2023

OBLIGATIONS AND
CONTRACTS CASE DIGEST
63 CASE DIGESTS
JOSHUA I. LABAYEN | 1ST YEAR | BLOCK B
1. Tui vs. Platinum, G.R. No. 163512, Feb. 28, 2007

Facts:
Platinum Plans Philippines, Inc. is a domestic corporation engaged in the
pre-need industry. From 1987 to 1989, Tiu Daisy B. Tiu was its Division
Marketing Director.
In 1993, Platinum re-hired Tiu as Senior AVP and Territorial Operations Head
in charge of its Hongkong and Asean operations and executed a contract of
employment valid for five years. In 1995, Tiu stopped reporting for work.
After a couple of months, she became the VP for Sales of Professional
Pension Plans, Inc., a pre-need company.
Platinum sued Tiu for damages for violation of the non-involvement clause in
her contract of employment which states that during her employment with
Platinum and for the next TWO (2) years thereafter, she cannot engage with
any corporation belonging to the same pre-need industry. Breach thereof
would amount to 100,000.00.
Tiu countered that the non-involvement clause was unenforceable for being
against public order or public policy
ISSUE/HELD:
Is the non-involvement clause valid? Yes. (So Tiu must pay Platinum
damages.)
RATIO:
A non-involvement clause is not necessarily void for being in restraint of
trade as long as there are reasonable limitations as to time, trade, and
place.
In this case, the non-involvement clause has a time limit: two years from
the time Tiu’s employment with Platinum ends. It is also limited as to trade,
since it only prohibits Tiu from engaging in any pre-need business akin to
Platinum’s. More significantly, since Tiu was the Senior Assistant Vice-
President and Territorial Operations Head in charge of Platinum’s
Hongkong and Asean operations, she had been privy to confidential and
highly sensitive marketing strategies of Platinum’s business. To allow her to
engage in a rival business soon after she leaves would make Platinum’s
trade secrets vulnerable especially in a highly competitive marketing
environment. In sum, we find the non-involvement clause not contrary to
public welfare and not greater than is necessary to afford a fair and
reasonable protection to Platinum.
FREEDOM TO CONTRACT DOCTRINE:
In any event, Article 1306 of the Civil Code provides that parties to a
contract may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
Article 1159 of the same Code also provides that obligations arising from
contracts have the force of law between the contracting parties and should
be complied with in good faith. Courts cannot stipulate for the parties nor
amend their agreement where the same does not contravene law, morals,
good customs, public order or public policy, for to do so would be to alter the
real intent of the parties, and would run contrary to the function of the
courts to give force and effect thereto. Not being contrary to public policy,
the non-involvement clause, which Tiu and Platinum freely agreed upon, has
the force of law between them, and thus, should be complied with in good
faith.

2. Sebastian Siga-an, vs. Alicia Villanueva, G.R. no. 173227, Jan. 20,
2009

FACTS:
Respondent filed a complaint for sum of money against petitioner.
Respondent claimed that petitioner approached her inside the PNO and
offered to loan her the amount of P540,000.00 of which the loan agreement
was not reduced in writing and there was no stipulation as to the payment of
interest for the loan. Respondent issued a check worth P500,000.00 to
petitioner as partial payment of the loan. She then issued another check in
the amount of P200,000.00 to petitioner as payment of the remaining
balance of the loan of which the excess amount of P160,000.00 would be
applied as interest for the loan. Not satisfied with the amount applied as
interest, petitioner pestered her to pay additional interest and threatened to
block or disapprove her transactions with the PNO if she would not comply
with his demand. Thus, she paid additional amounts in cash and checks as
interests for the loan. She asked petitioner for receipt for the payments but
was told that it was not necessary as there was mutual trust and confidence
between them. According to her computation, the total amount she paid to
petitioner for the loan and interest accumulated to P1,200,000.00.
The RTC rendered a Decision holding that respondent made an overpayment
of her loan obligation to petitioner and that the latter should refund the
excess amount to the former. It ratiocinated that respondent’s obligation
was only to pay the loaned amount of P540,000.00, and that the alleged
interests due should not be included in the computation of respondent’s total
monetary debt because there was no agreement between them regarding
payment of interest. It concluded that since respondent made an excess
payment to petitioner in the amount of P660,000.00 through mistake,
petitioner should return the said amount to respondent pursuant to the
principle of solutio indebiti. Also, petitioner should pay moral damages for
the sleepless nights and wounded feelings experienced by respondent.
Further, petitioner should pay exemplary damages by way of example or
correction for the public good, plus attorney’s fees and costs of suit.
ISSUE:
(1) Whether or not interest was due to petitioner; and (2) whether the
principle of solutio indebiti applies to the case at bar.
RULING:
(1) No. Compensatory interest is not chargeable in the instant case because
it was not duly proven that respondent defaulted in paying the loan and no
interest was due on the loan because there was no written agreement as
regards payment of interest. Article 1956 of the Civil Code, which refers to
monetary interest, specifically mandates that no interest shall be due unless
it has been expressly stipulated in writing. As can be gleaned from the
foregoing provision, payment of monetary interest is allowed only if: (1)
there was an express stipulation for the payment of interest; and (2) the
agreement for the payment of interest was reduced in writing. The
concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any
stipulation therefor in writing is prohibited by law.
(2) Petitioner cannot be compelled to return the alleged excess amount paid
by respondent as interest. Under Article 1960 of the Civil Code, if the
borrower of loan pays interest when there has been no stipulation therefor,
the provisions of the Civil Code concerning solutio indebiti shall be applied.
Article 2154 of the Civil Code explains the principle of solutio indebiti. Said
provision provides that if something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to
return it arises. In such a case, a creditor-debtor relationship is created
under a quasi-contract whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the
person who has no right to receive such payment becomes obligated to
return the same. The quasi-contract of solutio indebiti harks back to the
ancient principle that no one shall enrich himself unjustly at the expense of
another. The principle of solutio indebiti applies where (1) a payment is
made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment; and (2) the
payment is made through mistake, and not through liberality or some other
cause. We have held that the principle of solutio indebiti applies in case of
erroneous payment of undue interest.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio
indebiti, exemplary damages may be imposed if the defendant acted in an
oppressive manner. Petitioner acted oppressively when he pestered
respondent to pay interest and threatened to block her transactions with the
PNO if she would not pay interest. This forced respondent to pay interest
despite lack of agreement thereto. Thus, the award of exemplary damages
is appropriate so as to deter petitioner and other lenders from committing
similar and other serious wrongdoings.

3. HULST v PR BUILDERS, INC G.R. No. 156364, September 3, 2007

FACTS:
Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van
Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR
Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit
in respondent's townhouse project in Batangas. When respondent failed to
comply with its verbal promise to complete the project on their agreed
period, the spouses filed before the Housing and Land Use Regulatory Board
(HLURB) a complaint for rescission of contract with interest, damages and
attorney's fees. HLURB rendered a Decision in favor of spouses, thus
rescinding the Contract to Sell. The HLURB Arbiter issued a Writ of Execution
addressed to the Ex-Officio Sheriff of the Regional Trial Court of Tanauan,
Batangas directing the latter to execute its judgment. The Ex-Officio Sheriff
proceeded to implement the Writ of Execution. However, upon complaint of
respondent with the CA on a Petition for Certiorari and Prohibition, the levy
made by the Sheriff was set aside, requiring the Sheriff to levy first on
respondent's personal properties. The HLURB Arbiter issued an Alias Writ of
Execution and the Sheriff levied on respondent's 15 parcels of land covered
by 13 Transfer Certificates of Title (TCT) and set the public auction of the
levied properties. Two days before the scheduled public auction, respondent
filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground
that the Sheriff made an over levy. During the day of the auction,
respondent's counsel objected to the conduct of the public auction on the
ground that respondent's Urgent Motion to Quash Writ of Levy was pending
resolution. Absent any restraining order from the HLURB, the Sheriff
proceeded to sell the 15 parcels of land. The sum of was turned over to the
petitioner in satisfaction of the judgment award after deducting the legal
fees. Same day after the auction, the Sheriff received the Order dated April
28, 2000 issued by the HLURB Arbiter to suspend the proceedings on the
matter. Four months later, the HLURB Arbiter and HLURB Director issued an
Order setting aside the sheriff's levy on respondent's real properties and
rendered that the levy on the subject properties made by the Ex-Officio
Sheriff of the RTC is set aside and the said Sheriff is hereby directed to levy
instead Respondent's real properties that are reasonably sufficient to enforce
its final and executory judgment, this time, taking into consideration not
only the value of the properties as indicated in their respective tax
declarations, but also all the other determinants at arriving at a fair market
value, namely: the cost of acquisition, the current value of like properties,
its actual or potential uses, and in the particular case of lands, their size,
shape or location, and the tax declarations thereon. A motion for
reconsideration being a prohibited pleading under Section 1(h), Rule IV of
the 1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari
and Prohibition with the CA who then dismissed the petition. Without filing a
motion for reconsideration, petitioner filed Petition for Review on Certiorari.
Hence this petition.
ISSUE
1. Whether or not the spouses, being a foreign national, can acquire
property in the Philippines.
2. Whether or not Court of Appeals have gravely erred in affirming the
arbiter’s order setting aside the levy made by the sheriff on the subject
properties.
HELD: YES
1. The 1987 Constitution reserved the right to participate in the disposition,
exploitation, development and utilization of lands of the public domain for
Filipino citizens or corporations at least 60 percent of the capital of which is
owned by Filipinos. Aliens, whether individuals or corporations, have been
disqualified from acquiring public lands; hence, they have also been
disqualified from acquiring private lands. Since petitioner and his wife, being
Dutch nationals, are proscribed under the Constitution from acquiring and
owning real property, it is unequivocal that the Contract to sell entered into
by petitioner together with his wife and respondent should be considered
void. This rule, however is subject to exceptions that permit the return of
that which may have been given under a void contract to the party
repudiating the void contract before the illegal purpose is accomplished or
before damage is caused to a third person and if public interest is sub served
by allowing recovery. Petitioner is therefore entitled to recover what he has
paid, although the basis of his claim for rescission, which was granted by the
HLURB, was not the fact that he is not allowed to acquire private land under
the Philippine Constitution. But petitioner is entitled to the recovery only of
the amount of P3,187,500.00, representing the purchase price paid to
respondent. No damages may be recovered on the basis of a void contract;
being nonexistent, the agreement produces no juridical tie between the
parties involved. Further, petitioner is not entitled to actual as well as
interests thereon, moral and exemplary damages and attorney's fees. Since
the contract involved here is a Contract to Sell, ownership has not yet
transferred to the petitioner when he filed the suit for rescission. While the
intent to circumvent the constitutional proscription on aliens owning real
property was evident by virtue of the execution of the Contract to Sell, such
violation of the law did not materialize because petitioner caused the
rescission of the contract before the execution of the final deed transferring
ownership.
2. In the present case, the HLURB Arbiter and Director gravely abused their
discretion in setting aside the levy conducted by the Sheriff for the reason
that the auction sale conducted by the sheriff rendered moot and academic
the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on
the motion to quash the levy by virtue of the consummation of the auction
sale. Absent any order from the HLURB suspending the auction sale, the
sheriff rightfully proceeded with the auction sale. The winning bidder had
already paid the winning bid. The legal fees had already been remitted to the
HLURB. The judgment award had already been turned over to the judgment
creditor. In the present case, the Sheriff complied with the mandate of
Section 9, Rule 39 of the Revised Rules of Court, to "sell only a sufficient
portion" of the levied properties "as is sufficient to satisfy the judgment and
the lawful fees." Each of the 15 levied properties was successively bidded
upon and sold, one after the other until the judgment debt and the lawful
fees were fully satisfied. Holly Properties Realty Corporation successively
bidded upon and bought each of the levied properties for the total amount of
P5,450,653.33 in full satisfaction of the judgment award and legal fees. The
HLURB Arbiter and Director had no sufficient factual basis to determine the
value of the levied property. Respondent only submitted an Appraisal
Report, based merely on surmises. The Report was based on the projected
value of the townhouse project after it shall have been fully developed, that
is, on the assumption that the residential units appraised had already been
built. The Appraiser in fact made this qualification in its Appraisal Report:
"[t]he property subject of this appraisal has not been constructed. The basis
of the appraiser is on the existing model units." Since it is undisputed that
the townhouse project did not push through, the projected value did not
become a reality. Thus, the appraisal value cannot be equated with the fair
market value. The Appraisal Report is not the best proof to accurately show
the value of the levied properties as it is clearly self-serving. RULING
WHEREFORE, the instant petition is GRANTED. The Decision dated October
30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and
SET ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua
Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618
is declared NULL and VOID. HLURB Arbiter Aquino and Director Ceniza are
directed to issue the corresponding certificates of sale in favor of the winning
bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to
respondent the amount of P2,125,540.00, without interest, in excess of the
proceeds of the auction sale delivered to petitioner. After the finality of
herein judgment, the amount of P2,125,540.00 shall earn 6% interest until
fully paid.

4. PNB vs. Santos 744 SCRA 664, December 10, 2014

FACTS:
Respondents are children of Angel C. Santos who died on March 21, 1991. in
May 1996, respondents discovered that their father maintained a premium
savings account with petitioner Philippine National Bank (PNB) the deposit
amounted to 1,759,082.63 as of July 1996. Later, respondents would
discover that their father also had a time deposit of 1,000,000.00 with PNB.
Wherein the respondents went to PNB to withdraw their father’s deposit.
Lina B. Aguilar, the Branch Manager of PNB required them to submit the
following: (1) original or certified true copy of the Death Certificate of Angel
C. Santos; (2) certificate of payment of, or exemption from, estate tax
issued by the Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial
Settlement; (4) Publisher’s Affidavit of publication of the Deed of
Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and
in an amount equal to the balance of the deposit to be withdrawn. However,
upon presentation of the necessary documents, Aguilar informed the
respondents that the deposit of Angel C. Santos was already withdrawn by a
certain Bernardito Manimbo on April 1997. amount of 1,882,002.05 was
released upon presentation of: (a) an affidavit of self-adjudication
purportedly executed by one of the respondents, Reyme L. Santos; (b) a
certificate of time deposit dated December 14, 1989 amounting to
1,000,000.00; and (c) the death certificate of Angel C. Santos, among
others. A special power of attorney was purportedly executed by Reyme L.
Santos in favor of Manimbo and a certain Angel P. Santos for purposes of
withdrawing and receiving the proceeds of the certificate of time deposit.
Respondents then filed before the Regional Trial Court of Marikina City a
complaint for sum of money and damages against PNB, Lina B. Aguilar, and
a John Doe for their questionable release of the deposit of their father to
Manimbo who had no authority from them to withdraw the deposit and failed
to present the necessary documents to PNB for such withdrawal. PNB and
Aguilar filed a third-party complaint against Manimbo, Santos, and Capital
Insurance Surety. They also denied that Angel C. Santos had two separate
accounts, they alleged that Santos’ deposit account was originally a time
deposit account and was subsequently converted into a premium savings
account, they also affirmed Manimbo’s withdrawal for all documents he
submitted appeared to be regular.
The trial court ruled in favor of respondents Santos and held that PNB an
Aguilar were jointly and severally liable to pay respondents the amount of
1,882,002.05 with an interest rate of 6% starting May 20, 1998. Also, the
trial court ruled that Angel C. Santos has only one account; a premium
savings account. PNB and Aguilar filed an appeal to the CA wherein the CA
affirmed and modified the ruling of the trial court by removing the award of
exemplary damages upon finding that there was no malice or bad faith. The
petitioners PNB and Aguilar filed an appeal with the Supreme Court.
ISSUE:
Whether the release of Angel C. Santos’ deposit fund to Bernardito Manimbo
was valid despite the absence of the BIR-issued certificate of payment of
Estate tax.
RULING:
The Supreme Court AFFIRMS WITH MODIFICATION the Court of Appeals’
decision. Ordering petitioners PNB and Aguilar the amount of Pl,882,002.05,
representing the face value of PNB Manager's Check No. AF-974686B and
are solidarily liable to pay respondents P100,000 as exemplary damages.
RATIO: No. The withdrawal of PNB funds without the issuance of the
certificate of payment of Estate Tax cannot be valid. In this case, petitioners
PNB and Aguilar released Angel C. Santos’ deposit to Manimbo without
having been presented the BIR-issued certificate of payment of, or exception
from, estate tax. This is a legal requirement before the deposit of a decedent
is released. Presidential Decree No. 1158, the tax code applicable when
Angel C. Santos died in 1991.
Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account is
inconsistent with the high standard of diligence required of banks. They
accepted Manimbo’s representations despite knowledge of the existence of
circumstances that should have raised doubts on such representations. As a
result, Angel C. Santos’ deposit was given to a person stranger to him. In
their compulsory counterclaim, petitioners PNB and Aguilar claimed that
Manimbo presented a certificate of payment of estate tax. During trial,
however, it turned out that this certificate was instead an authority to accept
payment, which is not the certificate required for the release of bank
deposits. It appears that Manimbo was not even required to submit the BIR
certificate. He, thus, failed to present such certificate. Petitioners PNB and
Aguilar provided no satisfactory explanation why Angel C. Santos’ deposit
was released without it. Petitioners PNB and Aguilar were clearly negligent in
their dealings with Angel C. Santos’ account and is inconsistent with the high
standards of integrity and performance required of banks.

5. Heirs of Ramon Gaite vs. The Plaza, Inc., 640 SCRA 576, Jan. 26,
2011

FACTS:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the
restaurant business, through its President, Jose C. Reyes, entered into a
contract with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for
the construction of a restaurant building in Greenbelt, Makati, Metro Manila
for the price of P7,600,000. On July 28, 1980, The Plaza paid P1,155,000
down payment to Gaite and soon after Rhogen commenced construction of
the restaurant building. Two months later, Engr. Angelito Z. Gonzales, the
Acting Building Official of the Municipality of Makati, ordered Gaite to cease
and desist from continuing with the construction of the building for violation
of The National Building Code. The Plaza’s Project Manager Architect Roberto
evaluated the Progress Billing and Tayzon stated that actual jobsite
assessment showed that the finished works fall short of Rhogen’s claimed
percentage of accomplishment and Rhogen was entitled to only P32,684.16
and not P260,649.91 being demanded by Rhogen. On the same day, Gaite
notified Reyes that he is suspending all construction works until Reyes and
the Project Manager cooperate to resolve the issue he had raised to address
the problem. Gaite informed The Plaza that he is terminating their contract
based on the Contractor’s Right to Stop Work or Terminate Contracts as
provided for in the General Conditions of the Contract and demanded the
payment of P63,058.50 representing the work that has already been
completed by Rhogen. Reyes also informed Gaite that The Plaza will continue
the completion of the structure utilizing the services of a competent
contractor but will charge Rhogen for liquidated damages as stipulated in
Article VIII of the Contract The Plaza filed a civil case for breach of contract,
sum of money and damages against Gaite and FGU in the Court of First
Instance (CFI) of Rizal. The RTC Makati rendered its decision granting in
favor of the Plaza against Gaite. The Court of Appeals affirmed such decision
with modification.
ISSUE:
Whether or not the contract between The Plaza and Rhogen provides for a
reciprocal obligation which gives the latter valid grounds for contract
termination pursuant to Article 1192 of the New Civil Code. – YES.
HELD:
Yes. Reciprocal obligations are those which arise from the same cause, and
in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to
be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other. Respondent The
Plaza predicated its action on Article 1191 of the Civil Code, which provides
for the remedy of "rescission" or more properly resolution, a principal action
based on breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the provision is the obligor’s
failure to comply with an existing obligation. Thus, the power to rescind is
given only to the injured party. The injured party is the party who has
faithfully fulfilled his obligation or is ready and willing to perform his
obligation. The construction contract between Rhogen and The Plaza
provides for reciprocal obligations whereby the latter’s obligation to pay the
contract price or progress billing is conditioned on the former’s performance
of its undertaking to complete the works within the stipulated period and in
accordance with approved plans and other specifications by the owner.
Pursuant to its contractual obligation, The Plaza furnished materials and paid
the agreed down payment. It also exercised the option of furnishing and
delivering construction materials at the jobsite pursuant to Article III of the
Construction Contract. However, just two months after commencement of
the project, construction works were ordered stopped by the local building
official and the building permit subsequently revoked on account of several
violations of the National Building Code and other regulations of the
municipal authorities. Significantly, Rhogen did not mention in its
communications to Reyes that Gaite was merely a victim of abuse by a local
official and this was the primary reason for the problems besetting the
project. On the contrary, the site appraisal inspection conducted on February
12 and 13, 1981 in the presence of representatives from The Plaza, Rhogen,
FGU and Municipal Engineer Victor Gregory, disclosed that in addition to the
violations committed by Rhogen which resulted in the issuance of the
stoppage order, Rhogen built the structure not in accordance with
government approved plans and/or without securing the approval of the
Municipal Engineer before making the changes thereon. Such non-
observance of laws and regulations of the local authorities affecting the
construction project constitutes a substantial violation of the Construction
Contract which entitles The Plaza to terminate the same, without obligation
to make further payment to Rhogen until the work is finished or subject to
refund of payment exceeding the expenses of completing the works. Upon
the facts duly established, the CA therefore did not err in holding that
Rhogen committed a serious breach of its contract with The Plaza, which
justified the latter in terminating the contract. Petitioners are thus liable for
damages for having breached their contract with respondent The Plaza.
Article 1170 of the Civil Code provides that those who in the performance of
their obligations are guilty of fraud, negligence or delay and those who in
any manner contravene the tenor thereof are liable for damages.
WHEREFORE, the petition is DENIED.
6. Ursal vs. Court of Appeals, G.R. no. 142411, Oct. 14, 2005
Facts:
In January 1985, Ursal and spouses Monesets entered into a “Contract to
Sell Lot & House”. The amount agreed upon was P130,000.00. Ursal is to
pay P50k as down payment and will continue to pay P3k monthly starting
the next month until the balance is paid off. After 6 months, Ursal stopped
paying the Monesets for the latter failed to give her the transfer of certificate
title. In November 1985, the Monesets executed an absolute deed of sale w/
one Dr. Canora. In September 1986, the Monesets mortgaged the same
property to the Rural Bank of Larena for P100k. The Monesets failed to pay
the P100k hence the bank filed for foreclosure. Trial ensued and the RTC
ruled in favor of Ursal. The trial court ruled that there was fraud on the part
of the Monesets for executing multiple sales contracts. That the bank is not
liable for fraud but preference to redeem should be given to Ursal. The
Monesets are ordered to reimburse Ursal plus to pay damages and fees.
Ursal was not satisfied as she believed that the bank was also at fault.
ISSUE:
Whether or not the Contract to Sell vested ownership in Ursal.
HELD:
No. There should be no special preference granted to Ursal in redeeming the
property. What she had with the Monesets was contract to sell in which case
ownership was not transferred to her due the suspensive condition of full
payment. Further, the property was sold to other properties already. A
contract to sell is a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed
upon, that is, full payment of the purchase price. In such contract, the
prospective seller expressly reserves the transfer of title to the prospective
buyer, until the happening of an event, which in this case is the full payment
of the purchase price. What the seller agrees or obligates himself to do is to
fulfill his promise to sell the subject property when the entire amount of the
purchase price is delivered to him. Stated differently, the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the
prospective buyer.
7. Central Bank vs. Citytrust, G.R. no. 141835, Feb. 4, 2009
FACTS:
Respondent Citytrust bank maintained a demand deposit account with
petitioner Central Bank. Citytrust furnished petitioner with the names and
corresponding signatures of 5 of its officers authorized to sign checks and
serve as drawers and indorsers for its account. It also provided petitioner
with the list and corresponding signatures of its roving tellers authorized to
withdraw, sign receipts and perform other transactions on its behalf.
Petitioner later issued security identification cards to the roving tellers one of
whom was "Rounceval Flores" (Flores). Flores presented for payment to
petitioner’s Senior Teller 2 Citytrust checks, payable to Citytrust, both of
which were signed and indorsed by Citytrust's authorized signatory-drawers.
After the checks were certified by petitioner’s Accounting Department, the
Senior Teller asked Flores to sign on the notation. Instead of signing his
name, however, Flores signed as "Rosauro C. Cayabyab" — a fact the Senior
Teller failed to notice. Petitioner then debited the amount of the checks
totaling P1,750,000 from Citytrust's demand deposit account. Citytrust bank,
alleging that the checks were already cancelled because they were stolen,
demanded petitioner to restore the amounts. Citytrust filed before RTC a
complaint for recovery of sum of money with damages against petitioner
alleging that it erred in encashing the checks and in charging the proceeds
thereof to its account, despite the lack of authority of “Rosauro C.
Cayabyab”.
ISSUE(S):
WON petitioner bank is liable.
RULING:
YES. Petitioner’s teller did not verify Flores’ signature on the flimsy excuse
that Flores had had previous transactions with it for a number of years. The
law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 declares that the State
recognizes the "fiduciary nature of banking that requires high standards of
integrity and performance.” The bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. This fiduciary relationship means that
the bank's obligation to observe "high standards of integrity and
performance" is deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation
then the diligence of a good father of a family. Section 2 of RA 8791
prescribes the statutory diligence required from banks — that banks must
observe "high standards of integrity and performance" in servicing their
depositors. However, Citytrust's failure to timely examine its account, cancel
the checks and notify petitioner of their alleged loss/theft should mitigate
petitioner's liability, in accordance with Article 2179 of the Civil Code.

