Course Outline

I. ​Obligations - Article 1156-13304

A. ​In General
1. Definition –

Article 1156 - An obligation is a juridical necessity to give, to do or not to do.

1. Kinds of Obligations as to basis and enforceability - Article 1423- 1430; RA

6809

TITLE III
NATURAL OBLIGATIONS
Article 1423. Obligations are civil or natural. Civil obligations give a right of action to
compel their performance. Natural obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to enforce their performance, but
after voluntary fulfillment by the obligor, they authorize the retention of what has been
delivered or rendered by reason thereof. Some natural obligations are set forth in the
following articles.

Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot recover what he has
delivered or the value of the service he has rendered.

Article 1425. When without the knowledge or against the will of the debtor, a third person
pays a debt which the obligor is not legally bound to pay because the action thereon has
prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot
recover what he has paid.

Article 1426. When a minor between eighteen and twenty-one years of age who has
entered into a contract without the consent of the parent or guardian, after the annulment
of the contract voluntarily returns he whole thing or price received, notwithstanding the
fact that he has not been benefited thereby, there is no right to demand the thing or price
thus returned.

Article 1427. When a minor between eighteen and twenty-one years of age, who has
entered into a contract without the consent of the parent or guardian, voluntarily pays a
sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no
right to recover the same from the obligee who has spent or consumed it in good faith.
(1160A)

Article 1428. When, after an action to enforce a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot demand the return of what he has delivered
or the payment of the value of the service he has rendered.

Article 1429. When a testate or intestate heir voluntarily pays a debt of the decedent
exceeding the value of the property which he received by will or by the law of intestacy
from the estate of the deceased, the payment is valid and cannot be rescinded by the
payer.
Article 1430. When a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the intestate heirs, after the
settlement of the debts of the deceased, pays a legacy in compliance with a clause in the
defective will, the payment is effective and irrevocable.

RA 6809: AN ACT LOWERING THE AGE OF MAJORITY FROM 21 TO 18, AMENDING

FOR THE PURPOSE EO 209, AND FOR OTHER PURPOSES
Art. 234. Emancipation takes place by the attainment of majority. Unless otherwise
provided, majority commences at the age of eighteen years

Art. 236. Emancipation shall terminate parental authority over the person and property of
the child who shall then be qualified and responsible for all acts of civil life, save the
exceptions established by existing laws in special cases.

"Contracting marriage shall require parental consent until the age of twenty-one.

"Nothing in this Code shall be construed to derogate from the duty or responsibility of
parents and guardians for children and wards below twenty-one years of age mentioned
in the second and third paragraphs of Article 2180 of the Civil Code.

1. Prescription of Actions - 1139-1155

CHAPTER 3
Prescription of Actions

Article 1139. Actions prescribe by the mere lapse of time fixed by law. (1961)

Article 1140. Actions to recover ​movables ​shall prescribe eight years from the time the
possession thereof is lost, unless the possessor has acquired the ownership by
prescription for a less period, according to articles 1132, and without prejudice to the
provisions of articles 559, 1505, and 1133. (1962a)

Article 1141. Real actions over ​immovables p ​ rescribe after ​thirty years​.
This provision is without prejudice to what is established for the acquisition of ownership
and other real rights by prescription. (1963)

Article 1142. A ​mortgage ​action prescribes after ​ten ​years. (1964a)

Article 1143. The following rights, among others specified elsewhere in this Code, are not
extinguished by prescription:
(1) To demand a right of way, regulated in article 649;
(2) To bring an action to abate a public or private nuisance. (n)

Article 1144. The following actions must be brought within ​ten ​years from the time the
right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)

Article 1145. The following actions must be commenced within ​six ​years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)

Article 1146. The following actions must be instituted within ​four ​years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any act, activity, or conduct of any public
officer involving the ​exercise of powers or authority arising from Martial Law ​including
the arrest, detention and/or trial of the plaintiff, the same must be brought within one (1)
year. (As amended by PD No. 1755, Dec. 24, 1980.)

Article 1147. The following actions must be filed within ​one ​year:
(1) For forcible entry and detainer;
(2) For defamation. (n)

Article 1148. The limitations of action mentioned in articles 1140 to 1142, and 1144 to
1147 are without prejudice to those specified in other parts of this Code, in the Code of
Commerce, and in special laws. (n)

Article 1149. All other actions whose periods are not fixed in this Code or in other laws
must be brought within ​five​ years from the time the right of action accrues. (n)

Article 1150. The time for prescription for all kinds of actions, when there is no special
provision which ordains otherwise, shall be ​counted from the day they may be
brought. ​(1969)

Article 1151. The time for the prescription of actions which have for their object the
enforcement of obligations to pay principal with interest or annuity runs ​from the last
payment of the annuity or of the interest​. (1970a)

Article 1152. The period for prescription of actions to demand the fulfillment of obligation
declared by a judgment commences from the time the ​judgment become final​. (1971)

Article 1153. The period for prescription of actions to demand accounting runs from the
day the persons who should render the same cease in their functions.

The period for the action arising from the result of the accounting runs from the date when
said result was ​recognized by agreement of the interested parties.​ (1972)

Article 1154. The period during which the obligee was prevented by a fortuitous event
from enforcing his right is ​not reckoned against him​. (n)

Article 1155. The prescription of actions is interrupted when they are filed before the
court, when there is a written extrajudicial demand by the creditors, and when there is any
written acknowledgment of the debt by the debtor. (1973a)

Case Title: Villaroel v. Estrada,

GR number: 71 PHIL 140
Date : December 19, 1940
Ponente:
Topic: ​Waiver to Right of Prescription

CONTRATOS; PROMESA NUEVA DE PAGAR UNA DEUDA PRESCRITA;

OBLIGACIÓN MORAL COMO CONSIDERACIÓN DE UN CONTRATO.—​No se funda la
presente acción en la obligación original contraída por la madre del demandado, que ya
ha prescrito, sino en la que contrajo el demandado el 9 de agosto de 1930 (Exhíbito B) al
asumir el cumplimiento de aquella obligación, ya prescrita. Siendo el demandado el único
heredero de la primitiva deudora, con derecho a sucederla en su herencia, aquella deuda
contraída por su madre legalmente, aunque perdió su eficacia por prescripción, ahora es,
sin embargo, para él una obligación moral, que es consideración suficiente a crear y
hacer eficaz y exigible su obligación voluntariamente contraída el 9 de agosto de 1930 en
el Exhíbito B. Villarroel vs. Estrada, 71 Phil. 140, No. 47362 Diciembre 19, 1940

ID. ; ID. ; ID.—​La regla de que una promesa nueva de pagar una deuda prescrita debe
ser hecha por la misma persona obligada o por otra legalmente autorizada por ella, no es
aplicable al caso presente en que no se exige el cumplimiento de la obligación de la
obligada originalmente, sino del que después quiso voluntariamente asumir esta
obligación. Villarroel vs. Estrada, 71 Phil. 140, No. 47362 Diciembre 19, 1940

FACTS:
On May 9, 1912, Alejandro Callao, mother of Juan Villaroel, obtained a loan of P1, 000
from Sps. Mariano Estrada and Severina payable after 7 years. Alejandra died, leaving
Juan Villaroel as sole heir, Spouses Mariano Estrada and Severina also died, leaving
Bernardino Estrada as sole heir.

On August 9, 1930, Juan Villaroel signed a document in which he declared to pay the
debt of his deceased mother in the amount of P1, 000 with legal interest of 12% per
annum. The CFI of Laguna ordered Juan Villaroel to pay the amount of P1, 000 with an
interest of 12% per annum since August 9, 1930 until full payment. Villaroel appealed.

ISSUE:
WON the right to prescription may be waived or renounced.

HELD:
Yes, right to prescription may be waived or renounced. As a general rule, when a debt
has already prescribed, it cannot be imposed by the creditor. However, a new contract
which recognizes and assumes the prescribed debt is an exception, for it would be valid
and enforceable. Hence, a person who acknowledges the correctness of the debt and
promises to pay it despite knowing that the debt has already prescribed, such as the case
at bar, waived the benefit of the prescription.

Case Title: Ansay v. NDC,

GR number: 107 Phil 997
Date: April 29, 1960
Ponente: Paras CJ
Topic: ​NATURAL OBLIGATIONS; ELEMENT OF; VOLUNTARY FULFILLMENT; WHEN
RETENTION CAN BE ORDERED/ BONUS AS A DEMANDABLE AND ENFORCEABLE
OBLIGATION

FACTS:
On July 25, 1956, appellants filed with CFI Manila a complaint praying for the issuance of
Christmas bonus. CFI dismissed the case on the ground that a bonus is an act of
liberality and it is not within the courts judicial powers to command respondents to be
liberal. Accordingly, a bonus issued to employees is not a legal duty but a moral
obligation. Appellants appealed alleging that there is a moral obligation or the natural
obligation on the part of the company to issue such bonus.

ISSUE:
WON an employer has moral obligation to be mandated by court to issue bonuses to its
employees

HELD:
No. An element of a natural obligation that is indispensable before it can he cognizable
by the court is voluntary fulfillment by the obligor. Retention can be ordered only after
there has been voluntary performance.

A bonus is not a demandable and enforceable obligation, except when it is made a part of
the wage or salary compensation. (Philippine Education Co. vs. CIR and the Union of
Philippine Education Co. Employees (NLU), 92 Phil., 381; 48 Off. Gaz. 5278.) Hence, the
grant thereof does not generally constitute a natural obligation on the part of the company

Case Title: DBP v. Confessor

GR number: L-48889
Date: May 11, 1988
Ponente: GANCAYCO, J.:
Topic: ​PRESCRIPTION/ NEW PROMISE TO PAY/ CONJUGAL PARTNERSHIP OF
GAINS

FACTS:
Sps. Confessor and Villafuerte obtained an agricultural loan from Agricultura and
Industrial Bank (AIB - now DBP) of 2000 pesos evidenced by a PN with 10 year
amortization. After 10 years, Confessor executed a second PN acknowledging and
promising to pay the said loan. DBP filed a complaint for failure of the Sps to pay. CFI
Ilo-ilo decided in favor of DBP. Sps appealed the decision alleging prescription and
validity of PN as to personal property of Confessor only and not the CPG of the family.

ISSUE 1:
WON a PN which was executed in consideration of a previous PN is barred by
prescription

HELD 1:
NO. “​A new express promise to pay a debt barred xxx will take the case from the
operation of the statute of limitations as this proceeds upon the ground that as a
statutory limitation merely bars the remedy and does not discharge the debt, there is
something more than a mere moral obligation to support a promise, to wit—a pre-existing
debt which is a sufficient consideration for the new promise; the new promise upon this
sufficient consideration constitutes, in fact, a new cause of action.” “x x x x x It is this new
promise, either made in express terms or deduced from an acknowledgment as a legal
implication, which is to be regarded as reanimating the old promise, or as imparting
vitality to the remedy (which by lapse of time had become extinct) and thus enabling the
creditor to recover upon his original contract.”

ISSUE 2:
WON the PN issued by the husband only binds his personal property and not the
conjugal partnership of gains of the family

HELD 2:
No. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal
partnership. As such administrator, all debts and obligations contracted by the husband
for the benefit of the conjugal partnership, are chargeable to the conjugal partnership.

CASE SYLLABI

Civil Law; Prescription; Waiver of right to prescription; Case at bar.—​The right to

prescription may be waived or renounced. Article 1112 of Civil Code provides: “Art. 1112.
Persons with capacity to alienate property may renounce prescription already obtained,
but ​not the right to prescribe in the future. Prescription is deemed to have been tacitly
renounced when the renunciation results from acts which imply the abandonment of the
right acquired.” There is no doubt that prescription has set in as to the first promissory
note of February 10, 1940. However, when respondent Confesor executed the second
promissory note on April 11,1961 whereby he promised to pay the amount covered by the
previous promissory note on or before June 15, 1961, and upon failure to do so, agreed
to the foreclosure of the mortgage, said respondent thereby effectively and expressly
renounced and waived his right to the prescription of the action covering the first
promissory note. This Court had ruled in a similar case that—"x x x w​hen a debt is
already barred by prescription, it cannot be enforced by the creditor. But a new
contract recognizing and assuming the prescribed debt would be valid and
enforceable x x x.​” Thus, it has been held—“Where, therefore, a party acknowledges the
correctness of a debt and promises to pay it after the same has prescribed and with full
knowledge of the prescription he thereby waives the benefit of prescription.”

Same; Same; Same; Effects of a new express promise to pay a debt.​—This is not a
mere case of acknowledgment of a debt that has prescribed but a new promise to pay the
debt. The consideration of the new promissory note is the pre-existing obligation under
the first promissory note. ​The statutory limitation bars the remedy but does not
discharge the debt. “A new express promise to pay a debt barred xxx will take the case
from the operation of the statute of limitations as this proceeds upon the ground that as a
statutory limitation merely bars the remedy and does not discharge the debt, there is
something more than a mere moral obligation to support a promise, to wit—a pre existing
debt which is a sufficient consideration for the new promise; the new promise upon this
sufficient consideration constitutes, in fact, a new cause of action.” “x x x x x It is this new
promise, either made in express terms or deduced from an acknowledgment as a legal
implication, which is to be regarded as reanimating the old promise, or as imparting
vitality to the remedy (which by lapse of time had become extinct) and thus enabling the
creditor to recover upon his original contract.”

Same; Same; Same; Conjugal Partnership; Husband as administrator of the

conjugal partnership under Art. 165 of the Civil Code.—​WE disagree. Under Article
165 of the Civil Code, the husband is the administrator of the conjugal partnership. As
such administrator, all debts and obligations contracted by the husband for the benefit of
the conjugal partnership, are chargeable to the conjugal partnership. No doubt, in this
case, respondent Confesor signed the second promissory note for the benefit of the
conjugal partnership. Hence the conjugal partnership is liable for this obligation.

Case Title: Heirs of Roldan v Heirs of Roldan and Heirs of Magtulis

GR number: G.R.No.202578
Date: 27 of Sept 2017
Ponente: SERENO, C.J
Topic: ​PRESCRIPTION AS TO CO-OWNED PROPERTY/ PROOF OF FILIATION

FACTS:
Natalia Magtulis owned an agricultural land in Aklan. Her only heirs were Gilberto and
Silvela Roldan both children from her first marriage and Leopolda Magtulis her child with
another man. However, after her death, Gilberto took possession of the property to the
exclusion of others. Hence, a petition was filed before the RTC for Partition and
Damages. Gilberto and Silvela refused. Their defense is that Silvela already sold her
share to Gilberto. However, during trial, Silvela was not able to show documentary proof
to this effect. RTC decided that the heirs of Silvela remain co-owners and as to Leopoldo
Magtulis, the court concluded him to be a son of Natalia. It also decided that the shares of
the heirs be divided equally and to have the property partitioned. Appeal was made to CA
which affirmed the decision of the RTC. On certiorari, they questioned the decision of CA
alleging that the right of action of the heirs of Leopoldo has prescribed considering that
the case was only filed in 2003 or 42 years since Gilberto occupied the property in 1961
and that the CA erred in appreciating only the marriage certificate and the Baptismal
Certificate of Leopolda to conclude her filiation.

ISSUE 1:
WON Prescription and/or laches bar claims against co-ownership of an inherited property

HELD 1:
No. Prescription cannot be appreciated against the co-owners of a property, absent any
conclusive act of repudiation made clearly known to the other co-owners.

First, as demanded by the repudiation requisite for prescription to be appreciated, there is

a need to determine the veracity of factual matters such as the date when the period to
bring the action commenced to run. In Macababbad, Jr. v. Masirag, we considered that
determination as factual in nature. The same is true in relation to finding the existence of
laches. We held in Crisostomo v. Garcia, Jr. that matters like estoppel, laches, and fraud
require the presentation of evidence and the determination of facts. Since petitions for
review on certiorari under Rule 45 of the Rules of Court, as in this case, entertain
questions of law, petitioners claim of prescription and laches fail.

Second, petitioners have alleged prescription and laches only before this Court. Raising a
new ground for the first time on appeal contravenes due process, as that act deprives the
adverse party of the opportunity to contest the assertion of the claimant. Since
respondents were not able to refute the issue of prescription and laches, this Court
denies the newly raised contention of petitioners.

ISSUE 2:
WON baptismal and marriage certificates is sufficient documentary evidence to prove
filiation

HELD 2:
No. All told, the Baptismal Certificate and the Marriage Contract of Leopoldo, which
merely stated that Natalia is his mother, are inadequate to prove his filiation with the
property owner. Moreover, by virtue of these documents alone, the RTC and the CA
could not have justly concluded that Leopoldo and his successors-in-interest were entitled
to a one-third share of the property left by Natalia, equal to that of each of her undisputed
legitimate children Gilberto and Silvela. As held in Board of Commissioners v. Dela Rosa,
a baptismal certificate is certainly not proof of the status of legitimacy or illegitimacy of the
claimant. Therefore, the CA erred in presuming the hereditary rights of Leopoldo to be
equal to those of the legitimate heirs of Natalia.

Decision is partly granted. SC declared that only the heirs of Gilberta Roldan and Silvela
Roldan are declared co-owners of the land which should be partitioned among only.

4. Elements of Obligation

B. Source of Civil Obligation- Art.1157

Article 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)

Case Title: Sagrada Orden v. NACOCO

GR number: 91 Phil 503
Date: June 30, 1952
Ponente: LABRADOR, J
Topic: ​Four sources of obligations, namely, law, contract or quasi-contract, crime, or
negligence.

FACTS:
This is an action to recover possession of land in Manila and the rentals for its occupation
and use. The land is owned by the plaintiff and was registered before the war. During the
Japanese occupation, it was acquired by a Japanese corporation by the name of Taiwan
Tekkosho for 140k and was thereafter registered in RD of Manila. After liberation, the
Alien Property Custodian of US took possession, control and custody under Section 12 of
the Trading with the Enemy Act. In 1946, it was occupied by the Copra Export
Management Company under custodianship agreement with the US Alien Property
Custodian. When it vacated the property, it was then occupied by the defendant.
Defendant made repairs and also rented out 1/3 of the property.

Plaintiff in this case made claims to the Alien Property Custodian of US but was denied.
Hence an action was brought to CFI Manila for annulment of sale and recovery of
possession. The defense - the sale was allegedly void because it was executed under
duress. Defendant allege no liability for rentals due to occupation in good faith. RTC
decided that defendant is liable for rentals, reverted ownership because of a void sale.

Defendant counters non liability and valid occupation because land was given to him by
the Alien Property Administration (The one in authority during that time)

ISSUE:
WON defendant is obliged to pay rentals to the plaintiff

HELD:
No. If NACOCO is liable at all, its obligations, must arise from any of the four sources of
obligations, namely, law, contract or quasi-contract, crime, or negligence.
Defendant-appellant is not guilty of any offense at all, because it entered the premises
and occupied it with the permission of the entity which had the legal control and
administration thereof, the Alien Property Administration. Neither was there any
negligence on its part. There was also no privity between the Alien Property Custodian
and the Taiwan Tekkosho, which had secured the possession of the property from the
plaintiff-appellee by the use of duress, such that the Alien Property Custodian or its
permittee (defendant-appellant) may be held responsible for the supposed illegality of the
occupation of the property by the said Taiwan Tekkosho. The Alien Property
Administration had the control and administration of the property not as successor to the
interests of the enemy holder of the title, the Taiwan Tekkosho. Neither is it a trustee of
the former owner, the plaintiff-appellee herein, but a trustee of then Government of the
United States, in its own right, to the exclusion of, and against the claim or title of, the
enemy owner. From August, 1946, when defendant-appellant took possession, to the late
of judgment on February 28, 1948, Alien Property Administration had the absolute control
of the property as trustee of the Government of the United States, with power to dispose
of it by sale or otherwise, as though it were the absolute owner. Therefore, even if
defendant-appellant were liable to the Alien Property Administration for rentals, these
would not accrue to the benefit of the plaintiff-appellee, the owner, but to the United
States Government.

CASE SYLLABI

UNITED STATES ALIEN PROPERTY CUSTODIAN; RIGHTS AND POWERS OVER

ENEMY PROPERTY.—​The Alien Property Custodian of the United States had the control
and administration of enemy property, not as a successor to the interests of the enemy
alien owner, but by express provision of law (Trading With The Enemy Act, 40 Stat., 44;
50 U. S. C. A., 189). Neither was he a trustee of the pre-war owner of the property, but a
trustee of the United States Government (50 U. .S. C. A., 282-283), in its own right, to the
exclusion of and against the claim or title of the enemy owner, with power to dispose of
the property by sale or otherwise, as though he were the absolute owner.

RENTALS FOR USE AND OCCUPATION OF ENEMY PROPERTY.—​A party allowed by

the United States Alien Property Custodian to occupy and use the enemy property is not
liable to pay rentals therefor to the pre-war owner prior to the annulment of the enemy's
title to the property even when the enemy acquired it by duress, because there was no
privity (of contract between the Alien Property Custodian and the enemy owner, the
former's title being based, by legal provision, on the right to seize enemy property. The
occupant's obligation to pay rentals, like any other obligation, must arise from law,
contract, quasi-contract, crime, or negligence (article 1089, Spanish Civil Code). If
occupant took possession of the property with the permission of the Alien Property
Custodian, without any express or implied agreement between them that rentals would be
paid for the use and occupation of the enemy property, none may be recovered by the
pre-war owner. As to the rentals collected by said occupant from its lessee, the same
should accrue to it, as a possessor in good faith.

JUDGMENTS; RESERVATION THEREIN OF A SEPARATE ACTION.—​Even if in the

judgment annulling the sale, reservation is made of a new action for such rentals, the
reservation may not be considered as vesting a new right; if no right to claim for rentals
existed at the time of the reservation, no rights can arise or accrue from such reservation
alone.

Case Title: The Metro bank v. Rosales and Yo Yuk To

GR number: G.R.No.183204
Date: Jan.13, 2014
Ponente: DEL CASTILLO, J.
Topic: ​Breach of contract/Sources of Obligation

FACTS:
Petitioner Metro bank is a domestic banking corporation duly organized and existing
under the laws of the Philippines. Respondent Rosales is the owner of a travel agency
while Yo Yuk To is her mother. In 2000, respondents opened a Joint Peso Account with
petitioner’s Pritil-Tondo Branch. Rosales accompanied Liu Chiu Fang, to open a savings
account. Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted
as an interpreter for her. On March 3, 2003, respondents opened with petitioner’s
Pritil-Tondo Branch a Joint Dollar Account with an initial deposit of US$14,000.00. On
July 31, 2003, petitioner issued a ​“Hold Out” order against respondents’ accounts. On
September 3, 2003, petitioner filed before the Office of the Prosecutor of Manila a
criminal case for Estafa through False Pretenses, Misrepresentation, Deceit, and Use of
Falsified Documents. Respondent Rosales, denied taking part in the fraudulent and
unauthorized withdrawal from the dollar account of Liu Chiu Fang. On December 15,
2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the
criminal case for lack of probable cause. On September 10, 2004, respondents filed
before the RTC of Manila a complaint for Breach of Obligation and Contract with
Damages.

ISSUE:
WON petitioner breached its contract with respondents

HELD:
YES. The "Hold Out" clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit:
law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to
show that respondents have an obligation to it under any law, contract, quasi-contract,
delict, or quasi-delict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a "Hold Out" order
as the case is still pending and no final judgment of conviction has been rendered against
respondent Rosales. In fact, it is significant to note that at the time petitioner issued the
"Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that
respondent Rosales is not liable under any of the five sources of obligation, there was no
legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the
findings of the RTC and the CA that the "Hold Out" clause does not apply in the instant
case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it
unjustifiably refused to release respondents’ deposit despite demand. Having breached
its contract with respondents, petitioner is liable for damages.
In cases of breach of contract, moral damages may be recovered only if the defendant
acted fraudulently or in bad faith, or is "guilty of gross negligence amounting to bad faith,
or in wanton disregard of his contractual obligations."
In this case, a review of the circumstances surrounding the issuance of the "Hold Out"
order reveals that petitioner issued the "Hold Out" order in bad faith. First of all, the order
was issued without any legal basis. Second, petitioner did not inform respondents of the
reason for the "Hold Out." Third, the order was issued prior to the filing of the criminal
complaint. Records show that the "Hold Out" order was issued on July 31, 2003, while the
criminal complaint was filed only on September 3, 2003. All these taken together lead us
to conclude that petitioner acted in bad faith when it breached its contract with
respondents. As we see it then, respondents are entitled to moral damages.

CASE SYLLABI

Mercantile Law; Banks and Banking; Hold Out Orders; The “Hold Out” clause
applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict.— ​Petitioner’s reliance on the
“Hold Out” clause in the Application and Agreement for Deposit Account is misplaced.
The “Hold Out” clause applies only if there is a valid and existing obligation arising from
any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show
that respondents have an obligation to it under any law, contract, quasi-contract, delict, or
quasi-delict. And although a criminal case was filed by petitioner against respondent
Rosales, this is not enough reason for petitioner to issue a “Hold Out” order as the case is
still pending and no final judgment of conviction has been rendered against respondent
Rosales. In fact, it is significant to note that at the time petitioner issued the “Hold Out”
order, the criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal basis
for petitioner to issue the “Hold Out” order. Accordingly, we agree with the findings of the
RTC and the CA that the “Hold Out” clause does not apply in the instant case. In view of
the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably
refused to release respondents’ deposit despite demand. Having breached its contract
with respondents, petitioner is liable for damages.

Civil Law; Damages; Moral Damages; Contracts; Breach of Contracts; In cases of

breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith, or is “guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligations.”— ​In cases of breach of
contract, moral damages may be recovered only if the defendant acted fraudulently or in
bad faith, or is “guilty of gross negligence amounting to bad faith, or in wanton disregard
of his contractual obligations.” In this case, a review of the circumstances surrounding the
issuance of the “Hold Out” order reveals that petitioner issued the “Hold Out” order in bad
faith. First of all, the order was issued without any legal basis. Second, petitioner did not
inform respondents of the reason for the “Hold Out.” Third, the order was issued prior to
the filing of the criminal complaint. Records show that the “Hold Out” order was issued on
July 31, 2003, while the criminal complaint was filed only on September 3, 2003. All these
taken together lead us to conclude that petitioner acted in bad faith when it breached its
contract with respondents. As we see it then, respondents are entitled to moral damages.

Same; Same; Exemplary Damages; As to the award of exemplary damages, Article

2229 of the Civil Code provides that exemplary damages may be imposed “by way
of example or correction for the public good, in addition to the moral, temperate,
liquidated or compensatory damages.”— ​As to the award of exemplary damages,
Article 2229 of the Civil Code provides that exemplary damages may be imposed “by way
of example or correction for the public good, in addition to the moral, temperate,
liquidated or compensatory damages.” They are awarded only if the guilty party acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.

Same; Same; Same; Banks and Banking; The Supreme Court finds that petitioner
indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
when it refused to release the deposits of respondents without any legal basis; A
bank must “treat the accounts of its depositors with meticulous care and always to
have in mind the fiduciary nature of its relationship with them.” For failing to do
this, an award of exemplary damages is justified to set an example.— ​In this case,
we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any
legal basis. We need not belabor the fact that the banking industry is impressed with
public interest. As such, “the highest degree of diligence is expected, and high standards
of integrity and performance are even required of it.” It must therefore “treat the accounts
of its depositors with meticulous care and always to have in mind the fiduciary nature of
its relationship with them.” For failing to do this, an award of exemplary damages is
justified to set an example.

1. Law - Article 1158

Article 1158. Obligations derived from law are not presumed. Only those expressly
determined in this Code or in special laws are demandable, and shall be regulated by the
precepts of the law which establishes them; and as to what has not been foreseen, by the
provisions of this Book. (1090)

1. Contracts - Article 1159, 1305

Article 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. (1091a)

Article 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service. (1254a)
 1. Quasi-contracts - Article 1160, 2142-2175

a. ​Negotiorum gestio
b. ​Solutio indebiti
c. ​Other Quasi-Contracts

Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of
Chapter 1, Title XVII, of this Book. (n)

CHAPTER 1
Quasi-contracts
Article 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another. (n)

Article 2143. The provisions for quasi-contracts in this Chapter do not exclude other
quasi-contracts which may come within the purview of the preceding article. (n)
SECTION 1
Negotiorum Gestio

Article 2144. Whoever voluntarily takes charge of the agency or management of the
business or property of another, without any power from the latter, is obliged to continue
the same until the termination of the affair and its incidents, or to require the person
concerned to substitute him, if the owner is in a position to do so. This juridical relation
does not arise in either of these instances:

(1) When the property or business is not neglected or abandoned;

(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of articles 1317, 1403, No. 1, and 1404 regarding
unauthorized contracts shall govern.

In the second case, the rules on agency in Title X of this Book shall be applicable.
(1888a)

Article 2145. The officious manager shall perform his duties with all the diligence of a
good father of a family, and pay the damages which through his fault or negligence may
be suffered by the owner of the property or business under management.

The courts may, however, increase or moderate the indemnity according to the
circumstances of each case. (1889a)

Article 2146. If the officious manager delegates to another person all or some of his
duties, he shall be liable for the acts of the delegate, without prejudice to the direct
obligation of the latter toward the owner of the business.

The responsibility of two or more officious managers shall be solidary, unless the
management was assumed to save the thing or business from imminent danger. (1890a)

Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not accustomed to embark
upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith. (1891a)

Article 2148. Except when the management was assumed to save property or business
from imminent danger, the officious manager shall be liable for fortuitous events:
(1) If he is manifestly unfit to carry on the management;
(2) If by his intervention he prevented a more competent person from taking up the
management. (n)

Article 2149. The ratification of the management by the owner of the business produces
the effects of an express agency, even if the business may not have been successful.
(1892a)

Article 2150. Although the officious management may not have been expressly ratified,
the owner of the property or business who enjoys the advantages of the same shall be
liable for obligations incurred in his interest, and shall reimburse the officious manager for
the necessary and useful expenses and for the damages which the latter may have
suffered in the performance of his duties.

The same obligation shall be incumbent upon him when the management had for its
purpose the prevention of an imminent and manifest loss, although no benefit may have
been derived. (1893)

Article 2151. Even though the owner did not derive any benefit and there has been no
imminent and manifest danger to the property or business, the owner is liable as under
the first paragraph of the preceding article, provided:
(1) The officious manager has acted in good faith, and
(2) The property or business is intact, ready to be returned to the owner. (n)

Article 2152. The officious manager is personally liable for contracts which he has
entered into with third persons, even though he acted in the name of the owner, and there
shall be no right of action between the owner and third persons. These provisions shall
not apply:
(1) If the owner has expressly or tacitly ratified the management, or
(2) When the contract refers to things pertaining to the owner of the business. (n)

Article 2153. The management is extinguished:

(1) When the owner repudiates it or puts an end thereto;
(2) When the officious manager withdraws from the management, subject to the
provisions of article 2144;
(3) By the death, civil interdiction, insanity or insolvency of the owner or the officious
manager. (n)

SECTION 2
Solutio Indebiti
Article 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. (1895)

Article 2155. Payment by reason of a mistake in the construction or application of a

doubtful or difficult question of law may come within the scope of the preceding article. (n)

Article 2156. If the payer was in doubt whether the debt was due, he may recover if he
proves that it was not due. (n)

Article 2157. The responsibility of two or more payees, when there has been payment of
what is not due, is solidary. (n)

Article 2158. When the property delivered or money paid belongs to a third person, the
payee shall comply with the provisions of article 1984. (n)

Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a
sum of money is involved, or shall be liable for fruits received or which should have been
received if the thing produces fruits.

He shall furthermore be answerable for any loss or impairment of the thing from any
cause, and for damages to the person who delivered the thing, until it is recovered.
(1896a)

Article 2160. He who in good faith accepts an undue payment of a thing certain and
determinate shall only be responsible for the impairment or loss of the same or its
accessories and accessions insofar as he has thereby been benefited. If he has alienated
it, he shall return the price or assign the action to collect the sum. (1897)

Article 2161. As regards the reimbursement for improvements and expenses incurred by
him who unduly received the thing, the provisions of Title V of Book II shall govern. (1898)

Article 2162. He shall be exempt from the obligation to restore who, believing in good
faith that the payment was being made of a legitimate and subsisting claim, destroyed the
document, or allowed the action to prescribe, or gave up the pledges, or cancelled the
guaranties for his right. He who paid unduly may proceed only against the true debtor or
the guarantors with regard to whom the action is still effective. (1899)

Article 2163. It is presumed that there was a mistake in the payment if something which
had never been due or had already been paid was delivered; but he from whom the
return is claimed may prove that the delivery was made out of liberality or for any other
just cause. (1901)

SECTION 3
Other Quasi-Contracts *

Article 2164. When, without the knowledge of the person obliged to give support, it is
given by a stranger, the latter shall have a right to claim the same from the former, unless
it appears that he gave it out of piety and without intention of being repaid. (1894a)
Article 2165. When funeral expenses are borne by a third person, without the knowledge
of those relatives who were obliged to give support to the deceased, said relatives shall
reimburse the third person, should the latter claim reimbursement. (1894a)

Article 2166. When the person obliged to support an orphan, or an insane or other
indigent person unjustly refuses to give support to the latter, any third person may furnish
support to the needy individual, with right of reimbursement from the person obliged to
give support. The provisions of this article apply when the father or mother of a child
under eighteen years of age unjustly refuses to support him.

Article 2167. When through an accident or other cause a person is injured or becomes
seriously ill, and he is treated or helped while he is not in a condition to give consent to a
contract, he shall be liable to pay for the services of the physician or other person aiding
him, unless the service has been rendered out of pure generosity.

Article 2168. When during a fire, flood, storm, or other calamity, property is saved from
destruction by another person without the knowledge of the owner, the latter is bound to
pay the former just compensation.

Article 2169. When the government, upon the failure of any person to comply with health
or safety regulations concerning property, undertakes to do the necessary work, even
over his objection, he shall be liable to pay the expenses.

Article 2170. When by accident or other fortuitous event, movables separately pertaining
to two or more persons are commingled or confused, the rules on co-ownership shall be
applicable.

Article 2171. The rights and obligations of the finder of lost personal property shall be
governed by articles 719 and 720.

Article 2172. The right of every possessor in good faith to reimbursement for necessary
and useful expenses is governed by article 546.

Article 2173. When a third person, without the knowledge of the debtor, pays the debt, the
rights of the former are governed by articles 1236 and 1237.

Article 2174. When in a small community a majority of the inhabitants of age decide upon
a measure for protection against lawlessness, fire, flood, storm or other calamity, any one
who objects to the plan and refuses to contribute to the expenses but is benefited by the
project as executed shall be liable to pay his share of said expenses.

Article 2175. Any person who is constrained to pay the taxes of another shall be entitled
to reimbursement from the latter.

4. ​Acts or omissions punished by law - Article 1167, 2177, Article 100-104, RPC

Article 1167. If a person obliged to do something fails to do it, the same shall be executed
at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be undone.
(1098)

Article 2177. Responsibility for fault or negligence under the preceding article is entirely
separate and distinct from the civil liability arising from negligence under the Penal Code.
But the plaintiff cannot recover damages twice for the same act or omission of the
defendant.(n)

Chapter One
PERSON CIVILLY LIABLE FOR FELONIES

Article 100. Civil liability of a person guilty of felony. - Every person criminally liable for a
felony is also civilly liable.

Article 101. Rules regarding civil liability in certain cases. - The exemption from criminal
liability established in subdivisions 1, 2, 3, 5 and 6 of Article 12 and in subdivision 4 of
Article 11 of this Code does not include exemption from civil liability, which shall be
enforced subject to the following rules:

First. In cases of subdivisions 1, 2, and 3 of Article 12, the civil liability for acts committed
by an imbecile or insane person, and by a person under nine years of age, or by one over
nine but under fifteen years of age, who has acted without discernment, shall devolve
upon those having such person under their legal authority or control, unless it appears
that there was no fault or negligence on their part.

Should there be no person having such insane, imbecile or minor under his authority,
legal guardianship or control, or if such person be insolvent, said insane, imbecile, or
minor shall respond with their own property, excepting property exempt from execution, in
accordance with the civil law.

Second. In cases falling within subdivision 4 of Article 11, the persons for whose benefit
the harm has been prevented shall be civilly liable in proportion to the benefit which they
may have received.

The courts shall determine, in sound discretion, the proportionate amount for which each
one shall be liable.

When the respective shares cannot be equitably determined, even approximately, or

when the liability also attaches to the Government, or to the majority of the inhabitants of
the town, and, in all events, whenever the damages have been caused with the consent
of the authorities or their agents, indemnification shall be made in the manner prescribed
by special laws or regulations.

Third. In cases falling within subdivisions 5 and 6 of Article 12, the persons using violence
or causing the fears shall be primarily liable and secondarily, or, if there be no such
persons, those doing the act shall be liable, saving always to the latter that part of their
property exempt from execution.

Article 102. Subsidiary civil liability of innkeepers, tavern keepers and proprietors of
establishments. - In default of the persons criminally liable, innkeepers, tavern keepers,
and any other persons or corporations shall be civilly liable for crimes committed in their
establishments, in all cases where a violation of municipal ordinances or some general or
special police regulation shall have been committed by them or their employees.

Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft
within their houses from guests lodging therein, or for the payment of the value thereof,
provided that such guests shall have notified in advance the innkeeper himself, or the
person representing him, of the deposit of such goods within the inn; and shall
furthermore have followed the directions which such innkeeper or his representative may
have given them with respect to the care and vigilance over such goods. No liability shall
attach in case of robbery with violence against or intimidation of persons unless
committed by the innkeeper's employees.

Article 103. Subsidiary civil liability of other persons. - The subsidiary liability established
in the next preceding article shall also apply to employers, teachers, persons, and
corporations engaged in any kind of industry for felonies committed by their servants,
pupils, workmen, apprentices, or employees in the discharge of their duties.

Chapter Two
WHAT CIVIL LIABILITY INCLUDES

Article 104. What is included in civil liability. - The civil liability established in Articles 100,
101, 102, and 103 of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.

5. Quasi-delicts - Article 1162, 2176

Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of
Chapter 2, Title XVII of this Book, and by special laws. (1093a)

Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter. (1902a)

Case Title: JOSEPH SALUDAGA, petitioner vs FAR EASTERN UNIVERSITY and

EDILBERTO C. DE JESUS in his capacity as President of FEU, respondents.
GR number: G.R. No. 179337
Date: April 30, 2008
Ponente:​ Ynares-Santiago.
Topic:​ Culpa Contractual; Quasi-Delict; Damages; Vicarious Liability

FACTS:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern
University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security
guards on duty at the 0.school premises.

Petitioner thereafter filed a complaint for damages against respondents on the ground
that they breached their obligation to provide students with a safe and secure
environment and an atmosphere conducive to learning. Respondents, in turn, filed a
Third-Party Complaint against Galaxy Development and Management Corporation
(Galaxy), the agency contracted by respondent FEU to provide security services within its
premises to indemnify them for whatever would be adjudged in favor of petitioner.

RTC: FEU and its President was ordered to pay jointly and severally Saludaga damages.
Galaxy and its President was ordered to indemnify jointly and severally FEU for such
amount.

CA: Dismissed, ruling that: a) the incident was a fortuitous event; b) that respondents are
not liable for damages for the injury suffered by the petitioner from the hands of their own
security guard in violation of their built-in contractual obligation to petitioner, being their
law student at the time, to provide him with a safe and secure educational environment; c)
that Rosete, who shot petitioner, was not FEU’s employee by virtue of the contract for
security services between Galaxy and FEU, notwithstanding the fact that petitioner, not
being a party to it, is not bound by the same under the principle of relativity of contracts;
and, d) FEU exercised due diligence in selecting Galaxy as the agency which would
provide security services within the respondent FEU.

In his appeal, petitioner sued respondents for damages based on the alleged breach of
student-school contract for a safe learning environment. Respondents aver that the
shooting incident was a fortuitous event because they could not have reasonably
foreseen nor avoided the accident caused by Rosete as he was not their employee; and
that they complied with their obligation to ensure a safe learning environment for their
students by having exercised due diligence in selecting the security services of Galaxy.

ISSUE #1:
Whether or not there is a contractual obligation between Saludaga and FEU.

HELD #1:​ YES.

It is undisputed that petitioner was enrolled as a sophomore law student in respondent
FEU. As such, there was created a contractual obligation between the two parties. On
petitioner's part, he was obliged to comply with the rules and regulations of the school.
On the other hand, respondent FEU, as a learning institution is mandated to impart
knowledge and equip its students with the necessary skills to pursue higher education or
a profession. At the same time, it is obliged to ensure and take adequate steps to
maintain peace and order within the campus.

ISSUE #2:
Whether or not FEU is guilty of culpa contractual.

HELD #2:​ YES.

It is settled that in culpa contractual, the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a corresponding right of relief.

Here, petitioner was shot inside the campus by no less the security guard who was hired
to maintain peace and secure the premises, there is a prima facie showing that
respondents failed to comply with its obligation to provide a safe and secure environment
to its students. Also, respondents failed to prove that they ensured that the guards
assigned in the campus met the requirements stipulated in the Security Service
Agreement. No evidence as to the qualifications of Rosete as security guard was
presented. Respondents also failed to show that they undertook steps to ascertain and
confirm that the security guards assigned to them actually possess the qualifications
required in the Security Service Agreement.

ISSUE #3:
Whether or not the presence of force majeure may absolve FEU from liability.

HELD #3:​ NO.

In order for force majeure to be considered, respondents must show that no negligence or
misconduct was committed that may have occasioned the loss. An act of God cannot be
invoked to protect a person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with an act of God
in producing damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not exempt one
from liability. When the effect is found to be partly the result of a person's participation -
whether by active intervention, neglect or failure to act - the whole occurrence is
humanized and removed from the rules applicable to acts of God.

ISSUE #4:
Whether or not the petitioner is entitled to indemnification of damages.

HELD #4:​ YES.

Petitioner is entitled to actual damages, moral damages, temperate damages, attorney’s
fees, and litigation expenses. The petitioner is not entitled to exemplary damages.

Article 1170 of the Civil Code provides that those who are negligent in the performance of
their obligations are liable for damages. Accordingly, for breach of contract due to
negligence in providing a safe learning environment, FEU is liable to petitioner for
damages. It is essential in the award of damages that the claimant must have
satisfactorily proven during the trial the existence of the factual basis of the damages and
its causal connection to defendant's acts.

Petitioner spent expenses for his hospitalization and medical expenses. Since the case
involved an obligation arising from a contract and not a loan or forbearance of money, the
proper rate of legal interest is 6% per annum of the amount demanded. The interest shall
continue to run from the filing of the complaint until the finality of the Decision. After the
decision becomes final and executory, the applicable rate shall be 12% per annum until
its satisfaction. Also, transportation expenses and those incurred in the hiring of a
personal assistant while recuperating were not however supported by receipts. In the
absence thereof, no actual damages may be awarded.

Nonetheless, Art. 2224 of the Civil Code states that temperate damages may be
recovered where it has been shown that the claimant suffered some pecuniary loss but
the amount thereof cannot be proved with certainty.

SC awarded petitioner moral damages for the “physical suffering, mental anguish, fright,
serious anxiety, and moral shock resulting from the shooting incident”. SC stressed that
the moral damages are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer.
Attorney’s fees and litigation expenses were also reasonable in view of Art. 2208 of Civil
Code.

However, the award of exemplary damages is deleted considering the absence of proof
that the respondents acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

ISSUE #5:
Whether or not the FEU President himself is vicariously liable.

HELD: ​NO.
FEU President cannot be held liable for damages under Art. 2180 of CC because
respondents are not employers of Rosete. The latter was employed by Galaxy. The
instructions issued by respondents' Security Consultant to Galaxy and its security guards
are ordinarily no more than requests commonly envisaged in the contract for services
entered into by a principal and a security agency. They cannot be construed as the
element of control as to treat respondents as the employers of Rosete. Where the
security agency recruits, hires and assigns the works of its watchmen or security guards
to a client, the employer of such guards or watchmen is such agency, and not the client,
since the latter has no hand in selecting the security guards. Thus, the duty to observe
the diligence of a good father of a family cannot be demanded from the said client.

ISSUE #6:
Whether or not Galaxy and its President were liable for damages.

HELD #6:​ YES.

For the acts of negligence and for having supplied respondent FEU with an unqualified
security guard, which resulted to the latter's breach of obligation to petitioner, it is proper
to hold Galaxy liable to respondent FEU for such damages equivalent to the
above-mentioned amounts awarded to petitioner.

Also, unlike the FEU President, SC deemed Galaxy President to be solidarily liable with
Galaxy for being grossly negligent in directing the affairs of the security agency. It was the
Galaxy President who assured petitioner that his medical expenses will be shouldered by
Galaxy, but said representations were not fulfilled because they presumed that petitioner
and his family were no longer interested in filing a formal complaint against them.

CASE SYLLABI

Colleges and Universities; Obligations and Contracts; Where a student is enrolled

in an educational institution, there is created a contractual obligation between the
two parties— the student is obliged to comply with the rules and regulations of the
school while the latter, as a learning institution, is mandated to impart knowledge
and equip its students with the necessary skills to pursue higher education or a
profession, as well as to ensure and take adequate steps to maintain peace and
order within the campus.— ​It is undisputed that petitioner was enrolled as a sophomore
law student in respondent FEU. As such, there was created a contractual obligation
between the two parties. On petitioner’s part, he was obliged to comply with the rules and
regulations of the school. On the other hand, respondent FEU, as a learning institution is
mandated to impart knowledge and equip its students with the necessary skills to pursue
higher education or a profession. At the same time, it is obliged to ensure and take
adequate steps to maintain peace and order within the campus. It is settled that in culpa
contractual, the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. In the instant case, we find
that, when petitioner was shot inside the campus by no less the security guard who was
hired to maintain peace and secure the premises, there is a prima facie showing that
respondents failed to comply with its obligation to provide a safe and secure environment
to its students.

Same; Same; Security Guards; A learning institution should not be allowed to

completely relinquish or abdicate security matters in its premises to the security
agency it hired—to do so would result to contracting away its inherent obligation
to ensure a safe learning environment for its students.— ​Respondents also failed to
show that they undertook steps to ascertain and confirm that the security guards
assigned to them actually possess the qualifications required in the Security Service
Agreement. It was not proven that they examined the clearances, psychiatric test results,
201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance
on the security agency about these matters or failure to check the papers stating the
qualifications of the guards is negligence on the part of respondents. A learning institution
should not be allowed to completely relinquish or abdicate security matters in its premises
to the security agency it hired. To do so would result to contracting away its inherent
obligation to ensure a safe learning environment for its students.

Same; Same; Force Majeure; An act of God cannot be invoked to protect a person
who has failed to take steps to forestall the possible adverse consequences of
such a loss.— ​Respondents’ defense of force majeure must fail. In order for force
majeure to be considered, respondents must show that no negligence or misconduct was
committed that may have occasioned the loss. An act of God cannot be invoked to
protect a person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One’s negligence may have concurred with an act of God
in producing damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not exempt one
from liability. When the effect is found to be partly the result of a person’s
participation—whether by active intervention, neglect or failure to act—the whole
occurrence is humanized and removed from the rules applicable to acts of God.

Same; Same; Negligence; For breach of contract due to negligence in providing a

safe learning environment, an educational institution is liable to petitioner for
damages.— ​Article 1170 of the Civil Code provides that those who are negligent in the
performance of their obligations are liable for damages. Accordingly, for breach of
contract due to negligence in providing a safe learning environment, respondent FEU is
liable to petitioner for damages. It is essential in the award of damages that the claimant
must have satisfactorily proven during the trial the existence of the factual basis of the
damages and its causal connection to defendant’s acts. In the instant case, it was
established that petitioner spent P35,298.25 for his hospitalization and other medical
expenses. While the trial court correctly imposed interest on said amount, however, the
case at bar involves an obligation arising from a contract and not a loan or forbearance of
money. As such, the proper rate of legal interest is six percent (6%) per annum of the
amount demanded. Such interest shall continue to run from the filing of the complaint until
the finality of this Decision. After this Decision becomes final and executory, the
applicable rate shall be twelve percent (12%) per annum until its satisfaction.
Same; Same; Same; Damages; Trial courts must guard against the award of
exorbitant damages; they should exercise balanced, restrained and measured
objectivity to avoid suspicion that it was due to passion, prejudice, or corruption
on the part of the trial court.— ​As regards the award of moral damages, there is no
hard and fast rule in the determination of what would be a fair amount of moral damages
since each case must be governed by its own peculiar circumstances. The testimony of
petitioner about his physical suffering, mental anguish, fright, serious anxiety, and moral
shock resulting from the shooting incident justify the award of moral damages. However,
moral damages are in the category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the wrongdoer. The award is not
meant to enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to obviate the
moral suffering he has undergone. It is aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of exorbitant damages; they
should exercise balanced, restrained and measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption on the part of the trial court. We deem it just
and reason able under the circumstances to award petitioner moral damages in the
amount of P100,000.00.

Same; Same; Same; Same; Corporation Law; A corporation is invested by law with
a personality separate and distinct from those of the persons composing it, such
that, save for certain exceptions, corporate officers who entered into contracts in
behalf of the corporation cannot be held personally liable for the liabilities of the
latter.— ​We note that the trial court held respondent De Jesus solidarily liable with
respondent FEU. In Powton Conglomerate, Inc. v. Agcolicol, 400 SCRA 523 (2003), we
held that: [A] corporation is invested by law with a personality separate and distinct from
those of the persons composing it, such that, save for certain exceptions, corporate
officers who entered into contracts in behalf of the corporation cannot be held personally
liable for the liabilities of the latter. Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the corporation may so validly attach, as a
rule, only when—(1) he assents to a patently unlawful act of the corporation, or when he
is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict
of interest resulting in damages to the corporation, its stockholders or other persons; (2)
he consents to the issuance of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the corporation; or (4) he is
made by a specific provision of law personally answerable for his corporate action. None
of the foregoing exceptions was established in the instant case; hence, respondent De
Jesus should not be held solidarily liable with respondent FEU.

Same; Labor Law; Security Guards; Where the security agency recruits, hires and
assigns the works of its watchmen or security guards to a client, the employer of
such guards or watchmen is such agency, and not the client, since the latter has
no hand in selecting the security guards—the duty to observe the diligence of a
good father of a family cannot be demanded from the said client.— ​We agree with
the findings of the Court of Appeals that respondents cannot be held liable for damages
under Art. 2180 of the Civil Code because respondents are not the employers of Rosete.
The latter was employed by Galaxy. The instructions issued by respondents’ Security
Consultant to Galaxy and its security guards are ordinarily no more than requests
commonly envisaged in the contract for services entered into by a principal and a security
agency. They cannot be construed as the element of control as to treat respondents as
the employers of Rosete. As held in Mercury Drug Corporation v. Libunao, 434 SCRA
404 (2004): In Soliman, Jr. v. Tuazon, 209 SCRA 47 (1992), we held that where the
security agency recruits, hires and assigns the works of its watchmen or security guards
to a client, the employer of such guards or watchmen is such agency, and not the client,
since the latter has no hand in selecting the security guards. Thus, the duty to observe
the diligence of a good father of a family cannot be demanded from the said client.

Actions; Pleadings and Practice; Third-Party Complaints; The third-party complaint

is a procedural device whereby a “third party” who is neither a party nor privy to
the act or deed complained of by the plaintiff, may be brought into the case with
leave of court, by the defendant, who acts as third-party plaintiff to enforce against
such third-party defendant a right for contribution, indemnity, subrogation or any
other relief, in respect of the plaintiff’s claim.— ​We now come to respondents’ Third
Party Claim against Galaxy. In Firestone Tire and Rubber Company of the Philippines v.
Tempongko, 27 SCRA 418 (1969), we held that: The third-party complaint is, therefore, a
procedural device whereby a ‘third party’ who is neither a party nor privy to the act or
deed complained of by the plaintiff, may be brought into the case with leave of court, by
the defendant, who acts as third-party plaintiff to enforce against such third-party
defendant a right for contribution, indemnity, subrogation or any other relief, in respect of
the plaintiff’s claim. The third-party complaint is actually independent of and separate and
distinct from the plaintiff’s complaint. Were it not for this provision of the Rules of Court, it
would have to be filed independently and separately from the original complaint by the
defendant against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiff’s
claim against a third-party in the original and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of law suits and of disposing
expeditiously in one litigation the entire subject matter arising from one particular set of
facts.

Same; Same; Same; Security Guards; For acts of negligence and for having
supplied an educational institution with an unqualified security guard, which
resulted in the latter’s breach of obligation to its student, it is proper to hold the
security agency liable to the client for such damages equivalent to the amounts
awarded to the student.— ​Respondents and Galaxy were able to litigate their respective
claims and defenses in the course of the trial of petitioner’s complaint. Evidence duly
supports the findings of the trial court that Galaxy is negligent not only in the selection of
its employees but also in their supervision. Indeed, no administrative sanction was
imposed against Rosete despite the shooting incident; moreover, he was even allowed to
go on leave of absence which led eventually to his disappearance. Galaxy also failed to
monitor petitioner’s condition or extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their
pledge to reimburse petitioner’s medical expenses. For these acts of negligence and for
having supplied respondent FEU with an unqualified security guard, which resulted to the
latter’s breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent
FEU for such damages equivalent to the above-mentioned amounts awarded to
petitioner.
Peoples Car vs Commando Security, 51 SCRA 40
G.R. No. L-36840
May 22, 1973
TEEHANKEE, ​J.:

CASE SYLLABI

Obligations and Contracts; Contracts; Security and Investigation Agencies;

Interpretation of Contracts; Liability of a security and investigation agency to the
employer for damages incurred by the latter's customer as a result of guard's
intentional act.—​The contract between the security agency and the employer provides
as follows:
"Par. 4.—Party of the Second Part (defendant) through the negligence of its guards, after
an investigation has been conducted by the Party of the First Part (plaintiff) wherein the
Party of the Second Part has been duly represented, shall assume full responsibilities for
any loss or damages that may occur to any property of the Party of the First Part for
which it is accountable, during the watch hours of the Party of the Second Part, provided
the same is reported to the Party of the Second Part within twenty four (24) hours of the
occurrence, except where such loss or damage is due to force majeure, provided
however that after the proper investigation to be made thereof that the guard on post is
found negligent and that the amount of the loss shall not exceed ONE THOUSAND
(P1,000.00) PESOS per guard post.

"Par. 5.—The party of the Second Part assumes the responsibility for the proper
performance by the guards employed, of their duties and (shall) be solely responsible for
the acts done during their watch hours, the Party of the First Part being specifically
released to the former's employee or to the third parties arising from the acts or
omissions done by the guards during their tour of duty."

On the basis of the foregoing contract provisions, it was held that where during guards
hours, a guard of the security agency (defendant) employed in the plaintiff's premises
took, without permission, a car belonging to one of the latter's customers, drove it outside
and while thus driving it lost control of the car resulting in actual damages amounting to
P8,489.10 which was paid by the plaintiff to its customer, the security agency is liable to
the plaintiff to the full amount of P8,489.10 under par. 5 of the above contract and not
under par. 4 thereof as said par. 4 is by its own terms applicable only for loss or damage
"through the negligence of its guards . . . during the watch hours". Here, the defendant's
own guard on duty unlawfully and wrongfully drove out of plaintiff's premises a customer's
car causing damages thereto.

Facts:

Defendant's security guard on duty at plaintiff's premises, "without any authority, consent,
approval, knowledge or orders of the plaintiff and/or defendant brought out of the
compound of the plaintiff a car belonging to its customer, and drove said car for a place or
places unknown, abandoning his post as such security guard on duty inside the plaintiff's
compound, and while so driving said car in one of the City streets lost control of said car,
causing the same to fall into a ditch along a streets in Davao City​. Thereafter, plaintiff filed
a case against said driver.
As a result of these wrongful acts of defendant's security guard, the car of plaintiff's
customer, Joseph Luy, which had been left with plaintiff for servicing and maintenance,
suffered extensive damage​, with a total of actual damages resulting to ​P8,489.10.

Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their
contract whereunder defendant assumed "sole responsibility for the acts done during
their watch hours" by its guards, whereas defendant contended, without questioning the
amount of the actual damages incurred by plaintiff, that its liability "shall not exceed one
thousand (P1,000.00) pesos per guard post" under paragraph 4 of their contract.

The trial court, misreading the above-quoted contractual provisions, held that "the liability
of the defendant in favor of the plaintiff falls under paragraph 4 of the Guard Service
Contract" and rendered judgment "finding the defendant liable to the plaintiff in the
amount of P1,000.00 with costs." Hence, this appeal.

Issue: Whether or not the liability of defendant falls under paragraph 4 of the Guard
Service Contract

Held:​ No.
Paragraph 4 of the contract, which limits defendant's liability for the amount of loss or
damage to any property of plaintiff to "P1,000.00 per guard post," is by its own terms
applicable only for loss or damage 'through the negligence of its guards... during the
watch hours" provided that the same is duly reported by plaintiff within 24 hours of the
occurrence and the guard's negligence is verified after proper investigation with the
attendance of both contracting parties. Said paragraph is manifestly inapplicable to the
stipulated facts of record, which involve neither property of plaintiff that has been lost or
damaged at its premises nor mere negligence of defendant's security guard on duty.

Defendant is undoubtedly liable to indemnify plaintiff for the entire damages thus incurred,
since under paragraph 5 of their contract it "assumed the responsibility for the proper
performance by the guards employed of their duties and (contracted to) be solely
responsible f​ or the acts done during their watch hours" and "specifically released
(plaintiff) from any and all liabilities ... to the third parties arising from the acts or
omissions done by the guards during their tour of duty." As plaintiff had duly discharged
its liability to the third party, its customer, Joseph Luy, for the undisputed damages of
P8,489.10 caused said customer, due to the wanton and unlawful act of defendant's
guard, defendant in turn was clearly liable under the terms of paragraph 5 of their contract
to indemnify plaintiff in the same amount.

Case Title: Cruz vs Tuazon Inc. 76 SCRA 543

GR number: G.R. No. L-23749
Date: April 29, 1977
Ponente: J. Barredo
TOPIC:​ ​Sources of Civil Obligations/ Quasi Contract
DOCTRINE: ​A presumed quasi-contract cannot emerge as against one party when the
subject matter thereof is already covered by a contract with another party.

FACTS:
Faustino Cruz’ complaint alleged two causes of action, namely:
(1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on
the land in question on the strength of an "informacion posesoria") plaintiff made
permanent improvements on said land having an area of more or less 20 quinones and
for which he also incurred expenses and since defendants-appellees are being benefited
by said improvements, he is entitled to reimbursement from them of said amounts; and

(2) that in 1952, defendants availed of plaintiff's services as an intermediary with the
Deudors to work for the amicable settlement of Civil Case No. Q-135, then pending also
in the Court of First Instance of Quezon City, and involving 50 quinones of land, of which
the 20 quinones aforementioned form part, and notwithstanding his having performed his
services, as in fact, a compromise agreement entered into on March 16, 1963 between
the Deudors and the defendants was approved by the court, the latter have refused to
convey to him the 3,000 square meters of land occupied by him, (a part of the 20
quinones above) which said defendants had promised to do "within ten years from and
after date of signing of the compromise agreement", as consideration for his services.

CFI of Quezon City dismissed the complaint on the grounds of unenforceability, lack of
cause of action, and prescription.

ISSUE:
WON Faustino Cruz can claim reimbursement for the expenses and services rendered?

HELD:
No. We hold that the allegations in his complaint do not sufficiently Appellants' reliance on
Article 2142 of Civil Code is misplaced. Said article provides:

Certain lawful, voluntary and unilateral acts give rise to the juridical relation of
quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another.

From the very language of this provision, it is obvious that a presumed quasi-contract
cannot emerge as against one party when the subject matter thereof is already covered
by an existing contract with another party. Predicated on the principle that no one should
be allowed to unjustly enrich himself at the expense of another, Article 2124 creates the
legal fiction of a quasi-contract precisely because of the absence of any actual agreement
between the parties concerned. Corollarily, if the one who claims having enriched
somebody has done so pursuant to a contract with a third party, his cause of action
should be against the latter, who in turn may, if there is any ground therefor, seek relief
against the party benefited. It is essential that the act by which the defendant is benefited
must have been voluntary and unilateral on the part of the plaintiff. As one distinguished
civilian puts it, "The act is voluntary because the actor in quasi-contracts is not bound by
any pre-existing obligation to act. It is unilateral, because it arises from the sole will of the
actor who is not previously bound by any reciprocal or bilateral agreement. The reason
why the law creates a juridical relation and imposes certain obligation is to prevent a
situation where a person is able to benefit or take advantage of such lawful, voluntary and
unilateral acts at the expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI, p. 748,
1969 ed.) In the case at bar, since appellant has a clearer and more direct recourse
against the Deudors with whom he had entered into an agreement regarding the
improvements and expenditures made by him on the land of appellees. It cannot be said,
in the sense contemplated in Article 2142, that appellees have been enriched at the
expense of appellant.
CASE SYLLABI

Civil law; Statute of Frauds; The statute of frauds does not apply to an alleged
contract whereby one party agreed to deliver a parcel of land to another in
consideration of the latter’s acting as intermediary to effect a compromise in a civil
action​.—In the instant case, what appellant is trying to enforce is the delivery to him of
3,000 square meters of land which he claims defendants promised to do in consideration
of his services as mediator or intermediary in effecting a compromise of the civil action,
Civil Case No. 135, between the defendants and the Deudors. In no sense may such
alleged contract be considered as being a “sale of real property or of any interest therein.”
Indeed, not all dealings involving interest in real property come under the Statute.
Moreover, appellant’s complaint clearly alleges that he has already fulfilled his part of the
bargain to induce the Deudors to amicably settle their differences with defendants as, in
fact, on March 16, 1963, through his efforts, a compromise agreement between these
parties was approved by the court. In other words, the agreement in question has already
been partially consummated, and is no longer merely executory. And it is likewise a
fundamental principle governing the application of the Statute that the contract in dispute
should be purely executory on the part of both parties thereto.

Same; Quasi-contract; A presumed quasi-contract cannot emerge as against one

party when the subject matter thereof is already covered by a contract with another
party.— ​From the very languagce of this provision, it is obvious that a presumed
quasi-contract cannot emerge as against one party when the subject matter thereof is
already covered by an existing contract with another party. Predicated on the principle
that no one should be allowed to unjustly enrich himself at the expense of another, Article
2142 creates the legal fiction of a quasi-contract precisely because of the absence of any
actual agreement between the parties concerned. Corollarily, if the one who claims
having enriched somebody has done so pursuant to a contract with a third party, his
cause of action should be against the latter, who in turn may, if there is any ground
therefor, seek relief against the party benefited. It is essential that the act by which the
defendant is benefited must have voluntary and unilateral on the part of the plaintiff. As
one distinguished civilian puts it, “The act is voluntary, because the actor in
quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because
it arises from the sole will of the actor who is not previously bound by any reciprocal or
bilateral agreement. The reason why the law creates a juridical relation and imposes
certain obligations is to prevent a situation where a person is able to benefit or take
advantage of such lawful, voluntary and unilateral acts at the expense of said actor.”
(Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since appellant
has a clearer and more direct recourse against the Deudors with whom he had entered
into an agreement regarding the improvements and expenditures made by him on the
land of appellees, it cannot be said, in the sense contemplated in Article 2142, that
appellees have been enriched at the expense of appellant.

Appeal; A pro forma motion for reconsideration does not suspend running of the
period for appeal.— ​We cannot see anything in said motion for reconsideration that is
substantially different from the above oppositions and rejoinder he had previously
submitted and which the trial court had already considered when it rendered its main
order of dismissal. Consequently, appellant’s motion for reconsideration did not suspend
his period for appeal.
Gutierrez Hermanos vs Orenze, 28 Phil 571

Hermanos vs Orense
G.R. No. L-9188, December 4, 1914
Torres, J.
Other quasi-contracts

FACTS:
Engracio Orense is the owner of a parcel of land, which nephew, Jose Duran, with the
former’s consent and knowledge, sold and conveyed the same to Hermano’s company for
P1,500 with the reservation of the right to repurchase it for the same price within a period
of 4 years. But the same land was not repurchased by Jose Duran due to insolvency.
Despite repeated demand upon Duran, the latter never vacated the land.

His refusal was based on allegations that he did not know of said sale and that he
remains the owner of the land.

Petitioner filed a complaint for estafa against Jose Duran. However, at the trial of the case
Engracio Orense, called as a witness, being interrogated by the fiscal as to whether he
had consented to Duran's selling the said property under right of redemption to the firm of
Gutierrez Hermanos, replied that he had. In view of this statement by the defendant, the
court acquitted Jose Duran of the charge of estafa.

As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle,
Engacio Orense, the owner of the property, to the effect that he had consented to his
nephew Duran's selling the property under right of repurchase to Gutierrez Hermanos,
counsel for this firm filed a complainant praying, among other remedies, that the
defendant Orense be compelled to execute a deed for the transfer and conveyance to the
plaintiff company of all the right, title and interest with Orense had in the property sold,
and to pay to the same the rental of the property due from February 14, 1911.

ISSUE:
WON Orense can be compelled to deliver the property to Hermanos as premised above?

HELD:
YES. It having been proven at the trial that he gave his consent to the said sale, it follows
that the defendant conferred verbal, or at least implied, power of agency upon his nephew
Duran, who accepted it in the same way by selling the said property. The principal must
therefore fulfill all the obligations contracted by the agent, who acted within the scope of
his authority.

Even should it be held that the said consent was granted subsequently to the sale, it is
unquestionable that the defendant, the owner of the property, approved the action of his
nephew, who in this case acted as the manager of his uncle's business, and Orense's
ratification produced the effect of an express authorization to make the said sale.

Article 1259 of the Civil Code prescribes: "No one can contract in the name of another
without being authorized by him or without his legal representation according to law.
A contract executed in the name of another by one who has neither his authorization nor
legal representation shall be void, unless it should be ratified by the person in whose
name it was executed before being revoked by the other contracting party.

The sworn statement made by the defendant, Orense, while testifying as a witness at the
trial of Duran for estafa, virtually confirms and ratifies the sale of his property effected by
his nephew, Duran, and, pursuant to article 1313 of the Civil Code, remedies all defects
which the contract may have contained from the moment of its execution.

On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was
acquitted, and it would not be just that the said testimony, expressive of his consent to the
sale of his property, which determined the acquittal of his nephew, Jose Duran, who then
acted as his business manager, and which testimony wiped out the deception that in the
beginning appeared to have been practiced by the said Duran, should not now serve in
passing upon the conduct of Engracio Orense in relation to the firm of Gutierrez
Hermanos in order to prove his consent to the sale of his property, for, had it not been for
the consent admitted by the defendant Orense, the plaintiff would have been the victim of
estafa.

If the defendant Orense acknowledged and admitted under oath that he had consented to
Jose Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it
permissible for him afterward to deny that admission, to the prejudice of the purchaser,
who gave P1,500 for the said property.

The contract of sale of the said property contained in the notarial instrument of February
14, 1907, is alleged to be invalid, null and void under the provisions of paragraph 5 of
section 335 of the Code of Civil Procedure, because the authority which Orense may
have given to Duran to make the said contract of sale is not shown to have been in
writing and signed by Orense, but the record discloses satisfactory and conclusive proof
that the defendant Orense gave his consent to the contract of sale executed in a public
instrument by his nephew Jose Duran. Such consent was proven in a criminal action by
the sworn testimony of the principal and presented in this civil suit by other sworn
testimony of the same principal and by other evidence to which the defendant made no
objection. Therefore the principal is bound to abide by the consequences of his agency as
though it had actually been given in writing.

The repeated and successive statements made by the defendant Orense in two actions,
wherein he affirmed that he had given his consent to the sale of his property, meet the
requirements of the law and legally excuse the lack of written authority, and, as they are a
full ratification of the acts executed by his nephew Jose Duran, they produce the effects
of an express power of agency.

CASE SYLLABI

1.PRINCIPAL AND AGENT; RATIFICATION OF AGENT'S ACTS; RETRACTION.—

When a person who sold a parcel of real estate for 1*1,500 appears later not to be its
owner and when the real owner thereof, upon being questioned in a criminal case
instituted against the vendor, states that he consented to such sale, so that the vendor
was acquitted of the charge against him, it is neither' lawful nor permissible for said owner
later to retract and deny his former sworn statement that he had consented to said sale
by a third person who was a relative of his. (Civil Code, arts. 1709, 1710, 1727.)
2.ID.; ID.; EFFECT IN ACTION FOR ESTAFA.— ​The sworn statement of the owner of
the real estate in the action for estafa secured the acquittal of the accused by destroying
the fraud which at first appeared to have been perpetrated to the owner's prejudice and
became a confirmation and ratification of the sale; therefore, the owner must fulfill the
obligations contracted by his agent, who made the sale as though he had had prior
authorization and express instructions in writing. (Conlu vs. Araneta and Guanko, 15 Phil.
Rep., 387.)

3.ID.; ID.; RATIFICATION AS EXPRESS AGENCY.— ​Even though the owner of the real
estate had not previously authorized the sale and his consent was given subsequent to
the act, yet when the fact is established that he approved the action of his relative in
selling it as his agent, this subsequent ratification by the owner in giving his approval and
consent to the sale produced the effect of an express agency and so purified the contract
of the flaws it contained at the time it was executed. (Civil Code, arts. 1259, 1313.)

4.ID.; ID.; ACTION FOR NULLITY.— ​The action for nullity that could have at first been
instituted was legally extinguished at the moment when said contract of sale was validly
ratified and confirmed. (Civil Code, art. 1309.) Gutierrez Hermanos vs. Orense., 28 Phil.
571, No. 9188 December 4, 1914

Adille vs CA, 157 SCRA 455 ​TOLEDO

CASE SYLLABI

Civil Law; Property; Co-ownership; Redemption; Redemption of the whole property

by a co-owner will not make him of all of it.— ​The right of repurchase may be
exercised by a co-owner with respect to his share alone. While the records show that the
petitioner redeemed the property in its entirety, shouldering the expenses therefor, that
did not make him the owner of all of it. In other words, it did not put to end the existing
state of co-ownership.

Same; Same; Same; Same; Same; Failure of all co-owners to redeem the property
entitles the vendee a retro to retain it and consolidate title thereto in his name;
Redemption not a mode of terminating a co-ownership.— ​The result is that the
property remains to be in a condition of co-ownership. While a vendee a retro, under
Article 1613 of the Code, “may not be compelled to consent to a partial redemption,” the
redemption by one co-heir or co-owner of the property in its totality does not vest in him
ownership over it. Failure on the part of all the co-owners to redeem it entitles the vendee
a retro to retain the property and consolidate title thereto in his name. But the provision
does not give to the redeeming co-owner the right to the entire property. It does not
provide for a mode of terminating a co-ownership.

Same; Same; Same; Same; Same; Registration of property not a means of

acquiring ownership.— ​Neither does the fact that the petitioner had succeeded in
securing title over the parcel in his name terminate the existing co-ownership. While his
half-brothers and sisters are, as we said, liable to him for reimbursement as and for their
shares in redemption expenses, he cannot claim exclusive right to the property owned in
common. Registration of property is not a means of acquiring ownership. It operates as a
mere notice of existing title, that is, if there is one.
Same; Same; Same; Same; Petitioner is a trustee of the property on behalf of
private respondents.— ​The petitioner must then be said to be a trustee of the property
on behalf of the private respondents. We agree with the respondent Court of Appeals that
fraud attended the registration of the property. The petitioner’s pretension that he was the
sole heir to the land in the affidavit of extrajudicial settlement he executed preliminary to
the registration thereof betrays a clear effort on his part to defraud his brothers and
sisters and to exercise sole dominion over the property. It is the view of the respondent
Court that the petitioner, in taking over the property, did so either on behalf of his
co-heirs, in which event, he had constituted himself a negotiorum gestor under Article
2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty of fraud, and
must act as trustee, the private respondents being the beneficiaries, under the Article
1456. The evidence, of course, points to the second alternative, the petitioner having
asserted claims of exclusive ownership over the property and having acted in fraud of his
co-heirs. He cannot therefore be said to have assumed the mere management of the
property abandoned by his co-heirs, the situation Article 2144 of the Code contemplates.
In any case, as the respondent Court itself affirms, the result would be the same whether
it is one or the other. The petitioner would remain liable to the private respondents, his
co-heirs.

Same; Same; Same; Prescription; Prescription must be preceded by repudiation to

terminate co-ownership; Requisites.— ​Prescription, as a mode of terminating a
relation of co-ownership, must have been preceded by repudiation (of the co-ownership).
The act of repudiation, in turn, is subject to certain conditions: (1) a co-owner repudiates
the co-ownership; (2) such an act of repudiation is clearly made known to the other
co-owners; (3) the evidence thereon is clear and conclusive; and (4) he has been in
possession through open, continuous, exclusive, and notorious possession of the
property for the period required by law.

Same; Same; Land registration; Torrens Title cannot cover up fraud; Registration
not equivalent to notice of repudiation.— ​it is true that registration under the Torrens
system is constructive notice of title, but it has likewise been our holding that the Torrens
title does not furnish a shield for fraud. It is therefore no argument to say that the act of
registration is equivalent to notice of repudiation, assuming there was one,
notwithstanding the long-standing rule that registration operates as a universal notice of
title.

