compiled cases for oblicon

Compiled cases for Obligations and Contracts under Atty. Lydia Galas

1st year Wigmore

BENTIR vs. LEANDA April 12, 2000 Petitioner: Yolanda Rosello-Bentir and Pormida Respondent: Hon. Mateo Leanda and Leyte Gulf Traders Inc. Facts: - May 15, 1992, respondent Leyte Gulf Traders, Inc. (LGT) filed a complaint for reformation of instrument, specific performance, annulment of conditional sale and damages with prayer for writ of injunction against petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito Pormida. - The respondent corporation alleged that it entered into a contract of lease of a parcel of land with petitioner Bentir (period is 20 years from May 5, 1968). - LGT also alleged that said lease was extended for four years until May 31, 1992. - May 5, 1989: Bentir sold the leased land to spouses Pormida. - LGT questioned the sale alleging that it had a right of first refusal. - LGT filed a civil case for the reformation of the expired contract of lease on the ground that its lawyer failed to state in the contract the verbal agreement between the corporation and Bentir which says that in case the latter leases or sells the lot after the expiration of the lease, LGT has the right to equal the highest offer. - Petitioner Bentir filed an answer saying that the failure of the lawyer to incorporate certain conditions in a contract is not a ground for reformation and that LGT is guilty of laches for not filing an action within prescriptive period of 10 years from May 5, 1968. - November 18, 1992, LGT filed a motion to admit the amended complaint; the lower court granted the motion. Petitioner filed a motion to dismiss on the ground of prescription. - December 15, 1995: the trial court through Judge Pedro S. Espina issued an order dismissing the complaint premised on its finding that the action for reformation had already prescribed. - December 29, 1995: LGT filed a motion for reconsideration of the order dismissing the complaint. - January 11, 1996: LGT filed an urgent ex-parte motion for issuance of an order directing the petitioners, or their representatives or agents to refrain from taking possession of the land in question. - May 10, 1996: respondent judge Leanda issued an order reversing the order of dismissal on the grounds that the action for reformation had not yet prescribed and the dismissal was "premature and precipitate", denying respondent corporation of its right to procedural due process. - June 10, 1996: Judge Leanda issued an order for status quo ante, enjoining petitioners to desist from occupying the property - Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking the annulment of the order of respondent court with prayer for issuance of a writ of preliminary injunction and temporary restraining order to restrain respondent judge from further hearing the case and to direct respondent corporation to desist from further possessing the litigated premises and to turn over possession to petitioners. - January 17, 1997: the Court of Appeals, after finding no error in the questioned order nor grave abuse of discretion on the part of the trial court that would amount to lack, or in excess of jurisdiction, denied the petition and affirmed the questioned order. - A reconsideration of said decision was, likewise, denied on April 16, 1997. Issue: Whether or not the complaint for reformation filed by respondent Leyte Gulf Traders, Inc. has prescribed and in the negative, whether or not it is entitled to the remedy of reformation sought.


1st year Wigmore

Held: The remedy of reformation of an instrument is grounded on the principle of equity where, in order to express the true intention of the contracting parties, an instrument already executed is allowed by law to be reformed. A suit for reformation of an instrument may be barred by lapse of time. The prescriptive period for actions based upon a written contract and for reformation of an instrument is ten (10) years under Article 1144 of the Civil Code. In the case at bar, respondent corporation had ten (10) years from 1968, the time when the contract of lease was executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of action has become stale, hence, time-barred. In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling of the Regional Trial Court that the 10-year prescriptive period should be reckoned not from the execution of the contract of lease in 1968, but from the date of the alleged 4-year extension of the lease contract after it expired in 1988. Consequently, when the action for reformation of instrument was filed in 1992 it was within ten (10) years from the extended period of the lease. Private respondent theorized, and the Court of Appeals agreed, that the extended period of lease was an "implied new lease" within the contemplation of Article 1670 of the Civil Code, under which provision, the other terms of the original contract were deemed revived in the implied new lease. If the extended period of lease was expressly agreed upon by the parties, then the term should be exactly what the parties stipulated, not more, not less. Second, even if the supposed 4-year extended lease be considered as an implied new lease under Art. 1670, "the other terms of the original contract" contemplated in said provision are only those terms which are germane to the lessee’s right of continued enjoyment of the property leased. The prescriptive period of ten (10) years provided for in Art. 1144 applies by operation of law, not by the will of the parties. Therefore, the right of action for reformation accrued from the date of execution of the contract of lease in 1968. Petition is hereby GRANTED. The Decision of the Court of Appeals dated January 17, 1997 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Tacloban City, Branch 7, dated December 15, 1995 dismissing the action for reformation is REINSTATED.


1st year Wigmore

AINZA vs. PADUA June 30, 2005 Petitioners: Concepcion Ainza, Heirs Natividad Tuliao, Corazon Jaleco and Lilia Olayon Respondents: Spouses Padua Facts: - April 1987: Concepcion Ainza purchased ½ of the 216.40 sq. m. owned by her daughter Eugenia Padua for Php 100,000. - No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by the respondents, and ownership was transferred to Concepcion through physical delivery to her attorney-in-fact and daughter, Natividad. - Concepcion authorized Natividad and her husband, Ceferino to occupy the premises, and make improvements on the unfinished building. - Concepcion alleged that without her consent, respondents caused the subdivision of the property into three portions and registered it in their names under TCT Nos. N-155122, N-155123 and N-155124 in violation of the restrictions annotated at the back of the title. - Antonio averred that he bought the property in 1980 and introduced improvements thereon. Between 1989 and 1990, he and his wife, Eugenia, allowed Natividad and Ceferino to occupy the premises temporarily. -April 1, 1999: Antonio filed an ejectment suit against Natividad and his husband for the refusal to vacate the place. - Concepcion, represented by Natividad, also filed on May 4, 1999 a civil case for partition of real property and annulment of titles with damages. - Antonio claimed that his wife, Eugenia, admitted that Concepcion offered to buy one third (1/3) of the property who gave her small amounts over several years which totaled P100,000.00 by 1987 and for which she signed a receipt. - January 9, 2001, the Regional Trial Court of Quezon City, Branch 85, rendered judgment in favor of Concepcion. - The trial court upheld the sale between Eugenia and Concepcion. It ruled that the sale was consummated when both contracting parties complied with their respective obligations. Eugenia transferred possession by delivering the property to Concepcion who in turn paid the purchase price. - On appeal by the respondents, the CA reversed the decision of the RTC, and declared the sale null and void. - Applying Article 124 of the Family Code, the Court of Appeals ruled that since the subject property is conjugal, the written consent of Antonio must be obtained for the sale to be valid. Issue: Whether or not there was a valid contract of sale between Eugenia and Concepcion. Held: In this case, there was a perfected contract of sale between Eugenia and Concepcion. The records show that Eugenia offered to sell a portion of the property to Concepcion, who accepted the offer and agreed to pay P100,000.00 as consideration. The contract of sale was consummated when both parties fully complied with their respective obligations. Eugenia delivered the property to Concepcion, who in turn, paid Eugenia the price of One Hundred Thousand Pesos (P100,000.00), as evidenced by the receipt


1st year Wigmore

The verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the Statute of Frauds that a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is in writing and subscribed by the party charged or his agent. When a verbal contract has been completed, executed or partially consummated, as in this case, its enforceability will not be barred by the Statute of Frauds, which applies only to an executory agreement. Thus, where one party has performed his obligation, oral evidence will be admitted to prove the agreement. In the instant case, the oral contract of sale between Eugenia and Concepcion was evidenced by a receipt signed by Eugenia. Antonio also stated that his wife admitted to him that she sold the property to Concepcion. The subject property was conjugal and sold by Eugenia in April 1987 or prior to the effectivity of the Family. Thus, the provisions of the Civil Code shall govern the transaction. The lot is a conjugal property and the consent of both the spouses are required for its sale. There is no evidence to show that Antonio participated in the sale of the said lot. He has six years to annul the contract of sale, being voidable, between Eugenia and Concepcion. Eugenia sold the property in April 1987 hence Antonio should have asked the courts to annul the sale on or before April 1993. No action was commenced by Antonio to annul the sale, hence his right to seek its annulment was extinguished by prescription. He is now barred from questioning the validity of the sale. The petition is GRANTED. The January 2001 RTC decision is reinstated. ABALOS vs. HEIRS of VICENTE TORIO December 14, 2011 Petitioners: Jaime Abalos, Spouses Salazar, Consuelo Salazar, Heirs of Aquilino Abalos, Heirs of Aquilina Abalos Respondents: Heirs of Vicente Torio Facts: - July 24, 1996: Respondents filed a Complaint for Recovery of Possession and Damages with the Municipal Trial Court (MTC) of Pangasinan against Jaime Abalos and the spouses Salazar. - Respondents contended that they are the heirs of Vicente Torio who died intestate on the year 1973. They stated that Mr. Vicente allowed Jaime and Spouses Salazar to stay on his land (2,950 sq. m.) at Pangasinan. - After the death of Vicente, the respondents still allowed petitioners to stay. - On 1985, respondents requested Mr. Vicente and Salazar to vacate the subject lot but the latter refused. - Respondents filed a complaint against petitioners. - Jaime and the Spouses Salazar filed their Answer with Counterclaim and stated that respondents' cause of action is barred by acquisitive prescription. - Petitioners claim the court has no jurisdiction over the nature of the action and the persons of the defendant. They also alleged that they are in actual, continuous and peaceful possession of the subject lot as owners since time immemorial.


1st year Wigmore

- They also said that they have been paying real property taxes and have been introducing improvements on the said land. - December 10, 2003: MTC issued a Decision ordering herein petitioners to vacate the subject lot and turnover said property to the heirs of Vicente Torio. - Jaime and the Spouses Salazar appealed the Decision of the MTC with the RTC of Lingayen, Pangasinan. - June 14, 2005: RTC ruled in favor of Jaime and the Spouses Salazar, holding that they have acquired the subject property through prescription. Accordingly, the RTC dismissed herein respondents' complaint. - Heirs of Vicente Torio filed a petition for review with the CA assailing the Decision of the RTC. - June 30, 2006: CA granted the petition of the respondents (in this case). - Petitioners filed a Motion for Reconsideration, but the same was denied by the CA in its Resolution dated November 13, 2006. Issue: Whether or not the Court of Appeals erred in not appreciating that herein petitioners are now the absolute and exclusive owners of the land in question by virtue of acquisitive prescription. EXCLUSIVE OWNERS OF THE LAND IN Held: After a review of the records, however, the Court finds that the petition must fail as it finds no error in the findings of fact and conclusions of law of the CA and the MTC. Petitioners claim that they have acquired ownership over the disputed lot through ordinary acquisitive prescription. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten (10) years. Without good faith and just title, acquisitive prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years, Possession “in good faith” consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership. There is “just title” when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. In the instant case, it is clear that during their possession of the property in question, petitioners acknowledged ownership thereof by the immediate predecessor-in-interest of respondents. This is clearly shown by the Tax Declaration in the name of Jaime for the year 1984 wherein it contains a statement admitting that Jaime's house was built on the land of Vicente, respondents' immediate predecessor-in-interest. Petitioners never disputed such an acknowledgment. Thus, having knowledge that they nor their predecessors-in-interest are not the owners of the disputed lot, petitioners' possession could not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription. In this respect, the Court agrees with the CA that petitioners' possession of the lot in question was by mere tolerance of respondents and their predecessors-in-interest. Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive


1st year Wigmore

prescription. Possession, to constitute the foundation of a prescriptive right, should be adverse, if not, such possessory acts, no matter how long, do not start the running of the period of prescription. Moreover, the CA correctly held that even if the character of petitioners' possession of the subject property had become adverse, still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription. Records show that the earliest Tax Declaration in the name of petitioners was in 1974. Reckoned from such date, the thirty-year period was completed in 2004. However, herein respondents' complaint was filed in 1996, effectively interrupting petitioners' possession upon service of summons on them. Based on the foregoing, JJaime Abalos and the Spouses Salazar have not inherited the disputed land because the same was shown to have already been validly sold to Marcos Torio, who, thereupon, assigned the same to his son Vicente, the father of petitioners. There is no doubt that the deed of sale was duly acknowledged before a notary public. As a notarized document, it has in its favor the presumption of regularity and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face. In the instant case, petitioners' bare denials will not suffice to overcome the presumption of regularity of the assailed deed of sale. The petition is DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED. CELERINO E. MERCADO, Petitioner, vs. BELEN* ESPINOCILLA** AND FERDINAND ESPINOCILLA, Respondents. Doroteo Espinocilla owned a parcel of land, Lot No. 552, (570 sq. m.) at Sorsogon. After he died, his five children, Salvacion, Aspren, Isabel, Macario, and Dionisia divided it equally among themselves. Later, Dionisia died (no descendants) and Macario took possession of Dionisia’s share. In an affidavit of transfer of real property dated November 1948, Macario claimed that Dionisia had donated her share to him in May 1945. August 1977, Macario and his daughters Betty and Saida sold 225 sq. m. to his son Roger, husband of respondent Belen and father of respondent Ferdinand. March 1985, Roger Espinocilla sold 114 sq. m. to Caridad Atienza. (So in Lot No. 552: Belen Espinocilla= 109 sq. m., Caridad Atienza = 120 sq. m., Caroline Yu = 209 sq. m., and petitioner, Salvacion's son = 132 sq. m). Petitioner sued the respondents to recover two portions: an area of 28.58 sq. m. which he bought from Aspren and another 28.5 sq. m. which allegedly belonged to him but was. He claims it must be returned to him. He avers that he is entitled to own and possess 171 sq. m. having inherited 142.5 sq. m. from his mother Salvacion (Doroteo= 114sq m + Dionisia 28.5 sq m) and bought 28.5 sq. m. from his aunt Aspren. He occupies only 132 sq. m., he claims that respondents encroach on his share by 39 sq. m. Respondents claim that they rightfully possess the land they occupy by virtue of acquisitive prescription and that there is no basis for petitioner’s claim of encroachment. RTC: 1. Petitioner entitled to 171 sq. m. The RTC computed that Salvacion, Aspren, Isabel and Macario each inherited 114 sq. m. from Doroteo and 28.5 sq. m. from Dionisia. 2. Macario was not entitled to 228 sq. m. Thus, respondents must return 39 sq. m. to petitioner who occupies only 132 sq. m.13

