CONDITIONAL OBLIGATIONS thereof was leased to respondent Naguiat.

Mistica entered into a contract to sell with

ATIENZA VS ESPIDOL
respondent Naguiat over a portion of the
aforementioned lot containing an area of 200
FACTS: On August 12, 2002 the Atienzas and square meters. Pursuant to said agreement, the
respondent Domingo P. Espidol entered into a respondent gave a down payment of P2,000.00
contract called Kasunduan sa Pagbibili ng Lupa and another partial payment of P1,000.00 in
na may Paunang-Bayad (contract to sell land with 1980. The respondent failed to make any
a down payment) covering the property. They payments thereafter. Mistica died in 1986. On
agreed on a price, payable in three installments. 1991, the petitioner filed a complaint for
When the Atienzas demanded payment of the rescission alleging that the failure and refusal of
second installment of P1,750,000.00 in respondents to pay the balance of the purchase
December 2002, however, respondent Espidol price constitutes a violation of the contract which
could not pay it. Claiming that Espidol breached entitles her to rescind the same. The petitioner
his obligation, on February 21, 2003 the Atienzas also ordered the respondents to vacate and
filed a complaint for the annulment of their surrender the possession of the same to her.

agreement with damages before the Regional

Trial Court (RTC)of Cabanatuan City in a Civil ISSUE: Whether or not the Court of Appeals
Case.
erred in the application of Art. 1191, as it ruled
that there is no breach of obligation in spite of the
ISSUE: Whether or not the Atienzas were entitled lapse of the stipulated period and the failure of
to the cancellation of the contract to sell they the private respondents to pay.

entered into with respondent Espidol on the

ground of the latter’s failure to pay the second HELD: NO. Petitioner claims that she is entitled
installment when it fell due.
to rescind the Contract under Article 1191
because respondents committed a substantial
HELD: The Court declares the Kasunduan sa breach when they did not pay the balance of the
Pagbibili ng Lupa na may Paunang-Bayad purchase price within the 10 year period. We
between petitioner Heirs of Paulino Atienza and disagree. The transaction between Mistica and
respondent Domingo P. Espidol dated August 12, respondents was clearly a Contract of Sale. In a
2002 cancelled and the Heirs’ obligation under it contract of sale, the remedy of an unpaid seller is
non-existent. Regarding the right to cancel the either specific performance or rescission. Under
contract for non-payment of an installment, there Article 1191 of the Civil Code, the right to rescind
is need to initially determine if what the parties an obligation is predicated on the violation of the
had was a contract of sale or a contract to sell. In reciprocity between parties, brought about by a
a contract of sale, the title to the property passes breach of faith by one of them. Rescission,
to the buyer upon the delivery of the thing sold. In however, is allowed only where the breach is
a contract to sell, on the other hand, the substantial and fundamental to the fulfillment of
ownership is, by agreement, retained by the seller the obligation. In the present case, the failure of
and is not to pass to the vendee until full the respondents to pay the balance of the
payment of the purchase price. In the first place, purchase price within ten years from the
since Espidol failed to pay the installment on a execution of the Deed did not amount to a
day certain fixed in their agreement, the Atienzas substantial breach. It was stipulated that
can afterwards validly cancel and ignore the payment could be made even after ten years
contract to sell because their obligation to sell from the execution of the Conract, provided the
under it did not arise. Since the suspensive vendee paid 12 % interest. The stipulations of the
condition did not arise, the parties stood as if the contract constitute the law between the parties;
conditional obligation had never existed.
thus, the courts have no alternative but to
enforce them as agreed upon and written. The
VDA. DE MISTICA v NAGUIAT petitioner also argues that the period cannot be
extended beyond ten years, because to do so
FACTS: Eulalio Mistica, predecessor-in-interest would annul the contract under Article 1182 of
of herein petitioner, is the owner of a parcel of the Civil Code. This contention is likewise
land located at Maycauayan, Bulacan. A portion untenable. The Code prohibits purely potestative,

1
suspensive, conditional obligations that depend estopped from reneging from their commitment
on the whims of the debtor, because such on account of acceptance of benefits arising from
obligations are usually not meant to be fulfilled. overdue accounts of private respondent.

Indeed, to allow the fulfillment of conditions to The suggestion of petitioners that the covenant
depend exclusively on the debtors would be to must be cancelled in the light of private
sanction illusory obligations.
respondent's so-called breach seems to overlook
petitioners' demeanor who, instead of
TAYA G v s . C O U RT O F A P P E A L S a n d immediately filing the case precisely to rescind
ALBRIGIDO LEYVA the instrument because of non-compliance,
allowed private respondent to effect numerous
FACTS: The deed of conveyance executed on payments posterior to the grace periods provided
May 28, 1975 by Juan Galicia, Sr., prior to his in the contract. This apathy of petitioners who
demise in 1979, and Celerina Labuguin, in favor even permitted private respondent to take the
of Albrigido Leyva involving the undivided one- initiative in filing the suit for specific performance
half portion of a piece of land situated at against them, is akin to waiver or abandonment
Poblacion, Guimba, Nueva Ecija for the sum of of the right to rescind normally conferred by
P50,000.00 under the following terms.
Article 1191 of the Civil Code.

There is no dispute that the sum of P3,000.00 GAITE VS FONACIER

listed as first installment was received by Juan
Galicia, Sr. According to petitioners, of the FACTS: Fonacier was the holder of 11 iron lode
P10,000.00 to be paid within ten days from mineral claims. By a Deed of Assignment, he
execution of the instrument, only P9,707.00 was appointed Gaite as his attorney-in-fact for the
tendered to, and received by, them on numerous purpose of operating the same. Gaite then
occasions from May 29, 1975, up to November 3, executed a general assignment conveying the
1 9 7 9 . C o n c e r n i n g p r i v a t e re s p o n d e n t ' s right to develop and exploit the mining claim to
assumption of the vendors' obligation to the Larap Iron Mines, owned by him, and then
Philippine Veterans Bank, the vendee paid only started to develop the same. Fonacier then
the sum of P6,926.41 while the difference the decided to revoke the authority granted to Gaite;
indebtedness came from Celerina Labuguin.
the latter acceded and transferred the claims
back to Fonacier but for consideration—royalties
Petitioners are of the impression that the decision and a sum of P75,000, P10,000 of which was
a p p e a l e d f ro m , w h i c h a g re e d w i t h t h e already paid. A balance of P65,000 remained for
conclusions of the trial court, is vulnerable to which Fonacier issued 2 sureties, good for a year.
attack via the recourse before us on the principal There was a stipulation that the P65,000 balance
supposition that the full consideration of the will be paid from the 1st shipment of ores and its
agreement to sell was not paid by private local sale. Eventually, the sureties expired and
respondent and, therefore, the contract must be Fonacier defaulted in settling his debt. He now
rescinded.
alleges that the payment of the balance was
subject to a suspensive condition—being the 1st
ISSUE: whether the conditions of the instrument shipment and sale of iron ores.

were performed by herein private respondent as

vendee
ISSUE: W/N the 1 st shipment and sale of iron
ores are considered suspensive condition.

HELD: Yes! Considering that the heirs of Juan

Galicia, Sr. accommodated private respondent by HELD: NO. It was only a SUSPENSIVE TERM.
accepting the latter's delayed payments not only What took place between Gaite and Fonacier,
beyond the grace periods but also during the regarding the transfer of the mining rights, was a
pendency of the case for specific performance.
sale. A contract of sale is normally ONEROUS
Indeed, the right to rescind is not absolute and and COMMUTATIVE. Each party anticipates
will not be granted where there has been performance form the very start. Since a sale is
substantial compliance by partial payments. By essentially onerous, any doubts must be settled
and large, petitioners' actuation is susceptible of in favor of the greatest reciprocity of rights—in
but one construction — that they are now this case, that a period, and not a condition, was

2
contemplated. Had it been a suspensive recover the expropriated property
condition, Fonacier would have been able to notwithstanding non-use or abandonment
postpone payment indefinitely.
thereof. The lower court ruled for herein plaintiff-

respondents, which decision was affirmed by the
MACTAN-CEBU INTERNATIONAL AIRPORT Court of Appeals. In this petition, the petitioners
AUTHORITY and AIR TRANSPORTATION argued that the judgment in Civil Case No.
OFFICE vs. BERNARDO L. LOZADA, SR.
R-1881 was absolute and unconditional, giving
title in fee simple to the Republic.

FACTS: Anastacio Deiparine owned a lot (Lot No.

88) located in Lahug, Cebu City became subject ISSUE: Whether or not respondents were able to
to expropriation proceedings, initiated by the establish the existence of an oral compromise
Republic, represented by the then Civil agreement that entitled them to repurchase Lot
Aeronautics Administration (CAA), for the No. 88 should the operations of the Lahug Airport
expansion and improvement of the Lahug Airport. be abandoned.

By 1947, the lots were already occupied by the

CAA. During the pendency of the expropriation HELD: YES. The Court ruled that “the taking of
proceedings, respondent Bernardo L. Lozada, Sr. private property, consequent to the Governments
acquired Lot No. 88 from Deiparine. The trial exercise of its power of eminent domain, is
court ruled for the Republic and ordered the latter always subject to the condition that the property
to pay Lozada the fair market value of the lot.
be devoted to the specific public purpose for
Lozada and other land owners appealed. which it was taken. Corollarily, if this particular
However, the CAA, now Air Transportation Office purpose or intent is not initiated or not at all
(ATO), proposed a compromise settlement pursued, and is peremptorily abandoned, then
whereby the owners of the lots affected by the the former owners, if they so desire, may seek
expropriation proceedings would either not the reversion of the property, subject to the return
appeal or withdraw their respective appeals in of the amount of just compensation received. In
consideration of a commitment that the such a case, the exercise of the power of eminent
expropriated lots would be resold at the price domain has become improper for lack of the
they were expropriated in the event that the ATO required factual justification.” Furthermore, Art.
would abandon the Lahug Airport, pursuant to an 1454 of the Civil Code provides: “If an absolute
established policy involving similar cases. conveyance of property is made in order to
Because of this promise, Lozada did not pursue secure the performance of an obligation of the
his appeal. However, the projected improvement grantor toward the grantee, a trust by virtue of
and expansion plan of the old Lahug Airport, law is established. If the fulfillment of the
however, was not pursued. Instead, the old obligation is offered by the grantor when it
airport was converted into a commercial becomes due, he may demand the reconveyance
complex. Lot No. 88 became the site of a jail of the property to him.”

known as Bagong Buhay Rehabilitation Complex,

while a portion thereof was occupied by The right of respondents to repurchase Lot No.
squatters. The old airport was converted into 88 may be enforced based on a constructive trust
what is now known as the Ayala I.T. Park, a constituted on the property held by the
commercial area.
government in favor of the former. Constructive
trusts are fictions of equity which are bound by
They thus initiated a complaint for the recovery of no unyielding formula when they are used by
possession and reconveyance of ownership the courts as devices to remedy any situation in
subject lot. On the other hand, the petitioners which the holder of legal title may not in good
asked for the immediate dismissal of the conscience retain the beneficial interest. The
complaint. They specifically denied that the Court ruled that “The only problem of great
Government had made assurances to reconvey importance in the field of constructive trust is to
Lot No. 88 to respondents in the event that the decide whether in the numerous and varying fact
property would no longer be needed for airport situations presented to the courts there is a
operations. Petitioners instead asserted that the wrongful holding of property and hence a
judgment of condemnation was unconditional, threatened unjust enrichment of the defendant.”

and respondents were, therefore, not entitled to

3
It was thus ruled that following Article 1187 of the successors-in-interest would be entitled to
Civil Code, petitioners may keep whatever repurchase the lot when and in the event that it
income or fruits they may have obtained from Lot was no longer used for airport purposes. MCIAA
No. 88, and respondents need not account for however contends that there was no condition
the interests that the amounts they received as made that the lots would revert to their owners in
just compensation may have earned in the case the expansion of the Cebu Lahug Airport
meantime. Ultimately, in Art. 1190 of the Civil will not materialize. The petition was granted, and
Code, “When the conditions have for their upon appeal by MCIAA, motion by the latter was
purpose the extinguishment of an obligation to denied, thus this petition. Petitioner mainly relies
give, the parties, upon the fulfillment of said on the ruling in Fery vs Municipality of
conditions, shall return to each other what they Cabanatuan, which held that “if the decree of
have received x x x In case of the loss, expropriation gives to the entity a fee simple title,
deterioration or improvement of the thing, the then, of course, the land becomes the absolute
provisions which, with respect to the debtor, are property of the expropriator... in that case, the
laid down in the preceding article shall be applied non-user does not have the effect of defeating
to the party who is bound to return x x x.
the title acquired by the expropriation
The petition was thus denied.
proceedings.

MACTAN CEBU INTERNATIONAL AIRPORT ISSUE: Whether or not the expropriation of Lot
AUTHORITY VS BENJAMIN TUDTUD, ET AL
 988 is absolute and unconditional

FACTS: Predecessors-in-interest of respondents HELD: No. the decision in favor of the

were the owners of a parcel of land in Cebu City, respondents must be affirmed. In the Fery case, it
identified as lot No. 988 of the Banilad Estate. In was held that if land is expropriated for a
1940, the National Airports Corporation particular purpose, with the condition that when
embarked on a program to expand the Cebu the purpose is ended or abandoned the property
Lahug Airport, for which purpose it sought to shall return to its former owner, then of course,
acquire, by negotiated sale or when the purpose is terminated or abandoned,
expropriation,several lots adjoining the then former owner reacquires the property so
existing airport. By virtue of judgment rendered expropriated.

by the CFI, the NAC acquired the Lot and said
Lot was transferred to the name of the Republic Further, in Heirs of Timoteo Moreno vs MCIAA,
of the Philippines. No structures related to the involving rights of former owner of the lots also
operation of the Cebu Lahug Airport were involved in Civil Case r-1881, held:

constructed therein. The Lot was later transferred

to the Air Transport Office, then to petitioner by While the trial court in Civil Case No. R-1881
virtue of RA 6958. When the Mactan International could have simply acknowledged the presence of
Airport at Lapu- Lapu City was opened for public purpose for the exercise of eminent
commercial flights, the Cebu Lahug Airport was domain regardless of the survival of Lahug
abandoned and significant parts thereof was Airport, the trial court in its Decision chose not to
purchased by Cebu Property Ventures Inc for do so but instead prefixed its finding of public
commercial complex development. Lydia purpose upon its understanding that Lahug
Adlawan then acted as attorney-in-fact of the Airport will continue to be in operation. Verily,
original owners of the Lot demanding to these meaningful statements in the body of the
repurchase the lot at the same price paid at the Decision warrant the conclusion that the
time of the taking, without interest, because no expropriated properties would remain to be so
structures or improvements had been erected until it was confirmed that Lahug Airport was no
thereon and the Cebu Lahug Airport was closed longer in operation. This inference further implies
and abandoned—hence, the purpose for which two (2) things: (a) after the Lahug Airport ceased
the lot was acquired was not fulfilled. The its undertaking as such and the expropriated lots
demand remained unheeded, for which purpose were not being used for any airport expansion
respondents filed Complaint for reconveyance project, the rights vis—vis the expropriated Lots
and damages, claiming the ground that NAC Nos. 916 and 920 as between the State and their
claimed that the original owners and their former owners, petitioners herein, must be

4
equitably adjusted; and, (b) the foregoing law. On 3 March 2003, HTRDC filed with the RTC
unmistakable declarations in the body of the a Motion to Withdraw Deposit, praying that the
Decision should merge with and become an respondent or its duly authorized representative
intrinsic part of the fallo thereof which under the be allowed to withdraw the amount of
premises is clearly inadequate since the P22,968,000.00, out of TRB’s advance deposit.
dispositive portion is not in accord with the RTC issued an order allowing such withdrawal
findings as contained in the body thereof.
but made a reservation as to the interest accrued.

On 11 March 2004, the RTC decided in favor of

The rights and duties between the MCIAA and the HTRDC declaring that the interest earnings
respondents are governed by Article 1190 of the from the deposit, under the principle of
Civil Code. While the MCIAA is obliged to accession, are considered as fruits and should
re c o n v e y L o t N o . 9 8 8 t o re s p o n d e n t s , properly pertain to the herein defendant/property
respondents must return to the MCIAA what they owner [HTRDC].

re c e i v e d a s j u s t c o m p e n s a t i o n f o r t h e
expropriation of Lot No. 988, plus legal interest to Republic contends that the respondent is entitled
be computed from default, which in this case only to an amount equivalent to the zonal value of
runs from the time the MCIAA complies with its the expropriated property, nothing more and
obligation to the respondents.Respondents must nothing less."

likewise pay the MCIAA the necessary expenses

it may have incurred in sustaining Lot No. 988 ISSUE: Whether or not HTRDC has owns the
and the monetary value of its services in interest that accrued on the deposited amount.

managing it to the extent that respondents were

benefited thereby. Following Article 1187 of the HELD: YES. TRB does not object to HTRDC’s
Civil Code, the MCIAA may keep whatever withdrawal of the amount of P22,968,000.00 from
income or fruits it may have obtained from Lot the expropriation account, provided that it is able
No. 988, and respondents need not account for to show (1) that the property is free from any lien
the interests that the amounts they received as or encumbrance and (2) that it is the absolute
just compensation may have earned in the owner thereof. The said conditions do not put in
meantime. In accordance with the earlier-quoted abeyance the constructive delivery of the said
Article 1190 of the Civil Code vis-a-vis Article amount to HTRDC pending the latter’s
1189 which provides that [i]f a thing is improved compliance therewith. Article 1187 of the Civil
by its nature, or by time, the improvement shall Code provides that the "effects of a conditional
inure to the benefit of the creditor x x x, obligation to give, once the condition has been
respondents, as creditors, do not have to settle fulfilled, shall retroact to the day of the
as part of the process of restitution the constitution of the obligation." Hence, when
appreciation in value of Lot 988 which is a natural HTRDC complied with the given conditions, as
consequence of nature and time.
determined by the RTC in its Order dated 21 April
2003, the effects of the constructive delivery
REPUBLIC OF THE PHILIPPINES VS HOLY retroacted to the actual date of the deposit of the
TRINITY DEVELOPMENT CORP. amount in the expropriation account of DPWH

FACTS: On 29 December 2000 Republic of the ROMULO CORONEL VS CA

Philippine through the Toll Regulatory Board
(TRB), filed with the RTC Complaint for FACTS: Petitioners Coronel executed a
Expropriation against landowners whose document entitled "Receipt of Down Payment" in
properties would be affected by the construction, favor of private respondent Ramona Patricia
rehabilitation and expansion of the North Luzon Alcaraz who paid P50,000 down payment for the
Expressway. Respondent Holy Trinity Realty and P1,240,000.00 home owned by petitioner. The
Development Corporation (HTRDC) was one of parties agreed that after the down payment,
the affected landowners.
petitioner would transfer to their name the title of
such house (as it was still in the name of their
March 19, 2002 the RTC issued a writ of father), and once it has been transferred, they
possession in favor of the petitioner after shall present the TCT and execute the deed of
compliance with the depositary requirements by absolute sale in favor of Alcaraz upon payment of

5
the remaining balance. Almost a month later, w/ improvements. Myers then entered into a
petitioners sold the house to a third party contract called a “Deed of Conditional Sale” with
Catalina and claimed that they have cancelled Maritime Building and sold the land for P1 million.
and rescinded the agreement with Alcaraz. A new They agreed on the manner of payment through
title over the subject property was issued in the installment, initial payment of which was upon
name of Catalina and private respondents are execution of contract, including interest rate. In
claiming that petitioners should have executed the contract it was stipulated that in case of
the deed of absolute sale in their favor once the failure of buyer to pay any of the installments, the
documents were in order (the transfer to contract will be annulled at the option of the
petitioner’s name) as the contract of sale has seller and all payments made by the buyer is
been perfected.
forfeited. Later on, the stipulated instalment of
P10,000 with 5% interest was amended to the
ISSUES: Whether or not the document "Receipt P5,000 with 5.5% per annum. Maritime paid the
of Down Payment" is a contract to sell or a monthly installments but failed to pay the
conditional contract of sale and whether or not monthly installment of March. VP of Maritime
petitioners had the obligation to execute the sale wrote to the President of Myers requesting for a
in favor of Alcaraz.
moratorium on the monthly payment of the
installments because the company was
HELD:
undergoing financial problems. Myers refused.
The document was considered as a conditional For the months of March, April, and May,
contract of sale. To differentiate, in contract to Maritime failed to pay and did not heed the
sell the prospective seller still owns the subject demand of Myers. Myers wrote Maritime
property and only binds himself to sell the said cancelling the “Deed of Conditional Sale”. Myers
property exclusively to the prospective buyer demanded return of possession of properties.
upon fulfillment of the condition agreed upon Held Maritime liable for use and occupation
which is the full payment (suspensive condition); amounting to P10,000 per month. In the
in conditional contract of sale, upon the meantime, Luzon Brokerage was leasing the
fulfillment of the suspensive condition, the sale property from Maritime. Myers demanded from
becomes absolute. In the case at bar, the Court Luzon the payment of monthly rentals of
ruled that based on the nature and circumstances P10,000. Myers also demanded surrender of
of the agreement, the petitioner had agreed to property. While actions and crossclaims between
sell the house to Alcaraz and the only Myers and Maritime were happening, the
impediment was that it was still in the name of contract between Maritime and Luzon was
their father. Based on "Receipt of Down extended for four more years. Maritime’s
Payment" document, it was held that the suspension of its payments to Myers Corporation
intention of the petitioner was to sell the property was a result of an award of back wages made by
once the title has been transferred in their name. 
 the Court of Industrial Relations in favor of Luzon
Labor Union. F.H. Myers was a major stockholder
Yes. The suspensive condition was that the title of Luzon Brokerage. F.H. Myers promised to
be transferred in petitioner’s name and such was indemnify Schedler, who controlled Maritime,
fulfilled; thus it gave rise to the respective when Shedler purchased F.H. Myers’s stock in
obligations: (1) petitioner must execute the deed Luzon Brokerage Company. Schedler claims that
of absolute sale in favor of Alcaraz and (2) after F.H. Myers estates closed, he was notified
Alacaraz must pay the remaining balance. that the indemnity on the Labor Union case will
Furthermore, the Court also ruled in favor of not be honored anymore. And so, Schedler
Alcaraz under Article 1186 of the Civil Code: [t]he advised Myers Corporation that Maritime is
condition shall be deemed fulfilled when the withholding payments to Myers Corporation in
obligor voluntarily prevents its fulfillment. 
 order to offset the liability when Myers heirs failed
112 
 to honor the indemnity agreement.