8. Prudential vs. Lim, G.R. no. 136371, Nov. 11, 2005

Facts:
Respondent allegedly made 2 deposits in the amount of P34,000 each on the
14th and 15th of March 1988 in his savings account. He availed of the
petitioner bank’s automatic transfer system where his savings deposit may
be automatically transferred in his checking account in case the latter has
insufficient fund to pay for his issued checks. Apparently, respondent
received a letter of dishonor for his checks due to insufficient fund. He wrote
a letter to the bank opposing their claim that he has an insufficient fund
while asserting to have made two separate deposits in the amount of
P34,000 to his savings account. The bank denied receiving two separate
deposits and verified only that respondent made a deposit only on the 14th
of March and that the deposit slip dated March 15 presented by the
respondent is merely a copy of the former. Upon presentation of evidence, it
was clear that the two separate deposit slips have the same amount but with
different denominations stated therein. This was further attested by the
bank teller who admitted to have stamped both deposit slips. The lower
court decided in favor of the respondent. Upon appeal by the petitioner, the
court of appeals affirmed the lower court decision with some modification on
the award of damages hence this petition to the Supreme Court.
Issue:
Whether or not there was negligence on the part of the bank to record the
second deposit made on March 15 by the respondent.
Ruling:
The court held that respondent presented substantial evidence to prove that
two deposits were made in his account of the same amount on March 14 and
15, 1988. The failure of the bank to credit the deposit made by the
respondent on March 15 to his savings account resulting to his dishonored
checks constitutes a breach of duty of the bank to its client that equates to
negligence. By the nature of the bank functions, they are mandated to
observe highest degree of diligence in treating the accounts of their
depositors. The banking industry is impressed with public interest and by
virtue of their fiduciary duty to their clients’ banks are mandated to treat
with meticulous care and fidelity all undertakings pertaining to their
depositor’s accounts. The court finds the imposition of award for damages
are in order. The wrongful act of the bank constitutes injury to the
respondent because the financial credit of a businessman is a valuable asset
and any adverse reflection of his credit would result to material loss to him.

9. Sicam vs. Jorge, G.R. no. 159617, Aug. 8, 2007

FACTS:
Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R.
C. (Pawnshop corporation) to secure a loan in the total amount of
P59,500.00.
On one date, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault. The
incident was entered in the police blotter.
Sicam sent respondent Lulu a letter informing her of the loss of her jewelry
due to the robbery incident in the pawnshop.
Respondent Lulu then wrote a letter to petitioner Sicam expressing disbelief
stating that when the robbery happened, all jewelry pawned were deposited
with Far East Bank near the pawnshop since it had been the practice that
before they could withdraw, advance notice must be given to the pawnshop
so it could withdraw the jewelry from the bank.
Lulu then requested Sicam to prepare the pawned jewelry for withdrawal but
petitioner Sicam failed to return the jewelry. Because of the failure of Sicam
to secure the pawned jewelry, Lulu joined by her husband, Cesar Jorge, filed
a complaint against petitioner Sicam with the Regional Trial Court of Makati
seeking indemnification for the loss of pawned jewelry and payment of
actual, moral and exemplary damages as well as attorney's fees.
After trial on the merits, the RTC rendered its Decision dismissing
respondents’ complaint.
The RTC ruled that petitioner corporation could not be held liable for the loss
of the pawned jewelry since it had not been rebutted by respondents that
the loss of the pledged pieces of jewelry in the possession of the corporation
was occasioned by armed robbery; that robbery is a fortuitous event which
exempts the victim from liability for the loss, citing the case of Austria v.
Court of Appeals; and that the parties’ transaction was that of a pledgor and
pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is
not responsible for those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. A Motion for
reconsideration was filed but was denied.
Thus the present petition to Supreme Court.
ISSUE:
Whether or not petitioner Sicam and pawnshop are liable for the loss of the
pawned articles in their possession.

HELD:
YES. They are liable. Petitioners insist that they are not liable since robbery
is a fortuitous event and they are not negligent at all.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners. In Co
v. Court of Appeals, the Court held:
"It is not a defense for a repair shop of motor vehicles to escape liability
simply because the damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per se cannot be considered
as a fortuitous event. The fact that a thing was unlawfully and forcefully
taken from another's rightful possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking of another's property.
It must be proved and established that the event was an act of God or was
done solely by third parties and that neither the claimant nor the person
alleged to be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous event
rest on him who invokes it — which in this case is the private respondent.
However, other than the police report of the alleged carnapping incident, no
other evidence was presented by private respondent to the effect that the
incident was not due to its fault. A police report of an alleged crime, to which
only private respondent is privy, does not suffice to establish the
carnapping. Neither does it prove that there was no fault on the part of
private respondent notwithstanding the parties' agreement at the pre-trial
that the car was carnapped. Carnapping does not foreclose the possibility of
fault or negligence on the part of private respondent.".

10. Solidbank vs. Spouses Peter, G.R. no. 167346, April 2, 2007
FACTS:
Respondents' representative deposited a total of ten checks with petitioner
bank where respondents maintain an account. It was later found that one of
the checks was not posted to respondents' passbook. The duplicate deposit
slip listing the checks deposited by their representative but it did not include
the missing check. Petitioners subsequently learned that the check had
cleared after it was inexplicably deposited in a different bank. The spouses
filed a case for collection of a sum of money after the bank refused to pay
them the amount of the check.
ISSUE(S):
Whether or not petitioner bank was negligent.
HELD:
YES. The business of banking is impressed with public interest and great
reliance is made on the bank's sworn profession of diligence and
meticulousness in giving irreproachable service. The degree of diligence
required of banks is more than that of a good father of a Family in keeping
with their responsibility to exercise the necessary care and prudence in
handling their clients' money.

11. Real vs. Belo,

G.R. no. 146224, Jan. 26, 2007
FACTS:
Virginia Real owned Wasabe Fastfood stall located at Philippine Women's
University Manila (PWU) while Sisenando H. Belo owned the BS Masters
Fastfood stall also located at the Food Center of PWU. At 7:00 o'clock in the
morning of January 25, 1996, a fire broke out at Wasabe Fastfood stall. The
following events happened:
a. The fire spread and gutted other fast-food stalls in the area, including
Belo's stall.
b. An investigation on the cause of the fire revealed that the fire broke
out due to the leaking fumes coming from the LPG tank installed at
Real's stall.
c. Hence, Belo suffer loss of his fast-food stall and demanded
compensation from Real however she refused to accede to the
demand.
d. Belo filed a complaint for damages against Real before the MeTC
alleging that Real failed to exercise due diligence in the maintenance of
her cooking equipments
e. as well as the selection and supervision of her employees and that her
negligence was the proximate cause of the fire.

REAL CONTENTION: (FIRE FORTUITOUS EVENT) Real denied liability on the

grounds that the fire was a fortuitous event and that she exercised due
diligence in the selection and supervision of her employees.

MeTC: (In favor of BELO) The MeTC held in favor of Respondent Belo since it
is revealed that the fire broke out due to the leaking fumes coming from the
LPG stove and tank installed at petitioner's fastfood stall; that factual
circumstances did not show any sign of interference by any force of nature
to infer that the fire occurred due to fortuitous event; that the petitioner
Real failed to exercise due diligence in the conduct of her business
particularly, in maintaining the safety of her cooking equipment as well as in
the selection and supervision of her employees.
RTC and CA: (AFFIRMED MeTC DECISION) Real filed an appeal arguing that
the fire was a fortuitous event with the RTC and then to the CA but both
courts affirmed the decision of the MeTC.

ISSUE:

WON the fire was a fortuitous event.

RULING:

No. Torts; Quasi-Delicts; Negligence; Fortuitous Events; Elements; A party’s

theory of fortuitous event is unavailing where the circumstances show that
the fire originated from leaking fumes from the LPG stove and tank installed
at a party’s fastfood stall and her employees failed to prevent the fire from
spreading and destroying the other fast-food stalls. Jurisprudence defines
the elements of a “fortuitous event” as follows:
(a) the cause of the unforeseen and unexpected occurrence must be
independent of human will;
(b) it must be impossible to foresee the event which constitutes the
caso fortuito, or if it can be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and
(d) the obligor must be free from any participation in the aggravation
of the injury resulting to the creditor. Article 1174 of the Civil Code
provides that no person shall be responsible for a fortuitous event
which could not be foreseen, or which, though foreseen, was
inevitable.

In other words, there must be an entire exclusion of human agency from the
cause of injury or loss. It is established by evidence that the fire originated
from leaking fumes from the LPG stove and tank installed at petitioner’s
fast-food stall and her employees failed to prevent the fire from spreading
and destroying the other fastfood stalls, including respondent’s fastfood
stall. Such circumstances do not support petitioner’s theory of fortuitous
event.

12. FIL-ESTATE PROPERTIES V SPOUSES GO, GR NO 165164, Aug.

17, 2007
FACTS:
Petitioner Fil-Estate entered in a contract to sell a condominium unit with the
respondent Spouses Go for 3M
Hence, the petitioner failed to develop the condominium project on time,
which should have been in 1997 as stipulated in the contract.
The spouses then demanded for a refund plus interest, but the respondent
did not refund the spouses.
The spouses then filed a complaint before the Housing and Land Use
Regulatory Board (HLURB) for reimbursement of the lump sum amount they
paid plus attorney’s fees.
The petitioner’s defense: Respondents have no cause of action against them
since the delay in construction was due to a fortuitous event- the Asian
financial crisis, over which they have no control. HLRUB rendered decision:
in favor of the respondent spouses: Ruled that the Asian Financial Crisis
that resulted in depreciation of peso is not a fortuitous event. As any change
in the value of peso is a daily occurrence which are foreseeable and can be
avoided. They failed to fulfill their contractual obligations with the spouses.
The spouses may either ask for the fulfillment of the obligation or recission
of the same with damages. Office of the President and the Court of Appeals,
affirmed the decision of HLURB: CA added that the rights of the respondents
is provided for in PD 957
ISSUE:
WON the Asian Financial crisis can be considered a fortuitous event.
HELD: The court cannot agree that the Asian Financial crisis that happened
in 1997 was unforeseeable and beyond the control of the corporation. Being
a real estate enterprise engaged in selling condominiums they are to be
considered as masters in the projections on commodities, currency
movements and business risks. The fluctuations of the Philippine peso is an
everyday happening therefore it cannot constitute a caso fortuito or
fortuitous event. Petitioners are the entitled for reimbursement, interest and
attorney’s fees
Should be noted that the respondents sent a demand letter Aug 8, 1999
asking the return of the amount they paid. Where petitioner did not comply
favorably. Petitioners are entitled to: P3,439,000.07 at 6% interest starting
August 4, 1999 until full payment, and to pay respondents P100,000.00
attorney’s fees.

13. Nacar vs. Gallery Frames, G.R. no. 189871, August 12, 2013
FACTS:
On January 24, 1997, Dario Nacar got dismissed by his employer, Gallery
Frames. He filed a complaint; the Labor Arbiter ruled that petitioner was
dismissed without just cause. A computation for the separation pay and back
wages were made it amounted to Php 158,919.92. The respondent sought
appeal to the NLRC, CA and Supreme Court, but they were all dismissed,
thus the judgment became final on April 17, 2002. During the execution of
the final judgment, the petitioner filed a motion for the re-computation of
the damages. The amount previously computed includes the separation pay
and back wages up to the time of his dismissal. The petitioner argued that
the damages should cover the period until the date of final judgment. A re-
computation was made and the damages was increased to 471,320.31.
Respondent prayed for the quashal of such motion on the ground that the
judgment made by the SC is already final and the amount should not be
further altered. Petitioner also filed another motion asking the court to order
the respondent to pay the appropriate legal interest of the damages from
the date of final judgment until full payment.

ISSUES:
1. Whether or not a subsequent correction of the damages awarded during
the final judgment of the Supreme Court violates the rule on immutability of
judgments.
2. Whether or not the re-computation made by the Labor Arbiter is correct.
3. Whether or not appropriate interests may be claimed by the petitioner.
RULING:
1. Whether or not a subsequent correction of the damages awarded during
the final judgment of the Supreme Court violates the rule on immutability of
judgments. The Supreme Court ruled that a correction in the computation of
the damages does not violate the rule on immutability of judgments. The
final decision made by the Supreme Court to award the petitioner with
damages with regards to the dismissal without justifiable cause can be
divided into two important parts. One is the finding that an illegal dismissal
was indeed made. And the other is the computation of damages. According
to a previous case of Session Delights Ice Cream and Fast Foods v. Court of
Appeals, the Supreme Court held that the second part of the decision - being
merely a computation of what the first part of the decision established and
declared - can, by its nature, be re-computed. The re-computation of the
consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being
implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a
violation of the principle of immutability of final judgments.
2. Whether or not the re-computation made by the Labor Arbiter is correct.
The Supreme Court believes that the amount of 471,320.31 as damages is
correct. According to Article 279 of the Labor Code, reliefs in case of illegal
dismissal continue to add up until its full satisfaction. The original
computation clearly includes damages only up to the finality of the labor
arbiter's decision. Therefore, the Supreme Court approves the decision
confirming that a re-computation is necessary. The labor arbiter re-
computed the award to include the separation pay and the back wages due
up to the finality of the decision that fully terminated the case on the merits.
3. Whether or not appropriate interests may be claimed by the petitioner.
The Supreme Court ruled that the petitioner shall be entitled to interest. In
the case of Eastern Shipping Lines, Inc. v. Court of Appeals, among the
guidelines laid down by the Supreme Court regarding the manner of
computing legal interest is - when the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal interest shall be
12% per annum from such finality until its satisfaction. In addition to this,
the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution
No. 796 dated May 16, 2013 declared that the rate of interest for the loan or
forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest,
shall be six percent (6%) per annum. Consequently, the twelve percent
(12%) per annum legal interest shall apply until June 30, 2013. Afterwards,
the new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable. The respondent was ordered to pay interest of
twelve percent (12%) per annum of the total monetary awards, computed
from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from
July 1, 2013 until their full satisfaction.

14. Toledo vs. Hyden, G.R. no. 172139, December 8, 2010

FACTS:
Petitioner Jocelyn M. Toledo, who was then the Vice-President of the College
Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent
Marilou M. Hyden. Jocelyn had been religiously paying Marilou the stipulated
monthly interest. However, the total principal amount ofP290, 000.00
remained unpaid. A document entitled "Acknowledgment of Debt" for the
amount ofP290, 000.00 was signed by Jocelyn with two of her subordinates
as witnesses. Also on said occasion, Jocelyn issued checks to Marilou
representing renewal payment of her five previous loans. Jocelyn ordered
the stop payment on the remaining checks and filed with the RTC of Cebu
City a complaint against Marilou for Declaration of Nullity and Payment,
Annulment, Sum of Money, Injunction and Damages. Jocelyn averred that
Marilou forced, threatened and intimidated her into signing the
"Acknowledgment of Debt" and at the same time forced her to issue the
post-dated checks. She further claimed that the application of her total
payment ofP528, 550.00 to interest alone is illegal, unfounded, unjust,
oppressive and contrary to law because there was no written agreement to
pay interest. Marilou filed an Answer alleging that Jocelyn voluntarily
obtained the said loans knowing fully well that the interest rate was at 6% to
7% per month. In fact, a 6% to 7% advance interest was already deducted
from the loan amount given to Jocelyn. The trial court ruled in favor of
Marilou which was affirmed by the CA.
ISSUE:
Whether or not the imposition of interest at the rate of six percent (6%) to
seven percent (7%) is contrary to law, morals, good customs, public order
or public policy.
HELD:
The petition is without merit. CIVIL LAW; LOANS; INTEREST First Issue: The
6% to 7% interest per month paid by Jocelyn is not excessive under the
circumstances of this case. It was clearly shown that before Jocelyn availed
of said loans, she knew fully well that the same carried with it an interest
rate of 6% to 7% per month, yet she did not complain. In fact, when she
availed of said loans, an advance interest of 6% to 7% was already deducted
from the loan amount, yet she never uttered a word of protest. After years
of benefiting from the proceeds of the loans bearing an interest rate of 6%
to 7% per month and paying for the same, Jocelyn cannot now go to court
to have the said interest rate annulled on the ground that it is excessive,
iniquitous, unconscionable, exorbitant, and absolutely revolting to the
conscience of man. "This is so because among the maxims of equity are (1)
he who seeks equity must do equity, and (2) he who comes into equity must
come with clean hands. The latter is a frequently stated maxim which is also
expressed in the principle that he who has done inequity shall not have
equity. It signifies that a litigant may be denied relief by a court of equity on
the ground that his conduct has been inequitable, unfair and dishonest, or
fraudulent, or deceitful as to the controversy in issue."

15. Yamamoto vs. Nishino Leather, G.R. no. 150283, April 16, 2008
FACTS:
Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a joint venture
wherein Nishino would acquire such number of shares of stock equivalent to
70% of the authorized capital stock of the corporation. However, Nishino and
his brother Yoshinobu Nishino acquired more than 70% of the authorized
capital stock. Negotiations subsequently ensued in light of a planned
takeover by Nishino who would buy-out the shares of stock of Yamamoto
who was advised through a letter that he may take all the equipment/
machinery he had contributed to the company (for his own use and sale)
provided that the value of such machines is deducted from the capital
contributions which will be paid to him. However, the letter requested that
he give his “comments on all the above, soonest”. On the basis of the said
letter, Yamamoto attempted to recover the machineries but Nishino hindered
him to do so, drawing him to file a Writ of Replevin. The Trial Court issued
the writ. However, on appeal, Nishino claimed that the properties being
recovered were owned by the corporation and the above-said letter was a
mere proposal which was not yet authorized by the Board of Directors. Thus,
the Court of Appeals reversed the trial court’s decision despite Yamamoto’s
contention that the company is merely an instrumentality of the Nishinos.
ISSUES:
Whether or not machineries remained part of the capital property of the
corporation.
RULING:
Yes. One of the elements determinative of the applicability of the doctrine of
piercing the veil of corporate fiction is that control must have been used by
the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in
contravention of the plaintiff’s legal rights. To disregard the separate
juridical personality of a corporation, the wrongdoing or unjust act in
contravention of a plaintiff’s legal rights must be clearly and convincingly
established; it cannot be presumed. Without a demonstration that any of the
evils sought to be prevented by the doctrine is present, it does not apply.
Estoppel may arise from the making of a promise. However, it bears noting
that the letter was followed by a request for Yamamoto to give his
“comments on all the above, soonest.”
What was thus proffered to Yamamoto was not a promise, but a mere offer,
subject to his acceptance. Without acceptance, a mere offer produces no
obligation. Thus, the machineries and equipment, which comprised
Yamamoto’s investment, remained part of the capital property of the
corporation. While the veil of separate corporate personality may be pierced
when the corporation is merely an adjunct, a business conduit, or alter ego
of a person,27 the mere ownership by a single stockholder of even all or
nearly all of the capital stocks of a corporation is not by itself a sufficient
ground to disregard the separate corporate personality.28 The elements
determinative of the applicability of the doctrine of piercing the veil of
corporate fiction follow: "1. Control, not mere majority or complete stock
control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or
existence of its own; 2. Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of the
plaintiff’s legal rights; and 3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of. The absence of
any one of these elements prevents "piercing the corporate veil." In applying
the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual
defendant’s relationship to that operation."29 (Italics in the original;
emphasis and underscoring supplied) What was thus proffered to Yamamoto
was not a promise, but a mere offer, subject to his acceptance. Without
acceptance, a mere offer produces no obligation.34 Thus, under Article 1181
of the Civil Code, "[i]n conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition." In the
case at bar, there is no showing of compliance with the condition for allowing
Yamamoto to take the machineries and equipment, namely, his agreement
to the deduction of their value from his capital contribution due him in the
buy-out of his interests in NLII. Yamamoto’s allegation that he agreed to the
condition35 remained just that, no proof thereof having been presented. The
machineries and equipment, which comprised Yamamoto’s investment in
NLII,36 thus remained part of the capital property of the corporation.37 It is
settled that the property of a corporation is not the property of its
stockholders or members.38 Under the trust fund doctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust
for the payment of corporate creditors which are preferred over the
stockholders in the distribution of corporate assets.39 The distribution of
corporate assets and property cannot be made to depend on the whims and
caprices of the stockholders, officers, or directors of the corporation unless
the indispensable conditions and procedures for the protection of corporate
creditors are followed.

16. Catungal vs. Rodriguez, G.R. no. 146839, March 23, 2011

FACTS:
Agapita Catungal owned a parcel of land with an area of 65, 246 square
meters in Talamban, Cebu City. She entered into a Contract to Sell with
Angel Rodriguez. Subsequently, the Contract to Sell was upgraded into a
Conditional Deed of Sale between the same parties. Rodriguez secured the
necessary survey and plans that reclassified the land from agricultural to
residential and actively negotiated for the road right of way. The spouses
Catungal requested an advance of P5,000,000.00 on the purchase price.
Rodriguez objected on the unwarranted demands in view of the terms of the
Conditional Deed of Sale that allowed him sufficient time to negotiate a road
right of way and exclusive right to rescind the contract. Thereafter, he
received a letter from Atty. Catungal that the contract is cancelled and
terminated. Catungal filed a complaint contending that the Catungal’s
unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary
and unwarranted. However, the Catungals claims that Rodriguez does not
have an exclusive right to rescind the contract it being recorocal. The trial
court ruled in favor of Rodriguez. The Catungals appealed the decision to the
Court of Appeals. In a Motion for Reconsideration, Atty. Borromeo, a new
counsel for the Catungals, argued for the first time that the paragraphs 1(b)
and 5(49) of the Conditional Deed of Sale violated the principle of mutuality
under Article 1308 of the Civil Code.
ISSUE
1. Whether petitioners allowed to raise their theory of nullity of the
Conditional Deed of Sale for the first time on appeal?
2. Whether paragraphs 1(b) and 5 of the Conditional Deed of Sale violate
the principle of mutuality of contracts under Article 1308?

HELD

1. No. The Court held that a situation where a party completely changes his
theory of the case on appeal and abandons his previous assignment of errors
in his brief, which plainly should not be allowed as anathema to due process.
During the proceedings before the trial court, the spouses Catungal never
claimed that the provisions in the Conditional Deed of Sale, stipulating that
the payment of the balance of the purchase price was contingent upon the
successful negotiation of a road right of way and granting Rodriguez the
option to rescind, were void for allegedly making the fulfillment of the
contract dependent solely on the will of Rodriguez.

2. No. The Court held that in the Conditional Deed of Sale the respondent
shall pay the balance of the purchase price when he has successfully
negotiated and secured a road right of way, is not purely potestative as what
the petitioners contend. It is not dependent on the sole will of the debtor but
also on the will of third persons who own the adjacent land and from whom
the road right of way shall be negotiated. This mixed condition is expressly
allowed under Article 1182 of the Civil Code. In other words, the obligation
to pay the balance is conditioned upon the acquisition of the road right-of-
way, in accordance with paragraph 2 of Article 1181 of the New Civil Code.
In the event that the condition is not fulfilled, Rodriguez can either proceed
with the sale and demand return of his downpayment or to waive the
condition and still pay the purchase price despite the lack of road access.

17. Megaworld vs. Majestic, G.R. no. 169694, December 9, 2015

FACTS:
Megaworld Properties and Holdings, Inc. (Megaworld) and Majestic Finance
and Investment Co., Inc., (Majestic) entered into a Joint Venture Agreement
(JVA) for the development of a residential subdivision located in General
Trias, Cavite. The JVA provided that Majestic would compensate Megaworld
in the form of saleable residential subdivision lots, that the development of
the land would be on the sole account of Megaworld, that Megaworld would
advance all the costs of relocation and resettlement of the occupants of the
property, subject to reimbursement by Majetic, and that Megaworld would
deposit an amount of Php 60,000,000.00 for said resettlement. Majestic,
however, filed for specific performance with damages against Megaworld
bases on the failure of the latter to comply woth their obligations under the
JVA, including the obligation to maintain a strong security force to safeguard
the property from illegal entrants and occupants. The Regional Trial Court
(RTC) issued its order directing Megaworld to provide sufficient round-the-
clock security for the protection of the property. On appeal, the Court of
Appeals (CA) affirmed the decision of the RTC. The CA further stated that
the settled rule that “contracts are the laws between contracting parties, and
if their terms are clear and leave no room for doubt as to their intentions,
the contracts are obligatory no matter what their forms may be, whenever
the essential requisites for their validity are present." Thus, unless the
existence of this particular obligation - i.e., to secure the joint venture
property — is challenged, petitioners are bound to respect the terms of the
Agreement and of his obligation as the law between them and Majestic.
ISSUE:
Whether or not petitioner Megaworld should be ordered to maintain a strong
security force within the property.
HELD:
No. Megaworld should not be ordered to maintain a strong security force
within the property. The obligations of the parties under the JVA were
unquestionably reciprocal. Reciprocal obligations are those that arise from
the same cause, and in which each party is a debtor and a creditor of the
other at the same time, such that the obligations of one are dependent upon
the obligations of the other. They are to be performed simultaneously, so
that the performance by one is conditioned upon the simultaneous fulfillment
by the other. The activities under the JVA fell into seven major categories,
specifically (1) the relocation of the occupants; (2) the completion of the
development plan; (3) the securing of exemption and conversion permits;
(4) the obtention of the development permits from government agencies;
(5) the development of the subject land; (6) the issuance of titles for the
subdivided lots; and (7) the selling of the subdivided lots and the
reimbursement of the advances. In each activity, the obligation of each
party was dependent upon the obligation of the other. Although their
obligations were to be performed simultaneously, the performance of an
activity obligation was still conditioned upon the fulfillment of the continuous
obligation of developing the land and earning from such developed land.
Should either party cease to perform a continuous obligation, the other's
subsequent activity obligation would not accrue. Conversely, if an activity
obligation was not performed by either party, the continuous obligation of
the other would cease to take effect.
The performance of the continuous obligation was subject to the resolutory
condition that the precedent obligation of the other party, whether
continuous or activity, was fulfilled as it became due. Otherwise, the
continuous obligation would be extinguished. The common cause of the
parties in entering into the joint venture was the development of the joint
venture property into the residential subdivision as to eventually profit
therefrom. Consequently, all of the obligations under the JVA were subject to
the happening of the complete development of the joint venture property, or
if it would become indubitable that the completion would not take place, like
when an obligation, whether continuous or activity, was not performed.
Should any of the obligations, whether continuous or activity, be not
performed, all the other remaining obligations would not ripen into
demandable obligations while those already performed would cease to take
effect.