http://www.lawphil.net/judjuris/juri2012/feb2012/gr_184109_2012.html#fnt8



1st year Wigmore

3. Macario’s affidavit is void (no public document of donation) 4. Accordingly, Macario cannot acquire said shares by prescription. 5. Partially declared the nullity of the Deed of Absolute Sale by Macario, Betty and Saida to Roger as it affects the portion or the share belonging to Salvacion CA reversed the RTC decision and dismissed petitioner’s complaint on the ground that extraordinary acquisitive prescription has already set in in favor of respondents since petitioner’s complaint was filed only on July 13, 2000. ISSUE: The core issue to be resolved is whether petitioner’s action to recover the subject portion is barred by prescription. Petitioner concludes that if a person obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a so-called constructive trust in favor of the defrauded party. Held: We affirm the CA ruling dismissing petitioner’s complaint on the ground of prescription Prescription, as a mode of acquiring ownership and other real rights over immovable property, is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted, and adverse. Acquisitive prescription of real rights may be ordinary or extraordinary. In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for 30 years without need of title or of good faith. Respondents’ uninterrupted adverse possession for 55 years of 109 sq. m. of Lot No. 552 was established. Macario occupied Dionisia’s share in 1945 although his claim that Dionisia donated it to him in 1945 was only made in a 1948 affidavit. We also agree with the CA that Macario’s possession of Dionisia’s share was public and adverse since his other co-owners, his three other sisters, also occupied portions of Lot No. 552. Indeed, the 1977 sale made by Macario and his two daughters in favor of his son Roger confirms the adverse nature of Macario’s possession because said sale of 225 sq. m. was an act of ownership. Roger also exercised an act of ownership when he sold 114 sq. m. to Caridad Atienza. It was only in the year 2000, upon receipt of the summons to answer petitioner’s complaint, that respondents’ peaceful possession of the remaining portion was interrupted. By then, however, extraordinary acquisitive prescription has already set in in favor of respondents. That the RTC found Macario’s 1948 affidavit void is of no moment. Extraordinary prescription is unconcerned with Macario’s title or good faith Petitioner himself admits the adverse nature of respondents’ possession with his assertion that Macario’s fraudulent acquisition of Dionisia’s share created a constructive trust. Prescription may supervene even if the trustee does not repudiate the relationship. Moreover, the CA correctly dismissed petitioner’s complaint as an action for reconveyance based on an implied or constructive trust prescribes in 10 years from the time the right of action accrues( extinctive prescription), where rights and actions are lost by the lapse of time.25 Petitioner’s action for recovery of possession having been filed 55 years after Macario occupied Dionisia’s share, it is also barred by extinctive prescription. The CA while condemning Macario’s fraudulent act of depriving his three sisters of their shares in Dionisia’s share, equally emphasized the fact that Macario’s sisters wasted their opportunity to question his acts. CARMELITA LEAÑO, assisted by her husband GREGORIO CUACHON, petitioner, vs. COURT OF APPEALS and HERMOGENES FERNANDO, respondents.



1st year Wigmore

On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell involving a piece of land (431 square meters) at Bulacan.3 In the contract, Carmelita Leaño bound herself to pay Hermogenes Fernando the sum of P107,750.00 as the total purchase price of the lot. The manner of paying the total purchase price was: P10,775.00 as DOWN PAYMENT, the balance P96,975.00 shall be paid within a period of 10 years at a monthly amortization of P1,747.30 from December 7, 1985 with interest at eighteen per cent (18%) per annum based on balances. 18% per annum shall be charged if the month of grace period expires w/out the installments. If the 90 days elapse from the expiration of the grace period, Respondent was authorized to declare the contract cancelled & to dispose of the land. The payments made, together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the premises and as liquidated damages.6 After the execution of the contract, Carmelita Leaño made several payments in lump sum. She constructed a house valued at P800,000.00. The last payment she made: 1989. The trial court rendered a decision in an ejectment case filed Fernando ordering petitioner Leaño to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the property until she vacated the premises RTC ordered the plaintiff to pay the defendant the sum of P103,090.70 corresponding to her outstanding obligations under the contract to sell (principal + interest and surcharges) plus interest at 18% per annum in accordance with the provision of said contract, until the same becomes fully paid +attorneys fees etc. Fernando filed a motion for reconsideration The trial court increased the amount of P103,090.70 to P183,687.00 and ordered petitioner Leaño ordered to pay attorney's fees. The Issues

(1) whether the transaction between the parties in an absolute sale or a conditional sale (2) whether there was a proper cancellation of the contract to sell (3) whether petitioner was in delay in the payment of the monthly amortizations.

The Court's Ruling Conditional sale not an absolute sale. The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price. Consideration: (a) Contract was subject to condition. (b) What was transferred was the possession & not ownership. (c) It was covered by Torrens title. Act of Registration was the operative act that could transfer ownership In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force. The transfer of ownership and title would occur after full payment of the price. Leaño's non-payment of the installments prevented the obligation of Fernando to convey the property. Contrary to trial court, Article 1592 C.C is inapplicable. However, any attempt to cancel the contract to sell would have to comply with Republic Act No. 6552, the "Realty Installment Buyer Protection Act” which recognizes in conditional sales all kinds of real estate to cancel the contract upon non-payment of an installment by the buyer. Sec. 3 (b) of the law: "If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payment made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer."


1st year Wigmore

The decision in the ejectment case operated as the notice of cancellation required by Sec. 3(b). As petitioner Leaño was not given then cash surrender value of the payments that she made, there was still no actual cancellation of the contract. Leaño may still reinstate the contract by updating the account during the grace period and before actual cancellation.38 Leano was in delay already. While the contract provided that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leaño cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed. In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leaño to continue in possession and use of the property. Clearly, when petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.43 Thus, as there is no ambiguity in the language of the contract, there is no room for construction, only compliance. HEIRS OF LUIS BACUS vs. Court of Appeals G.R. No. 127695 FACTS: On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had an area of 3,002 square meters, covered by Transfer Certificate of Title No. 48866. The lease was for six years, ending May 31, 1990. The contract contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract, at P200 per square meter. Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary documents. However, the heirs refuse to sell the property without first receiving the payment of purchase price before the land would be delivered to Duray, thus Duray filed a complaint for specific performance against the heirs of Bacus. The RTC ruled in favor of the Durays and the CA later affirmed the decision. ISSUES:

(1) WON the private respondents opted to buy the property covered by lease contract with option to buy, were they already required to deliver the money or consign it in court before petitioner execute the deed of transfer?

(2) WON did the private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract?

HELD: The obligation under option to buy is a reciprocal obligation. The performance of one obligation is conditioned on the simultaneous fulfilment of the other obligation. In an option to buy, the


1st year Wigmore

payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In this case, private respondents opted to buy the property, their obligation was to advise petitioner of their decision & readiness to pay the price. They were not obliged to make actual payment. Only upon the petitioners’ actual execution and delivery of the deed of sale were they required to pay. In Nietes vs. Court of Appeals, 46 SCRA 654 (1972), it was held that notice of the creditor's decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required. Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. Consignation is not proper because the debt is not due and owing. Under Art. 1169, provides that reciprocal obligation, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does delay by the other begins. In this case, the spouses Duray already communicated their interest to buy before the contact expires & it was the petitioners who refused because they want the money first. In addition, as there was no compliance yet with what is incumbent upon the petitioner, respondents had not incurred delay when the check was issued even after the contract expired. Therefore, the private respondents did not incur in delay when they did not yet deliver the payment nor make a consignation before the expiration of the contract. The petition is DENIED and the decision of the Court of Appeals is AFFIRMED. Cost against petitioner. CORTES VS CA FACTS: This case involves the rescission of a contract of sale entered into by petitioner Antonio Cotes and private respondent Villa Esperanza Development Corporation. For the purchase price of 3.7M, Villa Esperanza Development Corporation, the vendee, and Antonio Cortes, the vendor, entered into a contract of sale over the lots located at Baclaran, Paranaque, Manila. The Corporation advanced to Cortes the total sum of 1,213,000.00. In September 1983, the parties executed a deed if absolute sale on the following terms:

a. The Corporation shall advance 2.2M as down payment, and Cortes shall likewise deliver the TCT for the 3 lots.

b. The balance of 1.5M shall be payable within one year from the date of execution of the instrument.

The Corporation filed the instant case for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the corporation despite its readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents. It prayed for damages, attorney’s fees and litigation expenses. Cortes claimed that the owner’s duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. RTC rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of 1,213,000.00 plus interest. CA reversed the decision of the RTC and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with the Corporation’s payment of the balance of the purchase price of 2,487,000.00


1st year Wigmore

ISSUES 1. W/N Cortes delivered the TCTs and the original Deed to the Corporation? 2. W/N there is delay in the performance of the parties’ obligation that would justify the rescission

of the contract of sale? RULING

1. NO. Cortes avers that he delivered the TCTs through the broker’s son. He further avers that the broker’s son delivered it to the broker, who in turn delivered them to the Corporation.

Marcosa Sanchez’s unrebutted testimony is that she did not receive the TCTs. She also denied knowledge of delivery thereof to her son, Manny. What further strengthened the findings of the CA that Cortes did not surrender the subject documents was the offer of Cortes’ counsel at the pre –trial to deliver the TCTs and the Deed of Absolute Sale if the Corporation will pay the balance of the down payment. Indeed, if the said documents were already in the hands of the Corporation, there was no need for Cortes’ counsel to make such offer.

2. THERE IS DELAY IN BOTH PARTIES (Compensation Morae) Considering that their obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation thereof gave rise to a compensation morae or default on the part of both parties because neither has completed their part in their reciprocal obligation. Cortes is yet to deliver the original copy of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down payment of 2.2M. This mutual delay of the parties cancels out the effects of default, such that it is as if no one is guilty of delay. Under Article 1169 of the Civil Code, from the moment one of the parties fulfils his obligation, delay by the other party begins. Since Cortes did not perform his part, the provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force. TITAN-IKEDA CONSTRUCTION VS PRIMETOWN PROPERTY GROUP FACTS This case involves a contract for the structural works of Primetown’s 32-storey Makati Prime Tower which was awarded to petitioner Titan-Ikeda Construction and Development Corporation. The parties entered into a contract for a piece of work when they executed the supplemental agreement. Respondent awarded the contract for the structural works of its 32-storey tower to petitioner. Petitioner, as contractor, bound itself to execute the project for respondent, the owner/developer in consideration of a price of 130M. The supplemental agreement was reciprocal in nature because the obligation of respondent to pay the entire contract price depended on the obligation of petitioner to complete the project : In case itanong lang to ni mam guys. Titan-Ikeda estimated that petitioner should have accomplished 48.71% of the project as of the October 12, 1995 take over date. Petitioner repudiated this figure but qualifiedly admitted that it did not finish the project. Records showed that respondent did not merely take over the supervision of the project but took full control thereof. Because the parties agreed to extinguish the supplemental agreement, they were no longer required to fully perform their respective obligations. Petitioner was relieved of its obligation to complete the project while respondent was freed of its obligation to pay the entire contract price.


1st year Wigmore

ISSUE 1. W/N there was delay on the part of petitioner Titan-Ikeda.

RULING No. Mora ordelay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the creditor from the time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay. Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. If delay had truly been the reason why respondent never took over the project, it would have sent a written demand as required by the construction contract. If mag-ask si Ma’am sa Construction Contact eto nkasulat: If at any time during the effectivity of this contract, (PETITIONER) shall incur unreasonable delay or slippages of more (15%) of the scheduled work program, (RESPONDENT) should notify in writing to accelerate the work and reduce, if not erase, slippage. If after the lapse of sixty (60) days from receipt of such notice, (PETITIONER) fails to rectify the delay or slippage, (RESPONDENT) shall have the right to terminate this contract except in cases where the same was caused by force majeure. Since petitioner did not consent to the change of the designated construction manager, Titan-Ikeda’s September 7, 1995 report could not bind it. Therefore, petitioner did not incur any delay in the performance of its obligation. MEGAWORLD, petitioner vs. MILA TANSECO, respondent FACTS: On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or less) condominium unit at a pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City. The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, orP4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover. Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows: 4. CONSTRUCTION SCHEDULE – The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances, government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this contract if for any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it can only be completed at a financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the SELLER. (Underscoring supplied)

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Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63 pending delivery of the unit.2 Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period. (Underscoring supplied – thus based on Art. 1169, the transaction being RECIPROCAL, TANSECO HAS ALREADY FULFILLED HER OBLIGATION, which means that MEGAWORLD’S DELAY HAS BEGUN since OCTOBER 31,1998 or APRIL 30, 1999, the last day of the six-month grace period). A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.3 Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld’s failure to deliver the unit on time, she was demanding the return of P14,281,731.70 representing the total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that none of the excepted causes of delay existed.4 ISSUE: Whether or not MEGAWORLD immediately incurred delay upon its non-delivery of said condominium unit after October 31, 1998 (or April 30, 1999, the last day of the six-month period) and Tanseco’s payment of the agreed P14,281,731.70 fully payed also on that day, the obligation being reciprocal? Yes. HELD: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: XXX (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. (Underscore supplied – The obligor, MEGAWORLD, was beyond its power to perform the delivery of the condo unit in October 31, 1998 (or April 30, 1999, the last day of the six-month period), thus upholding the “beyond its power to perform” statement in this provision) In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Underscoring supplied) Based on Artilce 1169, in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Underscoring supplied) The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor.17 That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand for refund does not abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date. Petition is DENIED.






