Dela Cruz Oblicon 1

Obligations and Contracts
 A truck driven by Bautista and the Volkswagen delivery

OBLIGATIONS panel truck owned by Borromeo were involved in a traffic
accident along EDSA.
General Provisions: (Articles 1156 – 1162, 31 – 34, 2014 - 2015,  In the traffic accident, Delgado, driver of Borromeo’s
2142 – 2175, 2176, 2202 - 2230 of the New Civil Code, and truck, sustained injuries which resulted in his
Articles 100 - 113 of the Revised Penal Code.) instantaneous death and by this reason, Borromeo had
to pay Delgado’s widow the sum of 4,444Php
1. Concept, Requisites, and Classification: representing the compensation and funeral expenses by
Leung Ben vs. O’Brien, 8 Phil 102 virtue of the Workmen’s Compensation Act.
 PJ O’Brien filed a case against Leung Ben for a collection  Borromeo subsequently filed a suit to recover from
of 15,000Php, all alleged to have been lost by Leung Bautista the compensation and funeral expenses it paid
Ben to O’Brien in a series of gambling, banking and to the widow of Delgado
percentage games conducted during the two or three IS THERE AN OBLIGATION ON THE PART OF BORROMEO TO PAY
months prior to the institution of the suit. DELGADO’S WIDOW DEATH BENEFITS?
 O’Brien asked for an attachment against property of
Leung Ben on the ground that Leung Ben was about to SC RULED:
depart from the country with intent to defraud his  The obligation of Borromeo to pay Delgado’s widow arises
creditors. from law by virtue of Section 2 of the Workmen’s
 The attachment was issued. Compensation Act. The same law provides, in section 6, in
 The provision under which this attachment was issued part that “in case an employee suffers an injury for which
requires that there be a cause of action arising upon a compensation is due under this Act by any person besides
contract, express or implied. his employer, it shall be optional with such injured employee
 Contention of Leung Ben is that the statutory action to either to claim compensation from his employer or sue such
recover money lost at gaming is not such an action other person for damages, in accordance with law; and in
contemplated in the subject provision. case compensation is claimed and allowed in accordance
with this Act, the employer who paid such compensation or
WHETHER OR NOT THE STATUTORY OBLIGATION OF RESTORING was found liable to pay the same, shall succeed the injured
MONEY WON AT GAMING IS AN OBLIGATION ARISING FROM employee to the right of recovering from such person what
CONTRACT, EXPRESS OR IMPLIED he paid”
SC RULED: Dela Cruz vs. Northern Theatrical, 50 O.G. 4225, Sept 1954
 Northern Theatrical Enterprises operates a movie house in
Bautista vs. F.O. Borromeo, Inc., 30 SCRA 119 Ilocos
 Dela Cruz, the security guard, carries a revolver
By: Cyndy dela Cruz, 1D

Hoarding is a crime. Share away <3
 One Benjamin Martin proceeded to try to enter without a 2. Examples and Distinctions of Sources of Obligations:
ticket but dela Cruz refused to allow him entry to the Pichel vs. Alonzo, 111 SCRA 341
theatre.  A deed of Sale was executed by Prudencio Alonzo in
 Martin attacked dela Cruz with a bolo and as self defense, favor of Luis Pichel involving the property awarded to
shot and killed Martin. Alonzo under RA 4771
 Dela Cruz was charged with homicide but the case, after  Alonzo and his wife sold to Pichel the fruits of the
reinvestigation, was dismissed coconut trees which may be harvested in the land in
 Dela Cruz was subsequently charged with the same case question from September 15, 1968 to January 1, 1976
related to his work as a security guard in the theatre in consideration of 4,200Php
 In both cases, dela Cruz hired a lawyer and now asks  Even though as the date of sale, in the sum of 3,650Php
Northern Theatrical for reimbursement on his litigation was to be paid by defendant directly to Ramon Sua, so
expenses but was refused by the latter. as to release the land from the claims of the latter
IS DELA CRUZ ENTITLED TO BE REIMBURSED BY NORTHERN  Pending payment to Sua, Alonzo refused to allow Pichel
THEATRICAL? to make any harvest.
 Pichel caused the harvest of the fruit in the land
SC RULED:  Alonzo now moves for the annulment of the deed of sale
 On the agency doctrine
o When a person acts in his capacity as an agent, such WAS THE CONTRACT A SALE OF THE LAND OR THE COCONUT
agent is entitled for reimbursement for any expenses FRUITS THEREIN?
incurred by him in connection with the agency. IS THE DEED OF SALE THE PROHIBITED ENCUMBRANCE
o The relationship between the theatre and the plaintiff CONTEMPLATED IN SECTION 8 OF RA 477?
was not that of a principal and agent because the
principle of representation was not involved. He was SC RULED:
merely an employee hired to guard the cinema  On the object of the contract
 Employer-employee relationship o The contract was that of a contract of sale of coconut
o There is no legal obligation on the part of the fruits
employer, what exists in this case is that of a mere
moral obligation, not one of the obligations
contemplated in the provisions under obligations of 1 AN ACT TO PROVIDE FOR THE ADMINISTRATION AND
the Civil Code. DISPOSITION OF PROPERTIES, INCLUDING THE PROCEEDS AND
o Employer is not legally obligated to give legal INCOME THEREOF TRANSFERRED TO THE RP, UNDER THE
assistance and thus dela Cruz CANNOT naturally PHILIPPINE PROPERTY ACT OF 1946 AND OF RA 8, AND OF THE
recover from his employer PUBLIC LANDS AND IMPROVEMENTS THEREON TRANSFERRED TO
THE NATIONAL ABACA AND OTHER FIBERS CORPORATION UNDER
THE PROVISIONS OF EO. NO. 29 DATED OCTOBER 25,1946 AND
OF EO NO. 99 DATED OCTOBER 22, 1947
 In clear and express terms, the document  Respondent lawyer filed a petition for attorney’s lien and
defined the object of the contract: later on claimed for additional professional fee, all of
 …the herein sale of coconut which amounted to the ff:
fruits…during the years …from o 97.5 square meters of the lot in question
September 15, 1968 to January 1, o Usufructuary right of his son for a period of 10
1976 years
 Possession and enjoyment of the coconut o An additional 31 square meters
trees cannot be said to be the possession and o Totalling 121.5 square meters out of the 271.5
enjoyment of the land because these rights square meters of the land
are separate and distinct from each other.
The sale of the accessory does not carry with IS THE AWARD OF ATTORNEY’S FEES IN THE CASE AT BAR
it that of the sale of the principal. REASONABLE BEING IN THE NATURE OF CONTINGENT FEES?
 On the prohibition from alienating or disposing the natural IS the Contract for Professional Services revealing the agreement
or industrial fruits of the land for the attorney’s lien enforceable?
o Close perusal of Section 8 that the grantee of a
parcel of land under RA 477 is not prohibited from SC RULED:
alienating or disposing of the natural and industrial  Contingent fees are not per se prohibited by law but when it
fruits of the land awarded to him. What the law is shown that a contract for contingent fee was obtained by
expressly disallows is the encumbrance or alienation undue influence exercised by the attorney upon his client or
of the land itself or any of the permanent by any fraud or imposition or that the compensation is
improvements thereon. clearly excessive.
o While coconut trees are permanent improvements on  Furthermore, contingent fees are subject to the supervision
the land, their nuts are natural/ industrial fruits of the Supreme Court as to its reasonableness
which are meant to be gathered or severed from the  CONTRACT for Professional Services becomes the law of the
trees, to be used, enjoyed sold, or otherwise parties when stipulations are not contrary to law, good
disposed by the owner of the land morals, good customs, public policy, or public order
Barredo vs. Garcia, 73 Phil 607
Licudan vs. Court of Appeals, Jan 24, 1991  Sometime in May in the province of Rizal, a head-on
 Respondent lawyer was retained as counsel by his collision between a taxi and carretela ensued
brother-in-law and sister. His services as counsel  Taxi was driven by Fontanilla and one of the passengers
pertained to two related civil cases concerning the of the carretela, 16 year-old Garcia who suffered injuries
redemption of a property in which they have won the which caused his death
case  A criminal action was filed against Fontanilla in the CFI
of Rizal and the court in the criminal case granted the
petition that a separate civil action be reserved.
 Meanwhile, parents of Garcia brought an action in the  The head of a house, owner of the automobile, who
CFI of Manila against Barredo, owner of the taxicab maintains it for the general use of his family, is liable for its
negligent operation by one of his children, who he
CAN THE PARTY OF GARCIA BRING A SEPARATE CIVIL ACTION designates or permits to run it, where the car is occupied
AGAINST BARREDO, THUS MAKING HIM PRIMARILY AND DIRECTLY and being used at the time of injury for the pleasure of
RESPONSIBLE UNDER ARTICLE 1903 OF THE CIVIL CODE AS other members of the family
FONTANILLA’S EMPLOYER?  Head of a house is directly liable for the acts of his minor
child
SC RULED:
 Even as though Barredo contends that he is only subsidiarily
liable under the Revised Penal Code on account of the Nature and Effect of Obligations: (Articles 1163-1178 and Article
quasi-delict committed by his employee, he is still thus 440 of the New Civil Code)
charged as primarily and directly liable under Article 1902
and 1903 of the Civil Code. 1. Diligence:
 A quasi-delict is a separate legal institution under the Civil a. Ordinary v. Extraordinary
Code with a substantivity all of its own and is entirely b. Diligence of a Good Father of the Family
independent of that of a crime.
 There is a conflict of provisions between the RPC and the 2. Delivery:
Civil Code on quasi-delicts but we have to treat quasi-delicts a. Real right vs. Personal Right
as completely independent from crimes punishable by the
RPC. 3. Obligations to Give:
a. Generic v. Specific
Gutierrez vs. Gutierrez, 56 Phil 177 b. Accessions v. Accessories
 One Gutierrez, a passenger in a truck, recovers damages
in the amount of 5,000Php from the owner of a private 4. Obligations to Do:
automobile who was not in the car when the incident 5. Compliance with Obligations:
happened
 It was revealed that the son of the car owner was the 6. Breach of Obligation; Fraud, Negligence, Delay, and in
one driving the car when the accident ensued with other Contravention; Culpa Criminal vs. Culpa Contractual vs. Culpa
members of the family accommodated therein. Aquiliana.
 The accident caused physical injuries to Gutierrez
IS THE OWNER OF THE CAR, FATHER OF THE MINOR OFFENDER, Picart vs. Smith, 37 P 809
LIABLE?  Picart was riding on his horse while travelling on a 75 meter
long bridge and was on the wrong side of the bridge
SC RULED:
 Picart saw Smith’s car approaching and heard the warning

signals. However, due to the rapidity of the approach, he Cangco vs. Manila Railroad, 38 P 763
pulled the pony closely up against the railing on the right  Jose Cangco was a clerk working in Manila Railroad Co.
side of the bridge instead of going to the left and posits that  He is entitled to free passes on the company’s train by
he did not have sufficient time to bring the horse to the reason of his employment
other side.  One day, while he was on his way home, upon reaching the
 Smith thought that Picart would move to the other side San Mateo station, he stood up while the train was still
therefore there was no diminution of speed. slightly moving.
 When Smith had gotten near, and when the horse showed  When he was about to come down, by reason of the dimmed
no signs of going to the opposite side, Smith quickly turned lighting of the train, he did not notice the watermelons
his car to the right to escape hitting the horse but when he which are piled up in the platform and stepped on them.
had gotten near, the horse got frightened and turned its  As a consequence of his fall, he was drawn to the platform
body across the bridge with its head toward the railing and was crushed by a moving car.
WHETHER SMITH IS GUILTY OF NEGLIGENCE  His arms were amputated as a result of the accident and he
now claims for damages.
SC RULED:  The CFI of Manila ruled in favor of Manila Railroad on the
 On the test of determining negligence ground of contributory negligence on the part of Cangco
o Would a prudent man, in the position of the person
to whom the negligence is attributed, foresee harm WAS THERE CONTRIBUTORY NEGLIGENCE OF CANGCO’S PART AS
to the person injured as a reasonable consequence TO BAR HIM FROM RECOVERING DAMAGES?
of the course about to be pursued? If so, the law
imposes a duty on the actor to refrain from that SC RULED:
course or to take precaution against its mischievous  The CFI of Manila ruled on contributory negligence on the
results, and the failure to do so constitutes part of Cangco only on the reason that he stepped off the
negligence train without being able to discern clearly the condition of
 Contributory Negligence the platform and while the train was yet slowly moving.
o Where both parties are guilty of negligence, but the  It should be noteworthy to remember that the train was
negligent act of one succeeds that of the other in an poorly lit and by virtue of the contract of carriage the
appreciable interval, the one who has the last company must afford to its passengers facilities for safe
reasonable opportunity to avoid the impending harm egress from its trains, thus Cangco had the right to assume
and fails to do so is chargeable with the that the platform was clear.
consequences  Cangco had been riding the train ever since he started
 In the case at bar, Smith could have easily turned to the working in the company, thus, the place was perfectly
other side of the bridge or could have reduced his speed familiar to him and that this reason does not sufficiently
accordingly. His very act constitutes contributory negligence provide for contributory negligence
 In fact there was negligence on the part of Manila Railroad,  On contributory negligence
a culpa contractual¸on its performance of the contract of o A prohibition was already made by the foreman,
carriage but¸Rakes insisted on taking the course on the sides
________________________________________________________ of the cars despite the danger in might bring.
________________________________________________________ o Rakes did not exercise reasonable care and
__ prudence
o What has to be done is to render a judgment in favor
Rakes vs. Atlantic Gulf, 7 P 359 of Rakes but deducting his contributory share in the
 Rakes, one of the 8 African-American laborers under Atlantic damages
Gulf was, at the time of the accident, at work transporting
iron rails from the Harbor in Manila.
 The men were hauling the rails on the two cars, some 7. Fortuitous Event, Essential Conditions, Exceptions:
behind or at its sides and some pulling the cars in front by a Nakpil vs. CA, 144 SCRA 596
rope.  Philippine Bar Association decided to construct its office
 At one point, the track sagged, tie broke, car canted and the building in Intramuros Manila.
rails slid off and caught the plaintiff who was walking by the  Construction was undertaken by United Construction Inc on
car’s side, breaking his leg, which was later amputated at an “administration basis”
the knee.  Plans and specifications of the building were prepared by
 It was found out that a noticeable depression on the track Juan Nakpil and Sons Inc. and the building was eventually
had appeared after a typhoon which was reported to the completed
foreman McKenna, who in turn warned the workers against  In August 2, 1968 an unusually strong earthquake hit
walking by the side of the cars. Manila and the building constructed sustained major
 Atlantic contends that it is not directly responsible for what damage and by reason of this collapse defendants in this
happened to Rakes since he has contributed to the accident case instituted a third party complaint against Nakpil and
by his own acts Sons, who executed and formulated plans and
specifications of the property.
WHETHER OR NOT ATLANTIC IS ONLY SUBSIDIARILY LIABLE WHETHER OR NOT AN ACT OF GOD, AN USUALLY STRONG
WHETHER OR NOT THERE WAS CONTRIBUTORY NEGLIGENCE ON EARTHQUAKE,- WHICH CAUSED THE FAILURE OF THE BUILDING,
THE PART OF RAKES EXEPMTS FROM LIABILITY PARTIES WHO ARE OTHERWISE LIABLE
BECAUSE OF THEIR NEGLIGENCE
SC RULED:
 On subsidiary liability SC RULED:
o By virtue of culpa contractual, Atlantic is thereby held  General rule is that no person shall be responsible for any
directly liable for failing to provide a safe working events which could not be foreseen, or which, though
environment to its employees. foreseen, were inevitable
 An act of God has been defined as an accident, due directly

and exclusively from a natural cause 8. Usury:
 If the happening of the fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or 9. Remedies for Breach of Obligations (Extra-judicial and Judicial;
violation or contravention in any manner of the tenor of the Principal and Subsidiary)
obligation as provided in Article 1170 which results in the
loss or damage. The obligor cannot accept liability
DIFFERENT KINDS OF OBLIGATIONS
Sia vs. CA, 222 SCRA 24
 Main Doctrine: Although flooding may be considered a Pure and Conditional Obligations: (Articles 1179 – 1192)
fortuitous event, failure of the bank to give notice to the
petitioner when his stamp collection was reached by flood 1. Pure Obligations:
water as a result of the flooding into the vault depository of HSBC vs. Spouses Broqueza, November 17, 2010
the bank makes it liable for damages, the negligence on the  Petitioners Gerong and Broqueza are both employees of
part of SBTC caused to aggravate injury or damage to the HSBC as well as members of the HSBC Ltd. Staff
renter. Retirement Plan.
 In 1990, Broqueza obtained a loan in the amount of
175,000.00 Php. On 1991, she appealed and was
RP vs. Luzon Stevedoring, 21 SCRA 279
granted an appliance loan in the amount of 24,000Php.
 Main Doctrine: In the case at bar, considering that the
Gerong, on the other hand obtained a loan for the
Nagtahan bridge was an immovable and stationary object
amount of 35,780Php in 1993. All these loans were
and uncontrovertedly provided with adequate openings for
paid through automatic salary deduction
the passage of the water craft, including barges like those of
 Subsequently, a labor dispute arose and majority of
Luzon Stevedoring’s, it is undeniable that the unusual event
HSBCs employees were terminated including the
that the barge, exclusively controlled by Luzon Stevedoring,
petitioners.
rammed the bridge supports raises a PRESUMPTION OF
NEGLIGENCE on the part of Luzon Stevedoring or its  Because of their dismissal, petitioners can no longer pay
employees the outstanding balances of their loans and despite
several demands of HSBC, petitioners continue to fail in
 Force Majeure:
paying.
o Extraordinary events not foreseeable or avoidable
o Events that which could not be foreseen, or which,  MTC ruled that the nature of HSBCs demands for
though foreseen, were inevitable payment is civil and has no connection to the ongoing
o It is not enough that the event could not have been labor dispute. The petitioner’s dismissal resulted in their
foreseen or anticipated, as is commonly believed, but loss of continued benefits under the retirement plans.
it must be impossible to foresee avoid Thus, as their obligations become unsecured and pure
obligations, they are immediately demandable.
 RTC ruled that the petitioners termination from o We bind ourselves to effect the transfer in our name
employment disqualified them from availing of te from our deceased father immediately upon the
benefits under the retirement plan and as a receipt of downpayment
consequence, there is no longer security for the loans. o Upon transfer to our names, a deed of absolute sale
The absence of a period within which to pay the loans shall be executed
allows HSBC to immediately demand payment. The loan  Title was transferred to the Coronels but offered the land to
obligations are now considered pure obligations, thus, a third party for a higher purchase price for the reason that
are demandable at once.2 Alcaraz went to the US and breached their agreement.
 CA reversed the MTC and RTC ruling  A deed of absolute sale was executed in favor of the third
party
WHAT IS THE NATURE OF THE OBLIGATION OF THE PETITIONERS TO
HSBC? WAS THE CONTRACT A CONTRACT TO SELL OR A CONTRACT OF
DID THE OBLIGATION BECOME PURE UPON THE TERMINATION OF SALE?
THE PETITIONERS’ EMPLOYMENT TO HSBC? WAS THE THIRD PARTY A BUYER IN GOOD FAITH?
SC RULED: SC RULED:
 SC upheld the MTC and RTC ruling.  A contract to sell is that which reserves ownership until the
 There is no date of payment indicated in the promissory conditions are fulfilled while a contract of sale is that which
notes therefore, since the PNs do not contain a period HSBC obligates the obligor to deliver a determinate thing and the
has the right to demand fulfillment of the obligation at once. other to pay for a price in its equivalent. A contract of sale is
effected when the suspensive condition is fulfilled. In the
2. Kinds and Effects of Conditions, Suspensive vs. Resolutory: case at bar, when the transfer certificate of title was
Santiago vs. Millar, 68 P 39 transferred in the name of the Coronels, the suspensive
Patente vs. Omega, 93 P 218 condition was fulfilled which gave rise to their obligation to
Gaite vs. Fonacier, 2 SCRA 831 (See loss of the benefit of the execute the Deed of Absolute Sale in favor of Alcaraz.
period)  The third party is not a buyer in good faith because a notice
of a pending suit was attached in the TCT which was
Coronel vs. Court of Appeals, Oct 7 1996 impossible to have been overlooked by the buyer.
 Coronel executed a document of “Receipt of Down
Payment”: Javier vs. Court of Appeals, 183 S 171
Heirs of Atienza vs. Espidol, August 11, 2010

 Atienza entered into a contract called Kasunduan sa Pagbili
2Article 1179 – Every obligation whose performance do not depend ng Lupa na may Paunang Bayad, in which he bound Espidol
upon a future or uncertain event, or a past event unknown to the to pay in 3 installments
parties, is demandable at once.
 Espidol failed to pay the second installment but offered to  The donation was accepted by the municipal council
pay at an amount lower than what was agreed upon President
 The Atienzas filed a complaint for the annulment of the  In 1921, Cirer and Hill sold the land to George Parks
agreement but the RTC ruled that the non-payment of the  In 1923, the Municipality of Tarlac transferred the name to
purchase price did not amount to a breach but only to an Province of Tarlac
event that authorized the vendor, Atienza not to convey the  Parks contends that the condition was not complied with
title. therefore the ownership of the land could not have validly
 CA affirmed the decision of the RTC but Atienza now acquired by the Province of Tarlac
contends that the contract was void ab initio since the
property was not allowed to be sold because it was a land WAS THE CONDITION A CONDITION PRECEDENT IN THAT THE NON-
acquired by their father through the land reform program COMPLIANCE WILL REVOKE THE DONATION?
SC RULED:
CAN THE ATIENZAS VALIDLY SELL THE LAND?  No merit in the petition
ARE THE ATIENZAS ENTITLED TO CANCEL THE CONTRACT TO SELL?  This cannot be considered a condition precedent since the
municipality of Tarlac would need the land to be effected on
SC RULED: their name before the erection of a central school and park
 The Atienzas can validly sell the land for pursuant to EO 228 shall be commenced.
– upon full payment of the monthly amortizations the Land  Although the non-compliance of the condition would be
Bank, the owners can validly sell the land. sufficient cause for the revocation of the donation, the
 The contract was in the nature of a contract to sell in which period for bringing the action has already prescribed.
the demandability was suspended until the fulfillment of the
condition – that Espidol is to pay the installments, thus, with Osmena vs. Rama, 14 P 99
the failure to pay the 2nd installment, the obligation to sell
did not arise at all and the Atienzas can validly cancel the  In Nov. 15, 1890, Rama executed and delivered to Osmena
agreement. a contract with the ff stipulations:
o That in exchange of 200 pesos, Rama will pay
Osmena in the form of sugar with an interest rate of
3. Effects of Potestative, Casual or Mixed Conditions: half a cuartillo per month
 Another loan was given in favor of Rama but sometime after
Parks vs. Province of Tarlac, 49 P 142
the execution and delivery of the contracts, Osmena died
 In October 18, 1910, Cirer and James Jill donated to the and one of his heirs took over.
Province of Tarlac a piece of land under certain conditions:
 Rama executed a promissory note with the ff. conditions:
o For the land to be used for the erection of a central
o Rama will pay her indebtedness IF HER HOUSE IS
school and a public park
SOLD
 Rama failed to pay
 Since there was no expressed acceptance, the condition is

Was the CONDITION valid? VOID.
 In Osmena v. Rama, there was expressed acceptance when
SC Ruled: the creditor caused the execution and delivery of the
 The potestative condition is VOID since it was solely upon contracts therefore, the potestative condition in the case
the will of the debtor. was held to be VALID.
 But in a latter decision, it was ruled that the condition was
that of a mixed condition and that it was valid, for by virtue Hermosa vs. Longara, 93 P 971
of Article 1186 – The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment in that  The Hermosas claimed credit advances to Longara and
when Rama prevents the sale of his house, the condition is agreed on the ff. condition:
deemed fulfilled and the obligation to pay will be due and o Credit advances will be paid as soon as Hermosa Sr.
demandable. receive the funds derived from the sale of his house
in Spain
 Longara contends that the condition is void for being
Trillana vs. Quezon Colleges, 93 P 383 potestative – solely on the will of the debtor
 Damasa Cristomo sent a letter to the BOT of Quezon WAS THE CONDITION VOID?
Colleges subscribing to 200 shares of capital stock with a
par value of 100 pesos. SC RULED:
 Condition:  Condition in the case at bar is not of a potestative nature
o Magbabayad pagkatapos makapagpahuli ng isda because of the existence of a third party who is ready,
 Damasa died and no payment appeared in the subscription. willing and able to purchase the house in Spain.
 Quezon Colleges presented a claim for the collection of  The condition is of a mixed condition
20,000  Should the debtor prevent the sale of his property, the
obligation will be deemed fulfilled and payment will be due
COMPARING THIS CASE TO OSMENA V. RAMA, IS THE CONDITION and demandable.
VALID?
Smith Bell vs Matti, 44 P 875
SC RULED:  Smith Bell and Sotelo Matti entered into a contract where in
 There is nothing in the records to show that Quezon Colleges Smith Bell obligated itself to sell and Sotelo to purchase
has accepted the terms of payment of Damasa – steel tanks, expellers, electric motors, each having no
Acceptance of creditor shall be expressed when the definite time to be delivered.
condition is solely upon the will of the debtor. o “In the month of September”

o Approximately within 90 days – this is not o “for as long as Dy needed the premises”
guaranteed”  Upon end of the 3 year term, Lao Lim advised Dy that he will
 Smith Bell notified Sotelo to receive but Sotelo refused to no longer renew the contract. Dy insists on renewing the
pay and receive since the motors and expellers arrived contract thus Lao Lim filed an ejectment suit
incomplete and long after the date stipulated. Manila Oil  CA ruled in favor of Dy characterizing the contract as being a
Refinery - a third party even suffered damages because of continuous one – “for as long as lessee needed the
the delay premises”
HAS SMITH BELL FULFILLED ITS OBLIGATION IN DUE TIME? IS CA’S DECISION OF MERITS?
SC RULED: SC RULED:
 Contracts were executed at the time of the world war where  NO!
restrictions and conditions may be out of hand  Lease contract is not continuous as there is a fixed term of
 No day certain was indicated 3 years renewable upon discretion of the lessor.
o Obligations for the performance for which the day  The renewal is a suspensive condition in that the obtaining
certain has been fixed shall be demandable only of renewal upon discretion of the lessor would give rise to a
when the day arrives new lease. Since Lao Lim refused to renew the contract, it
 When there is no definite time stipulated, time is not of the has not given rise to any obligation to continue within the
essence in the contract tenor of the contract.
 Smith Bell has made all the efforts to deliver the things it is
bound to deliver and the court ruled that the machinery was Catungal vs. Rodriguez, March 23, 2011
brought within a reasonable period of time  Angel Rodriguez filed a Complaint for Damages against the
o Reasonable period – determined by the spouses Catungal.
circumstances attending the particular transaction  It was alleged that Agapita Catungal owned a parcel of land
and entered into a Contract to Sell with Rodriguez.
Lao Lim vs. Court of Appeals, 191 S 150  The contract to sell was upgraded to that of a Conditional
Deed of Sale
 Benito Dy entered into a contract of lease with Lao Lim for a o 500,000 Php as downpayment
period of 3 years. When the term expired, Dy refused to  Later on, spouses Catungal requested for payment of
vacate the premises. 5,000,000Php thereby increasing the principal in which
 Lao Lim filed an ejectment case in which it was terminated Rodriguez refused because the same was not stipulated in
through a compromise agreement the contract
o That the term of lease will be renewed every 3 years  He learned that after above-mentioned offer, Catungal sold
o That the rent will automatically increase upon the property to 3rd persons
renewal
 Letter informing Rodriguez that the contract has been  PLDT said:
cancelled and terminated o Obligation is subject to a suspensive condition- when
the employees reach 50 years of age
WAS THE RESCISSION UNILATERAL AND THUS VALID? o Employees are not entitled to benefits because the
conditions have not been fulfilled
SC RULED:
 When the parties entered into the conditional deed of sale, HAVE THE CONDITIONS BEEN FULFILLED?
whereby the spouses Catungal agreed to sell and Rodriguez
agreed to buy the subject lot conditioned on the payment of SC RULED:
the purchase price and was additionally made contingent on  A condition is deemed fulfilled when the obligor voluntarily
the successful negotiation of a road right of way. prevents its fulfillment
 In conditional obligations, the acquisition of rights as well  When PLDT abrogated the pension plan after the war, it
as the extinguishment of those already acquired shall voluntarily prevented the fulfillment of its obligation to
depend upon the happening of the event which constitutes provide pension plans to its employees, thus, whether or not
the condition the employees have reached the age of 50, their rights are
o Condition was to secure a right of way and while reserved for such benefits.
awaiting the results of the negotiations, but the
spouses Catungal exercised bad faith which Valencia vs. RFC, 103 P 444 (digest taken from Pineda book)
contributed to the collapse of the negotiations to  Valencia made a bid for the installation of plumbing
secure such right of way. works in a government building
 Valencia was required to put up the required
4. Effects of Possible or Impossible Conditions: performance bond after his bid was accepted
Luneta Motor vs. Abad, 67 P 32  Valencia neither put up the bond nor begun the
plumbing works
 In the case filed against him, he proffered the defense
5. Constructive Fulfillment of Condition: that since he did not put up the required bond, it follows
PLDT vs Jeturian, 97 P 981 that there was no contract as the condition was not
 Before the war, PLDT adopted a pension plan for its fulfilled
employees: IS VALENCIA LIABLE FOR DAMAGES FOR THE NON-COMPLIANCE
o All employees who have reached the age of 50 years WITH THE CONTRACT?
and have been in service for more than 20 years
may be retired with pension SC RULED:
 After the war, the BOD abrogated the pension plan  Valencia is liable for damages. The putting up of a
 60 employees filed a complaint claiming monetary benefits performance bond is not a condition before he could be
under the pension plan compelled to make the installation. Assuming that the bond
is a condition, it was he who voluntarily prevented its  The construction contract between Rhogen and The Plaza
fulfillment provides for reciprocal obligations whereby the latter’s
obligation to pay the contract price of the progress billing is
Labayan vs. Talisay, 52 P 440 (see Loss of the thing due – Service) conditioned upon simultaneous fulfillment of the other of
its contractual obligation to undertake to complete the
6. Rules in Cases of Improvement, Deterioration, or Loss: works within the stipulated period and in accordance with
the approved plans and specifications of the owner.
7. Power to Rescind in Reciprocal Obligations:  Fulfillment of Rhogen’s obligation comes with it, as
expressly stated in the contract entered into, the obligation
Heirs of Gaite vs. The Plaza Inc, January 26, 2011 to follow pertinent rules and regulations in the construction
 The PLAZA is a corporation engaged in the restaurant of a building. Thus, when it failed to secure a proper and
business and through its President, Reyes, entered into a sufficient permit, it had committed a serious breach in the
contract with Rhogen Builders to construct a restaurant in terms of the contract thus absolves The Plaza from any
Makati payment of the progress billing
 To secure Rhogen’s compliance with the obligation, Gaite
and FGU Insurance executed a surety bond for The Plaza Lalicon vs. NHA, July 13, 2011
 The Plaza paid the downpayment to Gaite and Rhogen  The National Housing Authority executed a Deed of Sale with
commenced the construction of the building Mortgage over a Quezon City lot in favor of the spouses
 Engr. Gonzales informed Gaite that the building permit was Alfaro.
revoked for non-compliance with the provisions of the  A transfer certificate of title was later on issued by the
National Building Code registry of deeds.
 Gaite informed The Plaza that it will be terminating its  The deed of sale in part, provided that
contract based on the stipulations on the Contractor’s Right o Alfaros could sell the land within five years from the
to Stop Work or Terminate Contracts as provided for in the date of release of the mortgage without NHA’s prior
contract and for The Plaza to pay Rhogen for the progress written consent
billing it has sent  Nine years later (mortgage not released yet) Alfaros sold the
 The Plaza claimed no obligation or liability to pay Rhogen lot to their son, Victor who had a common-law wife Cecilia
since Rhogen already failed to comply with its contractual who had the means and paid off the mortgage in order for it
obligation of securing proper permits in the construction of to be released
the buildings  About four and a half years later Victor sold the property to
DID RHOGEN COMMIT A SERIOUS BREACH IN ITS CONTRACT WITH Chua
THE PLAZA?  RTC rendered a decision in the case filed by NHA, and ruled
that Alfaros clearly violated the five-year prohibition but NHA
SC RULED: could no longer rescind since the period for bringing the
action had already prescribed
the change in price from the former ticket which was