LUZON BROKERAGE CO & INC VS MARITIME ISSUES:

BUILDING CO
 1.) Whether or not there has been a breach of


 contract?

FACTS: In Manila, Myers owned 3 parcels of land

6
2.) Whether or not Myers can extra-judicially possible financing. When Barnes failed to deliver
terminate the contract?
 the needed loan, IHC informed DBP that it would
submit Weston for DBP’s consideration. As a
HELD: Yes on both questions. The Court ruled result, DBP cancelled its previous guaranty
that the failure to pay monthly installments through a letter dated December 6, 1971. IHC
constitute a breach of contract. Default was not entered into an agreement with Weston, and
made in good faith. The distinction between communicated this development to DBP on June
contracts of sale and contract to sell with 26, 1972. However, DBP denied the application
reserved title has been recognized by this Court for guaranty for failure to comply with the
in repeated decisions upholding the power of conditions.

promisors under contracts to sell in case of

failure of the other party to complete payment, to Due to Joaquin’s failure to secure the needed
extra-judicially terminate the operation of the loan, IHC, through its President Bautista,
contract, refuse conveyance and retain the sums canceled the 17,000 shares of stock previously
or installments already received, where such issued to Joaquin and Suarez as payment for
rights are expressly provided for, as in the case at their services. The latter requested a
bar. Decision of affirmed.
reconsideration of the cancellation, but their
request was rejected.

INTERNATIONAL HOTEL CORPORATION VS

FRANCISCO JOAQUIN Consequently, Joaquin and Suarez commenced
this action for specific performance alleging that
FACTS: On February 1, 1969, respondent the cancellation of the shares had been illegal,
Francisco B. Joaquin, Jr. submitted a proposal to and had deprived them of their right to participate
the Board of Directors of the International Hotel in the meetings and elections held by IHC; that
Corporation (IHC) for him to render technical Barnes had been recommended by IHC
assistance in securing a foreign loan for the President Bautista, not by Joaquin; that they had
construction of a hotel, to be guaranteed by the failed to meet their obligation because President
Development Bank of the Philippines (DBP). The Bautista and his son had intervened and
IHC Board of Directors approved phase one to negotiated with Barnes instead of Weston; that
phase six of the and earmarked P2,000,000.00 DBP had canceled the guaranty because Barnes
for the project. Anent the financing, IHC applied had failed to release the loan; and that IHC had
with DBP for a foreign loan guaranty. DBP agreed to compensate their services with 17,000
processed the application, and approved it on shares of the common stock plus cash of
October 24, 1969 subject to several conditions.
P1,000,000.00.

Shortly after submitting the application to DBP,

Joaquin wrote to IHC to request the payment of ISSUE: Whether or not respondent International
his fees in the amount of P500,000.00 for the Hotel Corporation is liable to pay under the rule
services that he had provided and would be on constructive fulfillment

providing to IHC in relation to the hotel project

that were outside the scope of the technical HELD: Yes. The court ruled that notwithstanding
proposal. Joaquin intimated his amenability to the inapplicability of Article 1186 and Article 1234
receive shares of stock instead of cash in view of of the Civil Code, IHC was liable based on the
IHC’s financial situation. His request was then nature of the obligation which is a mixed
granted.
conditional obligation. The court held that To
secure a DBP-guaranteed foreign loan did not
Joaquin presented to the IHC Board of Directors solely depend on the diligence or the sole will of
the results of his negotiations with potential the respondents because it required the action
foreign financiers. Negotiations with Materials and discretion of third persons – an able and
Handling Corporation and, later on, with its willing foreign financial institution to provide the
principal, Barnes International (Barnes), ensued. needed funds, and the DBP Board of Governors
While the negotiations with Barnes were ongoing, to guarantee the loan. Such third persons could
Joaquin and Jose Valero, the Executive Director not be legally compelled to act in a manner
of IHC, met with another financier, the Weston favorable to IHC. There is no question that when
International Corporation (Weston), to explore the fulfillment of a condition is dependent partly

7
on the will of one of the contracting parties, or of show sample boxes and make repeated promises
the obligor, and partly on chance, hazard or the as to the delivery of the boxes. Respondents
will of a third person, the obligation is mixed. The again denied such, and averred that the
existing rule in a mixed conditional obligation is petitioner’s representative, Bobby Que, went to
that when the condition was not fulfilled but the the factory once and saw that the boxes were
obligor did all in his power to comply with the ready for pick- up, and then visited again and
obligation, the condition should be deemed advised respondent to sell the boxes to recoup
satisfied.
the costs of the additional boxes because the
Considering that the respondents were able to petitioner’s shipment of bananas to China did not
secure an agreement with Weston, and materialize.

subsequently tried to reverse the prior

cancellation of the guaranty by DBP, we rule that During the trial, Que testified that he ordered the
they thereby constructively fulfilled their boxes and deposited the money as payment.
obligation.
When he visited the factory, he saw that the
boxes had no logo. He then asked his partner
Alfred Ong to cancel the order as it was too late
RESCISSION to deliver shipments to China. The ship from
Chinese company China Food Zero did not
SOLAR HARVEST INC VS DAVAO proceed to get the bananas, and at the time, the
CORRUGATED CARTON CORPORATION bananas from Tagum Agricultural Development
Corporation were already there. Bienvenido
FACTS: In the first quarter of 1998, petitioner Estanislao testified for the respondent and said
Solar Harvest Inc entered into an agreement, that he met Que when the latter was visiting the
albeit not formalized in writing, with respondent factory to get samples of the boxes. Que told him
Davao Corrugated Carton Corporation, for the that he cannot pick the boxes up because the
purchase of corrugated carton boxes specifically ship from the Chinese company, China Food
designed for use of petitioner’s business of Zero, did not arrive. Jaime Tan, President of
exporting bananas, at US $1.10 each. The respondent company, also testified to such as
petitioner deposited US$40,150.00 as full being the reason why the boxes were not picked
payment in respondent’s US Dollar Savings up. Both the RTC and the CA on appeal denied
Account with Westmount Bank to get production the petition.

underway. However, no delivery of the boxes was

made. As such, petitioner wrote a demand letter ISSUE: Whether or not petitioner may claim
to respondent, asking for reimbursement of the reimbursements from respondent because of the
deposit made, to which the respondent replied delay in the fulfillment of obligation

that the boxes had been completed beforehand

and that petitioner failed to pick up the boxes HELD: No. Without a previous demand for the
from their warehouse as agreed upon. Further, fulfillment of the obligation, as is evident in the
respondent also mentioned that petitioner placed instant petition when Que only made ‘follow-ups’
an additional order of 24,000 boxes. 14,000 of and not ‘demands’, petitioner would not have a
those boxes were manufactured without initial cause for rescission against respondent as the
deposit from petitioner. Respondent then latter would not yet be considered in breach of
demanded for the petitioner to pay for the costs contractual obligations.

of the additional boxes and storage fees as well

as for the petitioner to remove the boxes from The claim for reimbursement by petitioner is
their warehouse.
actually one for rescission or resolution of
contract, governed by Article 1191 of the Civil
Petitioner then filed for a Complaint for sum of Code. The right to rescind a contract arises once
money and damages against respondent, the party defaults in the performance of his
averring that the parties agreed that the boxes obligation. This must be taken in conjunction with
will be delivered within 30 days from payment but Article 1169. In reciprocal obligations, as in a
respondent failed to manufacture and deliver contract of sale, the general rule is that the
boxes within such time, and that despite fulfillment of the parties’ respective obligations
repeated follow-up, the defendant would only should be simultaneous. However, when different

8
dates are set for the performance of the denied, because under article 1383, rescission is
obligations, the default for each must be a subsidiary remedy which cannot be instituted
determined according to the first paragraph of except when the party suffering damage has no
1169. Thus, the party would incur in delay only other legal means to obtain reparation for the
from the moment the other party demands same. However, in this case the dismissal of the
fulfillment of the obligation. Demand would be respondent patentee Magdalo V. Francisco, Sr. as
necessary upon the obligee in such cases before the permanent chief chemist of the corporation is
the obligor can be considered in default and a fundamental and substantial breach of the Bill
before a cause of action for rescission will of Assignment. He was dismissed without any
accrue.
fault or negligence on his part. Thus, apart from
the legal principle that the option — to demand
UNIVERSAL FOOD CORPORATION vs. CA performance or ask for rescission of a contract —
belongs to the injured party, the fact remains that
FACTS: The petitioner contends that (a) under the respondents-appellees had no alternative but
the terms of the Bill of Assignment, exh. A, the to file the present action for rescission and
respondent Magdalo V. Francisco ceded and damages. It is to be emphasized that the
transferred to the petitioner not only the right to respondent patentee would not have agreed to
the use of the formula for Mafran sauce but also the other terms of the Bill of Assignment were it
the formula itself, because this, allegedly, was the not for the basic commitment of the petitioner
intention of the parties; (b) that on the basis of the corporation to appoint him as its Second Vice-
entire evidence on record and as found by the President and Chief Chemist on a permanent
trial court, the petitioner did not dismiss the basis; that in the manufacture of Mafran sauce
respondent Francisco because he was, and still and other food products he would have "absolute
is, a member of the board of directors, a control and supervision over the laboratory
stockholder, and an officer of the petitioner assistants and personnel and in the purchase and
corporation, and that as such, had actual safeguarding of said products;" and that only by

knowledge of the resumption of production by all these measures could the respondent
the petitioner, but that despite such knowledge, patentee preserve effectively the secrecy of the
he refused to report back for work formula, prevent its proliferation, enjoy its
notwithstanding the petitioner's call for him to do monopoly, and, in the process afford and secure
so; (c) that the private respondents are not for himself a lifetime job and steady income. The
entitled to rescind the Bill of Assignment; and (d) salient provisions of the Bill of Assignment,
that the evidence on record shows that the namely, the transfer to the corporation of only the
respondent Francisco was the one not ready, use of the formula; the appointment of the
willing and able to comply with his obligations respondent patentee as Second Vice-President
under the Bill of Assignment, in the sense that he and chief chemist on a permanent status; the
not only irregularly reported for work but also obligation of the said respondent patentee to
failed to assign, transfer and convey to the continue research on the patent to improve the
petitioner of the said deed of conveyance.
quality of the products of the corporation; the
need of absolute control and supervision over the
ISSUE:
laboratory assistants and personnel and in the
Whether or not respondent Francisco is entitled purchase and safekeeping of the chemicals and
to the rescission of the Bill of Assignment
other mixtures used in the preparation of said
product — all these provisions of the Bill of
HELD: The Supreme Court ruled in the Assignment are so interdependent that violation
affirmative. The general rule is that rescission of a of one would result in virtual nullification of the
contract will not be permitted for a slight or rest.

casual breach, but only for such substantial and

fundamental breach as would defeat the very CANNU VS GALANG
object of the parties in making the agreement.
The question of whether a breach of a contract is FACTS: Gil and Fernandina Galang obtained a
substantial depends upon the attendant loan from Fortune Savings & Loan Association for
circumstances. The petitioner contends that P173, 800.00 to purchase a house and lot
rescission of the Bill of Assignment should be located at Pulang Lupa, Las Piñas, To secure

9
payment, a real estate mortgage was constituted 1993, their payments covered only thirty
on the said house and lot in favor of Fortune months. This, indeed, constitutes another
Savings & Loan Association. In early 1990, breach or violation of the Deed of Sale with
NHMFC purchased the mortgage loan of Assumption of Mortgage. On top of this, there
respondents-spouses from Fortune Savings & was no formal assumption of the mortgage
Loan Association for P173, 800.00. Petitioner obligation with NHMFC because of the lack of
Leticia Cannu agreed to buy the property for approval by the NHMFC on account of
P120, 000.00 and to assume the balance of the petitioners’ non-submission of requirements in
mortgage obligations with the NHMFC and with order to be considered as assignees/
CERF Realty. Of the P120, 000. 00, several successors-in- interest over the property
payments were made leaving a balance of P45, covered by the mortgage obligation.

000.00. A Deed of Sale with Assumption of 3) There is sufficient evidence showing that
Mortgage Obligation was made and entered into demands were made from petitioners to
by and between spouses Fernandina and Gil comply with their obligation. Adelina R.
Galang and spouses Leticia and Felipe Cannu Timbang, attorney-in-fact of respondents-
over the house and lot. Petitioners immediately spouses, per instruction of respondent
took possession and occupied the house and lot. Fernandina Galang, made constant follow-ups
Despite requests from Adelina R. Timbang and after the last payment made on 28 November
Fernandina Galang to pay the balance of 1991, but petitioners did not pay. Sometime in
P45,000.00 or in the alternative to vacate the March 1993, due to the fact that full payment
property in question, petitioners refused to do so.
has not been paid and that the monthly
amortizations with the NHMFC have not been
ISSUES:
 fully updated, she made her intentions clear
1) Whether or not the breach of the obligation is with petitioner Leticia Cannu that she will
substantial.
rescind or annul the Deed of Sale with
2) Whether or not there was substantial Assumption of Mortgage. 4. The subsidiary
compliance with the obligation to pay the character of the action for rescission applies
monthly amortization with NHMFC.
to contracts enumerated in Articles 1381 of
3) Whether or not respondents-spouses Galang the Civil Code. The contract involved in the
demanded from petitioners a strict and/or faithful case before us is not one of those mentioned
compliance of the Deed of Sale with Assumption therein. The provision that applies in the case
of Mortgage. 4. Whether or not the action for at bar is Article 1191.As a consequence of the
rescission is subsidiary.
rescission or, more accurately, resolution of
the Deed of Sale with Assumption of
HELD:
Mortgage, it is the duty of the court to require
1) Rescission may be had only for such breaches the parties to surrender whatever they may
that are substantial and fundamental as to have received from the other. The parties
defeat the object of the parties in making the should be restored to their original situation.

agreement. The question of whether a breach

of contract is substantial depends upon the UP VS DELOS ANGELES
attending circumstances and not merely on
the percentage of the amount not paid. In the FACTS: UP was given a land grant which shall be
case at bar, we find petitioners’ failure to pay developed to obtain additional income for its
the remaining balance of P45,000.00 to be support. UP and ALUMCO entered into a logging
substantial. Taken together with the fact that agreement where ALUMCO was granted the
the last payment made was on 28 November exclusive authority for an extendible period of 5
1991, eighteen months before the respondent years (by mutual agreement), to cut and remove
Fernandina Galang paid the outstanding timber from the land grant in consideration of
balance of the mortgage loan with NHMFC, royalties and fees to be paid to UP. ALUMCO
the intention of petitioners to renege on their incurred an unpaid amount of P219,363. UP
obligation is utterly clear.
demanded payment but it failed to pay. ALUMCO
2) The petitioners were not religious in paying the received a letter that UP would rescind or
amortization with the NHMFC. As admitted by terminate their logging agreement. They executed
them, in the span of three years from 1990 to an instrument “Acknowledgement of Debt &

10
Proposed Manner of Payment” which the UP court action but it proceeds at its own risk. Only
President approved. ALUMCO agreed to give the final judgment of the court will conclusively
their creditor (UP) the right to consider the settle whether the action taken was proper or not.
logging agreement as rescinded without But the law does not prohibit the parties from
necessity of any judicial suit and creditor will be exercising due diligence to minimize their own
entitled to P50,000 for liquidated damages. damages. UP was able to show a prima facie
ALUMCO continued logging but still incurred case of breach of contract and default in
unpaid accounts. UP then informed them that as payment by ALUMCO. Excuses by ALUMCO are
of that date, they considered rescinded the not proper for them to suspend their payments.
agreement and of no further legal effect. UP then Thus, the Supreme Court lifted the injunction.

filed for collection of the unpaid accounts and the

trial court gave them preliminary injunction to GIL VS GARCIA

prevent ALUMCO from continuing their logging.
Through a public bidding, the concession was FACTS: Concepcion Gil, and her sister, Nieves
awarded to Sta. Clara Lumber Company and a Gil, married to Angel Villarica, were the co-
new agreement was entered into between them owners of a parcel of commercial land, covered
and UP. ALUMCO tried to enjoin the bidding but by Transfer Certificate of Title, in Davao City. The
the contract was already concluded and Sta. spouses Angel and Nieves Villarica had
Clara started its operation. Upon motion by constructed a two-storey commercial building on
ALUMCO, UP was declared in contempt of court the property. On October 13, 1953, Concepcion
for violating the writ of injunction against them. filed a complaint against her sister Nieves with
ALUMCO’s contentions are the following: a. It the then Court of First Instance of Davao City,
blamed its former general manager for their docketed as for specific performance, to compel
failure to pay their account. b. Logs cut were the defendant to cede and deliver to her an
rotten; thus, they were unable to sell them. c. undivided portion of the said property. Nieves
UP’s unilateral rescission was invalid without a appealed to the Court of Appeals which affirmed
court order.
the assailed decision. In due course, the decision
became final and executory. On motion of the
ISSUE: Whether or not UP can validly rescind its plaintiff (Concepcion), the court issued a writ of
agreement with ALUMCO even without court execution. Nieves, however, refused to execute
order.
the requisite deed in favor of her sister. The court
issued an order authorizing ex-officio sheriff to
HELD: Yes. UP can unilaterally rescind the execute the requisite deed of transfer to the
agreement. UP and ALUMCO expressly plaintiff over an undivided portion of the property
stipulated in their “Acknowledgement of Debt” with a total area of 256.2 square meters. Instead
that upon default of payment, creditor UP has the of doing so, the sheriff had the property
right and power to rescind their Logging subdivided into four lots. The sheriff thereafter
Agreement without the necessity of a judicial suit. executed a Deed of Transfer to Concepcion.
There is nothing in the law that prohibits the Concepcion executed a deed of absolute sale
parties from entering into agreements that over Lot 59-C-1 in favor of Iluminada Pacetes.

violation of terms of the contract would cause its

cancellation even without court intervention. Act ISSUE: Whether or not the contract may be
of a party in treating a contract as cancelled on rescinded?

account of any infraction by the other party must

be made known to the other and is always HELD: No. The right of rescission of a party to an
provisional, being subject to scrutiny and review obligation under Article 1191 of the New Civil
by the proper court. If the other party deems the Code is predicated on a breach of faith by the
rescission unjustified, he free to resort to judicial other party that violates the reciprocity between
action. The court shall, after due hearing, decide them. That the deed of absolute sale executed by
if the rescission was proper, in which case it will Concepcion Gil in favor of Iluminada Pacetes is
be affirmed and if not proper, the responsible an executory contract and not an executed
party will be liable for damages. A party who contract is a settled matter. In a perfected
deems the contract violated may consider it contract of sale of realty, the right to rescind the
rescinded and act accordingly, even without said contract depends upon the fulfillment or

11
non-fulfillment of the prescribed condition. We Private respondent prayed for judgment ordering
ruled that the condition pertains in reality to the the petitioner corporation to comply with the
compliance by one party of an undertaking the contract by delivering to him the scrap iron
fulfillment of which would give rise to the subject thereof.

demandability of the reciprocal obligation

pertaining to the other party. The reciprocal ISSUE: Whether or not the petitioner violated the
obligation envisaged would normally be, in the terms and conditions of the contract.

case of the vendee, the payment by the vendee

of the agreed purchase price and in the case of HELD: The petitioner corporation’s obligation to
the vendor, the fulfillment of certain express sell is unequivocally subject to a positive
warranties. The vendee is entitled to retain the suspensive condition. The failure of the private
purchase price or a part of the purchase price of respondent to comply with the positive
realty if the vendor fails to perform any essential suspensive condition cannot even be considered
obligation of the contract. Such right is premised a breach – casual or serious – but simply an
on the general principles of reciprocal event that prevented the obligation of petitioner
obligations. The petitioners, as successors-in- corporation to convey title from acquiring binding
interest of the vendor, are not the injured parties force.

entitled to a rescission of the deed of absolute

sale. It was Concepcions heirs, including the The letter of credit in favor of petitioner was
petitioners, who were obliged to deliver to the indisputably not in accordance with the
vendee a certificate of title over the property stipulation in the contract signed by the parties
under the latters name, free from all liens and on at three counts: (1) it was not opened, made
encumbrances within 120 days from the or indorsed by the private respondent, but by a
execution of the deed of absolute sale on corporation which is not a party to the contract;
October 24, 1956, but had failed to comply with (2) it was not opened with the bank agreed upon
the obligation. The consignation by the vendee of and; (3) it is not irrevocable and unconditional, for
the purchase price of the property is sufficient to it is without recourse, it is set to expire on a
defeat the right of the petitioners to demand for a specific date and it stipulates certain conditions
rescission of the said deed of absolute sale.
with respect to shipment.

