Solar Harvest, Inc. v.

Davao Corrugated
Carton Corp.
GR No. 176868, 26 July 2010.
FACTS:
Solar Harvest, Inc., entered into an
agreement
with
respondent,
Davao
Corrugated Carton Corporation, for the
purchase of corrugated carton boxes,
specifically designed for petitioners business
of exporting fresh bananas. The agreement
was not reduced into writing. To get the
production underway, petitioner deposited,
on March 31, 1998, US$40,150.00 in
respondents US Dollar Savings Account with
Westmont Bank, as full payment for the
ordered boxes.
Despite such payment, petitioner did not
receive any boxes from respondent. On
January 3, 2001, petitioner wrote a demand
letter for reimbursement of the amount paid.
On February 19, 2001, respondent replied
that the boxes had been completed as early
as April 3, 1998 and that petitioner failed to
pick them up from the formers warehouse
30 days from completion, as agreed upon.
Respondent mentioned that petitioner even
placed an additional order of 24,000 boxes,
out of which, 14,000 had been manufactured
without any advanced payment from
petitioner. Respondent then demanded
petitioner to remove the boxes from the
factory and to pay the balance of
US$15,400.00 for the additional boxes and
P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a
Complaint for sum of money and damages
against respondent. The Complaint averred
that the parties agreed that the boxes will be
delivered within 30 days from payment but
respondent failed to manufacture and deliver
the boxes within such time.
In its Answer with Counterclaim, respondent
insisted that, as early as April 3, 1998, it had
already completed production of the 36,500
boxes, contrary to petitioners allegation.
According to respondent, petitioner, in fact,
made an additional order of 24,000 boxes,
out of which, 14,000 had been completed
without waiting for petitioners payment.
Respondent stated that petitioner was to
pick up the boxes at the factory as agreed
upon, but petitioner failed to do so.

Respondent averred that, on October 8,

1998, petitioners representative, Bobby Que
(Que), went to the factory and saw that the
boxes were ready for pick up. On February
20, 1999, Que visited the factory again and
supposedly advised respondent to sell the
boxes as rejects to recoup the cost of the
unpaid 14,000 boxes, because petitioners
transaction to ship bananas to China did not
materialize. Respondent claimed that the
boxes were occupying warehouse space
and that petitioner should be made to pay
storage fee at P60.00 per square meter for
every month from April 1998. As
counterclaim, respondent prayed that
judgment be rendered ordering petitioner to
pay $15,400.00, plus interest, moral and
exemplary damages, attorneys fees, and
costs of the suit.
In its March 2, 2004 Decision, the Regional
Trial Court (RTC) ruled that respondent did
not commit any breach of faith that would
justify rescission of the contract and the
consequent reimbursement of the amount
paid by petitioner. The RTC said that
respondent was able to produce the ordered
boxes but petitioner failed to obtain
possession thereof because its ship did not
arrive.
On September 21, 2006, the CA denied the
appeal for lack of merit. The appellate court
held that petitioner failed to discharge its
burden of proving what it claimed to be the
parties agreement with respect to the
delivery of the boxes. According to the CA, it
was unthinkable that, over a period of more
than two years, petitioner did not even
demand for the delivery of the boxes. The
CA added that even assuming that the
agreement was for respondent to deliver the
boxes, respondent would not be liable for
breach of contract as petitioner had not yet
demanded from it the delivery of the boxes.
ISSUE:
Whether or not petitioner may claim
reimbursement under Article 1191 of the
Civil Code?
HELD:
NO

RATIO:
The right to rescind a contract arises once
the other party defaults in the performance
of his obligation. In determining when default
occurs, Art. 1191 should be taken in
conjunction with Art. 1169 of the same law.
In reciprocal obligations, as in a contract of
sale, the general rule is that the fulfillment of
the parties respective obligations should be
simultaneous. Hence, no demand is
generally necessary because, once a party
fulfills his obligation and the other party does
not fulfill his, the latter automatically incurs in
delay. But when different dates for
performance of the obligations are fixed, the
default for each obligation must be
determined by the rules given in the first
paragraph of the present article, that is, the
other party would incur in delay only from
the moment the other party demands
fulfillment of the formers obligation. Thus,
even in reciprocal obligations, if the period
for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary
before the obligor can be considered in
default and before a cause of action for
rescission will accrue.
Evident from the records and even from the
allegations in the complaint was the lack of
demand by petitioner upon respondent to
fulfill its obligation to manufacture and
deliver the boxes. The Complaint only
alleged that petitioner made a follow-up
upon respondent, which, however, would not
qualify as a demand for the fulfillment of the
obligation. Petitioners witness also testified
that they made a follow-up of the boxes, but
not a demand. Note is taken of the fact that,
with
respect
to
their
claim
for
reimbursement, the Complaint alleged and
the witness testified that a demand letter
was sent to respondent. Without a previous
demand for the fulfillment of the obligation,
petitioner would not have a cause of action
for rescission against respondent as the
latter would not yet be considered in breach
of its contractual obligation.

Spouses Lam v. Kodak Philippines, Ltd.

GR No. 167615, 11 January 2016
FACTS:
On 8 January 1992, Spouses Lam and
Kodak
Philippines
entered
into
an
agreement for the sale of three (3) units of
the Kodak Minilab System 22XL in the
amount of 1,796,000.00 php per unit.
Spouse Lam issued 12 post-dated checks
as payment. They requested that Kodak
Philippiines not negotiate the first check
dated 31 March 1992 allegedly due to
insufficiency of funds. The same request
was made the following month. However,
both checks were negotiated by Kodak
Philippines and were honoured by the bank.
The 10 other checks were subsequently
dishonoured after the Spouses Lam ordered
the bank to stop payment.
Kodak Philippines canceled the sale and
demanded that the Spouses return the unit it
delivered. Spouses Lam ignored the
demand but also rescinded the contract for
failure to deliver the two (2) remaining units.
Kodak Philippines filed a complaint for
replevin and/or recovery of sum of money
with the Makati RTC, which then issued the
decision in their favour ordering the seizure
of the unit. Upon appeal to the CA, the case
was remanded to the trial court.
RTC found that Kodak Philippines defaulted
in the performance of its obligation under its
Letter Agreement wit the Spouses. It held
that the failure to deliver two (2) of out the
three (3) units of the equipment causes the
Lam Spouses to stop paying for the rest of
the instalments. Likewise, the RTC ruled that
when the Spouses accepted the delivery of
the first unit, they became liable for the fair
value of the goods received. Thus, they
were under the obligation to pay for the
amount, and the failure to deliver the
remaining units did not give them the right to
suspend payment for the unit already
delivered. RTC dismissed the case, ordering
the petitioners to pay. Upon appeal to the
CA, raising the issue of the failure to order
Kodak Philippines to pay. The CA affirmed
the RTCs decision. They ruled that the