DID THE ALFAROS VIOLATE THEIR CONTRACT WITH THE NHA? changed/re-booked for reasons of the spouses want of an
DID NHA’S RIGHT TO RESCIND ALREADY PRESCRIBED? earlier flight schedule, and when the latter could have
ARE THE THIRD PARTY BUYERS, BUYERS IN GOOD FAITH? bought train tickets of cheaper price and when spouses
insist on being reimbursed on the difference between the
SC RULED: old ticket and the new ticket, and when the airline company
 On the violation of the contract with NHA refused and showed them the terms of the ticket which did
o Alfaros were forbidden from selling the property not allow for refunds but insists on being reimbursed on the
within the five-year period prescribed by the NHA. same, both the airline company and the spouses are bound
However, the Alfaros sold the lot to their son when by their respective obligations and thus are equally in
the mortgage was not yet released and thereby default hence none of them can seek judicial redress to pay
committing a substantial breach of the obligation for the difference between the price of the subject tickets and
failure to secure NHA’s consent to selling the lot the amount fixed by CAI
while the mortgage payments were not yet
completed. a. Rescission vs. Resolution:
 On prescription Rivera vs. del Rosario, 419 S 626
o Lalicons claim that under Article 1389 of the Civil  Del Rosario siblings authorized their mother,
Code, the action to claim rescission must be Fidela to sell, lease, mortgage etc. their parcel of
commenced within four years from the time of the land in Bulacan
commission of the cause for it. But the rescission  Subsequently Fidela borrowed 250,000 to
contemplated in this part of the code is not the Mariano Rivera and in order to secure said loan,
rescission contemplated in Article 1291, for the she executed a deed of real estate mortgage and
rescission in 1291 speaks of a breach of faith and an agreement to sell the land
that the applicable prescriptive period is that  Condition: Upon full payment of the 2nd
provided in Article 1144 which is 10 years from the installment, a deed of absolute sale will be
time the right of action accrues. executed
 On third party buyers  Rivera failed to pay the 2nd installment but
o Lalicons as well as Chua are not buyers in good faith, represented himself as the owner of the lot and
for they could have verily saw the mortgage lien negotiated and sold the piece of land to a 3rd
annotated on the Transfer Certificate of Title of the party
lot  Del Rosario files an action for the annulment of
the contract as well as the annulment of the TCTs
Spouses Fernando vs. Continental Airlines, January 16, 2012
 Main Doctrine: When a travel agent misleads its customers IS THIS A RESCISSION CONTEMPLATED IN ARTICLE
into buying tickets from a certain airline without informing 1191?
SC RULED: IS MERE DELAY IN THE FULFILLMENT OF THE OBLIGATION

 This is not a rescission under 1191 since the TO DELIVER A SUFFICIENT GROUND FOR AUTOMATIC
breach contemplated in 1191 is the failure to RESCISSION?
comply with a pre-existing obligation. What is
contemplated in the case at bar is a failure to SC RULED:
fulfill a suspensive condition – one of which did  No, a mere delay in the fulfillment of the obligation to
not give rise to any obligation to deliver the thing deliver does not constitute a serious breach in the
being sold contract to warrant a rescission of the contract,
 It is in the nature of a contract to sell that failure especially if time is not of the essence
to pay is not a breach whether casual or serious  Rescission is not permitted for a slight or casual
but a mere situation which prevents the breach of the contract
obligation of the vendor to convey title from o Slight/Casual v. Serious Breach
acquiring an obligatory force Determined through fundamental
 Applicable provision is Article 1391 – annulment circumstances underlying the nature of the
of void contracts since the contract in question obligation. Question must always be: “What is
was not intended to be signed and the lot in the nature of the obligation?” If the delay
question was not intended to be sold by Fidela. would contravene the very nature of the
obligation, then, it is a serious breach.
b. Restrictions on the Power:
Tan vs. Court of Appeals, 175 S 656 Martin vs. Adil, 130 S 406
 Private respondents owned a house and lot in  Mrs. Marin assigned to the Armadas her share in
Baguio City in which Tan and his agent went on to the testate estate of her deceased mother in
see and agreed to buy the same exchange of Armadas’ land in Cotabato.
 Tan advanced 200,000 for the cancellation of  The exchange would be rescindable when it is
the mortgage and lien attached to the title of the definitely ascertained that the parties have
property respectively NO RIGHT on the properties sought
 They agreed on executing a deed of absolute sale to be exchanged
but the clearance needed from DBP has not yet  Mrs. Marin was found out to have no right on her
been accomplished through DBP’s delay in share since she renounced the same in favor of
processing the same her sister
 Petitioners saw this as a breach on the  Upon knowing that Marin had no right on the
agreement therefore cancelled the sale and property, Armadas filed an action and contended
demanding 200,000 without judicial that the period for bringing the action had not
notice/authority for rescission prescribed because their right to rescind accrued
only when they discovered that Mrs. Marin could  In the case at bar, when the lessor wants to take
not perform her share in the obligation back the property as a consequence of the
 Judge Adil ruled for the rescission and ordered rescission of the contract of lease, he could not
restitution in favor of the Armadas ask for the remaining rental payments for 12
years.
WAS JUDGE ADIL’S DECISION FOR THE RESCISSION VALID?
Ayson-Simon vs. Adamos, 131 S 439
SC RULED:  Adamos and Feria purchased 2 lots from one
 A deed/contract is void when the intention of the parties to Juan in QC
the contract cannot be definitely ascertained  Successors of Juan P. filed for an annulment of
 When it would render the party impossible to perform sale and cancellation of the TCTs
his/her obligation, EXTRAJUDICIAL RESCISSION IS PROPER  During the pendency of the annulment case,
 Rescission was valid Adamos and Feria sold the lots to Generosa
Ayson – who later filed an action for specific
c. Remedies performance due to the failure of Adamos and
Rios vs. Palma 49 P 7 Feria to deliver the titles
 Parties in this case entered into a contract of  The case for the annulment of sale and
lease for 15 years at 400/month. cancellation of TCTs was ruled in favor of the
 The obligation was complied with for only 3 years successors of Juan P. rendering it impossible for
 Lessor now asks that the property be vacated Adamos and Feria to perform their obligation to
and demands the rents for the remaining 12 Generosa
years  Generosa thereafter filed an action for rescission
BUT Adamos contends that she cannot do so
IF THE LESSEE FAILS TO PAY, IS THE LESSOR BOUND since she has already filed an action for specific
BY THE RIGHT FOR BOTH RESCISSION AND SPECIFIC performance
PERFORMANCE? `
CAN GENEROSA AYSON FILE AN ACTION FOR
SC RULED: RESOLUTION WHEN SHE HAS ALREADY FILED AN
 If the lessee fails to pay rent, the lessor has the ACTION FOR SPECIFIC PERFORMANCE?
choice between resolution and specific
performance. The choice of one of which would SC RULED:
mean a bar in choosing the other  The action for rescission may still be filed after the
 In either case, the lessor is entitled to such action for specific performance has become
damages as are appropriate to the remedy impossible to perform
chosen
 Although the general rule is that no one can avail of lessee to comply with the terms and conditions,
both remedies, once specific performance has take over of the possession of the leased
become impossible – rescission follows with award premises AUTOMATICALLY CANCELS THE
for damages CONTRACT OF SUB-LEASE.
d. Automatic Rescission Korea Technologies vs. Lerma 542 S 1

Consing vs. Jamandre 64 S 1  Korean Technologies (Kogies) engaged in the
 The Consings entered into a contract of sublease supply of LPG entered into a contract with Pacific
with the Jamandres with the condition that to General Steel Corporation (PGSMC), a cylinder
continuously enjoy the benefits of the lease, they manufacturer whereby KOGIES would set up a
must comply with the terms stated therein: LPG cylinder manufacturing plant in Cavite
o Pay 1000 piculs of sugar every crop year  Machineries, equipment and facilities for the
and 10% of weekly sugar milled to be manufacturing were sent in the plant. But after
registered in the name of the Jamadres’ the delivery, the initial operation cannot be
father conducted as PGSMC conducted financial
 A complaint for forcible entry was filed by the difficulties affecting the supply of material.
Consings when the Jamandres suddenly took  Checks for payment to KOGIES were fully funded
over the leased land during the period of lease but PGSMC has stopped payment due to the
alteration of the quality and quantity of
WAS THE TAKE-OVER AS A RESULT OF RESCISSION BY THE equipment that KOGIES had delivered.
JAMANDRES VALID WITHOUT JUDICIAL ACTION?  PGSMC informed KOGIES that it would cancel its
contract and dismantle its equipment
SC RULED:
 An express stipulation in the terms of the CAN PGSMC VALIDLY RESCIND THE CONTRACT?
sublease contract was found out by the court:
o If the sub-lessee fails to fulfill the SC RULED:
conditions stated, it would give rise to the  This case introduces lex loci contractus – the law of the
taking over of the property by the sub- place where the contract is perfected. Our laws ought to
lessor govern HOWEVER a provision in the civil code provides that
 An express stipulation in the contract as to cancel any stipulation that the arbitrator’s award or decision shall
the agreement does not need a judicial action to be final is valid
effectuate such termination  The Philippines is a signatory to the United Nations
 The express stipulation in this case is that of a Commission on international Trade Law and have adopted
resolutory condition – that upon such time that their model law in RA 9285. This gives the parties the
the sub-lessor, in cases of failure of the sub- freedom to choose a foreign arbitral body in which the
parties are governed by its laws. HOWEVER our RTC is still  When the parties mutually agreed to a rescission clause in
imbued with the power to judicially review the international their contract, there is no need for a judicial rescission of a
arbitral award on certain conditions provided by the lease contract once the condition has been violated
International Trade Law but only to the extent of an interim  The law on oblicon does not prohibit parties from entering
jurisdiction to protect the rights of parties. (In the case at into an agreement providing that a violation of the terms
bar, PGSMC has the right, while awaiting the decision of the would cause its cancellation without judicial intervention so
International Arbitration body to protect and preserve the long as it is not contrary to law, good customs and good
equipment and machineries in the best way they can, morals.
considering that the LPG plant was non-operational, it has
the right to dismantle its machineries) U.P. vs. delos Angeles, 35 S 102
 UNILATERAL RESCISSION of the contract where there is an  Land grant was awarded to UP to be operated
express stipulation on the arbitral award, is contrary to the and developed for the purpose of raising
Model Law as well as RA 9285 on Arbitration additional income for support
e. Necessity of Judicial Approval:  UP and ALUMCO entered into a logging
Heirs of JBL Reyes vs. CA, 338 S 282 agreement under which ALUMCO was granted
 Justice Jose Benedicto L. Reyes (JBL) and Dr. exclusive authority to cut, collect and remove
Edmundo Reyes are co-owners of a parcel of land timber in consideration of payment to UP of
in Taft Ave. Pasay City. They entered into a lease royalties, forest fees, etc. BUT it had incurred Php
contract with Metro Manila Builders at a very low 219, 362.94 which, despite repeated demands
rate of rental of UP, it had failed to pay.
 Condition: Lessee would cover all present and  UP sent a notice to ALUMCO to rescind, but
future improvements in the property with ALUMCO executed an instrument entitled
insurance against risks and maintain premises in “Acknowledgement of Debt and Proposed
good, sanitary at all times. Manner of Payment” in which it was expressly
 In the course of the lease, petitioners found out stipulated that in the event ALUMCO fails to
that respondent had not properly maintained the comply with any of its promises, UP shall have the
premises or covered it with an adequate power to consider the logging agreement as
insurance policy. WORSE, they have subleased RESCINDED.
the property to 3rd parties.
IS THE UNILATERAL RESCISSION VALID?
CAN THE HEIRS OF JUSTICE JBL REYES VALIDLY RESCIND THE
CONTRACT WITHOUT JUDICIAL ACTION? SC RULED:
 A unilateral rescission is valid is expressly stipulated and
SC RULED: agreed upon by the parties in a contract

 There is nothing in the law that prohibits the parties from SC RULED:
entering into an agreement that violation of the terms of the  There is absent an express stipulation regarding the
contract would cause cancellation thereof even without prohibition on sublease, therefore this cannot be a ground
court intervention. for a violation of the terms of the contract
 Delayed payment of rentals does not constitute a
f. Effects of Slight Breaches: substantial breach of the obligation.
Song Fo vs. Hawaiian Phil, 47 P 821  The case at bar has been MOOT AND ACADEMIC because
 Song-Fo entered into an agreement with under the express terms of the contract itself, the contract
Hawaiian Phil to supply them molasses. has expired almost 5 years ago.
 A letter revealed the quantity of molasses to be
delivered and the date to be delivered. g. Effect of Resolution
 Song-Fo delayed in paying for 20 days Laperal vs. Solid Homes, 460 S 375
IS THE DELAY FOR 20 DAYS A GROUND FOR RESCISSION?

Obligations with a Period: (Articles 1193 – 1198)
SC RULED:
 General rule: rescission will not be permitted for a SLIGHT or 1. Classification, In diem vs. Ex die, Legal, Conventional, Judicial,
CASUAL breach of the contract but only to such breaches PNB vs. Lopez Vito, 52 P 41
which are substantial and fundamental as to defeat the  Defendants Lopez and del Castillo agreed with
object of the parties in an agreement. PNB for a mortgage amounting to 24,000 plus
 The delay in payment for a small quantity of molasses for 8% interest per annum to be paid “on or before
some 20 days IS NOT SUCH A VIOLATION of the essential July 26” 3
condition as would warrant rescission of non-performance.  2 years after, they paid a sum leaving a balance
of 16, 248 at 8% interest per annum payable on
Filoil vs. Mendoza, 150 S 632 or before July 18
 A contract of lease of a 750 sq. meter lot  Spouses failed to pay 6 yearly installments
between Fil-Oil Refinery and Jesus and Severina
Garcia was entered into. DID THE FAILURE TO PAY THE 6 YEARLY INSTALLMENTS RENDER
 FilOil Refinery violated the terms of the contract THE OBLIGATION DUE AND DEMANDABLE?
for it subleased the property to FilOil Marketing
and PetroPhil and delayed in a number of times SC RULED:
in their payment of monthly rentals.  Paragraph 5 of the contract states that:
CAN THERE BE A VALID RESCISSION?

3 “on or before” – means that a deadline is fixed
o If the mortgagors, heirs, executors… at any time SC RULED:

neglect, fail or refuse to comply with all or any of the  Sugar planters cannot be compelled to make up for what
stipulations, the MORTGAGEE (PNB) shall have the they have failed to deliver during the 6 year-period.
right to declare such stipulations and conditions  The stipulation in the contract “shall be deemed
violated and proceed with the foreclosure of the suspended” does not mean that the happening of the
mortgage. unforeseeable/unavoidable event STOPS the running of the
 The period in this case having a resolutory effect4 means period, IT ONLY RELIEVES THE PARTIES OF THEIR
that its fulfillment resolves the period and leaves the RESPECTIVE OBLIGATIONS AT THAT TIME.
creditor at liberty to demand the performance of the  THE PERFORMANCE OF WHAT THE LAW HAS WRITTEN OFF
debtor’s obligation and proceed to the foreclosure of the CANNOT BE DEMANDED AND REQUIRED
mortgage.
 Even though at the time of the demand the 8th annual 2. Benefit of the Period:
installment was not yet due, because of the stipulation, IT Ponce de Leon vs. Syjuco, 90 P 311
HAS BECOME DUE AND DEMANDABLE.  PNB was the owner of 2 parcels of land and
executed a contract to sell with de Leon. De Leon,
Victorias Planters vs. Victorias Milling, 97 P 318 during the course of his amortizations to PNB
Petitioners (sugar planters) and respondents (sugar loaned from Santiago Syjuco in the amount of
central) entered into a milling contract whereby they 200,000 Japanese Military Notes payable within
stipulated a 30year period within which sugar cane 1 year.
produced by sugar planters be milled by sugar central  Ponce de Leon secured a promissory note
 Contract clearly stipulates that in the event of “force providing that he cannot pay and in order to
majeure” the contract shall be deemed suspended secure payment of his load MORTGAGED in favor
during the period of Syjuco the parcels of land from PNB
 Petitioner FAILED to deliver sugar for 4 years of the  Mortgage payments were completed by de Leon
Japanese Occupation and 2 years when the mill is being and the mortgage in favor of syjuco was
rebuilt totaling to 6 years annotated at the back of the TCTs
 Respondent prays that the sugar planters be compelled  Ponce de Leon obtained another loan, but issued
to deliver sugar cane for another 6 years after the another promissory note promising to pay within
expiration of the 30-year period to MAKE-UP for the 1 year within a year from May 5, 1948.
years that the contract was suspended.  On November 15, 1944, Ponce de Leon offered
IS THE CONTENTION OF THE RESPONDENTS VALID? to pay not only the principal sum due but also the
interests up to the maturity date. Syjuco refused
to accept payment and de Leon placed the
money at the disposal of the court
4The obligation created will subsist up to a certain day and terminate
upon the arrival of that day
CAN SYJUCO VALIDLY REFUSE TO ACCEPT PAYMENT BEFORE CANNOT BE CHANGED OR MODIFIED through any
MATURITY DATE? subsequent action
SC RULED: People’s Bank vs. Odom, 64 P 126

 Syjuco can validly refuse to accept payment before the  Odom entered into a contract with Gibbs whereby Gibbs
maturity date for reasons of: (Benefits of a period) authorized Odom to construct 2 concrete buildings at 3
o Creditor may want to keep his money invested safely floors each
o Fixing a period protects the creditor from sudden  Stipulated in the agreement is that Odom is to primarily
declines in the purchasing power of the currency shoulder all expenses of the construction and Gibbs
assigned to Odom all the rents which the building may
3. When Courts May Fix a Period: produce for a certain period (8 years and 3months)
Barretto vs. City of Manila, 7 P 416  In order to bear the expenses, odom secured overdrafts
 Barretto offered to donate his land situated in front of to PNB – attaching as mortgage the properties one by
Malacanang palace on the ff condition: one.
o That no building will be erected and it will be used for  Subsequent overdrafts were made and piled up causing
the beautification of the vicinity PNB to demand that Odom pay the amount of the
 The agreement entered into did not fix a period as to which overdraft or a foreclosure sale of the properties attached
the donee would commence the conditions, therefore, after shall be effected.
18 years, Barretto filed an action reclaiming the land
alleging that the city of Manila has not fulfilled the terms IS THE OBLIGATION OF ODOM TO PNB DUE AND DEMANDABLE
stipulated therefrom. UPON DEMAND OF PNB EVEN WITHOUT A TERM STIPULATED?
 Court fixed the period in question to 30th September 1907,
But days later, the court modified and extended the period. SC RULED:
 Expressly stipulated in the terms of the contracts entered
WHEN COURTS HAVE ALREADY FIXED A PERIOD, CAN IT VALIDLY into by the parties that the agreement shall expire and be
MODIFY SAID PERIOD? due upon demand of plaintiff.
 The obligation being without a term, the demand of the
SC RULED: plaintiff entails that the obligation has become due.
 When the terms of the donation do not fix the time of the
performance of a condition, the proper period will be Gonzales vs. Jose, 66 P 369
determined by the court  Jose executed 2 promissory notes stating that:
 Once the court has fixed the period , such period acquires o I promise to pay Mr. Benito Gonzales the sum of
the nature of the contract, becoming the law governing the 403.55 AS SOON AS POSSIBLE
contract and once it has been agreed upon by the parties, IT o I promise to pay Mr. Benito Gonzales the sum of
373.30 AS SOON AS POSSIBLE
 CFI ordered Jose to pay the sum of his debt from the  Clause 3 of the contract is stipulated as follows:
date of notification but Gonzales flied the action to fix o Mr. Williamson, or whoever may succeed him as
the period on June 1, 1934, more than 10 years in secretary of the club may terminate this lease
which the prescriptive period to fix the period has whenever desired without… THE OWNERS OF THE
elapsed. LAND UNDERTAKE TO MAINTAIN THE CLUB AS
WILL THE ACTION TO FIX THE PERIOD PROSPER? TENANT AS LONG AS THE LATTER SHALL SEE FIT
 Clause 3, although provides a rescission clause, it also
SC RULED: establishes the right to fix the term to the lessee
 Generally, as the promissory notes do not fix a period, it is  Thus, contracts have the force of law between the parties
for the courts to fix the same. and stipulations to the same shall be binding among parties
 But, in the case at bar, the action to ask the court to fix the to it.
period has already prescribed therefore the action to fix the  Generally, if the term of the lease whose termination is at
period will not prosper. the sole will of the lessee, the courts must fix the period
according to the character and conditions of the mutual
Eleizegui vs. Manila Lawn Tennis Club, 2 P 309 undertakings
 Elezegui leased his piece of land to Manila Lawn Tennis  Legal term will not be applied in this case as to the
Club existence of an express stipulation stating a conventional
 The contract thereof stipulates the ff: term at the sole will of the lessee.
o The lease to Mr. Williamson is subject to a lease
“for all time” the members of the club shall see fit Araneta vs. Phil Sugar, 20 SCRA 330
o The owners of the land undertake to maintain the  Gregorio Araneta Inc. and Phil Sugar Estates
club as tenant as long as the latter shall see fit Development entered into a contract of purchase and
without altering in the slightest degree the sale with mortgage.
conditions of the contract, even though the  Buyer will build on the parcel of land Sto. Domingo
estate be sold. Church and Convent while seller will construct streets on
 Elezegui maintaints that the contract of lease was the NE, NW and SW to be name Sto. Domingo Ave.
terminated on Aug. 28 of the recent year and such  Buyer have finished constructing the church, while seller
theory is maintained by Article 1581 which substantially have not fulfilled its part of the contract because of a 3rd
provides that if no conventional term5, the legal term will party physically occupying the middle part and refusing
be applied to vacate the same
SHALL THE LEGAL TERM BE APPLIED?  PSED filed its complaint asking the court to compel GA
to comply with the obligation and to pay damages should
SC RULED: the latter failed to do the same
 Araneta contends that the courts shall fix the period first,
5Term fixed by the parties BUT PSED evidently shown the stipulated agreement:
o A reasonable time within which to comply with its

