Obligations Cases

1. Vicente Aldaba v. Court of Appeals, et al. L-21676, Feb.
28, 1969
FACTS: When Belen Aldaba, a rich woman of Malolos, Bulacan, died on February 25, 1955,
she left as her presumptive heirs her surviving husband Estanislao Bautista, and her brother
Cesar Aldaba. Belen Aldaba was childless. Among the properties that she left were the two
lots involved in this case, situated at 427 Maganda Street, Santa Mesa, Manila.
Dr. Vicente Aldaba and his daughter, Dr. Jane Aldaba, rendered services to Belen Aldaba, a
rich woman of Malolos, Bulacan for 10 years without receiving any compensation. When the
latter's house was burned during the liberation of Manila in 1945, Belen Aldaba invited Dr.
Aldaba and his daughter, who was then a student in medicine, to live in one of her two houses
standing on the lots in question, and the Aldaba father and daughter accepted the offer of
Belen and they actually lived in one of those two houses until sometime in 1957 when
respondent Emmanuel Bautista filed an ejectment case against them in the city court of
Manila
It was admitted that for such services, the two doctors did NOT expect to be paid.
On June 24, 1955, the presumptive heirs Estanislao Bautista and Cesar Aldaba, executed a
deed of extrajudicial partition of the properties left by the deceased Belen Aldaba, by virtue of
which deed the two lots in question were alloted to Cesar Aldaba.
Emmanuel Bautista then required Dr. Vicente Aldaba to vacate the lots in question and, upon
the latter's refusal, filed an ejectment case against him in the City Court of Manila. Without
awaiting the final result of the ejectment case, herein petitioners filed, on August 22, 1959, a
complaint in the Court of First Instance of Manila, docketed as Civil Case No. 41260, against
herein respondents Cesar Aldaba and Emmanuel Bautista and the Register of Deeds of
Manila, alleging that they had become the owners of the two lots in question, and praying that
the deed of partition entered into by Estanislao Bautista and Cesar Aldaba be declared null
and void
DECISION OF LOWER COURTS:
(1) CFI Manila: dismissing the complaint, and declaring, among others, that if the deceased
Belen Aldaba intended to convey the lots in question to Vicente Aldaba and Jane Aldaba, by
way of donation, the conveyance should be considered a donation inter vivos, for the validity
of which a public instrument was necessary pursuant to Article 749 of the Civil Code.
(2) CA affirmed CFI-Manila
Issues:
Was there a contract, whether express or implied? Was Belen obliged to compensate the two
doctors? or Whether petitioners Dr. Vicente Aldaba and Jane Aldaba had rendered services to
the deceased Belen Aldaba for more than ten years without receiving any compensation, and
so in compensation for their services Belen Aldaba gave them the lots in dispute including the
improvements thereon.
HELD:
No. The petitioners point to the note, Exhibit 6, as indicating that a donation had been made,
which note reads as follows:
June 18, 1953

Jane,
Huag kayong umalis diyan. Talagang iyan ay para sa inyo. Alam nila na iyan ay sa inyo.
Belen A. Bautista.
There was no contract, whether express or implied, and therefore Belen was not obliged to
compensate the two doctors; no express contract, for nothing on this point was agreed
upon; and no implied contract, for the doctors did not expect to be paid for their services.
When a person does not expect to be paid for his services, there cannot be a contract implied
in fact to give compensation for such services. To give rise to an implied contract to pay for
services, said services must have been rendered by one party in expectation that the other
party would pay for them and must have been accepted by the other party with knowledge of
that expectation. (See 58 Am. Jur., p. 512, and the cases cited therein).
The note, Exhibit 6, considered alone, was, as held by the Court of Appeals, confirming the
opinion of the lower court, only an indication of the intention of Belen Aldaba to donate to the
petitioners the property occupied by the latter.
There is no evidence in the record that such intention was effectively carried out after the
writing of the note. Inasmuch as the mere expression of an intention is not a promise,
because a promise is an undertaking to carry the intention into effect, we cannot, considering
Exhibit 6 alone, conclude that the deceased promised, much less did convey, the property in
question to the petitioners.
The conditions to constitute a donation cum causa onerosa are not present in the instant
case, and the claim of petitioners that the two lots in question were donated to them by Belen
Aldaba cannot be sustained.
2. [G.R. No. 127206. September 12, 2003]

PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL, petitioners, vs. HON.
COURT OF APPEALS, HEIRS OF EMILIO MATULAC, CONSTANCIO MAGLANA,
AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO CITY, respondents.
FACTS:
Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel Villarica, were the
co- owners of a parcel of commercial land with an area of 829 square meters, identified as Lot
No. 59-C, covered by Transfer Certificate of Title (TCT) No. 432 located in Davao City.
The spouses Angel and Nieves Villarica had constructed a two-storey commercial building on
the property. On October 13, 1953, Concepcion filed a complaint against her sister Nieves
with the then Court of First Instance of Davao City, docketed as Civil Case No. 1160 for
specific performance, to compel the defendant to cede and deliver to her an undivided portion
of the said property with an area of 256.2 square meters.
DECISION OF LOWER COURTS: (1ST SET)
(1) CFI Davao ordered defendant to deliver undivided portion with area of 256.2 square
meters
(2) CA affirmed the decision (Decision became final and executory)
On motion of the plaintiff (Concepcion), the court issued a writ of execution. Nieves, however,
refused to execute the requisite deed in favor of her sister. On April 27, 1956, the court issued
an order authorizing ex-officio Sheriff Eriberto Unson to execute the requisite deed of transfer
to the plaintiff over an undivided portion of the property
The sheriff thereafter executed a Deed of Transfer to Concepcion over Lot 59-C-1 and Lot 59C-2 with a total area of 256.2 square meters.
On October 24, 1956, Concepcion executed a deed of absolute sale over Lot 59-C-1 in favor
of Iluminada Pacetes. In the said deed, the area of Lot 59-C-1 appeared as 256 square
meters although under the subdivision plan, the area of the property was only 218 square
meters.
In the meantime, Nieves filed a motion in Civil Case No. 1160 to compel the sheriff to report
on his compliance with the courts Order dated April 27, 1956.
DECISION OF LOWER COURTS (2ND SET):
(1) CFI Davao denied the motion.
In a parallel development, Concepcion filed a complaint for unlawful detainer against the
spouses Angel and Nieves Villarica with the Municipal Trial Court docketed as Civil Case No.
2246.
DECISION OF LOWER COURTS (3rd SET):
(1) CFI Davao - rendered judgment in favor of the plaintiff and against the defendants.
The decision became final and executory but the plaintiff did not file any motion for a writ of
execution.
The spouses Angel and Nieves Villarica filed a complaint on October 24, 1956 against the
sheriff and Concepcion with the Court of First Instance of Davao City, docketed as Civil Case
No. 2151 for the nullification of the deed of transfer executed by the sheriff.
On December 21, 1956, Iluminada Pacetes filed a motion to intervene in Civil Case No. 2151,
as vendee of the property subject of the case, which was granted by the court. She then filed
a motion to dismiss the complaint.
DECISION OF LOWER COURTS (4rd SET):
(1) CFI - Davao - dismissed the complaint of the herein petitioners
(2) CA affirmed in toto
On the basis of the deed of transfer executed by Sheriff Iriberto A. Unson, the Register of
Deeds issued TCT No. 7450 over Lot 59-C-1 and 59-C-2 on July 17, 1957 in the name of
Concepcion, with a total area of 256.2 square meters. However, the latter failed to transfer
title to the property to and under the name of Iluminada Pacetes. Consequently, the latter did
not remit the balance of the purchase price of the property to Concepcion.
In this case, Concepcion Gil sold Lot 59-C-1 to Iluminada Pacetes for P21,600.00 payable as
follows:
1. The purchase price of P21,600.00 shall be paid as follows: P7,500.00, to be paid upon the
signing of this instrument; and the balance of P14,100.00, to be paid upon the delivery of the
corresponding Certificate of Title in the name of the VENDEE.
Concepcion Gil obliged herself to transfer title over the property to and under the name of the
vendee within 120 days from the execution of the deed.
2. That the VENDOR shall, within the period of ONE HUNDRED TWENTY (120) DAYS, from
the signing of this agreement, undertake and work for the issuance of the corresponding
Certificate of Title of the said Lot No. 59-C-1 in her favor with the proper government office or
offices, to the end that the same can be duly transferred in the name of the herein VENDEE,
by virtue thereof.
3. That pending the full and complete payment of the purchase price to the VENDOR, the
VENDEE shall collect and receive any and all rentals and such other income from the land
above-described for her own account and benefit, this right of the VENDEE to begin from
December 1, 1956.
That it is further stipulated that this contract shall be binding upon the heirs, executors and
administrators of the respective parties hereof.
And I, CONCEPCION PALMA GIL, with all the personal circumstances above-stated, hereby
confirm all the terms and conditions stipulated in this instrument.
The vendee paid the downpayment of P7,500.00.
APPLICABLE LAWS:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)
Article 1592. In the sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act. After the demand, the court
may not grant him a new term. (1504a)
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When
the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (1100a)
ISSUE:
WHETHER ILLUMINADA PACETES HAD THE RIGHT TO SELL OR TRANSFER THE
PARCELS OF LAND TO CONSTANCIO MAGLANA
RULING:
YES.
Under the last paragraph of Article 1169 of the New Civil Code, 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 in the other begins. Thus, reciprocal obligations are to be performed
simultaneously so that the performance of one is conditioned upon the simultaneous
fulfillment of the other. The right of rescission of a party to an obligation under Article 1191 of
the New Civil Code is predicated on a breach of faith by the other party that violates the
reciprocity between them.
That the deed of absolute sale executed by Concepcion Gil in favor of Iluminada Pacetes is
an executory contract and not an executed contract is a settled matter. In a perfected contract
of sale of realty, the right to rescind the said contract depends upon the fulfillment or nonfulfillment of the prescribed condition. We ruled that the condition pertains in reality to the
compliance by one party of an undertaking the fulfillment of which would give rise to the
demandability of the reciprocal obligation pertaining to the other party. The reciprocal
obligation envisaged would normally be, in the case of the vendee, the payment by the
vendee of the agreed purchase price and in the case of the vendor, the fulfillment of certain
express warranties.
the non-payment of the purchase price of property is a resolutory condition for which the
remedy is either rescission or specific performance under Article 1191 of the New Civil Code.
This is true for reciprocal obligations where the obligation is a resolutory condition of the
other. The vendee is entitled to retain the purchase price or a part of the purchase price of
realty if the vendor fails to perform any essential obligation of the contract. Such right is
premised on the general principles of reciprocal obligations
By the terms of the contract, the obligation of the vendee to pay the balance of the purchase
price ensued only upon the issuance of the certificate of title by the Register of Deeds over
the property sold to and under the name of the vendee, and the delivery thereof by the vendor
Concepcion Gil to the latter. Concepcion failed to secure a certificate of title over the property.
When she died intestate on August 4, 1959, her obligation to deliver the said title to the
vendee devolved upon her heirs, including the petitioners. The said heirs, including the
petitioners failed to do so, despite the lapse of eighteen years since Concepcions death.
Iluminada was not yet obliged on August 8, 1977 to pay the balance of the purchase price of
the property, but as a sign of good faith, she nevertheless consigned the amount of
P11,983.00, part of the balance of the purchase price of P14,000.00, with the court in Civil
Case No. 1160. The court accepted the consignation and she was issued receipts therefor.
Still, the heirs of Concepcion Gil, including the petitioners, failed to deliver the said title to the
vendee. Iluminada was compelled to file, at her expense, a petition with the RTC docketed as
Miscellaneous Case No. 4715 for the issuance of an owners duplicate of TCT No. 7450
covering the property sold which was granted by the court on March 22, 1978.
It was only on May 9, 1978 that Iluminada managed to secure TCT No. 61514 over the
property under her name. Upon the failure of the heirs to comply with the decedents
prestation, Iluminada Pacetes was impelled to resort to legal means to protect her rights and
interests.
The consignation by the vendee of the purchase price of the property is sufficient to defeat
[45]
the right of the petitioners to demand for a rescission of the said deed of absolute sale.
It bears stressing that when the vendee consigned part of the purchase price with the Court
and secured title over the property in her name, the heirs of Concepcion, including the
petitioners, had not yet sent any notarial demand for the rescission of the deed of absolute
sale to the vendee, or filed any action for the rescission of the said deed with the appropriate
court.
Although the vendee consigned with the Court only the amount of P11,983.00, P2,017.00
short of the purchase price of P14,000.00, it cannot be claimed that Concepcion was an
unpaid seller because under the deed of sale, she was still obligated to transfer the property
in the name of the vendee, which she failed to do so. According to Article 1167 of the New
Civil Code:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone. (1098)
The vendee (Iluminada) had to obtain the owners duplicate of TCT No. 7450 and thereafter
secure its transfer in her name. Pursuant to Article 1167, the expenses incurred by the
vendee should be charged against the amount of P2,617.00 due to the heirs of Concepcion
Gil as the vendors successors-in- interest.
In sum, the decision of the CA affirming the decision of the RTC dismissing the complaint of
the petitioners is affirmed.
3. G.R. No. L-30736 April 14, 1975