18. Osmena vs. Power Sector Assets, G.R. no. 212686, Oct. 5, 2016

FACTS:
On 2013, the Board of Directors of PSALM approved the commencement of
the 3rd round of bidding for the sale of the 153. lMW NPPC. Respondents
SPC and TVPI submitted their respective bids for the project.
PSALM issued a Notice of Award in favor of TPVI, declaring the latter as the
Winning Bidder. The execution of a Land Lease Agreement (LLA) and Assets
Purchase Agreement (APA) in favor of TPVI, however, was subject to SPC’s
non-exercise of its Right to Top.
On the assumption that SPC validly exercised its Right to Top, PSALM
executed the NPPC-APA and NPPC-LLA in SPC’s favor, cancelling TPVI’s
Notice of Award in the process. The Right to Top and the resultant
agreements from its exercise, however, were subsequently nullified by the
Court. (WHEREFORE, the petition is hereby GIVEN DUE COURSE and the writ
prayed for accordingly GRANTED. The right of first refusal (right to top)
granted to Salcon Power Corporation under the 2009 Naga LBGT-LLA is
hereby declared NULL and VOID. Consequently, the Asset Purchase
Agreement (NPPC-APA) and Land Lease Agreement (NPPC-LLA) executed by
the Power Sector Assets and Liabilities Management Corporation and SPC
are ANNULLED and SET ASIDE.)
Petitioner Osmeña and respondents PSALM and SPC filed their respective
motions for reconsideration. Meanwhile, TPVI filed the instant
Manifestation/Motion wherein it maintained that the nullification of SPC’s
Right to Top calls for the reinstatement of the cancelled Notice of Award in
its favor.
The Court resolved to deny with finality SPC’s motion and those of Osmeña
and PSALM. Notwithstanding the denial with finality of their respective
motions, they were nevertheless required to comment on TPVI’s
Manifestation/Motion that remained unresolved. For their part, respondents
SPC and PSALM contend that the Decision resulted in the material alteration
of the terms of the public bidding and called for the conduct of another in its
stead.
ISSUE/S:
1. Whether or not SPC legally and validly exercise its Right to Top.
2. Whether or not the finality of Decision prevents the Court from departing
from the clear language of the ruling.
HELD:
1. No. Regardless of whether or not the Right to Top was nullified, the award
of the purchase contracts to TPVI would still be in order, for it appears that
SPC did not validly exercise its erstwhile advantage. Department of Justice
eventually found for SPC on June 23, 2014, the 30-day period to exercise
the Right to Top has already elapsed, and could no longer be validly or
legally consummated.
2. In treating the Manifestation/Motion, due regard must be given to the
finality of the judgment accorded to the Court’s September 28, 2015 ruling.
Jurisprudence teaches that a decision that has acquired finality becomes
immutable and unalterable, and may no longer be modified in any respect,
even if the modification is meant to correct erroneous conclusions of fact and
law, and whether it be made by the court that rendered it or by the Highest
Court of the land. The dispositive portion of the September 28, 2015
Decision is clear. Only SPC’s Right to Top was nullified by the Court.
Furthermore, it bears stressing in this case that the finality of the September
28, 2015 Decision extends only to petitioner Osmeña and respondents SPC
and PSALM and while their respective motions for reconsideration have
already been denied with finality, the Court has yet to resolve TPVI’s
pending Manifestation/Motion. The Court must, therefore, supply herein
what was inadvertently omitted in the Decision.

19. EDS Manufacturing vs. Healthcheck, 707 SCRA 133, Oct. 9,

2013
FACTS:
Healthcheck Inc is an HMO that provides prepaid health and medical
insurance coverage to its clients.One of its accredited hospitals and medical
clinics is De La Salle University Medical Center (DLSUMC) located at Dasma,
Cavite. Being within the access of DLSUMC, the defendant, EDS
Manufacturing Inc with about 5,000 employees saw fit to obtain the
insurance coverage from Healthcheck Inc.
On July 17 1998, Healthcheck notified EDS that its accreditation with
DLSUMC was suspended and advised it to avail of the services of nearby
accredited institutions. In September 1998, complaints from EDS employees
and workers were pouring in that their HMO cards were not being honored
by the DLSUMC and other hospitals and physicians. On September 3, EDS
formally notified Healthcheck that it was rescinding their Agreement on
account of Healthcheck’s serious and repeated breach of its undertaking
including but not limited to the unjustified non-availability of services. It
demanded a return of premium of the unused period after September 3,
giving a ballpark figure of 6 million.
What went in the way of the rescission of the contract was EDS’ failure to
collect all the HMO cards of its employees and surrender them to
Healthcheck as stipulated in the Agreement.
Healthcheck had to tell EDS that its employees were still utilizing the cards
even beyond the pre termination date and asked for the surrender of the
cards, otherwise, it will consider EDS’ account as existing and ongoing.
ISSUE/S
Whether there was a valid rescission of the Agreement between the parties?
RULING:
NO. The general rule is that rescission (more appropriately, resolution) of a
contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental violations as would defeat the very object of
the parties in making the agreement. The rescission referred to in Article
1191, more appropriately referred to as resolution, is on the breach of faith
by one of the parties which is violative of the reciprocity between them. In
the case at hand, Healthcheck violated its contract with EDS to provide
medical service to its employees in a substantial way.
The various reports made by the EDS employees are living testaments to the
gross denial of services to them at a time when the delivery was crucial to
their health and lives. However, although a ground exists to validly rescind
the contract between the parties, it appears that EDS failed to judicially
rescind the same. In Irigan v. Court of Appeals, the Court ruled that in the
absence of a stipulation, a party cannot unilaterally and extrajudicially
rescind a contract.
A judicial or notarial acts is necessary before a valid rescission (or
resolution) can take place. Thus, under Art 1191 of the Civil Code, the right
to resolve reciprocal obligations is deemed implied in case one of the
obligors shall fail to comply with what is incumbent upon him. But that right
must be invoked judicially. Consequently, even if the right to rescind is
made available to the injured party, the obligation is not ipso facto erased by
the failure of the other party to comply with what is incumbent upon him.
The party entitled to rescind should apply to the court for a decree of
rescission. It is evident that EDS had not rescinded the contract at all.
Despite EDS’ pronouncement, it failed to surrender the HMO cards of its
employees although this was required by the Agreement, and allowed them
to continue using them beyond the date of rescission. The continued use by
them of their privileges under the contract, with the apparent consent of
EDS, belies any intention to cancel or rescind it, even as they felt that they
ought to have received more than what they got.

20. Golden Valley vs. Pinkian Mining, G.R. no. 190080, June 11,
2014

Facts:
Pikian Mining Company (PMI) is the owner of 81 mining, 15 of which are
covered by Mining Lease Contracts, the remaining 66 had pending
applications for lease. It entered into an Operating Agreement (OA) with
Golden Valley Exploration, Inc. (GVEI), granting the latter "full, exclusive
and irrevocable possession, use, occupancy, and control over the [mining
claims], and every matter pertaining to the examination, exploration,
development and mining of the [mining claims] and the processing and
marketing of the products for a period of 25 years. Later, PMC extra-
judicially rescinded the OA upon GVEI’s violation of Section 5.01, Article V
thereof. GVEI contested PMC’s extra-judicial rescission of the OA averring
therein that its obligation to pay royalties to PMC arises only when the
mining claims are placed in commercial production which condition has not
yet taken place.
PMC no longer responded to GVEI’s letter. It also reminded PMC of its prior
payment of the amount of P185,000.00 as future royalties in exchange for
PMC’s express waiver of any breach or default on the part of GVEI. Instead,
it entered into a Memorandum of Agreement with Copper Valley Inc., (CVI),
whereby the latter was granted the right to "enter, possess, occupy and
control the mining claims" and "to explore and develop the mining claims,
mine or extract the ores, mill, process and beneficiate and/or dispose the
mineral products in any method or process," among others, for a period of
25 years.
Issue:
Whether or not there was a valid rescission of the OA.
Held:
The rescission is valid. As a general rule, the power to rescind an obligation
must be invoked judicially and cannot be exercised solely on a party’s own
judgment that the other has committed a breach of the obligation. This is so
because rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental violations as would
defeat the very object of the parties in making the agreement.
As a well-established exception, however, an injured party need not resort
to court action in order to rescind a contract when the contract itself
provides that it may be revoked or cancelled upon violation of its terms and
conditions. With that in mind, the Court held that PMC’s unilateral rescission
of the OA due to GVEI’s non-payment of royalties considering the parties’
express stipulation in the OA that said agreement may be cancelled on such
ground.
21. Fong vs. Duenas, G.R. no. 185592, June 15, 2015
FACTS:
Fong and Dueñas entered into a verbal joint venture contract to create
Alliance Holdings, Inc. The capital needed was Php65M to which they would
contribute in equal parts. However, after Fong provided Duenas with Php5M
(lower than 32.5M as previously agreed upon), and upon repeated demands
towards Duenas failed to provide the former with the financial documents on
the valuation of Duenas’ companies. Fong then asked for the rescission of
the contract. The SC ruled that both Fong and Duenas both breached their
verbal joint venture. With Fong lowering the amount to P5M, and Duenas to
investing the P5M to his companies, Danton and Bakcom. The SC asked
Duenas to return theP5M and the joint venture be deemed extinguished.
ISSUES:
WON Fong has the right to cancel their verbal agreement?
RULING:
Yes. An examination of Fong’s complaint sho s that although it as labeled as
an action for a sum of money and damages, it was actually a complaint for
rescission. Fong s allegations primarily pertained to his cancellation of their
ver al agreement ecause Due as failed to perform his o ligations to provide
verifiable documents on the valuation of the Danton's and Bakcom's shares,
and to incorporate the proposed corporation. These allegations clearly show
that what Fong sought was the joint venture agreement's rescission. Mutual
restitution of the parties’ original contributions is only a necessary
consequence of their agreement’s rescission. Rescission under Art. 1191 is
applicable in the present case.
Reciprocal obligations are those which arise from the same cause, in which
each party is a debtor and a creditor of the other, such that the obligation of
one is dependent on the obligation of the other.
Fong and Due as execution of a joint venture agreement created between
them reciprocal obligations that must be performed in order to fully
consummate the contract and achieve the purpose from which it was
entered into. Both parties verbally agreed to incorporate a company that
would hold shares of Danton and Bakcom. Fong obligated himself to
contribute half of the capital or 32.5 Million in cash. On the other hand, Due
as bound himself to shoulder the other half by contributing his Danton and
Bakcom shares, which were allegedly valued at. Due as also undertook to
process Alliance’s incorporation and registration with the SEC.
When the proposed company remained unincorporated by October 30, 1997,
Fong cancelled the joint venture agreement and demanded the return of his
P5 Million contribution. Since Duenas invested the money to his companies,
it is erroneous for him to claim that there is nothing irregular with his actions
since the two companies will soon form part of Alliance. However, Fong is
also to blame for he only invested P5M contrary to the originally agreed
P32.5M. Fong's diminution of his capital share to P5 Million also amounted to
a substantial breach of the joint venture agreement, which breach occurred
before Fong decided to rescind his agreement with Due as. Thus, Fong also
contributed to the non-incorporation of Alliance that needed P65 Million as
capital to operate. As both parties failed to comply with their respective
reciprocal obligations, we apply Article 1192 of the Civil Code, which
provides: Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered by
the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his
own damages.
The Court holds that the joint venture agreement between Fong and Due as
is deemed extinguished through rescission under Article 1192 in relation
with Article 1191 of the Civil Code. Due as must therefore return the 5
Million that Fong initially contributed since rescission requires mutual
restitution. After rescission, the parties must go ack to their original status
before they entered into the agreement. Due as cannot keep Fong's
contribution as this would constitute unjust enrichment.

22. Josefa vs. San Buenaventura, G.R. no. 163429, March 3, 2006
FACTS:
The antecedent facts are as follows:
This is a Petition for Review on Certiorari for the reversal of the Court of
Appeals Decision.
Lourdes San Buenaventura is the owner of a parcel of land in Pasig City and
on July 15, 1990, Johnny Josefa entered into a Contract of Lease with San
Buenaventura over the said parcel of land. The parties agreed, inter alia,
that he period covered by this lease agreement is from August 1, 1990 to
July 31, 1995, or a period of five (5) years, renewable upon agreement of
the parties.
Upon the expiry of the contract, San Buenaventura wrote Josefa informing
him that the lease would no longer be extended but that he may continue
with the lease at a rental rate of P30,000.00 a month.5 Josefa was told to
vacate the property and pay any arrearages if he opted not to lease the
property after the expiration of the lease contract. However, Josefa refused
to vacate the premises. He continued to occupy the property and paid a
monthly rental of P15,400.00 which San Buenaventura received. However,
the latter subsequently made demands for Josefa to vacate the property in a
Letter dated June 3, 1998.6 Josefa still refused to leave the premises.
This prompted San Buenaventura to file a complaint for unlawful detainer
against Josefa which was, however, dismissed due to the plaintiff’s failure to
secure a certification from the lupon ng barangay. The case was refiled to
the the Metropolitan Trial Court of Pasig which ruled in favor of the herein
respondent, this case was appealed by the herein petitioner to the Regional
Trial Court which ruled in favor of the herein petitioner and again was
appealed to CA by the herein respondent again ruling in favor of the here in
Petitioner.
On November 22, 2002, the CA granted the petition and reversed the
decision of the RTC. The fallo of the decision reads:
IN VIEW OF ALL THE FOREGOING, the challenged RTC Decision is hereby
REVERSED and SET ASIDE, reinstating in the process the earlier judgment of
the MTC in Civil Case No. 6798, with a modification that herein respondent
Josefa is ordered to pay petitioner San Buenaventura rentals in the sum of
P30,000.00 a month from the first demand therefor until he vacates the
leased premises. In all other respect[s], the MTC Decision stands. No cost.
ISSUES:
whether the lease contract between petitioner and respondent contained a
"renewal clause," and as such, they had agreed to extend the period of the
lease after July 31, 1995
RULING:
On the third issue, petitioner avers that the CA erred in ordering him to pay
P30,000.00 monthly rental for the renewal of the lease contract. He
maintains that the amount has no factual basis and is exorbitant.
The submission of petitioner has no merit. In the first place, the CA awarded
the P30,000.00 monthly rentals not for the renewal of the lease contract,
but as compensation for petitioner’s continued occupancy of the property
after the lease expired. However, we agree with petitioner’s contention that
the increase of the award to P30,000.00 has no factual basis, considering
that the appellate court failed to state its basis for doubling the amount
adjudged by the trial court. It simply increased the award in the dispositive
portion of its decision. Rule 70, Section 17 of the 1997 Rules of Civil.
In the present case, there is no evidence on record to justify the increase of
the award to P30,000.00. Respondent’s bare proposal to increase the
monthly rental to P30,000.00 after July 31, 1995 cannot be the factual basis
for such increase in the compensation due to petitioner for respondent’s
occupancy on the property after the lease contract expired. Thus, aside from
unilaterally and perfunctorily increasing such rentals, the appellate court also
ignored the trial court’s award of P15,000.00 which was based on the
evidence on record.
But the court made no ratiocination as to how it arrived at the amount of
P15,000,000 with reference to the evidence that the respondent adduced, if
any, to prove the said claim, vis-à-vis the evidence adduced by the
petitioner. The court made a conclusion without any factual basis. What is so
worrisome is that under their MOA, the parties fixed the annual rental of the
property for the period of July 1, 1991 to June 30, 1992 at P3,373,352.80;
and for the period of July 1, 1992 to June 30, 1993 at the said amount plus
8% or in the amount of P3,642,187.50. But in its decision, the MTC
increased the amount by no less than 500% for the period of July 1, 1993
onwards. The trial court did not bother to explain or elucidate how and for
what reason the rental value of the property was increased by 500% from
P3,642,187.50 to P15,000,000 annually
The CA decision is likewise as nebulous. It affirmed the decision of the RTC,
which affirmed on appeal the decision of the MTC, fixing the reasonable
compensation at P15,000,000 simply because the petitioner offered no
controverting evidence as to the fair rental value of the leased property
The Court holds that the trial court’s award of P15,000.00 as reasonable
compensation for petitioner’s occupancy of the property after the expiration
of the lease should be maintained.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The
decision of the Court of Appeals is AFFIRMED WITH MODIFICATION. The
award of P30,000.00 a month, by way of reasonable compensation for
petitioner Johnny Josefa’s occupancy of the property from July 31, 1995, is
DELETED, and the award of P15,000.00 a month made by the MeTC of Pasig
City, Branch 69, is REINSTATED. No costs.

23. Secretary of Education vs. Hrs. of Dulay, G.R. no. 164748,

January 27, 2006
FACTS:
This is a petition for review on certiorari of the Decision of the Court of
Appeals which affirmed the Decision of the Regional Trial Court (RTC) of
Santiago City, Isabela, Branch 35.
The spouses Rufino Dulay, Sr. and Ignacia Vicente were the owners of a
parcel of land located in Rizal, Santiago, Isabela,
On August 3, 1981, the spouses Dulay executed a deed of donation over a
portion of their property in favor of the Ministry of Education and Culture
(now the Department of Education, Culture and Sports [DECS]). The deed
provided, among others:
The spouses Rufino Dulay, Sr. and Ignacia Vicente were the owners of a
parcel of land located in Rizal, Santiago, Isabela. However, the property was
not used for school purposes and remained idle.
Sometime in 1988, the DECS, through its secretary, started construction of
the Rizal National High School building on a parcel of land it acquired from
Alejandro Feliciano. The school site was about 2 kilometers away from the
land donated by the spouses Dulay.

In a letter to the DECS Secretary, the spouses Dulay requested that the
property be returned to them considering that the land was never used since
1981, or a period of more than 13 years. On August 28, 1994, the Barangay
Council of Rizal, Santiago City issued Resolution No. 397 recognizing the
right of the donors to redeem the subject parcel of land because of the
DECS’ failure to utilize it for the intended purpose. It further resolved that
the Rizal National High School no longer needed the donated land
"considering its distance from the main campus and [the] failure to utilize
the property for a long period of time."
On December 22, 1994, Rufino Dulay, Sr. passed away at the age of 80. His
heirs sought the help of the Sangguniang Panlungsod of Santiago City via an
undated letter requesting the approval of a resolution allowing them to
redeem the donated property. The Sangguniang Panlungsod denied the
request inasmuch as the city government was not a party to the deed of
donation.
The heirs of Dulay, Sr., herein respondents, filed a complaint for the
revocation of the deed of donation and cancellation of TCT No. T-143337
before the RTC of Santiago City, Isabela, Branch 35, against the DECS
Secretary and Dr. Benito Tumamao, the Schools Division Superintendent of
Isabela.
To which the RTC ruled in favor of the herein respondent. The case was
appealed to the CA which likewise affirmed the decision of the RTC, Then the
petitioners seeks relief from this Court via petition for review on certiorari,
ISSUE:
Whether or not the subject donation fixed no period within which the done
can comply with the condition of donation
RULING:
Corollarily, since a deed of donation is considered a written contract, it is
governed by Article 1144 of the New Civil Code, which provides that the
prescriptive period for an action arising from a written contract is ten (10)
years from the time the cause of action accrues. In the case of donation, the
accrual of the cause of action is from the expiration of the time within which
the donee must comply with the conditions or obligations of the donation. In
the instant case, however, it must be noted that the subject donation fixed
no period within which the donee can comply with the condition of donation.
As such, resort to Article 1197 of the New Civil Code is necessary. Said
article provides that if the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was intended,
the courts may fix the duration thereof. Indeed, from the nature and
circumstances of the condition of the subject donation, it can be inferred
that a period was contemplated by the donors. The donors could not have
intended their property to remain idle for a very long period of time when, in
fact, they specifically obliged the defendant-appellants to utilize the land
donated for school purposes and thus put it in good use.

In Central Philippine University v. Court of Appeals, a case squarely in point,

we have established that the legal possibility of bringing the action begins
with the expiration of a reasonable opportunity for the donee to fulfill what
has been charged upon it by the donor. Likewise, we held that even if Article
1197 of the New Civil Code provides that the courts may fix the duration
when the obligation does not determine the period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
cannot be applied because to do so would be a mere technicality and would
serve no other purpose than to delay or lead to an unnecessary and
expensive multiplication of suits.

Altogether, it has been 16 years since the execution of the deed of donation.
Petitioner DECS failed to use the property for the purpose specified in the
deed of donation. The property remained barren and unutilized. Even after
respondents sought the return of the property before the courts, petitioner
DECS still failed to draw up plans to use the property for school purposes. In
fine, petitioner DECS has no use for the property; hence, the same shall be
reverted to the respondents.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 78314 dated July 30, 2004 is AFFIRMED.

24. Arco vs. Lim, G.R. no. 206806, June 25, 2014
FACTS:
Dan T. Lim works in the business of supplying scrap papers, cartons, and
other raw materials, under the name Quality Paper and Plastic Products,
Enterprises, to factories engaged in the paper mill business. from February
2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco
Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its Chief
Executive Officer and President, Candida A. Santos. The parties allegedly
agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of
the raw materials or deliver to him their finished products of equivalent
value.
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and
Paper issued a post-dated check dated April 18, 2007 in the amount of
1,487,766.68 as partial payment, with the assurance that the check would
not bounce.
When he deposited the check on April 18, 2007, it was dishonored for being
drawn against a closed account.
On the same day, Arco Pulp and Paper and a certain Eric Sy executed a
memorandum of agreement where Arco Pulp and Paper bound themselves to
deliver their finished products to Megapack Container Corporation, owned by
Eric Sy, for his account. According to the memorandum, the raw materials
would be supplied by Dan T. Lim, through his company, Quality Paper and
Plastic Products. The memorandum of agreement. It has been agreed further
that the Local OCC materials to be used for the production of the above Test
Liners will be supplied by Quality Paper & Plastic Products Ent.
On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper demanding
payment of the amount of 7,220,968.31, but no payment was made to him.
Dan T. Lim filed a complaint for collection of sum of money with prayer for
attachment with the Regional Trial Court, Branch 171, Valenzuela City, on
May 28, 2007. Arco Pulp and Paper filed its answer but failed to have its
representatives attend the pre-trial hearing. Hence, the trial court allowed
Dan T. Lim to present his evidence ex parte.
On September 19, 2008, the trial court rendered a judgment in favor of Arco
Pulp and Paper and dismissed the complaint, holding that when Arco Pulp
and Paper and Eric Sy entered into the memorandum of agreement,
novation took place, which extinguished Arco Pulp and Paper’s obligation to
Dan T. Lim.
Dan T. Lim appealed the judgment with the Court of Appeals. According to
him, novation did not take place since the memorandum of agreement
between Arco Pulp and Paper and Eric Sy was an exclusive and private
agreement between them. He argued that if his name was mentioned in the
contract, it was only for supplying the parties their required scrap papers,
where his conformity through a separate contract was indispensable
On January 11, 2013, the Court of Appeals20 rendered a decision reversing
and setting aside the judgment dated September 19, 2008 and ordering
Arco Pulp and Paper to jointly and severally pay Dan T. Lim. And the herein
petitioner argues that the execution of the memorandum of agreement
constituted a novation of the original obligation since Eric Sy became the
new debtor of respondent. They also argue that there is no legal basis to
hold petitioner Candida A. Santos personally liable for the transaction that
petitioner corporation entered into with respondent. The Court of Appeals,
they allege, also erred in awarding moral and exemplary damages and
attorney’s fees to respondent who did not show proof that he was entitled to
damages.
ISSUE:
Whether the obligation between the parties was extinguished by novation
RULING:
The petition is denied. The obligation between the parties was an alternative
obligation.The rule on alternative obligations is governed by Article 1199 of
the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations
shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the
other undertaking.
"In an alternative obligation, there is more than one object, and the
fulfillment of one is sufficient, determined by the choice of the debtor
who generally has the right of election."
The right of election is extinguished when the party who may exercise
that option categorically and unequivocally makes his or her choice
known.
The choice of the debtor must also be communicated to the creditor who
must receive notice of it since: The object of this notice is to give the
creditor . . . opportunity to express his consent, or to impugn the election
made by the debtor, and only after said notice shall the election take legal
effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.
According to the factual findings of the trial court and the appellate court,
the original contract between the parties was for respondent to deliver scrap
papers worth ₱7,220,968.31 to petitioner Arco Pulp and Paper. The payment
for this delivery became petitioner Arco Pulp and Paper’s obligation. By
agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to
either (1) pay the price or(2) deliver the finished products of equivalent
value to respondent.
The appellate court, therefore, correctly identified the obligation between the
parties as an alternative obligation, whereby petitioner Arco Pulp and Paper,
after receiving the raw materials from respondent, would either pay him the
price of the raw materials or, in the alternative, deliver to him the finished
products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in
partial payment for the scrap papers, they exercised their option to pay the
price. Respondent’s receipt of the check and his subsequent act of depositing
it constituted his notice of petitioner Arco Pulp and Paper’s option to pay.
This choice was also shown by the terms of the memorandum of agreement,
which was executed on the same day. The memorandum declared in clear
terms that the delivery of petitioner Arco Pulp and Paper’s finished products
would be to a third person, thereby extinguishing the option to deliver the
finished products of equivalent value to respondent.
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No.
95709 is AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby
ordered solidarily to pay respondent Dan T. Lim the amount of
₱7,220,968.31 with interest of 6% per annum at the time of demand until
finality of judgment and its full satisfaction, with moral damages in the
amount of ₱50,000.00, exemplary damages in the amount of ₱50,000.00,
and attorney's fees in the amount of ₱50,000.00.