obligation to construct and complete the streets. MAY THE COURTS FIX THE PERIOD IN THE CASE AT BAR?
SHALL THE COURTS FIX THE PERIOD IN THE CASE AT BAR?
SC RULED:
SC RULED:  By virtue of the law on oblicon indicating when a court may
fix a period, in the case at bar, the court should since it has
 When the courts should not fix the period for performing an ascertained that NO PERIOD was fixed by the parties and
obligation: that they are now tasked to ascertain the period which was
 When the contract expressly stipulates the period in which reasonably contemplated by the parties
the obligation is to be fulfilled, the ONLY duty of the courts is  Where in the contract of sale on credite, no time for
to determine whether the reasonable time has elapsed- if it payment of the obligation was stipulated or fixed by the
has, then the obligor has committed a breach and is bound parties and from the nature and circumstances of the
to fix the damages, it it has not, then the case is obligation it can be inferred that a period was intended, the
PREMATURE. court may fix the period for the payment.
 Court cannot arbitrarily fix the period in thin air:
o Courts must first determine that the obligation does 4. Loss of Benefit of the Period:
not fix a period Gaite vs. Fonacier, 2 SCRA 831
o Ascertain the period probably contemplated by the  Fonacier was an owner of two iron ore mineral claims in
parties which he executed a “Deed of Assignment” with his
 In the case at bar, the period of which all lawyer, Gaite, authorizing the latter to enter into a
squatters on affected areas are finally evicted contract with any individual or juridical person for the
therein exploration and development of the mining claims.
 Gaite executed a General Assignment conveying the
Cosmic Lumber v. Manaois development and exploration to HIS OWN COMPANY –
 Cosmic Lumber Co. and Agapita Manaois entered into a Larap Iron Mines. He has developed, paved roads and
contract of sale on credit in which Cosmic Lumber would extracted 24,000 metric tons of iron
deliver hardware goods to Manaois  Fonacier decided to revoke the authority of Gaite and
 A complaint was filed by Cosmic Lumber in which agreed to exchange the right and possession in
Manaois did not deny the existence of her indebtedness consideration of Php 75,000, 10,000 of which was fully
amounting to 4,147.74 paid upon signing of the agreement.
 But Manaois argues that the court shall fix the period  In order to secure payment Gaite required Fonacier to
because the contract did not stipulate any exact date of secure a bond, with Fonacier as principal and the
fulfillment but recognizes however that from the nature stockholders of Larap Iron Mines as sureties upon the
of the obligation they could not have intended to fix a stipulation that:
period BUT failed to do so
o 65,000 will be paid upon the first shipment and  But upon examination of the facts, and from the fact
local sale of iron ore. that the contract of sale did not impose such obligations
 HOWEVER, Gaite insisted on another bond for which t insure to Song-Fo, because it was Song-Fo’s duty to do
Fonacier obtained from Far Eastern Sureties in which the so, they exercised all means necessary to secure an
deadline was set to Dec. 8, 1955 insurance. BUT, due to the dangerous nature of the
 Come Dec. 8 1955, no sale of iron ore was made and coast of Samar, the marine insurance company have not
bond with Far Eastern Sureties expired and Gaite now released outrightly the insurance policy and made it
filed a complaint for payment and damages. subject to the consent by their foreign partners.
 But while waiting for the insurance policy to be released,
IS FONACIER ENTITLED TO THE BENEFIT OF THE PERIOD? Oria, having the exclusive control of the ship sent the
ship from Manila to Samar – which, evidently the
SC RULED: shipwreck was well beyond Song-Fo’s control
 In a contract of sale, each party anticipates the performance
of the other from the very start. Gaite made sure that HAS ORIA LOST HIS BENEFIT OF THE PERIOD?
Fonacier obtain a bond to secure the payment BUT
FONACIER failed to renew the bond. SC RULED:
 Fonacier’s obligation to pay became due and demandable  Article 1129 par. 3 When by his own acts, he has reduced
after one year from the transfer of ore to Fonacier due to: such security, after giving it, or when it disappears through
o Fonacier had impaired the sureties given which an unforeseen event
expired after a year  Unpaid installments of the purchase price of the launch
o The term of payment was originally no more than a which have not become due and demandable at the time of
year. the loss of the vessel, have become due and demandable
 There is loss in the benefit of the period if the debtor has by virtue of the above-mentioned article on loss of the
impaired the sureties given. benefit of the period.
Del Marcaida v. Phil Education Corporation
Abesamis vs. Woodcraft, 166 SCRA 577
  Case concerns Rosita del Marcaida and Phil Education Corp.
Song Fo vs. Oria, 33 P 3 the former being an employee in the store of the latter
 Song-Fo entered into a contract of sale on credit and  Due to several absences of a number of employees due to
mortgage to Oria of a launch. The launch was sickness, Marcaida was ordered by the assistant Manager
shipwrecked while in Oria’s possession, without having to help in another section of the store
paid the full purchase price.  Marcaida refused a number of times despite being ordered
 Oria contends that Song-Fo had obligated themselves to by the Asst. Manager
insure the launch but they failed to do so, therefore
making Song-Fo responsible for the shipwreck or loss.
 That same day, a MEMO was received by del Marcaida

terminating her due to insubordination and that she is not 1. Concept and Features, Limitations of the Right of Choice:
entitled for separation pay Reyes vs. Martinez, 55 P 492
 Estanislao Reyes and the Martinez heirs executed a
WAS MARCAIDA VALIDLY TERMINATED? IS SHE ENTITLED FOR contract of ownership of: (ALTERNATIVE PRESTATIONS)
SEPARATION PAY? o A parcel of land containing 1,000 trees described
in paragraph 8 of the contract, OR
SC RULED: o 5 parcels of land which contains an equivalent
 Although Section 1 of RA 1052 provides that for number of trees described in paragraph 9 of the
employment without a definite period, neither the employer contract
or employee shall terminate the employment without  Reyes elected the parcel of land described in paragraph
serving notice at least one month in advanced 8 but upon a subsequent litigation among the parties,
 Marcaida herein was dismissed due to her own fault – Reyes was seeking to recover 5 parcels of land to which
insubordination. he did not elect to.
 Jurisprudence, as well as Article 11986 substantially  Furthermore, Reyes is asking for a sum to be awarded to
provides that employer may terminate the employment, him, the value of which is proceeds of the coconut trees
even if it was of a fixed duration through any of the as well as awarding of consequential damages thereof.
instances enumerated in the provision.
 Hence it is impossible that employees who committed a IS REYES RIGHT IN CLAIMING FOR A SUM OF MONEY AND
substantial breach and are not entitled to a fixed duration to DAMAGES?
enjoy greater rights that those employed with a fixed
duration SC RULED:
 From the various steps taken in the prior litigation, Reyes
Alternative and Facultative Obligations: (Articles 1199 – 1206) must have taken to elect the particular parcel of land
described in paragraph 8 and he is now stopped from
6The debtor shall lose every right to make use of the period: asserting a contrary election to another
(1) When after the obligation has been contracted, he becomes  HOWEVER, the title to the parcel of land to which Reyes
insolvent, unless he gives a guaranty or security for the debt elected has not yet been effected to the name of the
(2) When he does not furnish to the creditor the guaranties or Martinez heirs, the court therefore resolves for a reasonable
securities which he has promised period of 2months to process the sufficient deed and until
(3) When by his own acts he has impaired said guaranties or
such deed be processed, the judgment in favor of Martinez
securities after their establishment and when through a
fortuitous event they disappear, unless he immediately gives will be temporarily enjoined
new ones equally satisfactory  Once an election is made, it is binding among the parties to
(4) When the debtor violates any undertaking, in consideration of the contract, and the person who elected WILL NOT BE
which the creditor agreed with the period PERMITTED TO RENOUNCE HIS CHOICE AND TAKE AN
(5) When the debtor attempts to abscond
ALTERNATIVE WHICH WAS AT FIRST OPENED TO HIM UPON  Notice is the purpose of the law – Article 12007, Article
ENTERING INTO AN AGREEMENT. 12018
Legarda v. Mialhe
2. Purpose of Choice:  The indebtedness in question in this case was granted to
Ong Guan Chan vs. Century Insurance, 46 P 592 Clara Tambunting de Legarda with the obligation to pay it
 A building of Ong Guan Chan was insured against fire by within 5 years.
Century Insurance Co.  The 5 year period has been extended from time to time with
 The house and merchandise insured were burnt early reduction of interest made by the late Burke (original
morning in February creditor)
 Century Insurance insists that the prestation it has  Mialhe (heir of Burke) was given the option to demand
elected was to rebuild the house payment either in Philippine currency or English currency –
 But in rebuilding the house, as stipulated in the terms of however, English currency at that time was outlawed
the contract, it will be smaller but to the mind of Century therefore has become legally impossible
Insurance, it would be sufficient indemnity to the insured  It appeared that the only valid option was to pay Japanese
for the actual loss suffered notes however Mialhe refused to accept the Japanese notes
2 days before the consignation because of fear that he will
IS THE ELECTION EFFECTED BY CENTURY INSURANCE (A DEBTOR) be reported to the Japanese forces
VALID EVEN WITHOUT NOTICE TO ONG GUAN CHAN (CREDITOR)?  CONSIGNATION may have been the only way to extinguish
the obligation but it would not have any legal effect because
SC RULED: it Japanese Military Notes do not have the effect of a valid
 Before an election of the debtor shall be effected, it shall legal tender
give notice to the creditor.
 In the case at bar, Ong Guan Chan did not agree with the WHAT HAPPENS IF THE UNDERTAKING IS IMPOSSIBLE/ILLEGAL?
elected prestation for the reason that the new house will be
smaller and the materials will be of lower kind SC RULED:
 Election without notice of the debtor to the creditor will be  In alternative obligations, there is no right to choose
UNEQUITABLE and UNJUST undertakings which are impossible or illegal.
 Further perusal of this case revealed that this was an
ERRONEOUS DECISION in that the law does not require that 7The right of choice belongs to the debtor, unless it has been
the party conforms with the prestation IT ONLY PROVIDES expressly granted to the creditor.
FOR NOTICE! 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
8The choice shall produce no effect except from the time that it is
communicated
 In the case at bar, the alternative obligation to pay in  Bearing in mind that Rogero, though acting as surety for
English currency which fell due on 1943 became impossible Dayadante, was bound jointly and severally with Dayadante
of performance. in the obligation because when a surety bound himself
 Therefore, the alternative obligation has ceased to exist. jointly with the debtor he will be compelled to pay a creditor
3. Difference between Alternative and Facultative Obligations:  The relationship is that of a joint solidary obligation by the
very reason of the choice of words in the private instrument
Joint and Solidary Obligations: (Articles 1207 – 1222, 1822-1823; executed which has the force of law between the parties
2088, 2137, 2226 of the New Civil Code, Articles 94 and 121 of
the Family Code) Borromeo vs. Court of Appeals, 47 S 65
 Jose Villamor is a friend and former classmate of Borromeo.
1. Comparative Jurisprudence: Villamor was then faced with a need to settle a pressing
Jaucian vs. Querol, 38 P 707 obligation with Miller (owner of the Lumber Company)
 Dayadante and Rogero executed in a private writing in  In a promissory note executed by Villamor, he promised to pay
which they acknowledged themselves as being indebted Borromeo “AS SOON AS I HAVE MONEY” and further stipulates
to Roman Jaucian in a sum of 13, 332.33 bearing an that he waives his rights to the prescription established in the
interest rate of 10% per annum. Civil Procedure and that Borromeo can collect or recover even
 The private writing revealed: after the lapse of ten years
o We jointly and severally acknowledge our  Borromeo has repeated ORAL DEMANDS but Villamor failed to
indebtedness settle his obligation
 But Rogero signed this document in his capacity as  The CFI rendered a judgment sentencing Villamor to pay his
surety for Dayadante indebtedness with in 90 days but CA reversed, the legal basis of
 Jaucian, as answer to the action of Rogero for the court which was the lack of validity of the stipulation amounting to a
to declare the private instrument void, asked for waiver, that a person CANNOT RENOUNCE FUTURE
judgement against Rogero for the amount due from the PRESCRIPTION
obligation.
 Jaucian continued instituting the demand for the HAS BORROMEO RENOUNCED HIS RIGHT TO FUTURE
obligation because Dayadante became insolvent but PRESCRIPTION?
Querol (heir of Rogero) contends that their relationship is
that of a principal debtor-surety and that it should be the SC RULED:
court’s action to exhaust first all the property of  Borromeo was not renouncing any right for he was just
Dayadante being considerate.
IS ROGERO/QUEROL LIABLE AS A SURETY? OR AS A SOLIDARY  Between two possible interpretations, that which saves
DEBTOR? rather than destroys shall be preferred.
SC RULED:
 In interpreting contracts, what matters is the ascertainment Ronquillo vs. Court of Appeals, 132 S 274
of the intent of the parties  The compromise agreement entered into by the parties
are worded as follows:
 PNB vs. Sta Maria, 29 S 303 o Plaintiff agrees to reduce its claim of 117,
 A special power of attorney was executed in favor of Maximo 498.95 to only 110,000 and defendants agrees
Sta. Maria to mortgage a 16-odd hectare parcel of land jointly to acknowledge the validity of such claim and
owned by all of them further bind themselves to initially pay out their
 That the siblings hereby authorize their brother Maximo to total indebtedness…defendants individually and
mortgage or convey as security their parcel of land to any bank, jointly agree to pay within a period of six months
company, or natural or juridical person their undivided shares  Defendants failed to make the initial payment 55,000.
with the improvements therein. One of the co-debtors offered to pay 13,750, his pro-rata
 ON THE OTHER HAND, Valeriana Sta. Maria executed a SPA to share on the liability but the creditor refused to accept it
borrow money and mortgage any real estate owned by her and contending that the obligation is one of a solidary
granting such authority to her brother, Maximo obligation
 Maximo applied for a separate crop loan and as security for the  Debtors contend that the liability was not expressly
loans he executed a chattel mortgage on the standing crops declared as solidary thus each debtor is obliged to pay
guaranteed by the surety bonds onlyhis pro-rata share of ¼ of the amount due and
payable.
 PNB demanded that the sibling be jointly and severally liable to
pay the sum of the loans
WHAT IS THE NATURE OF THE LIABILITY OF THE DEBTOR IN THE
CASE AT BAR?
ARE THE SIBLINGS JOINTLY AND SEVERALLY BOUND TO PAY THE
SUM OF THE LOANS?
SC RULED:
SC RULED:  From the words of the compromise agreement itself, it
evidently stated individually or jointly which, through
 Siblings, except for Valeriana cannot be held liable for the
statutory construction “plain meaning rule” would mean,
unpaid balance since what they executed was only an
COLLECTIVELY, SEPARATELY, DISTINCTIVELY,
authority to mortgage their undivided shares as security and
RESPECTIVELY, OR SEVERALLY
not to make any personal loan of which the siblings did not
benefit on  Undoubtedly, it creates a several obligation – as individual
binds himself to perform the whole obligation
 Valeriana, omn the other hand, is to be held jointly and
solidarily liable for the obligation, there being no express
stipulation to the contrary by virtue of Art. 12079
former has a right to demand, or that each one of the latter is bound
to render, entire compliance with the prestations. There is solidary
9 The concurrence of two or more creditors or of two or more debtors liability only when the obligation expressly so declares or when the
in one and the same obligation does not imply that each one of the law or the nature of the obligation requires solidarity
Marsman vs. Philippine Geoanalytics, June 29,2010  Thus the obligation between Drysdale and Gotesco
 Marsman Drysdale and Gotesco Properties entered into with respect to PI is joint notwithstanding the JVA
a Joint Venture agreement for the construction and which is only binding among them.
development of an office building on a land owned by
Drysdale in Makati 2. Joint Divisible Obligations:
 In the agreement, a 50-50 investment share was agreed Agoncillo vs. Javier, 38 P 424
upon in which Drysdale is to contribute the property and  The Alano’s executed in favor of Marino a document in
Gotesco is to contribute the monetary investment of which they promise to pay Marino within one year from
420,000,000 in cash fen 1904 the sum of 2, 730.50
 A technical services contract was entered into by  In order to secure the payjment they will mortgage to
Marsman with Philippine GeoAnalytics Inc. to provide Marino the house and lot bequeathed to them by
subsurface soil exploration. PGI was only able to drill 4 Anastacio Cruz AND in case of insolvency on their part,
out of 5 holes due to the failure on the part of the joint they will transfer ownership of said house to Marino –
venture to clear the area where the drilling has to be and if the appraisal of the property be lower tthan the
made. amount of indebtedness, it will be deducted from the
 PGI billed the JV and despite repeated demands the JV amount and they will be liable to pay the difference
failed to pay its obligations  No part of the sum due was paid, except the 200 paid by
 Marsman Drysdale passed the responsibility to Gotesco Anastacio Alano who died intestate
which, under the JVA is solidarily liable for all money  Marino made a demand upon the Alanos but the Alanos
claims requested for an extension in which was granted
 Trial court ruled in favor of the plaintiffs (creditors)
IS THE JV SOLIDARILY LIABLE TO PHIL GEO-ANALYTICS?
SC Ruled: On Alternative Obligations
SC RULED:  The obligations by the debtors are alternative , and
 Court finds Marsman Drysdale and Gotesco jointly they had the right to elect which they would perform
liable to PGI.  CONDUCT of parties show that it was not their
 A technical services contract clearly listed Marsman understanding that the right to discharge the
Drysdale and Gotesco as beneficial owners of the obligations by payment of money is lost to the debtors
project by their failure to pay at naturity
 Article 1208 – If from the law or the nature of the  BECAUSE Marino accepted a partial payment several
obligation to which the preceding article refers the years after the debt natured.
contrary does not appear, the credit or debt shall be  CLEAR that even the parties themselves recognized
presumed to be divided into as many equal shares the conveyance of house and lot as subsidiary and
as there are creditors and debtors conditional, being dependent upon their failure to pay
the debt in money.
 ACTION to recover debt has prescribed, the obligation

being merely a JOINT obligation, when PARTIAL Inchausti vs. Yulo, 34 P 978
PAYMENT is accepted by the creditor, it won’t stop the
running of the prescriptive period.
 THUS even though written and verbal demands have Divisible and Indivisible Obligations: (Articles 1223 – 1225)
been instituted by creditors, it was well settled in Juris
procedure that extra ----- demand is not sufficient 1. Indivisibility of Obligation vs. Indivisible Thing:
 RULED IN FAVOR OF ALANOS 2. Test of Indivisibility:
3. Indivisibility vs. Solidarity, Passive vs. Active Solidarity: Obligations with a Penal Clause: (Articles 1226 – 1230)
4. Consequences of Solidarity: 1. Concept and Purpose of Penal Clause:

Banco Filipino v. Ybanez, GR. 148163
Quiombing vs. Court of Appeals, 189 S 325  In 1978, Ybanez obtained a loan from Banco Filipino
 A construction and service agreement was entered into Savings Bank secured by a Deed of Real Estate
by Quiombong and Biscocho and the Saligos in which Mortgage in favor of the bank
the creditors jointly and severally bound themselves to  Ybanez, on the same year, obtained an additional loan
construct a house for the Saligos in consideration of a increasing their obligation to 1 million pesos
137,440 purchase price  In 1982, the loan agreement was restructured
 A second instrument was executed under which Saligo increasing the loan obligation to 1,225,000 and the Real
acknowledged the completion of the house and Estate Mortgage was again amended. The amended
undertook to pay the balance in the manner prescribed loan agreement is now as follows:
by the agreement o Sum of 1,225,000 payable in 15 years, with a
 The Saligos failed to pay the amount due to them thus stipulated interest of 21% per annum…In case of
Quiombong filed a complaint for recovery plus damages default of payment of any of the monthly
and interest amortizations, a 3% penalty shall be due each
month.
 Saligos moved to dismiss the complaint on the ground
that Quiombong should not act by himself alone and that  Ybanez did not pay a single centavo from 1989 onwards
Biscocho should be made co-plaintiff thus, they were served with a notice of Extra-Judicial sale
 Both the RTC and CA ruled that the interest shall be
reduced to 17% per annum and that the surcharge be
Imperial Insurance vs. David, 133 S 317 reduced from 3% to 2% per month
 Both parties appealed to the decision
5. Defenses IS THE 3% SURCHARGE VALID AS PENALTY?

IS THE 21% ANNUAL INTEREST NOT USURIUS AND VIOLATIVE OF  SSS, in 1990, contends that a penalty shall be claimed
THE ANTI-USURY LAW? from Moonwalk for several delays in its payment of its
obligation
SC RULED: WAS THE OBLIGATION OF MOONWALK TO SSS ALREADY
 The court agreed that the 21% interest is not violative of EXTINGUISHED?
the Usury Law noting that at the time the parties entered IF SO, IS SSS RIGHT IN CLAIMING FOR PENALTY?
into the said loan agreement, the pertinent law already
provided that the rate of interest secured by a mortgage SC RULED:
shall not exceed 12% per annum or the maximum rate  The obligation has clearly been extinguished in this case.
prescribed by the Monetary Board and in force at the time  The claim of SSS for penalty when the obligation has been
the loan was granted. CBP circular provided that: on loan extinguished is of no merit:
transaction with maturities of more than 730 days, the o A penal clause is an accessory obligation which is
effective rate of interest is 21% for both secured and attached to the principal obligation for the purpose of
unsecured loans. insuring performance in case the obligation is not
 A penal clause is an accessory undertaking to assume fulfilled or is irregularly or inadequately fulfilled
greater liability of breach and is attached to an obligation in o A penal clause is dependent in its existence: It
order to secure its performance. If such stipulation is found comes with the principal obligation. IF THERE IS NO
out to be usurious it can be nullified by the courts without PRINCIPAL OBLIGATION, THERE WILL BE NO PENAL
affecting the principal obligation. CLAUSE. (In the case at bar, SSS cannot validly claim
 If the surcharge of 3% is to be levied on the total for penalty when the obligation has already been
amortizations, the total interest and other charges will extinguished there being no principal obligation to
exceed the prescribed 21% ceiling. Thus, the 3% surcharge begin with)
is void for being usurious/excessive. o When is penalty demandable?
SSS vs. Moonwalk, 221 S 119  A penalty may arise when there is a breach of
 Moonwalk obtained an interim loan from SSS for the the obligation, or
construction and development of a housing project in  There is non-fulfillment at a certain point in
Rizal and Cavite in 1971 time or delay10
 Out of the approved loan of 30,000,000 Php, 9,595,000  In the case at bar, although it could be
was paid out in 1973 pointed out that Moonwalk had paid late
 The loan was increased in 1974 and Moonwalk
executed a promissory note for 12,254,700 10 In order that the debtor may be in default it is necessary that the
 During that same year, Moonwalk made payments which following requisites be present:
caused SSS to issue a Release of Mortgage for (1) Obligation be due and demandable and already liquidated
Moonwalk indicating a release of Moonwalk from its (2) Debtor incurs in delay
(3) Creditor requires performance judicially and extra judicially
obligations to SSS
amortizations, the fact that there was no IS THE REFUSAL OF CARIDAD ESTATES ON ACCOUNT OF THE
demand made by the creditor, there was FAILURE OF SANTERO TO PAY THE TOTAL BALANCE ON THE DAY IT
technically no delay on the part of Moonwalk HAS BECOME DUE VALID NOTWITHSTANDING THE PAYMENTS
at all.11 ALREADY MADE BY SANTERO?
Caridad Estate vs. Santero, 71 P 114 SC RULED:

 Caridad Estates leased to Pablo Santero its cadastral  The stipulations in the contract, in the form of a penal
lots for 2,200Php. About three months after, the lessor clause in which upon failure to pay the total payments by
sold the same to Santero the lots in consideration of the time it has become due, all the payments made shall be
30,000Php payable in installments. forfeited is valid and not unconscionable.
 Stipulated in the contract:  The person to whom the property is forfeited is the real and
o Should the vendee fail to make the payments equitable owner of the property because the title will not
agreed upon within 60 days of the date they fall pass until the payment of the last installment. In the case at
due, the total balance shall become due and bar, full ownership has not been vested to the lessee-
payable and recoverable by any action at law, or vendee because of failure to pay the last installment, thus,
the vendor may recover possession of the the payments made has been considered “rental payments”
property and consider any and all the sums paid for the time the lessee-vendee benefitted from the property.
by the vendee forfeited.  Provisions are not unjust and does not make the vendee
 The last installment was offered by Santero to Caridad unduly rich at his cost and expense
Estates but the latter refused on the reason that a
contract of sale to a third party has already been 2. Exception to the Purpose of Penal Clause:
executed due to the failure of Santero to pay the total Bachrach vs. Espiritu, 52 P 346
balance on the day it has become due and payable.  Faustino Espiritu purchased from Bachrach a two-ton
White truck for 11,983.50Php paying a 1,000
downpayment obligating himself to pay 10,983.50Php
within the periods agreed upon
11 Article 1169 – Those obliged to deliver or to do something incur in  Espiritu failed to pay the remaining purchase price
delay from the time the oblige judicially or extrajudicially demands secured by mortgaging his three other trucks which were
from them the fulfillment of their obligation also purchased and paid in full from plaintiff corporation
(1) When the obligation or the law expressly so declares  It was agreed that:
(2) When from the nature and the circumstances of the obligation o A 12 percent interest would be paid upon the
it appears that the designation of the time when the thing to unpaid portion of the price at the execution of the
be delivered is to be rendered as a controlling motive for the contracts and in case of non-payment of the total
establishment of the contract debt upon its maturity, 25% thereon as penalty
(3) When the demand would be useless, as when the obligor has
rendered it beyond his power to perform
IS THE 25% PENALTY USURIOUS? o Should defendant fail to complete payment