LIRAG TEXTILE MILLS, INC. and FELIX K. LIRAG, petitioners, vs.COURT OF APPEALS
and CRISTAN ALCANTARA, respondents.
FROM PARAS
FACTS: Alcantara was persuaded by Felix Lirag of the Lirag Textile Mills to give up a
permanent job and to join Lirag in the latters business until such period as when Alcantara
would voluntarily resign or until Alcantara is removed for a valid cause. Sometime later,
Alcantara was removed on account of financial reverses on the part of the Company (a
ground which proved, however, to be false).
Issue: In an action by Alcantara for damages, would the provisions of RA 1052 as amended
(the Termination Pay Law when there is no time fixed for employment) apply such that all
that Alcantara will receive is a small sum based on the number of years he has been
employed by the Company?
HELD: RA 1052 as amended, will not apply, because in the present case there is an express
agreement as to the period of Alcantaras employment, that period to start from Alcantaras
employment up to the time Alcantara may voluntarily resign, or when the employer removes
Alcantara for a valid cause. Thus, the employment has a period subject only to the resolutory
condition of resignation or removal for cause. RA 1052 as amended by RA 1787, does not
apply. The employer, having terminated Alcantaras employment without a valid cause,
committed a breach of contract making it liable for damages. (Art. 1170, Civil Code).
FACTS:
Cristan Alcantara) was dismissed without cause in violation of the contract of employment,
and as he was at the time earning P500.00 monthly,
plaintiff's tenure of employment, per defendant Lirag Textile Mills, Inc.'s above letter of May 9,
1960 was to be 'for an indefinite period, unless sooner terminated by reason of voluntary
resignation or by virtue of a valid cause or causes'
That on July 22, 1961, defendant Lirag Textile Mills, Inc. wrote plaintiff (Alcantara) a letter
advising him that because the company 'has suffered some serious reverses, both in terms of
pecuniary loss and in market opportunities,' the company was terminating his services and
effecting his separation from defendant corporation effective at the close of working hours of
August 22, 1961
DECISION OF LOWER COURTS
(1) CFI RIZAL ruled in favor of Alcantara
(2) CA Affirmed CFI.
ISSUE:
Whether CA erred in sentencing the petitioners to pay respondent Cristan Alcantara back
salaries from the time of dismissal up to final judgment for the dismissal without cause of
respondent Alcantara as employee of the petitioner Lirag Textile Mills, Inc" in awarding moral
damages to the respondent Alcantara by the mere fact alone that the respondent Alcantara
was separated by the petitioner corporation from his employment without just cause in the
absence of any finding that the employer acted with malice or evident bad faith"; and "in
allowing respondent Alcantara to recover from the petitioner company attorney's fees."
RULING:
No, the award was correct.
The main thrust of petitioners' contention is that an employer's liability for terminating without just
cause the employment of an employee is governed by the provisions of Republic Act 1787, amending
Republic Act 1052, which limits said liability as follows: t.hqw
Sec. 1. In case of employment without a definite period, in a commercial, industrial, or agricultural
establishment or enterprise, the employer ... may terminate at any time the employment with just
cause, or without just cause ... or in the case of an employer, by serving such notice to the employee
at least one month in advance or one half month for every year of service of the employee, whichever
is longer, ....
The employee, upon whom no such notice was served in case of termination of employment without
just cause shall be entitled to compensation from the date of termination of his employment in an
amount equivalent to his salaries or wages corresponding to the required period of notice. (Republic
Act 1787)
The contract of employment was for an indefinite period as it shall continue without ending,
subject to a resolutory period, unless sooner terminated by reason of voluntary resignation or
by virtue of a valid cause or causes (the resolutory period). There is an indefinite period of
time for employment agreed upon by and between petitioners and the private respondent,
subject only to the resolutory period agreed upon which may end the indeterminate period of
employment, namely voluntary resignation on the part of private respondent Alcantara or
termination of employment at the option of petitioner Lirag Textile Mills, but for a "valid cause
or causes". It necessarily follows that if the petitioner-employer Lirag Textile Mills terminates
the employment without a "valid cause or causes", as it admittedly did, it committed a breach
of the contract of employment executed by and between the parties. The measure of an
employer's liability provided for in Republic Act 1052, as amended by R. A. 1787, is solely
intended for contracts of employment without a stipulated period. It cannot possibly apply as a
limitation to an employer's liability in cases where the employer commits a breach of contract
by violating an indefinite period of employment expressly agreed upon through his wrongful
act of terminating said employment without any valid cause or causes, which act may even
amount to bad faith on the employer's part.
The law (Art. 1170 of the Civil Code) governing liability for damages is explicit when it states:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages. (Emphasis supplied).
OBLIGATIONS WITH A PERIOD
A "period" has been defined "as a space of time which has an influence on obligation as a
result of a juridical act, and either suspends their demandableness or produces their
extinguishment." Obligations with a period are those whose consequences are subjected in
one way or another to the expiration of said period or term. (8 Manresa 158) Art. 1193 of the
Civil Code, provides, among others, that "obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain. A day certain is understood to be that
which must necessarily come, although it may not be known when". In the light of the
foregoing provisions We have no doubt that the "indefinite period" of employment expressly
agreed upon by and between the parties in this case is really a resolutory period because the
employment is bound to terminate on a future "day certain" such as the employee's
resignation or employer's termination of employment upon a valid cause or causes, like death
of the employee or termination of employer's corporate existence, although it may not be
known when.
To Our mind, there can be no greater, nor more eloquent manifestation of fraud when
petitioner Lirag Textile Mills, Inc. tried its very best both in the trial court and in the respondent
Appellate Court to convince both courts that it suffered "serious losses both in terms of
pecuniary loss and in market opportunities" as a valid cause for the termination of private
respondent Alcantara's employment, said petitioners knowing fully well that such was not the
truth as said allegation was a falsehood.
Article 2201 of the Civil Code provides "... In case of fraud, bad faith, malice or wanton attitude, the
obligor shall be responsible for all damages which may be reasonably attributed to the nonperformance of the obligation", which, in effect, makes the petitioners in this case liable for all
damages which may be reasonably attributed to the nonperformance of its obligation.
In Fernando Lopez et al vs. Pan American Airways, 16 SCRA 431, this Court, held: t.hqw
Bad faith means a breach of a known duty through some motive of interest or ill will. Self-enrichment
or fraternal interest, and not personal ill-will, may have been the motive, but it is malice nevertheless.
First, moral damages are recoverable in breach of contracts where the defendant acted fraudulently
or in bad faith (Art. 2220, new Civil Code). Second, in addition to moral damages, exemplary or
corrective damages may be imposed by way of example or correction for the public good, in breach
of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner. (Arts, 2229, 2232, new Civil Code)
It was petitioner Felix Lirag who induced private respondent Alcantara to resign from his
permanent position in the Philippine Chamber of Industries and accept, the job offered to him
by the petitioner Felix Lirag in the petitioner Lirag Textile Mills, Inc. The respondent Appellate
Court was also convinced that private respondent Alcantara did his best to contact petitioner
Felix Lirag so he could remonstrate against his unjust separation from the service, but he was
not able to do so; hence the conclusion of the respondent Court that petitioner Felix Lirag
should also be held liable for moral damages.
Petitioner Felix Lirag should also be held liable to private respondent Alcantara for having
induced the latter to leave a permanent position in the Philippine Chamber of Industries to
accept a job in the Lirag Textile Mills, Inc., and when private respondent Alcantara was
dismissed without any valid cause, petitioner Felix Lirag did not do anything to help him
although he was in a position to do so by reason of his eminent position in the petitioner
corporation. His responsibility is not only moral but also legal as under Art. 21 of the Civil
Code: "Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good custom or public policy shall compensate the latter for the damage."
4. Maria Luisa Martinez v. Manuel B. Barredo, et al., GR 49308

FACTS: On Apr. 11, 1940 a taxicab owned by Fausto Barredo and driven by Rosendo Digman
collided with a Chev- rolet car driven by Maria Luisa Martinez. The collision gave rise to
mutual charges to damage to property through reckless imprudence, one by Maria Luisa
Martinez against Digman, and the other by Fausto Barredo against Maria Luisa Martinez.
After investigation, the fiscal filed an information against Digman and quashed Barredo's
complaint.
A criminal case was instituted against the taxi driver, who pleaded guilty, and was made to
pay a fine and to indemnify Martinez. Due to Digmans insolvency, Martinez filed an action
against Barredo to hold him subsidiarily liable. At the trial, Martinez relied solely on:
a) the judgment of conviction against Digman;
b) the writ of execution issued against Digman and proof of his insolvency.
(1) Trial Court favorable judgment
(2) CA reversed trial court
ISSUE: Would the evidence of Martinez be sufficient to hold Barredo civilly liable?
Art. 102. Subsidiary civil liability of innkeepers, tavernkeepers and proprietors of establishments. In
default of the persons criminally liable, innkeepers, tavernkeepers, and any other persons or
corporations shall be civilly liable for crimes committed in their establishments, in all cases where a
violation of municipal ordinances or some general or special police regulation shall have been
committed by them or their employees.
Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft within their
houses from guests lodging therein, or for the payment of the value thereof, provided that such
guests shall have notified in advance the innkeeper himself, or the person representing him, of the
deposit of such goods within the inn; and shall furthermore have followed the directions which such
innkeeper or his representative may have given them with respect to the care and vigilance over such
goods. No liability shall attach in case of robbery with violence against or
intimidation of persons unless committed by the innkeeper's employees.chan robles virtual law library
Art. 103. Subsidiary civil liability of other persons. The subsidiary liability established in the next
preceding article shall also apply to employers, teachers, persons, and corporations engaged in any
kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees
in the discharge of their duties.
HELD: Yes, the judgment of conviction plus proof of insolvency is sufficient to hold the
employer subsidiarily liable; in the absence of collusion between the driver and the victim, the
stigma of a criminal conviction surpasses in effect mere civil liability. Common sense dictates
that a finding of guilt in a criminal case in which proof beyond reasonable doubt is
necessary, should not be nullified in a subsequent civil action requiring only preponderance of
evidence. Barredo cannot be said to have been deprived of his day in court because the
liability really depended upon the drivers guilt and insolvency, the liability being automatic
and subsidiary. It is high time that employers should have their employees defended very
well, supplying them with counsel, for in defending his employees interest (in a criminal
case), he, the employer, is automatically defending himself. It would have been different had
the case been one of culpa aquiliana.
[NOTE: This ruling was reiterated in the case of Manalo, et al. v. Robles Trans. Co., Inc., L8171, Aug. 16, 1956. In said case the Court also held that the sheriffs return of the writ of
execution showing non-satisfaction of the judgment because of accuseds insolvency was
admissible in evidence and the sheriff does not need to testify in court as to the fact stated in
the entry because it is an official judgment. Moreover, the civil case can be brought not within
only four years but within ten (10) years because it arises out of a final judgment.]
The employer can not be said to have been deprive of his day in court, because the situation
before us is not one wherein the employer is sued for a primary liability under article 1903 of
the Civil Code, but one in which enforcement is sought of a subsidiary civil liability incident to
and defendant upon his driver's criminal negligence which is a proper issue to be tried and
decided only in criminal action. In other words, the employer becomes ipso facto subsidiary
liable upon his driver's conviction and upon proof of the latter's insolvency, in the same way
that acquittal wipes out not only the employee's primary civil liability but also his employer's
subsidiary liability for such criminal negligence.
It is high time that the employer exercise the greatest care in selecting his employees, taking
real and deep interest in their welfare; intervening in any criminal action brought against them
by reason of or as a result of the performance of their duties if only in the way of giving them
the benefit of counsel; and consequently doing away with practice of leaving them to their
fates. If this be done, the American rule requiring notice on the part of the employer shall have
been satisfied.
It becomes unnecessary to rely on the circumstance that the filing of mutual charges by
Fausto Barredo and Maria Luisa Martinez, with the result, as abovestated, that while the fiscal
proceeded in filing the information against Digman, he quashed the charges of Fausto
Barredo, may easily lead to the presumption that the latter should have had knowledge of the
criminal case against his driver. We need not also make any pronouncement to the effect that
the prevailing American view is based upon substantive and procedural laws not similar to
those obtaining to his jurisdiction.
Wherefore, the decision of the Court of Appeals is reversed, and Fausto Barredo, now
substituted by his heirs and legal representatives, are hereby sentenced to pay, subject to
Executive Order No. 32 on Moratorium, to the petitioner, Maria Luisa Martinez, the sum of
P605.97, with legal interest from the date of the filing of complaint. So ordered with costs
against the respondents.
5. G.R. No. L-30115 September 28, 1973