Letter Agreement executed by the parties

showed that their obligations were
susceptible of partial performance and the
contract between the parties was validly
rescinded. Hence, this petition.
ISSUE:
1. Whether or not the contract
between petitioners pertained to
obligations that are susceptible of
partial performance.
2. Whether or not the CA correctly
ordered mutual restitution
HELD:
1. NO
2. YES
RATIO:
1. Based on the foregoing, the
intention of the parties is for there to
be a single transaction covering all
three (3) units of the Minilab
Equipment. Respondents obligation
was to deliver all products
purchased under a package and,
in turn, petitioners obligation was to
pay for the total purchase price,
payable in installments.
The intention of the parties to bind
themselves
to
an
indivisible
obligation can be further discerned
through their direct acts in relation to
the package deal. There was only
one agreement covering all three (3)
units of the Minilab Equipment and
their accessories.
There is no indication in the Letter
Agreement that the units petitioners
ordered were covered by three (3)
separate transactions. The factors
considered by the Court of Appeals
are mere incidents of the execution
of the obligation, which is to deliver
three units of the Minilab Equipment
on the part of respondent and
payment for all three on the part of
petitioners. The intention to create
an indivisible contract is apparent
from the benefits that the Letter
Agreement afforded to both parties.

Petitioners were given the 19%

discount on account of a multiple
order, with the discount being
equally applicable to all units that
they sought to acquire. The
provision on no downpayment was
also applicable to all units.
Respondent, in turn, was entitled to
payment of all three Minilab
Equipment
units,
payable
by
installments.
2. Rescission under Article 1191 has
the effect of mutual restitution.
When rescission is sought under
Article 1191 of the Civil Code, it
need not be judicially invoked
because the power to resolve is
implied in reciprocal obligations. The
right to resolve allows an injured
party to minimize the damages he or
she may suffer on account of the
other partys failure to perform what
is incumbent upon him or her. When
a party fails to comply with his or her
obligation, the other partys right to
resolve the contract is triggered. The
resolution immediately produces
legal effects if the non-performing
party does not question the
resolution. Court intervention only
becomes necessary when the party
who allegedly failed to comply with
his or her obligation disputes the
resolution of the contract. Since both
parties in this case have exercised
their right to resolve under Article
1191, there is no need for a judicial
decree
before
the
resolution
produces effects.
As discussed earlier, 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.

Notwithstanding
the
said
remittances, APIC does not own a
single share of APC. On the other
hand, defendant could not even
satisfactorily substantiate its claim
that at least it had the intention to
cause the transfer of APC shares to
APIC. Defendant obviously did not
enter into the stipulated SPA
because it did not have the shares
of APC transferred to APIC despite
its representations. Under the
circumstances, it is clear that
defendant fraudulently violated
the provisions of the MOA.

The Wellex Group, Inc. v. U-Land Airlines

Co., Ltd.
GR No. 167519, 14 January 2015
FACTS:
Wellex and U-Land agreed to develop a
long-term business relationship through the
creation of joint interest in airline operations
and property development projects in the
Philippines. The agreement includes:
Acquisition of APIC and PEC shares;
Operation
and
management
of
APIC/PEC/APC; Entering into and funding a
joint development agreement; and the option
to acquire from WELLEX shares of stock of
EXPRESS SAVINGS BANK ("ESB") up to
40% of the outstanding capital stock of ESB
of U-Land. The provisions of the
memorandum were agreed to be executed
within 40 days from its execution date.
The 40-day period lapsed but Wellex and ULand were not able to enter into any share
purchase agreement although drafts were
exchanged between the two. However,
Despite the absence of a share purchase
agreement, U-Land remitted to Wellex a
total
of
US$7,499,945.00.
Wellex
acknowledged the receipt of these
remittances in a confirmation letter
addressed to U-Land and allegedly
delivered stock certificates and TCTs of
subject
properties.
Despite
these
transactions, Wellex and U-Land still failed
to enter into the share purchase agreement
and the joint development agreement. Thus,
U-Land filed a Complaint praying for
rescission of the First Memorandum of
Agreement and damages against Wellex
and for the issuance of a Writ of Preliminary
Attachment.
RTC: Ruled In favor of Uland and ordered
rescission of contract under Art. 1911 of the
civil code. Basis of rescission: Wellexs
misrepresentation that APIC was a majority
shareholder of APC that compelled it to
enter into the agreement..

On appeal, the Court of Appeals affirmed the

ruling of the Regional Trial Court. Hence this
petition.
Petitioners invokes Suria v. Intermediate
Appellate Court, which held that an "action
for rescission is not a principal action that is
retaliatory in character under Article 1191 of
the Civil Code, but a subsidiary one which is
available only in the absence of any other
legal remedy under Article 1384 of the Civil
Code. Respondent U-land avers that this
case was inapplicable because the pertinent
provision in Suria was not Article 1191 but
rescission under Article 1383 of the Civil
Code. The "rescission" referred to in Article
1191 referred to "resolution" of a contract
due to a breach of a mutual obligation, while
Article 1384 spoke of "rescission" because
of lesion and damage. Thus, the rescission
that is relevant to the present case is that of
Article 1191, which involves breach in a
reciprocal obligation.
ISSUE:
Whether or not respondent U-Land correctly
sought the principal relief of rescission or
resolution under Article 1191.
HELD:
YES
RATIO:
Respondent U-Land is praying for rescission
or resolution under Article 1191, and not
rescission under Article 1381. The failure of
one of the parties to comply with its

reciprocal prestation allows the wronged

party to seek the remedy of Article 1191. The
wronged party is entitled to rescission or
resolution under Article 1191, and even the
payment of damages. It is a principal action
precisely because it is a violation of the
original reciprocal prestation. Article 1381
and Article 1383, on the other hand, pertain
to rescission where creditors or even third
persons not privy to the contract can file an
action due to lesion or damage as a result of
the contract. Rescission or resolution under
Article 1191, therefore, is a principal action
that is immediately available to the party at
the time that the reciprocal prestation was
breached. Article 1383 mandating that
rescission be deemed a subsidiary action
cannot be applicable to rescission or
resolution under Article 1191. Thus,
respondent U-Land correctly sought the
principal relief of rescission or resolution
under Article 1191.