VISAYAN SAWMILL COMPANY VS CA

Consequently, the obligation of petitioner to sell
did not arise. Therefore it cannot be compelled by
FACTS: On May 1, 1983, herein plaintiff-appellee specific performance to comply with its
and defendants appellants entered into a sale prestation.

involving scrap iron, subject to the condition that

plaintiff appellee will open a letter of credit in the TAYA G v s . C O U RT O F A P P E A L S a n d
amount of P250,00.00 in favor of defendant- ALBRIGIDO LEYVA
appellant corporation on or before May 15, 1983.
On May 24, 1983, plaintiff-appellee informed FACTS: The deed of conveyance executed on
defendans-appellants by telegram that the letter May 28, 1975 by Juan Galicia, Sr., prior to his
of credit was opened May 12, 1983 at the BPI demise in 1979, and Celerina Labuguin, in favor
main office in Ayala, but that transmittal was of Albrigido Leyva involving the undivided one-
delayed. On May 26, 1983, defendants- half portion of a piece of land situated at
appellants received a letter advice from the Poblacion, Guimba, Nueva Ecija for the sum of
Dumaguete City Branch of BPI dated May 26, P50,000.00 under the following terms.

1983, that a domestic letter of credit had been

opened in favor of Visayan Sawmill Company.
There is no dispute that the sum of P3,000.00
listed as first installment was received by Juan
On July 19, 1983 plaintiffs then demanded that Galicia, Sr. According to petitioners, of the
defendants comply with the deed of sale. On July P10,000.00 to be paid within ten days from
20, 1983 defendant corporation informed execution of the instrument, only P9,707.00 was
plaintiff’s lawyer that it is unwilling to continue tendered to, and received by, them on numerous
with the sale due to plaintiff’s failure to comply occasions from May 29, 1975, up to November 3,
with the essential preconditions of the contract.
1 9 7 9 . C o n c e r n i n g p r i v a t e re s p o n d e n t ' s

12
assumption of the vendors' obligation to the and a Deed of Sale of forty-two subdivision lots
Philippine Veterans Bank, the vendee paid only within the Phib-Khik Subdivision of the
the sum of P6,926.41 while the difference the Puentebella family, conveying and transferring
indebtedness came from Celerina Labuguin.
said lots to petitioner Binalbagan Tech., Inc.,
through its president, Hermilio J. Nava executed
Petitioners are of the impression that the decision an Acknowledgment of Debt with Mortgage
a p p e a l e d f ro m , w h i c h a g re e d w i t h t h e Agreement, mortgaging said lots in favor of the
conclusions of the trial court, is vulnerable to estate of Puentebella. Upon the transfer to
attack via the recourse before us on the principal Binalbagan of titles to the 42 subdivision lots,
supposition that the full consideration of the said petitioner took possession of the lots and
agreement to sell was not paid by private the building and improvements thereon.
respondent and, therefore, the contract must be Binalbagan started operating a school on the
rescinded.
property from 1967 when the titles and
possession of the lots were transferred to it.

ISSUE: whether the conditions of the instrument

were performed by herein private respondent as On the other hand, a pending case was found at
vendee
the time when the property was transferred with
Binalbagan, the facts are follows:

HELD: Yes! Considering that the heirs of Juan

Galicia, Sr. accommodated private respondent by The intestate estate of the late Luis B.
accepting the latter's delayed payments not only Puentebella as registered owner of several
beyond the grace periods but also during the subdivision lots, specifically mentioned in
pendency of the case for specific performance.
paragraph 2 of plaintiffs' complaint, thru Judicial
Administratrix, Angelina L. Puentevella sold said
Indeed, the right to rescind is not absolute and aforementioned lots to Raul Javellana with the
will not be granted where there has been condition that the vendee-promisee would not
substantial compliance by partial payments. By transfer his rights to said lots without the express
and large, petitioners' actuation is susceptible of consent of Puentevella and that in case of the
but one construction — that they are now cancellation of the contract by reason of the
estopped from reneging from their commitment violation of any of the terms thereof, all payments
on account of acceptance of benefits arising from therefor made and all improvements introduced
overdue accounts of private respondent.
on the property shall pertain to the promissor and
shall be considered as rentals for the use and
The suggestion of petitioners that the covenant occupation thereof.

must be cancelled in the light of private

respondent's so-called breach seems to overlook Javellana having failed to pay the installments for
petitioners' demeanor who, instead of a period of five years, Civil Case No. 7435 was
immediately filing the case precisely to rescind filed by defendant Puentevella against Raul
the instrument because of non-compliance, Javellana and the Southern Negros Colleges
allowed private respondent to effect numerous which was impleaded as a party defendant it
payments posterior to the grace periods provided being in actual possession thereof, for the
in the contract. This apathy of petitioners who rescission of their contract to sell and the
even permitted private respondent to take the recovery of possession of the lots and buildings
initiative in filing the suit for specific performance with damages.

against them, is akin to waiver or abandonment

of the right to rescind normally conferred by Thereafter, rendering the final judgment of the
Article 1191 of the Civil Code.
pending case, petitioner Binalbagan was again
placed in possession of the subdivision lots,
BINALBAGAN TECH INC VS CA private respondent Angelina Echaus demanded
payment from petitioner Binalbagan for the
FACTS: On May 11, 1967, private respondents, subdivision lots, enclosing in the letter of demand
through Angelina P. Echaus, in her capacity as a statement of account as of September 1982
Judicial Administrator of the intestate estate of showing a total amount due of P367,509.93,
Luis B. Puentevella, executed a Contract to Sell representing the price of the land and accrued

13
interest as of that date. As petitioner Binalbagan private respondent Echaus is based on the deed
failed to effect payment, private respondent of sale aforementioned. The deed of sale
Angelina P. Echaus filed a case against whereby private respondent Echaus transferred
petitioners for recovery of title and damages. The ownership of the subdivision lots was executed
petitioner contends that the 10-year prescriptive on May 11, 1967. She only filed for recovery of
period had already expired before the respondent title and damages against Balbagan on October
brought her action to recover the title.
8, 1982. From May 11, 1967 to October 8, 1982,
more than fifteen (15) years elapsed. Seemingly,
ISSUE: Whether or not the petitioners’ contention the 10-year prescriptive period had expired
is valid.
before she brought her action to recover title.
However, the period 1974 to 1982 should be
HELD: NO. A party to a contract cannot demand deducted in computing the prescriptive period for
performance of the other party's obligations the reason that, as above discussed, from 1974
unless he is in a position to comply with his own to 1982, private respondent Echaus was not in a
obligations. Similarly, the right to rescind a legal position to initiate action against petitioner
contract can be demanded only if a party thereto since as aforestated, through no fault of hers, her
is ready, willing and able to comply with his own warranty against eviction was breached. In the
obligations thereunder (Art. 1191, Civil Code).In a case of Daniel vs. Garlitos, (95 Phil. 387 [1954]), it
contract of sale, the vendor is bound to transfer was held that a court order deferring action on
the ownership of and deliver, as well as warrant, the execution of judgment suspended the running
the thing which is the object of the sale (Art. of the 5-year period for execution of a judgment.
1495, Civil Code); he warrants that the buyer Here the execution of the judgment in Civil Case
shall, from the time ownership is passed, have No. 7435 was stopped by the writ of preliminary
and enjoy the legal and peaceful possession of injunction issued in Civil Case No. 293. It was
the thing —
only when Civil Case No. 293 was dismissed that
ARTICLE 1547. In a contract of sale, unless a the writ of execution in Civil Case Na. 7435 could
contrary intention appears, there is:
be implemented and petitioner Binalbagan
(1) An implied warranty on the part of the seller restored to the possession of the subject lots.

that he has a right to sell the thing at the time

when the ownership is to pass, and that the Deducting eight years (1974 to 1982) from the
buyer shall from that time have and enjoy the period 1967 to 1982, only seven years elapsed.
legal and peaceful possession of the thing.
Consequently, Civil Case No. 1354 was filed
xxx xxx xxx
within the 10-year prescriptive period. Working
against petitioner's position too is the principle
As afore-stated, petitioner was evicted from the against unjust enrichment which would certainly
subject subdivision lots in 1974 by virtue of a be the result if petitioner is allowed to own the 42
court order in Civil Case No. 293(herein referred lots without full payment thereof.

as the pending case) and reinstated to the

possession thereof only in 1982. During the DEIPARINE VS CA

period, therefore, from 1974 to 1982, seller

private respondent Angelina Echaus' warranty FACTS: The spouses Cesario and Teresita
against eviction given to buyer petitioner was Carungay entered into an agreement with Ernesto
breached though, admittedly, through no fault of Deiparine, Jr. on August 13, 19B2, for the
her own. It follows that during that period, 1974 construction of a three-story dormitory in Cebu
to 1982, private respondent Echaus was not in a C i t y. 1 T h e C a r u n g a y s a g r e e d t o p a y
legal position to demand compliance of the P970,000.00, inclusive of contractor's fee, and
prestation of petitioner to pay the price of said Deiparine bound himself to erect the building "in
subdivision lots. In short, her right to demand strict accordance to (sic) plans and
payment was suspended during that period, specifications." Nicanor Trinidad, Jr., a civil
1974-1982.
engineer, was designated as the representative of
the Carungay spouses, with powers of inspection
The prescriptive period within which to institute and coordination with the contractor. Deiparine
an action upon a written contract is ten years started the construction on September 1,
(Art. 1144, Civil Code). The cause of action of 1982.On November 6, 1982, Trinidad sent him a

14
document entitled General Conditions and rescission can return whatever he may be obliged
Specifications which prescribed 3,000 pounds to restore. Article 1725: In a contract for a piece
per square inch as the minimum acceptable of work, the owner may withdraw at will from the
compressive strength of the building. In the construction of the work, although it may have
course of the construction, Trinidad reported to been commenced, indemnifying the contractor
Cesario Carungay that Deiparine had been for all the latter's expenses, work, and the
deviating from the plans and specifications, thus usefulness which the owner may obtain
impairing the strength and safety of the building. therefrom, and damages.

Carungay ordered Deiparine to first secure

approval from him before pouring cement. Order The right of rescission is used in two different
was ignored. Carungay then sent another contexts in the Civil Code.

memorandum with complaints but this was also (1) Under the law on contracts – RESCISSIBLE
ignored. After several conferences, the parties CONTRACTS enumerated in Article 1381

agreed to conduct cylinder tests to ascertain if • Those which are entered into by guardians
the structure thus far built complied with safety whenever the wards who they represent suffer
standards. Deiparine and Carungay agreed on lesion by more than one-fourth of the value of the
core testing. Deiparaine even promised that if the things which are the object thereof;

tests should show a total failure of if the failure • Those agreed upon in representation of
exceed 10%, he would shoulder all expenses. absentees, if the latter suffer the lesion stated in
The core testing was conducted by Geo-Testing the preceding number:

International, a Manila-based firm, on twenty-four • Those undertaken in fraud of creditors when the
core samples. On the basis of 3,000 psi, all the later cannot in any other manner collect the
samples failed; on the basis of 2,500 psi, only claims due them:

three samples passed; and on the basis of 2,000 • Those which refer to things under litigation if
psi, nineteen samples failed. 6 This meant that they have been entered into by the defendants
the building was structurally defective. Spouses without the knowledge and approval of the
Carungay filed complaint with the RTC Cebu for litigants or of competent judicial authority;

the rescission of the construction contract and • All other contracts specially declared by law to
fordamages.
be subject to rescission. Article 1385 deals with
the rescission of the contracts under Article 1381,
TC decision:(1) Construction agreement which do not include the construction agreement
rescinded(2) Condemning Deiparine to have in question.

forfeited his expenses in the construction (P244, (2) Under the law on obligations – RIGHT OF
253.70)(3) Ordering Deiparine to reimburse to the RESCISSION as granted in Article 1191 Art. 1191
spouses Carungay the costs of core testing (P15, –

104.33)(4) Ordering Deiparine to demolish and The power to rescind obligations is implied in
remove all the existing structures and restore the reciprocal ones, in case one of the obligors
premises to their former condition before should not comply with what is incumbent upon
construction began(5) Ordering Deiparine to pay him. The injured party may choose between the
attorney’s fees and costs of suit (P10,000)CA fulfillment and the rescission of the obligation,
affirmed TC decision in toto
with the payment of damages in either case. He
may also seek rescission, even after he has
ISSUE: Whether the contract may be validly chosen fulfillment, if the latter should become
rescinded under Article 1191 of the CC. impossible. The court shall decree the rescission
claimed, unless there be just cause authorizing
HELD: YES. Petitioner challenges the application the fixing of a period. This is understood to be
of Article 1191 of the CC in rescinding the without prejudice to the rights of third persons
construction agreement. His position is that the who have acquired the thing, in accordance with
applicable rules are Articles 1385 and 1725 of articles 1385 and 1388 and the Mortgage Law.
the CC. Article 1385: Rescission creates the Trial Court correctly applied Art 1191 which deals
obligation to return the things which were the with reciprocal obligations.

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

15
PRUDENCE REALTY AND DEVELOPMENT CO mistake, fraud, violence, intimidation, due
VS CA
influence, or falsity of documents is subject to the
provisions of Art. 1330 of this code.

FACTS: On July 29, 1979, Paulina Gonzales

Habana sold three parcels of land covering an When the terms of a compromise judgment are
area of 10.36 has. to Prudence Realty and violated, the remedy of the aggrieved party is to
Development Corporation for P2,279,398.00. On move for its execution, not its invalidation. In fact,
September 2, 1980, the Corporation filed an the court has inherent powers to prevent its
action for the rescission of the contract. On decision from becoming a dead letter and may
September 21, 1982, the then Court of First hold the judgment debtor in contempt if it finds
Instance of Manila rendered judgment in the refusal to be malicious and systematic. It may
accordance with a compromise agreement even place the property under receivership under
reached by the parties and approved by the Rule 39, Sec. 43, of the Rules of Court.

court. On February 19, 1990, Habana instituted

an action with the Regional Trial Court of GENARO REYES CONSTRUCTION, INC. VS
Calamba for the declaration of nullity of the COURT OF APPEALS J

compromise agreement. She alleged that the

agreement was void because it contained in its FACTS: Herein petitioners Genaro G. Reyes
paragraph 8 (c) a potestative suspensive Construction, Inc. (or GGRCI) and Universal
condition dependent on the will of the debtor Dockyard Ltd. (or UDL) seek the nullification of
Corporation. June 7, 1990, Habana amended her the decision dated October 20, 1992 and the
complaint to allege three alternative causes of resolution dated January 20, 1993 of the Eighth
action, to wit, invalidity of the compromise Division of the Court of Appeals in CA-G.R. SP
agreement, as in the original complaint; failure of No. 28632. The said decision and resolution
the defendant to pay the balance of the purchase affirmed the two orders issued by the Regional
price; and the need for the court to fix the period Trial Court of the National Capital Judicial Region
for the payment of the balance of the purchase (Branch 15) dated June 22, 1992 and August 5,
price.
1992 in its Civil Case No. 92-61345 which denied
herein petitioners' application for a temporary
ISSUE: whether Habana may seek rescission of restraining order and a writ of preliminary
the compromise agreement HELD: No.
injunction to enjoin the Department of Public
Works and Highways (DPWH) and then DPWH
Habana seeks the rescission of the compromise Secretary Jose P. de Jesus, and others therein
agreement under Art. 1191 of the Civil Code. * impleaded from enforcing and implementing the
However, this provision applies only to reciprocal notice of pre-termination of petitioners' contract
obligations in general and not to obligations for the implementation of Lower Agusan
arising from a judicial compromise, as we have Development Project, Stage I, Phase 1, Butuan
consistently held in a long line of decisions. City, or any part thereof, to any person; and
Moreover, the rule is that a judgment rendered in prohibiting said defendants from bidding said
accordance with a compromise agreement is project or any part thereof, or awarding it to any
immediately executory as there is no appeal from person.

such judgment.

ISSUE: Whether or not the acts of the
A judgment based on a compromise is generally respondents can be restraint by the government?

not appealable. The reason for the rule is that

when both parties enter into an agreement to end HELD: If the unjust and unlawful acts of
a pending litigation and request that a decision re s p o n d e n t s a re n o t s t r u c k d o w n a n d
be rendered approving said agreement, it is only respondents are not restrained, the Government
natural to presume that such action constitutes stands to lose from Three Hundred Fifty Million
an implicit, as undeniable as an express, waiver (P350 Million) Pesos additional expenditures.
of the right to appeal against said decision. The Under Presidential Decree No. 1870 when the
nullification of a compromise judgment is project is rebidded or awarded through
governed by the following provisions of the Civil negotiated contract, compensation is at "current
Code: Art. 2038. A compromise in which there is valuation price" (Sec. 1, P.D. 1870). Considering

16
the increase in prices of labor and materials, it is monthly was 1609.5 (doc stamp 110.25, 2%
a certainty that any new bidder would ask for premium tax of 29.4). The policy states that the
prices much higher than the already high prices Statement of Account is not a receipt and an
which the losing bidders offered in the March 1, official receipt will be given after payment but if
1991 bidding. Tremendous loss of taxpayers' payment is done through a representative, payor
money thus is inevitable. This Court cannot, will be given a provisional receipt. Areola was
therefore, close its eyes to the resultant evil which given provisional receipt but Malapit just failed to
will be inflicted not only upon petitioners, but also remit and therefore Areola received no official
on the Filipino people and the dissipation of receipt. Areola sent demand letters for immediate
taxpayers' money arising from the unjust reinstatement, bank apologized but did not
termination of petitioners' contract and the immediately reinstate, so he filed the case. The
rebidding to or renegotiation with other parties of insurance agent was Carlito Ang.

the project. Public interest and the stakes of the

Government dictate the issuance of the writs of ISSUES: 1) WON Prudential is liable for damages
injunction and prohibition restraining respondents for unilaterally cancelling the policy 2) WON
from enforcing the order terminating petitioners' Prudential's reinstatement of the policy absolved
contract for the construction of the flood control it from damages

facilities and land improvement works of the

Lower Agusan Development Project, Stage I, HELD: The Court held that the Branch Manager
Phase 1. In fine, not only was the slippage within was agent of corporation and the receipt of
legally tolerable limits but the cause of the payment was well within his authority. Therefore,
slippage are attributable to respondent DPWH his receipt of the premiums was, in effect, receipt
officials. The inflexible stance of respondents by the corporation itself. Thus, Areola fulfilled his
towards the compromise offers of petitioners, obligations under the contract i.e. the payment of
even before this Court ordered them to explore premiums. The cancellation, therefore, was
such a possibility, but especially after we asked unwarranted and injurious to Areola; that it was
them to do so, convinces the Court all the more perpetrated by the Branch Manager is not
that there are rregularities which respondents are material, a corporation can only act through its
sweeping under the rug. The record also shows individual employees. It must therefore bear the
that even after the stop-work order was given negligence of the Branch manager in
and while petitioners were trying to have it misappropriating the premiums.

reconsidered, they continued working full force

on the project thus minimizing or eliminating the FACTS:

slippage which caused the disputed problems.

DIESEL CONSTRUCTION CO INC VS UPSI
PROPERTY HOLDINGS March 24, 2008

AREOLA VS COURT OF APPEALS 
 Topic: Article 1191

FACTS: Santos Areola, a lawyer from Dagupan Diesel, as Contractor, and UPSI, as Owner,
City, availed of a Personal Accident Insurance entered into a Construction Agreement for the
Policy from Prudential, but seven months after construction of the UPSI Building 3 Meditel/
the issuance of the policy, On June 29, 1985, Condotel Project. Of particular relevance to this
Prudential unilaterally cancelled the policy case is the section obliging the contractor, in
because company records revealed that Areola case of unjustifiable delay, to pay the owner
failed to pay his premiums.
liquidated damages in the amount equivalent to
A few days later, however, Prudential found out one-fifth (1/5) of one (1) percent of the total
that Areola actually paid the premiums and that Project cost for each calendar day of delay.

the branch manager, Teofilo Malapit, failed to

remit them. Thus, Prudential offered to reinstate In the course of the Project implementation,
the policy and even proposed to extend its change orders were effected and extensions
lifetime to December 17, 1985.
 sought. At one time or another, Diesel requested
Areola filed a suit for breach of contract and for extension owing to the following causes or
damages against Prudential. Obtained from delaying factors: (1) manual hauling of materials
Baguio branch of Prudential, for one year (Nov from the 14th to 16th floors; (2) delayed supply of
1984-Nov 1985), premium of 1470 but total

17
marble; (3) various change orders; and (4) delay in Hence, as correctly held by the CIAC, UPSI, no
the installation of shower assembly.
less, effectively moved the completion date,
through the various change orders, to April 7,
But UPSI disapproved the desired extensions, 2000.

thus putting Diesel in a state of default for a given

contract work. UPSI withheld Diesels 10% Moreover, as evidenced by UPSIs Progress
retention money and refused to pay the unpaid Report No. 19 for the period ending March 22,
balance of the contract price.
2000, Diesels scope of work, as of that date, was
already 97.56% complete. Such level of work
It is upon the foregoing factual backdrop that accomplishment would, by any rational norm, be
Diesel filed a complaint before the CIAC, praying considered as substantial to warrant full payment
that UPSI be compelled to pay the unpaid of the contract amount, less actual damages
balance of the contract price.
suffered by UPSI. Article 1234 of the Civil Code
says as much, If the obligation had been
ISSUE: Whether or not Diesel is in delay
 substantially performed in good faith, the obligor
may recover as though there had been a strict
HELD: The provisions in the Agreement on and complete fulfillment, less damages suffered
excusable delays read:
by the obligee.