FE PEREZ, plaintiff-appellant,vs.JOSEFINA GUTIERREZ, defendant third-party plaintiffappellee, PANFILO ALAJAR, third-party defendant- appellee.
FACTS:
Gutierrez, holder of a certificate of public convenience and authorized to operate an autocalesa in the province of Davao, sold the vehicle to Alajar. The sale, at the time of the
accident, had not been approved by the Public Service Commis- sion, and was therefore not
registered with such Commission. Later, thru the reckless imprudence of its driver, Cordero,
the vehicle met an accident resulting in injuries to Perez, one of its passengers.
The complaint (later amended) filed on October 29, 1959 by Fe Perez with the Court of First
Instance of Davao against Josefina Gutierrez, for breach of contract of carriage, alleges that
on September 6, 1959 while she, together with nine co-teachers, was a passenger of an AC
jeepney registered under the name of the defendant Gutierrez, the said vehicle, due to the
reckless negligence of its driver Leopoldo Cordero, met with an accident, resulting in injuries
to herself which required her hospitalization. In her answer, Josefina Gutierrez averred that if
the claim of Fe Perez is at all justified, responsibility therefor should devolve on one Panfilo
Alajar, the actual owner, by purchase, of the said passenger jeepney when the accident
occurred and against whom she has filed a third-party complaint.
The deed of sale attached to the third-party complaint recites, inter alia,
That it is mutually agreed by the herein vendor and vendee that the TITLE to the
aforementioned vehicle shall remain with the VENDOR, pending approval of the herein SALE
by the Public Service Commission, said motor vehicle being registered as a public utility autocalesa under "AC" denomination; ...
That the vendee herein, by these presents, do [sic] hereby binds himself and do [sic] hereby
assume, [sic] responsibility for all actions, claims, demands, and rights of action, and
whatever kind and nature, that may hereafter develop as a consequence of or in the course of
operation of the aforementioned vehicle; ...
In his answer to the third-party complaint, Panfilo Alajar disclaimed responsibility for the
accident, alleging that (a) the mentioned deed of sale is null and void because it has not been
registered with the Public Service Commission despite repeated demands on the 3rd-party
complainant to do so; (b) the said passenger jeepney remained in the control of the 3rd-party
complainant who, together with her lawyer-husband, had been collecting rentals from him for
the use of the said vehicle; and (c) by express agreement, title to the said vehicle remained
with the 3rd-party complainant pending approval of the sale by the Public Service
Commission.
The defendant Leopoldo Cordero was declared in default and did not appeal.
1. Trial Court - rendered its decision, in the main finding Leopoldo Cordero guilty of reckless
imprudence, and finding that Panfilo Alajar owned and operated the auto calesa in question
and, in fact, after the accident, even assumed responsibility for the payment of the hospital
bills due to the Brokenshire Memorial Hospital for treatment of the injuries suffered by Fe
Perez.
Issue: Who should be held liable to Perez?
HELD: The registered owner, Gutierrez, should be the one directly liable to Perez (See Erezo
v. Jepte) despite the transfer of the vehicle to another. In dealing with vehicles registered
under the Public Service Law, the public has right to presume that the registered owner is the
actual owner thereof, for it would be difficult for the public to enforce the action for damages
for injuries caused to them by vehicles being negligently operated, if the public should be
required to prove who the actual owner is. The transferee, however, should in turn be
responsible to the registered owner for in operating the vehicle without its transfer having
been approved by the Public Service Commission, the transferee acted merely as an agent of
the registered owner and should be responsible to him. The driver should also be held liable
solidarily with Gutierrez to Fe Perez in accordance with the provisions of Art. 2184 in relation
to Art. 2180 of the Civil Code.
The law (Sec. 20 [g], Public Service Act) really requires the approval of the Public Service
Commission in order that a franchise, or any privileges pertaining thereto, may be sold or leased
without infringing the certificate issued to the grantee. The reason is obvious. Since a franchise is
personal in nature any transfer or lease thereof should be submitted for approval of the Public Service
Commission, so that the latter may take proper safeguards to protect the interest of the public. It
follows that if the property covered by the franchise is transferred or leased to another without
obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in
contemplation of law, the grantee continues to be responsible under the franchise in relation to the
Commission and to the public for the consequences incident to the operation of the vehicle, one of
them being the collision under consideration.
(NOTE: The driver was also held liable on the basis of a quasi-delict, there being no
contractual relation between him and the passenger.)
Article 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for the damages
caused by the minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons who are under their
authority and live in their company.
The owners and managers of an establishment or enterprise are likewise responsible for damages
caused by their employees in the service of the branches in which the latter are employed or on the
occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
The State is responsible in like manner when it acts through a special agent; but not when the
damage has been caused by the official to whom the task done properly pertains, in which case what
is provided in article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by
their pupils and students or apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage. (1903a)
Article 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who
was in the vehicle, could have, by the use of the due diligence, prevented the misfortune. It is
disputably presumed that a driver was negligent, if he had been found guilty of reckless driving or
violating traffic regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are applicable. (n)
6. Juan F. Nakpil and Sons, et al. v. CA, et al. GR 47851, Oct. 3, 1986
FACTS:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the
Corporation Law, decided to construct an office building on its 840 square meters lot located
at the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was
undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion of
Juan J. Carlos, the president and general manager of said corporation. The proposal was
approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a thirdparty defendant in this case. The plans and specifications for the building were prepared by
the other third-party defendants Juan F. Nakpil & Sons. The building was completed in June,
1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its
environs and the building in question sustained major damage. The front columns of the
building buckled, causing the building to tilt forward dangerously. The tenants vacated the
building in view of its precarious condition. As a temporary remedial measure, the building
was shored up by United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages
arising from the partial collapse of the building against United Construction, Inc. and its
President and General Manager Juan J. Carlos as defendants. Plaintiff alleges that the
collapse of the building was accused by defects in the construction, the failure of the
contractors to follow plans and specifications and violations by the defendants of the terms of
the contract. Defendants in turn filed a third-party complaint against the architects who
prepared the plans and specifications, alleging in essence that the collapse of the building
was due to the defects in the said plans and specifications.
The building contractor and the architect made substantial deviations from the plans and
specifications and failed to observe the requisite workmanship in the construction as well as
to exercise the requisite degree of supervision; while the plans and specifications prepared by
the architects contained inadequacies and defects. The defects in the construction and in the
plans and specifications were the proximate causes that rendered the building unable to
withstand the earthquake.
(1) CFI Manila ordered defendant United Construction Co., Inc to pay
(2) CA modified the decision of lower court
ISSUE: whether or not an act of God-an unusually strong earthquake-which caused the
failure of the building, exempts from liability, parties who are otherwise liable because
of their negligence
HELD: No. The contractor and the architect cannot claim ex- emption from liability. The
wanton negligence of both the building contractor and the architect in effecting the plans,
designs, specifications, and construction of the building is such negligence as to amount to
bad faith in the performance of their respective tasks. One who negligently creates a
dangerous condition cannot escape liability for the natural and probable consequences
thereof, although the act of a third person, or an act of God for which he is not responsible,
intervenes to precipitate the loss.
To exempt the obligor from liability for a breach of an obligation due to an act of God, the
following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforeseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and
(d) the debtor must be free from any participation in, or aggravation of, the injury to the
creditor.
An act of God is an accident, due directly and exclusively to natural causes without human
intervention, which by no amount of foresight, pains or care, reasonably to have been
expected, could have been prevented.
Art. 1723. The engineer or architect who drew up the plans and specifications for a building is liable
for damages if within fifteen years from the completion of the structure the same should collapse by
reason of a defect in those plans and specifications, or due to the defects in the ground. The
contractor is likewise responsible for the damage if the edifice fags within the same period on account
of defects in the construction or the use of materials of inferior quality furnished by him, or due to any
violation of the terms of the contract. If the engineer or architect supervises the construction, he shall
be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any of the causes of action by
reason of any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.
On the other hand, the general rule is that no person shall be responsible for events which could not
be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of the
tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or
damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded
from creating or entering into the cause of the mischief. When the effect, the cause of which is
to be considered, is found to be in part the result of the participation of man, whether it be
from active intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable to the acts of God. (1 Corpus
Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the immediate
cause of the damage was the act of God. To be exempt from liability for loss because of an
act of God, he must be free from any previous negligence or misconduct by which that loss or
damage may have been occasioned.
The negligence of the defendant and the third-party defendants petitioners was established
beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made substantial deviations from the plans
and specifications. and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision; while the third-party
defendants were found to have inadequacies or defects in the plans and specifications
prepared by them.
the NAKPILS and UNITED are liable for the damage resulting from the partial and eventual
collapse of the PBA building as a result of the earthquakes.
One who negligently creates a dangerous condition cannot escape liability for the natural and
probable consequences thereof, although the act of a third person, or an act of God for which
he is not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell
hundreds of ancient buildings in the vicinity were hardly affected by the earthquake.
Only one thing spells out the fatal difference; gross negligence and evident bad faith,
without which the damage would not have occurred.
7. Regalado v. Luchasingco and Co. 5 Phil. 625

FACTS: A was a defendant in a civil case. He lost, and attachment was issued against his
property. B, the winner, could not collect his claim because it was discovered that A had sold
his warehouse to his son, C, after attachment had been issued on such property. B, who
could not collect in any other way because A had no money, brought an action to rescind the
contract allegedly made to defraud him. It was proved that:
1) Although the warehouse was worth P25,000, the son allegedly paid only P15,000 for it;
2) The son probably did not have the P15,000 or any other sum of importance with which to
buy the said warehouse.
HELD: The transaction is fraudulent and since B, the creditor, cannot recover in any other
way, the contract ought to be rescinded.
8. Ramirez v. Court of Appeals, et al.98 Phil. 225(Illustrating Effect of Loss in

Connection with Art. 1191)
FACTS: Ramirez and Nease were co-owners of a motor boat. In a written instrument, Nease
sold her half-share in the boat to Ramirez for P4,500 which was to be paid in three equal
installments. It was agreed that in case of first default, Ramirez must pay interests; and that in
case of second default, Nease gets back her half-share in the boat without the necessity of
reimbursing Ramirez for whatever Ramirez has already paid. After paying two installments,
Ramirez defaulted in the payment of the third installment. Subsequently, a fortuitous event
(typhoon) destroyed the boat. Nease now instituted an action to recover what has not yet
been paid (the third installment) plus 6% interest from default. Ramirez claims, however, that
the loss of the boat by a fortuitous event has excused him from the obligation to pay the
balance.
(1) CFI action was dismissed
(2) CA reversed judgment of CFI and expressly found that Ramirez was not relieved of the
obligaSon to pay the balance of the purchase price, because it was Plain#ff Nease who had
the right to choose to collect full payment or recover her half parScipaSon of the boat, and
the evidence failed to saSsfactorily show that there was reconveyance of the half ownership
of the said boat by the Defendant in favor of said Plain#ff.
Issue: Must Ramirez pay?
HELD: Ramirez must still pay.
The contract of sale gives rise to reciprocal obligaSons between seller and buyer, since each
party assumes obligaSons condiSoned upon those of the other, and the obligaSons of both
are derived from a common origin, the perfected contract. It follows that, pursuant to ArScle
1124 of the Civil Code of 1889 (now 1191 of the new Civil Code), the breach by either party of
his obligaSon enStles the other to a choice of alternaSve
remedies:chanroblesvirtuallawlibrary specific performance or rescission, with damages in
either case. The seller in the present case chose to exact specific performance of the
contract in view of the Pe##oners defaults in the payment of the price, and demanded the
balance thereof. She had the right to do so, unless she had waived such remedy, either in the
contract or by subsequent choice on her part.
But it is axiomaSc that waivers are not presumed, but must be clearly and convincingly
shown, either by express sSpulaSon or by acts admidng no other reasonable explanaSon but
the intent to waive.
The contract does not import that the seller has thereby lost the alternaSve right to demand
full payment (see Cui vs. Sun Chuan, 41 Phil., 523). This becomes more apparent from the
circumstance that the contract as wriGen merely confers upon the seller the right (the buyer
authorizes the seller) to rescind the sale and recover her half interest, but does not obligate
her to do so.
Under the contract and under the law, Nease, the seller-creditor, had the right to demand
specific performance (payment) or rescission (getting back her share). She selected specific
performance (for under the contract the first default entitled her to collect plus interest). The
loss of the boat is immaterial, for the generic obligation to pay money is not extinguished or
excused by the fortuitous loss of the boat.
9. Tamayo v. Aquino L-12634-12720, May 29, 1959

FACTS:
Inocencio Aquino and his children brought this action against Jose G. Tamayo, holder of a
certificate of public convenience to operate two trucks for damages for the death of
Inocencio's wife, Epifania Gonzales, while riding aboard Tamayo's trucks. It is alleged that
while his (Inocencio Aquino) wife was making a trip aboard truck with Plate No. TPU-735, it
bumped against a culvert on the side of the road in Bugallon, Pangasinan; that as a
consequence of this accident Epifania Gonzales was thrown away from the vehicle and two
pieces of wood embedded in her skull, as a result of which she died; that the impact of the
truck against the culvert was so violent that the roof of the vehicle was ripped off from its
body, one fender was smashed and the engine damaged beyond repair. Complaint was filed
for the recovery of P10,000 as actual damages, P10,000 as moral damages, and costs.
Tamayo, registered operator (in the Public Service Com.) of a common carrier, sold the
vehicle to Rayos without prior approval of the Commission. Rayos then operated the vehicle.
An accident took place one day, injuring a passenger of Rayos.
(1) CFI - ordered the defendant Tamayo and the third-party defendant Rayos to pay plaintiffs
jointly and severally the sum of P6,000 as compensatory damages, and another sum of
P5,000 as moral damages
(2) CA affirmed the CFIs judgment
Issue: Are Tamayo and Rayos jointly or solidarily liable?
HELD:
Only Tamayo, the registered owner is liable, but he can recover indemnity from Rayos. Since
only one is liable, the distinction between joint and solidary liability does not exist. Tamayo is
liable as a result of the culpa contractual (not culpa aquiliana) because the vehicle was still
registered under his name. This is true even if the property had already been sold to another
at the time the accident took place. If the rule were otherwise, a registered owner can easily
evade responsibility by collusion with others who may possess no property to answer for the
damages. (See Erezo v. Jepte, GR L-9605, Sept. 30, 1957).
Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
But the action instituted in the case at bar is one for breach of contract, for failure of the
defendant to carry safety the deceased for her destination. The liability for which he is made
responsible, i.e., for the death of the passenger, may not be considered as arising from a
quasi-delict. As the registered owner Tamayo and his transferee Rayos may not be held guilty
of tort or a quasi-delict; their responsibility is not solidary as held by the Court of Appeals.
NOTE:
In Caners, et al. v. Arias, et al., (Court of Appeals) GR L-24881-R, March 4, 1961, it was held
that if the vehicle which figured in an accident was operated under the so-called kabit
system, the award of exemplary damages, among others, payable jointly and severally by
the operator and the grantee of the certificate of public convenience is justified. This
pernicious system is not only a violation of law but a fraud upon the trav- elling public, which
has a right to expect that the holder of the certificate be the one to actually operate his
transportation line, hire the drivers, and other employees and exercise the necessary
supervision over them.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendantappellant) has a right to be indemnified by the real or actual owner of the amount that he may
be required to pay as damage for the injury caused to the plaintiff-appellant.
Article 2220 of the Civil Code, which provides:
Willful injury to property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.
ON MORAL DAMAGES
The law expressly provides that award of moral damages can be made in a suit for breach of
contact only when the defendants acted fraudulently or in bad faith. We do not believe that
the holder of the certificate, defendant Tamayo, was guilty of fraud or bad faith. There appears
to be no fraud at all in the transfer. Transfers are prohibited only if made without approval by
the Public Service Commission.
10. Liwanag, et al. v. Workmens Compensation Commission

GR No. L-12164, May 22, 1959
FACTS:
Roque Balderama, a security guard of a partnership, the Liwanag Auto Supply, was killed in
line of duty. His heirs claim compensation under the Workmens Compensation Act.
DECISION OF LOWER COURTS (1) Workmens Compensation Commission granted an award
In appealing the case to this Tribunal, appellants do not question the right of appellees to
compensation nor the amount awarded. They only claim that, under the Workmen's
Compensation Act, the compensation is divisible, hence the commission erred in ordering
appellants to pay jointly and severally the amount awarded.
Issue: The Act being silent on the point, what is the liability of the partners joint or solidary?
HELD: Solidary. It is true that ordinarily, the liability of partners is only joint, but this should not
apply to a case of compensation for death in line of duty. Arts. 1711 and 1712 of the Civil
Code, taken together with Sec. 2 of the Workmens Compensation Law, reasonably indicate
that in compensation cases, the liability of business partners should be solidary, otherwise the
right of the employee may be defeated, or at least crippled. If the responsibility of the partners
were to be merely joint and not solidary, and one of them happens to be insolvent, the amount
awarded would only be partially satisfied. This is evidently contrary to the intent and purposes
of the Act, which is to give full protection to the employees.
ART. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death
of or injuries to their laborers, workmen, mechanics or other employees, even though the event may
have been purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose
out of and in the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the
employer shall be solidarily liable for compensation. . . . .
And section 2 of the Workmen's Compensation Act, as amended reads in part as follows:
. . . The right to compensation as provided in this Act shall not be defeated or impaired on the ground
that the death, injury or disease was due to the negligence of a fellow servant or employee, without
prejudice to the right of the employer to proceed against the negligence party.
11. Inchausti & Co. v. Yulo

34 Phil. 978
FACTS: A, B, C, D, and E borrowed money from F. The contract stipulated solidary one, and
the debtors were bound under different terms and conditions. F brought an action to recover
from A, whose obligation was already due. A
FACTS:
Four people Gregorio Yulo and his brothers Pedro Francisco, Manuel, Mariano and Carmen
were solidarily bound in a contract made on Aug. 12, 1909 to the amount of P253,445.42 to
Inchausti & Company. On May 12, 1911, three of them made a contract with the creditor
giving the three debtors different terms and conditions for the payment of the obligation. Later
in an agreement with the debtors except Yulo, the debt was reduced by G to P225,000. Said
new contract reaffirmed the liability of the debtor not present. . Because of the partial
remission, Yulo was made to pay only P225,000. When the absent debtor, Gregorio Yulo, was
asked to pay, he presented the defense of novation to the effect that the second contract is
incompatible with the first, and that, therefore, he should not be made to pay. He claims that
he cannot be made to pay because the obligations incurred by his solidary co-debtors were
not yet due.
DECISION OF LOWER COURTS (1) CFI Iloilo decided in favor of defendant
Issues:
(1) How much can Yulo recover from the other solidary debtors?
(2) When the debtors of a solidary obligation are bound by different terms and conditions,
may the creditor sue one of them?
(3) Is Gregorio Yulo correct?
(4) Whether there was novation
Ruling:
(1) Yulo can recover the proportional shares of the other, not with respect to P253,445.42 but
with respect to P225,000, the amount as reduced. Since there are 6 solidary debtors, he can
recover 1/6 of P225,000 from each plus interest from the time of payment.
(2) Yes, the creditor may sue the one whose share has already become due and demandable
but the creditor cannot recover yet from the debtor sued, the shares of the other debtors, until
the conditions or terms of the others have already been fulfilled. In other words, Inchausti may
recover now from Yulo only Yulos share; and when the conditions and terms have been
fulfilled for the shares of the others, the creditor Inchausti can recover their shares from Yulo.
This, after all, is still a solidary obligation.
(3) No, Gregorio Yulo is wrong. Far from providing that the obligation of four was being
substituted by the obligation of three, the new contract ratified or reaffirmed the obligation of
the absent debtor, and therefore the absent debtor, Gregorio Yulo, must pay.
(4) With respect to the third, there can also be no doubt that the contract of May 12, 1911,
does not constitute a novation of the former one of August 12, 1909, with respect to the other
debtors who executed this contract, or more concretely, with respect to the defendant
Gregorio Yulo: First, because "in order that an obligation may be extinguished by another
which substitutes it, it is necessary that it should be so expressly declared or that the old and
the new be incompatible in all points"
There exist no incompatibility between the old and the new obligation as will be demonstrated
in the resolution of the last point, and for the present we will merely reiterate the legal doctrine
that an obligation to pay a sum of money is not novated in a new instrument wherein the old is
ratified, by changing only the term of payment and adding other obligations not incompatible
with the old one.
The obligation being solidary, the remission of any part of the debt made by a creditor
in favor of one or more of the solidary debtors necessarily benefits the others, and
therefore there can be no doubt that, in accordance with the provision of article 1143 of
the Civil Code, the defendant has the right to enjoy the benefits of the partial remission
of the debt granted by the creditor."
Article 1148 of the Civil Code. "The solidary debtor may utilize against the claims of the creditor of
the defenses arising from the nature of the obligation and those which are personal to him. Those
personally pertaining to the others may be employed by him only with regard to the share of the debt
for which the latter may be liable."
12. Braganza v. Villa Abrille L-12471, Apr. 13, 1957