Civil Procedure; Prescription; While actions to enforce a constructive trust

prescribe in ten years from registration of the property, private respondents’ right
commenced from actual discovery of petitioner’s act of defraudation.— ​For the
same reason, we cannot dismiss the private respondents’ claims commenced in 1974
over the estate registered in 1955. While actions to enforce a constructive trust prescribes
in ten years, reckoned from the date of the registration of the property, we, as we said,
are not prepared to count the period from such a date in this case. We note the
petitioner’s sub rosa efforts to get hold of the property exclusively for himself beginning
with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement
that he is ‘‘the only heir and child of his mother Feliza with the consequence that he was
able to secure title in his name also.” Accordingly, we hold that the right of the private
respondents commenced from the time they actually discovered the petitioner’s act of
defraudation. According to the respondent Court of Appeals, they “came to know [of it]
apparently only during the progress of the litigation.” Hence, prescription is not a bar.
Same; Same; Prescriptive as an affirmative defense must be pleaded either in a
motion to dismiss or in the answer otherwise it is deemed waived.— ​Moreover, and
as a rule, prescription is an affirmative defense that must be pleaded either in a motion to
dismiss or in the answer otherwise it is deemed waived, and here, the petitioner never
raised that defense. There are recognized exceptions to this rule, but the petitioner has
not shown why they apply.

Andres vs Mantrust, 177 SCRA 618 (1989)

Case Title: DOMETILA M. ANDRES, doing business under the name and style "IRENE'S
WEARING APPAREL," petitioner, vs. MANUFACTURERS HANOVER & TRUST
CORPORATION and COURT OF APPEALS, respondents.

GR number:​ G.R. No. 82670

Date:​ September 15, 1989
Ponente:​ CORTES, J.:
TOPIC:​ Applicability of Solutio Indebiti

FACTS:
Petitioner was engaged in the manufacture of ladies garments, children's wear, men's
apparel and linens and one of its buyers was Facets Funwear, Inc. (FACETS) of the
United States. Sometime in August 1980, FACETS instructed the First National State
Bank (FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank (PNB).
Acting on said instruction, FNSB instructed respondent Manufacturers Hanover and Trust
Corporation to effect the transfer through its facilities and to charge the amount to the
account of FNSB with respondent. Although private respondent was able to send a telex
to PNB to pay petitioner $10,000.00 through the Pilipinas Bank, the payment was not
effected immediately because the payee designated in the telex was only "Wearing
Apparel." Upon query by PNB, private respondent sent PNB another telex correcting the
earlier error enabling petitioner to receive the remittance of $10,000.00. Both FACETS
and respondent was unaware that petitioner had already received the remittance,
FACETS amended its instruction by asking it to effect the payment through the Philippine
Commercial and Industrial Bank (PCIB) instead of PNB which private respondent acted
on accordingly, the latter instructing PCIB to pay $10,000.00 to petitioner, petitioner then
received a second $10,000.00 remittance. When FNSB discovered that private
respondent had made a duplication of the remittance, it asked for a recredit of its account
in the amount of $10,000.00 which private respondent complied with the request. Private
respondent is now asking petitioner for the return of the second remittance of $10,000.00
but the latter refused to pay.

ISSUE:
WON private respondent has the right to recover the second $10,000.00 remittance it
had delivered to petitioner in relation with Art. 2154 of the New Civil Code (NCC).

HELD:​ Yes.
For this article to apply the following requisites must concur: "(1) that he who paid was not
under obligation to do so; and, (2) that payment was made by reason of an essential
mistake of fact"
First, it is argued that petitioner had the right to demand and therefore to retain the
second $10,000.00 remittance. As FACETS allegedly still had a balance of $49,324.00
with petitioner. Hence, it is argued that the last $10,000.00 remittance being in payment
of a pre-existing debt, petitioner was not thereby unjustly enriched.

The court find the contention without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was
with FACETS. It was the latter and not private respondent which was indebted to
petitioner. On the other hand, the contract for the transmittal of dollars from the United
States to petitioner was entered into by private respondent with FNSB. Petitioner,
although named as the payee was not privy to the contract of remittance of dollars.
Neither was private respondent a party to the contract of sale between petitioner and
FACETS. There being no contractual relation between them, petitioner has no right to
apply the second $10,000.00 remittance delivered by mistake by private respondent to
the outstanding account of FACETS.

Petitioner next contends that the payment by respondent bank of the second $10,000.00
remittance was not made by mistake but was the result of negligence of its employees.
That there was a mistake in the second remittance of US $10,000.00 is borne out by the
fact that both remittances have the same reference invoice number which is 263 80.

Plaintiff-appellant made the second remittance on the wrong assumption that

defendant-appellee did not receive the first remittance of US $10,000.00. The Court holds
that the finding by the Court of Appeals that the second $10,000.00 remittance was made
by mistake, being based on substantial evidence, is final and conclusive.

Petitioner then invokes the equitable principle that when one of two innocent persons
must suffer by the wrongful act of a third person, the loss must be borne by the one
whose negligence was the proximate cause of the loss.

The rule is that principles of equity cannot be applied if there is a provision of law
specifically applicable to a case. Hence, the Court in the case of De Garcia v. Court of
Appeals held:

... The common law principle that where one of two innocent persons must suffer by a
fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed, cannot be applied in a
case which is covered by an express provision of the new Civil Code, specifically Article
559. Between a common law principle and a statutory provision, the latter must prevail in
this jurisdiction.

Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio
indebiti, applies in the case at bar, the Court must reject the common law principle
invoked by petitioner.

CASE SYLLABI

Civil Law; Obligations and Contracts; Solutio Indebiti; For the rule on solutio
indebiti to apply, it is required that he who paid was under no obligation to do so
and that payment was made by reason of an essential mistake of fact.—​The sole
issue in this case is whether or not the private respondent has the right to recover the
second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue
would hinge on the applicability of Art. 2154 of the New Civil Code. x x x For this article to
apply the following requisites must concur: “(1) that he who paid was not under obligation
to do so; and, (2) that payment was made by reason of an essential mistake of fact” [City
of Cebu v. Piccio, 110 Phil. 558, 563, (1960)].

Courts; Certiorari; Questions of Fact; The jurisdiction of the Supreme Court in

cases brought to it from the Court of Appeals is limited to reviewing and revising
errors of law imputed to the latter, its findings of fact being conclusive.—​The rule
regarding questions of fact being raised with this Court in a petition for certiorari under
Rule 45 of the Revised Rules of Court has been stated in Remalante v. Tibe, G.R. No.
59514, February 25, 1988, 158 SCRA 138, thus: The rule in this jurisdiction is that only
questions of law may be raised in a petition for certiorari under Rule 45 of the Revised
Rules of Court. “The jurisdiction of the Supreme Court in cases brought to it from the
Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its
findings of fact being conclusive” [Chan v. Court of Appeals, G.R. No. L-27488, June 30,
1970, 33 SCRA 737, reiterating a long line of decisions.] This Court has emphatically
declared that “it is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of law that might
have been committed by the lower court” [Tiongco v. De la Merced, G.R. No. L-24426,
July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued v. Court of Appeals, G. R. No. L-47531, February 20,
1984, 127 SCRA 596]. “Barring, therefore, a showing that the findings complained of are
totally devoid of support in the record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand, for this Court is not
expected or required to examine or contrast the oral and documentary evidence
submitted by the parties” [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December 17,
1966, 18 SCRA 973.] [at pp. 144-145.] Andres vs. Manufacturers Hanover & Trust
Corporation, 177 SCRA 618, G.R. No. 82670 September 15, 1989

Puyat and Sons vs Manila 7 SCRA 970

It is too well settled in this state to need the citation of authority that if money be paid
through a clear mistake of law or fact, essentially affecting the rights of the parties, and
which in law or conscience was not payable, and should not be retained by the party
receiving it, it may be recovered. Both law and sound morality so dictate.

FACTS:
Appellee Puyat & Sons requested for refund of Retail Dealer’s Taxes it paid to appellant
City of Manila, on the ground that it is tax exempt on the sale of the various kinds of
furniture manufactured by it pursuant to the provisions of Sec. 18(n) of Republic Act No.
409 (Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816.
However, such request was denied by herein appellant.

Appellee filed an action for refund with the Court of First Instance, which ruled in its favor,
hence this appeal.

ISSUE:
Whether or not appellee Puyat & Sons are entitled to the refund of the taxes paid
erroneosly, on the ground that it is tax exempt, pursuant to the Revised Charter of Manila.

RULING:
Yes, the Court held that appellee Puyat & Sons are entitled to the refund of the taxes paid
erroneously.

If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligationto retun it arises.
There is no gainsaying the fact that the payments made by appellee was due to a mistake
in the construction of a doubtful question of law.

Every person who through an act or performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just
or legal grounds, shall return the same to him"(Art. 22, Civil Code). It would seems
unedifying for the government, (here the City of Manila), that knowing it has no right at all
to collect or to receive money for alleged taxes paid by mistake, it would be reluctant to
return the same. No one should enrich itself unjustly at the expense of another (Art. 2125,
Civil Code)

CASE SYLLABI

Taxation; Retail dealers taxes; Recovery of taxes paid by mistake; Protest not
necessary.—​Where taxes which are not legally due are paid thru error or mistake, they
may, under the principle of solutio indebiti, be recovered, even if no protest was made
upon their payment, particularly where such payment was due to a mistake in the
construction of a doubtful or difficult question of law (Article 2155 new Civil Code).

Same; Same; Same; Same; Section 76 of charter of Manila and applicable in case at
bar.—​Section 76 of the Charter of Manila, which provides that “No court shall entertain
any suit assailing the validity of tax under this article until the taxpayer shall have paid,
under protest the taxes assessed against him, x x x,” relates to the assessment,
collection and recovery of real estate taxes only, and not to the recovery of retail dealers
taxes.

Same; Same; Same; Prescription interrupted by written extra-judicial

demand.—​Even applying the provisions of Act No. 190 to payments by appellee of the
retail dealers taxes made before the effectivity of the new Civil Code, because
“prescription already running before the effectivity of this Code shall be governed by laws
previously in force x x x” (Art. 1116, NCC), still payments made before August 30, 1950,
are no longer recoverable in view if the second paragraph of the said article, which
provides that “but if since the time this Code took effect the entire period herein required
for prescription should elapse. The present code shall be applicable even though by the
former laws a longer period might be required”. The action has therefore prescribed only
with respect to the payments made before October 30, 1950, when a written demand was
made, considering that the prescription of action is interrupted when there is a written
extra-judicial demand (Art. 1155, NCC).

CBK POWER CORP. LTD VS CIR, GR 198729-30, JANUARY 15, 2014

G.R. Nos. 198729-30
January 15, 2014
CBK POWER COMPANY LIMITED vs.COMMISSIONER OF INTERNAL REVENUE
SERENO, CJ:

TOPIC:​ ​Applicability of Solutio Indebiti

FACTS:
Petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal Revenue
(BIR) . The application was duly approved by the BIR. Thus, petitioner ’s sale of electricity
to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to the
benefit of effectively zero-rated value added tax.

Petitioner filed its administrative claims for the issuance of tax credit certificates for its
alleged unutilized input taxes on its purchase of capital goods and alleged unutilized input
taxes on its local purchases and/or importation of goods and services, other than capital
goods.

Accordingly, petitioner timely filed its administrative claims for the three quarters of 2005.
However, considering that the judicial claim was filed on 18 April 2007, the CTA Division
denied the claim for the first quarter of 2005 for having been filed out of time.After an
evaluation of petitioner’s claim for the second and third quarters of 2005, the court a quo
partly granted the claim and ordered the issuance of a tax credit certificate in favor of
petitioner in the reduced amount of ₱27,170,123.36.

Issue:
Whether or not the principle of solutio indebiti is applicable to the present case.

Held:
No, According to this principle, if something is received when there is no right to demand
it, and it was unduly delivered through mistake, the obligation to return it arises. In that
situation, a creditor-debtor relationship is created under a quasi-contract, whereby the
payor becomes the creditor who then has the right to demand the return of payment
made by mistake, and the person who has no right to receive the payment becomes
obligated to return it.

There is solutio indebiti when:

(1) Payment is made when there exists no binding relation between the payor, who has
no duty to pay, and the person who received the payment; and
(2) Payment is made through mistake, and not through liberality or some other cause.

In the present case there exists a binding relation between npcpetitioner and the CIR, the
former being a taxpayer obligated to pay VAT. However, the payment of input tax was not
made through mistake, since petitioner was legally obligated to pay for that liability. The
entitlement to a refund or credit of excess input tax is solely based on the distinctive
nature of the VAT system. At the time of payment of the input VAT, the amount paid was
correct and proper.

CASE SYLLABI
Taxation; Value-Added Tax; Tax Exemption; The National Power Corporation (NPC)
is an entity with a special charter, which categorically exempts it from the payment
of any tax, whether direct or indirect, including Value-Added Tax (VAT). —​As aptly
ruled by the CTA Special Second Division, petitioner's sales to NPC are effectively
subject to zero percent 0% VAT. The NPC is an entity with a special charter, which
categorically exempts it from the payment of any tax, whether direct or indirect, including
VAT. Thus, services rendered to NPC by a VAT-registered entity are effectively zero
rated. In fact, the BIR itself approved the application for zero-rating on 29 December
2004, filed by petitioner for its sales to NPC covering January to October 2005. As a
consequence, petitioner claims for the refund of the alleged excess input tax attributable
to its effectively zero-rated sales to NPC.

Same; Same; Tax Refund; Tax Credit; Section 112(A) provides that after the close
of the taxable quarter when the sales were made, there is a two-year prescriptive
period within which a Value-Added Tax (VAT)-registered person whose sales are
zero-rated or effectively zero-rated may apply for the issuance of a tax credit
certificate or refund of creditable input tax​.—Section 112(A) provides that after the
close of the taxable quarter when the sales were made, there is a two-year prescriptive
period within which a VAT-registered person whose sales are zero-rated or effectively
zero-rated may apply for the issuance of a tax credit certificate or refund of creditable
input tax. Our VAT Law provides for a mechanism that would allow VAT-registered
persons to recover the excess input taxes over the output taxes they had paid in relation
to their sales. For the refund or credit of excess or unutilized input tax, Section 112 is the
governing law. Given the distinctive nature of creditable input tax, the law under Section
112 (A) provides for a different reckoning point for the two-year prescriptive period,
specifically for the refund or credit of that tax only.

Same; Same; Same; Same; Section 112(A) is clear that for Value-Added Tax
(VAT)-registered persons whose sales are zero-rated or effectively zero-rated, a
claim for the refund or credit of creditable input tax that is due or paid, and that is
attributable to zero-rated or effectively zero-rated sales, must be filed within two
years after the close of the taxable quarter when such sales were made​.—The fact
remains that Section 112 is the controlling provision for the refund or credit of input tax
during the time that petitioner filed its claim with which they ought to comply. It must be
emphasized that the Court merely clarified in Mirant that Sections 204 and 229, which
prescribed a different starting point for the two-year prescriptive limit for filing a claim for a
refund or credit of excess input tax, were not applicable. Input tax is neither an
erroneously paid nor an illegally collected internal revenue tax. Section 112(A) is clear
that for VAT-registered persons whose sales are zero-rated or effectively zero-rated, a
claim for the refund or credit of creditable input tax that is due or paid, and that is
attributable to zero-rated or effectively zero-rated sales, must be filed within two years
after the close of the taxable quarter when such sales were made. The reckoning frame
would always be the end of the quarter when the pertinent sale or transactions were
made, regardless of when the input VAT was paid.

Same; Same; Same; Section 112(D) further provides that the Commissioner of
Internal Revenue (CIR) has to decide on an administrative claim within one
hundred twenty (120) days from the date of submission of complete documents in
support thereof​.—Section 112(D) further provides that the CIR has to decide on an
administrative claim within one hundred twenty (120) days from the date of submission of
complete documents in support thereof. Bearing in mind that the burden to prove
entitlement to a tax refund is on the taxpayer, it is presumed that in order to discharge its
burden, petitioner had attached complete supporting documents necessary to prove its
entitlement to a refund in its application, absent any evidence to the contrary.

Same; Appeals; The taxpayer affected by the Commissioner of Internal Revenue’s

decision or inaction may appeal to the Court of Tax Appeals (CTA) within 30 days
from the receipt of the decision or from the expiration of the 120-day period within
which the claim has not been acted upon​.—The taxpayer affected by the CIR’s
decision or inaction may appeal to the CTA within 30 days from the receipt of the decision
or from the expiration of the 120-day period within which the claim has not been acted
upon. Considering further that the 30-day period to appeal to the CTA is dependent on
the 120-day period, compliance with both periods is jurisdictional. The period of 120 days
is a prerequisite for the commencement of the 30-day period to appeal to the CTA.

Civil Law; Quasi-Contracts; Solutio Indebiti; According to the principle of solutio

indebiti, if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises​.—Also devoid of
merit is the applicability of the principle of solutio indebiti to the present case. According
to this principle, if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. In that situation, a
creditor-debtor relationship is created under a quasi-contract, whereby the payor
becomes the creditor who then has the right to demand the return of payment made by
mistake, and the person who has no right to receive the payment becomes obligated to
return it. The quasi-contract of solutio indebiti is based on the ancient principle that no
one shall enrich oneself unjustly at the expense of another. There is solutio indebiti when:
(1) Payment is made when there exists no binding relation between the payor, who has
no duty to pay, and the person who received the payment; and (2) Payment is made
through mistake, and not through liberality or some other cause.

Taxation; Tax Refund; Tax Credit; Tax refunds or credits, just like tax exemptions,
are strictly construed against the taxpayer​.—Well-settled is the rule that tax refunds or
credits, just like tax exemptions, are strictly construed against the taxpayer. The burden is
on the taxpayer to show strict compliance with the conditions for the grant of the tax
refund or credit.

Cangco vs MRR, 38 Phil 768

Case Title: JOSE CANGCO vs. MANILA RAILROAD CO.

GR number: G.R. No. L-12191
Date: October 14, 1918
Ponente: Fisher, J.
Topic: Quasi – delict

FACTS:
 ​Jose Cangco’s daily travel to work and back home is thru the train wherein he uses his
free passes supplied by his company, the Manila Railroad. One night, Cangco alighted
from the train while it is still slowly moving towards the platform. He stepped off the traing
but one or two of his feet came in contact with a sack of watermelons on the platforms.
His body rolled from the platform and was drawn under the moving car, where his right
arm was badly crashed and lacerated. Cangco filed a case against the Manila Railroad
for recovery of damages.

ISSUES:
1. Whether the company is liable to Cangco; and
2. Whether there is contributory negligence on the part of Cangco.

HELD:

1. Yes, the company is liable to Cangco. The Supreme Court ruled that the ​foundation of
the legal liability of the defendant is the contract of carriage, and that the obligation to
respond for the damage which plaintiff has suffered arises, if at all, from the breach of that
contract by reason of the failure of defendant to exercise due care in its performance. The
contract of defendant to transport plaintiff carried with it, by implication, the duty to carry
him in safety and to provide safe means of entering and leaving its trains (civil code,
article 1258). That duty, being contractual, was direct and immediate, and its
non-performance could not be excused by proof that the fault was morally imputable to
defendant's servants. In considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which
was caused by the sacks of melons piled on the platform existed; and as the defendant
was bound by reason of its duty as a public carrier to afford to its passengers facilities for
safe egress from its trains, the plaintiff had a right to assume, in the absence of some
circumstance to warn him to the contrary, that the platform was clear. The place, as we
have already stated, was dark, or dimly lighted, and this also is proof of a failure upon the
part of the defendant in the performance of a duty owing by it to the plaintiff; for if it were
by any possibility concede that it had right to pile these sacks in the path of alighting
passengers, the placing of them adequately so that their presence would be revealed.

2. No, there is no contributory negligence on the part of Cangco. The Supreme Court
ruled that in determining the question of contributory negligence in performing such act —
that is to say, whether the passenger acted prudently or recklessly — the age, sex, and
physical condition of the passenger are circumstances necessarily affecting the safety of
the passenger and should be considered. Women, it has been observed, as a general
rule are less capable than men of alighting with safety under such conditions, as the
nature of their wearing apparel obstructs the free movement of the limbs. Again, it may be
noted that the place was perfectly familiar to the plaintiff as it was his daily custom to get
on and of the train at this station. There could, therefore, be no uncertainty in his mind
with regard either to the length of the step which he was required to take or the character
of the platform where he was alighting. Our conclusion is that the conduct of the plaintiff
in undertaking to alight while the train was yet slightly under way was not characterized
by imprudence and that therefore he was not guilty of contributory negligence.
CASE SYLLABI

1.MASTER AND SERVANT; CONTRACT; NEGLIGENCE​..—Failure to perform a

contract cannot be excused upon the ground that the breach was due to the negligence
of a servant of the obligor, and that the latter exercised due diligence in the selection and
control of the servant.

2.CONTRACTS; NEGLIGENCE; CULPA AQUILIANA; CULPA CONTRACTUAL​.—The

distinction between negligence as the source of an obligation (culpa aquiliana) and
negligence in the performance of a contract (culpa contractual) pointed out.

3.CARRIERS; PASSENGERS; NEGLIGENCE; ALIGHTING FROM MOVING TRAIN​.—It

is not negligence per se for a traveler to alight from a slowly moving train.

Case Title: Gutierrez vs Gutierrez 56 Phil 177

GR number: 56 Phil 177, No. 34840
Date: September 23, 1931
Ponente: Malcolm, J
Topic: ​Master Servant Rule; Damages

FACTS:
A passenger truck and an automobile of private ownership collided while attempting to
pass each other on a bridge. The truck was driven by a chauffer. The automobile was
driven by a lad 18 years of age. At the time of the collision, the father was not in the car,
but the mother, together with several other members of the family were accommodated
therein.

ISSUE:
WON both the driver of the truck and the automobile are liable for damages and
indemnification due to their negligence

HELD:
The youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive
rate of speed, and that, on approaching the bridge and the truck, he lost his head and so
contributed by his negligence to the accident. The guaranty given by the father at the time
the son was granted a license to operate motor vehicles made the father responsible for
the acts of his son. Based on these facts, pursuant to the provisions of article 1903 of the
Civil Code, the father alone and not the minor or the mother, would be liable for the
damages caused by the minor.
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo
Velasco rests on a different basis, namely, that of contract which, we think, has been
sufficiently demonstrated by the allegations of the complaint, not controverted, and the
evidence.

CASE SYLLABI
DAMAGES; MASTER AND SERVANT; MOTOR VEHICLES; LIABILITY OF HEAD OF
HOUSE FOR ACTS OF DRIVER WHO is HIS MINOR CHILD.—​The head of a house,
the owner of an automobile, who maintains it for the general use of his family, is liable for
its negligent operation by one of his children, whom he designates or permits to run it,
where the car is occupied and being used at the time of the injury for the pleasure of
other members of the owner's family than the child driving it.
2.ID.; ID.; ID.; ID.; CASE AT BAR.—​One G, a passenger in a truck, recovers damages in
the amount of P5,000 from the owner of a private automobile not in the car, the machine
being operated by a son 18 years of age, with other members of the family
accommodated therein, and from the chauffeur and owner of the truck which collided with
the private automobile on a bridge, causing physical injuries to G as a result of the
automobile accident.

C. Compliance with Obligations - Article 19, 1163-1166, 1244, 1246, 1460, 442, 440

Article 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.

CHAPTER 2
Nature and Effect of Obligations

Article 1163. Every person obliged to give something is also obliged to take care of it with
the proper diligence of a good father of a family, unless the law or the stipulation of the
parties requires another standard of care. (1094a)

Article 1164. The creditor has a right to the fruits of the thing from the time the obligation
to deliver it arises. However, he shall acquire no real right over it until the same has been
delivered to him. (1095)

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition
to the right granted him by article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at
the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event until
he has effected the delivery. (1096)

Article 1166. The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned. (1097a)

Article 1244. The debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be of the same value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another
act or forbearance against the obligee's will. (1166a)

Article 1246. When the obligation consists in the delivery of an indeterminate or generic
thing, whose quality and circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor deliver a thing of inferior
quality. The purpose of the obligation and other circumstances shall be taken into
consideration. (1167a)

Article 1460. A thing is determinate when it is particularly designated or physical

segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered
into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties. (n)

Article 442. Natural fruits are the spontaneous products of the soil, and the young and
other products of animals.

Industrial fruits are those produced by lands of any kind through cultivation or labor.
Civil fruits are the rents of buildings, the price of leases of lands and other property and
the amount of perpetual or life annuities or other similar income. (355a)

CHAPTER 2
Right of Accession

GENERAL PROVISIONS
Article 440. The ownership of property gives the right by accession to everything which is
produced thereby, or which is incorporated or attached thereto, either naturally or
artificially. (353)

D. Kinds of Civil Obligations

1. As to perfection and extinguishment
a. ​Pure - Article 1179-A1197

SECTION 1
Pure and Conditional Obligations

Article 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable, without
prejudice to the effects of the happening of the event. (1113)

Article 1180. When the debtor binds himself to pay when his means permit him to do so,
the obligation shall be deemed to be one with a period, subject to the provisions of article
1197. (n)

Article 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition. (1114)

Article 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon chance or upon the will
of a third person, the obligation shall take effect in conformity with the provisions of this
Code. (1115)

Article 1183. Impossible conditions, those contrary to good customs or public policy and
those prohibited by law shall annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing shall be considered as not having been
agreed upon. (1116a)

Article 1184. The condition that some event happen at a determinate time shall extinguish
the obligation as soon as the time expires or if it has become indubitable that the event
will not take place. (1117)

Article 1185. The condition that some event will not happen at a determinate time shall
render the obligation effective from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may
have probably been contemplated, bearing in mind the nature of the obligation. (1118)

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment. (1119)

Article 1187. The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when
the obligation imposes reciprocal prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and circumstances of the obligation it should be
inferred that the intention of the person constituting the same was different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive
effect of the condition that has been complied with. (1120)
Article 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a
suspensive condition. (1121a)

Article 1189. When the conditions have been imposed with the intention of suspending
the efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary. (1122)
Article 1190. When the conditions have for their purpose the extinguishment of an
obligation to give, the parties, upon the fulfillment of said conditions, shall return to each
other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding article shall be applied to the party
who is bound to return.

As for the obligations to do and not to do, the provisions of the second paragraph of
article 1187 shall be observed as regards the effect of the extinguishment of the
obligation. (1123)

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
(1124)

Article 1192. In case both parties have committed a breach of the obligation, the liability
of the first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed extinguished,
and each shall bear his own damages. (n)

SECTION 2
Obligations with a Period
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the
day certain.

A day certain is understood to be that which must necessarily come, although it may not
be known when.

If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section. (1125a)

Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of
the day certain, the rules in article 1189 shall be observed. (n)
Article 1195. Anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and demandable,
may be recovered, with the fruits and interests. (1126a)

Article 1196. Whenever in an obligation a period is designated, it is presumed to have

been established for the benefit of both the creditor and the debtor, unless from the tenor
of the same or other circumstances it should appear that the period has been established
in favor of one or of the other. (1127)

Article 1197. 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.
The courts shall also fix the duration of the period when it depends upon the will of the
debtor.
In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them. (1128a)

b. ​Conditional - Article 1181- 1190

Article 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition. (1114)

Article 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon chance or upon the will
of a third person, the obligation shall take effect in conformity with the provisions of this
Code. (1115)

Article 1183. Impossible conditions, those contrary to good customs or public policy and
those prohibited by law shall annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not affected by the impossible or unlawful
condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been
agreed upon. (1116a)

Article 1184. The condition that some event happen at a determinate time shall extinguish
the obligation as soon as the time expires or if it has become indubitable that the event
will not take place. (1117)

Article 1185. The condition that some event will not happen at a determinate time shall
render the obligation effective from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may
have probably been contemplated, bearing in mind the nature of the obligation. (1118)

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment. (1119)
Article 1187. The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when
the obligation imposes reciprocal prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and circumstances of the obligation it should be
inferred that the intention of the person constituting the same was different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive
effect of the condition that has been complied with. (1120)

Article 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a
suspensive condition. (1121a)

Article 1189. When the conditions have been imposed with the intention of suspending
the efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary. (1122)

Article 1190. When the conditions have for their purpose the extinguishment of an
obligation to give, the parties, upon the fulfillment of said conditions, shall return to each
other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding article shall be applied to the party
who is bound to return.

As for the obligations to do and not to do, the provisions of the second paragraph of
article 1187 shall be observed as regards the effect of the extinguishment of the
obligation. (1123)

c. ​With a term or period - Article 1180, 1193-1198

Article 1180. When the debtor binds himself to pay when his means permit him to do so,
the obligation shall be deemed to be one with a period, subject to the provisions of article
1197. (n)
SECTION 2
Obligations with a Period
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the
day certain.

A day certain is understood to be that which must necessarily come, although it may not
be known when.

If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section. (1125a)

Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of
the day certain, the rules in article 1189 shall be observed. (n)

Article 1195. Anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and demandable,
may be recovered, with the fruits and interests. (1126a)

Article 1196. Whenever in an obligation a period is designated, it is presumed to have

been established for the benefit of both the creditor and the debtor, unless from the tenor
of the same or other circumstances it should appear that the period has been established
in favor of one or of the other. (1127)

Article 1197. 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.

The courts shall also fix the duration of the period when it depends upon the will of the
debtor.

In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them. (1128a)

Article 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives
a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has
promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor
agreed to the period;
(5) When the debtor attempts to abscond. (1129a)

HSBC vs Sps Broqueza,

GR 178610,
November 17, 2010

Ponente:
Topic:

FACTS:
Fe Gerong and Editha Broqueza are employees of HSBC, and also, are members of
HSBCL-SRP which is a retirement plan established by HSBC through its BOT for the
benefit of the employees. Broqueza was granted a car loan and an appliance loan in the
amount of P175,000 and P24,000, respectively. Gerong was granted an emergency loan
in the amount of P35,780. These loans were paid through automatic salary deduction. As
a result of a labor dispute, Broqueza and Gerong were among those terminated from
employment by HSBC. Because of their dismissal, Gerong and Broqueza were not able
to pay the monthly amortizations of their respective loans. HSBCL-SRP considered their
accounts delinquent and demanded the payment of their respective obligations, but they
failed to pay. HSBCL-SRP filed civil actions for recovery and collection of sums of money
against the spouses Broqueza and Gerong before the MeTC. MeTC ruled that the nature
of HSBCL-SRP’s demands for payment is civil and has no connection to the ongoing
labor dispute. Gerong and Editha Broqueza’s termination from employment resulted in
the loss of continued benefits under their retirement plans. Thus, the loans secured by
their future retirement benefits to which they are no longer entitled are reduced to
unsecured and pure civil obligations. As unsecured and pure obligations, the loans are
immediately demandable. RTC affirmed the MeTC’s decision in toto. On appeal, the CA
reversed the RTC.

ISSUE:
WON the obligations of Broqueza and Gerong are pure obligations which are immediately
demandable?

HELD:
YES In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil
Code:

Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at once.
x x x.

We affirm the findings of the MeTC and the RTC that there is no date of payment
indicated in the Promissory Notes. The RTC is correct in ruling that since the Promissory
Notes do not contain a period, HSBCL-SRP has the right to demand immediate payment.
Article 1179 of the Civil Code applies. The spouses Broqueza’s obligation to pay
HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the prior
monthly check-off from Editha Broqueza’s salary is of no moment. Once Editha Broqueza
defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a pure
obligation.

In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s dismissal
from HSBC in December 1993, she "religiously paid the loan amortizations, which HSBC
collected through payroll check-off."1 A definite amount is paid to HSBCL-SRP on a
specific date. Editha Broqueza authorized HSBCL-SRP to make deductions from her
payroll until her loans are fully paid. Editha Broqueza, however, defaulted in her monthly
loan payment due to her dismissal. Despite the spouses Broqueza’s protestations, the
payroll deduction is merely a convenient mode of payment and not the sole source of
payment for the loans. HSBCL-SRP never agreed that the loans will be paid only through
salary deductions. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be
an employee of HSBC, her obligation to pay the loans will be suspended. HSBCL-SRP
can immediately demand payment of the loans at anytime because the obligation to pay
has no period. Moreover, the spouses Broqueza have already incurred in default in
paying the monthly installments.

CASE SYLLABI

Labor Law; Benefits; Retirement; Payroll deduction is merely a convenient mode of

payment and not the sole source of payment for the loans.—​In their Answer, the
spouses Broqueza admitted that prior to Editha Broqueza’s dismissal from HSBC in
December 1993, she “religiously paid the loan amortizations, which HSBC collected
through payroll check-off.” A definite amount is paid to HSBCL-SRP on a specific date.
Editha Broqueza authorized HSBCL-SRP to make deductions from her payroll until her
loans are fully paid. Editha Broqueza, however, defaulted in her monthly loan payment
due to her dismissal. Despite the spouses Broqueza’s protestations, the payroll deduction
is merely a convenient mode of payment and not the sole source of payment for the
loans. HSBCL-SRP never agreed that the loans will be paid only through salary
deductions. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an
employee of HSBC, her obligation to pay the loans will be suspended. HSBCL-SRP can
immediately demand payment of the loans at anytime because the obligation to pay has
no period. Moreover, the spouses Broqueza have already incurred in default in paying the
monthly installments.

Same; Same; Same; The enforcement of a loan agreement involves debtor-creditor

relations founded on contract and does not in any way concern employee
relations.—​The enforcement of a loan agreement involves “debtor-creditor relations
founded on contract and does not in any way concern employee relations. As such it
should be enforced through a separate civil action in the regular courts and not before the
Labor Arbiter.”

Pay vs Palanca, 57 SCRA 618

Short Title:​ Pay vs Palanca
Title:​ In The Matter Of The Intestate Estate Of Justo Palanca, Deceased, George Pay,
Petitioner-Appellant, Vs. Segundina Chua Vda. De Palanca, Oppositor-Appellee.
Ponente:​ Fernando, J.
Date:​ June 28, 1974
G.R. No.​ L-29900

FACTS:
George Pay is a creditor of the Late Justo Palanca, based on a promissory note whereby
promised to pay George Pay the amount of P26,900.00, with interest thereon at the rate
of 12% per annum, upon receipt by him of his share from a certain estate or upon
demand. This was on January 30, 1952.
On August 26, 1967, George Pay filed before the trial court, an action to appoint the
spouse of Justo Palanca as the administratrix of the late Palanca’s estate. The trial court
held that the action to claim based on the promissory note already prescribed.
ISSUE:
WON the action to claim based on the promissory note was demandable on the election
of herein creditor, George Pay?

WON the action has not yet prescribed?

HELD:
No. The action based on the promissory note is demandable at once.
Article 1179 of the Civil Code provides: "Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event unknown to the parties, is
demandable at once."
No. The action to claim based on the promissory note already prescribed. The obligation
being due and demandable, it would appear that the filing of the suit after fifteen years
was much too late. For again, according to the Civil Code, which is based on Section 43
of Act No. 190, the prescriptive period for a written contract is that of ten years.

CASE SYLLABI

Civil law; Promissory note; Prescription; A promissory note payable "on demand"
is immediately due and demandable; action thereon prescribes within ten
years.—​The obligation being due and demandable, it would appear that the filing of the
suit after fifteen years was much too late. For again, according to the Civil Code, which is
based on Section 43 of Act No. 90, the prescriptive period for a written contract is that of
ten years. This is another instance where this Court has consistently adhered to the
express language of the applicable norm.

Same; Same; Same; Same.—​Article 1179 of the Civil Code provides: "Every obligation
whose performance does not depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once." This used to be Article 1113 of the
Spanish Civil Code of 1889. As far back as Floriano v. Delgado (11 Phil. 154), a 1908
decision, it has been applied according to its express language. The well-known Spanish
commentator, Manresa, on this point, states: "Dejando, con acierto, el caracter mas
teórico y grafico del acto, o sea la perfeccion de éste, se fija, para determinar el concepto
de la obligacion pura, en el distintivo de esta, y que es consecuencia de aquél: la
exigibilidad im mediata."

Case Title: Smith Bell vs Sotelo Matti, 44 Phil 874

GR number: L-16570
Date: March 9, 1922
Ponente: ROMUALDEZ, J.
Topic: Conditional Obligation

FACTS​:
On August 1918, Smith Bell and Mr. Vicente Sotelo Matti entered into contracts whereby
the former obligated itself to sell, and the latter to purchase from it, two steel tanks for
P21,000 coming from New York and delivered within 3 months; two expellers for P25,000
coming from San Francisco to be delivered on September 1918 or as soon as possible;
and two electric motors for P2,000. The delivery of the stipulation was worded as:
“Approximate delivery within ninety days. – This is not guaranteed.” The tanks arrived at
Manila on the 27th of April, 1919; the expellers on the 26th of October, 1918; and the
motors on the 27th of February, 1919. Smith Bell notified Matti of the arrival of the goods
but Mr. Matti refused to receive them and pay the price. Smith Bell filed a suit against
Matti based on four separate causes of action. In his answer, Matti and the intervenor,
Manila Oil Refining, denied the allegations and claimed that the goods never arrived at
Manila. Likewise, since the goods will be used by defendants in manufacturing coconut
oil, the intervenor suffered damages for the delay in the delivery of tanks and the
expellers.The lower court absolved defendants as to the complaint of tanks and electric
motors, but not for the expellers. Both parties appealed to the SC.

ISSUE​:
WON under the contracts entered into, the plaintiff has fulfilled in due time its obligation to
bring the goods in question to Manila. If it has, then it is entitled to the relief prayed for;
otherwise, it must be held guilty of delay and liable for the consequences thereof.

