Francia v.

CA
G.R. No. L-67649, 28 June 1988

Facts:

Engracio Francia is the registered owner of a residential lot and a two-story house built
upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On
October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public auction by the City Treasurer pursuant to
Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to
satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.

Francia was not present during the auction sale since he was in Iligan City at that time
helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of LRC
Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez,
seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new
certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of
Sale had been issued in favor of Ho Fernandez by the City Treasurer. Thus, Francia filed a
complaint to annul the auction sale.

Issue:

Whether or not Francia’s tax delinquency of P2,400.00 has been extinguished by legal
compensation.

Held:

No, Francia’s tax delinquency of P2,400.00 has not been extinguished by legal
compensation.

There is no legal basis for such contention. By legal compensation, obligations of

persons, who in their own right are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit:

"(1) that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other;

We have consistently ruled that there can be no off-setting of taxes against the claims that
the taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the government.
 In the case of Republic v. Mambulao Lumber Co., this Court ruled that Internal Revenue
Taxes can not be the subject of set-off or compensation, to wit:

“A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off, which are construed uniformly, in the light of public
policy, to exclude the remedy in an action or any indebtedness of the state or municipality
to one who is liable to the state or municipality for taxes. Neither are they a proper
subject of recoupment since they do not arise out of the contract or transaction sued on.
"The general rule based on grounds of public policy is well-settled that no set-off
admissible against demands for taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of duty to, and are the positive acts of
the government to the making and enforcing of which, the personal consent of individual
taxpayers is not required…”

The Court has stated that a taxpayer cannot refuse to pay his tax when called upon by the
collector because he has a claim against the governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda where we stated that: "... internal
revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not
mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim
for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."

Magat v. CA
G.R. No. 124221, 4 August 2000

Facts:

Sometime in 1972, Guerrero Transport Services, headed by herein private respondent

Santiago A. Guerrero, won a bid for the operation of a fleet of taxicabs within the Subic Naval
Base, in Olongapo. As highest bidder, Guerrero was to "provide radio-controlled taxi service
within the U. S. Naval Base, Subic Bay, utilizing as demand requires... 160 operational taxis
consisting of four wheel, four-door, four passenger, radio controlled, meter controlled, sedans,
not more than one year..."

With the advent of martial law, President Ferdinand E. Marcos issued Letter of
Instruction No. 1 (hereinafter referred to as "the LOI"), ordering to take over and control or cause
the taking over and control of all such newspapers, magazines, radio and television facilities and
all other media of communications, wherever they are, for the duration of the present national
emergency, or until otherwise ordered by me or by my duly designated representative.

Pursuant to the LOI, Radio Control Office issued Administrative Circular No.4 which
aimed at suspending the acceptance and processing by the radio control office of applications for
radio stations constructions permits and for permits to possess, own, transfer, purchase and sale
of radio transmitters and transreceivers as well as manufacturers and dealer’s permits of said
equipment.
 Guerrero and petitioner Victorino D. Magat executed a letter-contract for the purchase of
transceivers. Victorino was to deliver the transceivers within 60 to 90 days after receiving notice
from Guerrero of the assigned radio frequency, "taking note of Government Regulations."
Victorino contacted his Japanese supplier and ordered for the transceivers.

The Navy Exchange Officer confirmed that Guerrero won the bid for the commercial
transportation contract. Middle man and broker Aligada advised Victorino Magat "proceed with
the order upon receipt of letter of credit. Guerrero applied for a letter of credit with the
Metropolitan Bank and Trust Company which was later on not pursued.

Victorino informed Guererro that the order with the Japanese supplier has not been
canceled. Should the contract be canceled, the Japanese firm would forfeit 30% of the deposit
and charge a cancellation fee in an amount not yet known, Guerrero to bear the loss. Further,
should the contract be canceled, Victorino would demand an additional amount equivalent to
10% of the contract price.

Unable to get a letter of credit from the Central Bank due to the refusal of the Philippine
government to issue a permit to import the transceivers, Guerrero commenced operation of the
taxi cabs within Subic Naval Base, using radio units borrowed from the U.S. government
(through the Subic Naval Base authorities). Victorino thus canceled his order with his Japanese
supplier. Victorino Magat filed with RTC a complaint for damages arising from breach of
contract against Guerrero.

Issue:

Whether or not the contract was breached

Held:

No, the contract was not breached.

Guerrero testified that a permit to import the transceivers from Japan was denied by the
Radio Control Board. He stated that he, together with Aligada, Victorino and a certain John
Dauden personally went to the Radio Control Office, and were denied a permit to import. They
also went to the Office of the President, where Secretary Ronaldo B. Zamora explained that
radios were "banned like guns because of martial law." Guerrero testified that this prevented him
from securing a letter of credit from the Central Bank. This testimony was not rebutted.

The law provides that "[w]hen the service (required by the contract) has become so
manifestly beyond the contemplation of the parties, the obligor may also be released therefrom,
in whole or in part." Here, Guerrero's inability to secure a letter of credit and to comply with his
obligation was a direct consequence of the denial of the permit to import. For this, he cannot be
faulted.

Even if we assume that there was a breach of contract, damages cannot be awarded.
Damnum absque injuria. There was no bad faith. Bad faith does not simply connote bad
judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It means a breach of a known duty through some motive or interest or ill will
that partakes of the nature of fraud. Guerrero honestly relied on the representations of the Radio
Control Office and the Office of the President.

Arrivas v. Bacotoc
G.R. No. 228704, 2 December 2020

Facts:
Diosa Arrivas and Manuela Bacotoc personally knew each other and had been long-time
acquaintances. They are both engaged in buying and selling of jewelry, and have done business
together countless times.

On July 23, 2003, Arrivas told Bacotoc that she knew someone who was interested in a
male's ring and was willing to buy one at a price ranging from P50,000.00 to P80,000.00. She
asked Bacotoc if she had an available item within the given specification. When Bacotoc told
Arrivas that she had an available ring, Arrivas asked Bacotoc if she could bring the said ring to
her client. Considering the price of the ring, Bacotoc was hesitant at first to entrust the same to
Arrivas. The latter, however, was able to convince Bacotoc, and promised that she will return the
ring if the buyer would not buy the same, or immediately deliver the amount if the buyer decides
to purchase the ring. They then agreed to execute a trust receipt as they usually do whenever they
transact business together.

A trust receipt was executed and personally signed by them on that same day where a
period of two days was agreed upon to pay or return the object if not sold. After the lapse of two
days, however, Arrivas did not deliver payment nor return said item. The latter tried to look for
Arrivas in her usual place of business but she could not be found. It was only after two weeks
that Bacotoc was able to finally meet with Arrivas where the latter said that the payment for the
ring will be made in thirty days. The thirty days lapsed and Arrivas still failed to pay that when
the parties met again, Arrivas asked for reconsideration and pleaded that she be allowed to pay
the price of the ring in installments as well as pay her old accounts, to which Bacotoc agreed.
Nevertheless, no payment was made by Arrivas.

Thus, Bacotoc sent a demand letter to Arrivas, demanding for the payment of the ring in
the amount of P75,000.00 and such was personally received by Arrivas. The latter then met with
Bacotoc's lawyer and promised to settle the amount in installments. However, Arrivas again
failed to comply with her promise.

Petitioner Arrivas contends that there was no demand made by Bacotoc prior to the
partial payment of P20,000.00, and that this partial payment was for the principal of P75,000.00,
or the amount of the subject men's ring. Thus, the trust relationship between them was novated,
and it was converted into one between a debtor and a creditor.

Basing on this premise, Arrivas contends that Article 1292 of the Civil Code should have
been applied since a contract of sale novated the principal obligation of trust, and this was before
the consummation of the crime of Estafa.

Issue:
Whether or not there was novation of the principal obligation of trust
Held:
No, there was no novation of the principal obligation of trust. Novation will not apply
even if the P20,000.00 was made before demand.

Novation is defined as the extinguishment of an obligation by the substitution or change of the

obligation by a subsequent one which terminates the first, either by changing the object or
principal conditions, or by substituting the person of the debtor, or subrogating a third person in
the rights of the creditor.

Article 1292 of the Civil Code on novation further provides:

Article 1292. In order that an obligation may be extinguished by another which substitute
the same, it is imperative that it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with each other.

It is well settled that novation is never presumed - novatio non praesumitur. As the party
alleging novation, the onus of showing clearly and unequivocally that novation had indeed taken
place rests on the petitioner. This, however, she failed to do.

METRO CONCAST STEEL CORPORATION vs. ALLIED BANK CORPORATION

G.R. No. 177921, December 4, 2013

Topic: Extinguishment of Obligations

Facts:

On various dates and for different amounts Metro Concast obtained several loans from Allied
Bank. These loan transactions were covered by a promissory note and separate letters of
credit/trust receipts.

By way of security, the individual petitioners executed several Continuing

Guaranty/Comprehensive Surety Agreements in favor of Allied Bank. Petitioners failed to settle
their obligations under the aforementioned promissory note and trust receipts, hence, Allied
Bank, through counsel, sent them demand letters seeking payment but to no avail. In order to
settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s remaining
assets, consisting of machineries and equipment, to Allied Bank, which the latter, however,
refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of the
sale to their outstanding obligations.

In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling (Camiling),
expressed interest in buying the scrap metal. In November 8, 2002 a (MoA) was drawn between
Metro Concast, represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under
which Peakstar obligated itself to purchase the scrap metal. Unfortunately, Peakstar reneged on
all its obligations under the MoA. Thus, the petitioners prayed that the obligation be extinguished
by virtue of force majeure since Allied Bank was the party that accepted the terms and conditions
of payment proposed by Peakstar, petitioners must therefore be deemed to have settled their
obligations to Allied Bank.

The RTC ruled in favor of the petitioner and dismissed the complaint filed by Allied Bank. On
appeal, the CA overturned the RTC’s ruling and ordered the petitioners to pay the outstanding
obligation.

Issue:

Whether or not Metro Concast's obligation has been extinguished.

Ruling:

No. The Supreme Court ruled that while it may be argued that Peakstar’s breach of the MoA was
unforeseen by petitioners, the same us clearly not "impossible"to foresee or even an event which
is independent of human will." Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the
former’s force majeure theory altogether. In any case, as earlier stated, the performance or
breach of the MoA bears no relation to the performance or breach of the subject loan
transactions, they being separate and distinct sources of obligations. The fact of the matter is that
petitioners’ loan obligations to Allied Bank remain subsisting for the basic reason that the former
has not been able to prove that the same had already been paid or, in any way, extinguished. In
this regard, petitioners’ liability, as adjudged by the CA, must perforce stand.

CITIBANK AND INVESTORS FINANCE CORP. vs MODESTA SABENIANO

G.R. No. 156132
October 16, 2006

Topic: Identity of Prestation (Obligation To Pay Money)

Facts

In 1978, Sabeniano obtained a loan of Php 200,000 from Citibank and other subsequent loans.
Those that were not paid upon maturity were rolled over, reflecting a total unpaid loan of Php
1,069,847.40 as of September 1979.

Sabeniano secured these loans with money market placements with FNCB Finance through a
duly notarized Deed of Assignment plus a Declaration of Pledge which states that all present and
future fiduciary placements held in her personal and/or joint name with Citibank Switzerland,
will secure all claims that Citibank may have or, in the future, acquire against her.

Upon failure of Sabeniano to pay her obligations, Citibank sent demand letters to request
payment. Still failing to do so, Citibank executed the Deeds of Assignment and used the
proceeds of Sabeniano’s money market placement from FNCB Finance and her deposits with
Citibank to set-off her loan. Since the loan was not fully paid, Citibank proceeded to execute the
Declaration of Pledge and remitted a total of $149,632.99 from Sabeniano’s Citibank-Geneva
accounts to off-set the loan without her consent.

Sabeniano then filed a complaint against Citibank for damages and specific performance for
proper accounting and return of the remitted proceeds from her personal accounts. Further, she
contended that the proceeds of 2 promissory notes (PN) from her money market placements with
Citibank were rolled over or reinvested into the petitioner bank.

The RTC ruled in favor of Sabeniano and ordered Citibank to return the $149,632.99 to
Sabeniano’s Citibank-Geneva account with a legal interest of 12% per annum. Both parties
appealed to the CA which affirmed the RTC’s decision, but further ruled entirely in favor of
Sabeniano – holding that Citibank failed to establish her indebtedness and that all the executed
deeds should be returned to her account.

Issue

Whether or not Citibank had the right to execute the Deeds of Assignment and Pledge to off-set
Sabeniano’s loan.

Ruling

The liquidation of respondent's outstanding loans were valid in so far as petitioner Citibank used
respondent's savings account with the bank and her money market placements with petitioner
FNCB Finance; but illegal and void in so far as petitioner Citibank used respondent's dollar
accounts with Citibank-Geneva.

Despite the legal compensation of respondent's savings account and the total application of the
proceeds of PNs No. 20138 and 20139 to respondent's outstanding loans, there still remained a
balance of ₱1,069,847.40. Petitioner Citibank then proceeded to applying respondent's dollar
accounts with Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of
Pledge supposedly executed by respondent in its favor.

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance
of respondent's dollar accounts with Citibank-Geneva and to apply them to her outstanding
loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner
Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar
accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The
parties in these transactions were evidently not the principal creditor of each other.

Therefore, this Court declares that the remittance of respondent's dollar accounts from Citibank-
Geneva and the application thereof to her outstanding loans with petitioner Citibank was illegal,
and null and void.

SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ v. ANA MARIE
CONCEPCION
G.R. No. 172825, October 11, 2012

Topic: Creditor’s Right of Payment (Payment through Agent)

Facts:

Spouses Dela Cruz entered into a contract to sell with respondent Ana Marie Concepcion
involving a house and lot for the purchase price of PhP 2,000,000.00 payable in installments. As
instructed by Spouses Dela Cruz, Concepcion paid her last installment to a certain Adoracion or
"Dori" Losloso. Thus, Concepcion, in her mind, was able to pay the total purchase price and the
title to the property was transferred in her name.

Later, the spouses Dela Cruz demanded the amount of P200,000.00 purportedly as remaining
balance of the purchase price. Concepcion refused to pay the said amount and contended that she
had already paid the full price to “Dori”. The spouses refuted that Concepcion's payment to
"Dori" was not valid. Hence, Sps. Dela Cruz filed a Complaint for Sum of Money with Damages
before the RTC.

In her answer, Concepcion failed to allege the defense of payment of the amount claimed by the
spouses. However, during the presentation of her evidence, she submitted a receipt to prove that
she had already paid the remaining balance.

The RTC dismissed the spouses' complaint. On appeal, the CA affirmed the RTC’s decision with
modification. Hence, this instant petition.

Issue:

Whether or not the payment through the Spouses’ supposed agent “Dori” is valid.
Ruling:

Yes. The Supreme Court held that payment made to Dori is deemed payment to the Sps. Dela
Cruz. In order to extinguish said obligation, payment should be made to the proper person as set
forth in Article 1240 of the Civil Code. The Court explained in Cambroon v. City of Butuan,
cited in Republic v. De Guzman, to whom payment should be made in order to extinguish an
obligation: "In general, a payment in order to be effective to discharge an obligation, must be
made to the proper person. Thus, payment must be made to the obligee himself or to an agent
having authority, express or implied, to receive the particular payment. Payment made to one
having apparent authority to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is made to one who by law is
authorized to act for the creditor, it will work as a discharge."

Taking into consideration the busy schedule of respondent, petitioners advised the latter to leave
the payment to a certain "Dori" who admittedly is Losloso, or to her trusted helper. This is an
express authority given to Losloso to receive payment. Thus, as shown in the receipt signed by
petitioners agent and pursuant to the authority granted by petitioners to Losloso, payment made
to the latter is deemed payment to petitioners.

ARTURO A. DACQUEL v. SPOUSES ERNESTO SOTELO AND FLORA DACQUEL-

SOTELO
G.R. No. 203946, August 04, 2021

Topic: Dacion En Pago/Equitable Mortgage

Facts:

In 1994, Spouses Sotelo started the construction of a 7-door apartment on a parcel of land
located in Malabon City. Due to budget constraints, the Sotelos entered into an agreement to loan
the amount of P140,000.00 with Arturo Dacquel. Consequently, on September 1, 1994, the
parties executed a Deed of Sale in consideration of the amount of P140,000.00. Thereafter, the
title was transferred to Dacquel as the new registered owner.

In 2000, when Dacquel had collected rental income from the four apartment units, the Sotelos
asked for the return of the subject lot. Dacquel, however, allegedly held on to the title and
refused to yield the subject lot to the Sotelos. Thus, on May 29, 2000, the Sotelos filed a
Complaint for annulment of title and reconveyance against Dacquel. The Sotelos alleged in their
Complaint that Dacquel held the title to the subject land only as security for the loan and in trust
for the Sotelos, who remained the beneficial owners of the subject lot.
The RTC ruled in favor of Dacquel. On appeal, The CA reversed the RTC and decided in favor
of the Sotelos. Applying the provisions of Articles 1602 and 1604 of the Civil Code, the CA
declared the September 1, 1994 Deed of Sale to be one of equitable mortgage. It found two
badges of fraud: gross inadequacy of the price and the continued possession by the Sotelos of the
subject property.

Dacquel insists on the validity of the September 1, 1994 Deed of Sale and alleged that the
agreement was one of dacion en pago. He asserts his lawful ownership over the subject property,
and that the Decision declaring the nullity of his title and ordering the reconveyance of the
subject property to the Sotelos is grave error on the part of the CA. The parties clearly intended
to be bound by the Deed of Sale and what was concealed was only the actual price of the subject
property"

Issue:

Whether or not the title to the subject property should be nullified and reconveyed to
respondents-spouses.

Ruling:

The Supreme Court held that the petition is meritorious in part and ruled that the transaction
between petitioner and respondents-spouses was an equitable mortgage. And as such, the Title
may be nullified and real property may be reconveyed in case of equitable mortgage.

The actuations of respondents-spouses persuade that they were preserving their hold on the
subject property and had no intent at all to relinquish their ownership over the same by sale.
Moreover, petitioner cannot simply claim that respondent Ernesto had been acting only in
representative capacity on the sole premise that they are brothers-in-law. Close-knit familial
relationships, whether by consanguinity or by affinity, are not presumptive evidence of a contract
of agency on their lonesome. Also, petitioner cannot correctly argue that his agreement with
respondents-spouses constituted dation in payment or dacion en pago.

Glaring legal and factual reasons debunk petitioner's claim of dacion en pago. First, the March
1999 Dacion en Pago submitted by petitioner apparently pertains to another debt that was not
proven to have transpired. Second, even if the truth of this second transaction would be
sustained, both parties still must be shown to have mutually agreed to the dation in payment.
Records, however, fail to disclose any such consent on the part of respondents-spouses. Instead
of an agreement, the said Dacion en Pago appears to be a mere unilateral affidavit executed by
petitioner. That both petitioner and respondents-spouses left this document unsigned and
unnotarized does not help the present appeal. No witnesses even attested to the alleged Dacion
En Pago. This Dacion En Pago rests on claims that are too self-serving to be considered, and
bare allegations have no probative value in court.

TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC. vs. The COURT OF APPEALS and

ASSOCIATED BANK
G.R. No. 109172, August 19, 1994

Topic: Condonation/Remission of Debt

Facts:

Sometime in 1979, petitioner applied for and was granted several financial accommodations
amounting to P1,300,000.00 by respondent Associated Bank. The loans were evidenced and
secured by four (4) promissory notes, a real estate mortgage covering three parcels of land and a
chattel mortgage over petitioner's stock and inventories.