FACTS: On Oct. 20, 1944, Rosario de Braganza and her two minor sons (18 and 16 years of
age) borrowed from Villa Abrille P70,000 in Japanese money, promising to pay solidarily
P10,000 in legal currency of the Philippines 2 years after the war. The money was used for
the support of the children. For failure to pay, Villa Abrille sued in March 1949. The mother
and the two sons pleaded in defense the minority of the two children at the time the contract
was entered into and that defendants claimed to have received P40,000 only instead of
P70,000 as plaintiff asserted.
(1) CA required solidarily to pay Villa Abrille the sum of 10,000 plus 2% interest
ISSUE:
To what extent is the mother liable for?
HELD:
.
1) The mother is liable for 1/3 of the P10,000. Reason: The minority of her children did not
completely release her from liability, since minority is a personal defense of the minors. She
can avail herself of said defense only as regards that part of the debt for which the minors are
liable.
2) The contract entered into by the minors is voidable, but since it cannot be denied that they
had profited by the money they received (for their support), it is fair to hold them liable to the
extent of said benefit (computed in accordance with the Ballantyne scale).
From the minors' failure to disclose their minority in the same promissory note they signed, it
does not follow as a legal proposition, that they will not be permitted thereafter to assert it.
They had no juridical duty to disclose their inability. In order to hold infant liable, however, the
fraud must be actual and not constructure. It has been held that his mere silence when
making a contract as to age does not constitute a fraud which can be made the basis of an
action of decit.
The fraud of which an infant may be held liable to one who contracts with him in the belief that
he is of full age must be actual not constructive, and mere failure of the infant to disclose his
age is not sufficient.
Article 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated persons, from
the time the guardianship ceases. (1301a)
Furthermore, there is reason to doubt the pertinency of the 4-years period fixed by Article
1301 of the Civil Code where minority is set up only as a defense to an action, without the
minors asking for any positive relief from the
contract. For one thing, they have not filed in this case an action for annulment.2 They merely
interposed an excuse from liability.
Upon the other hand, these minors may not be entirely absolved from monetary
responsibility. In accordance with the provisions of Civil Code, even if their written
contact is unenforceable because of non-age, they shall make restitution to the extent
that they have profited by the money they received. (Art. 1340)
Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been benefited
by the thing or price received by him. (1304)
13. ANTONIO LO, petitioner, vs. THE HON. COURT OF APPEALS AND NATIONAL
ONIONS GROWERS COOPERATIVE MARKETING ASSOCIATION, INC., respondents.
[G.R. No. 141434. September 23, 2003]
FACTS:
two parcels of land measuring a total of 2,147 square meters, with an office building
constructed thereon, located at Bo. Potrero, Malabon, Metro Manila and covered by TCT Nos.
M-13166 and M-13167 were acquired by Lo in an auction sale on November 9, 1995 for
20.17 million from the Land Bank of the Philippines.
Private respondent National Onion Growers Cooperative Marketing Association, Inc., an
agricultural cooperative, was the occupant of the disputed parcels of land under a subsisting
contract of lease with Land Bank. The lease was valid until December 31, 1995.
Upon the expiration of the lease contract, petitioner demanded that private respondent vacate
the leased premises and surrender its possession to him. Private respondent refused on the
ground that it was, at the time, contesting petitioners acquisition of the parcels of land in
question in an action for annulment of sale, redemption and damages.
On February 23, 1996, petitioner filed an action for ejectment before the Metropolitan Trial
Court of Malabon, Branch 55. He asked, inter alia, for the imposition of the contractually
stipulated penalty of P5,000 per day of delay in surrendering the possession of the property to
him.

(1) MTC in favor of petitioner
(2) RTC affirmed in toto.
(3) CA - affirming the decision of the trial court, with the modification that the penalty imposed
upon private respondent for the delay in turning over the leased property to petitioner was
reduced from P 5,000 to P 1000 per day.
ISSUE:
Whether the Court of Appeals has authority to reduce the penalty awarded by the trial court,
the same having been stipulated by the parties in their Contract of Lease
RULING:
Yes.
Generally, courts are not at liberty to ignore the freedom 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. Nevertheless, courts may equitably reduce a stipulated penalty in
the contract if it is iniquitous or unconscionable, or if the principal obligation has been partly or
irregularly complied with.
This power of the courts is explicitly sanctioned by Article 1229 of the Civil Code which provides:
Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable.
The question of whether a penalty is reasonable or iniquitous is addressed to the sound

discretion of the court and depends on several factors, including, but not limited to, the
following: the type, extent and purpose of the penalty, the nature of the obligation, the mode
of breach and its consequences, the supervening realities, the standing and relationship of
the parties.
In this case, the stipulated penalty was reduced by the appellate court for being
unconscionable and iniquitous. As provided in the Contract of Lease, private respondent was
obligated to pay a monthly rent of P30,000. On the other hand, the stipulated penalty was
pegged at P5,000 for each day of delay or P150,000 per month, an amount five times the
monthly rent. This penalty was not only exorbitant but also unconscionable, taking into
account that private respondents delay in surrendering the leased premises was because of a
well-founded belief that its right of preemption to purchase the subject premises had been
violated. Considering further that private respondent was an agricultural cooperative,
collectively owned by farmers with limited resources, ordering it to pay a penalty of P150,000
per month on top of the monthly rent of P30,000 would seriously deplete its income and drive
it to bankruptcy.
14. G.R. No. L-19001
November 11, 1922
HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs.DOMINGO RODRIGUEZ,

defendant-appellee.
FACTS:
Montelibano approached plaintiff at its Manila office, claiming that he was from Iloilo and lived
with Governor Yulo; that he could find purchaser for the "Matthews" plant, and was told by the
plaintiff that for any plant that he could sell or any customer that he could find he would be
paid a commission of 10 per cent for his services, if the sale was consummated. Among other
persons. Montelibano interviews the defendant, and, through his efforts, one of the
"Matthews" plants was sold by the plaintiff to the defendant, and was shipped from Manila to
Iloilo, and later installed on defendant's premises after which, without the knowledge of the
plaintiff, the defendant paid the purchase price to Montelibano.
ISSUE:
Whether Montelibano has authority to receive payment and extinguish the obligation
RULING:
No.
This claim must be for the expenses of Cenar in going to Iloilo from Manila and return, to
install the plant, and is strong evidence that it was Cenar and not Montelibano who installed
the plant. If Montelibano installed the plant, as defendant claims, there would not have been
any necessity for Cenar to make this trip at the expense of the defendant.
Article 1162 of the Civil Code provides:
Payment must be made to the persons in whose favor the obligation is constituted, or to another
authorized to receive it in his name.
And article 1727 provides:
The principal shall be liable as to matters with respect to which the agent has exceeded his authority
only when he ratifies the same expressly or by implication.
In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194), this court held:The repayment of a
debt must be made to the person in whose favor the obligation is constituted, or to another expressly
authorized to receive the payment in his name.
Applying the above rules, the testimony is conclusive that the plaintiff never authorized
Montelibano to receive or receipt for money in its behalf, and that the defendant had no right
to assume by any act or deed of the plaintiff that Montelibano was authorized to receive the
money, and that the defendant made the payment at his own risk and on the sole
representations of Montelibano that he was authorized to receipt for the money.
15. Haw Pia v. China Banking Corporation

80 Phil. 604
FACTS:
Haw Pia owed defendant a sum of money (Philip- pine pesos) secured by a mortgage. During
the Japanese occupation, the Bank of Taiwan was given the right by the Military
Administration to liquidate the assets of enemy banks. Haw Pia then paid off the mortgage,
not to the defendant, but to the Bank of Taiwan. Liberation came. Haw Pia is now asking for
the cancellation of the mortgage on the ground that it had been paid. The defendant refused,
and on the contrary asked for payment of the debt.
ISSUES:
(a) Had the Japanese Military Administration the right to liquidate and freeze the assets of
enemy banks?
(b) Did payment by Haw Pia to the Bank of Taiwan extinguished the debt?
(c) Was Japanese money then legal tender? 3
HELD:
Yes, the Japanese Military Administration, under the principles of international law, had the
right to liquidate and freeze the assets of enemy banks. What it did was not confiscation, but
merely liquidation so as to freeze assets.
Yes, payments by Haw Pia to the Bank of Taiwan extinguished the mortgage debt, inasmuch
as under the law then prevailing, the Bank of Taiwan was authorized to receive payment.
Hence, the mortgage should be cancelled.
Yes, the Japanese Military notes was legal tender because under International Law, the
invading power has the right to issue currency for circulation here.
Subsidiary Issue:
Does not the fact that the obligation here to pay in Philippine peso make it an obligation to
pay in a specified specie?
HELD:
True, the obligation was to pay in Philippine pesos, but this was not a stipulated specie, but
obviously referred only to the legal tender since after all, the most common occurrences are
transactions in Philippine pesos. It was never the intention of the parties to specify that only
Philippine pesos, of pre-war valuation, may be paid. The use of the term Philippine peso
here is merely incidental.
16. Zagala v. Jimenez GR 33050, Jul. 23, 1987

FACTS:
On or about October 29, 1964 and December l, 1965, the defendant ordered from the Moller
& Rothe, Inc., New York City, through the plaintiff Company as its Philippine Representative,
several rolls of book paper for use in his business, the same to be paid by means Of 90-day
drafts to be drawn by Moller & Rothe, Inc. against the said defendant;
Without entering into any trial on the merits and after the case had been set for pre-trial, the
petitioners and the private respondent entered into a Compromise Agreement under date of
May 17, 1968. They filed this agreement with the trial court on the same date.
DECISION OF LOWER COURT:
(1) CFI Manila - Based on the said Compromise Agreement, the Hon. Jose G. Bautista, who
was then the Presiding Judge of Branch VI of the Court of First Instance of Manila, and in
whose sala this case was assigned, rendered a decision, denying the petitioners' Motion For
Fixing The Peso Value Of Judgment In Dollars And For Issuance Of Writ Of Execution To
Enforce The Same, as well as the one dated December 19, 1970, denying for lack of merit
the petitioners' Motion For Reconsideration.
ISSUE:
Whether the motion is proper
RULING:
Yes.
A judgment awarding an amount in U.S. dollars may be paid with its equivalent amount in
local currency in the conversion rate prevailing at the time of payment. If the parties cannot
agree on the same, the trial court should determine such conversion rate. Needless to say,
the judgment debtor may simply satisfy said award by paying in full the amount in U.S.
dollars.
If the plaintiff files a motion to fix the peso value of the judgment in dollars, they only intend to
exercise the right granted to them by the present jurisprudence that the trial court shall
determine or fix the conversion rate prevailing at the time of payment, and it is error for the
trial court to deny said motion.
17. Filipino Pipe and Foundry Corp. v. National Waterworks and Sewerage AuthorityGR
43446, May 3, 1988
FACTS:
On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC for the latter to
supply it with 4" and 6" diameter centrifugally cast iron pressure pipes worth P270,187.50 to
be used in the construction of the Anonoy Waterworks in Masbate and the Barrio San AndresVillareal Waterworks in Samar. Defendant NAWASA paid in installments on various dates, a
total of One Hundred Thirty-Four Thousand and Six Hundred Eighty Pesos (P134,680.00)
leaving a balance of One Hundred Thirty-Five Thousand, Five Hundred Seven Pesos and
Fifty centavos (P135,507.50) excluding interest. Having completed the delivery of the pipes,
the plaintiff demanded payment from the defendant of the unpaid balance of the price with
interest in accordance with the terms of their contract. When the NAWASA failed to pay the
balance of its account, the plaintiff filed a collection suit on March 16, 1967 which was
docketed as Civil Case No. 66784 in the Court of First Instance of Manila.