1st year Wigmore

GENERAL MILLING CORP., petitioner vs SPS RAMOS, respondents FACTS: On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land in Barangay Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was built. The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an indefinite period with an interest of twelve percent (12%) per annum.2 The Deed of Real Estate Mortgage contained the following provision: WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of [MORTGAGORS’+ obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and the improvements existing thereon, situated in the Barrio/s ofBanaybanay, Municipality of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00), Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the payment of the same plus interest of twelve percent (12%) per annum. Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses because of the negligence of GMC and its violation of the Growers Contract.3 On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their mortgaged property.4 On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of the foreclosure was subsequently sold by public auction to GMC after the required posting and publication.5 It was foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per annum and attorney’s fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness Division had closed its business and poultry operations.7

They likewise claimed that there was no sheriff’s affidavit to prove compliance with the requirements on posting and publication of notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. 8 Librado Ramos alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure.9 ISSUE: Whether or not there was sufficient demand made by GMC to the Sps Ramos? No. HELD: CA: The CA found that GMC’s action against Spouses Ramos was premature, as they were not in default when the action was filed on May 7, 1997. A careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to spouses Ramos for the full payment of their obligation. On March 31, 1997, a perusal of the letters presented and offered as evidence by defendant-appellant GMC did not "demand" but only request spouses Ramos to go to the office of GMC to "discuss" the settlement of their account. SC: The SC affirms the CA’s decision that there was no sufficient demand from GMC made to the spouses. There are three requisites necessary for a finding of default. First, the obligation is demandable

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and liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtor’s performance. As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage. Based on the Ruling on Dev’t Bank of the Philippines vs Licuanan: “If demand was made and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand was not made, then the loans had not yet become due and demandable.” In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of Court shall raise only questions of law. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will defer to the factual findings of the trial court, because petitioner GMC has not shown any circumstances making this case an exception to the rule. Petition is DENIED PRUDENTIAL BANK, petitioner, vs. COURT OF APPEALS and LETICIA TUPASI-VALENZUELA joined by husband Francisco Valenzuela, respondents. [G.R. No. 125536. March 16, 2000] FACTS: Private respondent Leticia Tupasi-Valenzuela opened an account in the Petitioner Prudential bank. On June 1, 1988, herein private respondent deposited P35,271.60 drawn against the Philippine Commercial International Bank (PCIB). Thereafter, private respondent issued Prudential Bank check in the amount of P11,500 post-dated June 20, 1988 in favor of one Belen Legaspi. Legaspi, who was in jewelry trade, endorsed the check to Philip Lhuiller, a businessman in the same field. When the check was deposited with the PCIB, it was dishonored for being drawn against insufficient funds. Private respondent asked why her check was dishonored where there was sufficient funds. The bank officer told her there was no need to review the passbook because the bank ledger was the best proof that she did not have sufficient funds. Then he abruptly faced his typewriter and started typing. Later, it was found out that the bank misposted private respondent’s check deposit to another account and delayed the posting of the same to the proper account. The bank admitted that it was at fault. But since it is not the first time that private respondent experienced this scenario, she commenced a suit for damages. ISSUE: Can damages be awarded to private respondent on account of the bank’s negligence ? HELD: Yes. The trial court found “that the misposting is a clear proof of lack of supervision on the part of the defendant bank”. The appellate court also found out that “while it may be true that the bank’s negligence in dishonoring the properly funded check might not have been attended with malice and bad faith, as appellee submits, nevertheless, it is the result of lack of due care and caution expected of an employee of a firm engaged in so sensitive and accurately demanding task as banking”. In Simex International vs. CA, 183 SCRA 360,367 (1990), and BPI vs. IAC, 206 SCRA 408, this court had occasion to stress the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected from the former in handling the accounts entrusted to its care. In the case of PNB vs. CA, we held that “a bank is under obligation to treat the accounts of its depositors with meticulous care whether such account consists only of a few hundred pesos or millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable.





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While petitioner’s negligence in this case may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation”. THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents. [G.R. No. 141968. February 12, 2001] FACTS: The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car – a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for “Sum of Money with Prayer for a Writ of Replevin” before the Metropolitan Trial Court of Pasay City. On August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank’s Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the bank’s compound. On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. On August 29, 1995, Dr. Gueco delivered a manager’s check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit. On appeal to the Regional Trial Court of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank: 1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit the Manager’s check – the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Manager’s Check, over which appellants have no control; 2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorney’s fees, and


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3. to pay the cost of suit. In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED. The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages. ISSUE: W/N THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES IN FAVOR OF THE RESPONDENTS. HELD: Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared: The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the ‘deliberate and intentional evasion of the normal fulfillment of obligation’ When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorney’s fees. We disagree. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation. We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco fromP184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as “wanton, fraudulent, reckless, oppressive or malevolent.” Gacal vs Philippine Airlines

Facts:


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Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal, Bonifacio S. Anislag and his wife, Mansueta L. Anislag, and the late Elma de Guzman, were then passengers boarding defendant's BAC 111 at Davao Airport for a flight to Manila. On the same flight were 6 (dili ko sure pero sa pag count nako sa na mention) members of the Moro National Liberation Front (MNLF) as co-passengers, three (3) armed with grenades, two (2) with .45 caliber pistols, and one with a .22 caliber pistol. 10 minutes after take-off, hijackers took their respective firearms and announced the hijacking. They directed the plane to be flown to Libya. With the pilot explaining to them especially to its leader, Commander Zapata, of the inherent fuel limitations of the plane and that they are not rated for international flights, the hijackers directed the pilot to fly to Sabah. With the same explanation, they relented and directed the aircraft to land at Zamboanga Airport, Zamboanga City for refueling. When the plane began to taxi at the runway, it was met by two armored cars of the military with machine guns pointed at the plane, and it stopped there. Demands were made by hijackers. After then hijackers’ relatives were allowed to board the plane but upon doing so, an armored car bumped the stairs resulting into a battle between the military and hijackers with the final score of ten (10) passengers and three (3) hijackers dead on the spot and three (3) hijackers captured. City Fiscal Frank in G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries. Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt but Mrs. Anislag suffered a fracture at the radial bone of her left elbow for which she was hospitalized. Elma de Guzman died because of that battle. Petitioners filed a complaint for damages. The trial court dismissed the complaints finding that all the damages sustained in the premises were attributed to force majeure thus this petition. Issue: WON hijacking or air piracy during martial law and under the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft from payment of damages to its passengers whose lives were put in jeopardy and whose personal belongings were lost during the incident. Held: The source of a common carrier's legal liability is the contract of carriage, and by entering into said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide. There is breach of this obligation if it fails to exert extraordinary diligence according t o all the circumstances of the case in exercise of the utmost diligence of a very cautious person. (EXTRAORDINARY DILLIGENCE) It is the duty of a common carrier to overcome the presumption of negligence and it must be shown that the carrier had observed the required extraordinary diligence of a very cautious person as far as human care and foresight can provide or that the accident was caused by a fortuitous event. Thus, as ruled by this Court, no person shall be responsible for those "events which could not be foreseen or which though foreseen were inevitable."

(REFER TO ELEMENTS OF FORTUITOUS EVENT)


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Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao to Manila was due to the skyjacking incident staged by six (6) passengers of the same plane, all members of the Moro National Liberation Front (MNLF), without any connection with private respondent, hence, independent of the will of either the PAL or of its passengers. Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been avoided had there been a more thorough frisking of passengers and inspection of baggages as authorized by R.A No. 6235. HOWEVER, Martial Law and Military take over of airport security rendered it impossible for PAL to perform its obligations (frisking, security check etc.) in a normal manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the Armed Forces of the Philippines to the exclusion of the former. Finally, there is no dispute that the fourth element has also been satisfied. Consequently the existence of force majeure has been established exempting respondent PAL from the payment of damages to its passengers who suffered death or injuries in their persons and for loss of their baggages. Yobido v. CA G.R. No. 113003 October 17, 1997 Facts:

Spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded a Yobido Liner bus bound for Davao City. The left front tire of the bus exploded and fell into a ravine. The incident resulted in the death of 28-year-old Tito Tumboy and physical injuries to other passengers.

Leny testified that the winding road it traversed was not cemented and was wet due to the rain; it was rough with crushed rocks. The bus was full of passengers and also had cargoes on top. Since it was "running fast," she cautioned the driver to slow down but he merely stared at her through the mirror.

Abundio Salce, who was the bus conductor, testified that the 42-seater bus was not full as there were only 32 passengers and he himself managed to get a seat. The bus was running at a speed of "60 to 50" only and that it was going slow because of the zigzag road. He affirmed that the left front tire that exploded was a "brand new tire" that he mounted only five (5) days before the incident. The Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts and she was present when it was mounted on the bus by Salce.

In this case, "the cause of the explosion remains a mystery until at present." As such, the RTC added, the tire blowout was "a caso fortuito which is completely an extraordinary circumstance independent of the will" of the defendants who should be relieved from liability.

Issue: Whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that exempts the carrier from liability for the death of a passenger? No Held:

The explosion of the tire is not in itself a fortuitous event. However, there may have been adverse conditions on the road that were unforeseeable and/or inevitable, which could make


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the blow-out a caso fortuito. The fact that the cause of the blow-out was not known does not relieve the carrier of liability. Owing to the statutory presumption of negligence against the carrier it is the burden of the defendants to prove that the cause of the blow-out was a fortuitous event. It is not incumbent upon the plaintiff to prove that the cause of the blow-out is not caso-fortuito.

The fact that the tire was new DID NOT IMPLY that it was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could not explode within five days' use. Be that as it may, it is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages.

Moreover, a common carrier may not be absolved from liability in case of force majeure or fortuitous event alone. The common carrier must still prove that it was not NEGLIGENT in causing the death or injury resulting from an accident. Defendants failed to rebut the testimony of Leny Tumboy that the bus was running so fast that she cautioned the driver to slow down. These facts must be resolved in favor of liability in view of the presumption of negligence of the carrier in the law. Coupled with this is the established condition of the road — rough, winding and wet due to the rain. It was incumbent upon the defense to establish that it took precautionary measures considering partially dangerous condition of the road. As stated above, proof that the tire was new and of good quality is not sufficient proof that it was not negligent. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary check-ups of the vehicle's parts.

Southeastern College Inc. v. CA G.R. No. 126389 July 10, 1998 Facts:

Private respondents are owners of a house at 326 College Road, Pasay City. Petitioner owns a four-storey school building along the same College Road. A powerful typhoon "Saling" hit Metro Manila. The roof of petitioner's building was partly ripped off and blown away, landing on and destroying portions of the roofing of private respondents' house.

After the typhoon had passed, an ocular inspection of the destroyed building was conducted by a team of engineers. It then recommended that the fourth floor of subject school building be declared as a "structural hazard."

Private respondents alleged that the damage to their house rendered the same uninhabitable, forcing them to stay temporarily in others' houses.

Petitioner averred that subject school building had withstood several devastating typhoons and other calamities in the past, without its roofing or any portion thereof giving way; that it has not been remiss in its responsibility to see to it that said school building is "in tip-top condition". Typhoon "Saling" was "an act of God and therefore beyond human control" such that petitioner cannot be answerable for the damages absent any NEGLIGENCE on its part.

The trial court relied only on the ocular inspection report and found that while typhoon "Saling" was accompanied by strong winds, the damage to private respondents' houses could have been avoided if the construction of the roof of petitioner's building was not faulty.

Issue:


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Whether the damage on the roof of the house of private respondents because of falling portions of the school building's roof was due to fortuitous event? YES Held:

There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is unavoidable despite any amount of foresight, diligence or care. The person seeking exoneration from liability due to fortuitous events must not be guilty of NEGLIGENCE.

A person claiming damages for the negligence of another has the BURDEN of proving the existence of negligence. Respondents merely relied on thereport submitted by a team which made an ocular inspection of petitioner's school building. An ocular inspection is one by means of actual sight or viewing. What is visual to the eye though, is not always reflective of the real cause behind. The relationship of cause and effect must be clearly shown.

Other than the ocular inspection, no investigation was conducted to determine the real cause of the partial unroofing of petitioner's school building. Private respondents did not even show that the plans, specifications and design of said school building were deficient and defective.

Petitioner elicited from one of the witnesses of private respondents, city building official Jesus Reyna, that the original plans and design of petitioner's school building were approved prior to its construction. Engr. Reyna admitted that it was a legal requirement before the construction of any building to obtain a permit from the city building official. In like manner, after construction of the building, a certification must be secured from the same. Having obtained both building permit and certificate of occupancy, these are, at the very least, prima facie evidence of the regular and proper construction of subject school building.

When part of its roof needed repairs of the damage inflicted by typhoon "Saling", the same city official gave the go-signal for such repairs — without any deviation from the original design — and subsequently, authorized the use of the entire fourth floor of the same building. These only prove that subject building suffers from no structural defect, contrary to the report that its "U-shaped" form was "structurally defective”.

Petitioner presented its vice president for finance and administration who testified that an annual maintenance inspection and repair of subject school building were regularly undertaken. Petitioner was even willing to present its maintenance supervisor to attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and simply stipulated that it would be corroborative of the vice president's narration.

The city building official admitted in open court that no complaint regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at bench.

It is a matter of judicial notice that typhoons are common occurrences in this country. If subject school building's roofing was not firmly anchored to its trusses, obviously, it could not have withstood long years and several typhoons even stronger than "Saling."