Unable to settle its obligation in full, petitioner requested for, and was granted by respondent
bank, a restructuring of the remaining indebtedness which then amounted to P1,057,500.00, as
all the previous payments made were applied to penalties and interests. The restructured loan
was secured by three new promissory notes.

Despite the return of the notes, Associated Bank demanded from Trans-Pacific payment of the
amount of P492,100.00 representing accrued interest. According to the bank, the promissory
notes were erroneously released. Trans-Pacific then filed an action with the RTC and it prayed
that the mortgage over the two parcels of land be released and its stock inventory be lifted and
that its obligation to the bank be declared as having been fully paid. The RTC ruled in favor of
Trans-Pacific. However, on appeal, the CA overturned the RTC’s ruling and ordered Trans-
Pacific to pay their remaining obligations to the Bank.

Issue:

Whether or not the bank has condoned payment of interest by virtue of payment of the principal
obligation.

Ruling:

No. The Supreme Court held that Article 1271 of the Civil Code raises a presumption, not of
payment, but of the renunciation of the credit where more convincing evidence would be
required than what normally would be called for to prove payment. The rationale for allowing
the presumption of renunciation in the delivery of a private instrument is that, unlike that of a
public instrument, there could be just one copy of the evidence of credit. Where several originals
are made out of a private document, the intendment of the law would thus be to refer to the
delivery only of the original rather than to the original duplicate of which the debtor would
normally retain a copy.

To determine the admissibility or non-admissibility of an offer to compromise, the circumstances

of the case and the intent of the party making the offer should be considered. Thus, if a party
denies the existence of a debt but offers to pay the same for the purpose of buying peace and
avoiding litigation, the offer of settlement is inadmissible. If in the course thereof, the party
making the offer admits the existence of an indebtedness combined with a proposal to settle the
claim amicably, then, the admission is admissible to prove such indebtedness. Indeed, an offer of
settlement is an effective admission of a borrower's loan balance. Exactly, this is what petitioner
did in the case before us for review.

Soriano v. People

G.R. No. 181692, Aug. 14, 2013

J. Villarama Jr.

Facts:

Evelyn Alagao (Evelyn), daughter of private complainant Consolacion Alagao (Alagao), as

borrower-mortgagor, executed a “Contract of Loan Secured by Real Estate Mortgage with
Special Power to Sell Mortgage Property without Judicial Proceedings” 6 in favor of petitioner
as lender-mortgagee. It likewise provides that the loan was to be paid two years from the date of
execution of the contract, or on February 18, 1996, and that Evelyn agrees to give petitioner ¼ of
every harvest from her cornland until the full amount of the loan has been paid, starting from the
first harvest. Based on Alagao’s testimony, the first harvest was made only in September 1994.
8 Petitioner on the other hand claims that from the time the loan was obtained until September
1994, there were already four harvests. During pre-trial, it was admitted by Alagao that she did
not only receive P40,000 as provided in the contract of loan but P51,730 in the form of fertilizers
and cash advances.

On September 9, 1994, Alagao and some companions delivered 398 sacks of corn grains to
petitioner. Petitioner prepared a voucher indicating that Alagao had received the amount of
P85,607 as full payment for the 398 sacks of corn grains. Alagao signed said voucher even if she
only received P3,000. According to Alagao, 64 of the 398 sacks will serve as partial payment of
her P40,000 loan with petitioner while the remaining balance will come from the P85,607 cash
she was supposed to receive as payment for the corn grains delivered so she can redeem her
daughter’s land title

The RTC rendered its decision finding petitioner guilty beyond reasonable doubt of the crime of
estafa
However, it was set aside by the CA in the assailed decision and acquit appellant but ordered her
to pay petitioner the balance of the cash value of the 398 sacks of corn grains plus legal interest.
The CA ruled that the prosecution failed to establish that petitioner made false pretenses,
fraudulent acts or fraudulent means to induce Alagao to deliver to her the 398 sacks of corn
grains.

Issue:

Whether or not the entire value of the 398 sacks of corn grains should not be set off with
Alagao’s loan since (1) the loan was not yet due and demandable at the time of delivery of the
398 sacks of corn grains in September 1994; and (2) only 154 of the 398 sacks of corn grains
belong to Alagao.

Ruling:

Yes. It can be offset.

ART. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.

In this case, petitioner and Alagao are debtors and creditors of each other. Petitioner owes
P85,607 for the value of the corn grains delivered to her by Alagao in September 1994 while
Alagao owes petitioner P51,730 by virtue of a loan extended by the latter in February 1994.
Second, both debts consist in a sum of money. Third, both debts are due. Fourth, both debts are
liquidated and demandable. And lastly, there are no third-party claims with respect to Alagao’s
P51,730 loan.

Thus, Soriano is hereby ordered to pay P 30, 877 as payment for the remaining balance of the
cash value of the 398 sacks of com grains, plus legal interest at the rate of 6%21 per annum
computed from finality of this Decision until its full satisfaction.

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

G.R. No. 167519, January 14, 2015

 J. Leonen

Facts:

Wellex and U-Land entered into a Memorandum of Agreement(First Memorandum of

Agreement) to expand their respective airline operations in Asia. In the First Memorandum of
Agreement, Wellex and U-Land agreed to develop a long-term business relationship through the
creation of joint interest in airline operations and property development projects in the
Philippines.

The First Memorandum of Agreement stated that within 40 days from its execution date, Wellex
and U-Land would execute a share purchase agreement covering U-Land’s acquisition of the
shares of stock of both APIC (APIC shares) and PEC (PEC shares).In this share purchase
agreement, U-Land would purchase from Wellex its APIC shares and PEC shares. The parties
intended that U-Land would gain primary control and responsibility for the international
operations of APC. Wellex and U-Land also agreed to enter into a joint development agreement
simultaneous with the execution of the share purchase agreement. The joint development
agreement shall cover housing and other real estate development projects. Finally, Wellex and
U-Land agreed that if they were unable to agree on the terms of the share purchase agreement
and the joint development agreement within 40 days from signing, then the First Memorandum
of Agreement would cease to be effective.

The 40-day period lapsed on June 25, 1998.Wellex and U-Land were not able to enter into any
share purchase agreement although drafts were exchanged between the two.

Despite the absence of a share purchase agreement, U-Land remitted to Wellex a total of
US$7,499,945.00. Wellex acknowledged the receipt of these remittances in a confirmation letter
addressed to U-Land dated September 30, 1998. Despite these transactions, Wellex and U-Land
still failed to enter into the share purchase agreement and the joint development agreement.

U-Land filed a Complaint praying for rescission of the First Memorandum of Agreement and
damages against Wellex and for the issuance of a Writ of Preliminary Attachment. its primary
reason for purchasing APIC shares from Wellex was APIC’s majority ownership of shares of
stock in APC (APC shares). After verification with the Securities and Exchange Commission, U-
Land discovered that “APIC did not own a single share of stock in APC.” The 40-day period
lapsed, and no share purchase agreement was finalized.

Wellex countered that U-Land had no cause of action.Wellex maintained that under the First
Memorandum of Agreement, the parties agreed to enter into a share purchase agreement and a
joint development agreement.Wellex alleged that to bring the share purchase agreement to
fruition, it would have to acquire the corresponding shares in APIC. It claimed that U-Land was
fully aware that the former “still ha[d] to consolidate its title over these shares.” Wellex further
alleged that U-Land breached the First Memorandum of Agreement since the payment for the
shares was to begin during the 40-day period, which began on May 16, 1998.In addition, U-Land
failed to remit the US$3 million by May 22, 1998 that would serve as initial funding for the
development projects.

The RTC held that rescission of the First Memorandum of Agreement was proper.

The Court of Appeals affirmed the ruling of the RTC. the latter itself asked for the rescission of
the MOA. Thus, in effect, it prays for the return of what has been given or paid under the MOA,
as the law creates said obligation to return the things which were the object of the contract, and
the same could be carried out only when he who demands rescission can return whatever he may
be obliged to restore.

Issue:

Whether or not there is an express novation.

Ruling:

No. There was no express novation of the first memorandum of agreement.

Novation may also be express or implied. It is express when the new obligation declares in
unequivocal terms that the old obligation is extinguished. It is implied when the new obligation
is incompatible with the old one on every point. The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence.

After the 40-day period, the parties did not enter into any subsequent written agreement that was
couched in unequivocal terms. The transaction of the First Memorandum of Agreement involved
large amounts of money from both parties. The parties sought to participate in the air travel
industry, which has always been highly regulated and subject to the strictest commercial
scrutiny. Both parties admitted that their counsels participated in the crafting and execution of
the First Memorandum of Agreement as well as in the efforts to enter into the share purchase
agreement. Any subsequent agreement would be expected to be clearly agreed upon with their
counsels’ assistance and in writing, as well.

Given these circumstances, there was no express novation.

There was no incompatibility between the original terms of the First Memorandum of Agreement
and the remittances made by respondent U-Land for the shares of stock. There being no novation
of the First Memorandum of Agreement, respondent U-Land is entitled to the return of the
amount it remitted to petitioner Wellex. Petitioner Wellex is likewise entitled to the return of the
certificates of shares of stock and titles of land it delivered to respondent U-Land.

Metropolitan Bank and Trust Company v. Rural Bank of Gerona, Inc.

G.R. No. 159097, July 5, 2010

 J. Brion

Facts:

In the 1970s, the Central Bank and the RBG entered into an agreement providing that RBG shall
facilitate the loan applications of farmers-borrowers under the Central Bank-International Bank
for Reconstruction and Development's (IBRD's) 4th Rural Credit Project. The agreement
required RBG to open a separate bank account where the IBRD loan proceeds shall be deposited.
The RBG accordingly opened a special savings account with Metrobank's Tarlac Branch. As the
depository bank of RBG, Metrobank was designated to receive the credit advice released by the
Central Bank representing the proceeds of the IBRD loan of the farmers-borrowers; Metrobank,
in turn, credited the proceeds to RBG's special savings account for the latter's release to the
farmers-borrowers.

Upon receipt of the debit advices, Metrobank, in turn, debited the following amounts from
RBG's special savings account: P189,052.00, P115,000.00, and P8,000.41. Metrobank, however,
claimed that these amounts were insufficient to cover all the credit advices that were reversed by
the Central Bank. It demanded payment from RBG which could make partial payments. As of
October 17, 1979, Metrobank claimed that RBG had an outstanding balance of P334,220.00. To
collect this amount, it filed a complaint for collection of sum of money against RBG before the
RTC

The RTC ruled for Metrobank, finding that legal subrogation had ensued when MTBC had
allowed releases of the amounts in the credit advices it credited in favor of [RBG's special
savings account] which credit advices and deposits were under its supervision. Being faulted in
these acts or omissions, the Central Bank [sic] debited these amounts against [Metrobank's]
demand [deposit] reserve; thus[, Metrobank's] demand deposit reserves diminished
correspondingly, [Metrobank as of this time,] suffers prejudice in which case legal subrogation
has ensued.

The CA noted that this was not a case of legal subrogation under Article 1302 of the Civil Code.

Issue:

Whether or not there was a legal subrogation.

Ruling:

Yes. There was a legal subrogation.

Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;

(2) When a third person, not interested in the obligation, pays with the express or tacit approval
of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter's share.

Under this situation, impleading the Central Bank as a party is completely unnecessary. We note
that the CA erroneously believed that the Central Bank's presence is necessary "in order x x x to
shed light on the matter of reversals made by it concerning the loan applications of the end users
and to have a complete determination or settlement of the claim."[16] In so far as Metrobank is
concerned, however, the Central Bank's presence and the reasons for its reversals of the IBRD
loans are immaterial after subrogation has taken place; Metrobank's interest is simply to collect
the amounts it paid the Central Bank. Whatever cause of action RBG may have against the
Central Bank for the unexplained reversals and any undue deductions is for RBG to ventilate as a
third-party claim; if it has not done so at this point, then the matter should be dealt with in a
separate case that should not in any way further delay the disposition of the present case that had
been pending before the courts since 1980.

PNB v. Chan, G.R. No. 206037, 13 March 2017

FACTS:
The petitioner Philippine National Bank (PNB) and the respondent Lilibeth S. Chan have
an agreement, where Chan is the owner of a three-storey commercial building situated in Paco,
Manila. Chan leased the commercial building to PNB for a five year contract period starting
from 1999 to 2004 with a monthly rental of Php 76,160.00. However, PNB continued to occupy
the property on a monthly basis with a monthly rental of Php 116,788.44 after the contract
expired. Chan vacated the premises on March 23, 2006. In 2005, Chan filed a complaint for
unlawful detainer before the Metropolitan Trial Court against PNB for failure to pay the monthly
rentals from October 2004 until August 2005. Hearing was held in Metropolitan Trial Court in
April 2006 wherein both parties agreed to apply the rental proceeds from October 2004 to
January 2005 based on the respondents outstanding loan. In 2006 Metropolitan Trial Court
ordered PNB to pay Chan accrued rentals in the amount of Php 1,348,643.92 with interest at 6%
per annum. PNB then appealed to the Regional Trial Court. It insisted that Chan is not entitled to
the disputed rental proceeds. The Regional Trial Court affirmed the Metropolitan Trial Court
ruling. The RTC ruled that the respondent is entitled to legal interest of 6% per annum and
attorney’s fees for having been compelled to litigate to protect her interest, the same with
Metropolitan Trial Court decision. PNB filed a motion for reconsideration but the RTC denied
the motion. After the denial, the petitioner filed a Petition for Review under the Rule of Court
before the Court of Appeals challenging the RTC decision. The Court of Appeals found no
sufficient evidence on record as the petitioner claims. The Court of Appeals found that the
petitioner is liable to pay the 6% legal interest rate as prescribed under the Article 2209 of Civil
Code. The Court of Appeals deleted attorney’s fees because of the public policy that no premium
should be placed on the right to litigate. Moreover, PNB filed a partial Motion for
Reconsideration but the Court of Appeals denied the motion. The petitioner filed Petition for
Review on Certiorari before the Court, assailing the Court of Appeals decision.

ISSUES:
Whether or not the petitioner can properly consigned the disputed rental payments in the
amount of P1, 348,643.92 with the Office of the Clerk of Court of the MeTC of Manila
RULING:
Yes. Under Article 1256 of the Civil Code, consignation alone is sufficient even without
a prior tender payment a) when the creditor is absent or unknown or does not appear at the place
of payment, b) when he is incapacitated to receive the payment at the time it is due, c) when,
without just cause, he refuses to give a receipt, d) when two or more persons claim the same right
to collect, and e) when the title of the obligation has been lost. In addition, for consignation to be
valid, the debtor must comply with the following requirements under the law: 1) there was a debt
due, 2) valid prior tender of payment, unless the consignation was made of some legal cause
provided in Article 1256, 3) previous notice of the consignation has been given to the persons
interested in the performance of the obligation, 4) the amount or thing due was placed at the
disposal of the court, and 5) after the consignation had been made, the persons interested were
notified thereof. Failure in any of these requirements is enough ground to render consignation
ineffective.

Banco de Oro v. Ypil, G.R. No. 226144. October 14, 2020

FACTS:
In 2002, Kho, representing Cebu Sureway Trading Corp (CSTC), offered a proposal to
respondent Edgardo C. Ypil, Sr. (Ypil) to invest in the Prudentialife Plan -Millionaires in
Business scheme. Ypil acquiesced and Kho was able to solicit the total amount of P300,000.00
from him. Eventually, though, Ypil opted to get a refund of the amounts he paid. However,
CSTC or Kho did not answer. Ypil likewise made several oral demands but to no avail.
Subsequently, Ypil 's lawyer sent a demand letter to Kho but it was never answered. Ypil thus
filed a Complaint for Specific Performance with Attachment, Damages and Attorney's fees
against CSTC and Kho. On February 1, 2008, Polloso was finally called to testify. Notably, the
RTC discovered that the Bank already debited from CSTC's savings and current accounts some
amounts to offset its (CSTC's) outstanding obligation with the Bank under a loan agreement. In
view of this, the trial court issued an Order directing the Bank, through Polloso, to show cause
why it should not be held guilty of indirect contempt for debiting the money from the accounts
of CSTC and Kho which was under custodia legis. The Bank filed its Compliance/Explanation as
a forced intervenor to the trial court. Essentially, it averred that since CSTC defaulted in its
obligations to the Bank as embodied in a Credit Agreement and Promissory Note, its entire
obligation immediately became due and demandable without need of demand or notice. In other
words, it asserted that since the Bank and CSTC were creditors and debtors of each other, legal
compensation already took effect. CSTC and Kho then filed their Comment stating that the
provisions of the Promissory Note should not affect third parties and processes such as
garnishment. They alleged that the Bank resorted to legal compensation to frustrate the order of
garnishment. Moreover, they averred that legal compensation cannot take effect because CSTC's
loan was not yet due and demandable. Subsequently, Ypil filed his Memorandum insisting that
the trial court acquired jurisdiction over the Bank which in turn became a forced intervenor upon
receipt of the Notice of Garnishment. He claims that the subject deposit was brought into
custodia legis which the Bank cannot debit in its favor.

ISSUE:
Whether or not there was legal compensation in this case

RULING:
 The Bank insists that all the requisites of legal compensation under Article 1279 of the
Civil Code are present in this case. It highlights that the Promissory Note stipulated that in the
event of default, CSTC's remaining obligations with the Bank will immediately become due and
payable even without a demand notice. It points out that CSTC had already defaulted on its
obligations under the Promissory when the Notice of Garnishment was served to the Bank.
Hence, the Bank asserts that it acted correctly when it formally debited CSTC's deposit to reflect
the legal compensation which automatically took place even prior to the service of the Notice of
Garnishment on February 4, 2004. Moreover, the Bank contends that since legal compensation
occurs by operation of law, the deposits could not have been the proper subject of the Notice of
Garnishment and could not be placed in custodia legis. Additionally, the Bank argues that the
respondents acted in bad faith when they included the subject deposit as a part of their
Compromise Agreement which in turn became the trial court's basis in issuing the Judgment
Based on Compromise Agreement.

Comglasco Corporation or Aguila Glass vs. Santos Car Check Center Corporation

G.R. No. 202989, March 15, 2015

Supreme Court Third Division

Reyes, J.

Facts:

On August 16, 2000, respondent Santos Car Check Center Corporation (Santos), owner
of a showroom, leased out the space to petitioner Comglasco Corporation, an entity engaged in
the sale, replacement, and repair of automobile windshields, for a period of five years at a
monthly rental for each year until fifth year.

Comglasco advised Santos through a letter that it was pre-terminating their lease contract
effective December 1, 2001. Santos refused to accede to the pre-termination, reminding
Comglasco that their contract was for five years. The latter vacated the leased premises and
stopped paying any further rentals. Santos sent several demand letters which Comglasco
completely ignored. Thus, Santos filed suit for breach of contract

Issue:

Whether or not there was a valid cause for the plaintiff to pre-terminate the lease.

Ruling:

No. There was no valid cause for the plaintiff to pre-terminate the lease.
 The principle of rebus sic stantibus neither fits with the facts of the case. Under this
theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions
case to exist, the contract also ceases to exist. This teory is said to be the basis of Article 1267 of
the Civil Code, which provides that when the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or
in part.