(1) Trial court ordered defendant to pay the unpaid balance
On February 18, 1971, the plaintiff FPFC filed another complaint which was docketed as Civil
Case No. 82296, seeking an adjustment of the unpaid balance in accordance with the value
of the Philippine peso when the decision in Civil Case No. 66784 was rendered on November
23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground that it is
barred by the 1967 decision in Civil Case No. 66784.
(2) Trial Court (2nd decision)
denied the motion to dismiss on the ground that the bar by prior judgment did not apply to the
case because the causes of action in the two cases are different: the first action being for
collection of the defendant's indebtedness for the pipes, while the second case is for
adjustment of the value of said judgment due to alleged supervening extraordinary inflation of
the Philippine peso which has reduced the value of the bonds paid to the plaintiff.
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter referred to as "FPFC" for
brevity) appealed the dismissal of its complaint against defendant National Waterworks and
Sewerage Authority (NAWASA) by the Court of First Instance of Manila on September 5,
1973. The appeal was originally brought to the Court of Appeals.
(3) CA - finding that the principal purpose of the action was to secure a judicial declaration
that there exists 'extraordinary inflation' within the meaning of Article 1250 of the New Civil
Code to warrant the application of that provision, the Court of Appeals, pursuant to Section 3,
Rule 50 of the Rules of Court, certified the case to this Court for proper disposition.
ISSUE:
whether, on the basis of the continously spiralling price index indisputably shown by the
plaintiff, there exists an extraordinary inflation of the currency justifying an adjustment of
defendant appellee's unpaid judgment obligation the plaintiff-appellant
RULING:
No.
Article 1250.
In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value
of the currency at the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
Extraordinary inflation exists when there is a decrease or increase in the purchasing power of
the Philippine currency which is unusual or beyond the common fluctuation in the value of
said currency, and such decrease or increase could not have been reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation.
An example of extraordinary inflation is the following description of what happened to the
deutschemark in 1920: More recently, in the 1920s Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar. By May
of the same year it had stumbled to 62 to the U.S. dollar. And as the prices went up rapidly, so
that by Oct. 1923, it had reached 4.2 trillion to the U.S. dollar! As reported, prices were going
up every week, then every day, then every hour. Women were paid several times a day so
that they could rush out and exchange their money for something of value before what little
purchasing power was let dissolved in their hands. Some workers tried to beat the constantly
ris- ing prices by throwing their money out of the windows to their waiting wives, who would
rush to unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf
of bread billions.
While there has been a decline in the purchasing power of the Philippine peso, this downward
fall of the currency cannot be considered extraordinary. It is simply a universal trend that has
not spared our country.
18. Reyes v National Housing Authority

G.R. No. 147511. January 20, 2003
FACTS:
Records show that in 1977, respondent National Housing Authority (NHA) filed separate
complaints for the expropriation of sugarcane lands, particularly Lot Nos. 6450, 6448-E, 6198A and 6199 of the cadastral survey of Dasmarias, Cavite belonging to the petitioners, before
the then Court of First Instance of Cavite, and docketed as Civil Case Nos. T.G.-392, T.G.-396
and T.G.-417.
he stated public purpose of the expropriation was the expansion of the Dasmarias
Resettlement Project to accommodate the squatters who were relocated from the
Metropolitan Manila area.
DECISION OF LOWER COURTS (1st set):
(1) RTC ordered expropriation of lots and payment of just compensation
(2) SC affirmed
RTC issued an Alias Writ of Execution. For the alleged failure of respondent NHA to comply
with the above order, petitioners filed on April 28, 1992 a complaint for forfeiture of rights
before the Regional Trial Court of Quezon City, Branch 79, in Civil Case No. Q-92-12093.
They alleged that respondent NHA had not relocated squatters from the Metropolitan Manila
area on the expropriated lands in violation of the stated public purpose for expropriation and
had not paid the just compensation fixed by the court.
DECISION OF LOWER COURTS (2nd set):
(1) RTC Quezon dismissed the complaint for forfeiture of rights filed by herein
(2) CA affirmed the RTC decision
ISSUE:
Whether respondent NHA has forfeited its rights and interests by virtue of the expropriation
judgment and the expropriated properties should now be returned to herein petitioners
RULING:
No. whatever may be beneficially employed for the general welfare satisfies the
requirement of public use. (emphasis supplied)
The act of respondent NHA in entering into a contract with a real estate developer for the
construction of low cost housing on the expropriated lots to be sold to qualified low income
beneficiaries cannot be taken to mean as a deviation from the stated public purpose of their
taking. Jurisprudence has it that the expropriation of private land for slum clearance and
urban development is for a public purpose even if the developed area is later sold to private
homeowners, commercials firms, entertainment and service companies, and other private
concerns.
Moreover, the Constitution itself allows the State to undertake, for the common good and in
cooperation with the private sector, a continuing program of urban land reform and
housing which will make at affordable cost decent housing and basic services to
underprivileged and homeless citizens in urban centers and resettlement areas.The
expropriation of private property for the purpose of socialized housing for the marginalized
sector is in furtherance of the social justice provision under Section 1, Article XIII of the
Constitution which provides that:
SECTION 1. The Congress shall give highest priority to the enactment of measures that
protect and enhance the right of all the people to human dignity, reduce social, economic, and
political inequalities, and remove cultural inequities by equitably diffusing wealth and political
power for the common good.
To this end, the State shall require the acquisition, ownership, use and disposition of property
and its increments.
Non-payment of just compensation does not entitle the private landowners to recover
possession of their expropriated lots
IMPORTANT!!!
In arguing for the return of their property on the basis of non-payment, respondents
ignore the fact that the right of the expropriating authority is far from that of an unpaid
seller in ordinary sales, to which the remedy of rescission might perhaps apply. An in
rem proceeding, condemnation acts upon the property. After condemnation, the
paramount title is in the public under a new and independent title; thus, by giving notice to all
claimants to a disputed title, condemnation proceedings provide a judicial process for
securing better title against all the world than may be obtained by voluntary conveyance.
Records show that there is an outstanding balance of P1,218,574.35 that ought to be paid to
petitioners. It is not disputed that respondent NHA took actual possession of the expropriated
[17]
properties in 1977.
Perforce, while petitioners are not entitled to the return of the
expropriated property, they are entitled to be paid the balance of P1,218,574.35 with legal
interest thereon at 12% per annum computed from the taking of the property in 1977 until the
due amount shall have been fully paid.
20. G.R. No. L-57552 October 10, 1986

LUISA F. MCLAUGHLIN, petitioner,vs.THE COURT OF APPEALS AND RAMON FLORES,
respondents.
FACTS:
On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores
entered into a contract of conditional sale of real property. Paragraph one of the deed of
conditional sale fixed the total purchase price of P140,000.00 payable as follows: a)
P26,550.00 upon the execution of the deed; and b) the balance of P113,450.00 to be paid not
later than May 31, 1977. The parties also agreed that the balance shall bear interest at the
rate of 1% per month to commence from December 1, 1976, until the full purchase price was
paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of Rizal (Civil
Case No. 33573) for the rescission of the deed of conditional sale due to the failure of private
respondent to pay the balance due on May 31, 1977.
On December 27, 1979, the parties submitted a Compromise Agreement on the basis of
which the court rendered a decision on January 22, 1980. In said compromise agreement,
private respondent acknowledged his indebtedness to petitioner under the deed of conditional
sale in the amount of P119,050.71, and the parties agreed that said amount would be payable
as follows: a) P50,000.00 upon signing of the agreement; and b) the balance of P69,059.71 in
two equal installments on June 30, 1980 and December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of the agreement and
in addition he also paid an "escalation cost" of P25,000.00.
That the parties are agreed that in the event the defendant (private respondent) fails to
comply with his obligations herein provided, the plaintiff (petitioner) will be entitled to the
issuance of a writ of execution rescinding the Deed of Conditional Sale of Real Property.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that private
respondent failed to pay the installment due on June 1980 and that since June 1980 he had
failed to pay the monthly rental of P l,000.00. Petitioner prayed that a) the deed of conditional
sale of real property be declared rescinded with forfeiture of all payments as liquidated
damages; and b) the court order the payment of Pl,000.00 back rentals since June 1980 and
the eviction of private respondent.
(1) Trial Court granted motion for writ of execution
On November 17, 1980, private respondent filed a motion for reconsideration tendering
at the same time a Pacific Banking Corporation certified manager's check in the
amount of P76,059.71, payable to the order of petitioner and covering the entire
obligation including the installment due on December 31, 1980. However, the trial court
denied the motion for reconsideration in an order dated November 21, 1980 and issued
the writ of execution on November 25, 1980.
ISSUES:
(1) Whether petitioner is obliged to accept the Cashiers Check
(2) Whether there was valid tender of payment
RULING:
(1) Yes. However, although private respondent had made a valid tender of payment which
preserved his rights as a vendee in the contract of conditional sale of real property, he did not
follow it with a consignation or deposit of the sum due with the court. As this Court has held:
The rule regarding payment of redemption prices is invoked. True that consignation of the
redemption price is not necessary in order that the vendor may compel the vendee to allow
the repurchase within the time provided by law or by contract. (Rosales vs. Reyes and
Ordoveza, 25 Phil. 495.) We have held that in such cases a mere tender of payment is
enough, if made on time, as a basis for action against the vendee to compel him to resell. But
that tender does not in itself relieve the vendor from his obligation to pay the price when
redemption is allowed by the court. In other words, tender of payment is sufficient to compel
redemption but is not in itself a payment that relieves the vendor from his liability to pay the
redemption price. "
In compliance with this resolution, both parties submitted their respective manifestations
which confirm that the Manager's Check in question was subsequently withdrawn and
replaced by cash, but the cash was not deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum due, and that consignation alone
shall produce the same effect in the five cases enumerated therein; Article 1257 provides that
in order that the consignation of the thing (or sum) due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation; and Article 1258
provides that consignation shall be made by depositing the thing (or sum) due at the disposal
of the judicial authority and that the interested parties shall also be notified thereof.
Tender of payment must be distinguished from consignation. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation.
In the case at bar, although as above stated private respondent had preserved his rights as a
vendee in the contract of conditional sale of real property by a timely valid tender of payment
of the balance of his obligation which was not accepted by petitioner, he remains liable for the
payment of his obligation because of his failure to deposit the amount due with the court.
In his manifestation dated September 19, 1986, private respondent states that on September
16, 1980, he purchased a Metrobank Cashier's Check No. CC 004233 in favor of petitioner
Luisa F. McLaughlin in the amount of P76,059.71, a photocopy of which was enclosed and
marked as Annex "A- 1;" but that he did not continue paying the monthly rental of Pl,000.00
because, pursuant to the decision of the appellate court, petitioner herein was ordered to
accept the aforesaid amount in full payment of herein respondent's obligation under the
contract subject matter thereof.
However, inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on
private respondent to deposit the same with the court in order to be released from
responsibility. Since private respondent did not deposit said amount with the court, his
obligation was not paid and he is liable in addition for the payment of the monthly rental of
Pl,000.00 from January 1, 1981 until said obligation is duly paid, in accordance with
paragraph 3 of the Compromise Agreement. Upon full payment of the amount of P76,059.71
and the rentals in arrears, private respondent shall be entitled to a deed of absolute sale in his
favor of the real property in question.
21. G.R. No. L-45510 May 27, 1986

BERNARDO B. LEGASPI, petitioner,vs.COURT OF APPEALS and LEONARDO B.
SALCEDO, respondents.
FACTS:
On February 8, 197 1, the plaintiff now petitioner filed a complaint with the Court of First
Instance of Cavite, docketed as Civil Case No. N-1595 for reconveyance to enforce his right
to repurchase two parcels of land, Lots Nos. 3962 and 3963 of the Imus Estate covered by
TCT Nos. T-4388 and T-4389, respectively, which he sold to the defendant, now private
respondent, pursuant to a sale with pacto de retro as evidenced by a Deed of Sale with the
Right to Repurchase dated October 15, 1965 and marked as Exhibit "A".
on October 15, 1970, Legaspi deposited in the Office of the Clerk of Court of First Instance of
Cavite City the amount of P25,125.00 as evidenced by Official Receipt No. 2698797-k
marked as Exhibit "B"; that despite earnest efforts towards a compromise after consignation
of the repurchase money had been made, Salcedo refused to reconvey the properties in
question.
By way of special defense, Salcedo claimed that Legaspi was no longer entitled to
repurchase the properties in question for failure to exercise his right within the stipulated
period in accordance with Article 1250 of the Civil Code under which Salcedo maintained he
was entitled to the payment of P42,250.00 instead of only P25,000.00.
Article 1250 of the Civil Code provides as follows:
In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value
of the currency at the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
(1) Trial Court - judgment is for the plaintiff who retains ownership of Lots Nos. 3962 and 3963
of the Imus Estate covered by TCT Nos. T-3488 and T-3489
(2) CA - reversed the decision and dismissed the complaint
ISSUES:
(1) whether or not the petitioner validly exercised his right to repurchase the properties
within the five-year period as stipulated in the sale with pacto de retro entered into
between the petitioner as vendor a retro and private respondent as vendee a retro.
(2) whether or not the tender of payment in the manner described by the petitioner
resulted in the exercise of the right to repurchase
RULING:
(1) Tender of payment is the manifestation made by the debtor to the creditor of his desire to
comply with his obligation, with the offer of immediate performance. (Tolentino, Civil Code of
the Phil....ippines, Vol. IV [1985]). Generally, it is an act preparatory to consignation as an
attempt to make a private settlement before proceeding to the solemnities of consignation. (8
Manresa 325). 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. (Limkako v. Teodoro, 74 Phil..... 313). In instances where
no debt is due and owing, consignation is not proper. (Asturias Sugar Central vs. Pure Cane
Molasses Co., 60 Phil..... 255) We have early held that:
Consignation is not required to preserve the right of repurchase as a mere tender of payment
is enough if made on time as a basis for an action to compel the vendee a retro to resell the
property.
Since the case at bar involves the exercise of the right to repurchase, a showing that
petitioner made a valid tender of payment is sufficient. It is enough that a sincere or genuine
tender of payment and not a mock or deceptive one was made. The fact that he deposited the
amount of the repurchase money with the Clerk of Court was simply an additional security for
the petitioner. It was not an essential act that had to be performed after tender of payment
was refused by the private respondent although it may serve to indicate the veracity of the
desire to comply with the obligation.
(2) Yes. A valid tender of payment was made seasonably. The records do not show that this
finding is grounded entirely on speculation, surmises, or conjectures.
The records clearly manifest that the petitioner was able to make a valid tender of payment on
the 14th of October 1970 by offering personally the amount of P25,000.00 to the private
respondent who refused to accept it claiming that the money was devalued. Thereafter, the
petitioner informed the private respondent that he would be depositing the same amount with
the proper court. (tsn., pp. 6 & 9, February 8, 1972 hearing). The trial court correctly ruled that
there was proper exercise of the right to repurchase within the five-year period not for the
reason that the deposit of the repurchase money amounted to a tender of payment but for
what the evidence submitted before it proved.
As regards the award of moral, punitive, exemplary and corrective damages in the amount of
P20,000.00 made by the trial court, the award is deleted for want of sufficient proof to justify it.
The mere refusal to accept the repurchase money on the ground that the value of the peso
had devalued did not amount to bad faith which would warrant the payment of these damages
by the private respondent.
22. G.R. No. L-56196 January 7, 1986

RESTITUTA, JESUS, ISIDRO AND JOEL, ALL SURNAMED HULGANZA AND MATILDE
COLLAMAR, petitioners,vs.THE HONORABLE COURT OF APPEALS AND BASILIA
GEMARINO, respondents.
FACTS:
Hulganza is the registered owner of a parcel of land covered by an original certificate of title
issued pursuant to a free patent. He sold said parcel to Gemarino and by virtue of the sale,
the original title was cancelled and a new one issued in favor of Gemarino. A year later,
Hulganza sued Gemarino in the Court of First Instance (now Regional Trial Court) to compel
Gemarino to allow Hulganza to redeem said lot under Sec. 119 of Com. Act 141 (Public Land
Act).
(1) Trial court - declared that Hulganza has the legal right to exercise said right at the original
purchase price with interests.
(2) Court of Appeals - reversed the trial courts decision on the ground that Hulganza failed to
consign the amount due at the time they filed the complaint, saying that the act of merely filing
the complaint on the part of Hulganza without consignation of the proper amount within the
period prescribed was an ineffective and incomplete redemption.
ISSUE:
Whether or not it is necessary that the formal offer to redeem the land in question be
accompanied by a bona fide tender of the redemption price, or the repurchase price be
consigned in Court, within the period of redemption even if the right is exercised through the
filing of a judicial action
HELD:
Yes.
The bona fide tender of the redemption price or its equivalent consignation of said price in
court is not essential or necessary since the filing of the action itself is equivalent to a
formal offer to redeem.
The formal offer to redeem, accompanied by a bona fide tender of the redemption price,
within the period of redemption prescribed by law, is only essential to preserve the right of
redemption for future enforcement beyond such period of redemption and within the period
prescribed for the action by the statute of limitations. Where, as in the instant case, the right
to redeem is exercised thru the filing of judicial action within the period of redemption
prescribed by the law, the formal offer to redeem, accompanied by a bona fide tender of the
redemption price, night be proper, but is is not essential. The filing of the action itself, within
the period of redemption, is equivalent to a formal offer to redeem. Any other construction,
particularly with reference to redemption of homesteads conveyed to third parties, would work
hardships on the poor homesteaders who cannot be expected to know the subtleties of the
law, and would defeat the evident purpose of the Public Land Law "to give the
homesteader or patentee every chance to preserve for himself and his family the land that the
state granted him as a reward for his labor in cleaning and cultivating it."
23. International Corporate Bank, Inc. v. IAC, et al. GR 69560, Jun. 30, 1988
FACTS: In 1980, Natividad secured from International Corporate Banks (ICBs) predecessorin-interest a loan of P50 million. To secure this loan, Natividad mortgaged her real properties
in Manila and Bulacan. Of this loan, only P20 million was approved for release. The same
amount was applied to pay other obligations to ICB. Thus, Natividad claims that she did not
receive anything from the approved loan. Later, Natividad made a money market placement
with ICBs predecessor in the amount of P1 million at 17% interest per annum for a period of
32 days. Meanwhile, Natividad allegedly failed to pay her mortgage indebtedness to ICB so
that the latter refused to pay the proceeds of the money market placement on maturity but
applied the amount instead to the deficiency in the proceeds of the auction sale of the
mortgaged properties. With ICBs predecessor being the only bidder, said properties were
sold in its favor for only P20 million. ICB claims that after deducting this amount Natividad is
still indebted in the amount of P6 million.
In 1982, Natividad sued ICB for annulment of the sheriffs sale of the mortgaged properties,
for the release to her of the balance of her loan from ICB in the amount of P30 million and for
recovery of P1 million representing the proceeds of her money market investment. She
alleges that the mortgage is not yet due and demandable and, hence, the foreclosure was
illegal. ICB answered, saying that it has the right to apply or set off Natividads money market
claim of P1 million. ICB thus interposes counterclaims to recover P5.7 million representing the
balance of its deficiency claim after deducting the proceeds of the money market placement.
The trial judge ordered ICB to deliver to Natividad the amount of P1.06 million conditioned
upon Natividads filing a bond. ICB filed a special civil action for certiorari with the Court of
Appeals. Said court dismissed the petition, saying that the circumstances of this case prevent
legal compensation from taking place because the question of whether Natividad is indebted
to ICB in the amount of P6.81 million representing the deficiency balance after the foreclosure
of mortgage is disputed.
ISSUE: Can there be legal compensation in the case at bar?
HELD: No. Undoubtedly, ICB is indebted to Natividad in the amount of P1.06 million,
representing the proceeds of her money market investment. But whether Natividad is
indebted to ICB in the amount of P6.8 million representing the deficiency balance after the
foreclosure of the mortgage executed to secure the loan is disputed. This circumstance
prevents legal compensation from taking place. The validity of the extrajudicial foreclosure
sale and ICBs claim for deficiency are still in question, so much so that the requirement of
Art. 1279 that the debts must be liquidated and demandable has not yet been met. Hence,
legal compensation cannot take place under Art. 1290 of the Civil Code.
24. G.R. No. L-27434 September 23, 1986

GENARO GOI, RUFINA P. vda. DE VILLANUEVA, VIOLA P. VILLANUEVA, OSCAR P.
VILLANUEVA, MARINA P. VILLANUEVA, VERNA P. VILLANUEVA, PRAXEDES P.
VILLANUEVA, JR., JOSE P. VILLANUEVA, SAMUEL P. VILLANUEVA, LOURDES P.
VILLANUEVA, MILAGROS P. VILLANUEVA DE ARRIETA, petitioners-appellants, vs. THE
COURT OF APPEALS and GASPAR VICENTE, respondents-appellees.
FACTS:
The three (3) haciendas known as San Sebastian, Sarria and Dulce Nombre de Maria
situated in the Municipality of Bais, Negros Oriental, were originally owned by the Compania
General de Tabacos de Filipinas [TABACALERA]. Sometime in 1949, the late Praxedes T.
Villanueva, predecessor-in-interest of petitioners, negotiated with TABACALERA for the
purchase of said haciendas. However, as he did not have sufficient funds to pay the price,
Villanueva with the consent of TABACALERA, offered to sell Hacienda Sarria to one Santiago
Villegas, who was later substituted by Joaquin Villegas. Allegedly because TABACALERA did
not agree to the transaction between Villanueva and Villegas, without a guaranty private
respondent Gaspar Vicente stood as guarantor, for Villegas in favor of TABACALERA. The
guarantee was embodied in a document denominated as "Escritura de Traspaso de Cuenta."
Either because the amount realized from the transaction between Villanueva and Villegas still
fell short of the purchase price of the three haciendas, or in consideration of the guaranty
undertaken by private respondent Vicente, Villanueva contracted or promised to sell to the
latter fields nos. 3, 4 and 13 of Hacienda Dulce Nombre de Maria for the sum of P13,807.00.
Private respondent Vicente thereafter advised TABACALERA to debit from his account the
amount of P13,807.00 as payment for the balance of the purchase price. However, as only
the amount of P12,460.24 was actually needed to complete the purchase price, only the latter
amount was debited from private respondent's account. The difference was supposedly paid
by private respondent to Villanueva, but as no receipt evidencing such payment was
presented in court, this fact was disputed by petitioners.
Section 20(a) of Rule 130, commonly known as the Survivorship Disqualification Rule or Dead Man
Statute, which provides as follows:
Section 20. Disqualification by reason of interest or relationship.-The following persons cannot testify
as to matters in which they are interested, directly or indirectly, as herein enumerated:
(a) Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against
an executor or administrator or other representative of a deceased person, or against a person of
unsound mind, upon a claim or demand against the estate of such deceased person or against such
person of unsound mind, cannot testify as to any matter of fact occurring before the death of such
deceased person or before such person became of unsound mind.
ISSUES:
(1) Whether the testimony of Vicente (who died) is admissible in evidence
(2) Whether the contract/promise to sell was novated to a verbal lease agreement
RULING:
(1) Yes. The dead means statutes protection was effectively waived when counsel for
petitioners cross-examined private respondent Vicente. "A waiver occurs when plaintiff's
deposition is taken by the representative of the estate or when counsel for the representative
cross-examined the plaintiff as to matters occurring during deceased's lifetime. It must further
be observed that petitioners presented a counterclaim against private respondent Vicente.
When Vicente thus took the witness stand, it was in a dual capacity as plaintiff in the action for
recovery of property and as defendant in the counterclaim for accounting and surrender of
fields nos. 4 and 13. Evidently, as defendant in the counterclaim, he was not disqualified from
testifying as to matters of fact occurring before the death of Praxedes Villanueva, said action
not having been brought against, but by the estate or representatives of the estate/deceased
person
(2) Yes. It is the custom among the sugar planters in this locality that the Lessee usually
demands an advance amount to cover the rental for the period of the lease, and the demand
of an accounting will be only made after the expiration of the lease period. It was adduced
during the trial that the amount of P12,460.75 was considered as an advance rental of the 2
lots which was leased to the Plaintiff, lots nos. 4 and 13; so we humbly believe that there was
no necessity on the part of defendant Mr. Genaro Goi to make a yearly demand for an
accounting for the total production of 2 parcels leased to the plaintiff.
25. La Campana Food Products, Inc. v. PCIB, et al.