within a period of 60 days, he would pay an
SC RULED: additional amount of 200Php as liquidated
 It is contended that the 25% penalty upon the debt in damages.
addition to the interest of 12% per annum makes the  Defendant failed to pay the balance of 1,000Php and
contract usurious refused, upon repeated demands, to comply with his
 Article 122612 (1152 in the Old Civil Code) permits the obligations, thus Cabarroguis filed an action for the
agreement upon a penalty apart from the interest. Should collection of the sum of money.
there be such an agreement, the penalty does not include  The municipal trial court as well as the Court of Appeals
the interest and as such the two are different and distinct ruled in favor of Cabarroguis and sentenced defendant
things which may be demanded separately. herein for payment of interests apart from the penalty
 But considering that the obligation was partially performed, thereof
and by virtue of Article 122913 the penalty is hereby reduced
to 10% of the unpaid debt. IS THE AWARDING OF INTERESTS APART FROM THE PENALTY
VALID?
Cabarroguis vs. Vicente, 107 P 340
 Antonia Cabarroguis sustained physical injuries as a SC RULED:
result of an accident when the AC Jeepney hit another  |In obligations with a penal clause, the penalty shall
vehicle at a street corner in Davao City. substitute the indemnity of damages and payment of
 To avoid court litigation, the owner and operation of the interests. However, there are exceptions to this rule:
AC jeepney entered into a compromise agreement with o When the contrary is stipulated – in the case at bar,
Cabarroguis obligating himself to pay her a sum of no stipulation to the contrary was made
2,500Php as actual and compensatory damages with o When the debtor refuses to pay the penalty imposed
the following stipulation: in the obligation, in which case the creditor entitled
to the interest on the amount of the penalty – In the
12In obligations with a penal clause, the penalty shall substitute the
case at bar, the defendant refused to pay when
indemnity for damages and the payment of interests in case of non demand was made by the plaintiff, therefore, plaintiff
compliance if there is no stipulation to the contrary. Nevertheless, the is clearly entitled to interest ON THE AMOUNT OF
damages shall be paid if the obligor refuses to pay or is guilty of fraud PENALTY.
in the fulfillment of the obligation. o When the obligor is guilty of fraud – in the case at
bar, the obligor was not guilty of fraud
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code 3. Reduction of Penalty:
13 The judge shall equitable reduce the penalty when the principal Jison vs. Court of Appeals, 164 S 339
obligation has been partly or irregularly complied with by the debtor.  Newton and Salvacion Jison, entered into a contract to sell
Even if there has been no performance, the penalty may also be with Robert O. Phillips and Sons Inc whereby the latter
reduced by the courts if it is iniquitous or unconscionable.
agreed to sell to the former a lot at the Victoria Valley failure to construct a house as required by the contract is
Subdivision in Antipolo, Rizal for the agreed price of clearly iniquitous as the contract price was only 55,000PHP.
55,000Php with interest at 8% per annum installment basis. A forfeiture of 50% of the amount already paid could have
 Jison paid 11,000Php as downpayment and has been been a fair settlement
religiously paying the monthly installments except for the
months of January, February and March and subsequently Umali vs. Miclat, 105 P 1007
on October, November, December and January of the next  This case is an action for recovery of sums of money for
year. some work done by Miclat for Umali.
 The private respondents in this case, as a result of the  The contracts reveal that Miclat prepared posters, a
several defaults in payments, sent a letter reminding Jison theatre board display, a theatre display standee, a float
of the automatic rescission clause in the contract and other forms of advertisement for the showing of the
 In April of 1967, petitioner tendered payment but private film LAGRIMAS.
respondents refused to accept contending that the contract  Umali agreed to pay a sum of money in which 225Php
has already been rescinded. was paid in advance but after several demands on the
 It shall be noted that the total payments in this case of Jison remaining balance, Umali refused to pay without
has amounted to 47,312.64Php and with the rescission justification
clause comes a penalty clause of forfeiture of said  The trial court rendered a decision in which Umali is to
payments upon default in payment. pay the remaining 675Php plus the 10% surcharfge as
stipulated in the contracts and that the sum of 675Php
WAS THE RESCISSION VALID? and 344.50Php(for the second claim) shall bear 6%
IS THE FORFEITURE OF 47, 312.64PHP OUT OF THE 55,000PHP interest per annum from the date of filing of the
PURCHASE PRICE VALID? complaint.
 Umali set up as defense that he was not acting in his
SC RULED: personal capacity and that Maharlika Pictures – in which
 Although RA 655214 provides for a notarial notice for he is the President and General Manager shall be liable
rescission even before the automatic rescission clause be for the balance.
effected, the same was not operative in the year the  Likewise the penalty clause in the trial court’s decision
agreement was entered into. Thus, a letter reminding the which states as follows was assailed to be
petitioner of the automatic rescission clause would suffice unconscionable
and render the automatic rescission valid. o If appellant should fail to pay the balance of
 However, the forfeiture of the amount of 47,312.64PHP 675Php after the lapse of 30 days, he should pay
although it includes the accumulated fines for petitioner’s a surcharge of 10% every 30days thereafter until
the same has been fully paid
o Sum of 675 and 344.50 shall bear 6% interest
14RA 6552 – An Act to Provide Protection to Buyers of Real Estate on per annum from the date of the complaint
Installment Payments, September 14, 1972
IS THE TRIAL COURT’S DECISION MERITORIOUS?  Rafael Campos entered into a contract with the Manila
IS THE 10% SURCHARGE EVERY 30 DAYS UNTIL THE SUM HAS Jockey Club whereby he purchased from it a parcel of
BEEN FULLY PAID A VALID PENAL CLAUSE? land with its improvements, good will and certain
IS THE 6% INTEREST PER ANNUM FROM THE DATE OF FILING OF personal property.
THE COMPLAINT UNCONSCIONABLE?  The price agreed upon is 1,200,000Php payable in
S installments on or before March 24, 1937.
SC RULED: o It was agreed upon that should the purchaser fail
 The contention of Umali that he did not act in his personal to pay the amount corresponding to each
capacity is without merit for there was nothing in the installment in due time, the vendor may rescind
contracts that states explicity the same. the contract and keep the amounts paid for itself.
 The surcharge partakes the nature of a penal clause which,  One of the clauses of the deed also states that:
in the case at bar is unreasonable for Umali shall have to o The purchaser may form a corporation called the
pay 67.50 a month or 810 a year which, considering the Manila Racing Club Inc. to whom he may transfer
time that Umali has already defaulted, would amount to all his rights and obligations under the contract.
3420Php. Penalty shall be reduced accordingly for equity
demands that the penalty be reduced in favor of the debtor.  Manila Racing Club Inc was formed and paid a total of
Thus, a penalty of 20%per annum would be reasonable. 100,000 as preliminary payment and second
 The claim of Umali that the 6% interest per annum is installment to Manila Jockey Club.
unconscionable is untenable. For Article 1226 provides that  The third installment of 300,000Php was defaulted by
in obligations with a penal clause, the penalty shall Manila Racing Club Inc. Manila Jockey Club moved for
substitute the indemnity for damages and the payment of the rescission of the contract but later on agreed to
interests in case of non-compliance, if there is no stipulation grant an extension of payment in which Manila Racing
to the contrary. Nevertheless, damages shall be paid if the Club Inc. still failed to comply with.
obligor refuses to pay the penalty. In other words the penalty  Thus this action for the rescission of the contract and
takes place of the interest only if there is no stipulation to the forfeiture of the amount of 100,000Php
the contrary and even then, damages may still be collected
if the obligor refuses to pay the penalty. IS THE FORFEITURE OF WHAT HAS BEEN PARTIALLY PAID VALID?
 In the case at bar, not only is there an express stipulation to
pay damages in addition to the penalty, but appellant has SC RULED:
failed to pay his obligation as well as the penalty. Therefore,  The forfeiture of what has been partially paid is valid. It is in
the imposition of the 6% interest in thus justified. the nature of a penal clause.
 A penal clause has a double purpose:
4. Proof of Actual Damages: o Insuring compliance with the contract
Manila Racing Club v. Manila Jockey Club, 69 P 55 o Measuring beforehand the damages which may
result from non-compliance
 The amount to be forfeited in the case at bar constitutes o This interest stipulation does not appear excessive.
only 8% of the stipulated price, thus, it would not have been The essence of paying interest is not exactly the
excessive as opposed to the case of Jison v. CA where same as that of a surcharge or a penalty. A penalty
47,312.64Php has already been paid out of the 55,000 stipulation is not necessarily preclusive of interest, if
purchase price and forfeiture of the same would be there is an agreement to that effect, the two being
unconscionable and iniquitous. distinct concepts which may separately be
 The penal clause does away with the duty to prove the demanded. Interests prescribed in loan financing
existence and measure of the damages caused by the arrangements is a fundamental part of the banking
breach. industry and the core of a bank’s existence. Thus,
Ligutan v. CA, 376 S 560 this interest stipulation is valid.
 Tolomeo Ligutan and Leonidas dela Llana obtained a  On the 3% penalty
loan the amount of 120,000Php from respondent o This penalty has already been reduced through good
Security Bank and Trust Company. judgment of the court of appeals despite the
 Petitioners executed a promissory note binding continuous breach of the petitioners. This penalty is
themselves jointly and severally: valid
o To pay the sum borrowed with an interest of  When can the courts reduce penalty?
15.189% per annum and to pay a penalty of 5% o When the interest/penalty is iniquitous or
every month on the outstanding principal and unconscionable
interest in case of default. o If the principal obligation has been partly or
 Despite several demands from the bank and the irregularly complied with
extension for payment of the sum due, petitioners failed  What are the functions of a penalty clause?
to settle the debt, thus an action for the recovery of the o Strengthen the coercive force of the obligation
amount due. o Provide for the liquidated damages resulting from the
 Trial court rendered a decision requiring the petitioners breach
to pay the balance, plus 15.189% interest thereon, a 2%  How can we tell whether a penalty is reasonable or
service charge (which was omitted pursuant to a Central iniquitous? (would depend on the ff factors but not limited
Bank Circular) and 5% per month of penalty charge to)
 Court of appeals on the other hand rendered a decision o Type, extent and purpose of the penalty
reducing the 5% penalty to 3% o Nature of the obligation
o Mode of breach and its consequences
IS THE 15.189% INTEREST AS WELL AS THE 3% PENALTY o Supervening realities
UNCONSCIONABLE AND SHOULD BE REDUCED BY THE COURTS? o Standing and relationship of the parties
SC RULED: Lambert vs. Fox, 26 P 558

 On the 15.189% interest
 John R. Edgar & Co. in 1911 found itself in such the only duty of the court is to apply the law. Interpretation
condition financially that its creditors agreed to take over and Construction shall be its last resort.
the business with Lambert and Fox being the two highest  In this jurisdiction, penalties provided in the contracts are
stockholders of the company who engaged in the ff enforced. Parties are allowed to make such stipulations as
agreement: long as the same are not contrary to law, public policy, good
o The undersigned are respectively the owners of morals, etc.
John R. Edgar &Co.  The only case recognized by the Civil Code in which the
o The undersigned mutually and reciprocally agree courts are to intervene is when the principal obligation has
not to sell, transfer or otherwise dispose of any been partly complied with or when the penalty is iniquitous
part of their present holdings of stock till after 1 or unconscionable.
years from the date hereof  One of the functions of a penalty clause is to do away with
o Either party violating the agreement shall pay to the proof of damages therefore not being able to prove
the other the sum of 1,000Php as liquidated damages would not preclude a party from enforcing the
damages, unless previous consent in writing to penalty clause to a contract
such sale, transfer, or other disposition be  In the case at bar, the penalty is neither unconscionable nor
obtained the principal obligation partly complied with, therefore the
 Notwithstanding the contract, defendant Fox sold his only duty of the courts is to apply the stipulations in the
stock to their competitor corporation contract.
 Trial court rendered a decision in favor of Fox and ruled
that the intention of the parties to the contract was to 5. Penal Clause v. Liquidated Damages
the effect that the agreement shall be good and Pamintuan v. CA, 94 S 556
continue only until the corporation reached a sound 
financial basis.
 Fox contends that Lambert cannot claim for the reason EXTINGUISHMENT OF OBLIGATIONS
that the latter was not able to prove damages.
Payment or Performance: (Articles 1232 – 1261, Rule 57 of the
WAS THE DECISION OF THE TRIAL COURT MERITORIOUS? Rules of Civil Procedure, R.A. 529 Uniform Currency Act, Insolvency
IS FOX’S CONTENTION THAT LAMBERT CANNOT CLAIM FOR THE Law)
REASON THAT THE LATTER WAS NOT ABLE TO PROVE DAMAGES
VALID? 1. Substantial Performance in Good Faith:
Angeles vs. Calasanz, 135 S 323
SC RULED:  The Principal obligation under the contract is 3920Php plus
 The trial court erred in interpreting and construing the 7%interest per annum
contract without applying the clear and unequivocal terms of  A contract to sell was entered into by Calasanz and Angeles
the same. When the language is plain and terms are clear, of a piece of land
Angeles made a downpayment of 392Php and promised to  Angeles can only be ordered to pay the remaining
pay the balance in monthly installments installment and Calasanz is ordered to execute the final
 Aggregate payment had already amounted to 4,533.38Php deed of sale upon full payment of the purchase price
 On numerous occasions Calasanz have received late
payments from Angeles Pagsibingan vs. Court of Appeals, 221 S 202
 Calasanz cancelled to contract because of failure of Angeles  Pagsibingan obtained 2 agricultural loans from Planters
to effect subsequent installment payments Development Bank
 But upon perusal of Angeles together with the CFI of Rizal of  As security for his loan, he executed a mortgage of his
all the subsequent payments made, they found out that land in favor of the bank
4,533Php including interests have already been paid  Initial payment is to be made in May followed by
 Thus, Angeles contend that the rescission be held invalid installments every six months
WAS THE CONTRACT VALIDLY CANCELLED?  An acceleration clause was crafted in which 19% interest
will be levied on the installments for every late paymenst
SC RULED:  Pagsibingan delayed initial payment and other several
payments. Only 4 payments were made in time and
 On Unilateral Cancellation those were the only payments that were credited in his
o Unilateral cancellation is unwarranted if there is only loan amount
a slight or casual breach on the fulfillment of the  The property was extra-judicially foreclosed and a
obligation statement of account revealing a total amount of debt of
o Apart from the initial downpayment of 392Php, 29, 553 less 8,163 (value of the property)
Calasanz received and accepted the aggregate  Pagsibingan contends that the foreclosure and auction
amount of 4,533.38Php. Angeles have paid the sale was invalid and that he is entitled to damages
monthly installments for 9 years and full payment will WAS THE EXTRAJUDICIAL SALE VALID?
be made in such a short time, thus not amounting to
a substantial breach thereof.15 SC RULED:
 On Estoppel  For more than 4 years, the bank has led Pagsibingan to
o Although Angeles was already in arrears in the believe that his installment payments have partially
payment of the installment, Calasanz have accepted extinguished his obligations NOTWITHSTANDING the
the late payments and thereby constituting a waiver acceptance and issuance of receipt of PDB thereof
of Calasanz right for remission.
15Article 1234 – if the obligation has been substantially performed in

good faith, the oblige may recover as though there had been a strict
and complete fulfillment, less damages by the oblige

 The bank is bound by estoppel16 and has no right to rescind,  Thus good faith has been exercised causing SC to rule in
and further foreclose the property and claim an favor of the Javiers and ordered an extension of the period
astronomical amount of 29,554Php on the sale of immovable property
 In fact, it was the bank who acted in bad faith, thereby being
liable for: 2. Completeness by Estoppel:
o Moral damages – because of the mental anguish Campbell v. Behn Meyer and Co.
caused to petitioners  Campbell and Behn, Meyer and Co. entered into an
o Exemplary damages – to sufficiently deter similar agreement wherein Campbell is to construct a dwelling
acts in the future for Behn, Meyer and Co.
 They were bound upon agreement that Behn, Meyer and
JM Tuason vs. Javier, 31 S 829 Co. is to pay installments to Campbell

Jm Tuason and Co. and Javier entered into a contract to o Initial payment when work is commenced
sell a parcel of land in Sta. Maria Hts. o When house is finished with walls, roof, etc
 Paragraph 6 of said contract substantially stipulates that o Upon completion of the work
upon failure of payment, a one month grace period will  Campbell promised to construct a house using a sand of
be given and if no payment has been made on the good quality together with other strong materials based
defaulted month plus the grace period, a 10% interest from the specifications explicitly stated in the contract
per annum will be added and further, if nothing has  The house was completed in May and was received and
been paid within 90 days, the vendor may have the right accepted by Behn, Meyer and Co.
to rescind the contract.  Furthermore, Behn, Meyer and Co. continued on to
 Vendee defaulted, but after the period of arrears, offered occupying the said constructed house
to pay all installments overdue, but vendee refused to  Subsequently, defendants noticed defects and the
receive such payments and moved to rescind the presence of low quality materials used in the
contract constructing of the dwelling, thus, he asked that the
CAN JM TUASON AND CO. VALIDLY RESCIND THE CONTRACT? contractor recover part of the money paid because the
quality of the sand and other materials were less than
SC RULED: the ones stipulated in the agreement.
 No. Javier has been paying his installments until the IF THE CONDITION TO A CONTRACT HAS NOT BEEN COMPLIED
happening of the unforeseen event, BUT pursued to execute WITH, WHAT HAPPENS UPON ACCEPTANCE?
a compromise agreement and offered to pay everything
including the interest due. SC RULED:
 On Breach of Conditions
o In case the condition in a contract have not been
16Article 1235 – when the oblige accepts performance, knowing its
complied with, the other party may either elect to:
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed complied with  Refuse to receive it
 Take no benefit at all from what has been

completed SC RULED:
o But in cases where the party to whom the obligation  What really transpired was:
is intended for has received it, he will be responsible o De Guzman, through his counsel, delivered 800
to pay the reasonable value of what he receives and 1400 respectively to Esguerra. Esguerra,
 On Estoppel upon acceptance of 800 asked Judge Villanueva
o In the absence of fraud, (Campbell has in fact, to issue the corresponding writs of execution,
informed Behn, Meyer and Co. that there will be thus, a manifestation of dissatisfaction – an
slight alterations), owner of land is estopped from objection, a protest
denying the receipt of the materials delivered by  Enshrined in Article 1235, the word “accept” to mean, to
Campbell take as “satisfactory or sufficient”, give “assent to” and
o Behn,Meyer and Co. measured the sand, issued a “agree” or “accede”
receipt thereof, and paid for it. They cannot now say  In the case at bar no acceptance has transpired
that they did not receive it.
3. Effect of Payment by and to Third Persons:
Esguerra vs. Villanueva, 21 S 1314 Panganiban v. Cuevas
 De Guzman and Esguerra agreed to enter into a contract  Panganiban sold under a pacto de recto a Camarin and
of lease of the Esguerra – Gueco building in which de a lot to Gonzales, with the agreement that if the plaintiff
Guzman is bound by a 10-year term of 300Php monthly did not repurchase within 6 months, the property will
and 400 thereafter pass to Gonzales upon paying an additional sum of 200
 De Guzman failed to pay the monthly rentails from Feb-  In 1898, Panganiban sought to repurchase the property
Aug but he could not locate Gonzales due to the
 De Guzman executed a promissory note, promising to revolutionary war
pay 2,100  The revolutionary government seized the land from
 None of the payments were made thus a writ of Gonzales
execution was issued  Panganiban paid the property and redeemed the same
 A compromise agreement was entered into in which the from the revolutionary government by paying the
spouses de Guzman jointly and severally bound repurchase price on November 12, 1898
themselves to be indebted and liable for 2,260Php  On August 1, 1900, Gonzales sold the property to the
 De Guzman contends that through his counsel, he defendant
delivered 800 and subsequently 1400Php to Esguerra DID THE REPURCHASE MADE BY THE PLAINTIFF VEST HIM THE
and that this constitutes full satisfaction of the TITLE TO THE PROPERTY?
compliance
IS MERE ACCEPTANCE ENOUGH TO RENDER FULL SC RULED:
SATISFACTION OF THE OBLIGATION?
 No. Article 1242 explicitly provides that, payment made in  Subrogation is not authorized but recovery can be effected
good faith to any person in possession of the credit shall  Sveriges is not bound to have any right on the 17% tax plus
release the debtor legal interests including attorney’s fees
 The revolutionary government in possession of the land did
nothing but seize the property Tanguilig vs. Court of Appeals, Jan 2, 1997
 Seizure is not in itself a confiscation it is nothing but a  Tanguilig entered into a proposal with Herce on the
prohibition enjoining the owner from disposing the property construction of a wind-mill system for a consideration on
 Payment to government did not extinguish the obligation 60,000Php
 The only remedy of Panganiban is to redeem the property  2 proposals were made, the first one being rejected by
from Cuevas by paying its repurchase price Herce
 Defendant was able to pay a downpayment of
Sveriges v. Qua Chee Gan 30,000Php and a subsequent installment of 15,000Php
 Qua Chee Gan shipped on board the S. S. Magara leaving a balance of 15,000Php
2,032,000 kilos of copra consigned to Poland  Tanguilig, due to the refusal of Herce to pay the
 Actual out-turn of weights revealed that only 1,569,429 remaining installment, filed an action for the recovery of
kilos were delivered the sum of 15,000Php
 Because of the shortage, the Polish cargo insurers had  Herce contends that he already paid 15,000Php to San
to indemnify the consignee Pedro General Merchandising Inc – the contractor who
 Polish cargo insurers sued Qua Chee Gan however, built the deep well pump, in behalf of Tanguilig and
Sveriges (indemnity insurer of Qua Chee Gan) paid the therefore maintains that the obligation was
polish cargo insurers $60,733.53 extinguished.
 Sveriges on the other hand – claiming that the right of  Tanguilig, on the other hand, contends that the
the carrier have been subrogated to him, demands building/construction of a deep well pump was not
$60,733.53 plus 17% exchange tax with legal interest stipulated on the proposals therefore SPGMI was not
as a result of the short shipment and attorney’s fees authorized to be a third party thereof
DOES SVERIGES HAVE THE RIGHT TO SUBROGATE THE RIGHTS OF
THE CREDITOR? DID THE PAYMENT TO SPGMI CONSTITUTED A VALID 3RD PARTY
PAYMENT?
SC RULED:
 No. Article 1236 provides that whoever pays for another SC RULED:
may demand from the debtor what he has paid, except that  On the deep well stipulation
If he paid without the knowledge or against the will of the o The word “deep well” or the construction thereof was
debtor, he can only recover only insofar as the payment has not actually included in the proposals. It was not a
been beneficial to the debtor stipulation included in the construction of the wind
mill system – it merely described the type of a deep
well pump suitable for the construction of the wind been presented thus not warranting a valid 3rd party
mill system representation of Gonzaga to Tan
 On the 3rd party claimant  Article 1240 provides that payment shall be made to the
o SPGMI is not an authorized 3rd party in the case. person in whose favor the obligation has been constituted,
Although defendant contends that Tanguilig executed or his successor-in-interest, or any person authorized to
a letter authorizing SPGMI to construct a deep well, receive it
the same has not been proven with sufficient and Keeler Electric v. Rodriguez
convincing evidence. Thus no debtor-creditor
relationship exists between defendant and SPGMI  Keeler Electric is a corporation engaged in the electrical
 Article 1240 business and among other things, in the sale of a
o Payment shall be made to the person in whose favor “Matthew’s powerplant
the obligation has been constituted, or his successor-  Montelibano approached Keeler and said that he could
in-interest, or any person authorized to receive it. find buyers of the “Matthew’s powerplant” in Iloilo
 Keeler Electric assigned Montelibano as agent – whose
PNB vs. Court of Appeals, 256 S 44 principal function is to look for purchasers and close a
 Loreto Tan is the owner of a parcel of land in which deal with them
expropriation proceedings was instituted by the  Montelibano found a buyer in which a set of “Matthew’s
government. powerplant” was sold and delivered and that upon
 Tan filed a motion to release him the expropriation price consummation of delivery, paid to him without the
of 32,480Php knowledge of Keeler Electric
 Court, as a judgement rendered in favor of Tan, ordered  Keeler Electric subsequently commenced an action
PNB to release to Tan 32,480 against buyer contending that no payment of the
 Branch manager issued the check to Sonia Gonzaga, purchase price have been delivered/made
whom, by SPA, they contend to be an authorized
representative of Tan WHETHER OR NOT MONTELIBANO, AN AGENT, CAN EXTEND HIS
 Tan denies as such but PNB contends that an SPA was RIGHTS SO AS TO ACT AS THIRD PARTY BY KEELER TO RECEIVE
signed PAYMENTS
DID AN SPA EVER EXIST? IS THE PAYMENT TO GONZAGA VALID? SC RULED:

 On Montelibano’s Capacity
SC RULED: o Montelibano’s function is only to look for purchasers
 On the SPA of the powerplant – no more, no less. He has no
o By virtue of the best evidence rule, no original power to enlarge his authority so as to receive
document nor a certified true copy of the SPA has payments from the buyers in behalf and without the
knowledge of Keeler Electric Co.
On the Validity of payment made to the unauthorized agent  Atty. Vitan now contends that he has fulfilled his
o Buyers paying to unauthorized agents shall exercise obligation by executing a deed of Absolute Sale with
prudence in ascertaining whether the agent has Yuson
been authorized by the company to effect such
receipt of payments. By virtue of Article 124017 DID THE EXECUTION OF THE DEED OF SALE HAD THE EFFECT
whatever was paid was paid at their own risk, and if OF EXTINGUISHING THE OBLIGATION?
the agent is not authorized to receive payments, the WAS IT A DATION IN PAYMENT?
obligation to pay is NOT extinguished
4. Dation in Payment: SC RULED:
Yuson v. Vitan 496 S 540  A dation in payment Is a transaction that takes place
 Yuson was a taxi driver who inherited a sum of money by when a piece of property is alienated - as accepted
way of inheritance equivalence of the obligation
 He uses to use this money to purchase another taxi,  In the case at bar, NO DATION IN PAYMENT was made
repair their dilapidated house and hold a debut party for since the execution of the second deed of sale revealed
his daughter that there was no intention on the part of Atty. Vitan to
 He purchased a taxi and Atty. Vitan helped him with all relinquish ownership of the property
the matters concerning his payment and purchase
 Yuson’s plans were put on hold because Atty. Vitan Filinvest Credit v. Phil Acetylene Co, 111 S 421
borrowed 100,000Php and promised to pay after a year  Phil Acetylene purchased from Alexander Lim a
 To guarantee the payment, Atty. Vitan issued post-dated Chevrolet motor vehicle model 1969 for 55,247Php
checks but everything turned out to be worthless since  Phil Acetylene thereafter executed a chattel mortgage in
these checks were from his closed bank account in the favor of Alexander Lim
Bank of Commerce  Subsequently, Alexander Lim assigned all his rights, title
 Yuson repeatedly demanded payments from Atty. Vitan, in the promissory note to Filinvest Finance which
but the latter continuously defaulted thereafter merged and transferred the same to Fil Invest
 Atty. Vitan then executed a deed of Absolute Sale of his Credit Corporation
property in Bulacan to secure the payment  Payment of unpaid balance of Phil Acetylene was paid by
 But subsequently and for some reason, Atty. Vitan Fil Invest Credit such that Lim became fully paid
executed another deed of sale in which Yuson was the  Phil Acetylene defaulted (9 monthly installments) and
vendor upon demand by Fil Invest Credit Corp, Phil Acetylene
executed a document entitled “Voluntary Surrender with
SPA”
 However, Fil Invest Corp wrote a letter to Phil Acetylene
17Article 1240 – Payment shall be made to the person in whose favor
the obligation has been constituted, his successor-in-interest or any
saying that it could not sell the vehicle since there were
person authorized to receive it
unpaid taxes and asked that Phil Acetylene pay all  Spouses de Leon, owners of Delta, obtained a loan from
installments in arrears LDB amounting to 4,000,000Php and as security for said
 Phil Acetylene offered to return the vehicle but Fil Invest loans, executed a Real Estate Mortgage in favor of the Bank
refused to accept it, thus causing Fil Invest Credit to on several of their properties including the lot in question
institute an action for the collection of a sum of money  Delta and LDB amended the loan agreement, increasing the
total loan payable to 8,000,000Php
DOES MERE DELIVERY OF THE MOTOR VEHICLE AUTOMATICALLY  Subsequently, Delta entered into a contract to sell with
MEAN TRANSFER OF OWNERSHIP? DOES IT AMOUNT TO DATION IN Enriquez of Lot 4 for a full purchase price of 614,950Php
PAYMENT?  Delta defaulted on his loan obligation with LDB and the
latter, instead of foreclosing the properties, agreed to
SC RULED: dacion en pago including the lot which was reserved for
 Mere delivery of the motor vehicle does not necessarily Enriquez
amount to dation in payment without the consent of the  Enriquez filed a complaint against Delta for violating the
mortgagee. terms of the contract to sell and for violating Sect 18 of PD
 Dation in payment or dacion en pago is the transmission of 957 prohibiting mortgage without clearance from HLURB.
ownership of a thing by debtor to creditor as a accepted
equivalent for the performance of an obligation WAS THERE A VALID DACION EN PAGO?
 ACCEPT – MEANS TO ACCEDE, WITHOUT ANY PROTEST
 Furthermore, Fil Invest is not estopped from demanding SC RULED:
payment from Phil Acetylene b y his mere acceptance of the  On Dacion en Pago
mortgaged vehicle. Noteworthy to mention is the fact that Fil o This will not constitute a valid case of dacion en
invest credit did not accept the motor vehicles in full pago since Delta is bound by the contract to sell
satisfaction of the debt with Enriquez which is protected by the
 Mere execution of the “Voluntary Surrender with SPA” did Presidential decree
not extinguish the obligation since this was just a o LDB cannot be held a buyer in good faith since it
preparatory act for the foreclosure sale When FilInvest was knowledgeable of the existing contract to sell
Credit realized that the foreclosure sale was not possible and the protection afforded to it by the PD
since these were unpaid taxes, it had the right to abandon  Furthermore, neither Delta nor LDB can assert any right
the chattel mortgage and demand fulfillment of the from the mortgaged propertied because Delta did not
obligation obtain prior clearance from HLURB before executing a
Luzon Development Bank v. Enriquez, January 12, 2011 real estate mortgage in favor of LDB
 Luzon Development Bank is a bank that extends loans to
subdivision developers
 Delta is a domestic corporation engaged in the business of Tan Shuy vs. Spouses Maulawin, February 8, 2012
developing and selling real estate properties
 Tan Shuy was a businessman engaged in buying of