2.3 Excusable delays: The Contractor shall inform

the owner in a timely manner, of any delay The fact that the laborers of Diesel were still at
caused by the following:
the work site as of March 22, 2000 is a reflection
2.3.a Acts of God, such as storm, floods or of its honest intention to keep its part of the
earthquakes.
 bargain and complete the Project. Thus, when
2.3.b Civil disturbance, such as riots, revolutions, Diesel attempted to turn over the premises to
insurrection.
 UPSI, claiming it had completed the Project on
2.3.c Any government acts, decrees, general March 15, 2000, Diesel could no longer be
orders or regulations limiting the performance of considered to be in delay.

the work.

137
In all, Diesel cannot be considered as in delay
2.3.d Wars (declared or not).
and, hence, is not amenable under the
2.3.e Any delays initiated by the Owner or his Agreement for liquidated damages.

personnel which are clearly outside the control of

the Contractor.
S P S VA L E N Z U E L A V S K A L AYA A N
2.3.1 Delays caused by the foregoing shall be DEVELOPMENT AND INDUSTRIAL
excusable. A new schedule or adjustments in
contract time shall be negotiated with the Owner.
FACTS: Respondent owns a parcel of land where
the petitioners were illegally occupying.
As time is of the essence of this agreement, all Petitioners negotiated with respondent the
other delays shall not be excusable.
purchase of the portion of the land they were
occupying. Respondent agreed. A contract was
The CA completely failed to factor in the change stipulated, wherein the petitioners agreed to pay
orders of UPSI to Diesel the directives effectively by installment. It was likewise stipulated that the
extending the Project completion time at the ownership shall vest only upon full payment of
behest of UPSI as it was initiated by UPSI’s the total purchase price. After half of the
personnel which is clearly outside the control of purchase price was paid, petitioner failed to pay
the Contractor
t h e a g re e d u p o n m o n t h l y i n s t a l l m e n t s .
Respondents demand to petitioner to pay remain
The CIAC found that the change orders were unheeded, which gives rise to respondent filing a
actually implemented on the following dates:
complaint for rescission of contract and damages
CO No. 1 February 9 to March 3, 2000 CO No. 3 against the petitioner. A favorable decision to the
February 24 to March 10, 2000 CO No. 4 March respondent was rendered by the trial court, which
16 to April 7, 2000
was affirmed by the Court of Appeals.
Questioning this decision, petitioner maintains
that they should have been entitled to get atleast

18
one half of the subject property, because property did not arise. Thus, Kalayaan may validly
payment equivalent to its value has been made to cancel the contract to sell its land to petitioner,
and received by Respondent. Petitioners posits not because it had the power to rescind the
that the RTC should have applied Article 1234 of contract, but because their obligation thereunder
the Civil Code to the present case, considering did not arise.

that it has been factually established that they

were able to pay one-half of the total obligation in
good faith.

ISSUE: Whether or not rescission of the contract

is a remedy

HELD: NO. DECISION IS MODIFIED TO THE

EXTENT THAT THE CONTRACT BETWEEN
PARTIES IS CANCELLED AND ATTORNEY’S
FEES REDUCED. RESPONDENT TO REFUND
THE AMOUNT PAID BY THE PETITIONERS.

The nature and characteristics of a contract to

sell is determinative of the propriety of the
remedy of rescission and the award of attorney’s
fees. Under a contract to sell, the seller retains
title to the thing to be sold until the purchaser
fully pays the agreed purchase price. The full
payment is a positive suspensive condition, the
non-fulfillment of which is not a breach of
contract, but merely an event that prevents the
seller from conveying title to the purchaser. The
non-payment of the purchase price renders the
contract to sell ineffective and without force and
effect. Since the obligation of respondent did not
arise because of the failure of petitioners to fully
pay the purchase price, Article 1191of the Civil
Code would have no application. The non-
fulfillment by the respondent of his obligation to
pay, which is a suspensive condition to the
obligation of the petitioners to sell and deliver the
title to the property, rendered the contract to sell
ineffective and without force and effect. The
parties stand as if the conditional obligation had
never existed. Article 1191 of the New Civil Code
will not apply because it presupposes an
obligation already extant. There can be no
rescission of an obligation that is still non-
existing, the suspensive

condition not having happened. The parties’

contract to sell explicitly provides that Kalayaan
"shall execute and deliver the corresponding
deed of absolute sale over" the subject property
to the petitioners "upon full payment of the total
purchase price." Since petitioners failed to fully
pay the purchase price for the entire property,
Kalayaan’s obligation to convey title to the

19
OBLIGATIONS WITH A PERIOD been established for the benefit of the defendant
also. And it must be so, for this is a case of a
SARMIENTO VS JAVELLANA loan, with interest, wherein the term benefits the
plaintiffs by the use of the money, as well as the
FACTS: On August 28, 1911, Defendant Glicerio defendant by the interest. This being so, the
Javellana loaned the plaintiffs Filomena plaintiffs had no right to pay the loan before the
Sarmiento and her husband Eusebio Villa Senor lapse of one year, without the consent of the
the sum of P1,500 with interest at the rate of 25 defendant, because such a payment in advance
per cent per annum for the term of one year. To would have deprived the latter of the benefit of
guarantee this loan, the plaintiffs pledged a large the stipulated interest. It follows from this that
medal with a diamond in the center and appellant is in error when he contends that the
surrounded with ten diamonds, a pair of plaintiffs could have paid the loan and recovered
diamonds earrings, a small comb with twenty- the thing pledged from the date of the execution
diamonds, and two diamond rings, which the of the contract and, therefore, his theory that the
contracting parties appraised at P4,000. The action of the plaintiffs to recover the thing
plaintiff allege that at the maturity of this loan, pledged accrued from the date of the execution
August 31, 1912, the plaintiff Eusebio Villa Senor, of the contract is not tenable.

being unable to pay the loan, obtained from the

defendant an extension, with the condition that SEOANE VS FRANCO
the loan was to continue, drawing interest at the
rate of 25 per cent per annum, so long as the FACTS: This is an appeal from a judgment of the
security given was sufficient to cover the capital Court of First Instance of Zamboanga in favor of
and the accrued interest. In the month of August, the plaintiff, holding that the right of action upon
1919, the plaintiff Villasenor, went to the house of the mortgage debt which was the basis of the
the defendant and offered to pay the loan and claim presented against the plaintiff's estate had
redeem the jewels, taking with him, for this prescribed. The mortgage in question was
purpose, the sum of P11,000, but the defendant executed on the 13th of October, 1884, to secure
then informed them that the time for the the payment of the sum of P4,876.01, the
redemption had already elapsed. The plaintiffs mortgagor agreeing to pay the sum "little by
renewed their offer to redeem the jewelry by little." The claim appears to have been presented
paying the loan, but met with the same reply. The to the plaintiff's intestate on the 8th of August,
plaintiffs now bring this action to compel the 1911. Nothing has been paid either of principal or
defendant to return the jewels pledged, or their of interest.

value, upon the payment by them of the sum they

owe the defendant, with the interest thereon.
ISSUE: Whether or not the courts may fix the
period.

ISSUE: Whether or not the defendant is bound to
return the jewels or their value to plaintiffs, and HELD: Yes. This case clearly falls within the
the plaintiffs have the right to demand the same provision of Art. 1197 of the New Civil Code,

upon the payment by them of the rate of 25 per which reads as follows: .

cent per annum from August 28, 1911.

If the obligation does not fix a period, but from its

HELD: YES. Whenever a term for the nature and the circumstances it can be inferred
performance of an obligation is fixed, it is that a period was intended, the courts may fix the
presumed to have been established for the duration thereof.

benefit of the creditor as well as that of the

debtor, unless from its tenor or from other The courts shall also fix the duration of the period
circumstances it should appear that the term was when it depends upon the will of the debtor.

established for the benefit of one or the other In every case, the courts shall determine such
only. In this case it does not appear, either from period as may under the circumstances have
any circumstance, or from the tenor of the been probably contemplated by the parties. Once
contract, that the term of one year allowed the fixed by the courts, the period cannot be
plaintiffs to pay the debt was established in their changed by them.

favor only. Hence it must be presumed to have

20
The obligation in question seems to leave the agreed to be up to not later than November
duration of the period for the payment thereof to 6,1956;

the will of the debtor. It appears also that it was

the intention of the instrument to give the debtor That for failure of the parties to submit to the
time within which to pay the obligation. In such Court the agreed date of payment on November
cases this court has held, on several occasions, 6, 1956, they mutually agreed that the Court shall
that the obligation is not due and payable until an have the full power to fix a reasonable time when
action has been commenced by the mortgagee the defendant should pay, and a judgment
against the mortgagor for the purpose of having therefor shall issue based upon this stipulation of
the court fix the date on and after which the facts.

instrument shall be payable and the date of

maturity is fixed in pursuance thereof. It is clear The parties failed to submit to the Court the date
that the instrument sued upon in the case at bar when the defendant had to pay its debt to the
is one which leaves the period of payment at the plaintiff. On 6 November 1956 the plaintiff filed an
will of the mortgagor. Such being the case, an ex-parte motion praying that judgment be
action should have been brought for the purpose rendered upon the stipulation of facts and that
of having the court set a date on which the the Court fix the time in which the defendant
instrument should become due and payable. should pay the sum due to the plaintiff. On 28
Until such action was prosecuted no suit could November 1956 the Court rendered judgment as
be brought for the recovery of the amount named prayed for ordering defendant to pay the plaintiff
in the instrument. It is, therefore, clear that this within thirty days from receipt of notice of
action is premature. The instrument has been judgment the sum of P5,000 with legal interest
sued upon before it is due. The action must thereon from 8 December 1955 until fully paid
accordingly be dismissed.
and to pay the costs. On 21 January 1957 the
Court denied the defendant's motion for
BENITO ORIT VS. BALDROGAN COMPANY, reconsideration dated 12 January 1957. The
LTD
 defendant has appealed.

FACTS: On 22 November 1955 the plaintiff ISSUE: May the courts set or fix the period of the
brought an action in the Court of First Instance of obligation.

Camarines Norte to collect from the defendant

the sum of P5.000, the balance of an account HELD: The appellant admits that it owes the
due to export logs purchased by the latter from appellee the sum of P5,000. Under the second
the former, P1,500 as attorney's fee, P3,000 as paragraph of the stipulation of facts, they agreed
moral damages, P2,000 as exemplary damages to set a date for the appellant to pay the
and costs, and to obtain any other just and appellee, they agreed to set a date for the
equitable relief (civil No. 750). On 7 January 1956 appellant to pay the appellee, to be submitted to
the defendant filed an answer. On 25 September the Court not later that 6 November 1956 and
1956 the parties, assisted by their respective under the third paragraph of the same stipulation,
counsel, entered into a stipulation of facts and should they fail to set a date for payment on 6
submitted it to Court. THe terms of the stipulation November 1956, the Court may set a reasonable
are:
time for the appellant to pay the appellee. As they
paid to set a date for payment and submit it to
That the defendant admits in open court its the Court on motion on the appellee, the Court
obligation to the plaintiff in the amount of FIVE rendered judgment upon the stipulation of facts
THOUSAND PESOS (P5,000.00) Philippine and ordered the appellant to pay the appellee
Currency, plus interest thereon from December 8, within thirty days from receipt of notice of
1955 and costs;
judgment. The judgment rendered by the Court
was but in pursuance of the compromise
That the parties mutually agreed to submit to the agreement embodied in the stipulation of facts
Court a fixed date when the defendant should entered freely and voluntarily by the parties with
pay the plaintiff the above obligations, the the assistance of their respective counsel. The
submission of which date is hereby mutually appellant cannot now claim and complain that
the period fixed by the Court is unreasonable.

21
Citing article 1196 of the new Civil Code in respondents refused to accept the tendered
support of its appeal, which provides that:
checks.

Wherever in an obligation a period is designated,

it is presumed to have been established for the Buce filed a complaint for specific performance
benefit of both the creditor and the debtor, unless with prayer for consignation and prayed that the
from the tenor of the same or other respondents be ordered to accept her payments
circumstances it should appear that the period and for them to respect the contract which was
has been established in favor of one or of the renewable for another ten years at the rate of
other;
P200 a month. On the other hand, the
respondents countered that Buce had already
the appellant claims that the period of thirty days paid the monthly rent of P1,000 for July and
fixed by the Court rebounded to the benefit only August 1991; that they were justified in refusing
of the creditor, the appellee, and not mutually to to accept the payment for the rental payments
the creditor and the debtor. In its brief, the should already be P1,576.58 a month pursuant to
appellant prays that it be granted at least a year the Rent Control Law; and that the renewal
within which to pay the appellee.
clause did not mean automatic renewal for there
must be a mutual agreement between the parties.

The article cited by the appellant cannot be Respondents’ counsel wrote Buce reminding her
applied to the case at bar where the parties that the contract has expired and demaning
entered into a compromise agreement ending a payment of rentals in arrears amounting to
controversy and authorizing the Court to fix a P33,000.00.

reasonable time within which the appellant

should pay its debt to the appellee, if they fail to ISSUE: Whether or not the renewal of the lease
agree upon a date for payment and submit it to contract was automatic.

the Court. It applies where the parties to a

contract themselves have fixed a period.
HELD: No. The literal meaning of the stipulations
shall control if the terms of the contract are clear
The appeal interposed by the appellant is and leave no doubt upon the intention of the
manifestly to delay but not to evade payment of contracting parties. However, if the terms of the
its debt. Nothing has been agreed upon by the agreement are ambiguous resort is made to
parties in their stipulation on that contingency. contract interpretation which is the determination
Hence the collection or recovery of the sums of of the meaning attached to written or spoken
P1,800 as attorney's fee, P3,000 as moral words that make the contract. Also, to ascertain
damages and P2,000 as exemplary damages the true intention of the parties, their actions,
sought by the appellee in its motion dated 6 May subsequent or contemporaneous, must be
1957 filed in this Court cannot be granted.
principally considered.

BUCE VS CA
 In this jurisdiction, a fine delineation exists

between renewal of the contract and extension of
FACTS: Buce leased respondents’ 56 sq. meter its period. Generally, the renewal of a contract
land in Pandacan, Manila. The contract was for connotes the death of the old contract and the
fifteen years "subject to renewal for another ten birth or emergence of a new one. A clause in a
(10) years, under the same terms and lease providing for an extension operates of its
conditions." Buce constructed a building and own force to create an additional term, but a
paid the required monthly rentals of P200. The clause providing for a renewal merely creates an
rentals gradually increased by the respondents obligation to execute a new lease contract for the
reaching P400 in 1985 and in July and August additional term. As renewal of the contract
1991, Buce paid P1,000.00 as monthly rent.
contemplates the cessation of the old contract,
then it is necessary that a new one be executed
In December 1991, Respondents’ counsel wrote between the parties.

Buce informing her that effective January 1992,

the rent will be P1,576.58 pursuant to the Rent
Control Law. Buce continued to issue checks for There is nothing in the stipulations in the contract
P400 only P400 as monthly rental but and the parties’ actuation that shows that the

22
parties intended an automatic renewal or surrender possession plus the improvements
extension of the term of the contract. The fact made thereon and pay the rental arrearages
that the lessee was allowed to introduce despite repeated demands.

improvements on the property is not indicative of

the intention of the lessors to automatically Respondents contend that their failure to pay the
extend the contract. Considering the original 15- monthly rentals on the property was due to
year duration of the contract, structures would petitioners fault when it attempted to increase the
have necessarily been constructed, added, or amount of rent in violation of their contract and
built on the property, which in its previous state they are entitled to a renewal of their contract in
was an idle 56-square meter lot in the heart of view of the provision providing for automatic
Manila.
renewal and also in view of the P24M worth of
improvements they introduced on the leased
On the applicability of Fernandez v. Court of premises.

Appeals to the case at bar. The factual scenario

in that case with regard to the renewal option is Terms and Conditions:

slightly off-tangent to the case under 1. x x x It is expressly agreed and understood

consideration because the intention of the parties that the payment of the rental herein stipulated
therein for future mutual agreement was clearly shall be made without the necessity of express
discernible in their contract. [I]n a reciprocal demand and without delay on any ground
contract like a lease, the period must be deemed whatsoever.

to have been agreed upon for the benefit of both

parties, absent language showing that the term 2. The term of this lease is FIVE (5) YEARS from
was deliberately set for the benefit of the lessee the effectivity of said lease, and with the option to
or lessor alone. Thus, pursuant to the Fernandez renew, specifically shall commence from
ruling and Article 1196 of the Civil Code, the September 15, 1991 and shall expire on
period of the lease contract is deemed to have September 16, 1996, and maybe adjusted
been set for the benefit of both parties. Renewal depending upon the ejectment of tenants.

of the contract may be had only upon their

mutual agreement or at the will of both of them.
3. The LESSEES shall have the option to
reconstruct and/or renovate the improvement
Since the private respondents were not amenable found thereon at the expense of the LESSEES,
to a renewal, they cannot be compelled to and whatever improvement introduced therein by
execute a new contract when the old contract the LESSEES in the premises the ownership of it
terminated on 1 June 1994. It is the owner- shall become the property of the LESSOR
lessors prerogative to terminate the lease at its without extra compensation of the same.

expiration. The continuance, effectivity and

fulfillment of a contract of lease cannot be made 4. Upon signing of this Contract of Lease, the
to depend exclusively upon the free and LESSEES shall make a one (1) year deposit to be
uncontrolled choice of the lessee between paid unto the LESSOR as follows:

continuing the payment of the rentals or not,

completely depriving the owner of any say in the 50% percent upon signing of this Contract of
matter.
Lease;

LL AND COMPANY VS HUANG CHAO CHUN 50% percent as payment in full of the one (1) year
deposit. Payment of which shall be made unto
FACTS: The parties entered into an amended the LESSOR on the day of the effectivity date of
lease contract sometimes in August 1991. the Contract of Lease, said deposit shall be
Petitioner alleged that respondents Huang Chao refundable 30 days prior to the termination of the
Chun and Yang Tung Fa violated their amended same.

lease contract over a 1,112 sq. m. lot it owns (Lot

No.1-A-1) when they did not pay the monthly 5. The monthly rental is subject to increase, said
rentals in the amount of P4, 322,900.00. It also increase shall be based upon the imposition of
alleged that the amended lease contract expired Real Estate Tax for every two (2) years upon
on Sept. 16, 1996 but respondents refused to presentation of the increased real estate tax to

23
the Le[ssees], but said increase shall not be less alter a contract by construction or to make a new
than 25% percent.
contract for the parties; its duty is confined to the
interpretation of the one which they have made
The MTC ruled that the contract entered into by for themselves, without regard to its wisdom or
the parties may be extended by the lessees for folly, as the court cannot supply material
reasons of justice and equity, citing as its legal stipulations or read into contract words which it
bases the case of Legarda Koh v. Ongsi[a]co (36 does not contain.”

Phil. [185]) and Cruz v. Alberto (39 Phil. 991). It

also ruled that the corporations failure to pay the The extension of a lease contract must be made
monthly rentals as they fell due was justified by before the term of the agreement expires, not
the fact that petitioner refused to honor the basis after. Upon the lapse of the stipulated period,
of the rental increase as stated in their Lease courts cannot belatedly extend or make a new
Agreement
lease for the parties,[18] even on the basis of
equity. Because the Lease Contract ended on

ISSUE: Whether or not the court could still

extend the term of the lease after its expiration. Is September 15, 1996, without the parties reaching
the lease a proper ground in a case of unlawful any agreement for renewal, respondents can be
detainer?
ejected from the premises.

HELD: No. The MTC had no power to extend the In a reciprocal contract like a lease, the period of
lease period because the Contract had already the lease must be deemed to have been agreed
expired.
upon the benefit of both parties. Pursuant to the
cases of Fernandez, Dalisay and Article 1196 of
In general, the power of the courts to fix a longer the Civil Code, the period of the lease contract is
term for a lease is discretionary. Such power is to deemed to have been set for the benefit of both
be exercised only in accordance with the parties. Its renewal may be authorized only upon
particular circumstances of a case: a longer term their mutual agreement or at their joint will. Its
to be granted where equities demanding continuance, effectivity or fulfillment cannot be
extension come into play; to be denied where made to depend exclusively upon the free and
none appear -- always with due deference to the uncontrolled choice of just one party. While the
parties freedom to contract. Thus, courts are not lessee has the option to continue or to stop
bound to extend the lease.
paying the rentals, the lessor cannot be
completely deprived of any say on the matter.
Where no period has been fixed by the parties, Absent any contrary stipulation in a reciprocal
the courts, pursuant to Article 1687, have the contract, the period of lease is deemed to be for
potestative authority to set a longer period of the benefit of both parties.

lease.