In this case, petitioner wants this Court to believe that the abrupt change in the political
climate of the country after the EDSA Revolution and its poor financial condition “rendered the
performance of the lease contract impractical and inimical to the corporate survival of the
petitioner.”

Hence, there was no valid cause for the pre-terminate the lease.

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

G.R. No. 167519 January 14, 2015

LEONEN, J.

FACTS

U-LAND is engaged in the business of airline transportation in Taiwan, Philippines

and/or in other countries in the Asian region, and desires to expand its operation and increase its
market share by, among others, pursuing a long-term involvement in the growing Philippine
airline industry. on the other hand, has current airline operation in the Philippines through its
majority-owned subsidiary Air Philippines International Corporation and the latter’s subsidiary,
Air Philippines Corporation, and in like manner also desires to expand its operation in the Asian
regional markets, a Memorandum of Agreement, a certified copy of which is attached hereto as
Annex “A” and is hereby made an integral part hereof, which sets forth, among others, the basis
for WELLEX’s present ownership of shares in Air Philippines International Corporation. The
parties recognize the opportunity to develop a long-term profitable relationship by combining
such of their respective resources in an expanded airline operation as well as in property
development and in other allied business activities in the Philippines, and desire to set forth
herein the basic premises and their understanding with respect to their joint cooperation and
undertakings.

ISSUE

Was there expressed novation in the First Memorandum Agreement between Wellex Group, Inc.
v. U-land Airlines, Co.

RULING
Articles 1291 and 1292 of the Civil Code provides how obligations may be modified: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.
Article 1292. In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. It is clear that there was no novation
of the original obligation. After the 40-day period, the parties did not enter into any subsequent
written agreement that was couched in unequivocal terms. The transaction of the First
Memorandum of Agreement involved large amounts of money from both parties. The parties
sought to participate in the air travel industry, which has always been highly regulated and
subject to the strictest commercial scrutiny. Both parties admitted that their counsels participated
in the crafting and execution of the First Memorandum of Agreement as well as in the efforts to
enter into the share purchase agreement. Any subsequent agreement would be expected to be
clearly agreed upon with their counsels’ assistance and in writing, as well. Given these
circumstances, there was no express novation.

REYNA V. COMMISSION ON AUDIT

G.R No. 167219, FEBRUARY 8, 2011

Peralta. J.

FACTS:

The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing
program wherein loans were granted to various cooperatives. Pursuant thereto, Land Bank's Ipil,
Zamboanga del Sur Branch (Ipil Branch) went into a massive information campaign offering the
program to cooperatives.Cooperatives who wish to avail of a loan under the program must fill up
a Credit Facility Proposal (CFP) which will be reviewed by the Ipil Branch. The Ipil Branch
approved the applications of four cooperatives.One of the conditions stipulated in the CFP is that
prior to the release of the loan, a Memorandum of Agreement (MOA) between the supplier of the
cattle, Remad Livestock Corporation (REMAD), and the cooperative, shall have been signed. As
alleged by petitioners, the terms of the CFP allowed for pre-payments or advancement of the
payments prior to the delivery of the cattle by the supplier REMAD but such was not stipulated
in the contracts.

Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment
for the cattle. REMAD, however, failed to supply the cattle on the dates agreed upon.

In post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB
No. 95-005 dated December 27, 1996 and Notices of Disallowance Nos. 96-014 to 96-019 in
view of the non-delivery of the cattle. Also made as the basis of the disallowance was the fact
that advanced payment was made in violation of bank policies and COA rules and regulations.

Petitioners were made liable for the amount

ISSUE:
 Whether or not the writing off of a loan is considered as condonation

RULING:

This Court rules that writing-off a loan does not equate to a condonation or release of a
debt by the creditor.

As an accounting strategy, the use of write-off is a task that can help a company maintain
a more accurate inventory of the worth of its current assets. In general banking practice, the
write-off method is used when an account is determined to be uncollectible and an uncollectible
expense is recorded in the books of account. If in the future, the debt appears to be collectible, as
when the debtor becomes solvent, then the books will be adjusted to reflect the amount to be
collected as an asset. In turn, income will be credited by the same amount of increase in the
accounts receivable.

Write-off is not one of the legal grounds for extinguishing an obligation under the Civil
Code. It is not a compromise of liability. Neither is it a condonation, since in condonation
gratuity on the part of the obligee and acceptance by the obligor are required. In making the
write-off, only the creditor takes action by removing the uncollectible account from its books
even without the approval or participation of the debtor.

ESTATE OF MOTA V SERRA

G.R.No. 22825 February 14, 1925

Villamor, J.

FACTS:

On February 1, 1919, plaintiffs and defendant entered into a contract of partnership,

marked Exhibit A, for the construction and exploitation of a railroad line from the "San Isidro"
and "Palma" centrals to the place known as "Nandong". The original capital stipulated was
P150,000. It was covenanted that the parties should pay this amount in equal parts and the
plaintiffs were entrusted with the administration of the partnership.

January 29, 1920, the defendant entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the
estate and central known as "Palma" with its running business, as well as all the improvements,
machineries and buildings, real and personal properties, rights, choses in action and interests,
including the sugar plantation of the harvest year of 1920 to 1921, covering all the property of
the vendor. Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de
Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs.
Venancio Concepcion and Phil. C. Whitaker.

Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought

from the plaintiffs the one half of the railroad line pertaining to the latter executing therefor the
document Exhibit 5. The price of this sale was P237,722.15, excluding any amount which the
defendant might be owing to the plaintiffs.
ISSUE:

Whether or not there was confusion of the rights of the creditor and debtor

RULING:

The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of
the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they had
bought and also upon what they had purchased from Mr. Salvador Serra. In other words, Phil C.
Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they had bought from the
plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and
Venancio Concepcion had purchased something from Mr. Salvador Serra, the herein defendant,
regarding the railroad line, it was undoubtedly the one-half thereof pertaining to Mr. Salvador
Serra. This clearly shows that the rights and titles transferred by the plaintiffs to Phil. C.
Whitatker and Venancio Concepcion were only those they had over the other half of the railroad
line. Therefore, as already stated, since there was no novation of the contract between the
plaintiffs and the defendant, as regards the obligation of the latter to pay the former one-half of
the cost of the construction of the said railroad line, and since the plaintiffs did not include in the
sale, evidenced by Exhibit 5, the credit that they had against the defendant, the allegation that the
obligation of the defendant became extinguished by the merger of the rights of creditor and
debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly
untenable.

CAROLINA -NIEVERA V. WILFREDO HERNANDEZ

GR No. 171165; February 14, 2011

Peralta, J.

FACTS:

Project Movers Realty & Development Corporation (PMRDC) is a duly organized

domestic corporation engaged in real estate development. It entered into a Memorandum of
Agreement (MOA) whereby it was given the option to buy pieces of land owned by petitioners
Carolina Hernandez-Nievera, Margarita H. Malvar and Demetrio P. Hernandez, Jr. Demetrio,
under authority of a Special Power of Attorney to Sell or Mortgage, signed the MOA also in
behalf of Carolina and Margarita. In the aggregate, the realty measured 4,580,451 square meters
and was segregated by agreement into Area I and Area II.

On March 23, 1998, the PMRDC entered with LBP and Demetrio - the latter purportedly
acting under authority of the same special power of attorney as in the MOA - into a Deed of
Assignment and Conveyance (DAC). PMRDC delivered to petitioners certain checks
representing the money, the same however allegedly bounced. Hence, on January 8, 1999,
petitioners demanded the return of the corresponding TCTs over the land but PMRDC said that
the TCTs could no longer be delivered back to petitioners as the covered properties had already
been conveyed and assigned to the Asset Pool pursuant to the March 23, 1998 DAC. Petitioner
contended that Demetrio could not have entered into the said agreement as his power of attorney
was limited only to selling or mortgaging the properties and not conveying the same to the Asset
Pool.

ISSUE:

Whether or not the novation of the MOA is valid.

RULING:

Thus, it becomes clear that Demetrio's special power of attorney to sell is sufficient to
enable him to make a binding commitment under the DAC in behalf of Carolina and Margarita.
In particular, it does include the authority to extinguish PMRDC's obligation under the MOA to
deliver option money and agree to a more flexible term by agreeing instead to receive shares of
stock in lieu thereof and in consideration of the assignment and conveyance of the properties to
the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to
accommodate not only the terms of the MOA but also those of the subsequent agreement in the
DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDC's
integral obligations.

There are two ways which could indicate, in fine, the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the same. The
first is when novation has been explicitly stated and declared in unequivocal terms. The second
is when the old and the new obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible, and the latter obligation novates
the first.

COMGLASCO v Santos Car Check Corp.

G.R. No. 202989, 25 March 2015
J. Reyes
Facts:
In 2000, Santos Car Check Corp leased out a space of its showroom to COMGLASCO
for a period of 5 years. In 2001, COMGLASCO advised the respondent, through a letter, that it
was pre-terminating their lease agreement which the respondent had refused to accede but
COMGLASCO already vacated the leased premises and halted paying any rentals. Such led
Santos Car Check Corp to send several demand letters to COMGLASCO.
Santos Car Check Corp filed a suit against COMGLASCO for breach of contract.
Whereas, COMGLASCO argued that paragraph 15 of the lease contract between them and the
respondent stated that pre-termination with cause for the first 3 years; and without cause after the
third year is permitted.
COMGLASCO anchored its claim on the 1997 Asian Financial Crisis which according to
them is in relation to Article 1267 of the Civil Code, which exempts them from the obligation.
 Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.

Issue:
Whether or not COMGLASCO is exempt from its Obligation

Ruling:
No. COMGLASCO is not exempted from the obligation owed to Santos Car Check Corp.
Article 1267 of the Civil Code cannot be invoked in such a case. The provision under Article
1267 speaks of a prestation involving service which has been rendered so difficult by unforeseen
subsequent events as to be manifestly beyond the contemplation of party. Moreover, payment of
lease rentals does not involve a prestation “to do” envisaged in Articles 1266 & 1267. Also,
COMGLASCO cannot be permitted to blame its difficulties on the said economic phenomenon
because it entered its subject lease only on August 16, 2000 which was 3 years after the
beginning of the economic phenomenon, thus, by then, COMGLASCO could have known the
business risks, and have assumed risks beforehand, before it opened a shop.

Cathay Pacific v. Vazquez

G.R. No. 150843, 14 March 2003

C.J. Davide, Jr.

Facts:

Because of overbooking, respondents were denied their initial seats in Business Class with their
companions on their return trip from Hong Kong to Manila. Respondents' tickets were upgraded
to First Class since they were privileged members. Respondents first refused but were eventually
persuaded to accept it. When they returned to Manila, they wanted P1 million in compensation
for the "humiliation and embarrassment" inflicted by its staff. The Petitioner's Country Manager
did not react. Respondents filed a lawsuit for monetary damages. The RTC decided in favor of
the respondents. The Court of Appeals upheld the RTC verdict, but modified the amount of
damages.

Issue:
Is an involuntary upgrading of an airline’s accommodation at no extra costs cause a breach of
contract of carriage?

Ruling:

Yes, involuntary upgrading of an airline’s accommodation at no extra costs caused a breach of

contract of carriage.

Breach of contract is defined as the "failure without legal reason to comply with the terms of a
contract." It is also defined as the "[f]ailure, without legal excuse, to perform any promise which
forms the whole or part of the contract.

In this case, the Vazquezes are aware of the privileges, but such privileges may be waived.
Spouses should have been consulted first. It should not have been imposed on them over their
vehement objection. By insisting of the upgrade, Pacific Airways breached its contract of
carriage with the Vazquezes. Nominal damages are adjudicated in order that the right of the
plaintiff, which have been violated may be vindicated or recognized and not for indemnifying the
plaintiff for any loss suffered by him.

Philippine National Construction Corporation v. Court of Appeals

G.R. No. 116896, 5 May 1997

J. Bellosillo

Facts:

Petitioner secured a Temporary Use Permit 2 from the Ministry of Human Settlements on
January 7, 1986, for the proposed rock crushing facility. The permit was to be valid for two years
unless withdrawn earlier by the Ministry. On January 16, 1986, private respondents emailed
petitioner asking payment of the first ear rental of P240,000, which was due and payable upon
contract completion.

They further assured the latter that, because to the existing contract with petitioner, they had
already stopped evaluating applications from other aggregates manufacturers to lease the
property. Petitioner contended in its reply letter that, under paragraph 1 of the lease contract,
rental payments would begin on the date the Ministry of Human Settlements issued an industrial
clearance, not the date the contract was signed. It subsequently stated its intention to terminate
the contract, stating that it had opted to stop or discontinue the rock crushing project "due to
financial and technical issues." Private respondents declined to grant petitioner's request to
terminate the lease contract. They insisted on the petitioner's responsibility being met and
maintained their demand for the first annual rental payment.

Issue:

Are the provisions of Article 1266 and the principle of rebus sic stantibus is applicable in this
case?

Ruling:

No, the provisions of Article 1266 and the principle of rebus sic stantibus neither fits in with the
facts of the case.

Article 1266 of the Civil Codes states that, "The debtor in obligations to do shall also be released
when the prestation becomes legally or physically impossible without the fault of the obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only
to obligations "to do," and not to obligations "to give." An obligation "to do" includes all kinds
of work or service; while an obligation "to give" is a prestation which consists in the delivery of
a movable or an immovable thing in order to create a real right, or for the use of the recipient, or
for its simple possession, or in order to return it to its owner.

In the issue at hand, the responsibility to pay rentals or deliver the thing in a lease contract falls
within the prestation "to give," and hence is not covered by Article 1266. In any case, the
petitioner's unforeseeable event and reasons are not the legal or physical impossibilities
contemplated in the aforementioned article. Furthermore, the petitioner failed to specify the
conditions that resulted from "the dramatic change in the political climate in the country," other
than the purported prevailing uncertainty in government policy on infrastructure projects. The
rebus sic stantibus concept is inapplicable to the facts of the case. According to this view, the
parties stipulate in light of specific prevailing conditions, and once these conditions cease to
exist, so does the contract.

Hence, the provisions of Article 1266 and the principle of rebus sic stantibus is not applicable in
this case.

EGV Realty v. CA

G.R. No. 120236, 20 July 1999

J. Kapunan

Facts:
E.G.V. Realty Development Corporation is the owner/developer of Cristina Condominium, a
seven-story condominium complex. Cristina Condominium Corporation (CCC) owns all
common areas in Cristina Condominium and is in responsibility of managing, maintaining, and
administering the condominium's common areas as well as providing security for the building.
Respondent Unisphere International, Inc. (hereafter referred to as Unisphere) is the
owner/occupant of Unit 301 of such condominium. Respondent Unisphere's Unit 301 was
reportedly robbed of different things valued at P6,165.00 on November 28, 1981. Subsequently,
CCC, the petitioner, was informed of the occurrence. On July 25, 1982, another robbery was
allegedly committed in Unit 301, with the articles hauled away worth P6,130.00, bringing the
total value of items lost to P12,295.00. This occurrence was also reported to petitioner CCC.
Respondent Unisphere sought compensation and reimbursement from petitioner CCC for
damages experienced as a result of the robbery on October 5, 1982. On January 28, 1987,
petitioners E.G.V. Realty and CCC filed a joint petition with the Securities and Exchange
Commission (SEC) for the recovery of P13,142.67 in unpaid monthly dues against respondent
Unisphere.

Issue:

Is set-off or compensation has taken place in the instant case?

Ruling:

The set-off or compensation is not proper in this case.

Compensation or offset under the New Civil Code takes place only when two persons or entities
in their own rights, are creditors and debtors of each other. (Art. 1278).

A distinction must be made between a debt and a mere claim. A debt is an amount actually
ascertained. It is a claim which has been formally passed upon by the courts or quasi-judicial
bodies to which it can in law be submitted and has been declared to be a debt. A claim, on the
other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process
prescribed by law before it develops into what is properly called a debt. Absent, however, any
such categorical admission by an obligor or final adjudication, no compensation or off-set can
take place. Unless admitted by a debtor himself, the conclusion that he is in truth indebted to
another cannot be definitely and finally pronounced, no matter how convinced he may be from
the examination of the pertinent records of the validity of that conclusion the indebtedness must
be one that is admitted by the alleged debtor or pronounced by final judgment of a competent
court or in this case by the Commission.

Hence, Court of Appeals committed reversible error in ruling that compensation or set-off is
proper in the instant case.
 Bank of the Philippine Islands v. Domingo

G.R. No. 169407, 25 March 2015

J. Leonardo-De Castro

Facts:

On September 27, 1993, Amador Domingo and his wife, Mercy Maryden Domingo, executed a
Promissory Note in favor of Makati Auto Center, Inc. in the amount of P629,856.00, payable in
48 consecutive monthly installments of P13,122.00 each. They also completed a Deed of Chattel
Mortgage on a 1993 Mazda 323 to secure the payment of their Promissory Note. Makati Auto
Center, Inc. then assigned, ceded, and transferred to Far East Bank and Trust Company all of its
rights and interests in the Promissory Note and chattel mortgage.

The Securities and Exchange Commission approved and issued the Certificate of Filing of the
Articles of Merger and Plan of Merger executed by and between BPI, the surviving corporation,
and FEBTC, the absorbing corporation, on April 7, 2000. All of FEBTC's assets and liabilities
were transferred to and absorbed by BPI as a result of the merger. Domingo's spouses
continually failed to make the 21 monthly installments that were due from January 15, 1996 to
September 15, 1997. BPI, as the surviving corporation following the merger, demanded that the
spouses Domingo pay the balance of the Promissory Note plus accrued late payment
charges/interests or return possession of the subject vehicle for the purpose of foreclosure in
accordance with the undertaking stated in the chattel mortgage. When the spouses Domingo
failed to comply with its demands, BPI filed a Complaint for Replevin and Damages (or,
alternatively, for the collection of a sum of money, interest and other charges, and attorney's
fees) on November 14, 2000, which was raffled to the Metropolitan Trial Court of Manila,
Branch 9, and docketed as Civil Case No. 168949-CV. BPI named a John Doe as a defendant
because, at the time of filing the Complaint, BPI was aware that the subject vehicle was in the
custody of a third party but did not know who that person was.

Issue:

Was there a novation of the loan obligation with chattel mortgage of the couples Domingo to
BPI, in which the spouses Domingo were relieved from said obligation and Carmelita was
substituted as debtor?

Ruling:
No, there was no novation of the loan obligation with chattel mortgage of the couples Domingo
to BPI, in which the spouses Domingo were relieved from said obligation and Carmelita was
substituted as debtor.

As the Court explained in Da Jose v. Angeles, “Evidence is hearsay when its probative force
depends on the competency and credibility of some persons other than the witness by whom it is
sought to be produced. The exclusion of hearsay evidence is anchored on three reasons: (1)
absence of cross-examination; (2) absence of demeanor evidence; and (3) absence of oath. Basic
under the rules of evidence is that a witness can only testify on facts within his or her personal
knowledge. This personal knowledge is a substantive prerequisite in accepting testimonial
evidence establishing the truth of a disputed fact.

In this case, it is worthy to stress that Amador, as the party asserting novation, bears the burden
of proving its existence. Amador cannot simply rely on the failure of BPI to produce the checks
if these were not actually returned to the spouses Domingo. There is simply not enough evidence
to establish the prima facie existence of novation to shift the burden of evidence to BPI to
controvert the same.

Hence, the Court is therefore convinced that there is no novation by delegacion in this case and
Amador remains a debtor of BPI.