25. Mondragon vs. CA, G.R. no. 154188, June 15, 2005
Facts:
Mondragon International Philippines, Inc., Mondragon Securities Corporation
and herein petitioner entered into a lease agreement with the Clark
Development Corporation for the development of what is now known as the
Mimosa Leisure Estate.
To help finance the project, petitioner, entered into an Omnibus Loan and
Security Agreement with respondent banks for a syndicated term loan in the
aggregate principal amount of US$20M. Under the agreement, the proceeds
of the loan were to be released through advances evidenced by promissory
notes to be executed by petitioner in favor of each lender-bank, and to be
paid within a six-year period from the date of initial advance inclusive of a
one year and two quarters grace period. Petitioner, which had regularly paid
the monthly interests due on the promissory notes until October 1998,
thereafter failed to make payments. Consequently, written notices of default,
acceleration of payment and demand letters were sent by the lenders to the
petitioner. Then, respondents filed a complaint for the foreclosure of
leasehold rights against petitioner. Petitioner moved for the dismissal of the
complaint but was denied.
Issue:
Whether or not respondents have a cause of action against the petitioner?
Held:
Under the foregoing provisions of the Agreement, petitioner may be validly
declared in default for failure to pay the interest. As a consequence of
default, the unpaid amount shall earn default interest, and the respondent-
banks have four alternative remedies without prejudice to the application of
the provisions on collaterals and any other steps or action which may be
adopted by the majority lender. The four remedies are alternative, with the
right of choice given to the lenders, in this case the respondents. Under
Article 1201 of the Civil Code, the choice shall produce no effect except from
the time it has been communicated. In the present case, we find that written
notices were sent to the petitioner by the respondents. The notices clearly
indicate respondents’ choice of remedy: to accelerate all payments payable
under the loan agreement It should be noted that the agreement also
provides that the choice of remedy is without prejudice to the action on the
collaterals. Thus, respondents could properly file an action for foreclosure of
the leasehold rights to obtain payment for the amount demanded.

26. Sinamban vs. China Banking, G.R. no. 193890, March 11, 2015
FACTS:
Danilo and Magdalena Manalastas (spouses Manalastas) executed a Real
Estate Mortgage (REM) in favor of respondent China Banking Corporation
over two of their real estate properties in order to secure a loan from
Chinabank the amount of P700,000.00, as working capital in their rice
milling business. During the next few years, they executed several
amendments to the mortgage contract progressively increasing their credit
line secured by the aforesaid mortgage. The spouses Manalastas executed
several promissory notes (PNs) in favor of Chinabank. In two of the
promissory notes issued, petitioners Estanislao and Africa Sinamban
(spouses Sinamban) signed as co-makers. Chinabank, then, filed a
Complaint for a sum of money against spouses Manalastas and spouses
Sinamban, before the RTC. The complaint alleged that they failed to comply
with their loan obligations. Spouses Sinamban averred that they do not
recall having executed two promissory notes and had no participation in the
execution of one of the promissory notes. They, however, admitted that they
signed some promissory notes forms as co-makers upon the request of
spouses Manalastas who are their relatives; however they insisted that they
derived no money or other benefits from the loans. They denied knowing
about the mortgage security provided by the spouses Manalastas, or that the
latter defaulted on their loans. Chinabank held an extrajudicial foreclosure
proceedings, giving the mortgaged lands to the highest bid of
P4,600,000.00. The Sinambans also refused to acknowledge the loan
deficiency of P1,758,427.87 on the PNs, insisting that the mortgage
collateral was worth more than P10,000,000.00, enough to answer for all
the loans, interests and penalties. They also claimed that they were not
notified of the auction sale, and insisted that Chinabank manipulated the
foreclosure sale to exclude them therefrom. By way of counterclaim, the
Spouses Sinamban prayed for damages and attorney's fees of 25%, plus
litigation expenses and costs of suit
ISSUE:
Whether or not Chinabank can seek payment of the deficiencies from
spouses Sinamban who, in the promissory notes, appeared to be solidary
debtors.
RULING:
Yes, because if a person binds himself solidarily with the principal debtor,
the provisions of Articles 1207 to 1222 of the Civil Code on joint and solidary
obligations shall be observed. Thus, where there is a concurrence of two or
more creditors or of two or more debtors in one and the same obligation,
Article 1207 provides that among them, "There is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity." It is settled that when the obligor or obligors
undertake to be "jointly and severally" liable, it means that the obligation is
solidary. In this case, the spouses Sinamban expressly bound themselves to
be jointly and severally, or solidarily, liable with the principal makers of the
promissory notes, namely the spouses Manalastas. Article 1216 of the Civil
Code provides that"[t]he creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not
been fully collected. "Article 1252 42 of the Civil Code does not apply, as
urged by the petitioners, because in the said article the situation
contemplated is that of a debtor with several debts due, whereas the reverse
is true, with each solidary debt imputable to several debtors.

27. Petron vs. Jovero, G.R. no. 151038, Jan. 18, 2012

FACT:
Rubin Uy entered into a Contract of Lease (25 April 1984) with Cesar J.
Jovero over a property located at Estancia, Iloilo for the purpose of operating
a gasoline station for a period of five (5) years. Petitioner, a domestic
corporation entered into a Retail Dealer Contract on 30 April 1984, with
Rubin Uy for 1 May 1984 to 30 April 1989. Under the dealership contract,
petitioner sold its products in quantities as ordered by the dealer; to deliver
the products to the dealer at the places agreed upon by the parties.
The dealer obligated himself to exclusively maintain petitioner’s brand
names in his gasoline station. The parties also agreed that the dealer shall
make good, settle and pay, and hold petitioner harmless against all losses
and claims including their agents and employees – for death, personal injury
or property damage arising out of any use or condition of the dealer’s
premises or the equipment and facilities regardless of any defects therein;
the dealer’s non-performance of the contract; or the storage and handling of
products on the premises. To comply with its obligation to deliver to the
dealer, petitioner contracted the hauling services of Jose Villaruz, who did
business under the name Gale Freight Services. The hauling contract was
executed in March 1988 for a period of three years, renewable for another
three upon agreement of the parties. Under the hauling contract, Villaruz
specifically assigned three (3) units of tank trucks exclusively for the hauling
requirements of petitioner for the delivery of the latter’s products, namely
tank trucks with the plate numbers FVG 605, FVG 581 and FVG 583.
Delivery “includes not only transportation but also proper loading and
unloading and delivery.”
The parties also agreed that Villaruz shall save petitioner from any and all
claims of third persons arising out of, but not limited to, his performance of
the terms and conditions of the contract; to be answerable to petitioner for
damage to its plant, equipment and facilities, including those of its
employees, dealers and customers, resulting from his negligence and/or lack
of diligence. On 27 October 1988, Rubin Uy executed a SPA in favor of
Chiong Uy authorizing the latter to manage and administer the gasoline
station. Chiong Uy and his wife, Dortina, operated the gasoline station as
agents of Rubin Uy. On 3 January 1991, around 10 a.m. in the morning,
Ronnie Allanaraiz, an employee of the gasoline station, ordered petitioner
various petroleum products. Petitioner requested the services of Villaruz for
the delivery to the gasoline station in Estancia, Iloilo.
He, however, used a tank truck different from the trucks specifically
enumerated in the hauling contract. Petitioner allowed the delivery of its
products to Estancia in the tank truck driven by Pepito Igdanis. During the
unloading of the petroleum from the tank truck into the fill pipe, for reasons
unknown, a fire started in the fill pipe and spread to the rubber hose
connected to the tank truck. During this time, driver Igdanis was nowhere to
be found.
Bystanders then tried to put out the flames. It was then that Igdanis
returned to the gasoline station with a bag of dried fish in hand. Seeing the
fire, he got into the truck without detaching the rubber hose from the fill
pipe and drove in reverse, dragging the burning fuel hose along the way. As
a result, a conflagration started and consumed the nearby properties of
herein defendants, spouses Jovero, spouses Tan and of spouses Limpoco
Herein respondents filed separate actions for damages against petitioner,
Villaruz, Rubin Uy, and Dortina Uy, at the RTC of Iloilo City.
Respondents alleged that the negligence of petitioner and its co-defendants
in the conduct of their businesses caused the fire that destroyed the former’s
properties. Petitioner Petron alleged that the petroleum products were
already paid for and owned by Rubin Uy. It alleged that Villaruz was
responsible for the safe delivery of the products by virtue of the hauling
contract. Thus, petitioner asserted, liability for the damages caused by the
fire rested on Rubin Uy and Villaruz.
The RTC ruled in favor of respondents and found petitioner and its co-
defendants solidarily liable for damages. The RTC held that Igdanis, as the
driver of the tank truck, was negligent in the performance of his work when
he left the tank truck while it was in the process of unloading the petroleum
and negligent when he drove the truck in reverse without detaching the
burning fuel hose. The trial court stated that defendant Villaruz failed to
convince the court that he had exercised due diligence in the hiring and
supervision of his employees; petitioner was negligent in allowing Villaruz to
use a tank truck that was not included among the trucks specifically
enumerated under the hauling contract. Finally, the court ruled that the
gasoline station was owned and operated by Rubin Uy and Dortina Uy at the
time of the incident. The CA affirmed that of the trial court.
ISSUE:
1. Whether or not Petron may be considered at fault for continuing to do
business with Rubin Uy, an independent petroleum dealer, without renewing
or extending their expired dealership agreement; respondents have a claim
against petitioner based on the dealership agreement.
2. Whether or not Petron is liable for the fire that occurred during the
unloading by an independent hauler of the fuel it sold to an equally
independent dealer at the latter’s gas station.
HELD:
1. Respondents have a claim against petitioner based on the dealership
agreement. We agree with petitioner that the expiration or nonexistence of a
dealership contract did not ipso facto transform the relationship of the dealer
and petitioner into one of agency. As far as the parties to the dealership
contract were concerned, the rights and obligations as to them still
subsisted, since they continued to mutually benefit from the agreement.
Thus, neither party can claim that it is no longer bound by the terms of the
contract and the expiration thereof. We then judiciously reviewed the terms
of the contract and found that petitioner is liable to respondents for the
damages caused by the fire. As petitioner itself points out, it owns the
equipment relevant to the handling and storage of gasoline, including the
gasoline pumps and the underground tank. It is also responsible for the
delivery of the petroleum to the dealer. The incident occurred at the time the
petroleum was being unloaded to the underground tank petitioner owned.
Aside from failing to show the actual cause of the fire, it also failed to rebut
the presumption that it was negligent in the maintenance of its properties
and in the conduct of its business. While both parties to the contract have
the right to provide a clause for non-liability, petitioner admits that they
both share the maintenance of its equipment.
Petitioner states that its responsibility extended to “the operating condition
of the gasoline station, e.g., whether the fuel pumps were functioning
properly.” Moreover, it cannot be denied that petitioner likewise obligated
itself to deliver the products to the dealer. When the incident occurred,
petitioner, through Gale Freight Services, was still in the process of fulfilling
its obligation to the dealer. We disagree with its contention that delivery was
perfected upon payment of the goods at its depot. There was yet no
complete delivery of the goods as evidenced by the aforementioned hauling
contract petitioner executed with Villaruz. That contract made it clear that
delivery would only be perfected upon the complete unloading of the
gasoline. Thus, with regard to the delivery of the petroleum, Villaruz was
acting as the agent of petitioner Petron. For a fee, he delivered the
petroleum products on its behalf. Notably, petitioner even imposed a penalty
clause in instances when there was a violation of the hauling contract,
wherein it may impose a penalty ranging from a written warning to the
termination of the contract. Therefore, as far as the dealer was concerned
with regard to the terms of the dealership contract, acts of Villaruz and his
employees are also acts of petitioner. Both the RTC and the CA held that
Villaruz failed to rebut the presumption that the employer was negligent in
the supervision of an employee who caused damages to another; and, thus,
petitioner should likewise be held accountable for the negligence of Villaruz
and Igdanis.
2. To reiterate, petitioner, the dealer Rubin Uy – acting through his agent,
Dortina Uy – shared the responsibility for the maintenance of the equipment
used in the gasoline station and for making sure that the unloading and the
storage of highly flammable products were without incident. As both were
equally negligent in those aspects, petitioner cannot pursue a claim against
the dealer for the incident. Therefore, both are solidarily liable to
respondents for damages caused by the fire. Petitioner was likewise
negligent in allowing a tank truck different from that specifically provided
under its hauling contract with Villaruz. The enumeration and specification of
particular tank trucks in the contract serve a purpose – to ensure the safe
transportation, storage and delivery of highly flammable products. With
respect to the claims of third persons, it is not enough for petitioner to allege
that the tank truck met the same requirements provided under the contract;
it must duly prove its allegations. This, petitioner failed to do. To reiterate, it
was not able to prove the proximate cause of the fire, only the involvement
of the tank truck and the underground storage tank. Notably, both pieces of
equipment were under its responsibility. Absent any positive determination
of the cause of the fire, a presumption exists that there was something
wrong with the truck or the underground storage tank, or both. Petitioner,
which had the obligation to ensure that the truck was safe, is likewise liable
for the operation of that truck. Villaruz is also liable to petitioner based on
the hauling contract. Nonetheless, this is not the same as saying that
Villaruz is no longer solidarily liable to respondents.
Petitioner may only claim contribution from him in accordance with Article
1217 of the Civil Code, and not by virtue of its hauling contract, in the event
that respondents decide to proceed against petitioner alone for the
satisfaction of judgment. To put it simply, based on the ruling of the lower
courts, there are four (4) persons who are liable to pay damages to
respondents. The latter may proceed against any one of the solidary debtors
or some or all of them simultaneously, pursuant to Article 1216 of the Civil
Code. These solidary debtors are petitioner Petron, the hauler Villaruz, the
operator Dortina Uy and the dealer Rubin Uy. To determine the liability of
each defendant to one another, the amount of damages shall be divided by
four, representing the share of each defendant. Supposedly, under the
hauling contract, petitioner may require Villaruz to indemnify it for its share.
However, because it was not able to maintain the cross-claim filed against
him, it shall be liable for its own share under Article 1208 and can no longer
seek indemnification or subrogation from him under its dismissed cross-
claim. Petitioner may not pursue its cross-claim against Rubin Uy and
Dortina Uy, because the cross-claims against them were also dismissed;
moreover, they were all equally liable for the conflagration as discussed
herein.

28. Asset Builders vs. Stronghold Insurance, G.R. no. 187116, Oct.
18, 2010
FACTS:
Article 1217 of the New Civil Code acknowledges the right of reimbursement
from a co-debtor (the principal co-debtor, in case of suretyship) in favor of
the one who paid (the surety). (Lucky Star) as part of the completion of its
project to construct the ACG Commercial On April 28, 2006, Asset Builders
Corporation (ABC) entered into an agreement with Lucky Star Drilling &
Construction Corporation Complex 3 Lucky Star was to supply labor,
materials, tools, and equipment including technical supervision to drill one
(1) exploratory production well on the project site. The total contract price
for the said project was P1,150,000.00. To guarantee faithful compliance
with their agreement, Lucky Star engaged respondent Stronghold which
issued two (2) bonds in favor of petitioner. The first, SURETY BOND G(16)
No. 141558, dated May 9, 2006, covers the sum of P575,000.004 or the
required downpayment for the drilling work. On May 20, 2006, ABC paid
Lucky Star P575,000.00 (with 2% withholding tax) as advance payment,
representing 50% of the contract price. Lucky Star, thereafter, commenced
the drilling work. By July 18, 2006, just a few days before the agreed
completion date of 60 calendar days, Lucky Star managed to accomplish
only ten (10) % of the drilling work. On the same date, petitioner sent a
demand letter to Lucky Star for the immediate completion of the drilling
work with a threat to cancel the agreement and forfeit the bonds should it
still fail to complete said project within the agreed period. On August 3,
2006, ABC sent a Notice of Rescission of Contract with Demand for Damages
to Lucky Star
ISSUE:
Whether or not Stronghold should be held liable.
RULING:
Suretyship, in essence, contains two types of relationship – the principal
relationship between the obligee (petitioner) and the obligor (Lucky Star),
and the accessory surety relationship between the principal (Lucky Star) and
the surety (respondent). In this arrangement, the obligee accepts the
surety’s solidary undertaking to pay if the obligor does not pay. Such
acceptance, however, does not change in any material way the obligee’s
relationship with the principal obligor. Neither does it make the surety an
active party to the principal obligee-obligor relationship. Thus, the
acceptance does not give the surety the right to intervene in the principal
contract.
The surety’s role arises only upon the obligor’s default, at which time, it can
be directly held liable by the obligee for payment as a solidary obligor. In the
case at bench, when Lucky Star failed to finish the drilling work within the
agreed time frame despite petitioner’s demand for completion, it was
already in delay. Due to this default, Lucky Star’s liability attached and, as a
necessary consequence, respondent’s liability under the surety agreement
arose. In fine, respondent should be answerable to petitioner on account of
Lucky Star’s non-performance of its obligation as guaranteed by the
performance bond.

29. Philippine Blooming Mills vs. CA, G.R. no. 142381, Oct. 15, 2003
FACTS:
Petitioner Philippine Blooming Mills, Inc. (PBM) obtained a loan from Traders
Royal Bank (TRB). Ching, the Senior Vice-President of PBM, signed Deed of
Suretyship in his personal capacity and not as mere guarantors but as
primary obligors. PBM and Ching filed a petition for suspension of payments
with the SEC, and eventually placed under rehabilitation receivership.
Consequently, TRB dismissed complaint as to PBM. Ching then alleged that
the Deed of Suretyship executed in 1977 could not answer for obligations
not yet in existence at the time of its execution. It could not answer for
debts contracted by petitioner PBM in 1980 and 1981. No accessory contract
of suretyship could arise without an existing principal contract of loan.
ISSUE:
WON Ching is liable for credit obligations contracted by Philippine Blooming
Mills Inc. against Traders Royal Bank before and after the execution of the
Deed of Suretyship.

Held:
Ching is liable for credit obligations contracted by Philippine Blooming Mills
Inc. against Traders Royal Bank before and after the execution of the Deed
of Suretyship. This is evident from the tenor of the deed itself, referring to
amounts to PBM may now be indebted or may hereafter become indebted to
Traders Royal Bank. The law expressly allows a suretyship for future debts.
Article 2053 provides that a guaranty may also be given as security for
future debts, the amount of which is not yet known, there can be no claim
against the guarantor until the debt is liquidated.

30. Lam vs. Kodak, G.R. no. 167615, Jan. 11, 2016
Facts:
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered
into an agreement (Letter Agreement) for the sale of three (3) units of the
Kodak Minilab System 22XL6 (Minilab Equipment) in the amount of
1,796,000.00 per unit, with the following terms: ₱ “This confirms our verbal
agreement for Kodak Phils., Ltd. To provide Colorkwik Laboratories, Inc. with
three (3) units Kodak Minilab System 22XL for your proposed outlets in Rizal
Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor
photo counter in Cotabato City under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple
order discount based on prevailing equipment price provided said
equipment packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of
merchandise and delivered in advance immediately after signing of the
contract. * Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly
installments at THIRTY-FIVE THOUSAND PESOS (P35,000.00) inclusive
of 24% interest rate for the first 12 months; the balance shall be re-
 amortized for the remaining 36 months and the prevailing interest
shall be applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8,
1992 is at ONE MILLION SEVEN HUNDRED NINETY-SIX THOUSAND
PESOS.
6. Price is subject to change without prior notice. “Secured with PDCs;
1st monthly amortization due 45 days after installation.” Kodak
Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in
Tagum, Davao Province. The delivered unit was installed by Noritsu
representatives. The Lam Spouses issued postdated checks amounting
to 35,000.00 each for 12 months as payment for the first delivered
unit, with the first check ₱ due on March 31, 1992.
The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the
check dated March 31, 1992 allegedly due to insufficiency of funds. The
same request was made for the check due on April 30, 1992. However, both
checks were negotiated by Kodak Philippines, Ltd. and were honored by the
depository bank. The 10 other checks were subsequently dishonored after
the Lam Spouses ordered the depository bank to stop payment.
Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit. The Lam Spouses ignored the demand but also
rescinded the contract through the letter dated November 18, 1992 on
account of Kodak Philippines, Ltd.’s failure to deliver the two (2) remaining
Minilab Equipment units.
Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of sum
of money. The Lam Spouses failed to appear during the pre-trial conference.
Thus, they were declared in default.
Kodak Philippines, Ltd. presented evidence ex-parte. The trial court issued
the Decision in favor of Kodak Philippines, Ltd. ordering the seizure of the
Minilab Equipment.
Based on this Decision, Kodak Philippines, Ltd. was able to obtain a writ of
seizure for the Minilab Equipment installed at the Lam 1 Spouses’ outlet in
Tagum, Davao Province. The writ was enforced and Kodak Philippines, Ltd.
gained possession of the Minilab Equipment unit, accessories, and the
generator set.
The Lam Spouses then filed before the CA a Petition to Set Aside the Orders
issued by the trial court. These Orders were subsequently set aside by the
CA, and the case was remanded to the trial court for pre-trial.
In its Decision, the RTC dismissed the case and ordered the plaintiff to pay
Lam Spouses
Lam Spouses filed their Notice of Partial Appeal. Kodak Philippines, Ltd. also
filed an appeal. However, the CA dismissed it for Kodak Philippines, Ltd.’s
failure to file its appellant’s brief, without prejudice to the continuation of the
Lam Spouses’ appeal. The Resolution became final and executory.
CA modified the decision of the RTC.
ISSUES:
(1) Whether the contract between petitioners Spouses Alexander and Julie
Lam and respondent Kodak Philippines, Ltd. pertained to obligations that are
severable, divisible, and susceptible of partial performance under Article
1225 of the New Civil Code; and
(2) Upon rescission of the contract, what the parties are entitled to under
Article 1190 and Article 1522 of the New Civil Code.