MACASAET VS MACASAET

In the case before us, the Contract of Lease 

provided for a fixed period of five (5) years -- FACTS: Petitioners Ismael and Teresita Macasaet
specifically from September 16, 1991 to and Respondents Vicente and Rosario Macasaet
September 15, 1996. Because the lease period are first-degree relatives. Ismael is the son of
was for a determinate time, it ceased, by express respondents, and Teresita is his wife.

provision of Article 1669 of the Civil Code, on the

day fixed, without need of a demand. Here, the On December 10, 1997, the parents filed with the
five-year period expired on September 15, 1996, Municipal Trial Court in Cities (MTCC) of Lipa City
whereas the Complaint for ejectment was filed on an ejectment suit against the children.
October 6, 1996. Because there was no longer Respondents alleged that they were the owners
any lease that could be extended, the MTC, in of two (2) parcels of land covered by Transfer
effect, made a new contract for the parties, a Certificate of Title (TCT) Nos. T-78521 and
power it did not have
T-103141, situated at Banay-banay, Lipa City;
that by way of a verbal lease agreement, Ismael
In Bacolod-Murcia v. Banco Nacional Filipino, the and Teresita occupied these lots in March 1992
court ruled, “it is not the province of the court to and used them as their residence and the situs of

24
their construction business; and that despite qualification cannot be inferred from the facts of
repeated demands, petitioners failed to pay the the present case.

agreed rental of P500 per week.

To repeat, when Vicente and Rosario invited their

Ismael and Teresita denied the existence of any children to use the lots, they did so out of
verbal lease agreement. They claimed that parental love and a desire for solidarity expected
respondents had invited them to construct their from Filipino parents. No period was intended by
residence and business on the subject lots in the parties. Their mere failure to fix the duration
order that they could all live near one other, of their agreement does not necessarily justify or
employ Marivic (the sister of Ismael), and help in authorize the courts to do so.

resolving the problems of the family. They added

that it was the policy of respondents to allot the Based on respondents reasons for gratuitously
land they owned as an advance grant of allowing petitioners to use the lots, it can be
inheritance in favor of their children. Thus, they safely concluded that the agreement subsisted as
contended that the lot covered by TCT No. long as the parents and the children mutually
T-103141 had been allotted to Ismael as advance benefited from the arrangement. Effectively, there
inheritance. On the other hand, the lot covered by is a resolutory condition in such an agreement.
TCT No. T-78521 was allegedly given to Thus, when a change in the condition existing
petitioners as payment for construction materials between the parties occurs -- like a change of
used in the renovation of respondents house. The ownership, necessity, death of either party or
CA sustained the finding of the two lower courts unresolved conflict or animosity -- the agreement
that Ismael and Teresita had been occupying the may be deemed terminated.Having been based
subject lots only by the tolerance of Vicente and on parental love, the agreement would end upon
Rosario/ Thus, possession of the subject lots by the dissipation of the affection.

petitioners became illegal upon their receipt of

respondents letter to vacate it.
When persistent conflict and animosity overtook
the love and solidarity between the parents and
ISSUE:Whether or not possession of the subject the children, the purpose of the agreement
lots by petitioners became illegal upon their ceased. Thus, petitioners no longer had any
receipt of respondents letter to vacate it
cause for continued possession of the lots. Their
right to use the properties became untenable. It
HELD: Yes.That Ismael and Teresita had a right to ceased upon their receipt of the notice to vacate.
occupy the lots is therefore clear. The issue is the And because they refused to heed the demand,
duration of possession. In the absence of a ejectment was the proper remedy against them.
stipulation on this point, Article 1197 of the Civil Their possession, which was originally lawful,
Code allows the courts to fix the duration or the became unlawful when the reason therefor -- love
period.
and solidarity -- ceased to exist between them.

Article 1197. If the obligation does not fix a ENRIQUE C. ABAD, JOSEPH C. ABAD, MA.
period, but from its nature and the circumstances SABINA C. ABAD, ADELAIDA C. ABAD,
it can be inferred that a period was intended, the CECILIA C. ABAD, VICTORIA C. ABAD,
courts may fix the duration thereof.
VICTOR C. ABAD, CENON C. ABAD, JR., AND
J U A N I TA C . A B A D , v s . G O L D L O O P
The courts shall also fix the duration of the period PROPERTIES, INC.
when it depends upon the will of the debtor.

FACTS: On August 29, 1997, respondent

In every case the courts shall determine such Goldloop Properties Inc., through its President,
period as may under the circumstances have Emmanuel R. Zapanta, entered into a Deed of
been probably contemplated by the parties. Once Conditional Sale3 with petitioners for the sale of
fixed by the courts, the period cannot be parcels of land they own. For the terms of
changed by them.
payment, the parties agreed that: (1) an earnest
money in the amount of P1,000,000 is to be given
Article 1197, however, applies to a situation in by the respondent; (2) first payment of
which the parties intended a period. Such PHP6,765,660.00 shall be paid by the respondent

25
to the petitioner on August 17, 1997; and (3) The the CA was correct in its holding, the obligation
remaining balance of PHP27,049,640.00 shall be should nevertheless be deemed one with a
paid on or before 31 December 1997 and upon period. Petitioners claim that even if no period
the fulfillment of the following conditions: (a) The was indicated in the contract it does not follow
balance of the total contract price shall be paid that no such period was intended; "such an
by the respondent to the petitioner after obligation was with an indefinite period, or the
verification of the total land area through a site parties simply forgot to state in their contract the
relocation survey, to be confirmed by the parties; definite period for the return of said payment
and (b) The remaining balance of the total check."

contract price shall be adjusted, based on the

total land area verified through a site relocation ISSUE: WON the obligation of the petitioner to
survey, as per confirmation made by both parties.
return the first payment of the respondent in the
Paragraph 8 of the Deed provided that in the amount of PHP6,765,660.00 is one with a period,
event that the respondent cannot comply with his and that the Court should fix a period within
obligation to pay the remaining balance, he shall which they should comply with the obligation.

forward a formal request for an extension of the HELD: NO. In the first place, there is no occasion
contract, which must not to exceed 30 days (on to apply the first paragraph of Article 119722
or before January 28, 1998), one week before since there is no showing that the parties had
December 31, 1997. The grant of extension was intended such a period. Paragraph 8 of the
said to be afforded on a one-time basis only and contract is clear and unambiguous. As the trial
no subsequent extensions will be granted. And in and appellate courts ruled, unlike
the event that the respondent fails to comply with theP1,000,000.00 earnest money which would be
his part of the obligation within the specified forfeited in favor of petitioners in case of
extension period, the earnest money of respondent’s failure to deliver the balance of the
PHP1,000,000.00 shall be forfeited in favor of the total consideration, the first payment would be
SELLER but the first payment check of returned to respondent. This obligation to return
PHP6,765,660.00 shall be returned to the BUYER the first payment can be gleaned from the
without any additional charges to the SELLER.
second part of the disputed provision, which
states: "but the first payment check of SIX
The earnest money was paid by the respondent M I L L I O N S E V E N H U N D R E D S I X T Y- F I V E
on June 30, 1997. In his second letter dated THOUSAND SIX HUNDRED SIXTY PESOS
October 8, 1998, Zapanta informed petitioner (PHP6,765,660.00) shall be returned to the
Enrique C. Abad that the negotiations with the BUYER without any additional charges to the
banks had failed due to "the continuing economic SELLER."

downturn" and consequently, the transaction

would not be consummated. He then requested The rule is that where the language of a contract
that the first payment be returned within five is plain and unambiguous, its meaning should be
days, in accordance with paragraph 8 of the determined without reference to extrinsic facts or
deed.8 Respondent reiterated its demand to aids. The intention of the parties must be
petitioners in a Letter dated November 5, 1998, gathered from that language, and from that
however, the petitioners refused to return the language alone. Stated differently, where the
amount. Respondent then filed a Complaint10 for language of a written contract is clear and
Collection with Prayer for Writ of Attachment unambiguous, the contract must be taken to
against petitioners.. On June 10, 2002, the RTC mean that which, on its face, it purports to mean,
ruled in favor of respondent.The CA dismissed unless some good reason can be assigned to
the appeal and affirmed in toto the ruling of the show that the words should be understood in a
trial court.
different sense. Courts cannot make for the
parties better or more equitable agreements than
Petitioners argued inter alia that respondent failed they themselves have been satisfied to make, or
to satisfy the three suspensive "conditions" under rewrite contracts because they operate harshly or
the disputed provision. Thus, they are not obliged inequitably as to one of the parties, or alter them
to return the first payment (and respondent’s for the benefit of one party and to the detriment
correlative right to demand the performance of of the other, or by construction, relieve one of the
the obligation) never arose. Even assuming that parties from the terms which he voluntarily

26
consented to, or impose on him those which he P2,151,678.34. 

did not.

●   On December 16, 1952, the

PEOPLE’S BANK AND TRUST CO AND corresponding agreements of rescission of sale
ATLANTIC GULF AND PACIFIC CO VS were executed between DALCO & DAMCO and
DAHICAN LUMBER CONNELL. 


FACTS: Atlantic Gulf & Pacific Company of ●  On January 13, 1953, the BANK, in its
Manila, a West Virginia corporation licensed to do own behalf and that of ATLANTIC, demanded
business in the Philippines ( ATLANTIC) — sold that said agreements be cancelled but CONNELL
and assigned all its rights in the Dahican Lumber and DAMCO refused to do so. 

concession to Dahican Lumber Company
( DALCO) — for the total sum of $500,000.00, of ●  On February 12, 1953, ATLANTIC and
which only the amount of $50,000.00 was paid.
the BANK, commenced foreclosure proceedings
in the Court of First Instance of Camarines Norte
●   DALCO obtained various loans from against DALCO and DAMCO. 

the People's Bank & Trust Company (BANK). As 155 

security for the payment, DALCO executed a
deed of mortgage covering five parcels of land The defendants claim that the action to foreclose
situated in the province of Camarines Norte the mortgages filed on February 12, 1953 was
together with all the buildings and other premature because the promissory note sued
improvements existing thereon and all the upon did not fall due until April 1 of the same
personal properties of the mortgagor located in year.

its place of business in the municipalities of

Mambulao and Capalonga, Camarines Norte. On ISSUE: WON the action to foreclose the
the same date, DALCO executed a second mortgages is premature?

mortgage on the same properties in favor of 


ATLANTIC to secure payment of the unpaid HELD: NO. That Dahican Lumber Co., was
balance of the sale price of the lumber insolvent as of the date of the filing of the

concession amounting to the sum of complaint, it should follow that the debtor
$450,000.00. 
 thereby lost the benefit to the period.



●   Upon DALCO's and DAMCO's failure x x x unless he gives a guaranty or security for
to pay the fifth promissory note upon its maturity, the debt . . . (Art. 1198, New Civil Code);

the BANK gave them up to April 1, 1953 to pay

the overdue promissory note. 
 and as the guaranty was plainly inadequate since
the claim of plaintiffs reached in the aggregate,
●   After July 13, 1950 - the date of P1,200,000 excluding interest while the
execution of the mortgages mentioned, DALCO aggregate price of the "after-acquired" chattels
purchased various machineries, equipment, claimed by Connell under the rescission
spare parts and supplies in addition to, or in contracts was P1,614,675.94, and the Court
replacement of some of those already owned and understanding that when the law permits the
used by it on the date aforesaid. Pursuant to the debtor to enjoy the benefits of the period
provision of the mortgage deeds quoted notwithstanding that he is insolvent by his giving
theretofore regarding "after acquired properties," a guaranty for the debt, that must mean a new
the BANK requested DALCO to submit complete and efficient guaranty, must concede that the
lists of said properties but the latter failed to do causes of action for collection of the notes were
so. In connection with these purchases, there not premature.

appeared in the books of DALCO as due to

Connell Bros. Company (Philippines) - a domestic JOSE CORPUS VS HON. FEDERICO
corporation who was acting as the general ALIKPALA, AS PRESIDING JUDGE OF
purchasing agent of DALCO -the sum of BRANCH XXII, CFI OF MANILA AND ACME
P452,860.55 and to DAMCO, the sum of MANUFACTURING CORP, INC

27
FACTS: In a suit for foreclosure of a real estate lost the right to the period for paying the principal
mortgage, filed by Jose Corpus against ACME of P100,000.00.

Manufacturing Corp., judgment was rendered

upon a compromise, which stipulated inter alia LIRAG TEXTILE INC VS CA
that the parties mutually agreed that the unpaid
balance of the purchase price of the “Maria FACTS: Cristan Alcantara worked in a temporary
Dolores Bldg” now “Nestor De Castro Bldg”, capacity with Lirag Textile Mills, Inc. On May 9,
including two lots on which said bldg was 1960, Lirag Textile Mills, Inc. wrote a letter to
erected, was P100,000.00; that the defendant will Alcantara advising him that, effective May 11,
pay such balance at any time between the period 1960, his temporary designation as Technical
from the signing of the agreement until December Assistant to the Administrative Officer was made
15, 1965, subject to the further condition that the permanent, receiving a salary of P400.00 and
payment would be with interest at the rate of 1% allowance of P100.00 per month. Alcantara's
per month; and failure of defendant to pay the tenure of employment, per Lirag Textile Mills,
plaintiff of any such amounts would entitle the Inc.'s above letter was to be 'for an indefinite
latter to the issuance of a writ of execution of the period, unless sooner terminated by reason of
entire balance, including interests. Defendant voluntary resignation or by virtue of a valid cause
ACME issued two checks to Corpus, who or causes. However, on July 22, 1961, Lirag
accepted such, but later on it was found that the Textile Mills, Inc. wrote him a letter advising him
first check was duly cashed while the second that because the company 'has suffered some
was dishonored for insufficiency of funds. serious reverses, both in terms of pecuniary loss
Corpus, invoking defendant’s failure to pay on the and in market opportunities,' the company was
specified time moved for the execution for the terminating his services and effecting his
entire balance. Defendant ACME opposed such separation from defendant corporation effective
motion on the ground that, in issuing checks after at the close of working hours of August 22, 1961.
the said postdated check, it failed to detect, Petitioner contends that an employer's liability for
through oversight and mathematical error in terminating without just cause the employment of
computation,that its funds in the bank will run an employee is governed by the provisions of
short to cover the amount needed.
Republic Act 1787, amending Republic Act 1052,
where an employee, upon whom no such notice
ISSUE: Whether or not petitioner can move for was served in case of termination of employment
the execution against ACME for failure to pay on without just cause shall be entitled to
the specified time
compensation from the date of termination of his
employment in an amount equivalent to his
HELD: Yes. As per the compromise agreement, salaries or wages corresponding to the required
the advance payment of the interest was plainly period of notice and not back salaries from the
the main consideration for the creditor's assent to time of dismissal up to final judgment for the
delay payment of the balance of the purchase dismissal without cause of respondent Alcantara
price (P100,000.00) up to December 15, 1965, as employee of the petitioner Lirag Textile Mills,
despite previous default of the defendant- Inc as the Appellate Court served.

appellant. On that basis, the dishonor of the

check representing the advance interest resulted ISSUE: Whether or not termination of Alcantara
in the forfeiture of the period given to pay the by petitioner is invalid subject to liabilities

principal, as prescribed by Article 1198,

paragraph 4 of the Civil Code. Article 1191, is HELD: Yes. The fatal defect of petitioner's
inapplicable, since in asking for execution, the argument is that the above quoted provision of
appellee was not seeking the resolution of the the law does not and cannot apply to an
compromise but its enforcement. The appellee's employer-employee relationship with an express
acceptance of the check had suspended his contract for a period of employment. As could be
action to enforce the payment of the balance of clearly seen from the stipulation of facts between
the principal; but it was not a true payment until the parties in Civil Case No. 6884 and as a fact
the value of the check was realized (Art. 1249, recognized by both the trial court and the
Civil Code). Since the check was dishonored, the respondent Appellate Court, the contract of
appellant automatically became in default and employment was for an indefinite period as it

28
shall continue without ending, subject to a Don Ramon Lopez., Sr. against Central Philippine
resolutory period, unless sooner terminated by University.

reason of voluntary resignation or by virtue of a

valid cause or causes (the resolutory period). HELD: YES. Where Don Ramon Lopez donated
There is an indefinite period of time for the subject parcel of land to petitioner but
employment agreed upon by and between imposed an obligation upon the latter to establish
petitioners and the private respondent, subject a medical college thereon, the donation must be
only to the resolutory period agreed upon which for an onerous consideration. Under Art. 1181, on
may end the indeterminate period of conditional obligations, the acquisition of rights
employment, namely — voluntary resignation on as well as the extinguishment or loss of those
the part of private respondent Alcantara or already acquired, shall depend upon the
termination of employment at the option of happening of the event which constitutes the
petitioner Lirag Textile Mills, but for a "valid cause condition. If there was no fulfillment or
or causes". It necessarily follows that if the compliance with the condition, such as in the
petitioner-employer Lirag Textile Mills terminates case at bar for the non-establishment of the
the employment without a "valid cause or medical college, the donation may now be
causes", as it admittedly did, it committed a revoked and all rights which the donee may have
breach of the contract of employment executed acquired under it shall be deemed lost and
by and between the parties. The measure of an extinguished. When the obligation does not fix a
employer's liability provided for in Republic Act period but from its nature and circumstances it
1052, as amended by R. A. 1787, is solely can be inferred that a period was intended, the
intended for contracts of employment without a general rule provided in Art. 1197 applies, which
stipulated period. It cannot possibly apply as a provides that the courts may fix the duration
limitation to an employer's liability in cases where thereof because the fulfillment of the obligation
the employer commits a breach of contract by itself cannot be demanded until after the court
violating an indefinite period of employment has fixed the period for compliance therewith and
expressly agreed upon through his wrongful act such period has arrived. This general rule,
of terminating said employment without any valid however cannot be applied considering the
cause or causes, which act may even amount to different set of circumstances existing in the
bad faith on the employer's part and may be instant case. More than a reasonable period of 50
subject to Art. 1170 of the Civil Code.
years has already been allowed petitioner to avail
of the opportunity to comply with the condition.
CENTRAL PHILIPPINE UNIVERSITY v COURT But unfortunately, it failed to do so. Hence, there
OF APPEALS is no more need to fix the duration of a term of

the obligation when such procedure would be a
FACTS: Sometime in 1939, the late Don Ramon mere technicality and formality and would serve
Lopez, Sr., who was then a member of the Board no purpose than to delay or lead to an
of Trustees of the Central Philippine University, unnecessary and expensive multiplication of
executed a deed of donation in favor of the latter suits.

of a parcel of land, with the condition that, it is for

the establishment and use of a medical college DR DANIEL VASQUEZ VS AYALA CORP
with all its buildings as part of the curriculum.
That the said college shall not sell, transfer or FACTS: On April 23, 1981, spouses Daniel
convey to any third party nor in any way Vasquez and Ma. Luisa M. Vasquez (hereafter,
encumber said land. The private respondents Vasquez spouses) entered into a Memorandum of
who are the heirs of Don Ramon Lopez, Sr., filed Agreement (MOA) with Ayala Corporation
an action for annulment of donation, (hereafter, AYALA) with AYALA buying from the
reconveyance and damages against CPU alleging Vazquez spouses, all of the latter’s shares of
that since 1939 up to the time the action was stock in Conduit Development, Inc. (hereafter,
filed, the latter had not complied with the Conduit). Under the MOA, Ayala was to develop
conditions of the donation.
the entire property, less what was defined as the
Retained Area consisting of 18,736 square
ISSUE: W/NOT the private respondent heirs may meters. This Retained Area was to be retained by
reconvey the donated property made by the late the Vazquez spouses. The area to be developed

29
by Ayala was called the Remaining Area. In this period fixed by the MOA for the development of
Remaining Area were 4 lots adjacent to the the first phase of the property since this is not the
Retained Area and Ayala agreed to offer these same period contemplated for the development
lots for sale to the Vazquez spouses at the of the subject lots. Since the MOA does not
prevailing price at the time of purchase. The specify a period for the development of the
relevant provisions of the MOA on this point are:
subject lots, petitioners should have petitioned
5.7. The BUYER hereby commits that it will the court to fix the period in accordance with
develop the Remaining Property into a first class Article 1197of the Civil Code. As no such action
residential subdivision of the same class as its was filed by petitioners, their complaint for
New Alabang Subdivision, and that it intends to specific performance was premature, the
complete the first phase under its amended obligation not being demandable at that point.
development plan within three (3) years from the Accordingly, Ayala Corporation cannot likewise
date of this Agreement. x x x.
be said to have delayed performance of the
obligation.