Board of Liquidators v. Kalaw

G.R. No. L-18805, 14 August 1967

J. Sanchez

Facts:

On May 7, 1940, Commonwealth Act 518 established the National Coconut Corporation
(NACOCO) as a non-profit governmental corporation dedicated to the conservation,
preservation, and growth of the coconut industry in the Philippines.

Following the adoption of Republic Act 5, NACOCO began trading in copra. The challenged
contracts for copra delivery are among the hundreds of contracts executed by general manager
Kalaw. An unfortunate series of events conspired to prevent NACOCO from executing these
obligations. Nature took over. The Philippines were hit by four powerful typhoons.

Louis Dreyfus & Go is the sole purchaser. (Overseas) Ltd. did, in fact, file a suit with the Manila
Court of First Instance. NACOCO agreed to pay for P1,343,274.52 in damages, which it then
tried to recoup from general manager and board chairman Maximo M. Kalaw, as well as
directors Juan Bocar, Casimiro Garcia, and Leonor Moll. It accuses Kalaw of carelessness under
Article 1902 of the old Civil Code (now Article 2176 of the new Civil Code), as well as
defendant board members, including Kalaw, of ill faith and/or breach of trust for having
approved the contracts.

Issue:

Is Maximo Kalaw, acted with bad faith and/or breach of trust for entering contracts without prior
board approval?

Ruling:

No. Maximo Kalaw did not act with bad faith and/or breach of trust for entering contracts
without prior board approval.

Settled jurisprudence has it that where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general manager may bind the company
without formal authorization of the board of directors. 26 In varying language, existence of such
authority is established, by proof of the course of business, the usage and practices of the
company and by the knowledge which the board of directors has, or must be presumed to have,
of acts and doings of its subordinates in and about the affairs of the corporation.

In the case at bar, the practice of the corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf
without prior board approval. If the by-laws were to be literally followed, the board should give
its stamp of prior approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of prior approval.

By corporate confirmation, the contracts executed by Kalaw are valid corporate acts and are thus
purged of whatever vice or defect they may have. Even in the face of an express by-law
requirement of prior approval, the law on corporations is not to be held so rigid and inflexible as
to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled
contracts remain valid.

Thus, Maximo Kalaw did not act with bad faith and/or breach of trust for entering contracts
without prior board approval.

Lo v. KJS
G.R. No. 149420, 08 October 2003
J. Ynares-Santiago

Facts:
 Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in
selling steel scaffoldings, while petitioner Sonny Lo is a building contractor. On February 22,
1990, the petitioner ordered scaffolding equipment from the respondent worth P540,425.80. He
paid P150,000.00 as a downpayment, the balance of which was made payable in ten monthly
installments.

The petitioner could only pay the first two monthly installments and could not settle his
obligation due to financial difficulties. On October 11, 1990, the petitioner and respondent
executed a Deed of Assignment, the former assigning to the latter his receivables in the amount
of P335,462.14 from Jomero Realty Corporation. However, when the respondent tried to collect
the said credit from Jomero, the latter refused to honor the Deed of Assignment because it
claimed that the petitioner was also indebted to it. On November 26, 1990, the respondent sent a
letter to the petitioner demanding payment of his obligation. However, the petitioner refused to
pay, claiming that his obligation had been extinguished when they executed the Deed of
Assignment.

The RTC dismissed the complaint sustaining the buyer’s position. The CA reversed. In
reversing, the CA found that: a) the buyer failed to comply with his warranty under the deed; b)
the object of the Deed did not exist at the time of its execution (void under Art. 1409); and c) the
buyer violated the terms of the Deed for its failure to execute and do all acts and deeds as shall
be necessary to effectually enable the seller to recover the collectibles.

Issue:

Whether or not the deed of assignment extinguished the petitioner’s obligation?

Ruling:

No, the petitioner’s obligation was not extinguished with the execution of the deed of
assignment.

An assignment of credit is an agreement by virtue of which the owner of a credit, known

as the assignor, by a legal cause, such as sale, dacion en pago, exchange, or donation, and
without the consent of the debtor, transfer his credit and accessory rights to another, known as
the assignee, who acquires the power to enforce it to the same extent as the assignor could
enforce it against the debtor.

Article 1628 of the Civil Code provides that” the vendor in good faith shall be
responsible for the existence and legality of the credit at the time of the sale unless it should have
been sold as doubtful; but not for the solvency of the debtor unless it has been so expressly
stipulated or unless the insolvency was before the sale and of common knowledge.”
From the above provision, the petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero claimed
that it was no longer indebted to the petitioner since the latter also had an unpaid obligation to it,
it essentially meant that its obligation to the petitioner had been extinguished by compensation.
In other words, the respondent alleged the non-existence of the credit and asserted its claim to
the petitioner's warranty under the assignment. Therefore, it behooved the petitioner to make
good its warranty and pay the obligation.

Fernando v. Northwest,
G.R. No. 212038, February 8, 2017
Peralta, J.
FACTS:

On January 29, 2002, the Fernandos were on their way back to the Philippines. They have
confirmed bookings on Northwest Airlines NW Flight No. 001 for Narita, Japan and NW 029 for
Manila. When the Fernandos reached the gate area where boarding passes need to be presented,
Northwest supervisor Linda Tang stopped them and demanded for the presentation of their paper
tickets (coupon type). They failed to present the same since, according to them, Northwest issued
electronic tickets (attached to the boarding passes) which they showed to the supervisor. In the
presence of the other passengers, Linda Tang rudely pulled them out of the queue. Elizabeth
Fernando explained to Linda Tang that the matter could be sorted out by simply verifying their
electronic tickets in her computer and all she had to do was click and punch in their Elite
Platinum World Perks Card number. But Linda Tang arrogantly told them that if they wanted to
board the plane, they should produce their credit cards and pay for their new tickets, otherwise
Northwest would order their luggage off-loaded from the plane. Exasperated and pressed for
time, the Fernandos rushed to the Northwest Airline Ticket counter to clarify the matter. They
were assisted by Northwest personnel Jeanne Meyer who retrieved their control number from
her computer and was able to ascertain that the Fernandos' electronic tickets were valid and they
were confirmed passengers on both NW Flight No. 001 for Narita Japan and NW 029 for Manila
on that day. To ensure that the Fernandos would no longer encounter any problem with Linda
Tang, Jeanne Meyer printed coupon tickets for them who were then advised to rush back to the
boarding gates since the plane was about to depart. But when the Fernandos reached the
boarding gate, the plane had already departed. They were able to depart, instead, the day after,
or on January 30, 2002, and arrived in the Philippines on January 31,2002.

ISSUE:

Did Northwest commit a breath of contract?

RULING:

The Fernandos' cause of action against Northwest stemmed from a breach of contract of carriage.
A contract is a meeting of minds between two persons whereby one agrees to give something or
render some service to another for a consideration. There is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) an object certain which is the subject
of the contract; and (3) the cause of the obligation which is established.

In Alitalia Airways v. CA, et al., We held that when an airline issues a ticket to a passenger
confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger
then has every right to expect that he would fly on that flight and on that date. If he does not,
then the carrier. opens itself to a suit for breach of contract of carriage. When Northwest
confirmed the reservations of the Fernandos, it bound itself to transport the Fernandos on their
flight on 29 January 2002.

BENJAMIN EVANGELISTA v. SCREENEX, INC.

G.R. No. 211564. November 20, 2017.

FACTS:

Sometime in 1991, Petitioner obtained a loan from respondent Screenex, Inc. As security for
the payment of the loan, Petitioner gave two open-dated checks, both pay to the order of
Screenex, Inc. From the time the checks were issued by Petitioner, they were held in safe
keeping together with the other documents and papers of the company by Philip Gotuaco, Sr.,
father-in-law of respondent Alexander Yu, until the former's death.

Before the checks were deposited, there was a personal demand from the family for Petitioner
to settle the loan and likewise a demand letter sent by the family lawyer. Subsequently,
petitioner was charged with violation of Batas Pambansa (BP) Blg. 22 filed with the
Metropolitan Trial Court (MeTC) of Makati City.

The MeTC found that the prosecution failed to prove the third element that at the time of the
issuance of the check to the payee, the latter did not have sufficient funds in, or credit with, the
drawee bank for payment of the check in full upon its presentment. Hence, the court acquitted
him of the criminal charges.

It further held that the creditor's possession of the instrument of credit was sufficient evidence
that the debt claimed had not yet been paid. In the end, Evangelista was declared liable for the
corresponding civil obligation. The RTC dismissed the appeal and affirmed the MeTC
decision in toto. The CA denied the petition and affirmed the MeTC decision.

ISSUE:
Whether or not the CA committed a reversible error in holding that petitioner is still liable for
the total amount of P1.5 million indicated in the two checks.

RULING:
The Court ruled in favor of petitioner. In BP 22 cases, the action for the corresponding civil
obligation is deemed instituted with the criminal action. The criminal action for violation of
BP 22 necessarily includes the corresponding civil action, and no reservation to file such civil
action separately shall be allowed or recognized.

A check, as a negotiable instrument, is subject to prescription of actions upon a written

contract. If the check is undated as in the present petition, the cause of action is reckoned from
the date of the issuance of the check. While the space for the date on a check may also be
filled, it must, however, be filled up strictly in accordance with the authority given and within
a reasonable time. Assuming that Yu had authority to insert the dates in the checks, the fact
that he did so after a lapse of more than 10 years from their issuance certainly cannot qualify
as changes made within a reasonable time.

Given the foregoing, the cause of action on the checks has become stale, hence, time barred.
No written extrajudicial or judicial demand was shown to have been made within 10 years
which could have tolled the period. Prescription has indeed set in. While it was on appeal
before the RTC that petitioner invoked the defense of prescription, we find that the pleadings
and the evidence on record indubitably establish that the action to hold petitioner liable for the
two checks has already prescribed.

EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners, vs. BATHALA MARKETING

INDUSTRIES, INC.
G.R. No. 150806, January 28, 2008
NACHURA, J.:

FACTS:

In 1997, Bathala Marketing Industries, Inc., as lessee, renewed its Contract of Lease with the
husband of petioner Eufemia. The contract of lease contained the following pertinent provision
which gave rise to the instant case:
SEVENTH - In case an extraordinary inflation or devaluation of Philippine Currency should
supervene, the value of Philippine peso at the time of the establishment of the obligation shall be
the basis of payment;

In 1998, respondent received a letter from petitioners informing the former that its monthly
rental should be increased by 73% pursuant to condition No. 7 of the contract and Article 1250
of the Civil Code.

Respondent opposed petitioners' demand and insisted that there was no extraordinary inflation to
warrant the application of Article 1250 in light of the pronouncement of this Court in various
cases.

ISSUE:

Whether the amount of rentals due the petitioners should be adjusted by reason of extraordinary
inflation or devaluation.

RULING:

No, in a number of cases, the Court explained that extraordinary inflation exists when there is a
decrease or increase in the purchasing power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation.

The erosion of the value of the Philippine peso in the past three or four decades, starting in the
mid-sixties, is characteristic of most currencies. And while the Court may take judicial notice of
the decline in the purchasing power of the Philippine currency in that span of time, such
downward trend of the peso cannot be considered as the extraordinary phenomenon
contemplated by Article 1250 of the Civil Code.

Furthermore, absent an official pronouncement or declaration by competent authorities of the

existence of extraordinary inflation during a given period, the effects of extraordinary inflation
are not to be applied.

Palanca v. Guides, 452 S 461

FACTS:

In August 1983, petitioner Palanca executed a contract to sell a parcel of land on installment
with Jopson for P11,250. Jopson paid petitioner P1,650 as down payment, leaving a balance
of P9600. In December 1983, Jopson assigned and transferred all her rights and interests
over the property to respondent Guides. Believing that she had fully paid the purchase price,
respondent found out when she verified with the Register of Deeds that the property in
question was still in the name of de Leon. Petitioner stated that she refused to execute the
document of sale in favor of the respondent since the latter failed with the said obligation-
that he was not paid the complete amount in the contract.

RTC ruled in favor of the plaintiff and against Palanca, ordering him to execute a Deed of
Absolute Sale and the issuance of TCT, reimburse plaintiff the amount paid in excess and
for damages.

ISSUE:

Whether the petitioner ‘s claim of unpaid charges from the respondent proper

RULING:

No. The Supreme Court rules reiterated in accordance with Article 1235 of the civil code
that when the obligee accepts the performance, knowing its incompleteness or irregularity,
and without expressing any protest or objection, the obligation is deemed fully complied
with.
 Thus, in the case at hand, the petitioner was deemed to have waived his right to present
evidence and thus was unable to adduce evidence of such inflation or fluctuation. Even if
there were such, petitioner did not make a demand on respondent for the satisfaction of the
claim. When petitioner accepted respondent ‘s installment payments despite the alleged
charges, and without any showing that he protested the irregularity of such payment, nor
demanded the payment of the alleged charges, respondent ‘s liability, if any for said charges
is deemed fully satisfied.

PSE, Inc. v. Litonjua,

G.R. No. 204014, December 5, 2016
Perez, J.

FACTS:

On 20 April 1999, the Litonjua Group wrote a letter-agreement to Trendline Securities, Inc.
through its President Priscilla D. Zapanta, confirming a previous agreement for the acquisition of
the 85% majority equity of Trendline's membership seat in PSE, a domestic stock corporation
licensed by the Securities and Exchange Commission to engage in the business of operating a
market for the buying and selling of securities.

In a letter-confirmation dated 21 April 1999, the Litonjua Group undertook to pay the amount of
P18,547,643.81 directly to PSE within three working days upon confirmation that it will be for
the full settlement of all claims and outstanding obligations including interest of Trendline to lift
its membership suspension and the resumption to normal trading operation. Further in the letter,
Trendline was obligated to secure the approval and written confirmation of PSE for a new
corporation to be incorporated that will own a seat.

On 26 April 1999, Trendline, in compliance with the conditions set forth in the 20 April 1999
letter-agreement, advised PSE of the salient terms and conditions imposed upon it for the
acquisition of the membership/seat.

On 29 April 1999, the PSE, through Atty. Ruben L. Almadro, Vice-President for Compliance
and Surveillance Department, sent a letter to Trendline advising the latter that the Business
Conduct and Ethics Committee of PSE has resolved to accept the amount of P19,000,000.00 as
full and final settlement of its outstanding obligations to be paid not later than 13 May 1999.
Trendline was further advised that failure to pay the said amount by 13 May 1999 will result to
collection in full of imposable fines/penalties and enforcement of payment by selling its seat at
public auction.

On 3 May 1999, Trendline sent a reply-letter to PSE acknowledging its receipt of the 29 April
1999 letter and its assurance that the Litonjua Group will comply with the terms of the
agreement. In compliance, the Litonjua Group in a letter dated 12 May 1999, delivered to PSE
through Atty. Almadro three check payments, all dated 13 May 1999 and payable to PSE,
totaling to an amount of P19,000,000.00.

The letter, as conformed to by Trendline, indicated that the above payment represents the
advance payment of the Litonjua Group for the acquisition of the seat/membership with the PSE
and as full settlement of the outstanding obligation of Trendline. The letter and checks were
received by the PSE from Trendline on 13 May 1999. It bore an annotation that the checks were
received as an advance payment for full settlement of Trendline's outstanding obligation to PSE.

Trendline, on its part, also sent a letter dated 13 May 1999 advising PSE of the payment of
penalties and interest and reactivation of its suspension to seat/membership. Further, PSE was
informed that Zapanta had already resigned as Trendline's nominee and in lieu of the position,
nominate Aurelio K. Litonjua, Jr. as the new nominee to the seat/membership. Despite several
exchange of letters of
conformity and delivery of checks representing payment of full settlement of Trendline's
obligations, PSE failed to lift the suspension imposed on Trendline's seat.

On 30 July 2006, the Litonjua Group, through a letter, requested PSE to reimburse the
P19,000,000.00 it had paid with interest, upon knowledge that the specific performance by PSE
of transferring the membership seat under the agreement will no longer be possible. PSE,
however, refused to refund the claimed amount as without any legal basis.

ISSUE:

Is PSE considered a party to the letter-agreement?

RULING:

According to Article 1305 of the Civil Code, "a contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or render some
service." For a contract to be binding: there must be consent of the contracting parties; the
subject matter of the contract must be certain; and the cause of the obligation must be
established. In corporations, consent is manifested through a board resolution since powers are
exercised through its board of directors. The mandate of Section 23 of the Corporation Code is
clear that unless otherwise provided in the Code, "the corporate powers of all corporations shall
be exercised, all business conducted and all property of such corporations controlled and held by
the board of directors or trustees..."

Further, as a juridical entity, a corporation may act through its board of directors, which
exercises almost all corporate powers, lays down all corporate business policies and is
responsible for the efficiency of management. As a general rule, in the absence of authority
from the board of directors, no person, not even its officers, can validly bind a corporation. This
is so because a corporation is a juridical person, separate and distinct from its stockholders and
members, having powers, attributes and properties expressly authorized by law or incident to its
existence.

Admittedly in this case, no board resolution was issued to authorize PSE to become a party to the
letter-agreement. PSE was never authorized by the Board to be bound by the obligations stated
therein. This fact was confirmed by Antonio K. Litonjua himself when he admitted during cross
examination that he failed to ask from PSE for any board resolution authorizing itself to be
bound by the terms of the letter-agreement. Thus, PSE is not considered as a party to the letter- -
agreement.
 BINALBAGAN V. CA,
G.R. NO. 100594, MARCH 10, 1993

FACTS:

On May 11, 1967, private respondents executed a Contract to Sell and a Deed of Sale of 42
subdivision lots, conveying and transferring said lots to Binalbagan Tech, Inc. In turn,
Binalbagan executed an Acknowledgement of Debt with Mortgage Agreement, mortgaging
said lots in favour of the estate of Puentebella. On June 10, 1967, first instalment became
due but Binalbagan was not able to pay

There was a pending case involving said lots. Petitioner was evicted from the subject
subdivision lots in 1974 and reinstated to the possession thereof only in 1982. Upon
reinstatement of possession of petitioner, respondent demanded payment through a demand
letter with a statement of account as of September 1982, showing Php367,509.92,
representing the price of the land and accrued interest as of that date. Binalbagan failed to
effect payment, prompting respondent to file case against the former.

Trial court ruled in favour of Binalbagan, saying there is no fraud and that the period within
which to institute action upon a written contract (which is 10 years) has long prescribed. Court of
Appeals reversed and set aside the trial court’s decision, hence the petition for review on
certiorari.

ISSUE: Whether or not the period to institute action upon a written contract has prescribed.

RULING:
The prescriptive period within which to institute an action upon a written contract is 10
years (Art 1144, CC). The cause of action of respondent is based on deed of sale executed in
1967, whereby ownership of the lots was transferred to Binalbagan. Respondent filed civil
case for recovery of title and damages only in 1982.

Deducting 8 years (1974 to 1982) from the period 1967 to 1982, only 7 years have elapsed.
The case filed by the respondent was within the 10-year prescriptive period. Working
against petitioner’s position too is the principle against unjust enrichment which would
certainly be the result if petitioner is allowed to own the 42 lots without full payment
thereof.