as well as the measure of the right to

rescind. Hence, where the defendant makes
good the damages caused, the action
cannot be maintained or continued, as
expressly provided in Articles 1383 and
1384. But the operation of these two articles
is limited to the cases of rescission for lesin
enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to
cases under Article 1191.
The obligations of the parties gave rise to
reciprocal prestations, which arose from the
same cause: the desire of both parties to
enter into a share purchase agreement that
would allow both parties to expand their
respective airline operations in the
Philippines and other neighboring countries.
Casumpang v. Cortejo
GR No. 171127, 11 March 2015
FACTS:

Enforcement of Section 9 of the First

Memorandum of Agreement has the same
effect as rescission or resolution under
Article 1191 of the Civil Code. The parties
are obligated to return to each other all that
they may have received as a result of the
breach by petitioner Wellex of the reciprocal
obligation. Therefore, the Court of Appeals
did not err in affirming the rescission granted
by the trial court.
Contrary to petitioner Wellexs argument,
this is not rescission under Article 1381 of
the Civil Code. This case does not involve
prejudicial transactions affecting guardians,
absentees, or fraud of creditors. Article
1381(3) pertains in particular to a series of
fraudulent actions on the part of the debtor
who is in the process of transferring or
alienating property that can be used to
satisfy the obligation of the debtor to the
creditor. There is no allegation of fraud for
purposes of evading obligations to other
creditors. The actions of the parties involving
the terms of the First Memorandum of
Agreement do not fall under any of the
enumerated contracts that may be subject of
rescission.
Furthermore, in the rescission by reason of
lesion or economic prejudice, the cause of
action is subordinated to the existence of
that prejudice, because it is the raison detre

Edmer Cortejo was brought to the

Emergency Room of the SJDH because of
difficulty in breathing, chest pain, stomach
pain and fever.
Based on the initial examinations and the
chest x-ray, Edmer was diagnosed with
bronchopneumonia. Edmer was referred to
Dr. Casumpang and he confirimed the initial
diagnosis of bronchopneumonia.
While
under
observation,
Edmers
symptoms were persisting which included
fever and traces of blood in his sputum, and
upon alerting Dr. Casumpang, he reassured
Mrs. Corteho that her sons illness is
bronchopneumonia.
The following day, Edmer vomited phlegmn
with blood streak, and upon examination
ordered by Dr. Casumpang, due to the
advice of Dr. Sanga, Edmers blood test
showed that he is suffering from Dengue
Hemorrhagic Fever, which prompted his
parents to transfer him to the Makati Medical
Center, instead of the transferring him to the
ICU which Dr. Casumpang suggested.
Upon examination in the Makati Medical
Center, the attending physician diagnosed
Edmer with Dengue Fever Stage IV that was
already in its irreversible stage. Soon, after

Edmer died. Believing that Edmers death

was caused by the negligent and erroneous
diagnosis of his doctors, the respondent
instituted an action for damages against
SJDH, and its physicians: Dr. Casumpang
and Dr. Sanga before the RTC of Makati.
RTC ruled in favor of the respondent and
held that the physicians were negligent.
They also held that SJDH was solidarily
liable for the damages. Upon appeal the the
CA, the CA affirmed en toto the RTCs
ruling. Hence, this petition.

SJDH impliedly held out Dr. Casumpang,

not only as an accredited member of
Fortune Care, but also as a member of its
medical staff.
SJDH cannot now disclaim liability since
there is no showing that Mrs. Cortejo or the
respondent knew, or should have known,
that Dr. Casumpang is only an independent
contractor of the hospital. In this case,
estoppel has already set in.

ISSUE:

De Carmen v. Spouses Sabordo

GR No. 181723, 11 August 2014

Whether or not the SJDH is solidary

liable with the physicians

FACTS:

HELD:
YES
RATIO:
We affirm the hospitals liability not on the
basis of Article 2180 of the Civil Code, but
on the basis of the doctrine of apparent
authority or agency by estoppel.
Despite the absence of employer-employee
relationship between SJDH and the
petitioning doctors, SJDH is not free from
liability.
As a rule, hospitals are not liable for the
negligence of its independent contractors.
However, it may be found liable if the
physician or independent contractor acts as
an ostensible agent of the hospital. This
exception is also known as the doctrine of
apparent authority.
Therefore, we hold that, under the doctrine
of apparent authority, a hospital can be held
vicariously liable for the negligent acts of a
physician providing care at the hospital,
regardless of whether the physician is an
independent contractor, unless the patient
knows, or should have known, that the
physician is an independent contractor.
SJDH impliedly held out and clothed Dr.
Casumpang with apparent authority leading
the respondent to believe that he is an
employee or agent of the hospital.