After the execution of the MOA, Ayala caused the

suspension of work on Village 1 of the Don Even assuming that the MOA imposes an
Vicente Project. Ayala then received a letter from obligation on Ayala Corporation to develop the
one Maximo Del Rosario of Lancer General subject lots within three (3) years from date
Builder Corporation informing Ayala that he was thereof, Ayala Corporation could still not be held
claiming the amount of P1,509,558.80 as the to have been in delay since no demand was
subcontractor of G.P. Construction. Taking the made by petitioners for the performance of its
position that Ayala was obligated to sell the 4 lots obligation.

adjacent to the Retained Area within 3 years from

the date of the MOA, the Vasquez spouses sent PAUL SCHENKER v. WILLIAM F. GEMPERLE
several reminder letters of the approaching so-
called deadline. However, no demand after April FACTS: The amended complaint, in a nutshell,
23, 1984, was ever made by the Vasquez avers that sometime in the summer of 1953, at
spouses for Ayala to sell the 4 lots. On the Zurich, Switzerland, plaintiff Paul Schenker and
contrary, one of the letters signed by their defendant William F. Gemperle agreed to organize
a u t h o r i z e d a g e n t , E n g r. E d u a rd o Tu r l a , a Philippine Corporation, later named as "The
categorically stated that they expected Philippine Swiss Trading Co., Inc.", and to divide
development of Phase 1 to be completed by the capital stock equally between themselves
February 19, 1990, three years from the and/or their associates. This verbal agreement
settlement of the legal problems with the was acknowledged and confirmed in writing by
previous contractor.
defendant in his letter of September 14, 1953

By early 1990 Ayala finished the development of Defendant caused articles of incorporation to be
the vicinity of the 4 lots to be offered for sale. The drafted and sent to plaintiff at Zurich. In a
four lots were then offered to be sold to the moment of indiscretion and mistaken trust,
Vasquez spouses at the prevailing price in 1990. according to him, the plaintiff signed and remitted
This was rejected by the Vasquez spouses who to the defendant at Manila, the said articles which
wanted to pay at 1984 prices.
placed in the name of plaintiff only 24% of the
total subscription and the balance of 76% being
ISSUE: Whether or not Ayala Corporation was in the name of defendant and his relatives.
not obliged to develop the Remaining Property Explaining the discrepancy between the articles
within three (3) years from the execution of the and their verbal covenant, the defendant stated in
MOA;
said letter Annex A, that "Temporarily, I had to
place in my name 75% of the shares because
HELD: Yes. Under Article 1193 of the Civil Code, there is a local law which provides that when one
obligations for whose fulfillment a day certain has intends to make contracts with the government,
been fixed shall be demandable only when that 75% of the subscribed capital has to be Filipino
day comes. However, no such day certain was as otherwise the Flag Law will be applied." In the
fixed in the MOA. Petitioners, therefore, cannot same letter, however, defendant assured the
demand performance after the three (3) year

30
plaintiff that he would give the latter "exactly the The usual prayer in a complaint which states that
same shareholding as I have."
the plaintiff "prays . . . such other and further
relief as the Court may appear just and
The plaintiff paid to the defendant the sum of equitable," is broad and comprehensive enough
P7,000.00 for his subscription. In view of the to justify the extension of a remedy different from
consistent refusals of the defendant to live up to or together with the specific remedy sought.

their agreement, notwithstanding repeated

demands, the plaintiff filed the present complaint, THE SECRETARY OF EDUCATION vs. HEIRS
praying that defendant be condemned.
OF RUFINO DULAY,SR.

ISSUES: 1) Whether or not the obligation in FACTS: Spouses Rufino Dulay, Sr. and Ignacia
question is pure. 2) Whether or not there is a Vicente owned of a parcel of land located in
cause of action as to the obligation without a Rizal, Santiago, Isabela, with an area of 29,002
period.
square meters. On August 3, 1981, they executed
a deed of donation over a 10,000-square-meter
HELD: 1) No. There is no gainsaying the fact that portion of the said property to the Department of
the obligation in question, is pure, because "its Education, Culture and Sports (DECS) and a TCT
performance does not depend upon a future or was issued represented by Laurencio C. Ramel,
uncertain event or upon a past event unknown to the Superintendent of Schools of Isabela, subject
the parties" and as such, "is demandable at to the condition of it being used for school
once" (Art. 1179 New Civil Code). It was so purposes. However, the property was not used
understood and treated by the defendant- for school purposes and remained idle, and in
appellee himself. The immediate payment by the 1988, the DECS constructed a the Rizal National
plaintiff-appellant of his subscriptions, after the High School building 2 kilometers away from the
organization of the corporation, can only mean donated land.

that the obligation should be immediately fulfilled,

giving the defendant only such time as might After 13 years of none use, the Dulays requested
reasonably be necessary for its actual fulfilment. for the said property to be returned in August of
The contract was to organize the corporation and 1994. They were issued Resolution No. 39 by the
to divide equally, after its organization, its capital Barangay Council of Rizal, Santiago City,
stock.
recognizing the right of the donors to redeem the
subject property and resolved that the donated
2) No. The ultimate facts to be alleged in a land was no longer needed. However, when
complaint to properly and adequately plead the Rufino Dulay Sr. passed away in Decmebr of that
right of action granted by Article 1197 of the Civil same year, his heir who requested the approval of
Code, which relates to the fixing by the court of a resolution allowing them, his heirs, to redeem
the duration of the period, are: (1) facts showing the donated property, said request was denied by
that a contract was entered into, imposing on one reason of them not being a party to the deed of
of the parties an obligation or obligations in favor donation.

of the other; and (2) facts showing that the

performance of the obligation was left to the will The heirs alleged that since there was a condition
of the obligor or clearly showing or from which an in the deed of donation for the DECS, as donee,
inference may reasonably be drawn, that a period utilize the subject property for school purposes,
was intended by the parties.
that is, the construction of a building to house the
Rizal National High School and the DECS did not
What determines the nature and character of an fulfill the condition and so the land remained idle
action is not the prayer but the essential basic up to the present. The DECS interposed claiming
allegations of fact set forth in the pertinent that the donated land was being used as a
pleading. A judgment may grant the relief to technology and home economics laboratory, as
which a party in whose favor it is entered is well as other contentions which were opposed by
entitled, even if the party has not demanded such the heirs.

relief in his pleadings.

The Court ruled in favor of the Dulay’s and the

donation was revoked for the reason that the

31
DECS failed to comply with the condition in the purposes specified in the deed of donation and
donation, to use the property for school there was no actual use of the property. Hence,
purposes; that the donation was onerous said property shall revert back to the respondents
considering that the donee was burdened with and the petition is denied.

the obligation to utilize the land for school

purposes; and that a deed of donation is
considered a written contract and is governed by
Article 1144 of the New Civil Code, which
provides for a 10-year prescriptive period from
the time the cause of action accrues which the
DECS failed to comply with.

Hence this petition for review on certiotrari.

ISSUES: Whether or not the donee failed to

comply with the condition imposed in the deed of
donation. 


Whether or not the right to seek revocation of

d o n a t i o n h a d n o t y e t p re s c r i b e d w h e n
respondents filed their complaint. 


HELD: The contention of the petitioners that they

fulfilled the condition has no merit. Although the
condition in the deed of donation did not
specifically limit the use for school purposes to
exclusively mean the construction of a school
building, there was still no evidence to prove that
said land was used for other school purposes
such as a technology and home economics
laboratory. In fact, upon the trial court’s
inspection, said land was barren. Thus,
petitioners failed to comply with the condition
imposed by the deed of donation.

As to the second issue, the court ruled that “if the

obligation does not fix a period, but from its
nature and the circumstances it can be inferred
that a period was intended, the courts may fix the
duration thereof. Indeed, from the nature and
circumstances of the condition of the subject
donation, it can be inferred that a period was
contemplated by the donors. The donors could
not have intended their property to remain idle for
a very long period of time when, in fact, they
specifically obliged the defendant-appellants to
utilize the land donated for school purposes and
thus put it in good use.” And that in previous
cases, “the expiration of a reasonable
opportunity for the donee to fulfill what has been
charged upon it by the donor.”

In the case at bar, it had been 16 years since the

execution of the deed of donation and the Court
ruled that DECS failed to use the property for the

32
ALTERNATIVE AND FACULTATIVE the authority of Florencio and Jose or for the
OBLIGATIONS benefit of the two. Further, the payment was
received by Marcela as “payment made on the
AGONCILLO VS JAVIER account of the debt o Anastacio Alano”.

FACTS: In 1897, one Anastasio Cruz incurred a ONG GUAN CAN VS CENTURY INSURANCE CO

P2,730.50 loan from Marcela Mariño, wife of

Felipe Agoncillo. Cruz however died. Later, in FACTS: The house, along with the goods and
February 1904, the heirs of Cruz, namely: Jose merchandise therein, owned by plaintiff was
Alano, Anastasio Alano (for his children), and insured against fire by defendant insurance
Florencio Alano executed a document whereby company for the amount of P45,000 (P30,000-
they promised to pay Marcela the said debt. The house and P15,000-goods). While the insurance
debt is scheduled to mature on February 27, agreement was in force, the house was burnt on
1905. In 1908, Anastasio Alano paid P200.00 February 28, 1923. Under clause 14 of the
pesos to Marcela. The payment was received as conditions of the policies:

“payment made on the account of the debt o

Anastacio Alano”. Apparently, other than the “[t]he Company may at its option reinstate or
P200.00 payment from Anastasio Alano, no other replace the property damaged or destroyed, or
payment was received from the Alanos. In 1912, any part thereof, instead of paying the amount of
Anastasio Alano died. Crisanto Javier was named the loss of damages, or may join with any other
as the administrator of Anastasio Alano’s estate. Company or insurers in so doing but the
In March 1916, Agoncillo and Marcela filed a civil Company shall not be bound to reinstate exactly
case against the Javier as administrator of or completely, but only as circumstances permit
Anastasio Alano’s estate. Florencio and Jose and in reasonable sufficient manner, and in no
were impleaded. In the main, Javier et al invoked case shall the Company be bound to expend
the defense of prescription; that Agoncillo’s claim more in reinstatement that it would have cost to
is barred by the statute of limitations; that reinstate such property as it was at the time of
Agoncillo has ten years from the date of maturity the occurrence of such loss or damage, nor more
(February 1905) to collect hence his collection than the sum insured by the Company thereon.”

effort in 1916 is already way beyond the

prescriptive period. Agoncillo averred that the The plaintiff sought the payment of insurance
payment of P200.00 by Anastasio Alano in 1908 money, whilst defendant preferred to rebuild the
has tolled the running of the prescriptive period structure. The Court of First Instance of Iloilo
hence his civil action in 1916 is still within the 10 rendered a judgment in favor of the plaintiff,
year prescriptive period.
ordering the defendant company to pay P45,000
with legal interest from February 28, 1923 until
ISSUE: Whether or not Agoncillo’s claim is barred payment. It held that the election of rebuilding the
by the statute of limitations.
house was inequitable and unjust for the said
house is of lesser quality (smaller and made out
HELD: Yes. One mode of extinguishing an of materials of lower kind) than that of the
obligation is by prescription. It cannot be said original, there being no additional indemnity for
that the payment made by Anastasio Alano in the difference in size.

1908 suspended the running of the period of

prescription. For one, it is doubtful that he was ISSUE: Whether or not defendant may rebuild the
ever personally liable to the document executed building instead of paying the insured amount

in February 1904 because he signed the same on

behalf of his children (Leonina, Anastacio, HELD: No, the Supreme Court affirmed the
Leocadio) – who were not made parties to this decision of the lower court and ordered the
case. At any rate, assuming arguendo that the it payment of insurance money. It added that the
did toll the running of the statute of limitations, it choice of rebuilding the house is unjust also
only suspended it as regards to him alone and it because it does not compensate for the insured
did not bind his brothers (Jose and Florencio). value of the merchandise contained in the house
This is because there was no showing that destroyed.

Anastasio Alano made the P200.00 payment with

33
Additionally, the Court noted that under Article ISSUE: Whether said agreement was in the sense
1133 of the (old) Civil Code, there must be a that the defendant condoned the interests’ then
notice of choice to the creditor to allow the due and consignation relieved her of obligation to
creditor to either accept or impugn the election the defendant.

made. The Court noted that the plaintiff did not

give his assent to the proposition of rebuilding HELD: The Court ruled that as a rule, the
the house precisely because it would be smaller determination of a question of fact depends
than the original.
largely on the credibility of witnesses unless
some documentary evidence is available, which
CLARA TAMBUNTING DE LEGARDA ET AL VS clearly substantiates the issue and whose
VICTORIA DESPERATS MIALHE genuineness and probative value is not disputed.

 In this case, most of the evidence presented is
FACTS: On June 3, 1944, plaintiffs filed a testimonial, with only some corroborating letters,
complaint against the original defendant William and on the basis of this evidence the
J. B. Burke, alleging defendant's unjustified preponderance in the Court’s opinion militates in
refusal to accept payment in discharge of a favor of the defendant. The Court stated that,
mortgage indebtedness in his favor, and praying even if the claim of the plaintiff that Clara
that the latter be ordered (1) to receive the sum of Tambunting de Legarda did not enter into any
P75,920.83 deposited by plaintiff Clara agreement with the defendant William J. B. Burke
Tambunting de Legarda, the mortgagor, on the regarding payment of her obligation, subject to
same date with the clerk of this court in payment condonation of interest, after the termination of
of the mortgage indebtedness of said plaintiff to the war, is correct, and even if the tender of
defendant herein, (2) to execute the payment by Clara Tambunting of her obligation
corresponding deed of release of mortgage, and was made in Philippine currency in pursuance of
(3) to pay damages in the sum of P1,000. The gist the mortgage contract, yet the consignation
of defendant's answer dated the 19th of July, made in Court cannot have any legal effect for
1944, is that plaintiffs have no cause of action for the simple reason that it was made by means of a
the reason that at the instance of plaintiff Clara certified check, which is not a legal tender within
Tambunting de Legarda an agreement was had the meaning of the law. It is obvious; therefore,
on May 26, 1944, whereunder defendant that such consignation did not have the effect of
condoned the interests due and to become due relieving her from her obligation to the defendant.

on the mortgage indebtedness till the termination

of the war, in consideration of the undertaking of MARTINA QUIZANA VS GAUDENCIO
said plaintiff with the consent of her husband REDUGERIO
Vicente L. Legarda, the other plaintiff to pay her
obligation to defendant upon such termination of FACTS: This is an appeal to this Court from a
the war; and that the war then had not yet decision rendered by the Court of First Instance
terminated. Decision was rendered ordering of Marinduque, wherein the defendants-
defendant to accept the sum of P75,920.83 appellants are ordered to pay the plaintiff-
deposited by plaintiff Clara Tambunting de appellee the sum of P550, with interest from the
Legarda in the office of the clerk of court; to time of the filing of the complaint although they
execute forthwith a deed of release of mortgage have already offered to pledge the land specified
covering the property in question; to pay plaintiff in the agreement and transfer possession thereof
the sum of P120.40 representing the cost of the to the plaintiff-appellee, but that the latter refused
certification of the check deposited in the court said offer.

and consignation, together with the clerk's

commission for the deposit of the money in court The action was originally instituted in the justice
and the costs of the suit. Defendant, on or about of the peace court of Sta. Cruz, Marinduque, and
January 14, 1945, presented a motion to set the same is based on an actionable document
aside the foregoing decision and for a new trial. attached to the complaint, signed by the
Before this court could act on this motion, defendants-appellants on October 4, 1948, and
liberation came.
containing the following pertinent provisions:

34
“Na alang-alang sa aming mahigpit na HELD: Yes. The second part of the written
pangangailangan ay kaming magasawa ay obligation, in which the obligors agreed and
lumapit kay Ginang Martina Quizana, balo, at promised to deliver a mortgage over the parcel of
naninirahan sa Hupi, Sta. Cruz, Marinduque, at land, upon their failure to pay the debt on said
kami ay umutang sa kanya ng halagang Limang date, is valid and binding and effective upon the
Daan at Limang Pung Piso (P550.00), Salaping plaintiff-appellee, the creditor. The court held that
umiiral dito sa Filipinas na aming tinanggap na the second part of the obligation in question is
husto at walang kulang sa kanya sa condicion na what is known in law as a facultative obligation,
ang halagang aming inutang ay ibabalik o defined in article 1206 of Civil Code of the
babayaran namin sa kanya sa katapusan ng Philippines, which provides:

buwan ng Enero, taong 1949.

“ART. 1206. When only one prestation has been

Pinagkasunduan din naming magasawa sa agreed upon, but the obligor may render another
sakaling hindi kami makabayad sa taning na in substitution, the obligation is called
panahon ay aming ipifrenda o isasangla sa kanya facultative.”

ang isa naming palagay na niogan sa lugar nang

Cororocho, barrio ng Balogo, municipio ng Santa There is nothing in the agreement which would
Cruz, lalawigang Marinduque, Kapuluang argue against its enforcement. It is not contrary to
Filipinas at ito ay nalilibot ng mga kahanganang law or public morals or public policy, and
sumusunod:
notwithstanding the absence of any legal
Sa Norte, Da
provision at the time it was entered into, as the
lmacio Constantino; sa este, Catalina Reforma; parties had freely and voluntarily entered into it,
sa sur, Dionisio Ariola; at sa Oeste, Reodoro there is no ground or reason why it should not be
Ricamora, no natatala sa gobierno sa ilalim ng given effect. It is a new right which should be
Declaracion No. ______ na nasa pangalan ko, declared effective at once.

Josefa Postrado.”

ARCO PULP AND PAPER CO. INC. vs. DAN

The defendants-appellants admit the execution of LIM
the document, but claim, as special defense, that
since the 31st of January, 1949, they offered to FACTS: Dan T. Lim works in the business of
pledge the land specified in the agreement and supplying scrap papers, cartons, and other raw
transfer possession thereof to the plaintiff- materials, under the name Quality Paper and
appellee, but that the latter refused said offer. The Plastic Products, Enterprises, to factories
trial court evidently ignored the second part of engaged in the paper mill business. From
defendants-appellants' written obligation, and February 2007 to March 2007, he delivered scrap
enforced only its last first part, which fixed papers worth 7,220,968.31 to Arco Pulp and
payment on January 31, 1949 and ordered Paper Company, Inc. (Arco Pulp and Paper)
defendants- appellants the payment of P550.00 through its Chief Executive Officer and President,
notwithstanding their offer to pledge the land Candida A. Santos. The parties allegedly agreed
specified in the document. The plaintiff-appellee, that Arco Pulp and Paper would either pay Dan T.
for his part, claims that this part of the written Lim the value of the raw materials or deliver to
obligation is not binding upon him for the reason him their finished products of equivalent value.

that he did not sign the agreement, and that even

if it were so, the defendants-appellants did not Dan T. Lim alleged that when he delivered the raw
execute the document as agreed upon, but, materials, Arco Pulp and Paper issued a post-
according to their answer, demanded the plaintiff- dated check dated April 18, 2007 in the amount
appellee to do so.
of 1,487,766.68 as partial payment, with the
assurance that the check would not bounce.
ISSUE: Whether the second part of the written When he deposited the check on April 18, 2007,
obligation, in which the obligors agreed and it was dishonored for being drawn against a
promised to deliver a mortgage over the parcel of closed account.

land, upon their failure to pay the debt on said

date, is valid and binding and effective upon the On the same day, Arco Pulp and Paper and a
plaintiff-appellee, the creditor.
certain Eric Sy executed a memorandum of

35
agreement where Arco Pulp and Paper bound According to the factual findings of the trial court
themselves to deliver their finished products to and the appellate court, the original contract
Megapack Container Corporation, owned by Eric between the parties was for respondent to deliver
S y, f o r h i s a c c o u n t . A c c o rd i n g t o t h e scrap papers worth P7,220,968.31 to petitioner
memorandum, the raw materials would be Arco Pulp and Paper. The payment for this
supplied by Dan T. Lim, through his company, delivery became petitioner Arco Pulp and Paper’s
Quality Paper and Plastic Products. The obligation. By agreement, petitioner Arco Pulp
memorandum of agreement reads as follows:
and Paper, as the debtor, had the option to either
(1) pay the price or(2) deliver the finished
Per meeting held at ARCO, April 18, 2007, it has products of equivalent value to respondent.

been mutually agreed between Mrs. Candida A.

Santos and Mr. Eric Sy that ARCO will deliver 600 The appellate court, therefore, correctly identified
tons Test Liner 150/175 GSM, full width 76 inches the obligation between the parties as an
at the price of P18.50 per kg. to Megapack alternative obligation, whereby petitioner Arco
Container for Mr. Eric Sy’s account.
Pulp and Paper, after receiving the raw materials
from respondent, would either pay him the price
It has been agreed further that the Local OCC of the raw materials or, in the alternative, deliver
materials to be used for the production of the to him the finished products of equivalent value.

above Test Liners will be supplied by Quality

Paper & Plastic Products Ent., total of 600 Metric When petitioner Arco Pulp and Paper tendered a
Tons at P6.50 per kg. (price subject to change check to respondent in partial payment for the
per advance notice). Quantity of Local OCC scrap papers, they exercised their option to pay
delivery will be based on the quantity of Test the price. Respondent’s receipt of the check and
Liner delivered to Megapack Container Corp. his subsequent act of depositing it constituted
based on the above production schedule.
his notice of petitioner Arco Pulp and Paper’s
option to pay.

On May 5, 2007, Dan T.Lim sent a letter to Arco

Pulp and Paper demanding payment of the This choice was also shown by the terms of the
amount of 7,220,968.31, but no payment was memorandum of agreement, which was executed
made to him.
on the same day. The memorandum declared in
clear terms that the delivery of petitioner Arco
ISSUE: Whether or not the obligation between Pulp and Paper’s finished products would be to a
the parties was an alternative obligation?
third person, thereby extinguishing the option to
deliver the finished products of equivalent value
HELD: The Supreme Court ruled in the to respondent.

affirmative. In an alternative obligation, there is

more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor
who generally has the right of election. The right
of election is extinguished when the party who
may exercise that option categorically and
unequivocally makes his or her choice known.

The choice of the debtor must also be

communicated to the creditor who must receive
notice of it since: The object of this notice is to
give the creditor opportunity to express his
consent, or to impugn the election made by the
debtor, and only after said notice shall the
election take legal effect when consented by the
creditor, or if impugned by the latter, when
declared proper by a competent court.

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JOINT AND SOLIDARY OBLIGATIONS third person in the rights of the creditor 


REPUBLIC GLASS CORP VS QUA L A FA R G E C E M E N T P H I L S I N C V S

CONTINENTAL CEMENT CORP

FACTS: Republic Glass, Gervel and Qua were
shareholders of Ladtek. Ladtek obtained loans FACTS: Through the Letter of Intent (LOI)
from Metrobank and Private Dev’t Corp of the executed by both parties on August 11, 1998,
Phils (PDCP). They entered into agreement that in Petitioner Lafarge Cement Philippines, Inc.
case of default in payment of Ladtek loans, the (Lafarge) -- on behalf of its affiliates and other
parties will reimburse each other the qualified entities, including Petitioner Luzon
proportionate shares of any sum that any might Continental Land Corporation (LCLC) -- agreed to
pay to creditors. Ladtek defaulted on its purchase the cement business of Respondent
obligation to Metrobank and PDCP. Republic Continental Cement Corporation (CCC). On
Glass Corp and Gervel Corp payed Metrobank October 21, 1998, both parties entered into a
7M (not full payment of the amount due). Sale and Purchase Agreement (SPA). At the time
Republic Glass and Gervel demanded to Qua of the foregoing transactions, petitioners were
reimbursement of the total amount that RGC and well aware that CCC had a case pending with the
GC paid to Metrobank. Qua refused to pay. Qua Supreme Court. In anticipation of the liability that
filed a complaint for injunction with damages with the High Tribunal might adjudge against CCC, the
application for TRO
parties, under Clause 2 (c) of the SPA, allegedly
agreed to retain from the purchase price a portion
ISSUES: W/N payment of the entire obligation is of the contract price in the amount of
an essential condition for reimbursement? 
 P117,020,846.84. This amount was to be
deposited in an interest-bearing account in the
W/N there was novation of agreements as held First National City Bank of New York (Citibank) for
by CA (that there was implied novation) 
 payment to APT, the petitioner in the pending
case. However, petitioners allegedly refused to
HELD: Contrary to RGC and GC’s claim, apply the sum to the payment to APT, despite the
payment of any amount will not automatically subsequent finality of the Decision in the pending
result in reimbursement. If a solidary debtor pays case in favor of the latter and the repeated
t h e o b l i g a t i o n i n p a r t , h e c a n re c o v e r instructions of Respondent CCC. Fearful that
reimbursement from the co-debtors only in so far nonpayment to APT would result in the
his payment exceeded his share in the obligation. foreclosure, not just of its properties covered by
This is precisely because if solidary debtor pays the SPA with Lafarge but of several other
an amount equal to his proportionate share in the properties as well, CCC filed before the Regional
obligation, then he in effects pay only what is due Trial Court of Quezon City on June 20, 2000, a
to him. If the debtor pays less than his share in Complaint with Application for Preliminary
the obligation, he cannot demand reimbursement Attachment against petitioners. The Complaint
because his payment is less than his actual debt. 
 prayed, among others, that petitioners be
Since they only made partial payments, RGC and directed to pay the APT Retained Amount
GC should clearly and convincingly show that referred to in Clause 2 (c) of the SPA. Petitioners
their payments to Metro bank and PDCP moved to dismiss the Complaint on the ground
exceeded their proportionate shares in the that it violated the prohibition on forum-shopping.
obligations before they can seek reimbursement Respondent CCC filed another action with the
from Qua. RGC and GC failed to do this, thus same claim which involved the same parties and
they cannot seek reimbursement from Qua 
 which was filed earlier before the International
Chamber of Commerce. The Trial Court denied
There was no novation of the agreements. The the Motion to Dismiss. Petitioners elevated the
parties did not constitute new obligations to matter before the Court of Appeals. To avoid
substitute the agreements. The terms and being in default and without prejudice to the
conditions of the agreement remains the same. outcome of their appeal, petitioners prayed -- by
Novation extinguishes obligation by 1) changing way of compulsory counterclaims against
the object or principal conditions; 2) substituting Respondent CCC, its majority stockholder and
the person of the debtor and 3) subrogating a president Gregory T. Lim, and its corporate

46
secretary Anthony A. Mariano -- for the sums of Compensatory, moral and exemplary damages,
(a) P2,700,000 each as actual damages, (b) allegedly suffered by the creditor in consequence
P100,000,000 each as exemplary damages, (c) of the debtors action, are also compulsory
P100,000,000 each as moral damages, and (d) counterclaim barred by the dismissal of the
P5,000,000 each as attorneys fees plus costs of debtors action. They cannot be claimed in a
suit.
subsequent action by the creditor against the
debtor.

Petitioners alleged that CCC, through Lim and

Mariano, had filed the baseless Complaint and Aside from the fact that petitioners counterclaim
procured the Writ of Attachment in bad faith. for damages cannot be the subject of an
Petitioners prayed that both Lim and Mariano be independent action, it is the same evidence that
held jointly and solidarily liable with Respondent sustains petitioners counterclaim that will refute
CCC. On behalf of Lim and Mariano who had yet private respondents own claim for damages. This
to file any responsive pleading, CCC moved to is an additional factor that characterizes
dismiss petitioners compulsory counterclaims on petitioners counterclaim as compulsory.

grounds that essentially constituted the very

issues for resolution in the instant Petition.
Moreover, using the compelling test of
compulsoriness, we find that, clearly, the
RTC ruled that the counterclaims of the recovery of petitioners counterclaims is
petitioners against Lim and Mariano were not contingent upon the case filed by respondents;
compulsory, that the ruling in Sapugay was not thus, conducting separate trials thereon will result
applicable and that the petitioner’s answer with in a substantial duplication of the time and effort
counterclaims violated the procedural rules on of the court and the parties. Since the
joinder of actions.
counterclaim for damages is compulsory, it must
be set up in the same action; otherwise, it would
ISSUES: 1. Whether or not the petitioner’s be barred forever. If it is filed concurrently with
counterclaims were not compulsory.
 the main action but in a different proceeding, it
2. Whether or not the petitioner’s answer with would be abated on the ground of litis pendentia;
counterclaims violated the procedural rules on
if filed subsequently, it would meet the same fate
joinder of actions.
on the ground of res judicata.

HELD: 1. No, petitioner’s counterclaims were 2. No, procedural rules on joinder of actions were
compulsory. The allegations show that petitioners not violated. Respondent CCC contends that
counterclaims for damages were the result of petitioners counterclaims violated the rule on
respondents (Lim and Mariano) act of filing the joinder of causes of action. It argues that while
Complaint and securing the Writ of Attachment in the original Complaint was a suit for specific
bad faith. Tiu Po v. Bautista involved the issue of performance based on a contract, the
whether the counterclaim that sought moral, counterclaim for damages was based on the
actual and exemplary damages and attorneys tortuous acts of respondents. In its Motion to
fees against respondents on account of their Dismiss, CCC cites Section 5 of Rule 2 and
malicious and unfounded complaint was Section 6 of Rule 3 of the Rules of Civil
compulsory. In that case, we held as follows:
Procedure, which we quote:

Petitioners counterclaim for damages fulfills the Section 5. Joinder of causes of action. A party
necessary requisites of a compulsory may in one pleading assert, in the alternative or
counterclaim. They are damages claimed to have otherwise, as many causes of action as he may
been suffered by petitioners as a consequence of have against an opposing party, subject to the
the action filed against them. They have to be following conditions:

pleaded in the same action; otherwise, petitioners

would be precluded by the judgment from (a) The party joining the causes of action shall
invoking the same in an independent action. The comply with the rules on joinder of parties; x x x

pronouncement in Papa vs. Banaag (17 SCRA Section 6. Permissive joinder of parties. All
1081) (1966) is in point:
persons in whom or against whom any right to
relief in respect to or arising out of the same

47
transaction or series of transactions is alleged to The checks were dishonored for having
exist whether jointly, severally, or in the insufficient funds. This prompted the petitioner to
alternative, may, except as otherwise provided in hand a demand letter over to Pilipinas Bank
these Rules, join as plaintiffs or be joined as asking for the physical delivery of the promissory
defendants in one complaint, where any question note. Pilipinas did not deliver the Note to
of law or fact common to all such plaintiffs or to petitioner. Petitioner also made a written demand
all such defendants may arise in the action; but upon Delta for the partial satisfaction of DMC PN.
the court may make such orders as may be just Delta denied any liability as the promissory note
to prevent any plaintiff or defendant from being was not intended to be negotiated.

embarrassed or put to expense in connection

with any proceedings in which he may have no As petitioner failed to collect his investment and
interest.
interest thereon, he then filed a case against
Delta and Pilipinas. He contends that Phil finance
The foregoing procedural rules are founded on and private respondents Delta and Pilipinas
practicality and convenience. They are meant to should be treated as one corporate entity alleging
discourage duplicity and multiplicity of suits. This that all three companies have a common Director.

objective is negated by insisting -- as the court a

quo has done -- that the compulsory ISSUE: Whether or not Delta and Pilipinas can be
counterclaim for damages be dismissed, only to held liable for the liability of Philfinance to
have it possibly re-filed in a separate proceeding. petitioner.

More important, as we have stated earlier,

Respondents Lim and Mariano are real parties in RULING: No. In the first place, as already noted,
interest to the compulsory counterclaim; it is jurisdiction over the person of Philfinance was
imperative that they be joined therein. Section 7 never acquired either by the trial court or by the
of Rule 3 provides:
respondent Court of Appeals. Petitioner similarly
did not seek to implead Philfinance in the Petition
Compulsory joinder of indispensable parties. before us. Secondly, it is not disputed that
Parties in interest without whom no final Philfinance and private respondents Delta and
determination can be had of an action shall be Pilipinas have been organized as separate
joined either as plaintiffs or defendants.
corporate entities. Petitioner asks us to pierce
Moreover, in joining Lim and Mariano in the their separate corporate entities, but has been
compulsory counterclaim, petitioners are being able only to cite the presence of a common
consistent with the solidary nature of the liability Director — Mr. Ricardo Silverio, Sr., sitting on the
alleged therein.
Board of Directors of all three (3) companies.
Petitioner has neither alleged nor proved that one
SESBRENO VS CA or another of the three (3) concededly related
companies used the other two (2) as mere alter
FACTS: Raul Sesbreño made a money market egos or that the corporate affairs of the other two
placement with the Philippine Underwriters (2) were administered and managed for the
Finance Corporation ("Philfinance"). The benefit of one. There is simply not enough
placement, with a term of thirty-two (32) days, evidence of record to justify disregarding the
would mature on 13 March 1981. In turn, separate corporate personalities of delta and
Philfinance issued documents which included Pilipinas and to hold them liable for any assumed
posted checks, a Certificate of Confirmation of or undetermined liability of Philfinance to
Sale with a Delta Motor Corporation Promissory petitioner.

Note (DMC PN), and a Delivery Receipt indicating

that the DMC PN was in custodianship of CERNA VS CA

Pilipinas Bank.

FACTS: Felerino Delgado (Delgado) and Conrad

The DMC PN had a face value of P2.3m with Leviste (Leviste) entered into a loan agreement
Philfinance as "payee" and Delta as "maker" and which was evidenced by a promissory note. On
that on face of the PN was stamed "NON the same date, Delgado executed a chattel
NEGOTIABLE".
mortgage over a Willy’s jeep owned by him. And
acting as the attorney-in-fact, Manolo P. Cerna,

48
he also mortgage a “Taunus’ car owned by the ESTRELLA PALMARES VS CA
latter. The period lapsed without Delgado paying
the loan. This prompted Leviste to a file a FACTS: Pursuant to a promissory note dated
collection suit against Delgado and Cerna as March 13, 1990, private respondent M.B. Lending
solidary debtors. Cerna filed a Motion to Dismiss Corporation extended a loan to the spouses
on the ground of lack of cause of action against Osmeña and Merlyn Azarraga, together with
Cerna and the death of Delgado. Anent the latter, petitioner Estrella Palmares, in the amount of
Cerna claimed that the claim should be filed in P30,000.00 payable on or before May 12, 1990,
the proceedings for the settlement of Delgado’s with compounded interest at the rate of 6% per
estate as the action did not survive Delgado’s annum to be computed every 30 days from the
death. Moreover, he also stated that since Leviste date thereof. On four occasions after the
already opted to collect on the note, he could no execution of the promissory note and even after
longer foreclose the mortgage.
the loan matured, petitioner and the Azarraga
spouses were able to pay a total of P16,300.00,
ISSUE: 1.) Whether or not a third party, who is thereby leaving a balance of P13,700.00. No
not a debtor under the note but mortgaged his payments were made after the last payment on
property to secure the payment of the loan of September 26, 1991.

another is solidarily liable with the principal

debtor? 2.) Whether or not a mortgagee who Consequently, on the basis of petitioner's
opted to collect may still foreclose the mortgage?
solidary liability under the promissory note,
respondent-corporation filed a complaint against
HELD: 1.) A chattel mortgage may be “an petitioner Palmares, excluding the principal
accessory contract” to a contract of loan, but debtors due to insolvency of the latter.

that fact alone does not make a third-party

mortgagor solidarily bound with the principal ISSUE: Whether or not the respondent
debtor in fulfilling the principal obligation that is, corporation can directly compelled and sued
to pay the loan. The signatory to the principal Palmares to pay the liabilities under the loan
contract loan remains to be primarily bound. It is contract?

only upon the default of the latter that the creditor

may have been recourse on the mortgagors by HELD: YES. Where a party signs a promissory
foreclosing the mortgaged properties in lieu of an note as a co-maker and binds herself to be jointly
action for the recovery of the amount of the loan. and severally liable with the principal debtor in
And the liability of the third-party mortgagors case the latter defaults in the payment of the
extends only to the property mortgaged.
loan, is such undertaking of the former deemed
to be that of a surety as an insurer of the debt.
2.) Should there be any deficiency, the creditors The petitioner's undertaking as co-maker
has recourse on the principal debtor. The Special immediately follows the terms and conditions
Power of Attorney did not make petitioner a stipulated between respondent-corporation, as
mortgagor. All it did was to authorized Delgado to creditor, and the principal obligors. A surety is
mortgage certain properties belonging to usually bound with his principal by the same
petitioner. Hence, Leviste, having chosen to file instrument, executed at the same time and upon
the collection suit, could not now run after the same consideration; he is an original debtor,
petitioner for the satisfaction of the debt. This is and his liability is immediate and direct. Thus, it
even more true in this case because of the death has been held that where a written agreement on
of the principal debtor, Delgado. Leviste was the same sheet of paper with and immediately
pursuing a money claim against a deceased following the principal contract between the
person. There is also no legal provision nor buyer and seller is executed simultaneously
jurisprudence in our jurisdiction which makes a therewith, providing that the signers of the
third person who secures the fulfillment of agreement agreed to the terms of the principal
another’s obligation by mortgaging his own contract, the signers were "sureties" jointly liable
property to be solidarily bound with the principal with the buyer. A surety usually enters into the
obligor.
same obligation as that of his principal, and the
signatures of both usually appear upon the same
instrument, and the same consideration usually

49
supports the obligation for both the principal and On June 10, 1993, then President Fidel V. Ramos
the surety. The underlying principle therefor is issued Executive Order No. 97 (EO 97), clarifying
that a suretyship is a direct contract to pay the the application of the tax and duty incentives. It
debt of another. A surety is liable as much as his said that On Import Taxes and Duties. — Tax and
principal is liable, and absolutely liable as soon as duty-free importations shall apply only to raw
default is made, without any demand upon the materials, capital goods and equipment brought
principal whatsoever or any notice of default. As in by business enterprises into the SSEZ

an original promisor and debtor from the

beginning, he is held ordinarily to know every On All Other Taxes. — In lieu of all local and
default of his principal.
national taxes (except import taxes and duties),
all business enterprises in the SSEZ shall be
A creditor's right to proceed against the surety required to pay the tax specified in Section 12(c)
exists independently of his right to proceed of R.A. No. 7227.

against the principal. Under Article 1216 of the

Civil Code, the creditor may proceed against any Nine days after, on June 19, 1993, the President
one of the solidary debtors or some or all of them issued Executive Order No. 97-A (EO 97-A),
simultaneously. The rule, therefore, is that if the specifying the area within which the tax-and-
obligation is joint and several, the creditor has the duty-free privilege was operative.

right to proceed even against the surety alone.

Since, generally, it is not necessary for the Section 1.1. The Secured Area consisting of the
creditor to proceed against a principal in order to presently fenced-in former Subic Naval Base
hold the surety liable, where, by the terms of the shall be the only completely tax and duty-free
contract, the obligation of the surety is the same area in the SSEFPZ. Business enterprises and
that of the principal, then soon as the principal is individuals (Filipinos and foreigners) residing
in default, the surety is likewise in default, and within the Secured Area are free to import raw
may be sued immediately and before any materials, capital goods, equipment, and
proceedings are had against the principal.
consumer items tax and duty-free.

The neglect of the creditor to sue the principal at Petitioners challenged the constitutionality of EO
the time the debt falls due does not discharge the 97-A for allegedly being violative of their right to
surety, even if such delay continues until the equal protection of the laws. This was due to the
principal becomes insolvent. And, in the absence limitation of tax incentives to Subic and not to the
of proof of resultant injury, a surety is not entire area of Olongapo. The case was referred to
discharged by the creditor's mere statement that the Court of Appeals. The appellate court
the creditor will not look to the surety, or that he concluded that such being the case, petitioners
need not trouble himself. The consequences of could not claim that EO 97-A is unconstitutional,
the delay, such as the subsequent insolvency of while at the same time maintaining the validity of
the principal, or the fact that the remedies against RA 7227.

the principal may be lost by lapse of time, are

immaterial.
The court a quo also explained that the intention
of Congress was to confine the coverage of the
TIU VS CA
 SSEZ to the "secured area" and not to include
the "entire Olongapo City and other areas
FACTS: On March 13, 1992, Congress, with the mentioned in Section 12 of the law.

approval of the President, passed into law RA

7227. This was for the conversion of former Hence, this was a petition for review under Rule
military bases into industrial and commercial 45 of the Rules of Court.

uses. Subic was one of these areas. It was made

into a special economic zone.
ISSUE: Whether the provisions of Executive
Order No. 97-A confining the application of R.A.
In the zone, there were no exchange controls. 7227 within the secured area and excluding the
Such were liberalized. There was also tax residents of the zone outside of the secured area
incentives and duty free importation policies is discriminatory or not owing to a violation of the
under this law.
equal protection clause.

50
HELD: No. Citing Section 12 of RA 7227, to productive use for the benefit of the Philippine
petitioners contend that the SSEZ encompasses economy. Hence, there was no reasonable basis
(1) the City of Olongapo, (2) the Municipality of to extend the tax incentives in RA 7227.

Subic in Zambales, and (3) the area formerly

occupied by the Subic Naval Base. However, It is well-settled that the equal-protection
they claimed that the E.O. narrowed the guarantee does not require territorial uniformity of
application to the naval base only.
laws. As long as there are actual and material
differences between territories, there is no
OSG- The E.O. Was a valid classification. Court- violation of the constitutional clause.

The fundamental right of equal protection of the

laws is not absolute, but is subject to reasonable Besides, the businessmen outside the zone can
classification. If the groupings are characterized always channel their capital into it. RA 7227, the
by substantial distinctions that make real objective is to establish a “self-sustaining,
differences, one class may be treated and industrial, commercial, financial and investment
re g u l a t e d d i ff e re n t l y f ro m a n o t h e r. T h e center”. There will really be differences between it

classification must also be germane to the and the outside zone of Olongapo.

purpose of the law and must apply to all those

belonging to the same class.
The classification of the law also applies equally
to the residents and businesses in the zone. They
Inchong v Hernandez- Equal protection does not are similarly treated to contribute to the end goal
demand absolute equality among residents; it of the law.

merely requires that all persons shall be treated

alike, under like circumstances and conditions SOLIDBANK CORP VS MINDANAO
both as to privileges conferred and liabilities FERROALLOY CORP
enforced.