GR 46405, Jun. 30, 1986
FACTS:
Petitioner had a credit line with respondent Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) secured by two real estate mortgages executed on March
23, 1960 and August 25, 1961. As of December 24, 1968, the credit accommodation
extended by PCIB to petitioner amounted to P526,632.67.
Petitioner negotiated a loan of $1,400,000.00. with Intercontinental Monetary Corporation of
New York, U.S.A., to be guaranteed by the Development Bank of the Philippines (hereinafter
referred to as DBP). On April 18, 1968, DBP agreed to guarantee petitioner's foreign loan
subject to the condition that petitioner should deposit with it the proceeds of the loan which
should be made available for payment of petitioner's obligation to local financial institutions
and to serve as working capital.
ISSUES:
Whether the obligations with PCIB had been novated by its being substituted as debtor of
PCIB by the DBP
RULING:
No. DBP did not substitute petitioner- appellant as debtor to respondent-appellee. It merely
agreed to guarantee petitioner's foreign loan subject to the condition that petitioner should
deposit with it the proceeds of the loan which should be made available for payment of
petitioner's obligation to local financial institutions and to serve as working capital.
Where the mortgagee-bank agreed to guarantee the mortgagors foreign loan subject to the
condition that the latter should deposit with the former the proceeds of the loan which should
be made available for payment to the mortgagors obligation to a local financial institution and
to serve as working capital, the mortgagee-bank did not substitute the mortgagor as debtor to
the financial institution. The mortgagee-banks guarantee has to be secured by the first
mortgage on the assets then mortgaged to the said bank and the assets offered as additional
securities, which included the parcels of land mortgaged to the financial institution. Hence, the
mortgagee-bank requires the financial institution to lend the transfer certificates of title
covering the parcels of land mortgaged by the mortgagor to the financial institution for the
mortgagee-bank to be able to register its mortgage therein.
, it is not enough that the juridical relation of the parties to the original contract is extended to
a third person; it is necessary that the old debtor be released from the obligation, and the third
person or new debtor take his place in the new relation Without such release, there is no
novation; the third person who has assumed the obligation of the debtor merely becomes a
co-debtor of surety. If there is no agreement as to solidarity, the first and the new debtors are
considered obligated jointly.
It is a very common thing in the business affairs for a stranger to a contract to assume its
obligations; and while this may have the effect of adding to the number of persons liable, it
does not necessarily imply the extinguishment of the liability of the first debtor.
26. Integrated Construction v. Relova GR 41117, Dec. 29, 1986

FACTS: A decision-award by an arbitration board ordered the Metropolitan Waterworks and
Sewerage Sys- tem (MWSS) to pay Integrated Construction P13,188.50. Later, Integrated
agreed to give MWSS some discounts provided MWSS would pay the amount on Oct. 17,
1972. MWSS, however, paid only on Dec. 22, 1972, the amount stated in the decision less
the reductions. Three years later, Integrated moved for execution against MWSS for the
balance due under the decision-award. MWSS opposed the execution setting forth the
defense of payment. The judge denied the execution on the ground that the parties had
novated the award by their subsequent agreement.
ISSUE:
Whether there was novation
HELD:
No.
While the tenor of the subsequent agreement in a sense novates the judgment award there
being a shortening of the period within which to pay, the suspensive and conditional nature of
the said agreement (making the novation conditional) is acknowledged by MWSS. Its failure
to pay within the stipulated period removed the very cause for the agreement, rendering the
same ineffective and, therefore, the parties were remitted to their original rights under the
judgment award.
28. Petterson v. Azada 8 Phil. 432

FACTS:
Azada owed Petterson P500 and P3,000 evidenced by two promissory notes. Later, a new
loan of P300 was obtained. By express agreement, the three debts were consolidated into
one promissory note for P3,800 (P500 plus P3,000 plus P300). That the last promissory note
was to take the place of the others was agreed upon.
Issue: Is there novation here?
HELD: Yes, in view of the changes made.
1. DEBTS AND DEBTORS; MERGER OF LIABILITIES; PROMISSORY NOTE. When by
reason of the insolvency of a debtor, two sums due and stated in an equal number of
instruments are merged with an additional amount in a promissory note, payable on a fixed
date, by virtue of an agreement between the creditor and the debtor, an actual novation, valid
and efficient, takes place, because the former obligations have been modified in their
essential conditions, and have fortwith become extinguished.
2. ID.; ID.; ID. If the former obligations were valid, the new one must necessarily be so
unless it be alleged and proven that there was no such novation or that there exists some
reason which makes it invalid.
3. CONTRACT. Whatever may have been agreed to in a contract, not in contravention of
law or morals, is binding upon the contracting and their legal representatives.
4. ID.; MISTAKE. An error which invalidates a contract and such transactions as may have
been executed by virtue thereof, on account of the absence of consent, must refer to the
substance of the thing which may be the subject of the contract, and not to a right of the
parties therein, particularly when the difference of opinion in connection with this right is what
gave rise to the execution of the contract. (Arts. 1261, 1265, 1266, and 1817, Civil Code.)
(NOTE: Had there been no proof that the third note intended to replace the others, there
really would be nothing inconsistent with having different notes for different amount. If there is
no novation, all the obligations would remain subsisting and the debtor would be liable for all.)
28. People v. Nery L-19567, Feb. 5, 1964

FACTS: Soledad Nery was given by Federia Mantillaro two diamond rings to be sold by her. If
successful, Nery was supposed to receive a commission. She failed to return the rings or their
cash value, so the owner sued her for estafa. While the case was pending, she executed a
deed of compromise, promising to pay for the money in installments. After making one
payment, she did not continue paying for the balance. She now contends that she ought to be
acquitted because the acceptance by the owner of the partial payment NOVATED the original
relation between the parties.
HELD: She is still guilty of estafa, firstly, because the exaction of criminal responsibility is
something that can be renounced only by the State, not by the offended party; and secondly,
because there was no intent to extinguish the original relationship. The novation theory may
perhaps apply PRIOR to the filing of the criminal information in court because up to that time,
the original trust relation may be converted by the parties into an ordinary creditor-debtor
situation, thereby plac- ing the victim in estoppel should he insist on the original trust. But
AFTER the filing of the case in court, the offended party may no longer divest the prosecution
of its power to exact the criminal liability as distinguished from the civil. The crime being an
offense against the State, only the latter may renounce the criminal consequences. The
acceptance of partial satisfaction cannot indeed effect the nullification of a criminal liability
that is already fully mature and in the process of judgment. (U.S. v. Montanes, 8 Phil. 620;
Abeto v. People, 90 Phil. 581 and Camus v. Court of Appeals, 48 O.G. No. 3898).
29. CALIFORNIA BUS LINES, INC., petitioner, vs. STATE INVESTMENT HOUSE, INC.,
respondent.
FACTS:
Sometime in 1979, Delta Motors CorporationM.A.N. Division (Delta) applied for financial
assistance from respondent State Investment House, Inc. (hereafter SIHI), a domestic
corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to
Delta for P25,000,000.00 in three separate credit agreements dated May 11, June 19, and
August 22, 1979. On several occasions, Delta availed of the credit line by discounting with
SIHI some of its receivables, which evidence actual sales of Deltas vehicles. Delta eventually
became indebted to SIHI to the tune of P24,010,269.32.
Meanwhile, from April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter
CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of
M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the purchase price
of the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16)
promissory notes in favor of Delta on January 23 and April 25, 1980.
When CBLI defaulted on all payments due, it entered into a restructuring agreement with
Delta on October 7, 1981, to cover its overdue obligations under the promissory notes. The
restructuring agreement provided for a new schedule of payments of CBLIs past due
installments. CBLI continued having trouble meeting its obligations to Delta. This prompted
Delta to threaten CBLI with the enforcement of the management takeover clause. To pre-empt
the take-over, CBLI filed on May 3, 1982, a complaint for injunction.
(1) CFI Rizal granted the prayer for issuance of a writ of preliminary mandatory injunction
Thereafter, Delta and CBLI entered into a compromise agreement on July 24, 1984, in Civil
Case No. 0023-P, the injunction case before the RTC of Pasay. CBLI agreed that Delta would
exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units.
ISSUES:
(1) whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and
Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to
respondent SIHI, and (2) whether the compromise agreement in Civil Case No. 0023-P
superseded and/or discharged the subject five promissory notes
RULING:
(1) No, there was no novation. The restructuring agreement between Delta and CBLI
executed on October 7, 1981, shows that the parties did not expressly stipulate that the
restructuring agreement novated the promissory notes. Absent an unequivocal declaration of
extinguishment of the pre-existing obligation, only a showing of complete incompatibility
between the old and the new obligation would sustain a finding of novation by implication.
However, our review of its terms yields no incompatibility between the promissory notes and
the restructuring agreement.
Novation has been defined as the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which terminates the first, either by changing the object or principal
conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of
the creditor.
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old
obligation is terminated by the creation of a new obligation that takes the place of the former; it is
merely modificatory when the old obligation subsists to the extent it remains compatible with the
amendatory agreement. An extinctive novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of the debtor or subrogating a third person
in the rights of the creditor (subjective or personal). Novation has two functions: one to extinguish an
existing obligation, the other to substitute a new one in its place. For novation to take place, four
essential requisites have to be met, namely,
(1) a previous valid obligation;
(2) an agreement of all parties concerned to a new contract;
(3) the extinguishment of the old obligation; and
(4) the birth of a valid new obligation.
Novation is never presumed, and the animus novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
The extinguishment of the old obligation by the new one is a necessary element of novation which
may be effected either expressly or impliedly. The term "expressly" means that the contracting parties
incontrovertibly disclose that their object in executing the new contract is to extinguish the old one.
Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by
law would be an incompatibility between the two contracts. While there is really no hard and fast rule
to determine what might constitute to be a sufficient change that can bring about novation, the
touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and
the new obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby produce the
effect of extinguishing an obligation by another which substitutes the same. The first is when novation
has been explicitly stated and declared in unequivocal terms. The second is when the old and the
new obligations are incompatible on every point. The test of incompatibility is whether the two
obligations can stand together, each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental. The incompatibility must take place in any of
the essential elements of the obligation, such as its object, cause or principal conditions thereof;
otherwise, the change would be merely modificatory in nature and insufficient to extinguish the
original obligation. The necessity to prove the foregoing by clear and convincing evidence is
accentuated where the obligation of the debtor invoking the defense of novation has already matured.
With respect to obligations to pay a sum of money, this Court has consistently applied the well-settled
rule that the obligation is not novated by an instrument that expressly recognizes the old, changes
only the terms of payment, and adds other obligations not incompatible with the old ones, or where
the new contract merely supplements the old one.
(2) No. Having previously assigned the five promissory notes to SIHI, Delta had no more right
to compromise the same. Deltas limited authority to collect for SIHI stipulated in the
September 13, 1985, Deed of Sale cannot be construed to include the power to compromise
CBLIs obligations in the said promissory notes.
An authority to compromise, by express provision of Article 1878 of the Civil Code, requires a
special power of attorney, which is not present in this case. Incidentally, Deltas authority to
collect in behalf of
SIHI was, by express provision of the Continuing Deed of Assignment, automatically revoked
when SIHI opted to collect directly from CBLI.
SEC. 1. Who may intervene.A person who has a legal interest in the matter in litigation, or in the
success of either of the parties, or an interest against both, or is so situated as to be adversely
affected by a distribution or other disposition of property in the custody of the court or of an officer
thereof may, with leave of court, be allowed to intervene in the action. The court shall consider
whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the
original parties, and whether or not the intervenor's rights may be fully protected in a separate
proceeding

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1. Vicente Aldaba v. Court of Appeals, et al. L-21676, Feb.

June 18, 1953

2. [G.R. No. 127206. September 12, 2003]

3. G.R. No. L-30736 April 14, 1975

4. Maria Luisa Martinez v. Manuel B. Barredo, et al., GR 49308

5. G.R. No. L-30115 September 28, 1973

7. Regalado v. Luchasingco and Co. 5 Phil. 625

8. Ramirez v. Court of Appeals, et al.98 Phil. 225(Illustrating Effect of Loss in

9. Tamayo v. Aquino L-12634-12720, May 29, 1959

10. Liwanag, et al. v. Workmens Compensation Commission

11. Inchausti & Co. v. Yulo

12. Braganza v. Villa Abrille L-12471, Apr. 13, 1957

DECISION OF LOWER COURTS:

The question of whether a penalty is reasonable or iniquitous is addressed to the sound

14. G.R. No. L-19001

November 11, 1922

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs.DOMINGO RODRIGUEZ,

15. Haw Pia v. China Banking Corporation

16. Zagala v. Jimenez GR 33050, Jul. 23, 1987

DECISION OF LOWER COURTS:

18. Reyes v National Housing Authority

20. G.R. No. L-57552 October 10, 1986

21. G.R. No. L-45510 May 27, 1986

22. G.R. No. L-56196 January 7, 1986

24. G.R. No. L-27434 September 23, 1986

25. La Campana Food Products, Inc. v. PCIB, et al.

26. Integrated Construction v. Relova GR 41117, Dec. 29, 1986

28. Petterson v. Azada 8 Phil. 432

28. People v. Nery L-19567, Feb. 5, 1964

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