Sometime in 1961, the spouses Suico, along

with several business partners, entered into
a business venture by establishing a rice
and corn mill at Mandaue City, Cebu. As part
of their capital, they obtained a loan from the
Development Bank of the Philippines (DBP),
and to secure the said loan, four parcels of
land owned by the Suico spouses,
denominated as Lots 506, 512, 513 and
514, and another lot owned by their
business partner, Juliana Del Rosario, were
mortgaged.
Subsequently, the Suico spouses and their
business partners failed to pay their loan
obligations forcing DBP to foreclose the
mortgage. After the Suico spouses and their
partners failed to redeem the foreclosed
properties, DBP consolidated its ownership
over the same. Nonetheless, DBP later
allowed the Suico spouses and Flores
spouses, as substitutes for Juliana Del
Rosario, to repurchase the subject lots by
way of a conditional sale for the sum of
P240,571.00. The Suico and Flores spouses
were able to pay the down payment and the
first monthly amortization, but no monthly
installments
were
made
thereafter.
Threatened with the cancellation of the
conditional sale, the Suico and Flores
spouses sold their rights over the said
properties to herein respondents Restituto
and Mima Sabordo, subject to the condition
that the latter shall pay the balance of the
sale price. On September 3, 1974,
respondents and the Suico and Flores
spouses
executed
a
supplemental
agreement whereby they affirmed that what

was actually sold to respondents were Lots

512 and 513, while Lots 506 and 514 were
given to them as usufructuaries. DBP
approved the sale of rights of the Suico and
Flores spouses in favor of herein
respondents. Subsequently, respondents
were able to repurchase the foreclosed
properties of the Suico and Flores spouses.
On September 13, 1976, respondent
Restituto Sabordo (Restituto) filed with the
then Court of First Instance an original
action for declaratory relief with damages
and prayer for a writ of preliminary injunction
raising the issue of whether or not the Suico
spouses have the right to recover from
respondents Lots 506 and 514.

On December 5, 2001, the RTC rendered

judgment, dismissing the Complaint of
petitioner and her co-heirs for lack of merit.
Respondents Counterclaim was likewise
dismissed.
Petitioner and her coheirs filed an appeal
with the CA contending that the judicial
deposit or consignation of the amount of
P127,500.00 was valid and binding and
produced the effect of payment of the
purchase price of the subject lots. In its
assailed Decision, the CA denied the above
appeal for lack of merit and affirmed the
disputed RTC Decision.
ISSUE:

In its Decision dated December 17, 1986,

the Regional Trial Court (RTC) of San Carlos
City, Negros Occidental, ruled in favor of the
Suico spouses directing that the latter have
until August 31, 1987 within which to redeem
or buy back from respondents Lots 506 and
514.
In a Resolution dated February 13, 1991,
the CA granted the Suico spouses an
additional period of 90 days from notice
within which to exercise their option to
purchase or redeem the disputed lots. Later,
they discovered that respondents mortgaged
Lots 506 and 514 with Republic Planters
Bank (RPB) as security for a loan, which,
subsequently, became delinquent.
Thereafter, claiming that they are ready with
the payment of P127,500.00, but alleging
that they cannot determine as to whom such
payment shall be made, petitioner and her
coheirs filed a Complaint with the RTC of
San Carlos City, Negros Occidental seeking
to compel herein respondents and RPB to
interplead and litigate between themselves
their respective interests on the above
mentioned sum of money. The Complaint
also prayed that respondents be directed to
substitute Lots 506 and 514 with other real
estate properties as collateral for their
outstanding obligation with RPB and that the
latter be ordered to accept the substitute
collateral and release the mortgage on Lots
506 and 514. Upon filing of their complaint,
the heirs of Toribio deposited the amount of
P127,500.00 with the RTC of San Carlos
City, Branch 59.

Whether or not
consignation.

there

was

valid

HELD:
NO
RATIO:
In the cases of Del Rosario v. Sandico, 85
Phil. 170 (1949) and Salvante v. Cruz, 88
Phil. 236 (1951), likewise cited as authority
by petitioner, this Court held that, for a
consignation or deposit with the court of an
amount due on a judgment to be considered
as payment, there must be prior tender to
the judgment creditor who refuses to accept
it. The same principle was reiterated in the
later case of Pabugais v. Sahijwani, 423
SCRA 596 (2004). As stated above, tender
of payment involves a positive and
unconditional act by the obligor of offering
legal tender currency as payment to the
obligee for the formers obligation and
demanding that the latter accept the same.
In the instant case, the Court finds no
cogent reason to depart from the findings of
the CA and the RTC that petitioner and her
coheirs failed to make a prior valid tender of
payment to respondents.
Furthermore, the fact that the subject lots
are in danger of being foreclosed does not
excuse petitioner and her coheirs from
tendering payment to respondents, as
directed by the court.

BPI v. Domingo
GR No. 169407, 25 March 2015
FACTS:
Spouses Domingo executed a promissory
note in favour of Makati Auto Centre payable
in 48 successive instalments. They
simultaneously executed a Deed of Chattel
Mortgage over a 1993 Mazda vehicle to
secure payment of the promissory note.
Makati Auto Center, Inc. then assigned,
ceded, and transferred all its rights and
interests over the said Promissory Note and
chattel mortgage to Far East Bank and Trust
Company (FEBTC), which the SEC
approved and issued the Certificate of Filing
of the Articles of Merger and Plan of Merger
and between BPI, the surviving corporation,
and FEBTC, the absorbed corporation. By
virtue of said merger, all the assets and
liabilities of FEBTC were transferred to and
absorbed by BPI.
Consequently, Spouses Domingo defaulted
in their installments. BPI, being the surviving
corporation after the merger, demanded that
the spouses Domingo pay the balance of the
Promissory Note including other charges or
to return the subject vehicle for purposes of
foreclosure. When the Spouses Domingo
still failed to comply with its demands, BPI
filed a complaint with the MTC. Spouses
Domingo argued that BPI had no cause of
action against them and that Maryden
Domingo once obtained a car loan from
FEBTC but sold it to Carmelita Gonzales
with the banks conformity and the buyer
subsequently assumed payment of the
balance of the mortgaged loan.
MTC rendered a decision in favor of BPI as
the bank was able to establish by
preponderance of evidence a valid cause of
action against the spouses. They held that
novation is never presumed and must be
clearly shown by express agreement or by
acts of equal import. The MeTC found
Amadors bare testimony as insufficient
evidence to prove that he and his wife Mercy
had been expressly released from their
obligations and that Carmelita Gonzales
(Carmelita) assumed their place as the new
debtor within the context of subjective
novation. Upon appeal to the RTC, the RTC