copra and corn in the Quezon Province while Maulawin is 5. Effects of Partial Payment:
a farmer-businessman engaged in the buying and selling Nasser vs. Cuevas, 188 S 812
of copra and corn  In the proceedings for the settlement of the estate of
 Tan Shuy and Maulawin entered into an agreement after Amadeo Molave, a supplemental compromise
Maulawin loaned a total of 420,000Php to Tan Shuy agreement and project of partition was executed among
o That Maulawin is to sell “lucad” to Tan Shuy as the heirs and interested parties
well as pay-off his loan  The agreement provided for the payment of attorney’s
 For every delivery, a pesada is being issued which fees to Atty. Canlas in the aggregate amount of
indicated the amount of delivery as well as an indication 600,000Php
as to whether payment has been made or otherwise o 128,000Php in property
 With respect to the loan, Tan Shuy contended that o 472,000Php in cash
Maulawin was indebted to him by 391,500Php.  The agreement was approved by the Court and shortly
Maulawin on the other hand contends that he had an thereafter, Canlas moved for the execution of the
oral agreement with Tan Shuy that he will pay by means agreement
of delivering “lucad” and will not collect payment from  The court assigned the corresponding shares to be paid
the proceeds thereof by the heirs and ordered Mariano Nasser to deliver
 Furthermore, this was evidenced by a lack of the mark payment within 10 days from the receipt of the directive
“pd.” In the pesadas which revealed that Maulawin’s  The heirs contend that the execution was improper due
remaining loan balance is 41,047.57Php to the absence of a written agreement on the precise
terms of payment, furthermore, the clause “Upon full
DID THE DELIVERY OF COPRA AMOUNT TO INSTALLMENT OF THE payment of the corresponding liabilities of a party, the
LOANS TO TAN SHUY? lien on his/her share is extinguished” - to mean that the
agreement is that of an installment basis and the fact
SC RULED: that Nasser have complied with their undertaking, they
 Yes. are not subject to their lien, and that the same was
 Dation in payment extinguished the obligation to the extent extinguished
of the value of the thing delivered. Parties can, by express or
implied stipulation, regard an object as equivalent to the full DID THE AGREEMENT CONSTITUTE THAT OF A PARTIAL PAYMENT
performance of an obligation in which case the obligation is BASIS TO ATTY. CANLAS?
extinguished
 Dation in payment existed when Maulawin delivered copra SC RULED:
to Tan Shuy and chose not to collect payment for each  The meaning of the proviso only connotes that the heirs will
delivery and instead applied the collectibles on installments pay at different times but does not connote that of a
for his loan to Shuy separate payment in installments.
 The creditor cannot be compelled to partially receive the prevailing rule that an agreement to pay an
prestations in which the obligations consist unless there is obligation other than the Phil. Currency is null
an express stipulation to that effect. and void but only up to the stipulation or
provision, hence, the obligation still exists,
6. Currency of Payment: only the stipulation is voided
General Insurance vs. Union Insurance, 179 S 530  But this is a 1989 case, and RA 529 has
 Union Insurance Society of Canton and British Insurance been repealed by RA 410018
are insurer companies licensed to do business in the
Philippines  On exchange rate that shall prevail upon payment
 Above mentioned companies entered into a “First o RA 529 does not provide for the rate of exchange for
Surplus Reinsurance” agreement with General the payment of the obligation BUT, it logically follows
Insurance Co. that the exchange rate to be realized is that of which
 Parties agreed on reciprocal reinsurance expressed and prevails at the time of payment. After the enactment
payable in pounds sterling or any equivalent Philippine of RA 529, jurisprudence regarding value of
currency valued at the exchange rate existing at the time currencies provide that the value of the currency at
of payment the time of payment shall be adopted.
 After termination of the reinsurance agreement, Union
Insurance claim that General Insurance is still indebted CF Sharp v. Northwest Airlines, 381 S 314
with a sum of 4,784.51pounds and demands that it be  Northwest Airlines – Japan Branch, entered into an
paid according to the terms stipulated in the contract agreement “International Passenger Sales Agency
 General Insurance refuses to pay such amount in the Agreement” with CFI Sharp, authorizing the latter to sell
exchange rate at the time of payment and insisted to pay its airline tickets
the amount in Philippine peso with the exchange rate  CFI sharp failed to remit ticket sales, thus Northwest
existing at the time of agreement which is nominally Airlines filed a motion or a collection of a sum of money
lower in value  Northwest Airlines ordered payment of 83,158 Yen and
damages for the delay at the rate of 6%/annum
WHETHER OR NOT A PAYMENT IN FOREIGN CURRENCY IS VALID  CFI Sharp contends that it already paid partial payments
UNDER PHILIPPINE LAW thus it is only liable for 61,734,633, plus the 6% interest
WHICH RATE OF EXCHANGE SHALL PREVAIL AT THE TIME OF
PAYMENT?
18 RA 4100 seeks to encourage foreign investments and allows for a
SC RULED: foreign currency stipulation for:
 On Payments of a foreign currency (1) Bank to bank transactions
 Whether General Insurance agreed to pay in (2) Funds involved are proceeds of loans and investments
(3) Transactions affecting high priority economic investments
foreign currency or not does not change the (4) Import and export and international banking
on delay , plus 6% legal interest paid in local currency  New Pacific failed to comply, thus a writ of execution was
valued at the time of the payment rendered
 CFI sharp questions the legal rate as well as the  Before the auction sale was commenced, New Pacific
exchange rate to be followed since it contends that RA deposited in the clerk of court his total indebtedness,
529, as well as RA 8183 does not fix the legal interest to 50,000Php of which was in the form of a cashier’s check
be paid.  Seneris refused acceptance of payment and request
that the scheduled auction be effected
WHAT IS THE EFFECT OF THE REPEAL OF RA 529 BY RA 8183?
WHETHER SENERIS CAN VALIDLY REFUSE ACCEPTANCE OF
SC RULED: CASHIER’S CHECK
 On Foreign Currency Stipulations
o RA 8183 – all monetary obligations shall be settled SC RULED:
in the Phil. Currency which is the legal tender in the  Generally, checks have no legal tender19 and cannot be
Philippines, however, the parties may agree that the accepted as payment in monetary obligations
obligation or transaction shall be settled in any other  But, a cashier’s check is not an ordinary check, especially
currency at the time of payment when the bank to which it was originated was a bank of
 On value of currency at the time of payment good standing
o Absent a stipulation on the legal interest, the legal  It is a well-known business practice that a cashier’s check,
rate of interests on obligation shall be fixed at once certified by a drawee bank will be good as cash
12%/annum  Objective of certifying a check is to enable the user to use it
o Petitioner’s directed to pay 61,734,633 plus as CASH
damages at 6%/annum of legal interest of 12%
counted from the date of filing complaint.
Quiros v. Tan-Guinlay, 5 P 675
7. Payment in Check  Quiros sold to Tan-Guinlay goods in two parcels
New Pacific Timber v. Seneris, 101 S 686
 Value of the first lot is 2,235.95Php
 Seneris filed an action for a collection of a sum of money
 For the purpose of paying this, Tan-Guinlay delivered
from New Pacific Timber in which they subsequently
to Quiros a bill of exchange20 for 2,700 pesos
entered into an amicable settlement, conditions of which
o A = Chua Sengco
are:
o B = Lucio Icaza
o New Pacific will pay 54,500Php, 6% interest per
o C = Juan Teco
annum
o Balance of 1,000 for attorney’s fees
o Failure to pay would cause Seneris to file for a In form of notes and coins by the Central Bank of the Philippines
19
writ of execution A written order from A to B directing B to pay C a certain sum of

20
money
 Bill of exchange was accepted by Icaza, but upon fulfillment of an obligation, it will produce the effect of
maturity of the bill of exchange, Icaza refused to pay payment when it is cashed
on the ground of forgery of his signature  In the case at bar, the manager’s check deposited was in
 Quiros neglected his action for protest for the non fact CASHED, for, when the clerk of court endorsed the
payment of the bill of exchange check to the Provincial Treasure of Negros, who deposited it
in PNB, and PNB honored the check – it had the effect of
HAVE THE RIGHTS OF THE CREDITOR IN THIS CASE BEEN encashment and is as good as having the effect of payment
IMPAIRED? US v. Bedoya, 14 P 397
SC RULED:  Bill of exchange was executed between: (written

 By reason of the neglect, the delivery of the bill of exchange order from A to B directing B to pay to C a certain
effected the payment of the merchandise sum of money)
 Thus, for the total sum of 10,217.75Php, 2,235.95Php was o A = Schweiger Import and export
deducted as a result of the payment effected by this bill of o B = Vicente Foz
exchange, and Quiros is not entitled to damages as he o C = Bedoya
contends  Schweiger Import and export Co. commissioned to
 Quiros has impaired his rights as a creditor Bedoya various articles amounting to 1,312.40Php
Golez v. Camara, 101 P 363 to be accounted for within 30 days
 Adriano Golez deposited a sum of 25, 386.33Php(25,000 in  Bedoya failed to remit the goods to the company and
manager’s check and 386.33 in cash) in the clerk of court contends that he has already fulfilled his obligation
in consideration of the conveyance of Camara of 24 lots to by issuing a bill of exchange amounting to 1,807Php
Golez to Vicente Foz directing him to pay the same to
 Aside from contending that only 7 lots are bound to be Bedoya
conveyed (which is irrelevant to the subject of discussion in  Faini, an officer of Schweiger Import and Export,
this part), Camara refused to accept the deposit made and upon maturity of the bill of the exchange, went to Foz
insists that the same was invalid on the ground that it was to collect the said draft. Foz refused to pay the same
made in check since Bedoya was the signatory of the Bill
 Faini went to Bedoya saying that he will not
IS THE JUDICIAL DEPOSIT MADE BY GOLEZ VALID AND EFFECTIVE? acknowledge his fulfillment of the obligation until
after the bill is being paid
SC RULED:  Bedoya ran away, with no intention of paying
 Yes WAS THE OBLIGATION EXTINGUISHED?
 Article 1249 Paragraph 2 substantially provides that when
bills of exchange, and checks are to be used in the SC RULED:

 The payment of the draft in this case was prejudiced by the incorporated in the monthly rentals, BUT, the VAT
creditor company when Foz refused to pay and Faini did not was already subsisting at the time of their pursuance
exercise diligence in protesting to the non-payment of the of the agreement, THEREFORE, it could not have
draft been the intention of the parties to include a VAT rate
 The crime charged to Bedoya is immaterial in determining in the middle of the consummation of the agreement
whether or not a payment has been effected since under  On Extraordinary Inflation
Art. 469 in the Code of Commerce, a bill of exchange is o Extraordinary inflation exists when there is sharp and
prejudiced when not protested fluctuating increase or decrease on the purchasing
power of the Philippine Currency
8. Extraordinary Inflation or deflation of currency: o Absent a pronouncement from a reliable source in
Almeda v. Bathala Marketing, 542 S 470 the monetary/economic field21, effects of
 Ponciano Almeda leased a part of the Almeda compound extraordinary inflation cannot be effected
to Bathala Marketing for a monthly rental of 1,107, o Furthermore, even though the Almedas contend that
348.69Php what they stipulated was extraordinary
 Pertinent provisions substantially provides that when any inflation/devaluation the same shall be construed to
new tax will be effective, the monthly rentals will be in-line with Article 125022
increase such that the tax and that in cases of Velasco v. MERALCO, 42 S 556
extraordinary inflation or “devaluation”, the payment  Respondent Manila Electric Co. is being demanded by
terms shall be in consonance with the original payment petitioner Velasco to award him damages caused by the
at the time of the entry/agreement on the obligation noises of the substation of the company, thereby making
 The Almeda’s advised Bathala Marketing that they will Velasco lose his opportunity of selling his house at a
levy a VAT rate on the monthly rentals and that aside higher appraised value
from it, a 73% increase in monthly payments are to be  Velasco contends, and as a cause of bringing his motion
effected due to the extraordinary inflation/deflation for reconsideration, that his award for damages was
faced by the Philippine Currency unreasonably reduced and that he is aggrieved by this
considering the high cost of living and brings the
WHETHER OR NOT BATHALA MARKETING IS TO BEAR THE VAT attention of the court Art. 1250.
IMPOSED BY THE ALMEDAS
WHETHER THE 73% INCREASE DUE TO EXTRAORDINARY INFLATION WHETHER ARTICLE 1250 CAN BE APPLIED IN THIS CASE
IS TO BE EFFECTED
21Usually the Central Bank of the Philippines pronounces the
SC RULED: existence of an extraordinary inflation/deflation.
 On VAT 22Article 1250 - In case an extraordinary inflation or deflation of the
o Almedas relied on the clause which substantially currency stipulated should supervene, the value of the currency at
provided that new taxes will have the effect of being the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
 Gabriel and Sons Transportation Co. and Luzon

SC RULED: Stevedoring Co. entered into a contract of stevedoring
 Article 1250 cannot be invoked as this provision was crafted and lighterage on 8,000 metric tons of rice aboard a
for contractual relations and not obligations arising from ship.
torts o Transportation Co. shall furnish a guaranty bond
PRIOR to the commencement of discharge of the
Filipino Pipe Foundry vs. NAWASA, 161 S 32 rice in the sum of 38,400Php to guaranty its
 NAWASA entered into a contract with FilPipe and Foundry fulfillment of the terms and conditions specified
Corp in which the latter is to supply cast iron pressure pipes  Transportation Co. secured from People’s surety a surety
amounting to 270,187.50Php bond in which they bound themselves jointly and
 NAWASA paid in installments, leaving a balance of 135, severally to Luzon Stevedoring to pay a sum of 38,400
507.50Php should Transportation Co. fail to comply with its
 Fil Pipe demanded payment in accordance to the terms of obligation
the contract, NAWASA failed to pay, thus, FilPipe instituted a  Subsequently, 2 indemnity agreements were executed
complaint for recovery of a sum of money o Exhibit C – Gabriel and David as signatories
 Subsequently, Fil Pipe demanded that an adjustment for the o Exhibit D – Gabriel and Villarama as signatories
unpaid balance in accordance with the value of the Phil o They bind themselves jointly and severally to
peso at the time of the decision, due to the alleged indemnify the surety company from all damages,
supervening extraordinary inflation losses it may sustain or incur in consequence of
WAS THERE AN EXTRAORDINARY INFLATION AS TO WARRANT THE its having become a surety
ADJUSTMENT FOR THE UNPAID BALANCE?  ANOTHER surety bond - Exhibit B was secured from the
surety company where transporation Co. and People’s
SC RULED: Surety bind themselves jointly and severally to
 The voluminous proof of a sudden fluctuation on prices stevedoring to pay the sum of 9,600 in the event
eventually resulting to its decline in its purchasing power Transporation Co. fail to comply with its obligations
does not necessarily connote the existence of an under the contract
extraordinary inflation  Transportation Co. failed to comply with its obligations,
 Mere decline in prices/purchasing power does not warrant thus Stevedoring Co. demanded payment of 9,855.28
an existence of extraordinary inflation because it can be with interest plus damages
attributed to a universal phenomenon existing at the time of  People’s Surety demands reimbursement from
the debt Transportation Co. and instituted an action for recovery
of 9,859.28 with interest plus damages
9. Application of Payments:
People’s Surety v, Gabriel and Sons, 118 P 1418

ARE GABRIEL AND VILLARAMA, UNDER THE INDEMNITY  Lingayen Gulf and Electric Power is a corporation whose
AGREEMENT, LIABLE TO PEOPLE’S SURETY FOR THE DAMAGES capital stock is 300,000Php, divided into 3,000 shares
AND LOSSES IT HAS SUFFERED UNDER EXHIBIT B? of voting stocks
 Baltazar and Rose subscribed for 600 and 400 shares
SC RULED: respectively
 No. The indemnity agreement is only insofar as Exhibit A is  It has always been the practice of the corporation to
concerned (38,400). Even the chief clerk of People’s Surety issue certificates of stock to its individual subscribers for
Bond department testified that the surety bond of 9,600 its unpaid shares of stock
was not covered by any of the indemnity agreement  Baltazar, of the 600 shares of stock – had only fully paid
 People’s Surety contends that, the 38,400Php must have 535shares and was issued several fully paid up and
been applied to the partial satisfaction of the aggregate non-assessable certificates corresponding to the 535
amount of the 2 bonds  Ungson, et.al are small stockholders in the corporation
 Article 1252 provides that a debtor who has several all holding shares of not more than 100 fully paid up
obligations, may, upon making payment, specify to which shares of stock.
obligations such payment may be applied  Acena – an incorporator and stockholder, holding 600
shares of stock was the largest stockholder of the group
 An annual stockholder’s meeting is to take place and a
Magdalena Estates vs. Rodriguez, 18 S 967 (See Novation part fight for control and management of the corporation was
for facts of the case) close and keen
SC RULED:  2 groups (Ungson and Baltazar group) were almost at
 On the surety-appellant contract equal chances
o It was crystal clear that the ONLY obligation of  Ungson group had been in complete control since
Luzon Surety is to pay the balance of the January of the year and to maintain such control, issued
purchase price which is 5,000Php. The liability of a resolution
the surety is not extended by implication BEYOND o On account of payments on unpaid subscriptions
the terms of his contract without interest – it shall be declared of no value
o Thus, the payment of interest cannot be applied and cancelled from the banks, and if payments
to the terms of Luzon Surety and Rodriguez, already made exceeded the interest accrued,
furthermore, as a surety, Article 1253 cannot be excess should be applied to the payment of
made applicable since his capacity as surety is subscription
merely contingent and singular. o All shares of stock issued as fully paid up whose
subscription to a number of shares had been
Baltazar Vs. Lingayen Gulf Inc., 14 S 522 declared delinquent are hereby incapacitated to
utilize or avail of the voting power until such

delinquency of the accrued interest is fully paid practice by virtue of the agreement of the
up corporation to its stockholders is valid.
o All unpaid subscriptions should bear interest  Application of payment cannot be made in accordance to
annually and any or all payments made on unpaid Article 1252 and Article 1253, thus, Article 1254
subscriptions shall be credited to the payment of  The option to full payment of the corresponding number of
interest first then the capital debt after all shares of stock, principal and not interest (onerous to the
interest is fully paid debtor) or since the debts due are of the same nature and
 An amicable settlement was effected burden, the payment shall be applied to all of them
o Subscribers with unpaid subscriptions will be proportionately (amicable settlement – installment
given the opportunity to pay in installments, the payments, s.t prorate share of each)
first installment to cover ½ of the unpaid balance 10. Cesion:
and for the remaining half for the next three Lopez vs. Court of Appeals, 114 S 671
months with the understanding that those who  Benito Lopez obtained a loan of 20,000Php from
will comply will not pay interest on the balance of Prudential Bank
their subscription and shall be deemed condoned  Lopez executed a promissory note in favor of Prudential
Bank, binding himself to repay 20,000 in one year with
WILL THE BALTAZAR GROUP HAVE THE RIGHT TO VOTE DESPITE interest of 10% per annum
THEIR UNPAID SUBSCRIPTIONS?
 Aside from the promissory note, he executed a surety
bond with Phil American General Insurance and bound
SC RULED:
themselves jointly and severally in favor of Prudential
 Even though Sec. 37 of the Corporation law substantially Bank for the payment of 20,000Php
provides that if a subscriber has not been issued by a
 Lopez executed an indemnity agreement whereby he
certificate of stock until full payment of the par
agreed to indemnify PhilAmGen and hold the same
value…subscribed shares may be voted upon provided no
harmless from and against all damages
subscription is unpaid and delinquent
o This law is only applicable in the absence of a by-law  Lopez executed a “deed of assignment” of 4,000 shares
by the corporation of Baguio Military Institution, “Stock Assignment
 Since it is of practice of the corporation in the separate from certificate”
case at bar that even though there continues o Lopez persuaded Abello - VP of PhilAmGen to
to be unpaid subscriptions a stock certificate accommodate him in putting up the bond against
is nonetheless awarded up to the concurrent security of his shares with Baguio Military Inst.
paid up shares. Furthermore, by practice, And if he could not pay, VP Abello would buy the
Lingayen gulf had chosen to apply payments shares of stocks and out of the proceeds thereof,
to definite shares of capital stocks and such the loan would be paid to prudential bank
 Lopez failed to settle his obligation, Prudential Bank
made demands to Lopez and PhilAmGen by virtue of the
indemnity agreement, PhilAmGen in turn made several

demands to Lopez 11. Tender of Payment and Consignation
 PhilAmGen was forced to pay 27,785.89Php which a. Tender
included the principal loan and accumulated interest
 PhilAmGen brought an action for reimbursement from Meat Packing Corp v. Sandiganbayan, 359 S 409
Lopez  Meat packing is a corporation wholly owned by the GSIS,
an owner of 3 parcel of lands in Pasig City as well as a
IS THIS A CASE OF DATION IN PAYMENT? OR A PLEDGE? meat processing and packing plant
 MPCP and Philippine Integrated Meat Corp. entered into
SC RULED: a lease-purchase agreement at an annual rate of 1,375,
 Where a party sells, assigns and transfers and delivers 563.92Php which was later on increased to
shares of stocks to another, in consideration of a 3,346,269.70Php
contingent obligation the obligations having been arisen, the  Their agreement contract’s rescission clause reveals the
latter causes the shares of stock to be transferred to his ff:
name, what is the juridical nature of the transaction? o If lessee-vendee should fail or default in payment
o Pledge v. Dacion equivalent to the cumulative sum of a total of 3
 The case at bar is a clear case of Pledge and annual installments, the agreement shall be
not Dacion deemed automatically cancelled and forfeited
 Character of the transaction in pledge is to  Subsequently, PCGG, by reason of the huge loans
be determined by intention. The fact that an obtained by Peter Sabido from GSIS in favor of PIMECO,
indemnity agreement and a stock assignment PCGG sequestered all assets, properties and records of
were both effected, these being related PIMECO, including the meat packing plant
transactions, there would be no necessity to  GSIS asked that the meat packing plant be excluded and
effect an indemnity agreement of the stock MPCP likewise contends that the meat packing plant be
assignments intended to be an absolute returned on the ground that the lease-purchase
conveyance agreement had already been rescinded
 By pledge the pledgor does not part with his  PIMECO contends that the contract was not yet
general right of property. General right rescinded and that prior to its sequestration in 1986, it
remains in him and only a special property was able to pay MPCP 846,2679.70 Php. After its
vests in the pledge. sequestration, PCGG who took over the management
 When Abello and Pedrosa promised to buy the loan and no became erratic and irregular in its payments thus
action was taken, it is clear that they have abandoned their presenting a danger that PIMECO might default
right and interest over the properties and must release or  PCGG tendered to MPCP 2 checks in the amount of
return the property upon Lopez’ satisfaction under the 3,000,000Php and 5,000,000Php representing partial
indemnity agreement payments of the accrued rentals and thus filed a motion
in Sandiganbayan to order MPCP to accept the tendered  Deed of Sale was never commenced and subsequently,
payment of 5,000,000 the Bernabes sold the subject land to a 3rd Party
 MPCP contends that in Nov. 19, 1986 the agreement Angeles
has been rescinded, however Sandiganbayan approved  The Torcuators commenced the action for specific
the consignation in the amount of 5,000,000 on the performance and rescission with damages, but was
reason that from January 29, 1986-Jan 30,1990 dismissed by the trial court
GSIS/MPCP has been accepting several amounts due  Bernabes contend on the other hand that they are willing
from the agreement – a subsequent action that and ready to pay the purchase price and this was
connotes a negation of any rescission of the lease- evidenced by the fact that a telegraphic transfer was
purchase agreement made to express interest to push through with the
CAN THE PAYMENT BE VALIDLY CONSIGNED? HAS THE CONTRACT transaction
BEEN RESCINDED?
WAS MERE SENDING OF LETTERS EXPRESSING INTENTION TO PAY
SC RULED: CONSIDERED A VALID TENDER OF PAYMENT?
 On Consignation
o Because of the refusal to accept by MPCP of the SC RULED:
valid tender of payment, without just cause – that is  No.
contending that the agreement has been rescinded  Petitioner should have consigned the amount in court
BUT IN FACT was NOT, renders a just and valid instead of sending letters of intent to Bernabe on the intent
ground for consignation to pursue the transaction
 On Rescission  Mere sending of letters is not a valid tender of payment
o For the contract to be rescinded, it must be shown o Valid tender of payment:
that PIMECO would fail to pay a total of  Made before the act of consignation
10,038,809.10Php  Unconditional
o Arrears at the time of the tender was  Full amount including interests shall be
12,578,171Php tender and consignation is at offered in legal tender
5,000,000Php therefore, it has reduced back rentals
to 7,578, 171Php, less than the equivalent of 3 b. Consignation
annual installments Adelfa Properties vs. Court of Appeals, 240 S 565
Torcuator v. Bernabe 459 S 439  Private respondents in this case and their brother, Jose
 The Bernabes contracted to sell the parcel of land to the and Dominador Jimenez were the registered co-owners
spouses Torcuator of a parcel of land in Metro Manila
 The Torcuators thereafter had the plans of their house  Private respondents sold their share of the eastern
prepared and offered to pay the Bernabes for the land portion of the land to Adelfa Properties, and
upon delivery of the Contract of Sale
subsequently executed an “Exclusive Option to  On the contract

Purchase” of the western portion thereof o When private respondents agreed on the counter
o Seliing price of 2,586,150Php offer made by petitioner, and when the exclusive
o 50,000 option money credited as partial payment option to purchase was prepared by petitioner and
and the rest shall be paid on Nov. 30, 1989 was signed by private respondents, it created a
o In case of default, this option shall be cancelled perfected contract to sell
and 50% of the option money shall be forfeited o The agreement being specifically entered, surpassed
and refund of remaining 50% upon sale of the the test of being a contract to sell
property to a 3rd party o Therefore the obligation of the petitioner to pay the
 Before petitioner could even make payments, it received purchase price is specific, definite and certain
summons on November 29, 1989 and an action against  On the refusal
them for the annulment of the deed of sale in favor of o Petitioner was justified in suspending the payment of
household corporation the balance of the purchase price because of the
 Petitioner wrote a letter that it would hold payment of action instituted against it
the full purchase price o HOWEVER, even though the suspension of payments
 Atty. Bernardo offered to pay private respondents are valid, private respondents are not and will not be
500,000 to be deducted from the settlement, but the compelled to sell and deliver subject land because
same was refused of:
 Private respondents executed a deed of conditional sale  Petitioner’s failure to effect consignation after
in favor of Chua for 3,029,250Php the disturbance has ceased
 Atty. Bernardo wrote to private respondents again,  Contract to sell being validly rescinded on the
expressing their willingness to pay the purchase price failure to recover payments
but this was ignored by the private respondent o Mere sending of letters expressing intent to pay do
 50% of this option money was returned to Adelfa not constitute a valid tender of payment
Properties c. Requisites
 Private respondent’s contend that what they entered Ponce de leon v. Syjuco, 90 P 311
into was an option contract and the suspension of  PNB was the owner of 2 parcel of lands and executed a
payment by Adelfa Properties constitute a counter offer, contract to sell with de Leon
thus a rejection of the option  De Leon, during the course of his amortizations with PNB
loaned from Santiago Syjuco 200,000 in Japanese Military
WAS THE CONTRACT AN OPTION CONTRACT? WAS THE REFUSAL notes payable in 1year
WITHOUT JUST CAUSE? WAS THERE A VALID TENDER OF  Ponce de Leon secured a promissory note indicating that he
PAYMENT? cannot pay
 In order to secure payment of his loan, de leon mortgaged
SC RULED: in favor of Syjuco the parcels of land from PNB
 Ponce de Leon obtained another loan, but issued another Francisco did not pay for the reason that he had no funds at
promissory note promising to pay within 1 year, peso for that time
peso currency of the Government of the Philippines  Francisco denies as such because as per his instructions,
 But Ponce de Leon offered on an earlier date than the the Commercial Bank and Trust Company in fact issued
maturity of the note not only the principal sum due but also checks in favor of SOCO representing payments for the
all the interests up to the maturity date. Syjuco refused to monthly rentals of May, June, July and August
accept payment and de Leon placed the money at the  Francisco further contends that there was valid tender of
disposal of the court payment as well as consignation after the refusal of SOCO to
WAS THE CONSIGNATION VALID? accept such payments
IS SUBSTANTIAL COMPLIANCE OF THE REQUISITES ENOUGH FOR A
SC RULED: VALID CONSIGNATION?
 On the requisites of consignation
o Debt due SC RULED:
o Refusal to accept payment, without just cause  On the evidence presented
o Previous notice of consignation o First letter proved tender of payment but did not
o Amount was placed at the disposal of the court indicate which month and the intention to deposit
o Subsequent notice after consignation the same to the court
 There was no previous notice of consignation given by o Second letter if a proof of notice on the deposit and
Ponce de Leon to Syjuco, thus invalidating the consignation consignation but only 2 payments of the cashier’s
check therein
Soco v. Militante, 123 S 160 o Third letter proves rental deposit for November and
 Soco and Francisco entered into a contract of lease on no other, not even a proof of notice to consign
January 17, 1973 whereby SOCO leased her commercial  Substantial compliance cannot be invoked for all the five
building to Francisco for a monthly rental of 800,000 for a requisites shall have been faithfully complied with, no more,
period of 10 years renewable for another 10 years no less
 SOCO admitted that prior to May 1977, Francisco had been
religiously paying the rental FEBTC v. Diaz Realty, 363 S 659
 Factual background  Diaz company obtained a loan from Pacific Bank amounting
o Soon after SOCO learned that Francisco sub-leased a to 720,000Php secured by a mortgage over its 2 parcels of
portion of the building to NACIDA at a monthly rate of land
more than 3,000 SOCO felt as if she was losing end  Diaz company entered into a lease with Allied Bank where
of the contract and tried to look for ways and means the latter shall pay its rentals directly to Pacific Bank which
to terminated the contract bank subsequently closed
 Soco alleged that she personally demanded payment from  Far East Bank and Trust Co. later on purchased the credit of
Francisco for the months, May, June, July and August but the company from Pacific Bank. The Company then
tendered to FEBTC a check in the amount of 1, 450,000  Clarita Garcia issued demand letters to Sering declaring that
which FEBTC did not accept as payment but instead treated since August 6, 1988 Juanita has not paid a single monthly
it as a deposit pending approval of the Central Bank installment and demands payment
Liquidator o On or before April 6, 1990
 The check was cleared and honored o Within 10 days from notice or would cause extra-
IS FEBTC CORRECT IN TREATING THE TENDERED CHECK AS ONLY judicial foreclosure
A DEPOSIT PENDING APPROVAL OF CB?  Sering wrote a letter to Clarita, promising to pay the amount
of 200,000Php on or before May 23, 1992 and that upon
SC RULED: failure of payment, Clarita can take appropriate action of the
 Although a check does not constitute a legal tender and the real estate property
creditor may validly refuse it, this does not prevent a  Clarita Garcia Subsequently effected the public auction sale
creditor from accepting such payment  Sering contends that she already paid Clarita 200,000Php
 Creditor has the option to refuse or accept it “more or less” but there was no issuance of the receipt
 In the case at bar, the bank did not refuse it, instead, WAS THE OBLIGATION EXTINGUISHED?
accepted it as deposit the check was funded and the
drawee bank honored it SC RULED:
 Tender of payment involves a positive and unconditional act  No.
by the obligor of offering legal tender currency as payment  Petitioner insists that she had paid her load but respondent
to the oblige for the former’s obligation and demanding that refused to sign her receipts evidencing the monthly
the oblige accept the same installments paid
 There must be a fusion of intent, ability and capability to  HOWEVER, the Serings could have consigned the amount at
make good such an offer the court’s disposal in order for the Serings to be released
 Considering that when the payment was made, and FEBTC from their responsibility
refused to release the mortgage, Diaz Realty filed a suit to
compel FEBTC to acknowledge the tender – all these acts Southwestern University v. Salvador, 90 S 318
demonstrated intent, ability and capability of the company  SWU is an educational institution located in Cebu City which
to fully settle its obligation filed an ejectment case against private respondents
Baliguat and Ilaya
d. Exceptions  Salvador, the respondent judge then entered a judgment
Sering v. CA, 371 S 151 ordering SWU to indemnify private respondents 3,000Php
 Spouses Sering executed a deed of real estate mortgage in representing the reasonable value of the house built by him
favor of Clarita Garcia of a parcel of land amounting to in good faith on the land in question
200,000Php  SWU made a consignation to this effect in court, withdrew
its appeal, having been convinced of the fairness and
reasonableness of judgment
 Court rendered a decision contending that SWU has failed to DID THE FORTUITIOUS EVENT, (WAR) HAD THE EFFECT OF
comply with its earlier decision thus ordering SWU to pay EXTINGUISHING THE OBLIGATION?
Baliguat and Ilaya 8,400Php prevailing assumed value of
the land SC RULED:
WAS THERE A VALID CONSIGNATION?  No.
 The defense of fortuitous event is available only in
SC RULED: obligations that are determinate
 Consignation cannot be attacked on the lack of notice to  The obligation in the case at bar is that of a generic one
Baliguat and Ilaya because, if execution has to be made since it involves the payment of money
from the time the case is remanded to the court of origin,
notice of the consignation must have come to the Republic v, Grijaldo, 15 S 681
knowledge of private respondent when SWU moved for the  Jose Grijaldo obtained a loan from Bank of Taiwan, Bacolod
execution on October 9, 1973, less than 90 days from the City Branch
expiration of the obligation  Grijaldo issued several promissory notes and as a security,
 Requirement of notice is only applicable in cases where the he executed a chattel mortgage on his standing crops which
obligation to pay was imposed by the contract crops were subsequently destroyed by the Japanese forces
 In the case at bar, the obligation to pay was imposed by the during the last war
court, thus notice of consignation need not be effected  After the war, RP brought the present action to collect from
the appellant the unpaid account
Loss of the Thing Due: (Articles 1262 – 1269) IS THE BORROWER STILL LIABLE FOR THE LOAN DUE TO THE
1. Thing DESTRUCTION OF THE CROPS BY THE JAPANESE FORCES?
PLDT v. Jeturian, 97 P 981
 Before the war, the PLDT adopted a pension plan for its SC RULED:
employees by virtue of which all employees who have  On the transfer of assets to the RP from the Bank of Taiwan
reached the age of 50 years and who have rendered 20 o Pursuant to the enemy act, the properties of the
years or more service may be retired with a pension Bank of Taiwan were vested in the US Government
 After the war, the BOD of the company passed a resolution and further to the RP
abrogating the pension plan  On obligations to give
 Sixty employees were affected and filed a complaint against o The obligation of Grijaldo was not to deliver a
the company claiming monetary benefits under the pension determinate thing – his obligation was to pay a
plan generic thing, the amount of money representing the
 PLDT contends, among other things, that the war losses had total sum of his loans with interest
extinguished the obligation of the company to proceed with o Chattel mortgage on the crops only stood as security
the pension plan for his loan

o Thus , the loss of the crops did not extinguish his  A showing of inconvenience is not enough to render an
obligation to pay obligation impossible to perform23
2. Service PNCC v. CA May 5, 1997