Aquintey vs. Spouses Tibong

 G.R. No. 166704, December 20, 2006

Facts:
Felicidad Tibong had secured loans from Agrifina Aquintey on several occasions, at
monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their
outstanding loan, amounting to P773,000 exclusive of interest. Sometime later, Felicedad
executed deeds of assignment of credits duly notarized in which Felicidad transferred and
assigned to Agrifina the total amount of P546,459 due from her debtors. Agrifina was able to
collect the total of P301,000 from Feliciada’s debtors.

Issue:
Is the obligation of Spouses Tibong to pay the balance of their loan partially extinguished by the
execution of the deeds of assignment?

Rulings:
Yes, the obligation of Spouses Tibong to pay the balance of their loan was partially extinguished
by the execution of the deeds of assignment.

The requisites for dacion en pago are: (1) there must be a performance of the prestation
in liue of payment (animo solvendi) which may consists in the delivery of a corporeal thing or a
real right or a credit against third person; (2) there must be some difference between the
prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an
agreement between the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due.

In the case, all the requisites for a valid dation in payment are present in so far as the
P301,000 which Agrafina able to collect from Tibong’s debtors is concerned.

Therefore, the obligation of Spouses Tibong to pay the balance of their loan was partially
extinguished by the execution of the deeds of assignment.

NEREO J. PACULDO, petitioner, vs. BONIFACIO C. REGALADO, respondent.

G.R. No. 123855, November 20, 2000

J. Pardo

FACTS:

On December 1990, petitioner and respondent entered into a contract of lease of 16,478sqm
land with a market building located at Farview Park, Quezon City for 25 years commencing on
January 1991 until 2015. For the 1st five years petitioner shall pay P450,000 monthly rental
within the 1st five days of each month with 2% monthly penalty for late penalty.
 Petitioner leased eleven (11) other properties and purchased, on account, eight (8) heavy
equipment worth P1,020,000 from the respondent. On July 15, 1991, respondent informed
petitioner that the payment was to be applied not only to petitioner’s accounts under both the
subject land and the Quirino lot but also to heavy equipment bought by the latter from
respondent

For failure of the petitioner to pay P361,895 rental for May 1992 and the monthly rental of
P450,000 for June and July 1992, respondent sent a demand letter on July 6, 1992 demanding
payment of the back rentals and if no payment was made within 15 days from receipt of the
letter, it would cause the cancellation of the lease contract. Another demand letter was sent on
July 17, 1992.

Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land
subject of the lease contract, including the improvements which petitioner introduced into the
land amounting to P35,000,000.00, to Monte de Piedad Savings Bank, as security for a loan in
the amount of P20,000,000.00.

On August 12, 1992, and on subsequent dates thereafter, respondent refused to accept
petitioner’s daily rental payments. On August 20, 1992, petitioner filed with the RTC Quezon
City an action for injunction and damages seeking to enjoin respondent from disturbing his
possession of the property subject of the lease contract. On the same day, respondent filed with
the Metropolitan Trial Court (MTC), Quezon City a complaint for ejectment against petitioner.
MTC ruled in favor of respondent and RTC affirmed the decision. Thereafter, petitioner filed a
petitioner filed a petition for review with the Court of Appeals.15 He alleged that he had paid the
amount of P11,478,121.85 for security deposit and rentals on the wet market building, but
respondent, without his consent, applied portions of the payment to his other obligations. The
vouchers and receipts indicated that the payments made were for rentals. Thus, at the time of
payment petitioner had declared as to which obligation the payment must be applied.

ISSUE
Was petitioner truly in arrears in the payment of rentals on the subject property at the
time of the filing of the complaint for ejectment?

RULING
No. The Court REVERSES and SETS ASIDE the decision of the Court of Appeals.

Under the law, if the debtor did not declare at the time he made the payment to which of
his debts with the creditor the payment is to be applied, the law provided the guideline--no
payment is to be made to a debt that is not yet due and the payment has to be applied first to the
debt most onerous to the debtor.
In the instant case, the purchase price of the eight (8) heavy equipment was not yet due at
the time the payment was made, for there was no date set for such payment. Neither was there a
demand by the creditor to make the obligation to pay the purchase price due and demandable.
Hence, the application made by respondent is contrary to the provisions of the law.
 The lease over the Fairview wet market property is the most onerous among all the
obligations of petitioner to respondent. It was established that the wet market is a going-concern
and that petitioner has invested about P35,000,000.00, in the form of improvements, on the
property. Hence, petitioner would stand to lose more if the lease would be rescinded, than if the
contract of sale of heavy equipment would not proceed.
As found by the Metropolitan Trial Court and Regional Trial Court, petitioner made a
total payment of P10,949,447.18, to respondent as of July 2, 1992. If the payment made by
respondent applied to petitioner’s other obligations is set aside, and the amount petitioner paid be
applied purely to the rentals on the Fairview wet market building, there would be an excess
payment of P1,049,447.18 as of July 2, 1992

SPOUSES OSCAR and THELMA CACAYORIN v ARMED FORCES AND POLICE

MUTUAL BENEFIT ASSOCIATION, INC.,
G.R. No. 171298, April 15, 2013
J. DEL CASTILLO

FACTS

Oscar Cacayorin is a member of Armed Forces and Police Mutual Benefit Association
Inc. (AFPMBA). In 1994, Oscar and his wife, Thelma applied to purchase a piece of property
owned by AFPMBA located in Puerto Princesa through a loan facility. To gain financing, the
petitioners entered a Loan and Mortgage Agreement with Rural Bank of San Teodoro under the
auspices of PAG-IBIG.

The Rural Bank thereafter issued a letter of guaranty informing AFPMBAI that the
proceeds of petitioners’ approved loan in the amount of P77,418.00 shall be released to
AFPMBAI after title to the property is transferred in petitioners’ name and after the registration
and annotation of the parties’ mortgage agreement. In response to such letter of guaranty,
AFPMBAI executed in petitioners favor a Deed of Absolute Sale, and a new title was also issued
in petitioner’s name, with the corresponding annotation of their mortgage agreement with the
Rural Bank.

Unfortunately, the arrangement between PAG-IBIG and the Rural bank did not push
through; the Rural bank was closed and was placed under receivership by the Philippine Deposit
Insurance Corporation (PDIC). Despite the closure though, AFPMBAI somehow was able to
take possession of petitioners’ loan documents. It so happened also that after AFPMBAI made a
demand for payment; petitioners were unable to pay the loan/consideration for the property.

In July 2003, petitioners filed a Civil Case with the RTC about a Complaint for
consignation of loan payment, recovery of title and cancellation of mortgage annotation against
AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. Petitioners alleged in their
Complaint that as a result of the Rural Bank’s closure and PDIC’s claim that their loan papers
could not be located, they were left in a quandary as to where they should tender full payment of
the loan and how to secure cancellation of the mortgage annotation. In response to this
AFPMBAI filed a Motion to Dismiss, claiming that petitioners Complaint falls within the
jurisdiction of the Housing and Land Use Regulatory Board (HLURB) and not the Puerto
Princesa RTC, as it was filed by petitioners in their capacity as buyers of a subdivision lot and it
prays for specific performance of contractual and legal obligations decreed under Presidential
Decree No. 957

Puerto Princessa RTC decided in favor of the Cacayorins, declaring that since title has
been transferred in the name of petitioners and the action involves consignation of loan
payments, it possessed jurisdiction to continue with the case. It further held that the only
remaining unsettled transaction is between petitioners and PDIC as the appointed receiver of the
Rural Bank. AFPMBAI filed a motion for reconsideration which was later denied by the RTC.

The Court of Appeals on the other hand held an opposite decision. It declared that the
RTC has no jurisdiction to hear the case and that such jurisdiction is exclusive to the Housing
and Land Use Regulatory Board (HLURB).

ISSUE
Is there a valid consignation albeit prior tender of payment?

Can the court exercise authority over the issue of consignation with regards to contractual
and legal obligations of parties in a sale of subdivision lots?

RULING

YES. Under Article 1256 of the Civil Code, the debtor shall be released from
responsibility by the consignation of the thing or sum due, without need of prior tender of
payment, when the creditor is absent or unknown, or when he is incapacitated to receive the
payment at the time it is due, or when two or more persons claim the same right to collect, or
when the title to the obligation has been lost.

Applying Article 1256 to the petitioners’ case, with regards to their allegations in their
Complaint, the Court finds that a case for consignation has arise, as it now appears that there are
two entities which petitioners must deal with in order to fully secure their title to the property: 1)
the Rural Bank (through PDIC), which is the apparent creditor under the July 4, 1994 Loan and
Mortgage Agreement; and 2) AFPMBAI, which is currently in possession of the loan documents
and the certificate of title, and the one making demands upon petitioners to pay. Clearly, the
allegations in the Complaint present a situation where the creditor is unknown, or that two or
more entities appear to possess the same right to collect from petitioners. Whatever transpired
between the Rural Bank or PDIC and AFPMBAI in respect of petitioners’ loan account, if any,
such that AFPMBAI came into possession of the loan documents, it appears that petitioners were
not informed thereof, nor made privy thereto.
 On the question of jurisdiction, Supreme Court decided that petitioners’ case should be
tried in the Puerto Princesa RTC, and not the HLURB. Consignation is necessarily judicial, as
the Civil Code itself provides that consignation shall be made by depositing the thing or things
due at the disposal of judicial authority, thus:

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.

Del Carmen v. Sabordo,

G.R. No. 181723, August 11, 2014
Peralta, J.

FACTS:

Sometime in 1961, the spouses Toribio and Eufrocina Suico, along with several business
partners, entered into a business venture by establishing a rice and com mill at Mandaue City,
Cebu. As part of their capital, they obtained a loan from the Development Bank of the
Philippines, and to secure the said loan, four parcels of land owned by the Suico spouses,
denominated as Lots 506, 512, 513 and 514, and another lot owned by their business partner,
Juliana Del Rosario, were mortgaged. Subsequently, the Suico spouses and their business
partners failed to pay their loan obligations forcing DBP to foreclose the mortgage. After the
Suico spouses and their partners failed to redeem the foreclosed properties, DBP consolidated its
ownership over the same. Nonetheless, DBP later allowed the Suico spouses and Reginald and
Beatriz Flores, as substitutes for Juliana Del Rosario, to repurchase the subject lots by way of a
conditional sale for the sum of ₱240,571.00. The Suico and Flores spouses were able to pay the
downpayment and the first monthly amortization, but no monthly installments were made
thereafter. Threatened with the cancellation of the conditional sale, the Suico and Flores spouses
sold their rights over the said properties to herein respondents Restituto and Mima Sabordo,
subject to the condition that the latter shall pay the balance of the sale price. On September 3,
1974, respondents and the Suico and Flores spouses executed a supplemental agreement
whereby they affirmed that what was actually sold to respondents were Lots 512 and 513, while
Lots 506 and 514 were given to them as usufructuaries. DBP approved the sale of rights of the
Suico and Flores spouses in favor of herein respondents. Subsequently, respondents were able to
repurchase the foreclosed properties of the Suico and Flores spouses.

ISSUE:

Whether or not the consignation which petitioner and her co-heirs made was a judicial deposit
based on a final judgment and, as such, does not require compliance with the requirements of
Articles 1256 and 1257 of the Civil Code?

RULING:

Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment, and it generally requires a prior tender of
payment. It should be distinguished from tender of payment which is the manifestation by the
debtor to the creditor of his desire to comply with his obligation, with the offer of immediate
performance.

Under Article 1256, the only instances where prior tender of payment is excused are: (1) when
the creditor is absent or unknown, or does not appear at the place of payment; (2) when the
creditor is incapacitated to receive the payment at the time it is due; (3) when, without just
cause, the creditor refuses to give a receipt; (4) when two or more persons claim the same right
to collect; and (5) when the title of the obligation has been lost. None of these instances are
present in the instant case. Hence, the fact that the subject lots are in danger of being foreclosed
does not excuse petitioner and her co-heirs from tendering payment to respondents, as directed
by the court.

DELFIN GONZALEZ, JR. v. MAGDALENO M. PEÑA

G.R. No. 214303, 30 January 2017

In its Decision dated 28 May 1999, the RTC of Bago City adjudged petitioner liable to
respondent Magdaleno M. Peña for the payment of the agency's fees and damages
amounting to ₱28.5 million. Petitioner, together with his co-petitioners in that case, appealed
the Decision, while Peña moved for execution pending appeal of this ruling. The grant of
that motion resulted in the sale to Peña of petitioner's ACCI shares. Through a private sale,
he was able to sell and transfer the subject shares to respondent Arsenia Vera.

On 19 October 2011, the Supreme Court (SC) issued a Decision in G.R. Nos. 145817,
145822, 162562, entitled Urban Bank, Inc. v. Peña, which vacated with finality the Decision
of the RTC of Bago City dated 28 May 1999. Considering that the Decision of the RTC of
Bago City had been completely vacated and declared null and void, the SC held that the
concomitant execution pending appeal was likewise null and without effect. Thus, the SC
held that Urban Bank and its officers and directors, including petitioner herein, were entitled
to the full restoration of their ownership and possession of all properties that were executed
pending appeal, such as the subject shares. In the dispositive portion of the Decision, the SC
categorically issued the following directives:

a. Urban Bank, Teodoro Borlongan. Delfin C. Gonzalez, Jr., Benjamin L. de Leon,

P. Siervo
H. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr.,
(respondent bank officers) shall be restored to full ownership and possession of all
properties executed pending appeal.

b. If the property levied or garnished has been sold on execution pending appeal and
 Atty. Magdaleno Peña is the winning bidder or purchaser, he must fully restore the
property to Urban Bank or respondent bank officers, and if actual restitution of the
property is impossible, then he shall pay the full value of the property at the time of
its seizure, with interest;
c. If the property levied or garnished has been sold to a third party purchaser at the
public auction, and title to the property has not been validly and timely transferred to
the name of the third party, the ownership and possession of the property shall be
returned to Urban Bank or respondent bank officers, subject to the third party's right
to claim restitution for the purchase price paid at the execution sale against the
judgment creditor;
d. If the purchaser at the public auction is a third party, and title to the property has
already been validly and timely transferred to the name of that party, Atty. Penñ a
must pay Urban Bank or respondent bank officers the amount realized from the
sheriff's sale of that property, with interest from the time the property was seized.
(Emphasis and underscoring in the original)

ISSUE:
Whether or not Peña acquired petitioner's ACCI shares by virtue of a null and void
execution sale, thus, Peña’s successor-in-interest, Vera, could not have validly acquired
those shares, and therefore the actual restitution of the ACCI shares to petitioner is not
impossible and is proper

RULING:
Yes. Indeed, the RTC did not comply with our ruling in Urban Bank when it refused to
restore to petitioner the actual ownership of his club shares on the mere pretext that these had
already been sold by Peña to his successor-in-interest. As stated in this Court's Decision
dated 19 October 2011, the RTC was bound to comply with this relevant directive:

b. If the property levied or garnished has been sold on execution pending appeal and Atty.
Magdaleno Peña is the winning bidder or purchaser, he must fully restore the property to
Urban Bank or respondent bank officers, and if actual restitution of the property is
impossible, then he shall pay the full value of the property at the time of its seizure, with
interest; (Emphasis supplied)

There is no factual dispute that Peña acquired the ACCI shares of petitioner by virtue of a
winning bid in an execution sale that had already been declared by this Court, with finality,
as null and void. In no uncertain terms, we declared that the "concomitant execution pending
appeal is likewise without any effect. x x x. Consequently, all levies, garnishment and sales
executed pending appeal are declared null and void, with the concomitant duty of restitution
x x x."
 Void transactions do not produce any legal or binding effect, and any contract directly
resulting from that illegality is likewise void and inexistent. Therefore, Peña could not have
been a valid transferee of the property. As a consequence, his successor-in-interest, Vera,
could not have validly acquired those shares. The RTC thus erred in refusing to restore the
actual ACCI shares to petitioner on the basis of their void transfer to Vera.

Neither was the RTC correct in its characterization of the actual restitution of the ACCI
shares to petitioner as "impossible." For the obligation to be considered impossible under
Article 1266 of the Civil Code, its physical or legal impossibility must first be proven. Here,
the RTC did not make any finding on whether or not it was physically impossible to effect
the actual restitution of the property. On the other hand, petitioner correctly points out that
since the shares are movable by nature, the same can be transferred back to Gonzalez, Jr. by
recording the transaction in the stock and transfer book of the club.

NAGA TELEPHONE CO., INC. v. COURT

OF APPEALS
G.R. No. 107112, February 24, 1994

FACTS:
Natelco and Casureco entered into a contract that Natelco will be using posts of Casureco
for its telephone lines for free. But after 11 years, Casureco wanted a reformation of the
contract since it was too one-sided favoring only Natelco and that Natelco has been growing
and wire lines are excessive already. Casureco wants Natelco to pay but Natelco refused.
RTC ordered Natelco to pay the monthly compensation for use of posts and Casureco to pay
monthly billings of telephone to Natelco. CA affirmed in pursuant with Art. 1267 which is
the issue in this case.

ISSUE:
Whether or not the CA erred in using Art. 1267 to affirm the lower court’s
RULING:
No. Art. 1267 speaks of “service” but may be understood as referring to “performance” as
well which in this case is allowing the petitioners to use respondent’s posts.

In this article, it is not a requirement that the contract be for future service with future
unusual change.

Sen. Tolentino states that this article observes doctrine of unforeseen events in where the
parties stipulate in the light of certain prevailing conditions, and once these conditions cease
to exist, the contract also ceases to exist BUT exception to this case.

In Occeña case, the parties were released in pursuant with Article 1267 but in this case, SC
took into account possible consequences if both parties would be released from the contract
– that Natelco will be disrupted of their service in public while Casureco will return all
telephone units to Natelco causing prejudice to its own business. This necessitates exercise
of equity jurisdiction.

Furthermore, although Article 1267 does not grant the court the authority to remake, modify
or revise a contract, SC held that in reformation of contracts, what is reformed is not the
contract itself, but the instrument embodying the contract.

Dizon v. Court of Tax Appeals,

G.R. No. 140944, April 30, 2008
Nachura, J.

FACTS:

After Jose P. Fernandez died, a petition for the probate of his will was filed with the probate
court. The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon and
petitioner, Atty. Rafael Arsenio P. Dizon as Special and Assistant Special Administrator,
respectively, of the Estate of Jose. In a letter dated October 13, 1988, Justice Dizon informed
respondent Commissioner of the Bureau of Internal Revenue of the special proceedings for the
Estate. On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued
Certification Nos. 2052 and 2053 stating that the taxes due on the transfer of real and personal
properties of Jose had been fully paid and said properties may be transferred to his heirs.
Sometime in August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the probate
court appointed petitioner as the administrator of the Estate.

Petitioner requested the probate court's authority to sell several properties forming part of the
Estate, for the purpose of paying its creditors. Petitioner manifested that Manila Bank, a major
creditor of the Estate was not included, as it did not file a claim with the probate court since it
had security over several real estate properties forming part of the Estate. However, on
November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles
Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269,17 demanding the
payment of P66,973,985.40 as deficiency estate tax. In his letter dated December 12, 1991, Atty.
Gonzales moved for the reconsideration of the said estate tax assessment. However, in her letter
dated April 12, 1994, the BIR Commissioner denied the request and reiterated that the estate is
liable for the payment of P66,973,985.40 as deficiency estate tax.

ISSUE:

Whether or not the actual claims of the aforementioned creditors were reduced or condoned
through compromise agreements entered into by the Estate with its creditors.