held that in novation, consent of the creditor

to the substitution of the debtor need not be
by express agreement, it can be merely
implied.
To the RTC, the following circumstances
demonstrated the implied consent of BPI to
the novation: (1) BPI had knowledge of the
Deed of Sale and Assumption of Mortgage
executed between Mercy and Carmelita, but
did not interpose any objection to the same;
and (2) BPI (through FEBTC) returned the
personal checks of the spouses Domingo
and accepted the payments made by
Carmelita. The RTC also noted that BPI
made a demand for payment upon the
spouses Domingo only after 30 months from
the time Carmelita assumed payments for
the installments due. The RTC reasoned
that if the spouses Domingo truly remained
as debtors, BPI would not have wasted time
in demanding payments from them.
Upon appeal to the CA, the CA affirmed the
decision of the RTC that novation took
place. Hence, this petition.
ISSUE:
Whether or not there had been a novation
of the loan obligation with chattel
mortgage of the Spouses Domingo to BPI
so that the spouses Domingo were
released from said obligation and
Carmelita was substituted as debtor.
HELD:
NO
RATIO:
The burden of establishing a novation is on
the party who asserts its existence. Contrary
to the findings of the Court of Appeals and
the RTC, Amador failed to discharge such
burden, as he was unable to present proof
of the clear and unmistakable consent of
BPI to the substitution of debtors.
Irrefragably, there is no express consent of
BPI to the substitution of debtors. The Court
of Appeals and the RTC inferred the consent
of BPI from the following facts: (1) BPI had a
copy of the Deed of Sale and Assumption of
Mortgage executed between Mercy and

Carmelita in its file, indicating its knowledge

of said agreement, and still it did not
interpose any objection to the same; (2) BPI
(through FEBTC) returned the spouses
Domingos checks and accepted Carmelitas
payments; and (3) BPI did not demand any
payment from the spouses Domingo not
until 30 months after Carmelita assumed the
payment of balance on the Promissory Note.
Absent proof that BPI gave its clear and
unmistakable consent to release the
spouses Domingo from the obligation to pay
the car loan, Carmelita is simply considered
an additional debtor. Consequently, BPI can
still enforce the obligation against the
spouses Domingo even 30 months after it
had started accepting payments from
Carmelita.
It is worthy to stress that Amador, as the
party asserting novation, bears the burden
of proving its existence. Amador cannot
simply rely on the failure of BPI to produce
the checks if these were not actually
returned to the spouses Domingo. There is
simply not enough evidence to establish the
prima facie existence of novation to shift the
burden of evidence to BPI to controvert the
same.
The Court is therefore convinced that there
is no novation by delegacion in this case
and Amador remains a debtor of BPI. The
Court reinstates the MeTC judgment
ordering Amador to pay for the balance on
the Promissory Note.
Spouses Mamaril v. The Boy Scout of the
Philippines
GR No. 179382, 14 January 2013
FACTS:
Spouses Mamaril are jeepney operators
since 1971. They would park their six (6)
passenger jeepneys every night at the Boy
Scout of the Philippines (BSP) compound
located at 181 Concepcion Street, Malate,
Manila for a fee. On May 26, 1995 at 8 in the
evening, all these vehicles were parked
inside the BSP compound. One of the
vehicles was missing and was never
recovered. According to the security guards
Cesario Pea (Pea) and Vicente Gaddi

(Gaddi) of AIB Security Agency, Inc. (AIB)

with whom BSP had contracted for its
security and protection, a male person who
looked familiar to them took the subject
vehicle out of the compound.
Sps. Mamaril filed a complaint for damages
before the Regional Trial Court (RTC) of
Manila, Branch 39, against BSP, AIB, Pea
and Gaddi. In support thereof, Sps. Mamaril
averred that the loss of the subject vehicle
was due to the gross negligence of the
above-named security guards on-duty who
allowed the subject vehicle to be driven out
by a stranger despite their agreement that
only authorized drivers duly endorsed by the
owners could do so. Pea and Gaddi even
admitted their negligence during the ensuing
investigation. Notwithstanding, BSP and AIB
did not heed Sps. Mamarils demands for a
conference to settle the matter. They
therefore prayed that Pea and Gaddi,
together with AIB and BSP, be held liable.
In its Answer, BSP denied any liability
contending that not only did Sps. Mamaril
directly deal with AIB with respect to the
manner by which the parked vehicles would
be handled, but the parking ticket itself
expressly stated that the Management shall
not be responsible for loss of vehicle or any
of its accessories or article left therein. It
also claimed that Sps. Mamaril erroneously
relied on the Guard Service Contract. Apart
from not being parties thereto, its provisions
cover only the protection of BSPs
properties, its officers, and employees.
The RTC found that the act of Pea and
Gaddi in allowing the entry of an unidentified
person and letting him drive out the subject
vehicle in violation of their internal
agreement with Sps. Mamaril constituted
gross negligence, rendering AIB and its
security guards liable for the formers loss.
BSP was also adjudged liable because the
Guard Service Contract it entered into with
AIB offered protection to all properties inside
the BSP premises, which necessarily
included Sps. Mamarils vehicles. Moreover,
the said contract stipulated AIBs obligation
to indemnify BSP for all losses or damages
that may be caused by any act or
negligence
of
its
security
guards.
Accordingly, the BSP, AIB, and security
guards Pea and Gaddi were held jointly

and severally liable for the loss suffered by

Sps. Mamaril.

compound for a monthly fee of P300.00 for

each unit and took the keys home with them.

In its assailed Decision, the CA affirmed the

finding of negligence on the part of security
guards Pea and Gaddi. However, it
absolved BSP from any liability, holding that
the Guard Service Contract is purely
between BSP and AIB and that there was
nothing therein that would indicate any
obligation and/or liability on the part of BSP
in favor of third persons, such as Sps.
Mamaril. Nor was there evidence sufficient
to establish that BSP was negligent.

Hence,
a
lessor-lessee
relationship
indubitably existed between them and BSP.
On this score, Article 1654 of the Civil Code
provides that [t]he lessor (BSP) is obliged:
(1) to deliver the thing which is the object of
the contract in such a condition as to render
it fit for the use intended; (2) to make on the
same during the lease all the necessary
repairs in order to keep it suitable for the use
to which it has been devoted, unless there is
a stipulation to the contrary; and (3) to
maintain the lessee in the peaceful and
adequate enjoyment of the lease for the
entire duration of the contract. In relation
thereto, Article 1664 of the same Code
states that [t]he lessor is not obliged to
answer for a mere act of trespass which a
third person may cause on the use of the
thing leased; but the lessee shall have a
direct action against the intruder. Here, BSP
was not remiss in its obligation to provide
Sps. Mamaril a suitable parking space for
their jeepneys as it even hired security
guards to secure the premises; hence, it
should not be held liable for the loss suffered
by Sps. Mamaril.

ISSUE:
Whether or not BSP should be liable for
the loss to the Spouses Mamaril.
HELD:
NO
RATIO:
Article 20 of the Civil Code provides that
every person, who, contrary to law, willfully
or negligently causes damage to another,
shall indemnify the latter for the same.
Similarly, Article 2176 of the Civil Code
states: Art. 2176. Whoever by act or
omission causes damage to another, there
being fault or negligence, is obliged to pay
for the damage done. Such fault or
negligence, if there is no preexisting
contractual relation between the parties, is
called a quasi-delict and is governed by the
provisions of this Chapter. In this case, it is
undisputed that the proximate cause of the
loss of Sps. Mamarils vehicle was the
negligent act of security guards Pea and
Gaddi in allowing an unidentified person to
drive out the subject vehicle. Proximate
cause has been defined as that cause,
which, in natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury or loss, and without
which the result would not have occurred.
Moreover, Pea and Gaddi failed to refute
Sps. Mamarils contention that they readily
admitted being at fault during the
investigation that ensued.
In the instant case, the owners parked their
six (6) passenger jeepneys inside the BSP

Lorenzo
Shipping
v. BJ
Marthel
Intenational, Inc.
GR No. 145483, 19 November 2004
FACTS:
Petitioner Lorenzo Shipping Corporation is a
domestic corporation engaged in coastwise
shipping. It used to own the cargo vessel
M/V Dadiangas Express.
On the other hand, respondent BJ Marthel
International, Inc. is a business entity
engaged in trading, marketing, and selling of
various industrial commodities. It is also an
importer and distributor of different brands of
engines and spare parts.
From 1987 up to the institution of this case,
respondent supplied petitioner with spare
parts for the latters marine engines.
Sometime in 1989, petitioner asked
respondent for a quotation for various
machine parts. Acceding to this request,
respondent furnished petitioner with a formal
quotation

It was stipulated in the contract that

DELIVERY is within 2 months after receipt of
firm order. The TERMS is 25% upon
delivery, balance payable in 5 bi-monthly
equal and Installment[s] not to exceed 90
days.
Petitioner thereafter issued to respondent
Purchase Order. For the procurement of one
set of cylinder liner, valued at P477,000, to
be used for M/V Dadiangas Express.
Instead of paying the 25% down payment for
the first cylinder liner, petitioner issued in
favor of respondent ten post-dated checks to
be drawn against the former's account with
Allied Banking Corporation. The checks
were supposed to represent the full payment
of the aforementioned cylinder liner.
Subsequently, petitioner issued Purchase
Order dated 15 January 1990, for yet
another unit of cylinder liner. This purchase
order stated the term of payment to be "25%
upon delivery, balance payable in 5 bimonthly equal installment[s]. On 26 January
1990, respondent deposited petitioner's
check that was postdated 18 January 1990,
however, the drawee bank due to
insufficiency of funds dishonoured the same.
Respondent
eventually
returned
the
remaining nine post-dated checks to
petitioner.
However, the parties presented disparate
accounts of what happened to the check,
which
was
previously
dishonoured.
Petitioner claimed that it replaced said check
with a good one, the proceeds of which were
applied to its other obligation to respondent.
For its part, respondent insisted that it
returned said post-dated check to petitioner.

complaint, respondent (plaintiff below)

alleged that despite its repeated oral and
written demands, petitioner obstinately
refused to settle its obligations. Respondent
prayed that petitioner be ordered to pay for
the value of the cylinder liners plus accrued
interest of P111,300 as of May 1991 and
additional interest of 14% per annum to be
reckoned from June 1991 until the full
payment of the principal; attorney's fees;
costs of suits; exemplary damages; actual
damages; and compensatory damages.
In an Order dated 25 July 1991, the court a
quo granted respondent's prayer for the
issuance of a preliminary attachment. On 09
August 1991, petitioner filed an Urgent ExParte Motion to Discharge Writ of
Attachment attaching thereto a counter-bond
as required by the Rules of Court. On even
date, the trial court issued an Order lifting
the levy on petitioner's properties and the
garnishment of its bank accounts.
Petitioner afterwards filed its Answer
alleging therein that time was of the essence
in the delivery of the cylinder liners and that
the delivery on 20 April 1990 of said items
was late as respondent committed to deliver
said items "within two (2) months after
receipt of firm order" from petitioner.
Subsequently, respondent filed a Second
Amended Complaint with Preliminary
Attachment dated 25 October 1991. The
amendment introduced dealt solely with the
number of post-dated checks issued by
petitioner as full payment for the first
cylinder liner it ordered from respondent.
Whereas in the first amended complaint,
only nine post-dated checks were involved.
ISSUE:

On 20 April 1990, Pajarillo delivered the two

cylinder liners at petitioner's warehouse in
North Harbor, Manila. The sales invoices
evidencing the delivery of the cylinder liners
both contain the notation "subject to
verification" under which the signature of
Eric
Go,
petitioner's
warehouseman,
appeared.

1. Whether or not respondent incurred

delay in performing its obligation
under the contract of sale
2. Whether or not petitioner validly
rescinded said contract.
HELD:

Due to the failure of the parties to settle the

matter, respondent filed an action for sum of
money and damages before the Regional
Trial Court (RTC) of Makati City. In its

1.
2.