Petitioner has not been shown NEGLIGENT or at fault regarding the construction and maintenance of its school building in question and that typhoon "Saling" was the PROXIMATE cause of the damage suffered by private respondents' house

PHIL. COM. SAT V. GLOBE TELECOM FACTS: > Globe Telecom, Inc., formerly known as Globe McKay Cable and Radio Corporation installed and configured communication facilities for the exclusive use of the US Defense Communications Agency (USDCA) in Clark Air Base and Subic Naval Base. Globe Telecom later contracted the Philippine


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Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities. As both companies entered into an Agreement, Globe obligated itself to operate and provide an IBS Standard B earth station with Cubi Point for the use of the USDCA. The term of the contract was for 60 months, or five (5) years. In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. > At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. Notwithstanding this fact, their agreement continued. > On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that was supposed to extend the term of the use by the US of Subic Naval Base, among others. > Because of this event, Globe notified Philcomsat of its intention to discontinue the use of the earth station effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the RP-US Military Bases Agreement. > After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter in 1993 demanding payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed Philcomsat’s demand. On the other hand, the latter filed with the Regional Trial Court of Makati a Complaint against Globe, however, Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events constituted force majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of the Agreement. ISSUES: > Whether or not the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements constitutes force majeure which exempts Globe from complying with its obligations under the Agreement; RULING: > The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security, and its Supplementary Agreements, and the termination by the Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as stated in the Philippine Government’s Note Verbale to the US Government, are acts, directions, or requests of the Government of the Philippines which constitute force majeure. > However, the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s services by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. > Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable: > A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or typhoons,24 or an "act of man," such as riots, strikes or wars. > Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force majeure: 1. Any law, order, regulation, direction or request of the Philippine Government; 2. Strikes or other labor difficulties; 3. Insurrection; 4. Riots; 5. National emergencies; 6. War; 7. Acts of public enemies; 8. Fire, floods, typhoons or other catastrophes or acts of God; 9. Other circumstances beyond the control of the parties.


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> Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174. > In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The Supreme Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992. > Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding obligation under the Agreement > The Supreme Court finds that the defendant is exempted from paying the rentals for the facility for the remaining term of the contract. As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position to render the service it was obligated under the Agreement. > The Court of Appeals was correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement. > Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. > In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsat’s demands for payment of rentals. It was established during the trial of the case before the trial court that Globe had valid grounds for refusing to comply with its contractual obligations after 1992. SICAM V. JORGE FACTS: > Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to secure a loan. > On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. > Sicam sent respondent Lulu a letter informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Respondent Lulu expressed 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. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on but petitioner Sicam failed to return the jewelry. > Respondent Lulu is seeking indemnification for the loss of pawned jewelry and payment of damages. Petitioner is interposing the defense of caso fortuito on the robber committed against the pawnshop. ISSUE: > Whether or not Sicam is liable for the loss of the pawned articles in their possession? RULING: > In affirmative. > Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it


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must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. > 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. > A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. No sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. > Sicam’s admission that the vault was open at the time of robbery is clearly a proof of petitioners’ failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles. > In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed. SALUDAGA V. FAR EASTERN UNIVESITY FACTS: > Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University when he was shot by Alejandro Rosete, one of the security guards on duty at the school premises on August 18, 1996. Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him. > Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Galaxy’s President), to indemnify them for whatever would be adjudged in favor of petitioner. > Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe and secure environment and an atmosphere conducive to learning. ISSUE: Whether or not FEU was not negligent and such shooting was tantamount to a caso fortuito? NO, it was negligent and such is not a fortuitous case. Held: > When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school’s academic requirements and observe its rules and regulations. > Respondent FEU failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. It failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it


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hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students. > Respondent FEU is liable to petitioner for damages. > The Regional Trial Court of Manila found FEU to be liable for the damages and a breach of their obligation to the petitioner. FEU was ordered to pay actual damage of 35,298.25, plus 6%interest per annum from the filing of the case until the finality of decision. After the execution, the rate shall be 12& per annum until its satisfaction. FEU was ordered to pay temperate damages in the amount of P20,000.00. Moral damage for P100,000.00, attorney’s fees and litigation expense for 50,000.00 Galaxy was and its presidents were ordered to jointly and severely pay the respondent FEU damages equivalent to the amount awarded to Saludaga. > FEU cannot be held liable for damages under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy. The instructions issued by respondents Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. They cannot be construed as the element of control as to treat respondents as the employers of Rosete. It had no hand in selecting thesecurity guards. Thus, the duty to observe the diligence of a good father of a family cannot be demanded from the said client > “For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latters breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the security agency.” Development Bank of the Philippines (DBP) v. CA 262 SCRA 245 FACTS: Private Respondents were the original owners of a parcel of agricultural land covered by TCT No. T-1432, situated in Barrio Capucao, Ozamis City, with an area of 113,695 square meters. On 30 May 1977, private respondents mortgaged said land to petitioner. When private respondents defaulted on their obligation, petitioner (DBP) foreclosed the mortgage on the land and emerged as sole bidder in the ensuing auction sale. On 6 April 1984, petitioner and private respondents entered into a Deed of Conditional Sale wherein petitioner agreed to reconvey the foreclosed property to private respondents. On 6 April 1990, upon completing the payment of the full repurchase price, private respondents demanded from petitioner the execution of a Deed of Conveyance in their favor. Petitioner then informed private respondents that the prestation to execute and deliver a deed of conveyance in their favor had become “legally impossible” in view of 1. Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and 2. Sec. 1 of E.O. 407 issued 10 June 1990. ISSUE: Whether or Not RA 6657 and E.O. 407 rendered the conditional obligation to execute a Deed of Sale to private respondents "a legal impossibility." HELD: The Supreme Court is in favor of the Private Respondents.


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In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (ART 1181 Civil Code) The full payment by the appellee on April 6, 1990 retroacts to the time the contract of conditional sale was executed on April 6, 1984. From that time, all elements of the contract of sale were present. Consequently, the contract of sale was perfected. As such, the said sale does not come under the coverage of R.A. 6657. Petitioner (DBP) cannot invoke the last paragraph of Sec. 6 of Rep. Act 6657 to set aside its obligations already existing prior to its enactment. In the first place, said last paragraph clearly deals with "any sale, lease, management contract or transfer or possession of private lands executed by the original land owner." The original owner in this case is not the petitioner but the private respondents. Going now to E.O. 407, we hold that the same can neither affect appellant's obligation under the deed of conditional sale. Under the said law, appellant is required to transfer to the Republic of the Philippines 'all lands foreclosed' effective June 10, 1990. Under the facts obtaining, the subject property has ceased to belong to the mass of foreclosed property falling within the reach of said law. As earlier explained, the property has already been sold to herein appellees (on April 6, 1990) even before the said E.O. has been enacted.


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Central Philippine University v. CA 246 SCRA 511 FACTS: Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land issued in the name of the donee CPU. With annotations: 1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum; 2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land; 3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a building thereon. On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation. Petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party. HELD: The Court cannot sustain the petition. I. Under Art. 1181 of the Civil Code, on 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. Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a resolutory one. The donation had to be valid before the fulfillment of the condition. If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished. II The claim of petitioner that prescription bars the instant action of private respondents is unavailing. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of donation. III When the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended: The general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period has arrived.


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More than a reasonable period of 50 years has already been allowed for petitioner to comply with the condition even if it be burdensome. Hence, there is no more need to fix the duration of a term of the obligation when such procedure would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits. Moreover, Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there are no more obstacles for the court to decree the rescission claimed. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance.

TAYAG vs. CA and LEYVA G.R. No. 96053 March 3, 1993 JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, Petitioners, vs. COURT OF APPEALS and ALBRIGIDO LEYVA, Respondents. Facts: Siblings of Juan Galicia Sr. (prior to his demise in 1979) and Celerina Labuguin entered into a contract to sell involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija to a certain Albrigido Leyva for the sum of P50,000.00 under the following terms: 1. (P3,000.00) - acknowledged to have been paid upon the execution of this agreement law y 2. (P10,000.00) - shall be paid within ten (10) days from and after the execution of the agreement virtual law library 3. (P10,000.00) - represents the VENDORS' indebtedness with the Philippine Veterans Bank which is assumed by the VENDEE 4. (P27,000.00.) - shall be paid within one (1) year from and after the execution of the agreement Leyva only paid parts of the obligation. But even after the grace period for payment made in the contract and while litigation of such case, the petitioners still allowed Leyva to make payments. With regards to the obligation payable to the Phil Veterans bank by the vendee, as they deemed that it was not paid in full, such obligation they completed by adding extra amount to fulfill such obligation. This was fatal in their case as this is Leyva’s argument that they constructively fulfilled the obligation which is rightfully due to him. (Trivia: It was Celerina, Juan’s sister, that paid the bank to complete such obligation). Petitioners claim that they are only “OBLIGEES” with regards to the contract, so the principle of constructive fulfillment cannot be invoked against them. Petitioners, being both creditor and debtor to private respondent, in accepting piecemeal payment even after the grace period, are barred to take action through estoppel. Issue: 1. WON there was constructive fulfillment in the part of the petitioners that shall make rise the obligation to deliver to Leyva the deed of sale? YES 2. WON they are still entitled to rescind the contract? NO, barred by estoppel. Held: 1. In a contract of purchase, both parties are mutually obligors and also obligees, and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees under the contract since they are also bound as obligors to respect the stipulation in permitting private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as determined hereafter. 2. Petitioners accepted Leyva’s delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance. Indeed, the right to rescind is not absolute and will not be granted where there has been


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substantial compliance by partial payments. By and large, petitioners’ actuation is susceptible of but one construction — that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent. RIVERA vs. DEL ROSARIO G.R. No. 144934 January 15, 2004 ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA, petitioners, vs. FIDELA DEL ROSARIO (deceased and substituted by her co-respondents), and her children, OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed DEL ROSARIO, respondents. Facts: Del Rosario is the registered owner of Lot No. 1083-C, a parcel of land situated at Lolomboy, Bulacan. Fidela del Rosario borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the loan, she and Mariano Rivera agreed to execute a deed of real estate mortgage and an agreement to sell the land. Consequently, Mariano drafted the Deed of Real Estate Mortgage, a Kasunduan (Agreement to Sell), and a Deed of Absolute Sale. The Kasunduan provided the Riveras would purchase the lot for P2.1M. There were 3 installments:

The Deed of Absolute Sale would be executed only after the second installment is paid and a postdated check for the last installment is deposited with Fidela. Although Fidela intended to sign only the Kasunduan and the real estate mortgage, she inadvertently affixed her signature on all three documents (Deed of Real Estate Mortgage1, a Kasunduan (Agreement to Sell), and a Deed of Absolute Sale). Rivera failed to complete the payment in the second installment. Respondents filed a complaint asking for the rescission of Kasunduan for failure of Rivera to comply with its conditions. They also sought the annulment of the deed of absolute sale on the ground of fraud and the reconveyance of the entire property. Petitioners say that there can be no rescission because in accordance with Article 1383, the del Rosarios must show that there were no other legal means available to obtain reparation other than to file a case for rescission. NB: Nieto was the tenant of the property. When the Riveras showed to Nieto that they were the new owners, he desisted from vacating the property. The Riveras agreed to give him a small piece of the land in question. The RTC declared the deed of absolute sale as null and void. The CA modified the RTC’s decision insofar as it deemed the portion pertaining to Nieto as valid. Issue:


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WON the contract entered into between the parties may be rescinded based on Art 1191? NO WON the deed of absolute sale is null and void in its entirety as opposed to the CA’s decision of validity pertaining to Nieto’s share? YES, VOID IN ITS ENTIRETY Held: The Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. Respondents bound themselves to deliver a deed of absolute sale and clean title after petitioners have made the second installment. This promise to sell was subject to the fulfillment of the suspensive condition. Petitioners however failed to complete payment of the second installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but an event that prevents the vendor’s obligation to convey title from acquiring binding force. Hence, the agreement of the parties in the instant case may be set aside, but not because of a breach on the part of petitioners for failure to complete payment of the second installment. Rather, their failure to do so prevented the obligation of respondents to convey title from acquiring an obligatory force. While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution. Resolution is a principal action that is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code. SPS. FELIPE AND LETICIA CANNU vs. SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION, G.R. No. 139523. May 26, 2005 Facts: Respondent spouses Gil and Fernandina Galang agreed to sell their house and lot subject to mortgage with the National Home Mortgage Finance Corp (NHMFC). Petitioner Leticia Cannu agreed to buy the property for P120,000.00 & to assume the mortgage obligations with the NHMFC. A deed of sale & assumption of mortgage was executed & petitioners immediately took possession & occupied the house & lot. Despite requests from Adelina R. Timbang (attorney-in-fact) and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so. Because the Cannu failed to fully comply with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233,000.00 as full payment of her remaining mortgage loan with NHMFC. 8 yrs had already elapsed and petitioners have not yet complied with the obligation. The RTC ordered the deed of sale with Assumption of Mortgage as rescinded as well as ordered mutual restitution. Issues:


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1) Whether or not the breach of the obligation is substantial. 2) Whether or not there was substantial compliance with the obligation to pay the monthly amortization with NHMFC. 3) Whether or not respondents-spouses Galang demanded from petitioners a strict and/or faithful compliance of the Deed of Sale with Assumption of Mortgage. 4. Whether or not the action for rescission is subsidiary. Held: 1) Rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement. The question of whether a breach of contract is substantial depends upon the attending circumstances and not merely on the percentage of the amount not paid. In the case at bar, we find petitioners’ failure to pay the remaining balance of P45,000.00 to be substantial. Taken together with the fact that the last payment made was on 28 November 1991, eighteen months before the respondent Fernandina Galang paid the outstanding balance of the mortgage loan with NHMFC, the intention of petitioners to renege on their obligation is utterly clear. 2) The petitioners were not religious in paying the amortization with the NHMFC. As admitted by them, in the span of three years from 1990 to 1993, their payments covered only thirty months. This, indeed, constitutes another breach or violation of the Deed of Sale with Assumption of Mortgage. On top of this, there was no formal assumption of the mortgage obligation with NHMFC because of the lack of approval by the NHMFC on account of petitioners’ non-submission of requirements in order to be considered as assignees/successors-in-interest over the property covered by the mortgage obligation. 3) There is sufficient evidence showing that demands were made from petitioners to comply with their obligation. Adelina R. Timbang, attorney-in-fact of respondents-spouses, per instruction of respondent Fernandina Galang, made constant follow-ups after the last payment made on 28 November 1991, but petitioners did not pay. Sometime in March 1993, due to the fact that full payment has not been paid and that the monthly amortizations with the NHMFC have not been fully updated, she made her intentions clear with petitioner Leticia Cannu that she will rescind or annul the Deed of Sale with Assumption of Mortgage. 4. The subsidiary character of the action for rescission applies to contracts enumerated in Articles 1381 of the Civil Code. The contract involved in the case before us is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191.As a consequence of the rescission or, more accurately, resolution of the Deed of Sale with Assumption of Mortgage, it is the duty of the court to require the parties to surrender whatever they may have received from the other. The parties should be restored to their original situation. RAMEL vs. AQUINO G.R. No. 133208 July 31, 2006 Daniel Aquino is the registered owner of a land situated in Tanggal, Cordon, Isabela. On October 21, 1975, Aquino mortgaged the property to Development Bank of the Philippines (DBP) for P50,000.00. In 1983, the property was in danger of being foreclosed as he had no means to pay for the loan. Aquino