RULING:

It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a
mode of extinguishing an obligation, condonation or remission of debt is defined as:

an act of liberality, by virtue of which, without receiving any equivalent, the creditor
renounces the enforcement of the obligation, which is extinguished in its entirety or in
that part or aspect of the same to which the remission refers. It is an essential
characteristic of remission that it be gratuitous, that there is no equivalent received for
the benefit given; once such equivalent exists, the nature of the act changes. It may
become dation in payment when the creditor receives a thing different from that
stipulated; or novation, when the object or principal conditions of the obligation should
be changed; or compromise, when the matter renounced is in litigation or dispute and in
exchange of some concession which the creditor receives.

DALUPAN V. HARDEN
G.R. No. L-3975, 27 November 1951

FACTS:
The case is an appeal taken from an order of the First Instance of Manila dated May 19,
1950, setting aside the writs of execution and garnishment issued to the sheriff of Manila
commanding him to levy on two (2) checks, one for P9,028.50, and another for P24,546.00,
payable to Fred M. Harden which were then in possession of the receiver appointed in case
involving the liquidation of the conjugal partnership of the spouses Fred M. Harden and
Esperanza P. de Harden.

On August 26, 1948, plaintiff filed an action against the defendant for the collection of
P113,837.17, with interest thereon from the filing of the complaint, which represents fifty
(50) per cent of the reduction plaintiff was able to secure from the Collector of Internal
Revenue in the amount of unpaid taxes claimed to be due from the defendant. Defendant
acknowledged this claim and prayed that judgment be rendered accordingly. The receiver in
the liquidation of case No. R-59634 and the wife of the defendant, Esperanza P. de Harden,
filed an answer in intervention claiming that the amount sought by the plaintiff was
exorbitant and prayed that it be reduced to 10 per cent of the rebate. By reason of the
acquiescence of the defendant to the claim on one hand, and the opposition of the receiver
and of the wife on the other, an amicable settlement was concluded by the plaintiff and the
intervenor whereby it was agreed that the sum of P22,767.43 be paid to the plaintiff from the
funds under the control of the receiver "and the balance of P91,069.74 shall be charged
exclusively against the defendant Fred M. Harden from whatever share he may still have in
the conjugal partnership between him and Esperanza P. de Harden after the final liquidation
and partition thereof, without pronouncement as to costs and interests." The court rendered
judgment in accordance with this stipulation.

Almost one year thereafter, plaintiff filed a motion for the issuance of a writ of execution to
satisfy the balance of P91, 069.74, which was favorably acted upon. At that time the
receiver had in his possession two (2) checks payable to Fred M. Harden amounting to
P33,574.50, representing part of the proceeds of the sale of two (2) lots belonging to the
conjugal partnership which was ordered by the court upon the joint petition of the spouses in
order that they may have funds with which to defray their living and other similar expenses.
One-half of the proceeds was given to Mrs. Harden. The sheriff attempted to garnish these
two (2) checks acting upon the writ of execution secured by the plaintiff, but the
receivership court quashed the writ, stating however in the order that it will be “without
prejudice to the right of Francisco Dalupan to attach the money of the defendant Fred M.
Harden, after the same has been delivered to the latter. When said checks were delivered to
the latter.”

ISSUE:

Whether or not the proffer made by the plaintiff to the defendant is binding.

RULING:
Yes, the offer made by the plaintiff to the defendant to the effect that “in the event you lose
your case with your wife, Mrs. Esperanza P. de Harden, and that after adjudication of the
conjugal property what is left with you will not be sufficient for your livelihood. I shall be
pleased to write off as bad debt the balance of your account in the sum of P42, 069.74.” This
proffer was contained in a letter sent by the plaintiff to the defendant on March 23, 1949,
which was accepted expressly by Fred M. Harden. Harden regarded this proffer as a binding
obligation and acted accordingly, and for plaintiff to say now that proffer is but a mere
gesture of generosity or an act of Christian charity without any binding legal effect is unfair
to say at least. This is an added circumstance, which confirms the Court’s view that the
understanding between the plaintiff and the defendant is really to defer payment.
 LEONIDES LOPEZ LISO, vs. MANUEL TAMBUNTING
G.R. No. L-9806, January 19, 1916
ARAULLO, J.:

FACTS:

▪ These proceedings were brought to recover from the defendant the sum of P2,000,
amount of the fees, which, according to the complaint, are owing for professional medical
services rendered by the plaintiff to a daughter of the defendant from March 10 to July
15, 1913, which fees the defendant refused to pay, notwithstanding the demands therefor
made upon him by the plaintiff.

ISSUE:

▪ Whether or not the defendant pays the plaintiff?

RULING:

▪ The receipt signed by the plaintiff, for P700, the amount of his fees he endeavored to
collect from the defendant after he had finished rendering the services in question (which
receipt was presented by the defendant at the trial as Exhibit 1) was in the latter's
possession, and this fact was alleged by him as proof that he had already paid said fees to
the plaintiff.

▪ It is true that number 8 of section 334 of the Code of Civil Procedure provides as a legal
presumption "that an obligation delivered up to the debtor has been paid." Article 1188 of
the Civil Code also provides that the voluntarily surrender by a creditor to his debtor of a
private instrument proving a credit, implies the renunciation of the right of action against
the debtor; and article 1189 prescribes that whenever the private instrument which
evidences the debt is in the possession of the debtor, it will be presumed that the creditor
delivered it of his own free will, unless the contrary is proven.

▪ But the legal presumption established by the foregoing provisions of law cannot stand if
sufficient proof is adduced against it. In the case at bar the trial court correctly held that
there was sufficient evidence to the contrary, in view of the preponderance thereof in
favor of the plaintiff and of the circumstances connected with the defendant's possession
of said receipt Exhibit 1.
PASTORA VALMONTE, JOSE DE LEON, AND JOAQUIN VALMONTE vs. THE HON.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK, ARTEMIO VALENTON,
AND AREOPAGITA J. JOSON

G.R. No. L-41621 February 18, 1999

PURISIMA, J.:

Facts:

On 5 November 1951: Plaintiff-appellant Joaquin Valmonte (Valmonte) sold to his daughter, co-
appellant Pastora 3 parcels of land in Jaen, Nueva Ecija

On 12 November 1951: Pastora obtained a crop loan of PHP 16,000.00 from Respondent
Philippine National Bank (PNB) as security, Pastora executed a real estate mortgage in favor of
PNB using the parcels of land she acquired from Valmonte

On 19 September 1952: Pastora executed a special power of attorney in favor of Virginia V. del
Castelo for the purpose of borrowing Php 5,000.00 from PNB. PNB granted said loan which was
secured by Mortgaging the Same Parcels of Land as used in the first loan

On 14 June 1954: PNB sent a notice of extrajudicial sale of Mortgaged Properties to the
provincial sheriff of Nueva Ecija for publication. Property was being sold in satisfaction of the
2nd Loan (The one for P5000.00)

On 20 June 1954: Pastora executed a deed of sale in favor of Joaquin Valmonte of the 3 parcels
of mortgaged land. Condition: Lands are at present mortgaged to PNB, and this obligation shall
be the subject of future arrangement between vendor and vendee on one hand, and PNB on the
other before this deed shall be operative

On 19 August 1954: The auction sale for the land was conducted, and PNB was the sole and only
bidder (for PHP 5,524.40). Period of Redemption expired on August 19, 1955. Co-Appellant
Artemio Valenton offered to purchase the property for PHP 35,000.00

On 10 October 1955: Appellant Joaquin Valmonte requested for additional time with which to
repurchase the properties for PHP 35,000.00. Appellants were given until 31 December 1955 to
repurchase the property

On 7 September 1955: Total cash claims amounted to PHP 26,926.38 including the first PHP
16,000.00 loan contracted by Pastora

Plaintiff-Appellants failed to purchase the property by 31 December 1955; hence, a deed of

absolute sale was executed in favor of Appellee Artemio Valenton

Issues:
Whether or not there is confusion or merger in this case
RULING:
YES
Merger as one of the means of extinguishing an obligation has the ff elements:
Merger of the characters of the creditor and debtor must be in the same person;
It must take place in the person of either the principal creditor or the principal debtor; and
It must be complete and definite
Facts and Circumstances:
There were two mortgages on the subject properties by the appellants (PHP 16k and PHP 5k);
Bank foreclosed on the 2nd mortgage

Under ordinary circumstances, if a person has a mortgage credit over a property which was sold
in an auction sale, the only right left to him was to collect its mortgage credit from the purchaser
thereof during the sale conducted. Because a mortgage directly and immediately subjects the
property on which it is constituted, whoever the possessor may be, to the fulfillment of the
obligation for the security of which it was created

In the case at bar, Merger took place in the person of PNB, during the auction sale. When PNB
purchased the properties on which it had another subsisting mortgage credit. NOTE: There were
2 separate mortgage contracts, and the allegation that there was only a single and indivisible
obligation was not supported by evidence according to the lower courts

In effect, the 16k Mortgage should be deemed extinguished. Article 1275, CC. The rights
pertaining to the personalities of the Debtor (mortgagor) and Creditor (mortgagee) are merged.
Especially where the mortgagors of said encumbrances are also one and the same (Pastora
executed both mortgages), the sale to appellee bank (PNB) operated to divest of the mortgagor of
her rights and to vest her rights with respect to the senior mortgage in the purchaser, subject to
such rights of redemption as may be required by law.

However, records show that appellant-mortgagor failed to redeem the property within the 1 year
period provided. Even granting for the sake of argument that there was no merger, PNB still had
the right to sell subject properties, and the party who purchased the same shall only be entitled to
said encumberance. Petitioners are not the proper parties to insist that there be a foreclosure, as
this prerogative lies with the mortgagor.
Yek Tong Lin Fire & Marine Insurance Co., Ltd. v. Yusingco,
G.R. No. 43608, July 20, 1937
Diaz, J.

FACTS:

Defendant Pelagio Yusingco was the owner of the steamship Yusingco. He executed, on
November 19, 1927, a power of attorney in favor of Yu Seguioc to administer, lease, mortgage
and sell his properties, including his vessels or steamship. Yu Seguioc mortgaged to the plaintiff
Yek Tong Lin Fire & Marine Insurance Co., Ltd., with the approval of the Bureau of Customs,
the steamship Yusingco belonging to the defendant. One year and some months later, the
steamship Yusingco needed some repairs which were made by the Earnshaw Docks & Honolulu
Iron Works. The repairs were made upon the guaranty of the defendant and appellant Vicente
Madrigal at a cost of P8,244.66.
When neither A. Yusingco Hermanos nor Pelagio Yusingco could pay said sum to the Earnshaw
Docks & Honolulu Iron Works, the defendant and appellant Vicente Madrigal had to make
payment thereof with the stipulated interest thereon, which was at the rate of per cent per annum,
on March 9, 1932, because he was bound thereto by reason of the bond filed by him, the
payment then made by him having amounted to P8,777.60.

ISSUE:

Was the debt extinguished through confusion or merger?

RULING:

After the steamship Yusingco had been sold by virtue of the judicial writ issued in civil case No.
41654 for the execution of the judgment rendered in favor of Vicente Madrigal, the only right
left to the plaintiff was to collect its mortgage credit from the purchaser thereof at public
auction, inasmuch as the rule is that a mortgage directly and immediately subjects the property
on which it is imposed, whoever its possessor may be, to the fulfillment of the obligation for the
security of which it was created (article 1876, Civil code); but it so happens that it cannot take
such steps now because it was the purchaser of the steamship Yusingco at public auction, and it
was so with full knowledge that it had a mortgage credit on said vessel. Obligations are
extinguished by the merger of the rights of the creditor and debtor (articles 1156 and 1192, Civil
Code).

MONDRAGON PERSONAL SALES, INC. v. VICTORIANO S. SOLA, JR.

G.R. no. 174882, January 21, 2013
Peralta, J.

Topic: Compensation

Facts:
Petitioner Mondragon Personal Sales entered into a Contract of Services with respondent
Sola whereby the latter would provide service facilities (bodega cum office) to petitioner’s
products, sales force and customers for a consideration of commission or service fee which at a
certain rate of the monthly sales of Mondragon.

Prior to the execution of the said contract, respondent’s wife had an existing obligation
with petitioner. Such obligation was acknowledged and confirmed by the respondent and made
himself (with his wife) liable to pay such debt on installment basis. By virtue of which, the
petitioner withheld the payment of the respondent’s service fees and applied the same as partial
payments to the debt which he obligated to pay. Thereafter, respondent closed and suspended the
operation of his office cum bodega and subsequently filed for an action for accounting and
rescission against the petitioner.
 The RTC ruled in favor of the petitioner Mondragon and held that there was no fraud on
the part of the latter that would rescind their contract and that it is correct when it deducted the
service commission of Sola to his wife’s account. The CA reversed the RTC’s decision.

Issue:
Whether legal compensation under Art. 1279 of the Civil Code would apply in this case.

Held:
Yes. The petitioner's act of withholding respondent's service fees/commissions and
applying them to the latter's outstanding obligation with the former is merely an
acknowledgment of the legal compensation that occurred by operation of law between the
parties. Compensation is a mode of extinguishing to the concurrent amount the obligations of
persons who in their own right and as principals are reciprocally debtors and creditors of each
other. Legal compensation takes place by operation of law when all the requisites are present, as
opposed to conventional compensation which takes place when the parties agree to compensate
their mutual obligations even in the absence of some requisites. Legal compensation requires the
concurrence of the following conditions:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

All the requisites for legal compensation are present in this case. Petitioner and respondent are
both principal obligors and creditors of each other. Their debts to each other consist in a sum of
money. Respondent acknowledged and bound himself to pay petitioner the amount of
P1,973,154.73 which was already due, while the service fees owing to respondent by petitioner
become due every month. Respondent's debt is liquidated and demandable, and petitioner's
payments of service fees are liquidated and demandable every month as they fall due. Finally,
there is no retention or controversy commenced by third persons over either of the debts. Thus,
compensation is proper up to the concurrent amount where petitioner owes respondent
P125,040.01 for service fees, while respondent owes petitioner P1,973,154.73.

TRINIDAD v. ACAPULCO
G.R. NO. 147477, June 27, 2006

FACTS:

On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking
the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She
 alleged that sometime in February 1991, a certain Primitivo Cañete requested her to sell a
Mercedes Benz for P580, 000.00. Cañete also said that if respondent herself will buy the car,
Cañete was willing to sell it for P500, 000.00. Petitioner borrowed the car from respondent
for two days but instead of returning the car as promised, petitioner told respondent to buy
the car from Cañete for P500,

000.00 and that petitioner would pay respondent after petitioner returns from Davao.

Following petitioner’s instructions, respondent requested Cañete to execute a deed of sale

covering the car in respondent’s favor for P500, 000.00 for which respondent issued three
checks in favor of Cañete. Respondent thereafter executed a deed of sale in favor of
petitioner even though petitioner did not pay her any consideration for the sale. When
petitioner returned from Davao, he refused to pay respondent the amount of P500,000.00
saying that said amount would just be deducted from whatever outstanding obligation
respondent had with petitioner. Due to petitioner’s failure to pay respondent, the checks that
respondent issued in favor of Cañete bounced, thus criminal charges were filed against her.
Respondent then prayed that the deed of sale between her and petitioner be declared null and
void; that the car be returned to her; and that petitioner be ordered to pay damages.

ISSUE:

Whether or not petitioner’s claim for legal compensation was already too late.

RULING:

No, the Court resolves to grant the petition. Compensation takes effect by operation of law
even without the consent or knowledge of the parties concerned when all the requisites
mentioned in Article 1279 of the Civil Code are present.

Here, petitioner’s stance is that legal compensation has taken place and operates even
against the will of the parties because: (a) respondent and petitioner were personally both
creditor and debtor of each other; (b) the monetary obligation of respondent was
P566,000.00 and that of the petitioner was P500,000.00 showing that both indebtedness
were monetary obligations the amount of which were also both known and liquidated; (c)
both monetary obligations had become due and demandable— petitioner’s obligation as
shown in the deed of sale and respondent’s

indebtedness as shown in the dishonored checks; and (d) neither of the debts or obligations
are subject of a controversy commenced by a third person.

This is in consonance with Article 1290 of the Civil Code which provides that: “when all the
requisites mentioned in article 1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount, even though the creditors and
 debtors are not aware of the compensation. Since it takes place ipso jure. When used as a
defense, it retroacts to the date when all its requisites are fulfilled.

SELWYN F. LAO and EDGAR MANANSALA vs. SPECIAL PLANS, INC.

G.R. No. 164791, June 29, 2010
DEL CASTILLO, J.:

FACTS:

Petitioners Selwyn F. Lao and Edgar Manansala (Manansala), together with Benjamin Jim (Jim),
entered into a Contract of Lease with respondent Special Plans, Inc. (SPI) for the period January
16, 1993 to January 15, 1995 over SPI’s building at No. 354 Quezon Avenue, Quezon
City. Petitioners intended to use the premises for their karaoke and restaurant business known as
“Saporro Restaurant”.

Upon expiration of the lease contract, it was renewed for a period of eight months at a monthly
rate of P23, 000.00. On June 3, 1996, SPI sent a Demand Letter to the petitioners asking for full
payment of rentals in arrears.Receiving no payment, SPI filed on July 23, 1996 a Complaint for
sum of money with the MeTC of Quezon City, claiming unpaid rentals of P118, 000.00 covering
the period March 16, 1996 to August 16, 1996.

Petitioners answered faulting SPI for making them believe that it owns the leased property and
that SPI did not deliver the leased premises in a condition fit for petitioners’ intended use. Thus,
petitioners claimed that they were constrained to incur expenses for necessary repairs as well as
expenses for the repair of structural defects, which SPI failed and refused to
reimburse. Petitioners prayed that the complaint be dismissed and judgment on their
counterclaims be rendered ordering SPI to pay them the sum of P422, 920.40 as actual damages,
as well as moral damages, attorney’s fees and exemplary damages.

ISSUE:

Whether or not the cost of repairs incurred by the petitioners should be compensated against the
unpaid rentals.

RULING:

Petitioners failed to properly discharge their burden to show that the debts are liquidated and
demandable. Consequently, legal compensation is inapplicable.

The petitioners attempted to prove that they spent for the repair of the roofing, ceiling and
flooring, as well as for waterproofing. However, they failed to appreciate that, as per their lease
contract, only structural repairs are for the account of the lessor, herein respondent SPI. In which
case, they overlooked the need to establish that aforesaid repairs are structural in nature, in the
context of their earlier agreement. It would have been an altogether different matter if the lessor
was informed of the said structural repairs and he implicitly or expressly consented and agreed to
take responsibility for the said expenses. Such want of evidence on this respect is fatal to this
appeal. Consequently, their claim remains unliquidated and, legal compensation is
inapplicable.

Apodaca v. NLRC,
G.R. No. 80039, April 18, 1989
Gancayco, J.

FACTS:

Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M.
Mirasol persuaded petitioner to subscribe to 1,500 shares of respondent corporation at P100.00
per share or a total of P150,000.00. He made an initial payment of P37,500.00. On September 1,
1975, petitioner was appointed President and General Manager of the respondent corporation.
However, on January 2, 1986, he resigned.

On December 19, 1986, petitioner instituted with the NLRC a complaint against private
respondents for the payment of his unpaid wages, his cost-of-living allowance, the balance of his
gasoline and representation expenses and his bonus compensation for 1986. Petitioner and
private respondents submitted their position papers to the labor arbiter. Private respondents
admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the
unpaid balance of his subscription in the amount of P95,439.93. Petitioner questioned the set-off
alleging that there was no call or notice for the payment of the unpaid subscription and that,
accordingly, the alleged obligation is not enforceable.