HELD:
(1) The Letter Agreement contained an indivisible obligation. The intention of
the parties is for there to be a single transaction covering all three (3) units
of the Minilab Equipment. Respondent’s obligation was to deliver all products
purchased under a "package," and, in turn, petitioners’ obligation was to pay
for the total purchase price, payable in installments. The intention of the
parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal.
There was only one agreement covering all three (3) units of the Minilab
Equipment and their accessories. The Letter Agreement specified only one
purpose for the buyer, which was to obtain these units for three different
outlets.
If the intention of the parties were to have a divisible contract, then separate
agreements could have been made for each Minilab Equipment unit instead
of covering all three in one package deal. Furthermore, the 19% multiple
order discount as contained in the Letter Agreement was applied to all three
acquired units.
The "no downpayment" term contained in the Letter Agreement was also
applicable to all the Minilab Equipment units. Lastly, the fourth clause of the
Letter Agreement clearly referred to the object of the contract as "Minilab
Equipment Package." In ruling that the contract between the parties
intended to cover divisible obligations, the Court of Appeals highlighted: (a)
the separate purchase price of each item; (b) petitioners’ acceptance of
separate deliveries of the units; and (c) the separate payment arrangements
for each unit. However, through the specified terms and conditions, the
tenor of the Letter Agreement indicated an intention for a single transaction.
This intent must prevail even though the articles involved are physically
separable and capable of being paid for and delivered individually, consistent
with the New Civil Code: Article 1225. For the purposes of the preceding
articles, obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metrical units, or analogous
things which by their nature are susceptible of partial performance, it shall
be divisible. However, even though the object or service may be physically
divisible, an obligation is indivisible if so, provided by law or intended by the
parties. In Nazareno v. Court of Appeals, the indivisibility of an obligation is
tested against whether it can be the subject of partial performance: An
obligation is indivisible when it cannot be validly performed in parts,
whatever may be the nature of the thing which is the object thereof. The
indivisibility refers to the prestation and not to the object thereof. In the
present case, the Deed of Sale of January 29, 1970 supposedly conveyed the
six lots to Natividad.
The obligation is clearly indivisible because the performance of the contract
cannot be done in parts, otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in basing the indivisibility of a
contract on the number of obligors. There is no indication in the Letter
Agreement that the units petitioners ordered were covered by three (3)
separate transactions.
The factors considered by the Court of Appeals are mere incidents of the
execution of the obligation, which is to deliver three units of the Minilab
Equipment on the part of respondent and payment for all three on the part
of petitioners. The intention to create an indivisible contract is apparent from
the benefits that the Letter Agreement afforded to both parties. Petitioners
were given the 19% discount on account of a multiple order, with the
discount being equally applicable to all units that they sought to acquire. The
provision on "no down payment" was also applicable to all units.
Respondent, in turn, was entitled to payment of all three Minilab Equipment
units, payable by installments.
(2) The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him. The
injured party may choose between the fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfilment, if the latter should become
impossible. The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period. Rescission under Article 1191
has the effect of mutual restitution. In Velarde v. Court of Appeals:
Rescission abrogates the contract from its inception and requires a mutual
restitution of benefits received.
The Court of Appeals correctly ruled that both parties must be restored to
their original situation as far as practicable, as if the contract was never
entered into. Petitioners must relinquish possession of the delivered Minilab
Equipment unit and accessories, while respondent must return the amount
tendered by petitioners as partial payment for the unit received. Further,
respondent cannot claim that the two (2) monthly installments should be
offset against the amount awarded by the Court of Appeals to petitioners
because the effect of rescission under Article 1191 is to bring the parties
back to their original positions before the contract was entered into. When
rescission is sought under Article 1191 of the Civil Code, it need not be
judicially invoked because the power to resolve is implied in reciprocal
obligations. The right to resolve allows an injured party to minimize the
damages he or she may suffer on account of the other party’s failure to
perform what is incumbent upon him or her. When a party fails to comply
with his or her obligation, the other party’s right to resolve the contract is
triggered. The resolution immediately produces legal effects if the non-
performing party does not question the resolution. Court intervention only
becomes necessary when the party who allegedly failed to comply with his or
her obligation disputes the resolution of the contract. Since both parties in
this case have exercised their right to resolve under Article 1191, there is no
need for a judicial decree before the resolution produces effects.
WHEREFORE, the Petition is DENIED.
31. Buenaventura vs. Metropolitan Bank, G.R. no. 167082, Aug. 3,
2016
FACTS:
On January 20, 1997 and April 17, 1997, Teresita Buenaventura (or
"appellant") executed Promissory Note (or "PN") Nos. 232663 and 232711,
respectively, each in the amount of PI,500,000.00 and payable to
Metropolitan Bank and Trust Company (or "appellee"). PN No. 232663 was
to mature on July 1, 1997, with interest and credit evaluation and
supervision fee (or "CESF") at the rate of 17.532% per annum, while PN No.
232711 was to mature on April 7, 1998, with interest and CESF at the rate
of 14.239% per annum.
Both PNs provide for penalty of 18% per annum on the unpaid principal from
date of default until full payment of the obligation. Despite demands, there
remained unpaid on PN Nos. 232663 and 232711 the amounts of
P2,061,208.08 and PI,492,236.37, respectively, as of July 15, 1998,
inclusive of interest and penalty. Consequently, appellee filed an action
against appellant for recovery of said amounts, interest, penalty and
attorney's fees before the Regional Trial Court of Makati City (Branch 61). In
answer, appellant averred that in 1997, she received from her nephew, Rene
Imperial (Or "Imperial"), three postdated checks drawn against appellee
(Tabaco Branch), i.e., Check No. TA 1270484889PA dated January 5, 1998
in the amount of PI,200,000.00, Check No. 1270482455PA dated March 31,
1998 in the amount of PI,197,000.00 and Check No. TA1270482451PA dated
March 31, 1998 in the amount of P500,000.00 (or "subject checks"), as
partial payments for the purchase of her properties; that she rediscounted
the subject checks with appellee (Timog Branch), for which she was required
to execute the PNs to secure payment thereof; and that she is a mere
guarantor and cannot be compelled to pay unless and until appellee shall
have exhausted all the properties of Imperial.
The RTC ruled in favor of MBTC and ordered Teresita to pay P3.5M plus
interest and penalties. CA affirmed with modifications as to the interest and
penalty.
ISSUE:
Whether or not Teresita Buenaventura shall be liable for the promissory
notes that were meant as guaranties to secure payment of the checks by the
issuer.
RULING:
No. A guaranty is not presumed; it must be expressed (Art. 2055, New Civil
Code). The PNs provide, in clear language, that appellant is primarily liable
thereunder. On the other hand, said PNs do not state that Imperial, who is
not even privy thereto, is the one primarily liable and that appellant is
merely a guarantor. Parenthetically, the disclosure statement executed by
appellant states that PN No. 232711 is "secured by postdated checks". In
other words, it does not appear that the PNs were executed as guaranty for
the payment of the subject checks. A guarantor may bind himself for less,
but not for more than the principal debtor, both as regards the amount and
the onerous nature of the conditions. Curiously, the face amounts of the PNs
(totaling P3,000,000.00) are more than those of the subject checks (totaling
P2,897,000.00). And unlike the subject checks, the PNs provide for interest,
CESF and penalty.
Stated differently, appellant is primarily liable under the subject checks. She
is a principal debtor and not a guarantor.
Consequently, the benefit of excursion may not be interposed as a defense
in an action to enforce appellant's warranty as endorser of the subject
checks. Moreover, it is absurd that appellant (as maker of the PNs) may act
as guarantor of her own obligations (as endorser of the subject checks).
Thus, Art. 2047 of the New Civil Code provides that "(b)y guaranty, a person
called the guarantor, binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so." The CA was
correct. A contract of guaranty is one where a person, the guarantor, binds
himself or herself to another, the creditor, to fulfill the obligation of the
principal debtor in case of failure of the latter to do so. It cannot be
presumed, but must be express and in writing to be enforceable, especially
as it is considered a special promise to answer for the debt, default or
miscarriage of another.
It being clear that the promissory notes were entirely silent about the
supposed guaranty in favor of Imperial, we must read the promissory notes
literally due to the absence of any ambiguities about their language and
meaning. In other words, the petitioner could not validly insist on the
guaranty. In addition, the disclosure statements and the statements of loan
release undeniably identified her, and no other, as the borrower in the
transactions. Under such established circumstances, she was directly and
personally liable for the obligations under the promissory notes.

32. Macalinao vs. BPI, G.R. no. 175490, Sept. 17, 2009
FACTS:
Petitioner was an approved cardholder of BPI Mastarcard but defaulted in
paying for purchases made through the use of said card. She subsequently
received a letter from BPI demanding payment of the amount of
P141,518.34. Under the Terms and Conditions Governing the Issuance and
Use of the BPI Credit and BPI Mastercard, charges or balance thereof
remaining unpaid after the payment due date shall bear interest at the rate
of 3% per month, and an additional penalty fee equivalent to another 3%
per month. For failure to settle her obligations, respondent BPI filed a
complaint for sum of money against petitioner and her husband. The
Metropolitan Trial Court (MeTC) of Makati City ruled in favor of respondent
BPI and ordered petitioner to pay the amount of P141,518.34 plus interest
and penalty charges of 2%. ▪ Upon appeal with the RTC of Makati, the MeTC
decision was affirmed in toto.
Petitioner filed a petition for review with the CA. The CA affirmed with
modification the decision of the RTC, and ordered petitioner to pay
P126,706.70, plus interest and penalty charges of 3% per month, ruling that
the amount sought by BPI to be satisfied was clearly not the result of the re-
computation at the reduced interest rate, as previous higher interest rates
were already incorporated in said amount. Thus, the said amount should not
be made as basis in computing the total obligation of petitioner Macalinao.
ISSUE:
WoN the CA erred in modifying the interest rate and penalty charge to 3%
from the 2% ordered by the RTC
RULING:
YES. While it is stipulated in the Terms and Conditions Governing the
Issuance and Use of the BPI Credit and BPI Mastercard that the interest rate
is at 3% per month, or 36% per annum, the Court held that the interest rate
of 36% per annum is excessive and unconscionable. In Chua v. Timan, the
Court held that such stipulation is void for being contrary to morals, if not
against the law. Since the stipulation on the interest rate is void, it is as if
there was no express contract thereon. Hence, the courts may reduce the
interest rate as reason and equity demand. The Court also held that the
same is true with respect to the penalty charge Article 1229 of the Civil Code
provides: “The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.”
33. Transcrept vs. Aguilar, G.R. no. 177556, dec. 8, 2010
FACTS:
Teresa C. Aguilar (Aguilar) entered into an Owner-General Contractor
Agreement (First Contract) with petitioner Transcept for the construction of
a two-storey split level vacation house (the Project) located at Batangas.
Under the First Contract, the Project would cost P3,486,878.64 and was to
be completed within 210 working days from the date of the First Contract.
Transcept submitted its First and second Billing, respectively, to Aguilar for
work accomplishments from start to the present. Only the first billing was
paid by Agilar as he questioned the 2nd billing for being 45 days ahead of
actual accomplishment. Thus, transcept stopped working. Thereafter, Aguilar
hired ASTEC, a duly accredited testing laboratory, to test Transcepts quality
of work and it was discovered that the test showed substandard works done
by Transcept. ASTEC, through Engr. Jaime E. Rioflorido (Engr. Rioflorido),
sent Aguilar an Evaluation of Contractors Performance which showed that
aside from the substandard workmanship and use of substandard materials,
Transcept was unreasonably and fraudulently billing Aguilar.
Transcept and Aguilar entered into a Construction Contract (Second
Contract) to extend the date of completion from 7 June 2005 to 29 July 2005
and to use up the P1.6 million downpayment paid by Aguilar. Aguilar hired
the services of Engr. Edgardo Anonuevo (Engr. Anonuevo) to ensure that the
works would comply with the plans in the Second Contract. Transcept failed
to finish the Project on 29 July 2005, alleging that the delay was due to
additional works ordered by Aguilar. Transcept also asked for payment of the
additional amount of P290,824.96. Aguilar countered that the Second
Contract did not provide for additional works.
On 2 September 2005, Aguilar sent a demand letter to Transcept asking for
payment of P581,844.54 for refund and damages. Transcept ignored the
demand letter. On 6 September 2005, Aguilar filed a complaint against
Transcept before CIAC.
The CIAC ruled against Aguilar. On appeal, the Court of Appeals ruled that
Transcept only accomplished 87.81% of the contract price thus entitling
Aguilar to liquidated damages equivalent to 10% of P1,632,436.29 or
P163,243.63. Thus, the CIAC was reversed. Transcept filed a motion for
reconsideration but the same was denied. Hence, this petition.
ISSUE:
Whether or not then CA erred in ruling that Aguilar is entitled to liquidated
damages
HELD:
Yes. CA Decision modified, if the obligation had been substantially performed
in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
The Court of Appeals ruled that CIAC erred in adopting Transcepts
computation of unaccomplished works.
The Court of Appeals agreed with Aguilar that the CIACs computation was
based on what Transcept submitted which was based on the original contract
price of P3,486,878.64 instead of the contract price of P1,632,436.29 under
the Second Contract.

34. MIAA vs. Avia Filipinas, G.R. no. 180168, Feb. 27, 2012
FACTS:
In September 1990, herein petitioner Manila International Airport Authority
(MIAA) entered into a contract of lease with herein respondent Avia Filipinas
International Corporation (AFIC), wherein MIAA allowed AFIC to use specific
portions of land as well as facilities within the Ninoy Aquino International
Airport exclusively for the latter's aircraft repair station and chartering
operations. The contract was for one (1) year, beginning September 1, 1990
until August 31, 1991, with a monthly rental of ₱6,580.00. In December
1990, MIAA issued Administrative Order No. 1, Series of 1990, which revised
the rates of dues, charges, fees or assessments for the use of its properties,
facilities and services within the airport complex. The Administrative Order
was made effective on December 1, 1990.
As a consequence, the monthly rentals due from AFIC was increased to
₱15,996.50. Nonetheless, MIAA did not require AFIC to pay the new rental
fee. Thus, it continued to pay the original fee of ₱6,580.00. After the
expiration of the contract, AFIC continued to use and occupy the leased
premises giving rise to an implied lease contract on a monthly basis. AFIC
kept on paying the original rental fee without protest on the part of MIAA.
Three years after the expiration of the original contract of lease, MIAA
informed AFIC, through a billing statement dated October 6, 1994, that the
monthly rental over the subject premises was increased to ₱15,966.50
beginning September 1, 1991, which is the date immediately following the
expiration of the original contract of lease. MIAA sought recovery of the
difference between the increased rental rate and the original rental fee
amounting to a total of ₱347,300.50 covering thirty-seven (37) months
between September 1, 1991 and September 31, 1994. Beginning October
1994, AFIC paid the increased rental fee. However, it refused to pay the
lump sum of ₱347,300.50 sought to be recovered by MIAA.
For the continued refusal of AFIC to pay the said lump sum, its employees
were denied access to the leased premises from July 1, 1997 until March 11,
1998. This, notwithstanding, AFIC continued paying its rentals.
Subsequently, AFIC was granted temporary access to the leased premises.
AFIC then filed with the RTC of Quezon City a Complaint for damages with
injunction against MIAA and its General Manager seeking uninterrupted
access to the leased premises, recovery of actual and exemplary damages,
refund of its monthly rentals with interest at the time that it was denied
access to the area being rented as well as attorney's fees. In its Answer with
Counterclaim, MIAA contended that under its lease contract with AFIC, MIAA
is allowed to either increase or decrease the monthly rental; AFIC has rental
arrears in the amount of ₱347,300.50; AFIC was wrong in claiming that
MIAA took the law into its own hands in denying AFIC and its employees
access to the leased premises, because under the lease contract, in case of
failure on the part of AFIC to pay rentals for at least two (2) months, the
contract shall become automatically terminated and canceled without need
of judicial action or process and it shall be lawful for MIAA or any person or
persons duly authorized on its behalf to take possession of the property
either by padlocking the premises or posting its guards to prevent the entry
of any person. MIAA prayed for the award of exemplary damages as well as
attorney's fees and litigation expenses.
RTC rendered its Decision in favor of the plaintiff [AFIC] and as against the
defendants [MIAA]. On appeal, the CA affirmed with modification as to
damages the decision of the lower court.
ISSUE:
Whether or not by signing the lease contract respondent AFIC already
agreed and gave its consent to any further increase in rental rates
RULING:
No. Petitioner MIAA contends that by signing the lease contract, respondent
AFIC already agreed and gave its consent to any further increase in rental
rates; as such, the provisions of the lease contract being cited by the CA
which provides that "any amendment, alteration or modification [of the lease
contract] shall not be valid and binding, unless and until made in writing and
signed by the parties thereto" is deemed complied with because respondent
already consented to having any subsequent amendments to Administrative
Order No. 1 automatically incorporated in the lease contract; that the above-
quoted provisions should not also be interpreted as having the effect of
limiting the authority of MIAA to impose new rental rates in accordance with
its authority under its charter. The petition lacks merit. Article 1306 of the
Civil Code provides that "[t]he contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order,
or public policy."
Moreover, Article 1374 of the Civil Code clearly provides that "the various
stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly."
Indeed, in construing a contract, the provisions thereof should not be read in
isolation, but in relation to each other and in their entirety so as to render
them effective, having in mind the intention of the parties and the purpose
to be achieved. In other words, the stipulations in a contract and other
contract documents should be interpreted together with the end in view of
giving effect to all.
In the present case, the Court finds nothing repugnant to law with respect to
the questioned provisions of the contract of lease between petitioner and
respondent. It is true that Article II, Paragraph 2.04 of the Contract of Lease
states that "any subsequent amendment to Administrative Order No. 4,
Series of 1982, which will effect a decrease or escalation of the monthly
rental or impose new and additional fees and charges, including but not
limited to government/MIAA circulars, rules and regulation to this effect,
shall be deemed incorporated herein and shall automatically amend this
Contract insofar as the monthly rental is concerned."
However, the Court agrees with the CA that the above quoted provision of
the lease contract should not be read in isolation. Rather, it should be read
together with the provisions of Article VIII, Paragraph 8.13, which provide
that "any amendment, alteration or modification of the Contract shall not be
valid and binding, unless and until made in writing and signed by the parties
thereto." It is clear from the foregoing that the intention of the parties is to
subject such amendment to the conformity of both petitioner and
respondent. In the instant case, there is no showing that respondent gave
his acquiescence to the said amendment or modification of the contract.
The situation is different with respect to the payments of the increased
rental fee made by respondent beginning October 1994 because by then the
amendment to the contract was made in writing through a bill sent by
petitioner to respondent. The fact that respondent subsequently settled the
said bill proves that he acceded to the increase in rental fee.
The same may not be said with respect to the questioned rental fees sought
to be recovered by petitioner between September 1991 and September 1994
because no bill was made and forwarded to respondent on the basis of which
it could have given or withheld its conformity thereto. It may not be amiss to
point out that during the abovementioned period, respondent continued to
pay and petitioner kept on receiving the original rental fee of ₱6,580.00
without any reservations or protests from the latter. Neither did petitioner
indicate in the official receipts it issued that the payments made by
respondent constitute only partial fulfillment of the latter's obligations.
Article 1235 of the Civil Code clearly states that "[w]hen the obligee accepts
the performance knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied
with." For failing to make any protest or objection, petitioner is already
estopped from seeking recovery of the amount claimed.

35. Rosete vs. Briones, G.R no. 176121, Sept. 22, 2014

FACTS:
Assailed in this Petition for Review on Certiorari[1] are the October 30, 2006
Decision[2] of the Court of Appeals (CA) which denied the Petition for
Review in CA-G.R. SP No. 79400 and its December 22, 2006
Resolution[3] denying the herein petitioners' Motion for Reconsideration.[
The subject lot is a 152-square meter lot located at 1014 Estrada Street,
Malate, Manila which is owned by the National Housing Authority (NHA).
The NHA awarded the subject lot to petitioner Teodorico P. Rosete
(Teodorico).[6]  The herein respondents, Jose and Remedios Rosete (the
Rosetes), Neorimse and Felicitas Corpuz (the Corpuzes), and Felix and
Marietta Briones (the Brioneses) objected to... the award, claiming that the
award of the entire lot to Teodorico was erroneous.
In an August 5, 1994 Letter-Decision,[10] the NHA informed Teodorico that
after consideration of the objections raised by the Rosetes, the Corpuzes and
the Brioneses, the original award of 152 square meters in his favor has been
cancelled and instead, the... subject lot will be subdivided and awarded as
follows:
 1. Teodorico 62 square meters
2. The Brioneses 40 square meters
3. The Rosetes 25 square meters
4. The Corpuzes 15 square meters
5. Easement for pathwalk 10 square meters
NHA also informed Teodorico that the matters contained in the letter were
final, and that if he intended to appeal, he should do so with the Office of the
President within 30 days.
In an October 18, 1994 letter[11] to the NHA, Teodorico protested and
sought a reconsideration of the decision to cancel the award, claiming that it
was unfair and confiscatory.  He likewise requested that his co-awardees be
required to reimburse his... property tax payments and that the subject lot
be assessed at its current value.
Meanwhile, on October 24, 1994, the Rosetes and the Corpuzes appealed
the NHA's August 5, 1994 Letter-Decision to the Office of the President (OP),
which case was docketed as O.P. Case No. 5902.
On February 2, 1995, Teodorico filed an undated letter[12] in O.P. Case No.
5902.  In the said letter, he directed the OP's attention to the Rosetes and
the Corpuzes' resolve not to question the 62-square meter allocation/award
to him.
On November 19, 1997, the OP issued its Decision[14] in O.P. Case No.
5902, dismissing the appeal for being filed out of time.
On March 27, 1998, the OP issued a Resolution[15] declaring that the above
November 19, 1997 Decision in O.P. Case No. 5902 has become final and
executory since no motion for reconsideration was filed, nor appeal taken,
by the parties.
In another July 28, 1999 letter[16] to the NHA, Teodorico, the Rosetes, and
the Corpuzes sought approval of their request to subdivide the subject lot on
an "as is, where is" basis as per NHA policy
November 12, 1999 Letter-Reply,[17] the NHA informed the parties that the
original awards/allocations were being retained; it also advised them to hire
a surveyor for the purpose of subdividing the subject lot in accordance with
such awards.
Teodorico wrote back. In his November 23, 1999 letter,[18] he reiterated his
request to subdivide the subject lot on an "as is, where is" basis and to be
reimbursed by his co-awardees for his overpayments, with interest. This was
followed... by another March 29, 2001 letter[19] by his counsel.
Receiving no response from the NHA
Teodorico sent a May 7, 2003 letter cum motion for reconsideration[20] to
the OP, in which he sought a reconsideration of the November 19, 1997
Decision in O.P. Case No.
5902.  He claimed that the August 5, 1994 Letter-Decision of the NHA
containing the award/allocation of the subject lot to the parties is null and
void as it violated the provisions of Presidential Decree No. 1517[21] (PD
1517) and PD 2016;[22] that the award of 40 square meters to the
Brioneses is null and void as they were mere "renters" (lessees); that
because the August 5, 1994 Letter-Decision of the NHA is a nullity, it never
became final and executory.
In a September 8, 2003 Resolution,[24] the OP denied Teodorico's May 7,
2003 letter cum motion for reconsideration... the instant Petition is DENIED. 
The challenged Resolution of the Office of the President is hereby AFFIRMED
in toto.
Petitioners filed their Motion for Reconsideration,[30] which the CA denied in
its assailed December 22, 2006 Resolution.  Hence, the present Petition.

ISSUES:
5.00.1 The Court of Appeals erred in ruling that petitioner Teodorico Rosete
did not file an appeal from the decision of the National Housing Authority;
5.00.2 The Court of Appeals erred in ruling that the decision of the Office of
the President against the appeal of Remedios Rosete and Felicitas Corpuz
binds petitioner Teodorico Rosete;
5.00.3 The Court of Appeals erred in failing to look into the merits of
petitioner Teodorico Rosete's claim over the subject lot.
RULING:
The Court denies the Petition.
NHA's November 12, 1999 Letter-Reply constituted not only a written
response to the July 28, 1999 letter of Teodorico, the Rosetes, and the
Corpuzes, but a denial as well of Teodorico's October 18, 1994 letter cum
motion for reconsideration of the... agency's August 5, 1994 Letter-
Decision.  As such, Teodorico should have thereafter filed an appeal with the
OP within the prescribed period.  However, instead of doing so, he sent
another letter to the NHA dated November 23, 1999 reiterating his request
to subdivide... the subject lot on an "as is, where is" basis and to be
reimbursed by his co-awardees for his overpayments, with interest.
With his failure to timely appeal the NHA's August 5, 1994 Letter-Decision
and its November 12, 1999 Letter-Reply denying his motion for
reconsideration, and instead taking various erroneous courses of action
which did not properly direct his grievances at the right forum and... within
the prescribed period, the NHA's August 5, 1994 Letter-Decision became
final and executory as against Teodorico and the petitioners for that matter. 
In contemplation of law, petitioners did not at all file an appeal of the NHA's
August 5, 1994 Letter-Decision.
the Court cannot consider Teodorico's October 18, 1994 letter to the NHA as
his appeal to the OP; it is properly a motion for reconsideration of the
agency's August 5, 1994 Letter-Decision.  Indeed, OP AO 18 does not
preclude the filing of a... motion for reconsideration with the agency which
rendered the questioned decision; in reference to such motions for
reconsideration, OP AO 18 specifically states that "[t]he time during which a
motion for reconsideration has been pending with the Ministry/agency
concerned shall... be deducted from the period for appeal.
With regard to O.P. Case No. 5902, Teodorico could not have validly
intervened.  He had no personality to register his objections through his
undated letter which he filed on February 2, 1995 and his May 7, 2003 letter
in which he sought a reconsideration of the OP's
November 19, 1997 Decision; he was not a party appellant or otherwise in
said case.
Thus, "[h]e cannot impugn the correctness of a judgment not appealed from
by him.  He cannot assign such errors as are designed to have the judgment
modified."  This view is in effect taken by petitioners themselves, with their
argument in the instant Petition that since Teodorico was not an appellant in
O.P. Case No. 5902, then he should not be bound by the November 19, 1997
judgment therein dismissing the... appeal.  If he did not intend to be bound
by the judgment therein, then he had no business intervening in the case.
Since petitioners did not have the personality to intervene in O.P. Case No.
5902, then Teodorico had no standing to file therein his May 7, 2003 letter
cum motion for reconsideration.  The OP was thus correct in denying the
same; in turn, the CA correctly affirmed the OP.
WHEREFORE, the Petition is DENIED.

36. Dela Cruz vs. Concepcion, G.R. no. 172825, Oct. 11, 2012
FACTS:
Petitioner claims that the respondent still has not paid her obligation.
Countering this claim, the respondent maintained that she already paid 2
million pesos, representing the purchase price of the petitioner’s former
house and lot. However, she manifested to petitioners that she still had a
remaining balance, which amounts to P200,000.00. Nevertheless, during the
presentation of her evidence, respondent submitted a receipt to prove that
she had already paid the said balance. Both the RTC and the CA concluded
that respondent had already paid the remaining balance of P200,000.00.
Petitioners now assail this, insisting that the court should have maintained
the judicial admissions of respondent especially as to their agreed
stipulations on interests and penalties as well as the existence of
outstanding obligations.
ISSUE:
WON the RTC and CA erroneously ruled that the balance of 200,000 was
already paid by the respondent.
RULING:
No, the decision of the courts is proper. Section 1, Rule 9 of the Rules of
Court states that "defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived." Hence, respondent should
have been barred from raising the defense of payment of the unpaid
P200,000.00. However, Section 5, Rule 10 of the Rules of Court allows the
amendment to conform to or authorize presentation of evidence, to wit:
Section 5.
Amendment to conform to or authorize presentation of evidence. When
issues not raised by the pleadings are tried with the express or implied
consent of the parties, they shall be treated in all respects as if they had
been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be subserved
thereby.
The court may grant a continuance to enable the amendment to be made.
The foregoing provision envisions two scenarios, namely, when evidence is
introduced in an issue not alleged in the pleadings and no objection was
interjected; and when evidence is offered on an issue not alleged in the
pleadings but this time an objection was raised. When the issue is tried
without the objection of the parties, it should be treated in all respects as if
it had been raised in the pleadings. On the other hand, when there is an
objection, the evidence may be admitted where its admission will not
prejudice him. Thus, while respondent judicially admitted in her Answer that
she only paid P2 million and that she still owed petitioners P200,000.00,
respondent claimed later and, in fact, submitted evidence to show that she
already paid the whole amount of her unpaid obligation.
It is noteworthy that when respondent presented the evidence of payment,
petitioners did not object thereto. When the receipt was formally offered as
evidence, petitioners did not manifest their objection to the admissibility of
said document. Apparently, petitioners only denied receipt of said payment
and assailed the authority of the petitioner’s representative to receive
payment. Since there was an implied consent on the part of petitioners to
try the issue of payment, even if no motion was filed and no amendment of
the pleading has been ordered, the RTC cannot be faulted for admitting
respondent’s testimonial and documentary evidence to prove payment.

37. NAPOCOR vs. Ibrahim, G.R. no. 175863, Feb. 18, 2015

FACTS:
In 1978, petitioner took possession of a 21,995 square meter parcel of land
in Marawi City for the purpose of building thereon a hydroelectric power
plant pursuant to its Agus 1 project. The subject land, while in truth a
portion of a private estate registered under TC) No. 378-A in the name of
herein respondent Mangondato, was occupied by petitioner under the
mistaken belief that such land is part of the vast tract of public land reserved
for its use by the government under Proclamation No. 1354. Mangondato
first discovered petitioner’s occupation of the subject land in1979—the year
that petitioner started its construction of the Agus 1 plant. Shortly after such
discovery, Mangondato began demanding compensation for the subject land
from petitioner.
The RTC of Marawi upheld petitioner’s right to expropriate the subject land:
it denied Mangondato’s claim for reconveyance and decreed the subject land
condemned in favor of the petitioner, effective July of 1992, subject to
payment by the latter of just compensation in the amount of
P21,995,000.00. Anent petitioner’s occupation of the subject land from 1978
to July of 1992, on the other hand, the decision required the former to pay
rentals therefor at the rate of P15,000.00 per month with 12% interest per
annum.
ISSUE:
Does the payment of just compensation extinguished petitioner’s liability?
RULING:
Yes. Petitioner’s previous payment to Mangondato pursuant to Civil Case No.
605-92 and Civil Case No. 610-92 may be considered as akin to a payment
made in “good faith” to a person in “possession of credit” per Article 1242 of
the Civil Code that, just the same, extinguishes its obligation to pay for the
rental fees and expropriation indemnity due for the subject land. Article
1242 of the Civil Code reads: “Payment made in good faith to any person in
possession of the credit shall release the debtor.” Borrowing the principles
behind Article 1242 of the Civil Code, we find that Mangondato being the
judgment creditor in Civil Case No. 605-92 and Civil Case No. 610-92 as well
as the registered owner of the subject land at the time may be considered as
a “possessor of credit” with respect to the rental fees and expropriation
indemnity adjudged due for the subject land in the two cases, if the
Ibrahims and Maruhoms turn out to be the real owners of the subject land.
Hence, petitioner’s payment to Mangondato of the fees and indemnity due
for the subject land as a consequence of the execution of Civil Case No. 605-
92 and Civil Case No. 610-92 could still validly extinguish its obligation to
pay for the same even as against the Ibrahims and Maruhoms.

38. Fort Bonifacio Development Company vs. Yllas Lending, G.R.

no. 158997, Oct. 6, 2008

FACTS:
FBDC executed a lease contract in favor of Tirreno, Inc. Section 22, of the
lease contract, reads: Section 22. Lien on the Properties of the Lessee Upon
the termination of this Contract or the expiration of the Lease Period without
the rentals, charges and/or damages, if any, being fully paid or settled, the
LESSOR shall have the right to retain possession of the properties of the
LESSEE used or situated in the Leased Premises and the LESSEE hereby
authorizes the LESSOR to offset the prevailing value thereof as appraised by
the LESSOR against any unpaid rentals, charges and/or damages. If the
LESSOR does not want to use said properties, it may instead sell the same
to third parties and apply the proceeds thereof against any unpaid rentals,
charges and/or damages.
Tirreno began to default in its lease payments in 1999. By July 2000, Tirreno
was already in arrears by P5,027,337.91. FBDC entered and occupied the
leased premises. FBDC also appropriated the equipment and properties left
by Tirreno pursuant to Section 22 of their Contract of Lease as partial
payment for Tirreno’s outstanding obligations.
ISSUE:
WON the stipulation of the contract of lease partakes of a pledge which is
void under Article 2088 of the Civil Code for being pactum commissorium.

HELD:
No. Section 22, as worded, gives FBDC a means to collect payment from
Tirreno in case of termination of the lease contract or the expiration of the
lease period and there are unpaid rentals, charges, or damages. The
existence of a contract of pledge, however, does not arise just because FBDC
has means of collecting past due rent from Tirreno other than direct
payment.
The trial court concluded that Section 22 constitutes a pledge because of the
presence of the first three requisites of a pledge: Tirreno’s properties in the
leased premises secure Tirreno’s lease payments; Tirreno is the absolute
owner of the said properties; and the persons representing Tirreno have
legal authority to constitute the pledge. However, the fourth requisite, that
the thing pledged is placed in the possession of the creditor, is absent.
There is noncompliance with the fourth requisite even if Tirreno’s personal
properties are found in FBDC’s real property. Tirreno’s personal properties
are in FBDC’s real property because of the Contract of Lease, which gives
Tirreno possession of the personal properties. Since Section 22 is not a
contract of pledge, there is no pactumcommissorium.
WHEREFORE, we GRANT the petition. We SET ASIDE the Orders dated 7
March 2003 and 3 July 2003 of Branch 59 of the Regional Trial Court of
Makati City in Civil Case No. 01-1452 dismissing Fort Bonifacio Development
Corporation’s Third-Party Claim and denying Fort Bonifacio Development
Corporation’s Motion to Intervene and Admit Complaint in Intervention.
We REINSTATE Fort Bonifacio Development Corporation’s Third-Party Claim
and GRANT its Motion to Intervene and Admit Complaint in Intervention.
Fort Bonifacio Development Corporation may hold the Sheriff liable for the
seizure and delivery of the properties subject of this case because of the lack
of an indemnity bond

39. Consolidated Industrial Gases vs. Alabang Medical Center, G.R.

no. 181983, Nov. 13, 2013
FACTS:
Consolidated Industrial Gases, Inc. (CIGI) is a domestic corporation engaged
in the business of selling industrial gases (i.e., oxygen, hydrogen and
acetylene) and installing centralized medical and vacuum pipeline system.
Respondent Alabang Medical Center (AMC), on the other hand, is a domestic
corporation operating a hospital business. On August 14, 1995, CIGI, as
contractor and AMC, as owner, entered into a contract whereby the former
bound itself to provide labor and materials for the installation of a medical
gas pipeline system for the first, second and third floors (Phase 1 installation
project) of the hospital for the contract price of Nine Million Eight Hundred
Fifty-Six Thousand Seven Hundred Twenty-Five Pesos and 18/100
(P9,856,725.18) which AMC duly paid in full. The herein legal controversy
arose after the parties entered into another agreement on October 3, 1996
this time for the continuation of the centralized medical oxygen and vacuum
pipeline system in the hospital’s fourth & fifth floors (Phase 2 installation
project) at the cost of Two Million Two Hundred Sixty-Seven Thousand Three
Hundred Forty-Four Pesos and 42/100 (P2,267,344.42).
This second contract followed the same terms and conditions of the contract
for the Phase 1 installation project. CIGI forthwith commenced installation
works for Phase 2 while AMC paid the partial amount of One Million Pesos
(P1,000,000.00) with the agreement that the balance shall be paid through
progress billing and within fifteen (15) days from the date of receipt of the
original invoice sent by CIGI. On August 4, 1997, CIGI sent AMC Charge
Sales Invoice No. 125847 as completion billing for the unpaid balance of
P1,267,344.42 for the Phase 2 installation project. When the sales invoice
was left unheeded, CIGI sent a demand letter to AMC on January 7, 1998.
AMC, however, still failed to pay thus prompting CIGI to file a collection suit
before the RTC on September 15, 1998. CIGI claimed that AMC’s obligation
to pay the outstanding balance of the contract price for the Phase 2
installation project is already due and demandable pursuant to Article II,
page 4 of the contract stating that the project shall be paid through progress
billing within fifteen (15) days from the date of receipt of original invoice. In
its Answer with Counterclaim, AMC averred that its obligation to pay the
balance of the contract price has not yet accrued because CIGI still has not
turned over a complete and functional medical oxygen and vacuum pipeline
system. AMC alleged that CIGI has not yet tested Phases 1 and 2 which
constitute one centralized medical oxygen and vacuum pipeline system of
the hospital despite substantial payments already made.
ISSUE:
Whether or not CIGI’s demand for payment upon AMC is proper
HELD:
Under the subject contracts, CIGI as contractor bound itself to install a
centralized medical oxygen and vacuum pipeline system for the first to fifth
floors of AMC, which in turn, undertook to pay the contract price therefor in
the manner prescribed in the contract. Being reciprocal in nature, the
respective obligations of AMC and CIGI are dependent upon the performance
of the other of its end of the deal such that any claim of delay or non-
performance can only prosper if the complaining party has faithfully
complied with its own obligation.
The Court has painstakingly evaluated the records of the case and based
thereon, there can be no other conclusion than that CIGI’s allegations failed
to muster merit. The Court finds that CIGI did not faithfully complete its
prestations and hence, its demand for payment cannot prosper based on the
following grounds: (a) under the two installation contracts, CIGI was bound
to perform more prestations than merely supplying labor and materials; and
(b) CIGI failed to prove by substantial evidence that it requested AMC for
electrical facilities as such, its failure to conduct a test run and
orientation/seminar is unjustified. Both of the installation contracts clearly
show that CIGI undertook to carry out more prestations than merely
supplying labor and materials for the medical oxygen and vacuum pipeline
system. CIGI agreed also: (a) to perform a pressure drop, leak testing, test
run, painting/color coding of the installed centralized medical oxygen,
vacuum and nitrous oxide pipeline system; and (b) to conduct orientation,
seminars and training for the AMC employees who will be involved in the
operation of the centralized pipeline system before the formal turnover of
the project. This is evident from the herein reproduced provisions of the
installation contracts. For failure to prove that it requested for electrical
facilities from AMC, the undisputed matter remains – CIGI failed to conduct
the stipulated test run and seminar/orientation.
Consequently, the dismissal of CIGI’s collection suit is imperative as the
balance of the contract price is not yet demandable. For having failed to
perform its correlative obligation to AMC under their reciprocal contract,
CIGI cannot unilaterally demand for the payment of the remaining balance
by simply sending an invoice and billing statement to the former. Its right to
demand for and collect payment will only arise upon its completion of ALL its
prestations under the subject contracts. In reciprocal obligations, before a
party can demand the performance of the obligation of the other, the former
must also perform its own obligation. For its failure to turn over a complete
project in accordance with the terms and conditions of the installation
contracts, CIGI cannot demand for the payment of the contract price balance
from AMC, which, in turn, cannot legally be ordered to pay. Otherwise, AMC
will be effectively forced to accept an incomplete performance contrary to
Article 1248 of the Civil Code which states that "(u)nless there is an express
stipulation to that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists."

40. Evangelista vs. Screenez, 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:
W/N 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.

41. Union Bank vs. Tui, G.R. nos. 173090-91, Sept. 7, 2011
FACTS:
Petitioner Union Bank of the Philippines (Union Bank) and respondent
spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a
Credit Line Agreement (CLA), whereby Union Bank agreed to make available
to the spouses Tiu credit facilities in such amounts as may be approved.
Within 6 months, the spouses Tiu took out various loans pursuant to this
CLA in total of US$3,632,000.00 received in equivalent Philippine pesos at
the prevailing exchange rate of US$1=₱26.
Union Bank advised the spouses Tiu that, in view of the existing currency
risks, the loans shall be redenominated to their equivalent Philippine peso.
Union Bank and the spouses Tiu entered into a Restructuring Agreement to
redenominate the loans at the rate of US$1=₱41.40 with interest of 19% for
one year, with an additional loan of 5M which was applied as interest
payments.
Under said agreement, the parties declared that the loan obligation to be
restructured and executed Deeds of Dation in Payment over Labangon
properties and Mandaue property.
The spouses Tiu executed also a Real Estate Mortgage in favor of Union Bank
over their residential property inclusive of lot and improvements.
Asserting that the spouses Tiu failed to comply with the payment schemes
set up in the Restructuring Agreement, Union Bank initiated extrajudicial
foreclosure proceedings on their residential property.
The CA rendered the assailed Joint Decision: 1. dismissed the Petition for
Prohibition; and 2. ruled in favor of the spouses Tiu, invalidating the RA on
account of its being a failed novation of the original loan agreements, and
5M charge of interest therein, and enjoining Union Bank from foreclosing the
mortgaged properties.
ISSUE:
WON receiving the peso equivalent of dollar loan proves the intention of the
parties that such loans should be paid in pesos.
HELD:
No, the Court disagrees with the CA ruling and holds that the parties
intended the amount of the loans in US dollars and not in any other currency
as stipulated in the promissory notes.
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
In the instant case, the promissory notes indicated that the spouses
Tiu borrowed amounts in US dollars although they received peso
equivalents. Hence, they were bound to pay Union Bank in dollars and not in
any other currency.
Thus, the Petition is PARTIALLY GRANTED.
42. EPCI Bank vs. Ng Sheung Ngor, G.R. no. 171545, December 19,
2007
FACTS:
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance
Division, Inc. and Benjamin E. Go filed an action for annulment and/or
reformation of documents and contracts against petitioner Equitable PCI
Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in
RTC, Branch 16 of Cebu City. They claimed that Equitable induced them to
avail of its peso and dollar credit facilities by offering low interest rates so
they accepted Equitable's proposal and signed the bank's pre-printed
promissory notes on various dates beginning 1996. They, however, were
unaware that the documents contained identical escalation clauses granting
Equitable authority to increase interest rates without their consent.
Equitable, in its answer, asserted that respondents knowingly accepted all
the terms and conditions contained in the promissory notes. In fact, they
continuously availed of and benefited from Equitable's credit facilities for five
years.
RTC upheld the validity of the promissory notes. Equitable and respondents
filed their respective notices of appeal but both were denied by the RTC.
Equitable moved for the reconsideration but RTC denied due to lack of merit.
A writ of execution was thereafter issued and three real properties of
Equitable were levied upon.
Equitable filed a petition for relief in the RTC from the March 1, 2004 order.
It, however, withdrew that petition on March 30, 2004 and instead filed a
petition for certiorari with an application for an injunction in the CA to enjoin
the implementation and execution of the March 24, 2004 omnibus order. CA
granted Equitable’s application for injunction. A writ of preliminary injunction
was correspondingly issued.
Notwithstanding the writ of injunction, the properties of Equitable previously
levied upon were sold in a public auction on July 1, 2004. Respondents were
the highest bidders and certificates of sale were issued to them.
Equitable moved to annul the July 1, 2004 auction sale and to cite the
sheriffs who conducted the sale in contempt for proceeding with the auction
despite the injunction order of the CA.
CA dismissed the petition for certiorari. It found Equitable guilty of forum
shopping because the bank filed its petition for certiorari in the CA several
hours before withdrawing its petition for relief in the RTC. Moreover,
Equitable failed to disclose, both in the statement of material dates and
certificate of non-forum shopping, that it had a pending petition for relief in
the RTC.
Equitable moved for reconsideration but it was denied.

ISSUE:
Whether or not the promissory notes were valid.

HELD:
Yes. The RTC upheld the validity of the promissory notes despite
respondents’ assertion that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party. The participation of the other party is limited to
affixing his signature or his adhesion to the contract. For this reason,
contracts of adhesion are strictly construed against the party who drafted it.
It is erroneous, however, to conclude that contracts of adhesion are invalid
per se. They are, on the contrary, as binding as ordinary contracts. A party
is in reality free to accept or reject it. A contract of adhesion becomes void
only when the dominant party takes advantage of the weakness of the other
party, completely depriving the latter of the opportunity to bargain on equal
footing.
That was not the case here. As the trial court noted, if the terms and
conditions offered by Equitable had been truly prejudicial to respondents,
they would have walked out and negotiated with another bank at the first
available instance. But they did not. Instead, they continuously availed of
Equitable's credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar-
and peso-denominated loans with Equitable, it, however, failed to ascertain
the total amount due (principal, interest and penalties, if any) as of July 9,
2001. The trial court did not explain how it arrived at the amounts of
US$228,200 and P1,000,000. In Metro Manila Transit Corporation v. D.M.
Consunji, we reiterated that this Court is not a trier of facts and it shall pass
upon them only for compelling reasons which unfortunately are not present
in this case. Hence, we ordered the partial remand of the case for the sole
purpose of determining the amount of actual damages.
43. Premiere Development Bank vs. Central Surety, G.R. no.
176246, Feb. 13, 2009
FACTS:
Central Surety obtained an industrial loan of ₱6,000,000.00 from petitioner
Premiere Bank with a maturity date of August 14, 2000, evidenced by a
Promissory Note.
It stipulates payment of 17% interest per annum payable monthly in arrears
and the principal payable on due date and a penalty charge of 24% interest
per annum. To secure payment of the loan, Central Surety executed in favor
of Premiere Bank a Deed of Assignment with Pledge covering Central
Surety’s Membership Fee Certificate representing its proprietary share in
Wack Wack Golf and Country Club Incorporated. Constancio T. Castañeda,
Jr. and Engracio T. Castañeda, president and vice-president of Central
Surety, respectively, represented Central Surety and solidarily bound
themselves to the payment of the obligation. Central Surety had another
commercial loan with Premiere Bank in the amount of ₱40,898,000.00
maturing on October 10, 2001, evidenced by a Promissory Note and secured
by a real estate mortgage over Condominium Certificate.
On September 20, 2000, Central Surety issued Bank of Commerce in the
amount of ₱6,000,000.00 and payable to Premiere Bank.
The check was received by Premiere Bank’s Senior Account Manager,
Evangeline Veloira, with the notation "full payment of loan-Wack Wack”. An
amount of ₱2,600,000.00 was also tendered to Premiere Bank as payment
for the Spouses Engracio and Lourdes Castañeda’s personal loan.
Significantly, the ₱8,600,000.00 check payments were not applied in full to
Central Surety’s loan and the Spouses Castañeda’s personal. Premiere Bank
also applied proceeds thereof to a commercial taken out by Casent Realty
and Development Corporation. Central Surety’s counsel wrote Premiere Bank
and reiterated Central Surety’s demand for the application of the check
payments to the loans and asked that the Wack Wack Membership pledge,
the security for the ₱6,000,000.00 loan, should be released.
ISSUE:
Whether or not Premiere Bank waived its right of application of payments on
the loans of CentralSurety; (2) Whether the release of the Wack Wack
Membership pledge is in order.
HELD:
Article 1252 of the Civil Code provides: He who has various debts of the
same kind in favor of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be applied. The
debtor’s right to apply payment is only directory, and not mandatory, as
manifested by the use of the word “may”.
Such right may be waived or even granted to the creditor if both parties
agree on such circumstance. In the instant case, it was stipulated in the
contract that the right to apply payments would be enjoyed by the Premiere
Bank.
It cannot be understood that such granted right was waived by Premiere
Bank. As all debts were already due, the subsequent demand made by
Premiere Bank cannot be equated with a waiver of the right to demand
payment of all the matured obligations of Central Surety to Premiere Bank.
The Court also recognized the standard practice in commercial transactions
to send demand letters before default may set in. The demand cannot be
considered a waiver for a waiver must be positively demonstrated, and
voluntary, made knowingly, intelligently and with sufficient awareness of
relevant circumstances and likely consequences.
Also any inference of a waiver made by Premiere Bank is denied by the
provision of the Promissory Note that “no failure on the part of Premiere
Bank to exercise, and no delay in exercising any right hereunder, shall
operate as a waiver thereof.” When Central Surety issued a check as
payment to Premiere Bank, it knew very well that it had several loans which
granted Premiere Bank the right to apply its payment.

44. Orix Metro Leasing vs. MV Pilar-1 and Sps. Dy, G.R no. 157901,
Sept. 11, 2009
FACTS:
Petitioner Orix Metro Leasing and Finance Corporation (Orix Metro) is a
domestic corporation engaged in the leasing and financing business.
Respondents Ernesto and Lourdes Dy (spouses Dy) are the proprietors of
Limchia Enterprises, engaged in the shipping business.
Needing to raise funds for the acquisition of a cargo vessel, Limchia
Enterprises, with Lourdes Dy as co-maker, obtained a loan from Orix Metro
in the amount of ₱4,764,024.004 evidenced by a Promissory Note executed
on 3 August 1990. According to the Promissory Note, Lourdes Dy would pay
for the loan, without need of notice or demand, in 36 monthly installments
due and payable on the 6th day of each month starting 6 September 1990.
Ernesto Dy likewise executed a Continuing Suretyship Agreement, wherein
he made himself a solidary obligor in the event his wife Lourdes Dy would
default under the terms of the Promissory Note.
With the proceeds of the loan, Limchia Enterprises was able to acquire and
register in its name the vessel M/V Pilar-I. On 16 July 1990, the Philippine
Coast Guard in Zamboanga City issued in favor of Limchia Enterprises the
Certificate of Ownership and Certificate of Philippine Registry of M/V Pilar-I.
The spouses Dy appealed for the restructuring of their loan with Orix Metro.
Lourdes Dy also requested the release of the mortgage on their Quezon City
home, so they could mortgage the same real property to secure a bank loan,
the proceeds of which they would use, in turn, to pay the arrears, penalty
charges, as well as advance payments, on their loan from Orix Metro.
Subsequently The RTC rendered its Decision 26 on 31 July 1997 in favor of
the spouses Dy.
Orix Metro sought recourse from the Court of Appeals by filing a Notice of
Appeal on 2 September 1997. After being granted its request for extension,
Orix Metro finally filed its Appellant’s Brief on 29 March 1999. The spouses
Dy were able to file their Appellee’s Brief on 19 July 1999. The appellate
court, however, still found for the spouses Dy based on the following
ratiocination:
Evidently, the parties agreed to restructure the loan and [herein petitioner
Orix Metro] acceded to the [herein respondents’] proposed schedule of
payments. Records show that in accordance with [Lourdes Dy]’s letter dated
May 30, 1992, [respondents] have partially complied with the payment of
their obligation for the months of June and July 1992. This is so because
[respondents] failed to pay the additional amounts of ₱55,128.00 which they
agreed to incorporate in their monthly payments in addition to what was
proposed in the May 30, 1992 letter.
The question we will now resolve is whether or not [respondents] are in
default, in order to determine whether or not [Orix Metro] has a cause of
action to institute the instant case.

ISSUE:
WON THE APPELLATE COURT ERRED IN RULING THAT ORIX METRO SHOULD
NOT HAVE APPLIED THE ADVANCE PAYMENT OF ₱289,439.00 TO INTEREST
DUE ON THE LOAN WITHOUT INFORMING THE SPOUSES DY.

RULING:
NO. On the application of the advance payment of ₱289,480.00 to the
obligation, the Court affirms the ruling of the Court of Appeals that Article
125237 of the Civil Code controls. Therefore, the spouses Dy may properly
apply said advance payment against their outstanding obligation following
the new schedule of payments. Additionally, in contracts involving
installment payments with interest chargeable against the remaining balance
of the obligation, the creditor is duty-bound to inform the debtor of the
amount of interest that falls due, and that he is applying the installment
payments to cover said interest. Without notifying the debtor, the creditor
cannot apply the payments to the interest and then later on hold the debtor
in default for nonpayment of installments on the principal.38 In this case, as
found by the appellate court, Orix Metro clearly failed to provide the spouses
Dy a detailed accounting of the remaining principal obligation, interest, and
payments already made.39 The spouses Dy had all the right to apply the
advance payment to the amount due in the new schedule of payments.

45. Marquez vs. Elisan Credit Corp., G.R. no. 194642, Apr. 6, 2015

FACTS:
Nunelon R. Marquez (petitioner) obtained a (first loan) from Elisan Credit
Corporation (respondent) payable in 180 days. The petitioner signed a
promissory note which provided that it is payable in weekly installments and
subject to 26% annual interest. In case of non-payment, the petitioner
agreed to pay 10% monthly penalty based on the total amount unpaid and
another 25% of such amount for attorney's fees exclusive of costs, and
judicial and extrajudicial expenses. To further secure payment of the loan,
the petitioner executed a chattel mortgage over a motor vehicle. The
petitioner obtained another loan (second loan). The respondent filed a
complaint for judicial foreclosure of the chattel mortgage because the
petitioner allegedly failed to settle the balance of the second loan despite
demand. Before the petitioner could file an answer, the respondent applied
for the issuance of a writ of replevin. The MTC issued the writ and by virtue
of which, the motor vehicle covered by the chattel mortgage was seized
from the petitioner and delivered to the respondent.

ISSUE:

Whether or not the chattel mortgage could cover the second loan.

RULING:

No. The chattel mortgage could not validly cover the second loan. The order
for foreclosure was without legal and factual basis. the Chattel Mortgage Law
requires the parties to the contract to attach an affidavit of good faith and
execute an oath that -" x x x (the) mortgage is made for the purpose of
securing the obligation specified in the conditions thereof, and for no other
purposes, and that the same is a just and valid obligation, and one not
entered into for the purposes of fraud." It is obvious therefore that the debt
referred in the law is a current, not an obligation that is yet merely
contemplated. The only obligation specified in the chattel mortgage contract
was the first loan which the petitioner later fully paid. By virtue of Section 3
of the Chattel Mortgage Law, the payment of the obligation automatically
rendered the chattel mortgage terminated; the chattel mortgage had ceased
to exist upon full payment of the first loan. Being merely an accessory in
nature, it cannot exist independently of the principal obligation. The parties
did not execute a fresh chattel mortgage nor did they amend the chattel
mortgage to comply with the Chattel Mortgage Law which requires that the
obligation must be specified in the affidavit of good faith. Simply put, there
no longer was any chattel mortgage that could cover the second loan upon
full payment of the first loan. The order to foreclose the motor vehicle
therefore had no legal basis.