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offered to sell to Ramel the mortgaged property for P110,000.00 as well as assume the remaining mortgage of respondents in DBP in the amount of P85,000.00. Petitioners agreed to purchase the property but the agreement was not reduced into writing. Ramel introduced improvements to the property such as rice paddles, drainage canal, fence and a house. Ramel applied for a re-structuring of the mortgage loan with the DBP for a period of ten years. They did so without the consent of respondents. Aquino after learning that Ramel has re-structured the loan, paid the mortgage in the bank in full, and wants to rescind the contract made between him and Ramel. The fact that respondents later on withdrew the amount cannot operate against them because the trial court had enjoined them from withdrawing the certificate of title and the bank releasing the same. Ramel was only able to subsequently fully settle the mortgage loan two years and five months from the constitution of the contract, and one and a half years after they filed this case. Issue: 1. WON Ramel substantially breached their obligation warranting the rescission of the contract? YES 2. WON there can be offsetting of the claim of improvements by petitioners to the claim of fruits derived from the land by respondents? YES Held: 1. Petitioners cannot argue that their breach is merely casual and slight, especially that they were able to subsequently pay the loan and the purpose of the contract has been fulfilled by petitioners, i.e., that the mortgage obligation shall be paid and respondents shall be able to retain at least the rest of the land free from any liens or encumbrances. It is admitted that the underlying purpose of the Aquinos to sell a portion of the land was in order that their mortgage obligation shall be paid and they shall be able to retain at least the rest of the land free from any liens and encumbrances. It was imperative then for Rene Ramel to pay the mortgage obligation. He did not do so. It was never the intention of respondents to be left at the mercy of petitioners as to when the latter would complete payment of the remaining mortgage obligation. It goes against the common sense of man and the ordinary course of business that an owner of land sells his property without any definite agreement as to when the obligation shall be paid, especially if his property is facing foreclosure. 2. We cannot order an offsetting of the claims as did the trial court and the appellate court. The evidence show that both parties failed to prove their respective claims. In the absence of evidence from both parties on their claims, offsetting is improper. The right to offset may exist but the question of how much is to be offset is factual in nature and needs to be proved by proper evidence. The records show that both parties failed to prove their claims through any receipt or document. Pagtalunan vs Dela Cruz


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Facts: Patricio Pagtalunan, entered into a Contract to Sell with respondent, Teodoro Manzano, whereby the former agreed to sell, and the latter to buy, a house and lot. The consideration of P17,800 was agreed to be paid in the following manner: P1,500 as down payment upon execution of the Contract to Sell, and the balance to be paid in equal monthly installments of P150 on or before the last day of each month until fully paid. It was also stipulated in the contract that respondent could immediately occupy the house and lot; that in case of default in the payment of any of the installments for 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration, and that all payments made and all improvements done on the premises by respondent would be considered as rentals for the use and occupation of the property or payment for damages suffered, and respondent was obliged to peacefully vacate the premises and deliver the possession thereof to the vendor. Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying without any justification or explanation. Respondent averred that she and Patricio entered into an agreement suspending the payment of the installments within a certain period. But even before lapse of such period, Patricio resumed demolishing the house. Respondent did not deny that she still owed Patricio P5,650, but claimed that she did not resume paying her monthly installment because of the unlawful acts committed by Patricio, as well as the filing of the ejectment case against her. A demand to vacate the premises was also ignored by respondent. Petitioner then filed a complaint for unlawful detainer against respondent. MTC rendered a decision in favor of petitioner ruling that respondent’s failure to pay some of the installments resulted in the resolution/termination of the contract to sell. RTC reversed this decision ruling that the agreement could not be automatically rescinded since there was delivery to the buyer. A judicial determination of rescission must be secured by petitioner as a condition precedent to convert the possession de facto of respondent from lawful to unlawful. The CA found that the parties, as well as the MTC and RTC failed to advert to and to apply Republic Act (R.A.) No. 6552, more commonly referred to as the Maceda Law, which is a special law enacted in 1972 to protect buyers of real estate on installment payments against onerous and oppressive conditions. The CA held that the Contract to Sell was not validly cancelled or rescinded under R.A. No. 6552, and recognized respondent’s right to continue occupying unmolested the property subject of the contract to sell. Arguments: Petitioner contends that respondent also had more than the grace periods provided under the Maceda Law within which to pay. There is nothing in the Maceda Law, petitioner asserts, which gives the buyer a right to pay arrearages after the grace periods have lapsed, in the event of an invalid demand for rescission. The Maceda Law only provides that actual cancellation shall take place after 30 days from receipt of the notice of cancellation or demand for rescission and upon full payment of the cash surrender value to the buyer. Issue: WON the Maceda law is applicable; and WON the contract to sell was validly cancelled under the Maceda law. Held: The CA correctly ruled that R.A No. 6552, which governs sales of real estate on installment, is applicable in the resolution of this case. This case originated as an action for unlawful detainer.


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Respondent is alleged to be illegally withholding possession of the subject property after the termination of the Contract to Sell between Patricio and respondent. It is, therefore, incumbent upon petitioner to prove that the Contract to Sell had been cancelled in accordance with R.A. No. 6552. The pertinent provision of R.A. No. 6552 reads: Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.9 R.A. No. 6552, otherwise known as the "Realty Installment Buyer Protection Act," recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.10 The Court agrees with petitioner that the cancellation of the Contract to Sell may be done outside the court particularly when the buyer agrees to such cancellation. However, the cancellation of the contract by the seller must be in accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. Actual cancellation of the contract takes place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Based on the records of the case, the Contract to sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552, among others, Petitioner contends that he has complied with the requirements of cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his demand letter dated February 24, 1997 should be considered as the notice of cancellation or demand for rescission by notarial act and that the cash surrender value of the payments on the property has been applied to rentals for the use of the house and lot after respondent stopped payment after January 1980. The Court, however, finds that the letter dated February 24, 1997, which was written by petitioner’s counsel, merely made formal demand upon respondent to vacate the premises in question within five days from receipt thereof since she had "long ceased to have any right to possess the premises x x x due to her failure to pay without justifiable cause the installment payments x x x." Clearly, the demand letter is not the same as the notice of cancellation or demand for rescission by a notarial act required by R.A No. 6552.


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Congregation of the Religious of the Virgin Mary v. Orola Facts: Sometime in April 1999, Religious of the Virgin Mary (RVM), acting through Sr. Fe Enhenco, and respondents met to discuss the sale of the latter’s property adjacent to St. Mary’s Academy. Said property is registered in the name of Manuel Laserna. Josepehine Orola went to Manila on May, 1999 for the subject property and was enetertained by Ma. Clarita Balleque. A contract to sell was made dated June 2, 1999 between the parties where petitioners are bounde to pay the property for Php. 5,555,000.00 with 10% of the total consideration payable upon the execution of the contract, and which was already signed by the respondents and Sr. Ma. Fe Enhenco, R.V.M. [Sr. Enhenco] as witness. On June 7, 1999, Josephine and Antonio receieved the RCBC check bearing the amount of P555,550.00 as down payment by petitioner. An extrajudicial settlement was executed for the estate of Trinidad Andrada Laserna adjudicating to themselves the subject property. With an undated Absolute Deed of Sale, respondents scheduled to meet with petitioner for the remaining balance. However, VRM Balleque did not meet with respondents. Succeeding attempts by respondents to schedule an appointment with VRM Balleque in order to conclude the sale were likewise rebuffed. In an exchange of correspondence between the parties’ respective counsels, RVM denied respondents’ demand for payment because: (1) the purported Contract to Sell was merely signed by Sr. Enhenco as witness, and not by VRM Balleque, head of the corporation sole; and (2) as discussed by counsels in their phone conversations, RVM will only be in a financial position to pay the balance of the purchase price in two years time. Thus, respondents filed with the RTC a complaint with alternative causes of action of specific performance or rescission. RTC granted judgment in favor of the respondents and against the petitioner. On appeal, the matter was resolved by the appellate court through Article 1378 of the Civil Code. Issue: Whether or not Article 1191 should be applied instead of Article 1378 of the Civil Code. Held: Such case falls under Article 1191 because it applies to breach of reciprocal obligations. Article 1191 speaks of the remedy of rescission in reciprocal obligations. In the present case, when RVM refused to pay the balance which breached the contract, respondents have availed of the remedies granted by Article 1191. They are entitled to damages regardless of the relief that would be granted by the Court. To obviate confusion, the clear language of Article 1191 mandates that damages shall be awarded in either case of fulfillment or rescission of the obligation. In this regard, Article 2210 of the Civil Code is explicit that “interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.” The ineluctable conclusion is that the CA correctly imposed interest on the remaining balance of the purchase price to cover the damages caused the respondents by RVM’s breach.


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YANEZA vs. Court of Appeals G.R. No. 149322 November 28, 2008 Facts: • Jaime L. Yaneza owns a a parcel of land in San Juan, Baras, Rizal. • Manuel A. de Jesus and Wilhelmina M. Manzano are the owners of the lot adjacent to Yaneza’s lot • De Jesus’ lot has no access to the nearest road except through a road which they constructed over a portion of Yaneza’s lot. • Yaneza informed De Jesus that he does not agree with the use of the portion of his lot as an access road because it will affect the configuration of his property. As an option, Yaneza offered to sell to De Jesus the entire property. • De Jesus did not agree and they instead settled to a Deed of Absolute Sale over a 175-sq m portion of Yaniza’s lot, to be used as an access road 5-meters wide, for 20,000.00. • Almost a year later, Yaniza informed De Jesus that he is canceling the deed of sale by way of a Deed of Cancellation • De Jesus refused to honor the cancellation so Yaniza filed a Complaint for Cancellation of Contract with the Municipal Circuit Trial Court (MCTC) • Yaniza alleged that De Jesus constructed an access road 8-m wide (with an area of 280 sq m) and that De Jesus have been dumping high piles of gravel, sand and soil along the access road in violation of the condition in the deed of sale that the access road will be used only for the purpose of a right of way. • Yaniza prayed for the court to declare as canceled the grant of right of way to respondents and to order them to pay moral and exemplary damages and attorney's fees. • De Jesus Answer with Counterclaims that they purchased the disputed 280-sq m portion of the lot from its previous owner. However, to buy peace and avoid any conflict with Yaniza, De Jesus agreed to pay 20,000.00 in consideration of the petitioner's desistance from further pursuing his claim over the 280 sq m area. • De Jesus narrated that before they could deliver the 20,000.00, they discovered that it covered only 175 sq m, not 280 sq m before they could deliver theP20,000.00. • There was renegotiation and, for an additional consideration of P40K, Yaneza agreed to sell the entire 280 sq m. De Jesus paid him the additional 40,000.00 as evidenced by an Acknowledgment Receipt and that despite several demands, Yaniza failed to present the new deed of sale • Yaneza initially allowed them peaceful possession and use of the area even when he started constructing his house adjacent to the access road. • Later, a serious misunderstanding took place between Yaneza and De Jesus’ caretaker, Benjamin Manzano, because Manzano refused to allow Yaneza to tap water and electricity from De Jesus property. • Yaniza retaliated and constructed a fence along the access road, which could not allow trucks to pass through. • Yaneza is now praying for the rescission of the contract for easement of right of way. Issue: • W or N Yaneza may validly rescind the contract of for easement of right of way? NO Held: • The construction of the road beyond the stipulated area does not constitute a breach of contract. • Breach of contract implies a failure, without legal excuse, to perform any promise or undertaking that forms part of the contract. • Although the contract specifically stated the area covered by the sale, it did not contain a promise by the respondents that they will only occupy such area. Albeit apparently wrong, petitioner’s cause of


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action should not have been based on the contract of sale. • Rescission of a contract will not be permitted for a slight or casual breach but only for a substantial and fundamental breach as would defeat the very object of the parties in making the agreement. • It must be a breach of faith that destroys or violates the reciprocity between the parties. • Besides, the original agreement had already been superseded or novated by a new contract, an oral one, covering an increased area of 280 sq m. An additional P40K was paid to the Yaneza which covered the entire 280-sq m area where the access road was laid. The new contract of sale between the parties is valid despite it not being evidenced by any writ Lalicon vs NHA G.R. No. 185440 July 13, 2011 Facts: • On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro. • The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its release from mortgage without NHA’s prior written consent. • About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons). • Cecilia had a house built on the property and paid for the amortizations. After full payment of the loan or on March 21, 1991 the NHA released the mortgage. • Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters. • About four and a half years after the release of the mortgage or on October 4, 1995, Victor registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents’ title. • On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See. • On February 14, 1997 Victor sold the property to Chua, one of the mortgagees. • April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment of the NHA’s 1980 sale of the land to the Alfaros, the latter’s 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and regulations. • On February 12, 2004 the RTC decided that, although the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its sale to them since its right to do so had already prescribed. • The NHA and the Lalicons, who intervened, filed their respective appeals to the Court of Appeals (CA). • On August 1, 2008 the CA reversed the RTC decision and found the NHA entitled to rescission. The CA declared the lot in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons the full amount of their amortization, plus interest, and the value of the improvements they constructed on the property. Issues: • Wor N the CA erred in holding that the Alfaros violated their contract with the NHA • Wor N the NHA’s right to rescind has prescribed • Wor N the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission HELD: • First Issue: o The Alfaros sold the property to Victor on November 30, 1990 even before the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction, thus