HELD​:
No, the plaintiff has not been guilty of any delay in the fulfillment of its obligation and
consequently, it could not have incurred any of the liabilities mentioned by the intervenor
in its counterclaim or set-off. The term which the parties attempted to fix is so uncertain
that one cannot tell just whether, as a matter of fact, those articles could be brought to
Manila or not. If that is the case, the obligation must be regarded as conditional.

Under these stipulations, it cannot be said that any definite date was fixed for the delivery
of the goods. As to the tanks, the agreement was that the delivery was to be made "within
3 or 4 months," but that period was subject to the contingencies referred to in a
subsequent clause. With regard to the expellers, the contract says "within the month of
September, 1918," but to this is added "or as soon as possible." And with reference to the
motors, the contract contains this expressions, "Approximate delivery within ninety days,"
but right after this, it is noted that "this is not guaranteed."

The oral evidence falls short of fixing such period.

"Obligations for the performance of which a day certain has been fixed shall be
demandable only when the day arrives.

A day certain is understood to be one which must necessarily arrive, even though its date
be unknown.

If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is
conditional and shall be governed by the rules of the next preceding section.​" (referring to
pure and conditional obligations). (Art. 1125, Civ. Code.)

And as the export of the machinery in question was as stated in the contract, contingent
upon the sellers obtaining certificate of priority and permission of the United States
Government, subject to the rules and regulations, as well as to railroad embargoes, then
the delivery was subject to a condition the fulfillment of which depended not only upon the
effort of the herein plaintiff, but upon the will of third persons who could in no way be
compelled to fulfill the condition. In cases like this, which are not expressly provided for,
but impliedly covered, by the Civil Code, ​the obligor will be deemed to have sufficiently
performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.

It is sufficiently proven in the record that the plaintiff has made all the efforts it could
possibly be expected to make under the circumstances to bring the goods in question to
Manila as soon as possible. And as a matter of fact, through such efforts, it succeeded in
importing them and placing them at the disposal of the defendant Mr. Sotelo in April,
1919. Under the doctrine just cited, which, as we have seen is of the same juridical origin
as our Civil Code, it is obvious that the plaintiff has complied with its obligation.

CASE SYLLABI

1.CONTRACTS; PURCHASE AND SALE OF MERCHANDISE; UNCERTAINTY OF

TIME OF FULFILLMENT. OF OBLIGATION.—​As no definite date was fixed for the
delivery of the goods, which the plaintiff undertook to deliver, the term which the parties
attempted to establish being so uncertain, that one cannot tell whether, as a matter of
fact, the aforesaid goods could, or could not, be imported into Manila, the obligation must
be regarded as conditional and not one with a term.

2.lD.; ID.; WHEN FULFILLMENT OF CONDITION NOT DEPENDENT ON THE WILL OF

OBLIGOR​.—Where the fulfillment of the condition does not depend on the will of the
obligor, but on that of a third person who can in no way be compelled to carry it out, the
obligor's part of the contract is complied with, if he does all that is in his power, and it then
becomes incumbent upon the other contracting party to comply with the terms of the
contract.

3.ID.; ID.; WHEN TIME NOT ESSENTIAL​.—Where no date is fixed in the contract for the
delivery of the thing sold, time is considered unessential, and delivery must be made
within a reasonable time to be determined by the courts in accordance with the
circumstances of the case.

4.PRINCIPAL AND AGENT; THIRD PERSONS​.—When an agent acts in his own name,
the principal has no right of action against the persons with whom the agent has
contracted, or such persons against the principal. In such case, the agent is directly liable
to the person with whom he has contracted, as if the transaction were his own. (Art. 1717,
Civil Code.) Smith, Bell & Co. vs. Sotelo Matti, 44 Phil. 874, No. 16570 March 9, 1922

Case Title: Chavez vs Gonzales (torres, k.)

GR: 32 SCRA 547
DATE:
PONENTE:
TOPIC​: ​KINDS OF OBLIGATION (WITH A PERIOD)- ANY OTHER MANNER OF
CONTRAVENTION
Article 1167 - If a person obliged to do something fails to do it, the same shall be
executed at his cost.
Article 1170 – Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
Article 1197 - 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.
FACTS:
In the early part of July, 1963, Chaves delivered to the Gonzales a portable typewriter for
routine cleaning and servicing. Gonzales was not able to finish the job after some time
despite repeated reminders. In October, 1963, Gonzales asked the sum of P6.00 from
Chaves for the purchase of spare parts. On October 26, 1963, after getting exasperated
with the delay of the repair of the typewriter, Chaves went to the house of Gonzales and
asked for the return of the typewriter.Gonzales delivered the typewriter in a wrapped
package and upon reaching home, the Chaves examined the typewriter and found out
that the same was in shambles, with the interior cover and some parts and screws
missing. On October 29, 1963. He sent a letter to Gonzales formally demanding the
return of 6.00. The following day, Gonzales returned some of the missing parts, the
interior cover and the P6.00.

The plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job
cost him a total of P89.85, including labor and materials. On August 23, 1965, the plaintiff
commenced this action before the City Court of Manila, demanding from the defendant
the payment of P90.00 as actual and compensatory damages, P100.00 for temperate
damages, P500.00 for moral damages, and P500.00 as attorney’s fees but the court a
quo awarded only the value of the missing parts of the typewriter (P31.10), instead of the
whole cost of labor and materials that went into the repair of the machine. Chaves
appealed. Gonzales argued that he is not liable at all because his contract with Chaves
did not contain a period, so that Chaves should have first filed a petition for the court to fix
the period, under Article 1197 of the Civil Code, within which the Gonzales was to comply
with the contract before said defendant-appellee could be held liable for breach of
contract.

ISSUE 1:
WON Chaves should have gone to Court to fix the period of their contract before
commencing the present action.

HELD 1:
NO. Defendant cannot invoke Article1197 of the Civil Code for he virtually admitted non-
performance by returning the typewriter that he was obliged to repair in a non- working
condition, with essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay.

ISSUE 2:
WON Chaves can recover the cost of recovering the cost of executing the obligation from
Gonzales.

HELD 2:
YES. It is clear that the defendant-appellee contravened the tenor of his obligation
because he not only did not repair the typewriter but returned it "in shambles", according
to the appealed decision. For such contravention, as appellant contends, he is liable
under Article 1167 of the Civil Code for the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this case should be the cost of the
labor or service expended in the repair of the typewriter, which is in the amount of
P58.75. because the obligation or contract was to repair it. In addition, the
defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the
missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was
bound, but failed or neglected, to return it in the same condition it was when he received
it.

CASE SYLLABI

Civil law; Obligations; Nature and effect of obligations; Obligation of a person

obliged to do something and fails to do it.— ​Under Article 1167 of the Civil Code, a
person who is obliged to do something and fails to do it shall be liable for the cost of
executing the obligation in a proper manner.

Same; Same; Same; Same; Cost of obligation; Case at bar.— ​The cost of execution
of the obligation to repair a typewriter is the cost of the labor or service expended in the
repair of the typewriter. In addition, the obligor, under Article 1170 of the Code, is liable
for the cost of the missing parts because in his obligation to repair the typewriter he is
bound to return the typewriter in the same condition it was when he received it.

Same; Same; Obligation with period; Where obligation does not fix a period; When
fixing a period is mere formality.— ​Where the defendant virtually admitted
non-performance by returning the typewriter he was obliged to repair in a non-working
condition, with essential parts, missing, he cannot invoke Article 1137 of the Civil Code.
The time for compliance having evidently expired, and there being a breach of contract by
non-performance, it was academic for the plaintiff to have first petitioned the court to fix a
period for the performance of the contract before filing his complaint in this case. The
fixing of a period would thus be a mere formality and would serve no purpose than to
delay.

Same; Damages; Claims for damages and attorney’s fees must be alleged and
proved.— ​Claims for damages and attorney’s fees must be pleaded, and the existence of
the actual basis thereof must be proved. Where there is no findings of fact on the claims
for damages and attorney’s fees in the lower court’s decision, there is no factual basis
upon which to make an award therefor.

Encarnacion vs Baldomar, 77 Phil 470

VICENTE SINGSON ENCARNACION, plaintiff-appellee, vs. JACINTA BALDOMAR, ET

AL., defendants-appellants.
[G.R. No. L-264 | October 4, 1946 | EN BANC | J. Hilado]
FACTS:
Plaintiff leased his house to Jacinto Baldomar, and her son, Lefrado Fernando, upon a
month-to-month basis. Subsequently, plaintiff notified defendants to vacate the said
house because plaintiff needed it for his offices. Despite this demand, defendants insisted
on continuing their occupancy. Plaintiff filed an action before the Municipal Court of
Manila during which defendants were in arrears in the payment of the rental for that
month.
On appeal to the CFI, the defendants interposed that their lease contract with the plaintiff
authorized them to continue occupying the house indefinitely as long as they faithfully pay
their rentals. The CFI decided in favor of the plaintiff ratiocinating that the lease had
always been upon a month-to-month basis.
ISSUE:
WON the lease contract entered into by the parties is for an indefinite period (as long as
rentals are paid), or on a month-to-month basis?
HELD:
month-to-month. The defense thus set up by defendant Lefrado Fernando would leave to
the sole and exclusive will of one of the contracting parties (defendants in this case) the
validity and fulfillment of the contract of lease, within the meaning of article 1256 of the
Civil Code, since the continuance and fulfillment of the contract would then depend solely
and exclusively upon their free and uncontrolled choice between continuing paying the
rentals or not, completely depriving the owner of all say in the matter.
If this defense were to be allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue, the lessees could
effectively thwart his purpose if they should prefer to terminate the contract by the simple
expedient of stopping payment of the rentals.

CASE SYLLABI

OBLIGATIONS AND CONTRACTS; LEASE; VALIDITY AND FULFILLMENT CANNOT

BE LEFT TO EXCLUSIVE WlLL OF LESSEE.—​The continuance and fulfillment of the
contract of lease cannot be made to depend solely and exclusively upon the free and
uncontrolled choice of the lessees between continuing paying the rentals or not,
completely depriving the owner of all say in the matter. For if this were allowed, so long
as def endants elected to continue the lease by continuing the payment of the rentals. the
owner would never be able to discontinue it; conversely, although the owner should
desire the lease to continue, the lessees could effectively thwart his purpose if they
should prefer to terminate the contract by the simple expedient of stopping payment of
the rentals. This, of course, is prohibited by article 1256 of the Civil Code.

Elezegui vs Lawn Tennis Club, 2 Phil 309

FACTS:
Suit concerns lease of land for a fixed consideration.

The tenor of the contract states

“When the term has not been fixed for the lease, it is understood to be for years when an annual
rental has been fixed for the leasem it is understood to be for years when an annual rental has been
fixed, for months then the rent is monthly.

The rent of the said land is fixed at 25 pesos ​per month.”

Art. 1596 ​The lessor may judicially dispossess the lessee upon the expiration of the conventional
term or of the legal term.

Conventional Term - ​Agreed upon by the parties

Legal Term​ - Fixed for leases by ​Art. 1577-1581 ​in defect of the conventional

ISSUE:
Whether the term is conventional or legal.

HELD:
Theories concerning the term of the lease
First, the duration of which depends upon the will of the lessor, who may so terminate upon a
month’s notice to the lessee. On the contrary, upon the will of the lessee, as stipulated. Third, in
accordance which the right is reserved to the courts to fix the duration of the term. The judge has
to determine whether there is or is not a conventional term. The legal term cannot be applied in
subsidium ​if there appears a conventional term. The law interprets the presumptive intention of the
parties, nothing being stated in the contract.

“Obligations arising from contracts have the force of law better the contracting parties and must be
complied with according to the tenor of the contracts.” (​Art. 1091 ​of the Civil Code)

The lessors assumed by the contract entered into

First clause
“They lease the above-described land for all the time the members of the said club may desire to
use it.”

Third clause
“The owners of the lan undertake to maintain the club as tenant as long as the latter shall see fit,
without altering in the slightest degree the conditions of this contract, even though the estate be
sold.”

A conventional term, being present, destroys the assumption that the contract of lease was wholly
terminated by plaintiffs, said notice being necessary only when recourse to the legal term is
necessary.

Clause 3 begins as follows “Mr. Williamson, or whoever may succeed him as Secretary of said
club, may terminate this lease whenever desired without other formality than that of giving a
month’s notice. The owners of the land undertake to maintain the club as tenant as long as the
latter shall see fit.”

If the lease could last during such time as the lessee might see fit, because it has been so stipulated
by the lessor, it would last, first, as long as the will of the lessee - all his life; second, during all the
time that he may have succession, inasmuch as he who contracts does so for himself and his heirs.
(​Art. 1257​, Civil Code)

If it is a lease, then it must be for a ​determinate period ​(​Art. 1543​) It must be, by its nature,
temporary. It cannot be concluded that the termination of the contract be left completely at the will
of the lessee, because it has been stipulated so. The Civil Code has supplied the deficiency of the
former law with respect to the “duration of the term when it has been left to the will of the debtor.”
and provides that in this case the term shall be fixed by the courts. (​Art. 1128​, Sec. 2)

In a contract of lease, the lessee is the creditor with respect to the rights enumerated in ​Art. 1554​,
and is the debtor with respect to the obligations imposed by ​Art. 1555 ​and ​1501​. The term within
which performance of the latter obligation is due is what has been left to the will of the debtor.
This term it is which must be fixed by the courts.

An action which presupposes the expiration of the term and makes it the duty of the judge to
simply decree an eviction. It is sufficient to show the expiration of the term of the contract,
whether conventional or legal; it is necessary for the judge to look into the character and
conditions of the mutual undertaking with a view of supplying the lacking element of a time at
which the lease is to expire.

Willard, ​J.,​ concurring:

Art. 1581 ​has no application; Application of Art. 1128

Art. 1128 ​Should the obligation not fix a period, but it can be inferred from its nature and
circumstance that there was an intention to grant it to the debtor, the courts shall fix the duration of
the same.

The court shall also fix the duration of the period when it may have been left to the will of the
debtor.

The last paragraph has been applied to leases; applying the first directs conflict between ​Art. 1128
and ​1581. ​The first paragraph relates to obligations in which the parties have named no period, the
second to the same kind of obligations in which the period is left to the will of the debtor.

CASE SYLLABI

1.REAL PROPERTY; LEASE; CONVENTIONAL AND LEGAL TERM.—​Article 1581 of

the Civil Code, fixing legal terms for leases in which no conventional term is stipulated,
has no application to a lease whose termination is expressly left to the will of the lessee.

2.ID.; ID.; TERM AT WILL OF LESSEE.—​The term of a lease whose termination is

expressly left to the will of the lessee must be fixed by the courts according to the
character and conditions of the mutual undertakings, in an action brought for that
purpose, in accordance with article 1128 of the Civil Code.

3.OBLIGATIONS; CONTRACTS; GENERAL PROVISIONS.—​The general principles

established by the Civil Code with respect to obligations and contracts are applicable to
contracts of all kinds.

Per WILLARD, J., concurring:

4.REAL PROPERTY; LEASE; CONVENTIONAL AND LEGAL TERM.—​Article 1128 of
the Civil Code has no application to a lease whose termination is left to the will of the
lessee; such lease in favor of a natural person creates an estate which may amount to a
life tenancy and in favor of a judicial person may endure until the dissolution of the entity
or until terminated by breach of some condition of the contract.

Philbanking vs Lui She, 21 SCRA 52

CASTRO, J.:

Validity of lease or option to buy real estate to an alien.

FACTS:
Justina Santos y Canon Faustino is the owner of a property, part of which was leased to
Wong Heng. Being at the time 90 years old, blind, crippled and an invalid, Justina was left
with no other relative to live with. Wong was the trusted man to whom she delivered
various amounts for safekeeping, including rentals from her property and the rentals
which Wong himself paid as lessee. Wong also took care of the payment; in her behalf, of
taxes, lawyers' fees, funeral expenses, masses, salaries of maids and security guard, and
her household expenses.

Thus, Justina Santos executed a contract of lease in favor of Wong covering a period of
50 years. The contract was amended to give Wong the option to buy the leased premises
for P120,000, payable within ten years at a monthly installment of P1,000. The option was
conditioned on his obtaining Philippine citizenship, a petition for which was then pending
in the Court of First Instance of Rizal. It appears, however, that this application for
naturalization was withdrawn when it was discovered that he was not a resident of Rizal.
Subsequently, the contract was amended extending the term of the lease to 99 years,
and another fixing the term of the option of 50 years.

Thereafter a complaint was filed in the Court of First Instance of Manila. The complaint
alleged that the contracts were obtained by Wong "through fraud, misrepresentation,
inequitable conduct, undue influence and abuse of confidence and trust of and by taking
advantage of the helplessness of the plaintiff and were made to circumvent the
constitutional provision prohibiting aliens from acquiring lands in the Philippines and also
of the Philippine Naturalization Laws.

Both parties died after the case was submitted for decision. Wong was substituted by his
wife, Lui She, the other defendant in this case, while Justina Santos was substituted by
the Philippine Banking Corporation.

Justina Santos maintained — now reiterated by the Philippine Banking Corporation —

that the lease contract should have been annulled along with the four other contracts
because it lacks mutuality; because it included a portion which, at the time, was in
custodia legis; because the contract was obtained in violation of the fiduciary relations of
the parties; because her consent was obtained through undue influence, fraud and
misrepresentation; and because the lease contract, like the rest of the contracts, is
absolutely simulated.

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from
this agreement." It is claimed that this stipulation offends article 1308 of the Civil Code
which provides that "the contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."

ISSUE:
WON the option given to Wong to buy the property is valid.

HELD:
NO.
To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an
alien the right to buy real property on condition that he is granted Philippine citizenship.
As this Court said in ​Krivenko v. Register of Deeds​:
Aliens are not completely excluded by the Constitution from the use of lands for
residential purposes. Since their residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to
last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy the
land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it ( jus disponendi) — rights the sum total of which make up ownership. It is
just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are
consolidated in an alien. And yet this is just exactly what the parties in this case did within
the space of one year, with the result that Justina Santos' ownership of her property was
reduced to a hollow concept. If this can be done, then the Constitutional ban against alien
landholding in the Philippines, as announced in Krivenko v. Register of Deeds, is indeed
in grave peril.

CASE SYLLABI

Civil law; Contracts; Resolutory condition; Art. 1308, Civil Code​.—Article 1308 of the
Civil Code creates no impediment to the insertion in a contract for personal services of a
resolutory condition permitting the cancellation of the contract by one of the parties. Such
a stipulation does not make either the validity or the fulfillment of the contract dependent
upon the will of the party to whom is conceded the privilege of cancellation; for where the
contracting parties have agreed that such option shall exist, the exercise of the option is
as much in the fulfillment of the contract as any other act which may have been the
subject of the agreement. Indeed, the cancellation of a contract in accordance with
conditions agreed upon beforehand is fulfillment.

Same; Lease contract; Validity of provision for rescission therein​.—A provision in a

lease contract that the lessee, at any time before he erected any building on the land may
rescind the lease can hardly be regarded as a violation of Article 1308 of the Civil Code.

Same; Consideration; Consideration need not pass at time of execution of

contract​.—The consideration need not pass from one party to the other at the time a
contract is executed because the promise of one is the consideration for the other.

Same; Validity of lease or option to buy real estate to an alien​.—A lease to an alien
for a reasonable period is valid. So is an option giving an alien the right to buy real
property on condition that he is granted Philippine citizenship. Aliens are not completely
excluded by the Constitution from the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may be granted temporary rights such as a
lease contract which is not forbidden by the Constitution. Should they desire to remain
here forever and share our fortune and misfortune, Filipino citizenship is not impossible to
acquire.

Same; Same; When invalid​.—If an alien is given not only a lease of, but also an option
to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise
dispose of his property, this to last for 50 years, then it becomes clear that the
arrangement is a virtual transfer of ownership whereby the owner divests himself in
stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi, and
jus abutendi), but also of the right to dispose of it (jus disponendi)—rights the sum total of
which make up ownership It is just as if today the possession is transferred, tomorrow the
use, the next day the disposition, and so on, until ultimately all the rights of which
ownership is made up are consolidated in an alien. If this can be done, then the
constitutional ban against alien landholding in the Philippines, as announced in Krivenko
vs. Register of Deeds (79 Phil. 461) is indeed in grave peril.

Same; Same; Same; Remedy of parties; Exception to pari delicto doctrine​.—It does
not follow that because the parties are in pari delicto they will be left where they are
without relief. Article 1416 of the Civil Code provides as an exception to the rule of in pari
delicto that “when the agreement is not illegal per se but is merely prohibited, and the
prohibition by law is designed for the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he had paid or delivered.’

Same; Same; Same; Same; Sec. 5, Art. XIII of the Constitution is an expression of
public policy​.—The constitutional provision that “save in cases of hereditary succession,
no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines” is an expression of public policy to conserve lands for the Filipinos.

Lim vs People, 133 SCRA 333

RELOVA, J.:
Obligation with a period

FACTS:
Lourdes Lim, a businesswoman, went to Maria Ayroso and proposed to the latter to sell
Ayroso’s tobacco. Ayroso agreed to the proposition to sell her tobacco consisting of 615
kilos at P1.30/kilo. The agreement reads: “This is to certify that I have received from
Maria Ayroso of Nueva Ecija, 615 kilos of leaf tobacco to be sold at P1.30/kilo. The
proceed in the amount of P799.50 will be given to her as soon as it was sold”. Of the
P799.50, only P240 was paid by Lim. Lim failed to pay the balance despite demands.
Ayroso filed an Estafa case against Lim.

ISSUE:
WON Lim’s obligation to pay Ayroso is immediately demandable as soon as the tobacco
was disposed of.

HELD:
YES.
The SC ruled that it was clear in the agreement that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same was sold, or, that
the obligation was immediately demandable as soon as the tobacco was disposed of.
Hence, Article 1197 of the NCC, which provides that the court may fix the duration of the
obligation if it does not fix a period, does not apply. The agreement cannot be understood
to mean that the duration of the period depends upon the will of the debtor which the
court can fix the duration thereof. Instead the agreement between them was one of
agency with the OBLIGATION to return the unsold tobacco and the proceeds of the sale
demandable.
CASE SYLLABI

Criminal Law; Contracts; Where a person obliged himself to pay to another the
proceeds of the latter’s tobacco as soon as they are disposed of, a period exists
for payment of the obligation and, therefore, Art. 1197, N.C.C. does not apply.​—It is
clear in the agreement, Exhibit “A”, that the proceeds of the sale of the tobacco should be
turned over to the complainant as soon as the same was sold, or, that the obligation was
immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of
the New Civil Code, which provides that the courts may fix the duration of the obligation if
it does not fix a period, does not apply.

Same; Same; Agency; Estafa is present where contract to sell constituted another
as mere agent​.—Aside from the fact that Maria Ayroso testified that the appellant asked
her to be her agent in selling Ayroso’s tobacco, the appellant herself admitted that there
was an agreement that upon the sale of the tobacco she would be given something. The
appellant is a businesswoman, and it is unbelievable that she would go to the extent of
going to Ayroso’s house and take the tobacco with a jeep which she had brought if she
did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to
Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not
have been the appellant who would have gone to the house of Ayroso, but it would have
been Ayroso who would have gone to the house of the appellant and deliver the tobacco
to the appellant.”

Same; Same; Same; Sale; There is no contract of sale, but mere agency to sell,
where agreement was to pay over to tobacco owner the proceeds thereof as soon
as it was sold.​—The fact that appellant received the tobacco to be sold at P1.30 per kilo
and the proceeds to be given to complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. The agreement (Exhibit “A”)
constituted her as an agent with the obligation to return the tobacco if the same was not
sold. ,

Case title:Gregorio Araneta, Inc. v. The Philippine Sugar Estates Development Co.,
Ltd.
G.R. No. L-22558/ 20 SCRA 330
Date:May 31, 1967
Ponente:

TOPIC:

FACTS:
J. M. Tuason & Co., Inc. (Tuason) is the owner of a big tract land situated in Quezon City,
otherwise known as the Sta. Mesa Heights Subdivision, and covered by a Torrens title in
its name. Tuason, through Gregorio Araneta, Inc. (GA), sold a portion thereof to
respondent Phil. Sugar Estates Development Co., Ltd. (PSED) Both parties stipulated in
the contract of purchase and sale with mortgage, that the buyer will build on the parcel of
land the Sto. Domingo Church and Convent, while the seller will Construct streets
surrounding the parcel of land on all four sides, and that the northeast side shall be
named "Sto. Domingo Avenue." PSED finished the construction of the church, but the
seller, GA, was unable to finish the construction of Sto. Domingo Avenue, because of
Manuel Abundo's refusal to vacate the middle part of the street. PSED filed a complaint
against Tuason to compel the latter to comply with its obligation and/or to pay damages
should they refuse or fail to perform said obligation. Tuason and GA's defense is that the
action was premature since the construction of the street was without a definite period,
which requires court action before a complaint for specific performance will prosper. The
trial court upheld Tuason's and GA's defense. PSED moved for reconsideration and
sought the fixing of a period within which defendants will comply with the obligation. The
court granted the motion and fixed a period of 2 years from notice of the judgment. On
appeal, GA contended that the period fixed was not justified by the pleadings and not
supported by the facts submitted during trial, and that the relief granted, in effect, allowed
a change of theory after the submission of the case for decision. The CA held that the
fixing of the period was within the pleadings, and that there was no change of theory after
the submission of the case for decision, as GA squarely provided for it in its Answer. It
affirmed and modified the judgment of the lower court by giving 2 years from the date of
finality of its decision to comply with the obligation to construct streets surrounding the
property.

ISSUE​:
WON the court should fix the time of performance

RULING​:
NO. If the contract so provided, then there was a period fixed, a "reasonable time;" and all
that the court should have done was to determine if that reasonable time had already
elapsed when suit was filed if it had passed, then the court should declare that petitioner
had breached the contract, as averred in the complaint, and fix the resulting damages. On
the other hand, if the reasonable time had not yet elapsed, the court perforce was bound
to dismiss the action for being premature. But in no case can it be logically held that
under the plea above quoted, the intervention of the court to fix the period for
performance was warranted, for Article 1197 is precisely predicated on the absence of
any period fixed by the parties.

Even on the assumption that the court should have found that no reasonable time or no
period at all had been fixed (and the trial court's amended decision nowhere declared any
such fact) still, the complaint not having sought that the Court should set a period, the
court could not proceed to do so unless the complaint in as first amended; for the original
decision is clear that the complaint proceeded on the theory that the period for
performance had already elapsed, that the contract had been breached and defendant
was already answerable in damages.

Granting, however, that it lay within the Court's power to fix the period of performance,
still the amended decision is defective in that no basis is stated to support the conclusion
that the period should be set at two years after finality of the judgment. The list paragraph
of Article 1197 is clear that the period cannot be set arbitrarily. The law expressly
prescribes that “the Court shall determine such period as may under the circumstances
been probably contemplated by the parties.”

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is
that "the proven facts precisely warrant the fixing of such a period," a statement
manifestly insufficient to explain how the two period given to petitioner herein was arrived
at.
It must be recalled that Article 1197 of the Civil Code involves a two-step process. The
Court must first determine that "the obligation does not fix a period" (or that the period is
made to depend upon the will of the debtor)," but from the nature and the circumstances
it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2). This preliminary
point settled, the Court must then proceed to the second step, and decide what period
was "probably contemplated by the parties" (Do., par. 3). So that, ultimately, the Court
cannot fix a period merely because in its opinion it is or should be reasonable, but must
set the time that the parties are shown to have intended. As the record stands, the trial
Court appears to have pulled the two-year period set in its decision out of thin air, since
no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil
Code.

In this connection, it is to be borne in mind that the contract shows that the parties were
fully aware that the land described therein was occupied by squatters, because the fact is
expressly mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the
parties must have known that they could not take the law into their own hands, but must
resort to legal processes in evicting the squatters, they must have realized that the
duration of the suits to be brought would not be under their control nor could the same be
determined in advance. The conclusion is thus forced that the parties must have intended
to defer the performance of the obligations under the contract until the squatters were
duly evicted, as contended by the petitioner Gregorio Araneta, Inc.

It follows that there is no justification in law for the setting the date of performance at any
other time than that of the eviction of the squatters occupying the land in question; and in
not so holding, both the trial Court and the Court of Appeals committed reversible error. It
is not denied that the case against one of the squatters, Abundo, was still pending in the
Court of Appeals when its decision in this case was rendered.

CASE SYLLABI

Obligations; Contracts; Sale; Pleadings; When court should not fix the period for
performing an obligation.— ​Where the issue raised in the pleadings was whether the
seller of the land was given in the contract of sale a reasonable time within which to
construct the streets around the perimeter of the land sold, the court, in an action for
specific performance to compel the construction of said. streets or for recovery of'
damages, cannot fix a period within which the seller should construct the streets. The
court should determine whether. the parties had agreed that the seller should have
reasonable time to perform its part of the bargain. If the contract so provided, then there
was a period fixed, a "reasonable time", and all that the court should have done was to
determine if that reasonable time had already elapsed when the suit was filed. If it had
passed, then the court should' declare that the petitioner had breached the contract, as
averred in the complaint. and fix the resulting damages. On the other hand, if the
reasonable time had not yet elapsed, the court perforce was bound to dismiss the action
for being premature. But in no case can it be logically held that, under the pleadings, the
intervention of the court to fix the period for performance was warranted, for Article 1197
of the New Civil Code is precisely predicated. on the absence of any period fixed by the
parties.

Same; Pleading and practice; When amendment of complaint is necessary.— ​If the
complaint did not ask that a period for the performance of an obligation be fixed, and the
court wants to fix a period, it cannot proceed to do so unless the complaint is first
amended.

Same; Specific performance; Power of court to fix period.— ​Article 1197 of the New
Civil Code involves a two-step process. The court must first determine that the obligation
does not fix a period (or that the period depends upon the debtor's will) and that the
intention of the parties, as may be inferred from the nature and circumstances of the
obligation, is to have a period for its performance. The second step is to ascertain the
period probably contemplated by the parties. The court cannot arbitrarily fix a period out
of thin air.

Same; Period within which obligation to construct streets on land occupied by

squatters should be performed.— ​Where the seller obligated itself to construct streets
around the perimeter of the land sold (site of the Santo Domingo Church in Quezon City)
and the parties were aware that the land, on which the streets would be constructed, was
occupied by squatters, the time for the performance of the seller's obligation should be
fixed at the date that all the squatters on the affected areas are finally evicted therefrom.
While this solution would render the date of performance indefinite, still the circumstances
of the case admit of no other reasonable view. This very indefiniteness explains why the
contract did not specify any exact period of performance. The ruling that the obligation
should be performed within two years is not warranted.

Millare vs Hernando, 151 SCRA 484

Case Title: PACIFICA MILLARE, petitioner, vs. HON. HAROLD M. HERNANDO, In

his capacity as Presiding Judge, Court of First Instance of Abra, Second Judicial
District, Branch I, ANTONIO CO and ELSA CO, respondents.
GR number​: No. L-55480.
Date :​ June 30, 1987.
Ponente:​ FELICIANO, J.:
Topic:​ Obligation with a Period

FACTS:
On 17 June 1975, a five-year Contract of Lease was executed between petitioner Pacifica
Millare as lessor and Elsa Co, married to Antonio Co, as lessee. Under the written
agreement, with expiration date of 31 May 1980, the lessor-petitioner agreed to rent out
to the lessee at a monthly rate of P350.00 the “People’s Restaurant”, a commercial
establishment in Bangued, Abra. As to renewal, paragraph 13 of said agreement states:

“13. This contract of lease is subject to the laws and regulations of the government; and
that this contract of lease may be renewed after a period of five (5) years under the terms
and conditions as will be mutually agreed upon by the parties at the time of renewal; ...​”

According to the Co spouses, sometime during the last week of May 1980, the lessor
informed them that they could continue leasing the People’s Restaurant so long as they
were amenable to paying increased rentals of P1,200.00 a month. In response, a
counteroffer of P700.00 amount was made by the Co spouses. At this point, the lessor
allegedly stated that the amount of monthly rentals could be resolved at a later time since
“the matter is simple among us”, which alleged remark was supposedly taken by the
spouses Co to mean that the Contract of Lease had been renewed, prompting them then
continue occupying the subject premises and to forego their search for a substitute place
to rent. In contrast, the lessor flatly denied ever having considered, much less offered, a
renewal of the Contract of Lease.

On 22 July 1980, Mrs. Millare wrote the Co spouses requesting them to vacate the leased
premises as she had no intention of renewing the Contract of Lease​. In reply, the Co
spouses reiterated their unwillingness to pay the Pl,200.00 monthly rentals supposedly
sought bv Mrs. Millare which they considered "highly excessive, oppressive and contrary
to existing laws". They also signified their intention to deposit the amount of rentals in
court, in view of Mrs. Millare's refusal to accept their counter-offer.​4 Another letter of
demand from Mrs. Millare was received on 28 July 1980 by the Co spouses, who
responded by depositing the rentals for June and July (at 700.00 a month) in court.

Co spouses filed a Complaint seeking the renewal of the Contract of Lease at a rental
rate of P700.00 a month and for a period of ten years. On the other hand, on 1
September 1980, Mrs. Millare filed an ejectment case against the Co spouses.
Respondent judge denied the motion to dismiss of Mrs. Millare on the case filed by the
CO spouses and ordered the renewal of the Contract of Lease and also ruled that the
case falls squarely within the coverage and command of Articles 1197 and 1670 of the
New Civil Code​.

ISSUE:
Whether there was an absence of a period in the Agreement of the parties, hence, the
judge may fix the same pursuant to Article 1197 NCC?

RULING:
No, there was a period fixed under Para. 13 of the Agreement.

Paragraph 13 of the Contract of Lease can only mean that the lessor and lessee may
agree to renew the contract upon their reaching agreement on the terms and conditions
to be embodied in such renewal contract. Failure to reach agreement on the terms and
conditions of the renewal contract will of course prevent the contract from being renewed
at all. In the instant case, the lessor and the lessee conspicuously failed to reach
agreement both on the amount of the rental to be payable during the renewal term, and
on the term of the renewed contract.

The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the
"Judgment by Default" by which he ordered the renewal of the lease for another term of
five years and fixed monthly rentals thereunder at P700.00 a month. Article 1197 of the
Civil Code provides as follows:
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.
The courts shall also fix the duration of the period ​when it depends upon the will of the
debtor.
In every case, the courts shall determine such period as may, under the circumstances,
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them. (Emphasis supplied.)

The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did
in fact fix an original period of five years, which had expired. It is also clear from
paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty
of agreeing upon the period of the renewal contract. The second paragraph of Article
1197 is equally clearly inapplicable since the duration of the renewal period was not left to
the will of the lessee alone, but rather to the will of both the lessor and the lessee. Most
importantly, Article 1197 applies only where a contract of lease clearly exists. Here, the
contract was not renewed at all, there was in fact no contract at all the period of which
could have been fixed.

Article 1670 of the Civil Code reads thus:

If at the end of the contract the lessee should continue enjoying the thing left for 15 days
with the acquiescence of the lessor and unless a notice to the contrary by either party has
previously been given. It is understood that there is an implied new lease, not for the
period of the original contract but for the time established in Articles 1682 and 1687. The
ther terms of the original contract shall be revived. (Emphasis suplied.)

The respondents themselves, public and private, do not pretend that the continued
occupancy of the leased premises after 31 May 1980, the date of expiration of the
contract, was with the acquiescence of the lessor. Even if it be assumed that ​tacite
reconduccion had occurred, the implied new lease could not possibly have a period of
five years, but rather would have been a ​month-to-month lease since the rentals (under
the original contract) were payable on a monthly basis. At the latest, an implied new lease
(had one arisen) would have expired as of the end of July 1980 in view of the written
demands served by the petitioner upon the private respondents to vacate the previously
leased premises.

Contractual terms and conditions created by a court for two parties are a contradiction in
terms. If they are imposed by a judge who draws upon his own private notions of what
morals, good customs, justice, equity and public policy" demand, the resulting
"agreement" cannot, by definition, be consensual or contractual in nature. It would also
follow that such coerced terms and conditions cannot be the law as between the parties
themselves. Contracts spring from the volition of the parties. That volition cannot be
supplied by a judge and a judge who pretends to do so, acts tyrannically, arbitrarily and in
​
excess of his jurisdiction. 19

​CASE SYLLABI

Remedial Law; Jurisdiction of Courts; Conciliation procedure under P.D. 1508 is

not a jurisdictional requirement—​Turning to the first issue, petitioner’s attack on the
jurisdiction of the trial court must fail, though for reasons different from those cited by the
respondent judge. We would note firstly that the conciliation procedure required under
P.D. 1508 is not a jurisdictional requirement in the sense that ​failure to have prior
recourse to such procedure would not deprive a court of its jurisdiction either over the
subject matter or over the person of the defendant, Secondly, the record shows that two
complaints were submitted to the barangay authorities for conciliation—one by petitioner
for ejectment and the other by private respondents for renewal of the Contract of Lease. It
appears further that both complaints were, in fact, heard by the Lupong Tagapayapa in
the afternoon of 30 August 1980. After attempts at conciliation had proven fruitless,
Certifications to File Action authorizing the parties to pursue their respective claims in
court were then issued at 5:20 p.m. of that same afternoon, as attested to by the
Barangay Captain in a Certification presented in evidence by petitioner herself.

