civil penalties. In support of his position, said counsel invoked the ruling of the Court of Appeals in People v. Castillo and Ocfemia which held that the criminal liability in a criminal case takes root in the criminal liability; and therefore, civil liability is extinguished if accused should die before final judgment is rendered. ISSUE: Whether or not the death of the accused pending appeal of his conviction extinguishes his civil liability. HELD: In People v. Castillo, The Court resolved this issue stating Article 89 of the Revised Penal Code which states that criminal liability is totally extinguished by the death of the convict. As to the personal penalties and as to the pecuniary penalties, liability therefore is extinguished only when the death of the offender occurs before final judgment. The legal import of the term ‘final judgment’ is similarly reflected in the Revised Penal Code. Articles 72 and 78 of the legal body mention the term ‘final judgment’ in the sense that it is already enforceable. This also brings to mind Section 7, Rule 116 of the Rules of Court which states that the judgment in a criminal case becomes final after the lapse of the period for perfecting an appeal or when the sentence has been partially or totally satisfied or served, or the defendant has expressly waived in writing his right to appeal. Since the death of the accused occurred while his appeal is pending, the decision has not yet become final and executory; thus, his civil liability together with his criminal liability is extinguished. However, if the civil obligation arises from other sources of obligation other than the crime complained of, the civil liability of the accused survived in spite of his death pending his appeal. A preponderance of evidence is sufficient to prove his civil liability. Page 40 of 545 Fausto Barredo vs. Severino Garcia G.R. No. L-48006, July 8, 1942 73 PHIL 607 FACTS: At about half past one in the morning of May 3, 1936, on the road between Malabon and Navotas, Province of Rizal, there was a head-on collision between a taxi of the Malate Taxicab driven by Pedro Fontanilla and a carretela guided by Pedro Dimapilis. The carretela was overturned, and one of its passengers, 16-year-old boy Faustino Garcia, suffered injuries from which he died two days later. A criminal action was filed against Fontanilla in the Court of First Instance of Rizal and he was convicted and sentenced to an indeterminate sentence of one year and one day to two years of prision correctional. The court in the criminal case granted the petition that the right to bring a separate civil action be reserved. The Court of Appeals affirmed the sentence of the lower court in the criminal case. Severino Garcia and Timotea Almario, parents of the deceased, brought an action in the Court of First Instance of Manila against Fausto Barredo as the sole proprietor of the Malate Taxicab and employer of Pedro Fontanilla. On July 8, 1939, the Court of First Instance of Manila awarded damages in favor of the plaintiffs for P2, 000.00 plus legal interest from the time the action was instituted. The main theory of the defense is that the liability of Fausto Barredo is governed by the Revised Penal Code; hence, his liability is only subsidiary, as there has been no civil action against Pedro Fontanilla, the person criminally liable, Barredo cannot be held responsible in this case. However, the decision of the Court of Appeals expressed that the liability sought to be imposed against Fausto Barredo is not a civil obligation arising from a felony or a misdemeanor, but an obligation imposed in Article 1903 of the Civil Code by reason of his negligence in the selection or supervision of his servant or employee. ISSUE: Whether or not the plaintiffs may bring this separate civil action against Fausto Barredo, thus making him primary and directly responsible under Article 1903 of the Civil Code as the employer of Pedro Fontanilla. HELD: A quasi-delict or culpa aquiliana is a separate and distinct legal institution under the Civil Code with substantivity of it own, and individuality that is entirely apart and independent from a delict or crime. Upon this principle, the primary and direct responsibility of employers may be safely anchored. To hold that there is only one way to make the employer’s liability effective, and that is, to sue the driver and exhaust his properties is tantamount to compelling the plaintiff to follow a devious and cumbersome method of obtaining relief. True, there is such a remedy under our laws, but there is also an expeditious way, which is based on the primary and direct responsibility of the employer under Article 1903 of the Civil Code. At this juncture, it should be said that the primary and direct responsibility of employers and presumed negligence are principles calculated to protect society. Workmen and employees should be carefully chosen and supervised in order to avoid injury to the public. It is the masters or employers who principally reap the profits resulting from the services of their servants. It is but right that they should guarantee the latter’s careful conduct for the personnel and patrimonial safety of the others. Page 41 of 545 PHILIPPINE HAWK CORP. v. TAN LEE G.R. No. 166869 February 16, 2010 FACTS: On March 15, 2005, respondent Vivian Tan Lee filed before the RTC of Quezon City a Complaint against petitioner Philippine Hawk Corporation and defendant Margarito Avila for damages based on quasi-delict, arising from a vehicular accident that occurred on March 17, 1991 in Barangay Buensoceso, Gumaca, Quezon. The accident resulted in the death of respondent's husband, Silvino Tan, and caused respondent physical injuries. The accident involved a motorcycle, a passenger jeep, and a bus with Body No. 119. The bus was owned by petitioner Philippine Hawk Corporation, and was then being driven by Margarito Avila. On June 18, 1992, respondent filed an Amended Complaint, in her own behalf and in behalf of her children, in the civil case for damages against petitioner. Respondent sought the payment of indemnity for the death of Silvino Tan, moral and exemplary damages, funeral and interment expenses, medical and hospitalization expenses, the cost of the motorcycle's repair, attorney's fees, and other just and equitable reliefs. In its Answer, petitioner denied liability for the vehicular accident, alleging that the immediate and proximate cause of the accident was the recklessness or lack of caution of Silvino Tan. Petitioner asserted that it exercised the diligence of a good father of the family in the selection and supervision of its employees, including Margarito Avila. The trial court rendered judgment against petitioner and defendant Margarito Avila, wherein it adjudged guilty of simple negligence. It further held petitioner bus company liable for failing to exercise the diligence of a good father of the family in the selection and supervision of Avila, having failed to sufficiently inculcate in him discipline and correct behavior on the road. The CA affirmed the decision of the trial court with modification in the award of damages. ISSUE: Whether or not petitioner is liable to respondent for damages. HELD: YES. The Court upholds the finding of the trial court and the Court of Appeals that petitioner is liable to respondent, since it failed to exercise the diligence of a good father of the family in the selection and supervision of its bus driver, Margarito Avila, for having failed to sufficiently inculcate in him discipline and correct behavior on the road. Indeed, petitioner's tests were concentrated on the ability to drive and physical fitness to do so. It also did not know that Avila had been previously involved in sideswiping incidents. The Court also affirmed the CA's decision in awarding civil indemnity for the death of respondent's husband, temperate damages, and moral damages for the physical injuries sustained by respondent in addition to the damages granted by the trial court to respondent. Page 42 of 545 DY TEBAN VS. LIBERTY FOREST G.R No. 161803 February 4, 2008 FACTS: A Prime Mover Trailer suffered a tire blow out during the night of its travel at a national highway. The trailer was owned by the respondent Liberty Forest. The driver allegedly put earl warning devices but the only evidence being witnessed was a banana trunks and candles. Since the car was placed at the right wing of the road, thus it cause the swerving of a Nissan van owned by the petitioner when a passenger bus was coming in between the trailer. The Nissan van owner claimed for damages against the respondent. The trial court found that the proximate cause of the three –way accident is the negligence and carelessness of driver of the respondent . However reversed the decision of the trial court. ISSUE: Whether there was negligence on the part of the respondent. RULING: Yes. There was negligence on the part of the respondent when the latter failed to put and used an early warning device because it was found out that there was no early warning device being prescribed by law that was used by the driver in order to warn incoming vehicle. Furthermore, the proximate cause of the accident was due to the position of the trailer where it covered a cemented part of the road, thus confused and made trick way for other vehicles to pass by. Thus the respondent is declared liable due to violation of road rules and regulations. Page 43 of 545 SAFEGUARD SECURITY VS. TANGCO G.R No. 165732 December 14, 2006 FACTS: The victim Evangeline Tangco was depositor of Ecology Bank. She was also a licensedfire arm holder, thus during the incident, she was entering the bank to renew her time deposit and along with her was her firearm. Suddenly, the security guard of the bank, upon knowing that the victim carries a firearm, the security guard shot the victim causing the latter’s instant death. The heirs of the victim filed a criminal case against security guard and an action against Safeguard Security for failure to observe diligence of a goof father implied upon the act of its agent. ISSUE: Whether Safeguard Security can be held liable for the acts of its agent. RULING: Yes. The law presumes that any injury committed either by fault or omission of an employee reflects the negligence of the employer. In quasi-delicts cases, in order to overcome this presumption, the employer must prove that there was no negligence on his part in the supervision of his employees. It was declared that in the selection of employees and agents, employers are required to examine them as to their qualifications, experience and service records. Thus, due diligence on the supervision and operation of employees includes the formulation of suitable rules and regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons with whom the employer has relations through his employees. Thus, in this case, Safeguard Security committed negligence in identifying the qualifications and ability of its agents. Page 44 of 545 VILLANUEVA VS. DOMINGO G.R No. 144274 September 20, 2004 FACTS: In 1991, a collision was made by a green Mitsubishi lancer owned by Ocfemia against a silver Mitsubishi lancer driven by Leandro Domingo and owned by petitioner Priscilla Domingo. The incident caused the car of Domingo bumped another two parked vehicles. A charged was filed against Ocfemia and the owner Villanueva. Villanueva claimed that he must not be held liable for the incident because he is no longer the owner of the car, that it was already swapped to another car . however, the trial court ordered the petitioner to pay the damages incurred by the silver Mitsubishi lancer car. ISSUE: Whether the owner Villanueva be held liable for the mishap. RULING: Under the Motor Vehicle law, it was declared that the registered owner of any vehicle is primary land directly liable for any injury it incurs while it is being operated. Thus, even the petitioner claimed that he was no longer the present owner of the car, still the registry was under his name, thus it is presumed that he still possesses the car and that the damages caused by the car be charge against him being the registered owner. The primary function of Motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle, responsibility therefore can be fixed on a definite individual, the registered owner. Page 45 of 545 CALALAS VS. COURT OF APPEALS G.R No. 122039 May 31, 2000 FACTS: Eliza Sunga was a passenger of a jeepney owned and operated by the petitioner Calalas. Private respondent Sunga sat in the rear protion of the jeepney where the conductor gave Sunga an extension seat. When the jeep stopped, Sunga gave way to a passenger going outside the jeep. However, an Isuzu Truck driven by Verene and owned by Salva, accidentally hit Sunga causing the latter to suffer physical injuries where the attending physician ordered a three months of rest. Sunga filed an action for damages against the petitioner for breach of contract of common carriage by the petitioner. On the other hand, the petitioner Calalas filed an action against Salva, being the owner of the truck. The lower court ruled in favor of ther petitioner, thus the truck owner is liable for the damage to the jeep of the petitioner. ISSUE: Whether the petitionerr is liable. RULING: Yes. The petitioner is liable for the injury suffered by Sunga. Under Article 1756 of the New Civil Code, it provides that common carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary diligence as defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the common carrier the burden of proof. In this case, the law presumes that any injury suffered by a passenger of the jeep is deemed to be due to the negligence of the driver. This is a case on Culpa Contractual where there was pre-existing obligations and that the fault is incidental to the performance of the obligation. Thus, it was clearly observed that the petitioner has negligence in the conduct of his duty when he allowed Sunga to seat in the rear portion of the jeep which is prone to accident. Page 46 of 545 LUDO AND LUYM CORPORATION vs. COURT OF APPEALS G.R. No. 125483 FEBRUARY 1, 2001 FACTS: Ludo & Luym Corporation is a domestic corporation engaged in copra processing. Private Respondent Gabisan Shipping Lines was the registered owner and operator of the motor vessel MV Miguela, while the other private respondent, Anselmo Olasiman, was its captain. On May 21, 1990, while MV Miguela was docking at petitioner’s wharf, it rammed and destroyed a fender pile cluster. Ireneo Naval, petitioner’s employee, guided the vessel to its docking place. After the small rope was thrown from the vessel and while the petitioner’s security guard was pulling the big rope to be tied to the bolar, MV Miguela did not slow down. The crew did not release the vessel’s anchor. Naval shouted “Reverse” to the vessel’s crew, but it was too late when the latter responded, for the vessel already rammed the pile cluster. Petitioner demanded for damages but private respondents denied the incident and the damage. Their witnesses claimed that the damage, if any, must have occurred prior to their arrival and caused by another vessel or by ordinary wear and tear. ISSUE: Is the doctrine of res ipsa loquitur applicable to this case? RULING: The doctrine of res ipsa loquitor provides that where the thing which causes injury is shown to be under the management of the defendant, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of an explanation by the defendant, that the accident arose from want of care. In this case, all the requisites for this doctrine exist. First, MV Miguela was under the exclusive control of its officers and crew. Second, aside from the testimony that MV Miguela rammed the cluster pile, private respondent did not show persuasively other possible causes of the damage. There exists a presumption of negligence against private respondents which they failed to overcome. Additionally, petitioner presented proof that demonstrated private respondents’ negligence. As testified by Capt. Olasiman, from command of “slow ahead” to “stop engine”, the vessel will still travel 100 meters before it finally stops. However, he ordered “stop engine” when the vessel was only 50 meters from the pier. Further, he testified that before the vessel is put to slow astern, the engine has to be restarted. However, Olasiman can not estimate how long it takes before the engine goes to slow astern after the engine is restarted. From these declarations, the conclusion is that it was already too late when the captain ordered reverse. By then, the vessel was only 4 meters from the pier, and thus rammed it. Respondent company’s negligence consists in allowing incompetent crew to man its vessel. As shown also by petitioner, both Captain Olasiman and Chief Mate Gabisan did not have a formal training in marine navigation. The former was a mere elementary graduate while the latter is a high school graduate. Their experience in navigationwas only as a watchman and a quartermaster, respectively. Gabisan Shipping Lines and the ship captain are held jointly and severally liable for damages caused to the petitioner. Page 47 of 545 THERMOCHEM INCORPORATED vs. LEONORA NAVAL G.R. No. 131541 OCTOBER 20, 2000 FACTS: "On May 10, 1992, at around 12:00 o'clock midnight, Eduardo Edem was driving a "Luring Taxi" along Ortigas Avenue, near Rosario, Pasig, going towards Cainta. Thereafter, the driver executed a U-turn to traverse the same road, going to the direction of EDSA. At this point, the Nissan Pathfinder traveling along the same road going to the direction of Cainta collided with the taxicab. The point of impact was so great that the taxicab was hit in the middle portion and was pushed sideward, causing the driver to lose control of the vehicle. The taxicab was then dragged into the nearby Question Tailoring Shop, thus, causing damage to the said tailoring shop, and its driver, Eduardo Eden, sustained injuries as a result of the incident." Private respondent, as owner of the taxi, filed a damage suit against petitioner, Thermochem Incorporated, as the owner of the Nissan Pathfinder, and its driver, petitioner Jerome Castro. After trial, the lower court adjudged petitioner Castro negligent and ordered petitioners, jointly and severally, to pay private respondent actual, compensatory and exemplary damages plus attorney's fees and costs of suit. ISSUE: What are the liabilities of both parties? RULING: The driver of the oncoming Nissan Pathfinder vehicle was liable and the driver of the Uturning taxicab was contributorily liable. It is established that Castro was driving at a speed faster than 50 kilometers per hour because it was a downhill slope. But as he allegedly stepped on the brake, it locked causing his Nissan Pathfinder to skid to the left and consequently hit the taxicab. Malfunction or loss of brake is not a fortuitous event. Between the owner and his driver, on the one hand, and third parties such as commuters, drivers and pedestrians, on the other, the former is presumed to know about the conditions of his vehicle and is duty bound to take care thereof with the diligence of a good father of the family. A mechanically defective vehicle should avoid the streets. As petitioner's vehicle was moving downhill, the driver should have slowed down since a downhill drive would naturally cause the vehicle to accelerate. Moreover, the record shows that the Nissan Pathfinder was on the wrong lane when the collision occurred. The taxi driver is contributorily liable since he took a U-turn where it is not generally advisable. The taxi was hit on its side which means that it had not yet fully made a turn to the other lane. The driver of the taxi ought to have known that vehicles coming from the Rosario bridge are on a downhill slope. Obviously, there was lack of foresight on his part, making him contributorily liable. Considering the contributory negligence of the driver of private respondent's taxi, the award of P47,850.00, for the repair of the taxi, should be reduced in half. All other awards for damages are deleted for lack of merit. Page 48 of 545 AMADO PICART vs. FRANK SMITH, JR. G.R. No. L-12219 MARCH 15, 1918 FACTS: The plaintiff, riding on his pony was half way across the Carlatan bridge when the defendant approached from the opposite direction in an automobile, going at the rate of about ten or twelve miles per hour. As the defendant neared the bridge he saw a horseman on it and blew his horn to give warning of his approach. He continued his course and after he had taken the bridge he gave two more successive blasts, as it appeared to him that the man on horseback before him was not observing the rule of the road. The plaintiff saw the automobile coming and heard the warning signals. However, thinking that he has no sufficient time to go to the other side of the road, he pulled the pony closely up against the railing on the right side of the bridge instead of going to the left. The defendant, instead of veering to the right while yet some distance away or slowing down, continued to approach directly toward the horse. When he had gotten quite near, there being then no possibility of the horse getting across to the other side, the defendant quickly turned his car sufficiently to the right to escape hitting the horse alongside of the railing where it as then standing; but in so doing the automobile passed in such close proximity to the animal that it became frightened and turned its body across the bridge with its head toward the railing. In so doing, it as struck on the hock of the left hind leg by the flange of the car and the limb was broken. The horse fell and its rider was thrown off with some violence. As a result of its injuries the horse died. The plaintiff received contusions which caused temporary unconsciousness and required medical attention for several days. ISSUE: Whether or not the defendant is guilty of negligence. RULING: As the defendant started across the bridge, he had the right to assume that the horse and the rider would pass over to the proper side; but as he moved toward the center of the bridge he clearly saw that this would not be done; and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. The control of the situation had then passed entirely to the defendant; and it was his duty either to bring his car to an immediate stop or, seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon the horse. The plaintiff himself was not free from fault, for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But it was the defendant who had the last clear chance to avoid the impending harm and when he failed to do so, he is deemed negligent, thus liable to pay damages in favor of the plaintiff. Page 49 of 545 JOSE V. LAGON vs. HOOVEN COMALCO INDUSTRIES, INC G.R. No. 135657 JANUARY 17, 2001 FACTS: Sometime in April 1981 Lagon, a businessman and HOOVEN entered into two (2) contracts, denominated Proposal, whereby for a total consideration of P104,870.00 HOOVEN agreed to sell and install various aluminum materials in Lagon’s commercial building in Tacurong, Sultan Kudarat. HOOVEN filed an action against Lagon claiming that the latter failed to pay his due despite HOOVEN’s performance of its obligation. Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of breach of contract by failing to deliver and install some of the materials specified in the proposals; that as a consequence he was compelled to procure the undelivered materials from other sources; that as regards the materials duly delivered and installed by HOOVEN, they were fully paid. ISSUE: Who among the parties is entitled to damages? RULING: HOOVEN's bad faith lies not so much on its breach of contract - as there was no showing that its failure to comply with its part of the bargain was motivated by ill will or done with fraudulent intent - but rather on its appalling temerity to sue petitioner for payment of an alleged unpaid balance of the purchase price notwithstanding knowledge of its failure to make complete delivery and installation of all the materials under their contracts. Although petitioner was found to be liable to respondent to the extent of P6,377.66, petitioner's right to withhold full payment of the purchase price prior to the delivery and installation of all the merchandise cannot be denied since under the contracts the balance of the purchase price became due and demandable only upon the completion of the project. Consequently, the resulting social humiliation and damage to petitioner's reputation as a respected businessman in the community, occasioned by the filing of this suit provide sufficient grounds for the award of P50,000.00 as moral damages. On the part of Lagon, he is ordered by the court to pay HOOVEN the amount corresponding to the value of the materials admittedly delivered to him. Page 50 of 545 SPOUSES FRANCISCO vs. HONORABLE COURT OF APPEALS G.R. No. 118749 APRIL 25, 2003 FACTS: On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and Engineer Bienvenido C. Mercado entered into a Contract of Development for the development into a subdivision of several parcels of land in Pampanga. Under the Contract, respondent agreed to undertake at his expense the development work for the Franda Village Subdivision. Respondent committed to complete the construction within 27 months. Respondent also advanced P200,000.00 for the initial expenses of the development work. In return, respondent would receive 50% of the total gross sales of the subdivision lots and other income of the subdivision. Respondent also enjoyed the exclusive and irrevocable authority to manage, control and supervise the sales of the lots within the subdivision. The Contract required respondent to submit to petitioners, within the first 15 days of every month, a report on payments collected from lot buyers with copies of all the contracts to sell. However, respondent failed to submit the monthly report. On 27 February 1987, respondent filed with the trial court an action to rescind the Contract with a prayer for damages. Petitioners countered that respondent breached the Contract by failing to finish the subdivision within the 27 months agreed upon, and therefore respondent was in delay. ISSUE: Did Engr. Mercado incur delay in the case at bench? RULING: The petitioners breached the Contract by: (1) hiring Rosales to do development work on the subdivision within the 27-month period exclusively granted to respondent; (2) interfering with the latter's development work; and (3) stopping respondent from managing the sale of lots and collection of payments. Because petitioners were the first to breach the Contract and even interfered with the development work, respondent did not incur delay even if he completed only 28% of the development work. Further, the HSRC extended the Contract up to July 1987. Since the Contract had not expired at the time respondent filed the action for rescission, petitioners' defense that respondent did not finish the development work on time was without basis. The law provides that delay may exist when the obligor fails to fulfill his obligation within the time expressly stipulated. In this case, the HSRC extended the period for respondent to finish the development work until 30 July 1987. Respondent did not incur delay since the period granted him to fulfill his obligation had not expired at the time respondent filed the action for rescission on 27 February 1987. Moreover, since petitioners stopped respondent from selling lots and collecting payments from lot buyers, which was the primary source of development funds, they in effect, rendered respondent incapable, or at least made it difficult for him, to develop the subdivision within the allotted period. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply with what is incumbent upon him. It is only when one of the parties fulfills his obligation that delay by the other begins. Page 51 of 545 JACINTO TANGUILIG vs. COURT OF APPEALS and VICENTE HERCE JR. G.R. No. 117190 JANUARY 2, 1997 FACTS: Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. Respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation. He also disowned any obligation to repair or reconstruct the system since its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. ISSUE: Whether or not the payment for the deep well is part of the contract price. Whether or not Tanguilig is liable to reconstruct the damaged windmill considering that its collapse is due to a typhoon. RULING: There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. Respondent is directed to pay petitioner Tanguilig the balance of P15,000.00 plus legal interest. Regarding the second issue, the Supreme Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either 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. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous. On the contrary, a strong wind should be present in places where windmills are constructed. Petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty". Page 52 of 545 DR. FERNANDO PERIQUET, JR. vs. THE COURT OF APPEALS G.R. No. L-69996 DECEMBER 5, 1994 FACTS: Spouses Fernando Periquet and Petra Francisco were left childless after the death of their only child, Elvira, so they took in a son out of wedlock of Marta Francisco-Reyes, sister of Petra. Though he was not legally adopted, the boy was given the name Fernando Periquet, Jr. and was reared to manhood by the spouses Periquet. On March 20, 1966, Fernando Periquet died. When Petra died, she was survived by her siblings, nieces and nephews and by the petitioner. But a few days before her death, Petra asked her lawyer to prepare her last will and testament. However, she died before she could sign it. In the said will, Petra left her estate to petitioner, Fernando Periquet, Jr. and provided for certain legacies to her other heirs. Felix Franciso, brother of Petra, assigned his hereditary rights to the petitioner. However, later on, he filed an action for annulment of the Assignment of Hereditary Rights claiming "gross misrepresentation and fraud," "grave abuse of confidence," "mistake and undue influence," and "lack of cause and/or consideration" in the execution of the challenged deed of assignment. ISSUE: Whether or not the Assignment of Hereditary Rights is tainted with fraud. RULING: The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. In the case at bench, no such fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights executed by Felix Francisco in favor of herein petitioner is valid and effective. Felix Francisco could not be considered to have been deceived into signing the subject deed of assignment for the following reasons: The assignment was executed and signed freely and voluntarily by Felix Francisco in order to honor, respect and give full effect to the last wishes of his deceased sister, Petra. The same was read by him and was further explained by Atty. Diosdado Guytingco. Furthermore, witnesses for petitioner, who also served as witnesses in the execution and signing of the deed of assignment, declared that Felix Francisco was neither forced nor intimidated to sign the assignment of hereditary rights. Page 53 of 545 LEGASPI OIL CO., INC. vs. THE COURT OF APPEALS G.R. No. 96505 JULY 1, 1993 FACTS: Bernard Oseraos had several transactions with Legaspi Oil Co. for the sale of copra to the latter. The price at which appellant sells the copra varies from time to time, depending on the prevailing market price when the contract is entered into. On February 16, 1976, appellant's agent Jose Llover signed contract No. 3804 for the sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976. After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance of 53,666 kilos. Accordingly, demands were made upon appellant to deliver the balance with a final warning that failure to deliver will mean cancellation of the contract, the balance to be purchased at open market and the price differential to be charged against appellant. On October 22, 1976, since there was still no compliance, appellee exercised its option under the contract and purchased the undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant. ISSUE: Whether or not private respondent is guilty of breach of contact. RULING: Private respondent is guilty of fraud in the performance of his obligation under the sales contract whereunder he bound himself to deliver to petitioner 100 metric tons of copra. However within the delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner. Petitioner made repeated demands upon private respondent to deliver the balance of 53,666 kilograms but private respondent ignored the same. Petitioner made a final demand with a warning that, should private respondent fail to complete delivery of the balance of 53,666 kilograms of copra, petitioner would purchase the balance at the open market and charge the price differential to private respondent. Still private respondent failed to fulfill his contractual obligation to deliver the remaining 53,666 kilograms of copra and since there was still no compliance by private respondent, petitioner exercised its right under the contract and purchased 53,666 kilograms of copra, the undelivered balance, at the open market at the then prevailing price of P168.00 per 100 kilograms, a price differential of P46,152.76. The conduct of private respondent clearly manifests his deliberate fraudulent intent to evade his contractual obligation for the price of copra had in the meantime more than doubled from P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil Code of the Philippines, those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said article, private respondent is liable for damages. Page 54 of 545 TITAN-IKEDA CONSTRUCTION vs. PRIMETOWN G.R. No. 158768 FEBRUARY 12, 2008 FACTS: In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural works of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and Development Corporation. In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the progress of the project. In its report, ITI informed respondent that petitioner, at that point, had only accomplished 31.89% of the project (or was 11 months and six days behind schedule). Meanwhile, petitioner and respondent were discussing the possibility of the latter’s take over of the project’s supervision. Despite ongoing negotiations, respondent did not obtain petitioner’s consent in hiring ITI as the project’s construction manager. Neither did it inform petitioner of ITI’s September 7, 1995 report. Subsequently, both parties agreed that Primetown will take over the project. Petitioner then demanded for the payment due him in relation to its partial performance of its obligation. For failure of Primetown to pay despite repeated demands, petitioner filed a case for specific performance against Primetown. Meanwhile, Primetown demanded reimbursement for the amount it spent in having the project completed. ISSUE: Whether or not Titzn-Ikeda is responsible for the project’s delay. RULING: It was found that because respondent modified the MPT's architectural design, petitioner had to adjust the scope of work. Moreover, respondent belatedly informed petitioner of those modifications. It also failed to deliver the concrete mix and rebars according to schedule. For this reason, petitioner was not responsible for the project's delay. Mora or delay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the creditor from the time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay. Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. In view of the foregoing, we hold that petitioner did not incur delay in the performance of its obligation. Page 55 of 545 PNB MADECOR vs. GERARDO C. UY G.R. No. 129598 AUGUST 15, 2001 FACTS: Guillermo Uy assigned to respondent Gerardo Uy his receivables due from Pantranco North Express Inc. (PNEI). The deed of assignment included sales invoices containing stipulations regarding payment of interest and attorney’s fees. On January 23, 1995, Gerardo Uy filed with the RTC a collection suit against PNEI. He alleged that PNEI was guilty of fraud in contracting the obligation sued upon, hence his prayer for a writ of preliminary attachment. The sheriff issued a notice of garnishment addressed to the Philippine National Bank (PNB) and PNB MADECOR attaching the “goods, effects, credits, monies and all other personal properties” of PNEI in the possession of the bank. PNB MADECOR however claimed that the receivables of Guillermo Uy have been applied to PNEI’s unpaid rentals to the bank thru compensation, thus private respondent is no longer entitled to such. Respondent pointed out that the demand letter sent by PNEI to petitioner was made before petitioner’s obligation to PNEI became due. This being so, respondent argues that there can be no compensation since there was as yet no compensable debt in 1984 when PNEI demanded payment from petitioner. ISSUE: Whether or not PNB MADECOR is correct in its contention that compensation is applicable to its receivables from and its payables to PNEI. RULING: Petitioner’s obligation to PNEI appears to be payable on demand. However, the Court found that the letter sent by PNEI to PNB MADECOR was not one demanding payment, but one that merely informed petitioner of the conveyance of a certain portion of its obligation to PNEI. Since petitioner’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject to compensation for lack of a requisite under the law. Without compensation having taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt. As regards respondent’s averment that there was as yet no compensable debt when PNEI sent petitioner a demand letter on September 1984, since PNEI was not yet indebted to petitioner at that time, the law does not require that the parties’ obligations be incurred at the same time. What the law requires only is that the obligations be due and demandable at the same time. Page 56 of 545 IGNACIO BARZAGA vs. COURT OF APPEALS and ANGELITO ALVIAR G.R. No. 115129 FEBRUARY 12, 1997 FACTS: Barzaga went to the hardware store of respondent Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. The following morning, Barzaga went back to the store and told the employees that the materials he was buying would have to be delivered at the Memorial Cemetery by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. A store employee agreed to deliver the items at the designated time, date and place. With this assurance, Barzaga purchased the materials and paid in full. The construction materials did not arrive at eight o'clock as promised. After follow-ups and several hours later, when there was yet no delivery made, Barzaga went back to the store. He saw the delivery truck but the things he purchased were not yet ready for loading. Distressed by the seeming lack of concern on the store’s part, Barzaga decided to cancel his transaction with the store and buy from another store. Not being able to fulfill the scheduled burial of his wife, Barzaga demanded damages from Alviar but the latter refused claiming that he is not liable for damages considering that he did not incur legal delay since there was no specific time of delivery agreed upon. ISSUE: Whether or not the respondent incurred delay in the performance of his obligation. RULING: Respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. The niche had to be constructed at the very least on the twentysecond of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner's wife. This case is clearly one of non-performance of a reciprocal obligation. In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. Page 57 of 545 JACINTO TANGUILIG vs. COURT OF APPEALS and VICENTE HERCE JR. G.R. No. 117190 JANUARY 2, 1997 FACTS: Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. Respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. Petitioner refused to pay and argued that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss. ISSUE: Whether or not petitioner is correct in his contention that respondent is already in default thus he should bear the loss of the windmill. RULING: Petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost. Page 58 of 545 TAYAG vs. COURT OF APPEALS G.R. No. 96053 MARCH 3, 1993 FACTS: Juan Galicia, Sr. executed a deed of conveyance, prior to his demise in 1979 in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00. There is no dispute that the first installment was received by Juan Galicia, Sr. And according to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979. It was also agreed upon that private respondent will assume the vendors' obligation to the Philippine Veterans Bank, however, he paid only the sum of P6,926.41 while the difference of the indebtedness was paid by Juan Galicia, Sr.’s sister. Moreover, petitioners claimed that not a single centavo of the P27,000.00 representing the remaining balance was paid to them. Petitioners averred that private respondent’s failure to pay full consideration of the agreement to sell gave them the right to have the contract rescinded. ISSUE: Whether or not the petitioners have the right to rescind the contract in the present case. RULING: Considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting the latter's delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance, petitioners' actuation is susceptible of but one construction that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent. Indeed, the right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments. Private respondent is ordered to pay the balance of the purchase price and to reimburse the sum paid by Juan Galicia Sr.’s sister to the Philippine Veteran’s bank, minus the attorney's fees and damages awarded in favor of private respondent. Page 59 of 545 DR. FERNANDO PERIQUET, JR. vs. THE COURT OF APPEALS G.R. No. L-69996 DECEMBER 5, 1994 FACTS: Spouses Fernando Periquet and Petra Francisco were left childless after the death of their only child, Elvira, so they took in a son out of wedlock of Marta Francisco-Reyes, sister of Petra. Though he was not legally adopted, the boy was given the name Fernando Periquet, Jr. and was reared to manhood by the spouses Periquet. On March 20, 1966, Fernando Periquet died. When Petra died, she was survived by her siblings, nieces and nephews and by the petitioner. But a few days before her death, Petra asked her lawyer to prepare her last will and testament. However, she died before she could sign it. In the said will, Petra left her estate to petitioner, Fernando Periquet, Jr. and provided for certain legacies to her other heirs. Felix Franciso, brother of Petra, assigned his hereditary rights to the petitioner. However, later on, he filed an action for annulment of the Assignment of Hereditary Rights claiming "gross misrepresentation and fraud," "grave abuse of confidence," "mistake and undue influence," and "lack of cause and/or consideration" in the execution of the challenged deed of assignment. ISSUE: Whether or not the Assignment of Hereditary Rights is tainted with fraud. RULING: The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. In the case at bench, no such fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights executed by Felix Francisco in favor of herein petitioner is valid and effective. Felix Francisco could not be considered to have been deceived into signing the subject deed of assignment for the following reasons: The assignment was executed and signed freely and voluntarily by Felix Francisco in order to honor, respect and give full effect to the last wishes of his deceased sister, Petra. The same was read by him and was further explained by Atty. Diosdado Guytingco. Furthermore, witnesses for petitioner, who also served as witnesses in the execution and signing of the deed of assignment, declared that Felix Francisco was neither forced nor intimidated to sign the assignment of hereditary rights. Page 60 of 545 RACQUEL-SANTOS v. CA G.R. No. 174986 July 7, 2009 FACTS: Finvest is a stock brokerage corporation duly organized under Philippine laws and is a member of the PSE with one membership seat pledged to the latter. Armand O. RaquelSantos (Raquel-Santos) was Finvest’s President and nominee to the PSE from February 20, 1990 to July 16, 1998. Annalissa Mallari (Mallari) was Finvest’s Administrative Officer until December 31, 1998. In the course of its trading operations, Finvest incurred liabilities to PSE representing fines and penalties for non-payment of its clearing house obligations. PSE also received reports that Finvest was not meeting its obligations to its clients. Consequently, PSE indefinitely suspended Finvest from trading. The Securities and Exchange Commission (SEC) also suspended its license as broker. On June 17, 1998, PSE demanded from Finvest the payment of its obligations to the PSE in the amount ofP4,267,339.99 and to its (Finvest’s) clients within 15 days. PSE also ordered Finvest to replace its nominee, Raquel-Santos. As of August 11, 1998, Finvest’s total obligation to PSE, representing penalties, charges and fines for violations of pertinent rules, was pegged at P5,990,839.99. Finvest promised to settle all obligations to its clients and to PSE subject to verification of the amount due, but Finvest requested a deadline of July 31, 1999. PSE granted Finvest’s request, with the warning that, should Finvest fail to meet the deadline, PSE might exercise its right to sell Finvest’s membership seat and use the proceeds thereof to settle its obligations to the PSE, its member-brokers and its clients. On February 3, 1999, PSE inquired from Finvest if it had already settled all duly acknowledged claims of its clients and its liabilities to PSE. PSE also demanded that Finvest settle its liabilities to it not later than March 31, 1999. PSE points out that it has made several demands on Finvest for the payment of its obligations and the amount due has been computed after consultation with Finvest’s representative, Mr. Ernesto Lee. Considering, therefore, that Finvest already acknowledged and ascertained its obligations with PSE and yet it defaulted in the payment thereof, PSE had the right to sell at public auction Finvest’s pledged seat pursuant to the Pledge Agreement and in accordance with Article 2112 of the Civil Code. ISSUE: Whether or not Finvest incurred delay in its obligations. HELD: NO. Under the law on contracts, mora solvendi or debtor’s default is defined as a delay in the fulfillment of an obligation, by reason of a cause imputable to the debtor. There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtor’s performance. In the present petition, PSE insists that Finvest’s liability for fines, penalties and charges has been established, determined and substantiated, hence, liquidated. However, both trial court and CA have ruled otherwise. The findings of fact of both the trial court and the CA are fully supported by the records and that they plainly show that the parties were negotiating to determine the exact amount of Finvest’s obligations to PSE, during which period PSE repeatedly moved the deadlines it imposed for Finvest to pay the fines, penalties and charges, apparently to allow for more time to thresh out the details of the computation of said penalties. A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of relevant documents. Under the attendant circumstances, it cannot be said that Finvest’s debt is liquidated. At the time PSE left the negotiating table, the exact amount of Finvest’s fines, penalties and charges was still in dispute and as yet undetermined. Consequently, Finvest cannot be deemed to have incurred in delay in the payment of its bligations to PSE. It cannot be made to pay an obligation the amount of which was not fully explained to it. The public sale of the pledged seat would, thus, be premature. Page 61 of 545 RCBC vs. Court of Appeals G.R. No. 133107, March 25, 1999 305 SCRA 449 FACTS: Private respondent Atty. Felipe Lustre purchased a car from Toyota Shaw, Inc. for which he made a down payment, the balance of which is to be paid in 24 equal monthly installments. He then issued 24 postdated checks in the amount due for every month. To secure the balance, private respondent executed a promissory note and a contract of Chattle Mortgage over the vehicle in favor of Toyota Shaw. The contract of Chattle Mortgage provided for an acceleration clause stating that if there be default on the part of the mortgagor to pay any of the installments, the whole amount remaining shall become due. Toyota Shaw then assigned all its rights and interest in the Chattle Mortgage to petitioner Rizal Commercial Banking Corporation (RCBC). The problem arose when one check was not signed by the private respondent. On the theory that the respondent defaulted in his payments, petitioner demanded the payment of the debt including liquidated damages. Atty. Lustre refused, prompting RCBC to file an action for replevin and damages before the Regional Trial Court of Pasay City. After trial, the RTC rendered a decision in favor of the private respondent, and held that he was not in default. The Court of Appeals affirmed the decision of the lower court. ISSUE: Whether or not private respondent should be held in default. HELD: Article 1170 of the Civil Code states that “those who in the performance of their obligation are guilty of delay are liable for damages.” The delay in the performance must be malicious or negligent. There was no imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check. The Supreme Court agreed with the Court of Appeals that such omission was mere inadvertence on the part of private respondent. Page 62 of 545 STATE INVESTMENT HOUSE INC. vs. COURT OF APPEALS G.R. No. 115548 MARCH 5, 1996 FACTS: Spouses Oreta and the Solid Homes, Inc. (SOLID) entered into a Contract to Sell involving a parcel of land for a consideration of P39,347.00. Upon signing of the contract, the spouses Oreta paid the downpayment with the agreement that the balance shall be payable in monthly installments of P45 1.70, at 12% interest per annum. On November 4, 1976, SOLID executed several real estate mortgage contracts in favor of State Investment House Inc. (STATE) over its subdivided parcels of land, one of which is the subject lot which is the one subject of the above stated Contract to Sell. For failure of SOLID to comply with its mortgage obligations contract, STATE extra-judicially foreclosed the mortgaged properties including the subject lot on April 6, 1983. As a result of the foreclosure, the spouses filed a complaint against SOLID and STATE for SOLID’s failure to execute the absolute deed of sale despite full payment of the purchase price as of 1981. ISSUE: Who has the better right over the subject lot? RULING: Petitioner admits the superior rights of respondents-spouses Oreta over the subject property as it did not pray for the nullification of the contract between respondents-spouses and SOLID, but instead asked for the payment of the release value of the property in question, plus interest, attorney’s fees and costs of suit against SOLID or, in case of the latter’s inability to pay, against respondents-spouses before it can be required to release the title of the subject property in favor of the respondent spouses. And even if we were to pass upon the first assigned error, we find respondent court’s ruling on the matter to be well-founded. STATE’s registered mortgage right over the property is inferior to that of respondents-spouses’ unregistered right. The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner (SOLID, in this case) had parted with his ownership of the thing sold then he no longer had ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the mortgage is of no moment since it is understood to be without prejudice to the better right of third parties. Page 63 of 545 BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS G.R. No. 133632 FEBRUARY 15, 2002 FACTS: Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), predecessor of petitioner BPIIC for the construction of a house on his lot. Said house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua. They paid P350,000 in cash and assumed the P500,000 balance of Roa’s indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan of P500,000 to be applied to Roa’s debt and secured by the same property, at an interest rate of 20% per annum. In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness. Private respondents on the other hand alleged that they were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. ISSUE: Whether or not petitioner may be held liable for moral and exemplary damages. RULING: Petitioner claims that it should not be held liable for moral and exemplary damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract because private respondents were irregular in their monthly amortization. Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted on the payment of amortization on the loan even before it was released. Further, it did not make the corresponding deduction in the monthly amortization to conform to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private respondents failed to make timely payment. But as admitted by private respondents themselves, they were irregular in their payment of monthly amortization. Thus, we can not properly declare BPIIC in bad faith. Consequently, we should rule out the award of moral and exemplary damages. However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking and correspondingly adjusting its records on the amount actually released to private respondents and the date when it was released. Such negligence resulted in damage to private respondents, for which an award of nominal damages should be given in recognition of their rights which were violated by BPIIC. For this purpose, the amount of P25,000 is sufficient. Lastly, we sustain the award of P50,000 in favor of private respondents as attorney’s fees since they were compelled to litigate. Page 64 of 545 CARMELITA LEAÑO vs. COURT OF APPEALS G.R. No. 129018 NOVEMBER 15, 2001 FACTS: Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell involving a piece of land. In the contract, Leaño bound herself to pay Fernando P10,775.00 at the signing of the contract with the balance of P96,975.00 to be paid within a period of TEN (10) years at a monthly amortization of P1,747.30. The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments. ISSUE: Whether petitioner was in delay in the payment of the monthly amortizations. RULING: On the issue of whether petitioner Leaño was in delay in paying the amortizations, we rule that while the contract provided that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leaño cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed. Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leaño to continue in possession and use of the property. Clearly, when petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages. However, we agree with the trial court that the default committed by petitioner Leaño in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question. Page 65 of 545 HEIRS OF LUIS BACUS vs. HON. COURT OF APPEALS G.R. No. 127695 DECEMBER 3, 2001 FACTS: Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land. The contract contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract. Close to the expiration of the contract, Luis Bacus died. Thereafter, the Duray spouses informed one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. Due to the refusal of petitioners to sell the property, Duray filed a complaint for specific performance against the heirs of Luis Bacus asking that he be allowed to purchase the lot specifically referred to in the lease contract with option to buy. On the other hand, petitioners alleged that before Luis Bacus’ death, private respondents conveyed to them the former’s lack of interest to exercise their option because of insufficiency of funds. They further alleged that private respondents did not deposit the money as required by the Lupon and instead presented a bank certification which cannot be deemed legal tender. ISSUE: Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract? RULING: Obligations under an option to buy are reciprocal obligations. The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation. In other words, in an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In this case, when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners’ actual execution and delivery of the deed of sale were they required to pay. Notice of the creditor’s decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required. Private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the expiration of the contract. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does delay by the other begin. In this case, as there was no compliance yet with what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay when the cashier’s check was issued even after the contract expired. Page 66 of 545 INTEGRATED PACKAGING CORP. vs. COURT OF APPEALS G.R. No. 115117 JUNE 8, 2000 FACTS: Petitioner and private respondent executed an order agreement whereby private respondent bound itself to deliver to petitioner 3,450 reams of printing papers under specified schedule of delivery. As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance because further delay would greatly prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered again to petitioner various quantities of printing paper amounting to P766,101.70. However, petitioner encountered difficulties paying private respondent said amount. Accordingly, private respondent made a formal demand upon petitioner to settle the outstanding account. Private respondent filed a collection suit against petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on credit. In its answer, petitioner denied the material allegations of the complaint. It alleged that private respondent was able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total disregard of their agreement; that private respondent failed to deliver the balance of the printing paper despite demand therefor, hence, petitioner suffered actual damages and failed to realize expected profits. ISSUE: Whether or not private respondent violated the order agreement. RULING: The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay its equivalent (price). Both parties concede that the order agreement gives rise to a reciprocal obligation such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Thus, private respondent undertakes to deliver printing paper of various quantities subject to petitioner’s corresponding obligation to pay, on a maximum 90-day credit, for these materials. Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September and October 1980. Thus, private respondent did not violate the order agreement. Page 67 of 545 LAFORTEZA vs. MACHUCA G.R. No. 137552 JUNE 16, 2000 FACTS: In the exercise of the Special Power of Attorney executed by their co-heirs, by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff over the subject house and lot for the sum of P630,000.00. On September 18, 1998, defendant heirs, through their counsel wrote a letter to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to produce the balance of P600,000.00 under the Memorandum of Agreement which plaintiff received on the same date. The plaintiff requested a 30-day extension within which he would pay the balance of the purchase price. This was granted by Roberto Laforteza but not by Gonzalo Laforteza, the second attorney-in-fact. On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already has the money. However, the defendants, refused to accept the told him that the subject property was no longer for sale. Thereafter, plaintiff reiterated his request to tender payment of the balance but the defendants insisted on the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific performance. ISSUE: Whether or not defendants may rescind the contract of sale entered with Machuca. RULING: Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers of Attorney. However, the evidence reveals that after the expiration of the six-month period provided for in the contract, the petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of the reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after the execution of the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of the reconstituted title and demanded the payment of the balance of the purchase price. The respondent could not therefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what was incumbent upon him. Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we find that rescission of the contract will still not prosper. Delay in payment was only thirty days which was caused by the respondent’s justified but mistaken belief that an extension to pay was granted to him. We agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents to rescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. Page 68 of 545 REGALA v. CARIN G.R. No. 188715 April 6, 2011 FACTS: Petitioner and respondent are adjacent neighbors at Spirig Street, BF Resort Village, Las Piñas City. When petitioner decided to renovate his one storey residence by constructing a second floor, he under the guise of merely building an extension to his residence, approached respondent sometime in May 1998 for permission to bore a hole through a perimeter wall shared by both their respective properties, to which respondent verbally consented on condition that petitioner would clean the area affected by the work. As earlier indicated, petitioner’s real intention was to build a second floor, in fact with a terrace atop the dividing wall. In the course of the construction of the second floor, respondent and his wife Marietta suffered from the dust and dirt which fell on their property. As petitioner failed to address the problem to respondent’s satisfaction, respondent filed a letter-complaint[3] with the Office of the City Engineer and Building Official of Las Piñas City on June 9, 1998. ISSUE: Whether or not the injuries sustained by respondent was done maliciously. RULING: Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. While the Court harbors no doubt that the incidents which gave rise to this dispute have brought anxiety and anguish to respondent, it is unconvinced that the damage inflicted upon respondent’s property was malicious or willful, an element crucial to merit an award of moral damages under Article 2220 of the Civil Code. Necessarily, the Court is not inclined to award exemplary damages.Petitioner, however, cannot steer clear from any liability whatsoever. Respondent and his family’s rights to the peaceful enjoyment of their property have, at the very least, been inconvenienced from the incident borne of petitioner’s construction work. Any pecuniary loss or damage suffered by respondent cannot be established as the records are bereft of any factual evidence to establish the same. Nominal damages may thus be adjudicated in order that a right of the plaintiff, respondent herein, which has been violated or invaded by the defendant, petitioner herein, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Page 69 of 545 THE INTERNATIONAL CORPORATE vs. SPS. GUECO G.R. No. 141968 FEBRUARY 12, 2001 FACTS: The Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. After some negotiations and computation, the amount of car loan was lowered. Finally, Dr. Gueco delivered a manager’s check in the amount of reduced car loan but the car was not released because of his refusal to sign the Joint Motion to Dismiss. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. ISSUE: Whether or not there was fraud in the part of herein petitioner. RULING: Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as “wanton, fraudulent, reckless, oppressive or malevolent.” Page 70 of 545 REPUBLIC OF THE PHILIPPINES vs. THE COURT OF TAX APPEALS G.R. No. 139050 OCTOBER 2, 2001 FACTS: On 12 December 1992, a shipment of bales of textile gray cloth arrived at the Manila International Container Port (MICP). There has been a mistake in the name of the consignee provided in the shipment's Inward Foreign Manifest. Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment of the Inward Foreign Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc. Subsequently, FILJAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment under Hold Order on the ground that GQ GARMENTS, Inc., could not be located in its given address and was thus suspected to be a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff and Customs Code were initiated. ISSUE: Whether or not the private respondent is guilty of fraud in relation to the shipment subject of the case at bench. RULING: Petitioner asserts that all of the requisites for forfeiture proceedings under the Tariff and Customs Code are present in this case. Private respondent AGFHA, Inc., on the other hand, maintains that there has only been an inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due. Fraud must be proved to justify forfeiture. It must be actual, amounting to intentional wrongdoing with the clear purpose of avoiding the tax. Forfeiture is not favored in law nor in equity. Mere negligence is not equivalent to the fraud contemplated by law. What is here involved is an honest mistake, not even directly attributable to private respondent, which will not deprive the government of its right to collect the proper tax. The conclusion of the appellate court, being consistent with the evidence on record and not contrary to law and jurisprudence, hardly can be overturned by this Court. Page 71 of 545 YAMBAO vs. ZUÑIGA G.R. No. 146173 DECEMBER 11, 2003 FACTS: At around 3:30 p.m. of May 6, 1992, the bus owned by the petitioner was being driven by her driver, Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA). Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the impact that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter. Private respondents, heirs of the victim, filed a Complaint against petitioner and her driver, Venturina, for damages. The complaint alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules and regulations, without due regard to public safety, thus resulting in the victim’s premature death. In her Answer, the petitioner denied the allegations of the complaint, trying to shift the blame to the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was chasing him. She further alleged that she was not liable for any damages because as an employer, she exercised the proper diligence of a good father of a family, both in the selection and supervision of her bus driver. ISSUE: Whether petitioner exercised the diligence of a good father of a family in the selection and supervision of her employees, thus absolving her from any liability. RULING: Petitioner claimed that she exercised due diligence in the selection and supervision of her driver, Venturina. Her allegation that before she hired Venturina she required him to submit his driver’s license and clearances is worthless, in view of her failure to offer in evidence certified true copies of said license and clearances. Moreover, petitioner contradicted herself. She declared that Venturina applied with her sometime in January 1992 and she then required him to submit his license and clearances. However, the record likewise shows that Venturina submitted the said requirements only on May 6, 1992, or on the very day of the fatal accident itself. In other words, petitioner’s own admissions clearly and categorically show that she did not exercise due diligence in the selection of her bus driver. In any case, assuming arguendo that Venturina did submit his license and clearances when he applied with petitioner in January 1992, the latter still fails the test of due diligence in the selection of her bus driver. Petitioner failed to present convincing proof that she went to this extent of verifying Venturina’s qualifications, safety record, and driving history. Nor did petitioner show that she exercised due supervision over Venturina after his selection. For as pointed out by the Court of Appeals, petitioner did not present any proof that she drafted and implemented training programs and guidelines on road safety for her employees. In fact, the record is bare of any showing that petitioner required Venturina to attend periodic seminars on road safety and traffic efficiency. Hence, petitioner cannot claim exemption from any liability arising from the recklessness or negligence of Venturina. Page 72 of 545 SMITH BELL DODWELL vs. CATALINO BORJA G.R. No. 143008. JUNE 10, 2002 FACTS: Smith Bell filed a written request with the Bureau of Customs for the attendance of the latter’s inspection team on vessel M/T King Family which was due to arrive at the port of Manila on September 24, 1987. In response, Catalino Borja was instructed to board the said vessel and inspect the vessel. At about 11 o’clock in the morning on September 24, 1987, while M/T King Family was unloading chemicals unto two (2) barges owned by respondent ITTC, a sudden explosion occurred setting the vessels afire. Upon hearing the explosion, Borja, who was at that time inside the cabin preparing reports, ran outside to check what happened. Again, another explosion was heard. Seeing the fire Borja hurriedly jumped over board to save himself. However, the water was likewise on fire due mainly to the spilled chemicals. Despite the tremendous heat, Borja swam his way until he was rescued by the people living in the squatters’ area and sent to San Juan De Dios Hospital. After weeks of intensive care at the hospital, Borja was diagnosed to be permanently disabled due to the incident. Thus, he made demands against Smith Bell and ITTC for the damages caused by the explosion. However, both denied liabilities and attributed to each other negligence.” ISSUES: Won Smith Bell as the owner of the vessel is liable. RULING: YES. Both the RTC and the CA ruled that the fire and the explosion had originated from petitioner’s vessel. The attempts of Smith Bell to shift the blame on ITTC were all for naught. First, the testimony of its alleged eyewitness was stricken off the record for his failure to appear for cross-examination. Second, the documents offered to prove that the fire originated from barge ITTC-101 were all denied admission by the court for being, hearsay. Thus, there is nothing in the record to support petitioner’s contention that the fire and explosion originated from barge ITTC-101. The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b) fault or negligence of the defendant, and (c) the connection of cause and effect between the fault or negligence of the defendant and the damages inflicted on the plaintiff. All these elements were established in this case. Knowing fully well that it was carrying dangerous chemicals, petitioner was negligent in not taking all the necessary precautions in transporting the cargo. As a result of the fire and the explosion during the unloading of the chemicals from petitioner’s vessel, Respondent Borja suffered severe injuries. Hence, the owner or the person in possession and control of a vessel and the vessel are liable for all natural and proximate damage caused to persons and property by reason of negligent management or navigation. WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision is AFFIRMED with the following MODIFICATIONS: petitioner is ordered to pay the heirs of the victim damages in the amount of P320,240 as loss of earning capacity, moral damages in the amount of P100,000, plus another P50,000 as attorney's fees. Costs against petitioner. Page 73 of 545 RAMON K. ILUSORIO vs. HON. COURT OF APPEALS G.R. No. 139130. NOVEMBER 27, 2002 FACTS: Petitioner is a prominent businessman and was a depositor in good standing of respondent bank, the Manila Banking Corporation. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine E. Eugenio, his credit cards and his checkbook with blank checks. Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa thru falsification. Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent bank refused. Hence, petitioner filed the instant case. ISSUE: Is Manila Bank liable for damages for its negligence in failing to detect the discrepant checks? RULING: Petitioner’s contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis. Manila Bank employees exercised due diligence in cashing the checks. Its verifiers first verified the drawer’s signatures thereon as against his specimen signature cards, and when in doubt, the verifier went further, such as by referring to a more experienced verifier for further verification. In some instances the verifier made a confirmation by calling the depositor by phone. It is only after taking such precautionary measures that the subject checks were given to the teller for payment. Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any forgery -- if indeed there was. However, a mistake is not equivalent to negligence if they were honest mistakes. In the instant case, we believe and so hold that if there were mistakes, the same were not deliberate, since the bank took all the precautions. As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts. Page 74 of 545 NATIONAL POWER CORPORATION vs. THE COURT OF APPEALS G.R. No. 124378. MARCH 8, 2005 FACTS: On 15 November 1973, the Office of the President of the Philippines issued Memorandum Order No. 398 instructing the NPC to build the Agus Regulation Dam at the mouth of Agus River in Lanao del Sur, at a normal maximum water level of Lake Lanao at 702 meters elevation. Pursuant thereto, petitioner built and operated the said dam in 1978. Private respondents Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Ali Langco and Diamael Pangcatan own fishponds along the Lake Lanao shore. In October and November of 1986, all the improvements were washed away when the water level of the lake escalated and the subject lakeshore area was flooded. Private respondents blamed the inundation on the Agus Regulation Dam built and operated by the NPC in 1978. They theorized that NPC failed to increase the outflow of water even as the water level of the lake rose due to the heavy rains. ISSUE: Whether or not the Court of Appeals erred in affirming the trial court’s verdict that petitioner was legally answerable for the damages endured by the private respondents. RULING: Memorandum Order No. 398 clothes the NPC with the power to build the Agus Regulation Dam and to operate it for the purpose of generating energy. Twin to such power are the duties: (1) to maintain the normal maximum lake elevation at 702 meters, and (2) to build benchmarks to warn the inhabitants in the area that cultivation of land below said elevation is forbidden. With respect to its job to maintain the normal maximum level of the lake at 702 meters, the Court of Appeals, echoing the trial court, observed with alacrity that when the water level rises due to the rainy season, the NPC ought to release more water to the Agus River to avoid flooding and prevent the water from going over the maximum level. And yet, petitioner failed to do so, resulting in the inundation of the nearby estates. Consequently, even assuming that the fishponds were erected below the 702-meter level, NPC must, nonetheless, bear the brunt for such damages inasmuch as it has the duty to erect and maintain the benchmarks precisely to warn the owners of the neighboring properties not to build fishponds below these marks. Without such points of reference, the inhabitants in said areas are clueless whether or not their improvements are within the prohibited area. Conversely, without such benchmarks, NPC has no way of telling if the fishponds, subject matter of the present controversy, are indeed below the prescribed maximum level of elevation. Due to NPC’s negligence in the performance of its duties, it shall be held liable for the resulting damages suffered by private respondents. Page 75 of 545 MUAJE-TUAZON vs. WENPHIL G.R. No. 162447. DECEMBER 27, 2006 FACTS: Petitioners Annabelle M. Tuazon and Almer R. Abing worked as branch managers of the Wendy's food chains. In Wendy’s “Biggie Size It! Crew Challenge" promotion contest, branches managed by petitioners won first and second places, respectively. Because of its success, respondent had a second run of the contest from April 26 to July 4, 1999. The Meycauayan branch won again. The MCU Caloocan branch failed to make it among the winners. Before the announcement of the third round winners, management received reports that as early as the first round of the contest, the Meycauayan, MCU Caloocan, Tandang Sora and Fairview branches cheated. An internal investigation ensued. Petitioners were summoned to the main office regarding the reported anomaly. Petitioners denied there was cheating. Immediately thereafter, petitioners were notified, in writing, of hearings and of their immediate suspension. Thereafter, petitioners were dismissed. ISSUE: Is the respondent guilty of illegal suspension and dismissal in the case at bench? RULING: There is no denying that petitioners were managerial employees. They executed management policies, they had the power to hire personnel and assign them tasks; and discipline the employees in their branch. They recommended actions on employees to the head office.Article 212 (m) of the Labor Code defines a managerial employee as one who is vested with powers or prerogatives to lay down and execute management policies and/or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees. Consequently, as managerial employees, in the case of petitioners, the mere existence of grounds for the loss of trust and confidence justify their dismissal. Pursuant to our ruling in Caoile v. National Labor Relations Commission, as long as the employer has a reasonable ground to believe that the managerial employee concerned is responsible for the purported misconduct, or the nature of his participation renders him unworthy of the trust and confidence demanded by his position, the managerial employee can be dismissed. In the present case, the tape receipts presented by respondents showed that there were anomalies committed in the branches managed by the petitioners. On the principle of respondeat superior or command responsibility alone, petitioners may be held liable for negligence in the performance of their managerial duties, unless petitioners can positively show that they were not involved. Their position requires a high degree of responsibility that necessarily includes unearthing of fraudulent and irregular activities. Their bare, unsubstantiated and uncorroborated denial of any participation in the cheating does not prove their innocence nor disprove their alleged guilt. Additionally, some employees declared in their affidavits that the cheating was actually the idea of the petitioners. Page 76 of 545 RCPI vs. VERCHEZ G.R. No. 164349. JANUARY 31, 2006 FACTS: Editha Hebron Verchez (Editha) was confined in the hospital due to an ailment. Her daughter Grace immediately went to the Sorsogon Branch of RCPI whose services she engaged to send a telegram to her sister Zenaida. As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid. Immediately after she received Grace’s letter, Zenaida, along with her husband left for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram. The telegram was finally delivered to Zenaida 25 days later. On inquiry from RCPI why it took that long to deliver it, RCPI claimed that delivery was not immediately effected due to the occurrence of circumstances which were beyond the control and foresight of RCPI. ISSUE: Whether or not RCPI is negligent in the performance of its obligation. RULING: Article 1170 of the Civil Code provides: Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. In culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. Considering the public utility of RCPI’s business and its contractual obligation to transmit messages, it should exercise due diligence to ascertain that messages are delivered to the persons at the given address and should provide a system whereby in cases of undelivered messages the sender is given notice of non-delivery. Messages sent by cable or wireless means are usually more important and urgent than those which can wait for the mail. RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award of moral damages. RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption. For breach of contract then, RCPI is liable to Grace for damages. RCPI’s liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father of a family to prevent damage. Page 77 of 545 VICTORY LINER, INC. vs. GAMMAD G.R. No. 159636. NOVEMBER 25, 2004 FACTS: Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine which resulted in the death of Marie Grace and physical injuries to other passengers. On May 14, 1996, respondent heirs of the deceased filed a complaint for damages arising from culpa contractual against petitioner. In its answer, the petitioner claimed that the incident was purely accidental and that it has always exercised extraordinary diligence in its 50 years of operation. ISSUE: Whether petitioner should be held liable for breach of contract of carriage. RULING: Petitioner was correctly found liable for breach of contract of carriage. A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence. In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of Marie Grace’s death was the negligence of petitioner. Hence, the courts below correctly ruled that petitioner was guilty of breach of contract of carriage. Page 78 of 545 FGU INSURANCE CORP. vs. G.P. SARMIENTO TRUCKING CORPORATION G.R. No. 141910. AUGUST 6, 2002 FACTS: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc. to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles. Respondents asserted that that the cause of damage was purely accidental. ISSUE: Whether or not GPS is liable for damages arising from negligence. RULING: In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioner and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation – in this case, the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioner and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their personality or their juridical position. Petitioner’s civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove negligence or fault on the part of the defendant. Page 79 of 545 LRTA vs. NAVIDAD G.R. No. 145804. FEBRUARY 6, 2003 FACTS: On 14 October 1993, in the evening, Nicanor Navidad, then drunk, entered the EDSA LRT station. While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area approached Navidad. A misunderstanding or an altercation between the two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how the fight started or who, between the two, delivered the first blow or how Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was struck by the moving train, and he was killed instantaneously. The widow of Nicanor, along with her children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and Roman filed a counterclaim against Navidad and a cross-claim against Escartin and Prudent. Prudent, in its answer, denied liability and averred that it had exercised due diligence in the selection and supervision of its security guards. ISSUE: Who, if any, is liable for damages in relation to the death of Navidad? RULING: The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage. Regrettably for LRTA, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad, this Court is concluded by the factual finding of the Court of Appeals that “there is nothing to link Prudent to the death of Navidad, for the reason that the negligence of its employee, Escartin, has not been duly proven. There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or omission, he must also be absolved from liability. Page 80 of 545 RODZSSEN SUPPLY CO, INC. VS. FAR EAST BANK & TRUST CO. GR No. 109087 May 9, 2001 FACTS: Defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank and Trust Co. a 30day domestic letter of credit in the amount of P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the purchase from the latter of five units of hydraulic loaders, to expire on February 15, 1979. Defendant refused to pay without any valid reason. Plaintiff prays for judgment ordering defendant to pay the abovementioned P76,000.00 plus due interest thereon, plus 25% of the amount of the award as attorney’s fees. Knowing that the two units of hydraulic loaders had been delivered to defendant after the expiry date of subject LC; and that in view of the breach of contract, defendant offered to return to plaintiff the two units of hydraulic loaders, ‘presently still with the defendant’ but plaintiff refused to take possession thereof. Under the contract of sale of the five loaders between Ekman and defendant, upon Ekman’s delivery to, and acceptance by, defendant of the two remaining units of the five loaders, defendant became liable to Ekman for the payment of said two units. However, as defendant did not pay Ekman, the latter pressed plaintiff for the payment of said two loaders in the amount of P76,000.00. In the honest belief that it was still under obligation to Ekman for said amount, considering that Ekman had presented all the necessary documents, plaintiff voluntarily paid the said amount to Ekman. The CA rejected petitioner’s imputation of bad faith and negligence to respondent bank for paying for the two hydraulic loaders, which had been delivered after the expiration of the subject letter of credit. To absolve defendant from liability for the price of the same," the CA explained, "is to allow it to get away with its unjust enrichment at the expense of the plaintiff." ISSUE: Whether petitioner is liable to respondent. RULING: Petitioner claims that it accepted the late delivery of the equipment, only because it was bound to accept it under the company’s trust receipt arrangement with respondent bank. Granting that petitioner was bound under such arrangement to accept the late delivery of the equipment, we note its unexplained inaction for almost four years with regard to the status of the ownership or possession of the loaders. Bewildering was its lack of action to validate the ownership and possession of the loaders, as well as its stolidity over the purported failed sales transaction. Significant too is the fact that it formalized its offer to return the two pieces of equipment only after respondent’s demand for payment, which came more than three years after it accepted delivery. When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the other and, as in this case, their rights and obligations may be determined equitably under the law proscribing unjust enrichment. Page 81 of 545 Petitioner Rodzssen Supply Co., Inc. is orderd to reimburse Respondent Far East Bank and Trust Co., Inc. P76,000 plus interest thereon at the rate of 6 percent per annum computed from April 7, 1983. After this judgment becomes final, the interest shall be 12 percent per annum. UNIVERSITY OF THE EAST VS. JADER GR. No. 132344 February 17, 2000 FACTS: Plaintiff was enrolled in the defendants' College of Law from 1984 up to 1988. In the first semester of his last year (School year 1987-1988), he failed to take the regular final examination in Practice Court I for which he was given an incomplete grade. He enrolled for the second semester as fourth year law student and on February 1, 1988 he filed an application for the removal of the incomplete grade given him by Professor Carlos Ortega which was approved by Dean Celedonio Tiongson after payment of the required fee. He took the examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortega submitted his grade. It was a grade of five. In the meantime, the Dean and the Faculty Members of the College of Law met to deliberate on who among the fourth year students should be allowed to graduate. The plaintiff's name appeared in the Tentative List of Candidates for graduation for the Degree of Bachelor of Laws (LL.B) as of Second Semester (1987-1988). The plaintiff attended the investiture ceremonies at F. dela Cruz Quadrangle, U.E., Recto Campus, during the program of which he went up the stage when his name was called. He thereafter prepared himself for the bar examination. He took a leave of absence without pay from his job from April 20, 1988 to September 30, 1988 and enrolled at the pre-bar review class in Far Eastern University. Having learned of the deficiency he dropped his review class and was not able to take the bar examination. [A check with the Attorney's List in the Court shows that private respondent is not a member of the Philippine Bar.] ISSUE: Whether petitioner is liable for damages under culpa contractual. RULING: When a student is enrolled in any educational or learning institution, a contract of education is entered into between said institution and the student. The professors, teachers or instructors hired by the school are considered merely as agents and administrators tasked to perform the school's commitment under the contract. Since the contracting parties are the school and the student, the latter is not duty-bound to deal with the former's agents, such as the professors with respect to the status or result of his grades, although nothing prevents either professors or students from sharing with each other such information. The Court takes judicial notice of the traditional practice in educational institutions wherein the professor directly furnishes his/her students their grades. It is the contractual obligation of the school to timely inform and furnish sufficient notice and information to each and every student as to whether he or she had already complied with all the requirements for the conferment of a degree or whether they would be included among those who will graduate. Prior or subsequent to the ceremony, the school has the obligation to promptly inform the student of any problem involving the latter's grades and performance and also most importantly, of the procedures for remedying the same. Petitioner, in belatedly informing respondent of the result of the removal examination, particularly at a time when he had already commenced preparing for the bar exams, cannot be said to have acted in good faith. Page 82 of 545 WHEREFORE, Petitioner is ordered to pay respondent the sum of Thirty-five Thousand Four Hundred Seventy Pesos (P35,470.00), with legal interest of 6% per annum computed from the date of filing of the complaint until fully paid; the amount of Five Thousand Pesos (P5,000.00) as attorney's fees; and the costs of the suit. The award of moral damages is deleted. BAYNE ADJUSTERS VS. CA GR No. 116332 January 25, 2000 FACTS: In May 1987 Colgate Palmolive Philippine, Inc., imported alkyl benzene from Japan valued at US$255,802.88. The said liquid cargo was insured with herein private respondent Insurance Company of North America against all risk for its full value. Petitioner Bayne Adjusters and Surveyors Inc., was contracted by the consignee to supervise the proper handling and discharge of the cargo from the chemical tanker to a receiving barge until the cargo is pumped into the consignee’s shore tank. When the cargo arrived in Manila petitioner’s surveyor supervised the transfer of the cargo from the chemical tanker to the receiving barge. Pumping operation from the barge to the consignee’s shore tank commenced at 2020 hours of June 27, 1987. Pumping of the liquid cargo from the barge to the consignee’s tank was interrupted several times due to mechanical problems with the pump. When the pump broke down once again at about 1300 hours of June 29, 1987, the petitioner’s surveyor left the premises without leaving any instruction with the barge foreman what to do in the event that the pump becomes operational again. Petitioner sent Amado Fontillas, a cargo surveyor, not a liquid bulk surveyor, to the premises and it was agreed that pumping operation would resume the following day at 1030 hours. Fontillas tried to inform both the barge men and the assigned surveyor of the scheduled resumption of pumping operation but he could not find them so he left the premises. When the barge men arrived in the early evening, they found the valves of the tank open and resumed pumping operation in the absence of any instruction from the surveyor to the contrary. The following morning it was found that an undetermined amount of alkyl benzene was lost due to overflow. The consignee filed a claim with the private respondent insurance corporation for the value of the lost liquid cargo. Both the trial court and the appellate court found the petitioner’s failure to comply with the Standard Operating Procedure for Handling Liquid Bulk Cargo when pumping operation is suspended as the proximate cause of the loss. ISSUE: Whether petitioner is liable for the damages incurred arising from culpa contractual. RULING: The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands. The factual findings and conclusions of the trial and appellate court when supported by substantial evidence are entitled to great respect and will not be disturbed on appeal except on very strong and cogent grounds. Both parties agree that the petitioner is bound to supervise the proper discharge of the liquid cargo from the chemical tanker to the receiving barge and from the latter to the consignee’s shore tank. It is clear that under the standard procedure the surveyor is required to seal all cargo compartment manhole covers and the barge and manifold covers to avoid unsupervised discharge Page 83 of 545 of the liquid cargo and to avert loss or contamination thereof. The petitioner’s failure to closely supervise the discharge of the cargo in accordance with accepted guidelines is the proximate cause of the loss. We find no cogent reason to overturn the legal conclusion reached by the lower courts that the petitioner is negligent in the performance of its duty as a marine superintendent surveyor under the Standard Operating Procedure in handling liquid cargo and held the petitioner liable for damages for the loss of the cargo. DELSAN TRANSPORT VS. C & A CONSORTIUM GR No. 156034 October 1, 2003 FACTS: On October 9, 1994, M/V Delsan Express, a ship owned and operated by petitioner Delsan Transport Lines, Inc., anchored at the Navotas Fish Port for the purpose of installing a cargo pump and clearing the cargo oil tank. At around 12:00 midnight of October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan Express received a report from his radio head operator in Japan that a typhoon was going to hit Manila in about eight (8) hours. At approximately 8:35 in the morning of October 21, 1994, Capt. Jusep tried to seek shelter at the North Harbor but could not enter the area because it was already congested. At 10:00 a.m., Capt. Jusep decided to drop anchor at the vicinity of Vitas mouth, 4 miles away from a Napocor power barge. At that time, the waves were already reaching 8 to 10 feet high. Capt. Jusep ordered his crew to go full ahead to counter the wind which was dragging the ship towards the Napocor power barge. To avoid collision, Capt. Jusep ordered a full stop of the vessel.[9] He succeeded in avoiding the power barge, but when the engine was re-started and the ship was maneuvered full astern, it hit the deflector wall constructed by respondent. Respondent demanded payment of the damage from petitioner but the latter refused to pay. ISSUES: 1. Whether or not Capt. Jusep was negligent; 2. If yes, whether or not petitioner is solidarily liable under for the quasi-delict committed by Capt. Jusep? RULING: In the case at bar, the Court of Appeals was correct in holding that Capt. Jusep was negligent in deciding to transfer the vessel only at 8:35 in the morning of October 21, 1994. As early as 12:00 midnight of October 20, 1994, he received a report from his radio head operator in Japan that a typhoon was going to hit Manila after 8 hours. This, notwithstanding, he did nothing, until 8:35 in the morning of October 21, 1994, when he decided to seek shelter at the North Harbor, which unfortunately was already congested. The finding of negligence cannot be rebutted upon proof that the ship could not have sought refuge at the North Harbor even if the transfer was done earlier. It is not the speculative success or failure of a decision that determines the existence of negligence in the present case, but the failure to take immediate and appropriate action under the circumstances. Capt. Jusep, despite knowledge that the typhoon was to hit Manila in 8 hours, complacently waited for the lapse of more than 8 hours thinking that the typhoon might change direction. Furthermore, he did not transfer as soon as the sun rose because, according to him, it was not very cloudy and there was no weather disturbance yet. Anent the second issue, we find petitioner vicariously liable for the negligent act of Capt. Jusep. Under Article 2180 of the Civil Code an employer may be held solidarily liable for the negligent act of his employee. Whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees. To avoid liability for a quasi-delict committed by his employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee. Page 84 of 545 There is no question that petitioner, who is the owner/operator of M/V Delsan Express, is also the employer of Capt. Jusep who at the time of the incident acted within the scope of his duty. The defense raised by petitioner was that it exercised due diligence in the selection of Capt. Jusep because the latter is a licensed and competent Master. It is not enough that the employees chosen be competent and qualified, inasmuch as the employer is still required to exercise due diligence in supervising its employees. PCIB VS. CA GR No. 121413 January 29, 2001 FACTS: The plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff’s percentage or manufacturer’s sales taxes for the third quarter of 1977. The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank. The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner of Internal Revenue. As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers’ sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal Revenue. The Acting Commissioner of Internal Revenue addressed to the plaintiff that its check in the amount of P4,746,114.41 was not paid to the government or its authorized agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon advice of the plaintiff’s lawyers, plaintiff paid to the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiff’s percentage tax for the third quarter of 1977. Plaintiff demanded defendant to reimburse him of the said amount paid for the second time to BIR but the latter refused. ISSUE: Whether PCIB is liable to Ford Philippines the amount of several checks which were allegedly embezzled by a syndicate group. RULING: The general rule is that if the master is injured by the negligence of a third person and by the concurring contributory negligence of his own servant or agent, the latter’s negligence is imputed to his superior and will defeat the superior’s action against the third person, assuming, of course that the contributory negligence was the proximate cause of the injury of which complaint is made. It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford’s negligence, if any, could not be characterized as the proximate cause of the injury to the parties. Citibank should have scrutinized Citibank Check before paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, constitutes negligence in carrying out the bank’s duty to its depositors. The point is that as a business affected with public interest and because of the nature of its functions, the bank Page 85 of 545 is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. Citibank must likewise answer for the damages incurred by Ford on Citibank Checks because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. SAN MIGUEL CORPORATION AND HEIRS OF OUANA VS. CA GR No. 141716 July 4, 2002 FACTS: San Miguel Corporation entered into a Time Charter Party Agreement with Julius Ouano, doing business under the name and style J. Ouano Marine Services. Under the terms of the agreement, SMC chartered the M/V Doña Roberta owned by Julius Ouano for a period of two years, from June 1, 1989 to May 31, 1991, for the purpose of transporting SMC’s beverage products from its Mandaue City plant to various points in Visayas and Mindanao. On November 11, 1990, during the term of the charter, SMC issued sailing orders to the Master of the MN Doña Roberta, Captain Sabiniano Inguito, to sail for Opol, Cagayan Nov. 12, 1990. Meanwhile, at 4:00 a.m. of November 12, 1990, typhoon Ruping was spotted 570 kilometers east-southeast of Borongan, Samar, moving west-northwest at 22 kilometers per hour in the general direction of Eastern Visayas. The typhoon had maximum sustained winds of 240 kilometers per hour near the center with gustiness of up to 280 kilometers per hour.At 7:00 a.m., November 12, 1990, one hour after the M/V Doña Roberta departed from Mandaue City SMC Radio Operator Rogelio P. Moreno contacted Captain Inguito through the radio and advised him to take shelter. Captain Inguito replied that they will proceed since the typhoon was far away from them, and that the winds were in their favor.At 1:15 a.m., November 13, 1990, Captain Inguito called Moreno over the radio and requested him to contact Rico Ouano, son of Julius Ouano, because they needed a helicopter to rescue them. The vessel was about 20 miles west of Sulauan Point.Upon being told by SMC’s radio operator, Rico Ouano turned on his radio and read the distress signal from Captain Ingiuto. When he talked to the captain, the latter requested for a helicopter to rescue them. Rico Ouano talked to the Chief Engineer who informed him that they can no longer stop the water from coming into the vessel because the crew members were feeling dizzy from the petroleum fumes.At 2:30 a.m. of November 13, 1990, the M/V Doña Roberta sank. Out of the 25 officers and crew on board the vessel, only five survived. ISSUE: Whether or nor Ouano is liable for the negligence of his employee. RULING: A charter party is a contract by virtue of which the owner or the agent of a vessel binds himself to transport merchandise or persons for a fixed price. It has also been defined as a contract by virtue of which the owner or the agent of the vessel leases for a certain price the whole or a portion of the vessel for the transportation of goods or persons from one port to another. If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship. SC concur with the findings of the Court of Appeals that the charter party in these cases was a contract of affreightment, contrary to petitioner Ouano’s protestation that it was a demise charter. It appearing that Ouano was the employer of the captain and crew of the M/V Doña Roberta during the term of the charter, he therefore had command and control over the vessel. His son, Rico Ouano, even testified that during the period that the vessel was under charter to SMC, the Captain thereof had control of the navigation of all voyages. Under the foregoing definitions, as well as the clear terms of the Charter Party Agreement between the parties, the charterer, SMC, should be free from liability for any loss or damage sustained during the voyage, unless it be shown that the same was due to its fault or negligence. Page 86 of 545 The evidence does not show that SMC or its employees were amiss in their duties. In the assailed decision, the Court of Appeals found that the proximate cause of the sinking of the vessel was the negligence of Captain Sabiniano Inguito. SC likewise agrees with the CA that Ouano is vicariously liable for the negligent acts of his employee, Captain Inguito. Under Articles 2176 and 2180 of the Civil Code, owners and managers are responsible for damages caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent either in the selection or in the supervision of that employee. PACIS v. MORALES G.R. No. 169467 : February 25, 2010 FACTS: On 17 January 1995, petitioners Alfredo P. Pacis and Cleopatra D. Pacis (petitioners) filed with the trial court a civil case for damages against respondent Jerome Jovanne Morales (respondent). Petitioners are the parents of Alfred Dennis Pacis, Jr, a 17-year old student who died in a shooting incident inside the Top Gun Firearms and Ammunitions Store in Baguio City. Respondent is the owner of the gun store.The bullet which killed Alfred Dennis Pacis was fired from a gun brought in by a customer of the gun store for repair.The gun, an AMT Automag II Cal. 22 Rimfire Magnum with Serial No. SN-H34194, was left by defendant Morales in a drawer of a table located inside the gun store. Defendant Morales was in Manila at the time.Sales agents Matibag and Herbolario were the ones left to look after the gun store. It appears that Matibag and Herbolario later brought out the gun from the drawer and placed it on top of the table. Attracted by the sight of the gun, the young Alfred Dennis Pacis got hold of the same. Matibag asked Alfred Dennis Pacis to return the gun. The latter followed and handed the gun to Matibag. It went off, the bullet hitting the young Alfred in the head. A criminal case for homicide was filed against Matibag, but was however acquitted of the charge against him because of the exempting circumstance of accident under Art. 12, par. 4 of the Revised Penal Code. Petitioners opted to file an independent civil action for damages against respondent whom they alleged was Matibag's employer. Petitioners based their claim for damages under Articles 2176 and 2180 of the Civil Code. The RTC however imposed a civil liability against repsondent.Upon appeal, the CA absolved respondent from civil liability under Article 2180 of the Civil Code. ISSUE: Whether or not respondent Morales, as the employer is subsidiary liable. HELD: YES. The Court held that respondent did not exercise the degree of care and diligence required of a good father of a family, much less the degree of care required of someone dealing with dangerous weapons. For the subsidiary liability of the employer under Article 103 of the Revised Penal Code, the liability of the employer, or any person for that matter, under Article 2176 of the Civil Code is primary and direct, based on a persons own negligence. As a gun store owner, respondent is presumed to be knowledgeable about firearms safety and should have known never to keep a loaded weapon in his store to avoid unreasonable risk of harm or injury to others. For failing to insure that the gun was not loaded, respondent himself was negligent. Furthermore, it was not shown in this case whether respondent had a License to Repair which authorizes him to repair defective firearms to restore its original composition or enhance or upgrade firearms. Page 87 of 545 PHILIPPINE HAWK CORP. v. TAN LEE G.R. No. 166869 : February 16, 2010 FACTS: On March 15, 2005, respondent Vivian Tan Lee filed before the RTC of Quezon City a Complaint against petitioner Philippine Hawk Corporation and defendant Margarito Avila for damages based on quasi-delict, arising from a vehicular accident that occurred on March 17, 1991 in Barangay Buensoceso, Gumaca, Quezon. The accident resulted in the death of respondent's husband, Silvino Tan, and caused respondent physical injuries. The accident involved a motorcycle, a passenger jeep, and a bus with Body No. 119. The bus was owned by petitioner Philippine Hawk Corporation, and was then being driven by Margarito Avila. On June 18, 1992, respondent filed an Amended Complaint, in her own behalf and in behalf of her children, in the civil case for damages against petitioner. Respondent sought the payment of indemnity for the death of Silvino Tan, moral and exemplary damages, funeral and interment expenses, medical and hospitalization expenses, the cost of the motorcycle's repair, attorney's fees, and other just and equitable reliefs. In its Answer, petitioner denied liability for the vehicular accident, alleging that the immediate and proximate cause of the accident was the recklessness or lack of caution of Silvino Tan. Petitioner asserted that it exercised the diligence of a good father of the family in the selection and supervision of its employees, including Margarito Avila. The trial court rendered judgment against petitioner and defendant Margarito Avila, wherein it adjudged guilty of simple negligence. It further held petitioner bus company liable for failing to exercise the diligence of a good father of the family in the selection and supervision of Avila, having failed to sufficiently inculcate in him discipline and correct behavior on the road. The CA affirmed the decision of the trial court with modification in the award of damages. ISSUE: Whether or not petitioner is liable to respondent for damages. HELD: YES. The Court upholds the finding of the trial court and the Court of Appeals that petitioner is liable to respondent, since it failed to exercise the diligence of a good father of the family in the selection and supervision of its bus driver, Margarito Avila, for having failed to sufficiently inculcate in him discipline and correct behavior on the road. Indeed, petitioner's tests were concentrated on the ability to drive and physical fitness to do so. It also did not know that Avila had been previously involved in sideswiping incidents. The Court also affirmed the CA's decision in awarding civil indemnity for the death of respondent's husband, temperate damages, and moral damages for the physical injuries sustained by respondent in addition to the damages granted by the trial court to respondent. Page 88 of 545 MERCURY DRUG CORPORATION VS. HUANG GR No. 172122 June 22, 2007 FACTS: Petitioner Mercury Drug is the registered owner of a six-wheeler 1990 Mitsubishi Truck. It has in its employ petitioner Rolando Del Rosario as driver. Respondent spouses Richard and Carmen Huang are the parents of respondent Stephen Huang and own the red 1991 Toyota Corolla. These two vehicles figured in a road accident. At the time of the accident, petitioner Del Rosario only had a Traffic Violation Receipt. A driver’s license had been confiscated because he had been previously apprehended for reckless driving. Respondent Stephen Huang sustained massive injuries to his spinal cord, head, face and lung. He is paralyzed for life from his chest down and requires continuous medical and rehabilitation treatment. Respondent’s fault petitioner Del Rosario for committing gross negligence and reckless imprudence while driving, and petitioner Mercury Drug for failing to exercise the diligence of a good father of a family in the selection and supervision of its driver. The trial court found Mercury Drug and Del Rosario jointly and severally liable to pay respondents. The Court of Appeals affirmed the said decision. ISSUE: Whether or not petitioner Mercury Drug is liable for the negligence of its employee. RULING: Article 2176 and 2180 of the Civil Code provide: “Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damages done. Such fault or negligence, if there is no preexisting contractual relationship between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.” “The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible.” The liability of the employer under Article 2180 is direct and immediate. It is not conditioned on a prior recourse against the negligent employee, or a prior showing of insolvency of such employee. It is also joint and solidary with the employee. To be relieved f the liability, petitioner should show that it exercised the diligence of a good father of a family, both in the selection of the employee and in the supervision of the performance of his duties. In this case, the petitioner Mercury Drug does not provide for back-up driver for long trips. As the time of the accident, Del Rosario has been driving for more than thirteen hours, without any alternate. Moreover, Del Rosario took the driving test and psychological exam for the position of Delivery Man and not as Truck Man. With this, petitioner Mercury Drug is liable jointly and severally liable to pay the respondents. Page 89 of 545 MENDOZA VS. SORIANO GR No. 164012 June 8, 2007 FACTS: Sonny Soriano, while crossing Commonwealth Avenue near Luzon Avenue, was hit by a speeding Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five meters away, while the vehicle stopped some 25 meters from the point of impact. Gerard Villaspin, one of Soriano’s companions, asked Macasasa to bring Soriano to the hospital, but the first flee. Respondent’s wife and daughter filed a complaint for damages against Macasasa and petitioner Flordeliza Mendoza, the registered owner of the vehicle. Petitioner Mendoza contends that she was not liable since as owner of the vehicle, she had exercised the diligence of a good father of a family over her employee. Macasas. The trial court dismissed the complaint against Macasasa and Mendoza. It found Soriano negligent for crossing not in the pedestrian overpass. The Court of Appeals, on the other hand, reversed the assailed decision of the lower court. ISSUE: Whether or not petitioner is liable for damages. RULING: While the appellate court agreed that Soriano was negligent, it also found Macasasa negligent for speeding, such that he was unable to avoid hitting the victim. It observed that Soriano’s own negligence did not preclude recovery for damages from Macasasa’s negligence. It further held that since petitioner failed to present evidenced to the contrary and conformably with Article 2180 of the Civil Code, the presumption of negligence of the employer in the selection and supervision of employees stood. The records show that Macasasa violated two traffic rules under the Land Transportation and Office Code. Under Article 2185 of the Civil Code, a person driving a motor vehicle is presumed negligent if at the time of the mishap, he was violating traffic regulations. Further, under Article 2180, employers are liable for the damages caused by their employees acting within the scope of their assigned tasks. The liability arises due to the presumed negligence of the employers in supervising their employees unless they prove that they observed all the diligence of a good father of a family to prevent the damage. In this case petitioner is held primarily and solidarily liable for the damages caused by Macasasa. However, Article 2179 states that “when the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s Page 90 of 545 lack of due care, the plaintiff may recover damages, but the court shall mitigate the damages awarded. Ruling that Soriano was guilty of contributory negligence for not using the pedestrian overpass, 20% reduction of the amount of the damages awarded was awarded to petitioner. CEREZO VS. TUAZON GR No. 141538 March 23, 2004 FACTS: Country Bus Lines passenger bus collided with a tricycle. Tricycle driver Tuazon filed a complaint for damages against Mrs. Cerezo, as owner of the bus line, her husband Attorney Juan Cerezo, and bus driver Danilo A. Foronda. After considering Tuazon’s testimonial and documentary evidence, the trial court ruled in Tuazon’s favor. The trial court made no pronouncement on Foronda’s liability because there was no service of summons on him. The trial court did not hold Atty. Cerezo liable as Tuazon failed to show that Mrs. Cerezo’s business benefited the family, pursuant to Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely liable for the damages sustained by Tuazon arising from the negligence of Mrs. Cerezo’s employee, pursuant to Article 2180 of the Civil Code. ISSUE: Whether petitioner is solidarily liable. RULING: Contrary to Mrs. Cerezo’s assertion, Foronda is not an indispensable party to the case. An indispensable party is one whose interest is affected by the court’s action in the litigation, and without whom no final resolution of the case is possible. However, Mrs. Cerezo’s liability as an employer in an action for a quasi-delict is not only solidary, it is also primary and direct. Foronda is not an indispensable party to the final resolution of Tuazon’s action for damages against Mrs. Cerezo. The responsibility of two or more persons who are liable for a quasi-delict is solidary. Where there is a solidary obligation on the part of debtors, as in this case, each debtor is liable for the entire obligation. Hence, each debtor is liable to pay for the entire obligation in full. There is no merger or renunciation of rights, but only mutual representation. Where the obligation of the parties is solidary, either of the parties is indispensable, and the other is not even a necessary party because complete relief is available from either. Therefore, jurisdiction over Foronda is not even necessary as Tuazon may collect damages from Mrs. Cerezo alone. Moreover, an employer’s liability based on a quasi-delict is primary and direct, while the employer’s liability based on a delict is merely subsidiary. The words “primary and direct,” as contrasted with “subsidiary,” refer to the remedy provided by law for enforcing the obligation rather than to the character and limits of the obligation. Although liability under Article 2180 originates from the negligent act of the employee, the aggrieved party may sue the employer directly. When an employee causes damage, the law presumes that the employer has himself committed an act of negligence in not preventing or avoiding the damage. This is the fault that the law condemns. While the employer is civilly liable in a subsidiary capacity for the employee’s criminal negligence, the employer is also civilly liable directly and separately for his own civil negligence in failing to exercise due diligence in selecting and supervising his employee. The idea that the employer’s liability is solely subsidiary is wrong. Page 91 of 545 To hold the employer liable in a subsidiary capacity under a delict, the aggrieved party must initiate a criminal action where the employee’s delict and corresponding primary liability are established. If the present action proceeds from a delict, then the trial court’s jurisdiction over Foronda is necessary. However, the present action is clearly for the quasi-delict of Mrs. Cerezo and not for the delict of Foronda. Thus, the petition was denied ordering the defendant Hermana Cerezo to pay the plaintiff. FILIPINAS SYNTHETIC v. DE LOS SANTOS G.R. No. 152033, March 16, 2011 FACTS: On the night of September 30, 1984, Teresa Elena Legarda-de los Santos, the wife of respondent Wilfredo de los Santos ,performed at the Rizal Theater in Makati City, Metro Manila as a member of the cast for the musical play, Woman of the Year.On that same night, at the request of Wilfredo, his brother Armando de los Santos , husband of respondent Carmina Vda. de los Santos, went to the Rizal Theater to fetch Teresa Elena after the latter's performance. He drove a 1980 Mitsubishi Galant Sigma , a company car assigned to Wilfredo.Two other members of the cast of Woman of the Year, namely, Annabel Vilches (Annabel) and Jerome Macuja, joined Teresa Elena in the Galant Sigma. Around 11:30 p.m., while travelling along the Katipunan Road (White Plains), the Galant Sigma collided with the shuttle bus owned by petitioner and driven by Alfredo S. Mejia (Mejia), an employee of petitioner. The Galant Sigma was dragged about 12 meters from the point of impact, across the White Plains Road landing near the perimeter fence of Camp Aguinaldo, where the Galant Sigma burst into flames and burned to death beyond recognition all four occupants of the car. A criminal charge for reckless imprudence resulting in damage to property with multiple homicide was brought against Mejia, which was decided in favor of Mejia. The family of Annabel filed a civil case against petitioner and Mejia.The RTC decided in favor of herein respondents, and was affirmed by the CA with modifications in the awarding of damages. ISSUE: Whether or not Mejia is negligent and liable for damages including the bus company. HELD: YES. From those evidence, there was proof more than preponderant to conclude that Mejia was travelling at an unlawful speed, hence, the negligent driver. The Court therefore cannot find any error on the part of the trial court in concluding that Mejia was driving more than his claim of 70 kilometres per hour. Significantly, the claimed speed of Mejia is still unlawful, considering that Section 35 of RA 4136 states that the maximum allowable speed for trucks and buses must not exceed 50 kilometres per hour. The excessive speed employed by Mejia was the proximate cause of the collision that led to the sudden death of Teresa Elena and Armando. As the negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter has the burden of proving that it has been diligent not only in the selection of employees but also in the actual supervision of their work. In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and plausible, it is not enough to emptily invoke the existence of said company guidelines and policies on hiring and supervision The mere allegation of the existence of hiring procedures and Page 92 of 545 supervisory policies, without anything more, is decidedly not sufficient to overcome such presumption. In the present case, Filsyn, the employer of Mejia merely presented evidence on the alleged care it took in the selection or hiring of Mejia way back in 1974 or ten years before the fatal accident. Neither did Filsyn present any proof of the existence of the rules and regulations governing the conduct of its employees. It is significant to note that in employing Mejia, who is not a high school graduate, Filsyn waived its long-standing policy requirement of hiring only high school graduates. It insufficiently failed to explain the reason for such waiver other than their allegation of Mejia's maturity and skill for the job. VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS GR No. 54080 November 22, 2000 FACTS: Defendant Alberto delos Santos was the driver of defendant Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At about 12:30 in the afternoon, he was driving said truck along the National Highway within the vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to the right shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite direction. With the driver of another truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of the Viron bus proceeded to report the incident to the Police Station. Both the RTC and the CA rendered its decision in favor of the private respondents. ISSUE: Whether the employer is liable to the negligence of his employee. RULING: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primarily liable for the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That presumption, however, is only jusris tantum, not juris et de jure. Their only possible defense is that they exercised all the diligence of a good father of a family to prevent the damage. In fine, when the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in the selection and supervision of employees, thus, petitioner as the employer is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. Hence, with the allegations and subsequent proof of negligence against the bus driver of petitioner, petitioner (employer) is liable for damages. Page 93 of 545 MERCURY DRUG CORPORATION VS. BAKING GR No. 57435 May 25, 2007 FACTS: Sebastian Baking, respondent, went to the clinic of Dr. Cesar Sy for a medical check-up. Dr. Sy gave respondent two medical prescriptions – Diomicron for his blood sugar and Benalize tablets for his triglyceride. Respondent then proceeded to petitioner Mercury Drug Corporation (Alabang Branch) to buy the prescribed medicines. However, the saleslady misread the prescription Diamicron as a prescription for Dormicum. Unaware that what was given to him was the wrong medicine, respondent took one pill of dormicum on three consecutive days. On the third day he took the medicine, and he figured in a vehicular accident. The car he was driving collided with the car of one Jose Peralta. Respondent fell asleep while driving he could not remember anything about the collision nor felt its impact. Suspecting that the tablet he took may have bearing on his physical and mental state at the time of the collision, respondent returned to Dr. Sy. Upon being shown the medicine, Dr. Sy was shocked to find that what was sold to him was Dormicum, instead of the prescribed Diamicron The RTC and CA rendered their decision in favor of respondent. ISSUE: Whether petitioner was negligent, and if so, whether such negligence was the proximate cause of respondent’s accident. RULING: Article 2176 states that “whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damages done. Such fault or negligence, if there is no pre-existing contractual relationship between the parties, is called a quasi-delict…” Obviously, petitioner’s employee was grossly negligent in selling respondent domicrum, instead of the prescribed diamicron. Considering that a fatal mistake could be a matter of life and death for a buying patient, the employee should have been very cautious in dispensing medicines. Petitioner contends that the proximate cause of the accident was respondent’s negligence in driving. The court disagrees. The accident could have not occurred had petitioner’s employee been careful in reading the prescription. Article 2180 in complementing the preceding article states that “the obligation imposed by articles 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible.” It is thus clear that the employer of a negligent employee is liable for the damages caused by the latter. When an injury is caused by the negligence of an Page 94 of 545 employee, there instantly arises a presumption of the law that there has been negligence on the part of the employer either in the selection of the employee or the supervision over him, after such selection. The presumption, however, may be rebutted by a clear showing on the part of the employer that he has exercised the care and diligence of a good father of a family in the selection and supervision of his employee. In this case, petitioner failed to prove such exercised of due diligence of a good father of a family in the selection and supervision of employee, thus making the petitioner solidarily liable for the damages. SAFEGUARD SECURITY V. TANGCO GR No. 165732 December 14, 2006 FACTS: Evangeline Tangco (Evangeline) went to Ecology Bank, Katipunan Branch, Quezon City, to renew her time deposit per advise of the bank's cashier as she would sign a specimen card. Evangeline, a duly licensed firearm holder with corresponding permit to carry the same outside her residence, approached security guard Pajarillo, who was stationed outside the bank, and pulled out her firearm from her bag to deposit the same for safekeeping. Suddenly, Pajarillo shot Evangeline with his service shotgun hitting her in the abdomen instantly causing her death. Respondent filed a complaint for damages against Pajarillo for negligently shooting Evangeline and against Safeguard for failing to observe the diligence of a good father of a family to prevent the damage committed by its security guard. Petitioners denied the material allegations in the complaint and alleged that Safeguard exercised the diligence of a good father of a family in the selection and supervision of Pajarillo; that Evangeline's death was not due to Pajarillo's negligence as the latter acted only in selfdefense. ISSUES: 1. Whether Pajarillo is guilty of negligence in shooting Evangeline; and 2. Whether Safeguard should be held solidarily liable for the damages awarded to respondents. RULING: Safeguard contends that it cannot be jointly held liable since it had adequately shown that it had exercised the diligence required in the selection and supervision of its employees. It claims that it had required the guards to undergo the necessary training and to submit the requisite qualifications and credentials which even the RTC found to have been complied with; that the RTC erroneously found that it did not exercise the diligence required in the supervision of its employee. Safeguard further claims that it conducts monitoring of the activities of its personnel, wherein supervisors are assigned to routinely check the activities of the security guards which include among others, whether or not they are in their proper post and with proper equipment, as well as regular evaluations of the employees' performances; that the fact that Pajarillo loaded his firearm contrary to Safeguard's operating procedure is not sufficient basis to say that Safeguard had failed its duty of proper supervision; that it was likewise error to say that Safeguard was negligent in seeing to it that the procedures and policies were not properly implemented by reason of one unfortunate event. The Supreme Court was not convinced. Article 2180 of the Civil Code provides: The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. As the employer of Pajarillo, Safeguard is primarily and solidarily liable for the quasidelict committed by the former. Safeguard is presumed to be negligent in the selection and supervision of his employee by operation of law. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a Page 95 of 545 family in the selection and the supervision of its employee. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, due diligence in the supervision of employees includes the formulation of suitable rules and regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons with whom the employer has relations through his or its employees and the imposition of necessary disciplinary measures upon employees in case of breach or as may be warranted to ensure the performance of acts indispensable to the business of and beneficial to their employer. PLEYTO VS. LOMBOY GR No. 148737 December 16, 2004 FACTS: Respondent Maria D. Lomboy of Calasiao, Pangasinan, is the surviving spouse of the late Ricardo Lomboy, who died in Pasolingan, Gerona, Tarlac, in a vehicular accident. The accident was a head-on collision between the PRBL bus driven by petitioner Pleyto and the car where Ricardo was a passenger. Carmela suffered injuries requiring hospitalization in the same accident which resulted in her father’s death. According to Rolly Orpilla, a witness and one of the bus passengers, Pleyto tried to overtake Esguerra’s tricycle but hit it instead. Pleyto then swerved into the left opposite lane. Coming down the lane, some fifty meters away, was a southbound Mitsubishi Lancer car, driven by Arnulfo Asuncion. The car was headed for Manila with some passengers. Seated beside Arnulfo was his brother-in-law, Ricardo Lomboy, while in the back seat were Ricardo’s 18-year old daughter Carmela and her friend, one Rhino Daba. PRBL Bus No. 1539 smashed head-on the car, killing Arnulfo and Ricardo instantly. Carmela and Rhino suffered injuries, but only Carmela required hospitalization. The Court of Appeals found PRBL liable for Pleyto’s negligence pursuant to Article 2180 in relation to Article 2176 of the Civil Code. Under Article 2180, when an injury is caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent either in the selection or in the supervision of that employee. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee. ISSUE: Did petitioner observed the proper diligence of a good father of a family? RULING: The negligence and fault of appellant driver is manifest. He overtook the tricycle despite the oncoming car only fifty (50) meters away from him. Defendant-appellant’s claim that he was driving at a mere 30 to 35 kilometers per hour does not deserve credence as it would have been easy to stop or properly maneuver the bus at this speed. The speed of the bus, the drizzle that made the road slippery, and the proximity of the car coming from the opposite direction were duly established by the evidence. The speed at which the bus traveled, inappropriate in the light of the aforementioned circumstances, is evident from the fact despite the application of the brakes, the bus still bumped the tricycle, and then proceeded to collide with the incoming car with such force that the car was pushed beyond the edge of the road to the ricefield. In the present case, petitioners presented several documents in evidence to show the various tests and pre-qualification requirements imposed upon petitioner Pleyto before his hiring as a driver by PRBL. However, no documentary evidence was presented to prove that petitioner PRBL exercised due diligence in the supervision of its employees, including Pleyto. Citing precedents, the Court of Appeals opined, Page 96 of 545 In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and plausible, it is not enough for the employer to emptily invoke the existence of company guidelines and policies on hiring and supervision. As the negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter has the burden of proving that it has been diligent not only in the selection of employees but also in the actual supervision of their work. The mere allegation of the existence of hiring procedures and supervisory policies without anything more is decidedly not sufficient to overcome such presumption. VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS GR No. 54080 November 22, 2000 FACTS: Defendant Alberto delos Santos was the driver of defendant Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At about 12:30 in the afternoon, he was driving said truck along the National Highway within the vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to the right shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite direction. With the driver of another truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of the Viron bus proceeded to report the incident to the Police Station. Both the RTC and the CA rendered its decision in favor of the private respondents. ISSUE: Whether the employer is liable to the negligence of his employee. RULING: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primarily liable for the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That presumption, however, is only jusris tantum, not juris et de jure. Their only possible defense is that they exercised all the diligence of a good father of a family to prevent the damage. In fine, when the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in the selection and supervision of employees, thus, petitioner as the employer is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. Hence, with the allegations and subsequent proof of negligence against the bus driver of petitioner, petitioner (employer) is liable for damages. Page 97 of 545 SYKI VS. BEGASA GR No. 149149 October 23, 2003 FACTS: Respondent Salvador Begasa and his three companions flagged down a passenger jeepney driven by Joaquin Espina and owned by Aurora Pisuena. While respondent was boarding the passenger jeepney (his right foot already inside while his left foot still on the boarding step of the passenger jeepney), a truck driven by Elizalde Sablayan and owned by petitioner Ernesto Syki bumped the rear end of the passenger jeepney. Respondent fell and fractured his left thigh bone. Respondent filed a complaint for damages for breach of common carrier’s contractual obligations and quasi-delict against Aurora Pisuena, the owner of the passenger jeepney;, herein petitioner Ernesto Syki, the owner of the truck;, and Elizalde Sablayan, the driver of the truck. After hearing, the trial court dismissed the complaint against Aurora Pisuena, the owner and operator of the passenger jeepney, but ordered petitioner Ernesto Syki and his truck driver, Elizalde Sablayan, to pay respondent Salvador Begasa, jointly and severally ISSUE: 1. Whether or not petitioner is liable for the act of his employee. 2. Whether he exercised the diligence of a good father of a family. RULING: Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. From the above provision, when an injury is caused by the negligence of an employee, a legal presumption instantly arises that the employer was negligent, either or both, in the selection and/or supervision of his said employee duties. The said presumption may be rebutted only by a clear showing on the part of the employer that he had exercised the diligence of a good father of a family in the selection and supervision of his employee. If the employer successfully overcomes the legal presumption of negligence, he is relieved of liability. In other words, the burden of proof is on the employer. In the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses’ testimonies dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was observance of due diligence in the selection and supervision of employees. Petitioner’s attempt to prove its “deligentissimi patris familias” in the selection and supervision of employees through oral evidence must fail as it was unable to buttress the same with any other evidence, object or documentary, which might obviate the apparent biased nature of the testimony. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, with respect to the supervision of employees, employers should formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, Page 98 of 545 including documentary evidence.The employer must not merely present testimonial evidence to prove that he had observed the diligence of a good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased nature of the employer’s testimony or that of his witnesses. In sum, the sole and proximate cause of the accident was the negligence of petitioner’s driver who, as found by the lower courts, did not slow down even when he was already approaching a busy intersection within the city proper. Since the negligence of petitioner’s driver was the sole and proximate cause of the accident, in the present case, petitioner is liable, under Article 2180 of the Civil Code, to pay damages to respondent Begasa for the injuries sustained by latter. YAMBAO VS. ZUNIGA GR No. 146173 December 11, 2003 FACTS: The bus owned by the petitioner was being driven by her driver, one Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA). With Venturina was the bus conductor, Fernando Dumaliang. Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the impact that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter. Private respondents, as heirs of the victim, filed a Complaint against petitioner and her driver, Venturina, for damages. The complaint essentially alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules and regulations, without due regard to public safety, thus resulting in the victim’s premature death. The petitioner vehemently denied the material allegations of the complaint. She tried to shift the blame for the accident upon the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was chasing him. She further alleged that she was not liable for any damages because as an employer, she exercised the proper diligence of a good father of a family, both in the selection and supervision of her bus driver. ISSUE: Whether or not petitioner observed the diligence of a good father of a family, so as not to be liable for the act committed by her employee? RULING: It held that this was a case of quasi-delict, there being no pre-existing contractual relationship between the parties. The court a quo then found the petitioner directly and primarily liable as Venturina’s employer pursuant to Article 2180 of the Civil Code as she failed to present evidence to prove that she has observed the diligence of a good father of a family in the selection and supervision of her employees. Art. 2180 states that “the obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible” Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. Petitioner contends that as an employer, she observed the proper diligence of a good father of a family, both in the selection and supervision of her driver and therefore, is relieved from any liability for the latter’s misdeed. To support her claim, she points out that when Venturina applied with her as a driver in January 1992, she required him to produce not just his driver’s license, but also clearances from the National Bureau of Investigation (NBI), the Philippine National Police, and the barangay where he resides. She also required him to present Page 99 of 545 his Social Security System (SSS) Number prior to accepting him for employment. She likewise stresses that she inquired from Venturina’s previous employer about his employment record, and only hired him after it was shown to her satisfaction that he had no blot upon his record. In sum, petitioner’s liability to private respondents for the negligent and imprudent acts of her driver, Venturina, under Article 2180 of the Civil Code is both manifest and clear. Petitioner, having failed to rebut the legal presumption of negligence in the selection and supervision of her driver, is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. REGINO VS. PANGASINAN COLLEGES GR No. 156109 November 18, 2004 FACTS: Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of Science and Technology (PCST). In February 2002, PCST held a fund raising campaign dubbed the “Rave Party and Dance Revolution,” the proceeds of which were to go to the construction of the school’s tennis and volleyball courts. Each student was required to pay for two tickets at the price of P100 each. The project was allegedly implemented by recompensing students who purchased tickets with additional points in their test scores; those who refused to pay were denied the opportunity to take the final examinations. Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to pay for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from taking the tests. ISSUE: Whether or not the purchased of the tickets are mandatory and are part of the contract between school and student. RULING: Reciprocity of the School-Student Contract The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and inherent in all contracts of such kind -- it gives rise to bilateral or reciprocal rights and obligations. The school undertakes to provide students with education sufficient to enable them to pursue higher education or a profession. On the other hand, the students agree to abide by the academic requirements of the school and to observe its rules and regulations. The terms of the school-student contract are defined at the moment of its inception -upon enrolment of the student. Standards of academic performance and the code of behavior and discipline are usually set forth in manuals distributed to new students at the start of every school year. Further, schools inform prospective enrollees the amount of fees and the terms of payment. In practice, students are normally required to make a down payment upon enrollment, with the balance to be paid before every preliminary, midterm and final examination. Their failure to pay their financial obligation is regarded as a valid ground for the school to deny them the opportunity to take these examinations. The foregoing practice does not merely ensure compliance with financial obligations; it also underlines the importance of major examinations. Failure to take a major examination is usually fatal to the students’ promotion to the next grade or to graduation. Examination results form a significant basis for their final grades. These tests are usually a primary and an indispensable requisite to their elevation to the next educational level and, ultimately, to their completion of a course. Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic standards, completion of academic requirements and observance of school rules and Page 100 of 545 regulations, the school would reward them by recognizing their “completion” of the course enrolled in. PCST imposed the assailed revenue-raising measure belatedly, in the middle of the semester. It exacted the dance party fee as a condition for the students’ taking the final examinations, and ultimately for its recognition of their ability to finish a course. The fee, however, was not part of the school-student contract entered into at the start of the school year. Hence, it could not be unilaterally imposed to the prejudice of the enrollees. YHT REALTY VS. CA GR. No. 126780 February 17, 2005 FACTS: McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through the use of two keys, one of which is given to the registered guest, and the other remaining in the possession of the management of the hotel. When a registered guest wished to open his safety deposit box, he alone could personally request the management who then would assign one of its employees to accompany the guest and assist him in opening the safety deposit box with the two keys. However, when he returned coming from a trip, he noticed that his money in the envelope was lacking and that the jewelries were gone. ISSUE: Whether petitioner is liable for the loss of the personal properties of respondent. RULING: Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. Article 2180 provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer. Thus, given the fact that the loss of McLoughlin’s money was consummated through the negligence of Tropicana’s employees in allowing Tan to open the safety deposit box without the guest’s consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable. Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. The hotel business like the common carrier’s business is imbued with public interest. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called “undertakings” that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss would not have occurred. Page 101 of 545 Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guest’s relatives and visitors. RAMOS VS. CA GR No. 124354 December 29, 1999 FACTS: Plaintiff Erlinda Ramos was a robust woman Except for occasional complaints of discomfort due to pains allegedly caused by the presence of a stone in her gall bladder. Because the discomforts somehow interfered with her normal ways, she sought professional advice. She was advised to undergo an operation for the removal of a stone in her gall bladder. At around 7:30 A.M. of June 17, 1985 and while still in her room, she was prepared for the operation by the hospital staff. Her sister-in-law, Herminda Cruz, who was the Dean of the College of Nursing at the Capitol Medical Center, was also there for moral support. Herminda was allowed to stay inside the operating room. At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look for Dr. Hosaka who was not yet in Dr. Gutierrez thereafter informed Herminda Cruz about the prospect of a delay in the arrival of Dr. Hosaka. Herminda then went back to the patient who asked, "Mindy, wala pa ba ang Doctor"? The former replied, "Huwag kang mag-alaala, darating na iyon. Thereafter, Herminda went out of the operating room and informed the patient's husband, Rogelio, that the doctor was not yet around. At about 12:15 P.M., Herminda Cruz, who was inside the operating room with the patient, heard somebody say that "Dr. Hosaka is already here." She then saw people inside the operating room "moving, doing this and that, preparing the patient for the operation" As she held the hand of Erlinda Ramos, she then saw Dr. Gutierrez intubating the hapless patient. She thereafter heard Dr. Gutierrez say, "ang hirap ma-intubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan", because of the remarks of Dra. Gutierrez, she focused her attention on what Dr. Gutierrez was doing. She thereafter noticed bluish discoloration of the nailbeds of the left hand of the hapless Erlinda even as Dr. Hosaka approached her. She then heard Dr. Hosaka issue an order for someone to call Dr. Calderon, another anesthesiologist. ISSUE: Whether the respondent doctors are negligent. RULING: Res ipsa loquitur is a Latin phrase which literally means "the thing or the transaction speaks for itself." The phrase "res ipsa loquitur" is a maxim for the rule that the fact of the occurrence of an injury, taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiff's prima facie case, and present a question of fact for defendant to meet with an explanation At the time of submission, Erlinda was neurologically sound and, except for a few minor discomforts, was likewise physically fit in mind and body. However, during the administration of anesthesia and prior to the performance of cholecystectomy she suffered irreparable damage to her brain. Thus, without undergoing surgery, she went out of the operating room already decerebrate and totally incapacitated. Obviously, brain damage, which Erlinda sustained, is an injury which does not normally occur in the process of a gall bladder operation. In fact, this kind Page 102 of 545 of situation does not happen in the absence of negligence of someone in the administration of anesthesia and in the use of endotracheal tube. Normally, a person being put under anesthesia is not rendered decerebrate as a consequence of administering such anesthesia if the proper procedure was followed. Furthermore, the instruments used in the administration of anesthesia, including the endotracheal tube, were all under the exclusive control of private respondents, who are the physicians-in-charge. Likewise, petitioner Erlinda could not have been guilty of contributory negligence because she was under the influence of anesthetics which rendered her unconscious. REYES VS. SISTERS OF MERCY HOSPITAL GR No. 130547 October 3, 2000 FACTS: Jorge Reyes was taken to the Mercy Community Clinic. He was attended to by respondent Dr. Marlyn Rico, a resident physician and admitting physician on duty, who gave Jorge a physical examination and took his medical records. Typhoid fever was then prevalent in the locality. Suspecting that Jorge could be suffering from this disease, Dr. Rico ordered a Widal Test, a standard test for typhoid fever, to be performed on Jorge. The results of the test from which Dr. Rico concluded that Jorge was positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr. Rico indorsed Jorge to respondent Dr. Marivie Blanes. Dr. Blanes also took the physical examination of Jorge. Antibiotics being the accepted treatment for typhoid fever, she ordered that a compatibility test with the antibiotic chloromycetin be done on Jorge. As she did not observe any adverse reaction, she ordered the first 500 mg. of said antibiotic. At around 1:00 in the morning, Dr. Blanes was called as Jorge’s temperature rose to 41 degrees and then valium was administered. However, the patient did not respond to the treatment and slipped into cyanosis, a bluish or purplish discoloration of the skin or mucous membrane due to deficient oxygenation of the blood. At around 2:00 a.m. Jorge died. ISSUES: Whether the death of Jorge Reyes was due to or caused by the negligence, carelessness, imprudence, and lack of skill or foresight on the part of the defendants. RULING: Petitioner’s action is for medical malpractice. It is a form of negligence which consists in the failure of the physician or surgeon to apply to his practice of medicine that degree of care and skill which is ordinarily employed by the profession. Four elements involve in medical negligence cases, namely: duty, breach, injury, and proximate causation. In this case, there is no doubt that physician-patient relationship existed between respondent doctors and Jorge Reyes. It is breach of this duty which constitutes actionable malpractice. As to this aspect of medical malpractice, the determination of reasonable level of care and breach thereof, expert testimony is essential. The petitioner presented Dr. Vacalares, Chief Pathologist of the Northern Mindanao Training Hospital, Cagayan de Oro, who performed the autopsy of Jorge. He testified that Jorge did not die of typhoid fever but of shock undetermined, which could be due to allergic reaction or chloromycetin overdose. The court was not persuaded. Although Dr. Vacalares may have had extensive experience in performing autopsies, he admitted that he had yet to do one on the body of a typhoid victim at the time he conducted the post mortem of Jorge. It is also plain from his testimony that he treated only about three cases of typhoid fever. On the other hand, the two doctors presented by respondents clearly were experts on the subject. They vouched for the correctness of Dr. Rico’s diagnosis. Dr. Gotiong, a diplomate whose specialization is infectious diseases and microbiology and an associate professor at the Southern University College of Medicine and the Gullas College of Medicine, testified that he has already treated over a thousand cases of typhoid fever. According to him a case of typhoid fever is suspected using the Page 103 of 545 widal test, if the 1:320 results of the said test has been presented to him. As to the treatment of the disease, he stated that chloromycetin was the drug of choice. He also explained that despite the measures taken by respondents and the intravenous administration of the two doses of chloromycetin, complications of the disease could not be discounted. Dr. Marilyn did not depart from the reasonable standard recommended by the experts as she in fact observed the due care required under the circumstances. Though the widal test is not conclusive, it remains a standard diagnostic test for typhoid fever and, in the present case, a greater accuracy through repeated testing was rendered unobtainable by the early death of the patient. The results of the widal test and the patient’s history of fever with chills for five days, taken with the fact that typhoid fever was then prevalent, were sufficient to give upon any doctor of reasonable skill the impression that the patient had typhoid fever. NOGALES VS. CAPITOL MEDICAL CENTER GR No. 45641 December 19, 2006 FACTS: Pregnant with her fourth child, Corazon Nogales was under the exclusive prenatal care of Dr. Estrada. While Corazon was on her lat trimester of pregnancy, Dr. Estrada noted an increase in her blood pressure and development of leg edema indicating preeclampsia, which is dangerous complication of pregnancy. When Corazon started to experience mild labor, he and her husband, prompted to see Dr. Estrada at his home. After examining Corazon, he advised her to immediate admission to the Capitol Medical Center. Upon admission at the CMC, Rogelio Nogales executed and signed the Consent on Admission and Agreement and Admission Agreement. Then Corazon was brought to the labor room. Dr. Uy, a resident physician, conducted an internal examination of Corazon and notified Dr. Estrada of her findings. Dr. Estrada ordered for 10 mg. of valium to be administered immediately by intramascular injection. Later he ordered that start of intravenous administration of syntocinon admixed with dextrose, 5% in lactated Ringers’ solution, at the rate of eight to ten micro-drops per minute. Dr. Enriquez, an anesthesiologist, was notified of Corazon’s admission. Subsequently he asked if Dr. Estrada needed his service but the latter refused. Despite refusal he stayed to observe Corazon’s condition. Corazon’s water bag ruptured spontaneously and started to experience convulsions. Dr. Estrada ordered the injectionof ten grams of magnesium sulfate. However, Dr. Villaflor, who is assisting Dr. Estrada, administered only 2.5 grams of magnesium sulfate. Dr. Estrada applied low forceps to extract the baby. The baby came out in a weak and injured condition and consequently had to be intubated and resuscitated. Corazon began to manifest moderate vaginal bleeding which rapidly became profuse. Dr. Estrada ordered blood typing and cross matching with bottled blood. Dr. Espinola, head of the Obstetrics-Gynecology Department of the CMC, was apprised of Corazon’s condition by telephone. Upon being informed of Corazon’s profuse bleeding, Dr. Espinola ordered immediate hysterectomy. Dr. Espinola, due to the inclement weather, arrived about an hour late. he examined the patient but despite his efforts Corazon died. Petitioners filed a case against CMC personnel and physicians on the ground that they were negligent in the treatment and management of Corazon’s condition and charged CMC with negligence in the selection and supervision of defendant physicians and hospital staff. After more than 11 years the Trial Court rendered its judgment finding Dr. Estrada solely liable for damages. ISSUE: Whether CMC is vicariously liable for the negligence of Dr. Estrada. RULING: Under the doctrine of apparent authority a hospital can be held vicariously liable for the negligent act of a physician providing care at eh hospital, regardless of whether the physician is an independent contractor, unless the patient knows, or should have known, that the physician is an independent contractor. The doctrine of apparent authority involves two factors to determine the liability of an independent contractor-physician. First factor focuses on the hospital’s manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a responsible person to conclude that the individual who was alleged to be Page 104 of 545 negligent was an employee or agent of the hospital. The second factor focuses on the patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. In this case, CMC impliedly held out Dr. Estrada as a member of its medical staff. First, CMC granted staff privileges to Dr. Estrada when it extended its medical staff and facilities. Upon request to admit Corazon, through its personnel, readily accommodated the patient and updated Dr. Estrada of the patient’s condition. Second, CMC made Rogelio sign a consent forms printed in CMC letterhead. And third, Dr. Estrada’s referral to Dr. Espinola, who then was the Head of the Obstetrics and Gynecology Department of CMC. Wherefore the court finds respondent Capitol Medical Center vicariously liable for the negligence of Dr. Oscar Estrada. PROFESSIONAL SERVICES VS. AGANA GR No. 126467 February 11, 2008 FACTS: On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s husband to permit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was searched by the surgeon but to no avail. After a couple of days, Natividad complained excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the cancerous nodes which were not removed. Natividad and her husband went to the US to seek further treatment. After 4 months she was told that she was free of cancer. They then flew back to the Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina. Another surgical operation was performed upon her. Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with modification that Dr. Fuentes was dismissed. ISSUE: Whether the Court of Appeals erred in absolving Dr. Fuentes of any liability. RULING: It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr. Ampil. The latter examined it and finding everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed operating on Natividad. He was about to finish the procedure when the attending nurses informed him that two pieces of gauze were missing. A "diligent search" was conducted, but the misplaced gauzes were not found. Dr. Ampil then Page 105 of 545 directed that the incision be closed. During this entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the hospital. Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of the surgery room and all personnel connected with the operation. Their duty is to obey his orders. As stated before, Dr. Ampil was the lead surgeon. In other words, he was the "Captain of the Ship." That he discharged such role is evident from his following conduct. Clearly, the control and management of the thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes. Here, the negligence was proven to have been committed by Dr. Ampil and not by Dr. Fuentes. PROFESSIONAL SERVICES, INC. VS. COURT OF APPEALS GR No. 126297 February 11, 2008 FACTS: On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s husband topermit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was searched by the surgeon but to no avail. After a couple of days, Natividad complained excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the cancerous nodes which were not removed. Natividad and her husband went to the US to seek further treatment. After 4 months she was told that she was free of cancer. They then flew back to the Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina. Another surgical operation was performed upon her. Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with modification that Dr. Fuentes was dismissed. ISSUE: Whether there is an employee-employer relationship in order to hold PSI solidary liable. RULING: In general, a hospital is not liable for the negligence of an independent contractorphysician. However, the hospital may be held liable if the physician is the “ostensible” agent of the hospital. This exception is also known as the “doctrine of apparent authority”. The doctrine of apparent authority involves two factors to determine the liability of an independent contractorphysician. First factor focuses on the hospital’s manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a responsible person to conclude that the individual who was alleged to be negligent was an employee or agent of the Page 106 of 545 hospital. The second factor focuses on the patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. In this case, it has been proven that the two factors were present. The hospital indeed made it appear that Dr. Ampil was its employee when they advertise and displayed his name in the directory at the lobby of the said hospital and that Natividad relied on such knowledge that Dr. Ampil was indeed an employee of the hospital. Wherefore PSI and Dr. Ampil are liable jointly and severally. DR. RUBI LI v. SPS. SOLIMAN G.R. No. 165279, June 07, 2011 FACTS: On July 7, 1993, respondents' 11-year old daughter, Angelica Soliman, underwent a biopsy of the mass located in her lower extremity at the St. Luke's Medical Center (SLMC). Results showed that Angelica was suffering from osteosarcoma, osteoblastic type, a high-grade cancer of the bone which usually afflicts teenage children. Following this diagnosis and as primary intervention, Angelica's right leg was amputated by Dr. Jaime Tamayo in order to remove the tumor. As adjuvant treatment to eliminate any remaining cancer cells, and hence minimize the chances of recurrence and prevent the disease from spreading to other parts of the patient's body (metastasis), chemotherapy was suggested by Dr. Tamayo. Dr. Tamayo referred Angelica to another doctor at SLMC, herein petitioner Dr. Rubi Li, a medical oncologist. On August 18, 1993, Angelica was admitted to SLMC. However, she died on September 1, 1993, just eleven (11) days after the administration of the first cycle of the chemotherapy regimen. On February 21, 1994, respondents filed a damage suit against petitioner, Dr. Leo Marbella, Mr. Jose Ledesma, a certain Dr. Arriete and SLMC. Respondents charged them with negligence and disregard of Angelica's safety, health and welfare by their careless administration of the chemotherapy drugs, their failure to observe the essential precautions in detecting early the symptoms of fatal blood platelet decrease and stopping early on the chemotherapy, which bleeding led to hypovolemic shock that caused Angelica's untimely demise. Further, it was specifically averred that petitioner assured the respondents that Angelica would recover in view of 95% chance of healing with and when asked regarding the side effects, petitioner mentioned only slight vomiting, hair loss and weakness. Respondents thus claimed that they would not have given their consent to chemotherapy had petitioner not falsely assured them of its side effects. In dismissing the complaint, the trial court held that petitioner was not liable for damages as she observed the best known procedures and employed her highest skill and knowledge in the administration of chemotherapy drugs on Angelica but despite all efforts said patient died. ISSUE: Whether or not Dr. Rubi Li is negligent and is liable for damages. HELD: NO. There are four essential elements a plaintiff must prove in a malpractice action based upon the doctrine of informed consent: "(1) the physician had a duty to disclose material risks; (2) he failed to disclose or inadequately disclosed those risks; (3) as a direct and proximate result of the failure to disclose, the patient consented to treatment she otherwise would not have consented to; and (4) plaintiff was injured by the proposed treatment." The gravamen in an informed consent case requires the plaintiff to "point to significant undisclosed information relating to the treatment which would have altered her decision to undergo it. Examining the evidence on record, the Court held that there was adequate disclosure of Page 107 of 545 material risks inherent in the chemotherapy procedure performed with the consent of Angelica's parents. Respondents could not have been unaware in the course of initial treatment and amputation of Angelica's lower extremity, that her immune system was already weak on account of the malignant tumor in her knee.On the other hand, it is difficult to give credence to respondents' claim that petitioner told them of 95% chance of recovery for their daughter, as it was unlikely for doctors like petitioner who were dealing with grave conditions such as cancer to have falsely assured patients of chemotherapy's success rate. Besides, informed consent laws in other countries generally require only a reasonable explanation of potential harms, so specific disclosures such as statistical data, may not be legally necessary. DIAZ VS. DAVAO LIGHT GR No. 160959 April 2, 2007 FACTS: Plaintiff asks for damages for defendant’s alleged malicious prosecution of a criminal case of theft of electricity against him, for plaintiff’s filing of a charge of violation of P.D. 401 as amended after dismissal of the theft case, the filing of a damage suit against him before the RTC of Cebu City which was dismissed and the filing of another damage suit before the same Cebu RTC which is still pending. Damages are also being sought for defendant’s removal of Electric Meter, but this is a subject matter of a case pending before Branch 13 of this Court and therefore said court retains jurisdiction over the said cause of action. The RTC held that while the City Prosecutor, and later the Secretary of Justice, concluded that there was no probable cause for the crime of theft, this did not change the fact that plaintiff made an illegal connection for electricity. A person’s right to litigate should not be penalized by holding him liable for damages. On October 1, 2003, the CA affirmed the decision of the RTC. It concluded that the evidence on hand showed good faith on the part of DLPC in filing the subject complaints. It pointed out that Diaz had been using the electrical services of DLPC without its consent. As to the effect of the compromise agreement, the CA ruled that it did not bar the filing of the criminal action. Thus, under the principle of damnum absque injuria, the legitimate exercise of a person’s right, even if it causes loss to another, does not automatically result in an actionable injury. Diaz, now petitioner, comes before this Court in this petition for review on certiorari ISSUES: 1. Whether or not the compromise agreement entered into between DLPC and Diaz barred the former from instituting further actions; and 2. Whether or not DLPC acted in bad faith in instituting the criminal cases against Diaz RULING: Article 2028 of the Civil Code defines a compromise as a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. The purpose of compromise is to settle the claims of the parties and bar all future disputes and controversies. However, criminal liability is not affected by compromise for it is a public offense which must be prosecuted and punished by the Government on its own motion, though complete reparation should have been made of the damages suffered by the offended party. A criminal case is committed against the People, and the offended party may not waive or extinguish the criminal liability that the law imposes for the commission of the offense. Moreover, a compromise is not one of the grounds prescribed by the Revised Penal Code for the extinction of criminal liability. On the other hand, malicious prosecution has been defined as an action for damages brought by or against whom a criminal prosecution, civil suit or other legal proceeding has been instituted maliciously and without probable cause, after the termination of such prosecution, suit, or other proceeding in favor of the defendant therein. It is an established rule that in order for malicious prosecution to prosper, the following requisites must be proven by petitioner: (1) the fact of prosecution and the further fact that the defendant (respondent) was Page 108 of 545 himself the prosecutor, and that the action finally terminated with an acquittal; (2) that in bringing the action, the prosecutor acted without probable cause; and (3) that the prosecutor was actuated or impelled by legal malice, that is, by improper or sinister motive. The foregoing are necessary to preserve a person’s right to litigate which may be emasculated by the undue filing of malicious prosecution cases. From the foregoing requirements, it can be inferred that malice and want of probable cause must both be clearly established to justify an award of damages based on malicious prosecution. DLPC was not motivated by malicious intent or by a sinister design to unduly harass petitioner, but only by a well-founded anxiety to protect its rights. Respondent DLPC cannot therefore be faulted in availing of the remedies provided for by law. YASOÑA VS. DE RAMOS GR No. 156339 October 6, 2004 FACTS: Aurea Yasoña and her son, Saturnino, went to the house of Jovencio de Ramos to ask for financial assistance in paying their loans to Philippine National Bank (PNB), otherwise their residential house and lot would be foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the request. They agreed that, upon payment by Jovencio of the loan to PNB, half of Yasoñas’ subject property would be sold to him. Jovencio paid Aurea’s bank loan. As agreed upon, Aurea executed a deed of absolute sale in favor of Jovencio over half of the lot consisting of 123 square meters. Thereafter, the lot was surveyed and separate titles were issued by the Register of Deeds of Sta. Cruz, Laguna in the names of Aurea and Jovencio Twenty-two years later, in August 1993, Aurea filed an estafa complaint against brothers Jovencio and Rodencio de Ramos on the ground that she was deceived by them when she asked for their assistance in 1971 concerning her mortgaged property. In her complaint, Aurea alleged that Rodencio asked her to sign a blank paper on the pretext that it would be used in the redemption of the mortgaged property On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis dismissed the criminal complaint for estafa for lack of evidence. On account of this dismissal, Jovencio and Rodencio filed a complaint for damages on the ground of malicious prosecution. They alleged that the filing of the estafa complaint against them was done with malice and it caused irreparable injury to their reputation, as Aurea knew full well that she had already sold half of the property to Jovencio. ISSUE: Whether or not the filing of the criminal complaint for estafa by petitioners against respondents constituted malicious prosecution? RULING: To constitute “malicious prosecution,” there must be proof that the prosecution was prompted by a sinister design to vex or humiliate a person, and that it was initiated deliberately by the defendant knowing that his charges were false and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution does not make one liable for malicious prosecution. In this case, the records show that the sale of the property was evidenced by a deed of sale duly notarized and registered with the local Register of Deeds. After the execution of the deed of sale, the property was surveyed and divided into two portions. Separate titles were then issued in the names of Yasoña and Jovencio. Since 1973, Jovencio had been paying the realty taxes of the portion registered in his name. In 1974, Aurea even requested Jovencio to use his portion as bond for the temporary release of her son who was charged with malicious mischief. Also, when Aurea borrowed money from the Rural Bank of Lumban in 1973 and the PNB in 1979, only her portion was mortgaged. Page 109 of 545 All these pieces of evidence indicate that Aurea had long acknowledged Jovencio’s ownership of half of the property. Furthermore, it was only in 1993 when petitioners decided to file the estafa complaint against respondents. If petitioners had honestly believed that they still owned the entire property, it would not have taken them 22 years to question Jovencio’s ownership of half of the property. Malicious prosecution, both in criminal and civil cases, requires the elements of (1) malice and (2) absence of probable cause. These two elements are present in the present controversy. The complaint for estafa was dismissed outright as the prosecutor did not find any probable cause against respondents. A suit for malicious prosecution will prosper where legal prosecution is carried out without probable cause. PEOPLE VS. DELOS SANTOS GR No. 131588 March 27, 2001 FACTS: Philippine National Police (PNP), undergoing a Special Training Course (Scout Class 0795), wearing black T-shirts and black short pants, performing an "Endurance Run" of 35 kilometers coming from their camp in Manolo Fortich, Bukidnon, heading to Regional Training Headquarters in Camp Alagar, Cagayan de Oro City, running in a column of 3, with a distance of two feet, more or less, from one trainee to another, thus forming a three lines, with a length of more or less 50 meters from the 1st man to the last man, unable to defend themselves, because the accused ran or moved his driven vehicle on the direction of the backs of the PNP joggers in spite of the continuous warning signals made by six of the joggers, namely: PO1 Allan Tabacon Espana, Waldon Sinda Sacro, Lemuel Ybanez Pangca, Artemio Jamil Villaflor, Nardo Omasas Collantes and Joselito Buyser Escartin, who were at the rear echelon of said run, acting as guards, by continuously waving their hands at the accused for him to take the left lane of the highway, going to the City proper, from a distance of 100 meters away from the jogger’s rear portion, but which accused failed and refused to heed; instead, he proceeded to operate his driven vehicle (an Isuzu Elf) on high speed directly towards the joggers, thus forcing the rear hitting, bumping, or ramming the first four (4) victims, causing the bodies to be thrown towards the windshields of said Isuzu Elf, breaking said windshield, and upon being aware that bodies of the victims flew on the windshield of his driven vehicle, instead of applying his brake, continued to travel on a high speed, this time putting off its headlights, thus hitting the succeeding joggers on said 1st line, as a result thereof killed them. ISSUE: Whether or not accused is guilty beyond reasonable doubt of the complex crime of multiple murder, multiple frustrated murder, and multiple attempted multiple murder. RULING: It is a well-entrenched rule that if the inculpatory facts are capable of two or more explanations one consistent with the innocence or lesser degree of liability of the accused, and the other consistent with his guilt or graver responsibility the Court should adopt the explanation which is more favorable to the accused.The test for determining whether a person is negligent in doing an act whereby injury or damage results to the person or property of another is this: Could a prudent man, in the position of the person to whom negligence is attributed, foresee harm to the person injured as a reasonable consequence of the course actually pursued? If so, the law imposes a duty on the actor to refrain from that course or to take precautions to guard against its mischievous results, and the failure to do so constitutes negligence. Reasonable foresight of harm, followed by the ignoring of the admonition born of this prevision, is always necessary before negligence can be held to exist. Accused showed an inexcusable lack of precaution. Article 365 of the Revised Penal Code states that reckless imprudence consists in voluntarily, but without malice, doing or failing Page 110 of 545 to do an act from which material damage results by reason of inexcusable lack of precaution on the part of the person performing or failing to perform such act, taking into consideration (1) his employment or occupation; (2) his degree of intelligence; (4) his physical condition; and (3) other circumstances regarding persons, time. Considering that the incident was not a product of a malicious intent but rather the result of a single act of reckless driving, should be held guilty of the complex crime of reckless imprudence resulting in multiple homicide with serious physical injuries and less serious physical injuries. Article 48 of the Revised Penal Code provides that when the single act constitutes two or more grave or less grave felonies, or when an offense is a necessary means for committing the other, the penalty for the most serious crime shall be imposed, the same to be applied in its maximum period. Since Article 48 speaks of felonies, it is applicable to crimes through negligence in view of the definition of felonies in Article 3 as "acts or omissions punishable by law" committed either by means of deceit {dolo) or fault (culpa). MAGAT VS. MEDIALDEA L-37120 April 20, 1983 FACTS: That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines. ISSUE: Whether or not there is contravention of the terms. RULING: After a thorough examination of the complaint at bar, We find the test of legal sufficiency of the cause of action adequately satisfied. In a methodical and logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his part of the bargain, private respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him and that consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential elements of a cause of action are present, to wit: the existence of a legal right to the plaintiff; a correlative duty of the defendant and an act or omission of the defendant in violation of the plaintiff's right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief. Indisputably, the parties, both businessmen, entered into the aforesaid contract with the evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested" and, therefore, recoverable under the law. Article 1170 of the Civil Code provides: "Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof are liable for damages." The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance. The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee [daño emergente] but also the profits which the latter failed to obtain Page 111 of 545 [lucro cesante]. If the obligor acted in good faith, he shall be liable for those damages that are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the nonperformance of the obligation VDA. DE MISTICA VS. NAGUIAT GR. No 137909 December 11, 2003 FACTS: Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a parcel of land. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970. On 5 April 1979, Eulalio Mistica entered into a contract to sell with Respondent Naguiat over a portion of the aforementioned lot containing an area of 200 square meters. Pursuant to said agreement, Respondent Bernardino Naguiat gave a downpayment of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986. On 4 December 1991, petitioner filed a complaint for rescission alleging inter alia: that the failure and refusal of respondents to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same; that [respondents] have been in possession of the subject portion and they should be ordered to vacate and surrender possession of the same to petitioner. Respondents contended that the contract cannot be rescinded on the ground that it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be paid. Likewise alleged that sometime in October 1986, during the wake of the late Eulalio Mistica, he offered to pay the remaining balance to petitioner but the latter refused and hence, there is no breach or violation committed by them and no damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said document. ISSUE: Whether petitioner may rescind the contract. RULING: Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It explained that the conclusion of the ten-year period was not a resolutory term, because the Contract had stipulated that payment -- with interest of 12 percent -- could still be made if respondents failed to pay within the period. According to the appellate court, petitioner did not disprove the allegation of respondents that they had tendered payment of the balance of the purchase price during her husband’s funeral, which was well within the ten-year period. Moreover, rescission would be unjust to respondents, because they had already transferred the land title to their names. The proper recourse, the CA held, was to order them to pay the balance of the purchase price, with 12 percent interest. Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, because respondents committed a substantial breach when they did not pay the balance of the purchase price within the ten-year period. Page 112 of 545 We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. The CA further ruled that rescission in this case would be unjust to respondents, because a certificate of title had already been issued in their names. CO VS. CA GR No. 112330 August 17, 1999 FACTS: Plaintiff entered into a verbal contract with defendant for her purchase of the latter’s house and lot located at 316 Beata St., New Alabang Village, Muntinlupa, Metro Manila, for and in consideration of the sum of $100,000.00. One week thereafter, and shortly before she left for the United States, plaintiff paid to the defendants the amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same may be reserved for her purchase, said earnest money to be deducted from the total purchase price. The purchase price of $100,000.00 is payable in two payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on January 5, 1985. On January 25, 1985, although the period of payment had already expired, plaintiff paid to the defendant Melody Co in the United States, the sum of $30,000.00, as partial payment of the purchase price. Defendant’s counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15, 1985, demanding that she pay the balance of $70,000.00 and not receiving any response thereto, said lawyer wrote another letter to plaintiff dated August 8, 1986, informing her that she has lost her ‘option to purchase’ the property subject of this case and offered to sell her another property. ISSUE: Whether or not the Court of Appeals erred in ordering the COS to return the $30,000.00 paid by Custodio pursuant to the “option” granted to her over the Beata property? RULING: The COS’ main argument is that Custodio lost her “option” over the Beata property and her failure to exercise said option resulted in the forfeiture of any amounts paid by her pursuant to the August letter. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. Article 1479. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.” However, the March 15, 1985 letter sent by the COS through their lawyer to the Custodio reveals that the parties entered into a perfected contract of sale and not an option contract. In the case at bar, the property involved has not been delivered to the appellee. She has therefore nothing to return to the appellants. The price received by the appellants has to be Page 113 of 545 returned to the appellee as aptly ruled by the lower court, for such is a consequence of rescission, which is to restore the parties in their former situations. REYES v. TUPARAN G.R. No. 188064; June 1, 2011 FACTS: In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in petitioner’s financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month. On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. to secure a loan of ₱2,000,000.00 payable in installments. On November 15, 1990, petitioner’s outstanding account on the mortgage reached ₱2,278,078.13. Petitioner then decided to sell her real properties for at least ₱6,500,000.00 so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally buy petitioner’s real properties for ₱4,200,000.00 payable on installment basis without interest and to assume the bank loan. On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments, respondent agreed to pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid ₱395,000.00, leaving a balance of ₱805,000.00 as principal on the unpaid installments and ₱466,893.25 as unpaid accumulated interest. Since December 1990, respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner. On September 2, 1992, respondent offered the amount of ₱751,000.00 only payable on September 7, 1992, as full payment of the purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale. On September 10, 1992, Mila A. Reyes filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan before the RTC. ISSUE: Whether or not petitioner has the right to rescind of the Deed of Conditional Sale with Assumption of Mortgage. HELD: The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank Page 114 of 545 on November 26, 1990 is a contract to sell and not a contract of sale. Based on the stipulations of the parties,the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent. Accordingly, the petitioner’s obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondent’s full payment of the purchase price. Without respondent’s full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. G.G. SPORTSWEAR MFG. CORP. v.WORLD CLASS PROPERTIES, INC. G.R. No. 182720 March 2, 2010 FACTS: GG Sportswear offered to purchase the 38th floor penthouse unit and 16 parking slots for 32 cars in World Class's condominium project for the discounted, pre-selling price. After GG Sportswear paid the reservation fee, the parties, signed a Reservation Agreement that provides for the schedule of payments, including the stipulated monthly installments on the down payment and the balance on the purchase price. From May to December 1996, GG Sportswear timely paid the installments due.In a letter dated January 30, 1997, GG Sportswear requested the return of the outstanding postdated checks it previously delivered to World Class because it (GG Sportswear) intended to replace these old checks with new ones from the corporation’s new bank. World Class acceded, but suggested the execution of a new Reservation Agreement to reflect the arrangement involving the replacement checks, with the retention of the other terms and conditions of the old Agreement.8 GG Sportswear did not object to the execution of a new Reservation Agreement, but requested that World Class defer the deposit of the replacement checks for 90 days. World Class denied this request, contending that a deferment would delay the subsequent monthly installment payments. It likewise demanded that GG Sportswear immediately pay its overdue January 1997 installment to avoid the penalties provided in the Agreement. GG Sportswear did not sign the second Reservation Agreement. Instead, it sent a letter to World Class, requesting that its check dated April 24, 1997 be deposited on May 15, 1997 because it was experiencing financial difficulties. When World Class rejected GG Sportswear’s request, GG Sportswear sent another letter informing World Class that the second Reservation Agreement was incomplete because it did not expressly provide the time of completion of the condominium unit. World Class countered that the provisional Contract to Sell it previously submitted to GG Sportswear expressly provided for the completion date (December 15, 1998) and insisted that GG Sportswear pay its overdue account. ISSUE: Whether there was no breach on the part of World Class to justify the rescission and refund. RULING: GG Sportswear likewise has no legal basis to demand either the rescission of the Agreement or the refund of payments it made to World Class under the Agreement.Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances.GG Sportswear anchors its claim for rescission on two grounds: (a) its dissatisfaction with the completion date; and (b) the lack of a Contract to Sell. As to the first ground, World Class makes much of the fact that the completion date is not indicated in the Agreement, maintaining that this lack of detail renders the Agreement void on the ground that the intention of the parties cannot be ascertained. We disagree with this contention.In the first Page 115 of 545 place, GG Sportswear cannot claim that it did not know the time-frame for the project’s completion when it entered into the Agreement with World Class. As World Class points out, it is absurd and unbelievable that Mr. Gidwani, the president of GG Sportswear and an experienced businessman, did not have an idea of the expected completion date of the condominium project before he bought the condominium units for P89,624,272.82. Even assuming that GG Sportswear was not aware of the exact completion date, we note that GG Sportswear signed the Agreement despite the Agreement’s omission to expressly state a specific completion date. This directly implies that a specific completion date was not a material consideration for GG Sportswear when it executed the Agreement. Thus, even if we believe GG Sportswear’s contention that it was dissatisfied with the completion date subsequently indicated in the provisional Contract to Sell, we cannot consider this dissatisfaction a breach so substantial as to render the Agreement rescissible. UNIVERSAL FOOD CORPORATION VS. CA L-29155 February 22, 1971 FACTS: The petitioner contends that (a) under the terms of the Bill of Assignment, exh. A, the respondent Magdalo V. Francisco ceded and transferred to the petitioner not only the right to the use of the formula for Mafran sauce but also the formula itself, because this, allegedly, was the intention of the parties; (b) that on the basis of the entire evidence on record and as found by the trial court, the petitioner did not dismiss the respondent Francisco because he was, and still is, a member of the board of directors, a stockholder, and an officer of the petitioner corporation, and that as such, had actual knowledge of the resumption of production by the petitioner, but that despite such knowledge, he refused to report back for work notwithstanding the petitioner's call for him to do so; (c) that the private respondents are not entitled to rescind the Bill of Assignment; and (d) that the evidence on record shows that the respondent Francisco was the one not ready, willing and able to comply with his obligations under the Bill of Assignment, in the sense that he not only irregularly reported for work but also failed to assign, transfer and convey to the petitioner of the said deed of conveyance. ISSUE: Whether respondent Francisco ceded to the petitioner merely the use of the formula for Mafran sauce and not the formula itself. RULING: The Court concluded that what was actually ceded and transferred was only the use of the Mafran sauce formula. The fact that the trademark "Mafran" was duly registered in the name of the petitioner pursuant to the Bill of Assignment, standing by itself alone, to borrow the petitioner's language, is not sufficient proof that the respondent Francisco was supposedly obligated to transfer and cede to the petitioner the formula for Mafran sauce and not merely its use. For the said respondent allowed the petitioner to register the trademark for purposes merely of the "marketing of said project." Page 116 of 545 UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELES L-28602 September 29, 1970 FACTS: UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP. ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged. That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960. That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation, and the concession was awarded to Sta. Clara Lumber Company, Inc. ISSUE: Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. RULING: Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25 February 1966. apparently sustained it (although the order expresses no specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect. UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." "There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause Page 117 of 545 cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract." In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages. ARMAND O. RAQUEL-SANTOS v. COURT OF APPEALS G.R. No. 174986 July 7, 2009 FACTS: Finvest is a stock brokerage corporation duly organized under Philippine laws and is a member of the PSE with one membership seat pledged to the latter. Armand O. Raquel-Santos (RaquelSantos) was Finvest’s President and nominee to the PSE from February 20, 1990 to July 16, 1998.3 Annalissa Mallari (Mallari) was Finvest’s Administrative Officer until December 31, 1998.In the course of its trading operations, Finvest incurred liabilities to PSE representing fines and penalties for non-payment of its clearing house obligations. PSE also received reports that Finvest was not meeting its obligations to its clients. Consequently, PSE indefinitely suspended Finvest from trading. The Securities and Exchange Commission (SEC) also suspended its license as broker.On June 17, 1998, PSE demanded from Finvest the payment of its obligations to the PSE in the amount of P4,267,339.99 and to its (Finvest’s) clients within 15 days. PSE also ordered Finvest to replace its nominee, Raquel-Santos. ISSUE: Whether or not rescission is the proper remedy. RULING: Clearly, Finvest’s failure to deliver the stock certificates representing the shares of stock purchased by TMEI and Garcia amounted to a substantial breach of their contract which gave rise to a right to rescind the sale. Rescission creates the obligation to return the object of the contract. This is evident from Article 1385 of the Civil Code which provides: 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. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. Rescission does not merely terminate the contract and release the parties from further obligations to each other, but abrogates it from the beginning and restores the parties to their relative positions as if no contract has been made.79 Page 118 of 545 Mutual restitution entails the return of the benefits that each party may have received as a result of the contract. In this case, it is the purchase price that Finvest must return. The amount paid was sufficiently proven by the buy confirmation receipts, vouchers, and official/provisional receipts that respondents presented in evidence. In addition, the law awards damages to the injured party, which could be in the form of interest on the price paid,80 as the trial court did in this case. FRANCISCO VS. DEAC CONSTRUCTION, INC. GR No. 171312 February 4, 2008 FACTS: Spouses Francisco obtained the services of DEAC Construction, Inc. to construct a 3storey residential building with mezzanine and roof deck on their lot for a contract price of 3.5M. as agreed upon, a downpayment of 2M should be paid upon signing of the construct of construction, and the remaining balance of 1.5M was to be paid in two equal installments. To undertake the said project, DEAC engaged the services of a sub-contractor, Vigor Construction and Development Corporation, but allegedly without the spouses’ knowledge and consent. Even prior to the execution of the contract, spouses Francisco had paid the downpayment. However, the said construction commenced although DEAC had not yet obtained the necessary building permit for the proposed construction and that the contractor deviated from the approved plans. Spouses Francisco demanded DEAC to comply with the approved plan, otherwise, they would be compelled to invoke legal remedies. Work stoppage was issued against Lino Francisco pursuant to the previous Notice of Violations. The plaintiffs then file civil case for Rescission of Contract and Damages against DEAC. ISSUE: Whether or not spouses Francisco may rescind the contract. RULING: Article 1191 of the Civil Code provides that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The rescission referred to in this article, more appropriately referred to a resolution, is not predicated on injury to economic interests on the part of the party plaintiff, but of breach of faith by the defendant which is violative of the reciprocity between the parties. Given the fact that the construction in this case is already 75% complete, that trial court was correct in ordering partial rescission of the portion of the construction. Equitable considerations justify rescission of the portion of the obligation which has not been delivered. Page 119 of 545 SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION G.R. No. 139523 2005 May 26 FACTS: Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173,800.00 to purchase a house and lot located at Pulang Lupa, Las Piñas, in the names of respondents-spouses. To secure payment, a real estate mortgage was constituted on the said house and lot in favor of Fortune Savings & Loan Association. In early 1990, NHMFC purchased the mortgage loan of respondents-spouses from Fortune Savings & Loan Association for P173,800.00. Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty (the Developer of the property). A Deed of Sale with Assumption of Mortgage Obligation dated 20 August 1990 was made and entered into by and between spouses Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe Cannu (vendees) over the house and lot and petitioners immediately took possession and occupied the house and lot. However, despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so. Because the Cannus failed to fully comply with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233,957.64 as full payment of her remaining mortgage loan with NHMFC. From 1991 until the present, no other payments were made by plaintiffsappellants to defendants-appellees spouses Galang. Out of the P250,000.00 purchase price which was supposed to be paid on the day of the execution of contract in July, 1990 plaintiffsappellants have paid, in the span of eight (8) years, from 1990 to present, the amount of only P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the time of the execution of contract in 1990. Eight (8) years have already lapsed and plaintiffs-appellants have not yet complied with their obligation. ISSUE: Whether or not the action for rescission was subsidiary, and that there was a substantial breach of the obligation. RULING: Rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. Art. 1191 states that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the Page 120 of 545 payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement. The question of whether a breach of contract is substantial depends upon the attending circumstances and not merely on the percentage of the amount not paid.Thus, the petitioners’ failure to pay the remaining balance of P45,000.00 is substantial. Even assuming arguendo that only said amount was left out of the supposed consideration of P250,000.00, or eighteen percent thereof, this percentage is still substantial. Their failure to fulfill their obligation gave the respondents-spouses Galang the right to rescission. GENEROSO VILLANUEVA and RAUL VILLANUEVA JR.. versus ESTATE OF GERARDO GONZAGA/ MA. VILLA GONZAGA in her capacity as Administratrix G.R. No. 15731 2006 August 09 FACTS: On January 15, 1990, petitioners Generoso Villanueva and Raul Villanueva, Jr., business entrepreneurs engaged in the operation of transloading stations and sugar trading, and respondent Estate of Gerardo L. Gonzaga, represented by its Judicial Administratrix, respondent Ma. Villa J. Gonzaga, executed a MOA. As stipulated in the agreement, petitioners introduced improvements after paying P291,600.00 constituting sixty (60%) percent of the total purchase price of the lots. Petitioners then requested permission from respondent Administratrix to use the premises for the next milling season. Respondent refused on the ground that petitioners cannot use the premises until full payment of the purchase price. Petitioners informed respondent that their immediate use of the premises was absolutely necessary and that any delay will cause them substantial damages. Respondent remained firm in her refusal, and demanded that petitioners stop using the lots as a transloading station to service the Victorias Milling Company unless they pay the full purchase price. In a letter-reply dated April 5, 1991, petitioners assured respondent of their readiness to pay the balance but reminded respondent of her obligation to redeem the lots from mortgage with the Philippine National Bank (PNB). Petitioners gave respondent ten (10) days within which to do so. On April 10, 1991, respondent Administratrix wrote petitioners informing them that the PNB had agreed to release the lots from mortgage. She demanded payment of the balance of the purchase price. Enclosed with the demand letter was the PNB’s letter of approval dated April 8, 1991. Petitioners demanded that respondent show the clean titles to the lots first before they pay the balance of the purchase price. Respondent merely reiterated the demand for payment. Petitioners stood pat on their demand. On May 28, 1991, respondent Administratrix executed a Deed of Rescission rescinding the MOA. In their Letter dated June 13, 1991, petitioners, through counsel, formally demanded the production of the titles to the lots before they pay the balance of the purchase price. The demand was ignored. Consequently, on June 19, 1991, petitioners filed a complaint against respondents for breach of contract, specific performance and damages before the RTC-Bacolod City. The trial court decided the case in favor of respondents. Petitioners filed a petition for review before the Court of Appeals. The Court of Appeals affirmed the trial court’s decision but deleted the award for moral damages on the ground that petitioners were not guilty of bad faith in refusing to pay the balance of the purchase price. ISSUE: Whether there is legal, or even a factual, ground for the rescission of the Memorandum of Agreement. RULING: There is no legal basis for the rescission. The remedy of rescission under Art. 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. The MOA between petitioners and respondents is a conditional contract to sell. Page 121 of 545 Ownership over the lots is not to pass to the petitioners until full payment of the purchase price. Petitioners’ obligation to pay, in turn, is conditioned upon the release of the lots from mortgage with the PNB to be secured by the respondents. Although there was no express provision regarding reserved ownership until full payment of the purchase price, the intent of the parties in this regard is evident from the provision that a deed of absolute sale shall be executed only when the lots have been released from mortgage and the balance paid by petitioners. Since ownership has not been transferred, no further legal action need have been taken by the respondents, except an action to recover possession in case petitioners refuse to voluntarily surrender the lots. The records show that the lots were finally released from mortgage in July 1991. Petitioners have always expressed readiness to pay the balance of the purchase price once that is achieved. Hence, petitioners should be allowed to pay the balance now, if they so desire, since it is established that respondents’ demand for them to pay in April 1991 was premature. SPOUSES DOMINGO and LOURDES PAGUYO versus Pierre Astorga and St. Andrew Realty, Inc. G.R. No. 130982 2005 September 16 FACTS: On 29 November 1988, in order to raise the much needed amount, petitioner Lourdes Paguyo entered into an agreement captioned as Receipt of Earnest Money with respondent Pierre Astorga, for the sale of the former’s property consisting of the lot which was to be purchased from the Armases, together with the improvements thereon, particularly, the existing building known as the Paguyo Building. However, contrary to their express representation with respect to the subject lot, petitioners failed to comply with their obligation to acquire the lot from the Armas family despite the full financial support of respondents. Nevertheless, the parties maintained their business relationship under the terms and conditions of the above-mentioned Receipt of Earnest Money. On 12 December 1988, petitioners asked for and were given by respondents an additional P50,000.00 to meet the former’s urgent need for money in connection with their construction business. Thus, on 5 January 1989, the parties executed the four documents in question namely, the Deed of Absolute Sale of the Paguyo Building, the Mutual Undertaking, the Deed of Real Estate Mortgage, and the Deed of Assignment of Rights and Interest. Simultaneously with the signing of the four documents, respondents paid petitioners the additional amount of P500,000.00. Thereafter, the respondents renamed the Paguyo Building into GINZA Bldg. and registered the same in the name of respondent St. Andrew Realty, Inc. at the Makati Assessor’s Office after paying accrued real estate taxes in the total amount of P169,174.95. ISSUE: Did the Court of Appeals err in upholding the trial court’s decision denying petitioners’ complaint for rescission? RULING: No. The right to rescind a contract involving reciprocal obligations is provided for in Article 1191 of the Civil Code. Article 1191 states: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Moreover, Articles 1355 and 1470 of the Civil Code state: Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. Page 122 of 545 Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code, which would invalidate, or even affect, the Deed of Sale of the Building and the related documents. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale. In sum, petitioners pray for rescission of the Deed of Sale of the building and offer to repay the purchase price after their liquidity position would have improved and after respondents would have refurbished the building, updated the real property taxes, and turned the building into a profitable business venture. The court stated however that, it will not allow itself to be an instrument to the dissolution of contract validly entered into, for a party should not, after its opportunity to enjoy the benefits of an agreement, be allowed to later disown the arrangement when the terms thereof ultimately would prove to operate against its hopeful expectations. BIENVENIDO M. CASIÑO, JR. versus THE COURT OF APPEALS and OCTAGON REALTY DEVELOPMENT CORPORATION G.R. No. 133803 2005 September 16 FACTS: In its complaint, respondent alleges that on December 22, 1989, it entered into a contract with petitioner for the supply and installation by the latter of narra wood parquet (kiln dried) to the Manila Luxury Condominium Project, of which respondent is the developer, for a total price of P1,158,487.00; that the contract stipulated that full delivery by petitioner of labor and materials was in May 1990; that in accordance with the terms of payment in the contract, respondent paid to petitioner the amount P463,394.50, representing 40% of the total contract price; that after delivering only 26,727.02 sq. ft. of wood parquet materials, petitioner incurred in delay in the delivery of the remainder of 34,245.98 sq. ft.; that petitioner misrepresented to respondent that he is qualified to do the work contracted when in truth and in fact he was not and, furthermore, he lacked the necessary funds to execute the work as he was totally dependent on the funds advanced to him by respondent; that due to petitioner’s unlawful and malicious refusal to comply with its obligations, respondent incurred actual damages in the amount of P912,452.39 representing estimated loss on the new price, unliquidated damages and cost of money; that in order to minimize losses, the respondent contracted the services of Hilvano Quality Parquet and Sanding Services to complete the petitioner’s unfinished work, respondent thereby agreeing to pay the latter P1,198,609.30. ISSUE: Whether or not the rescission of the contract by the private respondent is valid. RULING: Under the contract, petitioner and respondent had respective obligations, i.e., the former to supply and deliver the contracted volume of narra wood parquet materials and install the same at respondent’s condominium project by May, 1990, and the latter, to pay for said materials in accordance with the terms of payment set out under the parties’ agreement. But while respondent was able to fulfill that which is incumbent upon it by making a downpayment representing 40% of the agreed price upon the signing of the contract and even paid the first billing of petitioner, the latter failed to comply with his contractual commitment. For, after delivering only less than one-half of the contracted materials, petitioner failed, by the end of the agreed period, to deliver and install the remainder despite demands for him to do so. Thus, it is petitioner who breached the contract. The petitioner therefore, has failed to comply with his prestations under his contract with respondent, the latter is vested by law with the right to rescind the parties’ agreement, conformably with Article 1191 of the Civil Code. However, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very Page 123 of 545 object of the parties in making the agreement. Contrary to petitioner’s asseveration, the breach he committed cannot, by any measure, be considered as “slight or casual”. For petitioner’s failure to make complete delivery and installation way beyond the time stipulated despite respondent’s demands, is doubtless a substantial and fundamental breach, more so when viewed in the light of the large amount of money respondent had to pay another contractor to complete petitioner’s unfinished work. Likewise, contrary to petitioner’s claim, it cannot be said that he had no inkling whatsoever of respondent’s recourse to rescission. Petitioner cannot feign ignorance of respondent’s intention to rescind, fully aware, as he was, of his non-compliance with what was incumbent upon him, and not to mention the several letters respondent sent to him demanding compliance with his obligation. FERNANDO CARRASCOSO JR. v. COURT OF APPEALS G.R. No. 123672 & G. R. No. 164489 December 14, 2005 FACTS: On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a Resolution was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts bearing thereon. El Dorado, through Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. Under the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on March 23, 1975. On March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage] over the property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and P210,000.00 was paid to El Dorado pursuant to the terms and conditions of the Deed of Sale. On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of P70,000.00 as requested by the spouses Carrascoso. However, the 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied therewith. In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and Sell whereby the former agreed to sell 1,000 hectares of the property to the latter at a consideration of P3,000.00 per hectare or a total of P3,000,000.00. Lauro Leviste, a stockholder and member of the Board of Directors of El Dorado, called the attention of the Board to Carrascoso’s failure to pay the balance of the purchase price of the property amounting to P1,300,000.00. Lauro’s desire to rescind the sale was reiterated in two other letters addressed to the Board. Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977 to Carrascoso informing him that in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real Property. For the failure of Carrascoso to give his reply, Lauro and El Dorado finally filed a complaint for rescission of the Deed of Sale. They also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. ISSUE: Whether or not the rescission is valid. RULING: The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them. A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent. The non-payment of the price by the buyer is a resolutory condition which Page 124 of 545 extinguishes the transaction that for a time existed, and discharges the obligations created thereunder. Such failure to pay the price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract. In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand, failed to perform his correlative obligation of paying in full the contract price in the manner and within the period agreed upon. The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had long lapsed. GOLDENROD, INC. vs. COURT OF APPEALS BARRETTO & SONS, INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE G.R. No. 126812 1998 Nov 24 FACTS: When the term of existence of BARRETTO & SONS expired, all its assets and liabilities including the property located in Quiapo were transferred to respondent Pio Barretto Realty Development, Inc. Petitioner's offer to buy the property resulted in its agreement with respondent BARRETTO REALTY that petitioner would pay P24.5 million representing the outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the deadline set by the bank for payment; and P20 million which was the balance of the purchase price of the property to be paid in installments within a 3-year period with interest at 18% per annum. However, petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO REALTY on the deadline set for payment. It asked for an extension of one month or up to 31 July 1988 to settle the obligation, which the bank granted. Moreover, petitioner again requested another extension of sixty days to pay the loan, but the bank demurred. In the meantime BARRETTO REALTY was able to cause the reconsolidation of the forty-three titles covering the property subject of the purchase into two titles covering Lots 1 and 2. The reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00. ISSUE: Whether or not the petitioner's extrajudicial rescission of its agreement with private respondents was valid. RULING: Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner clearly stated without any objection from private respondents that the earnest money was intended to form part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the parties could not have intended that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. By reason of its failure to make payment petitioner, through its agent, informed private respondents that it would no longer push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its agreement with private respondents. It was held in the case of University of the Philippines v. de los Angeles that the right to rescind contracts is not absolute and is subject to scrutiny and review by the proper court. It was held further that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. If the party does not oppose the declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an admission of the veracity and validity of the rescinding party's claim. A such, private respondents did not interpose any objection to the rescission by petitioner of the Page 125 of 545 agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day after its President Anthony Que received the broker's letter rescinding the sale. Subsequently, on 13 October 1988 respondent BARRETTO REALTY also conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to ASIAWORLD. Article 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. Therefore, by virtue of the extrajudicial rescission of the contract to sell by petitioner without opposition from private respondents who, in turn, sold the property to other persons, private respondent BARRETTO REALTY, as the vendor, had the obligation to return the earnest money of P1,000,000.00 plus legal interest from the date it received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. LORETA SERRANO vs. COURT OF APPEALS and LONG LIFE PAWNSHOP, INC. G.R. No. 45125 1991 Apr 22 FACTS: Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 from Niceta Ribaya. However, when petitioner was in need of money, she instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina then went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina Rocco stipulated that it was redeemable "on presentation by the bearer." Three months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket issued by private respondent was being offered for sale. They told Niceta the ticket probably covered jewelry once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private respondent pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong not to permit anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong agreed. ISSUE: Whether or not the Court of Appeals committed reversible error in rendering its Decision. RULING: Having been notified by petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold the things pledged and to give notice to petitioner and the police of any effort to redeem them. Such a duty was imposed by Article 21 of the Civil Code. The circumstance that the pawn ticket stated that the pawn was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a negotiable instrument under the Negotiable Instruments Law nor a negotiable document of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasa de Leon, who redeemed the things pledged a day after petitioner and the police had notified Long Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent pawnbroker was, of course, entitled to demand payment of the loan extended on the security of the pledge before surrendering the jewelry, upon the assumption that it had given the loan in good faith and was not a "fence" for stolen articles and had not conspired with the faithless Josefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard of that duty in the instant case and must bear the consequences, without prejudice to its right to recover damages from Josefina Rocco. Hence, the trial court correctly held that private respondent was liable to petitioner for actual damages which corresponded to the difference in the value of the jewelry and the amount Page 126 of 545 of the loan, or the sum of P26,500.00. Petitioner is entitled to collect the balance of the value of the jewelry, corresponding to the amount of the loan, in an appropriate action against Josefina Rocco. Private respondent Long Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the damages it must pay to petitioner. PERLA PALMA GIL v. HON. COURT OF APPEALS G.R. No. 127206 September 12, 2003 FACTS: Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel Villarica, were the co-owners of a parcel of commercial land with an area of 829 square meters, identified as Lot No. 59-C, covered by Transfer Certificate of Title (TCT) No. 432 located in Davao City. The spouses Angel and Nieves Villarica had constructed a two-storey commercial building on the property. On October 13, 1953, Concepcion filed a complaint against her sister Nieves for specific performance, to compel the defendant to cede and deliver to her an undivided portion of the said property with an area of 256.2 square meters. After due proceedings, the court rendered judgment on April 7, 1954 in favor of Concepcion, ordering the defendant to deliver to the plaintiff an undivided portion of the said property with an area of 256.2 square meters. Nieves appealed to the Court of Appeals which affirmed the assailed decision. In due course, the decision became final and executory. On motion of the plaintiff (Concepcion), the court issued a writ of execution. Nieves, however, refused to execute the requisite deed in favor of her sister. In the interim, the spouses Angel and Nieves Villarica executed a real estate mortgage over Lot 59-C-4 in favor of Prudential Bank as security for a loan. On August 4, 1959, Concepcion died intestate and was survived by Nieves Villarica and her nephews and nieces. Iluminada filed a motion for her substitution as party-plaintiff in lieu of the deceased Concepcion. On August 2, 1961, the court issued an order granting the motion. ISSUE: Whether or not the rescission made was valid and binding upon the parties. RULING: Under the last paragraph of Article 1169 of the New Civil Code, in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay in the other begins. Thus, reciprocal obligations are to be performed simultaneously so that the performance of one is conditioned upon the simultaneous fulfillment of the other. The right of rescission of a party to an obligation under Article 1191 of the New Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. The deed of absolute sale executed by Concepcion Gil in favor of Iluminada Pacetes is an executory contract and not an executed contract is a settled matter. In a perfected contract of sale of realty, the right to rescind the said contract depends upon the fulfillment or non-fulfillment of the prescribed condition. The court ruled that the condition pertains in reality to the compliance by one party of an undertaking the fulfillment of which would give rise to the demandability of the reciprocal obligation pertaining to the other party. The reciprocal obligation envisaged would normally be, in the case of the vendee, the payment by the vendee of the agreed purchase price and in the case of the vendor, the fulfillment of certain express warranties. The vendee paid the downpayment of P7,500.00. By the terms of the contract, the obligation of the vendee to pay the balance of the purchase price ensued only upon the issuance of the certificate of title by the Register of Deeds over the property sold to and under the name of Page 127 of 545 the vendee, and the delivery thereof by the vendor Concepcion Gil to the latter. Concepcion failed to secure a certificate of title over the property. When she died intestate on August 4, 1959, her obligation to deliver the said title to the vendee devolved upon her heirs, including the petitioners. The said heirs, including the petitioners failed to do so, despite the lapse of eighteen years since Concepcion’s death.The petitioners, as successors-in-interest of the vendor, are not the injured parties entitled to a rescission of the deed of absolute sale. It was Concepcion’s heirs, including the petitioners, who were obliged to deliver to the vendee a certificate of title over the property under the latter’s name, free from all liens and encumbrances within 120 days from the execution of the deed of absolute sale on October 24, 1956, but had failed to comply with the obligation.The consignation by the vendee of the purchase price of the property is sufficient to defeat the right of the petitioners to demand for a rescission of the said deed of absolute sale. DAVID REYES vs. JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC. 408 SCRA 560 FACTS: On 7 November 1994, Reyes as seller and Lim as buyer entered into a contract to sell a parcel of land located along F.B. Harrison Street, Pasay City. Harrison Lumber occupied the Property as lessee with a monthly rental of P35,000. The total consideration for the purchase of the aforedescribed parcel of land together with the perimeter walls found therein P28,000,000.00 pesos. The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before the end of January 1995. Reyes also informed Keng and Harrison Lumber that if they failed to vacate by 8 March 1995, he would hold them liable for the penalty of P400,000 a month as provided in the Contract to Sell. The complaint further alleged that Lim connived with Harrison Lumber not to vacate the Property until the P400,000 monthly penalty would have accumulated and equaled the unpaid purchase price of P18,000,000. On the other hand, Keng and Harrison Lumber denies that they connived with Lim to defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for an extension of time to vacate the Property due to their difficulty in finding a new location for their business. Harrison Lumber claimed that as of March 1995, it had already started transferring some of its merchandise to its new business location in Malabon. Lim alleged that he was ready and willing to pay the balance of the purchase price on or before 8 March 1995, but Reyes kept postponing their meeting. On 9 March 1995, Reyes offered to return the P10 million down payment to Lim because Reyes was having problems in removing the lessee from the Property. Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the Property. Lim learned that Reyes had already sold the Property to Line One Foods Corporation on 1 March 1995 for P16,782,840. ISSUE: Whether or not Reyes has the right to obje t to the deposit of the 10 million pesos downpayment in court. RULING: There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10 million down payment in court. The Contract to Sell can no longer be enforced because Reyes himself subsequently sold the Property to Line One. Both Reyes and Lim are seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code, rescission creates the obligation to return the things that are the object of the contract. Rescission is possible only when the person demanding rescission can return whatever he may be obliged to restore. A court of equity will not rescind a contract unless there is restitution, that is, the parties are restored to the status quo ante. Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the P10 million down payment in court. Such deposit will ensure restitution of the P10 million to its Page 128 of 545 rightful owner. Lim, on the other hand, has nothing to refund, as he has not received anything under the Contract to Sell. Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller himself seeks rescission of the sale because he has subsequently sold the same property to another buyer. By seeking rescission, a seller necessarily offers to return what he has received from the buyer. Such a seller may not take back his offer if the court deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial deposit. Thus, it was just, equitable and proper for the trial court to order the deposit of the P10 million down payment to prevent unjust enrichment by Reyes at the expense of Lim. ONG YONG et al., vs. DAVID S. TIU et al. G.R. No. 144476 2002 Feb 1 FACTS: Masagana Citimall was owned and managed by the First Landlink Asia Development Corporation (FLADC). FLADC was fully owned by the Tiu Group. In order to recover from floundering finances, the Tiu group entered into a Pre-Subscription Agreement with the Ong group wherein both parties agreed to maintain equal shareholdings in FLADC the Ongs investing cash, while the Tius contributing property. The Ongs gave P100M as payment of their 1 Million subscription shares at a par value of 1 peso per share. Intraland Resources and Development Corporation executed a requisite Deed of Assignment over a building it owned in favor of FLADC and was duly credited with 200,000 shares in FLADC. Masagana Telamart transferred titles of 2 properties in favor of FLADC. The Ongs had to pay P70M more, aside from their P100M subscription payment in order to settle the P190M loan of FLADC from PNB. The Tius also had to advance P20M, which amount was loaned to them by the Ongs. The Tius rescinded the Pre-Subscription Agreement when the Ongs refused to credit the FLADC shares in the name of Masagana Telamart commensurate to its 1, 902.30 square meter contribution and to credit the number of FLADC shares in favor of the Tius commensurate to its 151 square meter property contribution; and when David Tius and Cely Tiu were proscribed from assuming and performing their duties as V-P and Treasurer, respectively. SEC confirmed the unilateral rescission of the agreement. ISSUE: Whether the rescission applies only to reciprocal obligations and the Pre-Subscription agreement does not provide for reciprocity. RULING: The Ongs illustrate reciprocity in the following manner: In a contract of sale, the correlative duty of the obligation of the seller to deliver the property is the obligation of the buyer to pay the agreed price. In the case, the correlative obligation of the Tius to let the Ongs have and exercise the functions of the positions of President and Secretary is the obligation of the Ongs to let the Tius have and exercise the functions of Vice-President and Treasurer. Petitioners keep on harping for the Pre-Subscription Agreement’s specific performance yet they also actually failed to give a legal basis therefor. They deny that the Tiu Group has a right to ask for rescission of their agreement per Article 1191 of the Civil Code when they themselves invoke the same law as basis for asking the specific performance of the same agreement. The Courts of Appeals then correctly confirmed the rescission of the Pre-Subscription Agreement on the basis of Art. 1191 of the Civil Code. It could have relied on the said Page 129 of 545 provision and nonetheless stood on valid ground. It, however, judiciously took into account the special circumstances of the case and further justified its decision confirming the rescission of the Pre-Subscription Agreement on the basis of its perception that the two groups "can no longer work harmoniously together" and that "to pit them together in the management of FLADC will only result to further squabbles and numerous litigation." As a legal consequence of rescission, the order of the Court of Appeals to return the cash and property contribution of the parties is based on law, hence, cannot be considered an act of misappropriation. In order for the rescission of the Pre-Subscription Agreement be implemented, the returning to the two groups whatever they delivered to the corporation in accordance with the Agreement is needed. EQUATORIAL REALTY DEVELOPMENT, Inc. vs. MAYFAIR THEATER, Inc., G.R. No. 133879 2001 Nov 21 FACTS: Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two 2storey buildings constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila. On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. (Mayfair) for a period of 20 years. Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latter’s property -- namely, a part of the second floor of the two-storey building, and two store spaces on the ground floor and the mezzanine. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years. Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. (“Equatorial”) for the total sum of P11,300,000, without their first being offered to Mayfair. As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of Manila for the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, specific performance, and damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and Equatorial. On appeal CA completely reversed and set aside the judgment of the lower court. The decision of the Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the trial court granted. However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 less P847,000 as withholding tax. The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila cancelled Equatorial’s titles and issued new Certificates of Title in the name of Mayfair. ISSUES: 1. Whether or not the contract of sale is validly rescinded though there was no actual delivery made. 2. Whether or not the rentals paid concede actual delivery. RULING: A contract of sale is valid until rescinded, and ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. In the case, it shows that delivery was not actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing Page 130 of 545 sold. Furthermore, petitioner’s bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of such benefits. In this case, it is clear that petitioner never took actual control and possession of the property sold, in view of respondent’s timely objection to the sale and the continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. When there is such impediment, “fiction yields to reality - the delivery has not been effected.” Hence, respondent’s opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latter’s hands. Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE vs. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO G.R. No. 108346 2001 Jul 11 FACTS: David Raymundo is the absolute and registered owner of a parcel of land, together with the house and other improvements thereon. Private Respondent George Raymundo is David’s father who negotiated with plaintiffs Avelina and Mariano Velarde, the petitioners, for the sale of said property, which was, however, under lease. On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee. It is further agreed and understood by the parties that the capital gains tax and documentary stamps on the sale shall be for the account of the vendor; whereas, the registration fees and transfer tax thereon shall be for the account of the vendee. On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano, executed an Undertaking. It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that plaintiffs were to secure from a bank with defendant’s help. Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPI’s approval of an application for assumption of mortgage by plaintiffs. Pending BPI’s approval of the application, plaintiffs were to continue paying the monthly interests of the loan secured by a real estate mortgage. Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for three (3) months, however, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved, which prompted plaintiffs not to make any further payment. On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank constituted non-performance of their obligation. Thereafter, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latter’s failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking. ISSUE: Whether or not the Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified. RULING: A substantial breach of a reciprocal obligation entitles the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received. The breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. Private respondents’ right to rescind the contract finds basis in Article 1191 of the Civil Code. The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The Page 131 of 545 breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. The private respondents therefore validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. The breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy. Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. ALEXANDER G. ASUNCION vs. EDUARDO B. EVANGELISTA and COURT OF APPEALS G.R. No. 133491 1999 Oct 13 FACTS: On September 9, 1980, private respondent borrowed P500,000 from Paluwagan ng Bayan Savings and Loan Association to use as working capital for Embassy Farms. He executed a real estate mortgage on three of his properties as security for the loan. On November 4, 1981, private respondent mortgaged 10 titles more in favor of PAIC Savings and Mortgage Bank. Private respondent obtained another loan in the amount of P844,625.78 from Mercator Finance Corporation. The loan was secured by a real estate mortgage on five 5 other landholdings of private respondent. Private respondents aggregate debt exposure totaled P3,056,625.78. However, he defaulted in his loan payments. By June 1984, his aggregate debt had ballooned to almost six million pesos.On August 2, 1984, petitioner and private respondent executed a Memorandum of Agreement. Upon the execution of the Memorandum, petitioner paid private respondent one million pesos, P500,000.00 within a ninety-day period in four disbursements. The second installment, in the like amount of three hundred thousand pesos, was supposed to be remitted by petitioner to private respondent for the purpose of financing the operations of the piggery pursuant to the Memorandum. Instead, petitioner agreed to pay to PAIC Savings & Mortgage Bank. However, more than a year after the signing of the Memorandum of Agreement, the landholdings of private respondent which were mortgaged to Paluwagan ng Bayan Savings and Loan Association, PAIC Savings and Mortgage Bank and Mercator Finance Corporation still remained titled in his name. Neither did he inform said mortgagees of the transfer of his lands. As to the shares of stock, it was incumbent upon private respondent to endorse and deliver them to petitioner so he could also have them transferred in his name, but private respondent never did. He refused to honor his obligations under the Memorandum of Agreement and even countered with a demand letter of his own. ISSUES: Whether the non-compliance of one party in a reciprocal obligation amounts to rescission of the obligation. RULING: Petitioner and private respondent entered into what the law regards as reciprocal obligations. Reciprocity arises from identity of cause, and necessarily the two obligations are created at the same time. Reciprocal obligations, therefore, are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is 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. Page 132 of 545 Article 1191 of the Civil Code governs the situation where there is non-compliance by one party in case of reciprocal obligations. The effect of rescission is also provided in the Civil Code in Article 1385: Private respondent admitted in open court that petitioner paid him the initial sum of one million pesos upon the signing of the Memorandum of Agreement as well as various sums of money as fees for the restructuring of his loans. Thereupon, private respondent was obligated to execute a deed of sale with assumption of mortgage, both in compliance with the Memorandum of Agreement and to ensure the legal efficacy of petitioner's promise to assume his loan obligations. However, private respondent failed to perform his substantial obligations under the Memorandum of Agreement. Hence, petitioner sought the rescission of the Memorandum of Agreement and ceased infusing capital into the piggery business of private respondent. William Uy vs. Court of Appeals G.R. No. 120465, September 9, 1999 314 SCRA 69 FACTS: Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by owners thereof. By virtue of such authority, they entered the contract of sale to respondent National Housing Authority to be utilized in developing as a housing project. However, due to the report of the DENR the three (3) parcels are located at an active landslide area and not suitable for housing project, NHA issued a resolution canceling the sale of the three (3) parcels of land but it offered the amount of P1.225 million to the land owners as danos perjuicious. Petitioners filed before the RTC a complaint for damages against NHA. The RTC rendered a decision declaring the cancellation of contract to be justified. Nevertheless, it awarded damages to plaintiff. Upon appeal by the petitioners, the Court of Appeals dismissed the complaint and cancelled the award for damages. ISSUE: Whether or not the cancellation of the sale has sufficient justifiable basis. HELD: The cancellation of the sale was based on the negation of the cause arising from the realization that the land, which were the object of the sale, were not suitable for housing cause is the essential reason which moves the contracting parties to enter into a contract. The National Housing Authority would not have entered into the contract were the lands not suitable for housing. In other words, the quality of the land was an implied condition for the NHA to enter into the contract. NHA was justified in canceling the contract. Page 133 of 545 CONSTANCIA G. TAMAYO v. ROSALIA ABAD SEÑORA G.R. No. 176946 November 15, 2010 FACTS: On September 28, 1995, at about 11:00 a.m., Antonieto M. Señora (Señora), was riding a motorcycle, when a tricycle allegedly bumped his motorcycle from behind. As a result, the motorcycle was pushed into the path of an Isuzu Elf Van (delivery van). The delivery van ran over Señora, while his motorcycle was thrown a few meters away. He was recovered underneath the delivery van and rushed to the Medical Center of Parañaque, where he was pronounced dead on arrival.The tricycle was driven by Leovino F. Amparo (Amparo), who testified that it was the delivery van that bumped Señora’s motorcycle. The delivery van, on the other hand, was driven by Elmer O. Polloso (Polloso) and registered in the name of Cirilo Tamayo (Cirilo). While trial was ongoing, Cirilo was suffering from lung cancer and was bedridden. His wife, petitioner Constancia, testified on his behalf. Constancia narrated that she and her husband were managing a single proprietorship known as Tamayo and Sons Ice Dealer. She testified that it was Cirilo who hired their drivers. She claimed that, as employer, her husband exercised the due diligence of a good father of a family in the selection, hiring, and supervision of his employees, including driver Polloso. Cirilo would tell their drivers not to drive fast and not to be too strict with customers. ISSUE: Whether or not damages for loss of earning capacity should be awarded. RULING: The award of damages for loss of earning capacity is concerned with the determination of losses or damages sustained by respondents, as dependents and intestate heirs of the deceased. This consists not of the full amount of his earnings, but of the support which they received or would have received from him had he not died as a consequence of the negligent act. Thus, the amount recoverable is not the loss of the victim’s entire earnings, but rather the loss of that portion of the earnings which the beneficiary would have received. Indemnity for loss of earning capacity is determined by computing the net earning capacity of the victim. The CA correctly modified the RTC’s computation. The RTC had misapplied the formula generally used by the courts to determine net earning capacity, which is, to wit: Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living expenses). Page 134 of 545 Life expectancy shall be computed by applying the formula (2/3 x [80 - age at death]) adopted from the American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality. Hence, the RTC erred in modifying the formula and using the retirement age of the members of the PNP instead of "80." On the other hand, gross annual income requires the presentation of documentary evidence for the purpose of proving the victim’s annual income. The victim’s heirs presented in evidence Señora’s pay slip from the PNP, showing him to have had a gross monthly salary of P12,754.00. Meanwhile, the victim’s net income was correctly pegged at 50% of his gross income in the absence of proof as regards the victim’s living expenses. VICTORY LINER, INC. vs. HEIRS OF ANDRES MALECDAN G.R. No. 154278 2002 Dec 27 FACTS: Andres Malecdan was a 75 year-old farmer residing in Barangay Nungnungan 2, Municipality of Cauayan, Province of Isabela. On July 15, 1994, at around 7:00 p.m., while Andres was crossing the National Highway on his way home from the farm, a Dalin Liner bus on the southbound lane stopped to allow him and his carabao to pass. However, as Andres was crossing the highway, a bus of petitioner Victory Liner, driven by Ricardo C. Joson, Jr., bypassed the Dalin bus. In so doing, respondent hit the old man and the carabao on which he was riding. As a result, Andres Malecdan was thrown off the carabao, while the beast toppled over. The Victory Liner bus sped past the old man, while the Dalin bus proceeded to its destination without helping him. Malecdan sustained a wound on his left shoulder, from which bone fragments protruded. He was taken by Lorena, the witness, and another person to the Cagayan District Hospital where he died a few hours after arrival The carabao also died soon afterwards. Subsequently, a criminal complaint for reckless imprudence resulting in homicide and damage to property was filed against the Victory Liner bus driver Ricardo Joson, Jr. On October 5, 1994, private respondents brought suit for damages in the Regional Trial Court, Branch 5, Baguio City, which, in a decision rendered on July 17, 2000, found the driver guilty of gross negligence in the operation of his vehicle and Victory Liner, Inc. also guilty of gross negligence in the selection and supervision of Joson, Jr. Petitioner and its driver were held liable for damages. On appeal, the decision was affirmed by the Court of Appeals, with the modification that the award of attorney’s fees was fixed at P50,000.00. ISSUE: Whether or not the award of damages is valid. RULING: To justify an award of actual damages, there should be proof of the actual amount of loss incurred in connection with the death, wake or burial of the victim. The court cannot take into account receipts showing expenses incurred some time after the burial of the victim, such as expenses relating to the 9th day, 40th day and 1st year death anniversaries. In this case, the trial court awarded P88,339.00 as actual damages. While these were duly supported by receipts, these included the amount of P5,900.00, the cost of one pig which had been butchered for the 9th day death anniversary of the deceased. This item cannot be allowed. The court therefore, reduce the amount of actual damages to P82,439.00.00. The award of P200,000.00 for moral damages should likewise be reduced. The trial court found that the wife and children of the deceased underwent "intense moral suffering" as a result of the latter’s death. Under Art. 2206 of the Civil Code, the spouse, legitimate children and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. Under the circumstances of this case an award of P100,000.00 would be in keeping with the Page 135 of 545 purpose of the law in allowing moral damages. On the other hand, the award of P50,000.00 for indemnity is in accordance with current rulings of the Court. Art. 2231 provides that exemplary damages may be recovered in cases involving quasidelicts if the defendant acted with gross negligence. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. In this case, petitioner’s driver Joson, Jr. was grossly negligent in driving at such a high speed along the national highway and overtaking another vehicle which had stopped to allow a pedestrian to cross. Worse, after the accident, Joson, Jr. did not stop the bus to help the victim. Under the circumstances, the court believe that the trial court’s award of P50,000.00 as exemplary damages is proper. Finally, private respondents are entitled to attorney’s fees. Under Art. 2008 of the Civil Code, attorney’s fees may be recovered when, as in the instant case, exemplary damages are awarded. GSIS vs. Labung-Deang G.R. No. 135644, September 17, 2001 365 SCRA 431 FACTS: December 1969, the spouses Deang obtained housing loan from the GSIS. The loan was secured by a real estate mortgage constituted over the spouses’ property covered by TCT No. 14926-R. The spouses Deang settled their debt before the maturity date and requested for the release of the owner’s duplicate copy of the title since they intended to secure a loan from a private lender and use the land covered by it as a security but the same could not be found. In 1979 the spouses Deang filed with the CFI of Angeles City a complaint against GSIS for damages. GSIS contended that it being a Government Owned and Controlled Corporation (GOCC), primarily performing governmental functions, it could not be held liable. The CFI found in favor of the petitioner, which was affirmed by the Court of Appeals on appeal by the petitioner herein. ISSUE: Whether the GSIS as a GOCC primarily performing governmental functions, is liable for a negligent act of its employees acting within the scope of the assigned task. HELD: GSIS is liable for damages. There was a preexisting contract between the parties. GSIS and spouses Deang had a loan agreement secured by a real estate mortgage. The duty to return the owner’s duplicate copy of the title arose as soon as the mortgage was settled. In a breach of contract, moral damages are not awarded if defendant is not shown to have acted fraudulently or with malice or bad faith. Actual damages to be compensable must be proved by clear evidence. Temperate damages may be granted. The rationally behind temperate damages is precisely that from the nature of the case, definite proof of pecuniary loss cannot be offered. Page 136 of 545 BPI Investment Corporation vs. D. G. Carreon Commercial Corp. G.R. No. 126524, November 29, 2001 371 SCRA 58 FACTS: Petitioner BPI Investment Corp. (BPI), formerly known as Ayala Investment and Development Corp, was engaged in money market operations. Respondent D. G. Commercial Corp. was a client of petitioner. The individual respondents, spouses Daniel and Aurora Carreon and Josefa Jaceil also placed with BPI their personal money in money market placements. On April 21, 1982, petitioner wrote respondents Daniel Carreon, demanding the return of an alleged overpayment amounting to P410, 937.09. The respondents, however, asserted that there was no overpayment and asked for time to go over the documents and papers. Upon the request of petitioners, the spouses Daniel and Aurora Carreon sent to BPI a proposed memorandum of agreement dated May 7, 1982. The agreement provided that respondent company, in the spirit of goodwill, agreed to temporarily reimburse BPI the amount of P410, 937.09 while the said controversy (transactions of the placement) would be checked within the period of five years. On May 10, 1982, petitioners without responding to the memorandum and proposal of the respondent company filed with the Court of First Instance of Rizal, a complaint for recovery of a sum of money against respondent D. G. Carreon with preliminary attachment. On May 14, 1982, the trial court issued an order of attachment and posting a bond in the amount of P200, 000. However, on October 8, 1982, the trial court lifted the writ of attachment. Petitioner moved for reconsideration but was denied. On July 30, 1982, respondents D. G. Carreon filed with the trial court an answer to the complaint with counterclaim. D. G. Carreon asked for compensatory damages, spouses Daniel and Aurora Carreon and Josefa Jeceil asked for moral damages because of the filing of complaint and indiscriminate and wrongful attachment of their property. All respondents asked for exemplary damages. On May 25, 1993, the trial court dismissed both the complaint the counterclaim. Both parties appealed. On July, 19, 1996, the Court of Appeals affirmed the dismissal of the complaint but reversed and set aside the dismissal of the counterclaim thereby awarding respondents damages amounting to more than five million in sum. ISSUE: Whether or not respondents are entitled to damages as awarded by the respondent court. HELD: The Court finds petitioners not guilty of gross negligence. Exemplary damages, therefore, cannot be awarded to respondents. Petitioner BPI did not act in wanton, fraudulent, reckless, oppressive, or malevolent manner when it asked for preliminary attachment. It was just Page 137 of 545 exercising a legal option. The sheriff of the issuing court did the execution and the attachment. Hence, BPI is not to be blamed for the excessive and wrongful attachment. As to the filing of the appellate court that the filing of the case was aggravated and eventually caused the death of two of the respondents, the Court agrees with the petitioner that such correlation is bereft of basis and is far fetched. The award of moral damages and attorney’s fees is also not in keeping with existing jurisprudence. Moral damages may be awarded in a breach of contract when the defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. Finally, with the elimination of award of moral damages, so must the award of attorney’s fees be deleted. There is no doubt, however, that the damages sustained by respondents were due to petitioner’s fault or negligence, short of gross negligence. Temperate or moderate damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The Court deems it prudent to award reasonable temperate damage to respondents under the circumstances. Khe Hong Cheng vs. Court of Appeals G.R. No. 144169, March 28, 2001 355 SCRA 701 FACTS: Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines to which the Philippine Agricultural Trading Corporation used its vessel M/V Prince Eric Corporation to ship 3,400 bags of Copra at Masbate for delivery to Dipolog. Such shipping of 3, 400 bags was covered by a marine insurance policy issued by American Home Insurance Company (eventually Philam). However, said vessel sank somewhere between Negros Island and Northern Mindanao which resulted to the total loss of the shipment. Insurer Philam paid the amount of P 354, 000.00, which is the value of the copra, to Philippine Agricultural Trading Corporation. American Home was thereby subrogated unto the rights of the consignee and filed a case to recover money paid to the latter, based on breach of common carriage. While the case was pending, Khe Hong Cheng executed deeds of donations of parcels of land in favor of his children. As a consequence of a favorable judgment for American Home, a writ of execution to garnish Khe Hong Cheng’s property was issued but the sheriff failed to implement the same for Cheng’s property were already transferred to his children. Consequently, American home filed a case for the rescission of the deeds of donation executed by petitioner in favor of children for such were made in fraud of his creditors. Petitioner answered saying that the action should be dismissed for it already prescribed. Petitioner posited that the registration of the donation was on December 27, 1989 and such constituted constructive notice. And since the complaint was filed only in 1997, more than four years after registration, the action is thereby barred by prescription. ISSUE: whether or not accion pauliana/ rescission of the deed of donation is proper. HELD: For an accion pauliana to accrue, the following requisites must concur: (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable late; (2) that the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) that the creditor has no other Legal remedy to satisfy his claim; but would benefit by rescission of the conveyance to the third person; (4) that the act being impugned is fraudulent; and (5) that the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud. All the above enumerated elements are present in the case at bar. Page 138 of 545 Finally, an accion pauliana presupposes the following: 1) a judgment; 2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment; and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. In the case at bar, American exhausted all the properties of the debtor in futility. The date of the trial court’s decision is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor retroacts to the time when the debtor became indebted to the creditor. PHILIPPINE REALTY and HOLDING CORP. v. LEY CONST. and DEV. CORP. G. R. No. 165548, June 13, 2011 FACTS: Sometime between April 1988 and October 1989, the two corporations entered into four major construction projects, as evidenced by four duly notarized "construction agreements." These were the four construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building. LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. Both parties agreed to enter into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. Abcede replied that he would take this matter up with the board of directors of PRHC.The board of directors turned down the request for an escalation agreement. However, On 9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PRHC. ISSUE: Whether or not there is a fortuitous event in the case at bar. RULING: YES. Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an "act of God" or force majeure, the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.63 The shortage in supplies and cement may be characterized as force majeure.64 In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned. Page 139 of 545 MEGAWORLD GLOBUS ASIA, INC. v .MILA S. TANSECO G.R. No. 181206 October 9, 2009 FACTS: On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or less) condominium unit at a pre-selling project. The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover. Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63 pending delivery of the unit. Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period. A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery. Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld’s failure to deliver the unit on time, she was demanding the return of P14,281,731.70 representing the total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that none of the excepted causes of delay existed. ISSUE: Whether or not there was a fortuitous event in the case at bar RULING: The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor. Page 140 of 545 That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand for refund does not abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date. Article 1174 of the Civil Code provides: 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. The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito. Megaworld’s excuse for its delay does not thus lie. ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. versus LULU V. JORGE and CESAR JORGE G.R. NO. 159617 August 8, 2007 FACTS: On different dates from September to October 1987, Lulu V. Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59, 500.00. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry. On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. However, petitioner Sicam contends that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous. After trial ,the RTC rendered its Decision dismissing respondents’ complaint as well as petitioners’ counterclaim. The RTC held that robbery is a fortuitous event which exempts the victim from liability for the loss and under Art. 1174 of the Civil Code. It further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee. ISSUE: Whether petitioners are liable for the loss of the pawned articles in their possession. RULING: Page 141 of 545 Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. The presentation of the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners' employees is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault. Also, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Thus, petitioners are negligent in securing their pawnshop. Florencia Huibonhoa vs. Court of Appeals G.R. No. 95897, December 14, 1999 320 SCRA 625 FACTS: On June 8, 1983, Florencia Huibonhoa entered into a memorandum of agreement with the siblings Lim, Gojocco and Chua, stating that she will lease from them three (3) adjacent commercial lots in Binondo, Manila. A contract of lease was thereafter executed between the parties, where such lease over the lots shall last for fifteen (15) years commencing on July 1, 1983 and renewable upon agreement of the parties. Further, it was agreed in the terms and conditions of the contract, among others that: (1) Huibonhoa was allowed to construct a fourstorey building; (2) that the said building shall be completed within eight (8) months from the date of the execution of the contract of lease; (3) that Huibonhoa shall pay to each lessor the sum of P 300, 000; (4) that Huibonhoa shall pay to each lessor P 15, 000.00 as monthly rentals; (6) that the obligation to start paying the rental shall commence only upon completion of the building within the eight-month period. However, Huibonhoa brought an action for reformation of the contract alleging that their true intention as to when the monthly rental would accrue was not expressed due to mistake or accident, averring that by reason of such, the lease contract failed to provide that should an unforeseen event dramatically increase the cost of construction, the monthly rental would be reduced and the term of the lease would be extended for such duration as may be fair and equitable to both the lessor and the lessee. ISSUE: Whether or not the assassination of former senator Benigno Aquino was a fortuitous event that can thereby lead the parties to reform the contract. HELD: A fortuitous event is that which could not be foreseen, or even if foreseen, was inevitable. To exempt the obligor from liability for breach of an obligation due to an “act of God,” the following must concur: first, the cause of breach must be independent of the will of the obligor. Second, the event must be unforeseeable or inevitable. Third, the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. And fourth, the debtor must be free from any participation in, or aggravation of, the injury to the creditor. Further, inflation per se, does not account that a fortuitous event transpired. Inflation is the sharp increase of money or credit or both without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available parties to the lease contract. Ordinary diligence on the part of the parties demanded that they execute a written agreement if indeed they wanted to enter into a new one because of the 15-year life span Page 142 of 545 of the lease affecting real property and the fact that third persons would be affected thereby on account of the express agreement allowing the lessee to lease the building to third parties. However, only when an extraordinary inflation supervenes that the law affords the parties a relief in contractual obligations. Extraordinary inflation exists when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. Further, no decrease in the peso value of such magnitude having occurred, Huibonhoa has no valid ground to ask the Court to intervene and modify the lease agreement to suit her purpose. Huibonhoa failed to prove by evidence, both documentary and testimonial, that there was an extraordinary inflation from July 1983 to February 1984. Although she repeatedly alleged that the cost of constructing the building doubled from P 6M to P 12 M, she failed to show by how much, for instance, the price index of goods and services had risen during that intervening period. An extraordinary inflation cannot be assumed. Hence, for Huibonhoa to claim exemption from liability by reason of fortuitous event under Article 1174 of the Civil Code, she must prove that inflation was the sole and proximate cause of the loss or destruction of the contract or in this case, of the delay in the construction of the building. Having failed to do so, Huibonhoa’s contention is untenable. Ace Agro Development Corporation vs. Court of Appeals G.R. No. 119729, January 21, 1997 266 SCRA 429 FACTS: Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation entered into service contracts, which they renewed every year. On April 25, 1990, fire broke out in private respondent’s plant, destroying, among other places, the area where petitioner did its work. As a result, petitioner’s work was stopped. Petitioner expressed surprise at the termination of the contract and requested private respondent. Petitioner brought this case against private respondent for breach of contract and damages it complained that the termination of its service contract was illegal and arbitrary and that, as a result, it stood to lose profits and to be held liable to its employees for back wages, damages and/or separation pay. ISSUE: Whether the contract terminated on account of a force majeure was justified. HELD: Obligations may be extinguished by the happening of unforeseen events, under whose influence the obligation would never have been contracted, because in such cases, the very basis upon which the existence of the obligation is founded would be wanting. Both parties admitted that the April 25, 1990 fire was a force majeure or unforeseen event and that the same even burned practically all the soft drink bottles and wooden shells -- which are the objects of the agreement. But the story did not end there. It is true that defendant-appellant still had other bottles that needed cleaning and wooden shells that needed repairing; therefore, the suspension of the work of the plaintiff-appellee brought about by the fire is, at best, temporary as found by the trial court. Hence, plaintiff-appellee’s letters of reconsideration of the termination of the agreement addressed to defendant-appellant dated June 13, 1990 and July 17, 1990 Page 143 of 545 Pedro Dioquino vs. Federico Laureano G.R. No. L-25906, May 28, 1970 33 SCRA 65 FACTS: Atty. Dioquino met patrol officer Federico Laureano in the MVO office in Masbate to register his car. Laureano helped Dioquino in the facilitation of the registration of his car. Thereby, Atty. Dioquino lent Laureano his car on a commodatum basis but the car’s windshield was broken due to a stone thrown by some mischievous boys. No satisfactory arrangements were made about the damage caused on the windshield. Laureano believed that the stone-throwing was merely accidental so he refused to file any charges against the stone-thrower or the parents; and he also believed that he is not liable for any damages because the incident was a force majeure. ISSUE: The issue is whether or not the breaking of the car’s windshield due to the stone-throwing is a force majeure and thereby exculpating defendant from civil liability in favor of Atty. Dioquino. HELD: YES, because Article 1174 of the Civil Code states that “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.” The stone-throwing that yielded to the breaking of the windshield was clearly unforeseeable and inevitable. Hence, Laureano cannot be compelled to pay the damages caused on Atty. Dioquino’s car windshield. Page 144 of 545 Bachelor Express, Incorporated vs. Court of Appeals G.R. No. 85691, July 31, 1990 193 SCRA 216 FACTS: On August 1, 1980, Bus No. 800 owned by Bachelor Express, Inc. and driven by Cresencio Rivera was the situs of a stampede which resulted in the death of passengers Ornominio Beter and Narcisa Rautraut. The evidence shows that the bus came from Davao City on its way to Cagayan de Oro City passing Butuan City; that while at Tabon-Tabon, Butuan City, the bus picked up a passenger; that about fifteen (15) minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which caused commotion and panic among the passengers; that when the bus stopped, passengers Ornominio Beter and Narcisa Rautraut were found lying down the road, the former already dead as a result of head injuries and the latter also suffering from severe injuries which caused her death later. The passenger assailant alighted from the bus and ran toward the bushes but was killed by the police. Thereafter, the heirs of Ornominio Beter and Narcisa Rautraut, private respondents herein (Ricardo Beter and Sergia Beter are the parents of Ornominio while Teofilo Rautraut and Zoetera [should be Zotera] Rautraut are the parents of Narcisa) filed a complaint for "sum of money" against Bachelor Express, Inc. its alleged owner Samson Yasay and the driver Rivera. ISSUE: Whether or not Bachelor Express, Inc. can be held liable for the death of Beter and Rautraut. HELD: The running amuck of the passenger was the proximate cause of the incident as it triggered off a commotion and panic among the passengers such that the passengers started running to the sole exit shoving each other resulting in the falling off the bus by passengers Beter and Rautraut causing them fatal injuries. The sudden act of the passenger who stabbed another passenger in the bus is within the context of force majeure. However, in order that a common carrier may be absolved from liability in case of force majeure, it is not enough that the accident was caused by force majeure. The common carrier must still prove that it was not negligent in causing the injuries resulting from such accident. Page 145 of 545 Considering the factual findings of the Court of Appeals-the bus driver did not immediately stop the bus at the height of the commotion; the bus was speeding from a full stop; the victims fell from the bus door when it was opened or gave way while the bus was still running; the conductor panicked and blew his whistle after people had already fallen off the bus; and the bus was not properly equipped with doors in accordance with law-it is clear that the petitioners have failed to overcome the presumption of fault and negligence found in the law governing common carriers. The petitioners' argument that the petitioners "are not insurers of their passengers" deserves no merit in view of the failure of the petitioners to prove that the deaths of the two passengers were exclusively due to force majeure and not to the failure of the petitioners to observe extraordinary diligence in transporting safely the passengers to their destinations as warranted by law. The liability, if any, of the petitioners is anchored on culpa contractual or breach of contract of carriage. PEDRO VASQUEZ v. THE COURT OF APPEALS G.R. No. L-42926 1985 Sep 13 FACTS: MV 'Pioneer Cebu' was owned and operated by the defendant and used in the transportation of goods and passengers in the interisland shipping. It had a passenger capacity of three hundred twenty-two including the crew. It undertook the said voyage on a special permit issued by the Collector of Customs inasmuch as, upon inspection, it was found to be without an emergency electrical power system. The special permit authorized the vessel to carry only two hundred sixty passengers due to the said deficiency and for lack of safety devices for 322 passengers. A headcount was made of the passengers on board, resulting on the tallying of 168 adults and 20 minors, although the passengers manifest only listed 106 passengers. It has been admitted, however, that the headcount is not reliable. When the vessel left Manila, its officers were already aware of the typhoon Klaring building up somewhere in Mindanao. Plaintiffs seek the recovery of damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage. ISSUE: Whether or not the respondent would be exempt from responsibility due to its defense of fortuitous event. RULING: To constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (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 that (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The event must have been impossible to foresee, or if it could be foreseen, must have been impossible to avoid. There must be an entire exclusion of human agency from the cause of injury or loss. Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain and crew were well aware of the risk they were taking as they hopped from island to island from Romblon up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence required of very cautious persons, they decided to take a calculated risk. In so doing, they failed to observe that extraordinary diligence required of them explicitly by law for the safety of the passengers transported by them with due regard for all circumstances and Page 146 of 545 unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault or negligence that arises in cases of death or injuries to passengers. With regard to the contention that the total loss of the vessel extinguished its liability pursuant to Article 587 of the Code of Commerce, it was held that the liability of a shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held liable for by reason of the death of its passengers. ALBERTA YOBIDO vs. COURT OF APPEALS G.R. No. 113003 1997 Oct 17 FACTS: On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy, and physical injuries to other passengers. On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney's fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. The plaintiffs asserted that violation of the contract of carriage between them and the defendants was brought about by the driver's failure to exercise the diligence required of the carrier in transporting passengers safely to their place of destination. On the other hand, the defendants raised the affirmative defense of caso fortuito. ISSUE: Whether or not petitioners should be exempt from liability because the tire blowout was a fortuitous event. RULING: As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely and at all events to carry them safely and without injury. However, when a passenger is injured or dies, while traveling, the law presumes that the common carrier is negligent. Thus, the Civil Code provides under Article 1755 that a common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. This disputable presumption may only be overcome by evidence that the carrier had observed extraordinary diligence as prescribed by Articles 1733, 10 1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to a fortuitous event. Consequently, the court need not make an express finding of fault or negligence on the part of the carrier to hold it responsible for damages sought by the passenger. Page 147 of 545 The petitioners' contention that they should be exempt from liability because the tire blowout was no more than a fortuitous event that could not have been foreseen, must fail. Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous event. There are human factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could not explode within five days' use. It is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages. Moral damages are generally not recoverable in culpa contractual except when bad faith had been proven. However, the same damages may be recovered when breach of contract of carriage results in the death of a passenger, as in this case. Exemplary damages, awarded by way of example or correction for the public good when moral damages are awarded, may likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. Because petitioners failed to exercise the extraordinary diligence required of a common carrier, which resulted in the death of Tito Tumboy, it is deemed to have acted recklessly. As such, private respondents shall be entitled to exemplary damages. ROBERTO JUNTILLA vs. CLEMENTE FONTANAR G.R. No. L-45637 1985 May 31 FACTS: Plaintiff was a passenger of the public utility jeepney bearing plate No. PUJ-71-7 on the course of the trip from Danao City to Cebu City. The jeepney was driven by defendant Berfol Camoro. It was registered under the franchise of defendant Clemente Fontanar but was actually owned by defendant Fernando Banzon. When the jeepney reached Mandaue City, the right rear tire exploded causing the vehicle to turn turtle. In the process, the plaintiff who was sitting at the front seat was thrown out of the vehicle. Upon landing on the ground, the plaintiff momentarily lost consciousness. When he came to his senses, he found that he had a lacerated wound on his right palm. Aside from this, he suffered injuries on his left arm, right thigh and on his back. Because of his shock and injuries, he went back to Danao City but on the way, he discovered that his `Omega' wrist watch was lost. Upon his arrival in Danao City, he immediately entered the Danao City Hospital to attend to his injuries, and also requested his father-in-law to proceed immediately to the place of the accident and look for the watch. In spite of the efforts of his father-in-law, the wrist watch, which he bought for P852.70 could no longer be found. ISSUE: Whether or not the Court of First Instance of Cebu erred when it absolved the carrier from any liability upon a finding that the tire blow out is a fortuitous event. RULING: The Court of First Instance of Cebu erred when it absolved the carrier from any liability upon a finding that the tire blow out is a fortuitous event for there are specific acts of negligence on the part of the respondents. The records show that the passenger jeepney turned turtle and jumped into a ditch immediately after its right rear tire exploded. The evidence shows that the passenger jeepney was running at a very fast speed before the accident. We agree with the observation of the petitioner that a public utility jeep running at a regular and safe speed will not jump into a ditch when its right rear tire blows up. There is also evidence to show that the passenger jeepney was overloaded at the time of the accident. The preponderance of authority is in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an appliance purchased from a manufacturer, whenever it appears that the defect would have been discovered by the Page 148 of 545 carrier if it had exercised the degree of care which under the circumstances was incumbent upon it, with regard to inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the carrier, as far as regards the work of constructing the appliance. According to this theory, the good repute of the manufacturer will not relieve the carrier from liability. The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not an insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. The source of a common carrier's legal liability is the contract of carriage, and by entering into the said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with a due regard for all the circumstances. The records show that this obligation was not met by the respondents. THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. vs. MGG MARINE SERVICES, INC. and DOROTEO GAERLAN G.R. No. 135645 2002 Mar 8 FACTS: On March 1, 1987, San Miguel Corporation insured several beer bottle cases with petitioner Philippine American General Insurance Company. The cargo were loaded on board the M/V Peatheray Patrick-G to be transported from Mandaue City to Bislig, Surigao del Sur. After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987. The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel Corporation was lost. Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner. The Board of Marine Inquiry conducted its own investigation of the sinking of the M/V Peatheray Patrick-G to determine whether or not the captain and crew of the vessel should be held responsible for the incident. On May 11, 1989, the Board rendered its decision exonerating the captain and crew of the ill-fated vessel for any administrative liability. It found that the cause of the sinking of the vessel was the existence of strong winds and enormous waves in Surigao del Sur, a fortuitous event that could not have been forseen at the time the M/V Peatheray Patrick-G left the port of Mandaue City. It was further held by the Board that said fortuitous event was the proximate and only cause of the vessel’s sinking. ISSUE: Whether the cargo was lost due to a fortuitous event and whether respondents exercised due diligence to prevent the loss of the cargo. RULING: Common carriers, from the nature of their business and for reasons of public policy, are mandated to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods transported by them are lost, destroyed or if the same deteriorated. Page 149 of 545 However, this presumption of fault or negligence does not arise in the cases enumerated under Article 1734 of the Civil Code: Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;(2) Act of the public enemy in war, whether international or civil;(3) Act or omission of the shipper or owner of the goods;(4) The character of the goods or defects in the packing or in the containers;(5) Order or act of competent public authority. The findings of the Board of Marine Inquiry indicate that the attendance of strong winds and huge waves while the M/V Peatheray Patrick-G was sailing through Cortes, Surigao del Norte on March 3, 1987 was indeed fortuitous. Thus, the Caprain could not be expected to have foreseen the unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and enormous waves which caused the vessel to list, keel over, and consequently lose the cargo contained therein. The appellate court likewise found that there was no negligence on the part of the crew of the M/V Peatheray Patrick-G. Hence, private respondents cannot be held liable for the said loss. MINDEX RESOURCES DEVELOPMENT vs. EPHRAIM MORILLO G.R. No. 138123 2002 Mar 12 FACTS: On February 1991, a verbal agreement was entered into between Ephraim Morillo and Mindex Resources Corporation for the lease of the former’s 6 x 6 ten-wheeler cargo truck for use in MINDEX’s mining operations in Binaybay, Bigaan, San Teodoro, Oriental Mindoro, at the stipulated rental of ‘P300.00 per hour for a minimum of eight hours a day or a total of P2,400.00 daily.’ MINDEX had been paying the rentals until April 10, 1991. Unknown to Morillo, on April 11, 1991, the truck was burned by unidentified persons while it was parked unattended at Sitio Aras, Bigaan, San Teodoro, Oriental Mindoro, due to mechanical trouble. Upon learning of the burning incident, Morillo offered to sell the truck to MINDEX but the latter refused. Instead, it replaced the vehicle’s burned tires and had it towed to a shop for repair and overhauling. On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the Finance Manager of MINDEX, thru Mr. Ramoncito Gozar, Project Manager, proposing that he is entrusting to MINDEX the said vehicle in the amount of P275,000.00 which is its cost price, in four monthly installments. Morillo then promised to relinquish all the necessary documents upon full payment of said account. On the other hand, MINDEX expressed thier reservations and made counter offers that it will pay the truck in the amount of P76,000, that the repair and overhaul will be on their expense, and that they wll return it in a good running condition after repair. Morillo replied 1 that he will relinquish to MINDEX the damaged truck, that he is amenable to receive the rental in the amount of P76,000.00, and that MINDEX will pay fifty thousand pesos monthly until the balance of P275,000.00 is fully paid. On August 1991, Morillo pulled out the truck from the repair shop of MINDEX and had it repaired elsewhere for which he spent the total amount of P132,750.00. ISSUE: Whether or not the Court of Appeals gravely erred in finding that petitioner failed to overcome the presumption of negligence against it considering that the facts show that the burning of the truck was a fortuitous event. RULING: Both the RTC and the CA found petitioner negligent and thus liable for the loss or destruction of the leased truck. Both parties may have suffered from the burning of the truck; Page 150 of 545 however, as found by both lower courts, the negligence of petitioner makes it responsible for the loss. In order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One’s negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person’s participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. The records clearly shows that petitioner failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioner fell short of ordinary diligence in safeguarding the leased truck against the accident.n Petitioner failed to employ reasonable foresight, diligence and care that would have exempted it from liability resulting from the burning of the truck. Negligence, as commonly understood, is that conduct that naturally or reasonably creates undue risk or harm to others. It may be a failure to observe that degree of care, precaution or vigilance that the circumstances justly demand; or to do any other act that would be done by a prudent and reasonable person, who is guided by considerations that ordinarily regulate the conduct of human affairs. NATIONAL POWER CORPORATION vs. PHILIPP BROTHERS OCEANIC, INC. G.R. No. 126204 2001 Nov 20 FACTS: On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the bidders. After the public bidding was conducted, PHIBRO’s bid was accepted. NAPOCOR’s acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987. On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the shipment’s point of origin, which could seriously hamper PHIBRO’s ability to supply the needed coal. From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in Australia, particularly informing the latter that the ship owners therein are not willing to load cargo unless a “strike-free” clause is incorporated in the charter party or the contract of carriage. In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a “strike-free” clause. NAPOCOR refused. On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987. Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR disapproved PHIBRO’s application for pre-qualification to bid for not meeting the minimum requirements. Upon further inquiry, PHIBRO found that the real reason for the disapproval was its purported failure to satisfy NAPOCOR’s demand for damages due to the delay in the delivery of the first coal shipment. ISSUE: Whether or not the Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO’s delay in the delivery of imported coal was due to NAPOCOR’s alleged delay in opening a letter of credit and to force majeure, and not to PHIBRO’s own deliberate acts and faults Page 151 of 545 RULING: Fortuitous events may be produced by two general causes: (1) by Nature, such as earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc. The term generally applies, broadly speaking, to natural accidents. In order that acts of man such as a strike, may constitute fortuitous event, it is necessary that they have the force of an imposition which the debtor could not have resisted. Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the first week of July to the third week of September, 1987, exempted Phibro from the effects of delay of the delivery of the shipment of coal. In addition, PHIBRO and NAPOCOR explicitly agreed in Section XVII of the “Bidding Terms and Specifications” that “neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance of its obligations, other than the payment of money due, if any such delay or failure is due to Force Majeure.” Specifically, they defined force majeure as “any disabling cause beyond the control of and without fault or negligence of the party, which causes may include but are not restricted to Acts of God or of the public enemy; acts of the Government in either its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons, storms, epidemics and quarantine restrictions.” WILLIAM ONG GENATO vs. BENJAMIN BAYHON G.R. No. 171035 August 24, 2009 FACTS: Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from the petitioner a loan amounting to PhP 1,000,000.00;3 that to cover the loan, he executed a Deed of Real Estate Mortgage over the property covered by Transfer Certificate of Title (TCT) No. 38052; that, however, the execution of the Deed of Real Estate Mortgage was conditioned upon the personal assurance of the petitioner that the said instrument is only a private memorandum of indebtedness and that it would neither be notarized nor enforced according to its tenor. In his Answer, petitioner Genato denied the claim of the respondent regarding the death of the latter’s wife.8 He alleged that on the date that the real estate mortgage was to be signed, respondent introduced to him a woman as his wife.9 He alleged that the respondent signed the dacion en pago and that the execution of the instrument was above-board. Petitioner further averred that despite demands, respondent refused to execute the requisite documents to transfer to him the ownership of the lot subject of the dacion en pago. Petitioner prayed, inter alia, for the court to order the respondent to execute the final deed of sale and transfer of possession of the said lot. ISSUE: Whether or not the dacion en pago is void. RULING: Under our law, therefore, the general rule is that a party's contractual rights and obligations are transmissible to the successors. The rule is a consequence of the progressive "depersonalization" of patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of these institutions. From the Roman concept of a relation from person to person, the obligation has evolved into a relation from patrimony to patrimony, with the persons occupying only a representative position, barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu personae, in consideration of its performance by a specific person and by no other. The transition is marked by the disappearance of the imprisonment for debt.28 (Emphasis supplied) Page 152 of 545 The loan in this case was contracted by respondent. He died while the case was pending before the Court of Appeals. While he may no longer be compelled to pay the loan, the debt subsists against his estate. No property or portion of the inheritance may be transmitted to his heirs unless the debt has first been satisfied. Notably, throughout the appellate stage of this case, the estate has been amply represented by the heirs of the deceased, who are also his co-parties in Civil Case No. Q-90-7012. The procedure in vindicating monetary claims involving a defendant who dies before final judgment is governed by Rule 3, Section 20 of the Rules of Civil Procedure. UNION BANK OF THE PHILIPPINES versus EDMUND SANTIBAÑEZ G.R. No. 149926 2005 Feb 23 FACTS: On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim M. Santibañez entered into a loan agreement in the amount of P128,000.00. The amount was intended for the payment of the purchase price of one unit Ford 6600 Agricultural All-Purpose Diesel Tractor. In view thereof, Efraim and his son, Edmund, executed a promissory note in favor of the FCCC, the principal sum payable in five equal annual amortizations of P43,745.96 due on May 31, 1981 and every May 31st thereafter up to May 31, 1985. On December 13, 1980, the FCCC and Efraim entered into another loan agreement, this time in the amount of P123,156.00. It was intended to pay the balance of the purchase price of another unit of Ford 6600 Agricultural All-Purpose Diesel Tractor, with accessories, and one unit Howard Rotamotor Model AR 60K. Again, Efraim and his son, Edmund, executed a promissory note for the said amount in favor of the FCCC. Aside from such promissory note, they also signed a Continuing Guaranty Agreement for the loan dated December 13, 1980. Sometime in February 1981, Efraim died, leaving a holographic will. Subsequently in March 1981, testate proceedings commenced before the RTC of Iloilo City. On April 9, 1981, Edmund, as one of the heirs, was appointed as the special administrator of the estate of the decedent. On August 20, 1981, a Deed of Assignment with Assumption of Liabilities was executed by and between FCCC and Union Savings and Mortgage Bank, wherein the FCCC as the assignor, among others, assigned all its assets and liabilities to Union Savings and Mortgage Bank. Demand letters for the settlement of his account were sent by petitioner Union Bank of the Philippines (UBP) to Edmund, but the latter failed to heed the same and refused to pay. Thus, on February 5, 1988, the petitioner filed a Complaint for sum of money against the heirs of Efraim Santibañez, Edmund and Florence, before the RTC of Makati City. ISSUE: Whether or not the petitioner can hold the heirs liable on the obligation of the deceased. RULING: Page 153 of 545 Florence S. Ariola could not be held accountable for any liability incurred by her late father. The documentary evidence presented, particularly the promissory notes and the continuing guaranty agreement, were executed and signed only by the late Efraim Santibañez and his son Edmund. As the petitioner failed to file its money claim with the probate court, at most, it may only go after Edmund as co-maker of the decedent under the said promissory notes and continuing guaranty, of course, subject to any defenses Edmund may have as against the petitioner. However, the court had not acquired jurisdiction over the person of Edmund. Also, the petitioner had not sufficiently shown that it is the successor-in-interest of the Union Savings and Mortgage Bank to which the FCCC assigned its assets and liabilities. Jesus San Agustin vs. Court of Appeals G.R. No. 121940, December 4, 2001 371 SCRA 348 FACTS: On February 11, 1974, the Government Service Insurance System (GSIS) sold to Macaria Vda de Caiquep, a parcel or residential land located at Pasig City, part of the GISIS Low Cost Housing Project evidenced by a Deed of Absolute Sale. On February 19, 1974, the Register of Deeds of Rizal issued in the name of Caiquep, Transfer Certificate of Title. The next day, Caiquep sold the subject lot to private respondent Maximo Menez. Sometime in 1979, for being suspected as a subversive, military men ransacked Menez’s’ house in Rizal. He surrendered to the authorities and was detained for two years. When released, another order for his arrest was issued so he hid in Mindanao for another four years or until March 1984. In December 1990, he discovered that the subject TCT was missing. He consulted a lawyer but the latter did not act immediately on the matter. Upon consulting a new counsel, an Affidavit of Loss was filed with the Register of Deeds and a certified copy of TCT was issued. Private respondent also declared the property for tax purposes and obtained a certification thereof from the Assessor’s office. His search for the registered owner to different parts of the country failed prompting the former to file a petition for the issuance of owner’s duplicate copy to replace the lost one. During the hearing, only Menez and counsel were present because the Register of Deeds and the Provincial Prosecutor were not notified. The trial court granted his petition after Menez presented his evidence ex parte. San Agustin claimed this was the first time he became aware of the case of his aunt Ma. Vda de Caiquep and the present occupant of the property. He filed a Motion to Reopen Reconstitution Proceedings but RTC denied said motion. Petitioner moved for motion for re consideration but was again denied. ISSUE: Whether or not petitioner is bound by the contract entered into by his predecessor-ininterest. HELD: Page 154 of 545 The petitioner is bound by contracts entered into by his predecessor’s-in-interest. In this case, the the GSIS has not filed any action for the annulment of Deed of Absolute Sale of the lot that the latter sold to Caiquep, nor the forfeiture of the lot in question. In our view, the suit filed by the rightful party, the GSIS. For now, the said contract of sale is binding upon heirs of Macaria Vda de Caiquep., including petitioner who alleges to be one of her heirs, in line with the rule that heirs are bound by contracts entered into by their predecessors-in-interest. PROJECT BUILDERS, INC. vs. THE COURT OF APPEALS G. R. No. 99433 2001 Jun 19 FACTS: On August 21, 1975, plaintiff and defendant PBI entered into an agreement whereby it was agreed that plaintiff would provide a maximum amount of P2,000,000.00 against which said defendant would discount and assign to plaintiff on a ‘with recourse non-collection basis’ its accounts receivable under the contracts to sell specified in said agreement. And on June 15, 1976, the same parties entered into an agreement whereby it was agreed that PBI’s credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line of P5,000,000.00 granted includes the amount already assigned/discounted. The discounts were on different date accounts receivables with different maturity dates from different condominiumunit buyers. And each time a certain account receivable was discounted, the covering Contract to Sell was assigned by defendant to plaintiff. The total amount of receivables discounted by defendant PBI is P7,986,815.38 and consists of twenty accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to defendant PBI the amount of P4,549,132.72 and the difference of P3,437,682.66 represents the discounting fee or finance fee. To secure compliance, defendants executed a Deed of Real Estate Mortgage in favor of plaintiff. When defendants allegedly defaulted in the payment of the subject account, plaintiff foreclosed the mortgage and plaintiff was the highest bidder in the amount of P3,500,000.00. The foreclosed property was redeemed a year later, but after application of the redemption payment, plaintiff claims that there is still a deficiency in the amount of P1,323,053.08. The trial court dismissed the complaint. The Court of Appeals however overturned the judgment of the trial court. ISSUE: Whether or not the assignment of credit is valid. RULING: An assignment of credit is an act of transferring, either onerously or gratuitously, the right of an assignor to an assignee who would then be capable of proceeding against the debtor for enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor only upon acquiring knowledge of the Page 155 of 545 assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor. Where the assignment is on account of pure liberality on the part of the assignor, the rules on donation would likewise be pertinent; where valuable consideration is involved, the assignment partakes of the nature of a contract of sale or purchase. Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of the assignor and in a position to enforce the contract to sell to the same extent as the assignor could. In an assignment of credit, the consent of the debtor is not essential for its perfection, his knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment he might make.Consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors’ refusal to give consent. What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor’s consent. The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee and not to the original creditor. In the case, the assignment, was "with recourse", and default in the payment of installments had been duly established when petitioner corporation foreclosed on the mortgaged parcels of land. Development Bank of the Philippines vs. Court of Appeals G.R. No. 118180, September 20, 1996 262 SCRA 245 FACTS: Private respondents were the original owners of a parcel of land which they mortgaged to petitioner bank and was subsequently foreclosed for the former’s default on their obligation. Consequently, a Transfer Certificate of Title was eventually issued in petitioner’s name being the sole bidder in the auction sale conducted during the foreclosure of said land. Thereafter, petitioner and private respondents entered into a Deed of Conditional Salewherein petitioner agreed to reconvey the foreclosed property to private respondents under the condition that petitioner shall deliver to private respondents, their heirs, administrators and assigns a good and sufficient deed of conveyance covering the property, subject matter of the said deed of conditional sale, upon completion of payment by said private respondents. Upon completing the payment of the full repurchase price, private respondents demanded from petitioner the execution of a Deed of Conveyance in their favor. Petitioner then informed private respondents that the prestation to execute and deliver a deed of conveyance in their favor had become legally impossible in view of Sec.6 of R.A. 6657 (Comprehensive Agrarian Reform Law) approved on June 10, 1988 and Sec.1 of E.O. 407 issued June 10, 1990. The former law annulling all sales, dispositions, leases, management contracts or transfers of possession of private lands executed by the original landowner in violation of the retention limits provided thereof upon its effectivity while the latter law requires all government instrumentalities to immediately execute deeds of transfer in favor of the Republic of the Philippines as represented by the Department of Agrarian Reform and to surrender to the latter department all landholdings suitable for agriculture. Aggrieved, private respondents filed a complaint for specific performance with damages against petitioner. ISSUE: The issue is whether or not said laws had rendered legally impossible compliance by petitioner with its obligation to execute a deed of conveyance of the subject land in favor of private respondents. Page 156 of 545 HELD: It is a rule that if the obligation depends upon a suspensive condition, the demandability as well as the acquisition of effectivity of the rights arising from the obligationis suspended pending the happening or fulfillment of the fact or event which constitutes the condition. Once the event which constitutes the condition is fulfilled resulting in the effectivity of the obligation, its effects retroact to the moment when the essebtial elements which gave birth to the obligation have taken place. Applying this precept to the case, the fullpayment by the appellees on April 6, 1990 retroacts to the time the contract of conditional sale was executed on April 6, 1984. From that time, all elements of the contract were present.Consequently; the contract of sale was perfected. As such, the said sale does not come under the coverage of R.A. 6657 and E.O. 407. Further, R.A. 6657 refers to the original owners of said agricultural lands and petitioner is not as such. Maria Tomimbang v. Atty. Jose Tomimbang GR No. 165116; August 4, 2009 Facts: Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door apartment located at 149 Santolan Road, Murphy, Quezon City. Petitioner failed to obtain a loan from PAG-IBIG Fund, hence, respondent offered to extend a credit line to petitioner on the following conditions: (1) petitioner shall keep a record of all the advances; (2) petitioner shall start paying the loan upon the completion of the renovation; (3) upon completion of the renovation, a loan and mortgage agreement based on the amount of the advances made shall be executed by petitioner and respondent; and (4) the loan agreement shall contain comfortable terms and conditions which petitioner could have obtained from PAG-IBIG. A conflict between the siblings ensued leading to a new agreement whereby petitioner was to start making monthly payments on her loan. Upon respondent's demand, petitioner turned over to respondent all the records of the cash advances for the renovations. Subsequently, or from June to October of 1997, petitioner made monthly payments of P18, 700.00, or a total ofP93, 500.00. Petitioner never denied the fact that she started making such monthly payments. Thereafter, the petitioner can no longer be found and also stopped making the monthly payments. Thus, a complaint was filed against the petitioner demanding payment of the loan plus interest. Petitioner contended that the loan is not yet due and demandable as the renovation of the apartment is not yet completed. Issue: Whether or not the loan is already due and demandable. Ruling: The loan is already due and demandable due to the subsequent agreement entered in to by the parties. Article 1291 of the Civil Code provides, thus: Art. 1291. Obligations may be modified by: Page 157 of 545 (1) (2) (3) Changing their object or principal conditions; Substituting the person of the debtor; Subrogating a third person in the rights of the creditor. The petitioner admitted that she started to comply with the demand of the respondent to pay on a monthly basis. Her partial performance of her obligation is unmistakable proof that indeed the original agreement between her and respondent had been novated by the deletion of the condition that payments shall be made only after completion of renovations. Hence, by her very own admission and partial performance of her obligation, there can be no other conclusion but that under the novated agreement, petitioner's obligation is already due and demandable. GONZALES VS THE HEIRS OF THOMAS AND PAULA CRUZ GR No. 131784 September 16, 1999 FACTS: On December 1, 1983, Paula Año Cruz together with the plaintiffs heirs of Thomas and Paula Cruz entered into a contract of lease with the defendant, Felix L. Gonzales of a half portion of a land containing an area of 12 hectares, more or less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town, Province of Rizal’ and covered by Transfer Certificate of Title No. 12111. As stipulated therein: 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. Under the contract, Gonzales paid the rental fees but did not choose to exercise the option of paying the one million purchase price. A letter was issued by one of the heirs to rescind the said contract following breach and ordered Gonzales to vacate the premises within ten days. Gonzales did no vacate. A few days later Paula Cruz died. A case was launched in Court by the heirs of Paula Cruz. ISSUE: How must paragraph nine of the contract be interpreted in enforcing the contract of lease? RULING: If a stipulation in a contract admits of several meanings, it shall be understood as bearing that import most adequate to render it effectual. An obligation cannot be enforced unless the plaintiff has fulfilled the condition upon which it is premised. The ninth provision was intended to ensure that respondents would have a valid title over the specific portion they were selling to Page 158 of 545 petitioner. Only after the title is assured may the obligation to buy the land and to pay the sums stated in the Contract be enforced within the period stipulated. Verily, the petitioner’s obligation to purchase has not yet ripened and cannot be enforced until and unless respondents can prove their title to the property subject of the Contract. The ninth clause was the condition precedent of the contract. Respondents cannot rescind the contract, because they have not caused the transfer of the TCT to their names, which is a condition precedent to petitioner’s obligation. This Court has held that “there can be no rescission (or more properly, resolution) of an obligation as yet nonexistent, because the suspensive condition has not happened.” INSULAR LIFE VS YOUNG GR No. 140964 January 16, 2002 FACTS: Respondent Robert Young obtained a short term loan of P170,000,000.00 from interbank to finance the purchase 45% equity in Insular Savings Bank. He did this under the assumption that Araneta would purchase 99.82% of the banks outsanding capital stock and consolidate all shares in Young’s name. However, Araneta backed and Young was left with a massive debt. Young entered into a Memorandum of Agreement where Insular Life and its Pension Fund whereby Insular Life would purchase shares of stock if Young would abide by certain conditions: one of them being to infuse additional capital of P50,000,000.00 into the Bank. It was discovered that Young was pilfering funds from the bank through check kiting operations and he tendered his resignation. He also defaulted on his obligations. His shares of stock were purchased by Insular Life in a public auction. The shares were then consolidated in its name. On January 7, 1992, Young filed a case for annulment of notarial sale, specific performance and damages. ISSUE: Is Insular Life entitled to ownership of majority of the Bank’s shares of stock? RULING: The provisions of the MOA negate the existence of a perfected contract of sale. The MOA is merely a contract to sell since the parties therein specifically undertook to enter into a contract of sale if the stipulated conditions are met and the representation and warranties given by Young prove to be true. Here, the MOA provides that Young shall infuse additional capital of P50,000,000.00 into the Bank. Young failed to infuse the required additional capital. Moreover, the due diligence audit shows that Young was involved in fraudulent schemes like check kiting. Since no sale transpired between the parties, the CA erred in concluding that Insular Life purchased 55% of the total shares of the Bank under the MOA. Page 159 of 545 It would be unfair on the part of Young to demand compliance by Insular Life of its obligations when he himself was remiss in his own. DIRECT FUNDERS HOLDERS ASSOCIATION VS LAVIŇA GR No. 141851. January 16, 2002 FACTS: The petitioners assail the decision of the CA affirming the decision of the RTC in issuing a writ of mandatory preliminary injunction despite the orders of a co-equal court in deciding that the property in question was in the lawful possession of the petitioner. ISSUE: Is petitioner’s contention tenable? RULING: The conditional sale agreement was the only document that the respondent presented during the summary hearing of the application for a temporary restraining order before the Regional Trial Court, Branch 71, Pasig City. The conditional sale agreement is officious and ineffectual. First, it was not consummated. Second, it was not registered and duly annotated on the Transfer Certificate of Title (No. 12357) covering the subject property. Third, it was executed about eight (8) years after the execution of the real estate mortgage over the subject property. To emphasize, the mortgagee (United Savings Bank) did not give its consent to the change of debtor. It is a fundamental axiom in the law on contracts that a person not a party to an agreement cannot be affected thereby. Worse, not only was the conditional sale agreement executed without the consent of the mortgagee-creditor, United Savings Bank, the same was also a material breach of the stipulations of the real estate mortgage over the subject property. The petitioner as opposed to Kambiyak Chan bears a TCT, deeds of assignment, certificates of sale in its favor showing that it has a better right to possession of the disputed land. Page 160 of 545 VDA. DE MISTICA VS NAGUIAT 418 SCRA 73 December 11, 2003 FACTS: On April 5, 1979, Eulalio Mistica, predecessor-in-interest of herein [petitioner], entered into a contract to sell with [respondent] Bernardino Naguiat over a lot. Pursuant to said agreement, respondent gave a downpayment of P2,000.00. He made another partial payment of P1,000.00 on February 7, 1980. He failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986. On December 4, 1991, petitioner filed a complaint for rescission alleging that the failure and refusal of respondents to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same. ISSUE: Is petitioner entitled to rescission of contract? RULING: The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. Rescission, however, is allowed only where the breach is substantial and fundamental to the fulfillment of the obligation. In the present case, the failure of respondents to pay the balance of the purchase price within ten years from the execution of the Deed did not amount to a substantial breach. Moreover, it is undisputed that during the ten year period, petitioner never made any demand for the balance of the purchase price. Petitioner even refused the payment tendered by Page 161 of 545 respondents during her husband’s funeral, thus showing she was not exactly blameless for the lapse of the ten year period. HERMOSA VS LONGARA GR No. L-5267, October 27, 1953 FACTS: This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth division, approving certain claims presented by Epifanio M. Longara against the testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41 representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in December, 1944. The claimant presented evidence and the Court of Appeals found, in accordance therewith, that the intestate had asked for the said credit advances for himself and for the members of his family "on 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." Claimant had testified without opposition that the credit advances were to be "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from the sale." The Court of Appeals held that payment of the advances did not become due until the administratrix received the sum of P20,000 from the buyer of the property. Upon authorization of the probate court in October, 1947, and the same was paid for subsequently. The Claim was filed on October 2, 1948. ISSUE: Does said condition a potestative condition and thusly void and unenforceable? RULING: A careful consideration of the condition upon which payment of the sums advanced was made to depend, "as soon as he (intestate) receive funds derived from the sale of his property in Spain," discloses the fact that the condition in question does not depend exclusively upon the will of the debtor, but also upon other circumstances beyond his power or control. Cirumstances show that the intestate had already decided to sell his house lest he meant to fool his creditors. But in addition of the sale to him (the intestate-vendor), there were still other conditions that had Page 162 of 545 no concur to effect the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the property under the conditions demanded by the intestate. It is evident, therefore, that the condition of the obligation was not a purely protestative one, depending exclusively upon the will of the intestate, but a mixed one, depending partly upon the will of intestate and partly upon chance. The Supreme Court upheld the ruling of the lower courts. TRILLANA VS QUEZON COLLEGES GR No. L-5003, June 27, 1953 FACTS: On June 1, 1948, Damasa Crisostomo applied for 200 shares of stock worth PhP100.00 each at Quezon Colleges, Inc. Within her letter of application, she stipulated, “You will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College.” Damasa died on October 26, 1948. Since no payment was rendered on the subscription made in the foregoing letter, Quezon College presented a claim of PhP20,000.00 on her intestate proceedings. The petitioner – administrator of the estate then contests the validity of said proceedings? ISSUE: Is the condition laid down by Damasa Crisostomo valid? RULING: There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. Thus, it cannot be said that the letter ripened into a contract. Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, Page 163 of 545 therefore, facultative in nature, rendering the obligation void. Under the Civil Code it is provided that if the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. VISAYAN SAWMILL VS CA 219 SCRA 378 March 3, 1993 FACTS: On May 1, 1983, herein plaintiff-appellee and defendants appellants entered into a sale involving scrap iron, subject to the condition that plaintiff appellee will open a letter of credit in the amount of P250,00.00 in favor of defendant-appellant corporation on or before May 15, 1983. On May 24, 1983, plaintiff-appellee informed defendans-appellants by telegram that the letter of credit was opened May 12, 1983 at the BPI main office in Ayala, but that transmittal was delayed. On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City Branch of BPI dated May 26, 1983, that a domestic letter of credit had been opened in favor of Visayan Sawmill Company. On July 19, 1983 plaintiffs then demanded that defendants comply with the deed of sale. On July 20, 1983 defendant corporation informed plaintiff’s lawyer that it is unwilling to continue with the sale due to plaintiff’s failure to comply with the essential preconditions of the contract. Private respondent prayed for judgment ordering the petitioner corporation to comply with the contract by delivering to him the scrap iron subject thereof. ISSUE: Did petitioner corporation violate the terms and conditions of the contract? RULING: The petitioner corporation’s obligation to sell is unequivocally subject to a positive suspensive condition. The failure of the private respondent to comply with the positive suspensive condition cannot even be considered a breach – casual or serious – but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force. Page 164 of 545 The letter of credit in favor of petitioner was indisputably not in accordance with the stipulation in the contract signed by the parties on at three counts: (1) it was not opened, made or indorsed by the private respondent, 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 without recourse, it is set to expire on a specific date and it stipulates certain conditions with respect to shipment. Consequently, the obligation of petitioner to sell did not arise; it therefore cannot be compelled by specific performance to comply with its prestation. LEAÑO VS COURT OF APPEALS GR No. 129018 November 15, 2001 FACTS: On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell involving a piece of land. In the contract, Carmelita Leaño bound herself to pay Hermogenes Fernando the sum of PhP107,750.00 as the total purchase price of the lot. The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments. Should a period of ninety days elapse from the expiration of the grace period without the overdue and unpaid installment paid with proper interests, Fernando, as vendor, was authorized to declare the contract cancelled. The defendant later filed an ejectment case for failure of petitioner to pay within the terms of contract. ISSUE: Is petitioner entitled to rights over the lot? RULING: The transaction between the parties was a conditional sale not an absolute sale. The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price. The ownership of the lot was not transferred to Carmelita Leaño. In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force. In the case at bar, petitioner’s non-payment of the installments after April 1, 1989, prevented the obligation of respondent to convey the property from arising. In fact, it brought into effect the provision on cancellation. Page 165 of 545 However, in view of RA No. 6552, that the default committed by petitioner in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question. HEIRS OF SANDEJAS VS LINA GR No. 141634 February 5, 2001 FACTS: Eliodoro Sendejas, Sr., served as administrator of the estate of Remedios R. Sandejas. Eliodoro, in his capacity as seller, bound and obligated himself, administrators, and assigns, to sell forever and absolutely and in their entirety parcels of lands which formed part of the estate of the late Remedios to one Mr. Alex A. Lina for the consideration of P1 Million. Eliodoro died and Mr. Alex Lina served as temporary administrator of the estate until he was replaced by the heir of Eliodoro, Sixto Sandejas. Mr. Lina filed an Omnibus motion to approve the deed of conditional sale executed between Plaintiff-in-Intervention Alex A. Lina and Eliodoro Sandejas, Sr. on June 7, 1982. The administrator Sixto filed a motion to dismiss. ISSUE: Is Mr. Lina entitled to purchase parcels of lands forming the estate of Remedios? RULING: In a contract to sell, the payment of the purchase price is a positive suspensive condition. The vendor’s obligation to convey the title does not become effective in case of failure to pay. On the other hand, the agreement between Eliodoro, Sr. and respondent is subject to a suspensive condition – the procurement of a court approval, not full payment. There was no reservation of ownership in the agreement. In accordance with paragraph 1 of the Receipt, petitioners were supposed to deed the disputed lots over to respondent. This they could do upon the court’s approval, even before full payment. Hence, their contract was a conditional sale, rather than a contract to sell as determined by the CA. Because petitioners did not consent to he sale of their ideal shares in the disputed lots, the CA correctly limited the scope of the Receipt to the pro-indiviso share of Eliodoro, Sr. Thus, it correctly modified the intestate court’s ruling by excluding their shares from the ambit of the transaction. Page 166 of 545 The petition was partially granted. The appealed decision and resolution are affirmed with he modification that respondent is entitled to only a pro-indiviso share equivalent to 11/20 of the disputed lots. CIR VS PRIMETOWN GR No. 162155 August 28, 2007 FACTS: On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied for the refund or credit of income tax respondent paid in 1997. According to Yap, because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent paid its quarterly corporate income tax and remitted creditable withholding tax from real estate sales to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax refund or tax credit. On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional documents to support its claim. Respondent complied but its claim was not acted upon. Thus, on April 14, 2000, it filed a petition for review in the Court of Tax Appeals (CTA). On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax refund or tax credit. Respondents now assail that decision for dismissal of the CTA. ISSUE: What is the expiration period for the filing of the action? RULING: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. Page 167 of 545 There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. Following this formula, respondent’s petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period. NAMARCO vs Tecson GR No. L-29131 August 27, 1969 FACTS: On a previous court case, the CFI rendered judgment: (a) Ordering the defendants Miguel D. Tecson and Alto Surety Insurance Co., Inc. to pay jointly and severally plaintiff PRATRA the sum of P7,200.00 plus 7% interest from May 25, 1960 until the amount is fully paid, plus P500.00 for attorney's fees, and plus costs; (b) ordering defendant Miguel D. Tecson to indemnify his co-defendant Alto Surety & Insurance Co., Inc. on the cross-claim for all the amounts it would be made to pay in this decision, in case defendant Alto Surety & Insurance Co., Inc. pay the amount adjudged to plaintiff in this decision. From the date of such payment defendant Miguel D. Tecson would pay the Alto Surety & Insurance Co., Inc., interest at 12% per annum until Miguel D. Tecson has fully reimbursed plaintiff of the said amount. Defendant Miguel Tecson seeks the dismissal of the complaint on the ground of lack of jurisdiction and prescription. This case was filed exactly on December 21, 1965 but more than ten years have passed a year is a period of 365 days (Art. 13, CCP). Plaintiff forgot that 1960, 1964 were both leap years so that when this present case was filed it was filed two days too late. ISSUE: Should the complaint be dismissed on the grounds of prescription? RULING: In the language of this Court, in People vs. Del Rosario, with the approval of the Civil Code of the Philippines (Republic Act 386) ... we have reverted to the provisions of the Spanish Civil Code in accordance with which a month is to be considered as the regular 30-day month ... Page 168 of 545 and not the solar or civil month," with the particularity that, whereas the Spanish Code merely mentioned "months, days or nights," ours has added thereto the term "years" and explicitly ordains that "it shall be understood that years are of three hundred sixty-five days." The decision was affirmed. Ernest Berg vs. Magdalena Estate, Inc. G.R. No. L-3784, October 17, 1952 92 Phil 111 FACTS: The complaint avers that plaintiff and defendant are co-owners of said property, the former being the owner of one-third interest and the latter of the remaining two-thirds. The division is asked because plaintiff and defendant are unable to agree upon the management of the property and upon the partition thereof. Defendant answered setting up a special defense and counterclaim. As a special defense, defendant claims that on September 22, 1943, it sold to plaintiff one-third of the property in litigation subject to the express condition that should either vendor or vendee decide to sell his undivided share, the party selling would grant to the other party first an irrevocable option to purchase the same at the seller’s price. It avers that in January 1946, plaintiff fixed the sum of P200, 000 as the price of said share and offered to sell it to defendant, which offer was accepted and for the payment of said price plaintiff gave defendant a period of time which, including the extensions granted would expire on May 31, 1947. Defendant claims that in spite of its acceptance of the offer, plaintiff refused to accept the payment of the price, and for this refusal defendant suffered damages in the amount of P100, 000. For these reasons, defendant asks for specific performance. ISSUE: Whether or not the obligation is one subject to a term. HELD: The obligation is rather subject to a condition. Under Article 1125 of the old Civil Code, obligations with a term, for the fulfillment of which a day certain has been fixed, shall be demandable only when the day arrives. A day certain is understood to be that which must necessarily arrive, even though it is not known when. In order that an obligation may be with a Page 169 of 545 term, it is, therefore, necessary that it should arrive, sooner or later; otherwise, if its arrival is uncertain, the obligation is conditional. Viewing in this light the clause on which defendant relies for the enforcement of its right to buy the property, it would seem that it is not a term, but a condition. Considering the first alternative, that is, until defendant shall have obtained a loan from the National City Bank of New York, it is clear that the granting of such loan is not definite and cannot be held to come within the terms “day certain.” And if it is considered that the period given was until such time as defendant could raise money from other sources, then it is also to be indefinite and contingent, and so it is also a condition and not a term within the meaning of the law. In any event, it is apparent that the fulfillment of the condition contained in this second alternative is made to depend upon defendant’s exclusive will, and viewed in this light, the plaintiff’s obligation to sell did not arise, for, under article 1115 of the old Civil Code, “when the fulfillment of the condition depends upon the exclusive will of the debtor the conditional obligation shall be void.” Lirag Textile Mills, Inc. vs. Court of Appeals G.R. No. L-30736, April 14, 1975 63 SCRA 375 FACTS: Petitioners Lirag Textile Mills, Inc. and Felix K. Lirag seek a review by certiorari of the decision of the respondent Court of Appeals in favor of respondent. Respondent Court of Appeals affirmed the decision of the lower court, principally its conclusion that the trial court did not commit any error in its evaluation of the evidence when it found that it was not true that petitioner Lirag Textile Mills suffered pecuniary loss and in market opportunities which it used as a justification to terminate the services of plaintiff Alcantara; that it was not also true that the latter suffered from lack of skill; that, therefore, there was a violation of the written contract of employment executed by and between petitioners and private respondent Alcantara; that petitioner Lirag was responsible for inducing private respondent Alcantara to leave his employment with the Philippine Chamber of Industries where he was holding a permanent position and to accept employment with petitioner Lirag Textile Mills; and that appellee Alcantara was correctly awarded moral damages and attorney's fees. ISSUE: The issue is whether or not respondent Court was correct in sentencing the petitioners to pay respondent back salaries, moral damages and attorney's fees. HELD: As could be clearly seen from the stipulation of facts between the parties in and as a fact recognized by both the trial court and the respondent Appellate Court, the contract of employment was for an indefinite period as it shall continue without ending, subject to a resolutory period, unless sooner terminated by reason of voluntary resignation or by virtue of a valid cause or causes (the resolutory period). There is an indefinite period of time for employment agreed upon by and between petitioners and the private respondent, subject only to the resolutory period agreed upon which may end the indeterminate period of employment, namely — voluntary resignation on the part of private respondent Alcantara or termination of employment at the option of petitioner Lirag Textile Mills, but for a “valid cause or causes.” It necessarily follows that if the petitioner-employer Lirag Textile Mills terminates the employment without a “valid cause or causes,” it committed a breach of the contract of employment executed Page 170 of 545 by and between the parties. The measure of an employer's liability provided for in Republic Act 1052 as amended, is solely intended for contracts of employment without a stipulated period. It cannot possibly apply as a limitation to an employer's liability in cases where the employer commits a breach of contract by violating an indefinite period of employment expressly agreed upon through his wrongful act of terminating said employment without any valid cause or causes, which act may even amount to bad faith on the employer's part. A "period" has been defined "as a space of time which has an influence on obligation as a result of a juridical act, and either suspends their demandableness or produces their extinguishment." Obligations with a period are those whose consequences are subjected in one way or another to the expiration of said period or term. Article 1193 of the Civil Code provides that “obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when.” The Supreme Court has no doubt that the "indefinite period" of employment expressly agreed upon by and between the parties in this case is really a resolutory period because the employment is bound to terminate on a future "day certain" such as the employee's resignation or employer's termination of employment upon a valid cause or causes, like death of the employee or termination of employer's corporate existence, although it may not be known when. Petitioner Lirag Textile Mills, Inc. violated the contract of employment with private respondent Alcantara when the former terminated his services without a valid cause. The act was attended with bad faith and deceit because said petitioner made false allegations of a supposed valid cause. Daguhoy Enterprises, Inc. vs. Ponce G.R. No. L-6515, October 18, 1954 96 Phil 15 FACTS: In the year 1950, defendant-appellant Domingo Ponce was chairman and manager and his son Buhay M. Ponce was secretary-treasurer of the plaintiff corporation Daguhoy Enterprises, Inc. On June 24, Rita L. Ponce, wife of Domingo, executed in favor of plaintiff corporation a deed of mortgage over a parcel of land including the improvements thereon to secure the payment of a loan of P5, 000 granted to her by said corporation, payable within six years with interests at 12% annum. On March 10, 1951, Rita L. Ponce with the consent of her husband Domingo executed another mortgage deed amending the first one, whereby the loan was increased from P5,000 to P6,190, the terms and conditions of the mortgage remaining the same. Rita and Domingo presented the two mortgage deeds for registration in the office of the register of deeds for registrations in the office of the register of deeds, but the said register advised the two to cure the defects and furnish the necessary data. Instead of complying with the suggestion and requirements, the two withdrew the two mortgage deeds and then mortgaged the same parcel of land in favor of the Rehabilitation Finance Corporation (RFC) to secure a loan. Potenciano Gapol, the majority stockholder in the corporation, upon learning that the deeds of mortgage were not registered and that they were withdrawn from the office of the register of deeds and the land covered by the two deeds was again mortgaged to RFC, he filed a civil case against the respondents, not only for the amount of the loan of P6,190 but for other sums, possibly on the theory that the loan in question was granted by Domingo and Buhay as officers of the corporation. To account for the amount of the loan, Domingo and his son filed in court a check of RFC in the amount of P6,190 and an interesr of P266.10 in favor of the company. Thereafter, Gapol petitioned the court for permission to withdraw the amounts as payment of the loan. But because the defendants opposed said petition, the court denied it. Gapol, agreeing to the cancellation of the mortgage as soon as the amounts are withdrawn and deposited with the Bank of America, in the name of the company, filed a second petition for withdrawal. However, the defendants failed to agree, thus it was again denied. Page 171 of 545 ISSUE: Whether or not the sum in the form of an RFC check and some interest deposited in the civil case may be withdrawn to satisfy the judgment and to pay the loan of P6,190 and part of the interest due. HELD: Although the original loan of P5,000 including the increase of P1,190 was payable within six years from June 1950 and so did not become due and payable until 1956, the trial court held that under article 1198 of the Civil Code, the debtor lost the benefit of the period by reason of her failure to give the security in the form of the two deeds of mortgage and register them, including defendant’s act in withdrawing said two deeds from the office of the register of deeds and then mortgaging the same property in favor of the RFC; and so the obligation became pure and without any condition and consequently, the loan became due and immediately demandable. Likewise, even if the defendants had already deposited a certain amount in favor of the corporation, they are not yet relieved from the payment of interests from the time of the deposit because the loan is not yet paid. Victorias Planters vs. Victorias Milling Co. Inc. G.R. No. L-6648, July 25, 1955 97 PHIL 318 FACTS: From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros Occidental, executed identical milling contracts, under which the sugar central "North Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane planters of the Manapla and Cadiz districts. The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed a contract whereby Ossorio was given a period up to December 31, 1916 within which to make a study of and decide whether he would construct a sugar central or mill with a capacity of milling 300 tons of sugar cane every 24 hours and setting forth the mutual obligations and undertakings of such central and the planters and the terms and conditions under which the sugar cane produced by said planters would be milled in the event of the construction of such sugar central by Ossorio. Such central was in fact constructed by said Ossorio in Manapla, Negros Occidental, through the North Negros Sugar Co., Inc., where after the standard form of milling contracts were executed.The parties cannot stipulate as to the milling contracts executed by the planters by Victorias, Negros Occidental, other than as follows: 1) a number of them executed such milling contracts with the North Negros Sugar Co., Inc.; 2) while a number of them executed milling contracts with the Victorias Milling Co., Inc., which was likewise organized by Miguel J. Ossorio and which had constructed another Central at Victorias, Negros Occidental. Thus, after the war, all the sugar cane produced by the planters of petitioner associations, in Manapla, Cadiz, as well as in Victorias, who held milling contracts, were milled in only one central, that of the respondent corporation at Victorias. Beginning with the year 1948, and in the following years, when the planters-members of the North Negros Planters Association, Inc. considered that the stipulated 30-year period of their milling contracts executed in the year 1918 had already expired and terminated in the crop year 1947-1948, and the planters-members of the Victorias Planters Association, Inc. likewise considered the stipulated 30-year period of their milling contracts, as having likewise expired and terminated in the crop year 1948-1949, under the pertinent provisions of the standard milling contract. Notwithstanding the repeated representations made by the herein petitioners with the respondent corporation, the herein respondent has refused and still refuses to accede to the same, contending that under the provisions of the milling contract. ISSUE: Page 172 of 545 Whether or not the trial court erred in rendering its disputed decision, favoring the petitioner. HELD : The fact that the contracts make reference to "first milling" does not make the period of thirty (30) years one of thirty (30) milling years. The term "first milling" used in the contracts under consideration was for the purpose of reckoning the thirty-year period stipulated therein. Even if the thirty-year period provided for in the contracts be construed as milling years, the deduction or extension of six (6) years would not be justified. At most on the last year of the thirty-year period stipulated in the contracts the delivery of sugar cane could be extended up to a time when all the amount of sugar cane raised and harvested should have been delivered to the appellant's mill as agreed upon. Further, the parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed suspended during said period, does not mean that the happening of any of those events stops the running of the period agreed upon. It only relieves the parties from the fulfillment of their respective obligations during that time — the planters from delivering sugar cane and the central from milling it. In order that the central, the herein appellant, may be entitled to demand from the other parties the fulfillment of their part in the contracts, the latter must have been able to perform it but failed or refused to do so and not when they were prevented by force majeure such as war. To require the planters to deliver the sugar cane which they failed to deliver during the four (4) years of the Japanese occupation and the two (2) years after liberation when the mill was being rebuilt is to demand from the obligors the fulfillment of an obligation which was impossible of performance at the time it became due. JESPAJO VS CA GR No. 113626 September 27, 2002 FACTS: On February 1, 1985, said corporation, represented by its President, Jesus L. Uy, entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. Pursuant to the contract, Tan Te occupied room No. 217 of the subject building at a monthly rent of P847.00 while Co Teng occupied the Penthouse at a monthly rent of P910.00. The terms of the contract among others are the following: “PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals. The LESSEE may, at his option, terminate this contract any time by giving sixty (60) days prior written notice of termination to the LESSOR. However, violation of any of the terms and conditions of this contract shall be a sufficient ground for termination thereof by the LESSOR.” The private respondents religiously paid the monthly rental fees. On January 2, 1990, the lessor corporation sent a written notice to the lessees informing them of the formers’ intention to increase the monthly rentals on the occupied premises to P3,500.00 monthly effective February 1, 1990. The private respondents refused payment. An ejectment case was filed against them in court. ISSUE: Is the stipulation a potestative period and hence void? RULING: Page 173 of 545 The lease contract between petitioner and respondents is with a period subject to a resolutory condition. The wording of the agreement is unequivocal. The condition imposed in order that the contract shall remain effective is that the lessee is up-to-date in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong religiously paid their rent at the increasing rate of 20% annually. The agreement between the lessor and the lessees are therefore still subsisting, with the original terms and conditions agreed upon, when the petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month. The petitioner is estopped from backing out of their representations in the contract with respondent, that is, they may not renege on their own acts and representations, to the prejudice of the respondents who relied on them. BORROMEO VS CA GR No. L-22962 September 28, 1972 FACTS: Respondent Jose A Villamor was a distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in Ceb City. Defendant usually borrowed from his friend and former classmate-petitioner Canuto O. Borromeo several amounts of money. On one occasion, with some pressing obligation to Mr. Miller, defendant borrowed a large sum of money from Borromeo for which he mortgaged his land and house in Cebu City. Mr. Miller filed a civil action against the defendant and attached his properties including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered as it was not properly drawn up. Plaintiff then pressed for settlement of his obligation, but defendant instead offered to execute a document of future payment. Liquidation was made and defendant was found to have owed plaintiff the sum of PhP7220.00, for which defendant signed a promissory therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay ‘as soon as I have money.’ The note further stipulates that the defendant would waive the right of prescription as prescribed in the Civil Code of Procedure. Plaintiff did not collect within the 1st ten years since defendant did not have any property attached to his name. However after the second World War, plaintiff then pressed on his demands. The RTC granted his motion but the CA reversed the ruling claiming that said period was contrary to law? ISSUE: Is said period stipulated in the contract valid? RULING: Page 174 of 545 The CA erred in its decision. It should be noted that the wordings in said contracts should not instantly nullify the intent of the parties. The intent of the parties is clear – that an extension of time be granted to respondent for payment of his debts. In effect, the first 10 years should not be considered in the prescription of the contract and that the next ten years is granted from which the counting of the period should begin. GONZALES VS JOSE GR No. 43429 October 24, 1938 FACTS: The plaintiff Benito Gonzales filed an action to recover from the defendant the total amount of Php547.95 from two promissory notes dated June 22, 1922 and September 13, 1922. The CFI granted his petition. The defendant now assails that decision claiming that the complaint was uncertain inasmuch as the notes did not specify when the indebtedness was incurred or when it was demandable, and that, granting that plaintiff has any cause of action, the same has prescribed in accordance with law. ISSUE: Does plaintiff have a cause of action? RULING: Article 1128 of the Civil Code stipulates that if the obligation does not specify a term, but it is inferred from its nature and circumstances that it was intended to grant the debtor time for its performance, the period of the term shall be fixed by the Court. The two promissory notes are governed by Article 1128 because under the terms thereof, the plaintiff intended to grant the defendant a period within which to pay his debts. However, the action to ask the court to fix a period has already prescribed. The period of prescription is ten years, which has already elapsed from the execution of the promissory notes until the filing of the action on June 1, 1934. Page 175 of 545 BALUYUT VS POBLETE GR No. 144435 February 6, 2007 FACTS: On July 20, 1981, Guillermina Baluyut, mortgaged her house to secure a loan in the amount of PhP850,000.00 from the spouses Eulogio and Salud Poblete. The load was set to mature in one month. After a month had passed, she was unable to pay her indebtedness which led the spouses to extrajudicially foreclose the mortgage. The property was then sold on Auction to the Poblete spouses who asked Baluyut to vacate the premises. Baluyut instead filed an action for annulment of mortgage. His claim was rejected by the RTC and the CA. Petitioner claims that based on the testimony of Atty. Edwina Mendoza that the maturity of the loan which she incurred is only for one year. ISSUE: Is petitioner’s contention tenable? RULING: Evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or defeat the operation of a valid contract. In the instant case, aside from the testimony of Atty. Mendoza, no other evidence was presented to prove that the real date of maturity is one year. The terms that were thusly reduced to writing is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents of the agreement itself. The promissory note is the law between petitioner and private respondents and it clearly states that the loan shall mature in one month from date of the said Promissory Note. Page 176 of 545 MALAYAN REALTY VS UY GR No. 163763 November 10, 2006 FACTS: Malayan Realty, Inc. (Malayan), is the owner of an apartment unit known as 3013 Interior No. 90 (the property), located at Nagtahan Street, Sampaloc, Manila. In 1958, Malayan entered into a verbal lease contract with Uy Han Yong (Uy) over the property at a monthly rental of P262.00. The monthly rental was increased yearly starting 1989, and by 2001, the monthly rental was P4,671.65. On July 17, 2001, Malayan sent Uy a written notice informing him that the lease contract would no longer be renewed or extended upon its expiration on August 31, 2001, and asking him to vacate and turn over the possession of the property within five days from August 31, 2001, or on September 5, 2001. Despite Uy’s receipt of the notice on June 18, 2001, he refused to vacate the property, prompting Malayan to file before the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment, docketed as Civil Case No. 171256, and was raffled to Branch 3 thereof. The Court ruled in favor of Uy and granted an extension period of five years. ISSUE: Is respondent Uy entitled to a grant of extension by the Court? RULING: The 2nd paragraph of Article 1687 provides that in the event that the lessee has occupied the leased premises for over a year, the courts may fix a longer term for the lease. The power of the courts to establish a grace period is potestative or discretionary, depending on the particular circumstances of the case. Thus, a longer term may be granted where equities Page 177 of 545 come into play, and may be denied where none appears, always with due deference to the parties’ freedom to contract. In the present case, respondent has remained in possession of the property from the time the complaint for ejectment was filed on September 18, 2001 up to the present time. Effectively, respondent’s lease has been extended for more than five years, which time is, under the circumstances, deemed sufficient as an extension and for him to find another place to stay. KASAPIAN NG MANGGAGAWA NG COCA-COLA VS CA GR No. 159828 April 19, 2006 FACTS: On June 1998, a Collective Bargaining Agreement which was in effect between petitioner union and private respondent company expired. With the intervention of the NCMB Administrator, on December 26, 1998, both parties executed and signed a MOA providing for salary increases and other economic and non-economic benefits. As part of the MOA, 61 employees were regularized. Consequently, petitioner demanded the payment and benefits of the newly regularized employees retroactive to December 1, 1998. Petitioner then demanded renegotiation of the CBA which private respondent refused. On December 9, 1999, despite the pendency of petitioner’s complaint before the NLRC, private respondent closed its Manila and Antipolo plants resulting in the termination of employment of 646 employees. The affected employees were considered on paid leave from December 9, 1999 to February 29, 2009 and were paid their corresponding salaries. The Petitioners amended their complaint to include union busting, illegal dismissal, etc. ISSUE: Is the closure of the Manila and Antipolo plants valid? RULING: Under Article 280 of the Labor Code, all those who have been with the company for one year by said date must automatically be considered regular employees by operation of law. The 61 employees all qualify as regular employees by this provision. Page 178 of 545 The characterization of the employee’s services as no longer necessary or sustainable, and therefore properly terminable, is an exercise of business judgment on the part of the employer. The wisdom or soundness of such characterizing or decision is not subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely arbitrary and malicious action is not shown. As found by the NLRC, the private respondent’s decision to close the plant was a result of a study conducted which established that the most prudent course of action for the private respondent was to stop operations in said plants and transfer production to other more modern and technologically advanced plants of private respondent. Santos Ventura Hocorma Foundation Inc. vs. Ernesto Santos and Riverland Inc. G.R. No. 153004, November 5, 2004 441 SCRA 472 FACTS: Ernesto Santos and Santos Ventura Hocorma Foundation Inc. (SVHFI) were plaintiff and defendant, respectively, in several civil cases in different courts in the Philippines. The parties, however, executed a compromise agreement on October 16, 1990 which amicably ended all their pending litigations. The compromise agreement was judicially approved on September 30, 1991. ISSUE: Whether the respondents are entitled to legal interest. HELD: A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit adjust their difficulties by mutual consent in the manner which they agree on, and which every one of them prefers in the hope of gaining, balanced by the danger of losing. The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms should be deemed to have been included therein. This holds true even if the agreement has not been judicially approved. Page 179 of 545 The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not on September 30, 1991 when respondent wrote a demand letter to petitioner on October 28, 1992, the obligation was already due and demandable. When the petitioner failed to pay its due obligation after the demand was made, it incurred delay. Article 1169 of the Civil Code provides: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the contract. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to pay it. Petitioner delayed in the performance as he fully settled his outstanding balance on February 8, 1995 which was more than two years after the extrajudicial demand. The demand letter sent to petitioner was in accordance with an extrajudicial demand contemplated by law.The petitioner is liable for damages for the delay in the performance of its obligation as provided for in Article 1170. When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. The complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of the funds. This compensation is in the form of interest. In the absence of the agreement, the legal rate of interest shall prevail. The legal interest for loan as forebearance of money is 12% per annum to be computed from the default, from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. Manuel Melotindos vs. Melecio Tobias G.R. No. 146658, October 28, 2002 391 SCRA 299 FACTS: Eighty-seven-year old petitioner, Atty. Manuel D. Melontindos, was the lessee of the ground floor of a house in Malate, Manila. He had been renting the place since 1983 on a month-to-month basis from its owner, respondent Melecio Tobias, who was then residing in Canada. Sometime in the last quarter of 1995, owing to his sickly mother who needed constant medical attention and filial care, respondent demanded from petitioner either to pay an increased rate of monthly rentals or else to vacate the place so he and his mother could use the house during her regular medical check-up in Manila. For two (2) years nothing came out of the demand to vacate, hence, in 1997 respondent insisted upon raising the rental fee once again. On 1 June 1998, respondent asked petitioner to restore the premises to him for some essential repairs of its dilapidated structure. This time he did not offer petitioner anymore the option to pay higher rentals. The renovation of the house was commenced but had to stop midway because petitioner refused to vacate the portion he was occupying and worse he neglected to pay for the lease for four (4) months from May to August 1998. Hence for the second time, or on 19 October 1998, respondent demanded the payment of the rental arrears as well as the restoration of the house to him. On 3 February 1999, since petitioner was insisting on keeping possession of the house but did not pay the rental for January 1999, although he had settled the arrears of four (4) months, respondent was compelled to file a complaint for ejectment. Page 180 of 545 The MeTC of Manila decided the ejectment complaint in favor of respondent and ordered petitioner to vacate the leased premises and to pay rental arrears in the amount of P60,000.00 as of December 1998 and P6,000.00 for every month thereafter until he finally restored possession thereof to respondent plus attorney’s fees of P15,000.00 and the costs of suit. The RTC of Manila upheld in toto the MeTC Decision and denied the subsequent motion for reconsideration for failure to set the date of hearing thereof not later than ten (10) days from its filing. Petitioner’s recourse to the Court of Appeals by petition for review was also unsuccessful since the assailed Decision was affirmed in its entirety as the ensuing motion for reconsideration thereof was denied for late filling, i.e., the motion was filed only on 30 October 2000 beyond the fifteen (15) – day period from his receipt of the CA Decision on 9 October 2000 as shown by the registry return receipt. ISSUE: Whether or not the lower courts erred in their rulings. HELD: It is not only the evidence on record but petitioner’s pleadings themselves that confirm his default in paying the rental fees for more than three (3) months in 1999 and 1998 prior to the filing of the ejectment complaint. There is also sufficient basis for the courts a quo to conclude that respondent desperately needed the property in good faith for his own family and for the repair and renovation of the house standing thereon. These facts represent legal grounds to eject a tenant. The Petition for Review is DENIED for lack of merit. LL and Company Development vs. Huang Chao Chun G.R. No. 142378, March 7, 2000 378 SCRA 612 FACTS: The case originated from an unlawful detainer case filed by petitioner before the trial court alleging that respondents Huang Chao Chun and Yang Tung Fa violated their amended lease contract over a 1,112 square meter lot it owns, when they did not pay the monthly rentals thereon in the total amount of P4,322,900.00. It also alleged that the amended lease contract already expired on September 16, 1996 but respondents refused to surrender possession thereof plus the improvements made thereon, and pay the rental arrearages despite repeated demands. The parties entered into the amended lease contract sometime in August 1991. The same amended the lease contract previously entered into by the parties on August 8, 1991. Respondent were joined by the Tsai Chun International Resources Inc. in their answer to the Complaint, wherein they alleged that the actual lessee is the corporation. Respondents and the corporation denied petitioner’s allegations. The MTC dismissed the case. The MTC ruled that the lessees could extend the contract entered into by the parties unilaterally for another five years for reasons of justice and equity. It also ruled that the corporation’s failure to pay the monthly rentals as they fell due was justified by the fact that petitioner refused to honor the basis of the rental increase as stated in their Lease Agreement. This was affirmed by the RTC. It also held that the parties had a reciprocal obligation: unless and until petitioner presented “the increased realty tax,” private respondents were not under any obligation to pay the increased monthly rental. The decision was likewise affirmed by the Court of Appeals. ISSUE: Page 181 of 545 Whether or not the court could still extend the term of the lease, after its expiration. HELD: In general, the power of the courts to fix a longer term for a lease is discretionary. Such power is to be exercised only in accordance with the particular circumstances of a case: a longer term to be granted where equities demanding extension come into play; to be denied where none appear -- always with due deference to the parties’ freedom to contract. Thus, courts are not bound to extend the lease. Article 1675 of the Civil Code excludes cases falling under Article 1673 from those under Article 1687. Article 1673 provides among others, that the lessor may judicially eject the lessee upon the expiration of “the period agreed upon or that, which is fixed for the duration of the leases.” Where no period has been fixed by the parties, the courts, pursuant to Article 1687, have the potestative authority to set a longer period of lease. In the case, the Contract of Lease provided for a fixed period of five (5) years -- “specifically” from September 16, 1991 to September 15, 1996. Because the lease period was for a determinate time, it ceased, by express provision of Article 1669 of the Civil Code, “on the day fixed, without need of a demand.” Here, the five-year period expired on September 15, 1996, whereas the Complaint for ejectment was filed on October 6, 1996. Because there was no longer any lease that could be extended, the MeTC, in effect, made a new contract for the parties, a power it did not have. Furthermore, the extension of a lease contract must be made before the term of the agreement expires, not after. Upon the lapse of the stipulated period, courts cannot belatedly extend or make a new lease for the parties, even on the basis of equity. Because the Lease Contract ended on September 15, 1996, without the parties reaching any agreement for renewal, respondents can be ejected from the premises. Brent School vs. Zamora G.R. No. L-48494, February 5, 1990 181 SCRA 702 FACTS: The root of the controversy at bar is an employment contract in virtue of which Doroteo R. Alegre as engaged as athletic director by Brent School, Inc. at a yearly compensation of P20,000. The contract fixed a specific term for its existence, five (5) years, i.e., from July 18, 1971, the date of execution of the agreement, to July 17, 1976. Subsequent subsidiary agreements dated March 15, 1973, August 28, 1973, and September 14, 1974 reiterated the same terms and conditions, including the expiry date, as those contained in the original contract. Some three (3) months before the expiration of the stipulated period, or more precisely on April 20, 1976, Alegre was given a copy of the report filed by Brent School with the Department of Labor advising of the termination of his services effective on July 16, 1976. Alegre objected to this termination of his employment contending that since his services were necessary and desirable in the usual business of his employer, and his employment had lasted for five (5) years, he had acquired the status of a regular employee and could not be removed except for valid cause. ISSUE: The issue is whether or not Alegre’s contention is tenable. HELD: Page 182 of 545 The provisions of the Labor Code recognize the existence and legality of term employments. The case at bar is one which involves term employment. Therefore, Alegre’s employment was terminated upon the expiration of his last contract with Brent School on July 16, 1976 without the necessity of any notice. The advance written advice given the Department of Labor with copy to said petitioner was a mere reminder of the impending expiration of his contract, not a letter of termination, nor an application for clearance to terminate which needed the approval of the Department of Labor to make the termination of his services effective. In any case, such clearance should properly have been given, not denied. Lourdes Valerio Lim vs.People of the Philippines G.R. No. L-34338, November 21, 1984 133 SCRA 333 FACTS: On January 10, 1966, the appellant, a businesswoman, went to the house of Maria Ayroso and proposed to sell Ayroso’s tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff’s sister, Salud G. Bantug. Salvador Bantug drew the document dated January 10, 1966 in which appellant acknowledged the receipt of the tobacco. In the document, the parties agreed that the proceeds of the sale will be given to Ayroso as soon as the tobaccos were sold. Appellant subsequently failed to pay the entire obligation prompting Ayroso to file an estafa case against her. Both the Court of First Instance and the Court of Appeals convicted her of the crime charged. ISSUE: Whether or not the provisions of Article 1197 of the Civil Code is applicable. HELD: It is clear in the agreement that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, Page 183 of 545 which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. Anent the argument that petitioner was not an agent because the agreement does not say that she would be paid the commission if the goods were sold, the fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement constituted her as an agent with the obligation to return the tobacco if the same was not sold. Pacific Banking Corp. vs. Court of Appeals G.R. No. L-45656, May 5, 1989 173 SCRA 103 FACTS: On April 15, 1955, private respondents Joseph and Eleanor Hart organized Insular Farms Inc. (Insular), applied for and after eleven (11) months, obtained a lease from the Department of Agriculture for a period of twenty five (25) years and renewable for another twenty five (25) years. Subsequently, Joseph approached John Clarkin for financial assistance and the two signed a memorandum of agreement and that of 1,000 shares outstanding, so that Clarkin had 510 shares against the Hart’s. Hart was appointed President and General Manager of the First City National Bank. Due to financial difficulty, Insular Farms Inc. borrowed P250, 000 from Pacific Banking Corp. (Pacific) in July of 1956. On July 31, 1956, Insular executed a promissory note of P250, 000 to the bank payable in five (5) installments. Said note provided that in case there is default in the payment of any installment due; all other installments shall become due and payable. As the business further deteriorated, Hart agreed to Clarkin’s proposal that all Insular’s shares of stocks be pledged to petitioner bank in lieu of additional collateral and to insure an extension of the period to pay the July 1957 installment.On March 3, 1958, Pacific Farms Inc. was organized to engage in the same business as Insular’s. The next day, Pacific wrote Insular having later forty-eight (48) hours to pay the entire obligation. On March 7, 1958, Hart received a notice that the pledged shares of stocks of Insular would be sold to public auction to satisfy Insular’s obligation. Private respondents filed complaint for reconveyance and damages with the CFI of Manila, which was granted. The same was lifted on the motion of Pacific. Page 184 of 545 On March 21, 1958, Pacific sold Insular’s shares of stocks to its own stockholders and then resold them back to Pacific all of Insular’s assets. On September 28, 1959, Joseph filed another complaint for recovery of sum of money comprising his investments and earning against Insular. The Claims are dismissed so that the private respondents appealed to the Cain which the court granted the claims and ordered the petitioners to pay the private respondents the claims sought for. ISSUE: Whether or not the Court may fix a period in the parties’ agreement to extend the payment of the loan, including the installment which was due on or before July 1957 it being imprecise. HELD: In case the period of extension is not precise, the provisions of Article 1197 of the Civil Code should apply. The pledge executed as collateral security no longer contained a provision on installment due on or before July 1957. The pledge constituted on February 19, 1958 on the shares of stocks of Insular was sufficient consideration for the extension, considering that pledge was additional collateral required by the Pacific in addition to the continuing guaranty of Carkin. Even the ledge did not provide for dates of payment of installments; or any fixed date for maturity of the whole indebtedness. Accordingly, the date of maturity of the indebtedness should be as may be determined by the court under Article 1197 of the Civil Code. Hence, the disputed foreclosure and subsequent sale were premature. Felipe Agoncillo vs. Crisanto Javier G.R. No. L-12611, August 7, 1918 38 Phil 124 FACTS: On February 27 1904, Anastasio Alano, Jlose Alano and Florencio Alano executed in favor of the plaintiff, Dra. Marcela Marino a document stipulating that the Alanos as testamentary heirs of deceased Rev. Anastacio Cruz, would pay the sum of P2, 730.50 within one (1) year with interest of 12 percent per annum representing the amount of debt incurred by Cruz. Moreover, the agreement provided that the Alanos are to convey the house and lot bequeathed to them by Cruz in the event of failure to pay the debt in money at its maturity. No part of interest or principal due has been paid except the sum of P200 paid in 1908 by Anastacio Alano. In 1912, Anastasio died intestate. On August 8, 1914, CFI of Batangas appointed Crisanto Javier as administrator of Anastasio’s estate. On March 17, 1916, the plaintiffs filed the complaint against Florencio, Jose and Crisanto praying that unless defendants pay the debt for the recovery of which the action was brought, they be required to convey to plaintiffs the house and lot described in the agreement, that the property be appraised and if its value is found to be less than the amount of the debt, with accrued interest at the stipulation rate, judgment be rendered in favor of the plaintiffs for the balance. ISSUE: The issue is whether or not the agreement that the defendant-appellant, at the maturity of the debt, will pay the sum of the money lent by the appellees or will transfer the rights to the ownership and possession of the house and lot bequeathed to the former by the testator in favor of the appellees, is valid. Page 185 of 545 HELD: This stipulation is valid because it is simply an alternative obligation, which is expressly allowed by law. The agreement to convey the house and lot on an appraised value in the event of failure to pay the debt in money at its maturity is valid. It is simply an undertaking that if debt is not paid in money, it will be paid in another way. The agreement is not open to the objection that the agreement is pacto comisorio. It is not an attempt to permit the creditor to declare the forfeiture of the security upon the failure of the debtor to pay at its maturity. It is simply provided that if the debt is not paid in money, it shall be paid by the transfer of the property at a valuation. Such an agreement unrecorded, creates no right in rem, but as between the parties, it is perfectly valid and specific performance by its terms may be enforced unless prevented by the creation of superior rights in favor of third persons. The contract is not susceptible of the interpretation that the title to the house and lot in question was to be transferred to the creditor ipso facto upon the mere failure of the debtors to pay the debt at its maturity. The obligations assumed by the debtors were in the alternative, and they had the right to elect which they would perform. The conduct of parties shows that it was not their understanding that the right to discharge the obligation by the payment of the money was lost to the debtors by their failure to pay the debt at its maturity. The plaintiff accepted the payment from Anastacio in 1908, several years after the debt matured. It is quite clear therefore that under the terms of the contract, and the parties themselves have interpreted it, the liability of the defendant as to the conveyance of the house and lot is subsidiary and conditional, being dependent upon their failure to pay the debt in money. It must follow therefore that if the action to recover the debt was prescribed, the action to compel a conveyance of the house and lot is likewise barred, as the agreement to make such conveyance was not an independent principal undertaking, but merely a subsidiary alternative pact relating to the method by which the debt must be paid. Ong Guan Can vs. The Century Insurance Company, Ltd. G.R. No. 21196, February 6, 1924 46 Phil 592 FACTS: A building of the plaintiff was insured against fire by the defendant in the sum of P30,000.00 as well as the goods and merchandise therein contained in the sum of P15,000.00. The house and merchandise insured were burnt early in the morning of February 28, 1923 while the policies issued by the defendant in favor of the plaintiff were in force. The appellants contend that under clause 14 of the conditions of the policies, it amay rebuild the house burnt and although the house may be smaller, yet it would be sufficient indemnity to the insured for the actual loss suffered by him. ISSUE: Whether or not the defendant company may perform the alternative obligation despite the fact that the plaintiff’s consent was not secured. HELD: It must be noted that in alternative obligations, the debtor, the insurance company in this case, must notify the creditor of his election, stating which of the two prestations he is disposed to fulfill, in accordance with the law. The object of this notice is to five the creditor, that is , the Page 186 of 545 plaintiff in the instant case, opportunity to expr3ss his consent. The record shows that the appellant company did not give a formal notice of its selection to rebuild and while the witnesses speaks of the propped reconstruction of the house destroyed, yet the plaintiff id d not give his assent to the proposition, for the reason that the new house would be smaller and of materials of lower kind than those employed in the construction of the house destroyed. LEGARDA VS MIAILHE GR No. L-3435 April 28, 1951 FACTS: On June 3, 1944, plaintiffs filed a complaint against the original defendant William J.B. Burke, alleging defendant’s unjustified refusal to accept payment in discharge of a mortgage indebtedness in his favor, and praying that the latter be order (1) to receive the sum of P75,920.83; (2) to execute the corresponding deed of release of mortgage, and; (3) to pay damages in the sum of P1,000. The Court then decided in favor of plaintiff Legarda. After the war and the subsequent defeat of the Japanese occupants, defendant filed a case in court claiming that plaintiff Clara de Legarda violated her agreement with defendant, by forcing to deposit worthless Japanese military notes when they originally agreed that the interest was to be condoned until after the occupation and that payment was rendered either in Philippine or English currency. Defendant was later substituted upon death by his heir Miailhe and the Courts judged in defendant’s favor. Plaintiff now assails said decision. ISSUE: Is the tender of payment by plaintiff valid? RULING: On February 17, 1943, the only currency available was the Philippine currency, or the Japanese Military notes, because all other currencies, including the English, were outlawed by a proclamation issued by the Japanese Imperial Commander on January 3, 1942. The right to Page 187 of 545 election ceased to exist on the date of plaintiff’s payment because it had become legally impossible. And this is so because in alternative obligations there is no right to choose undertakings that are impossible or illegal. In other words, the obligation on the part of the debtor to pay the mortgage indebtedness has since then ceased to be alternative. It appears therefore, that the tender of payment in Japanese Military notes was a valid tender because it was the only currency permissible at the time and its payment was tantamount to payment in Philippine currency. However, payment with the clerk of court did not have any legal effect because it was made in certified check, and a check does not meet the requirements of legal tender. Therefore, her consignation did not have the effect of relieving her from her obligation of the defendant. ESTANISLAO REYES vs. SEBASTIANA MARTINEZ ET AL., G.R. No. 32226 . DECEMBER 29, 1930. FACTS: Estanislao Reyes filed an action against the Martinez heirs in which the plaintiff seeks, among others, to recover five parcels of land, containing approximately one thousand coconut trees, and to obtain a declaration of ownership in his own favor as against the defendants with respect to said parcels. This cause of action is founded upon the contract, and the claim by the plaintiff is to have the five parcels adjudged to him in lieu of another parcel formerly supposed to contain one thousand trees and described in paragraph 8 of the contract between him and certain of the Martinez heirs. By this contract Reyes was to be given the parcel described in clause 8, but in a proviso to said clause, the parties contracting with Reyes agreed to assure to him certain other land containing an equivalent number of trees in case he should so elect. ISSUE: Whether or not Reyes is entitled to the recovery of ownership of the five parcels of land subject of this case. RULING: The prior history of the litigation shows that Reyes elected to take and hold the parcel described in clause 8, and his right thereto has all along been recognized in the dispositions made by the court with respect to said land. In our decision in Martinez vs. Graño (51 Phil., 287, 301), it was a basal assumption that Reyes would obtain the thousand trees referred to; and we are of Page 188 of 545 the opinion that, from various steps taken in the prior litigation, Reyes must be taken to have elected to take that particular parcel and he is now estopped from asserting a contrary election to take the five parcels of land described in paragraph IX of his complaint. However, the title to the parcel of land elected by Reyes is in the heirs of Inocente Martinez and it does not appear that they have transferred said title to Reyes. It results therefore that Reyes now has a claim for damages against the parties signatory to the contract of March 5, 1921, for the value of the aforesaid property. We therefore reach the conclusion that Reyes should either have the land originally set apart for him under clauses 4 and 8 of the contract, or, in case his right thereto should fail, he should not be required to pay the judgment for P8,000 which was awarded to the Martinez heirs in Martinez vs. Graño (51 Phil., 287, 302). QUIZANA VS REDUGORIO GR No. L-6620 May 7, 1954 FACTS: This is an appeal to this Court from a decision rendered by the Court of First Instance of Marinduque, wherein the defendants-appellants are ordered to pay the plaintiff-appellee the sum of P550, with interest from the time of the filing of the complaint, and from an order of the same court denying a motion of the defendants-appellants for the reconsideration of the judgment on the ground that they were deprived of their day in court. ISSUE: What is the nature and effect of the actionable document mentioned above? RULING: The decisive question at issue, therefore, is whether the second part of the written obligation, in which the obligors agreed and promised to deliver a mortgage over the parcel of land described therein, upon their failure to pay the debt on a date specified in the proceeding paragraph, is valid and binding and effective upon the plaintiff-appellee, the creditor. This second part of the obligation in question is what is known in law as a facultative obligation, defined in article 1206 of Civil Code of the Philippines, which provides: ART. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. Page 189 of 545 There is nothing in the agreement which would argue against its enforcement. it is not contrary to law or public morals or public policy, and notwithstanding the absence of any legal provision at the time it was entered into government it, as the parties had freely and voluntarily entered into it, there is no ground or reason why it should not be given effect. It is a new right which should be declared effective at once. PURITA ALIPIO vs. COURT OF APPEALS G.R. No. 134100. September 29, 2000 FACTS: Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito, Mabuco, Hermosa, Bataan, for a period of five years ending on September 12, 1990. On June 19, 1987, he subleased the fishpond, for the remaining period of his lease, to the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios Manuel. The stipulated amount of rent was P485,600.00, payable in two installments of P300,000.00 and P185,600.00, with the second installment falling due on June 30, 1989. Each of the four sublessees signed the contract. The first installment was duly paid, but of the second installment, the sublessees only satisfied a portion thereof, leaving an unpaid balance of P50,600.00. Despite due demand, the sublessees failed to comply with their obligation, so that, on October 13, 1989, private respondent sued the Alipio and Manuel spouses for the collection of the said amount before the Regional Trial Court. In the alternative, he prayed for the rescission of the sublease contract should the defendants fail to pay the balance. Petitioner Purita Alipio moved to dismiss the case because her husband had passed away. And that any action for recovery of money, debt or interest thereon, shall be dismissed when the defendant dies before final judgment.The trial court denied petitioner's motion and held that the obligation is solidary. On appeal, the Court of Appeals affirmed the decision. ISSUE: Whether a creditor can sue the surviving spouse for the collection of a debt which is owed by the conjugal partnership of gains, or whether such claim must be filed in proceedings for the settlement of the estate of the decedent. Page 190 of 545 RULING: The Court held that the respondent cannot sue the surviving spouse of a decedent in an ordinary proceeding for the collection of a sum of money chargeable against the conjugal partnership. Because when the husband died, their conjugal partnership was automatically dissolved and debts chargeable against it is to be paid in the settlement of estate proceedings. Moreover, respondent does not cite any provision of law which provides that when there are two or more lessees, or in this case, sublessees, the latter's obligation to pay the rent is solidary.Thus, the liability of the sublessees is merely joint. Since the obligation of the Manuel and Alipio spouses is chargeable against their respective conjugal partnerships, the unpaid balance of P50,600.00 should be divided into two so that each couple is liable to pay the amount of P25,300.00. Hence, the petition is granted. PH CREDIT CORP VS CA GR No. 109648 November 22, 2001 FACTS: PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and Federico C. Lim, for [a] sum of money. The case was docketed as Civil Case No. 83-17751 before the Regional Trial Court, Branch 51, Manila. After service of summons upon the defendants, they failed to file their answer within the reglementary period, hence they were declared in default. PH Credit Corp., was then allowed to present its evidence ex-parte. The RTC judged in favor of PH Credit Corp. On July 27, 1990, a motion for the issuance of a writ of possession was filed and on October 12, 1990, the same was granted. The writ of possession itself was issued on October 26, 1990. Said order and writ of possession are now the subject of this petition. Petitioner claims that Respondent Judge erred in applying the presumption of a joint obligation in the face of the conclusion of fact and law contained in the decision showing that the obligation is solidary. ISSUE: Is the petitioner’s contention tenable? RULING: The Rules of Court requires that all available objections to a judgment or proceeding must be set up in an Omnibus Motion assailing it; otherwise, they are deemed waived. In the case at bar, the objection of private respondent to his solidary liability became available to him, only Page 191 of 545 after his real property was sold at public auction. At the time his personal properties were levied and sold, it was not evident to him that he was being held solely liable for the monetary judgment rendered against him and his co-respondents. That was why his objections then did not include those he asserted when his solidary liability became evident. In the dispositive portion of the January 31, 1984 Decision of the trial court, the word solidary neither appears nor can it be inferred therefrom. The fallo merely stated that the following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is joint, as provided by the Civil Code. We should stress that respondent’s obligation is based on the judgment rendered by the trial court. The dispositive portion or the fallo is its decisive resolution and is thus the subject of execution. The other parts of the decision may be resorted to in order to determine the ratio decidendi for the disposition. Where there is a conflict between the dispositive part and the opinion of the court contained in the text or body of the decision, the former must prevail over the latter on the theory that the dispositive portion is the final order, while the opinion is merely a statement ordering nothing. Hence the execution must conform with that which is ordained or decreed in the dispositive portion of the decision. CDCP VS ESTRELLA GR No. 147791 September 8, 2006 FACTS: On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City. However, they never reached their destination because their bus was rammed from behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed forward their seats and pinned their knees to the seats in front of them. They regained consciousness only when rescuers created a hole in the bus and extricated their legs from under the seats. They suffered physical injuries as a result. Thereafter, respondents filed a Complaint for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila, Branch 13. ISSUE: Are the accused jointly or solidarily liable? RULING: The case filed by respondents against petitioner is an action for culpa aquiliana or quasidelict under Article 2176 of the Civil Code. The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the defense of due diligence in the selection and supervision of the employee. In the instant case, the trial court found that petitioner failed to prove that it exercised the diligence of a good father of a family in the selection and supervision of Payunan, Jr. Page 192 of 545 It is well-settled in Fabre, Jr. v. Court of Appeals, that the owner of the other vehicle which collided with a common carrier is solidarily liable to the injured passenger of the same. The Peitition was thusly DENIED. REPUBLIC GLASS CORPORATION v. QUA G.R. No. 14413 July 30, 2004 FACTS: Petitioners and respondent were stockholders of Ladtek, Inc., which obtained loans from Metrobank and PDCP where they stood as sureties. Among themselves they executed Agreements for Contribution, Indemnity and Pledge of shares of Stocks, stating that in case of default in the payment of loans, the parties would reimburse each other the proportionate share of any sum that any might pay to creditors. Ladtek defaulted on its loan obligations, hence Metrobank filed a collection case. During the pendency thereof, RGC and Gervel paid Metrobank where a waiver and quitclaim in favor of the two was executed. Upon Qua’s refusal to reimburse, RGC and Gervel foreclosed the pledged shares of stocks owned by Qua at a public auction. On appeal, the CA issued the assailed decision and held that there was an implied novation of the agreement and that the payment did not extinguish the entire obligation and did not benefit Qua. Hence, the petition, where the petitioners claim the following: (1) Qua is estopped from claiming that the payment made was not for the entire obligation, due to his judicial admissions; (2) payment of the entire obligation is a condition sine qua non for the demand of reimbursement under the indemnity agreements; and (3) there is no novation in the instant case. ISSUE: (1)Whether payment of the entire obligation is an essential condition for reimbursement; and (2) Whether there was no novation. RULING: Page 193 of 545 The petition is denied. Although the Agreement does not state that payment of the entire obligation is an essential condition for reimbursement, RGC and Gervel cannot automatically claim for indemnity from Qua because Qua himself is liable directly to Metrobank and PDCP. The elements of novation are not established in the instant case. Contrary to RGC and Gervel’s claim, payment of any amount will not automatically result in reimbursement. If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment exceeded his share in the obligation. This is precisely because if a solidary debtor pays an amount equal to his proportionate share in the obligation, then he in effects pays only what is due from him. If the debtor pays less than his share in the obligation, he cannot demand reimbursement because his payment is less than his actual debt. INDUSTRIAL MANAGEMENT VS NLRC GR No. 101723 May 11, 2000 FACTS: This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the National Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of the Decision dated March 10, 1987, thereby holding that the liability of the six respondents in a case adjudicated by the NLRC is solidary despite the absence of the word "solidary" in the dispositive portion of the Decision, when their liability should merely be joint. ISSUE: Is the petitioner’s liability pursuant to the Decision of the Labor Arbiter dated March 10, 1987, solidary or not? RULING: In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6) respondents in the case below is solidary, thus their liability should merely be joint. Page 194 of 545 Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment. Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of respondents therein is solidary, the correction -- which is substantial -- can no longer be allowed in this case because the judgment has already become final and executory. METRO MANILA TRANSIT CORPORATION vs. THE COURT OF APPEALS G.R. No. 104408 1993 June 21, 1993 FACTS: On August 28, 1979, plaintiff-appellant Nenita Custodio boarded as a paying passenger a public utility jeepney with plate No. D7 305 PUJ, then driven by defendant Agudo Calebag and owned by his co-defendant Victorino Lamayo, bound for her work at Dynetics Incorporated located in Bicutan, Taguig, Metro Manila, where she then worked as a machine operator earning P16.25 a day. While the passenger jeepney was travelling at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila Transit Corp. bus with plate no. 3Z 307 PUB (Philippines) '79 driven by defendant Godofredo C. Leonardo was negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound for its terminal at Bicutan. As both vehicles approached the intersection of DBP Avenue and Honeydew Road they failed to slow down and slacken their speed; neither did they blow their horns to warn approaching vehicles. As a consequence, a collision between them occurred, the passenger jeepney ramming the left side portion of the MMTC bus. The collision impact caused plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger jeepney and (she) was thrown out therefrom, falling onto the pavement unconscious with serious physical injuries. She was brought to the Medical City Hospital where she regained consciousness only after one (1) week. Thereat, she was confined for twenty-four (24) days, and as a consequence, she was unable to work for three and one half months (3 1/2). A complaint for damages was filed by herein private respondent, who being then a minor was assisted by her parents, against all of therein named defendants following their refusal to pay the expenses incurred by the former as a result of the collision. Said defendants denied all the material allegations in the complaint and pointed an accusing finger at each other as being the party at fault. Page 195 of 545 ISSUE: Whether the evidence presented during the trial with respect to the proof of due diligence of petitioner MMTC in the selection and supervision of its employees, particularly driver Leonardo, is sufficient. RULING: With the allegation and subsequent proof of negligence against the defendant driver and of an employer-employee relation between him and his co-defendant MMTC in this instance, the case is undoubtedly based on a quasi-delict under Article 2180. When the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in the selection and supervision of employees, the employer is likewise responsible for damages, the basis of the liability being the relationship of pater familias or on the employer's own negligence. Hence, the court consistently held that where the injury is due to the concurrent negligence of the drivers of the colliding vehicles, the drivers and owners of the said vehicles shall be primarily, directly and solidarily liable for damages and it is immaterial that one action is based on quasi-delict and the other on culpa contractual, as the solidarity of the obligation is justified by the very nature thereof. Hence, decision of respondent Court of Appeals is affirmed. INCIONG VS. COURT OF APPEALS G.R. No. 96405, June 26, 1996 FACTS: On February 3, 1983, petitioner Baldomero L. Inciong, Jr. together with Rene C. Naybe and Gregorio D. Pantanosas signed a promissory note in the amount of P50, 000.00 holding themselves jointly and severally liable to private respondent Philippine Bank of Communications. The promissory note was due on May 5, 1983. Said due date expired without the promissors having paid their obligation. On November 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment thereof. On December 11, 1983, private respondent also sent registered mail a final letter of demand to Rene C. Naybe. Since both obligors did not respond to the demand made, private respondent filed on January 24, 1986 a complaint for collection of the sum of P50, 000.00 against the three (3) obligors. On January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayed by herein private respondent. Meanwhile, only the summons addressed to petitioner was served for the reason that defendant Naybe had gone to Saudi Arabia. The lower court rendered its decision holding petitioner solidarily liable and to pay herein respondent bank the amount of P50, 000.00 plus interest thereon. Petitioner appealed the said decision to the Court of Appeals. The respondent court, however, affirmed the decision of the lower court. The petitioner moved for reconsideration, which was later on denied by the respondent Court of Appeals. ISSUE: Page 196 of 545 Whether or not the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation. HELD: The dismissal of the complaint against Naybe and Pantanosas did not constitute a release of petitioner’s obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. Petitioner signed the promissory note as a solidary co-maker and not as a guarantor. A 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. The promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection Under Article 1207 of the Civil Code, when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. PHILIPPINE BLOOMING MILLS VS CA GR No. 142381 October 15, 2003 FACTS: This is a petition for review on certiorari to annul the Decision dated 16 July 1999 of the Court of Appeals in CA-G.R. CV No. 39690, as well as its Resolution dated 17 February 2000 denying the motion for reconsideration. The Court of Appeals affirmed with modification the Decision dated 31 August 1992 rendered by Branch 113 of the Regional Trial Court of Pasay City ("trial court"). The trial court’s Decision declared petitioner Alfredo Ching ("Ching") liable to respondent Traders Royal Bank ("TRB") for the payment of the credit accommodations extended to Philippine Blooming Mills, Inc. ("PBM"). The petition is a thinly veiled attempt to make the Supreme Court reconsider its decision in the prior case of Traders Royal Bank v. Court of Appeals. ISSUE: Is Ching is liable for obligations PBM contracted after execution of the Deed of Suretyship? RULING: Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM "may now be indebted or may hereafter become indebted" to TRB. The law expressly allows a suretyship for "future debts (Article 2053). Page 197 of 545 Ching would like the Court to rule that his liability is limited, at most, to the amount stated in PBM’s rehabilitation plan. In claiming this reduced liability, Ching invokes Article 1222. In granting the loan to PBM, TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBM’s failure to pay in full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full PBM’s loan in case PBM fails to pay in full for any reason, including its insolvency. TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBM’s loan. This is clear from Article 1216 of the Civil Code whereby the creditor may proceed against any one of the solidary debtors. ASSET BUILDERS CORPORATION vs. STRONGHOLD INSURANCE COMPANY, INC. G.R. No. 187116 October 18, 2010 FACTS: (Lucky Star) as part of the completion of its project to construct the ACG Commercial On April 28, 2006, Asset Builders Corporation (ABC) entered into an agreement with Lucky Star Drilling & Construction Corporation Complex 3 Lucky Star was to supply labor, materials, tools, and equipment including technical supervision to drill one (1) exploratory production well on the project site. The total contract price for the said project was P1,150,000.00. To guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of petitioner. The first, SURETY BOND G(16) No. 141558, dated May 9, 2006, covers the sum of P575,000.004 or the required downpayment for the drilling work. On May 20, 2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax) as advance payment, representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling work. By July 18, 2006, just a few days before the agreed completion date of 60 calendar days, Lucky Star managed to accomplish only ten (10) % of the drilling work. On the same date, petitioner sent a demand letter to Lucky Star for the immediate completion of the drilling work with a threat to cancel the agreement and forfeit the bonds should it still fail to complete said project within the agreed period. On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for Damages to Lucky Star ISSUE: Whether or not Stronghold should be held liable. Page 198 of 545 RULING: Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the surety’s solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not change in any material way the obligee’s relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance does not give the surety the right to intervene in the principal contract. The surety’s role arises only upon the obligor’s default, at which time, it can be directly held liable by the obligee for payment as a solidary obligor. In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time frame despite petitioner’s demand for completion, it was already in delay. Due to this default, Lucky Star’s liability attached and, as a necessary consequence, respondent’s liability under the surety agreement arose. In fine, respondent should be answerable to petitioner on account of Lucky Star’s non-performance of its obligation as guaranteed by the performance bond. Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement from a codebtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus, respondent is entitled to reimbursement from Lucky Star for the amount it may be required to pay petitioner arising from its bonds. ESPARWA SECURITY, v. LICEO DE CAGAYAN UNIVERSITY G.R. No. 150402 Nov 8, 2006 FACTS: On 1 December 1997, Eparwa and LDCU, entered into a Contract for Security Services. On 21 December 1998, 11 security guards (“security guards”) whom Eparwa assigned to LDCU from 1 December 1997 to 30 November 1998, filed a complaint before the NLRC Regional Arbitration Branch No. 10 in Cagayan de Oro City. The complaint was filed against both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13th month pay, rest day, service incentive leave, night shift differential, overtime pay, and payment for attorney’s fees. The Labor Arbiter found that the security guards are entitled to wage differentials and premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of the Labor Code. LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiter’s decision on the security guards’ entitlement to salary differential but challenged the propriety of the amount of the award. LDCU alleged that security guards not similarly situated were granted uniform monetary awards and that the decision did not include the basis of the computation of the amount of the award. ISSUE: Is LDCU alone ultimately liable to the security guards for the wage differentials and premium for holiday and rest day pay? RULING: Articles 106, 107 and 109 of the Labor Code read:Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract with another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be Page 199 of 545 paid in accordance with the provisions of this Code.Article 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. Article 109. Solidary liability. — The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. This joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance of the provisions therein including the statutory minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractor’s employees for purposes of paying the employees their wages should the contractor be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the workers’ performance of any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution. For the security guards, the actual source of the payment of their wage differentials and premium for holiday and rest day work does not matter as long as they are paid. This is the import of Eparwa and LDCU’s solidary liability. Creditors, such as the security guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as between themselves, two solidary debtors are liable for only half of the payment. LDCU’s ultimate liability comes into play because of the expiration of the Contract for Security Services. There is no privity of contract between the security guards and LDCU, but LDCU’s liability to the security guards remains because of Articles 106, 107 and 109 of the Labor Code. . DIMAYUGA vs. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK Division G.R. No. 42542 Aug 5, 1991 FACTS: On February 6, 1962, petitioner borrowed from the plaintiff-respondent, the sum of ten thousand (P10,000.00) pesos as evidenced by a promissory note executed and signed by Pedro Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on May 7, 1962 with interest at the rate of ten percent (10%) per annum in case of non-payment at maturity as evidenced by and in accordance with the terms and conditions of the promissory note executed jointly and severally by defendants. In the aforementioned promissory note, Carlos Dimayuga bound himself to pay jointly and severally with Pedro Tanjuatco interest at the rate of 10% per annum on the said amount of P10,000.00 until fully paid. Moreover, both undertook to "jointly and severally authorize the respondent Philippine Commercial and Industrial Bank, at its option to apply to the payment of this note any and all funds, securities or other real or personal property of value which hands (sic) on deposit or otherwise belonging to anyone or all of us. Upon the default of the promissors to pay, a complaint was filed on July 11, 1969 by the PCIB for some of money. Defendant Carlos Dimayuga, however, had remitted to the plaintiff -respondent the amount totalling P4,000.00 by way of partial payments made from August 1, 1969 to May 7, 1970 as evidenced by corresponding receipts thereto. These payments were nevertheless applied to past interests, charges and partly on the principal. On May 28, 1974, the trial court rendered a decision holding defendants jointly and severally liable to pay the plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid plus P913.96 as attorneys' fees. On July 11, 1974, petitioner filed a motion alleging that since Pedro Tanjuatco died on December 23, 1973, the money claim of the respondents should be dismissed and prosecuted against the estate of the late Pedro Tanjuatco. On June 22, 1974, the trial court denied the motion Page 200 of 545 for lack of merit.Not satisfied, the petitioner appealed to the respondent court. The Court of Appeals dismissed the appeal. Hence, this petition. ISSUE: Whether the position of the petitioner that Pedro Tanjuatco having died on December 23, 1973, the money claim of PCIB should be dismissed and prosecuted against the estate of the late Tanjuatco. RULING: From the evidence presented, there can be no dispute that Carlos Dimayuga bound himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the obligation with PCIB in the amount of P10,000.00 plus 10% interest per annum. In addition, as above stated, in case of non-payment, they undertook among others to jointly and severally authorize respondent bank, at its option to apply to the payment of this note, any and all funds, securities, real or personal properties, etc. belonging to anyone or all of them. Otherwise stated, the promissory note in question provides in unmistakable language that the obligation of petitioner Dimayuga is joint and several with Pedro C. Tanjuatco. It is well settled under the law and jurisprudence that when the obligation is solidary, the creditor may bring his action in toto against the debtors obligated in solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. "Hence, there is nothing improper in the creditor's filing of an action against the surviving solidary debtors alone, instead of instituting a proceeding for the settlement of the estate of the deceased debtor wherein his claim could be filed." The notice is undoubtedly left to the solidary creditor to determine against whom he will enforce collection. Thus, the appeal interposed by petitioner-appellant is dismissed for lack of merit and the decision of the Court of First Instance is Affirmed in toto. CERNA VS CA GR No. L-48359 March 30, 1993 FACTS: On or about October 16, 1972, Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note worded as follows: FOR VALUE RECEIVED, I, CELERINO DELGADO, with postal address at 98 K-11 St., Kamias Rd., Quezon City, promise to pay to the order of CONRAD C. LEVISTE, NINETY (90) DAYS after date, at his office at 215 Buendia Ave., Makati, Rizal, the total sum of SEVENTEEN THOUSAND FIVE HUNDRED (P17,500.00) PESOS, Philippine Currency, without necessity of demand, with interest at the rate of TWELVE (12%) PERCENT per annum On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by him. And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna (petitioner), he also mortgaged a "Taunus" car owned by the latter. The period lapsed without Delgado paying the loan. This prompted Leviste to file a collection suit docketed as Civil Case No. 17507 with the Court of First Instance of Rizal, Branch XXII against Delgado and petitioner as solidary debtors. The Court of Appeals held that petitioner and Delgado were solidary debtors. ISSUE: Are petitioner and Delgado solidary debtors? RULING: Page 201 of 545 Only Delgado signed the promissory note and accordingly, he was the only one bound by the contract of loan. Nowhere did it appear in the promissory note that petitioner was a codebtor. The law is clear that "(c)ontracts take effect only between the parties. But by some stretch of the imagination, petitioner was held solidarily liable for the debt allegedly because he was a co-mortgagor of the principal debtor, Delgado. This ignores the basic precept that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." We have already stated that the contract of loan, as evidenced by the promissory note, was signed by Delgado only. Petitioner had no part in the said contract. Thus, nowhere could it be seen from the agreement that petitioner was solidarily bound with Delgado for the payment of the loan. NAZARENO VS. COURT OF APPEALS G.R. No. 131641, February 23, 2000 FACTS: Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. After the death of Maximino, Sr., Romeo filed an intestate case in the Court of First Instance of Cavite, Branch XV, where the case was docketed as Sp. Proc. No. NC-28. Upon the reorganization of the courts in 1983, the case was transferred to the Regional Trial Court of Naic, Cavite. Romeo was appointed administrator of his father’s estate. In the course of the intestate proceedings, Romeo discovered that his parents had executed several deeds of sale conveying a number of real properties in favor of his sister, Natividad. One of the deeds involved six lots in Quezon City which were allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for the total amount of P47,800.00. ISSUE: Whether or not the Deed of Absolute of Sale can be equated as a divisible obligation. HELD: The Supreme court held that the Deed of Absolute Sale is an indivisible contract founded on an indivisible obligation. As such, it being indivisible, it can not be annulled by only one of them. And since this suit was filed only by the estate of Maximino A. Nazareno, Sr. without Page 202 of 545 including the estate of Aurea Poblete, the present suit must fail. The estate of Maximino A. Nazareno, Sr. can not cause its annulment while its validity is sustained by the estate of Aurea Poblete. An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the thing which is the object thereof. The indivisibility refers to the prestation and not to the object. The Deed of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible because the performance of the contract cannot be done in parts, otherwise the value of what is transferred is diminished. Petitioners are mistaken in basing the indivisibility of a contract on the number of obligors. In any case, if petitioners’ only point is that the estate of Maximino, Sr. alone cannot contest the validity of the Deed of Sale because the estate of Aurea has not yet been settled, the argument would nonetheless be without merit. The validity of the contract can be questioned by anyone affected by it. A void contract is inexistent from the beginning. Hence, even if the estate of Maximino, Sr. alone contests the validity of the sale, the outcome of the suit will bind the estate of Aurea as if no sale took place at all. ALONZO VS SAN JUAN GR No. 137549 February 11, 2005 FACTS: A complaint for recovery of possession was filed by Aurelio P. Alonzo and Teresita A. Sison against Jaime and Perlita San Juan docketed as Civil Case No. Q-96-29415 before the Regional Trial Court (RTC) of Quezon City, Branch 77. In their Complaint, plaintiffs alleged that they are the registered owners of a parcel of land. At around June of 1996, plaintiffs discovered that a portion on the left side of the said parcel of land with an area of one hundred twenty-five (125) square meters, more or less, was occupied by the defendants for more than a year, without their prior knowledge or consent. A demand letter was sent to the defendants in August of 1996 requiring them to vacate the property but they refused to comply; hence, the filing of the Complaint. During the pendency of the case, the parties agreed to enter into a Compromise Agreement which the trial court approved in a Judgment. Alleging that they failed to abide by the provisions of the Compromise Agreement by their failure to pay the amounts due thereon, plaintiffs sent a letter demanding that the defendants vacate the premises. Plaintiffs subsequently filed an Amended Motion for Execution. Acting on the motion, the trial court issued its Order dated 11 August 1998 denying the motion. ISSUE: Is the RTC decision correct? Page 203 of 545 RULING: In herein case, the respondents failed to discharge their burden of proving payment. Even assuming that payments were made, it has not been shown to the full satisfaction of this Court whether the payments were made specifically to satisfy respondents’ obligation under the Compromise Agreement, nor were the circumstances under which the payments were made explained, taking into consideration the conditions of the Compromise Agreement. Respondents’ contract with the petitioners have the force of law between them. Respondents are thus bound to fulfill what has been expressly stipulated therein. Items 11 and 12 of the Compromise Agreement provided, in clear terms, that in case of failure to pay on the part of the respondents, they shall vacate and surrender possession of the land that they are occupying and the petitioners shall be entitled to obtain immediately from the trial court the corresponding writ of execution for the ejectment of the respondents. This provision must be upheld, because the Agreement supplanted the Complaint itself. When the parties entered into a Compromise Agreement, the original action for recovery of possession was set aside and the action was changed to a monetary obligation. Once approved judicially, the Compromise Agreement can not and must not be disturbed except for vices of consent or forgery. DAVID VS CA GR No. 115821 October 13, 1999 FACTS: The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, then presiding, issued a writ of attachment over real properties covered by TCT Nos. 80718 and 10289 of private respondents. In his Decision dated October 31, 1979, Judge Diaz ordered private respondent Afable to pay petitioner P66,500.00 plus interest from July 24, 1974, until fully paid, plus P5,000.00 as attorney's fees, and to pay the costs of suit. On June 20, 1980, however, Judge Diaz issued an Order amending said Decision, so that the legal rate of interest should be computed from January 4, 1966, instead of from July 24, 1974. The amended Decision in the decretal portion reads: WHEREFORE, judgment is hereby rendered against the defendant, Valentin Afable Jr., ordering him to pay to the plaintiff the sum of P66,500.00 plus the legal rate of interest thereon from January 4, 1966 up to the time the same is fully paid plus the amount of P5,000.00 as and for attorney's fees and to pay the costs of the suit." ordering the private respondent Afable to pay the petitioner the sum of P66,500.00 plus the legal rate of interest thereon from July 24, 1974, plus the amount of P5,000.00 as attorney's fees and to pay the costs of suit. The CA affirmed the judgment. The affirmation now comes to review before the SC. ISSUE: Page 204 of 545 Should the payment of interest be simple or compound? RULING: As therein held, Article 2212 contemplates the presence of stipulated or conventional interest which has accrued when demand was judicially made. In cases where no interest had been stipulated by the parties, as in the case of Philippine American Accident Insurance, no accrued conventional interest could further earn interest upon judicial demand. When the judgment sought to be executed ordered the payment of simple "legal interest" only and said nothing about payment of compound interest, but the respondent judge orders payment of compound interest, then, he goes beyond the confines of a judgment which had become final. REPUBLIC OF THE PHILIPPINES vs.THI THU THUY T. DE GUZMAN G.R. No. 175021 June 15, 2011 FACTS: Respondent is a contractor accredited by the PNP for the supply of office and construction materials and equipment, and for the delivery of various services such as printing and rental, repair of various equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts. On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher for the acquisition of various building materials amounting to (P2,288,562.60) for the construction of a four-storey condominium building with roof deck at Camp Crame, Quezon City. Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief, executed a Contract of Agreement8 (the Contract) wherein MGM, for the price of P2,288,562.60, undertook to procure and deliver to the PNP the construction materials itemized in the purchase order attached to the Contract. Respondent claimed that after the PNP Chief approved the Contract and purchase order, MGM, on March 1, 1996, proceeded with the delivery of the construction materials, as evidenced by Delivery Receipts and Sales Invoices and the "Report of Public Property Purchase" issued by the PNP’s Receiving and Accounting Officers to their Internal Auditor Chief. Respondent asseverated that following the PNP’s inspection of the delivered materials on March 4, 1996, the PNP issued two Disbursement Vouchers; one in the amount of P2,226,147.26 in favor of MGM, and the other, in the amount of P62,415.34, representing the three percent (3%) withholding tax, in favor of the BIR. ISSUE: What is the proper interest to be awarded? RULING: Page 205 of 545 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.84 Since the obligation herein is for the payment of a sum of money, the legal interest rate to be imposed, under Article 2209 of the Civil Code is six percent (6%) per annum. Marques vs. Far East Bank G.R. No. 171379, January 10, 2011 Facts: Maxilite Technologies, Inc. (Maxilite) is a domestic corporation engaged in the importation and trading of equipment for energy-efficiency systems. Jose N. Marques (Marques) is the President and controlling stockholder of Maxilite. Far East Bank and Trust Co. (FEBTC) is a local bank which handled the financing and related requirements of Marques and Maxilite. Marques and Maxilite maintained accounts with FEBTC. Accordingly, FEBTC financed Maxilite’s capital and operational requirements through loans secured with properties of Marques under the latter’s name. Far East Bank Insurance Brokers, Inc. (FEBIBI) is a local insurance brokerage corporation while Makati Insurance Company is a local insurance company. Both companies are subsidiaries of FEBTC. On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction with FEBTC, in the sum of US$80,765.00, for the shipment of various high-technology equipments from the United States, with the merchandise serving as collateral. The foregoing importation was covered by a trust receipt document signed by Marques on behalf of Maxilite. Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated the procurement and processing from Makati Insurance Company of four separate and independent fire insurance policies over the trust receipted merchandise. Finding that Maxilite failed to pay the insurance premium in the sum of P8,265.60 for Insurance Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995, FEBIBI sent written reminders to FEBTC, dated 19 October 1994, 24 January 1995, and 6 March 1995, to debit Maxilite’s account. On 24 and 26 October 1994, Maxilite fully settled its trust receipt account. On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J. Cuenco Avenue, Cebu City, where Maxilite’s office and warehouse were located. As a result, Maxilite suffered losses amounting to at least P2.1 million, which Maxilite claimed against the fire insurance policy with Makati Insurance Page 206 of 545 Company. Makati Insurance Company denied the fire loss claim on the ground of non-payment of premium. FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim. Issue: Whether FEBTC, FEBIBI and Makati Insurance Company are jointly and severally liable to pay respondents the full coverage of the subject insurance policy? Held: Contrary to Maxilite’s and Marques’ view, FEBTC is solely liable for the payment of the face value of the insurance policy and the monetary awards stated in the Court of Appeals’ decision. Suffice it to state that FEBTC, FEBIBI, and Makati Insurance Company are independent and separate juridical entities, even if FEBIBI and Makati Insurance Company are subsidiaries of FEBTC. Absent any showing of its illegitimate or illegal functions, a subsidiary’s separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary shall be confined to those arising in their respective business. Besides, the records are bereft of any evidence warranting the piercing of corporate veil in order to treat FEBTC, FEBIBI, and Makati Insurance Company as a single entity. Likewise, there is no evidence showing FEBIBI’s and Makati Insurance Company’s negligence as regards the non-payment of the insurance premium. PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs.MENCHAVEZ G.R. No. 160545 March 9, 2010 FACTS: On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6) months. To secure the payment of the loan, Pantaleon issued a promissory note. As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest. Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorney’s fees, P1,000.00 per court appearance and costs of suit. ISSUE: What is the proper interest rate to be awarded? RULING: In the present case, the respondent issued a check for P1,000,000.00. In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be Page 207 of 545 computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon. Article 1956 of the Civil Code specifically mandates that "no interest shall be due unless it has been expressly stipulated in writing." Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza and Ching v. Nicdao that collection of interest without any stipulation in writing is prohibited by law. Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code." THERESA MACALALAG vs. PEOPLE OF THE PHILIPPINES G.R. No. 164358 December 20, 2006 FACTS: On two separate occasions, particularly on 30 July 1995 and 16 October 1995, petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella), each in the amount of P100,000.00, each bearing an interest of 10% per month. Macalalag consistently paid the interests. Finding the interest rates so burdensome, Macalalag requested Estrella for a reduction of the same to which the latter agreed. On 16 April 1996 and 1 May 1996, Macalalag executed Acknowledgment/Affirmation Receipts promising to pay Estrella the face value of the loans in the total amount of P200,000.00 within two months from the date of its execution plus 6% interest per month for each loan. Under the two Acknowledgment/Affirmation Receipts, she further obligated herself to pay for the two (2) loans the total sum of P100,000.00 as liquidated damages and attorney's fees in the total sum of P40,000.00 as stipulated by the parties the moment she breaches the terms and conditions thereof. As security for the payment of the aforesaid loans, Macalalag issued two Philippine National Bank (PNB) Checks on 30 June 1996, each in the amount of P100,000.00, in favor of Estrella. However, the said checks were dishonored for the reason that the account against which the same was drawn was already closed. Estrella sent a notice of dishonor and demand to make good the said checks to Macalalag, but the latter failed to do so. Hence, Estrella filed two criminal complaints for Violation of Batas Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC) of Bacolod City.The MTCC found the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged and is likewise ordered to pay as civil indemnity the total amount of P200,000.00 with interest at the legal rate from the time of the filing of the Page 208 of 545 informations until the amount is fully paid; less whatever amount was thus far paid and validly deducted from the principal sum originally claimed. On appealed, the Court of Appeals, affirmed the RTC and the MTCC decisions with modification to the effect that accused was convicted only of one (1) count of Violation of Batas Pambansa Blg. 22. ISSUE: Whether petitioner`s payments over and above the value of the said checks would free her from criminal liability. RULING: The Court argued that, “Even if we agree with petitioner Macalalag that the interests on her loans should not be imputed to the face value of the checks she issued, petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that before the institution of the two cases against her, she has made a total payment of P156,000.00. Applying this amount to the first check (No. C-889835), what will be left is P56,000.00, an amount insufficient to cover her obligation with respect to the second check. As stated above, when Estrella presented the checks for payment, the same were dishonored on the ground that they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed to pay the full face value of the second check issued. Only a full payment of the face value of the second check at the time of its presentment or during the five-day grace period15 could have exonerated her from criminal liability. A contrary interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the interest of the banking system and the legitimate public checking account user,16 as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check. Hence, the Petition is denied. Tan vs. Court f Appeals G.R. No. 116285, October 19, 2001 367 SCRA 571 FACTS: On May 14, 1978, petitioner Antonio Tan obtained two (2) loans in the total principal amount of four (4) million pesos from respondent Cultural Center of the Philippines (CCP), evidenced by 2 promissory notes with maturity dates on May 14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial payments he had the loans restructured by respondent CCP, and petitioner accordingly executed a promissory note on August 31, 1979 in the amount of P3,411,421.32 payable in five (5) installments. Petitioner Tan, however, failed to pay any of the supposed installments and again offered another mode of paying restructured loan which respondent CCP refused to consent. On May 30, 1984, respondent, thru counsel, wrote petitioner demanding the full payment, within ten (10) days, from receipt of the letter, of the latter’s restructured loan which as of April 30, 1984 amounted to P6, 088,735.03. On August 29, 1984, respondent CCP filed with the RTC of Manila a complaint for a collection of a sum of money. Eventually, petitioner was ordered to pay said amount, with 25% thereof as attorney’s fees and P500, 000.00 as exemplary damages. The Court of Appeals, on appeal, reduced the attorney’s fees to 5% of the principal amount to be collected from petitioner and deleted the exemplary damages. Page 209 of 545 Still unsatisfied with the decision, petitioner comes to this Court seeking for the deletion of the attorney’s fees and the reduction of the penalties. ISSUE: The issue is whether or not interests and penalties may be both awarded in the case at bar. HELD: YES. Article 1226 of the New Civil Code provides that in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. In the case at bar, the promissory note expressly provides for the imposition of both interest and penalties in case of default on the part of the petitioner in the payment of the subject restructured loan, and since the said stipulation has the force of law between the parties and does not appear to be inequitable or unjust, the said stipulation must be respected. EASTERN SHIPPING INES, INC vs. HON. COURT OF APPEALS G.R. No. 97412 Jul 12, 1994 FACTS: On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel `SS EASTERN COMET' owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Services, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without. On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignees' warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same "As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants. Page 210 of 545 ISSUE: a.)Whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or form the date the decision appealed from is rendered; and b)Whether the applicable rate of interest is twelve percent or six percent. HELD: When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 2. When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. PCI vs Ng Shueng Ngor A.M. No. P-05-1973. March 18, 2005 FACTS: Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng Sheung Ngor, doing business under the name and style ‘Ken Marketing,’ Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or Reformation of Documents and Contracts. Respondents Antonio A. Bellones and Generoso B. Regalado are the sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City. For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other real property by petitioner. ISSUE: Did respondents violate the Rules of Court? Page 211 of 545 RULING: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff Regalado violated EPCIB’s right to choose which property may be levied upon to be sold at auction for the satisfaction of the judgment debt. Thus, it is clear that when EPCIB offered its real properties, it exercised its option because it cannot immediately pay the full amount stated in the writ of execution and all lawful fees in cash, certified bank check or any other mode of payment acceptable to the judgment obligee. In the case at bar, EPCIB cannot immediately pay by way of Manager’s Check so it exercised its option to choose and offered its real properties. With the exercise of the option, Sheriff Regalado should have ceased serving notices of garnishment and discontinued their implementation. This is not true in the instant case. Sheriff Regalado was adamant in his posture even if real properties have been offered which were sufficient to satisfy the judgment debt. POLOTAN VS CA GR No. 119379 September 25, 1998 FACTS: Private respondent Security Diners International Corporation (Diners Club), a credit card company, extends credit accomodations to its cardholders for the purchase of goods and other services from member establishments. Said goods and services are reimbursed later on by cardholders upon proper billing. Petitioner Rodelo G. Polotan, Sr. applied for membership and credit accmodations with Diners Club in October 1985. The application form contained terms and conditions governing the use and availment of the Diners Club card, among which is for the cardholder to pay all charges made through the use of said card within the period indicated in the statement of account and any remaining unpaid balance to earn 3% interest per annum plus prime rate of Security Bank & Trust Company. Notably, in the application form submitted by petitioner, Ofricano Canlas obligated himself to pay jointly and severally with petitioner the latter’s obligation to private respondent. Upon acceptance of his application, petitioner was issued Diners Club card No. 3651212766-3005. As of May 8, 1987, petitioner incurred credit charges plus appropriate interest and service charges in the aggregate amount of P33,819.84 which had become due and demandable. Demands for payment made against petitioner proved futile. Hence, private respondent filed a Complaint for Collection of Sum of Money against petitioner before the lower court. ISSUE: Page 212 of 545 Is petitioner liable for payment of credit charges plus interest and service charges? RULING: A contract of adhesion is one in which one of the contracting parties imposes a readymade form of contract which the other party may accept or reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. In this case, petitioner, in effect, claims that the subject contract is one-sided in that the contract allows for the escalation of interests, but does not provide for a downward adjustment of the same in violation of Central Bank Circular 905. Admittedly, the second paragraph of the questioned proviso which provides that “the Cardholder hereby authorizes Security Diners to correspondingly increase the rate of such interest in the event of changes in prevailing market rates x x x” is an escalation clause. However, it cannot be said to be dependent solely on the will of private respondent as it is also dependent on the prevailing market rates. Escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative but based on reasonable and valid grounds. Obviously, the fluctuation in the market rates is beyond the control of private respondent. NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) V. PHILIPPINE NATIONAL BANK G.R. No. 148753 2004 Jul 30 FACTS: On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by Petitioner NSBCI authorizing the company to x x x apply for or secure a commercial loan with the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank and the NSBCI, using or mortgaging the real estate properties registered in the name of its President and Chairman of the Board Petitioner Eduardo R. Dee as collateral; and authorizing petitionerspouses to secure the loan and to sign any and all documents which may be required by Respondent PNB, and that petitioner-spouses shall act as sureties or co-obligors who shall be jointly and severally liable with Petitioner NSBCI for the payment of any [and all] obligations. On August 15, 1989, Resolution No. 77 was approved by granting the request of Respondent PNB thru its Board NSBCI for an P8 Million loan broken down into a revolving credit line of P7.7M and an unadvised line of P0.3M for additional operating and working capital to mobilize its various construction projects. The loan of Petitioner NSBCI was secured by a first mortgage on the following: a) three (3) parcels of residential land located at Mangaldan, Pangasinan; b) six (6) parcels of residential land situated at San Fabian, Pangasinan; and c) a residential lot and improvements thereon located at Mangaldan. The loan was further secured by the joint and several signatures of Petitioners Eduardo Dee and Arcelita Marquez Dee, who signed as accommodationmortgagors since all the collaterals were owned by them and registered in their names. Moreover Petitioner NSBCI executed three promissory notes. In addition, petitioner corporation Page 213 of 545 also signed the Credit Agreement dated August 31, 1989 relating to the ‘revolving credit line’ of P7.7 Million x x x and the Credit Agreement dated September 5, 1989 to support the ‘unadvised line’ of P300,000.00. On August 31, 1989, petitioner-spouses executed a ‘Joint and Solidary Agreement’ (JSA) in favor of Respondent PNB ‘unconditionally and irrevocably binding themselves to be jointly and severally liable with the borrower for the payment of all sums due and payable to the Bank under the Credit Document. Later on, Petitioner NSBCI failed to comply with its obligations under the promissory notes. On June 18, 1991, Petitioner Eduardo R. Dee on behalf of Petitioner NSBCI sent a letter to the Branch Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment of interests and restructuring of its loan for another term. Subsequently, NSBCI tendered payment to Respondent PNB of three (3) checks aggregating P1,000,000.00. In a meeting held on August 12, 1991, Respondent PNB’s representative, Mr. Rolly Cruzabra, was informed by [Petitioner] Eduardo Dee of his intention to remit to Respondent PNB postdated checks covering interests, penalties and part of the loan principals of his due account. On August 22, 1991, Respondent bank’s Crispin Carcamo wrote Petitioner Eduardo Dee, informing him that Petitioner NSBCI’s proposal was acceptable, provided the total payment should be P4,128,968.29 that would cover the amount of P1,019,231.33 as principal, P3,056,058.03 as interests and penalties, and P53,678.93 for insurance[,] with the issuance of post-dated checks to be dated not later than November 29, 1991. On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch Manager reiterating his proposals for the settlement of Petitioner NSBCI’s past due loan account amounting to P7,019,231.33. Petitioner Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in favor of Respondent PNB Upon presentment, however, x x x check nos. 03500087 and 03500088 dated September 29 and October 29, 1991 were dishonored by the drawee bank and returned due to a ‘stop payment’ order from petitioners. On November 12, 1991, PNB’s Mr. Carcamo wrote Petitioner Eduardo Dee informing him that unless the dishonored checks were made good, said PNB branch ‘shall recall its recommendation to the Head Office for the restructuring of the loan account and refer the matter to its legal counsel for legal action. Petitioners did not heed respondent’s warning and as a result, the PNB Dagupan Branch sent demand letters to Petitioner NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr. Avenue, Quezon City, asking it to settle its past due loan account. Petitioners nevertheless failed to pay their loan obligations within the time frame given them and as a result, Respondent PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale The sheriff foreclosed the real estate mortgage and sold at public auction the mortgaged properties of petitioner-spouses, with Respondent PNB being declared the highest bidder for the amount of P10,334,000.00. Copies of the Sheriff’s Certificate of Sale were sent by registered mail to petitioner corporation’s address petitioner-spouses’ address. On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to petitioners at their address informing them that the properties securing their loan account had been sold at public auction, that the Sheriff’s Certificate of Sale had been registered with the Registry of Deeds of Pangasinan and that a period of one (1) year therefrom was granted to them within which to redeem their properties. Petitioners failed to redeem their properties within the one-year redemption period and so Respondent PNB executed a Deed of Absolute Sale consolidating title to the properties in its name. Respondent PNB informed Petitioner NSBCI that the proceeds of the sale conducted on February 26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43 and thus demanded from the latter the deficiency of P2,172,476.43 plus interest and other charges until the amount was fully paid. Petitioners refused to pay the above deficiency claim which compelled Respondent PNB to institute the instant Complaint for the collection of its deficiency claim. ISSUE: Page 214 of 545 Whether or not the escalation clause is valid and whether or not it is violative of the principle of mutuality of contracts. RULING: In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the first, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to increase the rate “within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x,” without even giving prior notice to petitioners. The Court holds that petitioners’ accessory duty to pay interest did not give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement. The “unilateral determination and imposition” of increased rates is “violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.” One-sided impositions do not have the force of law between the parties, because such impositions are not based on the parties’ essential equality. Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long-term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the “right to assent to an important modification in their agreement” and would also negate the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts “dependent exclusively upon the uncontrolled will” of respondent and was therefore void. Besides, the pro forma promissory notes have the character of a contract d’adhésion, “where the parties do not bargain on equal footing, the weaker party’s the debtor’s participation being reduced to the alternative ‘to take it or leave it.’” PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs.MENCHAVEZ G.R. No. 160545, March 9, 2010 FACTS: On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6) months. To secure the payment of the loan, Pantaleon issued a promissory note. As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest. Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorney’s fees, P1,000.00 per court appearance and costs of suit. ISSUE: What is the proper interest rate to be awarded? RULING: In the present case, the respondent issued a check for P1,000,000.00. In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a Page 215 of 545 total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon. Article 1956 of the Civil Code specifically mandates that "no interest shall be due unless it has been expressly stipulated in writing." Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza and Ching v. Nicdao that collection of interest without any stipulation in writing is prohibited by law. Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code." JOSEPH CHAN, WILSON CHAN and LILY CHAN VS. BONIFACIO S. MACEDA, JR 402 SCRA G.R. No. 142591 352 2003 Apr 30 FACTS: On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan from the Development Bank of the Philippines for the construction of his New Gran Hotel Project in Tacloban City. Thereafter, on September 29, 1976, respondent entered into a building construction contract with Moreman Builders Co., Inc. They agreed that the construction would be finished not later than December 22, 1977. Respondent purchased various construction materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of Wilson and Lily Chan, herein petitioners. The deposit was free of charge. Unfortunately, Moreman failed to finish the construction of the hotel at the stipulated time. Hence, on February 1, 1978, respondent filed with the then CFI an action for rescission and damages against Moreman. On November 28, 1978, the CFI rendered its Decision rescinding the contract between Moreman and respondent and awarding to the latter P445,000.00 as actual, moral and liquidated damages; P20,000.00 representing the increase in the construction materials; and P35,000.00 as attorney’s fees. Moreman interposed an appeal to the Court of Appeals but the same was dismissed on March 7, 1989 for being dilatory. He elevated the case to the SC via a petition for review on certiorari. In a Decision dated February 21, 1990, the Court denied the petition. On April 23, 1990 an Entry of Judgment was issued. Meanwhile, during the pendency of the case, respondent ordered petitioners to return to him the construction materials and equipment which Moreman deposited in their warehouse. Petitioners, however, told them that Moreman withdrew those construction materials in 1977. Page 216 of 545 Hence, on December 11, 1985, respondent filed with the RTC an action for damages with an application for a writ of preliminary attachment against petitioners. ISSUE: Whether or not respondent have the right to demand the release of the said materials and equipment or claim for damages. RULING: At the outset, the case should have been dismissed outright by the trial court because of patent procedural infirmities. Even without such serious procedural flaw, the case should also be dismissed for utter lack of merit. Under Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Specifically, in an action against the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may have been designated in the contract. The only pieces of evidence respondent presented to prove the contract of deposit were the delivery receipts. Significantly, they are unsigned and not duly received or authenticated by Moreman, petitioners or respondent or any of their authorized representatives. Hence, those delivery receipts have no probative value at all. While our laws grant a person the remedial right to prosecute or institute a civil action against another for the enforcement or protection of a right, or the prevention or redress of a wrong, every cause of action ex-contractu must be founded upon a contract, oral or written, express or implied. Moreover, respondent also failed to prove that there were construction materials and equipment in petitioners’ warehouse at the time he made a demand for their return. Considering that respondent failed to prove (1) the existence of any contract of deposit between him and petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction materials in petitioners’ warehouse at the time of respondent’s demand to return the same, we hold that petitioners have no corresponding obligation or liability to respondent with respect to those construction materials. PNB VS ENCINA GR 174055. February 12, 2008 FACTS: The Philippine National Bank (PNB) assails the Decision of the Court of Appeals dated 15 May 2005, rendered in CA-G.R. CV No. 79094 which, among others, declared null and void the interest rate imposed by PNB on the loan obtained from it by respondents and the consequent extrajudicial foreclosure of the properties offered as security for the loan. Respondents Encina spouses acquired several loans from PNB from which it failed to pay within due time. Encina avers that there ought to be longer gestation periods on its part being engaged in a business of agricultural character. ISSUE: Was there a violation of the Usury Law? RULING: As borne by the records, the Encina spouses never challenged the validity of their loan and the accessory contracts with PNB on the ground that they violated the principle of mutuality of contracts in view of the provision therein that the interest rate shall be set by management. Their only contention concerning the interest rate was that the charges imposed by the bank violated the Usury Law. This was the essence of the second cause of action alleged in the complaint. Page 217 of 545 It should be definitively ruled in this regard that the Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983 and removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. After all, the fundamental tenet is that the law is deemed part of the contract. Thus, the trial court was correct in ruling that the second cause of action was without basis. RESTITUTA IMPERIAL VS. ALEX JAUCIAN G.R. No. 149004, April 14, 2004 427 SCRA 517 FACTS: The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate promissory notes and issued several checks as guarantee for payment. When the said loans became overdue and unpaid, especially when the defendant’s checks were dishonored, plaintiff made repeated oral and written demands for payment. The loans were covered by six (6) separate promissory notes executed by defendant. The face value of each promissory notes is bigger [than] the amount released to defendant because said face value already included the interest from date of note to date of maturity. Said promissory notes indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant, penalties and attorney’s fees. The trial court’s clear and detailed computation of petitioner’s outstanding obligation to respondent was affirmed by the CA for being convincing and satisfactory. However, the CA held that without judicial inquiry, it was improper for the RTC to rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. ISSUES: (1) Whether or not the penalties charged per month is in the guise of hidden interest. Page 218 of 545 (2) Whether or not the reduction of attorney’s fees by the RTC is reasonable. RULING: Iniquitous and unconscionable stipulations on interest rates, penalties and attorney’s fees are contrary to morals. Consequently, courts are granted authority to reduce them equitably. If reasonably exercised, such authority shall not be disturbed by appellate courts. Article 1229 of the Civil Code states thus:“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.” In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case. What may be iniquitous and unconscionable in one may be totally just and equitable in another. In the present case, iniquitous and unconscionable was the parties’ stipulated penalty charge of 5 percent per month or 60 percent per annum, in addition to regular interests and attorney’s fees. Also, there was partial performance by petitioner when she remitted P116,540 as partial payment of her principal obligation of P320,000. Under the circumstances, the trial court was justified in reducing the stipulated penalty charge to the more equitable rate of 14 percent per annum. The Promissory Note carried a stipulation for attorney’s fees of 25 percent of the principal amount and accrued interests. Strictly speaking, this covenant on attorney’s fees is different from that mentioned in and regulated by the Rules of Court. “Rather, the attorney’s fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause.” So long as the stipulation does not contravene the law, morals, public order or public policy, it is binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution. Nevertheless, it appears that petitioner’s failure to comply fully with her obligation was not motivated by ill will or malice. The twenty-nine partial payments she made were a manifestation of her good faith. Again, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise, we hold that the RTC’s reduction of attorney’s fees -- from 25 percent to 10 percent of the total amount due and payable -- is reasonable. TEDDY PABUGAIS VS. DAVE SAHIJWANI G.R. No. 156846, February 23, 2004 423 SCRA 596 FACTS: Pursuant to an “Agreement And Undertaking” on December 3, 1993, petitioner Teddy G. Pabugais, in consideration of the amount of P15,487,500.00, agreed to sell to respondent Dave P. Sahijwani a lot containing 1,239 square meters located at Jacaranda Street, North Forbes Park, Makati, Metro Manila. Respondent paid petitioner the amount of P600,000.00 as option/reservation fee and the balance of P14,887,500.00 to be paid within 60 days from the execution of the contract, simultaneous with delivery of the owner’s duplicate Transfer Certificate of Title in respondent’s name the Deed of Absolute Sale; the Certificate of Non-Tax Delinquency on real estate taxes and Clearance on Payment of Association Dues. The parties further agreed that failure on the part of respondent to pay the balance of the purchase price entitles petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by the latter of the necessary documents obliges him to return to respondent the said option/reservation fee with interest at 18% per annum. Petitioner failed to deliver the required documents. In compliance with their agreement, he returned to respondent the latter’s P600,000.00 option/reservation fee by way of Far East Bank & Trust Company Check, which was, however, dishonored. Petitioner claimed that he twice tendered to respondent, through his counsel, the amount of P672,900.00 (representing the P600,000.00 option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August 3, 1994) in the form of Far East Bank & Page 219 of 545 Trust Company Manager’s Check No. 088498, dated August 3, 1994, but said counsel refused to accept the same. On August 11, 1994, petitioner wrote a letter to respondent saying that he is consigning the amount tendered with the Regional Trial Court of Makati City. On August 15, 1994, petitioner filed a complaint for consignation. Respondent’s counsel, on the other hand, admitted that his office received petitioner’s letter dated August 5, 1994, but claimed that no check was appended thereto. He averred that there was no valid tender of payment because no check was tendered and the computation of the amount to be tendered was insufficient, because petitioner verbally promised to pay 3% monthly interest and 25% attorney’s fees as penalty for default, in addition to the interest of 18% per annum on the P600,000.00 option/reservation fee. On November 29, 1996, the trial court rendered a decision declaring the consignation invalid for failure to prove that petitioner tendered payment to respondent and that the latter refused to receive the same. Petitioner appealed the decision to the Court of Appeals. Petitioner’s motion to withdraw the amount consigned was denied by the Court of Appeals and the decision of the trial court was affirmed. On a motion for reconsideration, the Court of Appeals declared the consignation as valid in an Amended Decision dated January 16, 2003. It held that the validity of the consignation had the effect of extinguishing petitioner’s obligation to return the option/reservation fee to respondent. Hence, petitioner can no longer withdraw the same. Unfazed, petitioner filed the instant petition for review contending that he can withdraw the amount deposited with the trial court as a matter of right because at the time he moved for the withdrawal thereof, the Court of Appeals has yet to rule on the consignation’s validity and the respondent had not yet accepted the same. ISSUE: Whether or not assigning the amount of P672, 900.00 to Atty. De Guzman is prohibited. RULING: The amount consigned with the trial court can no longer be withdrawn by petitioner because respondent’s prayer in his answer that the amount consigned be awarded to him is equivalent to an acceptance of the consignation, which has the effect of extinguishing petitioner’s obligation. Moreover, petitioner failed to manifest his intention to comply with the “Agreement And Undertaking” by delivering the necessary documents and the lot subject of the sale to respondent in exchange for the amount deposited. Withdrawal of the money consigned would enrich petitioner and unjustly prejudice respondent. The withdrawal of the amount deposited in order to pay attorney’s fees to petitioner’s counsel, Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids lawyers from acquiring by assignment, property and rights which are the object of any litigation in which they may take part by virtue of their profession. Furthermore, Rule 10 of the Canons of Professional Ethics provides that “the lawyer should not purchase any interest in the subject matter of the litigation which he is conducting.” The assailed transaction falls within the prohibition because the Deed assigning the amount of P672,900.00 to Atty. De Guzman, Jr., as part of his attorney’s fees was executed during the pendency of this case with the Court of Appeals. In his Motion to Intervene, Atty. De Guzman, Jr., not only asserted ownership over said amount, but likewise prayed that the same be released to him. That petitioner knowingly and voluntarily assigned the subject amount to his counsel did not remove their agreement within the ambit of the prohibitory provisions. To grant the withdrawal would be to sanction a void contract. Wherefore, in view of all the foregoing, the instant petition for review is denied. Page 220 of 545 LO VS. COURT OF APPEALS G.R. No. 141434, September 23, 2003 411 SCRA 523 FACTS: Antonio Lo acquired two parcels of land with an office constructed thereon in an auction sale on November 9,1995 from the Land Bank of the Philippines. At variance, private respondent National Onion Growers Cooperative Marketing Association, Inc. was the occupant of the parcels of land under a subsisting contract of lease with Land Bank. The lease was valid until December 31,1995. Upon the expiration of the lease contract, Lo demanded that private respondent vacate the leased premises and surrender its possession to him. The agricultural cooperative refused on the ground of a contest against petitioner’s acquisition of the parcels of land in an action for annulment of sale, redemption and damages. On February 23,1996, petitioner filed an action for ejectment and subsequently asked for imposition of the contractually stipulated penalty of P5, 000 per day of delay in surrendering the possession of the property. Thereafter, the trial court decided the case in favor of petitioner. Private respondent was ordered to vacate the leased premises. On appeal to the Regional Trial Court, the MTC decision was affirmed in toto. The agricultural cooperative then elevated the case to the court of Appeals that affirmed the lower court’s decision but modified that the penalty to be imposed must be reduced to P1, 000. Unsatisfied with the decision of the CA, Lo filed the instant petition for review. Page 221 of 545 ISSUE: The issue raised by the petitioner is whether or not the Court of Appeals has the authority to reduce the penalty awarded by the trial court, the same having been stipulated by the parties in their Contract of Lease. RULING: YES, the Court of Appeals has the authority to do so. While courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy, courts may equitably reduce a stipulated penalty if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with. This power of the courts is explicitly sanctioned by Article 1229 of the Civil Code which provides that 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 courts if it is iniquitous or unconscionable. LIGUTAN VS. COURT OF APPEALS G.R. No. 138677, February 12, 2002 376 SCRA 561 FACTS: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on May 11, 1981 a loan in the amount of P120, 000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of attorney’s fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on September 8, 1981; the bank, however, granted an extension but only until December 29, 1981. When petitioners defaulted on their obligation, the bank filed on November 3, 1982 with the RTC of Makati, Branch 143 a complaint for recovery of the due amount. On September 5, 1988, the trial court ruled in favor of the bank. It ordered the petitioners to pay, jointly and severally, the sum of P114, 416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty charge, commencing on May 20, 1982 until fully paid. The Court of Appeals affirmed it but deleted the 2% service charge pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision, both parties moved for reconsideration. Petitioners prayed for the reduction of the 5% penalty for being unconscionable. The bank, on the other hand, asked that the payment of interest and penalty be commenced not Page 222 of 545 from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties. The petitioner, before this Court, contended, among others that the 15.189% interest and the penalty of 3% per month or 36% per annum imposed by private respondent bank on petitioner’s loan obligation are still manifestly exorbitant, iniquitous and unconscionable. Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of the peso. ISSUE: Whether or not the penalty is reasonable and not iniquitous. RULING: NO, the penalty is not unreasonable. The Court held that the question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confide to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. v. Court of Appeals, for example, the Court has tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular payment is made by the payment. The stipulated penalty might even be deleted such as when there has been substantial performance in good faith by the obligor, when the penalty clause itself suffers from fatal infirmity, and when exceptional circumstances so exist as to warrant it. In the case at bar, given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, this Court sees no cogent ground to ruling of the appellate court. PASCUAL VS. RAMOS G.R. No. 144712, July 4, 2002 384 SCRA 105 FACTS: Ramos alleged that on June 3, 1987, for and in consideration of P150,000, the Spouses Pascual executed in his favor a Deed of Absolute Sale with Right to Repurchase over 2 parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan. This document was annotated at the back of the title. The Pascuals did not exercise their right to repurchase the property within the stipulated one-year period; hence, Ramos prayed that the title or ownership over the subject parcels of land and improvements thereon be consolidated in his favor. In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150, 000 but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no agreement limiting the period within which to exercise the right to repurchase and that they had even overpaid Ramos. The trial court found that the transaction between the parties was actually a loan in the amount of P150, 000.00, the payment of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the Pascuals had made payments in the total sum of P344,000.00, and that with interest at 7% per annum, they had overpaid the loan by P141,500.00. Accordingly, in its Decision of March 15, 1995 the trial court ruled in favor of the defendants. The Pascuals interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition; (b) Ramos had no legal capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no Page 223 of 545 cause of action; (e) the claim or demand set forth in Ramos’s pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) Ramos has not complied with the required confrontation and conciliation before the barangay. ISSUE: Whether or not the contract entered into was a contract of loan and not a contract of sale. HELD: After the trial court sustained petitioners’ claim that their agreement with Ramos was actually a loan with real estate mortgage, the Pascuals should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per month. The Pascuals should accept not only the favorable aspect of the court’s declaration that the document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same document should be paid. Besides, when Ramos moved for a reconsideration of the decision of the trial court pointing out that the interest rate to be used should be 7% per month, the Pascuals never lifted a finger to oppose the claim. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the Pascuals made an issue of the interest rate and prayed for its reduction to 12% per annum. It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy. The interest rate of 7% per month was voluntarily agreed upon by Ramos and the Pascuals. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with Ramos. Neither is there a showing that in their contractual relations with Ramos, the Pascuals were at a disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil Code. FIRST METRO INVESTMENTS VS. ESTE DEL SOL MOUNTAIN RESERVE, INC. G.R. No. 141811, November 15, 2001 369 SCRA 99 FACTS: Petitioner First Metro granted respondent Este Del Sol a loan of P7,385,500.00 to finance the construction and development of respondent’s Mountain Reserve. The loan was payable on 36 consecutive monthly amortizations and the interest on the loan was egged at 16% per annum based on the diminishing balance. In case of deposit, a 20% one time penalty on the amount due and such mount shall bear interest at the highest rate permitted by law plus liquidated damages at the rate of 2% per month and attorney’s fees equivalent to 25% of the sum sought to be received. In accordance with the terms of the loan agreement, respondents Este Del Sol executed several documents as security for payment. Moreover, it executed as provided for by the loan agreement, an Underwriting Agreement whereby Forts Metro shall underwrite on a best efforts basis the public offering of one hundred twenty thousand common shares of Este Del Sol. In addition, the Underwriting Agreement provided that for supervising the public offering of the shares, Este Del Sol shall pay First Metro an annual supervision fee of P 200,000.00 per annum and a consultancy fee of P 332,500.00 per annum for a period of four (4) consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a consultancy Agreement was also executed whereby Este Del Sol engaged the services of petitioner First Metro for a fee as consultant to render general consultancy services. Since Este Del Sol failed to meet the schedule of repayment it appeared to have incurred a total obligation of P 12,679,630.98. Thus First Metro caused the extra judicial foreclosure of Page 224 of 545 the real estate mortgage where First Metro was the highest bidder. However, there remained a balance of P 6,863,297.73 Hence, First Metro instituted an instant collection suit against respondent, including those other respondents who have securities of the loan of respondent Este Del Sol by virtue of their continuing surety agreements. ISSUE: Whether or not Underwriting and Consultancy Agreements are mere subterfuges to camouflage the usurious interest charged by First Metro. RULING: The form of the contra ct enters into between the petitioner and respondent is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form. An apparently legal loan is usurious when it is intended that additional compensation for the loan providing for payment bye the borrower for the leaders services which of little value or which are not in fact to be rendered. Here, the loan Underwriting and Consultancy Agreement are not separate and independent transactions rather they were executed and delivered contemporaneous by and executed by First Metro as essential conditions for the grant of the loan. However, in usurious loans, the entire obligation does not become void because the unpaid principal debt still stands and remains. DOMEL TRADING CORPORATION V. COURT OF APPEALS and G.R. No. 84813, September 22, 1999 FACTS: On June 3, 1981, private respondent NDC-NACIDA Raw Materials Corporation (NNRMC) ordered from petitioner Domel Trading Corporation (DOMEL) 22,000 bundles of buri midribs at P16.00 per bundle to be delivered within 30 working days from the date of the opening of a letter of credit. On June 4, 1981, private respondent again ordered 300,000 pieces of rattan poles at P9.65 per piece for a total price of P2,895,000.00, also to be delivered within 60 days from the date of the opening of a letter of credit. The specifications and provisions of both transactions, which served as their agreement, were printed in two separate purchase orders. In accordance with their agreement, NNRMC, on July 9, 1981, opened a letter of credit with Philippine National Bank (PNB) in favor of DOMEL in the amount of P1,997,000.00 to cover its order for 206,943 pieces of rattan poles. On July 13, 1981, NNRMC opened another letter of credit in favor of DOMEL in the amount of P1,236,000.00 to cover the price of 93,057 pieces of rattan poles and 22,000 bundles of buri midribs. In violation of their agreement, DOMEL failed to deliver the buri midribs and rattan poles within the stipulated period. Thus, on September 23, 1981, DOMEL and NNRMC agreed to restructure the latter’s purchase orders in a Memorandum of Agreement. Under the agreement, NNRMC extended the expiry date of its two letters of credit to November 5, 1981. It also reduced the quantity of the rattan poles from 300,000 to only 100,000 pieces while the quantity of buri Page 225 of 545 midribs remained at 22,000 bundles. Further, DOMEL undertook to deliver the goods on or before October 31, 1981. However, no deliveries were again made on the said date. Consequently, demands were made by NNRMC on January 19, 1982 for the payment of damages, which demands were ignored by DOMEL. Hence, NNRMC filed a complaint for damages before the Regional Trial Court of Pasig. After trial, judgment was rendered in favor of plaintiff and against defendant. Both DOMEL and NNRMC assail the above-quoted decision in separate petitions which have been consolidated before this Court. Based on the pleadings submitted by the parties, this Court has resolved to give due course to the petition and decides the same. DOMEL submits it has not breached its contractual obligation to NNRMC inasmuch as it was the fault of the latter for not inspecting and examining the rattan poles as well as the buri midribs already shipped by the suppliers and stored in the former’s warehouse. In short, DOMEL claims that NNRMC must first inspect the ordered items before delivery could be made. ISSUE: Whether or not the decision of the Court of Appeals in CA-G.R. CV No. 08952 which modified the decision of the lower court granting private respondent’s prayer for damages, was correct. RULING: While the Supreme Court did not agree with the Court of Appeals that the failure of NNRMC to conduct the inspection mitigated DOMEL’s liability for liquidated damages, nevertheless, it agreed in the reduction of the amount of liquidated damages to only P150,000.00. The amount of P2,000.00 as penalty for every day of delay is excessive and unconscionable. Article 1229 of the Civil Code states, thus:“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.” Article 2227 of the Civil Code likewise states, thus: “Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.” In determining whether a penalty clause is “iniquitous and unconscionable,” a court may very well take into account the actual damages sustained by a creditor who was compelled to sue the defaulting debtor, which actual damages would include the interest and penalties the creditor may have had to pay on its own from its funding source. In this case, NNRMC was only able to prove that it incurred the amounts of P5,995.83 as opening charges on the two Letters of Credit and an additional P1,911.85 as amendment charges on the same Letters of Credit. Other than that, NNRMC failed to prove it had suffered actual damages resulting from the nondelivery of the specified buri midribs and rattan poles. In fact, what it allegedly suffered are what it calls “Foregone Interest Income” and “Foregone Profit” from the two Letters of Credit. Such could not be considered as actual damages. Page 226 of 545 MEDEL VS CA G.R. No. 131622 November 27, 1998 FACTS: The Medel spouses obtained several loans of which they were unable to pay in full. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They executed a promissory note indicating payment for the balance. On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges. ISSUE: What is the interest that must be collected on the instant case? RULING: Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan Page 227 of 545 in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684? We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent". Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. 20 The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable. PACITA REFORMINA v TOMOL, JR. NO. L-59096 October 11, 1985 FACTS: An action for Recovery of Damages for Injury to Person and Loss of Property was filed. RTC rendered judgment in favor of the plaintiffs and against the defendants, ordering the latter to pay jointly and severally the former. On appeal, the decision was modified. In the computation of the legal interest decreed sought to be executed, petitioners claimed that it should be at 12% per annum invoking Central bank Circular. The respondents, however, insist that said legal interest should be at the rate of 6% per annum pursuant to Article 2209 of the New Civil code ISSUE: How much by way of legal interest, should a judgment debtor pay the judgment creditor? RULING: The judgment spoken of and referred to are judgments in litigations involving loans or forbearances of any money, goods or credits. Any other kind of monetary judgment does not fall within the coverage of the said law for it is not within the ambit of authority granted to the Central Bank. The Monetary Board may not tread on forbidden grounds. To make Central Bank Page 228 of 545 Circular No. 416 applicable to any case other than those specifically provided for by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising legislative functions which are beyond the intendment of PD No. 116. The petition is without merit, the same is dismissed with costs against petitioners. SONNY LO v. KJS ECO-FORMWORK SYSTEM G.R. No. 149420 October 8, 2003 FACTS: KJS is engaged in the sale of steel scaffoldings while Lo is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. He paid a downpayment in the amount of P150,000. The balance was made payable in 10 monthly installments. Respondent delivered the equipments. Petitioner was able to pay the first two monthly installments. His business suffered financial difficulties and he was unable to settle his obligations despite demands. On October 11, 1990, the parties executed a Deed of Assignment whereby petitioner assigned to respondent his receivables from Jonero Realty. However, Jonero refused to honor the Dees of Assign,nt because it claimed that petitioner was indebted to it. Petitioner refused to pay claiming that that his obligation had been extinguished when they executed the deed of assign,ent. RTC dismissed the complaint on the ground that the assignment of credit extinguished the obligation. Court of appeals reversed the decision and ordered Lo to pay the plaintiff KJS with legal interests of 6% per annum until fully paid. ISSUE: Whether or not the Deed of Assignment extinguished the obligation Page 229 of 545 RULING: An assignment of credit, by virtue of which the owner of the credit, the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation and without the consent of the debtor transfers his credit and accessory rights to another, the assignee, who acquires the power to enforce it against the debtor. Petitioner, as assignor, is bound to warrant the existence and legality of the credit at the tim of the sale or assignment. When Jonero claimed that it was no longer indebted to petitioner since the latter had also as unpaid obligation to it, it essentially meant that its obligation to the petitioner has been extinguished by compensation. Petitioner was found in breach of his obligation under the Deed of assignment. Court of Appeals decision is affirmed. PHILPPINE NATIONAL BANK v. CA and LORETO TAN G.R. No. 108630 April 2, 1996 FACTS: Private respondent Loreto Tan is the owner of a parcel of land abutting the national highway. Expropriaton proceedings were instituted by the government. Tan filed a motion requesting the issuance of an order for the release to him of the expropriation price of P32,480.00. PNB was required by the trial court to release to tan the amount and deposited it by the government. Petitioner, through its Assistant Manager Tagamolila, issued a check and delivered the same to Sonia Gonzaga on the strength of the SPA, without tan’s knowledge, consent and authority. RTC ordered petitioner and Tagamolila to pay private respondent jointly and severally the amount worth legal interests, damages and attorney’s fees. Ca affirmed the decision. ISSUE: Whether the Special Power of Attorney authorized Sonia Gonzaga to receive payment intended for private respondent RULING: There is no question that no payment had ever been made to private respondent as to the check was never delivered to him. Under Article 1233 of the Civil Code, a debt shall not be Page 230 of 545 understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. The burden of proof of sad payment lies with the debtor. The decision of the court of appeals is affirmed with the modification that the award by the RTC of P5,000 as attorney’s fees is reinstated. CATHAY PACIFIC AIRWAYS v.Spouses Vazquez G.R. No. 150843 March 14, 2003 FACTS: Cathay is a common carrier engaged in transporting passenger and goods by air. Spouses Vazquez are Gold Card Members of its Marc Polo Club. The Spouses, with two friends and a maid went to HongKong for business. Spouses have the Business class boarding passes and economy class for the maid. When boarding, the ground stewardess declared a seat change from Business class to First Class for the Vazquez. The Spouses refused but after insistence by the stewardess, the spouses gave in. When the arrived in Manila, spouses demanded to be indemnified in the amount of one million “ for the humiliation and embarrassment” caused by the employee. RTC ruled for the Vazquez ordering Cathay Airways to pay the spouses, stating further that there was a breach of contract not because of overbooking but because the latter pushed through with the upgrading despite objections of the spouses. ISSUE: Is an involuntary upgrading of an airline’s accommodation at no extra costs cause a breach of contract of carriage? RULING: Page 231 of 545 The Vazquezes are aware of the privileges, but such privileges may be waived. Spouses should have been consulted first. It should not have been imposed on them over their vehement objection. By insisting of the upgrade, Pacific Airways breached its contract of carriage with the Vazquezes. Nominal damages are adjudicated in order that the right of the plaintiff, which have been violated may be vindicated or recognized and not for indemnifying the plaintiff for any loss suffered by him. Petition is partly granted. Court of Appeals’ decision is modified. Moral damages deleted, nominal damages reduced to P5,000. CITIBANK v.SABENIANO G.R.No. 156132, October 16, 2006 FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to do commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners Citibank and FNCB Finance. Respondent filed a complaint against petitioners claiming to have substantial deposits, the proceeds of which were supposedly deposited automatically and directly to respondent’s account with the petitioner Citibank and that allegedly petitioner refused to despite repeated demands. Petitioner alleged that respondent obtained several loans from the former and in default, Citibank exercised its right to set-off respondent’s outstanding loans with her deposits and money. RTC declared the act illegal, null and void and ordered the petitioner to refund the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her indebtedness. CA affirmed the decision entirely in favor of the respondent. ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her deposits and money in Citibank-Geneva Page 232 of 545 RULING: 1. 2. 3. 4. Petition is partly granted with modification. Citibank is ordered to return to respondent the principal amount of P318,897.34 and P203,150.00 plus 14.5% per annum The remittance of US $149,632.99 from respondent’s Citibank-Geneva account is declared illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its equivalent using exchange rate at the time of payment. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000, attorney’s fees of P200,000. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive off interest. TELENGTAN BROTHERS and SONS v.UNITED STATES LINES G.R.No. 132284,February 28,2006 FACTS: Petitioner is a domestic corporation while US Lines is a foreign corporation engaged in overseas shipping. It was made applicable that consignees who fail to take delivery of their containerized cargo within the 10-day free period are liable to pay demurrage charges. On June 22, 1981, US Lines filed a suit against petitioner seeking payment of demurrage charges plus interest and damages. Petitioner incurred P94,000 which the latter refused to pay despite repeated demands. Petitioner disclaims liability alleging that it has never entered into a contract nor signed an agreement to be bound by it. RTC ruled that petitioner is liable to respondent and all be computed as of the date of payment in accordance with Article 1250 of the Civil Code. CA affirmed the decision. ISSUE: Whether the re-computation of the judgment award in accordance with Article 1250 of the Civil Code proper RULING: The Supreme Court found as erroneous the trial court’s decision as affirmed y the Court of Appeals. The Court holds that there has been an extraordinary inflation within the meaning of Page 233 of 545 Article 1250 of the Civil Code. There is no reason for ordering the payment of an obligation in an amount different from what has been agreed upon because of the purported supervention of an extraordinary inflation. The assailed decision is affirmed with modification that the order for re-computation as of the date of payment in accordance with the provisions of Article 1250 of New Civil Code is deleted. C. F. SHARP v. NORTHWEST AIRLINES G.R. No. 133498, April 18,2002 FACTS: On May 9, 1974, respondent entered into an International Passengers Sales Agency Agreement with petitioner, authorizing the latter to sell its air transport tickets. Petitioner failed to remit the proceeds of the ticket sales, for which reason, respondent filed a Collection suit against petitioner before the Tokyo District Court, which ordered petitioner to pay respondent 82,158,195 Yen and damages for the delay at the rate of 6% per annum fro August 28,1980 up to and until payment is completed. Unable to execute the decision in Japan, respondent filed a case with the RTC. RTC issued writ of execution ordering defendant to pay plaintiff 83,158,195 Yen at the exchange rate on the date of foreign judgment plus 6% interest. On appeal, petitioner contended that it had already paid partial payments hence, was not liable to pay additional 6% interest imposed in the foreign judgment. ISSUE: Whether or not the petitioner is liable to pay additional 6% per annum for the delay RULING: Page 234 of 545 The petition is denied. CA decision is affirmed with modification. Petitioner is directed to pay respondent 61,734 Yen plus damages for the delay at 6% per annum from August 28,1980 until payment is completed, with interest at the rate of 12% per annum counted from the date of filing until fully satisfied. Petitioner’s liability may be paid in Philippine currency computed at the exchange rate prevailing at the time of payment. ALBERT PADILLA v. SPOUSES PAREDES and COURT OF APPEALS G.R. NO. 124874,March 17, 2000 FACTS: On October 20, 1988, petitioner Padilla and private respondent entered into a contract to sell involving a parcel of land. The was untitled but private respondent was paying taxes thereon. Under the contract, petitioner undertook to secure title to the property in private respondent’s names of the P312,840 purchase prize, petitioner was to pay downpayment of P50,000 upon signing and the balance was to be paid within 10 days from the issuance of the court order directing issuance of the decree of registration. For failure to pay some of the amount, respondent offered to sell to petitioner one-half of the property for all the payment, lest respondent rescinds the contract. Petitioner refused and instituted action for specific performance alleging that they have substantially complied with the obligation. RTC ruled for the petitioners stating a casual or slight breach that did not warrant rescission. CA reversed the decision and confirmed the respondent’s rescission. ISSUE: Whether or not the private respondents are entitled to rescind the contract to sell the land to petitioner RULING: Page 235 of 545 The Supreme Court sustained the ruling of CA that private respondent may validly rescind the contract to sell, however, the reason for this is not that respondents have the power to rescind but because their obligation thereunder did not arise. The CA is correct in ordering the return to petitioner of the amounts received from him by private respondents, on the precept that no one shall be unjustly enriched himself at the expense of another. SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN G. R. No. 100290, June 4, 1993 FACTS: A suit of collection of sum of money was filed by Eden Tan against the spouses. A writ of attachment was issued, the Deputy Sheriff filed a return stating that a deposit made by Tibajia in the amount of P442,750 in another case, had been garnished by him. RTC ruled in favor of Eden Tan and ordered the spouses to pay her an amount in excess of P3,000,000. Court of Appeals modified the decision by reducing the amount for damages. Tibajia Spouses delivered to Sheriff Bolima the total money judgment of P398483.70. Tan refused to accept the payment and insisted that the garnished funds be withdrawn to satisfy the judgment obligation. ISSUE: Whether or not payment by means of check is considered payment in legal tender RULING: The ruling applies the statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s check, cashier’s or personal check. The decision of the court of Appeals is affirmed. Page 236 of 545 DEVELOPMENT BANK OF THE PHILIPPINES v. COURT OF APEEALS G.R.No. 138703,June 30, 2006 FACTS: In March 1968, DBP granted to private respondents an industrial loan in the amount of P2,500,000 – P500,000 n cash and P2,000,000 in DBP Progress Bank. It was evidenced by a promissory note and secured by a mortgage executed by respondents over their present and future properties. Another loan was granted by DBP in the for of a 5-year revolving guarantee to P1,700,000. In 1975, the outstanding accounts wth DBP was restructured in view of failure to pay. Amounting to P4,655,992.35 were consolidated into a single account. On the other hand, all accrued interest and charges due amounting to P3,074,672.21 were denominated as “ Notes Taken for Interests” and evidenced by a separate promissory note. For failure to comply with its obligation, DBP initiated foreclosure proceedings upon its computation that respondent’s loans were arrears by P62,954,473.68. Respondents contended that the collection was unconscionable if not unlawful or usurious . RTC, as affirmed by the CA, ruled in favor of the respondents. ISSUE: Whether the prestation to collect by the DBP is unconscionable or usurious RULING: Page 237 of 545 It cannot be determined whether DBP in fact applied an interest rate higher than what is prescribed under the law. Assuming it did exceed 12% in addition to the other penalties stipulated in the note, this should be stricken out for being usurious. The petition is partly granted. Decision of the court of Appeals is reversed and set aside. The case is remanded o the trial court for the determination of the total amount of the respondent’s obligation based on the promissory notes, according to the interest rate agreed upon by the parties on the interest rate of 12% per annum, whichever is lower. VITARICH vs. LOSIN G.R. No. 181560 November 15, 2010 FACTS: Respondent Chona Losin (Losin) was in the fastfood and catering services business named Glamours Chicken House. Since 1993, Vitarich, particularly its Davao Branch, had been her supplier of poultry meat. In the months of July to November 1996, Losin’s orders of dressed chicken and other meat products allegedly amounted to P921,083.10. During this said period, Losin’s poultry meat needs for her business were serviced by Rodrigo Directo (Directo) and Allan Rosa (Rosa), both salesmen and authorized collectors of Vitarich, and Arnold Baybay (Baybay), a supervisor of said corporation. On August 24, 1996, Directo’s services were terminated by Vitarich without Losin’s knowledge. He left without turning over some supporting invoices covering the orders of Losin. Rosa and Baybay, on the other hand, resigned on November 30, 1996 and December 30, 1996, respectively. Just like Directo, they did not also turn over pertinent invoices covering Losin’s account. On February 12, 1997, demand letters were sent to Losin covering her alleged unpaid account amounting to P921,083.10. It appears that Losin had issued three (3) checks amounting to P288,463.30 which were dishonored either for reasons - Drawn Against Insufficient Funds (DAIF) or Stop Payment. Page 238 of 545 On March 2, 1998, Vitarich filed a complaint for Sum of Money against Losin, Directo, Rosa, and Baybay before the RTC. On August 9, 2001, the RTC rendered its Decision8 in favor of Vitarich, however the CA rendered the assailed decision in favor of Losin. ISSUE: WON there is already payment on the part of Locsin. RULING: No. As a general rule, one who pleads payment has the burden of proving it.The burden rests on the debtor to prove payment, rather than on the creditor to prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. True, the law requires in civil cases that the party who alleges a fact has the burden of proving it. Section 1, Rule 131 of the Rules of Court24 provides that the burden of proof is the duty of a party to prove the truth of his claim or defense, or any fact in issue by the amount of evidence required by law. In this case, however, the burden of proof is on Losin because she alleges an affirmative defense, namely, payment. Losin failed to discharge that burden. After examination of the evidence presented, this Court is of the opinion that Losin failed to present a single official receipt to prove payment.25 This is contrary to the well-settled rule that a receipt, which is a written and signed acknowledgment that money and goods have been delivered, is the best evidence of the fact of payment although not exclusive.26 All she presented were copies of the list of checks allegedly issued to Vitarich through its agent Directo,27 a Statement of Payments Made to Vitarich,28 and apparently copies of the pertinent history of her checking account with Rizal Commercial Banking Corporation (RCBC). At best, these may only serve as documentary records of her business dealings with Vitarich to keep track of the payments made but these are not enough to prove payment. METROBANK vs. CABILZO 510 SCRA 259 FACTS: On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to “CASH” and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1, 000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez , as his sales commission. Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules. On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make some transaction when he was asked by bank personnel if Cabilzo had issued a check in the amount of P91, 000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91, 000.00 and requested that the questioned check be returned to him for verification, to which Metrobank complied. Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount of P1, 000.00 was altered to P91, 000.00 and the date 24 November 1994 was changed to 14 November Page 239 of 545 1994.Hence, Cabilzo demanded that Metrobank re-credit the amount of P91, 000.00 to his account. Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still failed to re-credit the amount of P91, 000.00 to Cabilzo’s account On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand to Metrobank for the payment of P90, 000.00, after deducting the original value of the check in the amount of P1, 000.00. Such written demand notwithstanding, Metrobank still failed or refused to comply with its obligation. Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor. ISSUE: Whether equitable estoppel can be appreciated in favor of petitioner HELD: The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces between and after the amounts, not only those stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and prejudice of Cabilzo. Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights under the doctrine of equitable estoppel when the facts on record are bare of evidence to support such conclusion. The doctrine of equitable estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. Metrobank’s reliance on this dictum is misplaced. For one, Metrobank’s representation that it is an innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause of the loss in the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it, which petitioner failed to. EUFEMIA and ROMEL ALMEDA v. BATHALA MARKETING G.R.No. 150806, January 28, 2008 FACTS: In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano Almeda. Under the contract, Ponciano agreed to lease a porton of Almeda Compound for a monthly rental of P1,107,348.69 for four years. On January 26, 1998, petitioner informed respondent that its monthly rental be increased by 73% pursuant to the condition No. 7 of the contract and Article 1250. Respondent refused the demand and insisted that there was no extraordinary inflation to warrant such application. Respondent refused to pay the VAT and adjusted rentals as demanded by the petitioners but continually paid the stipulated amount. RTC ruled in favor of the respondent and declared that plaintiff is not liable for the payment of VAT and the adjustment rental, there being no extraordinary inflation or devaluation. CA affirmed the decision deleting the amounts representing 10% VAT and rental adjustment. ISSUE: Whether the amount of rentals due the petitioners should be adjusted by reason of extraordinary inflation or devaluation Page 240 of 545 RULING: Petitioners are stopped from shifting to respondent the burden of paying the VAT. 6th Condition states that respondent can only be held liable for new taxes imposed after the effectivity of the contract of lease, after 1977, VAT cannot be considered a “new tax”. Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation or devaluation. Absent an official pronouncement or declaration by competent authorities of its existence, its effects are not to be applied. Petition is denied. CA decision is affirmed. EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR G.R.NO. 171545, December 19, 2007 FACTS: On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or reformation of documents and contracts against Equitable and its employees. They claimed that they were induced by the bank to avail of its peso and dollar credit facilities by offering low interests so they accepted and signed Equitable’s proposal. They alleged that they were unaware that the documents contained escalation clauses granting Equitable authority to increase interest without their consent. These were rebutted by the bank. RTC ordered the use of the 1996 dollar exchange rate in computing respondent’s dollar-denominated loans. CA granted the Bank’s application for injunction but the properties were sold to public auction. ISSUE: Whether or not there was an extraordinary deflation RULING: Page 241 of 545 Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency and such decrease could not be reasonably foreseen or was beyond the contemplation of the parties at the time of the obligation. Deflation is an inverse situation. Despite the devaluation of the peso, BSP never declared a situation of extraordinary inflation. Respondents should pay their dollar denominated loans at the exchange rate fixed by the BSP on the date of maturity. Decision of lower courts are reversed and set aside. SIMPLICIO PALANCA v.ULYSIUS GUIDES and LORENZO GUIDES G.R. No. 146365 February 28, 2005 FACTS: In August 1983, petitioner Palanca executed a contract to sell a parcel of land on installment with Jopson for P11,250. Jopson paid petitioner P1,650 as downpayment, leaving a balance of P9600. In December 1983, Jopson assigned ad transferred all her rights and interests over the property to respondent Guides. Believing that she had fully paid the purchase prize, respondent found out when she verified with the Register of Deeds that the property in question was still in the name of de Leon. Petitioner stated that she refused to execute the document of sale in favor of the respondent since the latter failed with the said obligation- that he was not paid the complete amount in the contract. RTC ruled in favor of the plaintiff and against Palanca, ordering him to execute a Deed of Absolute Sale and the issuance of TCT, reimburse plaintiff the amount paid n excess and for damages. ISSUE: Whether the petitioner’s claim of unpaid charges from the respondent proper Page 242 of 545 RULING: Petitioner was deemed to have waived his right to present evidence and thus was unable to adduce evidence of such inflation or fluctuation. Even if there were such, petitioner did not make a demand on respondent for the satisfaction of the claim. When petitioner accepted respondent’s installment payments despite the alleged charges, and without any showing that he protested the irregularity of such payment, nor demanded the payment of the alleged charges, respondent’s liability, if any for said charges is deemed fully satisfied. PCIB v. COURT OF APPEALS G.R. NO. 121989 January 31, 2006 FACTS: PCIB and MBC were joint bidders in a foreclosure sale held of assorted mining machinery and equipment previously mortgaged to them by Philippine Iron Mines. Atlas agreed to purchase some of these properties and the sale was evidenced by a Deed of Sale with a downpayment of P12,000,000 and the balance of P18,000,000 payable in 6 monthly installments. In compliance with the contract, Atlas issued HongKong and shanghai Bank check amounting to P12,000,000. Atlas paid to NAMAWU the amount of P4,298,307.77 in compliance with the writ of garnishment issued against Atlas to satisfy the judgment in favor of NAMAWU. Atlas alleged that there was overpayment, hence the suit against PCIB to obtain reimbursement. PCIB contended that Atlas still owed P908,398.75 because NAAWU had been partially paid in the amount of P601,260.00. RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the decision. ISSUE: Whether atlas had complied with its obligation to PCIB Page 243 of 545 RULING: While the original amount sought to be garnished was P4,298,307,77, the partial payment of P601,260 naturally reduced it to P3,697,047.77 Atlas overpaid NAMAWU, thus the remedy if Atlas would be to proceed against NAAWU nut not against PCIB in relation to article 1236 of the Civil Code The petition is partly granted.CA decision is reversed and set aside and in lieu thereof Atlas is ordered to pay PCIB the sum of P146,058.96, with the legal interest commencing from the time of first demand on August 22, 1985. JOSE LAGONv. HOOVEN COMALCO INDUSTRIES G.R. No. 135657 January 17, 2001 FACTS: Petitioner is the owner of a commercial building while respondent is a domestic corporation known to be the biggest manufacturer and installer of aluminum materials in the country. Parties entered into 2 contracts whereby for a total consideration of P104,870. Hooven agreed to sell and install various aluminum materials in Lagon’s building. Upon execution of contracts, Lagon paid Hooven P48,000 in advance. On February 24, 1987, Hooven commenced an action for sum of money. It was alleged that materials were delivered and installed but P69,329 remained unpaid even after the completion of the project and despite repeated demands. RTC held partly on the basis of the ocular inspection finding that the total actual deliveries cost P87,140 deducting therefrom P48,000. CA set aside the decision and held in favor of Hooven. ISSUE: Page 244 of 545 Whether all the materials specified in the contracts had been delivered and installed by respondent in petitioner’s commercial building RULING: Essentially, respondent has the burden of establishing its affirmative allegations of complete delivery and installation of the materials and petitioner’s failure to pay therefor. The evidence on its discharge is grossly anemic. The CA decision is modified. Lagon is ordered to pay respondent P6,377.66 representing the value unpaid. On the other hand, respondent is ordered to pay petitioner P50,000 as moral damages, P30,000 attorney’s fees and P46,554.50 as actual damages. BANK OF THE PHILIPPINE ISLANDS v. EASTERN PLYWOOD and BENIGNO LIM G.R. No. 104612, May 10, 1994 FACTS: Private respondent , Eastern and Lim, an officer and stock holder of Eastern held at least one joint bank account with the CBTC, the predecessor-in –interest of the petitioner BPI. In March 1975, checking account with Lim in the amount of P120,000 was opened by Velasco with funds withdrawn fro the account of Eastern and Lim. Velasco died and at the time of his death, the outstanding balance of the account stood at P662,522.87. Thereafter, Easrtern obtained a loan of P73,000 fro CBTC in addition, Eastern and Lim and CBTC signed another document entitled “ Holdout agreement”. In the settlement proceeding of Velasco’s estate, the whole balance of P331,261.44 in the joint account of Velasco and Lim was claimed as part of Velasco’s estate. The interstate court granted the urgent motion of heirs of Velasco to withdraw the deposit and authorize them to divide among themselves the amount. BPI filed a complaint against Lin and Eastern demanding payment of promissory not for P73,000. RTC ruled that the promissory note is subject to the holdout agreement. CA affirmed the division. Page 245 of 545 ISSUE: Whether BPI is still liable to the private respondent on the account subject to the holdout agreement after it is withdrawn by the heirs of Velasco RULING: The account was proved to belong to Eastern even if it was in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or demand payment thereof. BPI can not be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. Payment made by the debtor to the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence. REPUBLIC vs THI THU THUY T. DE GUZMAN G.R. No. 175021 June 15, 2011 FACTS: On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher for the acquisition of various building materials amounting to Two Million Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two Pesos and Sixty Centavos (P2,288,562.60) for the construction of a four-storey condominium building with roof deck at Camp Crame, Quezon City. Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief, executed a Contract of Agreement (the Contract) wherein MGM, for the price of P2,288,562.60, undertook to procure and deliver to the PNP the construction materials itemized in the purchase order attached to the Contract. Respondent claimed that after the PNP Chief approved the Contract and purchase order,MGM, on March 1, 1996, proceeded with the delivery of the construction materials, as evidenced by Delivery Receipt Nos. 151-153,11 Sales Invoice Nos. 038 and 041,12 and the "Report of Public Property Purchase" issued by the PNP’s Receiving and Accounting Officers to their Internal Auditor Chief. Respondent asseverated that following the PNP’s inspection of the delivered materials on March 4, 1996,14 the PNP issued two Disbursement Vouchers; one in the amount Page 246 of 545 of P2,226,147.26 in favor of MGM,15 and the other, 16 in the amount of P62,415.34, representing the three percent (3%) withholding tax, in favor of the Bureau of Internal Revenue (BIR).The respondent sent a letter dated October 20, 199718 to the PNP, demanding the payment of P2,288,562.60 for the construction materials MGM procured for the PNP under their December 1995 Contract. The PNP, through its Officer-in-Charge, replied19 to respondent’s counsel, informing her of the payment made to MGM via Land Bank of the Philippines (LBP). Respondent denying having ever received the LBP check. On May 5, 1999, respondent filed a Complaint for Sum of Money against the petitioner. The petitioner presented Edgardo Cruz and testified that Highland Enterprises had been an accredited contractor of the PNP since 1975. In 1995, Cruz claimed that the PNPES was tasked to construct "by administration" a condominium building. This meant that the PNPES had to do all the work, from the canvassing of the materials to the construction of the building. The PNPES allegedly lacked the funds to do this and so asked for Highland Enterprises’s help. In a meeting with its accredited contractors, the PNPES asked if the other contractors would agree to the use of their business name50 for a two percent (2%) commission of the purchase order price to avoid the impression that Highland Enterprises was monopolizing the supply of labor and materials to the PNP.51 Cruz alleged that on April 23, 1996, he and the respondent went to the PNP Finance Center to claim the LBP check due to MGM. ISSUE: WON there is already extinguishment of obligation. RULING: In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated as though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will, therefore, satisfy the debt. The respondent was able to establish that the LBP check was not received by her or by her authorized personnel. The PNP’s own records show that it was claimed and signed for by Cruz, who is openly known as being connected to Highland Enterprises, another contractor. Hence, absent any showing that the respondent agreed to the payment of the contract price to another person, or that she authorized Cruz to claim the check on her behalf, the payment, to be effective must be made to her. AUDION ELECTRIC COMPANY v. NLRC G.R. NO. 106648, June 17,1999 FACTS: Complainant Nicolas Madolid was employed by Audion as a fabricator. He continuously rendered service, assigned in different offices or projects for 13 years with a clean record. The complainant was surprised to received an information stating that he will be considered terminated after the turnover of materials. Complainant claims that he was dismissed without justifiable cause. For this reason, he claims that he is entitled to reinstatement with full backwages, payment of overtime pay, project allowances, increase adjustments, 13th month pay and attorney’s fees. Local Arbiter ruled in favor of Madolid and ordered Audion to pay the former, which was affirmed by the NLRC. ISSUE: Whether the respondent NLRC committed grave abuse of discretion when it ruled that private respondent was a regular employee and not a project employee Page 247 of 545 RULING: Private respondent’s employment status was established by the certification of employment issued by the petitioner. The rule is that findings of facts of the NLRC affirming those of the Labor Arbiter are entitled to a great weight and will not be disturbed if they were supported by substantial evidence. There was no grave abuse of discretion committed by NLRC in finding that respondent was not a project employee. Decision of NLRC is affirmed with modification deleting the awards of damages and attorney’s fees. LBP vs. ONG G.R. No. 190755, November 24, 2010 FACTS: Spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of PhP 10 million would be payable in seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an acceleration clause wherein any default in payment of amortizations or other charges would accelerate the maturity of the loan.Subsequently, however, the Spouses Sy found they could no longer pay their loan. They sold three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with Assumption of Mortgage. Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption of mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements for the assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed Page 248 of 545 at PhP 750,000 and to update due or accrued interests on the promissory notes so that Atty. Hingco could easily approve the assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt was issued for his payment. He also submitted the other documents required by Land Bank, such as financial statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be transferred in his name but this never materialized. No notice of transfer was sent to him. On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank in Civil Case No. T-1941, as Alfredo’s payment was not returned by Land Bank. The RTC held that that under the principle of equity and justice, the bank should return the amount Alfredo had paid with interest at 12% per annum computed from the filing of the complaint. The RTC further held that Alfredo was entitled to attorney’s fees and litigation expenses for being compelled to litigate.The CA affirmed the RTC Decision. Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 . ISSUE: WON the Art. 1236 of the Civil Code should apply in the instant case. RULING: We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to accept Alfredo’s payment, since as far as the former was concerned, he did not have an interest in the payment of the loan of the Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from the records that Land Bank required Alfredo to make payment before his assumption of mortgage would be approved. He was informed that the certificate of title would be transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. Alfredo, as a third person, did not, therefore, have an interest in the fulfilment of the obligation of the Spouses Sy, since his interest hinged on Land Bank’s approval of his application, which was denied. The circumstances of the instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy, what he has paid. BINALBAGAN VS. COURT OF APPEALS G.R. No. 100594, March 10, 1993 FACTS: On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two subdivision lots within the Phib-Khik Subdivision of the Puentevella family, conveying and transferring said lots to petitioner Binalbagan Tech., Inc. (hereinafter referred to as Binalbagan). In turn Binalbagan, through its president, petitioner Hermilo J. Nava (hereinafter referred to as Nava), executed an Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the estate of Puentevella. Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the lots and the building and improvements thereon. Binalbagan started operating a school on the property from 1967 when the titles and possession of the lots were transferred to it. It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at Himamaylan, Negros Occidental. In this pending case the intestate estate of the late Luis B. Puentevella, thru Judicial Administratrix, Angelina L. Puentevella sold said Page 249 of 545 aforementioned lots to Raul Javellana with the condition that the vendee-promisee would not transfer his rights to said lots without the express consent of Puentevella and that in case of the cancellation of the contract by reason of the violation of any of the terms thereof, all payments therefor made and all improvements introduced on the property shall pertain to the promissor and shall be considered as rentals for the use and occupation thereof. Javellana having failed to pay the installments for a period of five years, Civil Case No. 7435 was filed by defendant Puentevella against Raul Javellana and the Southern Negros Colleges which was impleaded as a party defendant it being in actual possession thereof, for the rescission of their contract to sell and the recovery of possession of the lots and buildings with damages. Accordingly, after trial, judgment was rendered in favor of Puentevella. Came December 29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim based on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez, thus Puentevella was constrained to assert physical possession of the premises to counteract the fictitious and unenforceable claim of herein plaintiffs. Upon the filing of the instant case for injunction and damages on January 3, 1966, an exparte writ of preliminary injunction was issued by the Honorable Presiding Judge Carlos Abiera, which order, however, was elevated to the Honorable Court of Appeals which issued a writ of preliminary injunction ordering Judge Carlos Abiera or any other person or persons in his behalf to refrain from further enforcing the injunction issued by him in this case and from further issuing any other writs or prohibitions which would in any manner affect the enforcement of the judgment rendered in Civil Case 7435, pending the finality of the decision of the Honorable Court of Appeals in the latter case. Thus, defendant Puentevella was restored to the possession of the lots and buildings subject of this case. However, plaintiffs filed a petition for review with the Supreme Court which issued a restraining order against the sale of the properties claimed by the spouses-plaintiffs. When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession of the building and other property was taken from petitioner Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to another location. In the meantime, the defendants in Civil Case No. 293 with the Court of Appeals interposed an appeal. On October 30, 1978, the Court of Appeals rendered judgment, reversing the appealed decision in Civil Case No. 293. On April 29, 1981, judgment was entered in CA-G.R. No. 42211, and the record of the case was remanded to the court of origin on December 22, 1981. Consequently, in 1982 the judgment in Civil Case No. 7435 was finally executed and enforced, and petitioner was restored to the possession of the subdivision lots an May 31, 1982. It will be noted that petitioner was not in possession of the lots from 1974 to May 31, 1982. After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent Angelina Echaus demanded payment from petitioner Binalbagan for the subdivision lots, enclosing in the letter of demand a statement of account as of September 1982 showing a total amount due of P367,509.93, representing the price of the land and accrued interest as of that date. As petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus filed on October 8, 1982 Civil Case No. 1354 of the Regional Trial Court of the Sixth Judicial Region stationed in Himamaylan, Negros Occidental against petitioners for recovery of title and damages. Private respondent Angelina P. Echaus filed an amended complaint by including her mother, brothers, and sisters as co-plaintiffs, which was admitted by the trial court on March 18, 1983. The trial court rendered a decision in favor of the petitioner because of prescription. Nonetheless, the Court of Appeals reversed said decision. ISSUE: Whether or not the petition is with merit. RULING: Page 250 of 545 No. A party to a contract cannot demand performance of the other party's obligations unless he is in a position to comply with his own obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready, willing and able to comply with his own obligations there under (Art. 1191, Civil Code). In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession of the thing. As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by virtue of a court order in Civil Case No. 293 and reinstated to the possession thereof only in 1982. During the period, therefore, from 1974 to 1982, seller private respondent Angelina Echaus' warranty against eviction given to buyer petitioner was breached though, admittedly, through no fault of her own. It follows that during that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand compliance of the prestation of petitioner to pay the price of said subdivision lots. In short, her right to demand payment was suspended during that period, 1974-1982. The prescriptive period within which to institute an action upon a written contract is ten years (Art. 1144, Civil Code). The cause of action of private respondent Echaus is based on the deed of sale afore-mentioned. The deed of sale whereby private respondent Echaus transferred ownership of the subdivision lots was executed on May 11, 1967. She filed Civil Case No. 1354 for recovery of title and damages only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her action to recover title. However, the period 1974 to 1982 should be deducted in computing the prescriptive period for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus was not in a legal position to initiate action against petitioner since as afore-stated, through no fault of hers, her warranty against eviction was breached. In the case of it was held that a court order deferring action on the execution of judgment suspended the running of the 5-year period for execution of a judgment. Here the execution of the judgment in Civil Case No. 7435 was stopped by the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil Case No. 293 was dismissed that the writ of execution in Civil Case No. 7435 could be implemented and petitioner Binalbagan restored to the possession of the subject lots. Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years elapsed. Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive period. Working against petitioner's position too is the principle against unjust enrichment, which would certainly be the result if petitioner were allowed to own the 42 lots without full payment thereof. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CAG.R. CV No. 24635 is AFFIRMED. LORENZO SHIPPING COMPANY v. BJ MARTHEL INTERNATIONAL G.R. No. 145483, November 19, 2004 FACTS: Petitioner Lorenzo Shipping is engaged in coastwise shipping and owns the cargo M/V Dadiangas Express. BJ Marthel is engaged in trading, marketing an dselling various industrial commodities. Lorenzo Shipping ordered for the second time cylinder lines from the respondent stating the term of payment to be 25% upon delivery, the balance payable in 5 bi-monthly equal installments, no again stating the date of the cylinder’s delivery. It was allegedly paid through post dated checks but the same was dishonored due to insufficiency of funds. Despite due demands by the respondent, petitioner falied contending that time was of the essence in the delivery of the cylinders and that there was a delay since the respondent committed said items “ within two months after receipt of fir order”. RTC held respondents bound to the quotation with respect to the term of payment, which was reversed by the Court of appeals ordering appellee to pay appellant P954,000 plus interest. There was no delay since there was no demand. ISSUE: Page 251 of 545 Whether or not respondent incurred delay in performing its obligation under the contract of sale RULING: By accepting the cylinders when they were delivered to the warehouse, petitioner waived the claimed delay in the delivery of said items. Supreme Court geld that time was not of the essence. There having been no failure on the part of the respondent to perform its obligations, the power to rescind the contract is unavailing to the petitioner. Petition is denied. Court of appeals decision is affirmed. LUZON DEVELOPMENT BANK vs. ENRIQUEZ G.R. No. 168646 January 12, 2011 DELTA DEVELOPMENT vs. ENRIQUEZ and LUZON DEVELOPMENT BANK G.R. No. 168666 FACTS: On July 3, 1995, De Leon (owner of Delta) and his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta Homes I.8 To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties,9 including Lot 4. Subsequently, this REM was amended10 by increasing the amount of the secured loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT No. T-637183.11 Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez)14 over the house and lot in Lot 4 with the condition that upon full payment of the total consideration the Owner shall execute a final deed of sale in favor of the Vendee/s. When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago. Enriquez filed a complaint against DELTA and the BANK before Office of the HLURB19 alleging that DELTA violated the terms of its License to Sell. The HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the Page 252 of 545 purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from liens and encumbrances. DELTA appealed the arbiter’s Decision to the HLURB Board of Commissioners. The Commission ordered [Enriquez] to pay [DELTA] the amount due from the time she suspended payment up to filing of the complaint with 12% interest thereon per annum; thereafter the provisions of the Contract to Sell shall apply until full payment is made. The OP adopted by reference the findings of fact and conclusions of law of the HLURB Decisions, which it affirmed in toto. The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.46 ISSUE: Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more obligations to the BANK. RULING: The violation of Section 18 renders the mortgage executed by DELTA void therefore the 8 million loans are unsecured. Since the Contract to sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. BANK is also not entitled to payment of the equivalent value of the lot 4 from DELTA when the this court ruled in favor of ENRIQUEZ over lot 4. Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling. The contractual intention determines whether the property subject of the dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction for the debt. "The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished." ESTANISLAO REYES vs. SEBASTIANA MARTINEZ ET AL., G.R. No. 32226 . DECEMBER 29, 1930. FACTS: Estanislao Reyes filed an action against the Martinez heirs in which the plaintiff seeks, among others, to recover five parcels of land, containing approximately one thousand coconut trees, and to obtain a declaration of ownership in his own favor as against the defendants with respect to said parcels. This cause of action is founded upon the contract, and the claim by the plaintiff is to have the five parcels adjudged to him in lieu of another parcel formerly supposed to contain one thousand trees and described in paragraph 8 of the contract between him and certain of the Martinez heirs. By this contract Reyes was to be given the parcel described in clause 8, but in a proviso to said clause, the parties contracting with Reyes agreed to assure to him certain other land containing an equivalent number of trees in case he should so elect. ISSUE: Page 253 of 545 Whether or not Reyes is entitled to the recovery of ownership of the five parcels of land subject of this case. RULING: The prior history of the litigation shows that Reyes elected to take and hold the parcel described in clause 8, and his right thereto has all along been recognized in the dispositions made by the court with respect to said land. In our decision in Martinez vs. Graño (51 Phil., 287, 301), it was a basal assumption that Reyes would obtain the thousand trees referred to; and we are of the opinion that, from various steps taken in the prior litigation, Reyes must be taken to have elected to take that particular parcel and he is now estopped from asserting a contrary election to take the five parcels of land described in paragraph IX of his complaint. However, the title to the parcel of land elected by Reyes is in the heirs of Inocente Martinez and it does not appear that they have transferred said title to Reyes. It results therefore that Reyes now has a claim for damages against the parties signatory to the contract of March 5, 1921, for the value of the aforesaid property. We therefore reach the conclusion that Reyes should either have the land originally set apart for him under clauses 4 and 8 of the contract, or, in case his right thereto should fail, he should not be required to pay the judgment for P8,000 which was awarded to the Martinez heirs in Martinez vs. Graño (51 Phil., 287, 302). AQUINTEY v. SPOUSES TIBONG G.R. No. 166704,December 20, 2006 FACTS: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum of money and damages against respondents. Agrifina alleged that Felicidad secured loans from her on several occasions at monthly interest rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their outstanding loans of P773,000,00 exclusive of interests. However, spouses Tiong alleged that they had executed deeds of assignment in favor of Agrifina amounting to P546,459 and that their debtors had executed promissory notes in favor of Agrifina. Spouses insisted that by virtue of these documents, Agrifina became the new collector of their debts. Agrifina was able to collect the total amount of P301,000 from Felicdad’s debtors. She tried to collect the balance of Felicidad and when the latter reneged on her promise, Agrifina filed a complaint in the office of the barangay for the collection of P773,000.00. There was no settlement. RTC favored Agrifina. Court of Appeals affirmed the decision with modification ordering defendant to pay the balance of total indebtedness in the amount of P51,341,00 plus 6% per month. Page 254 of 545 ISSUE: Whether or not the deeds of assignment in favor of petitioner has the effect of payment of the original obligation that would partially extinguish the same RULING: Substitution of the person of the debtor ay be affected by delegacion. Meaning, the debtor offers, the creditor accepts a third person who consent of the substitution and assumes the obligation. It is necessary that the old debtor be released fro the obligation and the third person or new debtor takes his place in the relation . Without such release, there is no novation. Court of Appeals correctly found that the respondent’s obligation to pay the balance of their account with petitioner was extinguished pro tanto by the deeds of credit. CA decision is affirmed with the modification that the principal amount of the respondents is P33,841. MAMENTA Vda. De JAYME v. COURT OF APPEALS G.R.N o. 128669,October 4, 002 FACTS: On January 8, 1973, spouses Jayme entered into a contract of lease with George Neri, President of Asian Cars covering one-half of Lot 2700 for 20 years. Under the contract, Asian Cars used the leased premises as a collateral to secure payment of loan which Asian Cars may obtain from any bank, provided, the proceeds of the loans shall be used solely for the construction of the building which upon the termination of lease shall automatically become the property of the Jayme spouses. In October1977, Asian Cars obtained a loan of six million from Metrobank. The entire lot 2700 was offered as one of the several properties given as collateral for the loan. Due to financial difficulties, Asian Cars conveyed ownership of the building on the leased premises to MBTC by way of dacion en pago. Eventually, MBTC extrajudicially foreclosed the mortgage and MBTC was the highest bidder in a public auction. Heirs of Graciano Jayme filed an action for annulment of contract with damages and issuance of preliminary injunction against Asian Cars. RTC declared that the REM executed by Jayme in favor of Metrobank as valid and Page 255 of 545 binding. XXX CA affirmed the decision declaring valid also the foreclosure of the mortgage and the foreclosure sale. ISSUE: Whether or not the dacion en pago by Asian Cars in favor of MBTC is valid and binding despite the stipulation in the lease contract RULING: Court of Appeal did not err in considering MBTC as a purchase in good faith, MBTC had no knowledge of the stipulation in the lease contract. There was no annotation on the title of any encumbrance. Thus, the transfer of the building in favor of MBTC was properly held valid and binding by respondent CA. CA decision is affirmed with modification ordering that private respondent MBTC pay petitioner’s rentals amounting to P602,083.33. with 6 % interest per annum until fully paid. CALTEX V. INTEREDIATE APPELLATE COURT and ASIA PACIFC G.R. No. 72703, November 13, 1992 FACTS: On January 12, 1975, Asia Pacific entered into an agreement with Caltex whereby petitioner agreed to supply private respondent’s aviation fuel for 2 years. As of June 30, 1980, asia Pacific had an outstanding obligation n the total amount of P 4,072,682.13. Caltex executed a Ded of Assignment wherein it assigned to petitioner its receivables from the National treasury of the Philippines. Pursuant to the Deed of assignment, National Treasury warrant the amount of P5,475,294 representing the refund. Caltex refused to return the excess amount of P510,550.63 because it represented the interest and service charges and the rate of 18% per annum on the unpaid and overdue account of respondent. RTC dismissed the case. IAC reversed the decision and ordered petitioner to return the amount of P510,550.63 to private respondent. ISSUE: Page 256 of 545 Whether or not the Deed of Assignment entered into by the parties constituted dacion en pago, such that the obligation is totally extinguished, hence, no interest and service charges could anymore be imposed RULING: The Deed of Assignment executed by the parties is not a dation in payment in payment and did not totally extinguish respondent’s obligation. It is clear that in this case, dation in payment does not necessarily mean total extinguishment of the obligation. The obligation is totally extinguished only when the parties, by agreement, express or implied, or by their silence, consider the thing a equivalent to the obligation. Decision of Intermediate Appellate Court is set aside. SONNY LO v. KJS ECO-FORMWORK SYSTEM G.R. No. 149420,October 8, 2003 FACTS: KJS is engaged in the sale of steel scaffoldings while Lo is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. He paid a downpayment in the amount of P150,000. The balance was made payable in 10 monthly installments. Respondent delivered the equipments. Petitioner was able to pay the first two monthly installments. His business suffered financial difficulties and he was unable to settle his obligations despite demands. On October 11, 1990, the parties executed a Deed of Assignment whereby petitioner assigned to respondent his receivables from Jonero Realty. However, Jonero refused to honor the Dees of Assign,nt because it claimed that petitioner was indebted to it. Petitioner refused to pay claiming that that his obligation had been extinguished when they executed the deed of assign,ent. RTC dismissed the complaint on the ground that the assignment of credit extinguished the obligation. Court of appeals reversed the Page 257 of 545 decision and ordered Lo to pay the plaintiff KJS with legal interests of 6% per annum until fully paid. ISSUE: Whether or not the Deed of Assignment extinguished the obligation RULING: An assignment of credit, by virtue of which the owner of the credit, the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation and without the consent of the debtor transfers his credit and accessory rights to another, the assignee, who acquires the power to enforce it against the debtor. Petitioner, as assignor, is bound to warrant the existence and legality of the credit at the tim of the sale or assignment. When Jonero claimed that it was no longer indebted to petitioner since the latter had also as unpaid obligation to it, it essentially meant that its obligation to the petitioner has been extinguished by compensation. Petitioner was found in breach of his obligation under the Deed of assignment. Court of Appeals decision is affirmed. ASI CORP and ANTONIO SAN JUAN v. SPOUSES EFREN EVANGELISTA FACTS: Respondents are engaged in the large-scale business of buying broiler eggs, hatching and selling them and egg by-products. For incubation and hatchings, respondents availed of the hatching services of ASJ Corp. They agreed o service fees of 80 centavos per egg. Service fees were paid upon release. Fro consecutive times the respondents failed to pay the fee until such time that ASJ retained the chicks demanding full payment from the respondent. ASJ received P15,000 for partial payment but the chicks were still not released. RTC ruling, which was affirmed by the Court of Appeals holding that ASJ Corp and Antonio San Juan be solidarily liable to the respondents. ISSUE: Page 258 of 545 Was petitioner’s retention of the chicks and by-products, on account of respondent’s failure to pay the corresponding fees unjustified? RULING: Respondents’ offer to partially satisfy their accounts is not enough to extinguish their obligation. Respondents cannot substitute or apply as their payment the value of the chicks and by-products they expect to derive because it is necessary that all the debts be paid for the same kind. The petition is partly granted. The Court of Appeals decision is modified. NEREO PACULDO v. BONIFACIO REGALADO G. R. No. 123855,November 20, 2000 FACTS: On December 27, 1990, petitioner Paculdo and respondent Regalado entered into a contract of lease over a parcel of land for 25 years. For the first 5 years, Paculdo would pay monthly rental of P450,000 payable within 5 days of each month, with 2% penalty for very month of delay. Aside from the above lease, petitioner leased 11 other property from respondent. Petitioner failed to pay. Without the knowledge of petitioner, respondent ortgaged the land subject of the lease contract including the improvements to Monte de Piedad. On August 12, 1995, and on subsequent dates thereafter, respondent refused to accepr petitioner’s daily rental payments. Petitioner filed an action for injunction to enjoin respondent from disturbing his possession while respondent filed a complaint for ejectment attaching the demand letters. MTC held in favor of the plaintiff which was affired by the RTC. CA found that the petitioner Page 259 of 545 impliedly consented to respondent’s application of payment to his obligations, thus, dismissed the petition for lack of merit. ISSUE: Whether petitioner was truly in arrears in the payment of rentals on the subject property at the time of the filing of the complaint of ejectment RULING: The lease over the Fairview wet market property is the most onerous among all the obligations of petitioner to respondent. It was established that the wet market is a going concern and that petitioner has invested about P35,000,000 in form of improvements, over the property. Hence, petitioner would stand to lose more if the lease would not proceed. CA decision was based on a misapprehension of the facts and the law on the application of payment. Hence, the ejectment case must be dismissed. CA decision is set aside. CHINA BANKING CORPORATION v. COURT OF APPEALS G.R. No. 121158, December 5, 1996 FACTS: China Banking Corporation extended several loans to Native West and so Ching, Native West’s President. Native west executed a promissory note in favor of China Bank. So Ching, with the marital consent of his wife additionally executed two real estate mortgages over their properties. The promissory notes matured and despite due demands, neither private respondents paid. China Bank filed petition for the extrajudicial foreclosure of the mortgaged properties. Upon receipt of the foreclosure, private respondents filed a complaint before RTC for accounting with damages and with temporary restraining order. ISSUE: Page 260 of 545 Whether or not the subject additional mortgaged properties of the spouses are not included in the notice of foreclosure RULING: It is well-settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as considerations in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and their indebtedness can be gathered. Supreme Court found that petitioners are entitled to foreclose the mortgages. MOBIL OIL PHILIPPINES and CALTEX v. COURT OF APPEALS and CONTINENTAL CEMENT G.R.No. 103052,May 23, 1997 FACTS: In May 1982, petitioner Mobil Oil entered into a supply agreement with private respondent Continental Cement, under which the former would supply the latter’s industrial fuel oil or bunker fuel oil requirements. MOP extended to CCC an unsecured credit line of P2,000,000 against which CCC’s purchases of oil could initially be charged. MOP made a total of 67 deliveries of BFO, each delivery consisting of 20,000 liters to CCC’s factory. CCC discovered that, the supposed BFO was in fact, pure water. A joint undertaking was initiated. On August 23, 1983, Caltex informed CCC that it would be the new owner of Mop effective September 1, 1983 and that Caltex would assume all rights and obligations of MOP under all its existing contracts. CA upheld the findings of the trial court that the water-contaminated BFO delivered by MOP caused damages to CCC’s rotary kin. Page 261 of 545 ISSUE: Whether or not petitioners can be held liable for the contaminated BO delivered on the ground that CFS, as carrier-hauler, was an agent of Mobil RULING: Court of Appeals correctly ruled that MOP could be held liable for the acts of CFS. The hauling contract executed by and between MOP and CFS laid out the responsibilities of CFS. The presumption LAID DOWN IN Article 1523 of the Civil Code is not applicable. The questioned decision of the court of Appeals is affirmed in toto. DALTON, vs.FGR REALTY AND DEVELOPMENT CORP G.R. No. 172577 January 19, 2011 FACTS: Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue which Dalton leased portions of the property. In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam, et al. Soledad Dalton built a house which she initially used as a dwelling and store space. She vacated the premises when her children got married. She transferred her residence near F. Ramos Public Market, Cebu City. She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last monthly rental was P69.00. When defendants refused to accept rent al and demanded vacation of the premises, she consignated [sic] her monthly rentals in court. Page 262 of 545 The RTC dismissed the 11 September 1985 complaint and ordered Dalton to vacate the property. The RTC held that: The requisites of consignation are as follows: 1. The existence of a valid debt. 2. Valid prior tender, unless tender is excuse [sic]; 3. Prior notice of consignation (before deposit) 4. Actual consignation (deposit); 5. Subsequent notice of consignation; Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there were no prior notices of consignation (before deposit) and subsequent notices of consignation (after deposit) The Court of Appeals affirmed the RTC’s 26 February 2002 Decision. ISSUE: WON the consignation was void. RULING: No. Compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. The requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made. Substantial compliance is not enough for that would render only a directory construction to the law. The use of the words "shall" and "must" which are imperative, operating to impose a duty which may be enforced, positively indicate that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual. SPOUSES JAIME BENOS v. SPOUSES GREGORIO LAWILAO G.R. No. 172259, December 5, 2006 FACTS: On February 11,1999, petitioner-spouses Benos and respondent Lawilao executed a Pacto de Retro Sale where Benos sold their lot and the building erected thereon for P300,000, one-half of which to be paid in cash to the Benos and the other half to be paid to the bank to pay off the loans of the Benos which was secured by the same lot and building. Under the contract, Benos could redeem the property within 18 months from the date of execution by returning the contract price, otherwise, the sale would become irrevocable. After paying the P150,000, Lawilao took possession of the property, restructured it twicw, eventually the loan become due and demandable. On August 14, 2000, a son of Benos and Lawilao paid the bankl but the bank refused. Lawilao filed for consignation against the bank and deposited the amount of P159,000.00. RTC declared Page 263 of 545 Lawilao of the ownership of the subject property, which was affirmed by the Court of Appeals. ISSUE: Whether or not the contract of Pacto de Retro Sale be rescinded by the petitioner RULING: In the instant case, records show that Lawilao filed the petition for consignation against the bank in Civil Case without notifying the Benos. Hence, Lawilao failed to prove their offer to pay the balance, even before the filing of the consignation case. Lawilao never notified the Benos. Thus, as far as the Benos are concerned, there was no full and complete payment of the contract price which gives them the right to rescind. Petition is granted. Court of Appeals decision is reversed and set aside, that the Pacto de Retro Sale is rescinded and petitioner are ordered to return the amount of P150,000 to respondents. PEOPLE’S INDUSTRIAL AND COMERCIAL v. COURT OF APPEALS and MARICK INVESTENT G.R. No. 112733, October 24, 1997 FACTS: Private respondent is the registered owner of Mar-ick Subdivision which entered into 6 agreements with petitioner, whereby to sell 6 subdivision lots. Except for lot no. 8. All the lots measure 240 sq each. Lot nos. 3,4,5,6 and 7 similarly stipulate that petitioner agreed to pay for each lot P7,333.20, P480 as down payment. The balance shall be payable n 120 equal monthly installments of P57.11 every 30th of the month, for 10 years. With lot no. 8, they agreed to the purchase price of P7,730 with a down payment of P506 and equal installments of P60.20. Petitioner failed to perform its obligation. After series of negotiations, the parties agreed to enter into a new contract to sell 8 lots. Checks issued in favor of the private respondent were received but not encashed. Private respondent filed a suit against the petitioner. RTC directed petitioner to return the lots, which was affirmed in toto by the CA. Page 264 of 545 ISSUE: Whether or not there was a perfected and enforceable contracts of sale on October 11,1983 which modified the earlier contracts to sell which had not been validly rescinded RULING: It is apropos to stress that the agreements are contracts to sell and not contract of sale, hence, rescission either by judicial action or notarial act is not applicable. Private respondent’s act of cancelling the contract to sell was not done arbitrarily. Because the contracts to sell had long been cancelled when private respondent fled the accion publiciana de possession, there was no more installment buyer and seller relationship to speak of. It had been reduced to a mere case of an owner claiming possession of its property that had long been illegally withheld from it by another. ETERNAL GARDENS v. COURT OF APPEALS and 7TH DAY ADVENTIST G.R. No. 124554, December 9, 1997 FACTS: Petitioner Eternal Gardens and private NPUM entered into a Land Development Agreement. Under the agreement, EG was to develop a parcel of land owned by NPUM into a memorial park. The P1.5 million initial installment mentioned in the Deed of Absolute Sale, shall be deducted out of the proceeds from the First Party’s 40% at the end of the 5 th year. Subsequent payment should be changed against what is due to the first Party under the Land Development agreement. Later, 2 claimants of the land surfaced but were dismissed. The case was remanded to the CA for proper determination and dispositions. CA required EG to produce documents necessary for accounting but failed to do so, hence, the right is waived. CA directed EG to pay private respondent the amounts of P167,065,195.00 as principal and P167,235,451.00 interest. Page 265 of 545 ISSUE: Whether or not the petitioner is liable for interest despite the land dispute RULING: Even during the pendency of the land dispute cases, EG was required to deposit the accruing interests with a reputable commercial bank “ to avoid possible wastage of funds” when the case was given due course. Yet, EG hedged in depository the amounts due and made obvious attempts to stay payment by filing sundry motions and pleadings. CA correctly held EG liable for interest of 12%. It is tantamount to a forbearance of money. RAYOS V REYES G.R.No. 150193 February 20, 2003 FACTS: Three parcels were formerly owned by the spouses Francisco and Asuncion Tazal who on 1 September 1957 sold them for P724.00 to respondents’ predecessor-in-interest, one Mamerto Reyes, with right to repurchase within two (2) years from date thereof by paying to the vendee the purchase price and all expenses incident to their reconveyance. After the sale the vendee a retro took physical possession of the properties and paid the taxes thereon. The otherwise inconsequential sale became controversial when two (2) of the three (3) parcels were again sold on 24 December 1958 by Francisco Tazal for P420.00 in favor of petitioners’ predecessor-in-interest Blas Rayos without first availing of his right to repurchase the properties. ISSUE: Page 266 of 545 Was there a valid consignation and tender of payment made in the instant case? RULING: In order that consignation may be effective the debtor must show that (a) there was a debt due; (b) the consignation of the obligation had been made because the creditor to whom a valid tender of payment was made refused to accept it; (c) previous notice of the consignation had been given to the person interested in the performance of the obligation; (d) the amount due was placed at the disposal of the court; and, (e) after the consignation had been made the person interested was notified thereof. In the instant case, petitioners failed, first, to offer a valid and unconditional tender of payment; second, to notify respondents of the intention to deposit the amount with the court; and third, to show the acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the alternative, a declaration by the court of the validity of the consignation. The failure of petitioners to comply with any of these requirements rendered the consignation ineffective. Consignation and tender of payment must not be encumbered by conditions if they are to produce the intended result of fulfilling the obligation. In the instant case, the tender of payment of P724.00 was conditional and void as it was predicated upon the argument of Francisco Tazal that he was paying a debt which he could do at any time allegedly because the 1 September 1957 transaction was a contract of equitable mortgage and not a deed of sale with right to repurchase CEBU INTERNATIONAL V CA G.R.No. 123031 October 12, 1999 FACTS: On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, P500,000.00 pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991. The note for P516,238.67 covered private respondent's placement plus interest at twenty and a half percent for thirty-two days. On May 27, 1991, CIFC issued BPI Check No. 513397 P514,390.94 in favor of the private respondent as proceeds of his matured investment plus interest. The CHECK was drawn from petitioner's current account number 0011-0803-59, maintained with BPI, main branch at Makati City. On June 17, 1991, private respondent's wife deposited the CHECK with RCBC, in Puerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the "Check (is) Subject of an Investigation." BPI took custody of the CHECK pending an investigation of several counterfeit checks drawn against CIFC's aforestated checking account. BPI used the check to trace the perpetrators of the forgery. Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in Page 267 of 545 cash. CIFC refused the request, and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI. ISSUE: Whether or not there was valid tender of payment in the instant case? RULING: A check is not a legal tender, and therefore cannot constitute valid tender of payment. "Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. DE MESA V CA G.R.No. 106467-68 October 19,1999 FACTS: Petitioner Dolores Ligaya de Mesa owns several parcels of land in Makati, Pasay City, Cavite, and General Santos City3 I. Two (2) parcels of land situated in Makati, Metro Manila, with TCT no. (232345) S-60337 containing an area of 188 square meters and TCT No. (232344) S-50336 containing an area of 236 square meters. Two parcels of land situated in Makan, General Santos City, with TCT No. T-11067 containing an area of 837 square meters. which were mortgaged to the Development Bank of the Philippines (DBP) as security for a loan she obtained from the bank. Failing to pay her mortgage debt, all her mortgaged properties were foreclosed and sold at public auction held on different days. On April 30, 1977, the Makar property was sold and the corresponding certificate of sale inscribed on March 10, 1978. On August 25, 1977, the Naic, Cavite property was sold and the certificate of sale registered on the same day. On August 30, 1977, the two (2) parcels of land in Makati were sold at public auction and the certificate of sale was inscribed on November 25, 1977. And on Page 268 of 545 January 12, 1978, the three (3) parcels of land in Pasay City were also sold and the certificate of sale was recorded on the same date. In all the said auction sales, DBP was the winning bidder. ISSUE: Whether or not the Court can supplant its own reading of an ambiguous contract for the actual intention of the contracting parties as testified to in open court and under oath. RULING: Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the words of a contract are plain and readily understood, there is no room for construction. As the agreement of the parties are reduced to writing, such agreement is considered as containing all its terms and there can be, between the parties and their successorsin-interest, no evidence of the terms of the written agreement other than the contents of the writing. In the case under consideration, the terms of the "Deed of Sale with Assumption of Mortgage Debt" are clear and leave no doubt as to what were sold thereunder. The contract under scrutiny is so explicit and unambiguous that it does not justify any attempt to read into it any supposed intention of the parties, as the said contract is to be understood literally, just as they appear on its face. OCCENA V CA G.R.No. 44349 October 29, 1976 FACTS: On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of its subdivision contract with petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making the following allegations: "That due to the increase in price of oil and its derivatives and the concomitant worldwide spiralling of prices, which are not within the control of plaintiff, of all commodities including basis raw materials required for such development work, the cost of development has risen 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, Annex 'A', have been totally changed; "That further performance by the plaintiff under the contract, Annex 'A', will result in situation where defendants would be unjustly enriched at the expense of the plaintiff; will cause Page 269 of 545 an inequitous distribution of proceeds from the sales of subdivided lots in manifest contravention of the original essence of the agreement; and will actually result in the unjust and intolerable exposure of plaintiff to implacable losses. ISSUE: Whether or not provisions of art 1267 of the new civil code is applicable in the case at a bar? RULING: 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." Respondent's complaint seeks not release from the subdivision contract but that the court "render judgment modifying the terms and conditions of the contract . . . by fixing the proper shares that should pertain to the herein parties out of the gross proceeds from the sales of subdivided lots of subject subdivision". The cited article does not grant the courts this authority to remake, modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law between the parties, so as to substitute its own terms for those covenanted by the parties themselves. Respondent's complaints for modification of contract manifestly has no basis in law and therefore states no cause of action. Under the particular allegations of respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief sought. ORTIGAS V FEATI BANK G.R.No. 24670 December 14, 1979 FACTS: On March 4, 1952, plaintiff, as vendor, and Augusto Padilla y Angeles and Natividad Angeles, as vendees, entered into separate agreements of sale on installments over two parcels of land, known as Lots Nos. 5 and 6, Block 31, of the Highway Hills Subdivision, situated at Mandaluyong, Rizal. On July 19, 1962, the said vendees transferred their rights and interests over the aforesaid lots in favor of one Emma Chavez. Upon completion of payment of the purchase price, the plaintiff executed the corresponding deeds of sale in favor of Emma Chavez. On or about May 5, 1963, defendant-appellee began laying the foundation and commenced the construction of a building on Lots Nos. 5 and 6, to be devoted to banking purposes, but which defendant-appellee claims could also be devoted to, and used exclusively for, residential purposes. The following day, plaintiff-appellant demanded in writing that defendant-appellee stop the construction of the commercial building on the said lots. The latter refused to comply with the demand, contending that the building was being constructed in Page 270 of 545 accordance with the zoning regulations, defendant-appellee having filed building and planning permit applications with the Municipality of Mandaluyong, and it had accordingly obtained building and planning permits to proceed with the construction. ISSUE: Whether the Resolution No. 27 s-1960 can nullify or supersede the contractual obligations assumed by defendant-appellee. RULING: It should be stressed, that while non-impairment of contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate exercise of police power. Resolution No. 27, s-1960 declaring the western part of Highway 54, EDSA from Shaw Boulevard to the Pasig River as an industrial and commercial zone, was obviously passed by the Municipal Council of Mandaluyong, Rizal in the exercise of police power to safeguard or promote the health, safety, peace, good order and general welfare of the people in the locality. Judicial notice may be taken of the conditions prevailing in the area, especially where Lots Nos. 5 and 6 are located. The lots themselves not only front the highway; industrial and commercial complexes have flourished about the place. EDSA, a main traffic artery which runs through several cities and municipalities in the Metro Manila area, supports an endless stream of traffic and the resulting activity, noise and pollution are hardly conducive to the health, safety or welfare of the residents in its route. Having been expressly granted the power to adopt zoning and subdivision ordinances or regulations, the municipality of Mandaluyong, through its Municipal Council, was reasonably, if not perfectly, justified under the circumstances, in passing the subject resolution. DANIEL T. SO vs. FOOD FEST LAND, INC. G.R. No. 183628 April 7, 2010 FOOD FEST LAND, INC. vsDANIEL T. SO G.R. No. 183670 FACTS: Food Fest Land Inc. (Food Fest) entered into a September 14, 1999 Contract of Lease1 with Daniel T. So (So) over a commercial space in San Antonio Village, Makati City for a period of three years (1999-2002) on which Food Fest intended to operate a Kentucky Fried Chicken carry out branch. Before forging the lease contract, the parties entered into a preliminary agreement dated July 1, 1999, the pertinent portion of which states that the lease shall not become binding upon us unless and until the government agencies concerned shall authorize, permit or license us to open and maintain our business at the proposed Lease Premises. While Food Fest was able to secure the necessary licenses and permits for the year 1999, it failed to commence business operations. For the year 2000, Food Fest’s application for renewal Page 271 of 545 of barangay business clearance was "held in abeyance until further study of [its] kitchen facilities." As the barangay business clearance is a prerequisite to the processing of other permits, licenses and authority by the city government, Food Fest was unable to operate. Fearing further business losses, Food Fest, by its claim, communicated its intent to terminate the lease contract to So who, however, did not accede and instead offered to help Food Fest secure authorization from the barangay. On April 26, 2001, So filed a complaint for ejectment and damages against Food Fest before the Metropolitan Trial Court (MeTC) of Makati City. The MeTC, by Decision of July 4, 2005,7 rendered judgment in favor of So.The Regional Trial Court (RTC), by Decision of November 30, 2006,9 reversed the MeTC Decision. Court of Appeals however, declared that Food Fest’s obligation to pay rent was not extinguished upon its failure to secure permits to operate. ISSUE: WON Principle of rebus sic stantibus is applicable to the instant case. RULING: No. As for Food Fest’s invocation of the principle of rebus sic stantibus as enunciated in Article 1267 of the Civil Code to render the lease contract functus officio, and consequently release it from responsibility to pay rentals, the Court is not persuaded. This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor.19 Food Fest was able to secure the permits, licenses and authority to operate when the lease contract was executed. Its failure to renew these permits, licenses and authority for the succeeding year, does not, however, suffice to declare the lease functus officio, nor can it be construed as an unforeseen event to warrant the application of Article 1267. MAGAT V CA G.R.No. 124221 August 4, 2000 FACTS: Private respondent Santiago A. Guerrero (hereinafter referred to as "Guerrero") was President and Chairman of[4] "Guerrero Transport Services", a single proprietorship. Sometime in 1972, Guerrero Transport Services won a bid for the operation of a fleet of taxicabs within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to "provide radiocontrolled taxi service within the U. S. Naval Base, Subic Bay, utilizing as demand requires... 160 operational taxis consisting of four wheel, four-door, four passenger, radio controlled, meter controlled, sedans, not more than one year. On September 22, 1972, with the advent of martial law, President Ferdinand E. Marcos issued Letter of Instruction No. 1. SEIZURE AND CONTROL OF ALL PRIVATELY OWNED NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES AND ALL OTHERMEDIA OF COMMUNICATION. Page 272 of 545 ISSUE: Whether the contract between Victorino and Guerrero for the purchase of radio transceivers was void. RULING: The contract was not void ab initio. Nowhere in the LOI and Admin. Circular is there an express ban on the importation of transceivers. The LOI and Administrative Circular did not render "radios and transceivers" illegal per se. The Administrative Circular merely ordered the Radio Control Office to suspend the "acceptance and processing .... of applications... for permits to possess, own, transfer, purchase and sell radio transmitters and transceivers..."[41] Therefore, possession and importation of the radio transmitters and transceivers was legal provided one had the necessary license for it.[42] Transceivers were not prohibited but merely regulated goods. The LOI and Administrative Circular did not render the transceivers outside the commerce of man. They were valid objects of the contract. PNCC V CA G.R.No. 118696 May 5, 1997 FACTS: On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use Permit 2 for the proposed rock crushing project. The permit was to be valid for two years unless sooner revoked by the Ministry. On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual rental in the amount of P240,000 which was due and payable upon the execution of the contract. They also assured the latter that they had already stopped considering the proposals of other aggregates plants to lease the property because of the existing contract with petitioner. In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental would commence on the date of the issuance of an industrial clearance by the Ministry of Human Settlements, and not from the date of signing of the contract. It then expressed its intention to terminate the contract, as it had decided to cancel or discontinue with the rock crushing project Page 273 of 545 "due to financial, as well as technical, difficulties." Private respondents refused to accede to petitioner's request for the pretermination of the lease contract. They insisted on the performance of petitioner's obligation and reiterated their demand for the payment of the first annual rental. ISSUE: Whether provisions of Article 1266 and the principle of rebus sic stantibus is applicable in the case at bar? RULING: Article 1266 of the Civil Code, which reads: "The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor." Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to obligations "to do," and not to obligations "to give." An obligation "to do" includes all kinds of work or service; while an 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. The obligation to pay rentals or deliver the thing in a contract oflease falls within the prestation "to give"; hence, it is not covered within the scope of Article 1266. At any rate, the unforeseen event and causes mentioned by petitioner are not the legal or physical impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the circumstances brought about by "the abrupt change in the political climate in the country" except the alleged prevailing uncertainties in government policies on infrastructure projects. The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist. NATELCO V CA G.R.No. 107112 February 24, 1994 FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an electric power service in the same city. On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private respondent After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for reformation of the contract with damages, on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with the guidelines of the National Electrification Administration (NEA) which direct that the reasonable compensation for the use of the posts is Page 274 of 545 P10.00 per post, per month; that after eleven (11) years of petitioners' use of the posts, the telephone cables strung by them thereon have become much heavier with the increase in the volume of their subscribers, worsened by the fact that their linemen bore holes through the posts at which points those posts were broken during typhoons. ISUUE: Whether respondent court erred in making a contract for the parties by invoking Article 1267 of the New Civil Code. RULING: Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this provision, 9 the term "service" should be understood as referring to the "performance" of the obligation. In the present case, the obligation of private respondent consists in allowing petitioners to use its posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with future unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267 states in our law the doctrine of unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering 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. REYNA V. COA FEBRUARY 8, 2011 FACTS: The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing program wherein loans were granted to various cooperatives. Pursuant thereto, Land Bank's Ipil, Zamboanga del Sur Branch (Ipil Branch) went into a massive information campaign offering the program to cooperatives.Cooperatives who wish to avail of a loan under the program must fill up a Credit Facility Proposal (CFP) which will be reviewed by the Ipil Branch. The Ipil Branch approved the applications of four cooperatives.One of the conditions stipulated in the CFP is that prior to the release of the loan, a Memorandum of Agreement (MOA) between the supplier of the cattle, Remad Livestock Corporation (REMAD), and the cooperative, shall have been signed. As alleged by petitioners, the terms of the CFP allowed for pre-payments or advancement of the payments prior to the delivery of the cattle by the supplier REMAD but such was not stipulated in the contracts. Page 275 of 545 Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment for the cattle. REMAD, however, failed to supply the cattle on the dates agreed upon. In post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB No. 95-005 dated December 27, 1996 and Notices of Disallowance Nos. 96-014 to 96-019 in view of the non-delivery of the cattle. Also made as the basis of the disallowance was the fact that advanced payment was made in violation of bank policies and COA rules and regulations. Petitioners were made liable for the amount ISSUE: Whether or not the writing off of a loan is considered as condonation RULING: This Court rules that writing-off a loan does not equate to a condonation or release of a debt by the creditor. As an accounting strategy, the use of write-off is a task that can help a company maintain a more accurate inventory of the worth of its current assets. In general banking practice, the write-off method is used when an account is determined to be uncollectible and an uncollectible expense is recorded in the books of account. If in the future, the debt appears to be collectible, as when the debtor becomes solvent, then the books will be adjusted to reflect the amount to be collected as an asset. In turn, income will be credited by the same amount of increase in the accounts receivable. Write-off is not one of the legal grounds for extinguishing an obligation under the Civil Code. It is not a compromise of liability. Neither is it a condonation, since in condonation gratuity on the part of the obligee and acceptance by the obligor are required. In making the write-off, only the creditor takes action by removing the uncollectible account from its books even without the approval or participation of the debtor. TRANS PACIFIC V CA G.R.No. 109172 August 19, 1994 FACTS: Sometime in 1979, petitioner applied for and was granted several financial accommodations amounting to P1,300,000.00 by respondent Associated Bank. The loans were evidence and secured by four (4) promissory notes, a real estate mortgage covering three parcels of land and a chattel mortgage over petitioner's stock and inventories. Unable to settle its obligation in full, petitioner requested for, and was granted by respondent bank, a restructuring of the remaining indebtedness which then amounted to P1,057,500.00, as all the previous payments made were applied to penalties and interests. The mortgaged parcels of land were substituted by another mortgage covering two other parcels of land and a chattel mortgage on petitioner's stock inventory. The released parcels of land were then sold and the proceeds amounting to P1,386,614.20, according to petitioner, were Page 276 of 545 turned over to the bank and applied to Trans-Pacific's restructured loan. Subsequently, respondent bank returned the duplicate original copies of the three promissory notes to TransPacific with the word "PAID" stamped thereon. Despite the return of the notes, or on December 12, 1985, Associated Bank demanded from Trans-Pacific payment of the amount of P492,100.00 representing accrued interest on PN No. TL-9077-82. According to the bank, the promissory notes were erroneously released. ISSUE : Whether or not petitioner has indeed paid in full its obligation to respondent bank. RULING: Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter." The surrender and return to plaintiffs of the promissory notes evidencing the consolidated obligation as restructured, produces a legal presumption that Associated had thereby renounced its actionable claim against plaintiffs (Art. 1271, NCC). The presumption is fortified by a showing that said promissory notes all bear the stamp "PAID", and has not been otherwise overcome. Upon a clear perception that Associated's record keeping has been less than exemplary . . . , a proffer of bank copies of the promissory notes without the "PAID" stamps thereon does not impress the Court as sufficient to overcome presumed remission of the obligation vis-a-vis the return of said promissory notes. Indeed, applicable law is supportive of a finding that in interest bearing obligations-as is the case here, payment of principal (sic) shall not be deemed to have been made until the interests have been covered (Art. 1253, NCC). Conversely, competent showing that the principal has been paid, militates against postured entitlement to unpaid interests. DALUPAN V HARDEN G.R.No. L-3975 November 27, 1951 FACTS: On August 26, 1948, plaintiff filed an action against the defendant for the collection of P113,837.17, with interest thereon from the filing of the complaint, which represents 50 per cent of the reduction plaintiff was able to secure from the Collector of Internal Revenue in the amount of unpaid taxes claimed to be due from the defendant. Defendant acknowledged this claim and prayed that judgment be rendered accordingly. In the meantime, the receiver in the liquidation case No. R-59634 and the wife of the defendant, Esperanza P. de Harden, filed an answer in intervention claiming that the amount sought by the plaintiff was exorbitant and prayed that it be reduced to 10 per cent of the rebate. By reason of the acquiescence of the defendant to the claim on one hand, and the opposition of the receiver and of the wife on the other, an amicable settlement was concluded by the plaintiff and the intervenor whereby it was agreed that the sum of P22,767.43 be paid to the plaintiff from the funds under the control of the receiver "and the Page 277 of 545 balance of P91,069.74 shall be charged exclusively against the defendant Fred M. Harden from whatever share he may still have in the conjugal partnership between him and Esperanza P. de Harden. ISSUE : Whether or not the writ of execution asked for by the plaintiff on the two checks is premature. RULING: Examining the terms the court finds that the stipulation limits the right of the plaintiff to ask for the execution of the judgment to whatever share Fred M. Harden may still have in the conjugal partnership between him and his wife after the final liquidation and partition thereof. The execution of the judgment is premised upon a condition precedent, which is the final liquidation and partition of the conjugal partnership. Note that the condition does not refer to the liquidation of a particular property of the partnership. It refers to the over-all and final liquidation of the partnership. Such being the stipulation of the parties which was sanctioned and embodied by the Court in its decision, it is clear that the writ of execution asked for by the plaintiff on the two checks is premature. LOPEZ V TAMBUNTING G.R.No. 9806 January 19, 1916 FACTS: These proceedings were brought to recover from the defendant the sum of P2,000, amount of the fees, which, according to the complaint, are owing for professional medical services rendered by the plaintiff to a daughter of the defendant from March 10 to July 15, 1913, which fees the defendant refused to pay, notwithstanding the demands therefor made upon him by the plaintiff. The defendant denied the allegations of the complaint, and furthermore alleged that the obligation which the plaintiff endeavored to compel him to fulfill was already extinguished. ISSUE: Page 278 of 545 Whether or not implied condonation can be legally pressumed in the instant case? RULING: It is true that number 8 of section 334 of the Code of Civil Procedure provides as a legal presumption "that an obligation delivered up to the debtor has been paid." Article 1188 of the Civil Code also provides that the voluntary surrender by a creditor to his debtor, of a private instrument proving a credit, implies the renunciation of the right of action against the debtor; and article 1189 prescribes that whenever the private instrument which evidences the debt is in the possession of the debtor, it will be presumed that the creditor delivered it of his own free will, unless the contrary is proven. But the legal presumption established by the foregoing provisions of law cannot stand if sufficient proof is adduced against it. In the case at bar the trial court correctly held that there was sufficient evidence to the contrary, in view of the preponderance thereof in favor of the plaintiff and of the circumstances connected with the defendant's possession of said receipt Exhibit 1. Furthermore, in order that such a presumption may be taken into account, it is necessary, as stated in the laws cited, that the evidence of the obligation be delivered up to the debtor and that the delivery of the instrument proving the credit be made voluntarily by the creditor to the debtor. In the present case, it cannot be said that these circumstances concurred, inasmuch as when the plaintiff sent the receipt to the defendant for the purpose of collecting his fee, it was not his intention that that document should remain in the possession of the defendant if the latter did not forthwith pay the amount specified therein. ESTATE OF MOTA V SERRA G.R.No. 22825 February 14, 1925 FACTS: On February 1, 1919, plaintiffs and defendant entered into a contract of partnership, marked Exhibit A, for the construction and exploitation of a railroad line from the "San Isidro" and "Palma" centrals to the place known as "Nandong". The original capital stipulated was P150,000. It was covenanted that the parties should pay this amount in equal parts and the plaintiffs were entrusted with the administration of the partnership. January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the estate and central known as "Palma" with its running business, as well as all the improvements, machineries and buildings, real and personal properties, rights, choses in action and interests, including the sugar plantation of the harvest year of 1920 to 1921, covering all the property of the vendor. Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de Page 279 of 545 Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one half of the railroad line pertaining to the latter executing therefor the document Exhibit 5. The price of this sale was P237,722.15, excluding any amount which the defendant might be owing to the plaintiffs. ISSUE: Whether or not there was confusion of the rights of the creditor and debtor RULING: The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they had bought and also upon what they had purchased from Mr. Salvador Serra. In other words, Phil C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they had bought from the plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased something from Mr. Salvador Serra, the herein defendant, regarding the railroad line, it was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows that the rights and titles transferred by the plaintiffs to Phil. C. Whitatker and Venancio Concepcion were only those they had over the other half of the railroad line. Therefore, as already stated, since there was no novation of the contract between the plaintiffs and the defendant, as regards the obligation of the latter to pay the former one-half of the cost of the construction of the said railroad line, and since the plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit that they had against the defendant, the allegation that the obligation of the defendant became extinguished by the merger of the rights of creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly untenable. YEK TON LIN V YUSINGCO G.R.No. 43608 July 20, 1937 FACTS: Defendant Pelagio Yusingco was the owner of the steamship Yusingco and, as such, he executed, on November 19, 1927, a power of attorney in favor of Yu Seguioc to administer, lease, mortgage and sell his properties, including his vessels or steamship. Yu Seguioc mortgaged to the plaintiff Yek Tong Lin Fire & Marine Insurance Co., Ltd., with the approval of the Bureau of Customs, the steamship Yusingco belonging to the defendant. One year and some months later, the steamship Yusingco needed some repairs which were made by the Earnshaw Docks & Honolulu Iron Works. The repairs were made upon the guaranty of the defendant and appellant Vicente Madrigal at a cost of P8,244.66. When neither A. Yusingco Hermanos nor Pelagio Yusingco could pay said sum to the Earnshaw Docks & Honolulu Iron Works, the defendant and appellant Vicente Madrigal had to make payment thereof with the stipulated Page 280 of 545 interest thereon, which was at the rate of 9 per cent per annum, on March 9, 1932, because he was bound thereto by reason of the bond filed by him, the payment then made by him having amounted to P8,777.60. When said defendant discovered that he was not to be reimbursed for the repairs made on the steamship Yusingco, he brought an action against his codefendant Pelagio Yusingco and A. Yusingco Hermanos to compel them to reimburse, thereby giving rise to civil case No. 41654 of the Court of First Instance of Manila, entitled "Vicente Madrigal, plaintiff, vs. Pelagio Yusingco and A. Yusingco Hermanos, defendants" which resulted in a judgment favorable to him and adverse to the Yusingcos. ISSUE: Whether or not obligations were extinguished by reason of the merger of the rights of the debt or and creditor? RULING: After the steamship Yusingco had been sold by virtue of the judicial writ issued in civil case No. 41654 for the execution of the judgment rendered in favor of Vicente Madrigal, the only right left to the plaintiff was to collect its mortgage credit from the purchaser thereof at public auction, inasmuch as the rule is that a mortgage directly and immediately subjects the property on which it is imposed, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created (article 1876, Civil code); but it so happens that it can not take such steps now because it was the purchaser of the steamship Yusingco at public auction, and it was so with full knowledge that it had a mortgage credit on said vessel. Obligations are extinguished by the merger of the rights of the creditor and debtor (articles 1156 and 1192, Civil Code). E.G.V. REALTY V CA G.R.No. 120236 July 20, 1999 FACTS: Petitioner E.G.V. Realty Development Corporation is the owner/developer of a sevenstorey condominium building known as Cristina Condominium. Cristina Condominium Corporation holds title to all common areas of Cristina Condominium and is in charge of managing, maintaining and administering the condominium’s common areas and providing for the building’s security. Respondent Unisphere International, Inc. (hereinafter referred to as Unisphere) is the owner/occupant of Unit 301 of said condominium. On November 28, 1981, respondent Unisphere’s Unit 301 was allegedly robbed of various items valued at P6,165.00. The incident was reported to petitioner CCC. On July 25, 1982, another robbery allegedly occurred at Page 281 of 545 Unit 301 where the items carted away were valued at P6,130.00, bringing the total value of items lost to P12,295.00. This incident was likewise reported to petitioner CCC. On October 5, 1982, respondent Unisphere demanded compensation and reimbursement from petitioner CCC for the losses incurred as a result of the robbery. On January 28, 1987, petitioners E.G.V. Realty and CCC jointly filed a petition with the Securities and Exchange Commission (SEC) for the collection of the unpaid monthly dues in the amount of P13,142.67 against respondent Unisphere. ISSUE : Whether or not set-off or compensation has taken place in the instant case. RULING: Compensation or offset under the New Civil Code takes place only when two persons or entities in their own rights, are creditors and debtors of each other. (Art. 1278). A distinction must be made between a debt and a mere claim. A debt is an amount actually ascertained. It is a claim which has been formally passed upon by the courts or quasijudicial bodies to which it can in law be submitted and has been declared to be a debt. A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process prescribed by law before it develops into what is properly called a debt. Absent, however, any such categorical admission by an obligor or final adjudication, no compensation or off-set can take place. Unless admitted by a debtor himself, the conclusion that he is in truth indebted to another cannot be definitely and finally pronounced, no matter how convinced he may be from the examination of the pertinent records of the validity of that conclusion the indebtedness must be one that is admitted by the alleged debtor or pronounced by final judgment of a competent court or in this case by the Commission. There can be no doubt that Unisphere is indebted to the Corporation for its unpaid monthly dues in the amount of P13,142.67. This is admitted. AEROSPACE CHEMICAL V CA g.r.no. 108129 september 23, 1999 FACTS: On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On December 18, Page 282 of 545 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.6 [TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases. ISSUE: Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code? RULING: Petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private respondent's account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault." On this score, we quote with approval the findings of the appellate court, thus: The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable for the damages sought by the defendant. APODACA V NLRC G.R.No. 80039 April1 8, 1989 FACTS: Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to P1,500 shares of respondent corporation it P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent corporation. However, on January 2, 1986, he resigned. On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus compensation for 1986. Petitioner and private respondents submitted their position papers to the labor arbiter. Private respondents admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscript in the amount of P95,439.93. Petitioner questioned the set-off Page 283 of 545 alleging that there was no call or notice for the payment of unpaid subscription and that, accordingly, the alleged obligation is not enforceable. ISSUE : Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock subscriptions to a corporation? Assuming that it has, can an obligation arising therefrom be offset against a money claim of an employee against the employer? RULING: Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation as in the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission. Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances of this case, the unpaid subscriptions are not due and payable until a call is made by the corporation for payment. Private respondents have not presented a resolution of the board of directors of respondent corporation calling for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by the respondent corporation. SPOUSES CHUNG V. ULANDAY CONSTRUCTION OCTOBER 11, 2010 FACTS: In February 1985, the petitioners contracted with respondent Ulanday Construction, Inc. to construct, within a 150-day period,the concrete structural shell of the formers two-storey residential house in Urdaneta Village, Makati City at the contract price of P3, 291,142.00. The contract stipulated among others that the petitioners shall pay a P987,342.60 downpayment, with the balance to be paid in progress payments based on actual work completed; (c) the Construction Manager or Architect shall check the respondent’s request for progress payment and endorse it to the petitioners for payment within 3 days from receipt, (d) the petitioners shall pay the respondents within 7 days from receipt of the Construction Manager’s or Architect’s certificate; (e) the respondent cannot change or alter the plans, specifications, and works without the petitioners’ prior written approval. Respondent gave 12 progress billings but the petitioners Page 284 of 545 were only able to pay 7 of them. On their part, the respondent effected 19 change orders without the consent of the petitioners amounting to P912, 885.91. Respondents demanded the remaining balance from the petitioners which the petitioners denied asserting that the respondents violated the contract. ISSUE: Whether or not the petitioners are liable for the remaining balance RULING: In contractual relations, the law allows the parties leeway and considers their agreement as the law between them.Contract stipulations that are not contrary to law, morals, good customs, public order or public policy shall be binding and should be complied with in good faith. No party is permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party. In the present case, we find that both parties failed to comply strictly with their contractual stipulations on the progress billings and change orders that caused the delays in the completion of the project. Under the circumstances, fairness and reason dictate that we simply order the set-off of the petitioners’ contractual liabilities totaling P575,922.13 against the repair cost for the defective gutter, pegged at P717,524.00, leaving the amount of P141,601.87 still due from the respondent. Support in law for this ruling for partial legal compensation proceeds from Articles 1278, 1279, 1281, and 1283 of the Civil Code. In short, both parties are creditors and debtors of each other, although in different amounts that are already due and demandable. SELWIN LAO V. SPECIAL PLANS, INC. GR No. 164729; June 29, 2010 FACTS: Petitioners Selwyn F. Lao and Edgar Manansala (Manansala), together with Benjamin Jim (Jim), entered into a Contract of Lease with respondent Special Plans, Inc. (SPI) for the period January 16, 1993 to January 15, 1995 over SPI’s building at No. 354 Quezon Avenue, Quezon City. Petitioners intended to use the premises for their karaoke and restaurant business known as “Saporro Restaurant”. Upon expiration of the lease contract, it was renewed for a period of eight months at a monthly rate of P23, 000.00. On June 3, 1996, SPI sent a Demand Letter to the petitioners asking for full payment of rentals in arrears.Receiving no payment, SPI filed on July 23, 1996 a Complaint for sum of money with the MeTC of Quezon City, claiming unpaid rentals of P118, 000.00 covering the period March 16, 1996 to August 16, 1996. Page 285 of 545 Petitioners answered faulting SPI for making them believe that it owns the leased property and that SPI did not deliver the leased premises in a condition fit for petitioners’ intended use. Thus, petitioners claimed that they were constrained to incur expenses for necessary repairs as well as expenses for the repair of structural defects, which SPI failed and refused to reimburse. Petitioners prayed that the complaint be dismissed and judgment on their counterclaims be rendered ordering SPI to pay them the sum of P422, 920.40 as actual damages, as well as moral damages, attorney’s fees and exemplary damages. ISSUE: Whether or not the cost of repairs incurred by the petitioners should be compensated against the unpaid rentals. RULING: Petitioners failed to properly discharge their burden to show that the debts are liquidated and demandable. Consequently, legal compensation is inapplicable. The petitioners attempted to prove that they spent for the repair of the roofing, ceiling and flooring, as well as for waterproofing. However, they failed to appreciate that, as per their lease contract, only structural repairs are for the account of the lessor, herein respondent SPI. In which case, they overlooked the need to establish that aforesaid repairs are structural in nature, in the context of their earlier agreement. It would have been an altogether different matter if the lessor was informed of the said structural repairs and he implicitly or expressly consented and agreed to take responsibility for the said expenses. Such want of evidence on this respect is fatal to this appeal. Consequently, their claim remains unliquidated and, legal compensation is inapplicable. UNITED PLANTERS MILLING CO. V. CA GR No. 126890; April 2, 2009 FACTS: In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it had waived its right to collect on an outstanding indebtedness from petitioner, by virtue of a so-called “friendly foreclosure agreement” that ultimately was friendly only to petitioner. Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of milling sugar. In 1974, as UPSUMCO commenced operations, it obtained a set of loans from respondent Philippine National Bank (PNB). The loans were secured over two parcels of land where the milling plant stood and chattel mortgages over the machineries and equipment. Page 286 of 545 On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its “rights, titles and interests” over UPSUMCO, among several other assets.[6] The Deed of Transfer acknowledged that said assignment was being undertaken “in compliance with Presidential Proclamation No. 50.” The Government subsequently transferred these “rights, titles and interests” over UPSUMCO to the respondent Asset and Privatization Trust (APT). ISSUE: Whether or not there was compensation in the present case. RULING: The right of PNB to set-off payments from UPSUMCO arose out of conventional compensation rather than legal compensation, even though all of the requisites for legal compensation were present as between those two parties. The determinative factor is the mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were present. As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the presence of all the requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under conventional compensation. The absence of the mutual creditor-debtor relation between the new creditor APT and UPSUMCO cannot negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding obligations of UPSUMCO on the basis of conventional compensation before the condonation took effect on 3 September 1987. PNB MANAGEMENT V R&R METAL G.R.No. 132245 January 1, 2002 FACTS: It appears that on November 19, 1993, respondent R&R Metal Casting and Fabricating, Inc. (R&R) obtained a judgment in its favor against Pantranco North Express, Inc. (PNEI). PNEI was ordered to pay respondent P213,050 plus interest as actual damages, P50,000 as exemplary damages, 25 percent of the total amount payable as attorney’s fees, and the costs of suit. However, the writ of execution was returned unsatisfied since the sheriff did not find any property of PNEI recorded at the Registries of Deeds of the different cities of Metro Manila. Neither did the sheriff receive a reply to the notice of garnishment he sent to PNB-Escolta.On March 27, 1995, respondent filed with the trial court a motion for the issuance of subpoenae duces tecum and ad testificandum requiring petitioner PNB Management and Development Page 287 of 545 Corp. (PNB MADECOR) to produce and testify on certain documents pertaining to transactions between petitioner and PNEI from 1981 to 1995. ISSUE: Whether or not legal compensation have occured in the instant case? RULING: Legal compensation could not have occurred because of the absence of one requisite in this case: that both debts must be due and demandable. Petitioner’s obligation to PNEI appears to be payable on demand, following the above observation made by the CA and the assertion made by petitioner. Petitioner is obligated to pay the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per annum. Since petitioner’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject to compensation for lack of a requisite under the law. Without compensation having taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt. SILAHIS V IAC G.R.No. 74027 December 7, 1989 FACTS: Petitioner Silahis Marketing Corporation seeks in this petition for review on certiorari a reversal of the decision of the then Intermediate Appellate Court (IAC) in AC-G.R. CV No. 67162 entitled "De Leon, etc. v. Silahis Marketing Corporation", disallowing petitioner's counterclaim for commission to partially offset the claim against it of private respondent Gregorio de Leon for the purchase price of certain merchandise. A review of the record shows that on various dates in October, November and December, 1975, Gregorio de Leon doing business under the name and style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation various items of merchandise covered by several invoices in the Page 288 of 545 aggregate amount of P22,213.75 payable within thirty (30) days from date of the covering invoices.Allegedly due to Silahis' failure to pay its account upon maturity despite repeated demands, de Leon filed before the then Court of First Instance of Manila a complaint for the collection of the said accounts including accrued interest thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus costs of litigation. ISSUE: Whether or not private respondent is liable to the petitioner for the commission or margin for the direct sale which the former concluded and consummated with Dole Philippines, Incorporated without coursing the same through herein petitioner. RULING: It must be remembered that compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor." When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without the consent or knowledge of the creditors and debtors. 5 Article 1279 requires, among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim existing from breach of contract. Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the amount of P22,213.75 as contained in its answer. But whether private respondent is liable to pay the petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This circumstance prevents legal compensation from taking place. FRANCIA V CA G.R.No. 67649 June 28, 1998 FACTS: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction Page 289 of 545 sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. ISSUE: Whether or not francia’s tax delinquency of P2,400.00 has been extinguished by legal compensation. RULING: There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: "(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be setoff under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required TRINIDAD V ACAPULCO G.R.No. 147477 June 27, 2006 FACTS: On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She alleged: Sometime in February 1991, a certain Primitivo Cañete requested her to sell a Mercedes Benz for P580,000.00. Cañete also said that if respondent herself will buy the car, Cañete was willing to sell it for P500,000.00. Petitioner borrowed the car from respondent for two days but instead of returning the car as promised, petitioner told respondent to buy the car from Cañete for P500,000.00 and that petitioner would pay respondent after petitioner returns from Davao. Following petitioner’s instructions, respondent requested Cañete to execute a deed of sale covering the car in respondent’s favor for P500,000.00 for which respondent issued three checks Page 290 of 545 in favor of Cañete. Respondent thereafter executed a deed of sale in favor of petitioner even though petitioner did not pay her any consideration for the sale. When petitioner returned from Davao, he refused to pay respondent the amount of P500,000.00 saying that said amount would just be deducted from whatever outstanding obligation respondent had with petitioner. Due to petitioner’s failure to pay respondent, the checks that respondent issued in favor of Cañete bounced, thus criminal charges were filed against her.[3] Respondent then prayed that the deed of sale between her and petitioner be declared null and void; that the car be returned to her; and that petitioner be ordered to pay damages. ISSUE: Whether or not petitioner’s claim for legal compensation was already too late RULING: The court ruled in favor of the petitioner. Compensation takes effect by operation of law even without the consent or knowledge of the parties concerned when all the requisites mentioned in Article 1279 of the Civil Code are present.[26] This is in consonance with Article 1290 of the Civil Code which provides that: Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Since it takes place ipso jure,[27] when used as a defense, it retroacts to the date when all its requisites are fulfilled. CAROLINA HERNANDEZ-NIEVERA V. WILFREDO HERNANDEZ GR No. 171165; February 14, 2011 FACTS: Project Movers Realty & Development Corporation (PMRDC) is a duly organized domestic corporation engaged in real estate development. It entered into a Memorandum of Agreement (MOA) whereby it was given the option to buy pieces of land owned by petitioners Carolina Hernandez-Nievera, Margarita H. Malvar and Demetrio P. Hernandez, Jr. Demetrio, under authority of a Special Power of Attorney to Sell or Mortgage, signed the MOA also in behalf of Carolina and Margarita. In the aggregate, the realty measured 4,580,451 square meters and was segregated by agreement into Area I and Area II. On March 23, 1998, the PMRDC entered with LBP and Demetrio - the latter purportedly acting under authority of the same special power of attorney as in the MOA - into a Deed of Page 291 of 545 Assignment and Conveyance (DAC). PMRDC delivered to petitioners certain checks representing the money, the same however allegedly bounced. Hence, on January 8, 1999, petitioners demanded the return of the corresponding TCTs over the land but PMRDC said that the TCTs could no longer be delivered back to petitioners as the covered properties had already been conveyed and assigned to the Asset Pool pursuant to the March 23, 1998 DAC. Petitioner contended that Demetrio could not have entered into the said agreement as his power of attorney was limited only to selling or mortgaging the properties and not conveying the same to the Asset Pool. ISSUE: Whether or not the novation of the MOA is valid. RULING: Thus, it becomes clear that Demetrio's special power of attorney to sell is sufficient to enable him to make a binding commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to extinguish PMRDC's obligation under the MOA to deliver option money and agree to a more flexible term by agreeing instead to receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of the properties to the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to accommodate not only the terms of the MOA but also those of the subsequent agreement in the DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDC's integral obligations. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. ST. JAMES COLLEGE V. EQUITABLE PCI BANK GR No. 179441; August 9, 2010 FACTS: Petitioners-spouses owned and operated St. James College of Paranaque. Sometime in 1995, the Philippine Commercial and International Bank (PCIB), respondent, granted the Torres spouses and/or St. James College a credit line facility of up to 25,000,000 secured by a real estate mortgage over a parcel of land in Paranaque. Petitioners had defaulted in the payment of the loan obtained from the secured credit accommodation, their total unpaid loan obligation, as of September 2001, stood at 18,300,000. Respondent proposed a payment scheme to pay annually which the petitioners agreed upon but failed to comply with. Respondent then demanded full settlement of the loan. Petitioners contended that the the full amount is still not due owing to the implied novation of the terms of payment previously agreed upon. As petitioners assert in this Page 292 of 545 regard that the acceptance by respondent, particularly of the June 23, 2003 PhP 2,521,609.62 payment, without any objection on the new terms set forth in their June 23, 2003 complementing covering letter, novated the terms of payment of the 18,300,000 secured loan. ISSUE: Whether or not there was novation of contract RULING: As a civil law concept, novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation may be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished, or implied, when the new obligation is on every point incompatible with the old one. The test of incompatibility lies on whether the two obligations can stand together, each one with its own independent existence. For novation, as a mode of extinguishing or modifying an obligation, to apply, the following 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. MARIA TOMIMBANG V. ATTY. JOSE TOMIMBANG GR No. 165116; August 4, 2009 FACTS: Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door apartment located at 149 Santolan Road, Murphy, Quezon City. Petitioner failed to obtain a loan from PAG-IBIG Fund, hence, respondent offered to extend a credit line to petitioner on the following conditions: (1) petitioner shall keep a record of all the advances; (2) petitioner shall start paying the loan upon the completion of the renovation; (3) upon completion of the renovation, a loan and mortgage agreement based on the amount of the advances made shall be executed by petitioner and respondent; and (4) the loan agreement shall contain comfortable terms and conditions which petitioner could have obtained from PAG-IBIG. Page 293 of 545 A conflict between the siblings ensued leading to a new agreement whereby petitioner was to start making monthly payments on her loan. Upon respondent's demand, petitioner turned over to respondent all the records of the cash advances for the renovations. Subsequently, or from June to October of 1997, petitioner made monthly payments of P18, 700.00, or a total ofP93, 500.00. Petitioner never denied the fact that she started making such monthly payments. Thereafter, the petitioner can no longer be found and also stopped making the monthly payments. Thus, a complaint was filed against the petitioner demanding payment of the loan plus interest. Petitioner contended that the loan is not yet due and demandable as the renovation of the apartment is not yet completed. ISSUE: Whether or not the loan is already due and demandable. RULING: The loan is already due and demandable due to the subsequent agreement entered in to by the parties. Article 1291 of the Civil Code provides, thus: Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. The petitioner admitted that she started to comply with the demand of the respondent to pay on a monthly basis. Her partial performance of her obligation is unmistakable proof that indeed the original agreement between her and respondent had been novated by the deletion of the condition that payments shall be made only after completion of renovations. Hence, by her very own admission and partial performance of her obligation, there can be no other conclusion but that under the novated agreement, petitioner's obligation is already due and demandable. MINDANAO SAVINGS AND LOAN ASSOCIATION INC. V. EDWARD WILLKOM GR No. 178618; October 11, 2010 FACTS: The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) banks that entered into a merger, with DSLAI as the surviving corporation. The articles of merger were not registered with the SEC but when DSLAI changed its corporate name to MSLAI the amendment was approved by the SEC.Meanwhile, the Board of Directors of FISLAI passed a resolution, assigning its assets in favor of DSLAI which in turn assumed the former’s liabilities.The business of MSLAI, however, failed was ordered its closure and placed under receivership. Page 294 of 545 Prior to the closure of MSLAI, Uy filed an action for collection of sum of money against FISLAI. The RTC issued a summary decision in favor of Uy, directing defendants therein (which included FISLAI) to pay the former the sum of P136, 801.70. Therafter,sheriff Bantuas levied on six (6) parcels of land owned by FISLAI and Willkom was the highest bidder. New certificates of title covering the subject properties were issued in favor of Willkom who sold one of the subject parcels of land to Go. MSLAI, represented by PDIC, filed a complaint forAnnulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of Properties against respondents. Therespondents averred that MSLAI had no cause of action against them or the right to recover the subject properties because MSLAI is a separate and distinct entity from FISLAI as the merger did not take effect. ISSUE: Whether or not there was novation of the obligation by substituting the person of the debtor RULING: It is a rule that novation by substitution of debtor must always be made with the consent of the creditor. Article 1293 of the Civil Code is explicit, thus: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the liabilities of FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy the judgment claim of Uy against FISLAI. The subsequent sale of the properties by Uy to Willkom, and of one of the properties by Willkom to Go, cannot, therefore, be questioned by MSLAI. The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s consent in conventional subrogation in order that a novation shall legally take place. Since novation implies a waiver of the right which the creditor had before the novation, such waiver must be express. AQUINTEY v. SPOUSES TIBONG G.R. No. 166704,December 20, 2006 FACTS: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum of money and damages against respondents. Agrifina alleged that Felicidad secured loans from her on several occasions at monthly interest rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their outstanding loans of P773,000,00 exclusive of interests. However, spouses Tiong alleged that they had executed deeds of assignment in favor of Agrifina amounting to P546,459 and that their debtors had executed promissory notes in favor of Agrifina. Spouses insisted that by virtue of these documents, Agrifina became the new collector of their debts. Page 295 of 545 Agrifina was able to collect the total amount of P301,000 from Felicdad’s debtors. She tried to collect the balance of Felicidad and when the latter reneged on her promise, Agrifina filed a complaint in the office of the barangay for the collection of P773,000.00. There was no settlement. RTC favored Agrifina. Court of Appeals affirmed the decision with modification ordering defendant to pay the balance of total indebtedness in the amount of P51,341,00 plus 6% per month. ISSUE: Whether or not the deeds of assignment in favor of petitioner has the effect of payment of the original obligation that would partially extinguish the same RULING: Substitution of the person of the debtor May be affected by delegacion. Meaning, the debtor offers, the creditor accepts a third person who consent of the substitution and assumes the obligation. It is necessary that the old debtor be released from the obligation and the third person or new debtor takes his place in the relation . Without such release, there is no novation. Court of Appeals correctly found that the respondent’s obligation to pay the balance of their account with petitioner was extinguished pro tanto by the deeds of credit. CA decision is affirmed with the modification that the principal amount of the respondents is P33,841. SWAGMAN V CA G.R.No. 161135 April 8, 2005 FACTS: Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L. Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is in the amount of US$50,000 payable after three years from its date with an interest of 15% per annum payable every three months. In a letter dated 16 December 1998, Christian informed the petitioner corporation that he was terminating the loans and demanded from the latter payment in Page 296 of 545 the total amount of US$150,000 plus unpaid interests in the total amount of US$13,500. On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante. The petitioner corporation, together with its president and vicepresident, filed an Answer raising as defenses lack of cause of action and novation of the principal obligations. According to them, Christian had no cause of action because the three promissory notes were not yet due and demandable. ISSUE: Where there is a valid novation, may the original terms of contract which has been novated still prevail? HELD: The receipts, as well as private respondent’s summary of payments, lend credence to petitioner’s claim that the payments were for the principal loans and that the interests on the three consolidated loans were waived by the private respondent during the undisputed renegotiation of the loans on account of the business reverses suffered by the petitioner at the time. There was therefore a novation of the terms of the three promissory notes in that the interest was waived and the principal was payable in monthly installments of US$750. Alterations of the terms and conditions of the obligation would generally result only in modificatory novation unless such terms and conditions are considered to be the essence of the obligation itself.[25] The resulting novation in this case was, therefore, of the modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in force. Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably with their new agreement and even continued paying during the pendency of the case, the private respondent had no cause of action to file the complaint. It is only upon petitioner’s default in the payment of the monthly amortizations that a cause of action would arise and give the private respondent a right to maintain an action against the petitioner. AZOLLA FARMS V CA G.R.No. 138085 November 11, 2004 FACTS: Petitioner Francis R. Yuseco, Jr., is the Chairman, President and Chief Operating Officer of petitioner Azolla Farms International Philippines. In 1982, Azolla Farms undertook to participate in the National Azolla Production Program wherein it will purchase all the Azolla produced by the Azolla beneficiaries in the amount not exceeding the peso value of all the inputs provided to them. The project also involves the then Ministry of Agriculture, the Kilusang Kabuhayan at Kaunlaran, and the Kiwanis. To finance its participation, petitioners applied for a loan with Credit Manila, Inc., which the latter endorsed to its sister company, respondent Savings Page 297 of 545 Bank of Manila (Savings Bank). The Board of Directors of Azolla Farms, meanwhile, passed a board resolution on August 31, 1982, authorizing Yuseco to borrow from Savings Bank in an amount not exceeding P2,200,000.00. The loan having been approved, Yuseco executed a promissory note on September 13, 1982, promising to pay Savings Bank the sum of P1,400,000.00 on or before September 13, 1983. the Azolla Farms project collapsed. Blaming Savings Bank, petitioners Yuseco and Azolla Farms filed on October 3, 1983 with the Regional Trial Court of Manila (Branch 25), a complaint for damages. In essence, their complaint alleges that Savings Bank unjustifiably refused to promptly release the remaining P300,000.00 which impaired the timetable of the project and inevitably affected the viability of the project resulting in its collapse, and resulted in their failure to pay off the loan. Thus, petitioners pray for P1,000,000.00 as actual damages, among others. ISSUE: Whether the trial court erred in admitting petitioners’ amended complaint RULING: SEC. 5. Amendment to conform to or authorize presentation of evidence .—When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. As can be gleaned from the records, it was petitioners’ belief that respondent’s evidence justified the amendment of their complaint. The trial court agreed thereto and admitted the amended complaint. On this score, it should be noted that courts are given the discretion to allow amendments of pleadings to conform to the evidence presented during the trial. CALIFORNIA BUS LINES V STATE INVESMENTS G.R.No. 147950 December 11, 2003 FACTS: Sometime in 1979, Delta Motors Corporation—M.A.N. Division (Delta) applied for financial assistance from respondent State Investment House, Inc. SIHI agreed to extend a credit line to Delta for P25,000,000.00 in three separate credit agreements dated May 11, June 19, and August 22, 1979. Delta eventually became indebted to SIHI to the tune of P24,010,269.32 From April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. Page 298 of 545 Diesel Conversion Engines from Delta. To secure the payment of the purchase price of the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor of Delta on January 23 and April 25, 1980.[5] In each promissory note, CBLI promised to pay Delta or order, P2,314,000 payable in 60 monthly installments starting August 31, 1980, with interest at 14% per annum. CBLI further promised to pay the holder of the said notes 25% of the amount due on the same as attorney’s fees and expenses of collection, whether actually incurred or not, in case of judicial proceedings to enforce collection. In addition to the notes, CBLI executed chattel mortgages over the 35 buses in Delta’s favor. When CBLI defaulted on all payments due, it entered into a restructuring agreement with Delta on October 7, 1981, to cover its overdue obligations under the promissory notes.CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI with the enforcement of the management takeover clause. ISSUE: Whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI. RULING: Novation has been defined as the 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.For novation to take 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. In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication. OCAMPO-PAULE V CA G.R.No. 145872 February 4, 2002 FACTS: During the period August, 1991 to April, 1993, petitioner received from private complainant Felicitas M. Calilung several pieces of jewelry with a total value of One hundred Sixty Three Thousand One hundred Sixty Seven Pesos and Ninety Five Centavos (P163,167.95). The agreement between private complainant and petitioner was that the latter would sell the same and thereafter turn over and account for the proceeds of the sale, or otherwise return to private complainant the unsold pieces of jewelry within two months from receipt thereof. Since private complainant and petitioner are relatives, the former no longer required petitioner to issue Page 299 of 545 a receipt acknowledging her receipt of the jewelry.When petitioner failed to remit the proceeds of the sale of the jewelry or to return the unsold pieces to private complainant, the latter sent petitioner a demand letter. Notwithstanding receipt of the demand letter, petitioner failed to turn over the proceeds of the sale or to return the unsold pieces of jewelry. Private complainant was constrained to refer the matter to the barangay captain of Sta. Monica, Lubao, Pampanga. ISSUE: Whether or not there was a novation of petitioner’s criminal liability when she and private complainant executed the Kasunduan sa Bayaran. RULING: It is well-settled that the following requisites must be present for novation to take place: (1) a previous valid obligation; (2) agreement of all the parties to the new contract; (3) extinguishment of the old contract; and (4) validity of the new one. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. The execution of the Kasunduan sa Bayaran does not constitute a novation of the original agreement between petitioner and private complainant. Said Kasunduan did not change the object or principal conditions of the contract between them. The change in manner of payment of petitioner’s obligation did not render the Kasunduan incompatible with the original agreement, and hence, did not extinguish petitioner’s liability to remit the proceeds of the sale of the jewelry or to return the same to private complainant. An 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. In any case, novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment of criminal liability. REYES V CA G.R.NO. 147758 june 26, 2002 FACTS: This petition arose from a civil case for collection of a sum of money with preliminary attachment filed by respondent Pablo V. Reyes against his first cousin petitioner Arsenio R. Reyes and spouse Nieves S. Reyes. According to private respondent, petitioner-spouses borrowed from him P600,000.00 with interest at five percent (5%) per month, which totalled P1,726,250.00 at the time of filing of the Complaint. The loan was to be used supposedly to buy a lot in Parañaque. It was evidenced by an acknowledgment receipt dated 15 July 1990 signed by the petitioner-spouses Arsenio R. Reyes and Nieves S. Reyes and witness Romeo Rueda. Page 300 of 545 In their Answer petitioners admitted their loan from respondent but averred that there was a novation so that the amount loaned was actually converted into respondent's contribution to a partnership formed between them on 23 March 1990. ISSUE: Whether or not there was novation in the instant case? RULING: For novation to take place, the following requisites must concur: (a) there must be a previous valid obligation; (b) there must be an agreement of the parties concerned to a new contract; (c) there must be the extinguishment of the old contract; and, (d) there must be the validity of the new contract. In the case at bar, the third requisite is not present. The parties did agree that the amount loaned would be converted into respondent's contribution to the partnership, but this conversion did not extinguish the loan obligation. The date when the acknowledgment receipt/promissory note was made negates the claim that the loan agreement was extinguished through novation since the note was made while the partnership was in existence. Significantly, novation is never presumed. It must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken for anything else. An 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. BAUTISTA V PILAR DEVELOPMENT G.R.NO. 135046 august 17, 1999 FACTS: In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained from the Apex Mortgage & Loan Corporation a loan in the amount of P100,180.00. They executed a promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the "principal sum of P100,180.00 with interest rate of 12% and service charge of 3%" for a period of 240 months, or twenty years, from date, in monthly installments of P1,378.83. Late payments were to be charged a penalty of one and one-half per cent (1 1/2%) of the amount due. In the Page 301 of 545 same promissory note, petitioners authorized Apex to "increase the rate of interest and/or service charges" without notice to them in the event that a law, Presidential Decree or any Central Bank regulation should be enacted increasing the lawful rate of interest and service charges on the loan. Payment of the promissory note was secured by a second mortgage on the house and lot purchased by petitioners.Petitioner spouses failed to pay several installments. On September 20, 1982, they executed another promissory note in favor of Apex. This note was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent (21%) per annum with no provision for service charge but with penalty charge of 1 1/2% for late payments. ISSUE: Whether or not there was valid novation in the case at bar? RULING: Novation has four (4) essential requisites: (1) the existence of a previous valid obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment of the old contract; and (4) the validity of the new one. In the instant case, all four requisites have been complied with. The first promissory note was a valid and subsisting contract when petitioner spouses and Apex executed the second promissory note. The second promissory note absorbed the unpaid principal and interest of P142,326.43 in the first note which amount became the principal debt therein, payable at a higher interest rate of 21% per annum. Thus, the terms of the second promissory note provided for a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter period of 16.33 years. These changes are substantial and constitute the principal conditions of the obligation. Both parties voluntarily accepted the terms of the second note; and also in the same note, they unequivocally stipulated to extinguish the first note. Clearly, there was animus novandi, an express intention to novate. The first promissory note was cancelled and replaced by the second note. This second note became the new contract governing the parties' obligations. EVADEL REALTY V SORIANO G.R.No. 144291 April 20, 2001 FACTS: On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses), as sellers, entered into a "Contract to Sell " with Evadel Realty and Development Corporation (petitioner), as buyer, over a parcel of land denominated as Lot 5536-C of the Subdivision Plan of Lot 5536 covered by Transfer Certificate of Title No. 125062 which was part of a huge tract of land known as the Imus Estate. Upon payment of the first installment, petitioner introduced improvements thereon and fenced off the property with concrete walls. Later, respondent spouses discovered that the area fenced off by petitioner exceeded the area subject of the contract to sell Page 302 of 545 by 2,450 square meters. Upon verification by representatives of both parties, the area encroached upon was denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D of Psd-04-092419 and was later on segregated from the mother title and issued a new transfer certificate of title, TCT No. 769166, in the name of respondent spouses. Respondent spouses successively sent demand letters to petitioner on February 14, March 7, and April 24, 1997, to vacate the encroached area. Petitioner admitted receiving the demand letters but refused to vacate the said area. ISSUE: Whether or not there was novation of contract? RULING: Petitioner's claim that there was a novation of contract because there was a "second" agreement between the parties due to the encroachment made by the national road on the property subject of the contract by 1,647 square meters, is unavailing. Novation, one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a valid previous obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is valid new contract. Novation may be express or implied. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms (express novation) or that the old and the new obligations be on every point incompatible with each other (implied novation). In the instant case, there was no express novation because the "second" agreement was not even put in writing. Neither was there implied novation since it was not shown that the two agreements were materially and substantially incompatible with each other. We quote with approval the following findings of the trial court: Since the alleged agreement between the plaintiffs [herein respondents] and defendant [herein petitioner] is not in writing and the alleged agreement pertains to the novation of the conditions of the contract to sell of the parcel of land subject of the instant litigation, ipso facto, novation is not applicable in this case since, as stated above, novation must be clearly proven by the proponent thereof and the defendant in this case is clearly barred by the Statute of Frauds from proving its claim. B & I REALTY V. CASPE G.R. No. 146972 January 29, 2008 FACTS: Consorcia L. Venegas was the owner of a parcel of land located in Barrio Bagong-Ilog in Pasig, Rizal and covered by TCT No. 247434. She delivered said title to, and executed a simulated deed of sale in favor of, Datuin for purposes of obtaining a loan with the RCBC. Datuin claimed that he had connections with the management of RCBC and offered his assistance to Venegas in obtaining a loan from the bank. He issued a receipt to the Venegases, acknowledging that the lot was to be used as a collateral for bank financing and that the deed of sale was executed only as a device to obtain the loan. However, Datuin prepared a deed of Page 303 of 545 absolute sale and, through forgery, made it appear that the spouses Venegas executed the document in his favor. Venegas learned of Datuin's fraudulent scheme when she sold the lot to herein respondents for P160,000 in a deed of conditional sale. She, along with her husband, instituted a complaint against Datuin in the then Court of First Instance CFI of Rizal, Branch 11, docketed as Civil Case No. 188893, for recovery of property and nullification of TCT No. 377734, with damages. However, when the case was called for pre-trial, the Venegases' counsel failed to appear and the complaint was eventually dismissed without prejudice. ISSUE: Whether or not filing of Civil Case No. 36852 by the Venegases had the effect of interrupting the prescriptive period for the filing of the complaint for judicial foreclosure of mortgage? RULING: We agree with the CA's ruling that Civil Case No. 36852 did not have the effect of interrupting the prescription of the action for foreclosure of mortgage as it was not an action for foreclosure but one for annulment of title and nullification of the deed of mortgage and the deed of sale. It was not at all the action contemplated in Article 1155 of the Civil Code which explicitly provides that the prescription of an action is interrupted only when the action itself is filed in court. Petitioner could have protected its right over the property by filing a cross-claim for judicial foreclosure of mortgage against respondents in Civil Case No. 36852. The filing of a cross-claim would have been proper there. All the issues pertaining to the mortgage validity of the mortgage and the propriety of foreclosure would have been passed upon concurrently and not on a piecemeal basis. This should be the case as the issue of foreclosure of the subject mortgage was connected with, or dependent on, the subject of annulment of mortgage in Civil Case No. 36852. The actuations clearly manifested that petitioner knew its rights under the law but chose to sleep on the same. MESINA V. GARCIA G.R. No. 168035 November 30, 2006 FACTS: Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, enstered into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT No. T-78881 was issued in the name of herein petitioners. The Contract to Sell provides that the cost of the lot is P70.00 per square meter for a total amount of P16,450.00; payable within a period not to exceed 7 years at an interest rate of 12% per annum, in successive monthly installments of P260.85 per month, Page 304 of 545 starting May 1977. Thereafter, the succeeding monthly installments are to be paid within the first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly installments earning an interest of 1% per month. Instituting this case at bar, respondent asserts that despite the full payment made on 7 February 1984 for the consideration of the subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of the property to her. ISSUE: Whether or not respondent’s cause of action had already prescribed? RULING: Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when an action has been filed in court; when there is a written extrajudicial demand made by the creditors; and when there is any written acknowledgment of the debt by the debtor. The records reveal that starting 19 April 1986 until 2 January 1997 respondent continuously demanded from the petitioners the execution of the said Deed of Absolute Sale but the latter conjured many reasons and excuses not to execute the same. Respondent even filed a Complaint before the Housing and Land Use Regulatory Board way back in June, 1986, to enforce her rights and to compel the mother of herein petitioners, who was still alive at that time, to execute the necessary Deed of Absolute Sale for the transfer of title in her name. On 2 January 1997, respondent, through her counsel, sent a final demand letter to the petitioners for the execution of the Deed of Absolute Sale, but still to no avail. Consequently, because of utter frustration of the respondent, she finally lodged a formal Complaint for Specific Performance with Damages before the trial court on 20 January 1997. Hence, from the series of written extrajudicial demands made by respondent to have the execution of the Deed of Absolute Sale in her favor, the prescriptive period of 10 years has been interrupted. Therefore, it cannot be said that the cause of action of the respondent has already been prescribed. HEIRS OF GAUDIANE V CA G.R.No. 119879 March 11, 2004 FACTS: The lot in controversy is Lot 4389 located at Dumaguete City and covered by Original Certificate of Title No. 2986-A (OCT 2986-A) in the names of co-owners Felix and Juana Gaudiane. Felix died in 1943 while his sister Juana died in 1939. Herein respondents are the descendants of Felix while petitioners are the descendants of Juana. On November 4, 1927, Felix executed a document entitled Escritura de Compra-Venta (Escritura, for brevity) whereby he sold to his sister Juana his one-half share in Lot No. 4156 covered by Transfer Certificate of Title No. 3317-A. Page 305 of 545 Petitioners’ predecessors-in-interest, Geronimo and Ines Iso (the Isos), believed that the sale by Felix to their mother Juana in 1927 included not only Lot 4156 but also Lot 4389. In 1974, they filed a pleading in the trial court seeking to direct the Register of Deeds of Dumaguete City to cancel OCT 2986-A covering Lot 4389 and to issue a new title in favor of the Isos. This was later withdrawn after respondents’ predecessors-in-interest, Procopio Gaudiane and Segundo Gaudiane, opposed it on the ground that the Isos falsified their copy of the Escritura by erasing “Lot 4156” and intercalating in its place “Lot 4389.” ISSUE: Whether the court gravely erred in not giving due course to the claim of petitioners and legal effect of prescription and laches adverted by defendants-appellants in their answer and affirmative defenses proven during the hearing by documentary and testimonial evidence. RULING: As a general rule, ownership over titled property cannot be lost through prescription.[12] Petitioners, however, invoke our ruling in Tambot vs. Court of Appeals[13] which held that titled property may be acquired through prescription by a person who possessed the same for 36 years without any objection from the registered owner who was obviously guilty of laches. Petitioners’ claim is already rendered moot by our ruling barring petitioners from raising the defense of exclusive ownership due to res judicata. Even assuming arguendo that petitioners are not so barred, their contention is erroneous. As correctly observed by the appellate court. As explained earlier, only Lot No. 4156 was sold. It was through this misrepresentation that appellees’ predecessor-in-interest succeeded in withholding possession of appellees’ share in Lot No. 4389. Appellees cannot, by their own fraudulent act, benefit therefrom by alleging prescription and laches. LAUREANO V CA G.R.No. 114776 February 2, 2000 FACTS: Petitioner was employed in the singapore airlines limited as the pilot captain of B-707. Sometime in 1982, defendant, hit by a recession, initiated cost-cutting measures. Seventeen expatriate captains in the Airbus fleet were found in excess of the defendant's requirement. Consequently, defendant informed its expatriate pilots including plaintiff of the situation and advised them to take advance leaves. Realizing that the recession would not be for a short time, defendant decided to terminate its excess personnel. It did not, however, immediately terminate it's A-300 pilots. It reviewed their qualifications for possible promotion to the B-747 fleet. Page 306 of 545 Among the 17 excess Airbus pilots reviewed, twelve were found qualified. Unfortunately, plaintiff was not one of the twelve. Aggrieved, plaintiff on June 29, 1983, instituted a case for illegal dismissal before the Labor Arbiter. Defendant moved to dismiss on jurisdictional grounds. Before said motion was resolved, the complaint was withdrawn. ISSUE : What is the prescriptive period for money claims arising from employer-employee relationship? RULING: Article 291. Money claims. - All money claims arising from employee-employer relations accruing during the effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued; otherwise they shall be forever barred. It should be noted further that Article 291 of the Labor Code is a special law applicable to money claims arising from employer-employee relations; thus, it necessarily prevails over Article 1144 of the Civil Code, a general law. Basic is the rule in statutory construction that 'where two statutes are of equal theoretical application to a particular case, the one designed therefore should prevail.' In the instant case, the action for damages due to illegal termination was filed by plaintiff-appellee only on January 8, 1987 or more than four (4) years after the effectivity date of his dismissal on November 1, 1982. Clearly, plaintiff-appellee's action has already prescribed. BANCO FILIPINO vs. COURT OF APPEALS 332 SCRA 241 FACTS: Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00 as evidenced by the “Promissory Note” executed by the spouses in favor of the said bank. To secure payment of said loans, the spouses executed “Real Estate Mortgages” in favor of the appellants (Banco Filipino) over their parcels of land. The appellee spouses failed to pay their monthly amortization to appellant. On September 2, 1985 the appellee’s filed a complaint for “Annulment of the Loan Page 307 of 545 Contracts, Foreclosure Sale with Prohibitory and Injunction” which was granted by the RTC. Petitioners appealed to the Court of Appeals, but the CA affirmed the decision of the RTC. ISSUE: Whether or not the CA erred when it held that the cause of action of the private respondents accrued on October 30, 1978 and the filing of their complaint for annulment of their contracts in 1085 was not yet barred by the prescription/ RULING: The court held that the petition is unmeritorious. Petitioner’s claim that the action of the private respondents have prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of action where there is no special provision which ordains otherwise shall be counted from the day they may be brought. Thus the period of prescription of any cause of action is reckoned only from the date of the cause of action accrued. The period should not be made to retroact to the date of the execution of the contract, but from the date they received the statement of account showing the increased rate of interest, for it was only from the moment that they discovered the petitioner’s unilateral increase thereof. VDA. DE DEL GADO vs. COURT OF APPEALS 363 SCRA 58 FACTS: Carlos Delgado was the absolute owner of a parcel of land with an area of 692,549 square meter situated in the Municipality of Catarman Samar. Carlos Delgado granted and conveyed by way of donation with quitclaim all rights, title, interest claim and demand over a portion of land with an area of 165,000 square meter in favor of the Commonwealth of the Philippines. The acceptance was then made to President Quezon in his capacity as Commander-in-Chief. The Deed of Donation was executed with a condition that the said land will be used for the formation Page 308 of 545 of the National Defense of the Philippines. The said parcel of land then covered by the Torrens System of the Philippines and was registered in the name of Commonwealth of the Philippines for a period of 40 years. The land was registered under TCT 0-2539-160 in favor of the Commonwealth however without any annotation. Upon declaration of independence, the Commonwealth was replaced by Republic of the Philippines which took over the subject land and turned over to Civil Aeronautics Administration, later named Bureau of Air Transportation Office. The said agency utilizes the said land a domestic airport. Jose Delgado filed a petition for reconveyance for a violation of the condition. The RTC ruled in favor of the plaintiff Delgado. But the CA reversed the said decision because of prescription. The petitioner filed only before 24 years o discovery which the law only requires 10 years of filing. ISSUE: Whether or not the petitioner’s action for reconveyance is already barred by prescription. RULING: The Supreme Court denied the petition and affirmed the decision of the Court of Appeals because the time of filing has been prescribed. Under Article 1144 of the Civil Code on Prescription based on written contracts, the filing of action for reconveyance is within 10 years from the time the condition in the Deed of Donation was violated. The petitioner herein filed only 24 years in the first action and 43 years in the second filing of the 2nd action. The action for reconveyance on the alleged excess of 33, 607 square meter mistakenly included in the title was also prescribed Article 1456 of the Civil Code states, if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefits of the person from whom the property comes, if within 10 years such action for reconveyance has not been executed. MAESTRADO vs. COURT OF APPEALS 327 SCRA 678 FACTS: These consolidated cases involve Lot No. 5872 and the rights of the contending parties thereto. The lot has an area of 57.601 sq.m. and is registered in the name of the deceased spouses Ramon and Rosario Chaves. The spouses died intestate in 1943 and 1944, respectively. They were survived by six heirs. To settle the estate of said spouse, Angel Chaves, one of the heirs, initiated intestate proceedings and was appointed administrator of said estates in the process. An inventory of the estates was made and thereafter, the heirs agreed on a project partition. The Page 309 of 545 court approved the partition but a copy of said decision was missing. Nonetheless, the estate was divided among the heirs. Subsequently, in 1956, the partition case effected and the respective shares of the heirs were delivered to them. Significantly, Lot No.5872 was not included in a number of documents. Parties offered different explanations as to the omission of said lot in the documents. Petitioners maintain the existence of an oral partition agreement entered into by all heirs after the death of their parents. To set things right, petitioners then prepared a quitclaim to confirm the alleged oral agreement. Respondents dispute voluntariness of their consent to the quitclaims. Six years after the execution of the quitclaims, respondents discovered that indeed subject lot was still a common property in the name of the deceased spouses. Eventually, an action for Quieting of Title was filed by petitioners on December 22, 1983. The trial court considered Lot No. 5872 as still a common property and therefore must be divided into six parts, there being six heirs. Petitioners appealed to the Court of Appeals which sustained the decision of the trial court. ISSUE: Whether or not the action for quieting of title had already prescribed. RULING: The Supreme Court ruled that an action for quieting of title is imprescriptible especially if the plaintiff is in possession of the property being litigated. One who is in actual possession of a land, claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before making steps to vindicate his right because his undisturbed possession gives him a continuing right to seek the aid of the courts to ascertain the nature of the adverse claim and its effect on his title. Moreover, the Court held that laches is inapplicable in this case. This is because, as mentioned earlier, petitioners’ possession of the subject lot has rendered their right to bring an action for quieting of title imprescriptible. TANAY RECREATION CENTER AND DEVELOPMENT CORP. vs. CATALINA MATIENZO FAUSTO April 12, 2005 FACTS: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty Page 310 of 545 days prior to its expiration. The contract also provided that should Fausto decide to sell the property, petitioner shall have the “priority right” to purchase the same. On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease. However, it was Fausto’s daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property. It appears that Fausto had earlier sold the property to Pacunayen and title has already been transferred in her name. Petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises. ISSUE: The contention in this case refers to petitioner’s priority right to purchase, also referred to as the right of first refusal. RULING: When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor. Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto’s relative. When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties. In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner. ROMEO MENDOZA vs. COURT OF APPEALS February 18, 2005 FACTS: Manotok was the administrator of a parcel of land which it leased to Benjamin Mendoza; that the contract of lease expired on December 31, 1988; that even after the expiration of the lease contract, Benjamin Mendoza, and after his demise, his son, Romeo, continued to occupy the premises and thus incurred a total of P44,011.25 as unpaid rentals from January 1, 1989 to July 31, 1996; that on July 16, 1996, Manotok made a demand on Benjamin Mendoza to pay the Page 311 of 545 rental arrears and to vacate the premises within fifteen (15) days from receipt of the demand letter; that despite receipt of the letter and after the expiration of the 15-day period, the Mendozas refused to vacate the property and to pay the rentals. The complaint prayed that the court order Mendoza and those claiming rights under him to vacate the premises and deliver possession thereof to Manotok, and to pay the unpaid rentals from January 1, 1989 to July 31, 1996 plus P875.75 per month starting August 1, 1996, subject to such increase allowed by law, until he finally vacates the premise. ISSUE: Whether or not the Honorable Court of Appeals committed error in giving efficacy to a lease contract signed in 1988 when the alleged signatory was already dead since 1986. RULING: This is a case for unlawful detainer. It appears that respondent corporation leased the property subject of this case to petitioner’s father. After expiration of the lease, petitioner continued to occupy the property but failed to pay the rentals. On July 16, 1996, respondent corporation made a demand on petitioner to vacate the premises and to pay their arrears. An action for unlawful detainer may be filed when possession by a landlord, vendor, vendee or other person of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession by virtue of a contract, express or implied. The only issue to be resolved in an unlawful detainer case is physical or material possession of the property involved, independent of any claim of ownership by any of the parties involved. In the case at bar, petitioner lost his right to possess the property upon demand by respondent corporation to vacate the rented lot. Petitioner cannot now refute the existence of the lease contract because of his prior admissions in his pleadings regarding his status as tenant on the subject property. JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC. January 4, 2002 FACTS: Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland, was introduced to petitioner Jefferson Lim by Marissa Bontia, one of his employees. Marissa’s father was a former employee of Lim’s father. Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S. dollar against the Japanese yen, British pound, Deutsche Mark and Swiss Franc.Before investing, Lim requested Shia for proof that the foreign exchange was really Page 312 of 545 lucrative. They conducted mock tradings without money involved. As the mock trading showed profitability, Lim decided to invest with a marginal deposit of US$5,000 in manager’s check. The marginal deposit represented the advance capital for his future tradings. It was made to apply to any authorized future transactions, and answered for any trading account against which the deposit was made, for any loss of whatever nature, and for all obligations, which the investor would incur with the broker. Petitioner Lim was then allowed to trade with respondent company which was coursed through Shia by virtue of blank order forms all signed by Lim. Respondent furnished Lim with the daily market report and statements of transactions as evidenced by the receiving forms, some of which were received by Lim. Meanwhile, on October 22, 1992, respondent learned that it would take seventeen (17) days to clear the manager’s check given by petitioner. Shia returned the check to petitioner who informed Shia that petitioner would rather replace the manager’s check with a traveler’s check. Shia noticed that the traveler’s check was not indorsed but Lim told Shia that Queensland could sign the endorsee portion. Because Shia trusted the latter’s good credit rating, and out of ignorance, he brought the check back to the office unsigned. Inasmuch as that was a busy Friday, the check was kept in the drawer of respondent’s consultant. Later, the traveler’s check was deposited with Citibank. On October 27, 1992, Citibank informed respondent that the traveler’s check could not be cleared unless it was duly signed by Lim, the original purchaser of the traveler’s check. A Miss Arajo, from the accounting staff of Queensland, returned the check to Lim for his signature, but the latter, aware of his P44,465 loss, demanded for a liquidation of his account and said he would get back what was left of his investment. ISSUE: Whether or not the CA erred in reversing the decision of the RTC which dismissed the respondent’s complaint RULING: The essential elements of estoppel are: (1) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts. ere, it is uncontested that petitioner had in fact signed the Customer’s Agreement in the morning of October 22, 1992, knowing fully well the nature of the contract he was entering into. The Customer’s Agreement was duly notarized and as a public document it is evidence of the fact, which gave rise to its execution and of the date of the latter. Next, petitioner paid his investment deposit to respondent in the form of a manager’s check in the amount of US$5,000 as evidenced by PCI Bank Manager’s Check No. 69007, dated October 22, 1992. All these are indicia that petitioner treated the Customer’s Agreement as a valid and binding contract. PLACEWELL INTERNATIONAL SERVICES CORP. vs. CAMOTE G.R. No. 169973, June 26, 2006 FACTS: Petitioner Placewell International Services Corporation (PISC) deployed respondent Ireneo B. Camote to work as building carpenter for SAAD Trading and Contracting Co. (SAAD) at the Kingdom of Saudi Arabia (KSA) for a contract duration of two years, with a corresponding salary of US$370.00 per month. At the job site, respondent was allegedly found incompetent by his foreign employer; thus the latter decided to terminate his services. However, Page 313 of 545 respondent pleaded for his retention and consented to accept a lower salary of SR 800.00 per month. Thus, SAAD retained respondent until his return to the Philippines two years after. On November 27, 2001, respondent filed a sworn Complaint for monetary claims against petitioner alleging that when he arrived at the job site, he and his fellow Filipino workers were required to sign another employment contract written in Arabic under the constraints of losing their jobs if they refused; that for the entire duration of the new contract, he received only SR 590.00 per month; that he was not given his overtime pay despite rendering nine hours of work everyday; that he and his co-workers sought assistance from the Philippine Embassy but they did not succeed in pursuing their cause of action because of difficulties in communication. ISSUE: Whether there is estoppel by laches HELD: R.A. No. 8042 explicitly prohibits the substitution or alteration to the prejudice of the worker, of employment contracts already approved and verified by the Department of Labor and Employment (DOLE) from the time of actual signing thereof by the parties up to and including the period of the expiration of the same without the approval of the DOLE. The subsequently executed side agreement of an overseas contract worker with her foreign employer which reduced her salary below the amount approved by the POEA is void because it is against our existing laws, morals and public policy. The said side agreement cannot supersede her standard employment contract approved by the POEA. Petitioner’s contention that respondent is guilty of laches is without basis. Laches has been defined as the failure of or neglect for an unreasonable and unexplained length of time to do that which by exercising due diligence, could or should have been done earlier, or to assert a right within reasonable time, warranting a presumption that the party entitled thereto has either abandoned it or declined to assert it. Thus, the doctrine of laches presumes that the party guilty of negligence had the opportunity to do what should have been done, but failed to do so. Conversely, if the said party did not have the occasion to assert the right, then, he can not be adjudged guilty of laches. Laches is not concerned with the mere lapse of time; rather, the party must have been afforded an opportunity to pursue his claim in order that the delay may sufficiently constitute laches. In the instant case, respondent filed his claim within the three-year prescriptive period for the filing of money claims set forth in Article 291 of the Labor Code from the time the cause of action accrued. Thus, we find that the doctrine of laches finds no application in this case. HEIRS OF RAGUA vs. COURT OF APPEALS G.R. Nos. 88521-22 FACTS: These consolidated cases involve a prime lot consisting of 4,399,322 square meters, known as the Diliman Estate, situated in Quezon City. On this 439 hectares of prime land now stand the following: the Quezon City Hall, Philippine Science High School, Quezon Memorial Circle, Visayas Avenue, Ninoy Aquino Parks and Wildlife, portions of UP Village and East Triangle, the entire Project 6 and Vasha Village, Veterans Memorial Hospital and golf course, Page 314 of 545 Department of Agriculture, Department of Environment and Natural Resources, Sugar Regulatory Administration, Philippine Tobacco Administration, Land Registration Authority, Philcoa Building, Bureau of Telecommunications, Agricultural Training Institute building, Pagasa Village, San Francisco School, Quezon City Hospital, portions of Project 7, Mindanao Avenue subdivision, part of Bago Bantay resettlement project, SM City North EDSA, part of Phil-Am Life Homes compound and four-fifths of North Triangle. This large estate was the subject of a petition for judicial reconstitution originally filed by Eulalio Ragua in 1964, which gave rise to protracted legal battles between the affected parties, lasting more than thirty-five (35) years. ISSUE: Whether estoppel by laches exists on the part of petitioner HELD: Petitioners filed the petition for reconstitution of OCT 632 nineteen (19) years after the title was allegedly lost or destroyed. We thus consider petitioners guilty of laches. Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it. METROPOLITAN BANK & TRUST COMPANY vs. COURT OF APPEALS June 8, 2000 FACTS: Mr. Chia offered the subject property for sale to private respondent G.T.P. Development Corporation (hereafter, GTP), with assumption of the mortgage indebtedness in favor of petitioner METROBANK secured by the subject property. Pending negotiations for the proposed sale, Atty. Bernardo Atienza, acting in behalf of respondent GTP, went to METROBANK to inquire on Mr. Chia's remaining balance on the real estate mortgage. METROBANK obliged Page 315 of 545 with a statement of account of Mr. Chia amounting to about P115,000.00 as of August ,1980. The deed of sale and the memorandum of agreement between Mr. Chia and respondent GTP were eventually executed and signed. Atty. Atienza went to METROBANK Quiapo Branch and paid one hundred sixteen thousand four hundred sixteen pesos and seventy-one centavos (P116,416.71) for which METROBANK issued an official receipt acknowledging payment. This notwithstanding, petitioner METROBANK refused to release the real estate mortgage on the subject property despite repeated requests from Atty. Atienza, thus prompting respondent GTP to file an action for specific performance against petitioner METROBANK and Mr. Chia. ISSUE: Whether or not the CA erred in reversing the decision of the lower court. RULING: The Court found no compelling reasons to disturb the assailed decision. All things studiedly viewed in proper perspective, the Court are of the opinion, and so rule, that whatever debts or loans mortgagor Chia contracted with Metrobank after September 4, 1980, without the conformity of plaintiff-appellee, could not be adjudged as part of the mortgage debt the latter so assumed. We are persuaded that the contrary ruling on this point in Our October 24, 1994 decision would be unfair and unjust to plaintiff-appellee because, before buying subject property and assuming the mortgage debt thereon, the latter inquired from Metrobank about the exact amount of the mortgage debt involved. Petitioner METROBANK is estopped from refusing the discharge of the real estate mortgage on the claim that the subject property still secures "other unliquidated past due loans." SPOUSES DEL CAMPO vs. COURT OF APPEALS February 1, 2001 FACTS: Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita, all surnamed Bornales, were the original co-owners of the lot in question. On July 14, 1940, Salome sold part of her 4/16 share to Soledad Daynolo. Thereafter, Soledad Daynolo immediately took possession of the land described above and built a house Page 316 of 545 thereon. A few years later, Soledad and her husband, Simplicio Distajo, mortgaged the subject portion of the lot as security for a debt to Jose Regalado, Sr. This transaction was evidenced by a Deed of Mortgage. On April 14, 1948, three of the eight co-owners of Lot 162, specifically, Salome, Consorcia and Alfredo, sold 24,993 square meters of said lot to Jose Regalado, Sr. On May 4, 1951, Simplicio Distajo, heir of Soledad Daynolo who had since died, paid the mortgage debt and redeemed the mortgaged portion of Lot 162 from Jose Regalado, Sr. The latter, in turn, executed a Deed of Discharge of Mortgage in favor of Soledad’s heirs, namely: Simplicio Distajo, Rafael Distajo and Teresita Distajo-Regalado. On same date, the said heirs sold the redeemed portion of Lot 162 for P1,500.00 to herein petitioners, the spouses Manuel Del Campo and Salvacion Quiachon. ISSUE: Whether or not the sale of the subject portion constitutes a sale of a concrete or definite portion of land owned in common does not absolutely deprive herein petitioners of any right or title thereto. RULING: There can be no doubt that the transaction entered into by Salome and Soledad could be legally recognized in its entirety since the object of the sale did not even exceed the ideal shares held by the former in the co-ownership. As a matter of fact, the deed of sale executed between the parties expressly stipulated that the portion of Lot 162 sold to Soledad would be taken from Salome’s 4/16 undivided interest in said lot, which the latter could validly transfer in whole or in part even without the consent of the other co-owners. Salome’s right to sell part of her undivided interest in the co-owned property is absolute in accordance with the well-settled doctrine that a co-owner has full ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute another person in its enjoyment. CUENCO vs. CUENCO G.R. No. 149844, October 13, 2004 FACTS: On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed the ‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled ‘Valeriano Solon versus Zoilo Page 317 of 545 Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040) involving a dispute among relatives over ownership of lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that records of said cases indicate the name of the [petitioner] alone as counsel of record, but in truth and in fact, the real lawyer behind the success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903 subdivided said lot into three (3) parts as follows: Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees Lot 903-C: 54,000 [square meters]: Solon’s retention Petitioner later claimed the property after the death of his brother. ISSUES: Whether Petitioner is in is estoppel Whether laches barred the right of action of respondent HELD: From the time Lot 903-A was subdivided and Mariano’s six children -- including Concepcion -- took possession as owners of their respective portions, no whimper of protest from petitioner was heard until 1963. By his acts as well as by his omissions, Miguel led Mariano and the latter’s heirs, including Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano acted and relied on Miguel’s tacit recognition of his ownership thereof is evident from his will, executed in 1963. Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña Extension, Kamputhaw, Cebu City, near the Cebu Provincial Capitol -- had been subdivided and distributed to his six children in his first marriage. Having induced him and his heirs to believe that Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from asserting the contrary and claiming ownership thereof. The principle of estoppel in pais applies when -- by one’s acts, representations, admissions, or silence when there is a need to speak out -- one, intentionally or through culpable negligence, induces another to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts. Petitioner claims that respondent’s action is already barred by laches. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to it has either abandoned or declined to assert it.[40] In the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner. Concepcion was in possession as owner of the property from 1949 to 1969. When Miguel took steps to have it separately titled in his name, despite the fact that she had the owner’s duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on the title in 1967. When petitioner ousted her from her possession of the lot by tearing down her wire fence in 1969, she commenced the present action on September 19, 1970, to protect and assert her rights to the property. We find that she cannot be held guilty of laches, as she did not sleep on her rights. LAUREL vs. HON. ANIANO A. DESIERTO July 1, 2002 FACTS: Petitioner Salvador H. Laurel moves for a reconsideration of this Court’s decision declaring him, as Chair of the National Centennial Commission (NCC), a public officer. Petitioner also prays that the case be referred to the Court En Banc. ISSUE: Page 318 of 545 Whether or not Laurel is a public officer as Chair of the NCC RULING: The issue in this case is whether petitioner, as Chair of the NCC, is a public officer under the jurisdiction of the Ombudsman. Assuming, as petitioner proposes, that the designation of other members to the NCC runs counter to the Constitution, it does not make petitioner, as NCC Chair, less a public officer. Such “serious constitutional repercussions” do not reduce the force of the rationale behind this Court’s decision. Second, petitioner invokes estoppel. He claims that the official acts of the President, the Senate President, the Speaker of the House of Representatives, and the Supreme Court, in designating Cabinet members, Senators, Congressmen and Justices to the NCC, led him to believe that the NCC is not a public office. The contention has no merit. In estoppel, the party representing material facts must have the intention that the other party would act upon the representation. It is preposterous to suppose that the President, the Senate President, the Speaker and the Supreme Court, by the designation of such officials to the NCC, intended to mislead petitioner just so he would accept the position of NCC Chair. Estoppel must be unequivocal and intentional. Moreover, petitioner himself admits that the principle of estoppel does not operate against the Government in the exercise of its sovereign powers. Third, as ground for the referral of the case to the Court En Banc, petitioner submits that our decision in this case modified or reversed doctrines rendered by this Court, which can only be done by the Court En Banc.It is argued that by designating three of its then incumbent members to the NCC, the Court took the position that the NCC was not a public office. The argument is a bit of a stretch. Section 4 (3), Article VIII of the Constitution provides that “no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be modified or reversed except by the court sitting en banc.” In designating three of its incumbent members to the NCC, the Court did not render a “decision,” in the context of said constitutional provision, which contemplates an actual case. Much less did the Court, by such designation, articulate any “doctrine or principle of law.” Invoking the same provision, petitioner asserts that the decision in this case reversed or modified Macalino vs. Sandiganbayan, holding that the Assistant Manager of the Treasury Division and the Head of the Loans Administration & Insurance Section of the Philippine National Construction Corporation (PNCC) is not a public officer under Republic Act No. 3019. This contention also has no merit. The rationale for the ruling in Macalino is that “the PNCC has no original charter as it was incorporated under the general law on corporations.” However, as we pointed out in our decision, a conclusion that EXPOCORP is a government-owned or controlled corporation would not alter the outcome of this case because petitioner’s position and functions as Chief Executive Officer of EXPOCORP are by virtue of his being Chairman of the NCC. The other issues raised by petitioner are mere reiterations of his earlier arguments. The Court, however, remains unswayed thereby. SPOUSES HANOPOL vs. SHOEMART INCORPORATED October 4, 2002 FACTS: Shoemart, Inc., is a corporation duly organized and existing under the laws of the Philippines engaged in the operation of department stores. On December 4, 1985, Shoemart, through its Executive Vice-President, Senen T. Mendiola, and spouses Manuel R. Hanopol and Beatriz T. Hanopol executed a Contract of Purchase on Credit. Page 319 of 545 Under the terms of the contract, Shoemart extended credit accommodations, in the amount of Three Hundred Thousand Pesos (P300,000.00), for purchases on credit made by holders of SM Credit Card issued by spouses Hanopol for one year, renewable yearly thereafter. Spouses Hanopol were given a five percent (5%) discount on all purchases made by their cardholders, deductible from the semi-monthly payments to be made to Shoemart by spouses Hanopol. For failure of spouses Hanopol to pay the principal amount of One Hundred Twenty-Four Thousand Five Hundred Seventy-One Pesos and Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart instituted extrajudicial foreclosure proceedings against the mortgaged properties. Spouses Hanopol alleged that Shoemart breached the contract when the latter failed to furnish the former with the requisite documents by which the former’s liability shall be determined, namely: charge invoices, purchase booklets and purchase journal, as provided in their contract; that without the requisite documents, spouses Hanopol had no way of knowing that, in fact, they had already paid, even overpaid, whatever they owed to Shoemart; that despite said breach, Shoemart even had the audacity to apply for extrajudicial foreclosure with the Sheriff. ISSUE: Whether or not Shoemart acted with manifest bad faith in pursuing with the foreclosure and auction sale of the property of spouses Hanopol, and, accordingly, should be held liable for damages. RULING: All the three (3) elements for litis pendentia as a ground for dismissal of an action are present, namely: (a) identity of parties, or at least such parties who represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity, with respect to the two (2) preceding particulars in the two (2) cases, in such that any judgment that may be rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other. In the case at bench, the parties are the same; the relief sought in the case before the Court of Appeals and the trial court are the same, that is, to permanently enjoin the foreclosure of the real estate mortgage executed by spouses Hanopol in favor of Shoemart; and, both are premised on the same facts. The judgment of the Court of Appeals would constitute a bar to the suit before the trial court. TERMINAL FACILITIES vs. PPA 378 SCRA 82 FACTS: Before us are two (2) consolidated petitions for review, one filed by the Terminal Facilities and Services Corporation (TEFASCO) and the other by the Philippine Ports Authority (PPA). TEFASCO is a domestic corporation organized and existing under the laws of the Philippines with principal place of business at Barrio Ilang, Davao City. It is engaged in the Page 320 of 545 business of providing port and terminal facilities as well as arrastre, stevedoring and other portrelated services at its own private port at Barrio Ilang. Sometime in 1975 TEFASCO submitted to PPA a proposal for the construction of a specialized terminal complex with port facilities and a provision for port services in Davao City. To ease the acute congestion in the government ports at Sasa and Sta. Ana, Davao City, PPA welcomed the proposal and organized an inter-agency committee to study the plan. The committee recommended approval. On April 21, 1976 the PPA Board of Directors passed Resolution No. 7 accepting and approving TEFASCO's project proposal. Long after TEFASCO broke round with massive infrastructure work, the PPA Board curiously passed on October 1, 1976 Resolution No. 50 under which TEFASCO, without asking for one, was compelled to submit an application for construction permit. Without the consent of TEFASCO, the application imposed additional significant conditions. The series of PPA impositions did not stop there. Two (2) years after the completion of the port facilities and the commencement of TEFASCO's port operations, or on June 10, 1978, PPA again issued to TEFASCO another permit, under which more onerous conditions were foisted on TEFASCO's port operations. In the purported permit appeared for the first time the contentious provisions for ten percent (10%) government share out of arrastre and stevedoring gross income and one hundred percent (100%) wharfage and berthing charges. On February 10, 1984 TEFASCO and PPA executed a Memorandum of Agreement (MOA) providing among others for (a) acknowledgment of TEFASCO's arrears in government share at Three Million Eight Hundred Seven Thousand Five Hundred Sixty-Three Pesos and Seventy-Five Centavos (P3,807,563.75) payable monthly, with default penalized by automatic withdrawal of its commercial private port permit and permit to operate cargo handling services; (b) reduction of government share from ten percent (10%) to six percent (6%) on all cargo handling and related revenue (or arrastre and stevedoring gross income); (c) opening of its pier facilities to all commercial and third-party cargoes and vessels for a period coterminous with its foreshore lease contract with the National Government; and, (d) tenure of five (5) years extendible by five (5) more years for TEFASCO's permit to operate cargo handling in its private port facilities. In return PPA promised to issue the necessary permits for TEFASCO's port activities. TEFASCO complied with the MOA and paid the accrued and current government share. On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and Port Officer in Davao City for refund of government share it had paid and for damages as a result of alleged illegal exaction from its clients of one hundred percent (100%) berthing and wharfage fees. The complaint also sought to nullify the February 10, 1984 MOA and all other PPA issuances modifying the terms and conditions of the April 21, 1976 Resolution No. 7 above-mentioned. PPA appealed the decision of the trial court to the Court of Appeals. The appellate court in its original decision recognized the validity of the impositions and reversed in toto the decision of the trial court. TEFASCO moved for reconsideration which the Court of Appeals found partly meritorious. Thus the Court of Appeals in its Amended Decision partially affirmed the RTC decision only in the sense that PPA was directed to pay TEFASCO (1) the amounts of Fifteen Million Eight Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos (P15,810,032.07) representing fifty percent (50%) wharfage fees and Three Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (P3,961,964.06) representing thirty percent (30%) berthing fees which TEFASCO could have earned as private port usage fee from 1977 to 1991. The Court of Appeals held that the one hundred percent (100%) berthing and wharfage fees were unenforceable because they had not been approved by the President under P.D. No. 857, and discriminatory since much lower rates Page 321 of 545 were charged in other private ports as shown by PPA issuances effective 1995 to 1997. Both PPA and TEFASCO were unsatisfied with this disposition hence these petitions. ISSUE: Whether or not the collection by PPA of one hundred percent (100%) wharfage fees and berthing charges; (c) the propriety of the award of fifty percent (50%) wharfage fees and thirty percent (30%) berthing charges as actual damages in favor of TEFASCO for the period from 1977 to 1991 is valid. RULING: The imposition by PPA of ten percent (10%), later reduced to six percent (6%), government share out of arrastre and stevedoring gross income of TEFASCO is void. This exaction was never mentioned in the contract, much less is it a binding prestation, between TEFASCO and PPA. What was clearly stated in the terms and conditions appended to PPA Resolution No. 7 was for TEFASCO to pay and/or secure from the proper authorities "all fees and/or permits pertinent to the construction and operation of the proposed project." The government share demanded and collected from the gross income of TEFASCO from its arrastre and stevedoring activities in TEFASCO's wholly owned port is certainly not a fee or in any event a proper condition in a regulatory permit. Rather it is an onerous "contractual stipulation" which finds no root or basis or reference even in the contract aforementioned. MENDOZA vs. COURT OF APPEALS June 25, 2001 FACTS: Petitioner Danilo D. Mendoza is engaged in the domestic and international trading of raw materials and chemicals. He operates under the business name Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with the Department of Trade and Industry (DTI). Page 322 of 545 Sometime in 1978 he was granted by respondent Philippine National Bank (PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One Million Pesos (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations and for those which may thereinafter be granted, petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of land with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3) several pieces of machinery and equipment in his Pasig coco-chemical plant. Petitioner executed in favor of respondent PNB three (3) promissory notes covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00); another dated March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the last dated September 27, 1979 for One Hundred Fifty Thousand Pesos (P150,000.00). Petitioner made use of his LC/TR line to purchase raw materials from foreign importers. He signed a total of eleven (11) documents denominated as "Application and Agreement for Commercial Letter of Credit," on various dates In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr., respondent PNB advised petitioner Mendoza that effective December 1, 1979, the bank raised its interest rates to 14% per annum, in line with Central Bank's Monetary Board Resolution No. 2126 dated November 29, 1979. On March 9, 1981, he wrote a letter to respondent PNB requesting for the restructuring of his past due accounts into a five-year term loan and for an additional LC/TR line of Two Million Pesos (P2,000,000.00). According to the letter, because of the shut-down of his end-user companies and the huge amount spent for the expansion of his business, petitioner failed to pay to respondent bank his LC/TR accounts as they became due and demandable. Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the respondent bank and required petitioner to submit the following documents before the bank would act on his request: 1) Audited Financial Statements for 1979 and 1980; 2) Projected cash flow (cash in - cash out) for five (5) years detailed yearly; and 3) List of additional machinery and equipment and proof of ownership thereof. Cura also suggested that petitioner reduce his total loan obligations to Three Million Pesos (P3,000,000.00). On September 25, 1981, petitioner sent another letter addressed to PNB Vice-President Jose Salvador, regarding his request for restructuring of his loans. He offered respondent PNB the following proposals: 1) the disposal of some of the mortgaged properties, more particularly, his house and lot and a vacant lot in order to pay the overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term loan payable semi-annually or on annual installments; 3) a new Two Million Pesos (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment of all his receivables to PNB from all domestic and export sales generated by the LC/TR line; and 5) maintenance of the existing Five Hundred Thousand Pesos (P500,000.00) credit line. The petitioner testified that respondent PNB Mandaluyong Branch found his proposal favorable and recommended the implementation of the agreement. However, Fernando Maramag, PNB Executive Vice-President, disapproved the proposed release of the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos (P1,000,000.00). Petitioner claimed he was forced to agree to these changes and that he was required to submit a new formal proposal and to sign two (2) blank promissory notes. In a letter dated July 2, 1982, petitioner offered the following revised proposals to respondent bank: 1) the restructuring of past due accounts including interests and penalties into a 5-year term loan, payable semi-annually with one year grace period on the principal; 2) Page 323 of 545 payment of Four Hundred Thousand Pesos (P400,000.00) upon the approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the interest component with interest rate at 16% per annum; 5) establishment of a One Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties; 6) assignment of all his export proceeds to respondent bank to guarantee payment of his Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and 128/82 as they fell due. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public auction to respondent PNB, as highest bidder, for a total of Three Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50). The petitioner filed a complaint for specific performance, nullification of the extrajudicial foreclosure and damages against respondents PNB. He alleged that the Extrajudicial Foreclosure Sale of the mortgaged properties was null and void since his loans were restructured to a five-year term loan; hence, it was not yet due and demandable. On March 16, 1992, the trial court rendered judgment in favor of the petitioner and ordered the nullification of the extrajudicial foreclosure of the real estate mortgage, the Sheriff’s sale of the mortgaged real properties by virtue of consolidation thereof and the cancellation of the new titles issued to PNB; that PNB vacate the subject premises in Pasig and turn the same over to the petitioner; and also the nullification of the extrajudicial foreclosure and sheriff's sale of the mortgaged chattels, and that the chattels be returned to petitioner Mendoza if they were removed from his Pasig premises or be paid for if they were lost or rendered unserviceable. The trial court decided for the petitioner. Upon appeal, the Court of Appeals reversed the decision of the trial court and dismissed the complaint. ISSUE: Whether or not respondent promised to be bound by the proposal of the petitioner for a five-year restructuring of his overdue loan. RULING: No. Respondent Court of Appeals held that there is no evidence of a promise from respondent PNB, admittedly a banking corporation, that it had accepted the proposals of the petitioner to have a five-year restructuring of his overdue loan obligations. It found and held, on the basis of the evidence adduced, that "appellee's (Mendoza) communications were mere proposals while the bank's responses were not categorical that the appellee's request had been favorably accepted by the bank." Nowhere in those letters presented by the petitioner is there a categorical statement that respondent PNB had approved the petitioner’s proposed five-year restructuring plan. It is stretching the imagination to construe them as evidence that his proposed five-year restructuring plan has been approved by the respondent PNB which is admittedly a banking corporation. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract. If anything, those correspondences only prove that the parties had not gone beyond the preparation stage, which is the period from the start of the negotiations until the moment just before the agreement of the parties. The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise reasonably expected to induce action or forebearance; (2) such promise did in fact induce such action or forebearance, and (3) the party suffered detriment as a result. Page 324 of 545 It is clear from the forgoing that the doctrine of promissory estoppel presupposes the existence of a promise on the part of one against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently specific so that the Judiciary can understand the obligation assumed and enforce the promise according to its terms. For petitioner to claim that respondent PNB is estopped to deny the five-year restructuring plan, he must first prove that respondent PNB had promised to approve the plan in exchange for the submission of the proposal. As discussed earlier, no such promise was proven, therefore, the doctrine does not apply to the case at bar. A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable. It does not operate to create liability where it does not otherwise exist. ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION vs. COURT OF APPEALS 266 SCRA 71 FACTS: Page 325 of 545 On 23 September 1986 respondent Contractors Equipment Corporation (CEC) instituted an action for a sum of money against petitioner Roblett Industrial Construction Corporation (RICC) before the Regional Trial Court of Makati alleging that in 1985 it leased to the latter various construction equipment which it used in its projects. As a result RICC incurred unpaid accounts amounting to P342,909.38. On 19 December 1985 RICC through its Assistant Vice President for Finance Candelario S. Aller Jr. entered into an Agreement with CEC where it confirmed petitioner's account. As an off-setting arrangement respondent received from petitioner construction materials worth P115,000.00 thus reducing petitioner's balance to P227,909.38. A day before the execution of their Agreement, or on 18 December 1985, RICC paid CEC P10,000.00 in postdated checks which when deposited were dishonored. As a consequence the latter debited the amount to petitioner's account of P227,909.38 thus increasing its balance to P237,909.38. On 24 July 1986 Mariano R. Manaligod, Jr., General Manager of CEC, sent a letter of demand to petitioner through its Vice President for Finance regarding the latter's overdue account of P237,909.38 and sought settlement thereof on or before 31 July 1986. In reply, petitioner requested for thirty (30) days to have enough time to look for funds to substantially settle its account. Traversing the allegations of respondent, Candelario S. Aller Jr. declared that he signed the Agreement with the real intention of having proof of payment. In fact Baltazar Banlot, Vice President for Finance of petitioner, claimed that after deliberation and audit it appeared that petitioner overpaid respondent by P12,000.00 on the basis of the latter's Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected a total obligation of only P103,000.00. He claimed however that the Agreement was not approved by the Board and that he did not authorize Aller Jr. to sign thereon. On rebuttal, Manaligod Jr. declared that petitioner had received a statement of account covering the period from 28 March to 12 July 1985 in the amount of P376,350.18 which it never questioned. From this amount P3,440.80, based on respondent's account with petitioner and P30,000.00, representing payments made by the latter, were deducted thus leaving a balance of P342,909.38 as mentioned in the Agreement. On 19 December 1990 the trial court rendered judgment ordering petitioner to pay respondent ISSUE: Whether or not the agreement between the parties is binding upon them. RULING: Yes. It must be emphasized that the same agreement was used by plaintiff as the basis for claiming defendant's obligation of P237,909.38 and also used by defendant as the same basis for its alleged payment in full of its obligation to plaintiff. But while plaintiff treats the entire agreement as valid, defendant wants the court to treat that portion which treats of the offsetting of P115,000.00 as valid, whereas it considers the other terms and conditions as "onerous, illegal and want of prior consent and Board approval." This Court cannot agree to defendant's contention. It must be stressed that defendant's answer was not made under oath, and therefore, the genuineness and due execution of the agreement which was the basis for plaintiff's claim is deemed admitted (Section 8, Rule 8, Rules of Court). Such admission, under the principle of estoppel, is rendered conclusive upon defendant and cannot be denied or disproved as against Page 326 of 545 plaintiff (Art. 1431, Civil Code). Either the agreement is valid or void. It must be treated as a whole and not to be divided into parts and consider only those provisions which favor one party (in this case the defendant). Contracts must bind both contracting parties, its validity or compliance cannot be left to the will of one of them (Art. 1308, New Civil Code). SIME DARBY PILIPINAS, INC. V. GOODYEAR PHILIPPINES, INC. GR No. 182148; June 8, 2011 FACTS: Page 327 of 545 Macgraphics leased a billboard to Sime Darby to bare its name and logo at a monthly rental of P120, 000.00 for four years and was set to expire on March 30, 1998. Sime Darby paid Macgraphics a total of P1.2 million representing the ten-month deposit which the latter would apply to the last ten months of the lease. Thereafter, Sime Darby was bought by Goodyear for a total of P1.65 billion including the assignment of the receivables in connection with its billboard advertising. Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of Goodyear. Macgraphics then sent a letter to Sime Darby, dated July 11, 1996, informing the latter that it could not give its consent to the assignment of lease to Goodyear and advised Goodyear that any advertising service it intended to get from them would have to wait until after the expiration or valid pre-termination of the lease then existing with Sime Darby. Goodyear demanded partial rescission of deed and the refund of P1, 239,000.00value of Sime Darby's leasehold rights over the Magallanes billboard. Sime Darby refused and a complaint was filed by Goodyear. ISSUE: Whether or not the doctrine of laches can be applied in the present case RULING: The Court finds that the doctrine of laches cannot be applied in this case. Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances, with the question of laches addressed to the sound discretion of the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and should not be used to defeat justice or to perpetuate fraud or injustice. From the records, it appears that Macgraphics first learned of the assignment when Sime Darby sent its letter-notice dated May 3, 1996. From the letters sent by Macgraphics to Goodyear, it is apparent that Macgraphics had to study and determine both the legal and practical implications of entertaining Goodyear as a client. After review, Macgraphics found that consenting to the assignment would entail the commitment of manpower and resources that it did not foresee at the inception of the lease. It thereafter communicated its non-conformity to the assignment. To the mind of the Court, there was never a delay. KINGS PROPERTIES CORP V. GALIDO G.R. No. 170023 Nov 27, 2009 FACTS: Page 328 of 545 Kings Properties Corporation (petitioner) filed this Petition for Review on Certiorari assailing the Court of Appeals’ Decision[2] dated 20 December 2004 in CA-G.R. CV No. 68828 as well as the Resolution[3] dated 10 October 2005 denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals reversed the Regional Trial Court’s Decision dated 4 July 2000. This case involves an action for cancellation of certificates of title, registration of deed of sale and issuance of certificates of title filed by Canuto A. Galido before Branch 71 of the Regional Trial Court of Antipolo City (trial court). On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo and Maria Eniceo, were awarded with Homestead Patent No. 112947 consisting of four parcels of land located in San Isidro, Antipolo, Rizal and particularly described as follows; Lot No. 1 containing an area of 96,297 square meters; Lot No. 3 containing an area of 25,170 square meters; Lot No. 4 containing an area of 26,812 square meters; and Lot No. 5 containing an area of 603 square meters. The Antipolo property with a total area of 14.8882 hectares was registered under Original Certificate of Title (OCT) No. 535. Subsequently a deed of sale covering the Antipolo property was executed between Rufina Eniceo and Maria Eniceo as vendors and respondent as vendee. They sold the Antipolo property to respondent for P250,000. A certain Carmen Aldana delivered the owner’s duplicate copy of OCT No. 535 to respondent.Petitioner alleges that when Maria Eniceo died in June 1975, Rufina Eniceo and the heirs of Maria Eniceo, who continued to occupy the Antipolo property as owners, thought that the owner’s duplicate copy of OCT No. 535 was lost. On 5 April 1988, the Eniceo heirs registered with the Registry of Deeds of Marikina City a Notice of Loss dated 2 April 1988 of the owner’s copy of OCT No. 535. The Eniceo heirs also filed a petition for the issuance of a new owner’s duplicate copy of OCT No. 535 with Branch 72 of the Regional Trial Court of Antipolo, Rizal. The RTC rendered a decision finding that the certified true copy of OCT No. 535 contained no annotation in favor of any person, corporation or entity. The RTC ordered the Registry of Deeds to issue a second owner’s copy of OCT No. 535 in favor of the Eniceo heirs and declared the original owner’s copy of OCT NO. 535 cancelled and considered of no further value. Thus the Registry of Deeds issued a second owner’s copy of OCT No. 535 in favor of the Eniceo heirs. Petitioner states that as early as 1991, respondent knew of the RTC decision in LRC Case No. 584-A because respondent filed a criminal case against Rufina Eniceo and Leonila Bolinas for giving false testimony upon a material fact during the trial of LRC Case No. 584-A. Petitioner alleges that sometime in February 1995, Bolinas came to the office of Alberto Tronio Jr. , petitioner’s general manager, and offered to sell the Antipolo property. Tronio ascertained that OCT No. 535 was clean and had no lien and encumbrances. After the necessary verification, petitioner decided to buy the Antipolo property. On 14 March 1995, respondent caused the annotation of his adverse claim in OCT No. 535. On 20 March 1995, the Eniceo heirs executed a deed of absolute sale in favor of petitioner covering lots 3 and 4 of the Antipolo property for P500,000. On the same date, Transfer Certificate of Title (TCT) Nos. 277747 and 277120 were issued. TCT No. 277747 covering lots 1 and 5 of the Antipolo property was registered in the names of Rufina Eniceo, Ambrosio Eniceo, Rodolfo Calove, Fernando Calove and Leonila Calove Bolinas. TCT No. 277120 covering lots 3 and 4 of the Antipolo property was registered in the name of petitioner. On 5 April 1995, the Eniceo heirs executed another deed of sale in favor of petitioner covering lots 1 and 5 of the Antipolo property for P1,000,000. TCT No. 278588 was issued in the name of petitioner and TCT No. 277120 was cancelled. On 17 August 1995, the Secretary of the Department of Environment and Natural Resources (DENR Secretary) approved the deed of sale between the Eniceo heirs and respondent. On 16 January 1996, respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner. Respondent prayed for the cancellation of the certificates of title issued in favor of petitioner, and the registration of the deed of sale and issuance of a new transfer certificate of title in favor of respondent. The trial court rendered its decision dismissing the case for lack of legal and factual basis. Respondent appealed to the Court of Appeals. On 20 December 2004, the CA rendered a decision reversing the trial court’s decision. Aggrieved by the CA’s decision and resolution, petitioner elevated the case before the High Court. ISSUES: Whether the adverse claim of respondent over the Antipolo property should be barred by laches Page 329 of 545 Whether the deed of sale delivered to respondent should be presumed an equitable mortgage pursuant to Article 1602(2) and 1604 of the Civil Code. HELD: The contract between the Eniceo heirs and respondent executed was a perfected contract of sale. A contract is perfected once there is consent of the contracting parties on the object certain and on the cause of the obligation. In the present case, the object of the sale is the Antipolo property and the price certain is P250,000. The contract of sale has also been consummated because the vendors and vendee have performed their respective obligations under the contract. In a contract of sale, the seller obligates himself to transfer the ownership of the determinate thing sold, and to deliver the same to the buyer, who obligates himself to pay a price certain to the seller. The execution of the notarized deed of sale and the delivery of the owner’s duplicate copy of OCT No. 535 to respondent is tantamount to a constructive delivery of the object of the sale. The Eniceo heirs also claimed in their answer that the deed of sale is fake and spurious. However, as correctly held by the CA, forgery can never be presumed. The party alleging forgery is mandated to prove it with clear and convincing evidence. Whoever alleges forgery has the burden of proving it. In this case, petitioner and the Eniceo heirs failed to discharge this burden. Petitioner contends that respondent is guilty of laches because he slept on his rights by failing to register the sale of the Antipolo property at the earliest possible time. Petitioner claims that despite respondent’s knowledge of the subsequent sale in 1991, respondent still failed to have the deed of sale registered with the Registry of Deeds. The essence of laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, through due diligence, could have been done earlier, thus giving rise to a presumption that the party entitled to assert it had either abandoned or declined to assert it. Respondent discovered in 1991 that a new owner’s copy of OCT No. 535 was issued to the Eniceo heirs. Respondent filed a criminal case against the Eniceo heirs for false testimony. When respondent learned that the Eniceo heirs were planning to sell the Antipolo property, respondent caused the annotation of an adverse claim. On 16 January 1996, when respondent learned that OCT No. 535 was cancelled and new TCTs were issued, respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner. Respondent’s actions negate petitioner’s argument that respondent is guilty of laches. True, unrecorded sales of land brought under Presidential Decree No. 1529 or the Property Registration Decree (PD 1529) are effective between and binding only upon the immediate parties. The registration required in Section 51 of PD 1529 is intended to protect innocent third persons, that is, persons who, without knowledge of the sale and in good faith, acquire rights to the property. Petitioner, however, is not an innocent purchaser for value. Hence the petition was denied. METROBANK v. CABLZO G.R. No. 154469 December 6, 2006 FACTS: Page 330 of 545 Respondent Cabilzo was one of the Metrobank’s client who maintained a current account. On November 12, 199, Cabilzo issued a Metrobank check payable to cash in the amount of P1,000 and was paid to a certain Mr. Marquez. The check was oresented to Westmont Bank or payment and in turn indorsed to etrobank for appropriate clearing. It was discovered that the amount withdrawn wa P91,000, thus, the check was altered. Cabilzo re-credit the amount of P91,000 to his account but Metrobank refused to comply despite demands. RTC ordered Metrobank to pay the sum of P90,000 to Cabilzo. Court of Appeals affirmed the decision with modification. ISSUE: Whether holding Metrobank, as drawee bank, liable for the alternations on the subject check bearing the authentic signature of the drawer thereof RULING: The degree of diligence in the exercise of his tasks and the performance of his duties have been faithfully complied with by Cabilzo. It is obvious that Metrobank was remiss in the duty and violated that fiduciary relationship with its clients as it appeared that there are material alterations on the check that are visble to the naked eye but the bank failed to detect such. Petition is denied. Court of Appeals decision is affirmed with modification that exemplary damages in the amount of P50,000 be awarded. MESINA V. GARCIA G.R. No. 168035 November 30, 2006 FACTS: Page 331 of 545 Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, enstered into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT No. T-78881 was issued in the name of herein petitioners. The Contract to Sell provides that the cost of the lot is P70.00 per square meter for a total amount of P16,450.00; payable within a period not to exceed 7 years at an interest rate of 12% per annum, in successive monthly installments of P260.85 per month, starting May 1977. Thereafter, the succeeding monthly installments are to be paid within the first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly installments earning an interest of 1% per month. Instituting this case at bar, respondent asserts that despite the full payment made on 7 February 1984 for the consideration of the subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of the property to her. ISSUE: Whether or not respondent’s cause of action had already prescribed? RULING: Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when an action has been filed in court; when there is a written extrajudicial demand made by the creditors; and when there is any written acknowledgment of the debt by the debtor. The records reveal that starting 19 April 1986 until 2 January 1997 respondent continuously demanded from the petitioners the execution of the said Deed of Absolute Sale but the latter conjured many reasons and excuses not to execute the same. Respondent even filed a Complaint before the Housing and Land Use Regulatory Board way back in June, 1986, to enforce her rights and to compel the mother of herein petitioners, who was still alive at that time, to execute the necessary Deed of Absolute Sale for the transfer of title in her name. On 2 January 1997, respondent, through her counsel, sent a final demand letter to the petitioners for the execution of the Deed of Absolute Sale, but still to no avail. Consequently, because of utter frustration of the respondent, she finally lodged a formal Complaint for Specific Performance with Damages before the trial court on 20 January 1997. Hence, from the series of written extrajudicial demands made by respondent to have the execution of the Deed of Absolute Sale in her favor, the prescriptive period of 10 years has been interrupted. Therefore, it cannot be said that the cause of action of the respondent has already been prescribed. PAHAMOTANG VS. PNB G.R. No. 156403, March 21, 2005 FACTS: Page 332 of 545 On July 1, 1972, Melitona Pahamotang died. She was survived by her husband Agustin Pahamotang, and their eight (8) children, namely: Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor, all surnamed Pahamotang. On September 15, 1972, Agustin filed with the then Court of First Instance of Davao City a petition for issuance of letters administration over the estate of his deceased wife. The petition, docketed as Special Case No. 1792, was raffled to Branch VI of said court, hereinafter referred to as the intestate court. In his petition, Agustin identified petitioners Josephine and Eleonor as among the heirs of his deceased spouse. It appears that Agustin was appointed petitioners' judicial guardian in an earlier case - Special Civil Case No. 1785 – also of the CFI of Davao City, Branch VI. On December 7, 1972, the intestate court issued an order granting Agustin’s petition. The late Agustin then executed several mortgages and later sale of the properties with the PNB and Arguna respectively. The heirs later questioned the validity of the transactions prejudicial to them. The trial court declared the real estate mortgage and the sale void but both were valid with respect to the other parties. The decision was reversed by the Court of Appeals; to the appellate court, petitioners committed a fatal error of mounting a collateral attack on the foregoing orders instead of initiating a direct action to annul them. ISSUE: Whether the Court of Appeals erred in reversing the decision of the trial court RULING: In the present case, the appellate court erred in appreciating laches against petitioners. The element of delay in questioning the subject orders of the intestate court is sorely lacking. Petitioners were totally unaware of the plan of Agustin to mortgage and sell the estate properties. There is no indication that mortgagor PNB and vendee Arguna had notified petitioners of the contracts they had executed with Agustin. Although petitioners finally obtained knowledge of the subject petitions filed by their father, and eventually challenged the July 18, 1973, October 19, 1974, February 25, 1980 and January 7, 1981 orders of the intestate court, it is not clear from the challenged decision of the appellate court when they (petitioners) actually learned of the existence of said orders of the intestate court. Absent any indication of the point in time when petitioners acquired knowledge of those orders, their alleged delay in impugning the validity thereof certainly cannot be established. And the Court of Appeals cannot simply impute laches against them. SHOPPER'S PARADISE REALTY & DEVELOPMENT CORPORATION vs. EFREN ROQUE January 13, 2004 Page 333 of 545 FACTS: On 23 December 1993, petitioner Shopper's Paradise Realty & Development Corporation, represented its president, Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque, now deceased, over a parcel of land, Petitioner issued to Dr. Roque a check for P250,000.00 by way of "reservation payment." Simultaneously, petitioner and Dr. Roque likewise entered into a memorandum of agreement for the construction, development and operation of a commercial building complex on the property. Conformably with the agreement, petitioner issued a check for another P250,000.00 "downpayment" to Dr. Roque. The annotations, however, were never made because of the untimely demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994 constrained petitioner to deal with respondent Efren P. Roque, one of the surviving children of the late Dr. Roque, but the negotiations broke down due to some disagreements. In a letter, dated 3 November 1994, respondent advised petitioner "to desist from any attempt to enforce the aforementioned contract of lease and memorandum of agreement". On 15 February 1995, respondent filed a case for annulment of the contract of lease and the memorandum of agreement, with a prayer for the issuance of a preliminary injunction. Efren P. Roque alleged that he had long been the absolute owner of the subject property by virtue of a deed of donation inter vivos executed in his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and that the late Dr. Felipe Roque had no authority to enter into the assailed agreements with petitioner. The donation was made in a public instrument duly acknowledged by the donor-spouses before a notary public and duly accepted on the same day by respondent before the notary public in the same instrument of donation. The title to the property, however, remained in the name of Dr. Felipe C. Roque, and it was only transferred to and in the name of respondent sixteen years later, or on 11 May 1994, while he resided in the United States of America, delegated to his father the mere administration of the property. Respondent came to know of the assailed contracts with petitioner only after retiring to the Philippines upon the death of his father. On 9 August 1996, the trial court dismissed the complaint of respondent; it explained: Ordinarily, a deed of donation need not be registered in order to be valid between the parties. Registration, however, is important in binding third persons. Thus, when Felipe Roque entered into a lease contract with defendant corporation, plaintiff Efren Roque (could) no longer assert the unregistered deed of donation and say that his father, Felipe, was no longer the owner of the subject property at the time the lease on the subject property was agreed upon. "The registration of the Deed of Donation after the execution of the lease contract did not affect the latter unless he had knowledge thereof at the time of the registration which plaintiff had not been able to establish. Plaintiff knew very well of the existence of the lease. He, in fact, met with the officers of the defendant corporation at least once before he caused the registration of the deed of donation in his favor and although the lease itself was not registered, it remains valid considering that no third person is involved. Plaintiff cannot be the third person because he is the successorin-interest of his father, Felipe Roque, the lessor, and it is a rule that contracts take effect not only between the parties themselves but also between their assigns and heirs (Article 1311, Civil Code) and therefore, the lease contract together with the memorandum of agreement would be conclusive on plaintiff Efren Roque. He is bound by the contract even if he did not participate therein. Moreover, the agreements have been perfected and partially executed by the receipt of his father of the downpayment and deposit totaling to P500,000.00." The trial court ordered respondent to surrender TCT No. 109754 to the Register of Deeds of Quezon City for the annotation of the questioned Contract of Lease and Memorandum of Agreement. On appeal, the Court of Appeals reversed the decision of the trial court and held to be invalid the Contract of Lease and Memorandum of Agreement. While it shared the view expressed by the trial court that a deed of donation would have to be registered in order to bind third persons, the appellate court, however, concluded that petitioner was not a lessee in good faith having had prior knowledge of the donation in favor of respondent, and that such actual knowledge had the effect of registration insofar as petitioner was concerned. The appellate court based its findings largely on the testimony of Veredigno Atienza during cross-examination. Page 334 of 545 ISSUE: Whether or not the respondent is barred by laches and estoppel from denying the contracts. RULING: The Court cannot accept petitioner's argument that respondent is guilty of laches. Laches, in its real sense, is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. Respondent learned of the contracts only in February 1994 after the death of his father, and in the same year, during November, he assailed the validity of the agreements. Hardly, could respondent then be said to have neglected to assert his case for an unreasonable length of time. Neither is respondent estopped from repudiating the contracts. The essential elements of estoppel in pais, in relation to the party sought to be estopped, are: 1) a clear conduct amounting to false representation or concealment of material facts or, at least, calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; 2) an intent or, at least, an expectation, that this conduct shall influence, or be acted upon by, the other party; and 3) the knowledge, actual or constructive, by him of the real facts. With respect to the party claiming the estoppel, the conditions he must satisfy are: 1) lack of knowledge or of the means of knowledge of the truth as to the facts in question; 2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and 3) action or inaction based thereon of such character as to change his position or status calculated to cause him injury or prejudice. 