46. Yulim International vs. International Exchange Bank (now

Union Bank), G.R. no. 203133, Feb. 18, 2015

FACTS:
iBank granted Yulim a credit facility in the form of an Omnibus Loan Line for
5Million pesos, as evidenced by a Credit Agreement which was secured by a
Chattel Mortgage over Yulim’s inventories in its merchandise warehouse. As
further guarantee, partners James, Jonathan and Almerick, executed a
Continuing Surety Agreement in favor of iBank. Yulim defaulted in the
payment of its obligations. iBank sent demand letters to Yulim but without
success. The court granted writ of replevin. However, the items seized from
the warehouse were only worth 140,000pesos and not 5Million pesos. In this
case the petitioners alleged that the loan had been fully paid after they
assigned to iBank their Condo Unit and invoke Article 1255(payment by
cession).
ISSUE:
Whether the petitioners can invoke payment by cession under Article 1255
of the Civil Code
RULING:
No. To stress, the assignment being in it sessence a mortgage, it was but a security
and not a satisfaction of the petitioners’ indebtedness. Article 1255 of the Civil Code
invoked by the petitioners contemplates the existence of two or more creditors and
involves the assignment of the entire debtor’s property, not a dacion en pago.
Under Article 1245 of the Civil Code, “[d]ation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money, shall be governed by the
law on sales.” Nowhere in the Deed of Assignment can it be remotely said that a
sale of the condominium unit was contemplated by the parties, the consideration
for which would consist of the amount of outstanding loan due to iBank from the
petitioners.

47. Go Cinco vs. CA, G.R. no. 151903, Oct. 9, 2009

FACTS:

Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from

respondent Maasin Traders Lending Corporation (MTLC). The loan was
evidenced by the promissory note, and secured by a real estate mortgage
over the spouses Cinco’s land and 4-storey building. To pay the loan in favor
of MTLC, the spouses Cinco applied for a loan with the Philippine National
Bank (PNB), and offered the same properties they previously mortgage to
MTLC. The PNB approved the load application for 1.3 Million; the release
was, however, conditioned on the cancellation of the mortgage in favor of
MTLC. Manuel went to Ester Servacio (Ester), MTLC’s President to inform her
that there was money with PNB for Payment of his loan. Manuel executed a
Special Power of Attorney (SPA) authorizing Ester to collect the proceeds of
the loan. Ester went to the PNB to inquire, the second time around, about
the proceeds. The bank officer confirmed the existence of such loan, but
they required Ester to first sign a deed of release/cancellation of the
mortgage before they could release the proceeds of the loan to her.
Outraged, Ester refused the deed and did not collect the 1.3 Million. Ester
instituted foreclosure proceeding. To prevent the foreclosure, the spouses
Cinco filed an action for specific performance, damages, and preliminary
injunction.

ISSUE:

Whether the loan due the MTLC had been extinguished by the act of the
spouses Cinco amounted to payment.

HELD:

No, While Ester’s refusal was unjustified and unreasonable, we cannot agree
with Manuel’s position that this refusal had the effect of payment that
extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on
this point when it provides that – ARTICLE 1256.

If the creditor to whom tender of payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due. In short, a refusal without just
cause is not equivalent to payment; to have the effect of payment and the
consequent extinguishment of the obligation to pay, the law requires the
companion acts of tender of payment and consignation. Tender of payment,
as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., is the
definitive act of offering the creditor what is due him or her, together with
the demand that the creditor accept the same. When a creditor refuses the
debtor’s tender of payment, the law allows the consignation of the thing or
the sum due. Tender and consignation have the effect of payment, as by
consignation, the thing due is deposited and placed at the disposal of the
judicial authorities for the creditor to collect. Nonetheless, the SPA stood as
an authority to collect the proceeds of the already-approved PNB loan that,
upon receipt by Ester, would have constituted as payment of the MTLC loan.
The Court agrees with Manuel that Ester’s refusal of the payment was
without basis.

Under these circumstances, we hold that while no completed tender of

payment and consignation took place sufficient to constitute payment, the
spouses Go Cinco duly established that they have legitimately secured a
means of paying off their loan with MTLC; they were only prevented from
doing so by the unjust refusal of Ester to accept the proceeds of the PNB
loan through her refusal to execute the release of the mortgage on the
properties mortgaged to MTLC.

We also find that under the circumstances, the spouses Go Cinco have
undertaken, at the very least, the equivalent of a tender of payment that
cannot but have legal effect. Since payment was available and was
unjustifiably refused, justice and equity demand that the spouses Go Cinco
be freed from the obligation to pay interest on the outstanding amount from
the time the unjust refusal took place

48. Cacayorin vs. AFPMBAI, G.R. no. 171298, Apr. 15, 2013

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:

Whether or not there is a valid consignation albeit prior tender of payment

Whether or not the court can exercise authority over the issue of
consignation with regards to contractual and legal obligations of parties in a
sale of subdivision lots

HELD:

AFFIRMATIVE. 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 arised, 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

49. Banco Filipino vs. Diaz, G.R. no. 153134, June 27, 2006

FACTS:

Spouse Antonio and Elsie Diaz secured a loan from petitioner Banco Filipino the
amount of P400,000 with 16% interest per annum. The loan was restructured in the
amount of P3,163,000payable within a period of 20 yrs at an interest of 22% per
annum. The obligation was to be paid in equal monthly amortization & secured by a
real estate mortgage (properties found at Bolton and Bonifacio Sts., Davao City) &
additional collateral (the rentals on the mortgage properties). Despite repeated
demands made on them, the respondents defaulted. Before petitioner bank could
institute the foreclosure proceedings, respondent filed with the RTC a complaint but
it denied such application, which the CA also affirmed said order. Thereafter,
respondent filed another complaint for consignation & declaration of cancellation of
obligation with prayer for issuance of a preliminary injunction & TRO.

Based on the ex-parte evidence, the respondents had a remaining balance of

P1,034,600, which the respondent tendered the amount to petitioner bank.
However, petitioner bank refused to accept it because the amount due is P
10,160,649. The respondent then consign it with the RTC, a manager’s check as full
payment of their loan obligation. The RTC ruled that the consignation is valid
because Banco Filipino could not charge any interest during the time it was closed
by the Central Bank.

The C.A, however, declared that it failed to effect a valid consignation because it did
not include all interest due. Its decision because final & executory. Thereafter,
respondent filed a motion to withdraw deposit alleging that their obligation was
settled with the payment of P25 M by Gaisano brothers. Petitioner bank opposed &
asserted that the deposit be released to it as part of the full payment &maintained
that it accepted the said consignation & respondent could no longer withdraw the
said amount.

ISSUE:

WON respondent Diaz may still withdraw the amount deposited with the RTC?

HELD:

YES. The respondents remain the owners of the sum of P1,034,600.00 deposited
with the RTC of Makati City. When they filed their motion to withdraw the deposit,
they did so in the exercise of their right. Under Art. 1260, the debtor may withdraw
as a matter of right, the thing or amount deposited on consignation in the following
instances: a)before the creditor has accepted the consignation or b) before a
judicial declaration that the consignation has been properly made. In this case,
there was no judicial declaration that the consignation had been properly made. On
the contrary, the C.A declared that there was no valid consignation. What remains
to be determined is whether petitioner bank had already accepted the respondent
from exercising their rights to withdraw the same. Before the consignation has been
judicially declared proper, the creditor may prevent the withdrawal by the debtor,
by accepting the consignation, even with reservations. Thus, when the amount
consigned does not cover the entire obligation, the creditor may accept it, reserving
his right to the balance. Petitioner bank’s allegation has failed to establish by
convincing evidence that it had made such acceptance of the deposit in question
prior to the respondents filing of their motion to withdraw the amount deposited.

To prove this claim, petitioner bank relies on the statement of account prepared by
its employees purportedly showing that the deposit in question was deducted from
the respondents' outstanding obligation as of December 31, 1998. This statement
of account, however, is selfserving and has no probative value especially
considering that the persons who prepared the same were not presented in court.
The claimed "acceptance" was obviously an afterthought, and proffered for the sole
purpose of opposing the deposit withdrawal. Before the consignation has been
accepted by the creditor or judicially declared as properly made, the debtor is still
the owner of the thing or amount deposited, and therefore, the other parties liable
for the obligation have no right to oppose debtor’s withdrawal. However, creditor
may prevent the withdrawal by accepting the consignation even with reservation.
Thus, when the amount consigned does not cover the entire obligation, the creditor
may accept it, reserving his right to the balance. But in this case, petitioner bank
did not do so.

50. Gaisano vs. Insurance Company of North America, G.R. no.

147839, June 8, 2006

FACTS:
International Marketing Corporation (IMC) is the maker of Wrangler Blue
Jeans while Levi Strauss PH Inc. (LSPI) is the legal distributor thereof. 
Both IMC & LSPI obtained fire insurance policies with Insurance Company of
North America (respondent).

Gaisano Cagayan Inc (petitioner) is a costumer and dealer of IMC and LSPI’s
products.

Superstore complex in CDO was consumed by fire, including stocks of ready-

made clothing materials sold and delivered by IMC and LSPI.

Insurance Company of North America, exercising its right of subrogation,

filed an action for damages against Gaisano Cagayan for the recovery what
it paid to IMC and LSPI.

Gaisano Cagayan contends that it could not be held liable because the
property covered by the insurance policies were destroyed due to fortuitous
event or force majeure RTC: ruled in favor of Gaisano Cagayan. CA:
reversed the RTC decision.

ISSUE:

(1) WoN IMC & LSPI has insurable interest over the delivered stocks of
ready-made clothing materials.
(2) WoN the fire insurance policy on book debts covered the unpaid accounts
of IMC & LSPI.

HELD:

(1) YES. IMC & LSPI has insurable interest over the sold and delivered
stocks of ready-made clothing materials. The present case clearly falls under
paragraph (1), Article 1504 of the Civil Code: ART. 1504. Unless otherwise
agreed, the goods remain at the seller’s risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to
the buyer the goods are at the buyer’s risk whether actual delivery has been
made or not, except that: (1) Where delivery of the goods has been made to
the buyer or to a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods
are at the buyer’s risk from the time of such delivery; (Emphasis supplied) x
x x x Thus, when the seller retains ownership only to insure that the buyer
will pay its debt, the risk of loss is borne by the buyer.
Accordingly, petitioner bears the risk of loss of the goods delivered. Section
13 of our Insurance Code defines insurable interest as “every interest in
property, whether real or personal, or any relation thereto, or liability in
respect thereof, of such nature that a contemplated peril might directly
damnify the insured.” Parenthetically, under Section 14 of the same Code,
an insurable interest in property may consist in: (a) an existing interest; (b)
an inchoate interest founded on existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises.
An insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject matter of the
insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated
with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured. Anyone has an
insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction.

Indeed, a vendor or seller retains an insurable interest in the property sold

so long as he has any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor’s lien. In this case, the
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing
in their Books of Account 45 days after the time of the loss covered by the
policies. There is no proof of full settlement of the insurance claim of LSPI;
no subrogation receipt was offered in evidence. Thus, there is no evidence
that respondent has been subrogated to any right which LSPI may have
against petitioner. Failure to substantiate the claim of subrogation is fatal to
petitioner’s case for recovery of the amount of P535,613.00.

(2) YES. The fire insurance policy on books debts covered the unpaid
account of IMC & LSPI. It is well-settled that when the words of a contract
are plain and readily understood, there is no room for construction. When
the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to
be understood literally just as they appear on the face of the contract. In
this case, the questioned insurance policies provide coverage for “book debts
in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the
Philippines;” and defined book debts as the “unpaid account still appearing in
the Book of Account of the Insured 45 days after the time of the loss
covered under this Policy.” Nowhere is it provided in the questioned
insurance policies that the subject of the insurance is the goods sold and
delivered to the customers and dealers of the insured.
51. De Leon vs. Ong, G.R. no. 170405, Feb. 2, 2010

FACTS:

Raymundo De Leon sold three parcels of land with improvements situated in

Antipolo, Rizal to respondent Benita T. Ong for P1.1 million.

These properties were mortgaged to Real Savings and Loan Association,

Incorporated (RSLAI). The contract between De Leon and Ong states that De
Leon sells, transfers, conveys in a manner absolute and irrevocable, unto
Ong the said properties under the terms and conditions that (1) upon full
payment of Ong of the amount P415,000, De Leon shall execute and sign a
deed of assumption of mortgage in favor of Ong without any further cost
whatsoever; and that Ong shall assume payment of the outstanding loan of
P684,500 with REAL SAVINGS AND LOAN.

Ong partially paid De Leon the P415,500. De Leon, on the other hand,
handed the keys to the properties. Thereafter, Ong undertook repairs and
made improvements on the properties.

Subsequently, Ong learned that petitioner again sold the same properties to
one Leona Viloria. Ong filed a Complaint against De Leon and Viloria in the
RTC. Ong claimed that since De Leon had previously sold the properties to
her, he no longer had the right to sell the same to Viloria. And that they
entered into a contract of sale. De Leon, on the other hand, insisted that he
entered into a contract to sell since the validity of the transaction was
subject to a suspensive condition, that is, the approval by RSLAI of Ong’s
assumption of mortgage.

RTC ruled in favor of De Leon. CA reversed and declared the second sale
void.

ISSUES:

(1) Was the contract between De Leon and Ong a contract of sale, or a
contract to sell?
(2) Was the subsequent sale to Viloria valid?

HELD:

(1) YES. Clearly, it was a contract of sale the parties entered into. The deed
executed by the parties stated that petitioner sold the properties to
respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.
Nothing in said instrument implied that petitioner reserved ownership of the
properties until the full payment of the purchase price.

Petitioner executed a notarized deed of absolute sale, which is equivalent to

the delivery of a thing sold (Art. 1498 CC), in favor of respondent. The
totality of petitioner’s acts clearly indicates that he had unqualifiedly
delivered and transferred ownership of the properties to respondent.

(2) YES. This case involves a double sale as the disputed properties were
sold validly on two separate occasions by the same seller to the two different
buyers in good faith.

Article 1544 of the Civil Code provides:

“Article 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person

who in good faith was first in the possession; and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith.”

In this instance, petitioner delivered the properties to respondent when he

executed the notarized deed and handed over to respondent the keys to the
properties. For this reason, respondent took actual possession and exercised
control thereof by making repairs and improvements thereon. Clearly, the
sale was perfected and consummated on March 10, 1993. Thus, respondent
became the lawful owner of the properties.

52. Poon vs. Prime Savings Bank, G.R. no. 183794, June 13, 2016

FACTS:

Spouses Poon owned a commercial building in Naga City, which they used
for their bakery business. In November 2006, Matilde Poon and Prime
Savings Bank executed a 10-year Contract of Lease over the building for the
latter's use as its branch office in Naga City. They agreed to a fixed monthly
rental of P60,000, with an advance payment of the rentals for the first 100
months in the amount of P6,000,000. As agreed, the advance payment was
to be applied immediately, while the rentals for the remaining period of the
Contract were to be paid on a monthly basis. In addition, paragraph 24 of
the Contract provides: Should the lease[d] premises be closed, deserted or
vacated by the LESSEE, the LESSOR shall have the right to terminate the
lease without the necessity of serving a court order and to immediately
repossess the leased premises. xxx. The LESSOR shall thereupon have the
right to enter into a new contract with another party.

All advanced rentals shall be forfeited in favor of the LESSOR. Barely three
years later, however, the BSP placed respondent under the receivership of
the Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP
Monetary Board Resolution No. 22 which provides that PSB has wilfully
violated a cease and desist orders that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the
institution, among other grounds. The BSP eventually ordered respondent's
liquidation.

In May 2000, the respondent vacated the leased premises and surrendered
them to petitioners. Subsequently, the PDIC issued petitioners a demand
letter asking for the return of the unused advance rental amounting to
P3,480,000 on the ground that paragraph 24 of the lease agreement had
become inoperative, because respondent's closure constituted force
majeure. The PDIC likewise invoked the principle of rebus sic stantibus
under Article 1267 of the Civil Code as an alternative legal basis for
demanding the refund. Petitioners, however, refused the PDIC's demand.
They maintained that they were entitled to retain the remainder of the
advance rentals following paragraph 24 of their Contract

ISSUE:

1. Whether the respondent may be released from its contractual obligations

to petitioners on grounds of fortuitous event under Article 1174 of the Civil
Code and unforeseen event under Article 1267 of the Civil Code
2. Whether the proviso in the parties' Contract allowing the forfeiture of
advance rentals was a penal clause
3. Whether the penalty agreed upon by the parties may be equitably
reduced under Article 1229 of the Civil Code.

RULING:

1. NO. The Court ruled that the closure of respondent's business was neither
a fortuitous nor an unforeseen event that rendered the lease agreement
functus officio. The period during which the bank cannot do business due to
insolvency is not a fortuitous event, unless it is shown that the government's
action to place a bank under receivership or liquidation proceedings is
tainted with arbitrariness, or that the regulatory body has acted without
jurisdiction. In this case, there is no indication or allegation that the BSP's
action in this case was tainted with arbitrariness or bad faith. Instead, its
decision to place respondent under receivership and liquidation proceedings
was pursuant to Section 30 of The New Central Bank Act (1993). Moreover,
the respondent was partly accountable for the closure of its banking
business. It cannot be said, then, that the closure of its business was
independent of its will as in the case of Provident Savings Bank. The legal
effect is analogous to that created by contributory negligence in quasi-delict
actions.

The Court cannot also give due course respondent lessee’s invocation of the
doctrine of unforeseen event under Article 1267 of the Civil Code Tagaytay
Realty Co., Inc. v. Gacutan lays down the requisites for the application of
Article 1267, as follows:
1. The event or change in circumstance could not have been foreseen
at the time of the execution of the contract.
2. It makes the performance of the contract extremely difficult but not
impossible.
3. It must not be due to the act of any of the parties.
4. The contract is for a future prestation. The first and the third
requisites, however, are lacking. It must be noted that the lease
agreement was for 10 years.

As shown by the unrebutted testimony of Jaime Poon during trial, the parties
had actually considered the possibility of a deterioration or loss of
respondent's business within that period. Moreover, the closure of
respondent's business was not an unforeseen event. As the lease was long-
term, it was not lost on the parties that such an eventuality might occur, as
it was in fact covered by the terms of their Contract. Besides, the event was
not independent of the respondent's will.

2. YES. The forfeiture clause in the contract is a penal clause. It is settled

that a provision is a penal clause if it calls for the forfeiture of any remaining
deposit still in the possession of the lessor, without prejudice to any other
obligation still owing, in the event of the termination or cancellation of the
agreement by reason of the lessee's violation of any of the terms and
conditions thereof. This kind of agreement may be validly entered into by
the parties. The clause is an accessory obligation meant to ensure the
performance of the principal obligation by imposing on the debtor a special
prestation in case of nonperformance or inadequate performance of the
principal obligation.
3. YES. A reduction of the penalty agreed upon by the parties is warranted
under Article 1129 of the Civil Code. If this were an ordinary contest of
rights of private contracting parties, respondent lessee would be obligated to
abide by its commitment to petitioners. The general rule is that courts have
no power to ease the burden of obligations voluntarily assumed by parties,
just because things did not turn out as expected at the inception of the
contract. It must be noted, however, that this case was initiated by the PDIC
in furtherance of its statutory role as the fiduciary of Prime Savings Bank. As
the state-appointed receiver and liquidator, the PDIC is mandated to recover
and conserve the assets of the foreclosed bank on behalf of the latter's
depositors and creditors. In other words, at stake in this case are not just
the rights of petitioners and the correlative liabilities of respondent lessee.
Over and above those rights and liabilities is the interest of innocent debtors
and creditors of a delinquent bank establishment.

These overriding considerations justify the 50% reduction of the penalty

agreed upon by petitioners and respondent lessee in keeping with Article
1229 of the Civil Code

53. Tagaytay Realty vs. Gacutan, G.R. no. 160033, July 1, 2015

FACTS:

On September 6, 1976, Arturo G. Gacutan (Gacutan) entered into a contract

to sell with the Tagaytay Realty Co. Inc. (Tagaytay Realty) for the purchase
on installment of a residential lot with an area of 308 square meters situated
in the Foggy Heights Subdivision then being developed by the latter. The
contract contains the following clause We hereby undertake to complete the
development of the roads, curbs, gutters, drainage system, water and
electrical systems, as well as all the amenities to be introduced in FOGGY
HEIGHTS SUBDIVISION, such as, swimming pool, pelota court, tennis and/or
basketball court, bath house, children’s playground and a clubhouse within a
period of two years from 15 July 1976, on the understanding that failure on
their part to complete such development within the stipulated period shall
give the VENDEE the option to suspend payment of the monthly amortization
on the lot/s he/she purchased until completion of such development without
incurring penalty interest.
In 1979 Gacuta Suspended the payment of the amortization requesting for
the progress report in the construction of the amenities. On June 10, 1985
Gacuta received instead a statement of account demanding payment of
balance price plus interest and penalty. Gacuta then filed a petition in HLURB
for specific performance against Tagaytay Realty.

ISSUE:

Whether or not the Tagaytay Realty is liable to construct the amenities

HELD:

The Supreme Court ruled that Tagaytay Realty was not relieved from its
statutory and contractual obligations. The arguments of the Tagaytay Realty
to be released from its obligation to construct the amenities lack persuasion.
To start with, the law is not on the side of the Tagaytay Realty. Under
Section 20 of Presidential Decree No. 957, all developers, are mandated to
complete their subdivision projects, including the amenities, within one year
from the issuance of their licenses. There is no question that the Tagaytay
Realty did not comply with its legal obligation to complete the construction
of the subdivision project, including the amenities, within one year from the
issuance of the license. Instead, it unilaterally opted to suspend the
construction of the amenities to avoid incurring maintenance expenses.

In so opting, it was not driven by any extremely difficult situation that

would place it at any disadvantage, but by its desire to benefit from cost
savings. Such cost-saving strategy dissuaded the lot buyers from
constructing their houses in the subdivision, and from residing therein.
Considering that the Tagaytay Realty’s unilateral suspension of the
construction of the amenities was intended to save itself from costs, its plea
for relief from its contractual obligations was properly rejected because it
would thereby gain a position of advantage at the expense of the lot owners
like the Gacuta.
54. Comglasco vs. Santos Car Check Center, G.R. no. 202989, March
25, 2015

FACTS:

In the year 2000, Santos Car Check Center and Comglasco Corporation entered into
a contract of lease for five years of a showroom in Iloilo City. However, Comglasco
advised Santos Car Check Center that it is pre-terminating the lease effective
December 1, 2001, to which Santos did not accede, citing that their contract was
for five years. Comglasco vacated the premises on January 15, 2002 and stopped
paying any rentals. Despite several demands, Comglasco ignored the demand
letters, hence Santos filed a case for breach of contract. In its answer, Comglasco
averred that business setbacks caused by the 1997 financial crisis caused it to pre-
terminate the contract, which allows pre-termination with cause in the first three
years of the contract and without cause after the third year.

Invoking Article 1267 of the Civil Code, it averred that it is 1uthorized to pre-
terminate the contract before the lapse of the three years. Santos moved for a
judgment on the pleading, which the RTC granted. It held Comglasco liable for
unpaid rentals from January 16, 2002 to August 15, 2003, as well as attorneys
fees, litigation expenses and exemplary damages. Comglasco appealed to the CA,
but the same was denied. Hence, Comglasco filed a petition for review on certiorari
with the Supreme Court, arguing that judgment on the pleadings was not proper in
the case as it cannot be deemed to have admitted the material allegations in the
complaint in its Answer, having pleaded a valid cause (Business reverses caused by
the 1997 financial crisis).

The RTC should have ordered the reception of evidence for that purpose, after
which a summary judgment would have been proper. It also insists that its rentals
in advance should be deducted from the award of damages.

ISSUE:

Whether or not 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?

HELD:

No. In Philippine National Construction Corporation v. CA (PNCC), which also

involves the termination of a lease of property by the lessee "due to financial, as
well as technical, difficulties,” the Court ruled: The obligation to pay rentals or
deliver the thing in a contract of lease falls within the prestation "to give"; hence, it
is not covered within the scope of Article 1266. At any rate, the unforeseen event
and causes mentioned by petitioner are not the legal or physical impossibilities
contemplated in said article. Besides, petitioner failed to state specifically the
circumstances brought about by "the abrupt change in the political climate in the
country" except the alleged prevailing uncertainties in government policies on
infrastructure projects. The principle of rebus sic stantibus neither fits in with the
facts of the case. Under this theory, the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist, the contract also
ceases to exist.

This theory is said to be the basis of Article 1267 of the Civil Code, which provides:
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole
or in part. This article, which enunciates the doctrine of unforeseen events, is not,
however, an absolute application of the principle of rebus sic stantibus, which would
endanger the security of contractual relations. The parties to the contract must be
presumed to have assumed the risks of unfavorable developments. It is therefore
only in absolutely exceptional changes of circumstances that equity demands
assistance for the debtor.

55. BPI vs. CA, G.R. no. 136202, Jan. 25, 2007

FACTS:

Salazar had in her possession three crossed checks with an aggregate amount of
P267, 692.50. These checks were payable to the order of JRT Construction and
Trading which was the name of Templonuevo’s business. Despite lack of knowledge
and endorsement of Templonuevo, Salazar was able to deposit the checks in her
personal savings account with BPI and encash the same.

The three checks were deposited in three different occasions over the span of eight
months. A year after the last encashment, Templonuevo protested the purportedly
unauthorized encashments and demanded from BPI the aggregate amount of the
checks.

BPI complied with Templonuevo’s demand. Since the money could no longer be
debited from the account of Salazar where she deposited the checks, they froze her
other account with them. Later on, BPI issued a cashier’s check in favor of
Templonuevo for the aggregate amount and debited P267, 707.70 from Salazar’s
account representing the aggregate amount and the bank charges for the cashier’s
check. Salazar filed a complaint against BPI.

Trial court ruled in favor of her which was affirmed by CA. Hence, this petition.

ISSUE/S:

1. Did BPI have the authority to unilaterally withdraw from Salazar’s account the
amount it has previously paid upon certain unendorsed order instrument?

2. Did BPI act judiciously in debiting Salazar’s account?

HELD:

1. Yes. Records show that no prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of the checks.

This fact is crucial as Salazar’s entitlement to the value of the instruments is based
on the assumption that she is a transferee within the contemplation of Section 49 of
the NIL. Section 49 of the NIL contemplates a situation where the payee or
endorsee delivers a negotiable instrument for value without endorsing it. The
underlying premise of this provision, however, is that a valid transfer of ownership
of the negotiable instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor endorsees of such instruments. Mere
possession of a negotiable instrument does not in itself conclusively establish either
the right of the possessor to receive payment, or of the right of one who has made
payment to be discharged from liability. Something more than mere possession is
necessary to authorize payment to such possessor. Prepared by: Daniel John A.
Fordan 1 The one-year delay of Templonuevo in asserting ownership over the
checks is not enough to prove that there has a valid transfer of ownership has
taken place.

Salazar failed to discharge the burden of presumption of ownership in

Templonuevo’s favor as the designated payee. Thus, the return of the check
proceeds to Templonuevo was therefore warranted. It is immaterial that the
account debited by BPI was di fferent from the original account to which the
proceeds of the check were credited because both belonged to Salazar anyway.

2. No. Solely upon the prompting of Templonuevo, BPI debited the account of
Salazar without even serving due notice upon her. Consequently, this caused
damage to Salazar such as having checks she issued dishonored because she was
not given prior notice of the deduction from her account. As such, the award of
damages must be sustained.

56. Mondragon vs. Sola, G.R. no. 174882, Jan. 21, 2013

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.
57. Cochingyan vs. R&B Surety, G.R. no. L-47369, June 30, 1987

FACTS:

Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an
increase in its line of credit (400k to 800k) with PNB. To secure PNB’s approval,
PAGRICO had to give a good and sufficient bond in the amount of Php400,000,
representing the increment in its line of credit.

In compliance with this requirement, PAGRICO submitted Surety Bond, issued by

R&B Surety and Insurance Co., Inc (“R&B Surety) in the specified amount in favor
of PNB.

In consideration of R&B Surety’s issuance of the Surety bond, two identical

indemnity agreements were entered into with R&B Surety executed by (a) the
Catholic Church Mart (CCM) and by petitioner Cochingyan, and (b) another
agreement executed by PAGRICO and Jose Villanueva as its Manager.

Under both indemnity agreements, the indemnitors bound themselves jointly and
severally to R&B Surety to pay an annual premium of Php5,103.05 and for the
faithful compliance of the terms and conditions set forth in said SURETY BOND until
the same is CANCELLED and/or DISCHARGED.

Two years after, a Trust Agreement was made between CCM (represented by
Cochingyan, Jr.), as Trustor, Tomas Besa, a PNB official, as Trustee, and the PNB as
Beneficiary.

When PAGRICO failed to comply with its principal obligation to PNB, PNB demanded
payment from R&B Surety.

R&B in turn sent formal demand letters to petitioners Cochingyan, Jr and Jose
Villanueva for reimbursement of the payments made by it to PNB as well as the
discharge of its liability under the Surety Bond.

Since Petitioners failed to heed its demands, R&B brought suit against Cochingyan
and Villanueva.

Petitioners claimed that the principal obligation of PAGRICO to PNB secured by the
Surety bond had already been assumed by CCM by virtue of the Trust Agreement
entered into with the PNB.

That his obligation under the Indemnity Agreement was thereby extinguished by
novation arising from the change of debtor under the principal obligation.

ISSUE/S:

Whether the Trust Agreement had extinguished, by novation, the obligation of R&B
Surety to PNB under the Surety Bond which, in turn, extinguished the obligations of
the petitioners under the Indemnity Agreements
RULING:

NO, the Court held that the Surety Bond has not been extinguished by novation
brought about by the subsequent execution of the Trust Agreement. Novation is the
extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which terminates it, either by changing its object or principal
conditions, or by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor. Novation by change in the
person of the debtor, it is not enough that the juridical relation between the parties
to the original contract is extended to a third person. It is essential that the old
debtor be released from the obligation, and the third person or new debtor take his
place in the new relation. If the old debtor is not released, no novation occurs and
the third person who assumed the obligation of the debt only becomes as a mere
co-debtor or surety. In this case, the Trust Agreement does not expressly terminate
the obligation of R&B Surety under the Surety Bond.

On the contrary, the Trust Agreement expressly provides for the continuing
subsistence of the obligation by stipulating that “[Trust Agreement] shall not in any
manner release R&B Surety from its obligation under the Surety Bond”. Neither can
petitioners anchor their defense on implied novation. Absent an unequivocal
declaration of extinguishment of a pre-existing obligation, a showing of complete
incompatibility between the old and new obligation would sustain a finding of
novation by implication. But in this case, the parties to the new obligation expressly
recognize the continuing existence and validity of the old one, and expressly
negating the lapsing of the old obligation.

The Trust Agreement only did was merely to bring in another person, the Trustor,
to assume the same obligation that R&B Surety was bound to perform under the
Surety Bond. “The mere fact that the creditor receives a guaranty or accepts
payment from a third person who has agreed to assume the obligation when there
is no agreement that the first debtor shall be released from responsibility, does not
constitute a novation, and the creditor can still enforce the obligation against the
original debtor.

58. Arco Pulp vs. Lim, G.R. no. 206806, June 25, 2014

FACTS:

Dan T. Lim (Lim) works in the business of supplying scrap papers, cartons, and
other raw materials, under the name and Quality Paper and Plastic Products,
Enterprises, to factories engaged in the paper mill business. He delivered scrap
papers to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its
CEO and President, Candida A. Santos. The parties allegedly agreed that Arco Pulp
and Paper would either pay Lim the value of the raw materials or deliver to him
their finish products of equivalent value. Lim alleged that when he delivered the raw
materials, Arco Pulp and Paper issued a postdated check, with the assurance that
the check would not bounce. When he deposited the check, it was dishonored for
being drawn against a closed account.

On the same day, Arco Pulp and Paper, and a certain Eric Sy executed a
memorandum of agreement where Arco Pulp and Paper bound themselves to
deliver their finished products to Megapack Container Corp., owned by Eric Sy.
According to the memorandum, the raw materials would be supplied by Lim,
through his company, Quality Paper and Plastic Products. Lim sent a demand letter
to Arco Pulp and Paper but no payment was made to him. Hence, he filed a
complaint for collection of sum of money.

The RTC rendered a judgment in favor of Arco Pulp and Paper and dismissed the
complained, holding that when Arco Pulp and Paper and Eric Sy and entered into
the memorandum of agreement, novation took place, which extinguished Arco Pulp
and Paper;s obligation to Lim.

On appeal, Lim argued that novation did not take place since the memorandum of
agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private
agreement between them.

The CA reversed the RTC decision and ruled that the facts and circumstances in this
case clearly showed the existence of an alternative obligation.

ISSUE:

Whether the obligation between the parties was an alternative obligation.

HELD:

Yes. The obligation between the parties was an alternative obligation. The rule on
alternative obligation is governed by Article 1199 of the Civil Code. In an alternative
obligation, there is more than one object, and the fulfillment of one is sufficient,
determined by the choice of debtor who generally has the right of election. The
right of election is extinguished when the party who may exercise that option
categorically and unequivocally makes his or her choice known. The choice of the
debtor must also be communicated to the creditor who must receive notice of it
since the object of this notice is to give the creditor… opportunity to express his
consent, or to impugn the election made by the debtor, and only after said notice
shall the election take legal effect when consented by the creditor, or if impugned
by the latter, when declared proper by a competent court. According to the factual
findings of the trial court and appellate court, the original contract between the
parties was for respondent to deliver scrap papers worth Php7,220,968.31 to
petitioner Arco Pulp and Paper.

The payment for this delivery became petitioner Arco Pulp and Paper’s obligation.
By agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to
either (1) pay the price or (2) deliver the finished products of equivalent value of
respondent. The appellate court, therefore, correctly identified the obligation
between the parties as an alternative obligation, whereby petitioner, Arco Pulp and
Paper, after receiving the raw materials from respondent, would either pay him the
price of the raw materials or in the alternative, deliver to him the finished products
of equivalent value.

When petitioner Arco Pulp and Paper tendered a check to respondent in partial
payment for the scrap papers, they exercised their options to pay the price.
Respondent’s receipt of the check and his subsequent act of depositing it
constituted his notice of petitioner Arco Pulp and Paper’s option to pay. This choice
was also shown by the terms of the memorandum of agreement, which was
executed on the same day. The memorandum declared in clear terms that the
delivery of petitioner Arco Pulp and Paper’s finished products would be to a third
person, thereby extinguishing the option to deliver the finished product of
equivalent value to respondent.

59. Bognot vs. RRI Lending, G.R. no. 180144, Sept. 24, 2014

FACTS:

In September 1996, Leonardo Bognot and his younger brother, Rolando Bognot
applied for and obtained a loan of P500,000.00 from RRI Lending, payable on
November 30, 1996. The loan was evidenced by a promissory note and was secured
by a post dated check dated November 30, 1996. Evidence on record shows that
Leonardo renewed the loan several times on a monthly basis.

He paid a renewal fee of P54,600.00 for each renewal, issued a new post-dated
check as security, and executed and/or renewed the promissory note previously
issued. RRI Lending on the other hand, cancelled and returned to Leonardo the
post-dated checks issued prior to their renewal. Leonardo paid the renewal fees and
issued a post-dated check dated June 30, 1997 as security.

As had been done in the past, RRI Lending superimposed the date "June 30, 1997"
on the promissory note to make it appear that it would mature on the said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta, went to the
respondent’s office and applied for another renewal of the loan. She issued in favor
of RRI Lending a promissory note and a check dated July 30, 1997, in the amount
of P54,600.00 as renewal fee. On the excuse that she needs to bring home the loan
documents for the Bognot siblings’ signatures and replacement, Julieta asked the
RRI Lending clerk to release to her the promissory note, the disclosure statement,
and the check dated July 30, 1997. Julieta, however, never returned these
documents nor issued a new post-dated check.

Consequently, RRI Lending sent Leonardo follow-up letters demanding payment of

the loan, plus interest and penalty charges. These demands went unheeded. In his
Answer, Leonardo, claimed, among other things, that the complaint states no cause
of action because RRI Lending’s claim had been paid, waived, abandoned or
otherwise extinguished, and that the one (1) month loan contracted by Rolando and
his wife in November 1996 which was lastly renewed in March 1997 had already
been fully paid and extinguished in April 1997.

ISSUE:

Whether the parties’ obligation was extinguished by payment

HELD:

No, Leonardo failed to satisfactorily prove that his obligation had already been
extinguished by payment. As the CA correctly noted, the petitioner failed to present
any evidence that RRI Lending had in fact encashed his check and applied the
proceeds to the payment of the loan. Neither did he present official receipts
evidencing payment, nor any proof that the check had been dishonored. Leonardo
merely relied on the respondent’s cancellation and return to him of the check dated
April 1, 1997.

The evidence shows that this check was issued to secure the indebtedness. The acts
imputed on the respondent, standing alone, do not constitute sufficient evidence of
payment. Article 1249, paragraph 2 of the Civil Code provides: x x x x The delivery
of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed,
or when through the fault of the creditor they have been impaired.

Also, as held in Bank of the Philippine Islands v. Spouses Royeca: Settled is the rule
that payment must be made in legal tender. A check is not legal tender and,
therefore, cannot constitute a valid tender of payment. Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of checks does
not discharge the obligation under a judgment. The obligation is not extinguished
and remains suspended until the payment by commercial document is actually
realized.

Although Article 1271 of the Civil Code provides for a legal presumption of
renunciation of action (in cases where a private document evidencing a credit was
voluntarily returned by the creditor to the debtor), this presumption is merely prima
facie and is not conclusive; the presumption loses efficacy when faced with
evidence to the contrary. Moreover, the cited provision merely 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. Thus, reliance by the petitioner on the legal presumption to prove
payment is misplaced. To reiterate, no cash payment was proven by the petitioner.

The cancellation and return of the check dated April 1, 1997, simply established his
renewal of the loan – not the fact of payment. Furthermore, it has been established
during trial, through repeated acts, that the respondent cancelled and surrendered
the post-dated check previously issued whenever the loan is renewed.

60. BPI vs. Domingo, G.R. no. 169407, March 25, 2015

FACTS:

Respondent Amador and his wife, the late Mercy, (spouses Domingo) executed a
Promissory Note in favor of Makati Auto Center, Inc., payable in 48 monthly
installments. They simultaneously executed a Deed of Chattel Mortgage over a
subject vehicle to secure the payment of their PN. Makati Auto Center, Inc. then
assigned, ceded, and transferred all its rights and interests over the said PN and
chattel mortgage to Far East Bank and Trust Company (FEBTC).

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 survivng corporation, and FEBTC, the absorbed corporation. By virtue of said
merger, all the assets and liabilities of FEBTC were transferred to and absorbed by
BPI. The spouses Domingo defaulted when they failed to pay 21 monthly
installments. BPI, being the surviving corporation after the merger, demanded that
the spouses Domingo pay the balance of the PN including accrued late payment
charges/interests or to return the possession of the subject vehicle for the purpose
of foreclosure in accordance with the undertaking stated in the chattel mortgage.

ISSUE:

Whether or not there was an express consent of the BPI to the substitution of
debtors.

RULING:

No. There is no express consent of BPI to the substitution of debtors. The Court of
Appeals and the RTC inferred the consent of BPI from the following facts: (1) BPI
had a copy of the Deed of Sale and Assumption of Mortgage executed between
Mercy and Carmelita in its file, indicating its knowledge of said agreement, and still
it did not interpose any objection to the same; (2) BPI (through FEBTC) returned
the spouses Domingo's checks and accepted Carmelita's payments; and (3) BPI did
not demand any payment from the spouses Domingo not until 30 months after
Carmelita assumed the payment of balance on the Promissory Note. The Court
notes that the documents of BPI concerning the car loan and chattel mortgage are
still in the name of the spouses Domingo. No new promissory note or chattel
mortgage had been executed between BPI (or FEBTC) and Carmelita. Even the
account itself is still in the names of the spouses Domingo. The absence of
objection on the part of BPI (or FEBTC) cannot be presumed as consent.
Jurisprudence requires presentation of proof of consent, not mere absence of
objection. The consent of BPI to the substitution of debtors cannot be deduced from
its acceptance of payments from Carmelita.

61. Ledonio vs. Capitol Development, G.R. no. 149040, July 4, 2007

FACTS:

Petitioner obtained two loans totaling P60, 000.00 from Ms. Picache, for which he
executed promissory notes, dated 9 November 1988 and 10 November 1988. He
failed to pay any of the said loans; Ms. Picache executed on 1 April 1989 an
Assignment of Credit covering petitioner's loans in favor of respondent for the
consideration of P60,000.00;

Petitioner had knowledge of the assignment of credit; Petitioner still failed to pay
his indebtedness despite repeated demands by respondent and its counsel. The RTC
ruled in favor of the respondent herein The CA confirmed the ruling of the RTC.
Petitioner argued that he never gave consent to such assignment of credit and
therefore it should have no effect.

ISSUE:

WON consent of the debtor is required in an assignment of credit

HELD:

No. The Court herein ruled that in an assignment of credit, consent is immaterial.
Consent is not a requirement in assignment of credit in order for the said
assignment to have full legal effects. What the law requires is that the debtor would
be duly notified upon the issuance of an assignment of credit to a third person. The
said assignment of credit takes effect only from the time he (the debtor) has
knowledge thereof.

In the case at bar, the petitioner cannot deny that he wasn’t notified by the
respondent when the assignment of credit happened. It can be reasonably
presumed that when the respondent, together with their counsel, sent demand
letters to the petitioner herein, the same had received them. The letters were sent
through registered mail and the return cards were signed by the petitioner’s agent.

Further, petitioner never questioned why it was respondent seeking payment of the
loans and not the original creditor.

Foregoing the said circumstances, it can be concluded that the petitioner was duly
notified and had knowledge of the assignment of credit that took place between
respondent herein and Ms. Picache.
62. Licaros vs. Gatmaitan, 362 SCRA 548, Aug. 9, 2001

FACTS:

1980s: Abelardo Licaros, a Fil. Businessman thought that it would be good to make
a fund placement with the Anglo-Asean Bank and Trust Limited (Anglo-Asean)
which is a private bank that works under the laws of the Republic of Vanuatu. Its
main business is in receiving fund placements from investors around the world and
thereafter investing such deposits in money market placements and potentially
profitable capital ventures in H.K, Europe and the U.S. for maximization of returns.
Eventually, Licaros’ investment didn’t turn out well as he had difficulties in
retrieving not only his profits but also his investments. Thus, he sought the counsel
of Antonio Gatmaitan, a reputable banker and investment manager to help get back
his investments. Gatmaitan voluntarily offered to assume the payment of Anglo-
Asean’s indebtedness to Licaros subject to terms and conditions. They made it
formal and effective through a MEMORANDUM OF AGREEMENT (MOA) on July 29,
1988.

In line w/ this agreement, Gatmaitan executed a NON-NEGOTIABLE PROMISSORY

NOTE WITH ASSIGNMENT OF CASH DIVIDENDS in favor of Licaros. Here, it’s stated
that: Gatmatian promises to pay Licaros P3,150,000 w/o interest as material
consideration for the full settlement of his money claims from Anglo-Asean. Also,
70% of all cash dividends from his shares of stock in the Prudential Life Realty Inc.
to the extent of his shareholding in Prudential Life Plan, Inc. (holding company of
Prudential Realty) was assigned as a security for the payment of the promissory
note. Nothing happened when Gatmaitan tried to claim the S150, 000 from Anglo-
Asean.

Thus, he didn’t bother to fulfil his promise to pay Licaros the amount states in the
promissory note. However, Licaros felt that he had a right to collect on the basis of
the promissory note regardless of the outcome of Gatmaitan's recovery efforts.
Thus, in July 1996, Licaros, thru counsel, addressed successive demand letters to
Gatmaitan, demanding payment of the latter’s obligations under the promissory
note. Gatmaitan, however, did not accede to these demands.

Licaros then filed a complaint to the RTC where he won. But CA reversed it saying
that the MOA is of a conventional subrogation which needs the consent of Anglo-
Asean for its validity.

ISSUES:

WON the MOA is one of assignment of credit or one of conventional subrogation?

WON the MOA was perfected?

HELD:
1. MOA is a conventional subrogation. - The intent for it to be one of conventional
subrogation is clear in its stipulations. To wit: “WHEREAS, the parties herein have
come to an agreement on the nature, form and extent of their mutual prestations
which they now record herein with the express conformity of the third parties
concerned” (emphasis supplied), which third party is admittedly Anglo- Asean Bank.
- If the intent was just to make Gatmaitan the “assignee” of Licaros’ credit, it
woud’ve been senseless to stipulate in the MOA that same is conditioned on the
“express conformity” of AngloAsean Bank.

2. NO The consent of Anglo-Asean wasn’t obtained and since consent is a

requirement of subrogation, the MOA wasn’t perfected. Thus, there’s no cause of
action.

63. Metrobank vs. Rural Bank of Gerona, G.R. no. 159097, July 05,
2010

FACTS:

Rural Bank of Gerona (RBG) is a rural bank located in Tarlac.

In the 1970s - the Central Bank and RBG entered into agreement where RBG shall
facilitate the loan applications of farmers under the “Reconstruction and
Development Rural Credit Project (IBRD Project).” o The agreement required RBG
to open a separate bank account where IBRD loan proceeds shall be deposited. RBG
accordingly opened a special savings account with Metrobank.

As depository bank of RBG, Metrobank was designated to receive credit advice

released by Central Bank representing the proceeds of the IBRD loan of farmers;
Metrobank, in turn, credited the amounts to RBG’s special savings account for
RBG’s release to farmers.

In 1978, Central Bank released a credit advice, and accordingly credited

(deposited?) Metrobank with the ff amounts for the savings account of RBG

a. P178,652, represented approved loan application of farmer de

Jesus.
b. P189,052, for farmer Panopio
c. P220,000, for farmer Lagman
d. RBG withdrew the first two amounts.
e. For the 3rd amount, RBG only withdrew P75,375 out of the
P220,000.

Now, more than a month after RBG had made the above withdrawals, the Central
Bank issued debit advices, reversing all the approved loans. Central Bank debited
from Metrobank’s demand deposit account the amount corresponding to all three
loans.

Metrobank, in turn, debited the following amounts from RBG’s special savings
account: P189,052, P115,000, and P8,000. Metrobank, however, claimed that these
amounts were insufficient to cover all the credit advices that were reversed by
Central Bank. It demanded payment from RBG. Metrobank claimed that RBG still
had an outstanding balance of P334,220. To collect this amount, Metrobank filed
complaint for collection of money against RBG.

RTC: ruled for Metrobank, finding that legal subrogation had ensued; ordered RBG
to pay Metrobank the sum of P334,200, plus interest at 14% per annum.
Metrobank’s demand deposit reserves diminished correspondingly, Metrobank
suffers prejudice in which case legal subrogation has ensued. (ELAM: There is legal
subrogation > ergo, RBG has to pay Metrobank)

The CA, noted that this was not a case of legal subrogation under Art 1302 of Civil
Code. Nevertheless, CA recognized that Metrobank had right to be reimbursed of
what it paid and failed to recover. It clarified, however, that a determination still
had to be made on who should reimburse Metrobank. CA declared that the Central
Bank should be impleaded as a necessary party so it could shed light on the IBRD
loan reversals; remanded case to RTC after the Central Bank is impleaded as a
necessary party. (ELAM: There is NO legal subrogation ergo, Metrobank cannot
debit from RBG. Metrobank elevated case with SC thru petition for review under
Rule 45.

Metrobank disagrees with the CA’s ruling to implead the Central Bank. It argues
that inclusion of the Central Bank as party to the case is unnecessary since RBG has
already admitted its liability for the amount Metrobank failed to recover.

Metrobank contends that a remand would delay proceedings. Transactions took

place in 1978, and case was commenced more than 20 years ago. (ELAM:
Metrobank is saying that no need to implead Central Bank; and that there is legal
subrogation.)

ISSUE:

WON Metrobank was subrogated to the rights of Central Bank after Central Bank
pulled from its demand deposit account.

RULING:

YES. The first step in resolving case is to determine who the liable parties are on
the IBRD loans that Central Bank extended. The Terms and Conditions of the Credit
Project shows that the farmers to whom credits have been extended, are primarily
liable for payment of borrowed amounts. The loans were extended through RBG
which handles collection and remittance. While the farmers were the principal
debtors, RBG assumed liability under the Project Terms and Conditions by solidarily
binding itself with principal debtors to fulfill obligation.

As per the Terms and Conditions, if RBG delays in remitting, Central Bank imposed
a 14% per annum penalty on RBG until amount is actually remitted. Central Bank
was further authorized to deduct the amount due from RBG’s demand deposit
reserve should the latter become delinquent in payment. This are reflected in Par5
and 6 of the Project Terms and Conditions read:

Based on these arrangements, Central Bank’s immediate recourse, therefore should

have been against the farmers-borrowers and RBG; thus, it erred when it deducted
the amounts from Metrobank’s demand deposit account. Metrobank had no
responsibility over proceeds of IBRD loans other than serving as a conduit for their
transfer from the Central Bank to RBG once credit advice has been issued. (ELAM:
Central Bank is such a bitch!) o Metrobank was an outsider to the agreement.

However, Court disagrees with CA in its conclusion that no legal subrogation took
place. The present case, in fact, exemplifies the legal subrogation as contemplated
in Par 2 of Art 1302 of Civil Code which provides: 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.

In this case, Metrobank was a 3rd party to Central Bank-RBG agreement, had no
interest except as a conduit, and was not legally answerable for loans.

RBG’s Pres and Mngr even wrote Metrobank regarding possible means of settling
amounts debited by Central Bank from Metrobank’s demand deposit account. These
are indicative of RBG’s approval of Metrobank’s payment of the IBRD loans. o Also,
fact that RBG’s tacit approval came after payment does not completely negate the
legal subrogation that had taken place.

Art 1303 states that subrogation transfers to the person subrogated the credit with
all the rights thereto appertaining, either against the debtor or against third
persons. As the entity against which the collection was enforced, Metrobank was
subrogated to the rights of Central Bank and has a cause of action to recover from
RBG the amounts it paid to the Central Bank, plus 14% per annum interest.

Ergo, because of this subrogation thingy impleading Central Bank as party is

unnecessary.
As this Court is not a trier of facts, we deem it proper to remand the factual issue to
RTC for computation of actual amount RBG owes to Metrobank. o Metrobank
contends that it credited RBG’s account with 3 amounts P178,652.00 for Dominador
de Jesus; the P189,052.00 for Basilio Panopio; and the P220,000.00 for Ponciano
Lagman. Metrobank claims that all of the three credit advices were subsequently
reversed by the Central Bank, evidenced by three debit advices. The records,
however, contained only the credit and debit advices for the amounts set aside for
de Jesus and Lagman.

Nothing in findings referred to amount set aside for Panopio. o Thus, what were
proven as credited and debited from Metrobank’s demand deposit account were
only the amounts of P178,652.00 and P189,052.00. With these amounts combined,
RBG’s liability would amount to P398,652.00 – the same amount RBG
acknowledged as due to Metrobank.

RBG asserts that it made partial payments amounting to P145,197.40, but neither
the RTC nor the CA made a conclusive finding as to the accuracy of this claim.
Although Metrobank admitted that RBG indeed made partial payments, it never
mentioned the actual amount paid; neither did it state that the P145,197.40 was
part of theP312,052.41 that, it admitted, it debited from RBG’s special savings
account. Deducting P312,052 (representing the amounts debited from RBG’s special
savings account, as admitted by Metrobank) from P398,652.00 amount due to
Metrobank from RBG, the difference would only be P86,599.59. We are, therefore,
at a loss on how Metrobank computed the amount of P334,220.00 it claims as the
balance of RBG’s loan.