Same; Same; Same; Procedural defect was cured by subsequent issuance of the
certification to file action by the Lupong Tagapayapa.—​Petitioner would, nonetheless,
assail the proceedings in the trial court on a technicality, i.e., private respondents
allegedly filed their complaint at 4:00 p.m. of 30 August 1980, or one hour and twenty
minutes before the issuance of the requisite certification by the Lupong Tagapayapa. The
defect in procedure admittedly initially present at that particular moment when private
respondents first filed the complaint in the trial court, was cured by the subsequent
issuance of the Certifications to File Action by the barangay Lupong Tagapayapa. Such
certifications in any event constituted substantial compliance with the requirement of P.D.
1508.

Contracts; Lease; Article 1197 of the New Civil Code applies only where a contract
of lease clearly exists.—​The first paragraph of Article 1197 is clearly inapplicable, since
the Contract of Lease did in fact fix an original period of five years, which had expired. It
is also clear from paragraph 13 of the Contract of Lease that the parties reserved to
themselves the faculty of agreeing upon the period of the renewal contract. The second
paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal
period was not left to the will of the lessee alone, but rather to the will of both the lessor
and the lessee. Most importantly, Article 1197 applies only where a contract of lease
clearly exists. Here, the contract was not renewed at all, there was in fact no contract at
all the period of which could have been f fixed.

Same; Same; Save in the limited and exceptional situations provided in Articles
1197 and 1670 of the Civil Code; Courts have no authority to prescribe the terms
and conditions of contract for the parties.—​It follows that the respondent judge’s
decision requiring renewal of the lease has no basis in law or in fact. Save in the limited
and exceptional situations envisaged in Articles 1197 and 1670 of the Civil Code, which
do not obtain here, courts have no authority to prescribe the terms and conditions of a
contract for the parties. Millare vs. Hernando, 151 SCRA 484, No. L-55480 June 30, 1987

2. As to Plurality of Prestation

a. Conjunctive
b. Alternative - Article 1199-1205

SECTION 3
Alternative Obligations
ARTICLE 1199. A person alternatively bound by different prestations shall completely
perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking.
(1131)

Article 1200. The right of choice belongs to the debtor, unless it has been expressly
granted to the creditor.
The debtor shall have no right to choose those prestations which are impossible, unlawful
or which could not have been the object of the obligation. (1132)

Article 1201. The choice shall produce no effect except from the time it has been
communicated. (1133)
Article 1202. The debtor shall lose the right of choice when among the prestations
whereby he is alternatively bound, only one is practicable. (1134)

Article 1203. If through the creditor's acts the debtor cannot make a choice according to
the terms of the obligation, the latter may rescind the contract with damages. (n)

Article 1204. The creditor shall have a right to indemnity for damages when, through the
fault of the debtor, all the things which are alternatively the object of the obligation have
been lost, or the compliance of the obligation has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing which
disappeared, or that of the service which last became impossible.

Damages other than the value of the last thing or service may also be awarded. (1135a)
Article 1205. When the choice has been expressly given to the creditor, the obligation
shall cease to be alternative from the day when the selection has been communicated to
the debtor.
Until then the responsibility of the debtor shall be governed by the following rules:

(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by
delivering that which the creditor should choose from among the remainder, or that which
remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may
claim any of those subsisting, or the price of that which, through the fault of the former,
has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall
fall upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all
of the prestations should become impossible. (1136a)

c. ​Facultative - Article 1206

Article 1206. When only one prestation has been agreed upon, but the obligor may render
another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of
the obligor, does not render him liable. But once the substitution has been made, the
obligor is liable for the loss of the substitute on account of his delay, negligence or fraud.
(n)

Arco Pulp and Paper Co., Inc. and Santos vs Lim, GR 206806, June 25, 2014 -
BUENAVENTURA
CASE SYLLABI

Civil Law; Obligations; Alternative Obligations; 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​.—“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.

Same; Same; Novation; Novation extinguishes an obligation between two parties

when there is a substitution of objects or debtors or when there is subrogation of
the creditor.—​Novation extinguishes an obligation between two parties when there is a
substitution of objects or debtors or when there is subrogation of the creditor. It occurs
only when the new contract declares so “in unequivocal terms” or that “the old and the
new obligations be on every point incompatible with each other.”

Same; Same; Same; The consent of the creditor must also be secured for the
novation to be valid.—​The consent of the creditor must also be secured for the novation
to be valid: Novation must be expressly consented to. Moreover, the conflicting intention
and acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the parties to
novate the old agreement.

Same; Damages; Moral Damages; Moral damages are not awarded as a matter of
right but only after the party claiming it proved that the breach was due to fraud or
bad faith.—​Under Article 2220 of the Civil Code, moral damages may be awarded in
case of breach of contract where the breach is due to fraud or bad faith: Art. 2220. Willfull
injury to property may be a legal ground for awarding moral damages if the court should
find that, under the circumstances, such damages are justly due. The same rule applies
to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis
supplied) Moral damages are not awarded as a matter of right but only after the party
claiming it proved that the breach was due to fraud or bad faith. As this court stated:
Moral damages are not recoverable simply because a contract has been breached. They
are recoverable only if the party from whom it is claimed acted fraudulently or in bad faith
or in wanton disregard of his contractual obligations. The breach must be wanton,
reckless, malicious or in bad faith, and oppressive or abusive.

Same; Same; Abuse of Rights; Persons who have the right to enter into contractual
relations must exercise that right with honesty and good faith. Failure to do so
results in an abuse of that right, which may become the basis of an action for
damages.—​Breaches of contract done in bad faith, however, are not specified within this
enumeration. When a party breaches a contract, he or she goes against Article 19 of the
Civil Code, which states: Article 19. Every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith. Persons who have the right to enter into contractual relations
must exercise that right with honesty and good faith. Failure to do so results in an abuse
of that right, which may become the basis of an action for damages. Article 19, however,
cannot be its sole basis: Article 19 is the general rule which governs the conduct of
human relations. By itself, it is not the basis of an actionable tort. Article 19 describes the
degree of care required so that an actionable tort may arise when it is alleged together
with Article 20 or Article 21.
Same; Same; Exemplary Damages; Exemplary damages may also be awarded in
this case to serve as a deterrent to those who use fraudulent means to evade their
liabilities.—​Business owners must always be forthright in their dealings. They cannot be
allowed to renege on their obligations, considering that these obligations were freely
entered into by them. Exemplary damages may also be awarded in this case to serve as
a deterrent to those who use fraudulent means to evade their liabilities. Since the award
of exemplary damages is proper, attorney’s fees and cost of the suit may also be
recovered. Article 2208 of the Civil Code states: Article 2208. In the absence of
stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be
recovered, except: (1) When exemplary damages are awarded[.]

Same; Obligations; Liability of Corporate Officers; As a general rule, directors,

officers, or employees of a corporation cannot be held personally liable for
obligations incurred by the corporation.—​As a general rule, directors, officers, or
employees of a corporation cannot be held personally liable for obligations incurred by
the corporation. However, this veil of corporate fiction may be pierced if complainant is
able to prove, as in this case, that (1) the officer is guilty of negligence or bad faith, and
(2) such negligence or bad faith was clearly and convincingly proven. Here, petitioner
Santos entered into a contract with respondent in her capacity as the President and Chief
Executive Officer of Arco Pulp and Paper. She also issued the check in partial payment of
petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and
Paper. This is clear on the face of the check bearing the account name, “Arco Pulp &
Paper, Co., Inc.” Any obligation arising from these acts would not, ordinarily, be petitioner
Santos’ personal undertaking for which she would be solidarily liable with petitioner Arco
Pulp and Paper.

Same; Same; Rates of Interest; In view of the promulgation by the Supreme Court
of the decision dated August 13, 2013 in Nacar v. Gallery Frames, 703 SCRA 439,
the rate of interest due on the obligation must be modified from 12% per annum to
6% per annum from the time of demand.—​In view, however, of the promulgation by
this court of the decision dated August 13, 2013 in Nacar v. Gallery Frames, 703 SCRA
439, the rate of interest due on the obligation must be modified from 12% per annum to
6% per annum from the time of demand. Nacar effectively amended the guidelines stated
in Eastern Shipping v. Court of Appeals, 234 SCRA 78 (1994), and we have laid down the
following guidelines with regard to the rate of legal interest: To recapitulate and for future
guidance, the guidelines laid down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP-MB Circular No. 799, as follows: I. When an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title
XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable
damages. II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows: 1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment
of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit. And, in addition to the above, judgments
that have become final and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed therein.

3. As to rights and obligations of multiple parties - Article 1207-1222

a. Joint
b. Solidary - Article 927, 1824, 1911, 1915, 1945, 2157, 2194, 2146 Article 94, 121 FC;
Article 90 RPC

Article 927. If two or more heirs take possession of the estate, they shall be solidarily
liable for the loss or destruction of a thing devised or bequeathed, even though only one
of them should have been negligent. (n)

Article 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823. (n)

Article 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers.
(n)

Article 1915. If two or more persons have appointed an agent for a common transaction
or undertaking, they shall be solidarily liable to the agent for all the consequences of the
agency. (1731)

Article 1945. When there are two or more bailees to whom a thing is loaned in the same
contract, they are liable solidarily. (1748a)

Article 2157. The responsibility of two or more payees, when there has been payment of
what is not due, is solidary. (n)

Article 2194. The responsibility of two or more persons who are liable for quasi-delict is
solidary. (n)

Article 2146. If the officious manager delegates to another person all or some of his
duties, he shall be liable for the acts of the delegate, without prejudice to the direct
obligation of the latter toward the owner of the business.
The responsibility of two or more officious managers shall be solidary, unless the
management was assumed to save the thing or business from imminent danger. (1890a)

Section 3. Charges and Obligations of the Absolute Community

Art. 94. The absolute community of property shall be liable for:
(1) The support of the spouses, their common children, and legitimate children of either
spouse; however, the support of illegitimate children shall be governed by the provisions
of this Code on Support;
(2) All debts and obligations contracted during the marriage by the designated
administrator-spouse for the benefit of the community, or by both spouses, or by one
spouse with the consent of the other;
(3) Debts and obligations contracted by either spouse without the consent of the other to
the extent that the family may have been benefited;
(4) All taxes, liens, charges and expenses, including major or minor repairs, upon the
community property;
(5) All taxes and expenses for mere preservation made during marriage upon the
separate property of either spouse used by the family;
(6) Expenses to enable either spouse to commence or complete a professional or
vocational course, or other activity for self-improvement;
(7) Ante nuptial debts of either spouse insofar as they have redounded to the benefit of
the family;
(8) The value of what is donated or promised by both spouses in favor of their common
legitimate children for the exclusive purpose of commencing or completing a professional
or vocational course or other activity for self-improvement;
(9) Ante nuptial debts of either spouse other than those falling under paragraph (7) of this
Article, the support of illegitimate children of either spouse, and liabilities incurred by
either spouse by reason of a crime or a quasi-delict, in case of absence or insufficiency of
the exclusive property of the debtor-spouse, the payment of which shall be considered as
advances to be deducted from the share of the debtor-spouse upon liquidation of the
community; and
(10) Expenses of litigation between the spouses unless the suit is found to be groundless.
If the community property is insufficient to cover the foregoing liabilities, except those
falling under paragraph (9), the spouses shall be solidarily liable for the unpaid balance
with their separate properties. (161a, 162a, 163a, 202a-205a)

Section 4. Charges Upon and Obligations of the Conjugal Partnership

Art. 121. The conjugal partnership shall be liable for:
(1) The support of the spouse, their common children, and the legitimate children of either
spouse; however, the support of illegitimate children shall be governed by the provisions
of this Code on Support;
(2) All debts and obligations contracted during the marriage by the designated
administrator-spouse for the benefit of the conjugal partnership of gains, or by both
spouses or by one of them with the consent of the other;
(3) Debts and obligations contracted by either spouse without the consent of the other to
the extent that the family may have benefited;
(4) All taxes, liens, charges, and expenses, including major or minor repairs upon the
conjugal partnership property;
(5) All taxes and expenses for mere preservation made during the marriage upon the
separate property of either spouse;
(6) Expenses to enable either spouse to commence or complete a professional,
vocational, or other activity for self-improvement;
(7) Ante nuptial debts of either spouse insofar as they have redounded to the benefit of
the family;
(8) The value of what is donated or promised by both spouses in favor of their common
legitimate children for the exclusive purpose of commencing or completing a professional
or vocational course or other activity for self-improvement; and
(9) Expenses of litigation between the spouses unless the suit is found to groundless.
If the conjugal partnership is insufficient to cover the foregoing liabilities, the spouses
shall be solidarily liable for the unpaid balance with their separate properties. (161a)

Article 90. Prescription of crime. - Crimes punishable by death, reclusion perpetua or

reclusion temporal shall prescribe in twenty years.
Crimes punishable by other afflictive penalties shall prescribe in fifteen years.
Those punishable by a correctional penalty shall prescribe in ten years; with the
exception of those punishable by arresto mayor, which shall prescribe in five years.
The crime of libel or other similar offenses shall prescribe in one year.
The crime of oral defamation and slander by deed shall prescribe in six months.
Light offenses prescribe in two months.
When the penalty fixed by law is a compound one, the highest penalty shall be made the
basis of the application of the rules contained in the first, second and third paragraphs of
this article. (As amended by RA 4661, approved June 19, 1966).

c. ​Disjunctive

Case Title: ​Ronquillo vs CA

GR number: ​132 SCRA 274/ ​G.R. No. L-55138
Date: ​September 28, 1984
Ponente: ​CUEVAS, J.
Topic: ​collection suit/ nature of liability/ joint viz-a-viz solidary liability

FACTS:
Petitioner Ernesto V. Ronquillo, Offshore Catertrade Inc., Johnny Tan and Pilar Tan are
defendants in Civil Case No. 33958 filed by private respondent Antonio P. So, for the
collection of the sum of P117,498.98 plus attorney's fees and costs. On December 13,
1979, the lower court rendered its Decision based on the compromise agreement
submitted by the parties. Defendants failed to pay, hence, the private respondent filed a
Motion for Execution.

The lower court ordered the issuance of a writ of execution for the balance of the initial
amount payable. Upon motion for reconsideration, the lower court issued an Order to let
writ of execution issue as prayed for. Petitioner moved for the reconsideration. On March
20, 1980, a notice of sheriff's sale was issued which was scheduled on scheduled for
April 2, 1980 at 10:00 a.m. Petitioner filed a petition for certiorari and prohibition with the
then Court of Appeals praying at the same time for the issuance of a restraining order to
stop the public sale.

On April 2, 1980, the lower court denied petitioner's motion for reconsideration but the
scheduled public sale in that same day did not proceed in view of the pendency of a
certiorari proceeding before the then Court of Appeals. The CA lifted the restraining order
issued. Petitioner moved to reconsider the aforesaid but was denied. Hence, this petition
for review.
ISSUE:
WON the nature of the liability of the defendants (including petitioner), was solidary?

HELD:
Defendants are solidarily liable. In this regard, Article 1207 and 1208 of the Civil Code
provides —
Art. 1207. The concurrence of two or more debtors in one and the same obligation does
not imply that each one of the former has a right to demand, or that each one of the latter
is bound to render, entire compliance with the prestation. Then is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.

Art. 1208. If from the law,or the nature or the wording of the obligation to which the
preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors and debtors, the
credits or debts being considered distinct from one another, subject to the Rules of Court
governing the multiplicity of quits.
The decision of the lower court based on the parties' compromise agreement, provides:

1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and
defendants agree to acknowledge the validity of such claim and further bind themselves
to initially pay out of the total indebtedness of P110,000.00, the amount of P5,000.00 on
or before December 24, 1979, the balance of P55,000.00, defendants individually and
jointly agree to pay within a period of six months from January 1980 or before June 30,
1980. (Emphasis supply)

Clearly then, by the express term of the compromise agreement and the decision based
upon it, the defendants obligated themselves to pay their obligation "individually and
jointly".

The term "individually" has the same meaning as "collectively", "separately",

"distinctively", respectively or "severally". An agreement to be "individually liable"
undoubtedly creates a several obligation, and a "several obligation is one by which one
individual binds himself to perform the whole obligation.

In the case of Parot vs. Gemora We therein ruled that "the phrase juntos or
separadamente or in the promissory note is an express statement making each of the
persons who signed it individually liable for the payment of the fun amount of the
obligation contained therein." Likewise in Un Pak Leung vs. Negorra We held that "in the
absence of a finding of facts that the defendants made themselves individually hable for
the debt incurred they are each liable only for one-half of said amount
The obligation in the case at bar being described as "individually and jointly", the same is
therefore enforceable against one of the numerous obligors.

CASE SYLLABI

Certiorari; Motions; Exceptions to the rule that certiorari is premature where

motion for reconsideration still pending.—​Anent the first issue raised, suffice it to
state that while as a general rule, a motion for reconsideration should precede recourse
to certiorari in order to give the trial court an opportunity to correct the error that it may
have committed, the said rule is not absolute and may be dispensed with in instances
where the filing of a motion for reconsideration would serve no useful purpose, such as
when the motion for reconsideration would raise the same point stated in the motion or
where the error is patent for the order is void or where the relief is extremely urgent, as in
cases where execution had already been ordered where the issue raised is one purely of
law.

Same; Same; Urgency of certiorari even if motion for reconsideration pending is

justified by fact that sale of petitioner’s property on execution was already about to
proceed.—​In the case at bar, the records show that not only was a writ of execution
issued but petitioner’s properties were already scheduled to be sold at public auction on
April 2, 1980 at 10:00 a.m. The records likewise show that petitioner’s motion for
reconsideration of the questioned Order of Execution was filed on March 17, 1980 and
was set for hearing on March 25, 1980 at 8:30 a.m., but upon motion of private
respondent, the hearing was reset to April 2, 1980 at 8:30 a.m., the very same day when
petitioner’s properties were to be sold at public auction. Needless to state that under the
circumstances, petitioner was faced with imminent danger of his properties being
immediately sold the moment his motion for reconsideration is denied. Plainly, urgency
prompted recourse to the Court of Appeals and the adequate and speedy remedy for
petitioner under the situation was to file a petition for certiorari with prayer for restraining
order to stop the sale. For him to wait until after the hearing of the motion for
reconsideration on April 2, 1980 before taking recourse to the appellate court may already
be too late since without a restraining order, the public sale can proceed at 10:00 that
morning. In fact, the said motion was already denied by the lower court in its order dated
April 2, 1980 and were it not for the pendency of the petition with the Court of Appeals
and the restraining order issued thereafter, the public sale scheduled that very same
morning could have proceeded.

Contracts; Obligations; An agreement to be “individually liable” or “individually

and jointly” liable denotes a solidary obligation, not a joint liability.—​Clearly then,
by the express term of the compromise agreement and the decision based upon it, the
defendants obligated themselves to pay their obligation “individually and jointly”. The term
“individually” has the same meaning as “collectively”, “separately”, “distinctively”,
respectively or “severally”. An agreement to be “individually liable” undoubtedly creates a
several obligation, and a “several obligation” is one by which one individual binds himself
to perform the whole obligation.

Same; Same; Same.—​In the case of Parot vs. Gemora We therein ruled that “the phrase
juntos or separadamente used in the promissory note is an express statement making
each of the persons who signed it individually liable for the payment of the full amount of
the obligation contained therein.” Likewise in Un Pak Leung vs. Negorra We held that “in
the absence of a finding of facts that the defendants made themselves individually liable
for the debt incurred they are each liable only for one-half of said amount.” The obligation
in the case at bar being described as “individually and jointly”, the same is therefore
enforceable against one of the numerous obligors.

Malayan Insurance vs CA 165 SCRA 536

FACTS:
Malayan Insurance Co., Inc., issued in favor of private respondent Sio Choy, Private Car
Comprehensive Policy, covering a Willys jeep. The insurance coverage was for "own
damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00.
During the effectivity of said insurance policy, and more particularly on 19 December
1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being driven by one
Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., collided with a
passenger bus belonging to the respondent Pangasinan Transportation Co., Inc.
(PANTRANCO, for short) at the national highway in Barrio San Pedro, Rosales,
Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P.
Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep.

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan
Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of
Pangasinan. He prayed therein that the defendants be ordered to pay him, jointly and
severally, the amount of P15,000.00, as reimbursement for medical and hospital
expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory
damages; and P5,000.00, for attorney's fees.

Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an
excessive speed and bumped the PANTRANCO bus which had moved to, and stopped
at, the shoulder of the highway in order to avoid the jeep; and that it had observed the
diligence of a good father of a family to prevent damage, especially in the selection and
supervision of its employees and in the maintenance of its motor vehicles. It prayed that it
be absolved from any and all liability.

Defendant Sio Choy and the petitioner insurance company, in their answer, also denied
liability to the plaintiff, claiming that the fault in the accident was solely imputable to the
PANTRANCO.

Later, the herein petitioner sought, and was granted, leave to file a third-party complaint
against the San Leon Rice Mill, Inc. for the reason that the person driving the jeep of Sio
Choy, at the time of the accident, was an employee of the San Leon Rice Mill, Inc.
performing his duties within the scope of his assigned task, and not an employee of Sio
Choy; and that, as the San Leon Rice Mill, Inc. is the employer of the deceased driver,
Juan P. Campollo, it should be liable for the acts of its employee, pursuant to Art. 2180 of
the Civil Code. The herein petitioner prayed that judgment be rendered against the San
Leon Rice Mill, Inc., making it liable for the amounts claimed by the plaintiff and/or
ordering said San Leon Rice Mill, Inc. to reimburse and indemnify the petitioner for any
sum that it may be ordered to pay the plaintiff.

On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that
Sio Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and
severally liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled,
however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the
petitioner insurance company for whatever amount it has been ordered to pay on its
policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance
between Sio Choy and the insurance company.

ISSUE:
Whether the trial court was correct in holding petitioner and respondents Sio Choy and
San Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos.

HELD:
NO. We hold instead that it is only respondents Sio Choy and San Leon Rice Mill, Inc, (to
the exclusion of the petitioner) that are solidarily liable to respondent Vallejos for the
damages awarded to Vallejos.

It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of
the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which provides:

Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the
former, who was in the vehicle, could have, by the use of due diligence, prevented the
misfortune it is disputably presumed that a driver was negligent, if he had been found
guilty of reckless driving or violating traffic regulations at least twice within the next
preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.

On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill,
Inc. to plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at
the time of the motor vehicle mishap, is Article 2180 of the Civil Code which reads:

Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own
acts or omissions, but also for those of persons for whom one is responsible. Employers
shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged ill any
business or industry. The responsibility treated in this article shall cease when the
persons herein mentioned proved that they observed all the diligence of a good father of
a family to prevent damage.

It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal
tortfeasors who are primarily liable to respondent Vallejos. The law states that the
responsibility of two or more persons who are liable for a quasi-delict is solidarily.

While it is true that where the insurance contract provides for indemnity against liability to
third persons, such third persons can directly sue the insurer, however, the direct liability
of the insurer under indemnity contracts against third party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault.
The liability of the insurer is based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it
cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two
principal tortfeasors namely respondents Sio Choy and San Leon Rice Mill, Inc. For if
petitioner-insurer were solidarily liable with said two (2) respondents by reason of the
indemnity contract against third party liability-under which an insurer can be directly sued
by a third party — this will result in a violation of the principles underlying solidary
obligation and insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one of the
solidary debtors. On the other hand, insurance is defined as "a contract whereby one
undertakes for a consideration to indemnify another against loss, damage, or liability
arising from an unknown or contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy and
San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of
P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In the
context of a solidary obligation, petitioner may be compelled by respondent Vallejos to
pay the entire obligation of P29,013.00, notwithstanding the qualification made by the trial
court. But, how can petitioner be obliged to pay the entire obligation when the amount
stated in its insurance policy with respondent Sio Choy for indemnity against third party
liability is only P20,000.00? Moreover, the qualification made in the decision of the trial
court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the
obligation to pay P29,103.00 is made solidary, is an evident breach of the concept of a
solidary obligation. Thus, We hold that the trial court, as upheld by the Court of Appeals,
erred in holding petitioner, solidarily liable with respondents Sio Choy and San Leon Rice
Mill, Inc. to respondent Vallejos.

CASE SYLLABI

Insurance; Third-Party Liability; Solidary Obligation; The direct liability of the

insurer under indemnity contracts against third-party liability does not mean that
the insurer ​can be held solidarily liable with the insured and/or the other parties found at
fault.—While it is true that where the insurance contract provide for indemnity against
liability to third persons, such third persons can directly sue the insurer, however, the
direct liability of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held solidarily liable with the insured and/or the other parties
found at fault. The liability of the insurer is based on contract; that of the insured is based
on tort.

Same; Same; Same; Same; Petitioner as insurer of Sio Choy is liable to respondent
Vallejos but it cannot be made solidarily liable with the two principal
tortfeasors​.—In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent
Vallejos, but it cannot, as incorrectly held by the trial court, be made “solidarily” liable with
the two principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill, Inc.
For if petitioner-insurer were solidarily liable with said two (2) respondents by reason of
the indemnity contract against third party liability—under which an insurer can be directly
sued by a third party—this will result in a violation of the principles underlying solidary
obligation and insurance contracts.

Same; Same; Same; Same; Same; The trial court as upheld by the Court of Appeals
erred in holding petitioner solidarily liable with respondents Sio Choy and San
Leon Rice Mill, Inc. to respondent Vallejos.—​In the case at bar, the trial court held
petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily
liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that
petitioner’s liability is only up to P20,000.00 In the context of a solidary obligation,
petitioner may be compelled by respondent Vallejos to pay the entire obligation of
P29,103.00, notwithstanding the qualification made by the trial court. But, how can
petitioner be obliged to pay the entire obligation when the amount stated in its insurance
policy with respondent Sio Choy for indemnity against third party liability is only
P20,000.00? Moreover, the qualification made in the decision of the trial court to the
effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay
P29,103.00 is made solidary, is an evident breach of the concept of a solidary obligation.
Thus, We hold that the trial court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to
respondent Vallejos.

Civil Law; Subrogation; Principle of Subrogation​.—”x x x Sub-rogation is a normal

incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed.
477). Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any
right of action which the insured may have against the third person whose negligence or
wrongful act caused the loss (44 Am. Jr. 2nd 745, citing Standard Marine Ins. Co. vs.
Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037). The right of
subrogation is of the highest equity. The loss in the first instance is that of the insured but
after reimbursement or compensation, it becomes the loss of the insurer.

Same; Same; Same; The equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any express
stipulation to that effect in the policy​.—Although many policies including policies in the
standard form, now provide for subrogation, and thus determine the rights of the insurer
in this respect, the equitable right of subrogation as the legal effect of payment inures to
the insurer without any formal assignment or any express stipulation to that effect in the
policy” (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for
the loss, such payment operates as an equitable assignment to the insurer of the property
and all remedies which the insured may have for the recovery thereof. That right is not
dependent upon, nor does it grow out of, any privity of contract, (italics supplied) or upon
written assignment of claim, and payment to the insured makes the insurer an assignee in
equity.

Same; Same; Same; Same; Petitioner is subrogated to whatever rights Sio Choy
has against respondent San Leon Rice Mill, Inc​.—It follows, therefore, that petitioner,
upon paying respondent Vallejos the amount of not exceeding P20,000.00, shall become
the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to
whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217 of
the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be
reimbursed by his co-debtors for the share which corresponds to each. In accordance
with Article 1217, petitioner, upon payment to respondent Vallejos and thereby becoming
the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent
San Leon Rice Mill, Inc.

PNB vs Independent Planters, 122 SCRA 113 ​ JACA

CASE SYLLABI

Actions; Obligations; If one of the alleged solidary debtors dies during the
pendency of the collection case, the court where said case is pending retains
jurisdiction to continue hearing the charge as against the surviving defendants​.—It
is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this
matter. Said provision gives the creditor the right to ‘proceed against anyone of the
solidary debtors or some or all of them simultaneously.’ The choice is undoubtedly left to
the solidary creditor to determine against whom he will enforce collection. In case of the
death of one of the solidary debtors, he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors without necessity of filing a claim in the estate of
the deceased debtors. It is not mandatory for him to have the case dismissed against the
surviving debtors and file its claim in the estate of the deceased solidary debtor . . .

Same; Same; Same; Statutes; Rules of procedure cannot prevail over substantive
law.—“​As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of
Court were applied literally, Article 1216 of the New Civil Code would, in effect, be
repealed since under the Rules of Court, petitioner has no choice but to proceed against
the estate of Manuel Barredo only. Obviously, this provision diminishes the Bank’s right
under the New Civil Code to proceed against any one, some or all of the solidary debtors.
Such a construction is not sanctioned by the principle, which is too well settled to require
citation, that a substantive law cannot be amended by a procedural rule. Otherwise
stated, Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over
Article 1216 of the New Civil Code, the former being merely procedural, while the latter,
substantive.”

Calang and Philtranco vs People, GR 190696 August 3, 2010 ​ MITMUG

CASE SYLLABI

Criminal Law; Civil Liability; Quasi-Delicts; Torts; Vicarious Liability; Where the
cause of action against the driver was based on delict, it is error to hold the
employer jointly and severally liable with him, based on quasi-delict under Articles
2176 and 2180 of the Civil Code—these legal provisions pertain to the vicarious
liability of an employer for quasi-delicts that an employee has committed and do
not apply to civil liability arising from delict; If at all, the employer’s liability may
only be subsidiary.—​The RTC and the CA both erred in holding Philtranco jointly and
severally liable with Calang. We emphasize that Calang was charged criminally before
the RTC. Undisputedly, Philtranco was not a direct party in this case. Since the cause of
action against Calang was based on delict, both the RTC and the CA erred in holding
Philtranco jointly and severally liable with Calang, based on quasi-delict under Articles
2176 and 2180 of the Civil Code. Articles 2176 and 2180 of the Civil Code pertain to the
vicarious liability of an employer for quasi-delicts that an employee has committed. Such
provision of law does not apply to civil liability arising from delict. If at all, Philtranco’s
liability may only be subsidiary. Article 102 of the Revised Penal Code states the
subsidiary civil liabilities of innkeepers, tavern keepers and proprietors of establishments.

Same; Same; Same; Subsidiary Liability; Requisites; The provisions of the Revised
Penal Code on subsidiary liability—Articles 102 and 103—are deemed written into
the judgments in cases to which they are applicable, and the trial court need not
expressly pronounce the subsidiary liability of the employer in the dispositive
portion of its decision.—​The provisions of the Revised Penal Code on subsidiary
liability—Articles 102 and 103—are deemed written into the judgments in cases to which
they are applicable. Thus, in the dispositive portion of its decision, the trial court need not
expressly pronounce the subsidiary liability of the employer. Nonetheless, before the
employers’ subsidiary liability is enforced, adequate evidence must exist establishing that
(1) they are indeed the employers of the convicted employees; (2) they are engaged in
some kind of industry; (3) the crime was committed by the employees in the discharge of
their duties; and (4) the execution against the latter has not been satisfied due to
insolvency. The determination of these conditions may be done in the same criminal
action in which the employee’s liability, criminal and civil, has been pronounced, in a
hearing set for that precise purpose, with due notice to the employer, as part of the
proceedings for the execution of the judgment. Calang vs. People, 626 SCRA 679, G.R.
No. 190696 August 3, 2010

Ruks Konsult and Construction vs Adworld Sign and Advertising Corp., and

Transworld Media Ads, GR 204866 January 21, 2015 ​ MORALES

CASE SYLLABI

Remedial Law; Civil Procedure; Appeals; Factual findings of the Regional Trial
Court (RTC), when affirmed by the Court of Appeals (CA), are entitled to great
weight by the Supreme Court (SC) and are deemed final and conclusive when
supported by the evidence on record.—​At the outset, it must be stressed that factual
findings of the RTC, when affirmed by the CA, are entitled to great weight by the Court
and are deemed final and conclusive when supported by the evidence on record. Absent
any exceptions to this rule — such as when it is established that the trial court ignored,
overlooked, misconstrued, or misinterpreted cogent facts and circumstances that, if
considered, would change the outcome of the case — such findings must stand.

Civil Law; Quasi-Delicts; Negligence; Words and Phrases; Jurisprudence defines

negligence as the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would not
do.—​Jurisprudence defines negligence as the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and reasonable man
would not do. It is the failure to observe for the protection of the interest of another person
that degree of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury.

Same; Same; Joint Tortfeasors; Solidary Obligations; Under Article 2194 of the
Civil Code, joint tortfeasors are solidarily liable for the resulting damage; Joint
tortfeasors are each liable as principals, to the same extent and in the same
manner as if they had performed the wrongful act themselves.—​Both Transworld
and Ruks were fully aware that the foundation for the former’s billboard was weak; yet,
neither of them took any positive step to reinforce the same. They merely relied on each
other’s word that repairs would be done to such foundation, but none was done at all.
Clearly, the foregoing circumstances show that both Transworld and Ruks are guilty of
negligence in the construction of the former’s billboard, and perforce, should be held
liable for its collapse and the resulting damage to Adworld’s billboard structure. As joint
tortfeasors, therefore, they are solidarily liable to Adworld. Verily, “[j]oint tortfeasors are
those who command, instigate, promote, encourage, advise, countenance, cooperate in,
aid or abet the commission of a tort, or approve of it after it is done, if done for their
benefit. They are also referred to as those who act together in committing wrong or
whose acts, if independent of each other, unite in causing a single injury. Under Article
2194 of the Civil Code, joint tortfeasors are solidarily liable for the resulting damage. In
other words, joint tortfeasors are each liable as principals, to the same extent and in the
same manner as if they had performed the wrongful act themselves.”
TMBI vs Feb Mitsui and Manalastas, GR 194121, July 11, 2016
Case Title:​ TMBI vs FEB Mistui
Date:​ July 11, 2016
G.R. No​. 194121
Ponente:​ Brion, J.
Topic:​ Culpa Contractual, Common Carriers, Culpa Aquilana

FACTS:
Sony Philippines engaged TMBI to facilitate the transfer of its imported electronics from
Thailand to the Port of Manila and to their facility in Binan, Laguna. TMBI did not own any
delivery trucks so it subcontracted BMT. 3 out of 4 trucks made it to Binan, however the
fourth truck was found abandoned in Alabang, empty. BMT alleged that the truck was
“hijacked”. When TMBI demanded payment for the goods, BMT refused. Sony filed an
insurance claim with Mitsui, the insurer of the goods. After being subrogated to Sony’s
rights, Mistui sent a demand letter asking for payment of the goods to TMBI. TMBI
refused to pay. Mistui filed a complaint against TMBI, in turn TMBI impleaded BMT. RTC
found TMBI and BMT jointly and solidarily liable to pay actual damages. The trial court
held that TMBI and BMT are common carriers that must exercise extraordinary diligence
of a good father of a family. Both TMBI and BMT argued that the hijacking is a fortuitous
event for which they should not be held accountable. CA affirmed the decision of trial
court.
ISSUE:
· WON TMBI is a common carrier
· WON robbery is considered as a fortuitous event or a force majeure
· WON TMBI and BMT must be held solidarily liable under Culpa Aquilana
HELD:
TMBI is a common carrier. The argument that it does not own trucks is immaterial for as
long as an entity holds itself to the public for the transport of goods as a business it is
regarded as a common carrier. As such, being a common carrier, by nature of their
business and for reasons of public policy, they are bound to observe extraordinary
diligence in the vigilance over the goods and in the safety of their passengers.
Theft or robbery of the goods is not considered a fortuitous event or a force majeure.
TMBI and BMT are not solidarily liable. TMBI is liable under Culpa Contractual as a result
of the contract of carriage. Sony/Mitsui’s claim against BMT could only arise from
quasi-delict, as a third-party suffering damage from the action of another.
In culpa contractual, the plaintiff only needs to establish the existence of the contract and
the obligor’s failure to perform. On the other hand, the plaintiff in culpa aquilana must
clearly establish the defendant’s fault or negligence because this is the very basis of the
action. Moreover, if the injury to the plaintiff resulted from the act or omission of the
defendant’s employee, the defendant may absolve himself by proving that he exercised
the diligence of a good father of a family to prevent the damage

CASE SYLLABI

Civil Law; Common Carriers; Diligence of Common Carriers; By the nature of their
business and for reasons of public policy, they are bound to observe extraordinary
diligence in the vigilance over the goods and in the safety of their
passengers.—​Common carriers are persons, corporations, firms or associations
engaged in the business of transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public. By the nature of their business
and for reasons of public policy, they are bound to observe extraordinary diligence in the
vigilance over the goods and in the safety of their passengers.

Same; Same; As long as an entity holds itself to the public for the transport of
goods as a business, it is considered a common carrier regardless of whether it
owns the vehicle used or has to actually hire one.—​That TMBI does not own trucks
and has to subcontract the delivery of its clients’ goods, is immaterial. As long as an entity
holds itself to the public for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle used or has to actually hire
one.