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entitling the NHA to rescind the contract. o The prohibition against resale remained even after the land had been released from the mortgage. The five-year restriction against resale, counted from the release of the property from the NHA mortgage, measures out the desired hold that the government felt it needed to ensure that its objective of providing cheap housing for the homeless is not defeated by wily entrepreneurs. • Second Issue: o Resolution applies only to reciprocal obligations such that a breach on the part of one party constitutes an implied resolutory condition which entitles the other party to rescission. o Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in either case. o Here NHA sought annulment of the Alfaros’ sale to Victor because they violated the five-year restriction against such sale provided in their contract. o Such violation comes under Art 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues. o NHA’s right of action accrued on February 18, 1992 when it learned of the Alfaros’ forbidden sale of the property to Victor. o Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period. • Third Issue: o Since the five-year prohibition against alienation without the NHA’s written consent was annotated on the property’s title, the Lalicons very well knew that the Alfaros’ sale of the property to their father, Victor, even before the release of the mortgage violated that prohibition. o Since mutual restitution is required in cases involving rescission under Article 1191, the NHA must return the full amount of the amortizations it received for the property, plus the value of the improvements introduced, with interest per annum from the time of the finality of this judgment Yao v Matela On March 30, 1997, the spouses Yao, the respondent in this case, contracted the services of Matela, a licensed architect (petitioner), to manage and supervise the construction of a two-unit townhouse at a total cost of P5,090,560.00.[4]

The construction started in the first week of April 1997 and was completed in April 1998, with additional works costing P300,000.00. Matela alleged that the spouses Yao paid him the amount of P4,649,078.00, thereby leaving a balance of P741,482.00.[5] When his demand for payment of P741,482.00 went unheeded, Matela filed a complaint[6] for sum of money with the Regional Trial Court of Las Piñas City which was docketed as LP-98-0263 and raffled to Branch 275. In their answer, the spouses Yao denied that the project was completed in April 1998. Instead, they alleged that Matela abandoned the project without notice. They claimed that they paid Matela the sum of P4,699,610.93 which should be considered as sufficient payment considering that Matela used sub-standard materials causing damage to the project which needed a substantial amount of money to repair. On April 1, 2002, the Regional Trial Court of Las Piñas City, Branch 275 rendered judgment in favor of Matela. The Court of Appeals affirmed the decision of the lower court but modified the amount of actual damages. On petition before the SC, this Court found out that the factual findings of the trial court and Court of Appeals are contradicted by the evidence on record. Thus, a review of the facts is in order.


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As agreed by the parties, Matela will construct the townhouses in accordance with the Specification[15]

while spouses Yao will pay Matela the agreed construction cost based on progress billings. The spouses Yao will not pay Matela the agreed price in full unless the latter has fully complied with and has discharged his obligations as specified in the contract. Both the trial court and CA found that Matela’s delivery of the project constitutes a faithful discharge of duties. SC finds otherwise. Based on the SC’s evaluation of the records, Matela failed to comply with his obligation to construct the townhouses based on the agreed specifications particularly on the provisions of the contract on the carpentry works and electrical works. The photographs offered by spouses Yao showed uneven ceilings, rotten door jambs and door posts, unfinished wooden partitions and unhinged and unfinished doors. Again, based on the photographs presented as evidence, there were unfinished electrical conduits, electrical outlets with loose wirings and outlets with exposed wires. The Specification also provided for several kinds of tiles to be installed on the floors[22] and on the walls.[23] However, the exhibits showed decaying and unfinished cabinet floors,[24] stairways and bathroom floors with missing tiles,[25] uninstalled bathroom fixtures and exposed plumbing fixtures.[26] The bath tub was uninstalled that it can be easily pulled out of its concrete receptacle.[27] The exhibits also showed unfinished windows,[28] unpainted walls,[29] rusted metalworks and balusters.[30]

The SC said that it cannot rely on the Building Permit,[32] Certificate of Completion[33] and Certificate of Occupancy[34] to prove the project’s completion. While it is true that under the Rules of Court, the issuance of the foregoing documents enjoy the presumption of regularity, however, it is only a disputable presumption, which may be overcome by other evidence. The agreed construction cost of the project was P5,090,560.00, however, the amounts reflected in the Building Permit, the Certificate of Completion and the Certificate of Occupancy are far less. In the Building Permit, the total cost was pegged at P2,191,700.00; in the Certificate of Completion, the actual cost of construction was P2,347,706.81; while in the Certificate of Occupancy the cost of the project as built was declared at P2,341,706.00. Considering the discrepancies, the conclusiveness of the said documents fall when arrayed against the pieces of evidence introduced by the spouses Yao.


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It was however found out that the spouses Yao failed to comply with their undertakings. As alleged by Matela, the spouses Yao made periodic payments to him based on progress billings. This was contained in the Summary of Cash Payments[35] and the Summary of WLY Invoices[36] that he submitted as part of his formal offer of evidence. However, the spouses Yao refused to pay the balance of the agreed construction cost despite demands. The spouses Yao justified their non-payment by arguing that Matela abandoned the project and that there were defects in its construction. Evidently, both parties in this case breached their respective obligations. The well entrenched doctrine is that the law does not relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with full awareness of what he was doing and entered into and carried out in good faith. Such a contract will not be discarded even if there was a mistake of law or fact. Courts have no jurisdiction to look into the wisdom of the contract entered into by and between the parties or to render a decision different there from. They have no power to relieve parties from obligation voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments.[37]

However, in situations such as the one discussed above, where it cannot be conclusively determined which of the parties first violated the contract, equity calls and justice demands that we apply the solution provided in Article 1192 of the Civil Code: 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. In the instant case, the losses to be incurred by the parties will come, as far as Matela is concerned, in the form of the alleged unpaid balance of the construction cost that he is seeking to collect from the spouses Yao. For the latter, the losses that they will bear is the cost of repairing the defects in the project. We consider the amount of P4,699,610.93 which Matela has already received from the spouses Yao, as sufficient payment for his services and the materials used in the project. The SC held that the decision of the CA be reversed and set aside. The contract between the parties is deemed extinguished and each of the parties shall bear their own losses. Industrial Management vs Natinal Labor Relations Facts: In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the Department of Labor and Employment, Regional Arbitration Branch No. VII in Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial Management Development Corporation (INIMACO), for payment of separation pay and unpaid wages. In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that: "RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering respondents Filipinas Carbon and Mining Corp. Gerardo Sicat, Antonio Gonzales/Industrial Management Development Corp. (INIMACO), Chiu Chin Gin and Lo Kuan Chin, to pay complainants Enrique Sulit, the total award of P82,800.00; ESMERALDO PEGARIDO the full award of P19,565.00; Roberto Nemenzo the total sum of P29,623.60 and DARIO GO the total award of P6,599.71, or the total aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND 31/100 (P138,588.31) to be deposited with this Commission within ten (10) days from receipt of this Decision for appropriate disposition. All other claims are hereby Dismiss (sic) for lack of merit. No appeal was filed within the reglementary period thus, the above Decision became final and executory.


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On June 16, 1987, the Labor Arbiter issued a writ of execution but it was returned unsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ of Execution which ordered thus:. "NOW THEREFORE, by virtue of the powers vested in me by law, you are hereby commanded to proceed to the premises of respondents Antonio Gonzales/Industrial Management Development Corporation (INIMACO) situated at Barangay Lahug, Cebu City, in front of La Curacha Restaurant, and/or to Filipinas Carbon and Mining corporation and Gerardo Sicat at 4th Floor Universal RE-Bldg. 106 Paseo de Roxas, Legaspi Village, Makati Metro Manila and at Philippine National Bank, Escolta, Manila respectively, and collect the aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND THIRTY ONE CENTAVOS (P138,588.31) and thereafter turn over said amount to complainants ENRIQUE SULIT, ESMERALDO PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to this Office for appropriate disposition. Should you fail to collect the said sum in cash, you are hereby authorized to cause the satisfaction of the same on the movable or immovable property(s) of respondents not exempt from execution. You are to return this writ sixty (6) (sic) days from your receipt hereof, together with your corresponding report. "You may collect your legal expenses from the respondents as provided for by law. "SO ORDERED."[2] The petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside Decision,"[3] alleging among others that the alias writ of execution altered and changed the tenor of the decision by changing the liability of therein respondents from joint to solidary, by the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial Management Development Corporation and Filipinas Carbon and Mining Corporation, et al.". The Labor however denied the motion. The petitioner subsequently appealed the Labor Arbiter’s Order to the respondent NLRC but the same dismissed the appeal. On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept Payment Of P23,198.05 Representing One Sixth Pro Rata Share of Respondent INIMACO As Full and Final Satisfaction of Judgment As to Said Respondent."[6] The private respondents opposed the motion. In an Order[7] dated August 15, 1989, the Labor Arbiter denied the motion and ruled that The Sheriff of this Office is order (sic) to accept INIMACO’s tender payment (sic) of the sum of P23,198.05, as partial satisfaction of the judgment and to proceed with the enforcement of the Alias Writ of Execution of the levied properties, now issued by this Office, for the full and final satisfaction of the monetary award granted in the instant case. Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the respondent NLRC. Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent NLRC committed grave abuse of discretion in affirming the Order of the Labor Arbiter which declared the liability of petitioner to be solidary. The only issue in this petition is whether petitioner’s liability pursuant to the Decision of the Labor Arbiter dated March 10, 1987, is solidary or not. Held: Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner INIMACO’s liability is not solidary but merely joint and that the respondent NLRC acted with grave abuse of discretion in upholding the Labor Arbiter’s Alias Writ of Execution and subsequent Orders to the effect that petitioner’s liability is solidary. A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation.[9] In a joint obligation each obligor answers only for a part of the whole liability and to each obligee belongs only a part of the correlative rights.[10]


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Well-entrenched is the rule that solidary obligation cannot lightly be inferred.[11] There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.[12] In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6) respondents in the case below is solidary, thus their liability should merely be joint. Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of respondents therein is solidary, the correction -- which is substantial -- can no longer be allowed in this case because the judgment has already become final and executory. Scc-alr It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties.[15] Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it.[16] It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose.[17] An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. Also, the Alias Writ of Execution is null and void because it varied the tenor of the judgment in that it sought to enforce the final judgment against "Antonio Gonzales/Industrial Management Development Corp. (INIMACO) and/or Filipinas Carbon and Mining Corp. and Gerardo Sicat," which makes the liability solidary. Ca-lrsc WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4, 1991 of the respondent National Labor Relations is hereby declared NULL and VOID. The liability of the respondents in RAB-VII-0711-84 pursuant to the Decision of the Labor Arbiter dated March 10, 1987 should be, as it is hereby, considered joint and petitioner’s payment which has been accepted considered as full satisfaction of its liability, without prejudice to the enforcement of the award, against the other five (5) respondents in the said case. SO ORDERED. November 11, 2003 GR no. 144134 Mariveles Shipyard Corporation petitioner vs. Honorable Court of Appeals, Luis REGONDOLA, MANUELIT GATALAN, ORESCA AGAPITO, NOEL ALBADBAD, ROGELIO PINTUAN, DANILO CRISOSTOMO, ROMULO MACALINAO, NESTOR FERER, RICKY CUESTA, ROLLY ANDRADA, LARRY ROGOLA, FRANCISCO LENOGON, AUGUSTO QUINTO, ARFE BERAMO, BONIFACIO TRINIDAD, ALFREDO ASCARRAGA, ERNESTO MAGNO, HONORARIO HORTECIO, NELBERT PINEDA, GLEN ESTIPULAR, FRANCISCO COMPUESTO, ISABELITO CORTEZ, MATURAN ROSAURO, SAMSON CANAS, FEBIEN ISIP, JESUS RIPARIP, ALFREDO SIENES, ADOLAR ALBERT, HONESTO CABANILLAS, AMPING CASTILLO and ELWIN REVILLA, respondents. FACTS:


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Mariveles Shipyard Corporation engaged in the services of Longest Force Investigations and Security Agency Inc., Longest Force complied by sending out private respondents, security guards of Longest Force, to said corporation

Petitioners averred that they had been rigorously paying wages as stipulated in the contract signed by both Mariveles Shipyard Corp. and Longest Force

In 1995, according to petitioner, services of private respondents were unsatisfactory thus there had been a termination in the contract between Petitioner and Longest Force, and a termination in status of private respondents in the Security Agency

Private respondents filed a case for illegal dismissal underpayment of wages pursuant to the PNPSOSIA-PADPAO rates, non-payment of overtime pay, premium pay for holiday and rest day, service incentive leave pay, 13th month pay and attorney’s fees, against both Longest Force and petitioner

Longest Force filed a cross-claim against private petitioners claiming that the service fee paid by the petitioners was lesser that that of required pursuant to PNPSOSIA-PADPAO rates. Petitioner denied liability on said matter alleging that no employer-employee relationship existed between Mariveles Shipyard and private respondents.

May 22, 1998. Labor Arbiter decided on the case filed by private respondents. It rules that Mariveles Shipyard Corp. is jointly and severally liable to pay the money claims files by private respondents in the rough estimate of P2.7 M based on PADPAO rates.

Petitioners appealed in NLRC but NLRC affirmed in toto the decision of Labor Arbiter

Petitioner filed action for certiorari assailing grave abuse of discretion of NLRC. Court of Appeals denied petition and dismissed it out right.

Petitioner claims that CA greatly erred, among others, deciding that Mariveles Shipyard is jointly and severally liable for the money claims filed by the private respondents.

ISSUE: Did the appellate court grievously err in finding petitioner jointly and severally liable with Longest Force for the payment of wage differentials and overtime pay owing to the private respondents? HELD: No, the Court of Appeals was right in deciding that Mariveles Shipyard is jointly and severally liable for the said money claims filed by private respondents. This is pursuant to Articles 106, 107 and 109 of the Labor Code. ART. 106. CONTRACTOR OR SUBCONTRACTOR – Whenever an employer enters into a contract with another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. x x x ART. 107. INDIRECT EMPLOYER. – The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.