Labayen v. Talisay Silay Milling, 52 P 440  A contract was entered into by PNCC and herein private
 The case is an action for damage on the alleged breach of respondents for a rock crushing project in which petitioners
contract to grind sugar cane in 1920-1921 had to enter into the contract of lease with private
 Labayen and Talisay Silay Milling entered into a contract in respondents
which the obligations of the producer are:  Lease contract, among others, contained the ff:
o Deliver the cane o Period of 5 years
o Bind himself to plant each year according to the o Suspensive condition of obtaining an “industrial
usage and custom of a good agriculturist permit” with the Ministry of Human Settlements and
 Mutual obligations: payment of lease starts within the happening of this
o In case of inability to secure rights of way “La condition
central” shall notify the Committee of Producers and  PNCC obtained from Ministry of Human Settlements a
without incurring any liability for the non-fulfillment of Temporary Use Permit
the terms of his contract, and all effects shall be  Subsequently, private respondents wrote to PNCC
suspended during periods of incapacity requesting payment for the first annual rental of 240,000
 Central has not continued its railroad through the Hacienda due and payable upon the execution of the contract
dos Hermanos. Civil engineer testified that it would be  PNCC contends that the payment of rentals would
possible to construct the railroad but to do so would be commence from the date of the issuance of the industrial
dangerous clearance and not from the date of signing and further
CAN TALISAY SILAY EXCUSE ITSELF ON THE GROUND THAT THE alleges that the Temporary Use Permit was not the
RAILROAD CONSTRUCTION IS POSSIBLE BUT DANGEROUS? clearance contemplated in the agreement
 Furthermore, provided that it really had the obligation which
SC RULED: is due and demandable, the same cannot be effected
 No because of rebus sic stantibus – in that PNCC should be
 Law requires parties to do what they have agreed to do. If a released from the obligation because there was an abrupt
party charges himself with an obligation possible to be change in the political climate after the EDSA revolution as
performed, he must abide by it UNLESS performance is well as financial difficulties
rendered impossible by an act of God, law or other party
CAN PNCC INVOKE REBUS SIC STANTIBUS?
Article 1272 – Impossible things or services cannot be the subject

23
matter of contracts
NAGA TelCom in its operation, the electric part of CamSur

SC RULED: Electric in Naga City
 On Estoppel  As a consideration, petitioners agreed to install, 10
o Although the court would have agreed that the telephone connections for the use of Camsur II Electric
“Temporary Use Permit” was not the “Clearance  After 10 years of enforcement, CamSur II electric filed with
Permit” contemplated in the contract, petitioner RTC a complaint for reformation of the contract with
PNCC is estopped from claiming so since, in its letter damages against petitioners on the ground that the same
to private respondents after obtaining such permit it was too one-sided in favor of the petitioners
acknowledged its obligation to pay 20,000 for the o That after 11 years of petitioner’s use of the posts,
month/period of the lease the telephone cables strung by them have become
 On rebus sic stantibus heavier, worsened by the fact that their linemen bore
o PNCC cannot successfully take refuge in Article holes through the posts at which point the post was
126624 as well as Article 126725 because both broken during typhoons
contemplates obligations to do  Trial court ruled that while the contract appeared to be fair
o The obligation to pay rentals constitutes obligations for both parties when it was entered into by them, it had
to give in which the doctrine of rebus sic stantibus been disadvantageous and unfair to private respondent’s
cannot be validly invoked operation because of subsequent events and conditions
o Besides, PNCC failed to state specifically the
circumstances brought about by the abrupt change IS ARTICLE 1267 APPLICABLE?
in the political climate of the country. Prior to SC RULED:
entering into the contract, there was a judicial notice  Yes, Article 1267 speaks of service that has become
that after the assassination of Ninoy, the country had difficult
experienced inflation but, PNCC pursued the o Service shall be understood as referring to the
contract, thus cannot go about invoking 1267 performance of the obligation
 In the case at bar, the obligation of the private respondent
Naga Telephone v. CA 73 S 637 consists in allowing petitioners to use its post in Naga City,
 Naga Telephone Company entered with private respondent which is the service contemplated in the above-mentioned
Cam Sur II Electric Corporation, a contract for the use by article. A bare reading of 1267 reveals that it is not a
requirement that the contract be for future services with
future unusual change
24 Article 1266 – the debtor in obligations to do shall also be released
 Doctrine of rebus sic stantibus
when the prestation becomes legally or physically impossible without o In public international law parties stipulate in light of
the fault of the debtor prevailing conditions and once these conditions
25 Article 1267 – When the service has become so difficult as to be cease to exist the contract also ceases to exist
manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part
3. Beyond the Contemplation of the Parties o It is rather a case where two parties enter into a
contract and the performance becomes impossible
US v. Varadero dela Quinta, 40 P 48 subsequent thereto
 US Army of Manila invited proposals for the construction of  BUT HOW DIFFICULT IS DIFFICULT?
2 scows o It should be noteworthy to mention that one of the
 In response to the invitation, defendants who were doing large dealers in Manila had on hand the supply of
business under Varadero dela Quinta submitted a proposal Oregon pine such was needed to construct the
to build the scows for a sum of 15,850Php scows, the contractor could have made the
 US army accepted the proposal and the contract then was proposition without number to the plaintiff subject to
subsequently crafted modifications when not accepted by the government
 Varadero dela Quinta requested for a 6-month extension of o MERE INCREASE IN THE COST OF PERFORMANCE OR
time commencing the work on the ground that there was not UNEXPECTEDLY BURDENSOME AND OPPRESSIVE
enough supply of suitable lumber in the market WAR CONDITIONS ARE INSUFFICIENT PLEAS
o But Varadero dela Quinta could have secured lumber o Contracts with the government must be performed
but the price would completely offset his realized according to their tenor
profit
 Subsequently, Varadero dela Quinta was notified that unless
the work was undertaken immediately and satisfactory bond Condonation or Remission: (Articles 1270 – 1274 and 748 – 752)
be given the next day, steps would be taken to guard the 1. Definition
interests of the government by either awarding the contract Soria vs. COA, February 8, 2011
to the next lowest bidder or such other manner as may be  Land Bank was engaged in a cattle financing program
necessary wherein loans are granted to various cooperatives
 The scows were finally constructed by the Insular Collector  Cooperatives who wish to avail a loan must
of Customs and Varadero dela quinta is now asked to pay o Fill up a Credit Facility Proposal
for the difference between its bid and the actual cost of the o Enter into a MOA with supplier
construction to the Government  IPIL Branch approved the applications of four cooperatives,
granting them a total of six loans altogether
WHAT KIND OF IMPOSSIBILITY WAS IS CONTEMPLATED IN THE  Petitioners Soria and Reyes – employees of the IPIL Branch
CASE AT BAR? allege that the terms of the CFP allowed for advancement of
payments prior to the delivery of the cattle by the supplier
SC RULED: REMAD Livestock Corporation
 On the impossibility of performance  3checks were issued by the IPIL Branch to REMAD to serve
o This is not a case of impossibility of performance as advanced payment, but REMAD failed to supply the cattle
existing at the time of the contract and known to on the date agreed upon
both parties
 Land Bank auditor disallowed the amount of the 3 checks creditor on his right to go after the debtor for the
advanced amounting to 3,115,000Php in view of the non- fulfillment of the obligation
delivery of the cattle as well as the fact that the advanced o SUCH is not the case here for, when in the future, the
payment made by the IPIL branch were in violation of the debt becomes collectible, the debtor becoming
bank’s policies and COA’s rules and regulations solvent, the BOOKS WILL BE ADJUSTED TO REFLECT
 Employees, including Soria and Reyes, herein petitioners THE AMOUNT TO BE COLLECTED AS AN ASSET, AN
are now asked to refund the disallowed transaction but they ACCOUNTS RECEIVABLE.
contend that the same had been written off by the main o Condonation, for it to exist, there should be
branch, approved by the CB, thus amounting to a acceptance by the debtor. The action of LBP here
condonation of the same and the obligation is hereby required no acceptance from the debtor for it is a
extinguished unilateral function of the bank and such is not an act
of gratuity
WAS THERE A CONDONATION AS THE RESULT OF LBP’S WRITE
OFF? 2. Presumption
Velasco v. Masa, 10 P 279
SC RULED:  Martin Masa received from Velasco a loan in July 1898
 On Write-off payable on the same month the ff. year
o A write-off is a financial accounting concept that  The debt was evidenced by a private document signed by
allows for the reduction in value of an asset or the debtor
earnings by the amount of an expense or loss  Velasco as detained a prisoner in Antique and contends that
o It is the means of removing a bad debt from the while in prison, Masa used coercion and trickery to obtain
financial records of the bank possession of the private document evidencing the debt
 On the authority of the Land Bank to write-off loans from Velasco’s wife
o LBP is a unique and specialized banking institution  Masa, on the other hand, contends that the instrument was
which is governed by a CB circular which vests the voluntarily handed down to him by Velasco’s wife, not on
determination of the frequency of writing off loans in Velasco’s orders but with Velasco’s approval
the BOD provided they do not exceed the aggregate  Masa contends that it was delivered to him for reasons of
amount gratitude
 On condonation
o Write-off is an accounting strategy to maintain a WAS THE DEBT LEGALLY RENOUNCED? DID THE CREDITOR WAIVE
more accurate task of crafting the inventory of the HIS RIGHT TO RECOVER THE AMOUNT FROM THE DEBTOR?
worth of its current assets
o A condonation on the other hand extinguished the SC RULED:
obligation by a gratuitous abandonment of the  On Preponderance of Evidence

o Through preponderance of evidence, Masa was able that the claim should have been presented in the estate
to prove that he did not obtain the document by proceedings in which he was named the administrator of
means of coercion and trickery and that Velasco has the estate
no sufficient proof on the contrary
 On Remission IS THE WIDOWER OF MARCELLA LIABLE TO PAY MARCELLA’S
On the judge’s conclusion, the return of the document made MOTHER FOR THE HOSPITALIZATION EXPENSES DURING
by the wife of Velasco was voluntary and upon failure of MARCELLA’S LIFETIME?
presenting sufficient evidence to prove the contrary, the
debt is legally renounced and that the creditor has waived SC RULED:
its right to recover the amount from the debtor.26  In conjugal partnership which is dissolved by reason of
the death of one of the spouses, the surviving spouse is
Confusion: (Articles 1275 – 1277) obliged to settle the conjugal partnership. In this
1. Concept settlement, a deduction shall be made of the debts
Sochayeseng vs. Trujillo, 31 P 153 incurred during the marriage and what remains should
 Paulina Sochayeseng, mother of the deceased, Marcela be divided into two parts, the part corresponding to the
Sochayseng, filed a complaint against Marcela’s widower deceased spouse together with her own property, the
Andres Trujillo in that she asks that she be reimbursed of capital brought by the husband shall be paid, and
the total expenses she incurred when Marcella was whatever remains will be the conjugal property which
hospitalized as well as the funeral expenses therein. shall be divided in accordance with the law governing
 Background: the subject.
o Marcela Sochayseng left her husband’s house  The settlement is hereby stated as follows:
without the latter’s knowledge and consent. She o 659Php as community property
went to her mother and spent her remaining days o 875Php as paraphernal property
with her. Her mother was the one who paid all o =1,534, from which 320Php shall be deducted
hospitalization, care and subsistence, as well as due to the fact that funeral expenses shall be
burial expenses. paid by the legitimate heir and not by the
 Marcella’s widower, Trujillo, on the other hand, alleges that husband
he has given a certain amount every month to support and o 1534Php + 410Php = 1,944Php (which is the
total amount which the husband shall pay as
legal administrator of the community property for
26Article 1272- Whenever the private document in which the debt the cost of subsistence to which the deceased
appears is found in the possession of the debtor, it shall be presumed was entitled
that the creditor delivered it voluntarily unless the contrary is proved
 The obligation to pay the amount of 320 has been
Article 1271 – The delivery of a private document evidencing a credit extinguished by virtue of the provision which states that
made voluntarily by a creditor to the debtor, implies the renunciation whenever the characters of the creditor and debtor are
of the action of the former against the latter
merged in the same person, the obligation is o Wife was substituted by her heirs – legitimate
extinguished. children of husband and wife
Chittick vs. Court of Appeals, 166 S 219 WAS THERE A VALID SUBSTITUTION TO RENDER THE CASE
 William Chittick and Muriel Chittick are both American FAVORABLE TO WIFE?
citizens who were married in Washington, USA. WAS THERE A MERGER OF RIGHTS?
o Four children were born of the marriage
o Spouses entered into an agreement of separation: SC RULED:
 William agrees to pay his wife a monthly sum  Section 17, Rule 3 of the Rules of Court states:
of 550Php or its dollar equivalent whichever o When a party dies, the heirs of the deceased may be
the wife prefers for the care, maintenance, allowed to be substituted for the deceased without
and support of their minor children. requiring the appointment of an executor or
 Payment will continue until the youngest shall administrator and the court may appoint a guardian
have reached the age of majority provided the for the minor heirs
wife does not remarry  In the case at bar, the counsel of Muriel failed
 Should such remarriage take place, it is to notify the court instantly of Muriel’s death,
understood and agreed that the payments therefore the substitution was INVALID
aforementioned shall be reduced by 20%  And even assuming that the substitution was VALID:
 CPG with net realizable value of 22,500Php o The obligation will still be extinguished by virtue of
which the husband agrees to divide equally Article 127527 since the Chittick children as heirs of
with the wife and deliver the same whenever both parties, the obligation is extinguished by
said wife secures a final decree of divorce MERGER in their persons in the same obligation
 William went to Nevada and the wife, alleging desertion on
the part of the husband, obtained a divorce 2. Merger of Rights
 Husband complied with the monthly payment of 550Php Yek Ton Lin vs. Court of Appeals, 46 S 473
until the war broke out in 1941  Defendant Yusingco was the owner of the steamship named
 Husband, during the period of interment, paid to wife, after him and executed an SPA in favor of Seguioc to
4,716Php which was extended as a loan to the wife which administer, lease, mortgage and sell his properties including
was obtained from borrowing from his friends his vessels and steamships.
 Wife commenced an action to recover from the husband  Seguioc mortgaged to Yek Tong Lin Fire and Marine
support in arrears and her share in the conjugal partnership Insurance Co. the steamship Yusingco to answer for any
o Trial court rendered a decision in favor of the wife
 While the case in the court of appeals was pending, wife
died.
o CA upheld the decision of the trial court
27Article 1275 - The obligation is extinguished from the time the
characters of the creditor and debtor are merged in the same person
amount that Yek Tong Lin might pay in the name of the credit to the purchaser of said property in a public
defendant auction, inasmuch as the rule is that a mortgage
 Steamship Yusingco needed to be repaired, and the same directly and immediately subjects the property on
was executed by Earnshaw Docks and Honolulu Ironworks which it is imposed, whoever its possessor may be,
 When neither the Yusingcos could pay the sum to Earnshaw, to the fulfillment of the obligation for the security of
defendant-appellant Vicente Madrigal had to make payment which it was created.
because he was bound by reason of the bond assigned to  On Merger of Rights
him. o Yek Tong Lin is now both the collector of mortgage
 Earnshaw thereafter assigned its credit against Yusingco to credit and the purchaser merged in one person.
Vicente Madrigal. Thus, by virtue of Article 1275, the obligation is
 Subsequently, Vicente Madrigal discovered that Yusingco extinguished from the time the characters of the
will not be able to reimburse him for the repairs made on debtor and creditor are merged in the same person
the steamship, thus filing an action to compel Yusingco to
reimburse him Enriquez v. Ranola, 60 P 219
o Upon failure of the Yusingcos to pay the amounts  This is a case filed against Ranola, administrator of the
stipulated to Vicente Madrigal, a writ of execution estate of Fructuosa Cadiz, praying for a personal judgment
shall be issued in order that the steamship be sold at of 30,000Php with interest and the foreclosure of a
the public auction mortgage securing said debt.
 Yusingcos thereafter failed to pay, thus a subsequent  During Fructuosa Cadiz’ lifetime, no payment of the debt
issuance of the writ of execution. has been made although due demand has been made
 However, before the sale of the steamship was to be  However, intervenors Herrera and Mendoza claims interest
executed, Yek Tong Lin filed with defendant a third party in said land by virtue of their purchase thereof in the
claim demanding said ship for himself, alleging that it had sherrif’s sale which is noted at the transfer certificate of
been mortgaged to him title.
 Yusingco steamship was pursued to be sold at the public  Intervenors further allege that in 1931 defendant
auction with Yek Tong Lin as the highest bidder, thus, the administrator delivered possession of mortgaged property
same was awarded to him by way of antichresis for the remaining portion of the five-
year period stated in the original contract of mortgage. Thus
WAS THERE A MERGER OF RIGHTS AS A RESULT OF YEK TONG praying that the contract of mortgage be declared novated
LIN’S PURCHASE OF THE STEAMSHIP? and the petition dismissed.
 Plaintiffs on the other hand allege that they are the owners
SC RULED: of the land described in the certificate by virtue of their
 On Article 1876 of the Civil Code purchase from Francisco Paulino who, in turn purchased the
o After the steamship had been sold in execution, the same from a sheriff’s sale under an execution upon a
only right of the plaintiff will be to collect mortgage
judgment against Fructuosa Cadiz, which said purchase is o On the other hand PNB has payables to PNEI in the
registered in the registry of deeds. amount of 7,884,000
 Trial court held that when the plaintiffs acquired through o PNB and PNEI are creditors and debtors of each
Francisco Paulino the equity of Fructuosa Cadiz in the very other thus the obligation is extinguished as to the
same lands conveyed to them as mortgagees, a merger of concurrent amount (8,784,227.48 – 7,884,000 =
rights took place which had the effect of extinguishing the 900,227.48)
debt of Cadiz in favor of the plaintiffs.  Gerardo Uy’s contention
 Subsequent thereto is the purchase of intervenor Herrera of o PNB only considered the principal amount. Notice of
all the rights, title and interest that remained in Cadiz on demand was issued by PNEI to PNB and an 18%
said land. interest/annum shall be computed upon failure to
WAS THERE A MERGER OF RIGHTS? pay.
IS THE OBLIGATION OF FRUCTUOSA CADIZ’ PARTY EXTINGUISHED? o Outstanding debt of PNB to PNEI is 75,813,508.26
o Even if the alleged debt of PNB to PNEI amounts to
SC RULED: 8,784,227.48 there shall still be a 67,029,380.78
 Trial court’s decision is hereby upheld. A merger of rights remainder largely sufficient to cover Gerardo Uy’s
took place which had the effect of extinguishing the debt of claim
Cadiz in favor of the plaintiffs.  Uy contends that the case at bar does not constitute a valid
compensation since compensation cannot take place where
Compensation: (Articles 1278 – 1290, Rule 6 of the Rules of Civil one of the obligations sought to be compensated is subject
Procedure) of a suit between a 3rd party and a party interested in the
compensation
1. Concept and Distinctions with Other Means of Extinguishing an  PNB contends that the letter sent to him was not one
Obligation: demanding payment but only one that merely informed him
PNB v. MADECOR, 363 S 128 of the dacion en pago agreement as well as the total unpaid
 Gerardo Uy filed a collection suit against PNEI. He sought to balance.
collect 8,397,440
 Writ of preliminary attachment was issued, covering all real WAS THERE A VALID COMPENSATION UNDER ARTICLE 127928?
and personal properties of PNEI
282828Article 1279 – In order that the compensation may be proper, it
 Notice of garnishment was subsequently addressed to PNB
is necessary:
attaching all goods, effects, credits, monies and personal (1) That each one of the obligors be bound principally, and that
properties of PNEI he be at the same time a principal creditor of the other
 PNB’s contention (2) That both debts consist in a sum of money or if the things due
o PNEI has not been paying its rentals when it vacated are consumable they be of the same kind, and also of the
the property. PNB’s receivables from PNEI amounted same quality if the latter has been stated
(3) That the two debts be due
to 8,784,227.48Php. (4) That they be liquidated and demandable
 COEC, on May 4 wrote a demand letter on the physical

SC RULED: delivery of the treasury bills which COEC purchased from
 On the 5th requisite IITC on May2
o Assuming there was a valid demand letter, PNB still  Both COEC and IITC had claims against each other and
cannot invoke a valid compensation since payment COEC proposed a legal set-off
of monthly rentals accrued during 1990-1994 and  Subsequently, IITC,COEC and PDB entered into a tri-
the demand to pay was sent in 1993 partite agreement wherein PDB assigned to IITC which in
o Because there was an action commenced by third turn assigned to COEC Central Bank Bills with a total
persons on the properties within such time that the face value of 50,000,000
demand letter was sent, there could not have been  IITC argues that there cannot be a valid legal set-off
any valid compensation because:
 On the 3rd requisite o COEC did not become a creditor because COEC
o SC ruled on this third requisite that both debts shall did not pay IITC the purchased treasury bills
be due and demandable o Obligations did not consist of a sum of money,
o PNBs contention that the letter sent to him was not neither are the obligation of the same kind
one demanding payment was merited by the courts. CAN THERE BE A VALID LEGAL SET-OFF?
Insular Investment vs. Capital One, April 25, 2012 SC RULED:

 IITC and COEC as well as PDB are regularly engaged in  An examination of the requisites may be useful:
the trading, sale and purchase of Philippine Treasury o Each one of the obligors are bound principally and
Bills that he be at the same time a principal creditor of
 IITC purchased from COEC treasury bills with an the other
aggregate face value of 260,683,392.51 COEC was able  IITC acted as principal in the purchase of
to deliver 121,050,000 worth to IITC treasury bills from PDB and in the subsequent
 PDB, on May 2, issued confirmations of sale in favor of sale to COEC of the COEC treasury bills. Thus
IITC and IITC issued confirmations of purchase in favor of COEC and IITC are principal creditors of each
PDB over treasury bills with a total face value of other in relation to the sale of COEC T-Bills
186,790,000Php and IITC T-Bills respectively
 PDB undertook to deliver the 186,790,000 to IITC as o That both debts consist in the sum of money, or if
soon as they will be available things due are consumable, they be of the same kind
and also of the same quality if the latter has been
stated
(5) That over neither of them there be any retention or  The fact that IITC accepted the CB bills as
controversy, commenced by third persons and communicate payment of the part of IITC T-Bills is evidence
in due time to the debtor of IITC’s willingness to accept other forms of
security. Second requisite only requires that WHETHER OR NOT IT IS PROPER TO COMPENSATE THE
the thing be of the same kind and quality, INDEBTEDNESS IF DEFENDANT IS A STOCKHOLDER OF PLAINTIFF?
COEC T-Bills and IITC T-Bills are both
government securities and the tri-partite SC RULED:
agreement recognized the monetary value  A share of stock or certificate is not an indebtedness or an
and treated them as sums of money evidence of indebtedness of the owner to stockholder.
o Two debts be due Stockholders are not creditors of a corporation
 Both debts remained unsatisfied  The capital stock of the corporation is a trust fund to be
o They be liquidated and demandable used more particularly for security of the creditors of the
 Existence and amount are determined corporation who presumably deal with it on the credit of its
o That over neither of them, there be any retention or capital stock
controversy commenced by 3rd persons and  There is no sufficient ground to justify a compensation
communicated in due time to the debtor
 No retention or controversy Domingo vs. Carlitos, 8 S 443
o Therefore, in the case at bar, there was indeed a
 In the estate proceedings of the late Walter Scott Price, the
valid legal set-off/compensation
government claims inheritance taxes in the amount of
40,058.55Php
2. Requisites:  On an earlier petition, SC ruled for the settlement of
Garcia vs. Lim Chiu Sing, 59 P 562 inheritance taxes, etc.
 Lim Chu Sing executed and delivered to the Mercantile Bank  However, CFI of Leyte denied the enforcement of claims
of China a promissory note for the sum of 19,605.17Php presented subsequently as the Government is indebted to
 Debt was not really an indebtedness to Lim Chu Sing, who the estate under administration in the amount of
had an account with plaintiff bank in the form of trust 262,200Php
receipts. Bank, without knowledge and consent of Sing, CAN THERE BE A VALID COMPENSATION?
foreclosed the chattel mortgage and privately sold the
property covered thereby SC RULED:
 Lim Chu Sing failed to pay his obligations, thus, the bank  The court having jurisdiction of the estate had found that
required Lim Chu Sing, as surety to execute a promissory the claim of the estate against the Government had been
note appropriated for the purpose of RA 2700
 Lim Chu Sing had been paying the installments until the  Both the claim of the government for inheritance taxes and
debt was reduced to 9,105.17Php the claim of the intestate for services rendered have already
 Lim Chu Sing is the owner of the shares of stock amounting became due and demandable as well as fully liquidated
to 10,000Php and now asks that the sum be legally set-off  Compensation in the case at bar takes place by operation of
law.