Same; Same; Fortuitous Events; The theft or the robbery of the goods is not
considered a fortuitous event or a force majeure.—​Simply put, the theft or the robbery
of the goods is not considered a fortuitous event or a force majeure. Nevertheless, a
common carrier may absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the goods; or (2) if it
stipulated with the shipper/owner of the goods to limit its liability for the loss, destruction,
or deterioration of the goods to a degree less than extraordinary diligence. However, a
stipulation diminishing or dispensing with the common carrier’s liability for acts committed
by thieves or robbers who do not act with grave or irresistible threat, violence, or force is
void under Article 1745 of the Civil Code for being contrary to public policy.
Jurisprudence, too, has expanded Article 1734’s five exemptions. De Guzman v. Court of
Appeals, 168 SCRA 612 (1988), interpreted Article 1745 to mean that a robbery attended
by “grave or irresistible threat, violence or force” is a fortuitous event that absolves the
common carrier from liability.

Same; Same; Under Article 1736, a common carrier’s extraordinary responsibility

over the shipper’s goods lasts from the time these goods are unconditionally
placed in the possession of, and received by, the carrier for transportation, until
they are delivered, actually or constructively, by the carrier to the
consignee.—​Under Article 1736, a common carrier’s extraordinary responsibility over the
shipper’s goods lasts from the time these goods are unconditionally placed in the
possession of, and received by, the carrier for transportation, until they are delivered,
actually or constructively, by the carrier to the consignee. That the cargo disappeared
during transit while under the custody of BMT — TMBI’s subcontractor — did not diminish
nor terminate TMBI’s responsibility over the cargo. Article 1735 of the Civil Code
presumes that it was at fault. Instead of showing that it had acted with extraordinary
diligence, TMBI simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this premise carries with it the
presumption of fault or negligence, thus rendering it liable to Sony/Mitsui for breach of
contract.

Same; Same; Culpa Contractual; The common carrier can only free itself from
liability by proving that it observed extraordinary diligence.—​In culpa contractual,
the plaintiff only needs to establish the existence of the contract and the obligor’s failure
to perform his obligation. It is not necessary for the plaintiff to prove or even allege that
the obligor’s noncompliance was due to fault or negligence because Article 1735 already
presumes that the common carrier is negligent. The common carrier can only free itself
from liability by proving that it observed extraordinary diligence. It cannot discharge this
liability by shifting the blame on its agents or servants.
Culpa Aquiliana; If the injury to the plaintiff resulted from the act or omission of the
defendant’s employee or servant, the defendant may absolve himself by proving
that he observed the diligence of a good father of a family to prevent the
damage.—​The plaintiff in culpa aquiliana must clearly establish the defendant’s fault or
negligence because this is the very basis of the action. Moreover, if the injury to the
plaintiff resulted from the act or omission of the defendant’s employee or servant, the
defendant may absolve himself by proving that he observed the diligence of a good father
of a family to prevent the damage. Torres-Madrid Brokerage, Inc. vs. FEB Mitsui Marine
Insurance Co., Inc., 796 SCRA 142, G.R. No. 194121 July 11, 2016

4. As to performance of prestation - Article 1221-1225, 1209-1210

a. Divisible
b. Indivisible
c. Joint Indivisible
d. Solidary Indivisible

Sps. Lam. vs Kodak Philippines, GR 167615, January 11, 2016 ​ RASING

CASE SYLLABI

Civil Law; Obligations; Indivisible Obligations; An obligation is indivisible when it

cannot be validly performed in parts, whatever may be the nature of the thing
which is the object thereof. The indivisibility refers to the prestation and not to the
object thereof.—​In Nazareno v. Court of Appeals, 343 SCRA 637 (2000), the
indivisibility of an obligation is tested against whether it can be the subject of partial
performance: An obligation is indivisible when it cannot be validly performed in parts,
whatever may be the nature of the thing which is the object thereof. The indivisibility
refers to the prestation and not to the object thereof. In the present case, the Deed of
Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is
clearly indivisible because the performance of the contract cannot be done in parts,
otherwise the value of what is trans ferred is diminished. Petitioners are therefore
mistaken in basing the indivisibility of a contract on the number of obligors.

Same; Contracts; Contract of Sale; A contract of sale is perfected upon the

meeting of minds as to the object and the price, and the parties may reciprocally
demand the performance of their respective obligations from that point on.—​The
contract between the parties is one of sale, where one party obligates himself or herself
to transfer the ownership and deliver a determinate thing, while the other pays a certain
price in money or its equivalent. A contract of sale is perfected upon the meeting of minds
as to the object and the price, and the parties may reciprocally demand the performance
of their respective obligations from that point on.

Same; Same; Rescission of Contracts; Rescission under Article 1191 has the effect
of mutual restitution.—​Rescission under Article 1191 has the effect of mutual
restitution. In Velarde v. Court of Appeals, 361 SCRA 56 (2001): Rescission abrogates
the contract from its inception and requires a mutual restitution of benefits received. . . . .
Rescission creates the obligation to return the object of the contract. It can be carried out
only when the one who demands rescission can return whatever he may be obliged to
restore. To rescind is to declare a contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning and restore the parties to
their relative positions as if no contract has been made.

Same; Same; Same; When rescission is sought under Article 1191 of the Civil
Code, it need not be judicially invoked because the power to resolve is implied in
reciprocal obligations.—​When rescission is sought under Article 1191 of the Civil Code,
it need not be judicially invoked because the power to resolve is implied in reciprocal
obligations. The right to resolve allows an injured party to minimize the damages he or
she may suffer on account of the other party’s failure to perform what is incumbent upon
him or her. When a party fails to comply with his or her obligation, the other party’s right
to resolve the contract is triggered. The resolution immediately produces legal effects if
the nonperforming party does not question the resolution. Court intervention only
becomes necessary when the party who allegedly failed to comply with his or her
obligation disputes the resolution of the contract. Since both parties in this case have
exercised their right to resolve under Article 1191, there is no need for a judicial decree
before the resolution produces effects.

Remedial Law; Civil Procedure; Appeals; Petition for Review on Certiorari; A

petition for review on certiorari under Rule 45 shall only pertain to questions of
law.—​The issue of damages is a factual one. A petition for review on certiorari under
Rule 45 shall only pertain to questions of law. It is not the duty of this court to reevaluate
the evidence adduced before the lower courts. Furthermore, unless the petition clearly
shows that there is grave abuse of discretion, the findings of fact of the trial court as
affirmed by the Court of Appeals are conclusive upon this court.

Damages; Moral Damages; Exemplary Damages; Moral damages are granted to

alleviate the moral suffering suffered by a party due to an act of another, but it is
not intended to enrich the victim at the defendant’s expense; Exemplary damages,
on the other hand, are awarded when the injurious act is attended by bad
faith.—​The award for moral and exemplary damages also appears to be sufficient. Moral
damages are granted to alleviate the moral suffering suffered by a party due to an act of
another, but it is not intended to enrich the victim at the defendant’s expense. It is not
meant to punish the culpable party and, therefore, must always be reasonable vis-à-vis
the injury caused. Exemplary damages, on the other hand, are awarded when the
injurious act is attended by bad faith. In this case, respondent was found to have
misrepresented its right over the generator set that was seized. As such, it is properly
liable for exemplary damages as an example to the public.

5. As to the presence of an accessory undertaking in case of breach

a. With a Penal Clause - Article 1226-1230

Distinguish from Liquidated Damages

SECTION 6
Obligations with a Penal Clause
Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity
for damages and the payment of interests in case of noncompliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code. (1152a)
Article 1227. The debtor cannot exempt himself from the performance of the obligation by
paying the penalty, save in the case where this right has been expressly reserved for him.
Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the
penalty at the same time, unless this right has been clearly granted him. However, if after
the creditor has decided to require the fulfillment of the obligation, the performance
thereof should become impossible without his fault, the penalty may be enforced. (1153a)
Article 1228. Proof of actual damages suffered by the creditor is not necessary in order
that the penalty may be demanded. (n)
Article 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. (1154a)
Article 1230. The nullity of the penal clause does not carry with it that of the principal
obligation.
The nullity of the principal obligation carries with it that of the penal clause. (1155)
SECTION 4
Liquidated Damages
Article 2226. Liquidated damages are those agreed upon by the parties to a contract, to
be paid in case of breach thereof.
Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall
be equitably reduced if they are iniquitous or unconscionable.
Article 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall
determine the measure of damages, and not the stipulation.

Bachrach vs Espiritu, 52 Phil 346 ​ CATURLA

​CASE SYLLABI

1.CHATTEL MORTGAGE; PENAL CLAUSE.—​Article 1152 of the Civil Code permits the
agreement upon a penalty apart from the interest. Should there be such an agreement,
the penalty, as was held in the case of Lopez vs. Hernaez (32 Phil., 631), does not
include the interest, and as such the two are different and distinct things which may be
demanded separately. The penalty is not to be added to the interest for the determination
of whether the interest exceeds the rate fixed by the law, since said rate was fixed only
for the interest.

2.ID.; ID.; REDUCTION OF PENALTY.—​When the obligation has been partly performed,
article 1154 of the Civil Code authorizes the court to reduce the penalty imposed therein.
Bachrach Motor Co. vs. Espiritu, 52 Phil. 346, No. 28497, No. 28498 November 6, 1928

Robes-Francisco vs CFI, 86 SCRA 59 ​ SALVACION

​CASE SYLLABI
Contracts; Sale; Damages; A contract of sale which stipulate payment of interest at
4% per annum in case vendor fails to issue a certificate of title to vendee is not a
penal clause because even without it vendee would be entitled to interest at the
legal rate of 6% per annum.—​The foregoing argument of petitioner is totally devoid of
merit. We would agree with petitioner if the clause in question were to be considered as a
penal clause. Nevertheless, for very obvious reasons, said clause does not convey any
penalty, for even without it, pursuant to Article 2209 of the Civil Code, the vendee would
be entitled to recover the amount paid by her with legal rate of interest which is even
more than the 4% provided for in the clause. It ​is therefore inconceivable that the
aforecited provision in the deed of sale is a penal clause which will preclude an award of
damages to the vendee Millan. In fact the clause is so worded as to work to the
advantage of petitioner corporation.

Same; Same; Same; Nominal damages are not for indemnification of loss but
vindication of right violated or invaded.—​Nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a right violated or
invaded. They are recoverable where some injury has been done the amount of which the
evidence fails to show, the assessment of damages being left to the discretion of the
court according to the circumstances of the case.

Same; Same; Same; P10,000.00 awarded as nominal damages is not

unreasonable.—​To conclude, We hold that the sum of Ten Thousand Pesos
(P10,000.00) by way of nominal damages is fair and just under the following
circumstances, viz: respondent Millan bought the lot from petitioner in May, 1962, and
paid in full her installments on December 22, 1971, but it was only on March 2, 1973, that
a deed of absolute sale was executed in her favor, and notwithstanding the lapse of
almost three years since she made her last payment, petitioner still failed to convey the
corresponding transfer certificate of title to Millan who accordingly was compelled to file
the instant complaint in August of 1974. Robes-Francisco Realty & Development
Corporation vs. Court of First Instance of Rizal (Branch XXXIV), 86 SCRA 59, No.
L-41093 October 30, 1978

Pamintuan vs CA, 94 SCRA 556 ​ UY

​CASE SYLLABI

Castillo vs Security Bank, et. al., GR 196118, July 30, 2014 ​ AMOLATO
CASE SYLLABI

Remedial Law; Civil Procedure; Appeals; Petition for Review on Certiorari; As a

rule, the jurisdiction of the Supreme Court (SC) over appealed cases from the Court
of Appeals (CA) is limited to the review and revision of errors of law it allegedly
committed, as its findings of fact are deemed conclusive.—​As a rule, the jurisdiction
of the Court over appealed cases from the CA is limited to the review and revision of
errors of law it allegedly committed, as its findings of fact are deemed conclusive. Thus,
the Court is not duty-bound to evaluate and weigh the evidence all over again which were
already considered in the proceedings below, except when, as in this case, the findings of
fact of the CA are contrary to the findings and conclusions of the trial court.

Civil Law; Mortgages; Requisites of a Valid Mortgage.—​The following are the legal
requisites for a mortgage to be valid: (1) It must be constituted to secure the fulfillment of
a principal obligation; (2) The mortgagor must be the absolute owner of the thing
mortgaged; (3) The persons constituting the mortgage must have the free disposal of
their property, and in the absence thereof, they should be legally authorized for the
purpose.

Remedial Law; Evidence; Notarized Documents; Defective notarization will simply

strip the document of its public character and reduce it to a private instrument, but
nonetheless, binding, provided its validity is established by preponderance of
evidence.—​The appellate court aptly held that defective notarization will simply strip the
document of its public character and reduce it to a private instrument, but nonetheless,
binding, provided its validity is established by preponderance of evidence. Article 1358 of
the Civil Code requires ​that the form of a contract that transmits or extinguishes real
rights over immovable property should be in a public document, yet the failure to observe
the proper form does not render the transaction invalid. The necessity of a public
document for said contracts is only for convenience; it is not essential for validity or
enforceability. Even a sale of real property, though not contained in a public instrument or
formal writing, is nevertheless valid and binding, for even a verbal contract of sale or real
estate produces legal effects between the parties. Consequently, when there is a defect
in the notarization of a document, the clear and convincing evidentiary standard originally
attached to a duly-notarized document is dispensed with, and the measure to test the
validity of such document is preponderance of evidence.

Civil Law; Banks and Banking; Mortgages; True, banks and other financing
institutions, in entering into mortgage contracts, are expected to exercise due
diligence.—​True, banks and other financing institutions, in entering into mortgage
contracts, are expected to exercise due diligence. The ascertainment of the status or
condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations. In this case, however, no evidence was presented to
show that SBC was remiss in the exercise of the standard care and prudence required of
it or that it was negligent in accepting the mortgage. SBC could not likewise be faulted for
relying on the presumption of regularity of the notarized SPA when it entered into the
subject mortgage agreement.

Same; Mortgages; Redemption; The redemption price comprises not only the total
amount due under the mortgage deed, but also with interest at the rate specified in
the mortgage, and all the foreclosure expenses incurred by the mortgagee
bank.—​Verily, the redemption price comprises not only the total amount due under the
mortgage deed, but also with interest at the rate specified in the mortgage, and all the
foreclosure expenses incurred by the mortgagee bank. To sustain Leonardo’s claim that
their payment of P45,000,000.00 had already extinguished their entire obligation with
SBC would mean that no interest ever accrued from 1994, when the loan was availed, up
to the time the payment of P45,000,000.00 was made in 2000-2001.

Same; Same; Same; Penalties; The enforcement of penalty can be demanded by

the creditor in case of nonperformance due to the debtor’s fault or fraud.—​The
enforcement of penalty can be demanded by the creditor in case of nonperformance due
to the debtor’s fault or fraud. The nonperformance gives rise to the presumption of fault
and in order to avoid the penalty, the debtor has the burden of proving that the failure of
the performance was due to either force majeure or the creditor’s own acts. In the instant
case, petitioner failed to discharge said burden and thus cannot avoid the payment of the
penalty charge agreed upon. Castillo vs. Security Bank Corporation, 731 SCRA 360, G.R.
No. 196118 July 30, 2014

Sps. Poon vs Prime Savings Bank, GR 183794 June 13, 2016

G.R. NO. 183794, 13 June 2016, FIRST DIVISION (Sereno, CJ.)

FACTS:
Spouses Jaime and Matilde Poon owned a commercial building. Matilde Poon and Prime
Savings Bank (PSB) executed a 10-year Contract of Lease over the building for the
latter's use. They agreed to a fixed monthly rental of P60,000, with an advance payment
of the rentals for the first 100 months in the amount of P6,000,000. In addition, paragraph
24 of the Contract provides that should the leased premises be closed, deserted or
vacated by the LESSEE, all advanced rentals shall be forfeited in favour of the LESSOR.
Barely three years later, however, the Bangko Sentral ng Pilipinas (BSP) placed PSB
under the receivership of the Philippine Deposit Insurance Corporation (PDIC) by virtue of
BSP Monetary Board Resolution No. 22. PSB vacated the leased premises and
surrendered them to Sps. Poon. Subsequently, the PDIC issued a demand letter asking
Sps. Poon for the return of the unused advance rental amounting to P3,480,000 on the
ground that paragraph 24 of the lease agreement had become inoperative, because
PSB’s closure constituted force majeure. Sps. Poon, however, refused the PDIC's
demand. Consequently, PDIC sued Sps. Poon before the RTC for a partial rescission of
contract and/or recovery of a sum of money. The RTC ordered the partial rescission of
the lease agreement. On appeal, the Court of Appeals affirmed the RTC Decision.

ISSUE:
Whether the penalty agreed upon by the parties may be equitably reduced under Article
1229 of the Civil Code.
RULING:
YES. It is settled that a provision is a penal clause if it calls for the forfeiture of any
remaining deposit still in the possession of the lessor, without prejudice to any other
obligation still owing, in the event of the termination or cancellation of the agreement by
reason of the lessee's violation of any of the terms and conditions thereof. This kind of
agreement may be validly entered into by the parties. The clause is an accessory
obligation meant to ensure the performance of the principal obligation by imposing on the
debtor a special prestation in case of nonperformance or inadequate performance of the
principal obligation.

In effect, the penalty for the premature termination of the Contract works both ways. As
the CA correctly found, the penalty was to compel respondent to complete the 10-year
term of the lease. Petitioners, too, were similarly obliged to ensure the peaceful use of
their building by respondent for the entire duration of the lease under pain of losing the
remaining advance rentals paid by the latter.

If this were an ordinary contest of rights of private contracting parties, respondent lessee
would be obligated to abide by its commitment to petitioners. The general rule is that
courts have no power to ease the burden of obligations voluntarily assumed by parties,
just because things did not tum out as expected at the inception of the contract.

It must be noted, however, that this case was initiated by the PDIC in furtherance of its
statutory role as the fiduciary of Prime Savings Bank. 51 As the state-appointed receiver
and liquidator, the PDIC is mandated to recover and conserve the assets of the
foreclosed bank on behalf of the latter's depositors and creditors. 52 In other words, at
stake in this case are not just the rights of petitioners and the correlative liabilities of
respondent lessee. Over and above those rights and liabilities is the interest of innocent
debtors and creditors of a delinquent bank establishment. These overriding
considerations justify the 50% reduction of the penalty agreed upon by petitioners and
respondent lessee in keeping with Article 1229 of the Civil
Code, which provides:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even •· · if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.

The reasonableness of a penalty depends on the circumstances in each case, because

what is iniquitous and unconscionable in one may be totally just and equitable in another.
In resolving this issue, courts may consider factors including but not limited to the type,
extent and purpose of the penalty; the nature of the obligation; the mode of the breach
and its consequences; the supervening realities; and the standing and relationship of the
parties.

CASE SYLLABI

Civil Law; Contracts; Rescission; The Civil Code uses rescission in two (2)
different contexts, namely: (1) rescission on account of breach of contract under
Article 1191; and (2) rescission by reason of lesion or economic prejudice under
Article 1381​.—The legal remedy of rescission, however, is by no means limited to the
situations covered by the above provisions. The Civil Code uses rescission in two
different contexts, namely: (1) rescission on account of breach of contract under Article
1191; and (2) rescission by reason of lesion or economic prejudice under Article 1381.
While the term “rescission” is used in Article 1191, “resolution” was the original term used
in the old Civil Code, on which the article was based. Resolution is a principal action
based on a breach by a party, while rescission under Article 1383 is a subsidiary action
limited to cases of rescission for lesion under Article 1381 of the New Civil Code.

Mercantile Law; Insolvency; The period during which the bank cannot do business
due to insolvency is not a fortuitous event, unless it is shown that the
government’s action to place a bank under receivership or liquidation proceedings
is tainted with arbitrariness, or that the regulatory body has acted without
jurisdiction.—​There is no indication or allegation that the BSP’s action in this case was
tainted with arbitrariness or bad faith. Instead, its decision to place respondent under
receivership and liquidation proceedings was pursuant to Section 30 of Republic Act No.
7653. Moreover, respondent was partly accountable for the closure of its banking
business. It cannot be said, then, that the closure of its business was independent of its
will as in the case of Provident Savings Bank. The legal effect is analogous to that
created by contributory negligence in quasi-delict actions. The period during which the
bank cannot do business due to insolvency is not a fortuitous event, unless it is shown
that the government’s action to place a bank under receivership or liquidation
proceedings is tainted with arbitrariness, or that the regulatory body has acted without
jurisdiction.

International Law; Rebus Sic Stantibus; Article 1267 is not an absolute application
of the principle of rebus sic stantibus, otherwise, it would endanger the security of
contractual relations. After all, parties to a contract are presumed to have assumed
the risks of unfavorable developments. It is only in absolutely exceptional changes
of circumstance, therefore, that equity demands assistance for the debtor.​—As an
alternative justification for its premature termination of the Contract, respondent lessee
invokes the doctrine of unforeseen event under Article 1267 of the Civil Code, which
provides: Art. 1267. When the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released therefrom, in whole or
in part. The theory of rebus sic stantibus in public international law is often cited as the
basis of the above article. Under this theory, the parties stipulate in light of certain
prevailing conditions, and the theory can be made to apply when these conditions cease
to exist. The Court, however, has once cautioned that Article 1267 is not an absolute
application of the principle of rebus sic stantibus, otherwise, it would endanger the
security of contractual relations. After all, parties to a contract are presumed to have
assumed the risks of unfavorable developments. It is only in absolutely exceptional
changes of circumstance, therefore, that equity demands assistance for the debtor.

Civil Law; Obligations; It is settled that a provision is a penal clause if it calls for
the forfeiture of any remaining deposit still in the possession of the lessor, without
prejudice to any other obligation still owing, in the event of the termination or
cancellation of the agreement by reason of the lessee’s violation of any of the
terms and conditions thereof.—​It is settled that a provision is a penal clause if it calls
for the forfeiture of any remaining deposit still in the possession of the lessor, without
prejudice to any other obligation still owing, in the event of the termination or cancellation
of the agreement by reason of the lessee’s violation of any of the terms and conditions
thereof. This kind of agreement may be validly entered into by the parties. The clause is
an accessory obligation meant to ensure the performance of the principal obligation by
imposing on the debtor a special ​prestation in case of nonperformance or inadequate
performance of the principal obligation.

Same; Same; The general rule is that courts have no power to ease the burden of
obligations voluntarily assumed by parties, just because things did not turn out as
expected at the inception of the contract.—​We have no reason to doubt that the
forfeiture provisions of the Contract were deliberately and intelligently crafted. Under
Article 1196 of the Civil Code, the period of the lease contract is deemed to have been
set for the benefit of both parties. Its continuance, effectivity or fulfillment cannot be made
to depend exclusively upon the free and uncontrolled choice of just one party. Petitioners
and respondent freely and knowingly committed themselves to respecting the lease
period, such that a breach by either party would result in the forfeiture of the remaining
advance rentals in favor of the aggrieved party. If this were an ordinary contest of rights of
private contracting parties, respondent lessee would be obligated to abide by its
commitment to petitioners. The general rule is that courts have no power to ease the
burden of obligations voluntarily assumed by parties, just because things did not turn out
as expected at the inception of the contract.
E. Breach of Obligations - Article 1170

Honrado vs GMA Network Films, Inc., GR 204702, January 14, 2015 ​ BARRIOS
CASE SYLLABI

Civil Law; Contracts; Being a stranger to such arrangements, GMA Films is no

more entitled to complain of any breach by petitioner of his contracts with the film
owners than the film owners are for any breach by GMA Films of its Agreement
with petitioner.—​We entertain no doubt that petitioner forged separate contractual
arrangements with the owners of the films listed in the Agreement, spelling out the terms
of payment to the latter. Whether or not petitioner complied with these terms, however, is
a matter to which GMA Films holds absolutely no interest. Being a stranger to such
arrangements, GMA Films is no more entitled to complain of any breach by petitioner of
his contracts with the film owners than the film owners are for any breach by GMA Films
of its Agreement with petitioner.

Same; Damages; Attorney’s Fees; Attorney’s fees may be awarded if the trial court
“deems it just and equitable.” Such ground, however, must be fully elaborated in
the body of the ruling.—​The trial court awarded attorney’s fees to petitioner as it
“deemed it just and reasonable” to do so, using the amount provided by petitioner on the
witness stand (P100,000). Undoubtedly, attorney’s fees may be awarded if the trial court
“deems it just and equitable.” Such ground, however, must be fully elaborated in the body
of the ruling. Its mere invocation, without more, negates the nature of attorney’s fees as a
form of actual damages. Honrado vs. GMA Network Films, Inc, 746 SCRA 249, G.R. No.
204702 January 14, 2015

Manner of Breach
1. Fraud - Article 1171, 1338, 1344

Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver
of an action for future fraud is void. (1102a)

Article 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. (1269)

Article 1344. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)

1. Negligence - Article 1171-1173

Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver
of an action for future fraud is void. (1102a)

Article 1172. Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the courts, according
to the circumstances. (1103)

Article 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
(1104a)

1. Delay - Article 1169, 1165, 1786, 1788, 1896, 1942

Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins. (1100a)

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition
to the right granted him by article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at
the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event until
he has effected the delivery. (1096)

Article 1786. Every partner is a debtor of the partnership for whatever he may have
promised to contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and
determinate things which he may have contributed to the partnership, in the same cases
and in the same manner as the vendor is bound with respect to the vendee. He shall also
be liable for the fruits thereof from the time they should have been delivered, without the
need of any demand. (1681a)
Article 1788. A partner who has undertaken to contribute a sum of money and fails to do
so becomes a debtor for the interest and damages from the time he should have
complied with his obligation.

The same rule applies to any amount he may have taken from the partnership coffers,
and his liability shall begin from the time he converted the amount to his own use. (1682)
Article 1896. The agent owes interest on the sums he has applied to his own use from the
day on which he did so, and on those which he still owes after the extinguishment of the
agency. (1724a)

Article 1942. The bailee is liable for the loss of the thing, even if it should be through a
fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use
for which the commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member of his
household;
(5) If, being able to save either the thing borrowed or his own thing, he chose to save the
latter. (1744a and 1745)

1. Any other manner of contravention

Excuses for non-performance

1. Fortuitous event - Article 1174, 552, 1165, 2147, 2159

Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable. (1105a)
Article 552. A possessor in good faith shall not be liable for the deterioration or loss of the
thing possessed, except in cases in which it is proved that he has acted with fraudulent
intent or negligence, after the judicial summons.
A possessor in bad faith shall be liable for deterioration or loss in every case, even if
caused by a fortuitous event. (457a)
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition
to the right granted him by article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at
the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event until
he has effected the delivery. (1096)
Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not accustomed to embark
upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith. (1891a)
Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a
sum of money is involved, or shall be liable for fruits received or which should have been
received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing from any
cause, and for damages to the person who delivered the thing, until it is recovered.
(1896a)

1. Act of creditor

Cango vs MRR, 38 Phil 768 ​ BUEN

1.MASTER AND SERVANT; CONTRACT; NEGLIGENCE​..—Failure to perform a
contract cannot be excused upon the ground that the breach was due to the negligence
of a servant of the obligor, and that the latter exercised due diligence in the selection and
control of the servant.

2.CONTRACTS; NEGLIGENCE; CULPA AQUILIANA; CULPA CONTRACTUAL​.—The

distinction between negligence as the source of an obligation (culpa aquiliana) and
negligence in the performance of a contract (culpa contractual) pointed out.

3.CARRIERS; PASSENGERS; NEGLIGENCE; ALIGHTING FROM MOVING TRAIN.—​It

is not negligence per se for a traveler to alight from a slowly moving train. Cangco vs.
Manila Railroad Co., 38 Phil. 768, No. 12191 October 14, 1918

Telefast vs Castro, 158 SCRA 445 ​ CATURLA

Civil Law; Damages; Obligations; Telegrams; Failure of telegram company to send
the sender's telegram overseas despite payment of the required charges, makes it
guilty of contravening its obligation and is liable for damages.—​In the case at bar,
petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a
fee, petitioner undertook to send said private respondent's message overseas by
telegram. This, petitioner did not do, despite performance by said private respondent of
her obligation by paying the required charges. Petitioner was therefore guilty of
contravening its obligation to said private respondent and is thus liable for damages.

Same; Same; Same; Same; Liability of telegram company is not limited to actual or
quantified damages.—​This liability is not limited to actual or quantified damages. To
sustain petitioner's contrary position in this regard would result in an inequitous situation
where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30)
years ago.

Same; Same; Same; Same; Moral damages, concept of, under Art. 2217 of the Civil
Code; Moral damages, recoverable in case at bar.—​We find Art. 2217 of the Civil
Code applicable to the case at bar. It states: "Moral damages include physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate results of the defendant's
wrongful act or omission."
Same; Same; Same; Same; Petitioners act or omission amounted to gross
negligence.—​Here, petitioner's act or omission, which amounted ​to gross negligence,
was precisely the cause of the suffering private respondents had to undergo.

Same; Same; Same; Same; Compensatory damages, award of, proper, as petitioner
was remiss in performing its obligations.—​We also sustain the trial court's award of
P1 6,000.00 as compensatory damages to Sofia C. Crouch representing the expenses
she incurred when she came to the Philippines from the United States to testify before the
trial court. Had petitioner not been remiss in performing its obligation, there would have
been no need for this suit or for Mrs. Crouch's testimony.

Same; Same; Same; Same; Exemplary damages, award of, justified to serve as a
warning to all telegram companies to observe due diligence in transmitting their
customers' messages.—​The award of exemplary damages by the trial court is likewise
justified and, therefore, sustained in the amount of P1,000.00 for each of the private
respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.

Meralco vs Ramoy, GR 158911, March 4, 2008 ​ DIZON

Civil Law; Negligence; As a public utility, MERALCO has the obligation to
discharge its functions with utmost care and diligence.—​Article 1173 also provides
that the fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. The Court emphasized in Ridjo Tape & Chemical
Corporation v. Court of Appeals, 286 SCRA 544 (1998), that “as a public utility,
MERALCO has the obligation to discharge its functions with utmost care and diligence.”

Same; Same; Actions of MERALCO cannot be considered wanton, fraudulent,

reckless, oppressive or malevolent; Exemplary damages should not be
awarded.—​The Court finds that MERALCO fell short of exercising the due diligence
required, but its actions cannot be considered wanton, fraudulent, reckless, oppressive or
malevolent. Records show that MERALCO did take some measures, i.e., coordinating
with NPC officials and conducting a joint survey of the subject area, to verify which
electric meters should be disconnected although these measures are not sufficient,
considering the degree of diligence required of it. Thus, in this case, exemplary damages
should not be awarded.

Same; Same; Moral Damages; No other person could have proven such damages
except the respondent himself as they were extremely personal to him.—​Leoncio
Ramoy, the lone witness for respondents, was the only one who testified regarding the
effects on him of MERALCO’s electric service disconnection. His co-respondents Matilde
Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any
evidence of damages they suffered. It is a hornbook principle that damages may be
awarded only if proven. In Mahinay v. Velasquez, Jr., 419 SCRA 118 (2004), the ​Court
held thus: In order that moral damages may be awarded, there must be pleading and
proof of moral suffering, mental anguish, fright and the like. While respondent alleged in
his complaint that he suffered mental anguish, serious anxiety, wounded feelings and
moral shock, he failed to prove them during the trial. Indeed, respondent should have
taken the witness stand and should have testified on the mental anguish, serious anxiety,
wounded feelings and other emotional and mental suffering he purportedly suffered to
sustain his claim for moral damages. Mere allegations do not suffice; they must be
substantiated by clear and convincing proof. No other person could have proven such
damages except the respondent himself as they were extremely personal to him.

Mindanao Terminal vs Phoenix Assurance, GR 162467, May 8, 2009 ​ ESPINA

Common Carriers; Contracts; Damages.—​As it is clear that Mindanao Terminal had
duly exercised the required degree of diligence in loading and stowing the cargoes, which
is the ordinary diligence of a good father of a family, the grant of the petition is in order.

Attorney’s Fees; The Court finds no basis for the award of attorney’s fees in favor
of petitioner—none of the circumstances enumerated in Article 2208 of the Civil
Code exists.—​The Court finds no basis for the award of attorney’s fees in favor of
petitioner. None of the circumstances enumerated in Article 2208 of the Civil Code exists.
The present case is clearly not an unfounded civil action against the plaintiff as there is
no showing that it was instituted for the mere purpose of vexation or injury. It is not sound
public policy to set a premium to the right to litigate where such right is exercised in good
faith, even if erroneously. Likewise, the RTC erred in awarding P83,945.80 actual
damages to Mindanao Terminal. Although actual expenses were incurred by Mindanao
Terminal in relation to the trial of this case in Davao City, the lawyer of Mindanao
Terminal incurred expenses for plane fare, hotel accommodations and food, as well as
other miscellaneous expenses, as he attended the trials coming all the way from Manila.
But there is no showing that Phoenix and McGee made a false claim against Mindanao
Terminal resulting in the protracted trial of the case necessitating the incurrence of
expenditures. Mindanao Terminal and Brokerage Service, Inc. vs. Phoenix Assurance
Company of New York/McGee & Co., Inc., 587 SCRA 421, G.R. No. 162467 May 8,
2009

Jimenez vs City of Manila, 150 SCRA 510 ​ GOJAR

Civil Law; Civil liability of Provinces, Cities and Municipalities for quasi-delict;
Article 1, Sec. 4, RA No. 409 (Revised Charter of Manila) refers to liability arising
from negligence, in general, regardless of the object, while Article 2189 of the Civil
Code governs liability due to "defective streets, public buildings and other public
works" in particular.—​This issue has been laid to rest in the case of City of Manila v.
Teotico (22 SCRA 269-272 [1968]) where the Supreme Court squarely ruled that
Republic Act No. 409 establishes a general rule regulating the liability of the City of
Manila for "damages or injury to persons or property arising from the failure of city
officers" to enforce the provisions of said Act, "or any other law or ordinance or from
negligence" of the City "Mayor, Municipal Board, or other officers while enforcing or
attempting to enforce said provisions." Upon the other hand, Article 2189 of the Civil
Code of the Philippines constitutes a particular prescription making "provinces, cities and
municipalities x x x liable for damages for the death of, or injury suffered by any person by
reason"—specifically—"of the defective condition of roads, streets, bridges, public
buildings, and other public works under their control or supervision." In other words, Art.
1, sec. 4, R.A. No. 409 refers to liability arising from negligence, in general, regardless of
the object, thereof, while Article 2189 of the Civil Code governs liability due to "defective
streets, public buildings and other public works" in particular and is therefore decisive on
this specific case.

Same; Same; Same; For liability under Article 2189 of the Civil Code to attach,
control or supervision by the province, city or municipality over the public building
in question is enough; Case at bar.—​In the same suit, the Supreme Court clarified
further that under Article 2189 of the Civil Code, it is not necessary for the liability therein
established to attach, that the defective public works belong to the province, city or
municipality from which responsibility is exacted. What said article requires is that the
province, city or municipality has either "control or supervision" over the public building in
question. In the case at bar, there is no question that the Sta. Ana Public Market, despite
the Management and Operating Contract between respondent City and Asiatic Integrated
Corporation remained under the control of the former. The fact of supervision and control
of the City over subject public market was admitted by Mayor Ramon Bagatsing in his
letter to Secretary of Finance Cesar Virata. In fact, the City of Manila employed a market
master for the Sta. Ana Public Market whose primary duty is-to take direct supervision
and control of that particular market, more specifically, to check the safety of the place for
the public.

Same; Same; Same; Same; Respondent City of Manila failed to exercise the
diligence of a good father of a family which is a defense in quasi-delict.—​As a
defense against liability on the basis of a quasidelict, one must have exercised the
diligence of a good father of a family. (Art. 1173 of the Civil Code). There is no argument
that it is the duty of the City of Manila to exercise reasonable care to keep the public
market reasonably safe for people frequenting the place for their marketing needs. While
it may be conceded that the fulfillment of such duties is extremely difficult during storms
and floods, it must however, be admitted that ordinary precautions could have been taken
during good weather to minimize the dangers to life and limb under those difficult
circumstances. For instance,. the drainage hole could have been placed under the stalls
instead of on the passage ways. Even more important is the fact, that the City should
have seen to it that the openings were covered. Sadly, the evidence indicates that long
before petitioner fell into the opening, it was already uncovered, and five (5) months after
the incident happened, the opening was still uncovered. (Rollo, pp. 57; 69). Moreover,
while there are findings that during floods the vendors remove the iron grills to hasten the
flow of water (Decision, AC-G.R. CV No. 01387, Rollo, p. 17), there is no showing that
such practice has ever been prohibited, much less penalized by the City of Manila.
Neither was it shown that any sign had been placed thereabouts to warn passers-by of
the impending danger.

Nakpil and Sons vs CA, 144 SCRA 596, 160 SCRA 334

Case Title: ​Nakpil & Sons et. al. vs. Court of Appeals
GR number: ​160 SCRA 334
Date: ​October 3, 1986
Ponente:​ ​Justice Paras
Topic: ​Remedies for Breach

FACTS:
In the RTC of Manila, PBA filed a complaint for damages and thus was appealed to the
CA where judgment was modified as what the RTC rendered in favor of the plaintiff. PBA
constructed a building whereby the construction was undertaken by United Construction
Inc, (UCI). Approved by the president of PBA, the plans and specification were prepared
by Nakpil & Sons. August 2, 1968, earthquake hit Manila and thus damaging properties
where the building of PBA was one of which. November 29 of that same year, plaintiff
PBA filed suit for recovery of damages against the UCI. The UCI in turned filed suit
against Nakpil & Sons, by which in March 3, 1969 filed their written stipulation. In the
RTC, technical issues were submitted to Commissioner Hizon and as for other issues the
Court resolved. Commissioner sustained that the building was caused directly by the
earthquake and maintained that the specification were not followed.

ISSUE:
Whether or not an Act of God-fortuitous event, exempts liability from parties who are
otherwise liable because of their negligence?

HELD:
Although the general rule for fortuitous events stated in Article 1174 of the Civil Code
exempts liability when there is an Act of God, thus if in the concurrence of such event
there be fraud, negligence, delay in the performance of the obligation, the obligor cannot
escape liability therefore there can be an action for recovery of damages. The negligence
of the defendant was shown when and proved that there was an alteration of the plans
and specification that had been so stipulated among them. Therefore, therefore there
should be no question that NAKPIL and UNITED are liable for damages because of the
collapse of the building.

​Gilat Satellite Networks Ltd., vs UCPB, GR 189563, April 6 2004 ​ ORTIZ

Civil Law; Suretyship; Solidary Liability; In suretyship, the oft-repeated rule is that
a surety’s liability is joint and solidary with that of the principal debtor.—​In
suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that of
the principal debtor. This undertaking makes a surety agreement an ancillary contract, as
it presupposes the existence of a principal contract. Nevertheless, although the contract
of a surety is in essence secondary only to a valid principal obligation, its liability to the
creditor or “promise” of the principal is said to be direct, primary and absolute; in other
words, a surety is directly and equally bound with the principal. He becomes liable for the
debt and duty of the principal obligor, even without possessing a direct or personal
interest in the obligations constituted by the latter. Thus, a surety is not entitled to a
separate notice of default or to the benefit of excussion. It may in fact be sued separately
or together with the principal debtor.

Same; Same; Same; The acceptance of a surety agreement does not change in any
material way the creditor’s relationship with the principal debtor nor does it make
the surety an active party to the principal creditor-debtor relationship.—​We have
held in Stronghold Insurance Co., Inc. v. Tokyu Construction Co. Ltd., 588 SCRA 410
(2009), that “[the] acceptance [of a surety agreement], however, does not change in any
material way the creditor’s relationship with the principal debtor nor does it make the
surety an active party to the principal creditor-debtor relationship. In other words, the
acceptance does not give the surety the right to intervene in the principal contract. The
surety’s role arises only upon the debtor’s default, at which time, it can be directly held
liable by the creditor for payment as a solidary obligor.” Hence, the surety remains a
stranger to the Purchase Agreement. We agree with petitioner that respondent cannot
invoke in its favor the arbitration clause in the Purchase Agreement, because it is not a
party to that contract. An arbitration agreement being contractual in nature, it is binding
only on the parties thereto, as well as their assigns and heirs.

Alternative Dispute Resolution Act of 2004 (Republic Act [R.A.] No. 9285);
Arbitration; Section 24 of Republic Act No. 9285 is clear in stating that a referral to
arbitration may only take place “if at least one party so requests not later than the
pre-trial conference, or upon the request of both parties thereafter.”—​Section 24 of
Republic Act No. 9285 is clear in stating that a referral to arbitration may only take place
“if at least one party so requests not later than the pre-trial conference, or upon the
request of both parties thereafter.” Respondent has not presented even an iota of
evidence to show that either petitioner or One Virtual submitted its contesting claim for
arbitration.

Civil Law; Suretyship; Sureties do not insure the solvency of the debtor, but rather
the debt itself; The effect is that the creditor is given the right to directly proceed
against either principal debtor or surety.—​Sureties do not insure the solvency of the
debtor, but rather the debt itself. They are contracted precisely to mitigate risks of
non​performance on the part of the obligor. This responsibility necessarily places a surety
on the same level as that of the principal debtor. The effect is that the creditor is given the
right to directly proceed against either principal debtor or surety. This is the reason why
excussion cannot be invoked. To require the creditor to proceed to arbitration would
render the very essence of suretyship nugatory and diminish its value in commerce. At
any rate, as we have held in Palmares v. Court of Appeals, 288 SCRA 422 (1998), “if the
surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of
his principal, he may pay the debt himself and become subrogated to all the rights and
remedies of the creditor.”

Same; Delay; Interest Rates; If an obligation consists in the payment of a sum of

money, and the debtor incurs a delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in
the absence of stipulation, the legal interest.—​Article 2209 of the Civil Code is clear:
“[i]f an obligation consists in the payment of a sum of money, and the debtor incurs a
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest.”

Same; Same; Delay arises from the time the obligee judicially or extra judicially
demands from the obligor the performance of the obligation, and the latter fails to
comply.—​Delay arises from the time the obligee judicially or extra judicially demands
from the obligor the performance of the obligation, and the latter fails to comply. Delay, as
used in Article 1169, is synonymous with default or mora, which means delay in the
fulfillment of obligations. It is the nonfulfillment of an obligation with respect to time. In
order for the debtor (in this case, the surety) to be in default, it is necessary that the
following requisites be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially or extra judicially.

Same; Same; The settled rule is that where there has been an extrajudicial demand
before an action for performance was filed, interest on the amount due begins to
run, not from the date of the filing of the complaint, but from the date of that
extrajudicial demand.—​As to the issue of when interest must accrue, our Civil Code is
explicit in stating that it accrues from the time judicial or extrajudicial demand is made on
the surety. This ruling is in accordance with the provisions of Article 1169 of the Civil
Code and of the settled rule that where there has been an extrajudicial demand before an
action for performance was filed, interest on the amount due begins to run, not from the
date of the filing of the complaint, but from the date of that extrajudicial demand.
Considering that respondent failed to pay its obligation on 30 May 2000 in accordance
with the Purchase Agreement, and that the extrajudicial demand of petitioner was sent on
5 June 2000, we agree with the latter that interest must start to run from the time
petitioner sent its first demand letter (5 June 2000), because the obligation was already
due and demandable at that time.

Rivera vs Sps Chua, GR 184458, January 14, 2015 ​ PASCUAL

Solar Harvest, Inc. vs Davao Corrugated Carton Corp., GR 176868 July 26 2010

PELAGIO

Case Title: SOLAR HARVEST, INC., vs DAVAO CORRUGATED CARTON

CORPORATION
G.R. No. 176868, July 26, 2010
Ponente: NACHURA, J
Topic/Doctrine: ​In reciprocal obligations, as in a contract of sale, the general rule is that
the fulfillment of the parties respective obligations should be simultaneous. Hence, no
demand is generally necessary because, once a party fulfills his obligation and the other
party does not fulfill his, the latter automatically incurs in delay. However, if the period for
the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before
the obligor can be considered in default and before a cause of action for rescission will
accrue.

FACTS
· ​In the first quarter of 1998 , petitioner (Solar Harvest, Inc., Solar for
brevity) entered into an agreement with respondent, Davao Corrugated Carton
Corporation (DCCC for brevity), for the purchase of corrugated carton boxes,
specifically designed for petitioners business of exporting fresh bananas. Said
agreement was not reduced into writing
· ​To start the production, Solar deposited on March 31, 1998, US$40,150.00
in DCCC’s US Dollar Savings Account with Westmont bank, as full payment for
the ordered boxes.
· ​Despite such payment, Solar did not receive any boxes from DCCC.
 ● On January 3, 2001 ,Solar wrote a demand letter for reimbursement of the
amount paid. DCCC replied that the boxes had been completed as early
as April 3, 1998 and that Solar failed to pick them up from the former’s
warehouse 30 days from completion, as agreed upon.
● Solar then filed a Complaint for sum of money and damages against
respondent. The Complaint averred that the parties agreed that the boxes
will be delivered within 30 days from payment but respondent failed to
manufacture and deliver the boxes within such time. DCCC stated that
petitioner was to pick up the boxes at the factory as agreed upon, but
petitioner failed to do so.
· ​DCCC replied that the boxes had been completed as early as April 3, 1998
and that Solar failed to pick them up from the former’s warehouse 30 days from
completion, as agreed upon. Solar alleges that the agreement was for DCCC to
deliver within 30 days from payment the said cartons to Tagum Agricultural
Development Corporation (TADECO) which the latter failed to manufacture and
deliver within such time.
· ​The RTC dismissed the complaint stating that respondent was able to
produce the ordered boxes but petitioner failed to obtain possession thereof
because its ship did not arrive.
· ​On appeal, the CA held that petitioner failed to discharge its burden of
proving what it claimed to be the parties agreement with respect to the delivery of
the boxes. It was unthinkable that, over a period of more than two years, petitioner
did not even demand for the delivery of the boxes. The CA added that even
assuming that the agreement was for respondent to deliver the boxes, respondent
would not be liable for breach of contract as petitioner had not yet demanded from
it the delivery of the boxes

ISSUE 1: Whether or not rescission of the contract is proper in the instant case.

HELD 1:

· ​Petitioners claim for reimbursement is actually one for rescission (or

resolution) of contract under Article 1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period​.

· ​In reciprocal obligations, as in a contract of sale, the general rule is that the
fulfillment of the parties respective obligations should be simultaneous. Hence, no
demand is generally necessary because, once a party fulfills his obligation and the
other party does not fulfill his, the latter automatically incurs in delay. But when
different dates for performance of the obligations are fixed, the default for each
obligation must be determined by the rules given in the first paragraph of the
present article, that is, the other party would incur in delay only from the moment
the other party demands fulfillment of the formers obligation. Thus, even in
reciprocal obligations, if the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the obligor can be considered in
default and before a cause of action for rescission will accrue.

· ​Evident from the records and even from the allegations in the complaint
was the lack of demand by petitioner upon respondent to fulfill its obligation to
manufacture and deliver the boxes. The Complaint only alleged that petitioner
made a follow-up upon respondent, which, however, would not qualify as a
demand for the fulfillment of the obligation. Petitioners witness also testified that
they made a follow-up of the boxes, but not a demand. Note is taken of the fact
that, with respect to their claim for reimbursement, the Complaint alleged and the
witness testified that a demand letter was sent to respondent. Without a previous
demand for the fulfillment of the obligation, petitioner would not have a cause of
action for rescission against respondent as the latter would not yet be considered
in breach of its contractual obligation.

· ​ ven assuming that a demand had been previously made before filing the
E
present case, petitioners claim for reimbursement would still fail, as the
circumstances would show that respondent was not guilty of breach of contract.
As correctly observed by the CA, aside from the pictures of the finished boxes
and the production report thereof, there is ample showing that the boxes had
already been manufactured by respondent..

· ​We also believe that the agreement between the parties was for petitioner
to pick up the boxes from respondents warehouse, contrary to petitioners
allegation. Thus, it was due to petitioners fault that the boxes were not delivered
to TADECO.
· ​In sum, the Court finds that petitioner failed to establish a cause of action
for rescission, the evidence having shown that respondent did not commit any
breach of its contractual obligation. As previously stated, the subject boxes are
still within respondents premises. To put a rest to this dispute, we therefore relieve
respondent from the burden of having to keep the boxes within its premises and,
consequently, give it the right to dispose of them, after petitioner is given a period
of time within which to remove them from the premises.

Civil Law; Contracts; Rescission; The right to rescind a contract arises once the
other party defaults in the performance of his obligation.—​The right to rescind a
contract arises once the other party defaults in the performance of his obligation. In
determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169
of the same law.

Same; Same; Same; In reciprocal obligation, as in a contract of sale, the general

rule is that the fulfillment of the parties’ respective obligations, if the period for the
fulfillment of the obligation is fixed, demand upon the obligee is still necessary
before the obligor can be considered in default and before a cause of action will
accrue.—​In reciprocal obligations, as in a contract of sale, the general rule is that the
fulfillment of the parties’ respective obligations should be simultaneous. Hence, no
demand is generally necessary because, once a party fulfills his obligation and the other
party does not fulfill his, the latter automatically incurs in delay. But when different dates
for performance of the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the present article, that is, the other
party would incur in delay only from the moment the other party demands fulfillment of the
former’s obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of
the obligation is fixed, demand upon the obligee is still necessary before the obligor can
be considered in default and before a cause of action for rescission will accrue.

Same; Same; Same; Without a previous demand for the fulfilment of the obligation,
petitioners would not have a cause of action for rescission against respondent as
the latter would not yet be considered in breach of its contractual
obligation.—​Evident from the records and even from the allegations in the complaint was
the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture
and deliver the boxes. The Complaint only alleged that petitioner made a “follow-up” upon
respondent, which, however, would not qualify as a demand for the fulfillment of the
obligation. Petitioner’s witness also testified that they made a follow-up of the boxes, but
not a demand. Note is taken of the fact that, with respect to their claim for reimbursement,
the Complaint alleged and the witness testified that a demand letter was sent to
respondent. Without a previous demand for the fulfillment of the obligation, petitioner
would not have a cause of action for rescission against respondent as the latter would not
yet be considered in breach of its contractual obligation.

Remedial Law; Appeals; The existence of a breach of contract is a factual matter

not usually reviewed in a petition for review under Rule 45.—​The existence of a
breach of contract is a factual matter not usually reviewed in a petition for review under
Rule 45. The Court, in petitions for review, limits its inquiry only to questions of law. After
all, it is not a trier of facts, and findings of fact made by the trial court, especially when
reiterated by the CA, must be given great respect if not considered as final. In dealing
with this petition, we will not veer away from this doctrine and will thus sustain the factual
findings of the CA, which we find to be adequately supported by the evidence on record.

Agcaoili vs GSIS, 165 SCRA 1 ​ TORRE CAMPO

Contracts; Sale; There being a perfected contract of sale, it was the duty of the
GSIS as seller to deliver the thing sold in a condition suitable for its enjoyment by
the buyer for the purpose contemplated.—​There was then a perfected contract of sale
between the parties; there had been a meeting of the minds upon the purchase by
Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka, Marikina,
Rizal at a definite price payable in amortizations at P31.56 per month, and from the
moment the parties acquired the right to reciprocally demand performance. It was, to be
sure, the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its
enjoyment by the buyer for the purpose contemplated, in other words, to deliver the
house subject of the contract in a reasonably livable state. This it failed to do.

Same; Same; Same; There can hardly be any doubt that the house contemplated
was one that could be occupied for purposes of residence in reasonable comfort
and convenience.—​It sold a house to Agcaoili, and required him to immediately occupy
it under pain of cancellation of the sale. Under the circumstances there can hardly be any
doubt that the house contemplated was one that could be occupied for purposes of
residence in reasonable comfort and convenience. There would be no sense to require
the awardee to immediately occupy and live in a shell of a house, a structure consisting
only of four walls with openings, and a roof; and to theorize, as the GSIS does, that this
was what was intended by the parties, since the contract did not clearly impose upon it
the obligation to deliver a habitable house, is to advocate an absurdity, the creation of an
unfair situation. By any objective interpretation of its terms, the contract can only be
understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably
habitable dwelling in return for his undertaking to pay the stipulated price.

Same; Same; Same; Same; It is axiomatic that in reciprocal obligations, neither

party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him.—​Since GSIS did not fulfill that
obligation, and was not willing to put the house in habitable state, it cannot invoke
Agcaoili’s suspension of payment of amortizations as cause to cancel the contract
between them. It is axiomatic that “(i)n reciprocal obligations, neither party incurs in delay
if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.

Same; Same; Same; Same; Same; Argument that Agcaoili breached the agreement
by failing to occupy the house must be rejected as devoid of merit.—​Nor may the
GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the
latter had not complied with the condition of occupying the house within three (3) days.
The record shows that Agcaoili did try to fulfill the condition; he did try to occupy the
house but found it to be so uninhabitable that he had to leave it the following day. He did
however leave a friend in the structure, who being homeless and hence willing to accept
shelter even of the most rudimentary sort, agreed to stay therein and look after it. Thus
the argument that Agcaoili breached the agreement by failing to occupy the house, and
by allowing another person to stay in it without the consent of the GSIS, must be rejected
as devoid of merit

Arrieta vs Naric, 10 SCRA 79 ​ SANCHEZ

Obligations and contracts; Liability for non-performance; Failure to put up letter of

credit within agreed period.—​One who assumes a contractual obligation and fails to
perform the same on account of his inability to meet certain bank requirements which
inability he knew and was aware of when he entered into the contract, should be held
liable in damages for breach of contract.
Under Article 1170 of the Civil Code, not only debtors guilty of fraud, negligence or
default but also every debtor, in general, who fails in the performance of his obligations is
bound to indemnify for the losses and damages caused thereby.

Same; Same; Meaning of phrase "in any manner contravene the tenor" of the
obligation in Art. 1170, Civil Code.—​The phrase "in any manner contravene the tenor"
of the obligation in Art. 1170, Civil Code, includes any illicit task which impairs the strict
and faithful fulfillment of the obligation, or every kind of defective performance.

Same; Same; Waiver of breach of contract not presumed.—​Waivers are not

presumed, but must be clearly and convincingly shown, either by express stipulation or
acts admitting no other reasonable explanation.

Same; Payment of award; Philippine currency.—​In view of Republic Act 527 which
specifically requires the discharge of obligations only "in any coin or currency which at the
time of payment is legal tender for public and private debt", the award of "damages in U
S. dollars made by the lower court in the case at bar is modified by converting it into
Philippine pesos at the rate of exchange prevailing at the time the obligation was
incurred, or when the contract in question was executed.

Sicam vs Jorge, GR 159617, August 8, 2007 ​ BELTRAN

Courts; Judgments; The discretion to decide a case one way or another is broad
enough to justify the adoption of the arguments put forth by one of the parties, as
long as these are legally tenable and supported by law and the facts on
records.—​To begin with, although it is true that indeed the CA findings were exact
reproductions of the arguments raised in respondents’ (appellants’) brief filed with the CA,
we find the same to be not fatally infirmed. Upon examination of the Decision, we find that
it expressed clearly and distinctly the facts and the law on which it is based as required by
Section 8, Article VIII of the Constitution. The discretion to decide a case one way or
another is broad enough to justify the adoption of the arguments put forth by one of the
parties, as long as these are legally tenable and supported by law and the facts on
records.
Corporation Law; Piercing the Veil of Corporate Fiction; The rule is that the veil of
corporate fiction may be pierced when made as a shield to perpetrate fraud and/or
confuse legitimate issues—the theory of corporate entity was not meant to
promote unfair objectives or otherwise to shield them.—​The CA correctly pierced the
veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner
corporation. The rule is that the veil of corporate fiction may be pierced when made as a
shield to perpetrate fraud and/or confuse legitimate issues. The theory of corporate entity
was not meant to promote unfair objectives or otherwise to shield them. Notably, the
evidence on record shows that at the time respondent Lulu pawned her jewelry, the
pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all
the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words
“Agencia de R.C. Sicam,” notwithstanding that the pawnshop was allegedly incorporated
in April 1987. The receipts issued after such alleged incorporation were still in the name
of “Agencia de R.C. Sicam,” thus inevitably misleading, or at the very least, creating the
wrong impression to respondents and the public as well, that the pawnshop was owned
solely by petitioner Sicam and not by a corporation.

Actions; Judicial Admissions; The general rule that a judicial admission is

conclusive upon the party making it and does not require proof, admits of two
exceptions, to wit—(1) when it is shown that such admission was made through
palpable mistake, and (2) when it is shown that no such admission was in fact
made; If a party invokes an “admission” by an adverse party, but cites the
admission “out of context,” then the one making the “admission” may show that
he made no “such” admission, or that his admission was taken out of
context.—​The general rule that a judicial admission is conclusive upon the party making
it and does not require proof, admits of two exceptions, to wit: (1) when it is shown that
such admission was made through palpable mistake, and (2) when it is shown that no
such admission was in fact made. The latter exception allows one to contradict an
admission by denying that he made such an admission. The Committee on the Revision
of the Rules of Court explained the second exception in this wise: x x x if a party invokes
an “admission” by an adverse party, but cites the admission “out of context,” then the one
making the “admission” may show that he made no “such” admission, or that his
admission was taken out of context. x x x that the party can also show that he made no
“such admission”, i.e., not in the sense in which the admission is made to appear. That is
the reason for the modifier “such” because if the rule simply states that ​the admission
may be contradicted by showing that “no admission was made,” the rule would not really
be providing for a contradiction of the admission but just a denial. (Emphasis supplied).

Obligations and Contracts; Fortuitous Events; Elements; Words and Phrases;

Fortuitous events by definition are extraordinary events not foreseeable or
avoidable—it is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid.—​Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the
same. To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to comply
with obligations must be independent of human will; (b) it must be impossible to foresee
the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must be free from any participation in
the aggravation of the injury or loss.

Same; Same; In order for a fortuitous event to exempt one from liability, it is
necessary that one has committed no negligence or misconduct that may have
occasioned the loss; When the effect is found to be partly the result of a person’s
participation—whether by active intervention, neglect or failure to act—the whole
occurrence is humanized and removed from the rules applicable to acts of
God.—​The burden of proving that the loss was due to a fortuitous event rests on him who
invokes it. And, in order for a fortuitous event to exempt one from liability, it is necessary
that one has committed no negligence or misconduct that may have occasioned the loss.
It has been held that an act of God cannot be invoked to protect a person who has failed
to take steps to forestall the possible adverse consequences of such a loss. One’s
negligence may have concurred with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or proximate cause of the damage or
injury was a fortuitous event would not exempt one from liability. When the effect is found
to be partly the result of a person’s participation—whether by active intervention, neglect
or failure to act—the whole occurrence is humanized and removed from the rules
applicable to acts of God.

Same; Same; Pawnshops; Robbery; Robbery per se, just like carnapping, is not a
fortuitous event; Merely presenting the police report on the robbery committed
based on the report of the employees of the pawnshop owner is not sufficient to
establish robbery.—​Robbery per se, just like carnapping, is not a fortuitous event. It
does not foreclose the possibility of negligence on the part of herein petitioners. In Co v.
Court of Appeals, 291 SCRA 111 (1998), the Court held: It is not a defense for a repair
shop of motor vehicles to escape liability simply because the damage or loss of a thing
lawfully placed in its possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken
from another’s rightful possession, as in cases of carnapping, does not automatically give
rise to a fortuitous event. To be considered as such, carnapping entails more than the
mere forceful taking of another’s property. It must be proved and established that the
event was an act of God or was done solely by third parties and that neither the claimant
nor the person alleged to be negligent has any participation. In accordance with the Rules
of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him
who invokes it—which in this case is the private respondent. However, other than the
police report of the alleged carnapping incident, no other evidence was presented by
private respondent to the effect that the incident was not due to its fault. A police report of
an alleged crime, to which only private respondent is privy, does not suffice to establish
the carnapping. Neither does it prove that there was no fault on the part of private
respondent notwithstanding the parties’ agreement at the pre-trial that the car was
carnapped. Carnapping does not foreclose the possibility of fault or negligence on the
part of private respondent. Just like in Co, petitioners merely presented the police report
of the Parañaque Police Station on the robbery committed based on the report of
petitioners’ employees which is not sufficient to establish robbery. Such report also does
not prove that petitioners were not at fault.

Same; Same; Same; Article 2123 of the Civil Code provides that with regard to
pawnshops and other establishments which are engaged in making loans secured
by pledges, the special laws and regulations concerning them shall be observed,
and subsidiarily, the provisions on pledge, mortgage and antichresis.—​Article 2123
of the Civil Code provides that with regard to pawnshops and other establishments which
are engaged in making loans secured by pledges, the special laws and regulations
concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage
and antichresis. The provision on pledge, particularly Article 2099 of the Civil Code,
provides that the creditor shall take care of the thing pledged with the diligence of a good
father of a family. This means that petitioners must take care of the pawns the way a
prudent person would as to his own property.

Same; Same; Same; Negligence; Words and Phrases; Negligence is the omission
to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do.—​We expounded in
Cruz v. Gangan, 211 SCRA 517 (1992), that negligence is the omission to do something
which a reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do; or the doing of something which a prudent and
reasonable man would not do. It is want of care required by the circumstances. A review
of the records clearly shows that petitioners failed to exercise reasonable care and
caution that an ordinarily prudent person would have used in the same situation.
Petitioners were guilty of negligence in the operation of their pawnshop business.

Same; Same; Same; Same; The Central Bank considered it not feasible to require
insurance of pawned articles against burglary—there was no statutory duty
imposed on the pawnshop owner to insure the pawned jewelry.—​Under Section 17
of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took
effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114,
Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit: Sec.
17. Insurance of Office Building and Pawns.—The place of business of a pawnshop and
the pawns pledged to it must be insured against fire and against burglary as well as for
the latter(sic), by an insurance company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took
effect on October 1, 1980, to wit: Sec. 17. Insurance of Office Building and Pawns.—The
office building/premises and pawns of a pawnshop must be insured against fire.
(emphasis supplied). where the requirement that insurance against burglary was deleted.
Obviously, the Central Bank considered it not feasible to require insurance of pawned
articles against burglary. The robbery in the pawnshop happened in 1987, and
considering the above-quoted amendment, there is no statutory duty imposed on
petitioners to insure the pawned jewelry in which case it was error for the CA to consider
it as a factor in concluding that petitioners were negligent.

Same; Same; Same; Same; The diligence with which the law requires the individual
at all times to govern his conduct varies with the nature of the situation in which he
is placed and the importance of the act which he is to perform.—​The preponderance
of evidence shows that petitioners failed to exercise the diligence required of them under
the Civil Code. The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he is placed and the
importance of the act which he is to perform. Thus, the cases of Austria v. Court of
Appeals, 39 SCRA 527 (1971), Hernandez v. Chairman, Commission on Audit, 179
SCRA 39 (1989), and Cruz v. Gangan, 211 SCRA 517 (1992), cited by petitioners in their
pleadings, where the victims of robbery were exonerated from liability, find no application
to the present case.
NPC vs CA 161 SCRA 334 ​ BUENAVENTURA

Civil Law; Torts and Damages; Negligence; NPC cannot escape liability because its
negligence was the proximate cause of the loss and damage even though the
typhoon was an act of God.—​It is clear from the appellate court’s decision that based
on its findings of fact and that of the trial court’s, petitioner NPC was undoubtedly
negligent because it opened the spillway gates of the Angat Dam only at the height of
typhoon “Welming” when it knew very well that it was safer to have opened the same
gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at
least four days before it actually struck. And even though the typhoon was an act of God
or what we may call force majeure, NPC cannot escape liability because its negligence
was the proximate cause of the loss and damage. As we have ruled in Juan F. Nakpil &
Sons v. Court of Appeals (144 SCRA 596, 606–607): Thus, if upon the happening of a
fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay
or violation or contravention in any manner of the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape
liability. The principle embodied in the act of God doctrine strictly requires that the act
must be one occasioned exclusively by the violence of nature and human agencies are to
be excluded from creating or entering into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in part the result of the participation of
man, whether it be from active intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it was, and removed from the rules applicable to the
acts of God. (1 Corpus Juris, pp. 1174–1175). Thus, it has been held that when the
negligence of a person concur s with an act of God in producing a loss, such person is
not exempt from liability by showing that the immediate cause of the damage was the act
of God. To be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which the loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G.
4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith,
45 Phil. 657)."

Same; Same; Same; Same; The question of whether or not there was negligence on
the part of NPC is a question of fact which falls within the jurisdiction of the
CA.—​Furthermore, the question of whether or not there was negligence on the part of
NPC is a question of fact which properly falls within the jurisdiction of the Court of
Appeals and will not be disturbed by this Court unless the same is clearly unfounded,
Thus, in Tolentino v. Court of Appeals, (150 SCRA 26, 36) we ruled: “Moreover, the
findings of fact of the Court of Appeals are generally final and conclusive upon the
Supreme Court (Leonardo v. Court of Appeals, 120 SCRA 890 [1983]. In fact it is settled
that the Supreme Court is not supposed to weigh evidence but only to determine its
substantially (Nunez v. Sandiganbayan, 100 SCRA 433 [1982] and will generally not
disturb said findings of fact when supported by substantial evidence (Aytona v. Court of
appeals, 113 SCRA 575 [1985]; Collector of Customs of Manila v. Intermediate Appellate
Court, 137 SCRA 3 [1985]. On the other hand substantial evidence is defined as such
relevant evidence as a reasonable mind might accept as adequate to support a
conclusion (Philippine Metal Products, Inc. v. Court of Industrial Relations, 90 SCRA 135
[1979]; Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA
302 [1985])."
Same; Same; Same; Same; Consequential damages; Court of Ap-peals did not err
in reducing the consequential damages from P333,200.00 to P19,000.00;
Reasons.—​Likewise, it did not err in re-ducing the consequential damages from
P333,200.00 to P19,000.00. As shown by the records, while there was no categorical
statement or admission on the part of ECI that it bought a new crane to replace the
damaged one, a sales contract was presented to the effect that the new crane would be
delivered to it by Asian Enterprises within 60 days from the opening of the letter of credit
at the cost of P1 06,336.75. The offer was made by Asian Enterprises a few days after
the flood. As compared to the amount of P106,336.75 for a brand new crane and paying
the alleged amount of P4,000.00 a day as rental for the use of a temporary crane, which
use petitioner ECI alleged to have lasted for a period of one year, thus, totalling P1
20,000.00, plus the fact that there was already a sales contract between it and Asian
Enterprises, there is no reason why ECI should opt to rent a temporary crane for a period
of one year. The appellate court also found that the damaged crane was subsequently
repaired and re-activated and the cost of repair was ​P77,000.00. Therefore, it included
the said amount in the award of compensatory damages, but not the value of the new
crane. We do not find anything erroneous in the decision of the appellate court that the
consequential damages should represent only the service of the temporary crane for one
month. A contrary ruling would result in the unjust enrichment of ECI.

Same; Same; Same; Same; Exemplary Damages; Appellate court is correct in

eliminating exemplary damages since there was no bad faith and gross negligence
on the part of NPC.—​As to the question of exemplary damages, we sustain the
appellate court in eliminating the same since it found that there was no bad faith on the
part of NPC and that neither can the latter’s negligence be considered gross. In Dee Hua
Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we ruled: “Neither may
private respondent recover exemplary damages since he is not entitled to moral or
compensatory damages, and again because the petitioner is not shown to have acted in
a wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v.
Manila Electric Co., 2 SCRA 377; Francisco v. Government Service Insurance System, 7
SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155;
Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24
SCRA 888)."

Fil-Estate vs Sps Ronquillo, GR 185798, January 13, 2014 ​ CHUA

Civil Law; Obligations; Rescission; The non-performance of petitioners’ obligation

entitles respondents to rescission under Article 1191 of the New Civil
Code.​—Indeed, the non-performance of petitioners’ obligation entitles respondents to
rescission under Article 1191 of the New Civil Code which states: Article 1191. The power
to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. The injured party may choose between the
fulfillment and the rescission of the obligation, with payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible. More in point is Section 23 of Presidential Decree No. 957, the rule
governing the sale of condominiums, which provides: Section 23. Non-Forfeiture of
Payments.—No installment payment made by a buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be reimbursed the total amount
paid including amortization interests but excluding delinquency interests, with interest
thereon at the legal rate.

Same; Same; Same; Respondents are entitled to rescind the contract and demand
reimbursement for the payments they had made to petitioners.—​Respondents are
entitled to rescind the contract and demand reimbursement for the payments they had
made to petitioners. Notably, the issues had already been settled by the Court in the case
of Fil-Estate Properties, Inc. v. Spouses Go, 530 SCRA 621 (2007), promulgated on 17
August 2007, where the Court stated that ​the Asian financial crisis is not an instance of
caso fortuito. Bearing the same factual milieu as the instant case, G.R. No. 165164
involves the same company, Fil-Estate, albeit about a different condominium property.
The company likewise reneged on its obligation to respondents therein by failing to
develop the condominium project despite substantial payment of the contract price.
Fil-Estate advanced the same argument that the 1997 Asian financial crisis is a fortuitous
event which justifies the delay of the construction project. First off, the Court classified the
issue as a question of fact which may not be raised in a petition for review considering
that there was no variance in the factual findings of the HLURB, the Office of the
President and the Court of Appeals. Second, the Court cited the previous rulings of Asian
Construction and Development Corporation v. Philippine Com​mercial International Bank,
488 SCRA 192 (2006), and Mon​dragon Leisure and Resorts Corporation v. Court of
Appeals, 460 SCRA 279 (2005), holding that the 1997 Asian financial crisis did not
constitute a valid justification to renege on obligations. The Court expounded: Also, we
cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond
the control of a business corporation. It is unfortunate that petitioner apparently met with
considerable difficulty e.g., increase cost of materials and labor, even before the
scheduled commencement of its real estate project as early as 1995. However, a real
estate enterprise engaged in the pre-selling of condominium units is concededly a master
in projections on commodities and currency movements and business risks. The
fluctuating movement of the Philippine peso in the foreign exchange market is an
everyday occurrence, and fluctuations in currency exchange rates happen everyday,
thus, not an instance of caso fortuito.

Attorney’s Fees; The Supreme Court affirmed the award of attorney’s fees because
respondents were forced to litigate for 14 years and incur expenses to protect their
rights and interest by reason of the unjustified act on the part of petitioners​.—We
likewise affirm the award of attorney’s fees because respondents were forced to litigate
for 14 years and incur expenses to protect their rights and interest by reason of the
unjustified act on the part of petitioners. The imposition of P10,000.00 administrative fine
is correct pursuant to Section 38 of Presidential Decree No. 957 which reads: Section 38.
Administrative Fines.—The Authority may prescribe and impose fines not exceeding ten
thousand pesos for violations of the provisions of this Decree or of any rule or regulation
thereunder. Fines shall be ​payable to the Authority and enforceable through writs of
execution in accordance with the provisions of the Rules of Court.
Civil Law; Breach of Contracts; Damages; Moral Damages; In order that moral
damages may be awarded in breach of contract cases, the defendant must have
acted in bad faith, must be found guilty of gross negligence amounting to bad faith,
or must have acted in wanton disregard of contractual obligations.—​We sustain the
award of moral damages. In order that moral damages may be awarded in breach of
contract cases, the defendant must have acted in bad faith, must be found guilty of gross
negligence amounting to bad faith, or must have acted in wanton disregard of contractual
obligations. The Arbiter found petitioners to have acted in bad faith when they breached
their contract, when they failed to address respondents’ grievances and when they
adamantly refused to refund respondents’ payment.

TBI vs Feb Mitsui and Manalastas, GR 194121, July 11, 2016 ​ DE LEON
Civil Law; Common Carriers; Diligence of Common Carriers; By the nature of their
business and for reasons of public policy, they are bound to observe extraordinary
diligence in the vigilance over the goods and in the safety of their
passengers​.—Common carriers are persons, corporations, firms or associations
engaged in the business of transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public. By the nature of their business
and for reasons of public policy, they are bound to observe extraordinary diligence in the
vigilance over the goods and in the safety of their passengers.

Same; Same; As long as an entity holds itself to the public for the transport of
goods as a business, it is considered a common carrier regardless of whether it
owns the vehicle used or has to actually hire one​.—That TMBI does not own trucks
and has to subcontract the delivery of its clients’ goods, is immaterial. As long as an entity
holds itself to the public for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle used or has to actually hire
one.

Same; Same; Fortuitous Events; The theft or the robbery of the goods is not
considered a fortuitous event or a force majeure​.—Simply put, the theft or the robbery
of the goods is not considered a fortuitous event or a force majeure. Nevertheless, a
common carrier may absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the goods; or (2) if it
stipulated with the shipper/owner of the goods to limit its liability for the loss, destruction,
or deterioration of the goods to a degree less than extraordinary diligence. However, a
stipulation diminishing or dispensing with the common carrier’s liability for acts committed
by thieves or robbers who do not act with grave or irresistible threat, violence, or force is
void under Article 1745 of the Civil Code for being contrary to public policy.
Jurisprudence, too, has expanded Article 1734’s five exemptions. De Guzman v. Court of
Appeals, 168 SCRA 612 (1988), interpreted Article 1745 to mean that a robbery attended
by “grave or irresistible threat, violence or force” is a fortuitous event that absolves the
common carrier from liability.

Same; Same; Under Article 1736, a common carrier’s extraordinary responsibility

over the shipper’s goods lasts from the time these goods are unconditionally
placed in the possession of, and received by, the carrier for transportation, until
they are delivered, actually or constructively, by the carrier to the
consignee​.—Under Article 1736, a common carrier’s extraordinary responsibility over the
shipper’s goods lasts from the time these goods are unconditionally placed in the
possession of, and received by, the carrier for transportation, until they are delivered,
actually or constructively, by the carrier to the consignee. That the cargo disappeared
during transit while under the custody of BMT — TMBI’s subcontractor — did not diminish
nor terminate TMBI’s responsibility over the cargo. Article 1735 of the Civil Code
presumes that it was at fault. Instead of showing that it had acted with extraordinary
diligence, TMBI simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this premise carries with it the
presumption of fault or negligence, thus rendering it liable to Sony/Mitsui for breach of
contract.

Same; Same; Culpa Contractual; The common carrier can only free itself from
liability by proving that it observed extraordinary diligence.—​In culpa contractual,
the plaintiff only needs to establish the existence of the contract and the obligor’s failure
to perform his obligation. It is not necessary for the plaintiff to prove or even allege that
the obligor’s noncompliance was due to fault or negligence because Article 1735 already
presumes that the common carrier is negligent. The common carrier can only free itself
from liability by proving that it observed extraordinary diligence. It cannot discharge this
liability by shifting the blame on its agents or servants.

Culpa Aquiliana; If the injury to the plaintiff resulted from the act or omission of the
defendant’s employee or servant, the defendant may absolve himself by proving
that he observed the diligence of a good father of a family to prevent the
damage​.—The plaintiff in culpa aquiliana must clearly establish the defendant’s fault or
negligence because this is the very basis of the action. Moreover, if the injury to the
plaintiff resulted from the act or omission of the defendant’s employee or servant, the
defendant may absolve himself by proving that he observed the diligence of a good father
of a family to prevent the damage.

Sanico and Castro vs Colipano, GR 209969, September 27 2017

DUQUIATAN
F. Remedies for reach of Obligations - Article 1165-1168, 1170, 1177-1178,
1191,1192,2236,302,1708; Article 153, 155 FC; Rule 39 Section 13

1. Extra-judicial remedies
a. Expressly granted by law - Article 1786, 1788, 1526
b. Stipulated
2. Judicial Remedies

a. Principal remedies - Article 1191, 1170

b. Subsidiary remedies - Article 1380, 1177
c. Ancillary Remedies - Rules of Court

Universal Food Corp vs CA 33 SCRA 1 ​ GAOAT

Magdalena Estate vs Myrick, 71 Phil 344
FACTS: Magdalena Estate, Inc., sold to Louis J. Myrick lots Nos. 28 and 29 of Block
1, Parcel 9 of the San Juan Subdivision, San Juan Rizal. At their contract of sale, it
was provided that the price of P7,953 shall be payable in 120 equal monthly
installments of P96.39 each on the second day of every month beginning the date
of execution of the agreement.

In pursuance of said agreement, the vendee made several monthly

payments amounting to P2,596.08, the last being on October 4, 1930, although the
first installment due and unpaid was that of May 2, 1930. By reason of this default,
the vendor, through its president, K.H. Hemady, on December 14, 1932, notified the
vendee that, in view of his inability to comply with the terms of their contract, said
agreement had been cancelled as of that date, thereby relieving him of any further
obligation thereunder, and that all amounts paid by him had been forfeited in favor
of the vendor, who assumes the absolute right over the lots in question. To this
communication, the vendee did not reply, and it appears likewise that the vendor
thereafter did not require him to make any further disbursements on account of the
purchase price.

Louis J. Myrick commenced the present action in the Court of First

Instance of Albay, praying for an entry of judgment against the Magdalena Estate,
Inc. for the sum of P2,596.08 with legal interest thereon from the filing of the
complaint until its payment, and for costs of the suit. Said defendant, the herein
petitioner, on September 7, 1936, filed his answer consisting in a general denial
and a cross-complaint and counterclaim, alleging that contract SJ-639 was still in
full force and effect and that, therefore, the plaintiff should be condemned to pay
the balance plus interest and attorneys' fees.

ISSUE: Whether or not a bilateral contract may be resolved or cancelled only by the
prior mutual agreement of the parties.

HELD: NO. The contract SJ-639, being a bilateral agreement, in the absence of a
stipulation permitting its cancellation, may not be resolved by the mere act of the
petitioner. The fact that the contracting parties herein did not provide for resolution
is now of no moment, for the reason that the obligations arising from the contract
of sale being reciprocal, such obligations are governed by Article 1124 of the Civil
Code which declares that the power to resolve, in the event that one of the obligors
should not perform his part, is implied.

Upon the other hand, where, as in this case, the petitioner cancelled the
contract, advised the respondent that he has been relieved of his obligations
thereunder, and led said respondent to believe it so and act upon such belief, the
petitioner may not be allowed, in the language of section 333 of the Code of Civil
Procedure (now section 68 (a) of Rule 123 of the New Rules of Court), in any
litigation the course of litigation or in dealings ​in nais​, be permitted to repudiate his
representations, or occupy inconsistent positions, or, in the letter of the Scotch
law, to "approbate and reprobate."

The contract of sale, contract SJ-639, contains no provision authorizing the

vendor, in the event of failure of the vendee to continue in the payment of the
stipulated monthly installments, to retain the amounts paid to him on account of
the purchase price. The claim, therefore, of the petitioner that it has the right to
forfeit said sums in its favor is untenable. Under Article 1124 of the Civil Code,
however, he may choose between demanding the fulfillment of the contract or its
resolution. These remedies are alternative and not cumulative, and the petitioner in
this case, having to cancel the contract, cannot avail himself of the other remedy of
exacting performance.

As a consequence of the resolution, the parties should be restored, as far

as practicable, to their original situation which can be approximated only by
ordering, as we do now, the return of the things which were the object of the
contract, with their fruits and of the price, with its interest (Article 1295, Civil Code),
computed from the date of the institution of the action.

UP vs De Los Angeles, 35 SCRA 102 ​ JACA

Zulueta v Mariano, 111 SCRA 206 ​LA MADRID
Palay Inc., vs Clave, 124 SCRA 638 ​MITMUG

Angeles vs Calasanz, 135 SCRA 323 ​MORALES

Boysaw vs Interphil Promotions, 148 SCRA 635 ​PANIS

Pilipinas Bank vs IAC, 151 SCRA 546 ​PATIAG

Central Bank vs CA, 139 SCRA 46 ​RASING

Unlad Resources Development vs. Dragon, GR 149338 July 28, 2008 ​ GARCIA
Swire Realty Development Corp., vs Jayne Yu, GR 196251, July 9 2014
SALVACION
Olivares Realty vs Castillo GR 196251 July 9 2014 ​SARABUSING

G.R. No. 196251 July 9, 2014

OLIVAREZ REALTY CORPORATION and DR. PABLO R. OLIVAREZ,
Petitioner,
vs.
BENJAMIN CASTILLO, Respondent.

Facts:

Castillo was the owner of a parcel of land covered by TCT 19972. The Philippine
Tourism Authority allegedly claimed ownership of the same parcel of land based
on TCT 18493.

Castillo and Olivarez Realty Corporation, represented by Dr. Pablo Olivarez,

entered into a contract of conditional sale over the property.
1. Under the deed of conditional sale, Castillo agreed to sell his property
to Olivarez Realty; with Olivarez Realty delivering the downpayment and
the rest to be paid in 30 equal monthly installments every 8​th​ of the month
beginning in the month that the parties would receive a decision voiding
the PTA’s title to the property.
2. Under the same deed, Olivarez Realty will file the action against PTA
with full assistance of Castillo; and that should the petition be denied,
Castillo shall reimburse all the amounts paid by Olivarez Realty.
3. Under the same contract, Olivarez Realty undertook to pay the
legitimate tenants of the land ​disturbance compensation​, while Castillo
undertook to clear the land of the tenants within 6 months from the signing
of the deed; that should Castillo fail to clear the land within 6 months,
Olivarez Realty may suspend its monthly downpayment until the tenants
vacate the property.
4. The parties agreed that Olivarez Realty Corporation may immediately
occupy the property upon signing of the deed. Should the contract be
cancelled, Olivarez Realty Corporation agreed to return the property’s
 possession to Castillo and forfeit all the improvements it may have
introduced on the property.

Olivarez Realty failed to comply with the conditions, to wit: a) pay the full
purchase price; b) failed to file any action against PTA; c) failed to clear the land
of the tenants nor paying them disturbance compensation. For breaching the
contract, Castillo prayed for rescission of contract under Art. 1191 of Civil Code,
plus damages.

In their defense, Olivarez Realty alleged that Castillo failed to fully assist in filing
the action against PTA; that Castillo failed to clear the property of the tenants
within 6 months from the signing of the deed. Thus, they had all the legal right to
withhold the subsequent payments to fully pay the purchase price.

Both RTC and CA ruled that Olivarez Realty breached the contract and ordered
the rescission of the sale plus damages.

Issue #1:
What is the nature of obligations undertaken by both parties?

Held #1:
Olivarez Realty’s obligation to pay the disturbance compensation is a pure
obligation, and hence, demandable at once. With respect to Castillo’s obligation
to clear the land of the tenants within six months from the signing of the contract,
his obligation was an obligation with a resolutory period. The obligation to clear
the land of the tenants took effect at once, specifically, upon the parties’ signing
of the deed of conditional sale. Castillo had until October 2, 2000, six months
from April 5, 2000 when the parties signed the deed of conditional sale, to clear
the land of the tenants. Olivarez Realty Corporation, therefore, had no right to
withhold payments of the purchase price. As the trial court ruled, Olivarez Realty
Corporation "can only claim non-compliance of the obligation to clear the land of
the tenants in October 2000.

Issue #2:
Whether or not rescission of the contract is proper.

Held #2:​ NO.

SC characterized the contract as a contract to sell, not a contract of conditional

sale. In a contract of conditional sale, the buyer automatically acquires title to the
property upon full payment of the purchase price. This transfer of title is "by
operation of law without any further act having to be performed by the seller.” In
a contract to sell, transfer of title to the prospective buyer is not automatic. "The
prospective seller must convey title to the property through a deed of conditional
sale.” ​The distinction is important to determine the applicable laws and
remedies in case a party does not fulfill his or her obligations under the
contract. In contracts of conditional sale, our laws on sales under the Civil
Code of the Philippines apply. On the other hand, contracts to sell are not
governed by our law on sales but by the Civil Code provisions on
conditional obligations.

Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal
obligations does not apply to contracts to sell.​ ​ Failure to fully pay the
purchase price in contracts to sell is not the breach of contract under Art.
1191.​ Failure to fully pay the purchase price is merely an event which prevents
the seller’s obligation to convey title from acquiring binding force. This is
because there can be no rescission of an obligation that is still nonexistent, the
suspensive condition (the condition of having the buyer pay the full purchase
price) having not happened.

In this case, Castillo reserved his title to the property and undertook to execute a
deed of absolute sale upon Olivarez Realty Corporation’s full payment of the
purchase price.​ ​Since Castillo still has to execute a deed of absolute sale to
Olivarez Realty Corporation upon full payment of the purchase price, the transfer
of title is not automatic. As this case involves a contract to sell, Article 1191 of the
Civil Code of the Philippines does not apply. The contract to sell is instead
cancelled, and the parties shall stand as if the obligation to sell never existed.

SC cancelled the deed of conditional sale. Olivarez Realty was ordered to return
to Castillo the possession of property, together with all improvements that it
introduced. Olivarez Realty was also ordered to pay moral damages, exemplary
damages, and attorney’s fees to Castillo.

NCLPI vs Lica and Proton, GR 176986, January 13, 2016 ​ TOLEDO

G. Modes of Extinguishment of Obligations - Article 1231

Other modes:
Saura vs DBP, 44 SCRA 445

1. Payment of performance - Article 1232-1244, 1246-1251, 1302; RA 529, RA

8183; PD 72, Section 31-32
NPC vs Ibrahim, et. al., GR 175863, February 18, 2015 ​ UY
Land Bank of the Philippines vs Alfredo Onc, GR 190755, November 24, 2010
AMOLATO
APOSTOL
JM Tuason vs Javier, 31 SCRA 829 ​

Legarda vs SaldaṄa, 55 SCRA 324 BARRIOS

Azcona v Jamandre, 151 SCRA 317 ​BATTUNG

 BUEN
Araňas vs Tutaan, 127 SCRA 828 ​

Kalalo vs Luz, 34 SCRA 337 ​CATURLA

Ponce vs CA, 90 SCRA 533 ​CORBILLA

New Pacific Timber vs Seneris, 101 SCRA 686 ​ DIZON

Roman Catholic Bishop of Malolos, Inc. vs IAC, 191 SCRA 411 November 16, 1990
M. ERIQUEZ
K. ENRIQUEZ
Tibaja Jr. vs CA, 223 SCRA 163, January 4, 1993 ​

Bognot vs RRI Lending Corp., GR 180144, September 24, 2014 ​ESPINA

Velasco vs Meralco, 42 SCRA 556 ​GOJAR

Commissioner vs Burgos, 96 SCRA 831
Commissioner of Public Highways v. Burgos, G.R.
No. L-36706, [March 31, 1980], 185 PHIL 606-614
Facts: ​Victoria Amigable is the owner of parcel of land situated in Cebu City.
Sometime in 1924, the Government took this land for road-right-of way purpose.

Victoria Amigable a complaint, to recover ownership and possession of the land,

and for damages in the sum of P50,000.00 for the alleged illegal occupation of
the land by the Government, moral damages in the sum of P25,000.00, and
attorney's fees in the sum of P5,000.00, plus costs of suit. Republic alleged,
among others, that the land was either donated or sold by its owners to the
province of Cebu to enhance its value, and that in any case, the right of the
owner, if any, to recover the value of said property was already barred by
estoppel and the statute of limitations, defendants also invoking the non-suability
of the Government.​|||

respondent court applied article 1250 by considering the value of the peso to the
dollar at the time of hearing, in determining due compensation to be paid for the
property taken. The Solicitor General contends that in so doing, the respondent
court violated the order of this Court to make as basis of the determination of just
compensation the price or value of the land at the time of the taking.

Issue:​||| ​whether or not the provision of Article 1250 of the ​New Civil Code is
applicable in determining the amount of compensation to be paid to respondent
Victoria Amigable​|||
Held: It is to be noted that respondent judge did consider the value of the
property at the time of the taking, which as proven by the petitioner was P2.37
per square meter in 1924. However, applying Article 1250 of the ​New Civil Code​,
and considering that the value of the peso to the dollar during the hearing in 1972
was P6.775 to a dollar, as proven by the evidence of the private respondent
Victoria Amigable, the Court fixed the value of the property at the deflated value
of the peso in relation, to the dollar, and came up with the sum of P49,459.34 as
the just compensation to be paid by the Government. To this action of the
respondent judge, the Solicitor General has taken exception.
Article 1250 of the ​New Civil Code seems to be the only provision in our statutes
which provides for payment of an obligation in an amount different from what has
been agreed upon by the parties because of the supervention of extra-ordinary
inflation or deflation. Thus, the Article provides:

"ART. 1250. In case extra-ordinary inflation or deflation of the currency

stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary."

It is clear that the foregoing provision applies only to cases where a contract or
agreement is involved. It does not apply where the obligation to pay arises from
law, independent of contract. The taking of private property by the Government in
the exercise of its power of eminent domain does not give rise to a contractual
obligation. We have expressed this view in the case of Velasco vs. Manila
Electric Co., et al., L-19390, December 29, 1971.

Moreover, the law as quoted, clearly provides that the value of the currency at the
time of the establishment of the obligation shall be the basis of payment which, in
cases of expropriation, would be the value of the peso at the time of the taking of
the property when the obligation of the Government to pay arises. It is only when
there is an "agreement to the contrary" that the extraordinary inflation will make
the value of the currency at the time of payment, not at the time of the
establishment of the obligation, the basis for payment. In other words, an
agreement is needed for the effects of an extraordinary inflation to be taken into
account to alter the value of the currency at the time of the establishment of the
obligation which, as a rule, is always the determinative element, to be varied by
agreement that would find reason only in the supervention of extraordinary
inflation or deflation.

We hold, therefore, that under the law, in the absence of any agreement to the
contrary, even assuming that there has been an extraordinary inflation within the
meaning of Article 1250 of the ​New Civil Code​, a fact We decline to declare
categorically, the value of the peso at the time of the establishment of the
obligation, which in the instant case is when the property was taken possession
of by the Government, must be considered for the purpose of determining just
compensation. Obviously, there can be no "agreement to the contrary" to speak
of because the obligation of the Government sought to be enforced in the present
action does not originate from contract, but from law which, generally is not
subject to the will of the parties. And there being no other legal provision cited
which would justify a departure from the rule that just compensation is
determined on the basis of the value of the property at the time of the taking
thereof in expropriation by the Government, the value of the property as it is
when the Government took possession of the land in question, not the increased
value resulting from the passage of time which invariably brings unearned
increment to landed properties, represents the true value to be paid as just
compensation for the property taken.

In the present case, the unusually long delay of private respondent in bringing the
present action — a period of almost 25 years — which a stricter application of the
law on estoppel and the statute of limitations and prescription may have divested
her of the rights she seeks on this action over the property in question, is an
added circumstance militating against payment to her of an amount bigger — nay
three-fold more — than the value of the property as should have been paid at the
time of the taking. For conformably to the rule that one should take good care of
his own concern, private respondent should have commenced proper action soon
after she had been deprived of her right of ownership and possession over the
land, a deprivation she knew was permanent in character, for the land was
intended for, and had become, avenues in the City of Cebu. A penalty is always
visited upon one for his inaction, neglect or laches in the assertion of his rights
allegedly withheld from him, or otherwise transgressed upon by another.

From what has been said, the correct amount of compensation due private
respondent for the taking of her land for a public purpose would be not
P49,459.34, as fixed by the respondent court, but only P14,615.79 at P2.37 per
square meter, the actual value of the land of 6,167 square meters when it was
taken in 1924. The interest in the sum of P145,410.44 at the rate of 6% from
1924 up to the time respondent court rendered its decision, as was awarded by
the said court should accordingly be reduced.

Filipino Pipe and Foundry Corp. vs NAWASA, 161 SCRA 32 ​ LINCOD

Del Rosario vs Shell, 164 SCRA 556 ​MABASA
Special Forms of Payment
a. Dation in Payment - Article 1245
b. Application of Payments - Article 1252-1254, 1248
c. Payment in Cession or Assignment - Article 1255
d. Tender of Payment and Consignation - Article 1256 - 1261

Filinvest vs Philippine Acetylene, 111 SCRA 421 ​MOJARES

FACTS: Philippine Acetylene Co. purchased from Alexander Lim a motor

vehicle described as Chevorlet 1969 model for P55K to be paid in
installments. As security for the payment of said promissory note, the
appellant executed a chattel mortgage over the same motor vehicle in
favor of said Alexander Lim. Then, Lim assigned to the Filinvest all his
rights, title, and interests in the promissory note and chattel mortgage by
virtue of a Deed of Assignment. Phil Acetylene defaulted in the payment of
nine successive installments. Filinvest sent a demand letter. Replying
thereto, Phil Acetylene wrote back of its desire to return the mortgaged
property, which return shall be in full satisfaction of its indebtedness. So
the vehicle was returned to the Filinvest together with the document
“Voluntary Surrender with Special Power of Attorney To Sell.” Filinvest
failed to sell the motor vehicle as there were unpaid taxes on the said
vehicle. Filinvest requested the appellant to update its account by paying
the installments in arrears and accruing interest. Filinvest offered to deliver
back the motor vehicle to the appellant but the latter refused to accept it,
so appellee instituted an action for collection of a sum of money with
damages. Phil Acetylene’s defense: The delivery of the motor vehicle to
Filinvest extinguished its money obligation as it amounted to a dation in
payment. Assuming arguendo that the return did not extinguish, it was
justified in refusing payment since the appellee is not entitled to recover
the same due to the breach of warranty committed by the original
vendor-assignor Alexander Lim.

ISSUE: Whether there was dation in payment that extinguished Phil

Acetylene’s obligation?

HELD:NO. The mere return of the mortgaged motor vehicle by the

mortgagor does not constitute dation in payment in the absence, express
or implied of the true intention of the parties. Dacion en pago is the
transmission of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation. In dacion, the debtor
offers another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt. The undertaking really partakes in one sense of
the nature of sale, that is, the creditor is really buying the thing or property
of the debtor, payment for which is to be charged against the debtor’s
debt. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an
objective novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as the object
of the contract of sale, while the debt is considered as the purchase price.
In any case, common consent is an essential prerequisite, be it sale or
innovation to have the effect of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the Filinvest consented, or at
least intended, that the mere delivery to, and acceptance by him, of the
mortgaged motor vehicle be construed as actual payment, more
specifically dation in payment or dacion en pago. The fact that the
mortgaged motor vehicle was delivered to him does not necessarily mean
that ownership thereof, as juridically contemplated by dacion en pago, was
transferred from appellant to appellee. In the absence of clear consent of
appellee to the proferred special mode of payment, there can be no
transfer of ownership of the mortgaged motor vehicle from appellant to
appellee. If at all, only transfer of possession of the mortgaged motor
vehicle took place, for it is quite possible that appellee, as mortgagee,
merely wanted to secure possession to forestall the loss, destruction,
fraudulent transfer of the vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant. As to the strength of the
“Voluntary Surrender with Special Power of Attorney To Sell”, it only
authorized Filinvest to look for a buyer and sell the vehicle in behalf of the
appellant who retains ownership thereof, and to apply the proceeds of the
sale to the mortgage indebtedness, with the undertaking of the appellant
to pay the difference, if any, between the selling price and the mortgage
obligation. Filinvest in essence was constituted as a mere agent to sell the
motor vehicle which was delivered not as its property. If it were, he would
have full power of disposition of the property, not only to sell it.

Citizens Surety vs CA, 162 SCRA 738 ​ORTIZ

PNB vs DEE, Antipolo Properties Inc (now Prime Est Properties, Inc.) and
PASCUAL
AFP-RSBS, Inc., GR 182128, February 19, 2014 ​

Soco vs Militante, 123 SCRA 160 ​PELAGIO

Immaculata vs Navarro, 160 SCRA ​211SAAVEDRA

Del Carmen vs Sps Sabordo, GR 181723, August 11, 2014 ​SEMETARA

Case Title: Del Carmen vs Spouses Sabordo

G.R. No. 181723 August 11, 2014
Ponente:​ J. Peralta
Topic: Special Forms of Payment

FACTS:
Spouses Toribio and Eufrocina Suico (Suico spouses), with other business
partners, entered into a business venture of rice and corn mill at Mandaue City,
Cebu. They loaned from Development Bank of the Philippines (DBP) and
mortgaged four parcels of land owned by Suico spouses, Lots 506, 512, 513 and
514, and another lot owned by their business partner, Juliana Del Rosario. They
failed to pay their loan obligations so DBP foreclosed the properties to which they
did not also redeem so the latter consolidated its ownership over the same.
However, DBP later allowed the Suico spouses and Flores spouses (substitute for
Del Rosario) to repurchase the subject lots by way of a conditional sale for
P240,571. The Suico and Flores spouses were able to pay the down payment and
first monthly amortization but no monthly installments were made thereafter.
Threatened with the cancellation of the conditional sale, both spouses sold their
rights over the properties to respondents Restituto and Mima Sabordo, subject to
the condition that the latter shall pay the balance of the sale price. In addition to
this, Suico and Flores spouses executed a supplemental agreement whereby they
affirmed that what was actually sold to respondents were Lots 512 and 513, while
Lots 506 and 514 were given as usufructuaries. DBP approved of the sale of rights.
Subsequently, respondents were able to repurchase the foreclosed properties.

Then, Restituto Sabordo filed with the CFI of Negros Occidental an original
action for declaratory relief with damages and prayer for a writ of preliminary
injunction raising the issue of whether or not the Suico spouses have the right to
recover from respondents Lots 596 and 514. The trial court ruled the Suico
spouses have the right to redeem or buy back until August 31, 1987. On appeal, the
CA affirmed the CFI's decision and modified that right of repurchase would be until
October 31, 1990. Furthermore, in a resolution dated February 13, 1991, the CA
granted the Suico spouses an additional period of 90 days from notice within
which to exercise their option to repurchase.

Toribio Suico died leaving his widow, Eufrocina, and others as legal heirs.
Later, they discovered that respondents mortgaged Lots 506 and 514 with Republic
Planters Bank (RPB) as security for loan which, subsequently, became delinquent.
Thereafter, alleging that they are ready to pay P127,500 but cannot determine as to
whom payment shall be made, petitioner and co-heirs filed a Complaint with the
RTC San Carlos City seeking to compel respondents and RPB to interplead and
litigate between themselves their interests on the sum of money. Also, they prayed
that respondents be directed to substitute Lots 506 and 514 with other properties
as collateral for their outstanding obligation with RPB and that the latter be ordered
to accept the substitute collateral and release of the mortgage on the said lots.
Upon filing of the complaint, the heirs of Toribio deposited the said amount with
the RTC. Both respondents and RPB filed a Motion to dismiss on the ground that
there is no cause of action as RPB has no legal right nor claim over the lots. The
RTC dismissed the complaint to which the CA affirmed.

ISSUE:
Whether the judicial deposit made is a valid form of consignation?
HELD:
No.
There was no valid consignation made by the petitioner. Consignation is the act of
depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment, and it generally requires a prior
tender of payment or the manifestation by the debtor to the creditor of his desire to
comply with his obligation, with the offer of immediate performance. In the case,
petitioners, upon making the deposit with the RTC, did not ask the trial court that
respondents be notified to receive the amount that they have deposited. In fact,
there was no tender of payment. Instead, what petitioners prayed for is that
respondents and RPB be directed to interplead with one another to determine their
alleged respective rights over the consigned amount; that respondents be likewise
directed to substitute the subject lots with other real properties as collateral for
their loan and that RPB be also directed to accept the substitute real properties as
collateral. Nonetheless, the trial court correctly ruled that interpleader is not the
proper remedy because RPB did not make any claim whatsoever over the amount
consigned by petitioners with the court.

Under Article 1256, the only instances where prior tender of payment is
excused are: (1) when the creditor is absent or unknown, or does not appear at the
place of payment; (2) when the creditor is incapacitated to receive the payment at
the time it is due; (3) when, without just cause, the creditor refuses to give a
receipt; (4) when two or more persons claim the same right to collect; and (5) when
the title of the obligation has been lost None of these instances are present in the
instant case. Hence, the fact that the subject lots are in danger of being foreclosed
does not excuse petitioner and her coheirs from tendering payment to
respondents, as directed by the court.

2. Loss of the thing due or IMpossibility of Performance - Article 1262-1269, 1189,

1174, 1165, 1268, 1942, 1979, 2147, 2159

TORRECAMPO
People vs Franklin, 39 SCR 363 ​

Laguna vs Manabat, 58 SCRA 650 ​TORRRES

Occena vs Jabson, 73 SCRA 637 ​VELASCO

3. Condonation or remission of debt - Article 1270-1274, 748, 749

4. Confusion or Merger of Rights - Article 1275-1277, 1215, 1217
5. Compensation - Article 1278-1290, 1243, 1215

Kinds of Compensation
a. Legal
b. Conventional or facultative
c. Judicial

Gan Tion vs CA, 28 SCRA 2235 ​ ZAGADA

PNB vs Ong Acero, 148 SCRA 166 ​SANCHEZ F

Francia vs IAC, 162 SCRA 753 ​BELTRAN

Republic vs de los Angeles, 98 SCRA 103 ​BUENAVENTURA

Solinap vs del Rosario, 123 SCRA 640 ​CHUA

Sycip vs CA 134 SCRA 317 ​DE LEON

Cia Maritima vs CA, 135 SCRA 593 ​DUQUIATAN

INternational Corporate Bank vs IAC, 163 SCRA 296 ​GAOAT

Mindanao Portland Cement vs CA, 120 SCRA 930 ​GUEVARRA

Mindanao Portland Cement vs CA, 120 SCRA 930

FACTS: Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel
Corporation (Pacweld for short) as the latter's attorney, filed a pleading addressed
to the defendant & Third-Party Plaintiff Mindanao Portland Cement Corporation
(MPCC, for short), for the collection of attorney’s fees from a previous case against
MPCC.

MPCC filed an opposition to Atty. Laquihon's motion, stating that said

amount is set-off by a like sum of P10,000.00 which it MPCC has collectible in its
favor from Pacweld also by way of attorney's fees which MPCC recovered from the
same Court of First Instance of Manila in another civil case, entitled Pacweld Steel
Corporation, et al. writ of execution to this effect having been issued by said court.

The court issued the order appealed from and despite MPCCs motion for
reconsideration of said order, it was denied. The writ of execution referred to above
which MPCC has invoked to set- off the amount sought to be collected by Pacweld
through the latter's lawyer, Atty. Casiano P. Laquihon, is hereunder quoted in full.

In his brief, appellee comments that the statements in appellant's brief are
'substantially correct,' as follows:

STATEMENT OF THE CASE

This is an appeal from the Order of the Court of First Instance of Manila
(Branch X dated June 26, 1978 ordering the appellant (MINDANAO PORTLAND
CEMENT CORPORATION) to pay the amount of P10,000.00 attorney's fees directly
to Atty. Casiano B. Laquihon (Record on Appeal, pp. 24-25) and from the Order
dated August 28, 1978 denying appellant's motion for reconsideration (Record on
Appeal, p. 37).
 There was no trial or submission of documentary evidence. Against the
orders of June 26. 1978, and August 28, 1978, appellant has brought this appeal to
this Court, contending that:

The lower court erred in not holding that the two obligations are
extinguished reciprocally by operation of law.' (p. 6, Appellant's Brief)

This appeal calls for the application of Arts. 1278, 1279 and 1290 of the Civil
Code, as urged by the appellant. Another question is: The judgment in Civil Case
No. 75179 being already final at the time the motion under consideration was filed,
does not the order of June 26, 1976 constitute a change or alteration of the said
judgment, though issued by the very same court that rendered the judgment?

WHEREFORE, since only questions of law are involved and there is no

factual issue left for us to determine, let the records of the appeal in this case be
certified to the Honorable Supreme Court for determination.

ISSUE: Whether or not the two obligations of MPCC and Pacweld Steel Corporation
are extinguished reciprocally by operation of law?

HELD: It is clear from the record that both corporations, petitioner MPCC and
respondent Pacweld Steel Corporation were creditors and debtors of each other,
their debts to each other consisting in final and executory judgments of the Court
of First Instance in two (2) separate cases, ordering the payment to each other of
the sum of P10,000.00 by way of attorney's fees. The two (2) obligations, therefore,
respectively offset each other, compensation having taken effect by operation of
law and extinguished both debts to the concurrent amount of P10,000.00, pursuant
to the provisions of Arts. 1278, 1279 and 1290 of the Civil Code, since all the
requisites provided in Art. 1279 of the said Code for automatic compensation "even
though the creditors and debtors are not aware of the compensation" were duly
present.”

The judgment of September 14, 1976 against Mindanao Portland Cement

Corporation so as to make the award therein of P10,000.00 as attorney's fees
payable directly to himself as counsel of Pacweld Steel Corporation instead of
payable directly to said corporation as provided in the judgment, which had
become final and executory long before the issuance of said "amendatory" order
was a void alteration of judgment.

BPI vs CA GR 136202, january 25, 2007 ​ JACA

FACTS:
A.A. Salazar Construction and Engineering Services filed an action for a sum of money
with damages against herein petitioner Bank of the Philippine Islands (BPI). The
complaint was later amended by substituting the name of Annabelle A. Salazar as the
real party in interest in place of A.A. Salazar Construction and Engineering Services.
Private respondent Salazar prayed for the recovery of the amount of Two Hundred
Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos
(P267,707.70) debited by petitioner BPI from her account. She likewise prayed for
damages and attorney’s fees.
Petitioner BPI, in its answer, alleged that third-party defendant and herein also a private
respondent​, demanded from the former payment of the amount of Two Hundred
Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos
(P267,692.50) representing the aggregate value of three (3) checks, which were allegedly
payable to him, but which were deposited with the petitioner bank to private respondent
Salazar’s account (Account No. 0203-1187-67) without his knowledge and corresponding
endorsement.
It appeared that private respondent Salazar was not entitled to the funds represented by
the checks which were deposited and accepted for deposit, petitioner BPI decided to
debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of
P267,692.50 was paid to Templonuevo by means of a cashier’s check. The difference
between the value of the checks (P267,692.50) and the amount actually debited from her
account (P267,707.70) represented bank charges in connection with the issuance of a
cashier’s check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted the
payment to him of P267,692.50 and argued that said payment was to correct the
malicious deposit made by private respondent Salazar to her private account, and that
petitioner bank’s negligence and tolerance regarding the matter was violative of the
primary and ordinary rules of banking.
ISSUE:
Whether or not a bank has a right of set-off over the deposits for the payment of any
withdrawals on the part of a depositor.
RULING:
The right of a collecting bank to debit a client's account for the value of a dishonored
check that has previously been credited has fairly been established by jurisprudence. To
begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may
take place "when all the requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.

Union Bank vs DBP, GR 191555, January 20, 2014 ​ LA MADRID

6. Novation - Article 1291-1304, 1215

Kinds of Novation
a. As to its nature
i. Subjective or personal
ii. Objective or real
b. As to its form
. Express
i. Iplied

Fua vs Yap 74 Phil 287 ​ MITMUG

Japan Airlines vs Simangan, GR 170141, April 2008 ​ MORALES
Anamer-Salazar vs JY Brothers Marketing Corp., GR 171998 October 20, 1010
PANIS
Metropolitan Bank vs Rural Bank of Gerona Inc., GR 159097, July 5, 2010
PATIAG
Arco Pulp and Paper Co., Inc., and Santos vs Lim, GR 206806, June 25, 2014
RASING
SALVACION
Millar vs CA, 38 SCRA 642 ​

Sandico vs Piguing, 42 SCRA 322 ​SARABUSING

G.R. No. L-26115 November 29, 1971

CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners,
vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of
First Instance of Pampanga, and DESIDERIO PARAS, respondents.
Facts:

Petitioners Sandico and Timbol obtained a judgment in their favor against

respondent D. Paras in an action for easement and damages. The courts
awarded them the “recognition of easement”, plus actual and exemplary
damages, and attorney’s fees. The petitioners then moved for the execution of
the judgment.

Meanwhile, the petitioners and respondent reached a settlement, agreeing to the

reduction of money judgment. Respondents paid the petitioners a portion of the
total sum, as evidenced by a receipt. However, the receipt also stated that there
should be a “reconstruction of the irrigation canal”.

Subsequently, petitioners demanded compliance by the respondents with the

judgment relating to the reconstruction and reopening of the irrigation canal. The
writ of execution having been unsatisfied, the petitioners filed with the court
(presided by respondent judge Piguing) a motion to declare the respondent in
contempt of court. Respondent opposed the same, saying that he had dug a
canal in its former place for the petitioners’ use; that the digging constituted the
“recognition of easement” as opposed to petitioner’s allegation that there should
be a reconstruction and reopening of the canal.
The respondent judge issued an order denying the petitioners’ motion to declare
the respondents in contempt of court, ruling that the earlier decision only ordered
the defendant to recognize the easement and the payment of damages; and that
there is nothing to show that the defendant was ordered to reconstruct the canal.
Eventually, the respondent judge stated that the agreement of the parties
“novated the money judgment”.

Issue:

Whether or not the settlement of the parties after the court’s judgment novated
the obligation imposed by the judgment itself.

Held: NO.

The appellate court’s judgment obliged the respondent to do two things: (1) to
recognize the easement, and (2) to pay the petitioners the sums of P5,000 actual
and P500 exemplary damages and P500 attorney's fees, or a total of P6,000.
The full satisfaction of the said judgment requires specific performance and
payment of a sum of money by the respondent. SC adjudged the respondent's
judgment debt as having been fully satisfied. SC saw no valid objection to the
petitioners and the respondent entering into an agreement regarding the
monetary obligation of the latter under the judgment of the Court of Appeals,
reducing the same from P6,000 to P4,000. The payment by the respondent of the
lesser amount of P4,000, accepted by the petitioners without any protest or
objection and acknowledged by them as "in full satisfaction of the money
judgment" in civil case 1554, completely extinguished the judgment debt and
released the respondent from his pecuniary liability.

Novation results in two stipulations — one to extinguish an existing obligation, the

other to substitute a new one in its place. Fundamental it is that novation effects a
substitution or modification of an obligation by another or an extinguishment of
one obligation in the creation of another. In the case at hand, SC failed to see
what new or modified obligation arose out of the payment by the respondent of
the reduced amount of P4,000 and substitute the monetary liability for P6,000 of
the said respondent under the appellate court's judgment. Additionally, to sustain
novation necessitates that the same be so declared in unequivocal terms —
clearly and unmistakably shown by the express agreement of the parties or by
acts of equivalent import — or that there is complete and substantial
incompatibility between the two obligations.

NPC vs Dayrit, 125 SCRA 849 ​ TOLEDO

Integrated Construction vs Relova, 146 SCRA 360 ​ UY
Cochingyan vs R&B Surety, 151 SCRA 339 ​ANOLATO
Balila vs IAC, 155 SCRA 262 ​APOSTOL

Peoples Bank vs Syvel’s, 164 SCRA 247 ​BARRIOS

Rodriguez vs Reyes, 37 SCRA 195 ​BATTUNG

Odiamar vs Odiamar Valencia, GR 213582, June 28, 2017 ​BUEN