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ART. 109. SOLIDARY LIABILITY. – The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. In this case, when petitioner contracted for security services with Longest Force as the security agency that hired private respondents to work as guards for the shipyard corporation, petitioner became an indirect employer of private respondents pursuant to Article 107. Following Article 106, when the agency as contractor failed to pay the guards, the corporation as principal becomes jointly and severally liable for the guards’ wages. This is mandated by the Labor Code to ensure compliance with its provisions, including payment of statutory minimum wage. The security agency is held liable by virtue of its status as direct employer, while the corporation is deemed the indirect employer of the guards for the purpose of paying their wages in the event of failure of the agency to pay them. The joint and several liability imposed on petitioner is without prejudice to a claim for reimbursement by petitioner against the security agency for such amounts as petitioner may have to pay to complainants, the private respondents herein. Resolution of the Court of Appeals in CA-G.R. SP No. 55416 is AFFIRMED with MODIFICATION. Petitioner and Longest Force are held liable jointly and severally for underpayment of wages and overtime pay of the security guards, without prejudice to petitioner’s right of reimbursement from Longest Force Investigation and Security Agency, Inc. G.R. No. 147791 September 8, 2006 CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES, petitioner, vs. REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY & INSURANCE INC., BATANGAS LAGUNA TAYABAS BUS CO., and WILFREDO DATINGUINOO, respondents. Facts:

Private respondents, Rebecca Estrella (Estrella) and Rachel Fletcher (Fletcher), boarded one of the buses owned by Batangas Laguna Tayabas Bus Co. (BLTBC) driven by Wilfredo Datinguinoo (Datinguinoo). On their way to Pasay, the bus they were riding was hit from behind by a tractor-truck owned by petitioner. They sustained serious physical injuries such as fractured ribs, lacerations and partial amputation of the left leg of Fletcher.

Estrella and Fletcher filed a civil case demanding for damages against BLTBC, Construction development Corporation (CDC), Datinguinoo and Espiridion Payunan Jr. (Payunan) for all the physical, moral injuries they incurred on the accident. They alleged that drivers from both companies were negligent and did not follow traffic rules, that the companies did not exercise the diligence of a good father in hiring employees, that BLTBC had been negligent in the care for their buses that it imposes further danger to their passengers, that they suffered actual damages in their hospital bills, among others.

On Feb. 9, 1993, Trial Court awarded private respondents with damages finding that CDC and BLTBC and their employees are liable in the instant case. Trial Court finds that BLTBC, being a courier, should have exercised extra diligence in the vigilance over the safety of their


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passengers, making sure the passengers would arrive safely to their destination. In the same light, the trial court finds that the employee of CDC had been driving recklessly and was driving very fast during the happening of the incident. It imposes that CDC had been negligent in the selection of their employees or in the supervision of such.

Unsatisfied, private respondents filed a motion for reconsideration regarding the damages they had been given. Such petition was denied. They appealed in the Appellate Court which reinstated the decision of the lower court but with some modifications.

Court of Appeals held that CDC and Datinguinoo were solely liable for the damages prayed to by the private respondents.

ISSUES: WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENTS BLTB AND/OR ITS DRIVER WILFREDO DATINGUINOO SOLELY LIABLE FOR THE DAMAGES SUSTAINED BY HEREIN RESPONDENTS FLETCHER AND ESTRELLA. HELD: The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of the Civil Code. In this regard, Article 2180 provides that the obligation imposed by Article 2176 is demandable for the acts or omissions of those persons for whom one is responsible. Consequently, an action based on quasi-delict may be instituted against the employer for an employee's act or omission. The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the defense of due diligence in the selection and supervision of the employee.14 In the instant case, the trial court found that petitioner failed to prove that it exercised the diligence of a good father of a family in the selection and supervision of Payunan, Jr.

The trial court and the Court of Appeals found petitioner solidarily liable with BLTB for the actual damages suffered by respondents because of the injuries they sustained. It was established that Payunan, Jr. was driving recklessly because of the skid marks as shown in the sketch of the police investigator.

But in the cases of Anuran v. Buño, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver of the vehicle were jointly and severally held liable to the injured passenger or the latter's heirs.

As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out

their claim against the carrier and the driver exclusively on one theory, much less on that of breach of contract alone. After all, it was permitted for them to allege alternative causes of action and join as many parties as may be liable on such causes of action so long as private respondent and her co-plaintiffs do not recover twice for the same injury. What is clear from the cases is the intent of the plaintiff there to recover from both the carrier and the driver, thus justifying the holding that the carrier and the driver were jointly and severally liable because their separate and distinct acts concurred to produce the same injury.

In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary"

or "joint and several" obligation, the relationship between the active and the passive subjects is so close that each of them must comply with or demand the fulfillment of the whole obligation.

http://www.lawphil.net/judjuris/juri2006/sep2006/gr_147791_2006.html#fnt14


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WHEREFORE, the petition is denied. The petitioner is jointly and severally liable to pay for the damages prayed for by private respondents in the instant case.

EPARWA SECURITY AND JANITORIAL SERVICES, INC., Petitioner, - versus -

LICEO DE CAGAYAN UNIVERSITY, Respondent.

November 28, 2006

a petition for certiorari

FACTS: o 1 December 1997 - Eparwa and LDCU entered into a Contract for Security Services.

“For and in consideration of this security, protective and safety services, [LDCU] agrees to pay [Eparwa] P5,000.00 per guard a month payable within fifteen (15) days after [Eparwa] presents its service invoice. [Eparwa] shall furnish [LDCU] a monthly copy of SSS contribution of guards and monthly payroll of each guard assigned at [LDCU’s] premises on a monthly basis*.+”

o 21 December 1998 - 11 security guards (“security guards”) whom Eparwa assigned to LDCU filed

a complaint before the National Labor Relations Commission’s (NLRC) Regional Arbitration in Cagayan de Oro City the complaint was filed against both Eparwa and LDCU for underpayment of salary, legal

holiday pay, 13th month pay, rest day, service incentive leave, night shift differential, overtime pay, and payment for attorney’s fees.

o Ruling of the Labor Arbiter

18 August 1999 - Labor Arbiter found that the security guards are entitled to wage differentials and premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of the Labor Code.

LDCU filed an appeal before the NLRC. o Ruling of the NLRC

19 January 2000 - NLRC found that the security guards are entitled to wage differentials and premium for holiday and rest day work

Although the NLRC held Eparwa and LDCU solidarily liable for the wage differentials and premium for holiday and rest day work, the NLRC did not require Eparwa to reimburse LDCU for its payments to the security guards. NLRC also ordered the recomputation of the monetary awards according to the dates actually worked by each security guard

Eparwa and LDCU again filed separate motions for partial reconsideration 14 March 2000 - NLRC declared that although Eparwa and LDCU are solidarily liable to the

security guards for the monetary award, LDCU alone is ultimately liable. LDCU filed a petition for certiorari before the appellate court

o Ruling of Appellate Court


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20 April 2001 - appellate court granted LDCU’s petition and reinstated the Labor Arbiter’s decision. The appellate court also allowed LDCU to claim reimbursement from Eparwa.

ISSUE: o Is LDCU alone ultimately liable to the security guards for the wage differentials and premium for

holiday and rest day pay?

HELD: o Articles 106, 107 and 109 of the Labor Code read: Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract with

another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

Article 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.

Article 109. Solidary liability. — The provisions of existing laws to the contrary

notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

o For the security guards, the actual source of the payment of their wage

differentials and premium for holiday and rest day work does not matter as long as they are paid. This is the import of Eparwa and LDCU’s solidary liability. Creditors, such as the security guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as between themselves, two solidary debtors are liable for only half of the payment.

o LDCU’s ultimate liability comes into play because of the expiration of the Contract for Security

Services. There is no privity of contract between the security guards and LDCU, but LDCU’s liability to the security guards remains because of Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking LDCU for an adjustment in the contract price because of the expiration of the contract, but Eparwa’s liability to the security guards remains because of their employer-employee relationship. In lieu of an adjustment in the contract price, Eparwa may claim reimbursement from LDCU for any payment it may make to the security guards. However, LDCU cannot claim any reimbursement from Eparwa for any payment it may make to the security guards.

o WHEREFORE, we GRANT the petition.


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JAGUAR SECURITY AND INVESTIGATION AGENCY, PETITIONER, VS.

RODOLFO A. SALES, CHAIRPERSON, JAIME L. MORON, MELVIN R. TAMAYO, JESUS B. SILVA, JR., AND DIONISIO C. CARANYAGAN, DANETH FETALVERO AND DELTA MILLING INDUSTRIES, INC.,RESPONDENTS

April 22, 2008

Petition for Review on Certiorari FACTS:

Jaguar Security and Investigation Agency ("Jaguar") is a private corporation engaged in the business of providing security services to its clients, one of whom is Delta Milling Industries, Inc. ("Delta").

Private respondents Rodolfo Sales, Melvin Tamayo, Dionisio Caranyagan, Jesus Silva, Jr., Jaime Moron and Daneth Fetalvero were hired as security guards by Jaguar.

o Caranyagan and Tamayo were terminated by Jaguar on May 26, 1998 and August 21, 1998, respectively.

Allegedly their dismissals were arbitrary and illegal. o Sales, Moron, Fetalvero and Silva remained with Jaguar.

All the guard-employees, claim for monetary benefits such as underpayment, overtime pay, rest day and holiday premium pay, underpaid 13th month pay, night shift differential, five days service and incentive leave pay.

Caranyagan and Tamayo argue that they were entitled to separation pay and back wages, for the time they were illegally dismissed until finality of the decision.

18 September 1998 - respondent security guards instituted the instant labor case before the labor arbiter

25 May 1999 - the labor arbiter rendered a decision in favor of private respondents Sales o rendered dismissing the charges of illegal dismissal on the part of the complainants

MELVIN R. TAMAYO and DIONISIO C. CARANYAGAN for lack of merit but ordering respondents JAGUAR SECURITY AND INVESTIGATION AGENCY and DELTA MILLING INDUSTRIES, INC., to jointly and severally pay all the six complainants the following money claims for their services rendered

1 July 1991 - Jaguar filed a partial appeal questioning the failure of public respondent NLRC to resolve its cross-claim against Delta as the party ultimately liable for payment of the monetary award to the security guards

19 September 2000 - the NLRC dismissed the appeal, holding that it was not the proper forum to raise the issue saying that Jaguar, being the direct employer of the security guards, is the one principally liable to the employees.

Petitioner filed a petition for certiorari with the CA but was denied.


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ISSUE: Whether or not petitioner may claim reimbursement from Delta Milling through a cross-claim filed with the labor court? HELD:

Under Articles 106, 107 and 109 of the Labor Code, the joint and several liability of the contractor and the principal is mandated to assure compliance of the provisions therein including the statutory minimum wage.

o The contractor, petitioner in this case, is made liable by virtue of his status as direct employer.

On the other hand, Delta Milling, as principal, is made the indirect employer of the contractor's employees for purposes of paying the employees their wages should the contractor be unable to pay them.

This joint and several liability facilitates, if not guarantees, payment of the workers' performance of any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution.

However, in the event that petitioner pays his obligation to the guard employees pursuant to the Decision of the Labor Arbiter, as affirmed by the NLRC and CA, petitioner has the right of reimbursement from Delta Milling under Article 1217 of the Civil Code, which provides:

o Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

The jurisdiction of labor courts extends only to cases where an employer-employee relationship exists.

In the present case, there exists no employer-employee relationship between petitioner and Delta Milling. In its cross-claim, petitioner is not seeking any relief under the Labor Code but merely reimbursement of the monetary benefits claims awarded and to be paid to the guard employees. There is no labor dispute involved in the cross-claim against Delta Milling. Rather, the cross-claim involves a civil dispute between petitioner and Delta Milling. Petitioner's cross-claim is within the realm of civil law, and jurisdiction over it belongs to the regular courts.

Moreover, the liability of Delta Milling to reimburse petitioner will only arise if and when petitioner actually pays its employees the adjudged liabilities.

Payment, which means not only the delivery of money but also the performance, in any other manner, of the obligation, is the operative fact which will entitle either of the solidary debtors to seek reimbursement for the share which corresponds to each of the debtors. In this case, it appears that petitioner has yet to pay the guard employees.

WHEREFORE, the petition is DENIED. Crystal V BPI FACTS: - spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch on 03/28/1978. The loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same day, spouses Crystal executed in favor of BPI-Butuan a Continuing Suretyship binding


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themselves as surety of CCCC in the aggregate principal sum of not exceeding P300,000.00. Thereafter, Raymundo executed a promissory note for the amount of P300,000.00 in favor of BPI-Butuan. -1979 renewal of a previous loan but this time in BPI-Cebu, whose renewal was evidenced by a promissory note dated 09/13/1979. The promissory note states that the spouses are jointly and severally liable with CCCC. However, CCCC has no real property, thus, spouses Crystal executed a real estate mortgage over their own property. - Unfortunately, CCCC failed to pay its loans to both BPI-Butuan and Cebu. The spouses as well failed to pay their obligations despite demands, prompting BPI to foreclose sale on the chattel and real estate mortgage. Payment was given to BPI-Butuan whose proceeds totaled P240,000.00 against the loan which had then reached P707,393.90 at that time. - BPI then filed a complaint for sum of money against CCCC and the spouses, seeking to recover the deficiency of the loan of CCCC to BPI.. As a result, extrajudicial foreclosure of the mortgaged property is iinstituted. Now, spouses filed an action for Injunction With Damages, With A Prayer For A Restraining Order and/or Writ of Preliminary Injunction. Spouses claimed that foreclosure of the real estate mortgage was illegal because BPI should have exhausted CCCC's property first- RTC DISMISSED the complaint. The ground was that SINCE THE SPOUSES AGREED TO BIND THEMSELVES JOINTLY AND SEVERALLY, THEY ARE SOLIDARILY LIABLE FOR THE LOANS AND THAT BEING GUARANTORS-MORTGAGORS, THEY ARE NOT ENTITLED TO THE BENEFIT OF THE EXHAUSTION. - Decision was appealed by spouses Crystal- DISMISSED. Filed a motion for reconsideration-DENIED. -hence, Before the Court, petitioners contend that, the loan obligation of the spouses was extinguished due to illegal refusal to accept payment for the loan by BPI. RULING: - Contention has no merit. IBAA who offered to pay the loan in exchange for the release of the mortgages, is not a privy to the loan agreement between the spouses and BPI. Art.1236 of the Civil Code provides, creditor is not bound to accept payment or performance by a 3rd person who has no interest in the fulfillment of the obligation, unless there is stipulation to the contrary. when the obligor undertakes to be jointly and severally liable, it means that the obligationb is solidary. The surety therefore becomes liable for the debt or duty of another even if he possess no direct or personal interest over the obligations nor does he receive and benefit therefrom. Wherefore, petition is DENIED and CA's Resolution and Decision is AFFIRMED. SUATENGCO v. REYES FACTS

This is an action for Sum of Money with Damages filed by Carmencita O. Reyes against defendants [petitioners] Spouses Soledad and Antonio Suatengco.