FACTS: Maria Cristina Chemical Industries

Classification, to be valid, must (1) rest on (MCCI) and three (3) Korean corporations,
substantial distinctions, (2) be germane to the namely, the Ssangyong Corporation, the Pohang
purpose of the law, (3) not be limited to existing Iron and Steel Company and the Dongil
conditions only, and (4) apply equally to all Industries Company, Ltd., decided to forge a joint
members of the same class.
venture and establish a corporation, under the
name of the Mindanao Ferroalloy Corporation
RA 7227 aims primarily to accelerate the (Corporation for brevity) with principal offices in
conversion of military reservations into productive Iligan City. Ricardo P. Guevara was the President
uses. This was really limited to the military bases and Chairman of the Board of Directors of the
as the law's intent provides. Moreover, the law Corporation. Jong-Won Hong, the General
tasked the BCDA to specifically develop the Manager of Ssangyong Corporation, was the
areas the bases occupied.
Vice- President of the Corporation for Finance,
Marketing and Administration. So was Teresita R.
Among such enticements are: (1) a separate Cu. On November 26, 1990, the Board of
customs territory within the zone, (2) tax-and- Directors of the Corporation approved a
duty-free importations, (3) restructured income Resolution authorizing its President and
tax rates on business enterprises within the zone, Chairman of the Board of Directors or Teresita R.
(4) no foreign exchange control, (5) liberalized Cu, acting together with Jong-Won Hong, to
regulations on banking and finance, and (6) the secure an omnibus line in the aggregate amount
grant of resident status to certain investors and of of P30,000,000.00 from the Solidbank x x x.

working visas to certain foreign executives and

workers. The target of the law was the big However, shortly after the execution of the said
investor who can pour in capital.
deeds, the Corporation stopped its operations.
The Corporation failed to pay its loan availments
Even more important, at this time the business from the Bank inclusive of accrued interest. On
activities outside the "secured area" are not likely February 11, 1992, the Bank sent a letter to the
to have any impact in achieving the purpose of Corporation demanding payment of its loan
the law, which is to turn the former military base availments inclusive of interests due. The

51
Corporation failed to comply with the demand of the Promissory Note, the Trust Receipt
the Bank. On November 23, 1992, the Bank sent Agreement, the Deed of Assignment or the
another letter to the [Corporation] demanding Quedan; he was merely authorized to represent
payment of its account which, by November 23, Minfaco to negotiate with and secure the loans
1992, had amounted to P7,283,913.33. The from the bank. On the other hand, the CA noted
Corporation again failed to comply with the that Respondents Cu and Hong had not signed
demand of the Bank.
the above documents as comakers, but as
signatories in their representative capacities as
On January 6, 1993, the Bank filed a complaint officers of Minfaco.

against the Corporation with the Regional Trial

Court of Makati City, entitled and docketed as The first contention hinges on certain factual
Solidbank Corporation vs. Mindanao Ferroalloy determinations made by the trial and the
Corporation, Sps. Jong-Won Hong and the Sps. appellate courts. These tribunals found that,
Teresita R. Cu, Civil Case No. 93-038 for Sum of although he had not signed any document in
Money with a plea for the issuance of a writ of connection with the subject transaction,
preliminary attachment.
Respondent Guevara was authorized to represent
Minfaco in negotiating for a P30 million loan from
Dismissing the complaint against the individual petitioner. As to Cu and Hong, it was determined,
[respondents], the Court a quo found and among others, that their signatures on the loan
declared that [petitioner] failed to adduce a documents other than the Deed of Assignment
morsel of evidence to prove the personal liability were not prefaced with the word by, and that
of the said [respondents] for the claims of there were no other signatures to indicate who
[petitioner] and that the latter impleaded the had signed for and on behalf of Minfaco, the
[respondents], in its complaint and amended principal borrower. In the Promissory Note, they
complaint, solely to put more pressure on the signed above the printed name of the corporation
Defendant Corporation to pay its obligations to -- on the space provided for Maker/Borrower, not
[petitioner].
on that provided for Co-maker.

Petitioner] x x x interposed an appeal, from the Petitioner has not shown any exceptional
Decision of the Court a quo and posed, for x x x circumstance that sanctions the disregard of
resolution, the issue of whether or not the these findings of fact, which are thus deemed
individual [respondents], are jointly and severally final and conclusive upon this Court and may not
liable to [petitioner] for the loan availments of the be reviewed on appeal.

[respondent] Corporation, inclusive of accrued

interests and penalties.
Basic is the principle that a corporation is vested
by law with a personality separate and distinct
Petitioner argues that the individual respondents from that of each person composing or
were jointly or solidarily liable with Minfaco, either representing it. Equally fundamental is the
because their participation in the loan contract general rule that corporate officers cannot be
and the loan documents made them comakers; held personally liable for the consequences of
or because they committed fraud and deception, their acts, for as long as these are for and on
which justifies the piercing of the corporate veil.
behalf of the corporation, within the scope of
their authority and in good faith. The separate
ISSUE: Whether the individual respondents are corporate personality is a shield against the
liable, either jointly or solidarily, with the personal liability of corporate officers, whose acts
Mindanao Ferroalloy Corporation?
are properly attributed to the corporation.

HELD: No.
Moreover, it is axiomatic that solidary liability
Affirming the RTC, the appellate court ruled that cannot be lightly inferred. Under Article 1207 of
the individual respondents were not solidarily the Civil Code, there is a solidary liability only
liable with the Mindanao Ferroalloy Corporation, when the obligation expressly so states, or when
because they had acted merely as officers of the the law or the nature of the obligation requires
corporation, which was the real party in interest. solidarity. Since solidary liability is not clearly
Respondent Guevara was not even a signatory to expressed in the Promissory Note and is not

52
required by law or the nature of the obligation in the installment payments, however, PPIC
this case, no conclusion of solidary liability can defaulted. Hence, IFC served a written notice of
be made.
default to PPIC demanding the latter to pay the
outstanding principal loan and all its accrued
Furthermore, nothing supports the alleged joint interests. Despite such notice, PPIC failed to pay
liability of the individual petitioners because, as the loan and its interests. IFC, together with DBP,
correctly pointed out by the two lower courts, the applied for the extrajudicial foreclosure of
evidence shows that there is only one debtor: the mortgages on the real estate, buildings,
corporation. In a joint obligation, there must be at m a c h i n e r y, e q u i p m e n t p l a n t a n d a l l
least two debtors, each of whom is liable only for improvements owned by PPIC.IFC and DBP were
a proportionate part of the debt; and the creditor the only bidders during the auction sale. PPIC
is entitled only to a proportionate part of the failed to pay the remaining balance, thus, IFC
credit.
demanded ITM and Grandtex, as guarantors of
PPIC, to pay the outstanding balance. However,
Moreover, it is rather late in the day to raise the despite the demand made by IFC, the
alleged joint liability, as this matter has not been o u t s t a n d i n g b a l a n c e re m a i n e d u n p a i d .
pleaded before the trial and the appellate courts. Consequently, IFC filed a complaint against PPIC
Before the lower courts, petitioner anchored its and ITM for the payment of the outstanding
claim solely on the alleged joint and several (or balance plus interests and attorney’s fees. The
solidary) liability of the individual respondents. trial court held PPIC liable for the payment of the
Petitioner must be reminded that an issue cannot outstanding loan plus interests and attorney’s
be raised for the first time on appeal, but fees. However, the trial court relieved ITM of its
seasonably in the proceedings before the trial obligation as guarantor. On appeal of the case,
court.
the Court of Appeals reversed the decision of the
trial court. The CA, however, held that ITM’s
So too, the Promissory Note in question is a liability as a guarantor would arise only if and
negotiable instrument. Under Section 19 of the when PPIC could not pay. Since PPIC’s inability
N e g o t i a b l e I n s t r u m e n t s L a w, a g e n t s o r to comply with its obligation was not sufficiently
representatives may sign for the principal. Their established, ITM could not immediately be made
authority may be established, as in other cases of to assume the liability.

agency. Section 20 of the law provides that a

person signing for and on behalf of a [disclosed] ISSUE: Whether or not ITM is a surety, and thus
principal or in a representative capacity x x x is solidarily liable with PPIC for the payment of the
not liable on the instrument if he was duly loan.

authorized.

HELD: ITM is a surety, and thus solidarily liable

INTERNATIONAL FINANCE CORPORATION VS with PPIC for the payment of the loan. AsArticle
IMPERIAL TEXTILE MILLS 2047 provides, a suretyship is created when a
guarantor binds itself solidarily with the principal
FACTS: Petitioner Inter national Finance obligor. While referring to ITM as a guarantor, the
Corporation (IFC) and respondent Philippine agreement specifically stated thatthe corporation
Polyamide Industrial Corporation (PPIC) entered was “jointly and severally” liable. It further stated
into a loan agreement wherein IFC extended to that ITM was a primaryobligor, not a mere surety.
PPIC a loan payable in 16 semi-annual ITM thereby brought itself to the level of PPIC
installments with interest at the rate of 10% per and could not bedeemed merely secondarily
annum on the principal amount of the loan liable. Those words emphasize the nature of their
advanced and outstanding from time to time. A liability, which thelaw characterizes as a
guarantee agreement was executed with Imperial suretyship. Therefore, ITM bound itself to be
Te x t i l e M i l l s , I n c . ( I T M ) , G r a n d Te x t i l e solidarily liable with PPICfor the latter’s
Manufacturing Corporation (Grandtex) and IFC as obligations under the loan agreement with IFC.

parties. ITM and Grandtex agreed to guarantee

PPIC’s obligations under the loan agreement.
There was a reschedule of payments as
requested by PPIC. Despite the rescheduling of

53
PEOPLE OF THE PHILIPPINES VS TAMPUS HELD: The Court held that in the case at bar, the
trial court ruled that the accomplice is solidarily
FACTS: The offended party, ABC, is the daughter liable with the principal for the entire amount of
of appellant, Montesclaros, and was 13 years old the civil indemnity of P50,000.00. This is an
at the time of the incident. Montesclaros worked erroneous apportionment of the civil indemnity.

as a waitress in a beer house. At the time of the

commission of the crime, Ida and ABC were First, because it does not take into account the
renting a room in a house owned by Tampus who difference in the nature and degree of
was a barangay tanod. On April, 1995, ABC participation between the principal, Tampus,
testified that she was in the house with versus the accomplice, Ida. Idas previous acts of
Montesclaros and Tampus who were both cooperation include her acts of forcing ABC to
drinking beer. They forced her to drink beer and drink beer and permitting Tampus to have sexual
after consuming 3 and a half glasses of beer, she intercourse with her daughter. But even without
became intoxicated and very sleepy. While ABC these acts, Tampus could have still raped ABC. It
was lying on the floor of their room, she was Tampus, the principal by direct participation,
overheard Tampus requesting her mother, who should have the greater liability, not only in
Montesclaros that she be allowed to have sexual terms of criminal liability, but also with respect to
intercourse with her.
civil liability.

Montesclaros agreed and instructed Tampus to Second, Article 110 of the Revised Penal Code
leave as soon as he was finished. Montesclaros states that the apportionment should provide for
then went to work leaving Tampus alone with a quota amount for every class for which
ABC. ABC fell asleep and when she woke up, she members of such class are solidarily liable within
noticed that the garter of her panties was loose their respective class, and they are only
and rolled down to her knees. She suffered pain subsidiarily liable for the share of the other
all over her body noticed that her panties and classes. The Revised Penal Code does not
short pants were stained with blood which was provide for solidary liability among the different
coming from her vagina. When her mother arrived classes, as was held by the trial court in the case
home from work the following morning, she kept at bar.

on crying but appellant ignored her. ABC testified

that on April 4, 1995 around 1:00 a.m., she was Thus, taking into consideration the difference in
left alone in the room since her mother was at participation of the principal and accomplice, the
work at the beer house. Tampus went inside their principal, Tampus, should be liable for two-thirds
room and threatened to kill her if she would (2/3) of the total amount of the civil indemnity and
report the previous sexual assault to anyone. moral damages and appellant Ida should be
After consummating the sexual act, he left the ordered to pay one-third (1/3) of the amount.
house. When ABC told appellant Ida about the However, since the principal, Tampus, died while
incident, the latter again ignored her.
the case was pending in the Court of Appeals, his
liability for civil indemnity ex delicto is
ABC filed two Complaints. She accused Tampus extinguished by reason of his death before the
of taking advantage of her by having carnal final judgment. His share in the civil indemnity
knowledge of her, against her will, while she was and damages cannot be passed over to the
intoxicated and sleeping on April, 1995 at 4:30 accomplice, Ida, because Tampus share of the
p.m. She declared in her Complaint that this was civil liability has been extinguished. And even if
done in conspiracy with accused Ida who gave Tampus were alive upon the promulgation of this
permission to Tampus to rape her. The trial court decision, Ida would only have been subsidiarily
convicted Tampus of two counts of rape and liable for his share of the civil indemnity of
found Montesclaros guilty as an accomplice.
P66,666.67. However, since Tampus civil liability
ex delicto is extinguished, Ida’s subsidiary liability
ISSUE: WON Ida Montesclaros, being guilty as with respect to this amount is also eliminated,
an accomplice in the rape of ABC, is solidarily following the principle that the accessory follows
liable for civil indemnity?
the principal. Tampus obligation to pay
P66,666.67 his quota of the civil indemnity is the
principal obligation, for which Ida is only

54
subsidiarily liable. Upon the extinguishment of the benefit of PCCr. On the other hand, if a labor-only
principal obligation, there is no longer any contractor is not solidarily liable with the
accessory obligation which could attach to it; employer, the latter being directly liable, then the
thus, the subsidiary liability of Ida is also releases, waivers and quitclaims in favor of
extinguished.
MBMSI will not extinguish the liability of PCCr.

BENIGNO VIGILLA VS PHILIPPINE COLLEGE A Labor-only Contractor is Solidarily Liable with

OF CRIMINOLOGY the Employer



FACTS: PCCr is a non-stock educational The NLRC and the CA correctly ruled that the
institution, while the petitioners were janitors,
releases, waivers and quitclaims executed by
janitresses and supervisor in the Maintenance petitioners in favor of MBMSI redounded to the
Department of PCCr.
benefit of PCCr pursuant to Article 1217 of the
New Civil Code. The reason is that MBMSI is
The petitioners, however, were made to solidarily liable with the respondents for the valid
understand, upon application with respondent claims of petitioners pursuant to Article 109 of
school, that they were under MBMSI, a the Labor Code.

corporation engaged in providing janitorial

services to clients. Atty. Seril is also the President As correctly pointed out by the respondents, the
and General Manager of MBMSI.
basis of the solidary liability of the principal with
those engaged in labor-only contracting is the
PCCr discovered that the Certificate of last paragraph of Article 106 of the Labor Code,
Incorporation of MBMSI had been revoked as of which in part provides: "In such cases labor-only
July 2, 2003. On March 16, 2009, PCCr, through contracting, the person or intermediary shall be
its President, respondent Gregory Alan F. Bautista considered merely as an agent of the employer
(Bautista), citing the revocation, terminated the who shall be responsible to the workers in the
school’s relationship with MBMSI, resulting in the same manner and extent as if the latter were
dismissal of the employees or maintenance directly employed by him."

personnel under MBMSI, except Alfonso Bongot

(Bongot) who was retired.
Considering that MBMSI, as the labor-only
c o n t r a c t o r, i s s o l i d a r i l y l i a b l e w i t h t h e
The dismissed employees, filed their respective respondents, as the principal employer, then the
complaints for illegal dismissal, reinstatement, NLRC and the CA correctly held that the
back wages, separation pay, underpayment of respondents’ solidary liability was already
salaries, overtime pay, holiday pay, service expunged by virtue of the releases, waivers and
incentive leave, and 13th month pay against quitclaims executed by each of the petitioners in
MBMSI, Atty. Seril, PCCr, and Bautista.
favor of MBMSI pursuant to Article 1217 of the
Civil Code which provides that "payment made
In their complaints, they alleged that it was the by one of the solidary debtors extinguishes the
school, not MBMSI, which was their real obligation."

employer because (a) MBMSI’s certification had

been revoked; (b) PCCr had direct control over This Court has constantly applied the Civil Code
MBMSI’s operations; (c) there was no contract provisions on solidary liability, specifically Articles
between MBMSI and PCCr; and (d) the selection 1217 and 1222, to labor cases. In Varorient
and hiring of employees were undertaken by Shipping Co., Inc. v. NLRC, this Court held: The
PCCr.
POEA Rules holds her, as a corporate officer,
solidarily liable with the local licensed manning
ISSUE: Whether or not there is solidary liability agency. Her liability is inseparable from those of
between the labor-only contractor and the Varorient and Lagoa. If anyone of them is held
employer
liable then all of them would be liable for the
same obligation. Each of the solidary debtors,
HELD: If a labor-only contractor is solidarily liable insofar as the creditor/s is/are concerned, is the
with the employer, then the releases, waivers and debtor of the entire amount; it is only with respect
quitclaims in favor of MBMSI will redound to the to his co-debtors that he/she is liable to the

55
extent of his/her share in the obligation. Such ISSUE: Whether Farrales’ obligation was joint or
being the case, the Civil Code allows each solidary

solidary debtor, in actions filed by the creditor/s,

to avail himself of all defenses which are derived HELD: It is joint.

from the nature of the obligation and of those 


which are personal to him, or pertaining to his A solidary obligation is one in which each of the
share [citing Section 1222 of the Civil Code]. He debtors is liable for the entire obligation, and
may also avail of those defenses personally each of the creditors is entitled to demand the
belonging to his co-debtors, but only to the satisfaction of the whole obligation from any or all
extent of their share in the debt. Thus, Varorient of the debtors. On the other hand, a joint
may set up all the defenses pertaining to Colarina obligation is one in which each debtors is liable
and Lagoa; whereas Colarina and Lagoa are only for a proportionate part of the debt, and the
liable only to the extent to which Varorient may c re d i t o r i s e n t i t l e d t o d e m a n d o n l y a
be found liable by the court.
proportionate part of the credit from each
debtor.The well-entrenched rule is that solidary
PH CREDIT CORPORATION VS. COURT OF obligations cannot be inferred lightly. They must
APPEALS
be positively and clearly expressed.A liability is
solidary only when the obligation expressly so
FACTS: PH Credit Corporation filed a case states, when the law so provides or when the
against Pacific Lloyd Corporation, Carlos nature of the obligation so requires. In the
Farrales, Thomas Sebille and Federico Lim for a dispositive portion of the 1984 Decision of the
sum of money. After failing to answer, they were trial court, the word solidary neither appears nor
declared in default and a decision (1984) was can it be inferred therefrom. The fallo merely
rendered in favor of PH Credit Corporation. When stated that the following respondents were liable:
the decision became final and executory, a Writ Pacific Lloyd Corporation, Thomas H. Van Sebille,
of Execution was issued on the real and personal Carlos M. Farrales and Federico C. Lim. Under
properties of Farrales and two public auctions the circumstances, the liability is joint. We should
took place (one for his personal properties and stress that respondents obligation is based on
another for his real properties). A few years later, the judgment rendered by the trial court. The
a motion for the issuance of a writ of possession dispositive portion or the fallo is its decisive
was filed and was granted. The writ and the order resolution and is thus the subject of execution.
is the subject of this petition. The petitioner The other parts of the decision may be resorted
claims that as a third party claimant, she filed an to in order to determine the ratio decidendi for
urgent motion for reconsideration and/or to the disposition.

suspend the order. However, the judge failed to

act on her motion and granted the assailed order Where there is a conflict between the dispositive
and writ, which was subsequently ordered of no part and the opinion of the court contained in the
force and effect in a latter order. The petitioner text or body of the decision, the former must
claims that that the respondent Judge’s order prevail over the latter on the theory that the
was tainted with grave abuse of discretion when dispositive portion is the final order, while the
it refused to consider as waived private opinion is merely a statement ordering nothing.
respondent’s objection that his obligation in the Being made to pay for an obligation in its entirety
decision was merely joint and not solidary with when ones liability is merely for a portion is a
the defendants and when the judge applied the sufficient ground to contest an execution sale. It
presumption of a joint obligation in the face of the would be the height of inequity if we allow
conclusion of fact and law contained in the judgment obligors to shoulder entire monetary
decision showing that the obligation is solidary. judgments when their legal liabilities are limited
The order declaring the writ and the order null only to their proportionate shares in the entire
and void was affirmed by the Court of Appeals, obligation.

which also decided that the liability of Farrales

was merely joint since there was no legal basis
for the levying of his property to satisfy the whole
obligation.

56
LILIBETH SUNGA-CHAN VS CA
fees ought to be solidary in nature, they having
resisted in bad faith a legitimate claim and thus
FACTS: In 1977, respondent Lamberto Chua and compelled Chua to litigate.

Jacinto Sunga formed a partnership to engage in

the marketing of liquefied petroleum gas. For
convenience, the business, pursued under the
name, Shellite Gas Appliance Center (Shellite),
was registered as a sole proprietorship in the
name of Jacinto, albeit the partnership
arrangement called for equal sharing of the net
profit. After Jacinto's death in 1989, his widow,
petitioner Cecilia Sunga, and married daughter,
petitioner Lilibeth Sunga-Chan, continued with
the business without Chua's consent. Chua's
subsequent repeated demands for accounting
and winding up went unheeded, prompting him
to file on June 22, 1992 a Complaint for Winding
Up of a Partnership Affairs, Accounting, Appraisal
and Recovery of Shares and Damages with Writ
of Preliminary Attachment.

ISSUE: Whether Lilibeth Sunga-Chan and her

husband, Norberto Chan are jointly or solidary
liable for any and all claims of Chua.

HELD: Under the circumstances surrounding the

case, the Court holds that the obligation of
petitioners is solidary for several reasons. For
one, the complaint of Chua for winding up of
partnership affairs, accounting, appraisal, and
recovery of shares and damages is clearly a suit
to enforce a solidary or joint and several
obligation on the part of petitioners. As it were,
the continuance of the business and
management of Shellite by petitioners against the
will of Chua gave rise to a solidary obligation, the
acts complained of not being severable in nature.
Indeed, it is well-nigh impossible to draw the line
between when the liability of one petitioner ends
and the liability of the other starts. In this kind of
situation, the law itself imposes solidary
obligation.

For the other, the duty of petitioners to remit to

Chua his half interest and share of the total
partnership assets proceeds from petitioners'
indivisible obligation to render an accounting and
inventory of such assets. The need for the
imposition of a solidary liability becomes all the
more pronounced considering the impossibility of
quantifying how much of the partnership assets
or profits was misappropriated by each petitioner.

And for a third, petitioners' obligation for the

payment of damages and attorney's and litigation

57