12 It has not been shown that respondent intended to conceal the actual facts concerning the property; more importantly, petitioner has been shown not to be totally unaware of the real ownership of the subject property. Altogether, there is no cogent reason to reverse the Court of Appeals in its assailed decision. MEATMASTER vs. LELIS INTEGRATED 452 SCRA 626 FACTS: Page 335 of 545 On November 11, 1993, petitioner Meatmasters International Corporation engaged the services of respondent Lelis Integrated Development Corporation to undertake the construction of a slaughterhouse and meat cutting and packing plant. The Construction Agreement provided that the construction of petitioner’s slaughterhouse should be completed by March 10, 1994. Respondent failed to finish the construction of the said facility within the stipulated period, hence, petitioner filed a complaint for rescission of contract and damages on August 9, 1996 before the Regional Trial Court. On November 23, 1998, the trial court rendered decision RESCINDING the Construction Agreement between plaintiff Meatmaster Int’l. Corp. and defendant Lelis Integrated Dev’t. Corp. with both parties shouldering their own respective damage. A copy of the decision was received by the respondent on December 9, 1998. A motion for reconsideration was filed by respondent on December 22, 1998, but the same was denied. A copy of the resolution denying the motion for reconsideration was received on March 25, 1999. Respondent filed its notice of appeal on March 29, 1999. Initially, the trial court dismissed the appeal for failure of the respondent to pay the requisite docket fees within the reglementary period. Upon motion by the respondent however, the trial court reconsidered and gave due course to the notice of appeal because respondent paid the docket fees. In a motion to dismiss filed before the appellate court, the petitioner alleged that respondent’s appeal suffers from jurisdictional infirmity because of late payment of docket fees. CA set aside the decision of the trial court and directed petitioner to pay respondent the amount of P1,863,081.53. Petitioner’s motion for reconsideration was denied Hence, the instant petition. ISSUE: Whether or not the Court of Appeals erred in entertaining the appeal of respondent despite the finality of the trial court’s decision. RULING: Yes. It is well-established that the payment of docket fees within the prescribed period is mandatory for the perfection of an appeal. This is so because a court acquires jurisdiction over the subject matter of the action only upon the payment of the correct amount of docket fees regardless of the actual date of filing of the case in court. The payment of the full amount of the docket fee is a sine qua non requirement for the perfection of an appeal. The court acquires jurisdiction over the case only upon the payment of the prescribed docket fees. In the case at bar, the respondent seasonably filed the notice of appeal but it paid the docket fees one (1) month after the lapse of the appeal period. As admitted by the respondent, the last day for filing the notice of appeal was on March 29, 1999, but it paid the docket fees only on April 30, 1999 because of oversight. Obviously, at the time the said docket fees were paid, the decision appealed from has long attained finality and no longer appealable. Respondent’s contention that the petitioner is now estopped from raising the issue of late payment of the docket fee because of his failure to assail promptly the trial court’s order approving the notice of appeal and accepting the appeal fee, is untenable. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. In the case at bar, petitioner raised at the first instance the non-payment of the docket fee in its motion for reconsideration before the trial court. Petitioner reiterated its objection in the motion to dismiss before the appellate court and finally, in the instant petition. Plainly, petitioner cannot be Page 336 of 545 faulted for being remiss in asserting its rights considering that it vigorously registered a persistent and consistent objection to the Court of Appeals’ assumption of jurisdiction at all stages of the proceedings. MANIPOR vs. RICAFORT 407 SCRA 298 FACTS: Page 337 of 545 Respondent spouses Pablo and Antonia Ricafort instituted an action for annulment of Transfer of Certificate of Title in the name of spouses Renato and Teresita Villareal covering a 299 sq.m. lot. The Ricaforts alleged that they are co-owners of said property together with Abelardo, the father and predecessor of Renato as evidenced by an agreement whereby Abelardo recognized their ownership of ½ portion of the lot. Respondents also claim that, in violation of the agreement, Abelardo obtained during his lifetime Original Certificate of Title over the lot without their knowledge and consent. When Abelardo died in 1993, Renato and Teresita transferred the title over the land in their name and were issued a TCT. In the course of the proceedings, parties entered into a compromise settlement wherein the Villareals admitted the genuineness and due execution of the agreement between respondents and Abelardo. Hence, they agreed to physically divide the lot into half. They also agreed to cause a relocation survey and the expenses will be borne equally by them. The trial court approved the compromise agreement but not long thereafter, respondents filed a motion to cite the Villareals in contempt of court for refusing to comply with the terms of the agreement. Eventually, herein petitioners who are all siblings of Renato filed a motion for intervention and substitution of parties alleging that spouses Renato and Teresita have waived their interest in the disputed lot in their favor. Petitioners availed of various remedies only to pursue the endeavor for the annulment of the compromise judgment. Most of them were denied until they resorted to this review before the Supreme Court. ISSUE: Whether or not the petitioners are estopped from seeking the annulment of the compromise judgment. RULING: Yes, note that in a Sinumpaang Salaysay, petitioners admitted that they acquiesced to have the subject lot donated and registered in Renato’s name. In view of such admission, petitioners are estopped from denying Renato’s absolute title to the lot. Under the principle of estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied against the person relying thereon. Verily, since petitioners admitted that they donated the lot to Renato, they cannot now be allowed to defeat respondent’s claim by conveniently asserting that they are co-owners of the lot. Otherwise, respondents, who rightfully relied on the Certificate of Title, would be prejudiced by petitioner’s misleading conduct. LARENA vs. MAPILI 408 SCRA 484 FACTS: Page 338 of 545 Hipolito Mapili during his lifetime owned a parcel of unregistered land declared for taxation purposes in his name. The property had descended by succession from Hipolito to his only son Magno and on to the latter’s own widow and children. These heirs, the herein respondents, took possession of the property up to the outbreak of World War II when they evacuated to the hinterlands. On the other hand, petitioner Aquilina Larena took possession of the property in the1970’s alleging that she had purchased it from her aunt (Filomena Larena) on February 17, 1968. Filomena Larena in turn claimed to have bought it from Hipolito on October 28, 1949, as evidence by the Affidavit of Transfer of Real Property executed on the same date. The Regional Trial Court, however, declared the said affidavit as spurious because Hipolito was already dead when the alleged transfer was made to Filomena Larena. On appeal, the Court of Appeals declared that respondents had never lost their right to the land in question as they were the heirs to whom the property had descended upon the death of the original claimant and possessor. ISSUE: Whether or not Filomena Larena acquired the subject property by means of sale, prescription, and/or laches. RULING: No, Filomena did not acquire said property by means of sale, prescription and/or laches. First, the tax declarations are not a conclusive evidence of ownership, but a proof that the holder has a claim of title over the property. It is good indicia of possession in the concept of owner. It may strengthen Aquilina’s bona fide claim of acquisition of ownership. However, petitioners failed to present the evidence needed to tack the date of possession on the property in question. Second, acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. Since the claims of purchase were unsubstantiated, petitioners’ acts of possessory character have been merely tolerated by the owner. Hence, it did not constitute possession. Moreover, there is lack of just title on the part of Aquilina and therefore, ordinary acquisitive prescription of ten (10) years as provided under Article 1134 of the Civil Code cannot be applied. Under Article 1137 of the Civil Code, the lapse of time required for extra-ordinary acquisitive prescription is thirty (30) years, and records show that the lapse of time was only twenty-seven (27) years—a period that was short of three (3) years, when the complaint was filed. Finally, laches is a failure or neglect for an unreasonable and unexplained length of time to do that which could or should have been done earlier through the exercise of due diligence. The filing by respondents of the complaint in 1977 completely negates the decision that the latter were negligent in asserting their claim. SANTOS vs. SANTOS 366 SCRA 395 FACTS: Page 339 of 545 Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa Santos-Carreon. The spouses Jesus and Rosalia were the parents of the respondents and the husband of the petitioner. The spouses owned a parcel of registered land with a four-door apartment administered by Rosalia who rented them out. On January 19, 1959, the spouses executed a deed of sale of the properties in favor of their children Salvador and Rosa. Rosa in turn sold her share to Salvador on November 20, 1973, which resulted in the issuance of new TCT. Despite the transfer of the property to Salvador, Rosalia continued to lease and receive rentals from the apartment units. On January 9, 1985, Salvador died, followed by Rosalia who died the following month. Shortly after, petitioner Zenaida, claiming to be Salvador’s heir, demanded the rent from Antonio Hombrebueno, a tenant of Rosalia. When the latter refused to pay, Zenaida filed an ejectment suit against him with the Metropolitan Trial Court of Manila, which eventually decided in Zenaida’s favor. On January 5, 1989, private respondent instituted an action for reconveyance of property with preliminary injunction against petitioner in the Regional Trial Court of Manila, where they alleged that the two deeds of sale were simulated for lack of consideration. The petitioner on the other hand denied the material allegations in the complaint and that she further alleged that the respondents’ right to reconveyance was already barred by prescription and laches considering the fact that from the date of sale from Rosa to Salvador up to his death, more or less twelve (12) years had lapsed, and from his death up to the filing of the case for reconveyance, four (4) years has elapsed. In other words, it took respondents about sixteen (16) years to file the case. Moreover, petitioner argues that an action to annul a contract for lack of consideration prescribes in ten (10) years and even assuming that the cause of action has not prescribed, respondents are guilty of laches for their inaction for a long period of time. The trial court decided in favor of private respondents in as much as the deeds of sale were fictitious, the action to assail the same does not prescribe. Upon appeal, the Court of Appeals affirmed the trial court’s decision. It held that the subject deeds of sale did not confer upon Salvador the ownership over the subject property, because even after the sale, the original vendors remained in dominion, control, and possession thereof. ISSUE: Whether or not the cause of action of the respondents had prescribed and/or barred by laches. RULING: No, the cause of action by the respondents had not prescribed nor is it barred by laches. First, the right to file an action for the reconveyance of the subject property to the estate of Rosalia has not prescribed since deeds of sale were simulated and fictitious. The complaint amounts to a declaration of nullity of a void contract, which is imprescriptible. Hence, respondents’ cause of action has not prescribed. Second, neither is their action barred by laches. The elements of laches are: 1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which the complainant seeks a remedy; 2) delay in asserting the complainant’s rights, the complainant having knowledge or notice of the defendant’s conduct as having been afforded an opportunity to institute a suit; 3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right in which he bases his suit; and 4) injury or prejudice to the defendant in Page 340 of 545 the event relief is accorded to the complainant, or the suit is not held barred. These elements must all be proved positively. The lapse of four (4) years is not an unreasonable delay sufficient to bar respondent’s action. Moreover, the fourth (4th) element is lacking in this case. The concept of laches is not concerned with the lapse of time but only with the effect of unreasonable lapse. The alleged sixteen (16) years of respondents’ inaction has no adverse effect on the petitioner to make respondents guilty of laches. VILLANUEVA- MIJARES ET. AL. vs. COURT OF APPEALS April 12, 2000 FACTS: Page 341 of 545 Felipe Villanueva left a 15,336-square-meter parcel of land in Kalibo, Capiz to his eight children: Simplicio, Benito, Leon, Eustaquio, Camila, Fausta and Pedro. In 1952, Pedro declared under his name 1/6 portion of the property (1,905 sq. m.). He held the remaining properties in trust for his co-heirs who demanded the subdivision of the property but to no avail. After Leon’s death in 1972, private respondents discovered that the shares of Simplicio, Nicolasa, Fausta and Maria Baltazar had been purchased by Leon through a deed of sale dated August 25, 1946 but registered only in 1971. In July 1970, Leon also sold and partitioned the property in favor of petitioners, his children, who thereafter secured separate and independent titles over their respective pro- indiviso shares. Private respondents, who are also descendants of Felipe, filed an action for partition with annulment of documents and/or reconveyance and damages against petitioners. They contended that Leon fraudulently obtained the sale in his favor through machinations and false pretenses. The RTC declared that private respondents’ action had been barred by res judicata and that petitioners are the “legal owners of the property in question in accordance with the individual titles issued to them. ISSUE: Whether or not laches apply against the minor’s property that was held in trust. RULING: No. At the time of the signing of the Deed of Sale of August 26,1948, private respondents Procerfina, Prosperedad, Ramon and Rosa were minors. They could not be faulted for their failure to file a case to recover their inheritance from their uncle Leon, since up to the age of majority, they believed and considered Leon their co-heir administrator. It was only in 1975, not in 1948, that they became aware of the actionable betrayal by their uncle. Upon learning of their uncle’s actions, they filed for recovery. Hence, the doctrine of stale demands formulated in Tijam cannot be applied here. They did not sleep on their rights, contrary to petitioner’s assertion. Furthermore, when Felipe Villanueva died, an implied trust was created by operation of law between Felipe’s children and Leon, their uncle, as far as the 1/6 share of Felipe. Leon’s fraudulent titling of Felipe’s 1/6 share was a betrayal of that implied trust. SPS. EDRALIN V. PHIL. VETERANS BANK G.R. No. 168523, March 09, 2011 FACTS: Page 342 of 545 Respondent Philippine Veterans Bank is a commercial banking institution created under Republic Act (RA) No. 3518, as amended by RA No. 7169. On February 5, 1976, Veterans Bank granted petitioner spouses Fernando and Angelina Edralin a loan in the amount of Two Hundred Seventy Thousand Pesos (P270,000.00). As security thereof, petitioners executed a Real Estate Mortgage in favor of Veterans Bank over a real property situated in the Municipality of Parañaque and registered in the name of petitioner Fernando Edralin. The mortgaged property is more particularly described in Transfer Certificate of Title (TCT) No. 204889. The REM was registered with the Registry of Deeds of the Province of Rizal. The REM and its subsequent amendments were all duly annotated at the back of TCT No. 204889. The Edralins failed to pay their obligation to Veterans Bank. Thus, on June 28, 1983, Veterans Bank filed a Petition for Extrajudicial Foreclosure of the REM with the Office of the Clerk of Court and Ex-Officio Sheriff of Rizal. In due course it was foreclosed and a sale was held in which the Ex-Officio Sheriff of Rizal sold the mortgaged property at public auction. Veterans Bank emerged as the highest bidder at the said foreclosure sale and was issued the corresponding Certificate of Sale. The said Certificate of Sale was registered with the Registry of Deeds of the Province of Rizal and annotated at the back of TCT No. 204889 under Entry No. 83-62953/T-No. 43153-A. Upon the Edralins’ failure to redeem the property during the one-year period provided under Act No. 3135, Veterans Bank acquired absolute ownership of the subject property. Consequently, Veterans Bank caused the consolidation of ownership of the subject property in its name on January 19, 1994. Subsequently the Register of Deeds of Parañaque, Metro Manila cancelled TCT No. 204889 under the name of Fernando Edralin and replaced it with a new transfer certificate of title, TCT No. 78332, in the name of Veterans Bank. Despite the foregoing, the Edralins failed to vacate and surrender possession of the subject property to Veterans Bank. Thus, on May 24, 1996, Veterans Bank filed an Ex-Parte Petition for the Issuance of a Writ of Possession, docketed as Land Registration Case No. 06-060 before Branch 274 of the Regional Trial Court (RTC) of Parañaque City. The same, however, was dismissed for Veterans Bank’s failure to prosecute. Veterans Bank again filed an Ex-Parte Petition for Issuance of Writ of Possession, this time docketed as Land Registration Case No. 03-0121, before the RTC of Parañaque City. Veterans Bank divulged in its Certification against Forum-Shopping that the earlier case, LRC No. 96-060, involving the same subject matter and parties, was dismissed. The Edralins moved to dismiss the petition on the ground that the dismissal of LRC No. 96-060 constituted res judicata. The trial court denied the motion to dismiss explaining that the ground of failure to present evidence is not a determination of the merits of the case hence does not constitute res judicata on the petition for issuance of a writ of possession. The appellate court ruled in favor of Veterans Bank hence the petition. ISSUE: Whether the consolidation of ownership of the extrajudicially foreclosed property through a Deed of Sale is in accordance with law. HELD: Petitioners assail the CA's ruling that the issuance of a writ of possession does not prescribe.[48] They maintain that Articles 1139, 1149, and 1150 of the Civil Code regarding prescriptive periods cover all kinds of action, which necessarily include the issuance of a writ of possession. Petitioners posit that, for purposes of the latter, it is the five-year prescriptive period provided in Article 1149 of the Civil Code which applies because Act No. 3135 itself did not provide for its prescriptive period. Thus, Veterans Bank had only five years from September 12, 1983, the date when the Certificate of Sale was issued in its favor, to move for the issuance of a writ of possession. Respondent argues that jurisprudence has consistently held that a registered owner of the land, such as the buyer in an auction sale, is entitled to a writ of possession at any time after the consolidation of ownership. The Court could not accept petitioners' contention. We have held before that the purchaser's right "to request for the issuance of the writ of possession of the land never prescribes. "The right to possess a property merely follows the right of ownership," and it would Page 343 of 545 be illogical to hold that a person having ownership of a parcel of land is barred from seeking possession thereof. Moreover, the provisions cited by petitioners refer to prescription of actions. An action is "defined as an ordinary suit in a court of justice, by which one party prosecutes another for the enforcement or protection of a right, or the prevention or redress of a wrong." On the other hand "a petition for the issuance of the writ, under Section 7 of Act No. 3135, as amended, is not an ordinary action filed in court, by which one party `sues another for the enforcement or protection of a right, or prevention or redress of a wrong.' It is in the nature of an ex parte motion [in] which the court hears only one side. It is taken or granted at the instance and for the benefit of one party, and without notice to or consent by any party adversely affected. Accordingly, upon the filing of a proper motion by the purchaser in a foreclosure sale, and the approval of the corresponding bond, the writ of possession issues as a matter of course and the trial court has no discretion on this matter."Hence the Petition was denied for lack of merit. The CA Decision dated June 10, 2005 in CA-G.R. SP No. 89248 was affirmed. MARTIN V. DBS G.R. No. 174632 June 16, 2010 FACTS: Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M. Garcia, Victoria M. Roldan, and Benjamin T. Martin, Jr., as lessors, entered into a lease contract with the DBS Bank Page 344 of 545 Philippines, Inc., covering a commercial warehouse and lots that DBS was to use for office, warehouse, and parking yard for repossessed vehicles. The lease was for five years, from March 1, 1997 to March 1, 2002, at a monthly rent of P300,000.00 for the first year, P330,000.00 for the second year, P363,000.00 for the third year, P399,300.00 for the fourth year, and P439,230.00 for the final year, all net of withholding taxes. DBS paid a deposit of P1,200,000.00 and advance rentals of P600,000.00. On May 25 and August 13, 1997 heavy rains flooded the leased property and submerged into water the DBS offices there along with its 326 repossessed vehicles. As a result, on February 11, 1998 DBS wrote the Martins demanding that they take appropriate steps to make the leased premises suitable as a parking yard for its vehicles. DBS suggested the improvement of the drainage system or the raising of the property’s ground level. In response, the Martins filled the property’s grounds with soil and rocks. But DBS lamented that the property remained unsuitable for its use since the Martins did not level the grounds. Worse, portions of the perimeter fence collapsed because of the excessive amount of soil and rock that were haphazardly dumped on it. In June 1998, DBS vacated the property but continued paying the monthly rents. On September 11, 1998, however, it made a final demand on the Martins to restore the leased premises to tenantable condition on or before September 30, 1998, otherwise, it would rescind the lease contract. On September 24, 1998 the Martins contracted the services of Altitude Systems & Technologies Co. for the reconstruction of the perimeter fence on the property. On October 13, 1998 DBS demanded the rescission of the lease contract and the return of its deposit. At that point, DBS had already paid the monthly rents from March 1997 to September 1998. The Martins refused, however, to comply with DBS’ demand. On July 7, 1999 DBS filed a complaint against the Martins for rescission of the contract of lease with damages before the Regional Trial Court of Makati City, Branch 141, in Civil Case 99-1266. Claiming that the leased premises had become untenantable, DBS demanded rescission of the lease contract as well as the return of its deposit of P1,200,000.00. The Makati City RTC rendered a decision, dismissing the complaint against the Martins. The trial court found that, although the floods submerged DBS’ vehicles, the leased premises remained tenantable and undamaged. Moreover, the Martins had begun the repairs that DBS requested but were not given sufficient time to complete the same. It held that DBS unjustifiably abandoned the leased premises and breached the lease contract. Thus, the trial court ordered its deposit of P1,200,000.00 deducted from the unpaid rents due the Martins and ordered DBS to pay them the remaining P15,198,360.00 in unpaid rents. On appeal to the Court of Appeals, the court rendered judgment reversing and setting aside the RTC decision. The CA found that floods rendered the leased premises untenantable and that the RTC should have ordered the rescission of the lease contract especially since the contract provided for such remedy. The CA ordered the Martins to apply the deposit of P1,200,000.00 to the rents due up to July 7, 1999 when DBS filed the complaint and exercised its option to rescind the lease. The CA ordered the Martins to return the remaining balance of the deposit to DBS. With the denial of their separate motions for reconsideration DBS and the Martins filed their respective petitions for review before this Court in G.R. 174632 and 174804. The Court eventually consolidated the two cases. ISSUE: Whether or not the CA erred in holding that DBS is entitled to the rescission of the lease contract only from July 7, 1999 when it filed its action for rescission, entitling the Martins to collect rents until that time. HELD: Unless the terms of a contract are against the law, morals, good customs, and public policy, such contract is law between the parties and its terms bind them. In Felsan Realty & Development Corporation v. Commonwealth of Australia,13 the Court regarded as valid and binding a provision in the lease contract that allowed the lessee to pre-terminate the same when fire damaged the leased building, rendering it uninhabitable or unsuitable for living. Here, Page 345 of 545 paragraph VIII14 of the lease contract between DBS and the Martins permitted rescission by either party should the leased property become untenantable because of natural causes. Thus In case of damage to the leased premises or any portion thereof by reason of fault or negligence attributable to the lessee, its agents, employees, customers, or guests, the lessee shall be responsible for undertaking such repair or reconstruction. In case of damage due to fire, earthquake, lightning, typhoon, flood, or other natural causes, without fault or negligence attributable to the lessee, its agents, employees, customers or guests, the lessor shall be responsible for undertaking such repair or reconstruction. In the latter case, if the leased premises become untenantable, either party may demand for the rescission of this contract and in such case, the deposit referred to in paragraph III shall be returned to the lessee immediately. The Martins claim that DBS cannot invoke the above since they undertook the repair and reconstruction of the leased premises, incurring P1.6 million in expenses. The Martins point out that the option to rescind was available only if they failed to do the repair work and reconstruction. But, under their agreement, the remedy of rescission would become unavailable to DBS only if the Martins, as lessors, made the required repair and reconstruction after the damages by natural cause occurred, which meant putting the premises after the floods in such condition as would enable DBS to resume its use of the same for the purposes contemplated in the agreement, namely, as office, warehouse, and parking space for DBS’ repossessed vehicles. Here, it is undisputed that the floods of May 25 and August 13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods rendered the place unsuitable for its intended uses. And, while the Martins did some repairs, they did not restore the place to meet DBS’ needs. The photographs16 taken of the place show that the Martins filled the grounds with soil and rocks to raise the elevation but did not level and compact the same so they could accommodate the repossessed vehicles. Moreover, the heaviness of the filling materials caused portions of the perimeter walls to collapse or lean dangerously.17 Indeed, the Office of the City Engineer advised DBS that unless those walls were immediately demolished or rehabilitated, they would endanger passersby Undeniably, the DBS suffered considerable damages when flood waters deluged its offices and 326 repossessed vehicles. Notably, DBS vacated the leased premises in June of 1998, without rescinding the lease agreement, evidently to allow for unhindered repair of the grounds. In fact, DBS continued to pay the monthly rents until September 1998, showing how DBS leaned back to enable the Martins to finish the repair and rehabilitation of the place. 19 The Martins provided basis for rescission by DBS when they failed to do so. Hence the Court denied the petition and affirmed with mocifications the April 26, 2006 decision of the Court of Appeals in CA-G.R. CV 76210 in that Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M. Garcia, Victoria M. Roldan, and Benjamin T. Martin, Jr. are ORDERED to return the full deposit of P1,200,000.00 to DBS Bank Philippines, Inc. (formerly known as Bank of Southeast Asia, now merged with and into BPI Family Bank) with interest of 12% per annum to be computed from the finality of this decision until the amount is fully paid. HEIRS OF ZABALA V. CA G.R. No. 189602 May 6, 2010 FACTS: Page 346 of 545 On April 1, 2002, respondent Vicente T. Manuel filed a Complaint for ejectment with damages against Alfredo Zabala before the Municipal Trial Court in Cities of Balanga, Bataan. Respondent alleged that he was in actual and peaceful possession of a fishpond (Lot No. 1483) located in Ibayo, Balanga City. On October 15, 2001, Zabala allegedly entered the fishpond without authority, and dumped soil into the fishpond without an Environment Compliance Certificate. Zabala continued such action until the time of the filing of the Complaint, killing the crabs and the bangus that respondent was raising in the fishpond. Thus, respondent asked that Zabala be restrained from touching and destroying the fishpond; that Zabala be ejected therefrom permanently; and for actual and moral damages and attorney’s fees. Zabala promptly moved for the dismissal of the Complaint for non-compliance with the requirement under the Local Government Code to bring the matter first to barangay conciliation before filing an action in court. Respondent subsequently filed a Motion for Judgment on the ground of petitioner’s failure to file a responsive pleading or answer. The MTCC, in an Order dated May 27, 2003, granted Zabala’s motion and dismissed the Complaint, holding that respondent indeed violated the requirement of barangay conciliation. Respondent then appealed the ruling to the Balanga, Bataan Regional Trial Court. In a decision dated March 30, 2004,[5] the RTC reversed the MTCC’s May 27, 2003 Order and rendered judgment directing Zabala, his heirs or subalterns to immediately vacate Lot No. 1483 and restore respondent to his peaceful possession thereof. The RTC also directed Zabala to pay respondent actual damages, moral damages, and attorney’s fees. The RTC found that Zabala did not, in fact, file an answer to the Complaint. Zabala then filed a Petition for Review before the Court of Appeal. The CA promulgated a Decision upholding the RTC’s reversal of the MTCC’s Order. The CA held that, based on the allegations in the Complaint, the requirement for prior conciliation proceedings under the Local Government Code was inapplicable to the suit before the MTCC, the action being one for ejectment and damages, with application for a writ of preliminary injunction, even without the use of those actual terms in the Complaint. However, the CA granted Zabala’s prayer for the deletion of the awards for actual and moral damages, and for attorney’s fees. Zabala filed a Motion for Reconsideration, which the CA denied. Zabala’s heirs filed this Verified Petition for Certiorari. They prayed for the annulment of the CA’s December 19, 2008 Decision and August 26, 2009 Resolution, and for the reinstatement of the MTCC’s May 27, 2003 Order. In the alternative, they prayed that the Court remand the records to the MTCC, so that they could file their Answer, and that due proceedings be undertaken before judgment. In a Resolution dated November 18, 2009, respondents were required to file their Comment on the Petition. Subsequently a Compromise Agreement was entered into by the parties. ISSUE: Whether or not the case must prosper and continue considering the present circumstances HELD : No. The Court ruled that Under Article 2028 of the Civil Code, a compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. Compromise is a form of amicable settlement that is not only allowed, but also encouraged in civil cases. Contracting parties may establish such stipulations, clauses, terms, and conditions as they deem convenient, provided that these are not contrary to law, morals, good customs, public order, or public policy. Thus, finding the above Compromise Agreement to have been validly executed and not contrary to law, morals, good customs, public order, or public policy, we approve the same. Thus the Compromise Agreement was and judgment is hereby rendered in accordance therewith. By virtue of such approval, this case was deemed terminated. STAR PAPER vs. SIMBOL 487 SCRA 228 FACTS: Page 347 of 545 Petitioner was the employer of the respondents. Under the policy of Star Paper the employees are: 1. New applicants will not be allowed to be hired if in case he/she has a relative, up to the 3rd degree of relationship, already employed by the company. 2. In case of two of our employees (singles, one male and another female) developed a friendly relationship during the course of their employment and then decided to get married, one of them should resign to preserve the policy stated above. Respondents Comia and Simbol both got married to their fellow employees. Estrella on the other hand had a relationship with a co-employee resulting to her pregnancy on the belief that such was separated. The respondents allege that they were forced to resign as a result of the implementation of the said assailed company policy. The Labor Arbiter and the NLRC ruled in favor of petitioner. The decision was appealed to the Court of Appeals which reversed the decision. ISSUE: Whether the prohibition to marry in the contract of employment is valid HELD: It is significant to note that in the case at bar, respondents were hired after they were found fit for the job, but were asked to resign when they married a co-employee. Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine Operator, to Alma Dayrit, then an employee of the Repacking Section, could be detrimental to its business operations. Neither did petitioners explain how this detriment will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting Department, who married Howard Comia, then a helper in the cutter-machine. The policy is premised on the mere fear that employees married to each other will be less efficient. If we uphold the questioned rule without valid justification, the employer can create policies based on an unproven presumption of a perceived danger at the expense of an employee’s right to security of tenure. Petitioners contend that their policy will apply only when one employee marries a coemployee, but they are free to marry persons other than co-employees. The questioned policy may not facially violate Article 136 of the Labor Code but it creates a disproportionate effect and under the disparate impact theory, the only way it could pass judicial scrutiny is a showing that it is reasonable despite the discriminatory, albeit disproportionate, effect. The failure of petitioners to prove a legitimate business concern in imposing the questioned policy cannot prejudice the employee’s right to be free from arbitrary discrimination based upon stereotypes of married persons working together in one company. Lastly, the absence of a statute expressly prohibiting marital discrimination in our jurisdiction cannot benefit the petitioners. The protection given to labor in our jurisdiction is vast and extensive that we cannot prudently draw inferences from the legislature’s silence that married persons are not protected under our Constitution and declare valid a policy based on a prejudice or stereotype. Thus, for failure of petitioners to present undisputed proof of a reasonable business necessity, we rule that the questioned policy is an invalid exercise of management prerogative. Corollary, the issue as to whether respondents Simbol and Comia resigned voluntarily has become moot and academic. In the case of Estrella, the petitioner failed to adduce proof to justify her dismissal. Hence, the Court ruled that it was illegal. TIU vs. PLATINUM PLANS PHILIPPINES G.R. No. 163512, February 28, 2007 FACTS: Page 348 of 545 Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing Director. On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and Territorial Operations Head in charge of its Hong Kong and Asean operations. The parties executed a contract of employment valid for five years. On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-President for Sales of Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry. Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch 261. Respondent alleged, among others, that petitioner’s employment with Professional Pension Plans, Inc. violated the non-involvement clause in her contract of employment. In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of trade is valid provided that there is a limitation upon either time or place. In the case of the pre-need industry, the trial court found the two-year restriction to be valid and reasonable. On appeal, the Court of Appeals affirmed the trial court’s ruling. It reasoned that petitioner entered into the contract on her own will and volition. Thus, she bound herself to fulfill not only what was expressly stipulated in the contract, but also all its consequences that were not against good faith, usage, and law. The appellate court also ruled that the stipulation prohibiting nonemployment for two years was valid and enforceable considering the nature of respondent’s business. ISSUE: Whether the Court of Appeals erred in sustaining the validity of the non-involvement clause HELD: In this case, the non-involvement clause has a time limit: two years from the time petitioner’s employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business akin to respondent’s. More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of respondent’s Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing strategies of respondent’s business. To allow her to engage in a rival business soon after she leaves would make respondent’s trade secrets vulnerable especially in a highly competitive marketing environment. In sum, The Court finds the non-involvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to respondent. Hence the restraint is valid and such stipulation prevails. AVON COSMETICS vs. LUNA 511 SCRA 376 FACTS: Page 349 of 545 The present petition stemmed from a complaint[3] dated 1 December 1988, filed by herein respondent Luna alleging, inter alia¸ that she began working for Beautifont, Inc. in 1972, first as a franchise dealer and then a year later, as a Supervisor. Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said successor company. Aside from her work as a supervisor, respondent Luna also acted as a makeup artist of petitioner Avon’s Theatrical Promotion’s Group, for which she received a per diem for each theatrical performance. The contract was that: The Company agrees: 1) To allow the Supervisor to purchase at wholesale the products of the Company. The Supervisor agrees: 1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all permits and licenses required to sell the products on retail. The Company and the Supervisor mutually agree: 1) That this agreement in no way makes the Supervisor an employee or agent of the Company, therefore, the Supervisor has no authority to bind the Company in any contracts with other parties. 2) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall have the sole discretion to determine where and how products purchased from the Company will be sold. However, the Supervisor shall not sell such products to stores, supermarkets or to any entity or person who sells things at a fixed place of business. 3) That this agreement supersedes any agreement/s between the Company and the Supervisor. 4) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. 5) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. Later, respondent Luna entered into the sales force of Sandre Philippines which caused her termination for the alleged violation of the terms of the contract. The trial court ruled in favor of Luna that the contract was contrary to public policy thus the dismissal was not proper. The Court of Appeals affirmed the decision, hence this petition. ISSUE: Whether the Court of Appeals erred in ruling that the Supervisor’s Agreement was invalid for being contrary to public policy Whether there was subversion of the autonomy of contracts by the lower courts HELD: Agreements in violation of orden público must be considered as those which conflict with law, whether properly, strictly and wholly a public law (derecho) or whether a law of the person, but law which in certain respects affects the interest of society. Plainly put, public policy is that Page 350 of 545 principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good. As applied to contracts, in the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property. From another perspective, the main objection to exclusive dealing is its tendency to foreclose existing competitors or new entrants from competition in the covered portion of the relevant market during the term of the agreement. Only those arrangements whose probable effect is to foreclose competition in a substantial share of the line of commerce affected can be considered as void for being against public policy. The foreclosure effect, if any, depends on the market share involved. The relevant market for this purpose includes the full range of selling opportunities reasonably open to rivals, namely, all the product and geographic sales they may readily compete for, using easily convertible plants and marketing organizations. Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products other than those manufactured by petitioner Avon. Having held that the “exclusivity clause” as embodied in paragraph 5 of the Supervisor’s Agreement is valid and not against public policy, we now pass to a consideration of respondent Luna’s objections to the validity of her termination as provided for under paragraph 6 of the Supervisor’s Agreement giving petitioner Avon the right to terminate or cancel such contract. The paragraph 6 or the “termination clause” therein expressly provides that: The Company and the Supervisor mutually agree: 6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. In the case at bar, the termination clause of the Supervisor’s Agreement clearly provides for two ways of terminating and/or canceling the contract. One mode does not exclude the other. The contract provided that it can be terminated or cancelled for cause, it also stated that it can be terminated without cause, both at any time and after written notice. Thus, whether or not the termination or cancellation of the Supervisor’s Agreement was “for cause,” is immaterial. The only requirement is that of notice to the other party. When petitioner Avon chose to terminate the contract, for cause, respondent Luna was duly notified thereof. Worth stressing is that the right to unilaterally terminate or cancel the Supervisor’s Agreement with or without cause is equally available to respondent Luna, subject to the same notice requirement. Obviously, no advantage is taken against each other by the contracting parties. Hence, the petition was granted. DEL CASTILLO vs. RICHMOND 45 PHIL. REPORTS 679 FACTS: Page 351 of 545 The plaintiff alleges that the provisions and conditions contained in the third paragraph of their contract constitute an illegal and unreasonable restriction upon his liberty to contract, are contrary to public policy, and are unnecessary in order to constitute a just and reasonable protection to the defendant; and asked that the same be declared null and void and of no effect. The defendant interposed a general and special defense. In his special defense he alleges that during the time the plaintiff was in the defendant's employ he obtained knowledge of his trade and professional secrets and came to know and became acquainted and established friendly relations with his customers so that to now annul the contract and permit plaintiff to establish a competing drugstore in the town of Legaspi, as plaintiff has announced his intention to do, would be extremely prejudicial to defendant's interest." The defendant further, in an amended answer, alleges that this action not having been brought within four years from the time the contract referred to in the complaint was executed, the same has prescribed. ISSUE: Whether the contract is valid and the autonomy of contracts be upheld HELD: Considering the nature of the business in which the defendant is engaged, in relation with the limitation placed upon the plaintiff both as to time and place, The Court is of the opinion, and so decide, that such limitation is legal and reasonable and not contrary to public policy, otherwise, the autonomy of the contract will be subverted. ARWOOD INDUSTRIES, INC. vs. DM CONSUNJI, INC. 394 SCRA 11 FACTS: Page 352 of 545 Petitioner and respondent, as owner and contractor, respectively, entered into a civil, structural and architectural works Agreement dated February 6, 1989 for the construction of petitioners Westwood condominium at No. 23 Eisenhower St., Greenhills, San Juan, Metro Manila. The contract price for the condominium project aggregated P20, 800,000.00. Despite the completion of the condominium project, the amount of P962, 434.78 remain unpaid by petitioner. Repeated demands by respondent for petitioner to pay went unheeded. Thus on August 13, 1993, respondent as plaintiff in a civil case filed its complaint for the recovery of the balance of the contract price and for damages against petitioner. Respondent specifically prayed for the payment of the: (a) amount of P962, 434.78 with interest of 2% per month or a fraction thereof, from November 1990 up to the time of payment; (b) the amount of P250,000 as Attorneys fees and litigation expenses; (c) amount of P150,000.00 as exemplary damages; and (d)cost of suit. On appeal, the Court of Appeals affirmed the lower court’s decision with modification ISSUE: Whether or not the imposition of two percent interest on the amount adjudged is proper. RULING: Yes. It must be noted that the agreement provided the contractor, respondent in this case, two (2) options in case of delay in monthly payments, to wit: a) suspend works on the project until payment is remitted by the owner or continue the work but the owner shall be required to pay interest at a rate of two (2) percent per month or a fraction thereof. Evidently, respondent chose the latter option, as the condominium project was in fact already completed. Since the agreement stands as the law between the parties, the court cannot ignore the existence of such provision providing for a penalty for every months delay. PASCUAL vs. RAMOS 384 SCRA 105 FACTS: Ramos alleged that on 3 June 1987, for and in consideration of P150,000, the Spouses Page 353 of 545 Pascual executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan. This document was annotated at the back of the title. The Pascuals did not exercise their right to repurchase the property within the stipulated one-year period; hence, Ramos prayed that the title or ownership over the subject parcels of land and improvements thereon be consolidated in his favor. In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150, 000 but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no agreement limiting the period within which to exercise the right to repurchase and that they had even overpaid Ramos. The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the Pascuals had made payments in the total sum of P344,000, and that with interest at 7% per annum, they had overpaid the loan by P141,500. Accordingly, in its Decision of 15 March 1995 the trial court ruled in favor of the defendants. The Pascuals interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition; (b) Ramos had no legal capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action; (e) the claim or demand set forth in Ramos’s pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) Ramos has not complied with the required confrontation and conciliation before the barangay. The Court of Appeals affirmed in toto the trial court’s Orders of 5 June 1995 and 7 September 1995. ISSUE: Whether or not the contract entered into is a contract of loan. RULING: The Pascuals are actually raising as issue the validity of the stipulated interest rate. It must be stressed that they never raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the overpayment was alleged. In their pre-trial brief, the Pascuals made a long list of issues, but not one of them touched on the validity of the stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in fact paid interest at, the rate of 7% per month. After the trial court sustained petitioners’ claim that their agreement with RAMOS was actually a loan with real estate mortgage, the Pascuals should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per month. The Pascuals should accept not only the favorable aspect of the court’s declaration that the document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same document should be paid. Besides, when Ramos moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should be 7% per month, the Pascuals never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995, the Pascuals argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in their Appellants’ Brief, the only argument raised by the Pascuals was that Ramos’s petition did not contain a prayer for general relief and, hence, the trial court had no basis for ordering them to pay Ramos P511,000 representing the principal and unpaid interest. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the Pascuals made an issue of the interest rate and prayed for its reduction to 12% per annum. It is a basic principle in civil law that parties are bound by the stipulations in the contracts Page 354 of 545 voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy. The interest rate of 7% per month was voluntarily agreed upon by Ramos and the Pascuals. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with Ramos. Neither is there a showing that in their contractual relations with Ramos, the Pascuals were at a disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil Code. PUP V. GOLDEN HORIZON G.R. No. 183612 March 15, 2010 FACTS: Page 355 of 545 Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created under Commonwealth Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the Philippines (PUP) is a public, non-sectarian, non-profit educational institution created in 1978 by virtue of P.D. No. 1341. In the early sixties, NDC had in its disposal a ten -hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470.On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a period of ten years, renewable for another ten years with mutual consent of the parties.On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering 3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year lease period. In addition, GHRC as lessee was granted the "option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised." Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at no less than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and structures as required by the terms of the contract. After the completion of the industrial complex project, for which GHRC spent P5 million, it was leased to various manufacturers, industrialists and other businessmen thereby generating hundreds of jobs. On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC wrote a letter to NDC indicating its exercise of the option to renew the lease for another ten years. As no response was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased premises. NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to remain in possession of the property. Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with preliminary injunction and temporary restraining order. On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys, representatives, agents and any other persons assisting it from proceeding with the sale and disposition of the leased premises. On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a purchaser pendente lite of a property subject of litigation it is entitled to intervene in the proceedings. The RTC granted the said motion and directed PUP to file its Answer-in-Intervention.PUP also demanded that GHRC vacate the premises, insisting that the latter’s lease contract had already expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the Metropolitan Trial Court (MeTC) of Manila on January 14, 1991. Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional defendants PUP, Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-mentioned defendants from prosecuting Civil Case No. 134416 for ejectment. A temporary restraining order was subsequently issued by the RTC enjoining PUP from prosecuting and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case. On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the Philippines v. Court of Appeals) and 143590 (National Development Corporation v. Firestone Ceramics, Inc.),15 which declared that the sale to PUP by NDC of the portion leased by Firestone pursuant to Memorandum Order No. 214 violated the right of first refusal granted to Firestone under its third lease contract with NDC. ISSUE: Whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals applies in this case involving another lessee of NDC who claimed that the option Page 356 of 545 to purchase the portion leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to Memorandum Order No. 214. HELD: The CA was correct in declaring that there exists no justifiable reason not to apply the same rationale in Polytechnic University of the Philippines v. Court of Appeals in the case of respondent who was similarly prejudiced by petitioner NDC’s sale of the property to PUP, as to entitle the respondent to exercise its option to purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the lease for another ten (10) years upon mutual consent and giving respondent the option to purchase the leased premises for a price to be negotiated and determined at the time such option was exercised by respondent. It is to be noted that Memorandum Order No. 214 itself declared that the transfer is "subject to such liens/leases existing on the subject property." The option in this case was incorporated in the contracts of lease by NDC for the benefit of firestone which, in view of the total amount of its investments in the property, wanted to be assured that it would be given the first opportunity to buy the property at a price for which it would be offered. Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property to petitioner PUP. In the light of the foregoing, the Court held that respondent, which did not offer any amount to petitioner NDC, and neither disputed the P1,500.00 per square meter actual value of NDC’s property at that time it was sold to PUP at P554.74 per square meter, as duly considered by this Court in the Firestone case, should be bound by such determination. Accordingly, the price at which the leased premises should be sold to respondent in the exercise of its right of first refusal under the lease contract with petitioner NDC, which was pegged by the RTC at P554.74 per square meter, should be adjusted to P1,500.00 per square meter, which more accurately reflects its true value at that time of the sale in favor of petitioner PUP. Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration.40 We have categorically ruled that it is not correct to say that there is no consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease. Since the stipulation forms part of the entire lease contract, the consideration for the lease includes the consideration for the grant of the right of first refusal. In entering into the contract, the lessee is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, the lessee shall be given the right to match the offered purchase price and to buy the property at that price. We have further stressed that not even the avowed public welfare or the constitutional priority accorded to education, invoked by petitioner PUP in the Firestone case, would serve as license for us, and any party for that matter, to destroy the sanctity of binding obligations. While education may be prioritized for legislative and budgetary purposes, it is doubtful if such importance can be used to confiscate private property such as the right of first refusal granted to a lessee of petitioner NDC.42 Clearly, no reversible error was committed by the CA in sustaining respondent’s contractual right of first refusal and ordering the reconveyance of the leased portion of petitioner NDC’s property in its favor. Hence the petition was denied. JOSELITO VILLEGAS and DOMINGA VILLEGAS vs. COURT OF APPEALS G.R. No. 129977. February 1, 2001 FACTS: Page 357 of 545 Before September 6, 1973, Lot B-3-A, with an area of 4 hectares was registered under TCT No. 68641 in the names of Ciriaco D. Andres and Henson Caigas. This land was also declared for real estate taxation under Tax Declaration No. C2-4442. On September 6, 1973, Andres and Caigas, with the consent of their respective spouses, Anita Barrientos and Consolacion Tobias, sold the land to Fortune Tobacco Corporation for P60,000.00. Simultaneously, they executed a joint affidavit declaring that they had no tenants on said lot. On the same date, the sale was registered in the Office of the Register of Deeds of Isabela. TCT No. 68641 was cancelled and TCT No. T-68737 was issued in Fortune’s name. On August 6, 1976, Andres and Caigas executed a Deed of Reconveyance of the same lot in favor of Filomena Domingo, the mother of Joselito Villegas, defendant in the case before the trial court. Although no title was mentioned in this deed, Domingo succeeded in registering this document in the Office of the Register of Deeds on August 6, 1976, causing the latter to issue TCT No. T-91864 in her name. It appears in this title that the same was a transfer from TCT No. T-68641. On April 13, 1981, Domingo declared the lot for real estate taxation under Tax Declaration No. 10-5633. On December 4, 1976, the Office of the Register of Deeds of Isabela was burned together with all titles in the office. On December 17, 1976, the original of TCT No. T-91864 was administratively reconstituted by the Register of Deeds. On June 2, 1979, a Deed of Absolute Sale of a portion of 20,000 square meters of Lot B-3-A was executed by Filomena Domingo in favor of Villegas for a consideration of P1,000.00. This document was registered on June 3, 1981 and as a result TCT No. T-131807 was issued by the Register of Deeds to Villegas. On the same date, the technical description of Lot B-3-A-2 was registered and TCT No. T-131808 was issued in the name of Domingo. On January 22, 1991, this document was registered and TCT No. 154962 was issued to the defendant, Joselito Villegas. On April 10, 1991, the trial court upon a petition filed by Fortune ordered the reconstitution of the original of TCT No. T-68737. After trial on the merits, the trial court rendered its assailed decision in favor of Fortune Tobacco, declaring it to be entitled to the property. Petitioners thus appealed this decision to the Court of Appeals, which affirmed the trial court’s decision. ISSUES: Whether or not the Court of Appeals was correct in affirming the trial court’s decision. RULING: Even if Fortune had validly acquired the subject property, it would still be barred from asserting title because of laches. The failure or neglect, for an unreasonable length of time to do that which by exercising due diligence could or should have been done earlier constitutes laches. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it has either abandoned it or declined to assert it. While it is by express provision of law that no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession, it is likewise an enshrined rule that even a registered owner may be barred from recovering possession of property by virtue of laches. Hence, petition was GRANTED and the Decision of the Court of Appeals was REVERSED. EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC vs. MAYFAIR THEATER, INC G.R. No. 106063 1996 Nov 21 264 SCRA 483 FACTS: Page 358 of 545 Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon. On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter’s lease of a portion of Carmelo’s property. Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo’s property. Both contracts of lease provide identically worded paragraph 8, which reads: ‘That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos. Under your company’s two lease contracts with our client, it is uniformly provided: ‘8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it here binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions hereof. Carmelo did not reply to this letter. On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only the leased premises but ‘the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the ‘Maxim’ and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial. It dismissed the complaint with costs against the plaintiff. The Court of Appeals reversed the decision of the trial court. ISSUE: Whether or not the decision of the Court of Appeals’ decision was correct. RULING: The Court agrees with the Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. Page 359 of 545 As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. Further, what Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair’s right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the “30-day exclusive option” time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. Hence, the petition was denied. POLYTECHNIC UNIVERSITY OF THE PHILIPPINES vs. COURT OF APPEALS and FIRESTONE CERAMICS, INC. G.R. No. 143513. November 14, 2001 NATIONAL DEVELOPMENT CORPORATION Page 360 of 545 vs. FIRESTONE CERAMICS INC G.R. No. 143590. November 14, 2001 FACTS: In the early sixties, petitioner National Development Corporation (NDC), had in its disposal a ten-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC compound and covered by Transfer Certificates of Title Nos. 92885, 110301 and 145470. Private respondent Firestone Ceramics Inc. manifested its desire to lease a portion of the property for its ceramic manufacturing business. NDC and FIRESTONE entered into a contract of lease denominated as Contract No. C-30-65 covering a portion of the property measured at 2.90118 hectares for use as a manufacturing plant for a term of ten years, renewable for another ten years under the same terms and conditions. In consequence of the agreement, FIRESTONE constructed on the leased premises several warehouses and other improvements needed for the fabrication of ceramic products. Three and a half years later, FIRESTONE entered into a second contract of lease with NDC over the latter's four-unit prefabricated reparation steel warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for eventual assembly within the NDC compound. The second contract, denominated as Contract No. C-26-68, was for similar use as a ceramic manufacturing plant and was agreed expressly to be "co-extensive with the lease of LESSEE with LESSOR on the 2.60 hectare-lot. The parties signed a similar contract concerning a six-unit pre-fabricated steel warehouse which, as agreed upon by the parties, would expire on 2 December 1978. Prior to the expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for an extension of their lease agreement. Consequently, the Board of Directors of NDC adopted the Resolution extending the term of the lease, subject to several conditions among which was that in the event NDC "with the approval of higher authorities, decide to dispose and sell these properties including the lot, priority should be given to the LESSEE". In pursuance of the resolution, the parties entered into a new agreement for a ten-year lease of the property, renewable for another ten years, expressly granting FIRESTONE the first option to purchase the leased premises in the event that it decided "to dispose and sell these properties including the lot”. The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE, cognizant of the impending expiration of their lease agreement with NDC, informed the latter through several letters and telephone calls that it was renewing its lease over the property. While its letter of 17 March 1988 was answered by Antonio A. Henson, General Manager of NDC, who promised immediate action on the matter, the rest of its communications remained unacknowledged. FIRESTONE's predicament worsened when rumors of NDC's supposed plans to dispose of the subject property in favor of petitioner Polytechnic University of the Philippines came to its knowledge. Forthwith, FIRESTONE served notice on NDC conveying its desire to purchase the property in the exercise of its contractual right of first refusal. Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an action for specific performance to compel NDC to sell the leased property in its favor. Following the denial of its petition, FIRESTONE amended its complaint to include PUP and Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and sought the annulment of Memorandum Order No. 214. After trial, judgment was rendered declaring the contracts of lease executed between FIRESTONE and NDC covering the 2.60-hectare property and the warehouses constructed thereon valid and existing until 2 June 1999. The Court of Appeals affirmed the decision of the trial court ordering the sale of the property in favor of FIRESTONE. ISSUE: Whether or not the Court of Appeals decided a question of substance in a way definitely not in accord with law or jurisprudence. RULING: The courts a quo did not hypothesize, much less conjure, the sale of the disputed property by NDC in favor of petitioner PUP. Aside from the fact that the intention of NDC and PUP to Page 361 of 545 enter into a contract of sale was clearly expressed in the Memorandum Order No. 214, a close perusal of the circumstances of this case strengthens the theory that the conveyance of the property from NDC to PUP was one of absolute sale, for a valuable consideration, and not a mere paper transfer as argued by petitioners. A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates himself to transfer the ownership of and to deliver a determinate thing to the other or others who shall pay therefore a sum certain in money or its equivalent. It is therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred. The Civil Code provision is, in effect, a "catch-all" provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration. Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the questioned transaction. Petitioners NDC and PUP have their respective charters and therefore each possesses a separate and distinct individual personality. Hence, the petition was denied. SPS. LITONJUA vs. L & R CORPORATION G.R. No. 130722. December 9, 1999 320 SCRA 405 FACTS: Page 362 of 545 This stems from loans obtained by the spouses Litonjua from L&R Corporation in the aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted by the spouses upon their two parcels of land and the improvements thereon The mortgage was duly registered with the Register of Deeds. Spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels of land they had previously mortgaged to L & R Corporation for the sum of P430,000.00. Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. The mortgaged properties were sold at public auction to L & R Corporation as the only bidder for the amount of P221,624.58. The Deputy Sheriff informed L & R Corporation of the payment by PWHAS of the full redemption price and advised it that it can claim the payment upon surrender of its owner’s duplicate certificates of title. The spouses Litonjua presented for registration the Certificate of Redemption issued in their favor to the Register of Deeds of Quezon City. The Certificate also informed L & R Corporation of the fact of redemption and directed the latter to surrender the owner’s duplicate certificates of title within five days. On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal personality or capacity to redeem the same. On the other hand, the spouses Litonjua asked the Register of Deeds to annotate their Certificate of Redemption as an adverse claim on the titles of the subject properties on account of the refusal of L & R Corporation to surrender the owner’s duplicate copies of the titles to the subject properties. With the refusal of the Register of Deeds to annotate their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R Corporation for the surrender of the owner’s duplicate of Transfer Certificates of Title No. 197232 and 197233 before the then CFI. While the said case was pending, L & R Corporation executed an Affidavit of Consolidation of Ownership. The Register of Deeds cancelled Transfer Certificates of Title No. 197232 and 197233 and in lieu thereof, issued Transfer Certificates of Title No. 280054 and 28055 in favor of L & R Corporation, free of any lien or encumbrance. A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction was filed by the spouses Litonjua and PWHAS against herein respondents before the then CFI. ISSUE: Whether or not the Court of Appeals erred in its decision. RULING: In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to the whole world. Thus, the Decision appealed from was AFFIRMED with the following MODIFICATIONS. JOSEFA VS. ZHANDONG TRADING CORPORATION 417 SCRA 269 G.R. NO. 150903 DECEMBER 8, 2003 FACTS: Page 363 of 545 Respondent Zhandong delivered to petitioner Josefa, who was introduced to it as a client by Mr. Tan, the total volume of 313 crates of boards valued at P4,558,100.00 payable within 60 days from delivery. Instead of paying respondent, petitioner remitted his payments to Tan who in turn delivered various checks to respondent, who accepted them upon Tan’s assurance that said checks came from petitioner. When a number of the checks bounced, Tan issued his own checks and those of his mother, but Tan later stopped payments. Respondent demanded payment from Tan and petitioner but was ignored; hence he filed the instant complaint. In his answer petitioner averred that he had already paid all his obligations to respondent through Tan. Furthermore, he claimed he is not privy to the agreements between Tan and respondent, and hence, in case his payments were not remitted to respondent, then it was not his (petitioner) fault and that respondent should bear the consequences. ISSUE: Whether or not petitioner is liable for payment of the boards to respondent when he did not negotiate the transaction with it, rather through Tan as intermediary. RULING: No. The transaction was negotiated between Tan and petitioner who only received the goods delivered by respondent. Petitioner was not privy to the arrangement between Tan and respondent. Petitioner has fully paid for the goods to Tan with whom he had arranged the transaction. Contracts take effect only between the parties, their successors in interest, heirs, and assigns. When there is no privity of contract, there is likewise no obligation or liability and thus, no cause of action arises. Petitioner, being not privy to the transaction between Tan and respondent, should not be made liable for the failure of Tan to deliver the payment to respondent. Therefore, respondent should recover the payment from Tan. SALUDO V. SBC G.R. No. 184041 Oct 13, 2010 FACTS: Page 364 of 545 On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC in the amount of P10,000,000.00. Said loan was covered by a Credit Agreement and a Continuing Suretyship with petitioner as surety, both documents dated 1 August 1996, to secure full payment and performance of the obligations arising from the credit accommodation. Booklight drew several availments of the approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On 30 October 1997, SBC approved the renewal of credit facility of Booklight in the amount of P10,000,000.00 under the prevailing security lending rate. From August 3 to 14, 1998, Booklight executed nine promissory notes in favor of SBC in the aggregate amount of P9,652,725.00. For failure to settle the loans upon maturity, demands were made on Booklight and petitioner for the payment of the obligation but the duo failed to pay. As of 15 May 2000, the obligation of Booklight stood at P10,487,875.41, inclusive of interest past due and penalty. On 16 June 2000, SBC filed against Booklight and herein petitioner an action for collection of sum of money with the RTC. Booklight initially filed a motion to dismiss, which was later on denied for lack of merit. In his Answer, Booklight asserted that the amount demanded by SBC was not based on the omnibus credit line facility of 30 May 1996, but rather on the amendment of the credit facilities on 15 October 1996 increasing the loan line from P8,000,000.00 to P10,000,000.00. Booklight denied executing the promissory notes. It also claimed that it was not in default as in fact, it paid the sum of P1,599,126.11 on 30 September 1999 as a prelude to restructuring its loan for which it earnestly negotiated for a mutually acceptable agreement until 5 July 2000, without knowing that SBC had already filed the collection case. In his Answer to the complaint, herein petitioner alleged that under the Continuing Suretyship, it was the parties’ understanding that his undertaking and liability was merely as an accommodation guarantor of Booklight. He countered that he came to know that Booklight offered to pay SBC the partial payment of the loan and proposed the restructuring of the obligation. Petitioner argued that said offer to pay constitutes a valid tender of payment which discharged Booklight’s obligation to the extent of the offer. Petitioner also averred that the imposition of the penalty on the supposed due and unpaid principal obligation based on the penalty rate of 2% per month is clearly unconscionable. On 7 March 2005, Booklight was declared in default. Consequently, SBC presented its evidence ex-parte. The case against petitioner, however, proceeded and the latter was able to present evidence on his behalf. After trial, the RTC ruled that petitioner is jointly and solidarily liable with Booklight under the Continuing Suretyship Agreement. The Court of Appeals affirmed in toto the ruling of the RTC. Petitioner filed a motion for reconsideration but it was denied by the Court of Appeals on 7 August 2008. Hence, the instant petition. ISSUE: Whether or not petitioner should be held solidarily liable for the second credit facility extended to Booklight. HELD: We rule in the affirmative. There is no doubt that Booklight was extended two (2) credit facilities, each with a one-year term, by SBC. Booklight availed of these two (2) credit lines. While Booklight was able to comply with its obligation under the first credit line, it defaulted in the payment of the loan obligation amounting to P9,652,725.00 under the second credit line. There is likewise no dispute that the first credit line facility, with a term from 30 June 1996 to 30 June 1997, was covered by a Continuing Suretyship with petitioner acting as the surety. The dispute is on the coverage by the Continuing Suretyship of the loan contracted under the second credit facility. Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be Page 365 of 545 no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. Petitioner argues that the approval of the second credit facility necessitates his consent considering the onerous and solidary liability of a surety. This is contrary to the express waiver of his consent to such renewal, contained in paragraph 12 of the Continuing Suretyship. Respondent, as last resort, harps on the novation of the first credit facility to exculpate itself from liability from the second credit facility. At the outset, it must be pointed out that the Credit Agreement is actually the principal contract and it covers “all credit facilities now or hereafter extended by SBC to Booklight;” and that the suretyship agreement was executed precisely to guarantee these obligations, i.e., the credit facilities arising from the credit agreement. The principal contract is the credit agreement covered by the Continuing Suretyship. The two loan facilities availed by Booklight under the credit agreement are the Omnibus Line amounting to P10,000,000.00 granted to Booklight in 1996 and the other one is the Loan Line of the same amount in 1997. Petitioner however seeks to muddle the issue by insisting that these two availments were two separate principal contracts, conveniently ignoring the fact that it is the credit agreement which constitutes the principal contract signed by Booklight in order to avail of SBC’s credit facilities. The two credit facilities are but loans made available to Booklight pursuant to the credit agreement. On these facts the novation argument advanced by petitioner must fail. There is no novation to speak of. It is the first credit facility that expired and not the Credit Agreement. There was a second loan pursuant to the same credit agreement. The terms and conditions under the Credit Agreement continue to apply and the Continuing Suretyship continues to guarantee the Credit Agreement. Hence the petition is denied. PCI VS NG SHUENG NGOR A.M. No. P-05-1973. March 18, 2005 FACTS: Page 366 of 545 Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng Sheung Ngor, doing business under the name and style ‘Ken Marketing,’ Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or Reformation of Documents and Contracts. Respondents Antonio A. Bellones and Generoso B. Regalado are the sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City. For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other real property by petitioner. ISSUE: Did respondents violate the Rules of Court? RULING: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff Regalado violated EPCIB’s right to choose which property may be levied upon to be sold at auction for the satisfaction of the judgment debt. Thus, it is clear that when EPCIB offered its real properties, it exercised its option because it cannot immediately pay the full amount stated in the writ of execution and all lawful fees in cash, certified bank check or any other mode of payment acceptable to the judgment obligee. In the case at bar, EPCIB cannot immediately pay by way of Manager’s Check so it exercised its option to choose and offered its real properties. With the exercise of the option, Sheriff Regalado should have ceased serving notices of garnishment and discontinued their implementation. This is not true in the instant case. Sheriff Regalado was adamant in his posture even if real properties have been offered which were sufficient to satisfy the judgment debt. TERESITA DIO vs. ST. FERDINAND MEMORIALPARK, INC. G.R. No. 169578 November 30, 2006 509 SCRA 453 FACTS: Page 367 of 545 On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a memorial lot from the St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The purchase was evidenced by a Pre-Need Purchase Agreement. She obliged herself to abide by all such rules and regulations governing the SFMPI dated May 25, 1972. SFMPI issued a Deed of Sale and Certificate of Perpetual. The ownership of Dio over the property was made subject to the rules and regulations of SFMPI, as well as the government, including all amendments, additions and modifications that may later be adopted. According to the Rules (Rule 69) Mausoleum building and memorials should be constructed by the Park Personnel. Lot Owners cannot contract other contractors for the construction of the said buildings and memorial, however, the lot owner is free to give their own design for the mausoleum to be constructed, as long as it is in accordance with the park standards. The construction shall be under the close supervision of the Park Superintendent. The mortal remains of Dio’s husband, father and daughter were interred in the lot at her own expense, without the knowledge and intervention of SFMPI.. In October 1986, Dio informed SFMPI, through its president and controlling stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum on her lot and sought the approval thereof. Dio showed to Tantoco the plans and project specifications accomplished by her private contractor at an estimated cost of P60,000.00. The plans and specifications were approved, but Tantoco insisted that the mausoleum be built by it or its agents at a minimum cost of P100,000.00 as provided in Rule 69 of the Rules and Regulations the SFMPI issued on May 25, 1972. The total amount excluded certain specific designs in the approved plan which if included would cost Dio much more. Dio, through counsel, demanded that she be allowed to construct the mausoleum within 10 days, otherwise, she would be impelled to file the necessary action/s against SFMPI and Tantoco. Dio filed a Complaint for Injunction with Damages against SFMPI and Tantoco before the RTC. She averred that she was not aware of Rule 69 of the SFMPI Rules and Regulations; the amount of P100,000.00 as construction cost of the mausoleum was unconscionable and oppressive. She prayed that, after trial, judgment be rendered in her favor, granting a final injunction perpetually restraining defendants from enforcing the invalid Rule 69 of SFMPI’s “Rules for Memorial Work in the Mausoleum of the Park” or from refusing or preventing the construction of any improvement upon her property in the park. The court issued a cease and desist order against defendants. The trial court rendered judgment in favor of defendants. On appeal, the CA affirmed the decision of the trial court. ISSUE: Whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and Regulations for memorial works in the mausoleum areas of the park when the Pre-Need Purchase Agreement and the Deed of Sale was executed and whether the said rule is valid and binding upon petitioner. RULING: Plaintiff’s allegation that she was not aware of the said Rules and Regulations lacks credence. Admittedly, in her Complaint and during the trial, plaintiff testified that she informed the defendants of her intention to construct a mausoleum. Even counsel for the plaintiff, who is the son of the plaintiff, informed the Court during the trial in this case that her mother, the plaintiff herein, informed the defendants of her plan to construct and erect a mausoleum. This act of the plaintiff clearly shows that she was fully aware of the said rules and regulations otherwise she should not consult, inform and seek permission from the defendants of her intention to build a mausoleum if she is not barred by the rules and regulations to do the same. When she signed the contract with the defendants, she was estopped to question and attack the legality of said contract later on. Further, a contract of adhesion, wherein one party imposes a readymade form of contract on the other, is not strictly against the law. A contract of adhesion is as binding as ordinary Page 368 of 545 contracts, the reason being that the party who adheres to the contract is free to reject it entirely. Contrary to petitioner’s contention, not every contract of adhesion is an invalid agreement. Thus, the petition was denied. PILIPINO TELEPHONE CORPORATION vs. DELFINO TECSON G.R. No. 156966. May 7, 2004 FACTS: Page 369 of 545 On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone subscriptions with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the telecommunications business, which applications were each approved and covered, respectively, by six mobiline service agreements. On 05 April 2001, respondent filed with the Regional Trial Court a complaint against petitioner for a “Sum of Money and Damages.” Petitioner moved for the dismissal of the complaint on the ground of improper venue, citing a common provision in the mobiline service agreements to the effect that - “Venue of all suits arising from this Agreement or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any other venues.” The Regional Trial Court of Iligan City, Lanao del Norte, denied petitioner’s motion to dismiss and required it to file an answer within 15 days from receipt thereof. Petitioner filed a petition for certiorari before the Court of Appeals. The Court of Appeals saw no merit in the petition and affirmed the assailed orders of the trial court. ISSUE: Whether or not the Court of Appeals erred in affirming the orders of the trial court. RULING: The contract herein involved is a contract of adhesion. But such an agreement is not per se inefficacious. The rule instead is that, should there be ambiguities in a contract of adhesion, such ambiguities are to be construed against the party that prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling. A contract of adhesion is just as binding as ordinary contracts. It is true that this Court has, on occasion, struck down such contracts as being assailable when the weaker party is left with no choice by the dominant bargaining party and is thus completely deprived of an opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited even as the courts remain careful in scrutinizing the factual circumstances underlying each case to determine the respective claims of contending parties on their efficacy. In the case at bar, respondent secured 6 subscription contracts for cellular phones on various dates. It would be difficult to assume that, during each of those times, respondent had no sufficient opportunity to read and go over the terms and conditions embodied in the agreements. Respondent continued, in fact, to acquire in the pursuit of his business subsequent subscriptions and remained a subscriber of petitioner for quite sometime. Hence, the petition was granted by the Court and the decision of the Court of Appeals is reversed and set aside. The Civil Case pending before the Regional Trial Court of Iligan City, Branch 4, was DISMISSED without prejudice to the filing of an appropriate complaint by respondent against petitioner with the court of proper venue. PHILIPPINE AIRLINES VS. COURT OF APPEALS 255 SCRA 48 G.R. No. 119706 March 14, 1996 Page 370 of 545 FACTS: On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines, one (1) unit microwave oven under PAL Air Waybill No. 0-79-1013008-3, with a gross weight of 33 kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon arrival, however, of said article in Manila, Philippines, plaintiff discovered that its front glass door was broken and the damage rendered it unserviceable. Demands both oral and written were made by plaintiff against the defendant for the reimbursement of the value of the damaged microwave oven, and transportation charges paid by plaintiff to defendant company. But these demands fell on deaf ears. This is because, according to petitioner, was filed out of time under paragraph 12, a (1) of the Air Waybill which provides: "(a) the person entitled to delivery must make a complaint to the carrier in writing in case: (1) of visible damage to the goods, immediately after discovery of the damage and at the latest within 14 days from the receipt of the goods. On September 25, 1990, Gilda C. Mejia filed an action for damages against the petitioner in the lower court. The latter rendered a decision rendering PAL liable to pay, actual, moral and exemplary damages as well as attorney’s fees. On appeal, the Court of Appeals similarly ruled in favor of private respondent by affirming in full the trial court's judgment, with costs against petitioner. ISSUE: Whether or not the respondent court erred in affirming the conclusions of the trial court that since the air waybill is a contract of adhesion, its provisions should be strictly construed against herein petitioner. RULING: The Supreme Court affirmed the appealed decision. The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc. vs. Vda. De Songco, et al. in finding that the provisions of the air waybill should be strictly construed against petitioner. The Air Waybill is a contract of adhesion considering that all the provisions thereof are prepared and drafted only by the carrier. The only participation left of the other party is to affix his signature thereto. In the earlier case of Angeles v. Calasanz, the Supreme Court ruled that the terms of a contract of adhesion must be interpreted against the party who drafted the same. ERMITAÑO VS. COURT OF APPEALS 306 SCRA 218 FACTS: Page 371 of 545 Petitioner Luis Ermitaño applied for a credit card from private respondent BPI Express Card Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension card holder. The spouses were given credit limit of P10, 000.00. They often exceeded this credit limit without protest from BCC. On August 9, 1989, Manuelita’s bag was snatched from her as she was shopping at the greenbelt mall in Makati. Among the items inside the bag was her BECC credit card. That same night she informed, by telephone, BECC of the loss. The call was received by BECC offices through a certain Gina Banzon. This was followed by a letter dated August 30, 1989. She also surrendered Luis’ credit card and requested for replacement cards. In her letter, Manuelita stated that she “shall not be responsible for any and all charges incurred [through the use of the lost card] after August 29, 1989. However, when Luis received his monthly billing statement from BECC dated September 20, 1989, the charges included amounts for purchases were made, one amounting to P2,350.05 and the other, P607.50. Manuelita received a billing statement dated October 20,1989 which required her to immediately pay the total amount of P3,197.70 covering the same (unauthorized) purchases. Manuelita wrote again BECC disclaiming responsibility for those charges, which were made after she had served BECC with notice of loss of her card. However, BECC, in a letter dated July 13, 1990, pointed to Luis the stipulation in their contract. However, Luis stressed that the contract BECC was referring to was a contract of adhesion and warned that if BECC insisted on charging him and his wife for the unauthorized purchases, they will sue BECC continued to bill the spouses for said purchases. ISSUE: Whether or not the Court of Appeals gravely erred in relying on the case of Serra v. Court of appeals, 229 SCRA 60, because unlike that case, petitioners have no chance at all to contest the stipulations appearing in the credit card application that was drafted entirely by private respondent, thus, a clear contract of adhesion. RULING: The contract between the parties in this case is indeed a contract of adhesion, so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. Such contracts are not void in themselves. They are as binding as ordinary contracts. Parties who enter in to such contracts are free to reject the stipulations entirely. In this case, the cardholder, Manuelita, has complied with what was required of her under the contract with BECC, She immediately notified BECC of loss of her card on the same day it was lost and, the following day, she sent a written notice of the loss to BECC. Clearly, what happened in this case was that BECC failed to notify promptly the establishment in which the unauthorized purchases were made with the use of Manuelita’s lost card. UNIWIDE SALES REALTY AND RESOURCES CORPORATION, vs. TITAN-IKEDA CONSTRUCTIONAND DEVELOPMENT CORPORATION G.R. No. 126619 December 20, 2006 511 SCRA 335 Page 372 of 545 FACTS: PROJECT 1. The first agreement was a written “Construction Contract” entered into by Titan and Uniwide sometime in May 1991 whereby Titan undertook to construct Uniwide’s Warehouse Club and Administration Building in Libis, Quezon City for a fee of P120,936,591.50, payable in monthly progress billings to be certified to by Uniwide’s representative. The parties stipulated that the building shall be completed not later than 30 November 1991. As found by the CIAC, the building was eventually finished on 15 February 1992 and turned over to Uniwide. PROJECT 2. Sometime in July 1992, Titan and Uniwide entered into the second agreement whereby the former agreed to construct an additional floor and to renovate the latter’s warehouse located at the EDSA Central Market Area in Mandaluyong City. There was no written contract executed between the parties for this project. Construction was allegedly to be on the basis of drawings and specifications provided by Uniwide’s structural engineers. The parties proceeded on the basis of a cost estimate of P21,301,075.77 inclusive of Titan’s 20% mark-up. Titan conceded in its complaint to having received P15,000,000.00 of this amount. This project was completed in the latter part of October 1992 and turned over to Uniwide. PROJECT 3. The parties executed the third agreement in May 1992. In a written “Construction Contract,” Titan undertook to construct the Uniwide Sales Department Store Building in Kalookan City for the price of P118,000,000.00 payable in progress billings to be certified to by Uniwide’s representative. It was stipulated that the project shall be completed not later than 28 February 1993. The project was completed and turned over to Uniwide in June 1993. Uniwide asserted in its petition that: (a) it overpaid Titan for unauthorized additional works in Project 1 and Project 3; (b) it is not liable to pay the Value-Added Tax for Project 1; (c) it is entitled to liquidated damages for the delay incurred in constructing Project 1 and Project 3; and (d) it should not have been found liable for deficiencies in the defectively constructed Project 2. The decision: On Project 1 – Libis: Uniwide is absolved of any liability for the claims made by [Titan] on this Project. Project 2 – Edsa Central: Uniwide is absolved of any liability for VAT payment on this project, the same being for the account of Titan. On the other hand, Titan is absolved of any liability on the counterclaim for defective construction of this project. Uniwide is held liable for the unpaid balance in the amount of P6,301,075.77 which is ordered to be paid to the Titan with 12% interest per annum commencing from 19 December 1992 until the date of payment. On Project 3 – Kalookan: Uniwide is held liable for the unpaid balance in the amount of P5,158,364.63 which is ordered to be paid to Titan with 12% interest per annum commencing from 08 September 1993 until the date of payment. Uniwide is held liable to pay in full the VAT on this project, in such amount as may be computed by the Bureau of Internal Revenue to be paid directly thereto. The BIR is hereby notified that Uniwide Sales Realty and Resources Corporation has assumed responsibility and is held liable for VAT payment on this project. This accordingly exempts Claimant Titan-Ikeda Construction and Development Corporation from this obligation. ISSUE: Whether or not the decision rendered is correct. RULING: The petition is DENIED and the Decision of the Court of Appeals was AFFIRMED. HEIRS OF AUGUSTO L. SALAS, JR. vs. LAPERAL REALTY CORPORATION G.R. NO. 135362. December 13, 1999 Page 373 of 545 FACTS: Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354 square meters. On May 15, 1987, he entered into an Owner-Contractor Agreement with respondent Laperal Realty Corporation to render and provide complete (horizontal) construction services on his land. On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He never returned.On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court a verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had then been missing for more than seven (7) years. It was granted on December 12, 1996. Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27, 1991; and to respondents

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