Soriano vs. Compania General, 18 S 999 IS SORIANO ENTITLED TO BE CREDITED?

 Compania General de Tobaco de Filipinas granted CAN DEFENDANT, COMPANIA GENERAL INVOKE AUTOMATIC
Soriano a crop loan account to finance the planting, COMPENSATION?
cultivation, harvesting and milling of sugar cane in
Soriano’s various sugar cane plantations SC RULED:
 A subsequent loan agreement was entered into and to  Contention of Compania General that Soriano is not entitled
secure both the prior and the latter loans, Soriano to be credited because the sugar was exported and sold in
executed a deed of mortgage in favor of defendant on the US without Soriano’s authority and for Compania
the sugar cane plantations of Soriano. General’s own account cannot be sustained for there was
 Soriano and herein defendant, Compania General no need for an authorization from plaintiff to export his
included in their agreement that Soriano is to be sugar because defendant was expressly authorized to sell
obligated to deliver sugar during crop year of 1941-1942 Soriano’s sugar delivered to it in pursuance of the crop loan
and defendant, Compania General is to sell it at the agreement.
most advantageous prices of which, the proceeds  Compania General cannot invoke the defense of automatic
thereof will be credited to plaintiff’s account. compensation since by virtue of Article 1278, compensation
 Defendant sent several statements of the outstanding takes place when two persons in their own right are
balance of Soriano and Soriano noticed that his debt creditors and debtors of each other. As defendant theorizes,
was increasing due to the accumulation of interest the sugar was shipped to the US for its own account, it
charged by defendant. cannot reverse its stand and consider Soriano as its
 Soriano made several inquiries from defendant about creditor. AND EVEN IF WE CONSIDER SORIANO AS
the status of his export sugar produced during 1941- CREDITOR OF DEFENDANT TO THE EXTENT OF 35,528.01
1942 crop year, however, defendant informed Soriano piculs of sugar WHICH DEFENDANT EXPORTED WITHOUT
that said sugar was destroyed during the war but it was CREDITING SORIANO’S ACCOUNT, THE VERY ACT OF FAULT
later found out by Soriano that said sugar was in fact AND BREACH OF THE CROP LOAN AGREEMENT WOULD BE
sold by defendant and that the defendant acted with THE ONLY REASON WHY SORIANO WOULD BE THE
malice and wanton attitude. CREDITOR OF COMPANIA GENERAL.
 65, 787.50 piculs of sugar was the total quantity
delivered by Soriano and defendant was able to sell 35, Republic vs. Mambulao, 4 S 622
528.01 piculs of sugar – which, Soriano contends  Under RA 115, regular forest charges as well as
should have been credited to his account .50cents each cubic meter of timber shall be collected
 Defendant now contends that Soriano is not entitled to by any company which would utilize said timber for
be credited because the sugar was exported and sold commercial purposes.
without Soriano’s authority and even if it should be  Mambulao Lumber Co. is indebted for an aggregate
credited, amount of 4,802.37Php to RP for reforestation charges
but contends that the same shall be legally set-off since CAN PNB VALIDLY APPLY A DEPOSIT TO THE DEBT OF A DEPOSITOR
his aggregate payment of 9,127.50Php to RP has not yet TO THE BANK?
been used for reforestation purposes. IS GULLAS ENTITLED TO AWARDING OF DAMAGES?
WHETHER OR NOT THE SUM OF 9,127.50PHP PAID BY MAMBULAO SC RULED:

MAY BE SET-OFF OR APPLIED TO THE PAYMENT OF THE SUM OF  On PNB’s application of Gullas’ outstanding balance
4,802.37PHP AS FOREST CHARGES TO RP o Relationship between PNB and Gullas is that of a
debtor and creditor
SC RULED: o General rule applied in this jurisdiction is that a bank
 Under RA 115, it seems quite clear that the amount has a right of set-off of the deposit in its hands for
collected as reforestation charges shall constitute a fund the payment of any indebtedness to it on the part of
known as the Reforestation Fund which shall be expended the depositor.
by the Director of Forestry with the approval of the Secretary  On the awarding of damages
of Agriculture and Natural Resources, upon investigation of o BUT Atty. Gullas is in his capacity as an indorser, and
the areas needing reforestation in this case, a NOTICE is necessary in order for
 There is nothing in the law that requires that the amount Gullas to protect his interests
collected as reforestation charges should be used o Gullas should be awarded nominal damages29
EXCLUSIVELY for the reforestation of the area covered by because of the premature action of the bank against
the license. which Gullas had no means of protection
 There is no compensation where parties are NOT
CREDITORS AND DEBTORS OF EACH OTHER. Ong vs. Court of Appeals, 177 S 402
 Ong borrowed 160,000 from private respondent and
secured payment of 3post-dated checks totaling the
Gullas vs. PNB, 62 P 519 same amount
 Atty. Gullas was a member of the Philippine Bar and a  Ong issued a 4th check in partial settlement of the loan,
holder of a current account with PNB which, when encashed, reduced the loan to 120,000
 Atty. Gullas, together with Pedro Lopez signed as  Ong stored in private respondent’s warehouse quantity
indorsers of the check paid to the US Treasury as of zippers valued at 181,000
payment to the warrant in the amount of $361 for their  When Ong tried to get the zippers, private respondent
client. refused to release them on the ground of non-payment
 PNB learned of the dishonor of the treasury warrant thus of the loan
applied the outstanding balance of Gullas’ current
accounts to the US Treasury. 29 Article 2221 – Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by him.
 Ong promised to pay his indebtedness if the zippers be  On the same date, CONGENERIC paid 103,483.33 Php, the
returned to him, but likewise claims that because private 3,483.33Php coming from its own funds
respondent refused to release the zippers, the same  CONGENERIC paid Mojica the interests due from both the
became outmoded and lost their value debts it incurred and the principals for both were rolled-over
to mature on October 4, 1974 and October 11, 1974
WHETHER OR NOT FERMIN ONG CAN VALIDLY INVOKE respectively
COMPENSATION  Mojica, assigned both the accounts of CONGENERIC to
Mever through a notarized deed
SC RULED:  CONGENERIC advised Mever that of the original amount of
 Each one of the obligor be bound principally and that he be 500,000 the sum of 200,000 was sold to a third party
at the same time a principal creditor of the other (Corazon Perez)
o Mariano Ong, the private respondent, is not a debtor  MEVER contends that because Mojica assigned to it the
of Fermin Ong, it is only the latter who is indebted to account of the debt due by CONGENERIC to Mojica, it could
Mariano Ong take into account that assignment.
 Both debts consist in the sum of money, or if the things due  Trial court upheld MEVER’s contention that there was legal
are consumable, they be of the same kind and of the same compensation in lieu of the assignment made by Mojica to
quality, if the latter had been stated MEVER
o Debts in the case at bar do not both consist in a sum
of money nor are they of the same quality or of the WAS THERE A VALID LEGAL COMPENSATION?
same kind
SC RULED:
Perez vs. Court of Appeals, 127 S 636  Bills 1298 and 1419 will mature on August 6 and August 13
 CONGENERIC Development and Finance Corporation is a respectively, however, Ramon Mojica was still the holder of
company engaged in “money market” operations those bills during that time.
 On May 8, 1974 and May 15, 1974, CONGENERIC issued  The assignment was made on September 9, 1974 but due
promissory notes valued at 111,973.58Php and to the inevitable result of the roll-overs made by Mojica on
208,666.67Php respectively in favor of Ramon Mojica account of both bills, the maturity of both is reset in the
 MEVER Films Inc, private respondent in the case at bar month of October, which reason could not have validly
borrowed 500,000Php from CONGENERIC, issuing a amounted to a legal compensation BECAUSE FOR IT TO
promissory note to be referred to as NCI-0352 EXIST, THE TWO DEBTS, among other requisites, MUST BE
 CONGENERIC sold to Perez 200,000Php out of the DUE AND DEMANDABLE.
500,000Php of the NCI-0352. In lieu of this sale,
CONGENERIC obligated itself to pay 3,433.33Php. Mialhe vs. Manalili, 6 S 453
 On August 5, 1974, MEVER paid 100,000Php on account of  In Aug. 1955, Mialhe obtained a judgement against Halili for
NCI-0352 the sum of 74,400
 Pending appeal, Mialhe executed a writ of execution in  To secure the petitioner from said warehousing bonds, Lim
which the court affirmed executed an indemnity agreement in which it bound himself
 On appeal, the court modified the judgement by reducing jointly and severally with the textile company to indemnify
the amount from 74,400 to 46,800 and hold and save harmless the Corporation from and
 Halili moved for the return of the Sherriff’s fees, cost of against all damages, losses … etc
publication and amount retained by Mialhe but Mialhe  Private respondents failed to comply with their commitment
opposed contending that under the law, the Sherriff’s fees under the warehousing bonds therefore the Bureau
and cost of publication must be borne by the judgment demanded from the Pioneer Insurance the value of the
debtor bonds in the amount of 6,390,259Php which eventually
 Petitioners also contend that the amount of 2,004.28Php – reached 9,031,000Php.
the amount in consideration of the appeal, petitioners are  Bureau of Customs agreed on staggered payments by the
creditors to this amount just as they are debtors of Halili in respondents, however, after an initial payment of
the amount still due through the modified decision of the SC 500,000Php respondents have not made any other
and thus compensation shall take place. payments, thereby violating the terms of the said agreement
 Subsequently, a fire gutted the respondent’s factory
DO THE PETITIONERS HAVE THE RIGHT TO RETAIN 2,004.28 ON destroying the materials insured by the Pioneer Insurance,
THE DEFENSE OF COMPENSATION? total value of which is 1,144,744.49Php.
 Respondents demanded payment of said insurance claim,
SC RULED: but petitioners contend that said proceeds must be applied
 Compensation cannot take place since Halili is still being by way of partial compensation or set-off against its liability
the subject of court litigation with the Bureau of Customs arising from the warehousing
o Requisite (5) – That over neither of them there be bonds.
any retention or controversy, commenced by third
persons and communicated in due time to the WAS THERE A VALID COMPENSATION IN THE CASE AT BAR?
debtor.
SC RULED:
 There is no dispute that the petitioner owes the private
3. Other Kinds of Compensation: respondents the amount representing the proceeds of
Pioneer Insurance vs. Court of Appeals, 180 S 156 the insurance policy.
 Pioneer Insurance and Surety Corporation issued general  The contention of private respondents that the
warehousing bonds in favor of Bureau of Customs for petitioners cannot claim for reimbursement because
importation of raw materials in the total amount of they have not paid Bureau of Customs yet cannot be
6,500,000Php. Bonds were issued on behalf of private maintained since it was ruled in jurisprudence that
respondents Wearever Textile Mills, and its president stipulations in the indemnity agreement allowing the
Vicente Lim surety to recover even before it paid the creditor is
enforceable and it has long been settled by courts in the DID PETITIONER HAVE THE RIGHT AGAINST DELTA DUE TO THE
affirmative. COMPENSATION OR OFFSETTING BETWEEN THE SECURITIES
 Thus, legal compensation can take place because all ISSUED BY BOTH IN FAVOR OF EACH?
requisites for a valid compensation are present.
DID THE BANK INCURRED LIABILITY BY NOT RELEASING THE
Sesbreno vs. Court of Appeals, 222 S 466 SECURITY TO SESBRENO?
 A money market placement was made by DELTA with
PHILFINANCE in the amount of approximately 4,600,000 SC RULED:
on April 10, 1980. On the same day, Delta borrowed  On the rights of Sesbreno against Delta and the
back from Philfinance the bulk of the money market compensation that took place
placement in the amount of 4,000,000Php and issued o For legal compensation to take place the ff requisites
two promissory notes, DMC PN 2730 and DMC PN 2731 must be satisfied:
 Petitioner Sesbrenio made a money market placement  That each one of the obligors be bound
by buying DMC PN 2731 in the amount of 300,000Php principally and that he be at the same time a
with Philfinance, placement of which would mature on principal creditor of the other (satisfied due to
March 13, 1981 the money market placement of Delta to
 Philfinance delivered to Sesbreno in March 26, 1981 the Philfinance and in turn, the debt of Delta to
Denominated Custodian Receipt issued by private Philfinance)
responded Pilipinas Bank, the holder of the securities  That both debts consist in a sum of money, or
if the things due are consumable, they be of
 Sesbreno, on April 2, 1981 approached Ms. De Villa of
the same kind, and also of the same quantity
Pilipinas Bank and handed her a demand letter
if the latter has been stated (satisfied)
informing the bank that his placement with Philfinance
 That the two debts are due (assignment to
had remained unpaid and outstanding and that he, in
Sesbreno was made on February 9, 1981 and
effect was asking for the physical delivery of the
neither of the securities could have matured
underlying promissory note.
on said date, assignment to Sesbreno would
 Pilipinas never released DMC PN 2731 to Sesbreno have prevented compensation to take place
 Thus, Sesbreno wrote a demand letter to Delta in July between Philfinance and Delta, to the extent
14, 1981 for partial satisfaction of DMC PN, but Delta of 304, 533.33Php, because upon execution
denied liability since a legal-set off/compensation had of the assignment in favor of petitioner,
taken place upon maturity of the securities with PN 143- Philfinance and Delta would have ceased to
A issued in favor of Delta. be creditors and debtors of each other.
 Sesbreno now claims that Philfinance is solely and However, Sesbreno only notified Delta of the
legally obligated to return the investment of Sesbreno fact of the assignment in July 14, 1981 when
and answer all damages that Sesbreno has suffered. the DMC PN 2731 had already been

discharged by compensation. However,

Philfinance thereafter still remains liable to
petitioner under the terms of the assignment
made by Philfinance to petitioner.)
 That they be liquidated and demandable
(satisfied)
 That over neither of them there be any
retention or controversy commenced by third
persons and communicated in due time to the
debtor (satisfied)
o Hence a valid compensation have taken place. Thus, Novation: (Articles 1291 – 1304)
Sesbreno cannot validly run after Delta in fulfillment
of Delta’s obligations, but should run after 1. Concept:
Philfinance by virtue of the terms of assignment. Cochingyan vs. R & B Surety, 151 S 339
o Furthermore, the awarding of damages shall be  Pacific Agricultural Suppliers applied for and was granted an
instituted against Pilipinas Bank because it was the increase in its line of credit from 400,000 to 800,000Php
one who prevented the delivery of subject security to with the PNB.
Sesbreno, thus, allowing for a compensation that  To secure PNBs approval, PAGRICO had to give a good and
took place between Delta and Philfinance, affecting sufficient bond at 400,000Php representing the increment
the security assigned to him. of its line of credit thus, submitted Surety Bond no. 4765
issued by R&B Surety and Insurance Co. with the latter and
the former binding themselves jointly and severally to
comply with the terms and conditions of the advance line of
credit established by PNB.
 Two identical indemnity agreements were subsequently
executed
o Joseph Cochingyan in his personal and individual
capacity – President of Catholic Church Mart
o Jose K. Villanueva – Manager of PAGRICO
 PAGRICO failed to comply with its principal obligation to PNB
thus, PNB demanded payment from R&B Surety which in
turn, sent formal demand letters to Cochingyan and
Villanueva for the reimbursement of the payments made by
it to PNB

 Two years after the Surety Bond and the indemnity old one, or by subrogating a third person to the rights of the
agreements were entered into, the petitioners executed a creditor.30
Trust Agreement for the purpose of appointing a trustee for  Two types of Novation:
the purpose of paying to PNB in the manner stated in said o Objective/Real Novation
agreement which states in part:  Novation through a change of object or
o Whereas, PAGRICO and PACOCO in the payment of principal conditions of an existing obligation
their respective obligations to PNB guaranteed by  Imperative that the new obligation expressly
the bonds of R&B Surety, and by reason of said declares that the old obligation is thereby
default, PNB has demanded compliance by the extinguished, or that the new obligation be on
R&B… every point incompatible with the other
o Trustors (Cochingyan) is therefore, bound to comply  NOVATION IS NEVER PRESUMED
with his obligation under the indemnity agreement… o Subjective/Personal Novation
o This agreement shall not in any manner release the  Novation by change of either the person of
R&B and … from their respective liabilities under the the debtor or of the creditor
bonds mentioned above  It is not enough that the juridical relation
 Petitioners now contend that the trust agreement had between the parties to the original contract is
extinguished by novation the obligation of R&B Surety to extended to a third person, it is essential that
PNB under the surety bond, which, in turn, extinguished the the old debtor be released from the principal
obligations of the petitioners under the indemnity obligation and the third person or new debtor
agreements take place in his new relation
WAS THERE A NOVATION AS A RESULT OF THE TRUST o Both Subjective and Objective
AGREEMENT?  Dual purpose is achieved, an obligation is
extinguished and a new one is created
SC RULED:  In the case at bar, because of the express stipulation of the
 With the express stipulation of “This agreement shall not in Trust Agreement that the old obligation as well as the old
any manner release the R&B and … from their respective debtors are not released from the fulfillment of the
liabilities under the bonds mentioned above”, there is no obligation, no novation has taken place.
question that the Surety Bond has been cancelled or fully
discharged by payment of the principal obligation Guerrero vs. Court of Appeals, 29 S 791
 Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent
one which terminates it, either by changing the principal
conditions or by substituting a new debtor in place of the 30 Article 1291 – Obligations may be modified by:
(1) Changing their object or principal conditions
(2) Substituting the person of the debtor
(3) Subrogating a third person in the rights of the creditor
 Jose Robles borrowed 25,000Php from Chan Too and to there is a showing of complete incompatibility between the
ensure payment, executed a bond for 25,000Php from two obligations
Alto Surety and Insurance Company.  In the case at bar, There was indeed no incompatibility
 In consideration of the issuance of the bond, Robles, between the two obligations that would sustain the defense
Guerrero and Legarda executed an “Agreement of of novation. 31
Counter Guaranty with Mortgage and Pledge”
undertaking jointly and severally to indemnify ALTO for Banate vs. Philippine Countryside Rural Bank, July 13, 2010
any damages, loss, payments of what ever kind of  Spouses Maglasang obtained a loan from PCRB in the
nature which might be incurred by ALTO as a result of amount of 1,070,000Php (subject loan) which was
the bond issued. evidence by a promissory note.
 Robles failed to pay his indebtedness to Chan Too, with  To secure payment of the loan, the spouses Maglasang
the latter instituting a case against the former which executed in favor of PCRB a real estate mortgage over
resulted in a compromise agreement in which Robles their property.
recognizes his liability in the accumulated sum of  Aside from the subject loan, the spouses obtained two
35,750Php and that ALTO also recognizes his liability for other loans which were covered with separate
the amount of 25,000Php. promissory notes and secured by mortgages on their
 Robles defaulted in his obligations and subsequently other properties.
ALTO instituted this present action against Guerrero on  Sometime in 1997, the spouses Maglasang together
the basis of the Counter-Guaranty agreement for the with spouses Cortel asked PCRBs permission to sell the
recover of 25,000Php with interest at 12% per annum subject properties and requested that said properties be
from the date of the complaint and 15% for attorney’s released from the mortgage since the two other loans
fees were adequately secured by other mortgages.
 Guerrero now contends that by virtue of the compromise  Spouses Maglasang claimed that Mondigo, branch
agreement, he is now released from his obligation under manager entered into a verbal agreement with them
the counter-guaranty agreement. and agreed on their request.
 The Subject property was thereafter sold to Banate, in
WAS GUERRERO, BY VIRTUE OF THE COMPROMISE AGREEMENT which when the TCT was effected to her name, a
SUBSEQUENTLY ENTERED INTO AFTER THE COUNTER-GUARANTY mortgage lien in favor of PCRB was still annotated
AGREEMENT, RELEASED FROM HIS OBLIGATIONS? prompting Banate to request for a Deed of Release of
Mortgage.
SC RULED:
 While the agreement was captioned “counter-guaranty” it
was in the nature of an indemnity agreement. 31Article 1292 – In order that an obligation may be extinguished by
 In order that a debtor be released from his obligations, it is another which substitutes the same, it is imperative that it be
imperative that the novation be expressly mentioned or declared in unequivocal terms, or that the old and the new obligation
be on every point incompatible with each other.
 PCRB contends that the cross-collateral stipulation in its second contract was executed by persons with the proper
agreement with the spouses Maglasang was in effect authority to bind their respective principals is NECESSARY.
and thus, partial payment of the total loans to PCRB will
not authorize the release of the subject properties from Hernandez-Nieverra vs. Hernandez, February 14, 2011
its mortgage  Project Movers Realty and Development Corporation is a
 Spouses likewise contends that their agreement with domestic corporation engaged in real estate
Mondigo constituted a novation and thus, they be development.
released from their obligation and that the subject  Sometime in 1995, it entered through its president
properties be released from mortgage various agreements with Home Insurance &Guaranty
Corporation and Land Bank of the Philippines in
DID THE VERBAL AGREEMENT WITH MONDIGO CONSTITUTED A connection with the construction of Isabel Homes and
NOVATION OF THE PREVIOUS OBLIGATION? Monumento Plaza.
 In its Asset Pool Formation Agreement, PMRDC conveyed
SC RULED: to HIGC the constituent assets of the two projects
 Novation is either extinctive or modificatory whereas LBP agreed to act as trustee of the resulting
 It is extinctive when an old obligation is terminated by the Asset Pool for a consideration.
creation of a new obligation that takes the place of the  A MOA was entered into by PMRDC whereby it was given
former and it is merely modificatory when the old obligation the option to buy pieces of land owned by the petitioners
subsists to the extent that it remains compatible with the herein under the authority for a special power of
amendatory agreement. attorney, Demetrio signed the MOA in behalf of the
 An extinctive novation results either by: petitioners.
o Changing the principal object or conditions  The subject land in the MOA was segregated by
o Subrogating a third person in the rights of the agreement into Area 1 and 2
creditor o Area 1 – 6,000,000Php payable in two equal
 Requisites therefore for an extinctive novation to take place installments
are: o Area 2 – 8,000,000Php payable within 30 days
o A previous valid obligation after the conveyance to the Isabel Homes Asset
o An agreement of all parties concerned to a new Pool
contract o Should the vendee PMRDC fail to exercise its
o Extinguishment of the old obligation option to purchase said described parcels of
o Birth of a valid new obligation lands within the stipulated period, the option
 In the case at bar, the second requisite was not complied money shall be forfeited in favor of the vendor
with. As a general rule, no form of words or writing is PETITIONERS…
necessary to give effect to a novation BUT where either or
both parties involved are juridical entities, proof that the
 As implementation of the MOA, the lands within Area 1

were then mortgaged to Solid Bank for which petitioners Ramos vs. Gibbon, 67 P 371
received consideration from PMRDC  Sometime in 1934, Ramos et.al validly located eighty
 PMRDC later on saw the need to convey additional mineral lode claims known as the Cabayo group in
properties and augment its Asset Pool therefore later on Benguet
entered with LBP and Demetrio a Deed of Assignment  In December that same year, an option agreement was
and Conveyance in which the lands in Area 2 were entered into by and between Ramos and Gibbon in
transferred and assigned to the asset pool in exchange which the latter is given 90 days to make an
with the number of shares of stock which supposedly examination and investigation of the lode of the mineral
had already been issued in the name of Demetrio. claims constituting the Cabayo group to determine their
 The above-mentioned transfer and assignment has now mineral possibilities in the aim of forming a mining
been the subject of this case by virtue of the explicit corporation in which petitioners will be receiving certain
provision in the DAC which dispensed with the obligation participation
of PMRDC in the MOA to pay option money should it opt  Further stipulated in the agreement was:
to buy the properties o Should Gibbon chose not to exercise their right of
option, they were to return the property and all
DID THE DAC HAD THE EFFECT OF NOVATING THE TERMS OF THE corresponding papers to plaintiffs.
MOA?  Gibbon et.al proceeded to examine the property, found
them satisfactory and instead of taking in the venture
SC RULED: with the plaintiffs as stipulated in the option agreement,
 PMRDC admittedly did not avail of its option to purchase the they, together with others decided to buy the claims
lands in Area 2 in the period stipulated in the MOA. outright from plaintiffs for 60,000Php payable within 1
 The DAC which was entered into had the effect of a novation year according to Exhibit A within the period of 1 year.
in that the DAC itself made express reference to the MOA  No further payment was made by Gibbon et. Al, leaving a
provisions on the payment of option money and hence, has balance of 52,600Php due and demandable by Ramos
expressly MODIFIED the pertinent terms thereof. et.al.
 The Special Power of Attorney constituted a broad  Gibbon et. Al now contends that the execution of Exhibit
assignment of powers and thus, including the authority to 1 subsequent to Exhibit A had the effect of extinguishing
sign the DAC, therefore, there being an express consent in all obligations contracted by virtue of novation.
writing representing the juridical persons of the parties, o 2,600 be retained by the buyers to be
novation has been validly resorted to. reimbursed by them to the owners after a survey
2. Kinds: of the claims has been made and the title
a. Objective, Subjective, or Mixed: perfected.
Padilla vs. Levy Hermanos, 69 P 681
(Spanish case leche)
o In case the title to the claims shall not be  Velasquez along with Nebrida and Canilao
perfected, the amount of 2,600 shall not be executed deeds of suretyship in favor of
reimbursed PCIB.
WAS THERE A NOVATION TO THE EFFECT OF THE EXECUTION OF  When PUFFI defaulted in payment to PCIB,
EXHIBIT 1 SUBSEQUENT TO EXHIBIT A? an execution sale was effected in which
the total amount of proceeds was
SC RULED: 678,000Php. Thus PCIB filed an action to
 Novation is never presumed and in order that the obligation recover the remaining balance of the
be extinguished by another which substitutes it, it shall be entire obligation
necessary that it is so declared expressly or that the old and  Velasquez and Canilao denied personal
new obligations be incompatible in every respect. liability and interposed the defense of
 There is absolutely no provision in Exhibit 1which expressly novation – PCIB’s acceptance of royalties
or even impliedly repeals Exhibit A. coming from the Franchise agreement
 What Exhibit 1 does is to supplement the agreement made between PUFFI and Rosales who novated
in Exhibit A the loan agreement between PCIB and
 The stipulation of the right to retain the sum of 2,600 serves PUFFI
only to supplement and amplify the provisions of Exhibit A WAS THERE A NOVATION AS A RESULT OF PCIB’S ACCEPTANCE OF
 No objective novation has taken place there being no ROYAL FEES AS FRUITS OF THE FRANCHISE AGREEMENT?
change or alteration of the object or condition of the
contract. SC RULED:
b. Extent  The franchise agreement was only between PUFFI and

Velasquez v. CA, 309 S 514 Rosales. PCIB was never mentioned therein. Novation is
 Sometime in December of 1994, Pick-up effected only when a new contract has extinguished an
Fresh Farms (PUFFI) in which petitioner earlier contract between THE SAME PARTIES in the old
Velasquez was an officer and stockholder, contract.
obtained a loan from PCIB under the  Extinctive novation has the following requisites:
Government’s Fund for Small and Medium o Existence of a previous valid obligation
Enterprises for 7,500,000Php. o Agreement of all the parties to the new contract
 To secure the loan, a promissory note was o Extinguishment of the old obligation or contract
executed for the amounts 4,000,000Php o Validity of the new contract
and 3,500,000Php respectively and were  What happened in the case at bar is that PCIB simply
signed by Nebrida and Canilao as officers accepted royal payments out of the franchise – an act which
of PUFFI and ARII (Aircon and Refrigeration was beyond the scope of the franchise BUT NOT in conflict
Industries). with the payment arrangement in the loan agreement, thus:
o An obligation to pay a sum of money is not novated,  Subsequently, through RGC and Gervel’s counsel,
in a new instrument wherein the old is ratified, by he demanded that Qua pay 3,860,646Php or
changing only the terms of payment and adding 42.22%32 of 8,730,543.55 as reimbursement of
other obligations not incompatible with the old one, he total amount RGC and Gervel paid to
or wherein the old contract is merely supplemented Metrobank and PDCP.
by the new one.  Qua refused to reimburse thus RGC and Gervel
instituted a notice to foreclose Qua’s pledged
shares. Furthermore, RGC and Gervel contends
Republic Glass v. Qua, 435 P 480 that their payment was for the whole obligation
 Republic Glass Corporation and Gervel, Inc and that it has redounded to the benefit of Qua,
together with respondent Qua were stockholders thus having the right to demand reimbursement
of Ladtek, Inc. from Qua.
 Ladtek obtained loans from Metropolitan Bank  Trial court ruled in favor of RGC and Gervel.
and Trust Company and Private Development  CA however ruled in favor of Qua on the basis of a
Bank of the Philippines with RGC , Gervel and novation by reason of the change in the manner
Qua as sureties. Said sureties also executed of paying the full obligation to proportionate
Agreements for Contribution, Indemnity and shares
Pledge of Shares of Stocks
 The agreements all render RGC, Gervel and Qua WAS THERE A NOVATION? CAN RGC AND GERVEL VALIDLY
solidarily liable in case of default of payment of REIMBURSE FROM QUA?
Ladtek’s loans and the parties have the right to
reimburse each other the proportionate share of SC RULED:
any sum that any might pay to the creditors  Payment of any amount will not automatically result in any
 Qua pledged 1,892,360 common shares of stock reimbursement. If a solidary debtor pays the obligation in
of the General Milling Corporation in favor of RGC part, he can recover reimbursement from the co-debtors
and Gervel which served as security for the only insofar as his payment exceeded his share in the
payment of any sum which RGC and Gervel may obligation. This is precisely because if a solidary debtor pays
be held liable under the agreements. an amount equal to his proportionate share in the
 Ladtek defaulted in its loan obligations to obligation, he is in effect paying only what is due from him.
Metrobank and PDCP, hence Metrobank filed a
collection case against Ladtek and during the
pendency of the case, RGC and Gervel paid 32Credit Agreement shows that the proportionate shares of the
Metrobank 7,000,000Php thus resulting to the sureties are the ff:
issuance of Metrobank of a quitclaim in favor of RGC – 35.557
RGC and Gervel. Gervel – 22.223%
Qua – 42.220%
 There was no novation in the agreements. The mode or

manner of payment by the parties did not change from one SC RULED:
of the entire obligation to one of merely proportionate  There is nothing in the subsequent agreement which
shares. Metrobank and PDCP merely proceeded against supports the contention of NPC that there was a novation.
RGC and Gervel for their proportionate shares only. The Novation is never presumed. It must be explicitly stated or
preference is within the creditors’ discretion which did not there must be manifest incompatibility between the old and
necessarily affect the nature of the obligations as well as new obligations in every aspect.
the tems and conditions of the agreements.  In Martinez v. Davives, if the new obligation is subject to a
suspensive condition, such as obtaining some signatures
c. Express v. Implied, Presumption Disfavored and the condition does not materialize, such new obligation
NPC v. Dayrit, 125 S 849 never became valid or effective and so, no novation has
 Daniel Roxas, doing business under the name and style of taken place. (In the case at bar, the earlier agreement has
United Veterans Security Agency and Foreign Boats not been complied with by NPC and this was a suspensive
Watchmen sued NPC and two of its officers in Iligan City. condition for the obligation to become effective, thus, the
 Purpose of the suit was to compel NPC to restore the subsequent agreement did not have the effect of novation)
contract of Roxas for security services which the former had  Also, the old and new agreements did not exhibit
terminated incompatibility and thus not capable of novation
 They subsequently entered into a Compromise Agreement in
which: California Bus Lines v. State Investment House, 418 S
o NPC is to pay Roxas a certain sum of money 297
representing the amount due for the services  Delta Motors Corporation applied for financial
o NPC is to pay Roxas the value of the line of materials assistance from State Investment House Inc.
which were stolen but recovered (SIHI), a domestic corporation engaged in the
o Parties shall continue with the contract of security business of quasi-banking. SIHI agreed to extend
services under the same terms and conditions as the the line of credit to Delta for 25,000,000Php.
previous contract  On several occasions, Delta availed of the credit
 Court enjoined the parties to strictly comply with the line by discounting with SIHI some of its
Compromise Agreement receivables from the sale of buses.
 NPC executed another contract but refused to implement  Delta eventually became indebted to SIHI for
the new contract thus Daniel Roxas filed a Motion for 24,010,269.32
Execution  Meanwhile, California Bus Lines Inc. purchased
 NPC contends that the order directs an execution of the on installment basis 35 units of buses and 2
contract which had been novated by the subsequent ruling. units of conversion engines from Delta and in
order to secure such purchase, executed 16
WAS THERE A NOVATION? promissory notes in favor of Delta

CBLI defaulted on its payment to Delta, therefore WHETHER THE COMPROMISE AGREEMENT DISCHARGED THE FIVE
they executed a restructuring agreement to cover PROMISSORY NOTES
overdue obligations under the promissory notes.
The restructuring agreement provided for a new SC RULED:
schedule of payments, extended the period to  Novation has been defined as the extinguishment of an
pay and stipulating daily remittances instead of obligation by substitution or change of the obligation by a
monthly payments. Furthermore, it stipulated that subsewuent one which terminates the first, either by
in case of default, Delta would have the authority changing the object or principal conditions or by substituting
to take over the management and operations of the person of the debt or subrogating a third person in the
CBLI rights of the creditor.
 On the other hand, Delta executed a Continuing  For novation to take place the following requisites must
Deed of Assignment of Receivables in favor of concur:
SIHI as security for the payment of its obligations o Previous valid obligation
per the credit agreements. o Agreement to all parties concerned to a new contract
 CBLI continued having trouble meeting its o Extinguishment of the old obligation
obligation to Delta thus, Delta threatened to take o Birth of a valid new obligation
over the company. Delta on the other hand,  Term “expressly” means that the contracting parties
pursuant to the MOA executed a Deed of Sale incontrovertibly disclose that their object in executing the
assigning to SIHI five of the sixteen promissory new contract is to extinguish the old one.
notes from CBLI.  No specific form is required for an implied novation – all
 Delta and CBLI, because of CBLI’s continuous that is prescribed would be an incompatibility between the
default on payments, entered into a compromise two contracts
agreement in which CBLI agreed for Delta to  Test of incompatibility
judicially foreclose on the chattel mortgage over o Whether the two obligations can stand together,
the 35 bus units. each one having an independent existence. If they
 Thus, upon demand of SIHI for CBLI to pay, CBLI cannot, they are incompatible and the latter
vehemently refused for the very reason that it obligation novates the first.
contends that the compromise agreement had o Changes that breed incompatibility must be essential
the effect of full settlement of its obligations in nature and not merely accidental
including the obligations under the promissory  With respect to obligations to pay a sum of money:
notes. o Obligation is not novated by an instrument that
WHETHER THE RESTRUCTURING AGREEMENT NOVATED THE FIVE expressly recognizes the old, changes only the terms
PROMISSORY NOTES THAT DELTA ASSIGNED TO SIHI of payment and adds other obligations not
incompatible with the old ones, or where the new
contract merely supplements the old one.
 There was no express stipulation that the restructuring

agreement had the effect of novating the first instrument SC RULED:
and there was no proof of incompatibility between the  The Memorandum of Agreement in part, states that:
former and the latter agreements o The creditors expressly agree to release and hereby
 What the restructuring agreement merely did was to merely release the Joint and Several Signatories of WMC’s
provide for a new schedule of payments and added officers from any liability whatsoever on the
additional security giving Delta the authority to take over the obligations which they have personally guaranteed
management and operations of CBLI. or secured. Any actions… are waived in view of the
3. Requisites: promissory notes issued by NDC…in payment of
Garcia vs. Court of Appeals, 191 S 493 WMC’s obligations to its creditors
 Western Minolco Corporation (WMC) obtained from  However, said MOA does not carry with it the signatures of
Philippine Investments Systems Organization (PISO) two any of the creditors hence, has no binding force on such
loans for 2,500,000Php and 1,000,000Php for which it creditors.
issued promissory notes payable on May 30, 1977.  Garcia further contends that the extension of the original
 On the same date, Antonio Garcia and Ernest Kahn period of payment and the compounding of the interest
executed a surety agreement binding themselves jointly and resulted in novation thus, relieving him from liability.
severally for the payment of the loan of 2,500,000Php on o However, the surety agreement, states, in part:
due date.  The sureties expressly waive all rights to
 WMC failed to pay after repeated demands, therefore demand payment … and agree to securities of
demand was made on Garcia in his capacity by virtue of the any kind…and the time of payment when
surety agreement. extended, without notice to or consent by the
 PISO was found out to have earlier assigned the credit of sureties.
WMC to Lasal Development Corporation which in turn sued  Petitioner not only consented to an extension
Garcia for recovery but even waived its right to be notified of such
extension
 Garcia contends that the case against him shall be
dismissed on the grounds that, among others:  More importantly:
o He had not received any consideration from PISO by o Garcia failed to establish the validity of the new
reason of the assignment of credit to it by WMC contract (MOA) which is an essential requisite for the
o The principal obligation has been novated novation of a previous valid obligation
 by virtue of the MOA executed by WMC and its o Even as though Garcia contends that the various
creditors communications of DBP and WMC with the MOA
 original period of payment was extended revealed their intentions to novate the agreement,
jurisprudence provides that when the parties
IS GARCIA DISCHARGED OF HIS OBLIGATION BY VIRTUE OF involved are corporations, it must be first proved that
NOVATION? the contracts, WERE EXECUTED BY THE PERSONS
POSSESSING THE PROPER AUTHORITY TO BIND  Debtors Servando andLeticia, failed to pay
THEIR RESPECTIVE PRINCIPALS33  Spouses Gonzales filed a suit for the collection of the full
o Thus, it could be deduced from the foregoing, that no amount of the loan plus interests and charges
novation has taken place, and further,Garcia is not  Servando contends that he did not obtain any loan and
absolved from his principal obligation as a surety. that he only signed the promissory note as a witness
 Spouses Medel on the other hand contends that the
Heirs of Servando Franco vs. Spouses Gonzales loan was the transaction of Yaptinchay
 Servando and Leticia obtained the ff loans from Veronica  Upon the finality of the decision in Medel v. CA, spouses
Gonzales who was engaged in a money lending moved for execution of the mortgaged property.
business: Servando opposed contending that they had agreed to
o In the amount of 50,000Php payable in two fix the entire obligation at 775,000 and this was
months, but Veronica gave 47,000Php only and embodied in a receipt and further contends that this
retained 3,000Php as advanced interest for one superseded the promissory note evidencing the debts.
month. A promissory note was executed
evidencing this debt WAS THERE A NOVATION AS A RESULT OF THE RECEIPT
o In the amount of 90,000Php wherein they EVIDENCING THE LATTER AGREEMENT?
received 84,000Php only. A promissory note was
executed evidencing this debt SC RULED:
 On maturity, the debtors failed to pay the amount of  No incompatibility existed between the receipt and the
their indebtedness promissory note.
 Another loan was obtained in the amount of o The issuance of the receipt created no new
300,000Php which was secured by a mortgage over a obligation. The creditors in the case at bar only
property belonging to Yaptinchay who issued an SPA in recognized the original obligation of 400,000 as
favor of Leticia, authorizing her to execute the mortgage. partial payment of the loan and referring to the
275,000Php was given and a promissory note was promissory note in imposing the interest
executed evidencing this debt o The loan evidenced by the receipt was still the same
 Servando and Leticia failed to pay upon maturity loan involving the promissory note
 Servando and Leticia, with the latter’s husband  When no incompatibility exists between the old and the new
consolidated their previous unpaid loans totaling instrument and changes that breed incompatibility must be
440,000Php and obtained another loan in the amount essential in nature and not merely accidental. The
of 60,000Php, and jointly and severally bound incompatibility must affect the essential elements of the
themselves to pay. obligation such as its object, cause or principal conditions.
o In the case at bar, none of the object, principal
conditions nor the cause were affected.
33 General rule is: No form of words or writing is necessary to give
effect to a novation. The concept on corporations is the exception
4. Delegacion vs. Expromision  An obligation to pay a sum of money is not novated in a new
Magdalena Estates v. Rodriguez, 18 S 967 instrument wherein the old is ratified, by changing only the
 Rodriguez bought a parcel of land in QC from Magdalena terms of payment and adding other obligations not
Estates. incompatible with the old one.
 (first agreement)In view of the unpaid balance of  In this case the surety bond is not a new and separate
5,000Php, Rodriguez executed a promissory note contract but an accessory to the promissory note.
representing said account.
o Jointly and severally promise to pay … Garcia v. Llamas, 417 S 292
5,000Php…  Debtors in this case are Romeo Garcia and Eduardo de
 (alleged second agreement)On the same date, Rodriguez Jesus.
and Luzon Surety executed a bond in favor of  Debtors, Garcia and de Jesus borrowed 400,000Php
Magdalena Estates in which: from Llamas and on the same day of obtaining the
o Luzon Surety…comply with the obligation to pay money, executed a promissory note wherein they bound
the amount of 5,000Php representing the themselves jointly and severally to pay the loan on or
balance of the purchase price of the land… before Jan 23, 1997 with a 6% interest per month.
 When the obligation of Rodriguez became due and  The loan has long been overdue and despite repeated
demandable, Luzon Surety Co. Inc paid to Magdalena demands, Garcia and de Jesus refused to pay it
Estates the sum of 5,000Php. Subsequently, Magdalena  A demand letter was sent to Garcia and de Jesus and as
Estates demanded the payment of 655.89Php an answer thereof, Garcia claimed no liability because
corresponding to the accumulated interests on the he signed it as an accommodation party for de Jesus
principal and that he is relieved from any liability because of a
 Rodriguez refused to pay the accumulated interests and CHECK (alleged second agreement/instrument) issued
contends that by virtue of its agreement with Luzon by de Jesus and that for this reason, the earlier
Surety, such interests have been condoned, thus, the instrument (promissory note) has been novated.
agreement as to the principal obligation has been  The debt remained unpaid because the check issued by
novated. Garcia bounced
 Appellate court ruled that no novation – express or
WAS THERE A NOVATION BY REASON OF RODRIGUEZ’ AGREEMENT implied has taken place and the check was issued
WITH LUZON SURETY? precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by de
SC RULED: Jesus and Garcia.
 Novation by presumption is not favored. It needs to be
established that the old and new contracts are incompatible IS GARCIA’S LIABILITY UNDER HIS SOLIDARY LIABILITY WITH DE
in all points or that the will to novate appears by express JESUS ABSOLVED BY REASON OF NOVATION?
agreement of the parties or in acts of similar import.
SC RULED:  Henry Gaw is a businessman engaged in the buy and sell

 Novation is the mode of extinguishing an obligation by of hardware and construction materials.
changing its objects or principal obligations, by substituting  (first agreement)He entered into a dealership agreement
a new debtor in place of the old one, or by subrogating a and his firm was appointed as one of the four exclusive
third person to the rights of the creditor. dealers of white cement of Prime White Cement
 There are two modes of substituting the person of the Corporation (PWCC)
debtor:  Agreement stipulated among others that:
o Expromision o For five years, the dealer would take delivery from
 In expromision, the initiative for the change PWCC as least 2,600 bags of white cement a
does not come from - and may even be made month and in consideration of the contract, the
without the knowledge of the debtor, since it dealer would deposit 200.000Php . . .
consists of a third person’s assumption of the  (second agreement)To avail of the provision of the
obligation. increased value of monthly delivery of cement, Gaw
o Delegacion entered into a marketing agreement with Foundation
 In delegacion – the debtor offers and the Commercial, a single proprietorship owned by Tan. The
creditor accepts, a third person who consents agreement in part states that:
to the substitution and assumes the o Tan, shall be entitled to get directly from PWCC
obligation. Thus, the consent of these three monthly at least 50% of the allocation of the
persons are necessary. white cement of Gaw equivalent to 3250 bags a
o No novation took place for the parties did not month and shall pay directly the value of the
unequivocally declare that the old obligation had cement to PWCC
been extinguished by the issuance and the  Pursuant to the marketing agreement, Tan issued a
acceptance of the check or that the check would check amounting to 250,000Php payable to PWCC.
take the place of the promissory note PWCC refused to accept for the very reason that
o There is no incompatibility between the check and accepting the same would be tantamount to making him
the note an exclusive dealer thereby violating the dealership
o CA is correct in observing that the check had been agreement of GAW and PWCC.
issued precisely to answer for the obligation. Thus,  Tan intended to deposit the 250,000Php under the
the check and note verily stand together. name of Gaw instead in compliance to his dealership
________________________________________________________ agreement with PWCC. Gaw refused to accept the
________________________________________________________ amount proferred and insisted that Tan pay him
_______ 1.50Php per bag instead of .70Php per bag as
previously agreed upon.
Gaw vs. IAC, 220 S 405  (another contract)Meanwhile, in an apparent effort to
save his option to increase his monthly allocation, Gaw
entered into a contract with Mandee Commercial  The fact that the two agreements are co-terminous with
whereby the latter agreed to provide 250,000Php, each other does not imply that a new obligation had arisen
together with 50,000Php, which would be produced by when the marketing agreement was signed
Gaw.  If PWCC does not object to the marketing agreements, why
o (same 3,250 bags of white cement agreement) should it object to the Marketing Agreement of Gaw and Tan
o Mandee shall pay Gaw a net mark-up or profit of if deposit is made in Gaw’s name and Gaw had increased its
2.00Php per bag own deposit?
 As a party to the dealership agreement, it was Gaw’s duty to
HAD THE MARKETING AGREEMENT BEEN IMPLEMENTED? see to it that the Marketing Agreement be APPROVED BY
WAS THERE A NOVATION AS A RESULT OF THE MARKETING PWCC and that IT BE ENFORCED.
AGREEMENT?
Asia Bank vs. Elser, 54 P 994
SC RULED:
 Yangco had 935 shares with a par value of 100 in the
 Even though Gaw contends that Tan intended to step into corporation, Yangco, Rosenstock& Co., Inc and at the
his shoes with respect to the additional deposit of same time indebted to the corporation for the amount of
250,000Php, Gaw still fails to prove that the creditor PWCC 58,900Php the value of the unpaid subscription of 589
knew all about this substitution34 shares valued at 100Php
 Yangco entered into a contract with Elser wherein
34 Article 1293 - Novation which consists in substituting a new Yangco hereby sells, transfers, and conveys to Elser all
debtor in the place of the original one, may be made even without the his rights, title and interest in the 935 shares of Yangco,
knowledge or against the will of the latter, but not without the Rosenstock and Co. Inc
consent of the creditor. Payment by the new debtor gives him the  Before the execution of the above-mentioned contract,
rights mentioned in Articles 1236 and 1237
Elser had entered into negotiations with the principal
Article 1236 – The creditor is not bound to accept payment stockholders of the corporation in order to substitute
or performance by a third person who has no interest in the Yangco as a stockholder so that Elser can put more
fulfillment of the obligation, unless there is a stipulation to capital in the corporation
the contrary.  Elser died and Rosenstock was appointed as special
administrator of the estate
Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the knowledge or  Asia Banking Corporation, in a civil case, obtained a
against the will of the debtor, he can recover only insofar as judgement against Yangco, Rosenstock&Co. for the sum
the payment has been beneficial to the debtor of 112,152Php with interests and costs. At that time,
the corporation was insolvent although not officially
Article 1237 – Whoever pays on behalf of the debtor without declared so
the knowledge or against the will of the latter, cannot compel
the creditor to subrogate him in his rights, such as those
 After the acquisition by the Asia Banking Corporation of
arising from mortgage, guaranty, or penalty. the credit against Henry W. Elser for the unpaid
subscription to the capital stock of Yangco, Rosenstock& evident purpose is to preserve the creditor’s full
Co., Inc., it presented in due form to the committee of right.
claims of the estate of Henry W. Elser, a claim for the o The understanding between Elser and the
sum of P58,900, which was the value of said credit. corporation as well as subsequent acts of the former
 However, the mother of Elser contended that when Elser and latter all evidenced the act of consenting to such
purchased from Yangco his shares, the former was substitution. THUS, there was a novation by
incompetent to do so, having been at that time of substitution which is perfectly valid and lawful
unsound mind and incapable of giving any consent .
WHETHER HENRY ELSE BECAME INDEBTED TO YANGCO, 5. Legal Subrogation:
ROSENSTOCK. CO. IN PLACE OF YANGCO IN THE AMOUNT OF Lorenzo Shipping v. Chubb and Sons, 431 S 266
58,900PHP, THE VALUE OF THE UNPAID SUBSCRIPTIONS  Lorenzo Shipping Corporation is a domestic corporation
engaged in coastwise shipping.
SC RULED:  It was the carrier of 581 bundles of black steel pipes
 On the matter of substitution which were shipped from Manila to Davao City.
o When Luis R. Yangco, by virtue of the contract, sold  Gearbulk Ltd, a foreign corporation licensed as common
to Henry W. Elser the 935 shares he held in Yangco, carrier under the laws of Norway and doing business
Rosenstock& Co., Inc., he did so on the condition here in the Philippines is to carry the steel pipes from
that Elser would assume his debt in the sum of Davao to the US for the account of Sumitimo
P58,900, the unpaid stock subscription appearing in Corporation.
the name of Luis R. Yangco upon the books of said  The shipment was insured by Sumitimo Corp. to Chubb
corporation. Said P58,900, then, was a part of the and Sons, an insurance business licensed under the
contract of sale. Therefore, the contract is binding laws of the US
between Luis R. Yangco and Henry W. Elser.  The 581 bundles of black steel pipes were loaded in MV
 On consent Lorcon, owned by Lorenzo Shipping and upon arrival to
o Before the contract was executed by and between Davao, the steel pipes were found out to be heavily
Yangco and Elser, there was an understanding rusted due to its submergence to the sea water that had
between Elser and the principal stockholders of the entered into the holes of the vessel
corporation to the effect that Elser was to be  MV San Mateo, owned by Gearbulk, loaded the steel
substituted for Yangco as stockholder in order to pipes which were marked “heavily rusted” and upon its
increase the capital of the corporation. Execution of arrival to the US, and upon discovery of Sumitimo that
the contract was known to the directors of the said pipes were rusted, the corporation rejected the
corporation steel pipes since they have become unfit for the purpose
o Article 1205 does not state that the creditor’s intended.
consent to the substitution of the new debtor be
expressed, or given at the time of the substitution,

 Sumitimo filed an insurance claim against Chubb and Chemphil vs. Court of Appeals, 251 S 257
Sons, which the latter settled in the amount of  On the first civil case filed by Garcia against the
$104,151. CONSORTIUM (a consolidated group of banks from
 Chubb and Sons now files for a collection suit against which Garcia is indebted into) judgment was rendered by
Lorenzo Shipping, however, the latter claims that Chubb Garcia and the court attached properties including the
and Sons has no capacity to sue in Philippine courts shares of Garcia in ChemPhil Corp. (including the
disputed shares)
DOES CHUBB AND SONS HAVE THE CAPACITY TO SUE?  On the second civil case filed by Garcia against SBTC,
judgment was rendered in favor of SBTC, thus a notice of
SC RULED: garnishment to Chemphil on the shares of Garcia
 On the capacity to sue including the disputed shares has been effected.
o Chubb and sons have sufficiently raised shown that  However, the second civil case was decided prior to the
although it is not doing business in the Philippines, first civil case therefore, SBTC has the rightful claim on
the same is suing only under an isolated transaction the shares
– under the 1 marine insurance policy covering the  Garcia sold his properties, including his disputed shares
damaged steel pipes by virtue of the subrogation of in the Chemphil Corp. to Ferro Chemicals Inc. in which
rights the agreement was
o It does not follow that, even assuming that Chubb o For FCI to pay directly to SBTC, thereby releasing
and Sons have no capacity to sue in the Philippines, the disputed shares from attachment
it has not capacity to sue, as subrogee in our  FCI offered to pay SBTC, but upon refusal of SBTC to pay
jurisdiction on the ground that the value being paid is not enough to
o Chubb and Sons, in the case at bar is the real party discharge the debt, amount was consigned to the court
in interest and must sue in its own name since he is in fulfillment of the obligation of Garcia
now the owner of the claim by virtue of subrogation  CEIC on the other hand contends that the rights of SBTC
 On subrogation has been subrogated to him by reason that it has the
o Subrogation is the substitution of one person in the rightful claim over the disputed shares since the shares
place of another with reference to a lawful claim or could not have validly been the subject of attachment of
right so that he who is substituted succeeds to the the second civil case due to its being a subject of the
rights of the other in relation to a debt or claim, first civil case
including its remedies or securities
o Full substitution places the party subrogated in the WAS THERE A SUBSTITUTION OF RIGHTS FROM GARCIA TO FCI?
shoes of the creditor, and the subrogee can only go WAS THERE A SUBROGATION OF RIGHTS FROM SBTC TO CEIC
insofar as the rights possessed by the creditor
SC RULED:
 On substitution
o The agreement by virtue of the deed of sale made

FCI responsible to pay SBTC in order for the disputed
shares to be released from attachment. This
agreement had the effect of FCI as if paying to SBTC
with Garcia’s own money since it was from the
proceeds of the sale of the disputed shares. What
merely transpired was a payment by an agent of the
debtor and not a substitution of a new debtor of the
old debtor
 On subrogation
o Subrogation could not have validly took place
because even before it could be effected, the
disputed shares, by virtue of the payment of FCI to
SBTC, had already been lifted from attachment.
END OF PART 1 - OBLIGATIONS


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Obligations and Contracts

 A truck driven by Bautista and the Volkswagen delivery

By: Cyndy dela Cruz, 1D

 Picart saw Smith’s car approaching and heard the warning

 An act of God has been defined as an accident, due directly

Heirs of Atienza vs. Espidol, August 11, 2010

 Since there was no expressed acceptance, the condition is

By: Cyndy dela Cruz, 1D

the change in price from the former ticket which was

SC RULED: IS MERE DELAY IN THE FULFILLMENT OF THE OBLIGATION

d. Automatic Rescission Korea Technologies vs. Lerma 542 S 1

By: Cyndy dela Cruz, 1D

IS THE DELAY FOR 20 DAYS A GROUND FOR RESCISSION?

CAN THERE BE A VALID RESCISSION?

o If the mortgagors, heirs, executors… at any time SC RULED:

SC RULED: People’s Bank vs. Odom, 64 P 126

o A reasonable time within which to comply with its

 That same day, a MEMO was received by del Marcaida

 ACTION to recover debt has prescribed, the obligation

4. Consequences of Solidarity: 1. Concept and Purpose of Penal Clause:

5. Defenses IS THE 3% SURCHARGE VALID AS PENALTY?

Caridad Estate vs. Santero, 71 P 114 SC RULED:

IS THE 25% PENALTY USURIOUS? o Should defendant fail to complete payment

SC RULED: Lambert vs. Fox, 26 P 558

15Article 1234 – if the obligation has been substantially performed in

By: Cyndy dela Cruz, 1D

 Take no benefit at all from what has been

DID AN SPA EVER EXIST? IS THE PAYMENT TO GONZAGA VALID? SC RULED:

 Tan Shuy was a businessman engaged in buying of

writ of execution A written order from A to B directing B to pay C a certain sum of

SC RULED:  Bill of exchange was executed between: (written

By: Cyndy dela Cruz, 1D

 Gabriel and Sons Transportation Co. and Luzon

By: Cyndy dela Cruz, 1D

By: Cyndy dela Cruz, 1D

indemnity agreement, PhilAmGen in turn made several

subsequently executed an “Exclusive Option to  On the contract

By: Cyndy dela Cruz, 1D

2. Service PNCC v. CA May 5, 1997

Article 1272 – Impossible things or services cannot be the subject

NAGA TelCom in its operation, the electric part of CamSur

By: Cyndy dela Cruz, 1D

 COEC, on May 4 wrote a demand letter on the physical

Insular Investment vs. Capital One, April 25, 2012 SC RULED:

By: Cyndy dela Cruz, 1D

Soriano vs. Compania General, 18 S 999 IS SORIANO ENTITLED TO BE CREDITED?

WHETHER OR NOT THE SUM OF 9,127.50PHP PAID BY MAMBULAO SC RULED:

By: Cyndy dela Cruz, 1D

discharged by compensation. However,

By: Cyndy dela Cruz, 1D

 As implementation of the MOA, the lands within Area 1

b. Extent  The franchise agreement was only between PUFFI and

 There was no novation in the agreements. The mode or

 There was no express stipulation that the restructuring

SC RULED:  Henry Gaw is a businessman engaged in the buy and sell

By: Cyndy dela Cruz, 1D

o The agreement by virtue of the deed of sale made

END OF PART 1 - OBLIGATIONS