The plaintiff (respondent) claimed that defendant Soledad borrowed a sum of money in order to pay her obligation to Philippine Phosphate Fertilizer Corporation (PHILPHOS)

Plaintiff paid Philphos the amount of P1,336,313.00 and by reason thereof defendant spouses executed a Promissory Note binding themselves jointly and severally to pay plaintiff the said amount in 31 monthly installments. However, defendants have made only one payment in the amount of P15,000.00.

Pursuant to a specific clause in the Promissory Note, defendants have unequivocally waived the necessity of demand to be made upon them.

The court has given the defendants several extensions of time to file their answer with responsive pleading but they failed to do.

ATTY. EDMUNDO O. REYES, JR. testified that he is the attorney-in-fact of his mother Congresswoman Carmencita O. Reyes to enter into and execute, among other acts, any


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agreement with the defendant Soledad Suatengco to collect the amount of around P1.4 MILLION and to hold the same in trust for her as shown by a Special Power of Attorney.

He explained that defendants own and manage Goldfields Business Development Corporation. Of the P1,336,313.00 paid by plaintiff to Philphos, which defendants jointly and severally assumed to pay plaintiff under the Promissory Note, only P15,000.00 had been paid by them thereby leaving an outstanding balance ofP1,321,313.00 plus 12% interest per annum computed and attorney’s fees equivalent to 20% of defendants total outstanding balance inclusive of interest, which he believes to be reasonable based on experience considering that the case will be prosecuted outside Metro Manila and the long distance would entail quite an amount of travel for retained counsel.

The RTC declared the petitioners in default for failure to file their Answer to the complaint. Trial ex parte was delegated to the Clerk of Court to receive respondent’s evidence. Testimonial and documentary evidence were all admitted.

RTC judgment is hereby rendered in favor of plaintiff and against defendants ordering defendants to pay plaintiff attorney’s fees in the amount of 20% of the sum collected.

The CA upheld the award of attorney’s fees equivalent to 20% of the balance of petitioners’ obligation.

The petitioners contended that the award of attorney’s fees was illegal or erroneous because in the promissory note, only 5% was stipulated as the “stipulated amount“.

The testimony of Atty. Edmundo O. Reyes that the attorney’s fees should be 20% of the outstanding balance cannot prevail over the 5% stipulated in the promissory note. Petitioners maintained that oral evidence cannot prevail over the written agreement of the parties.

Respondent contended that petitioners have already waived their rights to question the award for attorney’s fees because in their Appellant’s Brief, they stated that the stipulated attorney’s fees was 20% of the total balance of the outstanding indebtedness. Despite such stipulation, said attorney’s fees are subject to judicial control.

The Promissory Note executed by petitioners in favor of respondent undeniably carried a stipulation for attorney’s fees and interest in case of the latter’s default in the payment of any installment due.

The attorney’s fees herein litigated are in the nature of liquidated damages and not the attorney’s fees recoverable as between attorney and client. Liquidated damages are those agreed upon by the parties to a contract to be paid in case of breach thereof. The stipulation on attorney’s fees contained in the said Promissory Note constitutes what is known as a penal clause.

Penalty Clause

An accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation.

Functions to strengthen the coercive force of obligation and to provide for what could be the liquidated damages resulting from such a breach.

Obligor would be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.

So long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon the obligor. The attorney’s fees so provided are awarded in favor of the litigant, not his counsel.


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There is a contractual stipulation in the Promissory Note that in case of petitioners’ default on the terms and conditions of the said Promissory Note by failing to pay any installment due, and then this will render the entire balance of the obligation immediately due and payable.

Both parties signed the Promissory Note voluntarily, thus the stipulation therein has the force of law between the parties and should be complied with by them in good faith.

ISSUE: WON the awarding of the attorney’s fees equivalent to 20% of the petitioners’ total obligation by the RTC and CA was unwarranted and contrary to law. HELD:

In awarding attorney’s fees equivalent to 20% of petitioners’ total obligation, the RTC and CA disregarded the stipulation expressly agreed upon in the Promissory Note and instead increased the award of attorney’s fees by giving weight and value to the testimony of prosecution witness Atty. Reyes.

Oral evidence certainly cannot prevail over the written agreements of the parties. The courts need only to rely on the faces of the written contracts to determine their true intention on the principle that when the parties have reduced their agreements in writing.

It is presumed that they have made the writings the only repositories and memorials of their true agreement.

The agreement of the parties with respect to attorney’s fees is only 5% of the total obligation and the trial court granted the 20% rate based on the testimony of respondent’s counsel.

Neither can we give credence to respondent’s assertion that the 5% attorney’s fees agreed upon in the promissory note were intended only to be the minimum rate as the promissory note never mentioned a minimum.

Supreme Court: We find it improper for both the RTC and the CA to increase the award of attorney’s fees despite the express stipulation contained in the said Promissory Note which we deem to be proper under these circumstances, since it is not intended to be compensation for respondent’s counsel but was rather in the nature of a penalty or liquidated damages.

On the matter of interest, we affirm the amount of interest awarded by the two courts below, there being a written stipulation as to its rate.

Once the judgment becomes final and executory and the amount adjudged is still not satisfied, legal interest at the rate of 12% applies until full payment. The rate of 12% per annum is proper because the interim period from the finality of judgment, awarding a monetary claim and until payment thereof is deemed to be equivalent to a forbearance of credit. The actual base for the computation of this 12% interest is the amount due upon finality of this decision.


1st year Wigmore

FLORENTINO vs SUPERVALUE FACTS

Petitioner is doing business under the business name "Empanada Royale," a sole proprietorship engaged in the retail of empanada with outlets in different malls and business establishments within Metro Manila.

Respondent is a domestic corporation engaged in the business of leasing stalls and commercial store spaces located inside SM Malls found all throughout the country.

Petitioner and respondent executed 3 Contracts of Lease containing similar terms and conditions over the cart-type stalls situated at several malls within Metro Manila.

The term of each contract is for a period of four months and may be renewed upon agreement of the parties.

Upon the expiration of the original Contracts of Lease, the parties agreed to renew the same by extending their terms.

Before the expiration of said Contracts of Lease, petitioner received two letters from the respondent.

FIRST LETTER: petitioner was charged with violating Section 8 of the Contracts of Lease by not opening on certain dates. Respondent also noticed petitioner was closing earlier than the usual mall hours, which is a violation of terms of the contract. Also charged petitioner with selling a new variety of empanada called “mini-embutido” and of increasing the price of her merchandise without the prior approval of the respondent A stern warning was thus given to petitioner.

SECOND LETTER: respondent informed the petitioner that it will no longer renew the Contracts of Lease for the three outlets, upon their expiration on 31 March 2000.

In a letter-reply, petitioner explained that the “mini-embutido” is not a new variety of empanada but had similar fillings, taste and ingredients as those of pork empanada; only, its size was reduced in order to make it more affordable.

Respondent still refused to renew its Contracts of Lease and took possession of the store space and confiscated the equipment after the expiration of the lease contract.

Petitioner: o demanded that the respondent release the equipment and personal belongings it seized

from the and return the security deposits, in the sum ofP192,000.00, turned over by the petitioner upon signing of the Contracts of Lease.

o sent respondent another letter reiterating her previous demands, but the latter failed or refused to comply.

o filed an action for Specific Performance, Sum of Money and Damages against the respondent. Alleged that the respondent made verbal representations that the Contracts of Lease will be renewed from time to time.

o was induced to introduce improvements upon the store space only to find out a year later that the respondent will no longer renew her lease contracts for all three outlets.

o alleged that the respondent, without justifiable cause and without previous demand, refused to return the security deposits in the amount of P192,000.00

o claimed that the respondent seized her equipment found inside the store space after the lease contract expired and despite repeated written demands from the petitioner, respondent refused to return the items.

o prayed for the award of actual damages, representing the sum of security deposits, cost of improvements and the value of the personal properties seized, award of as moral and exemplary damages; and attorney’s fees and expenses of litigation.20



1st year Wigmore

Respondent countered that petitioner committed several violations of the terms of their Contracts of Lease by not opening on certain dates and by introducing a new variety of empanada without the prior consent of the respondent. Petitioner infringed the lease contract by frequently closing earlier than the agreed closing hours.

Petitioner is liable for the amount P106,474.09, representing the penalty for selling a new variety of empanada, electricity and water bills, and rental adjustment, among other charges incidental to the lease agreements.

Respondent claimed that the seizure of petitioner’s personal belongings and equipment was in the exercise of its retaining lien, since the petitioner failed to settle the said obligations up to the time the complaint was filed.

Considering that petitioner already committed several breaches of contract, the respondent opted not to renew its Contracts of Lease with her.

Security deposits were made in order to ensure faithful compliance with the terms of their lease agreements; and since petitioner committed several infractions thereof, respondent was justified in forfeiting the security deposits in the latter’s favor.

RTC : judgment in favor of the petitioner and found that the physical takeover by the respondent of the leased premises and the seizure of petitioner’s equipment and personal belongings without prior notice were illegal.

CA: modified the RTC Judgment and found that the respondent was justified in forfeiting the security deposits and was not liable to reimburse the petitioner for the value of the improvements introduced in the leased premises and to pay for attorney’s fees.

Since the petitioner did not obtain the consent of the respondent before she introduced improvements on the SM Megamall store space, the respondent has therefore no obligation to reimburse the petitioner for the amount expended in connection with the said improvements.

The Court of Appeals maintained the order of the trial court for respondent to return to petitioner her properties after she has settled her obligations to the respondent.

ISSUES I. Whether or not the respondent is liable to return the security deposits to the petitions. II. Whether or not the respondent is liable to reimburse the petitioner for the sum of the improvements she introduced in the leased premises. HELD First Issue:

The appellate court, in finding that the respondent is authorized to forfeit the security deposits, relied on the provisions of Sections 5 and 18 of the Contract of Lease.

Since it was already established by the trial court that the petitioner was guilty of committing several breaches of contract, the Court of Appeals decreed that she cannot demand the return of the security deposits for the same are deemed forfeited by contractual violations.

The said provision found in all Contracts of Lease is in the nature of a penal clause to ensure petitioner’s faithful compliance with the terms and conditions of the said contracts.

Penal Clause: an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.29 The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach.

Article 1226 of the Civil Code states:



1st year Wigmore

o In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

o The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

General rule: The courts are not at liberty to ignore the freedoms of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy.

The courts may equitably reduce a stipulated penalty in the contracts in two instances: (1) if the principal obligation has been partly or irregularly complied with; and (2) even if there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229.

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

The forfeiture of the entire sum is clearly a usurious and iniquitous penalty for the transgressions committed by the petitioner. The respondent is therefore under the obligation to return 50% of P192,000.00 to the petitioner.

Second Issue:

With regards to the liability of the respondent to reimburse the petitioner for one-half of the expenses incurred for the improvements, the following provision in the Contracts of Lease will enlighten us in resolving this issue:

Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS, ETC. The LESSEE shall not make any alterations, additions, or improvements without the prior written consent of LESSOR; and all alterations, additions or improvements made on the leased premises, except movable or fixtures put in at LESSEE’s expense and which are removable, without defacing the buildings or damaging its floorings, shall become LESSOR’s property without compensation/reimbursement but the LESSOR reserves the right to require the removal of the said alterations, additions or improvements upon expiration of the lease.

The foregoing provision mandates that before the petitioner can introduce any improvement on the leased premises, she should first obtain respondent’s consent. In the case at bar, it was not shown that petitioner previously secured the consent of the respondent before she made the improvements

It was not even alleged by the petitioner that she obtained such consent or she at least attempted to secure the same.

The Court ruled that the stipulation of the parties in their lease contract "to be renewable" at the option of both parties stresses that the faculty to renew was given not to the lessee alone nor to the lessor by himself but to the two simultaneously; hence, both must agree to renew if a new contract is to come about

Petitioner’s contention that respondents had verbally agreed to extend the lease indefinitely is inadmissible.

In ruling that the respondent is liable to reimburse petitioner one half of the amount of improvements made on the leased store space should it choose to appropriate the same, the RTC relied on the provision of Article 1678.

Under Art 1678 of the Civil Code, the lessor is under the obligation to pay the lessee one-half of the value of the improvements made should the lessor choose to appropriate the improvements, Article 1678 however should be read together with Article 448 and Article 546 of the same statute.


1st year Wigmore

Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. x x x x Art. 546. Necessary expenses shall be refunded to every possessor; but only possessor in good faith may retain the thing until he has been reimbursed therefor.

To be entitled to reimbursement for improvements introduced on the property, the petitioner must be considered a builder in good faith. To allow full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith.

A builder in good faith is one who is unaware of any flaw in his title to the land at the time he builds on it.35 In this case, the petitioner cannot claim that she was not aware of any flaw in her title.

In Geminiano v. Court of Appeals: Being mere lessees, the private respondents knew that their occupation of the premises would continue only for the life of the lease. Plainly, they cannot be considered as possessors nor builders in good faith.

Since petitioner’s interest in the store space is merely that of the lessee under the lease contract, she cannot therefore be considered a builder in good faith.

Petition is PARTLY GRANTED. The Court of Appeals Decision is AFFIRMED with the MODIFICATION.


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