NO
NO

RATIO:
1. In determining whether time is of the
essence in a contract, the ultimate
criterion is the actual or apparent
intention of the parties and before
time may be so regarded by a court,
there
must
be
a
sufficient
manifestation, either in the contract
itself
or
the
surrounding
circumstances of that intention.
Petitioner insists that although its
purchase orders did not specify the
dates when the cylinder liners were
supposed
to
be
delivered,
nevertheless, respondent should
abide by the term of delivery
appearing on the quotation it
submitted to petitioner. Petitioner
theorizes
that
the
quotation
embodied the offer from respondent
while
the
purchase
order
represented
its
(petitioners)
acceptance of the proposed terms of
the contract of sale. Thus, petitioner
is of the view that these two
documents cannot be taken
separately as if there were two
distinct contracts. We do not agree.
It is a cardinal rule in interpretation
of contracts that if the terms thereof
are clear and leave no doubt as to
the intention of the contracting
parties, the literal meaning shall
control. However, in order to
ascertain the intention of the parties,
their
contemporaneous
and
subsequent
acts
should
be
considered.
While
this
Court
recognizes
the
principle
that
contracts are respected as the law
between the contracting parties, this
principle is tempered by the rule that
the intention of the parties is
primordial and once the intention of
the parties has been ascertained,
that element is deemed as an
integral part of the contract as
though it has been originally
expressed in unequivocal terms.
As an aside, let it be underscored
that [e]ven where time is of the
essence, a breach of the contract in
that respect by one of the parties
may be waived by the other partys

subsequently treating the contract

as still in force. Petitioners receipt
of the cylinder liners when they were
delivered to its warehouse on 20
April 1990 clearly indicates that it
considered the contract of sale to be
still subsisting up to that time.
Indeed, had the contract of sale
been cancelled already as claimed
by petitioner, it no longer had any
business receiving the cylinder
liners even if said receipt was
subject
to
verification.
By
accepting the cylinder liners when
these were delivered to its
warehouse, petitioner indisputably
waived the claimed delay in the
delivery of said items.
2. Their having been no failure on the
part of the respondent to perform its
obligation, the power to rescind the
contract is unavailing to the
petitioner. Article 1191 of the New
Civil Code runs as follows: 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 law explicitly gives either
party the right to rescind the contract
only upon the failure of the other to
perform the obligation assumed
thereunder. The right, however, is
not an unbridled one. This Court in
the case of University of the
Philippines v. De los Angeles,
speaking through the eminent civilist
Justice J.B.L. Reyes, exhorts: Of
course, it must be understood that
the act of a party in treating a
contract as cancelled or resolved on
account of infractions by the other
contracting party must be made
known to the other and is always
provisional, being ever subject to
scrutiny and review by the proper
court. If the other party denied that
rescission is justified, it is free to
resort to judicial action in its own
behalf, and bring the matter to court.
Then, should the court, after due
hearing, decide that the resolution of
the contract was not warranted, the
responsible party will be sentenced
to damages; in the contrary case,

the resolution will be affirmed, and

the consequent indemnity awarded
to the party prejudiced. (Emphasis
supplied) 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 settles
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 others 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.
Land Bank of the Philippines v. Ong
GR No. 190755, 19 November 2004
FACTS:
On March 18, 1996, 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.
Subsequently, however, the Spouses Sy
found they could no longer pay their loan.
On December 9, 1996, they sold three (3) of
their mortgaged parcels of land for PhP
150,000
to
Angelina
Gloria
Ong,
Evangelines mother, under a Deed of Sale
with Assumption of Mortgage.
Evangelines father, petitioner Alfredo Ong,
later went to Land Bank to inform it about
the sale and assumption of mortgage. 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 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.
Alfredo later found out that his application
for assumption of mortgage was not
approved by Land Bank. The bank learned
from its credit investigation report that the
Ongs had a real estate mortgage in the
amount of PhP 18,300,000 with another
bank that was past due. Alfredo claimed that
this was fully paid later on. Nonetheless,
Land Bank foreclosed the mortgage of the
Spouses Sy after several months. Alfredo
only learned of the foreclosure when he saw
the subject mortgage properties included in
a Notice of Foreclosure of Mortgage and
Auction Sale at the RTC in Tabaco, Albay.
Alfredos other counsel, Atty. Madrilejos,
subsequently talked to Land Banks lawyer
and was told that the PhP 750,000 he paid
would be returned 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 Alfredos payment was not
returned by Land Bank. Alfredo maintained
that Land Banks foreclosure without
informing him of the denial of his assumption
of the mortgage was done in bad faith. He
argued that he was lured into believing that
his payment of PhP 750,000 would cause
Land Bank to approve his assumption of the
loan of the Spouses Sy and the transfer of
the mortgaged properties in his and his

wifes name.
Testifying for Land Bank, Atty. Hingco
claimed during trial that as branch manager
she had no authority to approve loans and
could not assure anybody that their
assumption of mortgage would be approved.
According to Atty. Hingco, the bank
processes an assumption of mortgage as a
new loan, since the new borrower is
considered a new client. They used
character, capacity, capital, collateral, and
conditions in determining who can qualify to
assume a loan. Alfredos proposal to
assume the loan, she explained, was
referred to a separate office, the Lending
Center.
The RTC held that the contract approving
the assumption of mortgage was not
perfected as a result of the credit
investigation conducted on Alfredo. It noted
that Alfredo was not even informed of the
disapproval of the assumption of mortgage
but was just told that the accounts of the
spouses Sy had matured and gone unpaid.
The CA affirmed the RTC Decision. It held
that Alfredos recourse is not against the Sy
spouses. According to the appellate court,
the payment of PhP 750,000 was for the
approval of his assumption of mortgage and
not for payment of arrears incurred by the
Sy spouses. As such, it ruled that it would be
incorrect to consider Alfredo a third person
with no interest in the fulfillment of the
obligation under Article 1236 of the Civil
Code. Although Land Bank was not bound
by the Deed between Alfredo and the
Spouses Sy, the appellate court found that
Alfredo and Land Banks active preparations
for Alfredos assumption of mortgage
essentially novated the agreement.
ISSUE:
Whether or not the assumption
mortgage novated the agreement.
HELD:
NO
RATIO:

of

On the matter of novation, Spouses

Benjamin and Agrifina Lim v. M.B. Finance
Corporation, 508 SCRA 556 (2006),
provides the following discussion: 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. An extinctive novation results
either by changing the object or principal
conditions (objective or real), or by
substituting the person of the debtor or
subrogating a third person in the rights of
the creditor (subjective or personal). Under
this mode, novation would have dual
functions one to extinguish an existing
obligation, the other to substitute a new one
in its place requiring a conflux of four
essential requisites: (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. x x
x
We do not agree, then, with the CA in
holding that there was a novation in the
contract between the parties. Not all the
elements of novation were present. Novation
must be expressly consented to. Moreover,
the conflicting intention and acts of the
parties underscore the absence of any
express disclosure or circumstances with
which to deduce a clear and unequivocal
intent by the parties to novate the old
agreement.
New World Developers and Management
Inc. v. AMA Computer Center, Inc.
GR No. 187930, 23 February 2015
FACTS:
New World is the owner of a commercial
building located in Manila. In 1998, AMA
agreed to lease the entire second floor of
the building for its computer-learning center,
and the parties entered into a Contract of
Lease covering the eight-year period.
The monthly rental for the first year was set
at 181,500, with an annual escalation rate
equivalent to 15% for the succeeding years.

It was also provided that AMA may pre

terminate the contract by sending notice in
writing to New World at least six months
before the intended date. In case of pre
termination, AMA shall be liable for
liquidated damages in an amount equivalent
to six months of the prevailing rent.
On the evening of 6 July 2004, AMA
removed all its office equipment and
furniture from the leased premises. The
following day, New World received a letter
from AMA dated 6 July 2004 stating that the
former had decided to pre terminate the
contract effective immediately on the ground
of business losses due to a drastic decline in
enrollment. AMA also demanded the refund
of its advance rental and security deposit.
New World replied in a letter dated 12 July
2004, to which was attached a Statement of
Account indicating the following amounts to
be paid by AMA. Despite the meetings
between the parties, they failed to arrive at a
settlement regarding the payment of the
foregoing amounts.

for pre terminating the lease, the CA also

recognized that stipulated penalties may be
equitably reduced by the courts based on its
sound discretion. Considering that the
unexpired portion of the term of lease was
already less than two years, and that AMA
had suffered business losses rendering it
incapable of paying for its expenses, the CA
deemed that liquidated damages equivalent
to four months rent was reasonable.
ISSUE:
1. Whether AMA is liable to pay six
months worth of rent as liquidated
damages.
2. Whether AMA remained liable for
the rental arrears.
HELD:
1. YES
2. NO
RATIO:
1.

On 27 October 2004, New World filed a

complaint for a sum of money and damages
against AMA before the Regional Trial Court
of Marikina City, Branch 156 (RTC).
According to the RTC, AMA never denied
that it had arrearages equivalent to two
months rent. Other than its allegation that it
did not participate in the preparation of the
Statement of Account, AMA did not proffer
any evidence disputing the unpaid rent. For
its part, New World clearly explained the
existence of the arrears.
While sympathizing with AMA in view of its
business losses, the RTC ruled that AMA
could not shirk from its contractual
obligations, which provided that it had to pay
liquidated damages equivalent to six months
rent in case of a pre termination of the lease.
In the assailed Decision dated 22 January
2009, the CA ordered AMA to pay New
World.
The CA also ruled that the RTCs imposition
of liquidated damages equivalent to six
months rent was iniquitous. While conceding
that AMA was liable for liquidated damages

That [AMA] may pre-terminate this

Contract of Lease by notice in
writing to [New World] at least six (6)
months before the intended date of
pre termination, provided, however,
that in such case, [AMA] shall be
liable to [New World] for an amount
equivalent to six (6) months current
rental as liquidated damages;
Quite notable is the fact that AMA
never denied its liability for the
payment of liquidated damages in
view of its pre termination of the
lease contract with New World.
What it claims, however, is that it is
entitled to the reduction of the
amount due to the serious business
losses it suffered as a result of a
drastic decrease in its enrollment.
This Court is, first and foremost, one
of law. While we are also a court of
equity, we do not employ equitable
principles when well-established
doctrines and positive provisions of
the law clearly apply.
The law does not relieve a party
from the consequences of a contract

it entered into with all the required

formalities. Courts have no power to
ease the burden of obligations
voluntarily assumed by parties, just
because things did not turn out as
expected at the inception of the
contract.
It
must
also
be
emphasized that AMA is an entity
that has had significant business
experience, and is not a mere babe
in the woods.
The fundamental rule is that a
contract is the law between the
parties. Unless it has been shown
that its provisions are wholly or in
part contrary to law, morals, good
customs, public order, or public
policy, the courts will strictly enforce
the contract.
2. AMA assails the CA ruling mainly for
the imposition of legal interest on
the rent in arrears. AMA argues that
the advance rental has extinguished
its obligation as to the arrears. Thus,
it says, there is no more basis for
the imposition of interest at the rate
of 6% per annum from the date of
extrajudicial demand on 12 July
2004 until the finality of the
Decision, plus interest at the rate of
12% per annum from finality until full
payment.
At this juncture, it is necessary to

look into the contract to determine

the purpose of the advance rental
and security deposit.
At the time of the pretermination of
the contract of lease, the monthly
rent stood at P233,310, inclusive of
taxes; hence, the two-month rental
arrears in the amount of P466,620.
Applying the security deposit of
P450,000 to the arrears will leave a
balance of P16,620 in New Worlds
favor.
Given that we have found AMA
liable for liquidated damages
equivalent to six months rent in the
amount of P1,399,860 (monthly rent
of P233,310 multiplied by 6 months),
its total liability to New World is
P1,416,480.
We then apply the advance rental of
P450,000 to this amount to arrive at
a total extinguishment of the liability
for the unpaid rentals and a partial
extinguishment of the liability for
liquidated damages. This shall leave
AMA still liable to New World in the
amount of P966,480 (P1,416,480
total liability less P450,000 advance
rental).