ISSUE:

Can an obligation arising from non-payment of stock subscriptions to a corporation be offset

against a money claim of an employee against the employer?

RULING:

What the records show is that the respondent corporation deducted the amount due to petitioner
from the amount receivable from him for the unpaid subscriptions. No doubt such set-off was
without lawful basis, if not premature. As there was no notice or call for the payment of unpaid
subscriptions, the same is not yet due and payable.

Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC
cannot validly set it off against the wages and other benefits due petitioner. Article 113 of the
Labor Code allows such a deduction from the wages of the employees by the employer, only in
three instances not including non-payment of stock subscriptions.

Bank of the Philippine Islands v. Domingo

G.R. No. 169407, 25 March 2015

 J. Leonardo-De Castro

Facts:

On September 27, 1993, Amador Domingo and his wife, Mercy Maryden Domingo, executed a
Promissory Note in favor of Makati Auto Center, Inc. in the amount of P629,856.00, payable in
48 consecutive monthly installments of P13,122.00 each. They also completed a Deed of Chattel
Mortgage on a 1993 Mazda 323 to secure the payment of their Promissory Note. Makati Auto
Center, Inc. then assigned, ceded, and transferred to Far East Bank and Trust Company all of its
rights and interests in the Promissory Note and chattel mortgage.

The Securities and Exchange Commission approved and issued the Certificate of Filing of the
Articles of Merger and Plan of Merger executed by and between BPI, the surviving corporation,
and FEBTC, the absorbing corporation, on April 7, 2000. All of FEBTC's assets and liabilities
were transferred to and absorbed by BPI as a result of the merger. Domingo's spouses
continually failed to make the 21 monthly installments that were due from January 15, 1996 to
September 15, 1997. BPI, as the surviving corporation following the merger, demanded that the
spouses Domingo pay the balance of the Promissory Note plus accrued late payment
charges/interests or return possession of the subject vehicle for the purpose of foreclosure in
accordance with the undertaking stated in the chattel mortgage. When the spouses Domingo
failed to comply with its demands, BPI filed a Complaint for Replevin and Damages (or,
alternatively, for the collection of a sum of money, interest and other charges, and attorney's
fees) on November 14, 2000, which was raffled to the Metropolitan Trial Court of Manila,
Branch 9, and docketed as Civil Case No. 168949-CV. BPI named a John Doe as a defendant
because, at the time of filing the Complaint, BPI was aware that the subject vehicle was in the
custody of a third party but did not know who that person was.

Issue:

Was there a novation of the loan obligation with chattel mortgage of the couples Domingo to
BPI, in which the spouses Domingo were relieved from said obligation and Carmelita was
substituted as debtor?

Ruling:

No, there was no novation of the loan obligation with chattel mortgage of the couples Domingo
to BPI, in which the spouses Domingo were relieved from said obligation and Carmelita was
substituted as debtor.

As the Court explained in Da Jose v. Angeles, “Evidence is hearsay when its probative force
depends on the competency and credibility of some persons other than the witness by whom it is
sought to be produced. The exclusion of hearsay evidence is anchored on three reasons: (1)
absence of cross-examination; (2) absence of demeanor evidence; and (3) absence of oath. Basic
under the rules of evidence is that a witness can only testify on facts within his or her personal
knowledge. This personal knowledge is a substantive prerequisite in accepting testimonial
evidence establishing the truth of a disputed fact.

In this case, it is worthy to stress that Amador, as the party asserting novation, bears the burden
of proving its existence. Amador cannot simply rely on the failure of BPI to produce the checks
if these were not actually returned to the spouses Domingo. There is simply not enough evidence
to establish the prima facie existence of novation to shift the burden of evidence to BPI to
controvert the same.

Hence, the Court is therefore convinced that there is no novation by delegacion in this case and
Amador remains a debtor of BPI.

Mindanao Savings and Loan Association, Inc., v. Willkom,

G.R. No. 178618, October 20, 2010
Nachura, J

Topics : Novation , Subjective novation ; Expromision v Delegation

Facts:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and
Loan Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange
Commission (SEC) under Registry Nos. 34869 and 32388, respectively, primarily engaged in the
business of granting loans and receiving deposits from the general public, and treated as banks.
Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving
corporation.5 The articles of merger were not registered with the SEC due to incomplete
documentation.6 On August 12, 1985, DSLAI changed its corporate name to MSLAI by way of
an amendment to Article 1 of its Articles of Incorporation, but the amendment was approved by
the SEC only on April 3, 1987.

On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI
located in Cagayan de Oro City, and the notice of sale was subsequently published. During the
public auction on May 17, 1993, Willkom was the highest bidder. A certificate of sale was issued
and eventually registered with the Register of Deeds of Cagayan de Oro City. Upon the
expiration of the redemption period, sheriff Bantuas issued the sheriff’s definite deed of sale.
New certificates of title covering the subject properties were issued in favor of Willkom. On
September 20, 1994, Willkom sold one of the subject parcels of land to Go

Issue:

Was there novation of the obligation by substituting the person of the debtor?

Ruling:
No, in the merger of two or more existing corporations, one of the corporations survives and
continues the combined business, while the rest are dissolved and all their rights, properties, and
liabilities are acquired by the surviving corporation.Although there is a dissolution of the
absorbed or merged corporations, there is no winding up of their affairs or liquidation of their
assets because the surviving corporation automatically acquires all their rights, privileges, and
powers, as well as their liabilities.

Petitioner cannot also anchor its right to annul the execution sale on the principle of
novation.1avvphi1 While it is true that DSLAI (now MSLAI) assumed all the liabilities of
FISLAI, such assumption did not result in novation as would release the latter from liability,
thereby exempting its properties from execution. Novation is the extinguishment of an obligation
by the substitution or change of the obligation by a subsequent one which extinguishes or
modifies the first, either by changing the object or principal conditions, by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor.

It is a rule that novation by substitution of debtor must always be made with the consent of the
creditor. Article 1293 of the Civil Code is explicit, thus:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles
1236 and 1237

In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that
DSLAI (now MSLAI) would assume the liabilities of FISLAI. Such agreement cannot prejudice
Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy
the judgment claim of Uy against FISLAI. The subsequent sale of the properties by Uy to
Willkom, and of one of the properties by Willkom to Go, cannot, therefore, be questioned by
MSLAI.
The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s
consent in conventional subrogation in order that a novation shall legally take place. Since
novation implies a waiver of the right which the creditor had before the novation, such waiver
must be express.

Asian Terminals, Inc. v. Philam Insurance Co., Inc.,

G.R. No. 181163, July 24, 2013
Villarama, Jr., J.
FACTS:

On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation 219
packages containing 120 units of brand-new Nissan Pickup Truck Double Cab 4x2 model,
without engine, tires and batteries, on board the vessel S/S "Calayan Iris" from Japan to Manila.
The shipment, which had a declared value of US$81,368 or ₱29,400,000, was insured with
Philam against all risks under Marine Policy No. 708-8006717-4.

The carrying vessel arrived at the port of Manila on April 20, 1995, and when the shipment was
unloaded by the staff of ATI, it was found that the package marked as 03-245-42K/1 was in bad
order. The Turn Over Survey of Bad Order Cargoes dated April 21, 1995 identified two
packages, labeled 03-245-42K/1 and 03/237/7CK/2, as being dented and broken. Thereafter, the
cargoes were stored for temporary safekeeping inside CFS Warehouse in Pier No. 5.

On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the
authorized broker of Universal Motors, and delivered to the latter’s warehouse in Mandaluyong
City. Upon the request of Universal Motors, a bad order survey was conducted on the cargoes
and it was found that one Frame Axle Sub without LWR was deeply dented on the buffle plate
while six Frame Assembly with Bush were deformed and misaligned. Owing to the extent of the
damage to said cargoes, Universal Motors declared them a total loss.

ISSUE:

Is the Philam entitled to its claim against petitioners ATI and Westwind?

RULING:

Court holds that petitioner Philam has adequately established the basis of its claim against
petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee,
Universal Motors Corporation, pursuant to the Subrogation Receipt executed by the latter in
favor of the former. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. Petitioner Philam’s action finds support in Article 2207 of the
Civil Code.

In their respective comments to Philam’s Formal Offer of Evidence, petitioners ATI and
Westwind objected to the admission of Marine Certificate No. 708-8006717-4 and the
Subrogation Receipt as documentary exhibits "B" and "P," respectively. Petitioner Westwind
objects to the admission of both documents for being hearsay as they were not authenticated by
the persons who executed them. For the same reason, petitioner ATI assails the admissibility of
the Subrogation Receipt. As regards Marine Certificate No. 708-8006717-4, ATI makes issue of
the fact that the same was issued only on April 27, 1995 or 12 days after the shipment was
loaded on and transported via S/S "Calayan Iris."

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioners, vs. THE HON.
COURT OF APPEALS, and CALVIN & ELSA ARCILLA, respondents.
G.R. No. 129227. May 30, 2000
GONZAGA_REYES, J.

FACTS:

Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the
Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00 as evidenced by the
“Promissory Note” executed by the spouses in favor of the said bank. To secure payment of said
loans, the spouses executed “Real Estate Mortgages” in favor of the appellants (Banco Filipino)
over their parcels of land. The appellee spouses failed to pay their monthly amortization to
appellant. On September 2, 1985 the appellee’s filed a complaint for “Annulment of the Loan
Contracts, Foreclosure Sale with Prohibitory and Injunction” which was granted by the RTC.
Petitioners appealed to the Court of Appeals, but the CA affirmed the decision of the RTC.
ISSUE:

Whether or not the CA erred when it held that the cause of action of the private
respondents accrued on October 30, 1978 and the filing of their complaint for annulment of their
contracts in 1085 was not yet barred by the prescription/

RULING:

The court held that the petition is unmeritorious. Petitioner’s claim that the action of the
private respondents have prescribed is bereft of merit. Under Article 1150 of the Civil Code, the
time for prescription of all kinds of action where there is no special provision which ordains
otherwise shall be counted from the day they may be brought. Thus the period of prescription of
any cause of action is reckoned only from the date of the cause of action accrued. The period
should not be made to retroact to the date of the execution of the contract, but from the date they
received the statement of account showing the increased rate of interest, for it was only from the
moment that they discovered the petitioner’s unilateral increase thereof.

MARIA ALVAREZ VDA. DE DELGADO, CATALINA C. DELGADO, NATIVIDAD D.

CLUTARIO, ANTONIA DELGADO, FLORINTINO DELGADO, PACIENCIA D.
CAZORLA, GLORIA D. SOTIANGCO, JOSE DELGADO, JR., MARLENE D. SENNER,
JOEL DELGADO, MARISSA DELGADO, JESUS DELGADO, JANICE DELGADO,
VICTORINO DELGADO, and JUAN DELGADO, petitioners, vs. HON. COURT OF
APPEALS and REPUBLIC OF THE PHILIPPINES, respondents.
August 28, 2001
G.R. No. 125728

Facts:
During his lifetime, Carlos Delgado was the absolute owner of a parcel of land, said Carlos
Delgado granted and conveyed, by way of donation or gift with quitclaim, all his rights, title,
interest, claim and demand over a portion of said land in favor of the Commonwealth of the
Philippines or its successors.
Acceptance was made by then President Manuel L. Quezon in his capacity as Commander-in-
Chief of the Philippine Arm
The donee promptly occupied the donated land and constructed buildings thereon for military
purposes, such as a military training campsite.
On February 6, 1939, the CFI of Samar decreed that on the basis of more than forty years of
quiet, peaceful and continuous possession by the donors and their donee, and after finding a
general default of opposition to the application for registration, the aforesaid parcels of land as
well as the improvements thereon, were to be registered in the name of the Commonwealth of
the Philippines as absolute owner thereof.
Upon declaration of independence on July 4, 1946, the Commonwealth of the Philippines passed
out of existence. It was replaced by the existing Republic of the Philippines, which took over the
subject land and turned portions of it over to the then Civil Aeronautics Administration (CAA),
later renamed Bureau of Air Transportation Office (ATO).
Said government agency has since utilized the land in question, or portions of it as a domestic
national airport, with some portions rented to the Philippine Airlines, and some to the provincial
government for a capitol site and a hospital site, and for some other uses which clearly are not
military in nature.
A petition for reconveyance was filed on December 25, 1970, alleging as ground therefor the
violation of the express condition imposed by the donor. It was also during this time that Jose
Delgado, brother and lone heir of the donor, Carlos, obtained a court order dated March 15,
1971, directing the insertion of the automatic reversion clause as an annotation in the TCT.

Issue:
WoN the petitioners' action for reconveyance is already barred by prescription.

Held:
Yes, Applying Article 1144 (1) of the Civil Code on prescription of actions based on a written
contract, the petitioners herein should have instituted the action for reconveyance within 10 years
from the time the condition in the Deed of Donation was violated.

The earliest date the petitioners knew of the said violation of said condition was on July 4, 1946,
when the Republic, as successor of the Commonwealth of the Philippines, took over the
properties and diverted the property to uses other than that imposed by the donor. As found by
the Court of Appeals, the cause of action of the petitioners has clearly prescribed, having
instituted the action for reconveyance only on December 29, 1970, or 24 years after the condition
was violated.

For now, the causes of action which petitioners may have against the respondent Republic, in our
view, are already barred by prescription. Extinctive prescription has set in in favor of the
Republic, and it cannot now be sued based on the same causes of action.
JAIME LEDESMA, vs. COURT OF APPEALS and RIZAL COMMERCIAL BANKING
CORPORATION
G.R. No. 106646, June 30, 1993
REGALADO, J.

FACTS:

▪ On August 21, 1980, private respondent Rizal Commercial Banking Corporation filed
Case No. 38287 in the then Court of First Instance of Rizal against petitioner to enforce
the terms of Trust Receipt Agreement No. 7389 executed by them on April 1, 1974 but
which petitioner had failed to comply with. As summons could not be served on the
latter, said case was dismissed without prejudice on March 3, 1981.

▪ On December 2, 1988, private respondent bank instituted Civil Case No. 88-2572 in the
Regional Trial Court of Makati, Metro Manila, Branch 133, against petitioner on the
same cause of action and subject matter.

▪ Petitioner's motion to dismiss on the ground of prescription which was denied and
judgment was rendered in favor of private respondent. Said judgment was affirmed by
respondent Court and petitioner's motion for reconsideration thereof was denied.

▪ Petitioner's petition for review on certiorari of the said judgment was denied its present
motion for reconsideration contending that the second action filed by private respondent
bank had already prescribed.

ISSUE:

▪ Whether the second action filed by private respondent bank had already prescribed.

RULING:

▪ No, the Court ruled that the filing of the first action interrupted the running of the period,
and then declared that at any rate, the second action was filed within the balance of the
period remaining.

▪ Article 1155 of the Civil. Code provides that the prescription of an action, involving in
the present case the 10-year prescriptive period for filing an action on a written contract
under Article 1144(1) of the Code, is interrupted by (a) the filing of an action, (b) a
written extrajudicial demand by the creditor, and (c) a written acknowledgment of the
debt by the debtor.
 ▪ The correct interpretations of Article 1155 of the Civil Code are reflected in and
furnished by the doctrinal pronouncements in the case of Overseas Bank of Manila and
Philippine National Railways Company.

▪ Article 1155 has been interpreted in both case to mean that upon the cessation of the
suspension of the prescriptive period, the full period of prescription commences to run
anew.

▪ Petitioner is wrong in insisting that in case of the filing of an action, the prescriptive
period is merely tolled and continues to run again, with only the balance of the remaining
period available for the filing of another action. This postulation of petitioner, if we are to
adopt it, would result in an absurdity wherein Article 1155 would be interpreted in two
different ways, i.e., the prescriptive period is interrupted in case of an extrajudicial
demand and a written acknowledgment of a debt, but it is merely tolled where an action
is filed in court.

▪ Hence, the present motion is hereby DENIED with FINALITY.

CALUBAD v. RICARCEN
DEVELOPMENT CORP.
G.R. NO. 202364, AUGUST 30,2017

FACTS:
Respondent Ricarcen Development Corporation (Ricarcen) was a domesticcorporation
engaged in renting out real estate. It was the registered owner of a parcel of land located at
53 Linaw St., Sta. Mesa Heights, Quezon City. This parcel of land was covered by Transfer
Certificate of Title (TCT) No. RT-84937 (166018) and was subdivided into two (2) lots.
Ricarcen was a family corporation. Marilyn R. Soliman (Marilyn) was its president from
2001 to August 2003. The other members of the board of directors during that time were
Marilyn's mother, Erlinda Villanueva (Erlinda), her brother, Josefelix R. Villanueva
 (Josefelix), her aunt, Maura Rico, and her sisters, Ma. Elizabeth V. Chamorro (Elizabeth),
Ma. Theresa R. Villanueva, and Annabelle R. Villanueva.

On October 15, 2001, Marilyn, acting on Ricarcen's behalf as its president,took out a
P4,000,000.00 loan from Calubad. This loan was secured by a real estate mortgage over
Ricarcen's Quezon City property covered by TCT No. RT-84937 (166018), as evidenced by
a Deed of Real Estate Mortgage.

The terms of the loan provided that Ricarcen would pay the P4,000,000.00 loan within a
period of six (6) months with "a compounded interest at the rate of FIVE (5%) percent for
the first month and three (3%) percent for [the] succeeding months and a penalty of ONE
(1%) percent per month on the principal sum in case of delay in payment."The terms of the
loan also provided that the first monthly interest payment of P200,000.00 would be deducted
from the loan proceeds.

ISSUE:
Whether or not rhe petitioner is liable under the Doctrine of apparent activity.

RULING:
Yes. When a corporation intentionally or negligently clothes its agent with apparent
authority to act on its behalf, it is estopped from denying its agents’ apparent authority as to
innocent third parties who dealt with this agent in good faith.

Mendoza v. CA,
G.R. No. 116710, June 25, 2001
De Leon, Jr., J.

FACTS:
Sometime in 1978 Petitioner Danilo D. Mendoza was granted by respondent Philippine National
Bank a P500,000.00 credit line and a One Million Pesos Letter of Credit/Trust Receipt line. As
security for the credit accommodations and for those which may thereinafter be granted,
petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of land 3 with
improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3)
several pieces of machinery and equipment in his Pasig coco-chemical plant.

Petitioner executed in favor of respondent PNB three promissory notes covering the P500,000.00
credit line, one dated March 8, 1979 for P310,000.00; another dated March 30, 1979 for
P40,000.00; and the last dated September 27, 1979 for P150,000.00. The said 1979 promissory
notes uniformly stipulated: "with interest thereon at the rate of 12% per annum, until paid, which
interest rate the Bank may, at any time, without notice, raise within the limits allowed by law.
Petitioner failed to pay the subject two Promissory Notes Nos. 127/82 and 128/82 as they fell
due. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the
mortgaged properties were sold at public auction to respondent PNB, as highest bidder.

The petitioner filed in the RTC in Pasig, Rizal a complaint for specific performance, nullification
of the extra-judicial foreclosure and damages. He alleged that the Extrajudicial Foreclosure Sale
of the mortgaged properties was null and void since his loans were restructured to a five-year
term loan; hence, it was not yet due and demandable; that the escalation clauses in the subject
two Promissory Notes were null and void, that the total amount presented by PNB as basis of
the foreclosure sale did not reflect the actual loan obligations of the plaintiff to PNB; that
Bautista purposely delayed payments on his exports and caused delays in the shipment of
materials; that PNB withheld certain personal properties not covered by the chattel mortgage;
and that the foreclosure of his mortgages was premature so that he was unable to service his
foreign clients.

ISSUE:

Is the doctrine of promissory estoppel applicable?

RULING:

The doctrine of promissory estoppel presupposes the existence of a promise on the part of one
against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently
specific so that the Judiciary can understand the obligation assumed and enforce the promise
according to its terms. For petitioner to claim that respondent PNB is estopped to deny the five
year restructuring plan, he must first prove that respondent PNB had promised to approve the
plan in exchange for the submission of the proposal. As discussed earlier, no such promise was
proven, therefore, the doctrine does not apply to the case at bar. A cause of action for
promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance
upon it was not reasonable. It does not operate to create liability where it does not otherwise
exist.

Pasion v. Melegrito,
 G.R. No. 166558 March 28, 2007
Tinga, J.

Facts:
· On 4 February 1999, respondent Simplicio R. Melegrito (respondent), represented by
Anselma Timones, filed a complaint1lawphil.net for forcible entry against Filipina M. Bueno,
Divina M. Bueno, and Regina M. Bueno (Bueno sisters) with the 5th Municipal Circuit Trial
Court (MCTC), Gerona, Tarlac. As plaintiff, respondent claimed that the Bueno sisters
constructed a two-story concrete residential structure on his land located in Nilasin, Pura, Tarlac
through stealth and strategy and without his knowledge and consent. He further claimed that
despite notice and demand, the Bueno sisters still retained possession of the land and refused to
remove the structure.
· On 22 July 1999, the MCTC rendered its judgment in favour of Simplicio R. Melegrito,
ordering defendants to vacate the premises and to pay for attorney’s fees and damages. Acting on
the appea. Regional Trial Court (RTC), Branch 63, Tarlac, Tarlac set aside the 22 July 1999
judgment of the MCTC and ordered the case dismissed. The RTC denied respondent’s motion
for reconsideration.
· On 16 June 2000, the appellate court reversed and set aside the decision of the RTC and
reinstated in toto the MCTC’s judgment. On remand of the case, the MCTC granted respondent’s
motion for execution and that led to the issuance of a writ of execution on 28 June 2001. On 24
January 2002, the MCTC granted respondent’s motion for the issuance of a writ of demolition
for failure of the Bueno sisters to comply with the 22 July 1999 judgment.
· Subsequently, on 12 September 2002, an alias writ of demolition was issued directing the
sheriff or his deputies to demolish the improvements erected by the Bueno sisters on the subject
land belonging to respondent.

Issue: WON Estoppel applies in this case?

Held:

Yes. the principle of equitable estoppel would now operate to prevent petitioner from asserting
her alleged ownership over the structure and defeating the alias writ of execution issued in
execution of the decision in Civil Case No. 1243-99. Sec. 2(a), Rule 131 of the Rules of Court
states:

Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately
led another to believe a particular thing true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act or omission, be permitted to falsify it.

Thus,
The principles of equitable estoppel, sometimes called estoppel in pais, are made part of our law
by Art. 1432 of the Civil Code. Coming under this class is estoppel by silence, which obtains
here and as to which it has been held that n estoppel may arise from silence as well as from
words. ‘Estoppel by silence’ arises where a person, who by force of circumstances is under a
duty to another to speak, refrains from doing so and thereby leads the other to believe in the
existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an
estoppel whether the failure to speak is intentional or negligent.
‘Inaction or silence may under some circumstances amount to a misrepresentation and
concealment of facts, so as to raise an equitable estoppel. When the silence is of such a character
and under such circumstances that it would become a fraud on the other party to permit the party
who has kept silent to deny what his silence has induced the other to believe and act on, it will
operate as an estoppel. This doctrine rests on the principle that if one maintains silence, when in
conscience he ought to speak, equity will debar him from speaking when in conscience he ought
to remain silent. He who remains silent when he ought to speak cannot be heard to speak when
he should be silent.’

In the case at bar, petitioner had, by her silence, induced respondent to believe that she did not
have any interest on respondent’s property other than being his tenant. Thus, respondent
rightfully acted on this belief and filed the forcible entry case only against petitioner’s sisters
whom he thought were the owners of the structure constructed on his land. Verily, to permit
petitioner to deny the fact that she does not own the structure would work to prejudice the rights
of respondent as the winning litigant in Civil Case No. 1243-99. Indeed, petitioner is
conclusively estopped from interposing her claim of ownership against the writ of demolition
issued to execute the decision in said case.

BIENVENIDA SALANDANAN, CATALINA SALANDANAN, and HEIRS OF

CONCEPCION SALANDANAN, Petitioners, vs. THE COURT OF APPEALS, HON.
JUDGE LUIS TONGCO, Regional Trial Court of Biñan, Laguna, REGISTRY OF DEEDS
OF BIÑAN & CALAMBA, LAGUNA, and HEIRS OF ELVIRA PANDINCO, Respondents.
G.R. No. 127783 June 5, 1998
MARTINEZ, J.:
This case illustrates the application of the legal precept that the law aids the vigilant, not those
who slumber on their rights. Vigilantibus, sed non dormientibus jura subverniunt.
The facts:
On September 14, 1955, Edilberta Pandinco filed a petition 1 for the settlement of the testate
estate of Vicenta Alviar, before then Court of First Instance (now Regional Trial Court) of
Biñan, Laguna, which was docketed as Special Proceeding No. 4749. The subject thereof for
probate is the will 2 of Vicenta Alviar, portions of which read:
xxx xxx xxx
Aking sinasaysay at ipinaliliwanag na ako'y tatlo (3) ang naging anak sa nasirang asawa,
MONICO PANDINCO, na ang mga pangalan ay itong sumusunod:
ELVIRA Pandinco, buhay pa;
LEONOR Pandinco, buhay pa; at
GADIOSA Pandinco, patay na.
Ang anak kong GADIOSA PANDINCO ay nagkaroon ng labing dalawang (12) anak na ang mga
pangalan ay:
Edilberta Pandinco,
Catalina Salandanan,
Alfredo Salandanan,
Arsenio Salandanan,
Belen Salandanan,
Bienvenida Salandanan,
Concepcion Salandanan,
Antonio Salandanan,
Natalia Salandanan,
Aurora Salandanan,
Melania Salandanan, at
Vedasto Salandanan.
Ako'y may apo sa tuhod na ang pangalan ay Ambrocio Salandanan, anak ni Belen Salandanan.
xxx xxx xxx
Ipinatatanto ko na sa kasalukuyan ay ako'y viuda, at ang aking mga taga pagmana ay wala kundi
ang aking dalawang anak at mga apo na binabangit sa itaas.
The will was admitted to probate on July 8, 1957. Thereafter, a project of partition 3 dated August
13, 1960, duly signed by all the heirs and acknowledged before a notary public, was approved by
the probate court on August 29, 1960. 4
On September 17, 1966, the probate court approved and declared as valid the transfer of the
petitioners' shares to their co-heir, respondent Elvira Pandinco, over the estate of Vicenta Alviar.
On August 18, 1995, petitioners filed a "Motion To Reopen The Case and Set Aside Partition
with Preliminary Injunction" before the Regional Trial Court of Biñan, Laguna (Branch XXV).
The motion alleged inter alia that petitioners never signed the project of partition or
acknowledged the same before a notary public; that they never appeared or testified before the
probate court to affirm their agreement to the partition; that they never sold their shares to Elvira
Pandinco; that while Catalina Salandanan testified in the probate of the will, she did not testify
regarding the sale; that they never received any order from the court approving the project of
partition and the order finding valid and binding the transfer and sale of their shares to
respondent Elvira Pandinco; and that they came to know of the Order of September 17, 1966
only in 1990 when they secured a copy thereof from the court. 5
The motion was opposed by private respondents who are the heirs of Elvira Pandinco.
On December 19, 1995, the lower court denied petitioners' motion on the ground of estoppel by
laches ratiocinating thus:
There is no showing that movants ever filed a Petition for Review on Appeal of the Court of
Appeals' Resolution dated July 16, 1960 dismissing the appeal on the aforementioned first Order,
or an Appeal on the second and third Orders, thereby making the triple Orders final and
executory since twenty nine (29) years ago.
It was only in August, 1995 or more than twenty nine (29) years from date of the above-stated
Court Orders that herein movants filed the subject Motion to Reopen the above-entitled case, to
Set Aside the project of partition which was already implemented in the light of its finality and to
NULLIFY the sales and/or transfer to Elvira Pandinco.
Jurisprudence on this matter is well-settled. Where a party sleeps on his rights and allows laches
to set in, the same is fatal to his case (Periquet, Jr. vs. Intermediate Appellate Court, 238 SCRA
697). Laches had been defined as the failure or neglect for an unreasonable and unexplained
length of time, to do that which by exercising due diligence could or should have been done
earlier; it is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to assert it
(Olizon vs. Court of Appeals, 236 SCRA 148).
Aggrieved, petitioners went to the Court of Appeals through a petition for certiorari alleging that
the orders of the probate court are all contrary to law and were issued with grave abuse of
discretion amounting to lack or excess of jurisdiction. 6 On December 27, 1996, the respondent
Court of Appeals dismissed the petition, ruling in this wise:
The proper remedy then for herein petitioners would have been to file an appeal questioning the
decree of distribution, within the reglementary period. However, the records reveal that they
have not availed of such remedy and would only now belatedly raise a protest against matters
which have become long ago settled, final and binding. Petitioners cannot be allowed to benefit
from their inaction and neglect for an unreasonable length of time, by the simple expedient of
bringing this special civil action for certiorari, allegedly on jurisdictional grounds. It has been
held time and again that certiorari may not be used as a substitute for a lost appeal.
ISSUE: Petitioners now come to us seeking the nullification of the respondent Court of Appeal's
decision contending that it erred or committed grave abuse of discretion: (1) in sustaining the
probate court's Orders dated August 29, 1960, September 17, 1966 and December 19, 1995; (2)
in finding that the proper remedy in assailing the said Orders is an appeal; and (3) in finding
them guilty of laches.
The petition must fail.

RULING:
Petitioners cannot now assail the orders of the probate court as the same had already attained
finality. The project of partition was executed on August 16, 1960. It was approved on August
29, 1960 or thirty-eight (38) years ago. Since no appeal was filed by the petitioners, the assailed
orders, by operation of law, became final. The said orders cannot, therefore, by a mere motion,
be set aside.
As we have enunciated in Vda. De Kilayko vs. Tengco: 7
A final decree of distribution of the estate of a deceased person vests to the land of the estate in
the distributees. If the decree is erroneous, it should be corrected by opportunate appeal, for once
it becomes final, its binding effect is like any other judgment in rem, unless properly set aside for
lack of jurisdiction or fraud. Where court has validly issued a decree of distribution and the same
has become final, the validity or invalidity of the project partition becomes irrelevant.
Similarly, petitioners cannot seek the re-opening of the probate proceedings which had long been
terminated. They cannot, in the same manner, question the order validating the transfer and/or
sale of their shares in favor of respondent Elvira Pandinco which was issued on September 17,
1966, or thirty-two (32) years ago.
It is a fundamental principle of public policy in every jural system that at the risk of occasional
errors, judgments of courts should become final at some definite time fixed by law (interest rei
publicae ut finis sit litum). "The very object of which the courts were constituted was to put an
end to
controversies." 8 Once a judgment or an order of a court has become final, the issues raised
therein should be laid to rest. 9
Moreover, petitioners' long delayed action in assailing the Orders of the probate court is fatal to
their cause of action as laches has already set in.
Laches is the failure or neglect, for an unreasonable length of time to do that which by exercising
due diligence could or should have been done earlier; it is negligence or omission to assert a
right within a reasonable time warranting a presumption that the party entitled to assert it has
either abandoned it or has declined to assert it. 10 It has also been defined as such neglect or
omission to assert a right taken in conjunction with the lapse of time and other circumstances
causing prejudice to an adverse party, as will operate as a bar in equity. 11
We have ruled in Catholic Bishop of Balanga vs. Court of Appeals, 12 that:
That principle of laches is a creation of equity which, as such, is applied not really to penalize
neglect or sleeping upon one's right, but rather to avoid recognizing a right when to do so would
result in a clearly inequitable situation. As an equitable defense, laches does not concern itself
with the character of the defendant's title, but only with whether or not by reason of the plaintiff's
long inaction or inexcusable neglect, he should be barred from asserting this claim at all, because
to allow him to do so would be inequitable and unjust to the defendant.
The doctrine of laches or stale demands is based upon grounds of public policy which requires,
for the peace of society, the discouragement of stale claims and . . . is principally a question of
the inequity or unfairness of permitting a right or claim to be enforced or asserted.
The time-honored rule anchored on public policy is that relief will be denied to a litigant whose
claim or demand has become "stale" or who has acquiesced for an unreasonable length of time,
or who has not been vigilant or who has slept on his rights either by negligence, folly or
inattention. In other words, public policy requires, for the peace of society, the discouragement
of claims grown stale for non-assertion; thus laches is an impediment to the assertion or
enforcement of a right which has become, under the circumstances, inequitable or unfair to
permit.
Petitioners' neglect or omission to assert a supposed right for more than thirty (30) years is too
long a time as to warrant the presumption that they had either abandoned such right or had
conceded the correctness of the assailed Orders. Indeed, the law helps the vigilant but not those
who sleep on their rights. For time is a means of destroying obligations and actions, because time
runs against the slothful and contemners of their own rights. 13

DE VERA-CRUZ V. MIGUEL,
G.R. NO. 144103.AUGUST 31, 2005
J. CHICO- NAZARIO

FACTS:

Petitioners are the registered owners of a parcel of land covered by a TCT which they
purchased from their predecessor-in-interest who was granted an OCT. The petitioners
filed a complaint against the respondent who was claimed to have occupied a portion of
the subject land. The respondent answered that she has been occupying the land since
February 1946 and no one molested her in her actual possession and that she had in her
possession tax declarations to support her claim.

ISSUE: Whether or not the respondent’s contention is correct?

 RULING: No, the respondent’s contention is not correct. The Court ruled that a tax
declaration does not prove ownership. It is merely an indicium of a claim of ownership and
that payment of taxes is not proof of ownership, it is, at best, an indicium of possession in
the concept of ownership. Neither tax receipts nor declaration of ownership for taxation
purposes are evidence of ownership or of the righto possess realty when not supported by
other effective proofs. Having no title or document to overcome petitioners’ ownership as
evidenced by certificate of title over the land in question, respondent is an intruder or
squatter whose occupation of the land is merely being tolerated.2. Director of Lands v. CA,
G.R. No. 102858. July 28, 1997Private respondent Teodoro Amistad filed a petition for
registration of his title of land under P.D. No. 1529 and who was later succeeded by his
heirs. The land registration court dismissed the petition for want of jurisdiction as Sec
23(1) of P.D. No. 1529 required applicants to publish the notice of initial hearing in a
newspaper of general circulation as well as in the Official Gazette. Petitioner contends that
the law requires that the notice of initial public hearing should be published both in the
Official Gazette and in a newspaper of general circulation. However, private respondents
contend that publication to the Official Gazette is sufficient, failure to publish it in a
newspaper of general circulation will only produce procedural defect.

LOADMASTERS CUSTOMS SERVICES, INC. V. GLODEL BROKERAGE CORP.,

G.R. NO. 179446, [JANUARY 10, 2011], 654 PHIL 67-82

FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks.
On August 28, 2001, the cargoes were shipped on board the vessel “Richard Rey” from Isabela,
Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the
pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of
Loadmasters for the use of its delivery trucks to transport the cargoes to Columbia’s
warehouses/plants in Bulacan and Valenzuela City.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its
employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of copper
cathodes were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads were
destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang Bato were
duly delivered in Columbia’s warehouses there. Of the six (6) trucks en route to Balagtas,
Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with 11 bundles or
232 pieces of copper cathodes, failed to deliver its cargo.

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper
cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for insurance
indemnity in the amount of P1,903,335.39. After the requisite investigation and adjustment,
R&B Insurance paid Columbia the amount of P1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel
before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-
103040. It sought reimbursement of the amount it had paid to Columbia for the loss of the
subject cargo. It claimed that it had been subrogated “to the right of the consignee to recover
from the party/parties who may be held legally liable for the loss.”

ISSUE: WON EITHER GLODEL AND LOADMASTER MAY BE HELD LIABLE FOR THE
ENTIRE AMOUNT OF DAMAGES.

HELD: YES. At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are
common carriers to determine their liability for the loss of the subject cargo. Under Article 1732
of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in
the business of carrying or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.

Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the
business of transporting goods by land, through its trucking service. It is a common carrier as
distinguished from a private carrier wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general public. The distinction is
significant in the sense that “the rights and obligations of the parties to a contract of private
carriage are governed principally by their stipulations, not by the law on common carriers.”

In the present case, there is no indication that the undertaking in the contract between
Loadmasters and Glodel was private in character. There is no showing that Loadmasters solely
and exclusively rendered services to Glodel.

In fact, Loadmasters admitted that it is a common carrier.

In the same vein, Glodel is also considered a common carrier within the context of Article 1732.
In its Memorandum, it states that it “is a corporation duly organized and existing under the laws
of the Republic of the Philippines and is engaged in the business of customs brokering.” It
cannot be considered otherwise because as held by this Court in Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc., a customs broker is also regarded as a common carrier,
the transportation of goods being an integral part of its business.

Loadmasters and Glodel, being both common carriers, are mandated from the nature of their
business and for reasons of public policy, to observe the extraordinary diligence in the vigilance
over the goods transported by them according to all the circumstances of such case, as required
by Article 1733 of the Civil Code.When the Court speaks of extraordinary diligence, it is that
extreme measure of care and caution which persons of unusual prudence and circumspection
observe for securing and preserving their own property or rights. This exacting standard imposed
on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the
shipper who is at the mercy of the common carrier once the goods have been lodged for
shipment. Thus, in case of loss of the goods, the common carrier is presumed to have been at
fault or to have acted negligently. This presumption of fault or negligence, however, may be
rebutted by proof that the common carrier has observed extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the Civil Code provides that
the exercise of extraordinary diligence lasts from the time the goods are unconditionally placed
in the possession of, and received by, the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them.

Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and
severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the
New Civil Code, “the responsibility of two or more persons who are liable for a quasi-delict is
solidary.”

At this juncture, the Court clarifies that there exists no principal-agent relationship between
Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code
provides: “By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter.”
The elements of a contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the
scope of his authority.

Accordingly, there can be no contract of agency between the parties. Loadmasters never
represented Glodel. Neither was it ever authorized to make such representation. It is a settled rule
that the basis for agency is representation, that is, the agent acts for and on behalf of the principal
on matters within the scope of his authority and said acts have the same legal effect as if they
were personally executed by the principal. On the part of the principal, there must be an actual
intention to appoint or an intention naturally inferable from his words or actions, while on the
part of the agent, there must be an intention to accept the appointment and act on it. Such mutual
intent is not obtaining in this case. HSaCcE

What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer
is liable for the total damage suffered by R&B Insurance. Where there are several causes for the
resulting damages, a party is not relieved from liability, even partially. It is sufficient that the
negligence of a party is an efficient cause without which the damage would not have resulted. It
is no defense to one of the concurrent tortfeasors that the damage would not have resulted from
his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor.