Mataas na Lupa Tenants’Association v. Carlos Dimayuga and Juliana Diego Vda.

de
Gabriel L-32049, Jun. 25, 1984
Under PD 1517, tenants-lessees are given pre-emptive or preferential rights (right of first refusal) if
they have occupied the land or lot for over ten (10) years.
The owner has this obligation to grant said preference. Thus, he cannot sell to a third person without
first offering the same to the lessee.
If the latter renounces said right, the waiver must be in a public instrument.
PRUDENTIAL BANK VS. RONALD RAPANOT AND HOUSING AND LAND USE REGULATORY
BOARD, G.R. No. 191636. January 16, 2017
Golden Dragon is the developer of Wack-Wack Twin Towers Condominium, located in Mandaluyong
City. On May 21, 1996, Rapanot and Golden Dragon entered into a Contract to Sell covering Unit
2308-B2.
On April 23, 1997, Rapanot completed payment of the full purchase price of said unit amounting to
P1,511,098.97.
Golden Dragon executed a Deed of Absolute Sale in favor of Rapanot of the same date.
Thereafter, Rapanot, through his counsel, sent several demand letters to Golden Dragon and the
Bank, formally demanding the delivery of Unit 2308-B2 and its corresponding CCT No. 2383, free
from all liens and encumbrances.
Neither Golden Dragon nor the Bank complied with Rapanot's written demands.
It bears stressing that banks are required to exercise the highest degree of diligence in the conduct
of their affairs.
Since the banking business is impressed with public interest, they are expected to be more cautious,
to exercise a higher degree of diligence, care and prudence, than private individuals in their dealings,
even those involving registered lands.
Banks may not simply rely on the face of the certificate of title.
As expected, the ascertainment of the status or condition of a property offered to it as security for a
loan must be a standard and indispensable part of the bank's operations.x x x
If only the Bank exercised the highest degree of diligence required by the nature of its business as a
financial institution, it would have discovered that Golden Dragon did not comply with the approval
requirement imposed by Section 18 of PD 957, and that Rapanot already paid a reservation fee and
had made several installment payments in favor of Golden Dragon, with a view of acquiring Unit
2308-B2.
First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may
be constituted by a developer without prior written approval of the National Housing Authority, now
HLURB.57 PD 957 further requires developers to notify buyers of the loan value of their
corresponding mortgaged properties before the proceeds of the secured loan are released.
The relevant provision states:
The Bank's failure to exercise the diligence required of it constitutes negligence, and negates its
assertion that it is a mortgagee in good faith.
In granting the loan, petitioner bank should not have been content merely with a clean title,
considering the presence of circumstances indicating the need for a thorough investigation of the
existence of buyers like respondent.
Having been wanting in care and prudence, the latter cannot be deemed to be an innocent
mortgagee.
WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Decision
dated November 18, 2009 and Resolution dated March 17, 2010 of the Court of Appeals in CA-G.R.
SP No. 93862 are hereby AFFIRMED. SO ORDERED.

[ G.R. No. 225449, February 26, 2020 ]SPOUSES RENE LUIS GODINEZ AND SHEMAYNE
GODINEZ, PETITIONERS, V. SPOUSES ANDREW T. NORMAN AND JANET
This Court must resolve whether or not the prospective buyer's failure to fully pay the purchase price
on a contract to sell may result in the forfeiture of such partial payments absent a stipulation to that
effect.
This Court grants the petition.
Petitioners cite Olivarez Realty Corporation v. Castillo, indicating that the amounts already paid to the
sellers under a contract to sell may be retained when the prospective buyers were placed in
possession of the property prior to transfer of ownership. Petitioners are clearly arguing a point of
law, which is correctible by an appeal and not by a petition for certiorari.45
Based on the parties' allegations, the key issue pertains to the applicability of Olivarez Realty
Corporation v. Castillo, which similarly involves the retention of partial payments made on a failed
contract to sell.
Olivarez involved the sale of a parcel of land, which the buyer undertook to pay in several
installments. The parties executed a deed of conditional sale, stipulating that in addition to the
installment payments, the buyer would also institute the necessary legal actions to clear the property
of tenants, and of an adverse claim by the Philippine Tourism Authority. It was also stipulated that
the buyer could immediately take possession of the property after signing the deed of conditional
sale, which it did.
However, the deed of absolute sale would be executed by the seller only after the full payment of the
purchase price. While the buyer was able to pay a portion of the agreed purchase price, it failed to
pay the succeeding installments and to institute the legal action required under the contract.
This led the seller to rescind the contract. However, in view of the buyer's 14-year occupancy of the
premises without full payment of the purchase price, the sellers also sought to have the partial
payments forfeited in their favor.58
The foregoing circumstances allowed this Court to rule that the contract between the parties in
Olivarez was a contract to sell. As such, this Court made the following pronouncements as to the
effects of the buyer's failure to fully pay the purchase price on a contract to sell.
As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines does not
apply.
The contract to sell is instead cancelled, and the parties shall stand as if the obligation to sell never
existed. . . . .
As for prospective sellers, this court generally orders the reimbursement of the installments paid for
the property when setting aside contracts to sell.
This is true especially if the property's possession has not been delivered to the prospective buyer
prior to the transfer of title.
In this case, however, Castillo delivered the possession of the property to Olivarez Realty Corporation
prior to the transfer of title.
We cannot order the reimbursement of the installments paid.
In Gomez v. Court of Appeals, the City of Manila and Luisa Gomez entered into a contract to sell over
a parcel of land. The city delivered the property's possession to Gomez. She fully paid the purchase
price for the property but violated the terms of the contract to sell by renting out the property to
other persons. This court set aside the contract to sell for her violation of the terms of the contract to
sell. It ordered the installments paid forfeited in favor of the City of Manila "as reasonable
compensation for [Gomez's} use of the [property]" for eight years. In this case, Olivarez Realty
Corporation failed to fully pay the purchase price for the property. It only paid PhP2,500,000.00 out
of the PhP19,080,490.00 agreed purchase price. Worse, petitioner corporation has been in
possession of Castillo's property for 14 years since May 5, 2000 and has not paid for its use of the
property.
Similar to the ruling in Gomez, we order the PhP2,500,000.00 forfeited in favor of Castillo as
reasonable compensation for Olivarez Realty Corporation's use of the property. (Emphasis supplied,
citations omitted) Olivarez also cited the case of Gomez v. Court of Appeals,60 where this Court
clarified that partial payments on a failed contract to sell may be retained by the seller as "reasonable
compensation for use of the [property]."
Applying the foregoing, we are of the considered view that the payment of the purchase price of
P3,556.00, constitutes fair and reasonable rental for the period in which said property was under the
control of awardee Luisa Gomez, her heirs and successors-in-interest.
Undeniably, the awardee together with her heirs and successors-in-interest, have gained benefits,
financial or otherwise, for a period of eight years -from the time of actual award of the lot to the time
of cancellation thereof (1978-1986).61 (Emphasis supplied)
The same circumstances are present here.
The parties entered into an oral contract to transfer the leasehold rights over a housing unit at an
agreed price of US$175,000.00.62 They do not dispute the Court of Appeals' finding that the oral
contract is a contract to sell.
This Court finds the application of Olivarez in order.
Here, petitioners turned over possession of the premises to respondents after the latter made partial
payments amounting to US$10,000.00. Respondents then moved their furniture and groceries into
one of the housing unit's rooms and also hired a house helper to watch over the premises in the
interim.
Respondents made subsequent payments, bringing its total to US$40,000.00, but the contract to sell
still failed to take effect because of respondents' subsequent default in paying the balance . During
this five (5) month period, petitioners were unable to enjoy their property despite retaining a key to
the premises.Thus, petitioners should have been compensated for respondents' use of the property,
consistent with Olivarez.
The conversion of partial payments into rentals is also consistent with Article 1378 of the Civil Code,
which teaches that doubts in the interpretation of onerous contracts "should be settled in favor of the
greatest reciprocity of interests."65
We find it only proper that respondents reciprocate their use of the premises with the payment of
rentals while full payment on their contract to sell was still pending. Olivarez also recognized that
compensation for use of the property must be reasonable.
In Olivarez, this Court allowed the seller to retain the partial payments because the buyers possessed
and used the property without paying rentals.
Likewise, Gomez considered the "benefits, financial or otherwise"66 enjoyed by the buyer in
determining whether or not to retain partial payments as reasonable compensation.
In both cases, the sellers were unable to use their respective properties because the buyers were in
possession thereof. In Olivarez, this Court effectively allowed the prospective seller to convert partial
payments to rentals, with such rentals amounting to 13.1% of the property's total purchase price.
Having already determined the applicability of the Olivarez ruling on the retention of partial
payments, the circumstances of this case would warrant the retention of a similar amount.
Thus, rentals for the housing unit may be set at 13.1% of the US$175,000.00 total purchase price, or
US$22,925.00. Petitioners may, therefore, retain US$22,925.00 of the US$40,000.00 partially paid by
respondents, but must return the remaining US$17,075.00 to respondents. The payment of
reasonable rentals is not meant to punish the illegality of respondents' actions, but to compensate
petitioners' inability to enjoy or use its own property.71
Here, the record shows that petitioners were unable to use the property for the duration of their
contract with respondents.
Thus, this Court finds that the partial payments made by respondents may be converted into rentals.
As to the parties' claims for damages, this Court reiterates that respondents' failure to fully pay the
purchase price effectively cancelled the contract to sell. As such, "the parties shall stand as if the
obligation to sell never existed."

DBP vs. Guarina Agricultural and Realty Development Corporation (2014) G.R. No.
160758 | 2014-01-15
The agreement between DBP and Guarina Corporation was a loan. Under the law, a loan requires the
delivery of money or any other consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be paid.
Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and
the other the debtor. This means that in a loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable.

By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on
Guarina Corporation the latter's compliance with its own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other party
cannot be obliged to perform what is expected of it while the other's obligation remains unfulfilled.
In other words, Guarina Corporation would not incur in delay before DBP fully performed its
reciprocal obligation.
Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an
effective demand for payment upon Guarina Corporation to perform its obligation under the loan.
It would only be when a demand to pay had been made and was subsequently refused that a
borrower could be considered in default, and the lender could obtain the right to collect the debt or
to foreclose the mortgage. (See Development Bank of the Philippines vs. Licuanan)
Hence, Guarina Corporation would not be in default without the demand.
Being a banking institution, DBP owed it to Guarina Corporation to exercise the highest degree of
diligence, as well as to observe the high standards of integrity in the performance in all its
transactions because its business was imbued with public interest.
The high standards were also necessary to ensure public confidence in the banking system, for,
according to Philippine National Bank vs. Pike: "The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks."
Yet, DBP failed in its duty to exercise the highest degree of diligence by prematurely foreclosing the
mortgages and unwarrantedly causing the foreclosure sale of the mortgaged properties despite
Guarina Corporation not being yet in default.
Having found and pronounced that the extrajudicial foreclosure by DBP was premature, and that the
ensuing foreclosure sale was void and ineffectual, the Court affirms the order for the restoration of
possession to Guarifia Corporation and the payment of reasonable rentals for the use of the resort.
29. AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner, vs. COURT OF APPEALS,
PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents., G.R. No. 108129 September
23, 1999
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500)
metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation
(Philphos). On August 6, 1986, private respondent sent an advisory letter to petitioner to withdraw
the sulfuric acid purchased at Basay because private respondent had been incurring incremental
expense of two thousand (P2,000.00) pesos for each day of delay in shipment. On October 3, 1986,
petitioner paid five hundred fifty-three thousand, two hundred eighty (P553,280.00) pesos for 500
MT of sulfuric acid.
In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve the
remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before December 15,
1986. Private respondent said that it would charge petitioner the storage and consequential costs for
the Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed to
comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51
MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Later, on a date not
specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on
board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.
6
On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to
private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases,
which letters are hereunder excerpted: We are willing to pay the additional quantity — 227.51 metric
tons high grade sulfuric acid in the prevailing price of the said product. x x x x x x x x x On May 4,
1989, petitioner filed a complaint for specific performance and/or damages before the Regional Trial
Court of Pasig, Branch 151.
Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioner's
favor, disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the
latter to pay the former the following sums: 1. P306,060.77 — representing the value of the
undelivered 272.49 metric tons of sulfuric acid plaintiff paid to defendant; 2. P91,818.23 —
representing unrealized profits, both items with 12% interest per annum from May 4, 1989, when the
complaint was filed until fully paid; 3. P30,000.00 — as exemplary damages; and 4. P30,000.00 — as
attorney's fees and litigation expenses, both last items also with 12% interest per annum from date
hereof until fully paid.
Defendant's counterclaims are hereby dismissed for lack of merit. Costs against defendant. On
appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as
follows:
Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation
to withdraw the full amount of 500 MT of sulfuric acid from the defendant's loadport at Basay and
Sangi on or before August 15, 1986.
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance
of its obligation. We are therefore constrained to declare that the respondent court did not err when
it absolved private respondent from any breach of contract. Where there has been breach of contract
by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of the
seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to
remove them.
Article 1170 of the Civil Code provides:
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. Delay begins from the time
the obligee judicially or extrajudicially demands from the obligor the performance of the obligation.
26
Art. 1169 states:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation. In order that the
debtor may be in default, it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated;
(2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August
31, 1987, solely for petitioner's sulfuric acid. It stands to reason that petitioner should reimburse
private respondent's rental expenses of P32,000 monthly, commencing December 15, 1986, up to
August 31, 1987, the period of the extended lease.
Note further that there is nothing on record refuting the amount of expenses abovecited. However,
the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is
not applicable in this case because petitioner had incurred delay in the performance of its obligation.
Article 1504 of the Civil Code clearly states:
Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been made or not, except that:
On this score, we quote with approval the findings of the appellate court, thus:
. . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would
have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.
Art. 1170 of the Civil Code provides:
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.
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its
obligation to lift the sulfuric acid on August 15, 1986 and had contravened the tenor of its letter-
contract with the defendant.
It is worth noting that the adjustment and allowance of private respondent's counterclaim or set-off
in the present action, rather than by another independent action, is encouraged by the law. Such
practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and
unwarranted consumption of the court's time.
Set-off in this case is proper and reasonable. It involves deducting P272,000.00 (rentals) from
P303,483.37 (advance payment), which will leave the amount of P31,483.37 refundable to petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA G.R.
CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in favor of
private respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00). It is
also ORDERED that said amount of damages be OFFSET against petitioner's advance payment of
Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos
(P303,483.37) representing the price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is
ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and thirty
seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein petitioner. Costs
against the petitioner.
SO ORDERED.

January 16, 2019 G.R. No. 199562 BANK OF THE PHILIPPINE ISLANDS and ANA C.
GONZALES, Petitioners, vs. SPOUSES FERNANDO V. QUIAOIT and NORA L. QUIAOIT,
Respondents.

Fernando V. Quiaoit (Fernando) maintains peso and dollar accounts with the Bank of the Philippine
Islands (BPI) Greenhills-Crossroads Branch (BPI Greenhills). On 20 April 1999, Fernando, through
Merlyn Lambayong (Lambayong), encashed BPI Greenhills Check No. 003434 dated 19 April 1999 for
US$20,000. In a complaint filed by Fernando and his wife Nora L. Quiaoit (Nora) against BPI, they
alleged that Lambayong did not count the US$20,000 that she received because the money was
placed in a large Manila envelope.
They also alleged that BPI did not inform Lambayong that the dollar bills were marked with its
"chapa" and the bank did not issue any receipt containing the serial number of the bills. Lambayong
delivered the dollar bills to the spouses Quiaoit in US$100 denomination in US$10,000 per bundle.
Nora then purchased plane tickets worth US$13,100 for their travel abroad, using part of the
US$20,000 bills withdrawn from BPI. On 22 April 1999, the spouses Quiaoit left the Philippines for
Jerusalem and Europe.
Nora handcarried US$6,900 during the tour. The spouses Quiaoit alleged that on 19 May 1999, Nora
was placed in a shameful and embarrassing situation when several banks in Madrid, Spain refused to
exchange some of the US$100 bills because they were counterfeit. Nora was also threatened that she
would be taken to the police station when she tried to purchase an item in a shop with the dollar
bills.
On 18 August 1999, Gonzales informed Fernando that the absence of the identification mark
("chapa") on the dollar bills meant they came from other sources and not from BPI Greenhills. On 17
January 2000, the spouses Quiaoit demanded in writing for the refund of the US$4,400 from
Gonzales. On 9 February 2000, BPI sent its written refusal to refund or reimburse the US$4,400. The
spouses Quiaoit alleged that BPI failed in its duty to ensure that the foreign currency bills it furnishes
its clients are genuine.
According to them, they suffered public embarrassment, humiliation, and possible imprisonment in a
foreign country due to BPI's negligence and bad faith.
In its 15 May 2009 Decision, the Regional Trial Court of Quezon City, Branch 100 (trial court), ruled in
favor of the spouses Quiaoit. The dispositive portion of the trial court's Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against
the defendants.
Accordingly, defendants are ordered to pay jointly and severally the plaintiffs the following: 1. the
amount of Four Thousand Four Hundred US Dollars (US$4,400) as and for actual damages;
2. the amount of Two Hundred Thousand Pesos (₱200,000.00) as and for moral damages;
3. the amount of Fifty Thousand Pesos (₱50,000.00) as and for exemplary damages;
4. the amount of Fifty Thousand Pesos (₱50,000.00) as and for attorney's fees.
SO ORDERED.
In its 22 September 2011 Decision, the Court of Appeals affirmed the trial court's Decision.
WHEREFORE, premises considered, the Decision dated May 15, 2009 of the RTC, Branch 100,
Quezon City in Civil Case No. Q-00-42619 is hereby AFFIRMED. SO ORDERED.
BPI filed a motion for reconsideration. In its 29 November 2011 Resolution, the Court of Appeals
denied the motion for lack of merit. Thus, BPI came to this Court for relief.
 The Issues Whether the counterfeit US dollar bills came from BPI; Whether BPI exercised due
diligence in handling the withdrawal of the US dollar bills; and Whether BPI is liable for damages.
The Ruling of this Court We deny the petition. BPI failed to exercise due diligence in the transaction
In Spouses Carbonell v. Metropolitan Bank and Trust Company,9 the Court emphasized that the
General Banking Act of 2000 demands of banks the highest standards of integrity and performance.
The Court ruled that banks are under obligation to treat the accounts of their depositors with
meticulous care. The Court ruled that the bank's compliance with this degree of diligence has to be
determined in accordance with the particular circumstances of each case. Since the dollar bills were
handed to Lambayong inside an envelope and in bundles, Lambayong did not check them.
However, as pointed out by the Court of Appeals, BPI could have listed down the serial numbers of
the dollar bills and erased any doubt as to whether the counterfeit bills came from it. While BPI
Greenhills marked the dollar bills with "chapa" to identify that they came from that branch,
Lambayong was not informed of the markings and hence, she could not have checked if all the bills
were marked. BPI insists that there is no law requiring it to list down the serial numbers of the dollar
bills.
However, it is well-settled that the diligence required of banks is more than that of a good father of a
family.12 Banks are required to exercise the highest degree of diligence in its banking transactions.13
In releasing the dollar bills without listing down their serial numbers, BPI failed to exercise the
highest degree of care and diligence required of it. BPI exposed not only its client but also itself to
the situation that led to this case. Had BPI listed down the serial numbers, BPI's presentation of a
copy of such listed serial numbers would establish whether the returned 44 dollar bills came from BPI
or not. We agree with the Court of Appeals that the action of BPI is the proximate cause of the loss
suffered by the spouses Quiaoit.
Proximate cause is defined as the cause which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces injury and without which the result would not have
occurred. BPI cannot pass the burden on the spouses Quiaoit to verify the genuineness of the bills,
even if they did not check or count the dollar bills in their possession while they were abroad.
The Court has also applied the doctrine of last clear chance in banking transactions. In Allied Banking
Corporation v. Bank of the Philippine Islands,15 the Court explained: The doctrine of last clear
chance, stated broadly, is that the negligence of the plaintiff does not preclude a recovery for the
negligence of the defendant where it appears that the defendant, by exercising reasonable care and
prudence, might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff's
negligence.
The doctrine necessarily assumes negligence on the part of the defendant and contributory
negligence on the part of the plaintiff, and does not apply except upon that assumption. Stated
differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages
caused by the supervening negligence of the defendant, who had the last fair chance to prevent the
impending harm by the exercise of due diligence.
Moreover, in situations where the doctrine has been applied, it was defendant's failure to exercise
such ordinary care, having the last clear chance to avoid loss or injury, which was the proximate
cause of the occurrence of such loss or injury.16
As pointed out by the Court of Appeals, BPI had the last clear chance to prove that all the dollar bills
it issued to the spouses Quiaoit were genuine and that the counterfeit bills did not come from it if
only it listed down the serial numbers of the bills. BPI's lapses in processing the transaction fall below
the extraordinary diligence required of it as a banking institution.
Hence, it must bear the consequences of its action. Respondents are entitled to moral damages and
attorney's fees We sustain the award of moral damages to the spouses Quiaoit. In Pilipinas Bank v.
Court of Appeals,17 the Court sustained the award of moral damages and explained that while the
bank's negligence may not have been attended with malice and bad faith, it caused serious anxiety,
embarrassment, and humiliation to respondents.
We apply the same in this case.
In this case, it was established that the spouses Quiaoit suffered serious anxiety, embarrassment,
humiliation, and even threats of being taken to police authorities for using counterfeit bills.
Hence, they are entitled to the moral damages awarded by the trial court and the Court of Appeals.
Nevertheless, we delete the award of exemplary damages since it does not appear that BPI's
negligence was attended with malice and bad faith. We sustain the award of attorney's fees because
the spouses Quiaoit were forced to litigate to protect their rights.
WHEREFORE, we DENY the petition. We AFFIRM the 22 September 2011 Decision and the 29
November 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 94141 with MODIFICATION by
deleting the award of exemplary damages. SO ORDERED.

31. Spouses Francisco Ong, et al. Vs. BPI Family Savings Bank, Inc. G.R. No. 208638.
January 24, 2018
No evidence was ever presented in the lower courts showing that the petitioners defaulted in paying
their amortizations on the term loan prior to their refusal which was mainly grounded on BSA's failure
to release the amount covered by the omnibus line.
Petitioners' continuous payment of amortizations even during the period between January 1997 and
November 1997 (when BSA incurred delay in releasing the omnibus line credit) is inconsistent with
the appellate court's finding that petitioners intended to hide their obligations in the mortgage loan
agreement.
Petitioners' refusal to continue paying was only prompted by BSA's refusal to abide by the terms of
the contract. In the case of Development Bank of the Philippines v. Guariña Agricultural and Realty
Development Corp., the Court ruled that a debtor cannot incur delay unless the creditor has fully
performed its reciprocal obligation, viz.: It is true that loans are often secured by a mortgage
constituted on real or personal property to protect the creditor's interest in case of the default of the
debtor.
By its nature, however, a mortgage remains an accessory contract dependent on the principal
obligation, such that enforcement of the mortgage contract will depend on whether or not there has
been a violation of the principal obligation.
While a creditor and a debtor could regulate the order in which they should comply with their
reciprocal obligations, it is presupposed that in a loan the lender should perform its obligation - the
release of the full loan amount - before it could demand that the borrower repay the loaned amount.
Since the credit facility that BSA extended to petitioners was a credit line total of ₱20,000,000.00, its
refusal to release the balance on the omnibus line prevented full performance of its obligation to
petitioners.
There being no release of the full loan amount, no default could be attributed to petitioners.
In other words, foreclosure was premature.

32. Continental Cement Corporation vs. Asea Brown Boveri, et al. G.R. No. 171660.
October 17, 2011,

Sometime in July 1990, petitioner Continental Cement Corporation (CCC), a corporation engaged in
the business of producing cement, obtained the services of respondents6 Asea Brown Boveri, Inc.
(ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor).
Petitioner and respondent ABB entered into a contract for the repair of petitioner’s Kiln Drive Motor,
evidenced by Purchase Order Nos. 17136-37,33 with the following terms and conditions:
a) Total Price: ₱197,450.00
b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down payment
c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and Twenty
five centavos (₱987.25) per day of delay.
Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to
repair the Kiln Drive Motor; thus, prompting petitioner to sue for damages.
Clause 7 of the General Conditions is not binding on petitioner.
Having breached the contract it entered with petitioner, respondent ABB is liable for damages
pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:
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.
Art. 1170. 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.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
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 non-performance of the obligation.
Petitioner is entitled to penalties under Purchase Order Nos. 17136-37
As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of ₱987.25 per
day from the time of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned
to petitioner.
The installation and testing was done only on March 13, 1991 upon the request of petitioner because
the Kiln was under repair at the time the motor was delivered; hence, the load testing had to be
postponed.
Under Article 1226 of the Civil Code, the penalty clause takes the place of indemnity for damages and
the payment of interests in case of non-compliance with the obligation, unless there is a stipulation to
the contrary. In this case, since there is no stipulation to the contrary, the penalty in the amount of
₱987.25 per day of delay covers all other damages (i.e. production loss, labor cost, and rental of the
crane) claimed by petitioner.
Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in
the instant case, damages and interests may still be recovered on top of the penalty.
Damages claimed must be the natural and probable consequences of the breach, which the parties
have foreseen or could have reasonably foreseen at the time the obligation was constituted. For the
foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental of
the crane.
Respondent Eriksson cannot be made jointly and severally liable for the penalties In sum, we find
petitioner entitled to penalties in the amount of ₱987.25 per day from August 30, 1990 up to January
7, 1991 (131 days) or a total amount of ₱129,329.75 for the delay caused by respondent ABB.
Finally, we impose interest at the rate of six percent (6%) on the total amount due from the date of
filing of the complaint until finality of this Decision. However, from the finality of judgment until full
payment of the total award, the interest rate of twelve percent (12%) shall apply.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and the
Resolution dated February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are hereby
REVERSED and SET ASIDE. Respondent ABB is ORDERED to pay petitioner the amount of
₱129,329.75, with interest at 6% per annum to be computed from the date of the filing of the
complaint until finality of this Decision and 12% per annum thereafter until full payment.

33. G.R. No. 206184 SPOUSES ED DANTE LATONIO AND MARY ANN LATONIO and the
minor ED CHRISTIAN LATONIO, Petitioners vs.MCGEORGE FOOD INDUSTRIES INC.,
CEBU GOLDEN FOODS INDUSTRIES, INC., and TYKE PHILIP LOMIBAO, Respondents

Indeed, it is irresponsible for a mother to entrust the safety, even momentarily, of her eight-month-
old child to a mascot, not to mention a bird mascot in thick leather suit that had no arms to hold the
child and whose diminished ability to see, hear, feel, and move freely was readily apparent.
Moreover, by merely tapping the mascot and saying "papicture ta", Mary Ann Latonio cannot be said
to have "told, informed and instructed the mascot that she was letting the mascot hold the baby
momentarily."
Releasing her grasp of the baby without waiting for any indication that the mascot heard and
understood her is just plain negligence on the part of Mary Ann.
To Our mind, what is more in accord with human experience and dictates of reason is that a diligent
mother would naturally ensure first and foremost the safety of her child before releasing her hold on
him.
Such is not the case here.
Mary Ann Latonio, in placing Ed Christian on a chair and expecting a bird mascot to ensure the child's
safety, utterly failed to observe the degree of diligence expected of her as a mother of an eight-
month- old baby.
Clearly, based on the foregoing, Mary Ann’s negligence was the proximate cause of Ed Christian’s fall
which caused him injury.
Proximate cause is defined as – that cause, which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury, and without which the result would not have
occurred.

Here, it is beyond dispute that the cause of Ed Christian’s fall is traceable to the negligent act of Mary
Ann of leaving him in the "hands" of Lomibao who was wearing the Birdie mascot suit.
We noted that "hands" and "wings" were used interchangeably during the testimonies of the
witnesses, thus, causing confusion. However, it must be stressed that while indeed Lomibao has
hands of his own, at the time of the incident he was wearing the Birdie mascot suit.
Suffice it to say that the Birdie mascot suit have no hands but instead have wings. Lomibao cannot
possibly hold or grasp anything while wearing the thick Birdie mascot suit.
In fact, even if he wanted to hold Ed Christian or anything, he could not possibly do so because he
was wearing the Birdie mascot suit which do not even have hands or fingers to be able to hold or
grasp firmly.
A review of their testimonies would reveal that although we ascribe negligence of defendant Lomibao
we, likewise, unraveled that plaintiff herself was not entirely blameless. Therefore, plaintiff Mary Ann
Latonio was likewise negligent. Why was she negligent can be traced to the fact as established that
she left her eight-month-old baby on top of a chair to the temporary custody of a mascot.
Even if the baby was only left for a few seconds or minutes that could already spell a disaster, in fact,
it really happened. The baby fell from the chair and went straight into the floor head first. Even if she
already informed and told the mascot that she was leaving the baby to his hold she should not have
let go of her grip because as a mother she ought to exercise the commensurate prudence and case.
x x x."23
Thus, all the aforementioned circumstances lead us to no other conclusion than that the proximate
cause of the injury sustained by Ed Christian was due to Mary Ann's own negligence.
WHEREFORE, premises considered, the Decision dated September 28, 2012 and Resolution dated
January 31, 2013 of the Court of Appeals in CA-G.R. CV No. 03079 are hereby AFFIRMED.SO
ORDERED.

COMSAVINGS BANK (NOW GSIS FAMILY BANK), PETITIONER, vs. SPOUSES DANILO AND
ESTRELLA CAPISTRANO, RESPONDENTS. G.R. No. 170942, August 28, 2013:

Based on the provisions, a banking institution like Comsavings Bank is obliged to exercise the highest
degree of diligence as well as high standards of integrity and performance in all its transactions
because its business is imbued with public interest.
There is no question that Comsavings Bank was grossly negligent in its dealings with respondents
because it did not comply with its legal obligation to exercise the required diligence and integrity.
As a banking institution serving as an originator under the UHLP and being the maker of the
certificate of acceptance/completion, it was fully aware that the purpose of the signed certificate was
to affirm that the house had been completely constructed according to the approved plans and
specifications, and that respondents had thereby accepted the delivery of the complete house.
Given the purpose of the certificate, it should have desisted from presenting the certificate to
respondents for their signature without such conditions having been fulfilled.
Its act was irregular per se because it contravened the purpose of the certificate.
Worse, the pre-signing of the certificate was fraudulent because it was thereby enabled to gain in the
process the amount of P17,306.83 in the form of several deductions from the proceeds of the loan on
top of other benefits as an originator bank.
On the other hand, respondents were prejudiced, considering that the construction of the house was
then still incomplete and was ultimately defective.
Instead, the liability of Comsavings Bank towards respondents was based on Article 20 and Article
1170 of the Civil Code, viz:
Article 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
WHEREFORE, we AFFIRM the decision promulgated by the Court of Appeals on November 30, 2005,
subject to the MODIFICATIONS that Comsavings Bank and GCB Builders are further ordered to pay,
jointly and severally, to the Spouses Danilo and Estrella Capistrano the following amounts:
(1) P25,000.00 as temperate damages;
(2) P30,000.00 as attorney’s fees;
(3) interest of 6% per annum on all the amounts of damages reckoned from the finality of this
decision; and
(4) the costs of suit.
SO ORDERED.

GALILEO A. MAGLASANG, doing business under the name GL Enterprises, Petitioner, vs.
NORTHWESTERN INC., UNIVERSITY, Respondent. G.R. No. 188986, March 20, 2013
The CA appreciated that since the parties essentially sought to have an IBS compliant with the CHED
and IMO standards, it was GL Enterprises’ delivery of defective equipment that materially and
substantially breached the contracts. Although the contracts contemplated a completed project to be
evaluated by CHED, Northwestern could not just sit idly by when it was apparent that the
components delivered were substandard.
The CA held that Northwestern only exercised ordinary prudence to prevent the inevitable rejection
of the IBS delivered by GL Enterprises. Likewise, the appellate court disregarded petitioner’s excuse
that the equipment delivered might not have been the components intended to be installed, for it
would be contrary to human experience to deliver equipment from Quezon City to Laoag City with no
intention to use it.
This time, applying Article 1191 of the Civil Code, the CA declared the rescission of the contracts. It
then proceeded to affirm the RTC’s order of mutual restitution. Additionally, the appellate court
granted ₱50,000 to Northwestern by way of attorney’s fees.
XXX
In the case at bar, the parties explicitly agreed that the materials to be delivered must be compliant
with the CHED and IMO standards and must be complete with manuals.
According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as amended by CMO No. 13,
Series of 2005, any simulator used for simulator-based training shall be capable of simulating the
operating capabilities of the shipboard equipment concerned.
Given these conditions, it was thus incumbent upon GL Enterprises to supply the components that
would create an IBS that would effectively facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its responsibility.
As contained in the findings of the CA and the RTC, petitioner supplied substandard equipment when
it delivered components that
(1) were old;
(2) did not have instruction manuals and warranty certificates;
(3) bore indications of being reconditioned machines; and, all told,
(4) might not have met the IMO and CHED standards.
Highlighting the defects of the delivered materials, the CA quoted respondent’s testimonial evidence
as follows:
Evidently, the materials delivered were less likely to pass the CHED standards, because the
navigation system to be installed might not accurately point to the true north; and the steering wheel
delivered was one that came from an automobile, instead of one used in ships.
Even in the instant appeal, GL Enterprises does not refute that the equipment it delivered was
substandard. However, as aptly considered by the CA, respondent could not just "sit still and wait for
such day that its accreditation may not be granted by CHED due to the apparent substandard
equipment installed in the bridge system."
The appellate court correctly emphasized that, by that time, both parties would have incurred more
costs for nothing.
Given that petitioner, without justification, supplied substandard components for the new IBS, it is
thus clear that its violation was not merely incidental, but directly related to the essence of the
agreement pertaining to the installation of an IBS compliant with the CHED and IMO standards.
Consequently, the CA correctly found substantial breach on the part of petitioner.
In contrast, Northwestern’s breach, if any, was characterized by the appellate court as slight or
casual. By way of negative definition, a breach is considered casual if it does not fundamentally
defeat the object of the parties in entering into an agreement. Furthermore, for there to be a breach
to begin with, there must be a "failure, without legal excuse, to perform any promise which forms the
whole or part of the contract."
Here, as discussed, the stoppage of the installation was justified. The action of Northwestern
constituted a legal excuse to prevent the highly possible rejection of the IBS. Hence, just as the CA
concluded, we find that Northwestern exercised ordinary prudence to avert a possible wastage of
time, effort, resources and also of the ₱2.9 million representing the value of the new IBS.
As between the parties, substantial breach can clearly be attributed to GL Enterprises.
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals in CA-G.R. CV No.
88989 is hereby AFFIRMED. SO ORDERED.

ALLIED BANKING CORPORATION, Petitioner, vs. BANK OF THE PHILIPPINE ISLANDS,

Respondents, G.R. No. 188363 February 27, 2013
On October 10, 2002, a check in the amount of ₱1,000,000.00 payable to "Mateo Mgt. Group
International" (MMGI) was presented for deposit and accepted at petitioner's Kawit Branch. The
check, post-dated "Oct. 9, 2003", was drawn against the account of Marciano Silva, Jr. (Silva) with
respondent Bank of the Philippine Islands (BPI) Bel-Air Branch.
Upon receipt, petitioner sent the check for clearing to respondent through the Philippine Clearing
House Corporation (PCHC). The check was cleared by respondent and petitioner credited the account
of MMGI with ₱1,000,000.00. On October 22, 2002, MMGI’s account was closed and all the funds
therein were withdrawn.
A month later, Silva discovered the debit of ₱1,000,000.00 from his account. In response to Silva’s
complaint, respondent credited his account with the aforesaid sum. On March 21, 2003, respondent
returned a photocopy of the check to petitioner for the reason: "Postdated."
Petitioner, however, refused to accept and sent back to respondent a photocopy of the check.
Thereafter, the check, or more accurately, the Charge Slip, was tossed several times from petitioner
to respondent, and back to petitioner, until on May 6, 2003, respondent requested the PCHC to take
custody of the check.
As well established by the records, both petitioner and respondent were admittedly negligent in the
encashment of a check post-dated one year from its presentment.
The doctrine of last clear chance, stated broadly, is that the negligence of the plaintiff does not
preclude a recovery for the negligence of the defendant where it appears that the defendant, by
exercising reasonable care and prudence, might have avoided injurious consequences to the plaintiff
notwithstanding the plaintiff's negligence.22
The antecedent negligence of the plaintiff does not preclude him from recovering damages caused by
the supervening negligence of the defendant, who had the last fair chance to prevent the impending
harm by the exercise of due diligence.24
Moreover, in situations where the doctrine has been applied, it was defendant's failure to exercise
such ordinary care, having the last clear chance to avoid loss or injury, which was the proximate
cause of the occurrence of such loss or injury.25
In this case, the evidence clearly shows that the proximate cause of the unwarranted encashment of
the subject check was the negligence of respondent who cleared a post-dated check sent to it thru
the PCHC clearing facility without observing its own verification procedure. As correctly found by the
PCHC and upheld by the RTC, if only respondent exercised ordinary care in the clearing process, it
could have easily noticed the glaring defect upon seeing the date written on the face of the check
"Oct. 9, 2003".
Respondent could have then promptly returned the check and with the check thus dishonored,
petitioner would have not credited the amount thereof to the payee's account. Thus, notwithstanding
the antecedent negligence of the petitioner in accepting the post-dated check for deposit, it can seek
reimbursement from respondent the amount credited to the payee's account covering the check.
The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise
negligent in not checking its monthly statements of account. Had it done so, the company would
have been alerted to the series of frauds being committed against RMC by its secretary. The damage
would definitely not have ballooned to such an amount if only RMC, particularly Romeo Lipana, had
exercised even a little vigilance in their financial affairs.
This omission by RMC amounts to contributory negligence which shall mitigate the damages that may
be awarded to the private respondent under Article 2179 of the New Civil Code, to wit:
"x x x. When the plaintiff's own negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and proximate
cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the
courts shall mitigate the damages to be awarded."
In view of this, we believe that the demands of substantial justice are satisfied by allocating the
damage on a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court,
except the award of P25,000.00 attorney's fees, shall be borne by private respondent RMC; only the
balance of 60% needs to be paid by the petitioners. Apportionment of damages between parties who
are both negligent was followed in subsequent cases involving banking transactions notwithstanding
the court's finding that one of them had the last clear opportunity to avoid the occurrence of the loss.
In Bank of America NT & SA v. Philippine Racing Club,30 the Court ruled: Verily, petitioner had the
final opportunity to avert the injury that befell the respondent. x x x Petitioner's negligence has been
undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, it must suffer the consequence
of said negligence.
In the interest of fairness, however, we believe it is proper to consider respondent's own negligence
to mitigate petitioner's liability. Article 2179 of the Civil Code provides:
xxxx
Explaining this provision in Lambert v. Heirs of Ray Castillon, the Court held:
"The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his
own injury should not be entitled to recover damages in full but must bear the consequences of his
own negligence. The defendant must thus be held liable only for the damages actually caused by his
negligence. xxx xxx xxx"
xxxx
Following established jurisprudential precedents, we believe the allocation of sixty percent (60%) of
the actual damages involved in this case (represented by the amount of the checks with legal
interest) to petitioner is proper under the premises.
Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own
loss.31(Emphasis supplied)
Petitioner repeatedly harps on respondent's transgression of clearing house rules when the latter
resorted to direct presentment way beyond the reglementary period but glosses over its own
negligent act that clearly fell short of the conduct expected of it as a collecting bank. Petitioner must
bear the consequences of its omission to exercise extraordinary diligence in scrutinizing checks
presented by its depositors.
Assessing the facts and in the light of the cited precedents, the Court thus finds no error committed
by the CA in allocating the resulting loss from the wrongful encashment of the subject check on a 60-
40 ratio.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated March 19, 2009 of
the Court of Appeals in CA-G.R. SP No. 97604 is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Philippine National Bank Vs. Spouses Cheah Chee Chong and Ofelia Camacho
Cheah/Spouses Cheah Chee Chong and Ofelia Camacho Chea Vs. Philippine National
Bank, G.R. Nos. 170865/G.R. No. 170892. April 25, 2012,
Ruling of the Court of Appeals While the CA recognized the spouses Cheah as victims of a scam who
nevertheless have to suffer the consequences of Ofelia’s lack of care and prudence in immediately
trusting a stranger, the appellate court did not hold PNB scot-free. It ruled in its August 22, 2005
Decision,30 viz:
As both parties were equally negligent, it is but right and just that both parties should equally suffer
and shoulder the loss. The scam would not have been possible without the negligence of both
parties. As earlier stated, the complaint of PNB cannot be dismissed because the Cheah spouses were
negligent and Ms. Cheah took an active part in the deposit of the check and the withdrawal of the
subject amounts. On the other hand, the Cheah spouses cannot entirely bear the loss because PNB
allowed her to withdraw without waiting for the clearance of the check.
The remedy of the parties is to go after those who perpetrated, and benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5, Manila, in Civil Case
No. 94-71022, is hereby REVERSED and SET ASIDE and another one entered DECLARING both
parties equally negligent and should suffer and shoulder the loss. Accordingly, PNB is hereby ordered
to credit to the peso and dollar accounts of the Cheah spouses the amount due to them. SO
ORDERED.31
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having a
conversation in the latter’s office when Adelina’s friend, Filipina Tuazon (Filipina), approached her to
ask if she could have Filipina’s check cleared and encashed for a service fee of 2.5%. The check is
Bank of America Check No. 1906 under the account of Alejandria Pineda and Eduardo Rosales and
drawn by Atty. Eduardo Rosales against Bank of America Alhambra Branch in California, USA, with a
face amount of $300,000.00, payable to cash. Because Adelina does not have a dollar account in
which to deposit the check, she asked Ofelia if she could accommodate Filipina’s request since she
has a joint dollar savings account with her Malaysian husband Cheah Chee Chong (Chee Chong)
under Account No. 265-705612-2 with PNB Buendia Branch. Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto Mendiola of
the Loans Department who referred them to PNB Division Chief Alberto Garin (Garin). Garin
discussed with them the process of clearing the subject check and they were told that it normally
takes 15 days.
Assured that the deposit and subsequent clearance of the check is a normal transaction, Ofelia
deposited Filipina’s check. PNB then sent it for clearing through its correspondent bank, Philadelphia
National Bank. Five days later, PNB received a credit advice from Philadelphia National Bank that the
proceeds of the subject check had been temporarily credited to PNB’s account as of November 6,
1992.
On November 16, 1992, Garin called up Ofelia to inform her that the check had already been cleared.
The following day, PNB Buendia Branch, after deducting the bank charges, credited $299,248.37 to
the account of the spouses Cheah. Acting on Adelina’s instruction to withdraw the credited amount,
Ofelia that day personally withdrew $180,000.00. Adelina was able to withdraw the remaining
amount the next day after having been authorized by Ofelia. Filipina received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on November 16,
1992 a SWIFT message from Philadelphia National Bank dated November 13, 1992 with Transaction
Reference Number (TRN) 46506218, informing PNB of the return of the subject check for insufficient
funds. The petitions for review lack merit.
Hence, we affirm the ruling of the CA. ‘PNB’s act of releasing the proceeds of the check prior to the
lapse of the 15-day clearing period was the proximate cause of the loss.
x x x To determine the proximate cause of a controversy, the question that needs to be asked is: If
the event did not happen, would the injury have resulted? If the answer is no, then the event is the
proximate cause.”[34]
Here, while PNB highlights Ofelia’s fault in accommodating a stranger’s check and depositing it to the
bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing
period, an act which contravened established banking rules and practice. It is worthy of notice that
the 15-day clearing period alluded to is construed as 15 banking days.
This Court already held that the payment of the amounts of checks without previously clearing them
with the drawee bank especially so where the drawee bank is a foreign bank and the amounts
involved were large is contrary to normal or ordinary banking practice.[37]
Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being
victimized by bad checks had brought upon itself the injury of losing a significant amount of money.
It bears stressing that “the diligence required of banks is more than that of a Roman pater familias or
a good father of a family. The highest degree of diligence is expected.”[39]
The disregard of its own banking policy amounts to gross negligence, which the law defines as
“negligence characterized by the want of even slight care, acting or omitting to act in a situation
where there is duty to act, not inadvertently but wilfully and intentionally with a conscious
indifference to consequences in so far as other persons may be affected.”[40]
With regard to collection or encashment of checks, suffice it to say that the law imposes on the
collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of
determining their genuineness and regularity. “The collecting bank, being primarily engaged in
banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high
standard of conduct.”[41]
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of
solutio indebiti, which is laid down in Article 2154 of the Civil Code:[42]
Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises. “
[T]he indispensable requisites of the juridical relation known as solutio indebiti, are,
(a) that he who paid was not under obligation to do so; and
(b) that the payment was made by reason of an essential mistake of fact.[43]
In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. In
the first place, the gross negligence of PNB, as earlier discussed, can never be equated with a mere
mistake of fact, which must be something excusable and which requires the exercise of prudence. No
recovery is due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the
bank “Contributory negligence is conduct on the part of the injured party, contributing as a legal
cause to the harm he has suffered, which falls below the standard to which he is required to conform
for his own protection.”[44]
The CA found Ofelia’s credulousness blameworthy.
We agree.
Indeed, Ofelia failed to observe caution in giving her full trust in accommodating a complete stranger
and this led her and her husband to be swindled. Considering that Filipina was not personally known
to her and the amount of the foreign check to be encashed was $300,000.00, a higher degree of care
is expected of Ofelia which she, however, failed to exercise under the circumstances.
Another circumstance which should have goaded Ofelia to be more circumspect in her dealings was
when a bank officer called her up to inform that the Bank of America check has already been cleared
way earlier than the 15-day clearing period.
The fact that the check was cleared after only eight banking days from the time it was deposited or
contrary to what Garin told her that clearing takes 15 days should have already put Ofelia on guard.
She should have first verified the regularity of such hasty clearance considering that if something
goes wrong with the transaction, it is she and her husband who would be put at risk and not the
accommodated party. However, Ofelia chose to ignore the same and instead actively participated in
immediately withdrawing the proceeds of the check.
Thus, we are one with the CA in ruling that Ofelia’s prior consultation with PNB officers is not enough
to totally absolve her of any liability. In the first place, she should have shunned any participation in
that palpably shady transaction. In any case, the complaint against the spouses Cheah could not be
dismissed. As PNB’s client, Ofelia was the one who dealt with PNB and negotiated the check such
that its value was credited in her and her husband’s account.
Being the ones in privity with PNB, the spouses Cheah are therefore the persons who should return
to PNB the money released to them. All told, the Court concurs with the findings of the CA that PNB
and the spouses Cheah are equally negligent and should therefore equally suffer the loss. The two
must both bear the consequences of their mistakes.
WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865 and in
G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and December 21, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby AFFIRMED in toto.

43. COCA-COLA BOTTLERS PHILIPPINES, INC., petitioner, vs. THE HONORABLE COURT
OF APPEALS (Fifth Division) and MS. LYDIA GERONIMO, respondents./G.R. No. 110295 |
1993-10-18
On 7 May 1990, Lydia L. Geronimo, the herein private respondent, filed a complaint for damages
against petitioner with the Regional Trial Court (RTC) of Dagupan City. 1 The case was docketed as
Civil Case No. D-9629. She alleges in her complaint that she was the proprietress of Kindergarten
Wonderland Canteen docketed as located in Dagupan City, an enterprise engaged in the sale of soft
drinks (including Coke and Sprite) and other goods to the students of Kindergarten Wonderland and
to the public; on or about 12 August 1989, some parents of the students complained to her that the
Coke and Sprite soft drinks sold by her contained fiber-like matter and other foreign substances or
particles; he then went over her stock of softdrinks and discovered the presence of some fiber-like
substances in the contents of some unopened Coke bottles and a plastic matter in the contents of an
unopened Sprite bottle; she brought the said bottles to the Regional Health Office of the Department
of Health at San Fernando, La Union, for examination; subsequently, she received a letter from the
Department of Health informing her that the samples she submitted "are adulterated;" as a
consequence of the discovery of the foreign substances in the beverages, her sales of soft drinks
severely plummeted from the usual 10 cases per day to as low as 2 to 3 cases per day resulting in
losses of from P200.00 to P300.00 per day, and not long after that she had to lose shop on 12
December 1989; she became jobless and destitute; she demanded from the petitioner the payment
of damages but was rebuffed by it. She prayed for judgment ordering the petitioner to pay her
P5,000.00 as actual damages, P72,000.00 as compensatory damages, P500,000.00 as moral
damages, P10,000.00 as exemplary damages, the amount equal to 30% of the damages awarded as
attorney's fees, and the costs. 
Petitioner's complaint being one for quasi-delict, and not for breach of warranty as respondent
contends, the applicable prescriptive period is four years.

It should be stressed that the allegations in the complaint plainly show that it is an action or damages
arising from respondent's act of "recklessly and negligently manufacturing adulterated food items
intended to be sold or public consumption" (p. 25, rollo). It is truism in legal procedure that what
determines the nature of an action are the facts alleged in the complaint and those averred as a
defense in the defendant's answer (I Moran 126; Calo v. Roldan, 76 Phil. 445; Alger Electric, Inc. v.
CA, 135 SCRA 340).

Secondly, despite the literal wording of Article 2176 of the Civil code, the existence of contractual
relations between the parties does not absolutely preclude an action by one against the other
for quasi-delict arising from negligence in the performance of a contract.

In Singson v. Court of Appeals (23 SCRA 1117), the Supreme Court ruled:

It has been repeatedly held: that the existence of a contract between the
parties does not bar the commission of a tort by the one against the other
and the consequent recovery of damages therefor
. . . . Thus in Air France vs. Carrascoso, . . . (it was held that) although
the relation between a passenger and a carrier is "contractual both in
origin and in nature the act that breaks the contract may also be a tort.

Significantly, in American jurisprudence, from which Our law on Sales was taken, the
authorities are one in saying that he availability of an action or breach of warranty does
not bar an action for torts in a sale of defective goods. 10

Its motion for the reconsideration of the decision having been denied by the public respondent in its
Resolution of 14 May 1993, 11 the petitioner took his recourse under Rule 45 of the Revised Rules of
Court. It alleges in its petition that:

I.

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE AND REVERSIBLE ERROR

IN RULING THAT ARTICLE 2176, THE GENERAL PROVISION ON QUASI-DELICTS, IS
APPLICABLE IN THIS CASE WHEN THE ALLEGATIONS OF THE COMPLAINT CLEARLY
SHOW THAT PRIVATE RESPONDENT'S CAUSE OF ACTION IS BASEDON BREACH OF A
SELLER'S IMPLIED WARRANTIES UNDER OUR LAW ON SALES.

II.

CORROLARILY, THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE AND

REVERSIBLE ERROR IN OVERRULING PETITIONER'S ARGUMENT THAT PRIVATE
RESPONDENT'S CAUSE OF ACTION HAD PRESCRIBED UNDER ARTICLE 1571 OF THE
CIVIL CODE.

We find no merit in the petition. The public respondent's conclusion that the cause of action in Civil
Case No. D-9629 is found on quasi-delict and that, therefore, pursuant to Article 1146 of the Civil
Code, it prescribes in four (4) years is supported by the allegations in the complaint, more particularly
paragraph 12 thereof, which makes reference to the reckless and negligent manufacture of
"adulterated food items intended to be sold for public consumption."

The vendee's remedies against a vendor with respect to the warranties against hidden defects of or
encumbrances upon the thing sold are not limited to those prescribed in Article 1567 of the Civil Code
which provides:

Art. 1567. In the case of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may
elect between withdrawing from the contract and demanding a proportionate reduction
 of the price, with damages either
case. 13

The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which
case the ordinary rule on obligations shall be applicable. 

Under the law on obligations, responsibility arising from fraud is demandable in all obligations and
any waiver of an action for future fraud is void.

Responsibility arising from negligence is also demandable in any obligation, but such liability may be
regulated by the courts, according to the circumstances. 

Those guilty of fraud, negligence, or delay in the performance of their obligations and those who in
any manner contravene the tenor thereof are liable for damages. 

The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action
based thereon may be brought by the vendee. While it may be true that the pre-existing contract
between the parties may, as a general rule, bar the applicability of the law on quasi-delict, the
liability may itself be deemed to arise from quasi-delict, i.e., the acts which breaks the contract may
also be a quasi-delict. Thus, in Singson vs. Bank of the Philippine Islands, 17 this Court stated:

We have repeatedly held, however, that the existence of a contract between the parties
does not bar the commission of a tort by the one against the other and the consequent
recovery of damages therefor. 18 Indeed, this view has been, in effect, reiterated in a
comparatively recent case. Thus, in Air France vs. Carrascoso, 19 involving an airplane
passenger who, despite hi first-class ticket, had been illegally ousted from his first-class
accommodation and compelled to take a seat in the tourist compartment, was held
entitled to recover damages from the air-carrier, upon the ground of tort on the latter's
part, for, although the relation between the passenger and a carrier is "contractual both
in origin and nature . . . the act that breaks the contract may also be a tort.

Otherwise put, liability for quasi-delict may still exist despite the presence of contractual
relations.

Under American law, the liabilities of a manufacturer or seller of injury-causing products may
be based on negligence, breach of warranty, tort, or other grounds such as fraud, deceit, or
misrepresentation. Quasi-delict, as defined in Article 2176 of the Civil Code, (which is known in
Spanish legal treaties as culpa aquiliana, culpa extra-contractual or cuasi-delitos) is
homologous but not identical to tort under the common law, which includes not only
negligence, but also intentional criminal acts, such as assault and battery, false imprisonment
and deceit

It must be made clear that our affirmance of the decision of the public respondent should by no
means be understood as suggesting that the private respondent's claims for moral damages have
sufficient factual and legal basis.

IN VIEW OF ALL THE FOREGOING, the instant petition is hereby DENIED for lack of merit, with costs
against the petitioner.

SO ORDERED.

SINGSON VS. BANK OF THE PHILIPPINE ISLANDS

this Court stated: "We have repeatedly held, however, that the existence of a contract between the
parties does not bar the commission of a tort by the one against the other and the consequent
recovery of damages therefor.
Air France vs. Carrascoso, involving an airplane passenger who, despite his first-class ticket, had
been illegally ousted from his first-class accommodation and compelled to take a seat in the tourist
compartment, was held entitled to recover damages from the air-carrier, upon the ground of tort on
the latter's part, for, although the relation between the passenger and a carrier is 'contractual both in
origin and nature . . . the act that breaks the contract may also be a tort.'"

Negligence is defined as the failure to observe for the protection of the interests of another person
that degree of care, precaution, and vigilance which the circumstances justly demand, whereby such
other person suffers injury.
Reckless imprudence consists of voluntarily doing or failing to do, without malice, an act from
which material damage results by reason of an inexcusable lack of precaution on the part of the
person performing or failing to perform such act.
The elements of simple negligence are:
(1) that there is lack of precaution on the part of the offender, and
(2) that the damage impending to be caused is not immediate or the danger is not clearly manifest.
Spouses Carbonell v. Metropolitan Bank and Trust Company, the Court emphasized that the General
Banking Act of 2000 demands of banks the highest standards of integrity and performance.

PROFESSIONAL SERVICES, INC., Petitioner, vs. NATIVIDAD and ENRIQUE AGANA,

Respondents., G.R. No. 126297, January 31, 2007
On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical City
Hospital) because of difficulty of bowel movement and bloody anal discharge. After a series of
medical examinations, Dr. Miguel Ampil, petitioner in G.R. No. 127590, diagnosed her to be suffering
from "cancer of the sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the Medical City Hospital, performed
an anterior resection surgery on Natividad. He found that the malignancy in her sigmoid area had
spread on her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained
the consent of Natividad’s husband, Enrique Agana, to permit Dr. Juan Fuentes, respondent in G.R.
No. 126467, to perform hysterectomy on her.
However, the operation appeared to be flawed. In the corresponding Record of Operation dated April
11, 1984, the attending nurses entered these remarks: "sponge count lacking 2 "announced to
surgeon searched (sic) done but to no avail continue for closure." Here, Dr. Ampil did not inform
Natividad about the missing two pieces of gauze. Worse, he even misled her that the pain she was
experiencing was the ordinary consequence of her operation. Had he been more candid, Natividad
could have taken the immediate and appropriate medical remedy to remove the gauzes from her
body. To our mind, what was initially an act of negligence by Dr. Ampil has ripened into a deliberate
wrongful act of deceiving his patient.
This is a clear case of medical malpractice or more appropriately, medical negligence.
To successfully pursue this kind of case, a patient must only prove that a health care provider either
failed to do something which a reasonably prudent health care provider would have done, or that he
did something that a reasonably prudent provider would not have done; and that failure or action
caused injury to the patient.11
Simply put, the elements are duty, breach, injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as gauzes, from Natividad’s body before
closure of the incision. When he failed to do so, it was his duty to inform Natividad about it. Dr. Ampil
breached both duties.
Such breach caused injury to Natividad, necessitating her further examination by American doctors
and another surgery. That Dr. Ampil’s negligence is the proximate cause12 of Natividad’s injury could
be traced from his act of closing the incision despite the information given by the attending nurses
that two pieces of gauze were still missing. That they were later on extracted from Natividad’s vagina
established the causal link between Dr. Ampil’s negligence and the injury. And what further
aggravated such injury was his deliberate concealment of the missing gauzes from the knowledge of
Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the ground
that it is contrary to the doctrine of res ipsa loquitur. According to them, the fact that the two pieces
of gauze were left inside Natividad’s body is a prima facie evidence of Dr. Fuentes’ negligence.
We are not convinced. To our mind, it was this act of ordering the closure of the incision
notwithstanding that two pieces of gauze remained unaccounted for, that caused injury to Natividad’s
body. Clearly, the control and management of the thing which caused the injury was in the hands of
Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se create or
constitute an independent or separate ground of liability, being a mere evidentiary rule.17 In other
words, mere invocation and application of the doctrine does not dispense with the requirement of
proof of negligence.
Here, the negligence was proven to have been committed by Dr. Ampil and not by Dr. Fuentes.
Whether PSI Is Liable for the Negligence of Dr. Ampil In this jurisdiction, the statute governing
liability for negligent acts is Article 2176 of the Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of
respondeat superior, thus:
ART. 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.
xxxxxx
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.
xxxxxx
In our shores, the nature of the relationship between the hospital and the physicians is rendered
inconsequential in view of our categorical pronouncement in Ramos v. Court of Appeals28 that for
purposes of apportioning responsibility in medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their attending and visiting physicians.
This Court held:
"We now discuss the responsibility of the hospital in this particular incident. The unique practice
(among private hospitals) of filling up specialist staff with attending and visiting "consultants," who
are allegedly not hospital employees, presents problems in apportioning responsibility for negligence
in medical malpractice cases. However, the difficulty is more apparent than real. In the first place,
hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their
work within the hospital premises. Doctors who apply for ‘consultant’ slots, visiting or attending, are
required to submit proof of completion of residency, their educational qualifications, generally,
evidence of accreditation by the appropriate board (diplomate), evidence of fellowship in most cases,
and references.
These requirements are carefully scrutinized by members of the hospital administration or by a
review committee set up by the hospital who either accept or reject the application. x x x.
After a physician is accepted, either as a visiting or attending consultant, he is normally required to
attend clinico-pathological conferences, conduct bedside rounds for clerks, interns and residents,
moderate grand rounds and patient audits and perform other tasks and responsibilities, for the
privilege of being able to maintain a clinic in the hospital, and/or for the privilege of admitting
patients into the hospital. In addition to these, the physician’s performance as a specialist is generally
evaluated by a peer review committee on the basis of mortality and morbidity statistics, and feedback
from patients, nurses, interns and residents. A consultant remiss in his duties, or a consultant who
regularly falls short of the minimum standards acceptable to the hospital or its peer review
committee, is normally politely terminated.
In other words, private hospitals, hire, fire and exercise real control over their attending and visiting
‘consultant’ staff. While ‘consultants’ are not, technically employees, x x x, the control exercised, the
hiring, and the right to terminate consultants all fulfill the important hallmarks of an employer-
employee relationship, with the exception of the payment of wages. In assessing whether such a
relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing,
we rule that for the purpose of allocating responsibility in medical negligence cases, an employer-
employee relationship in effect exists between hospitals and their attending and visiting physicians."
But the Ramos pronouncement is not our only basis in sustaining PSI’s liability. Its liability is also
anchored upon the agency principle of apparent authority or agency by estoppel and the doctrine of
corporate negligence which have gained acceptance in the determination of a hospital’s liability for
negligent acts of health professionals. The present case serves as a perfect platform to test the
applicability of these doctrines, thus, enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the "holdingout" theory, or doctrine of
ostensible agency or agency by estoppel, has its origin from the law of agency. It imposes liability,
not as the result of the reality of a contractual relationship, but rather because of the actions of a
principal or an employer in somehow misleading the public into believing that the relationship or the
authority exists.
The concept is essentially one of estoppel and has been explained in this manner: "The principal is
bound by the acts of his agent with the apparent authority which he knowingly permits the agent to
assume, or which he holds the agent out to the public as possessing.
The question in every case is whether the principal has by his voluntary act placed the agent in such
a situation that a person of ordinary prudence, conversant with business usages and the nature of
the particular business, is justified in presuming that such agent has authority to perform the
particular act in question. The applicability of apparent authority in the field of hospital liability was
upheld long time ago in Irving v. Doctor Hospital of Lake Worth, Inc. There, it was explicitly stated
that "there does not appear to be any rational basis for excluding the concept of apparent authority
from the field of hospital liability." Thus, in cases where it can be shown that a hospital, by its
actions, has held out a particular physician as its agent and/or employee and that a patient has
accepted treatment from that physician in the reasonable belief that it is being rendered in behalf of
the hospital, then the hospital will be liable for the physician’s negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869 of the
Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and
specializations of the physicians associated or accredited by it, including those of Dr. Ampil and Dr.
Fuentes. We concur with the Court of Appeals’ conclusion that it "is now estopped from passing all
the blame to the physicians whose names it proudly paraded in the public directory leading the public
to believe that it vouched for their skill and competence." Indeed, PSI’s act is tantamount to holding
out to the public that Medical City Hospital, through its accredited physicians, offers quality health
care services. By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their qualifications,
the hospital created the impression that they were its agents, authorized to perform medical or
surgical services for its patients. As expected, these patients, Natividad being one of them, accepted
the services on the reasonable belief that such were being rendered by the hospital or its employees,
agents, or servants. The trial court correctly pointed out:
xxx
regardless of the education and status in life of the patient, he ought not be burdened with the
defense of absence of employer-employee relationship between the hospital and the independent
physician whose name and competence are certainly certified to the general public by the hospital’s
act of listing him and his specialty in its lobby directory, as in the case herein. The high costs of
today’s medical and health care should at least exact on the hospital greater, if not broader, legal
responsibility for the conduct of treatment and surgery within its facility by its accredited physician or
surgeon, regardless of whether he is independent or employed."
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are capable
of acting only through other individuals, such as physicians. If these accredited physicians do their
job well, the hospital succeeds in its mission of offering quality medical services and thus profits
financially. Logically, where negligence mars the quality of its services, the hospital should not be
allowed to escape liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate negligence or corporate responsibility. One allegation in
the complaint in Civil Case No. Q-43332 for negligence and malpractice is that PSI as owner, operator
and manager of Medical City Hospital, "did not perform the necessary supervision nor exercise
diligent efforts in the supervision of Drs. Ampil and Fuentes and its nursing staff, resident doctors,
and medical interns who assisted Drs. Ampil and Fuentes in the performance of their duties as
surgeons."34 Premised on the doctrine of corporate negligence, the trial court held that PSI is directly
liable for such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of
allocating hospital’s liability for the negligent acts of health practitioners, absent facts to support the
application of respondeat superior or apparent authority. Its formulation proceeds from the judiciary’s
acknowledgment that in these modern times, the duty of providing quality medical service is no
longer the sole prerogative and responsibility of the physician. The modern hospitals have changed
structure. Hospitals now tend to organize a highly professional medical staff whose competence and
performance need to be monitored by the hospitals commensurate with their inherent responsibility
to provide quality medical care.
In the present case, it was duly established that PSI operates the Medical City Hospital for the
purpose and under the concept of providing comprehensive medical services to the public.
Accordingly, it has the duty to exercise reasonable care to protect from harm all patients admitted
into its facility for medical treatment. Unfortunately, PSI failed to perform such duty. The findings of
the trial court are convincing, thus:
xxx
PSI’s liability is traceable to its failure to conduct an investigation of the matter reported in the nota
bene of the count nurse. Such failure established PSI’s part in the dark conspiracy of silence and
concealment about the gauzes. Ethical considerations, if not also legal, dictated the holding of an
immediate inquiry into the events, if not for the benefit of the patient to whom the duty is primarily
owed, then in the interest of arriving at the truth. The Court cannot accept that the medical and the
healing professions, through their members like defendant surgeons, and their institutions like PSI’s
hospital facility, can callously turn their backs on and disregard even a mere probability of mistake or
negligence by refusing or failing to investigate a report of such seriousness as the one in Natividad’s
case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of the
Medical City Hospital’s staff, composed of resident doctors, nurses, and interns. As such, it is
reasonable to conclude that PSI, as the operator of the hospital, has actual or constructive
knowledge of the procedures carried out, particularly the report of the attending nurses that the two
pieces of gauze were missing.
In the amended complaint, the plaintiffs did plead that the operation was performed at the hospital
with its knowledge, aid, and assistance, and that the negligence of the defendants was the proximate
cause of the patient’s injuries. We find that such general allegations of negligence, along with the
evidence produced at the trial of this case, are sufficient to support the hospital’s liability based on
the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it be
emphasized that PSI, apart from a general denial of its responsibility, failed to adduce evidence
showing that it exercised the diligence of a good father of a family in the accreditation and
supervision of the latter. In neglecting to offer such proof, PSI failed to discharge its burden under
the last paragraph of Article 2180 cited earlier, and, therefore, must be adjudged solidarily liable with
Dr. Ampil. Moreover, as we have discussed, PSI is also directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient, the law imposes on
him certain obligations. In order to escape liability, he must possess that reasonable degree of
learning, skill and experience required by his profession. At the same time, he must apply reasonable
care and diligence in the exercise of his skill and the application of his knowledge, and exert his best
judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of Appeals
in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198. Costs against petitioners PSI and Dr. Miguel
Ampil. SO ORDERED.
PHILAM INSURANCE COMPANY, INC., ET AL. VS. COURT OF APPEALS AND D.M.
CONSUNJI, INC., G.R. No. 165413. February 22, 2012,
The appellate court ruled that the falling of the genset was a clear case of accident and, hence, DMCI
could not be held responsible. The falling of the genset to the ground was a clear case of accident
xxx. xxx
[D]efendant-appellant cannot be held responsible for the event which could not be foreseen, or
which though foreseen, was inevitable. The question as to what would constitute the conduct of a
prudent man in a given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case.
Abstract speculations cannot here be of much value but this much can be profitably said:
Reasonable men govern their conduct by the circumstances which are before them or known to
them. They are not, and are not supposed to be, omniscient of the future. Hence, they can be
expected to take care only when there is something before them to suggest or warn of danger.
The speculative assertion of Philam should be supported by specific evidence of the crane’s defects.
Instead, Philam utterly failed to contradict the findings of MASC which made an actual site inspection
to observe the crane used in lifting the genset. In its Survey Certificate, it stated that: "[U]pon close
examination, the crane was observed in actual operation and found to be in satisfactory working
condition." (Emphasis supplied.)
Since Philam failed to convince us of actions that would lay the blame on DMCI, this Court agrees
with the CA that DMCI exercised the necessary care and precaution in lifting the genset. Firstly, a
whole team was involved in transferring the genset. Petitioners did not even question the acts of the
other team members involved in the crane operations. Thirdly, as can be gleaned from the
statements above, Del Pilar stopped turning the controls, and it was only when the swinging stopped
that he performed the next maneuver. All of these acts, as proven by the evidence, showed due
diligence in operating the crane.
In their final effort to reverse the appellate court, petitioners invoked res ipsa loquitur, even if they
never had raised this doctrine before the trial court. According to petitioners, the requisites of res
ipsa loquitur are present in this case.
Had the principle been applied, the burden of proof in establishing due diligence in operating the
crane would have shifted to DMCI. In this case, res ipsa loquitur is not applicable, since there is
direct evidence on the issue of diligence or lack thereof pertaining to the lifting of the genset.
The doctrine is not a rule of substantive law, but merely a mode of proof or a mere procedural
convenience. In any event, res ipsa loquitur merely provides a rebuttable presumption of negligence.
On this, we have already pointed out that the evidence does not prove negligence on the part of
DMCI, and that due diligence on its part has been established.
Hence, it has generally been held that the presumption arising from the doctrine cannot be availed
of, or is overcome when the plaintiff has knowledge and testifies or presents evidence as to the
specific act of negligence that caused the injury complained of; or when there is direct evidence as to
the precise cause of the accident, and with all the attendant facts clearly present.
Finally, neither the presumption nor the doctrine would apply when the circumstances have been so
completely elucidated that no inference of the defendant's liability can reasonably be made, whatever
the source of the evidence. Absent any finding of negligence, we sustain the CA’s findings that DMCI
exercised due diligence; that the event is an accident; and that consequently Philam cannot claim
damages for the damaged genset.
IN VIEW THEREOF, the assailed 28 June 2004 Decision of the Court of Appeals and its 24 September
2004 Resolution are AFFIRMED. The 11 October 2004 Petition for Review filed by Philam Insurance
Company, Inc. and American Home Insurance Corporation is hereby denied for lack of merit.

Philippine Bank of Commerce v. Court of Appeals

The Consolidated Bank & Trust Corporation v. Court of Appeals,25 where the bank's negligence is the
proximate cause of the loss and the depositor is guilty of contributory negligence, we allocated the
damages between the bank and the depositor on a 60-40 ratio.

ALFREDO RODILLAS Y BONDOC, petitioner vs. THE HONORABLE SANDIGANBAYAN and

THE PEOPLE OF THE PHILIPPINES, respondents. , G.R. No. L-58652 May 20, 1988
Petitioner's negligence resulting in the escape of detention prisoner Zenaida Andres. Considering that
the city jail was only a kilometer away and it was only 11:30 a.m., it would not have been inhuman
for the petitioner to deny the prisoner's request to first take lunch.
Neither would it have been inhuman if he cleared the toilet of female occupants and checked all
possible exists first and if he did not allow the lady companion to go with Zenaida Andres to the
comfort room.
These human considerations, however, are immaterial because the fact remains that as a police
officer, he should have exercised utmost diligence in the performance of his duty.
It is high time that the courts should take strict measures against law officers to whom have been
entrusted the custody and detention of prisoners, whether detention prisoners or prisoners serving
sentence.
Laxity and negligence in the performance of their duties resulting in the mysterious escapes of
notorious criminals have become common news items, involving as it does the suspicion that
monetary considerations may have entered into the arrangements which led to the successful escape
of such notorious criminals even from military custody.
No quarters should be extended to such kind of law officers who, deliberately or otherwise, fail to live
up to the standard required of their duties, thus directly contributing not only to the clogging of
judicial dockets but also to the inevitable deterioration of peace and order.

SULPICIO LINES, INC., PETITIONER, VS. NAPOLEON60SESANTE, NOW SUBSTITUTED BY

MARIBEL ATILANO, KRISTEN MARIE, CHRISTIAN IONE, KENNETH KERRN AND KARISNA
KATE, ALL SURNAMED SESANTE, RESPONDENTS., G.R. No. 172682 | 2016-07-27
A contract of carriage generates a relation attended with public duty, neglect or malfeasance of the
carrier's employees and gives ground for an action for damages.19 Sesante's claim against the
petitioner involved his personal injury caused by the breach of the contract of carriage.
II The petitioner is liable for breach of contract of carriage Article 1759 of the Civil Code does not
establish a presumption of negligence because it explicitly makes the common carrier liable in the
event of death or injury to passengers due to the negligence or fault of the common carrier's
employees. It reads:
Article 1759. Common carriers are liable for the death or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common earners.
This liability of the common carriers does not cease upon proof that they exercised all the diligence of
a good father of a family in the selection and supervision of their employees.
The liability of common carriers under Article 1759 is demanded by the duty of extraordinary
diligence required of common carriers in safely carrying their passengers.
On the other hand, Article 1756 of the Civil Code lays down the presumption of negligence against
the common carrier in the event of death or injury of its passenger, viz.:
Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as prescribed in Articles 1733 and 1755.
Clearly, the trial court is not required to make an express finding of the common carrier's fault or
negligence. Even the mere proof of injury relieves the passengers from establishing the fault or
negligence of the carrier or its employees.
The presumption of negligence applies so long as there is evidence showing that:
(a) a contract exists between the passenger and the common carrier; and
(b) the injury or death took place during the existence of such contract.
In such event, the burden shifts to the common carrier to prove its observance of extraordinary
diligence, and that an unforeseen event or force majeure had caused the injury.
Sesante sustained injuries due to the buffeting by the waves and consequent sinking of M/V Princess
of the Orient where he was a passenger. To exculpate itself from liability, the common carrier
vouched for the seaworthiness of M/V Princess of the Orient, and referred to the BMI report to the
effect that the severe weather condition - a force majeure – had brought about the sinking of the
vessel.
The petitioner was directly liable to Sesante and his heirs. A common carrier may be relieved of any
liability arising from a fortuitous event pursuant to Article 1174 of the Civil Code. But while it may
free a common carrier from liability, the provision still requires exclusion of human agency from the
cause of injury or loss.
Else stated, for a common carrier to be absolved from liability in case of force majeure, it is not
enough that the accident was caused by a fortuitous event. The common carrier must still prove that
it did not contribute to the occurrence of the incident due to its own or its employees' negligence.
We explained in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc.,28 as follows:
In order to be considered a fortuitous event, however,
(1) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply
with his obligation, must be independent of human will;
(2) it must be impossible to foresee the event which constitute the caso fortuito, or if it can be
foreseen it must be impossible to avoid;
(3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in
any manner; and
(4) the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.
[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to be excluded from creating or entering into
the cause of the mischief. When the effect is found to be in part the result of the participation of
man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God. (bold underscoring supplied for
emphasis)
The petitioner has attributed the sinking of the vessel to the storm notwithstanding its position on the
seaworthiness of M/V Princess of the Orient.
WHEREFORE, the Court AFFIRMS the decision promulgated on June 27, 2005 with the
MODIFICATIONS that: (a) the amount of moral damages is fixed at ₱l,000,000.00; (b) the amount of
₱l,000,000.00 is granted as exemplary damages; and (c) the sum of ₱l20,000.00 is allowed as
temperate damages, all to be paid to the heirs of the late Napoleon Sesante. In addition, all the
amounts hereby awarded shall earn interest of 6% per annum from the finality of this decision until
fully paid. Costs of suit to be paid by the petitioner. SO ORDERED.

G.R. No. 183794, June 13, 2016 SPOUSES JAIME AND MATILDE POON, Petitioners, v.
PRIME SAVINGS BANK REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION AS STATUTORY LIQUIDATOR, Respondent.
Respondent posits that it should be released from its contract with petitioners, because the closure of
its business upon the BSP's order constituted a fortuitous event as the Court held in Provident
Savings Bank. Moreover, respondent was partly accountable for the closure of its banking business.
It cannot be said, then, that the closure of its business was independent of its will as in the case of
Provident Savings Bank. The legal effect is analogous to that created by contributory negligence in
quasi-delict actions. The period during which the bank cannot do business due to insolvency is not a
fortuitous event, unless it is shown that the government's action to place a bank under receivership
or liquidation proceedings is tainted with arbitrariness, or that the regulatory body has acted without
jurisdiction.
As an alternative justification for its premature termination of the Contract, respondent lessee
invokes the doctrine of unforeseen event under Article 1267 of the Civil Code, which provides:
 Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole or in part.
The theory of rebus sic stantibus in public international law is often cited as the basis of the above
article. Under this theory, the parties stipulate in light of certain prevailing conditions, and the theory
can be made to apply when these conditions cease to exist.
The Court, however, has once cautioned that Article 1267 is not an absolute application of the
principle of rebus sic stantibus, otherwise, it would endanger the security of contractual relations.
After all, parties to a contract are presumed to have assumed the risks of unfavorable developments.
It is only in absolutely exceptional changes of circumstance, therefore, that equity demands
assistance for the debtor.
Tagaytay Realty Co., Inc. v. Gacutan lays down the requisites for the application of Article 1267, as
follows:
1. The event or change in circumstance could not have been foreseen at the time of the execution of
the contract.
2. It makes the performance of the contract extremely difficult but not impossible.
3. It must not be due to the act of any of the parties.
4. The contract is for a future prestation. The difficulty of performance should be such that the party
seeking to be released from a contractual obligation would be placed at a disadvantage by the
unforeseen event.
Mere inconvenience, unexpected impediments, increased expenses, or even pecuniary inability to
fulfil an engagement, will not relieve the obligor from an undertaking that it has knowingly and freely
contracted. The law speaks of "service." This term should be understood as referring to the
performance of an obligation or a prestation.
A prestation is the object of the contract; i.e., it is the conduct (to give, to do or not to do) required
of the parties. In a reciprocal contract such as the lease in this case, one obligation of respondent as
the lessee was to pay the agreed rents for the whole contract period. It would be hard-pressed to
complete the lease term since it was already out of business only three and a half years into the 10-
year contract period. Without a doubt, the second and the fourth requisites mentioned above are
present in this case.
The first and the third requisites, however, are lacking.
It must be noted that the lease agreement was for 10 years. As shown by the unrebutted testimony
of Jaime Poon during trial, the parties had actually considered the possibility of a deterioration or loss
of respondent's business within that period.

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. PEDRO P.

BUENAVENTURA, Respondent., G.R. No. 176479, October 6, 2010
WHEREFORE, judgment is rendered:
1. Declaring the foreclosure sale of the plaintiff’s (respondent’s) property covered by Transfer
Certificate of Title No. 39234 of the Registry of Deeds of Quezon City conducted on May 25, 1999 by
notary public ATTY. SATURNINO M. BASCONCILLO, and the resulting certificate of sale issued by said
notary public on May 27, 1999 null and void and of no effect; and
2. Ordering RIZAL COMMERCIAL BANKING CORPORATION to pay to the plaintiff ₱100,000.00 as
moral damages; ₱50,000.00 as exemplary damages; ₱70,000.00 as actual damages; and the costs of
suit; and
3. Dismissing the complaint as against ATTY. SATURNINO M. BASCONCILLO and the REGISTRAR OF
DEEDS OF QUEZON CITY. SO ORDERED.
The RTC found that respondent made regular payments of the monthly amortizations as they fell
due, as evidenced by his passbooks and the various deposit slips acknowledged by RCBC. The RTC
also found that RCBC’s own computer-generated amortization schedule showed that no balance was
due respondent after his last payment on March 27, 2000. RCBC filed a motion for reconsideration.
It was denied in a resolution9 dated February 11, 2004. RCBC then appealed to the CA. In the
assailed November 21, 2006 Decision,10 the CA affirmed the RTC’s decision with modification,
deleting the award of moral and exemplary damages. The CA ruled that the foreclosure sale was
premature.
It held that respondent made valid and sufficient payments on his loan obligation. It found
respondent’s evidence as sufficient proof to negate default on his part in paying the monthly
amortizations. It noted that sometime in September 1996, RCBC sent respondent a letter informing
the latter of past due accounts since January 27, 1996, which would warrant the application of the
acceleration clause.
The CA, however, deemed the same to have been "cured" by a subsequent Amortization Schedule
given by the bank to respondent stating that, as of March 27, 2000, he no longer had an unpaid
balance on his loan. The CA said this clearly suggests the uninterrupted receipt by RCBC of the
installments, thus, negating the claim that respondent was in default. It also noted respondent’s
evidence (his passbooks) which indicated that he had sufficient funds to cover the remaining balance
of his loan at the time of the foreclosure sale.
Moreover, the CA said that based on the term of the loan (April 27, 1995 to March 27, 2000), the
loan was not yet due and demandable at the time of the foreclosure. On the other hand, the CA
found the award of moral and exemplary damages unwarranted. It held that since respondent
irregularly paid his monthly amortizations, RCBC did not act maliciously and in bad faith when it
initiated the foreclosure proceedings.
RCBC moved for reconsideration of the Decision, but it was denied in a Resolution dated January 30,
2007. At the time of foreclosure – April 1999 – respondent’s savings account deposits showed a
balance of ₱852,913.26 This was more than enough to cover whatever amortizations were due from
him at that time. Moreover, the Amortization Schedule shows that, as of April 27, 1999, respondent’s
loan account with the bank totaled only ₱269,023.38.
The same schedule shows that, by March 27, 2000, he had "0.00" balance left to pay, meaning he
had paid his loan in full. In a real estate mortgage, when the principal obligation is not paid when
due, the mortgagee has the right to foreclose on the mortgage, to have the property seized and sold,
and to apply the proceeds to the obligation. RCBC’s own Amortization Schedule readily shows the
applicability of Article 1176 of the Civil Code, which states:
Art. 1176. The receipt of the principal by the creditor, without reservation with respect to the
interest, shall give rise to the presumption that the said interest has been paid.
The receipt of a later installment of a debt without reservation as to prior installments, shall likewise
raise the presumption that such installments have been paid. Respondent’s passbooks indicate that
RCBC continued to receive his payments even after it made demands for him to pay his past due
accounts, and even after the auction sale. RCBC cannot deny receipt of the payments, even when it
claims that the deposits were "not withdrawn." It is not respondent’s fault that RCBC did not
withdraw the money he deposited.
This bolsters the conclusion of the CA that respondent had no unpaid installments and was not in
default as would warrant the application of the acceleration clause and the subsequent foreclosure
and auction sale of the property.
WHEREFORE, the foregoing premises considered, the petition is DENIED. The Decision dated
November 21, 2006 and the Resolution dated January 30, 2007 of the Court of Appeals in CA-G.R. CV
No. 82079 are hereby AFFIRMED.
ANCHOR SAVINGS BANK (FORMERLY ANCHOR FINANCE AND INVESTMENT
CORPORATION), Petitioner, vs. HENRY H. FURIGAY, GELINDA C. FURIGAY, HERRIETTE C.
FURIGAY and HEGEM C. FURIGAY, Respondents. G.R. No. 191178, March 13, 2013,
In relation to an action for rescission, it should be noted that the remedy of rescission is subsidiary in
nature; it cannot be instituted except when the party suffering damage has no other legal means to
obtain reparation for the same.
Article 1177 of the New Civil Code provides:
The creditors, after having pursued the property in possession of the debtor to satisfy their claims,
may exercise all the rights and bring all the actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn the actions which the debtor may have done
to defraud them. (Emphasis added)
Consequently, following the subsidiary nature of the remedy of rescission, a creditor would have a
cause of action to bring an action for rescission, if it is alleged that the following successive measures
have already been taken:
(1) exhaust the properties of the debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from execution;
(2) exercise all the rights and actions of the debtor, save those personal to him (accion
subrogatoria); and
(3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).
With respect to an accion pauliana, it is required that the ultimate facts constituting the following
requisites must all be alleged in the complaint, viz.:
1) That the plaintiff asking for rescission, has credit prior to the alienation, although demandable
later;
2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third
person;
3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of
the conveyance to the third person;
4) That act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by onerous title, has been an
accomplice in the fraud.
A cursory reading of the allegations of ASB’s complaint would show that it failed to allege the
ultimate facts constituting its cause of action and the prerequisites that must be complied before the
same may be instituted. ASB, without availing of the first and second remedies, that is, exhausting
the properties of CTS, Henry H. Furigay and Genilda C. Furigay or their transmissible rights and
actions, simply undertook the third measure and filed an action for annulment of the donation. This
cannot be done.

CALTEX (PHILIPPINES), INC. VS. PNOC SHIPPING AND TRANSPORT CORPORATION. G.R.
NO. 150711. AUGUST 10, 2006,
On 6 July 1979, PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into an Agreement
of Assumption of Obligations ("Agreement").
The Agreement provides that PSTC shall assume all the obligations of LUSTEVECO with respect to
the claims enumerated in Annexes "A" and "B" ("Annexes") of the Agreement.
PSTC cannot repudiate its commitment to assume the obligations after taking over the assets for that
will amount to defrauding the creditors of LUSTEVECO.
Alvarez vs. IAC, 185 SCRA 8- In American jurisprudence, "(W)here acts stipulated in a contract
require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment,
discretion, integrity, or other personal qualification of one or both parties(STAGESJID-O), the
agreement is of a personal nature, and terminates on the death of the party who is required to
render such service."

G.R. No. 112127 July 17, 1995, CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT
OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ,
REDAN LOPEZ AND REMARENE LOPEZ, respondents.
A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez,
Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a
valuable consideration which is considered the equivalent of the donation itself, e.g., when a
donation imposes a burden equivalent to the value of the donation.
Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an
obligation upon the latter to establish a medical college thereon, the donation must be for an onerous
consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition.
Thus, when a person donates land to another on the condition that the latter would build upon the
land a school, the condition imposed was not a condition precedent or a suspensive condition but a
resolutory one.
It is not correct to say that the schoolhouse had to be constructed before the donation became
effective, that is, before the donee could become the owner of the land, otherwise, it would be
invading the property rights of the donor. The donation had to be valid before the fulfillment of the
condition. If there was no fulfillment or compliance with the condition, such as what obtains in the
instant case, the donation may now be revoked and all rights which the donee may have acquired
under it shall be deemed lost and extinguished. The condition imposed by the donor, i.e., the building
of a medical school upon the land donated, depended upon the exclusive will of the donee as to
when this condition shall be fulfilled.
When petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the
time within which the condition should be fulfilled depended upon the exclusive will of the petitioner,
it has been held that its absolute acceptance and the acknowledgment of its obligation provided in
the deed of donation were sufficient to prevent the statute of limitations from barring the action of
private respondents upon the original contract which was the deed of donation. Moreover, the time
from which the cause of action accrued for the revocation of the donation and recovery of the
property donated cannot be specifically determined in the instant case.
A cause of action arises when that which should have been done is not done, or that which should
not have been done is done. In cases where there is no special provision for such computation,
recourse must be had to the rule that the period must be counted from the day on which the
corresponding action could have been instituted. It is the legal possibility of bringing the action which
determines the starting point for the computation of the period.
In this case, the starting point begins with the expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the donor. Thus, when the obligation does not
fix a period but from its nature and circumstances it can be inferred that a period was intended, the
general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix
the duration thereof because the fulfillment of the obligation itself cannot be demanded until after
the court has fixed the period for compliance therewith and such period has arrived.
This general rule however cannot be applied considering the different set of circumstances existing in
the instant case. More than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid.
But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of
the obligation when such procedure would be a mere technicality and formality and would serve no
purpose than to delay or lead to an unnecessary and expensive multiplication of suits.
Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is
incumbent upon him, the obligee may seek rescission and the court shall decree the same unless
there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to
determine the period of the compliance, there is no more obstacle for the court to decree the
rescission claimed. Finally, since the questioned deed of donation herein is basically a gratuitous one,
doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of
the least transmission of rights and interests.
Records are clear and facts are undisputed that since the execution of the deed of donation up to the
time of filing of the instant action, petitioner has failed to comply with its obligation as donee.
Petitioner has slept on its obligation for an unreasonable length of time.
Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all
purposes, revoked so that petitioner as donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is
REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1
of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty
(30) days from the finality of this judgment.

RAYMUNDO S. DE LEON VS. REPUBLIC OF THE PHILIPPINES G.R. NO. 170405. FEBRUARY
2, 2010
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith. (emphasis supplied)
This provision clearly states that the rules on double or multiple sales apply only to purchasers in
good faith. Needless to say, it disqualifies any purchaser in bad faith. A purchaser in good faith is one
who buys the property of another without notice that some other person has a right to, or an interest
in, such property and pays a full and fair price for the same at the time of such purchase, or before
he has notice of some other person’s claim or interest in the property.21
The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and
payment in full of the fair price at the time of the sale or prior to having notice of any defect in the
seller’s title. Was respondent a purchaser in good faith? Yes. Respondent purchased the properties,
knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with
petitioner, respondent had the obligation to assume the balance of petitioner’s outstanding obligation
to RSLAI.
Consequently, respondent informed RSLAI of the sale and of her assumption of petitioner’s
obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back
her certificates of title, petitioner himself rendered respondent’s obligation to assume petitioner’s
indebtedness to RSLAI impossible to perform.
For purposes, therefore, of determining whether respondent was a purchaser in good faith, she is
deemed to have fully complied with the condition of the payment of the remainder of the purchase
price. Respondent was not aware of any interest in or a claim on the properties other than the
mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from
petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good
faith. Hence, the rules on double sale are applicable.
Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties
with the registrar of deeds, the one who took prior possession of the properties shall be the lawful
owner thereof.
In this instance, petitioner delivered the properties to respondent when he executed the notarized
deed and handed over to respondent the keys to the properties. For this reason, respondent took
actual possession and exercised control thereof by making repairs and improvements thereon.
Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the
lawful owner of the properties. Nonetheless, while the condition as to the payment of the balance of
the purchase price was deemed fulfilled, respondent’s obligation to pay it subsisted. Otherwise, she
would be unjustly enriched at the expense of petitioner.
Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because
the provisions, terms and conditions of the contract constitute the law between the parties.
Moreover, the deed itself provided that the assumption of mortgage "was without any further cost
whatsoever." Petitioner, on the other hand, must deliver the certificates of title to respondent.
WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals
in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T.
Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing the balance of the
purchase price as provided in their March 10, 1993 agreement.

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY, Petitioner,- versus - BENJAMIN

TUDTUD, BIENVENIDO TUDTUD, DAVID TUDTUD, JUSTINIANO BORGA, JOSE BORGA, and
FE DEL ROSARIO, represented by LYDIA ADLAWAN, Attorney-in-fact, Respondents. G.R.
No. 174012 Promulgated: November 14, 2008
The rights and duties between the MCIAA and respondents are governed by Article 1190 of the Civil
Code which provides: When the conditions have for their purpose the extinguishment of an obligation
to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have
received. In case of the loss, deterioration, or improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding article [Article 1189] shall be applied to the
party who is bound to return.
xxxx
While the MCIAA is obliged to reconvey Lot No. 988 to respondents, respondents must return to the
MCIAA what they received as just compensation for the expropriation of Lot No. 988, plus legal
interest to be computed from default, which in this case runs from the time the MCIAA complies with
its obligation to the respondents.
Respondents must likewise pay the MCIAA the necessary expenses it may have incurred in sustaining
Lot No. 988 and the monetary value of its services in managing it to the extent that respondents
were benefited thereby. Following Article 1187 of the Civil Code, the MCIAA may keep whatever
income or fruits it may have obtained from Lot No. 988, and respondents need not account for the
interests that the amounts they received as just compensation may have earned in the meantime.
In accordance with the earlier-quoted Article 1190 of the Civil Code vis--vis Article 1189 which
provides that [i]f a thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor x x x, respondents, as creditors, do not have to settle as part of the process of
restitution the appreciation in value of Lot 988 which is a natural consequence of nature and time.
WHEREFORE, the petition is, in light of the foregoing disquisition, DENIED. The May 8, 2006 Decision
of the Court of Appeals affirming that of Branch 20 of the Cebu City Regional Trial Court is AFFIRMED
with MODIFICATION as follows:
1. Respondents are ORDERED to return to the MCIAA the just compensation they received for the
expropriation of Lot No. 988 plus legal interest in the case of default, to be computed from the time
the MCIAA complies with its obligation to reconvey Lot No. 988 to them;
2. Respondents are ORDERED to pay the MCIAA the necessary expenses it incurred in sustaining Lot
No. 988 and the monetary value of its services to the extent that respondents were benefited
thereby;
3. The MCIAA is ENTITLED to keep whatever fruits and income it may have obtained from Lot No.
988; and 4. Respondents are also ENTITLED to keep whatever interests the amounts they received
as just compensation may have earned in the meantime, as well as the appreciation in value of Lot
No. 988 which is a natural consequence of nature and time; In light of the foregoing modifications,
the case is REMANDED to Branch 20 the Regional Trial Court of Cebu City only for the purpose of
receiving evidence on the amounts that respondents will have to pay to the MCIAA in accordance
with this Courts decision.

Article 1660. If a dwelling place or any other building intended for human habitation is in such a
condition that its use brings imminent and serious danger to life or health, the lessee may terminate
the lease at once by notifying the lessor, even if at the time the contract was perfected the former
knew of the dangerous condition or waived the right to rescind the lease on account of this condition.
–
------------------------------------------------------------------------
Immaculate Conception Academy, et al. vs. AMA Computer College, Inc., G.R. No. 173575. February
2, 2011
Article 1660 is evidently intended to protect human lives. If ICA’s building was structurally defective
and in danger of crashing down during an earthquake or after it is made to bear the load of a crowd
of students, AMA had no right to waive those defects. It can rescind the lease contract under Article
1660.
But this assumes that the defects were irremediable and that the parties had no agreement for
rectifying them. As pointed out above, the lease contract implicitly gave ICA the option to repair
structural defects at its expense. If that had been done as the contract provides, the risk to human
lives would have been removed and the right to rescind, rendered irrelevant.
In any event, the fact is that the local building official found ICA’s building structurally defective and
unsafe. Such finding is presumably true. For this reason, ICA has no justification for keeping AMA’s
deposit and advance rentals. Still, the Court holds that AMA is not entitled to recover more than the
return of its deposit and advance rental considering that, contrary to AMA’s claim, ICA acted in good
faith and did not mislead it about the condition of the building.

G.R. No. 208845, February 03, 2020 ] ALLAN MAÑAS, JOINED BY WIFE LENA ISABELLE Y.
MAÑAS, PETITIONERS, V. ROSALINA ROCA NICOLASORA, JANET NICOLASORA SALVA,
ANTHONY NICOLASORA, AND MA. THERESE ROSELLE UY-CUA, RESPONDENTS.
This Court had already ruled that the expiration of the subject Contract of Lease carries with it the
termination of the Plaintiffs' Right of First Refusal. Such being the case, to notify the Plaintiffs of the
defendants' intention to sell the property in question is no longer necessary and has no legal effect;
and a suit instituted in order to compel the latter to allow the former to exercise the said right, states
no cause of action.
In such a case, their continued possession of the leased premises after the end or expiration of the
time fixed in the Contract of Lease, with the acquiescence of the lessor, constitutes an implied
renewal of the lease, not for the period of the original contract, but for the time established in
Articles 1682 and 1687 of the New Civil Code, so that if rentals were stipulated to be paid monthly,
the new lease is deemed to have been renewed from month to month and may be terminated each
month upon demand by the lessor.
On October 23, 2013, this Court required respondents to file their comment. Based on the terms of
the Lease Contract, renewal would be at the option of the lessee. However, petitioners did not
appear to have expressly informed the lessor of their intent to renew. Instead, after the original
Lease Contract had expired, they continued to pay rentals to the lessor. This constitutes an implied
lease contract renewal, as the trial court and the Court of Appeals correctly found. Article 1670 of the
Civil Code states:
ARTICLE 1670. If at the end of the contract the lessee should continue enjoying the thing leased for
fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party
has previously been given, it is understood that there is an implied new lease, not for the period of
the original contract, but for the time established in Articles 1682 and 1687.
The other terms of the original contract shall be revived. In this case, there was a contract of lease
for one (1) year with option to purchase. The contract of lease expired without the private
respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was
an implicit renewal of the contract of lease on a monthly basis.
The other terms of the original contract of lease which are revived in the implied new lease under
Article 1670 of the New Civil Code are only those terms which are germane to the lessee's right of
continued enjoyment of the property leased.
Therefore, an implied new lease does not ipso facto carry with it any implied revival of private
respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the
lessee the option to purchase the leased premises is not deemed incorporated in the impliedly
renewed contract because it is alien to the possession of the lessee. Private respondent's right to
exercise the option to purchase expired with the termination of the original contract of lease for one
year.
The rationale of this Court is that: . . . Necessarily, if the presumed will of the parties refers to the
enjoyment of possession the presumption covers the other terms of the contract related to such
possession, such as the amount of rental, the date when it must be paid, the care of the property,
the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special
agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a
contract of lease.60 (Citations omitted)
Simply put, this Court ruled that implied renewals do not include the option to buy, as it is not
germane to the lessee's continued use of the property.
In this case, petitioners can only invoke the right to ask for the rescission of the contract if their right
to first refusal, as embodied in the original Lease Contract, is included in the implied renewal. Article
1643 of the Civil Code provides:
ARTICLE 1643. In the lease of things, one of the parties binds himself to give to another the
enjoyment of use of a thing for a price certain, and for a period which may be definite or indefinite.
However, no lease for more than ninety-nine years shall be valid.
Based on Article 1643, the lessee's main obligation is to allow the lessee to enjoy the use of the thing
leased. Other contract stipulations unrelated to this—or instance, the right of first refusal—cannot be
presumed included in the implied contract renewal. The law itself limits the terms that are included in
implied renewals. One cannot simply presume that all conditions in the original contract are also
revived; after all, a contract is based on the meeting of the minds between parties.
In Arevalo Gomez Corporation v. Lao Hian Liong: Article 1670 applies only where, before the
expiration of the lease, no negotiations are held between the lessor and the lessee resulting in its
renewal. Where no such talks take place and the lessee is not asked to vacate before the lapse of
fifteen days from the end of the lease, the implication is that the lessor is amenable to its renewal.
The concept of implied renewal is a matter of equity recognized by law. Technically, no contract
between a lessor and a lessee exists from the end date of a lease contract to its renewal. But if there
is no notice to vacate and the lessee remains in possession of the property leased, it would only be
proper that the lessor is still paid for the use and enjoyment of the property.
Thus, implied renewal does not extend to all stipulations. Without any express contract renewal, this
Court cannot presume that both parties agreed to revive all the terms in the previous lease contract.
Dizon v. Court of Appeals finds support in Dizon v. Magsaysay, in which this Court also resolved
whether an implied renewal of a lease contract includes a renewal of the option to purchase. It held:
But whatever doubt there may be on this point is dispelled by paragraph (2) of the contract of lease,
which states that it was renewable for the same period of two years (upon its expiration on April 1,
1951), "con condiciones expresas y specificadas que seran convenidas entre las partes." This
stipulation embodied the agreement of the parties with respect to renewal of the original contract,
and while there was nothing in it which was incompatible with the existence of an implied new lease
from month to month under the conditions laid down in Article 1670 of the Civil Code, such
incompatibility existed with respect to any implied revival of the lessee's preferential right to
purchase, which expired with the termination of the original contract.
On this point the express agreement of the parties should govern, not the legal provision relied upon
by the petitioner. Since the implied renewal of the Lease Contract did not include the renewal of the
right of first refusal, petitioners have no basis for their claim that the property should have been
offered to them before it was sold to respondent Roselle. The Court of Appeals did not err in
affirming the trial court's ruling that petitioners failed to state their cause of action.
WHEREFORE, the Petition is DENIED. The April 17, 2013 Decision of the Court of Appeals in CA G.R.
CV No. 03402 is AFFIRMED. SO ORDERED.

THE WELLEX GROUP, INC., Petitioner, vs. U-LAND AIRLINES, CO., LTD., Respondent. G.R.
No. 167519, January 14, 2015
Article 1191, and rescission under Article 1381 of the Civil Code. Article 1191 of the Civil Code
provides:
ART. 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.
Articles 1380 and 1381, on the other hand, provide an enumeration of rescissible contracts:
ART. 1380. Contracts validly agreed upon may be rescinded in the cases established by law.
ART. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
Article 1383 expressly provides for the subsidiary nature of rescission:
ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
Rescission itself, however, is defined by Article 1385:
ART. 1385. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return whatever he
may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
Gotesco Properties v. Fajardo175 categorically stated that Article 1385 is applicable to Article 1191:
At this juncture, it is noteworthy to point out that rescission does not merely terminate the contract
and release the parties from further obligations to each other, but abrogates the contract from its
inception and restores the parties to their original positions as if no contract has been made.
Consequently, mutual restitution, which entails the return of the benefits that each party may have
received as a result of the contract, is thus required. To be sure, it has been settled that the effects
of rescission as provided for in Article 1385 of the Code are equally applicable to cases under Article
1191, to wit:
xxxx
Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the
parties back to their original status prior to the inception of the contract. Article 1385 of the Civil
Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return whatever he
may be obligated to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. This Court
has consistently ruled that this provision applies to rescission under Article 1191:
[S]ince Article 1385 of the Civil Code expressly and clearly states that “rescission creates the
obligation to return the things which were the object of the contract, together with their fruits, and
the price with its interest,” the Court finds no justification to sustain petitioners’ position that said
Article 1385 does not apply to rescission under Article 1191. x x x
Rescission, as defined by Article 1385, mandates that the parties must return to each other
everything that they may have received as a result of the contract.
This pertains to rescission or resolution under Article 1191, as well as the provisions governing all
forms of rescissible contracts. For Article 1191 to be applicable, however, there must be reciprocal
prestations as distinguished from mutual obligations between or among the parties.
A prestation is the object of an obligation, and it is the conduct required by the parties to do or not to
do, or to give. Parties may be mutually obligated to each other, but the prestations of these
obligations are not necessarily reciprocal. The reciprocal prestations must necessarily emanate from
the same cause that gave rise to the existence of the contract.
This distinction is best illustrated by an established authority in civil law, the late Arturo Tolentino:
This article applies only to reciprocal obligations. It has no application to every case where two
persons are mutually debtor and creditor of each other. There must be reciprocity between them.
Both relations must arise from the same cause, such that one obligation is correlative to the other.
Thus, a person may be the debtor of another by reason of an agency, and his creditor by reason of a
loan. They are mutually obligated, but the obligations are not reciprocal. Reciprocity arises from
identity of cause, and necessarily the two obligations are created at the same time. An obligation is a
juridical necessity to give, to do or not to do (Art. 1156, Civil Code).
The obligation is constituted upon the concurrence of the essential elements thereof, viz:
(a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
(b) the object which is the prestation or conduct, required to be observed (to give, to do or not to
do); and
(c) the subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects. The cause is the vinculum juris or juridical tie that
essentially binds the parties to the obligation.
This linkage between the parties is a binding relation that is the result of their bilateral actions, which
gave rise to the existence of the contract. The failure of one of the parties to comply with its
reciprocal prestation allows the wronged party to seek the remedy of Article 1191. The wronged
party is entitled to rescission or resolution under Article 1191, and even the payment of damages.
It is a principal action precisely because it is a violation of the original reciprocal prestation. Article
1381 and Article 1383, on the other hand, pertain to rescission where creditors or even third persons
not privy to the contract can file an action due to lesion or damage as a result of the contract.
In Ong v. Court of Appeals, this court defined rescission: Rescission, as contemplated in Articles
1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting parties and even
to third persons, to secure the reparation of damages caused to them by a contract, even if this
should be valid, by restoration of things to their condition at the moment prior to the celebration of
the contract.
It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to
someone. Ong elaborated on the confusion between “rescission” or resolution under Article 1191 and
rescission under Article 1381: On the other hand, Article 1191 of the New Civil Code refers to
rescission applicable to reciprocal obligations.
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal obligations under
Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article
1383.
When a party seeks the relief of rescission as provided in Article 1381, there is no need for reciprocal
prestations to exist between or among the parties. All that is required is that the contract should be
among those enumerated in Article 1381 for the contract to be considered rescissible. Unlike Article
1191, rescission under Article 1381 must be a subsidiary action because of Article 1383.
The rescission on account of breach of stipulations is not predicated on injury to economic interests
of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between
the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder is subordinated to anything other than the
culpable breach of his obligations by the defendant.
This rescission is a principal action retaliatory in character, it being unjust that a party be held bound
to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: “Non
servanti fidem, non est fides servanda.” Hence, the reparation of damages for the breach is purely
secondary. On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of
action is subordinated to the existence of that prejudice, because it is the raison detre as well as the
measure of the right to rescind.
Hence, where the defendant makes good the damages caused, the action cannot be maintained or
continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is
limited to the cases of rescission for lesión enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.
Rescission or resolution under Article 1191, therefore, is a principal action that is immediately
available to the party at the time that the reciprocal prestation was breached. Article 1383 mandating
that rescission be deemed a subsidiary action cannot be applicable to rescission or resolution under
Article 1191.
Thus, respondent U-Land correctly sought the principal relief of rescission or resolution under Article
1191. The obligations of the parties gave rise to reciprocal prestations, which arose from the same
cause: the desire of both parties to enter into a share purchase agreement that would allow both
parties to expand their respective airline operations in the Philippines and other neighboring
countries.

SPS ALEXANDER AND JULIE LAM VS. KODAK PHILIPPINES, LTD., G.R. NO. 167615.
JANUARY 11, 2016
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter
Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL (Minilab Equipment) in
the amount of P1,796,000.00 per unit, with the following terms: This confirms our verbal agreement
for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with three (3) units Kodak Minilab
System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and
your existing Multicolor photo counter in Cotabato City under the following terms and conditions:. On
January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in Tagum,
Davao Province.
The delivered unit was installed by Noritsu representatives on March 9, 1992. The Lam Spouses
issued postdated checks amounting to P35,000.00 each for 12 months as payment for the first
delivered unit, with the first check due on March 31, 1992. Kodak Philippines, Ltd. canceled the sale
and demanded that the Lam Spouses return the unit it delivered together with its accessories.
The Lam Spouses ignored the demand but also rescinded the contract through the letter dated
November 18, 1992 on account of Kodak Philippines, Ltd.'s failure to deliver the two (2) remaining
Minilab Equipment units. On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for
replevin and/or recovery of sum of money. Rescission under Article 1191 has the effect of mutual
restitution. In Velarde v. Court of Appeals: Rescission abrogates the contract from its inception and
requires a mutual restitution of benefits received.
Rescission creates the obligation to return the object of the contract. It can be carried out only when
the one who demands rescission can return whatever he may be obliged to restore. To rescind is to
declare a contract void at its inception and to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further obligations to each other, but to abrogate it from
the beginning and restore the parties to their relative positions as if no contract has been made. The
Court of Appeals correctly ruled that both parties must be restored to their original situation as far as
practicable, as if the contract was never entered into.
Petitioners must relinquish possession of the delivered Minilab Equipment unit and accessories, while
respondent must return the amount tendered by petitioners as partial payment for the unit received.
Further, respondent cannot claim that the two (2) monthly installments should be offset against the
amount awarded by the Court of Appeals to petitioners because the effect of rescission under Article
1191 is to bring the parties back to their original positions before the contract was entered into.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract.
Accordingly, the initial payment of P800.000 and the corresponding mortgage payments in the
amounts of P27,225, P23.000 and P23.925 (totaling P874,150.00) advanced by petitioners should be
returned by private respondents, lest the latter unjustly enrich themselves at the expense of the
former. (Emphasis supplied)
When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked
because the power to resolve is implied in reciprocal obligations. The right to resolve allows an
injured party to minimize the damages he or she may suffer on account of the other party's failure to
perform what is incumbent upon him or her. When a party fails to comply with his or her obligation,
the other party's right to resolve the contract is triggered. The resolution immediately produces legal
effects if the non-performing party does not question the resolution.
Court intervention only becomes necessary when the party who allegedly failed to comply with his or
her obligation disputes the resolution of the contract. Since both parties in this case have exercised
their right to resolve under Article 1191, there is no need for a judicial decree before the resolution
produces effects.
WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9, 2005 is AFFIRMED
with MODIFICATION. Respondent Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and
Julie Lam: (a) P270,000.00, representing the partial payment made on the Minilab Equipment; (b)
P130,000.00, representing the amount of the generator set, plus legal interest at 12% per annum
from December 1992 until fully paid; (c) P440,000.00 as actual damages; (d) P25,000.00 as moral
damages; (e) P50,000.00 as exemplary damages; and (f) P20,000.00 as attorney's fees. Petitioners
are ordered to return the Kodak Minilab System 22XL unit and its standard accessories to respondent.

ACE FOODS, INC., Petitioner,- versus - MICRO PACIFIC TECHNOLOGIES CO., LTD., 1
Respondent. G.R. No. 200602 Promulgated: DEC 1 I 2013
In a Decision dated October 21, 2011, the CA reversed and set aside the RTC’s ruling, ordering ACE
Foods to pay MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum to be
computed from April 4, 2002, and attorney’s fees amounting to ₱50,000.00. It found that the
agreement between the parties is in the nature of a contract of sale, observing that the said contract
had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn,
delivered the subject products covered by the Invoice Receipt and subsequently installed and
configured them in ACE Foods’s premises.
Thus, considering that MTCL had already complied with its obligation, ACE Foods’s corresponding
obligation arose and was then duty bound to pay the agreed purchase price within thirty (30) days
from March 5, 2002.
 In this light, the CA concluded that it was erroneous for ACE Foods not to pay the purchase price
therefor, despite its receipt of the subject products, because its refusal to pay disregards the very
essence of reciprocity in a contract of sale. The CA also dismissed ACE Foods’s claim regarding
MTCL’s failure to perform its "after delivery services" obligations since the letter-proposal, Purchase
Order and Invoice Receipt do not reflect any agreement to that effect.
Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a Resolution dated
February 8, 2012, hence, this petition. In this case, the Court concurs with the CA that the parties
have agreed to a contract of sale and not to a contract to sell as adjudged by the RTC. Bearing in
mind its consensual nature, a contract of sale had been perfected at the precise moment ACE Foods,
as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s proposal to sell the
subject products in consideration of the purchase price of ?646,464.00. From that point in time, the
reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to
ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor within thirty
(30) days from delivery – already arose and consequently may be demanded. Article 1475 of the Civil
Code makes this clear:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contracts.
At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of
ownership of the subject products as reflected in the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the transaction from a contract of sale into a contract to sell.
Records are bereft of any showing that the said stipulation novated the contract of sale between the
parties which, to repeat, already existed at the precise moment ACE Foods accepted MTCL’s
proposal.
To be sure, 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. In either case, however, 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.
As a final point, it may not be amiss to state that the return of the subject products pursuant to a
rescissory action is neither warranted by ACE Foods’s claims of breach – either with respect to
MTCL’s breach of its purported "after delivery services" obligations or the defective condition of the
products - since such claims were not adequately proven in this case.
The rule is clear: each party must prove his own affirmative allegation; one who asserts the
affirmative of the issue has the burden of presenting at the trial such amount of evidence required by
law to obtain a favorable judgment, which in civil cases, is by preponderance of evidence. This,
however, ACE Foods failed to observe as regards its allegations of breach.
Hence, the same cannot be sustained.
WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and
Resolution dated February 8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are hereby
AFFIRMED.

122. PLANTERS DEVELOPMENT BANK, Petitioner, vs. SPOUSES ERNESTO LOPEZ and
FLORENTINA LOPEZ substituted by JOSEPH WILFRED JOVEN JOSEPH GILBERT JOVEN
and MARLYN JOVEN, Respondents., G.R. No. 186332 October 23, 2013
Planters Bank only committed a slight or casual breach of the contract Planters Bank indeed incurred
in delay by not complying with its obligation to make further loan releases.36 Its refusal to release
the remaining balance, however, was merely a slight or casual breach as shown below. In other
words, its breach was not sufficiently fundamental to defeat the object of the parties in entering into
the loan agreement. The well-settled rule is that rescission will not be permitted for a slight or casual
breach of the contract. The question of whether a breach of contract is substantial depends upon the
attending circumstances.
The factual circumstances of this case lead us to the conclusion that Planters Bank substantially
complied with its obligation. To reiterate, Planters Bank released P3,500,000.00 of the P4,200,000.00
loan. Only the amount of P700,000.00 was not released. This constitutes 16.66% of the entire loan.
Moreover, the progress report dated May 30, 1984 states that 85% of the six-story building was
already completed by the spouses Lopez.38
Even assuming that Planters Bank substantially breached its obligation, the fourth paragraph of
Article 1191 of the Civil Code expressly provides that rescission is without prejudice to the rights of
third persons who have acquired the thing, in accordance with Article 1385 of the Civil Code. In turn,
Article 1385 states that rescission cannot take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
Eds Manufacturing, Inc. Vs. Healthcheck International Inc. , G.R. No. 162802. October 9, 2013
Subject: Rescission (resolution) of contracts under Art 1191 requires a substantial, not just casual,
breach of its terms; A judicial or notarial act is necessary before a valid rescission (or resolution) can
take place; EMI has not rescinded the contract Rescission (resolution) of contracts under Art 1191
requires a substantial, not just casual, breach of its terms
1. Article 1191 of the Civil Code states: “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.”
2. The general rule is that rescission of a contract will not be permitted for a slight or casual breach,
but only for such substantial and fundamental violations as would defeat the very object of the
parties in making the agreement.
The rescission referred to in Article 1191, more appropriately referred to as resolution, is on the
breach of faith by one of the parties which is violative of the reciprocity between them.
3. In the present case, it is apparent that HCI violated its contract with EMI to provide medical
service to its employees in a substantial way.
As aptly found by the CA, the various reports made by the EMI employees from July to August 1998
are living testaments to the gross denial of services to them at a time when the delivery was crucial
to their health and lives. A judicial or notarial act is necessary before a valid rescission (or resolution)
can take place
4. However, although a ground exists to validly rescind the contract between the parties, it appears
that EMI failed to judicially rescind the same.
5. In the absence of a stipulation, a party cannot unilaterally and extrajudicially rescind a contract. A
judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic
rescission has been stipulated. (see Iringan v. Court of Appeals)
6. The right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail
to comply with what is incumbent upon him. But that right must be invoked judicially. Consequently,
even if the right to rescind is made available to the injured party, the obligation is not ipso facto
erased by the failure of the other party to comply with what is incumbent upon him.
The party entitled to rescind should apply to the court for a decree of rescission. The right cannot be
exercised solely on a party’s own judgment that the other committed a breach of the obligation. The
operative act which produces the resolution of the contract is the decree of the court and not the
mere act of the vendor. Since a judicial or notarial act is required by law for a valid rescission to take
place, a letter declaring one's intention to rescind does not operate to validly rescind the contract.
EMI has not rescinded the contract
7. It is evident that EMI had not rescinded the contract at all.
Despite EMI's pronouncement, it failed to surrender the HMO cards of its employees although this
was required by the Agreement, and allowed them to continue using them beyond the date of the
rescission. The in-patient and the out-patient utilization reports submitted by HCI shows entries as
late as March 1999, signifying that EMI employees were availing of the services until the contract
period were almost over.
The continued use by them of their privileges under the contract, with the apparent consent of EMI,
belies any intention to cancel or rescind it, even as they felt that they ought to have received more
than what they got.

ESTELITA VILLAMAR VS. BALBINO MANGAOIL, G.R. NO. 188661. APRIL 11, 2012,
In item no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid to the petitioner
shall be used to pay the mortgagors, Parangan and Lacaden.
While the provision does not expressly impose upon the petitioner the obligation to eject the said
mortgagors, the undertaking is necessarily implied. Cessation of occupancy of the subject property is
logically expected from the mortgagors upon payment by the petitioner of the amounts due to them.
We note that in the demand letter dated September 18, 1998, which was sent by the respondent to
the petitioner, the former lamented that the area is not yet fully cleared of incumbrances as there are
tenants who are not willing to vacate the land without giving them back the amount that they
mortgaged the land.
Further, in the proceedings before the RTC conducted after the complaint for rescission was filed, the
petitioner herself testified that she won the ejectment suit against the mortgagors only last year. The
complaint was filed on September 8, 2002 or more than four years from the execution of the parties'
agreement.
This means that after the lapse of a considerable period of time from the agreement's execution, the
mortgagors remained in possession of the subject property. Notwithstanding the absence of
stipulations in the agreement and absolute deed of sale entered into by Villamar and Mangaoil
expressly indicating the consequences of the former's failure to deliver the physical possession of the
subject property and the certificate of title covering the same, the latter is entitled to demand for the
rescission of their contract pursuant to Article 1191 of the NCC.
We note that the agreement entered into by the petitioner and the respondent only contains three
items specifying the parties' undertakings. In item no. 5, the parties consented to abide with all the
terms and conditions set forth in this agreement and never violate the same. Article 1191 of the NCC
is clear that 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 respondent cannot be deprived of his right
to demand for rescission in view of the petitioners failure to abide with item nos. 2 and 3 of the
agreement.
This remains true notwithstanding the absence of express stipulations in the agreement indicating
the consequences of breaches which the parties may commit. To hold otherwise would render Article
1191 of the NCC as useless. Article 1498 of the NCC generally considers the execution of a public
instrument as constructive delivery by the seller to the buyer of the property subject of a contract of
sale. The case at bar, however, falls among the exceptions to the foregoing rule since a mere
presumptive and not conclusive delivery is created as the respondent failed to take material
possession of the subject property.
Further, even if we were to assume for argument's sake that the agreement entered into by the
contending parties does not require the delivery of the physical possession of the subject property
from the mortgagors to the respondent, still, the petitioner's claim that her execution of an absolute
deed of sale was already sufficient as it already amounted to a constructive delivery of the thing sold
which Article 1498 of the NCC allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor General, we held: When the sale of
real property is made in a public instrument, the execution thereof is equivalent to the delivery of the
thing object of the contract, if from the deed the contrary does not appear or cannot clearly be
inferred. In other words, there is symbolic delivery of the property subject of the sale by the
execution of the public instrument, unless from the express terms of the instrument, or by clear
inference therefrom, this was not the intention of the parties.
Such would be the case, for instance, x x x where the vendor has no control over the thing sold at
the moment of the sale, and, therefore, its material delivery could not have been made.
Stated differently, as a general rule, the execution of a public instrument amounts to a constructive
delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when
mere presumptive and not conclusive delivery is created in cases where the buyer fails to take
material possession of the subject of sale.
A person who does not have actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument. In the case at bar, the RTC and the
CA found that the petitioner failed to deliver to the respondent the possession of the subject property
due to the continued presence and occupation of Parangan and Lacaden.
We find no ample reason to reverse the said findings. Considered in the light of either the agreement
entered into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking
to deliver the subject property to the respondent.
IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February 20, 2009 Decision and
July 8, 2009 Resolution of the Court of Appeals, directing the rescission of the agreement and
absolute deed of sale entered into by Estelita Villamar and Balbino Mangaoil and the return of the
down payment made for the purchase of the subject property, are AFFIRMED.
However, pursuant to our ruling in Eastern Shipping Lines, Inc. v. CA,[31] an interest of 12% per
annum is imposed on the sum of P185,000.00 to be returned to Mangaoil to be computed from the
date of finality of this Decision until full satisfaction thereof. SO ORDERED.

F.F. CRUZ & CO., INC. VS. HR CONSTRUCTION CORP., G.R. No. 187521. March 14, 2012
Validity of HRCC’s Rescission of the Subcontract Agreement Both the CA and the CIAC held that the
work stoppage of HRCC was justified as the same is but an exercise of its right to rescind the
Subcontract Agreement in view of FFCCI’s failure to pay the former’s monthly progress billings.
Further, the CIAC stated that FFCCI could no longer assail the work stoppage of HRCC as it failed to
file any counterclaim against HRCC pursuant to the terms of the Subcontract Agreement.
For its part, FFCCI asserted that the work stoppage of HRCC was not justified and, in any case, its
failure to raise a counterclaim against HRCC for liquidated damages before the CIAC does not amount
to a ratification of the latter’s work stoppage.
The determination of the validity of HRCC’s work stoppage depends on a determination of the
following: first, whether HRCC has the right to extrajudicially rescind the Subcontract Agreement; and
second, whether FFCCI is already barred from disputing the work stoppage of HRCC. HRCC had
waived its right to rescind the Subcontract Agreement.
The right of rescission is statutorily recognized in reciprocal obligations. Article 1191 of the Civil Code
pertinently reads:
Art. 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.
The rescission referred to in this article, more appropriately referred to as resolution is on the breach
of faith by the defendant which is violative of the reciprocity between the parties.
The right to rescind, however, may be waived, expressly or impliedly. While the right to rescind
reciprocal obligations is implied, that is, that such right need not be expressly provided in the
contract, nevertheless the contracting parties may waive the same. Contrary to the respective
dispositions of the CIAC and the CA, we find that HRCC had no right to rescind the Subcontract
Agreement in the guise of a work stoppage, the latter having waived such right.
Apropos is Article 11.2 of the Subcontract Agreement, which reads:
11.2 Effects of Disputes and Continuing Obligations
Notwithstanding any dispute, controversy, differences or arbitration proceedings relating directly or
indirectly to this SUBCONTRACT Agreement and without prejudice to the eventual outcome thereof,
[HRCC] shall at all times proceed with the prompt performance of the Works in accordance with the
directives of FFCCI and this SUBCONTRACT Agreement.
Hence, in spite of the existence of dispute or controversy between the parties during the course of
the Subcontract Agreement, HRCC had agreed to continue the performance of its obligations
pursuant to the Subcontract Agreement.
In view of the provision of the Subcontract Agreement quoted above, HRCC is deemed to have
effectively waived its right to effect extrajudicial rescission of its contract with FFCCI. Accordingly,
HRCC, in the guise of rescinding the Subcontract Agreement, was not justified in implementing a
work stoppage.
The costs of arbitration should be shared by the parties equally. Section 1, Rule 142 of the Rules of
Court provides:
Section 1. Costs ordinarily follow results of suit. – Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course, but the court shall have power, for
special reasons, to adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless
otherwise provided by law.
Although, generally, costs are adjudged against the losing party, courts nevertheless have discretion,
for special reasons, to decree otherwise. Here, considering that the work stoppage of HRCC is not
justified, it is only fitting that both parties should share in the burden of the cost of arbitration
equally. HRCC had a valid reason to institute the complaint against FFCCI in view of the latter’s
failure to pay the full amount of its monthly progress billings.
However, we disagree with the CIAC and the CA that only FFCCI should shoulder the arbitration
costs. The arbitration costs should be shared equally by FFCCI and HRCC in view of the latter’s
unjustified work stoppage.
WHEREFORE, in consideration of the foregoing disquisitions, the Decision dated February 6, 2009
and Resolution dated April 13, 2009 of the Court of Appeals in CA-G.R. SP No. 91860 are hereby
AFFIRMED with MODIFICATION that the arbitration costs shall be shared equally by the parties
herein.

FONTANA RESORT AND COUNTY CLUB, INC. AND RN DEVELOPMENT CORPORATION VS.
SPOUSES ROY S. TAN AND SUSAN C. TAN, G.R. No. 154670. January 30, 2012
Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan bought from petitioner
RN Development Corporation (RNDC) two class D shares of stock in petitioner Fontana Resort and
Country Club, Inc. (FRCCI), worth P387,300.00, enticed by the promises of petitioners sales agents
that petitioner FRCCI would construct a park with first-class leisure facilities in Clark Field, Pampanga,
to be called Fontana Leisure Park (FLP); that FLP would be fully developed and operational by the
first quarter of 1998; and that FRCCI class D shareholders would be admitted to one membership in
the country club, which entitled them to use park facilities and stay at a two-bedroom villa for five (5)
ordinary weekdays and two (2) weekends every year for free.
Two years later, in March 1999, respondents filed before the SEC a Complaint for refund of the
P387,300.00 they spent to purchase FRCCI shares of stock from petitioners. Respondents alleged
that they had been deceived into buying FRCCI shares because of petitioners’ fraudulent
misrepresentations. Construction of FLP turned out to be still unfinished and the policies, rules, and
regulations of the country club were obscure.
The aforequoted allegations in respondents Complaint sufficiently state a cause of action for the
annulment of a voidable contract of sale based on fraud under Article 1390, in relation to Article
1398, of the Civil Code, and/or rescission of a reciprocal obligation under Article 1191, in relation to
Article 1385, of the same Code. Said provisions of the Civil Code are reproduced below:
Article 1390. The following contracts are voidable or annullable, even though there may have been
no damage to the contracting parties:
1. Those where one of the parties is incapable of giving consent to a contract;
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.
Article 1398. An obligation having been annulled, the contracting parties shall restore to each other
the things which have been the subject matter of the contract, with their fruits, and the price with its
interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
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. Article 1385.
Rescission creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to return. Neither shall rescission take
place when the things which are the object of the contract are legally in the possession of third
persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. It does not
matter that respondents, in their Complaint, simply prayed for refund of the purchase price they had
paid for their FRCCI shares,[26] without specifically mentioning the annulment or rescission of the
sale of said shares. The Court of Appeals treated respondents Complaint as one for
annulment/rescission of contract and, accordingly, it did not simply order petitioners to refund to
respondents the purchase price of the FRCCI shares, but also directed respondents to comply with
their correlative obligation of surrendering their certificates of shares of stock to petitioners.
Now the only issue left for us to determine whether or not petitioners committed fraud or defaulted
on their promises as would justify the annulment or rescission of their contract of sale with
respondents requires us to reexamine evidence submitted by the parties and review the factual
findings by the SEC and the Court of Appeals.
There are contradictory findings below as to the existence of fraud: while Hearing Officer Bacalla and
the SEC en banc found that there is fraud on the part of petitioners in selling the FRCCI shares to
respondents, the Court of Appeals found none. There is fraud when one party is induced by the other
to enter into a contract, through and solely because of the latters insidious words or machinations.
But not all forms of fraud can vitiate consent. Under Article 1330, fraud refers to dolo causante or
causal fraud, in which, prior to or simultaneous with the execution of a contract, one party secures
the consent of the other by using deception, without which such consent would not have been given.
Simply stated, the fraud must be the determining cause of the contract, or must have caused the
consent to be given. [T]he general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for his concerns
and that private dealings have been entered into fairly and regularly. One who alleges defect or lack
of valid consent to a contract by reason of fraud or undue influence must establish by full, clear and
convincing evidence such specific acts that vitiated a partys consent, otherwise, the latters presumed
consent to the contract prevails. In this case, respondents have miserably failed to prove how
petitioners employed fraud to induce respondents to buy FRCCI shares. It can only be expected that
petitioners presented the FLP and the country club in the most positive light in order to attract
investor-members.
There is no showing that in their sales talk to respondents, petitioners actually used insidious words
or machinations, without which, respondents would not have bought the FRCCI shares. Respondents
appear to be literate and of above-average means, who may not be so easily deceived into parting
with a substantial amount of money. What is apparent to us is that respondents knowingly and
willingly consented to buying FRCCI shares, but were later on disappointed with the actual FLP
facilities and club membership benefits. Similarly, we find no evidence on record that petitioners
defaulted on any of their obligations that would have called for the rescission of the sale of the FRCCI
shares to respondents.
The right to rescind a contract arises once the other party defaults in the performance of his
obligation. Rescission of a contract will not be permitted for a slight or casual breach, but only such
substantial and fundamental breach as would defeat the very object of the parties in making the
agreement. In the same case as fraud, the burden of establishing the default of petitioners lies upon
respondents, but respondents once more failed to discharge the same.
Respondents decry the alleged arbitrary and unreasonable denial of their request for reservation at
FLP and the obscure and ever-changing rules of the country club as regards free accommodations for
FRCCI class D shareholders. Yet, petitioners were able to satisfactorily explain, based on clear
policies, rules, and regulations governing FLP club memberships, why they rejected respondents
request for reservation on October 17, 1998.
Respondents do not dispute that the Articles of Incorporation and the By-Laws of FRCCI, as well as
the promotional materials distributed by petitioners to the public (copies of which respondents
admitted receiving), expressly stated that the subscribers of FRCCI class D shares of stock are
entitled free accommodation at an FLP two-bedroom villa only for one week annually consisting of
five (5) ordinary days, one (1) Saturday and one (1) Sunday.
Thus, respondents cannot claim that they were totally ignorant of such rule or that petitioners have
been changing the rules as they go along. Respondents had already availed themselves of free
accommodations at an FLP villa on September 5, 1998, a Saturday, so that there was basis for
petitioners to deny respondents subsequent request for reservation of an FLP villa for their free use
on October 17, 1998, another Saturday. Neither can we rescind the contract because construction of
FLP facilities were still unfinished by 1998.
Indeed, respondents’ allegation of unfinished FLP facilities was not disputed by petitioners, but
respondents themselves were not able to present competent proof of the extent of such
incompleteness. Without any idea of how much of FLP and which particular FLP facilities remain
unfinished, there is no way for us to determine whether petitioners were actually unable to deliver on
their promise of a first-class leisure park and whether there is sufficient reason for us to grant
rescission or annulment of the sale of FRCCI shares.
Apparently, respondents were still able to enjoy their stay at FLP despite the still ongoing
construction works, enough for them to wish to return and again reserve accommodations at the
park. Respondents additionally alleged the unreasonable cancellation of their confirmed reservation
for the free use of an FLP villa on April 1, 1999.
According to respondents, their reservation was confirmed by a Mr. Murphy Magtoto, only to be
cancelled later on by a certain Shaye. Petitioners countered that April 1, 1999 was a Holy Thursday
and FLP was already fully-booked. Petitioners, however, do not deny that Murphy Magtoto and Shaye
are FLP employees who dealt with respondents. The absence of any confirmation number issued to
respondents does not also discount the possibility that the latters reservation was mistakenly
confirmed by Murphy Magtoto despite FLP being fully-booked. At most, we perceive a mix-up in the
reservation process of petitioners.
This demonstrates a mere negligence on the part of petitioners, but not willful intention to deprive
respondents of their membership benefits. It does not constitute default that would call for rescission
of the sale of FRCCI shares by petitioners to respondents. For the negligence of petitioners as
regards respondents reservation for April 1, 1999, respondents are at least entitled to nominal
damages in accordance with Articles 2221 and 2222 of the Civil Code.[35]
In Almeda v. Cario,[36] we have expounded on the propriety of granting nominal damages as
follows: [N]ominal damages may be awarded to a plaintiff whose right has been violated or invaded
by the defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying
the plaintiff for any loss suffered by him. Its award is thus not for the purpose of indemnification for
a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in
name only and not in fact. When granted by the courts, they are not treated as an equivalent of a
wrong inflicted but simply a recognition of the existence of a technical injury.
A violation of the plaintiff's right, even if only technical, is sufficient to support an award of nominal
damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an
award of nominal damages is proper. It is also settled that the amount of such damages is addressed
to the sound discretion of the court, taking into account the relevant circumstances. In this case, we
deem that the respondents are entitled to an award of P5,000.00 as nominal damages in recognition
of their confirmed reservation for the free use of an FLP villa on April 1, 1999 which was inexcusably
cancelled by petitioner on March 3, 1999.
In sum, the respondents Complaint sufficiently alleged a cause of action for the annulment or
rescission of the contract of sale of FRCCI class D shares by petitioners to respondents; however,
respondents were unable to establish by preponderance of evidence that they are entitled to said
annulment or rescission.
WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The Decision dated May 30,
2002 and Resolution dated August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816 are
REVERSED and SET ASIDE. Petitioners are ORDERED to pay respondents the amount of P5,000.00 as
nominal damages for their negligence as regards respondents cancelled reservation for April 1, 1999,
but respondents Complaint, in so far as the annulment or rescission of the contract of sale of the
FRCCI class "D shares of stock is concerned, is DISMISSED for lack of merit. SO ORDERED.

SPS. FEANDO AND LOURDES VILORIA VS. CONTINENTAL AIRLINES, INC., G.R. No. 188288.
January 16, 2012,
V. Contracts cannot be rescinded for a slight or casual breach.
CAI cannot insist on the non-transferability of the subject tickets. Considering that the subject
contracts are not annullable on the ground of vitiated consent, the next question is: “Do Spouses
Viloria have the right to rescind the contract on the ground of CAI’s supposed breach of its
undertaking to issue new tickets upon surrender of the subject tickets?”
Article 1191, as presently worded, states: The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
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.
According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it
refused to apply the value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los
Angeles and in requiring him to pay an amount higher than the price fixed by other airline
companies.
In its March 24, 1998 letter, CAI stated that “non-refundable tickets may be used as a form of
payment toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee
($50.00, per ticket, for tickets purchased prior to October 30, 1997).”
Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the
non-transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter
supports the position of Spouses Viloria, that each of them can use the ticket under their name for
the purchase of new tickets whether for themselves or for some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject
tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed
that he cannot use the ticket in Lourdes’ name as payment.
Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain
reading of the provision printed on the subject tickets stating that “[t]o the extent not in conflict with
the foregoing carriage and other services performed by each carrier are subject to: (a) provisions
contained in this ticket, x x x (iii) carrier’s conditions of carriage and related regulations which are
made part hereof (and are available on application at the offices of carrier) x x x.”
As a common carrier whose business is imbued with public interest, the exercise of extraordinary
diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the
terms and conditions governing their contract of carriage.
CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute
knowledge on its passengers of and demand compliance with a certain condition or undertaking that
is not clearly stipulated.
Since the prohibition on transferability is not written on the face of the subject tickets and CAI failed
to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment
for Fernando’s purchase of a new ticket. CAI’s refusal to accept Lourdes’ ticket for the purchase of a
new ticket for Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute.
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but
only for such substantial and fundamental violations as would defeat the very object of the parties in
making the agreement.
Whether a breach is substantial is largely determined by the attendant circumstances. While CAI’s
refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new
ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it
cannot, however be considered substantial.
The endorsability of the subject tickets is not an essential part of the underlying contracts and CAI’s
failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Viloria’s surrender of the subject tickets.
This Court takes note of CAI’s willingness to perform its principal obligation and this is to apply the
price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and Los
Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as
the case may be for the purchase of any ticket, albeit under her name and for her exclusive use.
In other words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-transferable.
Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for
the fact that their agreement failed to consummate and no new ticket was issued to Fernando.
Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles
should be priced at around $856.00 and refuse to pay the difference between the price of the subject
tickets and the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had
obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender of the
subject tickets.
In its March 24, 1998 letter, it was clearly stated that “[n]on-refundable tickets may be used as a
form of payment toward the purchase of another Continental ticket” and there is nothing in it
suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of
tickets or that the surrender of the subject tickets will be considered as full payment for any ticket
that the petitioners intend to buy regardless of actual price and destination.
The CA was correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its
services and it may not be compelled to observe and maintain the prices of other airline companies.
The conflict as to the endorsability of the subject tickets is an altogether different matter, which does
not preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an
amount it deems proper and which does not provide Spouses Viloria an excuse not to pay such price,
albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied that
Spouses Viloria had the concomitant obligation to pay whatever is not covered by the value of the
subject tickets whether or not the subject tickets are transferable or not. There is also no showing
that Spouses Viloria were discriminated against in bad faith by being charged with a higher rate.
The only evidence the petitioners presented to prove that the price of a round trip ticket between
Manila and Los Angeles at that time was only $856.00 is a newspaper advertisement for another
airline company, which is inadmissible for being “hearsay evidence, twice removed.” Newspaper
clippings are hearsay if they were offered for the purpose of proving the truth of the matter alleged.
The records of this case demonstrate that both parties were equally in default; hence, none of them
can seek judicial redress for the cancellation or resolution of the subject contracts and they are
therefore bound to their respective obligations thereunder. As the 1st sentence of Article 1192
provides: Art. 1192.
In case both parties have committed a breach of the obligation, the liability of the first infractor shall
be equitably tempered by the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis
supplied) Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the
purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay
the amount, which is not covered by the subject tickets.
Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a
destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria
are obliged to pay whatever amount is not covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals. Thus: Since
both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated,
they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue P17,000.00 debt. x x x.
Another consideration that militates against the propriety of holding CAI liable for moral damages is
the absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil
Code requires evidence of bad faith and fraud and moral damages are generally not recoverable in
culpa contractual except when bad faith had been proven.
The award of exemplary damages is likewise not warranted. Apart from the requirement that the
defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his
entitlement to moral damages.
WHEREFORE, premises considered, the instant Petition is DENIED. SO ORDERED.

LINA CALILAP-ASMERON VS. DEVELOPMENT BANK OF THE PHILIPPINES, ET AL., G.R. No.
157330. November 23, 2011
The petitioner would have us consider that she had not given her full consent to the deed of
conditional sale on account of her lack of legal and technical knowledge. In effect, she pleads for the
application of Article 1332 of the Civil Code, which provides:
Article 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.
We cannot accede to the petitioner’s plea.
It is quite notable that the petitioner did not specify which of the stipulations of the deed of
conditional sale she had difficulty or deficiency in understanding. Her generalized averment of having
been misled should, therefore, be brushed aside as nothing but a last attempt to salvage a hopeless
position. Our impression is that the stipulations of the deed of conditional sale were simply worded
and plain enough for even one with a slight knowledge of English to easily understand.
The petitioner was not illiterate. She had appeared to the trial court to be educated, its cogent
observation of her as "lettered" (supra, at p. 7 hereof) being based on how she had composed her
correspondences to DBP.
Nor was the petitioner’s ignorance of the true nature of the deed of conditional sale probably true. By
her own admission, she had asked the bank officer why she had been made to sign a deed of
conditional sale instead of an absolute sale, which in itself reflected her full discernment of the
matters subject of her dealings with DBP, thereby revealed was her distinctive ability to understand
written and spoken English, the language in which the terms of the contract she signed had been
written. Clearly, Article 1332 of the Civil Code does not apply to the petitioner.
According to Lim v. Court of Appeals,40 the provision came into being because a sizeable percentage
of the country’s populace had comprised of illiterates, and the documents at the time had been
written either in English or Spanish, viz: In calibrating the credibility of the witnesses on this issue,
we take our mandate from Article 1332 of the Civil Code which provides: "When one of the parties is
unable to read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former."
This substantive law came into being due to the finding of the Code Commission that there is still a
fairly large number of illiterates in this country, and documents are usually drawn up in English or
Spanish. It is also in accord with our state policy of promoting social justice. It also supplements
Article 24 of the Civil Code which calls on court to be vigilant in the protection of the rights of those
who are disadvantaged in life.41 (Emphasis supplied)
III
DBP validly exercised its right to rescind the deed of conditional sale upon the petitioner’s default The
petitioner argues that despite the right to rescind due to nonpayment being stipulated in the deed of
conditional sale, DBP could not exercise its right because her nonpayment of an obligation
constituted only a slight or casual breach that did not warrant rescission. Moreover, she posits that
Article 1191 of the Civil Code empowers the court to fix the period within which the obligor may
comply with the obligation.
The petitioner’s argument lacks persuasion.
Firstly, a contract is the law between the parties. Absent any allegation and proof that the contract is
contrary to law, morals, good customs, public order or public policy, it should be complied with in
good faith. As such, the petitioner, being one of the parties in the deed of conditional sale, could not
be allowed to conveniently renounce the stipulations that she had knowingly and freely agreed to.
Secondly, the issue of whether or not DBP validly exercised the right to rescind is a factual one that
the RTC and the CA already passed upon and determined. The Court, which is not a trier of facts,
adopts their findings, and sustains the exercise by DBP of its right to rescind following the petitioner’s
failure to pay her six monthly amortizations, and after her being given due notice of the notarial
rescission. As a consequence of the valid rescission, DBP had the legal right to thereafter sell the
property to a person other than the petitioner, like Cruz. In turn, Cruz could validly sell the property
to Cabantog and Trinidad, which he did.
And, thirdly, Article 1191 of the Civil Code did not prohibit the parties from entering into an
agreement whereby a violation of the terms of the contract would result to its cancellation.
In Pangilinan v. Court of Appeals, the Court upheld the vendor’s right in a contract to sell to
extrajudicially cancel the contract upon failure of the vendee to pay the installments and even to
retain the sums already paid, holding: [Article 1191 of the Civil Code] makes it available to the
injured party alternative remedies such as the power to rescind or enforce fulfillment of the contract,
with damages in either case if the obligor does not comply with what is incumbent upon him. There
is nothing in this law which prohibits the parties from entering into an agreement that a violation of
the terms of the contract would cause its cancellation even without court intervention.
The rationale for the foregoing is that in contracts providing for automatic revocation, judicial
intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract
already deemed rescinded by virtue of an agreement providing for rescission even without judicial
intervention, but in order to determine whether or not the rescission was proper. Where such
propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is
not itself the revocatory act.
Moreover, the vendor’s right in contracts to sell with reserved title to extrajudicially cancel the sale
upon failure of the vendee to pay the stipulated installments and retain the sums and installments
already received has long been recognized by the well-established doctrine of 39 years standing.
The validity of the stipulation in the contract providing for automatic rescission upon non-payment
cannot be doubted. It is in the nature of an agreement granting a party the right to rescind a
contract unilaterally in case of breach without need of going to court.
Thus, rescission under Article 1191 was inevitable due to petitioner’s failure to pay the stipulated
price within the original period fixed in the agreement.
ACCORDINGLY, the petition for review is DENIED for lack of merit, and the decision of the Court of
Appeals promulgated on June 21, 2002 is AFFIRMED. Costs of suit shall be paid by the petitioner .

HEIRS OF RAMON C. GAITE, ET AL. VS. THE PLAZA, INC. AND FGU INSURANCE
CORPORATION, G.R. No. 177685. January 26, 2011
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the
thing or services rendered despite the lack of a written contract, in order to avoid unjust enrichment.
Quantum meruit means that in an action for work and labor, payment shall be made in such amount
as the plaintiff reasonably deserves. To deny payment for a building almost completed and already
occupied would be to permit unjust enrichment at the expense of the contractor.
Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just
two months from the start of construction. Despite the down payment received from The Plaza,
Rhogen, upon evaluation of the Project Manager, was able to complete a meager percentage much
lower than that claimed by it under the first progress billing between July and September 1980.
Moreover, after it relinquished the project in January 1981, the site inspection appraisal jointly
conducted by the Project Manager, Building Inspector Engr. Gregory and representatives from FGU
and Rhogen, Rhogen was found to have executed the works not in accordance with the approved
plans or failed to seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to do it, the same shall be
executed at his cost.
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.
In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be
entitled to receive further payment "until the work is finished."
As the works completed by Rhogen were not in accordance with approved plans, it should have been
executed at its cost had it not relinquished the project in January 1981. The CA thus did not err in
sustaining the trial court’s order for the return of the down payment given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate
damages, which are more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty.
The rationale behind temperate damages is precisely that from the nature of the case, definite proof
of pecuniary loss cannot be offered. When the court is convinced that there has been such loss, the
judge is empowered to calculate moderate damages, rather than let the complainant suffer without
redress from the defendant’s wrongful act.
Since Rhogen failed to account either for those items which it had caused to be withdrawn from the
premises, or those considered damaged or lost due spoilage, or disappeared for whatever reason –
there was no way of determining the exact quantity and cost of those materials.
Hence, The Plaza was correctly allowed to recover temperate damages. Upon the foregoing, we find
petitioners’ claim for actual, moral and exemplary damages and attorney’s fees lacking in legal basis
and undeserving of further discussion.
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated
April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED. With costs against
petitioners. SO ORDERED.

DELFIN TAN, Petitioner, vs. ERLINDA C. BENOLIRAO, ANDREW C. BENOLIRAO, ROMANO

C. BENOLIRAO, DION C. BENOLIRAO, SPS. REYNALDO TANINGCO and NORMA D.
BENOLIRAO, EVELYN T. MONREAL, and ANN KARINA TANINGCO, Respondents, G.R. No.
153820 October 16, 2009
Contract to sell is not rescinded but terminated What then happens to the contract? We have held in
numerous cases that the remedy of rescission under Article 1191 cannot apply to mere contracts to
sell.
We explained the reason for this in Santos v. Court of Appeals, where we said: [I]n a contract to sell,
title remains with the vendor and does not pass on to the vendee until the purchase price is paid in
full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition.
Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is
entirely different from the situation in a contract of sale, where non-payment of the price is a
negative resolutory condition.
The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing
sold and cannot recover it, unless the contract of sale is rescinded and set aside.
In a contract to sell, however, the vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If the vendor should eject the vendee
for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x
Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply
to a contract to sell.
As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of
immovable property. Neither provision is applicable [to a contract to sell]. [Emphasis supplied.]
We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally
compel Tan to pay the balance of the purchase price as a result of the legal encumbrance which
attached to the title of the property.
Since Tans refusal to pay was due to the supervening event of a legal encumbrance on the property
and not through his own fault or negligence, we find and so hold that the forfeiture of Tans down
payment was clearly unwarranted.

NISSAN CAR LEASE PHILS., INC. VS. LICA MANAGEMENT, INC. AND PROTON PILIPINAS,
INC. G.R. No. 176986. January 13, 2016
Validity of Extrajudicial Rescission of Lease Contract It is true that NCLPI and LMI’s Contract of Lease
does not contain a provision expressly authorizing extrajudicial rescission. LMI can nevertheless
rescind the contract, without prior court approval, pursuant to Art. 1191 of the Civil Code.
Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases where one
of the obligors should fail to comply with what is incumbent upon him.
Otherwise stated, an aggrieved party is not prevented from extrajudicially rescinding a contract to
protect its interests, even in the absence of any provision expressly providing for such right. The
rationale for this rule was explained in the case of University of the Philippines v. De los Angeles
wherein this Court held: [T]he law definitely does not require that the contracting party who believes
itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203). (Emphasis and underscoring supplied)
We are aware of this Court’s previous rulings in Tan v. Court of Appeals,74 Iringan v. Court of
Appeals, and EDS Manufacturing, Inc. v. Healthcheck International, Inc.,76 for example, wherein we
held that extrajudicial rescission of a contract is not possible without an express stipulation to that
effect. The seeming "conflict" between this and our previous rulings, however, is more apparent than
real. Whether a contract provides for it or not, the remedy of rescission is always available as a
remedy against a defaulting party. When done without prior judicial imprimatur, however, it may still
be subject to a possible court review.
In Golden Valley Exploration, Inc. v. Pinkian Mining Company, we explained: This notwithstanding,
jurisprudence still indicates that an extrajudicial rescission based on grounds not specified in the
contract would not preclude a party to treat the same as rescinded. The rescinding party, however,
by such course of action, subjects himself to the risk of being held liable for damages when the
extrajudicial rescission is questioned by the opposing party in court.
This was made clear in the case of U.P. v. De los Angeles, wherein the Court held as follows:
Of course, it must be understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court. If the other
party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and
bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and
act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. x x x (Emphasis and underscoring in the original)
The only practical effect of a contractual stipulation allowing extrajudicial rescission is "merely to
transfer to the defaulter the initiative of instituting suit, instead of the rescinder." In fact, the rule is
the same even if the parties’ contract expressly allows extrajudicial rescission. The other party
denying the rescission may still seek judicial intervention to determine whether or not the rescission
was proper.
Having established that LMI can extrajudicially rescind its contract with NCLPI even absent an
express contractual stipulation to that effect, the question now to be resolved is whether this
extrajudicial rescission was proper under the circumstances. As earlier discussed, NCLPI’s non-
payment of rentals and unauthorized sublease of the leased premises were both clearly proven by
the records.
We thus confirm LMI’s rescission of its contract with NCLPI on account of the latter’s breach of its
obligations.

LUZ V. FALLARME, PETITIONER, VS. ROMEO PAGEDPED, RESPONDENT. G.R. No. 247229,
September 03, 2020]
While redemption is looked upon with favor, it is equally true that the right to redeem properties
remains to be a statutory privilege. Redemption is by force of law, and the purchaser at the public
auction is bound to accept it.
The right to redeem property sold as security for the satisfaction of an unpaid obligation does not
exist preternaturally; neither is it predicated on proprietary right, which after the sale of the property
on execution, leaves the judgment debtor and vests in the purchaser. It is a bare statutory privilege
to be exercised only by the persons named in the statute.
A valid redemption of property must be appropriately based on the law which is the very source of
this substantive right. It is, therefore, necessary that compliance with the rules set forth by law and
jurisprudence should be shown in order to render validity to the exercise of this right.
Section 1, Rule 68 of the Rules of Court provides:
Section 1. Complaint in action for foreclosure. — In an action for the foreclosure of a mortgage or
other encumbrance upon real estate, the complaint shall set forth the date and due execution of the
mortgage; its assignments, if any; the names and residences of the mortgagor and the mortgagee; a
description of the mortgaged property; a statement of the date of the note or other documentary
evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and
the names and residences of all persons having or claiming an interest in the property subordinate in
right to that of the holder of the mortgage, all of whom shall be made defendants in the action.
The rules require that all persons having or claiming an interest in the premises subordinate in right
to that of the holder of the mortgage should be made defendants in the action for foreclosure. Such
requirement for joinder of the person claiming an interest subordinate to the mortgage sought to be
foreclosed, however, is not mandatory in character but merely directory, such that failure to comply
therewith will not invalidate the foreclosure proceedings.
As correctly held by the CA, in both CA-G.R. CV No. 108155 and CA-G.R. CV No. 100279, the effect of
the failure of the mortgagee to make the subordinate lien holder a defendant is that the decree
entered in the foreclosure proceeding would not deprive the subordinate lien holder of his right of
redemption. A decree of foreclosure in a suit to which the holders of a second lien are not parties
leaves the equity of redemption in favor of the lien holders unforeclosed and unaffected.
Here, since Fallarme was not impleaded as a defendant in the foreclosure proceedings initiated by
Pagedped in 2005, as subordinate lienholder, however, she acquired an equity of redemption.
In Looyuko v. Court of Appeals,27 citing the earlier case of Limpin v. Intermediate Appellate Court,
we explained: Section 2, Rule 68 provides that — ". . . If upon the trial ... the court shall find the
facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the
mortgage debt or obligation, including interest and costs, and shall render judgment to be paid into
court within a period of not less than ninety (90) days from the date of the service of such order, and
that in default of such payment the property be sold to realize the mortgage debt and costs."
This is the mortgagor's equity (not right) of redemption which, as above stated, may be exercised by
him even beyond the 90-day period "from the date of service of the order," and even after the
foreclosure sale itself, provided it be before the order of confirmation of the sale. After such order of
confirmation, no redemption can be effected any longer.
It is this same equity of redemption that is conferred by law on the mortgagor's successors-in-
interest, or third persons acquiring right over the mortgaged property subsequent, and therefore
subordinate to the mortgagee's lien [e.g., by second mortgage or subsequent attachment or
judgment]. If these subsequent or junior lien-holders be not joined in the foreclosure action, the
judgment in the mortgagor's favor is ineffective as to them, of course. In that case, they retain what
is known as the "unforeclosed equity of redemption," and a separate foreclosure proceeding should
be brought to require them to redeem from the first mortgagee, or the party acquiring title to the
mortgaged property at the foreclosure sale, within 90 days, [the period fixed in Section 2, Rule 68 for
the mortgagor himself to redeem], under penalty of losing that prerogative to redeem, x x x
(Emphasis supplied)
Clearly, failure of the mortgagee to join a subordinate lien holder as defendant in the foreclosure
proceeding does not nullify the foreclosure proceeding, but kept alive the equity of redemption
acquired by said junior lien-holder.
The equity of redemption also does not constitute as a bar to the registration of the property in the
name of the mortgagee. Registration may be granted in the name of the motgagee but subject to the
subordinate lien holders' equity of redemption, which should be exercised within 90 days from the
date the decision becomes final. Such registration is but a necessary consequence of the execution of
the final deed of sale in the foreclosure proceedings.
In this case, Pagedped judicially foreclosed the REM and the subject property was sold at public
auction on October 5, 2005, with Pagedped emerging as the highest bidder. The Sheriffs Certificate
of Sale was registered and entered with the RD on November 22, 2005.
A year later, TCT No. T-61200 was cancelled and TCT No. T-91349 was issued in Pagedped's name.
On May 26, 2010, Pagedped filed a petition for the cancellation of all annotations on TCT No. T-
91349 before the trial court, where Fallarme was joined as a respondent.
According to the appellate court in CA G.R. CV No. 108155, while Fallarme initially filed an
Opposition, she later withdrew the same giving the RTC and Pagedped the impression that she was
abandoning or waiving her rights. A reading of the RTC decision would reveal that it did not
categorically specify that it was Fallarme who moved for the withdrawal of the Opposition.
To quote: The said oppositors acquired through purchase one-half (1/2) portion of the subject
property from respondent Luz Fallarme. x x x Thus, in an Order dated February 7, 2012, on motion of
oppositor's counsel, the Opposition was withdrawn. (Emphasis supplied)
In any event, what is clear is that Pagedped has not yet filed a separate foreclosure proceeding to
require Fallarme, as subsequent lien holder to redeem from him contested property. What Pagedped
filed before RTC Branch 6 in 2010 was a petition for the cancellation of all annotations on his title,
TCT No. T-91349.
Case law has clarified that if the subsequent or junior lien-holders are not joined in the foreclosure
action, the judgment in the mortgagor's favor is ineffective as to them. What they retain is what is
known as the "unforeclosed equity of redemption" and a separate foreclosure proceeding should be
brought to require them to redeem from the first mortgagee, or the party acquiring title to the
mortgaged property at the foreclosure sale, within 90 days, under penalty of losing that prerogative
to redeem.
Note should also be taken of the fact that on November 24, 2017, the CA rendered a decision
granting Fallarme's appeal which reversed and set aside the ruling of the RTC Baguio City, Branch 6,
dated January 10, 2013.
The CA dismissed the petition for cancellation of encumbrances on TCT No. T-91349.31 Pagedped did
not file any petition to question said CA ruling.
Thus, on June 30, 2018, the Decision in CA G.R. CV No. 100279 became final and executory. Having
acquired finality, Pagedped is bound to abide by said decision.
WHEREFORE, the petition is GRANTED. The Decision dated May 2, 2018 and the Resolution dated
February 14, 2019 of the Court of Appeals in CA-G.R. CV No. 108155 are REVERSED and SET ASIDE.
The Decision of the Regional Trial Court, Branch 7 of Baguio City in Civil Case No. 7821-R is
REINSTATED. SO ORDERED.

LARA'S GIFTS & DECORS, INC., PETITIONER, v. MIDTOWN INDUSTRIAL SALES, INC.,
RESPONDENT. G.R. No. 225433, August 28, 2019
Applicability of Articles 1192 and 1283 of the Civil Code
Articles 1192 and 1283 of the Civil Code read:
Art 1192 In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts if it cannot be determined which of the parties
first violated the contract the same shall be deemed extinguished, and each shall bear his own
damages.
Art 1283 If one of the parties to a suit over an obligation has a claim for damages against the other,
the former may set it off by proving his right to said damages and the amount thereof.
As previously discussed, petitioner failed to substantiate its claims that the materials delivered were
substandard or of poor quality. Thus, petitioner cannot demand either a tempering of its liability or
an offset of damages.

Central Bank of the Philippines v. Court of Appeals

Since both parties were in default in the performance of their respective reciprocal obligations, that
is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated,
they are both liable for damages. Article 1192 of the Civil Code provides that in case both parties
have committed a breach of their reciprocal obligations, the liability of the first infractor shall be
equitably tempered by the courts.
WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset
by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue P17,000.00 debt.
The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in
offsetting the liabilities of both parties.
Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he
should account for the interest thereon.126 (Emphasis supplied)
RCJ bus Lines, Incorporated vs. Master Tours and Travel Corporation, G.R. No. 177232.
October 11, 2012
But since Master Tours demanded the return of the buses before the expiration of the contract, RCJ
was not yet in default for the payment of ₱ 200,000.00.
There was time left to complete or undertake the rehabilitation of the buses since the lease was still
operative at that time Master Tours opted to pre-terminate the contract.
It is only equitable to release RCJ from the liability to pay ₱ 200,000.00 since it was not afforded the
balance of the period to perform its obligation to repair.
No one should be unduly enriched at the expense of another.

Delfin Tan vs. Erlinda C. Benolirao, Andrew C. Benolirao, Romano C. Benolirao, Dion C.
Benolirao, Sps. Reynaldo Taningco and Norma D. Benolirao, Evelyn T. Monreal and Ann
Karina Taningco, G.R. No. 153820. October 16, 2009
Contract to sell is not rescinded but terminated. What then happens to the contract?
We have held in numerous cases that the remedy of rescission under Article 1191 cannot apply to
mere contracts to sell. We explained the reason for this in Santos v. Court of Appeals,[19] where we
said:
[I]n a contract to sell, title remains with the vendor and does not pass on to the vendee until the
purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a
positive suspensive condition.
Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force.
This is entirely different from the situation in a contract of sale, where non-payment of the price is a
negative resolutory condition. The effects in law are not identical.
In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless
the contract of sale is rescinded and set aside.
In a contract to sell, however, the vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If the vendor should eject the vendee
for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x
Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply
to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when
applied to sales of immovable property. Neither provision is applicable [to a contract to sell].
[Emphasis supplied.]
We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally
compel Tan to pay the balance of the purchase price as a result of the legal encumbrance which
attached to the title of the property.
Since Tans refusal to pay was due to the supervening event of a legal encumbrance on the property
and not through his own fault or negligence, we find and so hold that the forfeiture of Tans down
payment was clearly unwarranted.

Development Bank of the Philippines Vs. Sta. Ines Melale Forest Products Corporation, et
al./Development Bank of the Philippines Vs. Sta. Ines Melale Forest Products
Corporation, et al. G.R. No. 193068/G.R. No. 193099. February 1, 2017
It is not disputed that NDC and respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings executed a Memorandum of Agreement pursuant to the directives of Letter of
Instructions No. 1155.
Under the Memorandum of Agreement, NDC, as the Buyer, undertook to:
a) implement Letter of Instructions No. 1155 and acquire 100% of Galleon's shareholdings;
b) assume actual control over Galleon's management and operations prior to the execution of
a formal share purchase agreement and prior to the transfer to NDC of Galleon's
shareholdings;
c) designate five persons to sit in Galleon's Board of Directors;
d) pay Galleon's stockholders the share purchase price after five years from the date of the
share purchase agreement;
e) issue each Galleon stockholder a negotiable promissory note with maturity on the date of
the fifth annual anniversary of the share purchase agreement;
f) verify Galleon's special warranty on its liabilities and obligations by conducting an audit; and
g) consider for priority in the repayment of accounts, Galleon's valid and duly authorized
liabilities which are the subject of meritorious lawsuit or which have been arranged and
guaranteed by Cuenca. While respondents, Galleon's stockholders, as the Sellers, undertook
to:
a) implement Letter of Instructions No. 1155 by allowing NDC to purchase 100% of their
shareholdings;
b) consent for NDC to assume actual control over Galleon's management and operations prior
to the execution of a formal share purchase agreement and prior to the transfer to NDC of
Galleon's shareholdings;
c) elect NDC's designated five persons to Galleon's Board of Directors;
d) warrant that ₱46,740,755.00 had been actually paid to Galleon, representing payment of
46,740,755 common shares to Galleon;
e) deliver to NDC, upon signing of the share purchase agreement, 10,000,000 common shares
of Galleon, duly and validly endorsed for transfer, free from any and all liens and
encumbrances whatsoever; and
f) make special warranties under clause 8.
As parties to the Memorandum of Agreement, NDC and respondents jointly undertook to:

a) immediately implement Letter of Instructions No. 1155;

b) endeavor to prepare and sign a share purchase agreement covering 100% of Galleon's
shareholdings not more than 60 days after the signing of the Memorandum of Agreement; and
c) incorporate the conditions listed down in clause 7 in the share purchase agreement.

The law is categorical that "various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly."74 Fernandez v.
Court of Appeals75further emphasizes that " [t]he important task in contract interpretation is always
the ascertainment of the intention of the contracting parties and that task is of course to be
discharged by looking to the words they used to project that intention in their contract, all the words
not just a particular word or two, and words in context not words standing alone."

The Court of Appeals found that the Memorandum of Agreement between NDC and Galleon was a
perfected contract for NDC to purchase 100% of Galleon's shareholdings.
However, the Court of Appeals found that the NDC prevented its execution by deliberately delaying
its review of Galleon's financial accounts: While defendant Galleon made its financial records available
to defendant-appellant NDC for their review, the latter never made any serious effort to review the
financial accounts of the defendant Galleon, hence, effectively preventing the execution of the share
purchase agreement.
The due execution of the share purchase agreement is further bolstered by Article 1198(4) of the
Civil Code, which states that the debtor loses the right to make use of the period when a condition is
violated, making the obligation immediately demandable:
Article 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty
or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless he immediately gives new ones equally
satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the
period;
(5) When the debtor attempts to abscond. (Emphasis supplied)

WHEREFORE, the March 24, 2010 Decision and July 21, 2010 Resolution of the Court of Appeals in
CA-G.R. CV No. 85385 are AFFIRMED with the following MODIFICATIONS:
(1) Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation, Universal Holdings Corporation, and the Philippine National Construction
Corporation are declared LIABLE to the National Development Corporation, the Development Bank of
the Philippines, and the Asset Privatization Trust under the deed of undertaking, pledge, mortgages,
and other accessory contracts among the parties; and
(2) The award of the advances made by Sta. Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel L. Tinio, Cuenca Investment Corporation, and Universal Holdings Corporation in
Galleon's favour, as well as the award of the payment for their shares of stocks in Galleon, shall earn
an interest rate of 12% per annum from the date of the filing of this case on April 22, 1985 until June
30, 2013, after which, they shall earn interest at the rate of 6% per annum until the Decision
becomes final and executory. These amounts shall earn interest at the rate of 6% per annum from
the finality of this Decision until its satisfaction.
SO ORDERED.
JAPRL DEVELOPMENT CORP., PETER RAFAEL C. LIMSON AND JOSE UY AROLLADO,
PETITIONERS, VS. SECURITY BANK CORPORATION, RESPONDENT. [G.R. No. 190107, June
06 : 2011]
Limson 's Opposition Ad Cautelam
6. First of all, there is no gainsaying that herein defendant Limson as well as defendant AROLLADO
are being sued in their alleged capacities as SURETIES, with defendant JAPRL being the DEBTOR.
As SURETIES, they are covered by the Stay Order issued by the court hearing the petition for
corporate rehabilitation filed by Rapid forming Corp. and defendant JAPRL. The Stay Order directed,
among others, the stay of enforcement of ;' ALL CLAIMS, WHETHER FOR MONEY OR OTHERWISE,
AND WHETHER SUCH ENFORCEMENT IS BY COURT ACTION OR OTHERWISE, against the
petitioner/s, and its/their guarantors and SURETIES not solidarity liable with petitioner's", x x x (all
caps in the original)
Arollado s Opposition (Ad Cautelam)
11. Certainly, the plaintiff cannot unjustly enrich itself and be allowed to recover from both the
DEBTOR JAPRL in accordance with the rehabilitation plan, and at the same time from the alleged
SURETIES LIMSON and AROLLADO through the present complaint.
12. Moreover, defendant AROLLADO, as surety, can set up against the plaintiff all the defenses which
pertain to the principal DEBTOR JAPRL and even those defenses that are inherent in the debt.
Likewise, defendant AROLLADO would, in any case, have a right of action for reimbursement against
JAPRL. the principal DEBTOR.
Additionally, defendant AROLLADO is given the right, under Article 1222 of the New Civil Code, to
avail himself of all the defenses winch are derived from the nature of the obligation.
Since the plaintiff, and even defendants LIMSON and AROLLADO, are temporarily barred from
enforcing a claim against JAPRL, there is, therefore, every reason to suspend the proceedings against
defendants LIMSON and AROLLADO while the complaint is archived and cannot be prosecuted
against the DEBTOR JAPRL. (capitalization and emphasis in the original: underscoring supplied)
When a defendant's appearance is made precisely to object to the jurisdiction of the court ovei his
person, it cannot be considered as appearance in court. Limson and Aroliado glossed over the alleged
lack of service of summons, however, and proceeded to exhaustively discuss why SBC's complaint
could not prosper against them as sureties. They thereby voluntarily submitted themselves to the
jurisdiction of the Makati RTC.
On a trial court's suspension of proceedings against a surety of a corporation in the process of
rehabilitation, Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation holds that a creditor can
demand payment from the surety solidarity liable with the corporation seeking rehabilitation, it being
not included in the list of stayed claims:
Indeed, Section 6(b) of the Interim Rules of Procedure of Corporate Rehabilitation which the
appellate court cited in the earlier-quoted portion of its decision, provides that a stay order does not
apply to sureties who are solidarity liable with the debtor. In Limson and Arollado's case, their
solidarv liability with JAPRL is documented. 3. Liability of the Surety The liability of the Surety is
solidary nnd not contingent upon the pursuit by the Bank of whatever remedies it may have against
the Debtor or the collaterals/Hens it may possess. If any of the Guaranteed Obligation is not paid or
performed on due date (at slated maturity or by acceleration), the Surety shall without need for any
notice, demand or any other act or deed, immediately become liable therefor and the Surety shall
pay and perform the same.
Limson and Arollado, as sureties, whose liability is solidary cannot. therefore, claim protection from
the rehabilitation court, they not being the financially-distressed corporation that may be restored,
not to mention that the rehabilitation court has no jurisdiction over them. Article 1216 of the Civil
Code clearly is not on their side: ART. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The demand made against any one of them
shall not be an obstacle to those which may subsequently be directed against the others, so long as
the debt has not been fully collected, (underscoring supplied)
IN FINE, SBC can pursue its claim against Limson and Arollado despite the pendency of JAPRL's
petition for rehabilitation. For, by the CSA in favor of SBC, ii is the obligation of the sureties, who are
therein stated to be solidary with JAPRL. to see to it that JAPRL's debt is fully paid.
Finally, contrary to petitioners" position, the appellate court's decision only nullified the suspension of
proceedings against Limson and Arollado.
The suspension with respect to JAPRL remains, in line with Philippine Blooming MMs v. Court of
Appeals.

SOCORRO T. CLEMENTE, as substituted by SALVADOR T. CLEMENTE, Petitioner vs.

REPUBLIC OF THE PHILIPPINES (Department of Public Works and Highways, Region IV-A),
February 20, 2019 G.R. No. 220008
Respondent In this case, upon the execution of the Deed of Donation and the acceptance of such
donation in the same instrument, ownership was transferred to the Republic, as evidenced by the
new certificate of title issued in the name of the Province of Quezon.
Because the condition in the Deed of Donation is a resolutory condition, until the donation is revoked,
it remains valid. However, for the donation to remain valid, the donee must comply with its obligation
to construct a government hospital and use the Subject Property as a hospital site. The failure to do
so gives the donor the right to revoke the donation. Article 764 of the Civil Code provides:
Art. 764. The donation shall be revoked at the instance of the donor, when the donee fails to comply
with any of the conditions which the former imposed upon the latter. In this case, the property
donated shall be returned to the donor, the alienations made by the donee and the mortgages
imposed thereon by him being void, with the limitations established, with regard to third persons, by
the Mortgage Law and the Land Registration Laws.
This action shall prescribe after four years from the non-compliance with the condition, may be
transmitted to the heirs of the donor, and may be exercised against the donee's heirs.
Respondent argues that the obligation to construct a hospital was fulfilled when respondent started
to construct a hospital.
We do not agree.
It is clear from the records that the donee failed to comply with its obligation to construct a
government hospital and to use the premises as a hospital site.
When the parties provided in the Deed of Donation that the donee should construct a government
hospital, their intention was to have such hospital built and completed, and to have a functioning
hospital on the Subject Property. This can be evidenced by the accompanying words in the Deed of
Donation – "solely for hospital site only and for no other else, where a [g]overnment [h]ospital shall
be constructed."
The condition imposed upon the donee has two parts – first, to construct a government hospital, and
second, to use the Subject Property solely as a hospital site. A foundation of a building is obviously
not a government hospital. The other condition in the Deed of Donation, which is to use the Subject
Property solely as a hospital site, is also not complied with when the Subject Property is left idle,
which means the Subject Property is not being used as a hospital site.
The foundation of a building cannot function as a hospital site. Based on the foregoing, we find that
the donee failed to comply with the resolutory condition imposed in the Deed of Donation. It has
been settled that a co-heir or co-owner may bring suit without impleading all the other co-owners if
the suit is for the benefit of all.
In Spouses Mendoza v. Coronel, we held: [T]he law now allows a co-owner to bring an action for
ejectment, which covers all kinds of actions for the recovery of possession, including forcible entry
and unlawful detainer, without the necessity of joining all the other co-owners as co-plaintiffs,
because the suit is deemed to be instituted for the benefit of all. In subsequent cases, this Court has
consistently held that as long as the co-owner recognizes the co-ownership, there is no need to
implead all the co-owners in all kinds of action for recovery of possession.
In Catedrilla v. Lauron, we held: Petitioner can file the action for ejectment without impleading his
co-owners. In the more recent case of Carandang v. Heirs of De Guzman, this Court declared that a
co-owner is not even a necessary party to an action for ejectment, for complete relief can be
afforded even in his absence, thus: In sum, in suits to recover properties, all co-owners are real
parties in interest. However, pursuant to Article 487 of the Civil Code and the relevant jurisprudence,
any one of them may bring an action, any kind of action for the recovery of co-owned properties. The
other co-owners are not indispensable parties. They are not even necessary parties, for a complete
relief can be afforded in the suit even without their participation, since the suit is presumed to have
been filed for the benefit of all co-owners.
In this case, although petitioner alone filed the complaint for unlawful detainer, he stated in the
complaint that he is one of the heirs of the late Lilia Castigador, his mother, who inherited the
subject lot, from her parents. Petitioner did not claim exclusive ownership of the subject lot, but he
filed the complaint for the purpose of recovering its possession which would redound to the benefit of
the co-owners. Since petitioner recognized the existence of a co-ownership, he, as a co-owner, can
bring the action without the necessity of joining all the other co-owners as co-plaintiffs. (Emphasis
supplied)
Thus, there is no need to implead the other co-heirs for the action to proceed as it is for the benefit
of the co-ownership. Moreover, there is no need for the settlement of the estate before one of the
heirs can institute an action on behalf of the other co-heirs.
Although an heir's right in the estate of the decedent which has not been fully settled and partitioned
is merely inchoate, Article 493 of the Civil Code gives the heir the right to exercise acts of ownership.
The last issue raised by petitioner is whether the action is premature, or if it has been barred by
prescription or laches. Respondent argues that the action has already prescribed because it has been
more than ten (10) years since the violation of the condition in the Deed of Donation. We find that
this action is not premature, and has not been barred by prescription or laches.
An action for reconveyance based on a violation of a condition in a Deed of Donation should be
instituted within ten (10) years from the time of such violation. Moreover, an action to revoke a
donation based on non-compliance of the condition prescribes after four (4) years from such non-
compliance.
Thus, in both cases, to be able to determine whether the action has prescribed, the time of non-
compliance must first be determined. It is imperative to determine the period within which the donee
has to comply with the condition to construct a government hospital and use the site solely as a
hospital site, because it is only after such time that it can be determined with certainty that there was
a failure to comply with the condition. Prescription cannot set in if the period to comply with the
obligation cannot be determined with certainty.
Thus, the action has not yet prescribed. Based on the Deed of Donation, however, it is apparent that
a period was indeed intended by the parties. In this situation, Article 1197 of the Civil Code squarely
applies:
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can
be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties.
Once fixed by the courts, the period cannot be changed by them.
Based on the foregoing provision, the RTC reasoned that the action is premature because there can
be no breach before the court fixes a period to comply with the obligation.
We disagree.
While ideally, a period to comply with the condition should have been fixed by the Court, we find that
this will be an exercise in futility because of the fact that it has been more than fifty (50) years since
the Deed of Donation has been executed; and thus, the reasonable time contemplated by the parties
within which to comply with the condition has already lapsed.
In Central Philippine University v. Court of Appeals, which had a similar factual background with this
case, the Court held: Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule provided in Art. 1197 of
the Civil Code applies, which provides that the courts may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for
compliance therewith and such period has arrived.
This general rule however cannot be applied considering the different set of circumstances existing in
the instant case. More than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But unfortunately, it failed to do so. Hence, there is no more
need to fix the duration of a term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to delay or lead to an unnecessary and
expensive multiplication of suits.
Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is
incumbent upon him, the obligee may seek rescission and the court shall decree the same unless
there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to
determine the period of the compliance, there is no more obstacle for the court to decree the
rescission claimed. However, the DPWH informed her that there were no plans to build any hospital
on the Subject Property.
Thus, it is clear that the donee no longer has the intention of fulfilling its obligation under the Deed
of Donation. It has now become evident that the donee will no longer comply with the condition to
construct a hospital because a government hospital was already built in another barangay, Barangay
Polo. If it becomes indubitable that the event, in this case the construction of the hospital, will not
take place, then the obligation of the donor to honor the donation is extinguished.
Moreover, the donor-obligee can seek rescission of the donation if the donee-obligor has manifested
no intention to comply with the condition of the donation. For the same reason, we find that laches
has not set in.
Laches is defined as the failure or neglect for an unreasonable and unexplained length of time to do
that which, by exercising due diligence, could or should have been done earlier; it is negligence or
omission to assert a right within a reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned it or declined to assert it. Because of the failure of the Deed of
Donation to specify the period within which to comply with the condition, there can be no delay in
asserting the right against respondent.
In contrast, respondent is guilty of unreasonable delay and neglect in complying with its obligation to
construct a government hospital and to use the Subject Property as a hospital site. Based on the
foregoing, the revocation of the donation and the reconveyance and recovery of possession of the
Subject Property in favor of the donors – or the heirs of the donors – are necessary and proper.
WHEREFORE, the petition is GRANTED. The 17 October 2014 Decision and the 14 August 2015
Resolution of the Court of Appeals in CA-G.R. CV No. 91522 are hereby REVERSED and SET ASIDE.
The Regional Trial Court of Mauban, Quezon, Branch 64, is ORDERED to cause the cancellation by
the Register of Deeds of Quezon of TCT No. T-51745 and the issuance, in lieu thereof, of the
corresponding certificate of title in the name of the heirs of Amado A. Clemente, Dr. Vicente A.
Clemente, Judge Ramon A. Clemente, and Milagros A. Clemente. SO ORDERED.

VIRGINIA JUDY DY and GABRIEL DY, Petitioners, vs. PHILIPPINE BANKING

CORPORATION, Respondent. G.R. No. 167158, January 30, 2013
The CA held Marina, Tanjutco, and Alindogan liable for the amounts that Philbank paid.24 The CA
ruled that "[w]hen the officers of MARINA failed or refused to submit the original bills of lading,
MARINA violated the condition under which payment by Philbank was made, and hence, is liable for
the return of the amounts paid."
The CA pointed out that Tanjutco and Alindogan represented Marina in all its banking transactions
with Philbank.
The documents Marina’s officers negotiated with the bank were marked "non-negotiable" but the
same were accepted by the bank upon Tanjutco and Alindogan’s promise that the original copies of
the bills of lading would be presented later on.
The CA also noted that Philbank sent various demand letters to the forwarders that issued the non-
negotiable bills of lading because the bills contained a remark that the goods were already on board.
That statement turned out to be an act of misrepresentation by Tanjutco and Alindogan.
As to the liability of the bank’s officers, the CA upheld the RTC’s judgment absolving Mercado of
liability but reversed the finding on Dy’s guilt. The CA ruled that Dy was jointly and solidarily liable
with Marina, Tanjutco, and Alindogan.
The CA stated that "the transactions under question transpired because of Judy Dy’s approval." If Dy
were truthful, the Court stated, it would appear that, as Philbank’s Assistant Vice President, she had
no substantial duties or authority; she could not approve anything; she had no control of bank
operations (she claimed it was Mercado who oversaw daily operations); and she would sign
important documents without reading them. The CA concluded that, contrary to her claims, Dy
approved the transactions subject of this case.
Further, the CA noted that although there is no direct evidence of conspiracy between Marina and
Dy, "circumstances, if read together, point to a concert of action directed towards the same end."
The CA stated that Tanjutco and Alindogan made it appear that goods were on board the carrier,
with all the necessary government clearances.
Thereafter, the only missing component to secure Philbank’s payment was the acceptance of the
non-negotiable bills of lading, which only Dy could provide.
The CA held that Marina’s non-submission of the original bills of lading evinced not only a failure to
comply with the bank’s requirements but a mode to divest Philbank of its funds.
Thus, the CA concluded that there was collusion among Tanjutco, Alindogan, and Dy.

150. GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners, vs.
THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION,
respondents. [G.R. No. 105774. April 25, 2002]
The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate
powers of the corporation, save in those instances where the Code requires stockholders’ approval
for certain specific acts. Section 23 of the Code provides:
"SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees x x x."
To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two
board resolutions on different dates, the first on March 17, 1981, and the second on February 10,
1982. These two board resolutions, as certified under oath by Great Asian’s Corporate Secretary
Mario K. Tan, state: As plain as daylight, the two board resolutions clearly authorize Great Asian to
secure a loan or discounting line from Bancasia.
The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of
directors of Great Asian, binding on the board of directors and on Great Asian itself. Evidently, Great
Asian shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after
receiving valuable consideration for the checks assigned under the Deeds.
Second Issue: Breach of Contract by Great Asian In short, Great Asian sold the postdated checks on
with recourse basis against itself. This is an obligation that Great Asian is bound to faithfully comply
because it has the force of law as between Great Asian and Bancasia.
Article 1159 of the Civil Code further provides that - "Obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith."
Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the
receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties
had the right to adopt the with recourse stipulation which is separate and distinct from the warranties
of an endorser under the Negotiable Instruments Law.
Article 1306 of the Civil Code provides that – "The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy."
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new),
that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly
found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be
assigned.
Assignment of a negotiable instrument is actually the principal mode of conveying accounts
receivable under the Financing Company Act. Since in discounting of receivables the assignee is
subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes
necessary to enable the assignee to collect from the drawer. This is particularly true with checks
because collecting banks will not accept checks unless endorsed by the payee.
The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks. As
endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the
Negotiable Instruments Law. The exercise by Bancasia of its option to sue for breach of contract
under the Civil Code will not leave Great Asian holding an empty bag. Great Asian, after paying
Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the
drawers who issued the checks.
Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to
Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer
has no right to expect or require the bank to honor the check, or if the drawer has countermanded
payment.
In the instant case, all the checks were dishonored for any of the following reasons: "account
closed", "account under garnishment", insufficiency of funds", or "payment stopped". In the first
three instances, the drawers had no right to expect or require the bank to honor the checks, and in
the last instance, the drawers had countermanded payment. One other issue raised by Great Asian,
that of lack of consideration for the Deeds of Assignment, is completely unsubstantiated. The Deeds
of Assignment uniformly.
In summary, Great Asian’s four contracts assigning its fifteen postdated checks to Bancasia expressly
stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian
itself will pay Bancasia. Since the common condition in the contracts had transpired, an obligation on
the part of Great Asian arose from the four contracts, and that obligation is to pay Bancasia the full
value of the checks, including the stipulated penalty and attorney’s fees.
Third Issue: The liability of surety Tan Chong Lin Indisputably, Tan Chong Lin explicitly and
unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of the
checks fail to pay on due date. The condition on which Tan Chong Lin’s obligation hinged had
happened. As surety, Tan Chong Lin automatically became liable for the entire obligation to the same
extent as Great Asian. In any event, the provisions of the Surety Agreements are broad enough to
include the obligations of Great Asian to Bancasia under the warranties.
The first Surety Agreement states that: Article 1207 of the Civil Code provides, "xxx There is a
solidary liability only when the obligation expressly so states, or when the law or nature of the
obligation requires solidarity."
The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin
with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad,
expressly encompassing "all the notes, drafts, bills of exchange, overdraft and other obligations of
every kind which the PRINCIPAL may now or may hereafter owe the Creditor".
Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment of
the fifteen dishonored checks, including penalty and attorney’s fees in accordance with the Deeds of
Assignment.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is AFFIRMED
with MODIFICATION. Petitioners are ordered to pay, solidarily, private respondent the following
amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the total outstanding amount in
item (a) at the legal rate of 12% per annum from the filing of the complaint until the same is fully
paid, (c) attorney’s fees equivalent to 25% of the total amount in item (a), including interest at 12%
per annum on the outstanding amount of the attorney’s fees from the finality of this judgment until
the same is fully paid, and (c) costs of suit. SO ORDERED.

UNITED COCONUT PLANTERS BANK, Petitioner vs. SPOUSES WALTER UY AND LILY UY,
Respondents, January 10, 2018 G.R. No. 204039
The primordial issue to be resolved is whether, under the Agreement between Primetown and UCPB,
UCPB assumed the liabilities and obligations of Primetown under its contract to sell with Spouses
Choi.
An assignment of credit has been defined as an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause - such as sale, dation in payment or exchange or donation -
and without need of the debtor's consent, transfers that credit and its accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same extent as the assignor
could have enforced it against the debtor.
In every case, the obligations between assignor and assignee will depend upon the judicial relation
which is the basis of the assignment.
In the present case, the Agreement between Primetown and UCPB provided that Primetown, in
consideration of ₱748,000,000.00, "assigned, transferred, conveyed and set over unto [UCPB] all
Accounts Receivables accruing from [Primetown's Kiener] ... together with the assignment of all its
rights, titles, interests and participation over the units covered by or arising from the Contracts to Sell
from which the Accounts Receivables have arisen."
The Agreement further stipulated that "x x x this sale/assignment is limited to the Receivables
accruing to [Primetown] from the [b]uyers of the condominium units in x x x [Kiener] and the
corresponding Assignment of Rights and Interests arising from the pertinent Contract to Sell and
does not include except for the amount not exceeding 30,000,000.00, Philippine currency, either
singly or cumulatively any and all liabilities which [Primetown] may have assumed under the
individual Contract to Sell." (emphasis omitted)
The Agreement conveys the straightforward intention of Primetown to "sell, assign, transfer, convey
and set over" to UCPB the receivables, rights, titles, interests and participation over the units covered
by the contracts to sell.
It explicitly excluded any and all liabilities and obligations, which Primetown assumed under the
contracts to sell.
The intention to exclude Primetown's liabilities and obligations is further shown by Primetown's
subsequent letters to the buyers, which stated that "this payment arrangement shall in no way cause
any amendment of the other terms and conditions, nor the cancellation of the Contract to Sell you
have executed with [Primetown]." x x x (emphasis and underlining supplied) x x x x
The intention to merely assign the receivables and rights of Primetown to UCPB is even bolstered by
the CA decisions in the cases of UCPB v. O'Halloran and UCPB v. Ho.
Considering that UCPB is a mere assignee of the rights and receivables under the Agreement, UCPB
did not assume the obligations and liabilities of Primetown under its contract to sell with Spouses
Choi. The provisions of the foregoing agreements between PPGI and UCPB are clear, explicit and
unambiguous as to leave no doubt about their objective of executing an assignment of credit instead
of subrogation.
The MOA and the Deed of Sale/Assignment clearly state that UCPB became an assignee of PPGI's
outstanding receivables of its condominium buyers. UCPB was not subrogated into PPGI's place as
developer under the Contract to Sen.25 (emphases and underlining supplied)
Guided by the previous pronouncements of this Court, it is settled that UCPB is only jointly liable with
PPGI to the disgruntled purchasers of Kiener Hills, including respondents.
Thus, UCPB is only bound to refund the amount it had unquestionably received from respondents.
Jurisprudence has settled UCPB's liability to unit owners to refund the amount it indubitably received
from the purchasers of Kiener Hills.
WHEREFORE, the 23 May 2012 Decision of the Court of Appeals m CA-G.R. SP No. 118534 is
AFFIRMED with MODIFICATION. Petitioner United Coconut Planters Bank shall pay the amount of
₱157,757.82 to Spouses Walter and Lily Uy, with legal interest at six percent (6%) per annum,
without prejudice to any action which the parties may have against Prime Town Property Group, Inc.

TOMAS ANG, petitioner, vs. ASSOCIATED BANK AND ANTONIO ANG ENG LIONG,
respondents. G.R. No. 146511, September 5, 2007
Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a
person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person.
Furthermore, since the liability of an accommodation party remains not only primary but also
unconditional to a holder for value, even if the accommodated party receives an extension of the
period for payment without the consent of the accommodation party, the latter is still liable for the
whole obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.
Eusebio Gonzales vs. Philippine Commercial & International Bank, et al. G.R. No. 180257.
February 23, 2011
First Issue: Solidarily Liability on Promissory Notes A close perusal of the records shows that the
courts a quo correctly found Gonzales solidarily liable with the spouses Panlilio for the three
promissory notes. The promissory notes covering the PhP 1,800,000 loan show the following: Clearly,
Gonzales is liable for the loans covered by the above promissory notes.
First, Gonzales admitted that he is an accommodation party which PCIB did not dispute.
Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP 1,800,000
loan proceeds went to the spouses Panlilio.
The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for
the benefit of the spouses Panlilioas shown by the fact that the proceeds went to the spouses Panlilio
who were servicing or paying the monthly dues is beside the point. For signing as borrower and co-
borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio,
Gonzales has extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans.
The Court further explained: [A]n accommodation party is one who meets all the three requisites,
viz:
(1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser;
(2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his name or credit to some other person.

An accommodation party lends his name to enable the accommodated party to obtain credit or to
raise money; he receives no part of the consideration for the instrument but assumes liability to the
other party/ies thereto. The accommodation party is liable on the instrument to a holder for value
even though the holder, at the time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation. As petitioner acknowledged it to
be, the relation between an accommodation party and the accommodated party is one of principal
and surety the accommodation party being the surety. As such, he is deemed an original promisor
and debtor from the beginning; he is considered in law as the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to
be inseparable.
Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation,
the suretys liability to the creditor is immediate, primary and absolute; he is directly and equally
bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes
liable to the debt and duty of the principal obligor even without possessing a direct or personal
interest in the obligations nor does he receive any benefit therefrom.
Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales
in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate
Gonzales from liability on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly
begin, For value received, the undersigned (the BORROWER) jointly and severally promise to pay x x
x.
Solidary liability cannot be presumed but must be established by law or contract. Article 1207 of the
Civil Code pertinently states that there is solidary liability only when the obligation expressly so
states, or when the obligation requires solidarity. This is true in the instant case where Gonzales, as
accommodation party, is immediately, equally, and absolutely bound with the spouses Panlilio on the
promissory notes which indubitably stipulated solidary liability for all the borrowers. Moreover, the
three promissory notes serve as the contract between the parties. Contracts have the force of law
between the parties and must be complied with in good faith.
Second Issue: Improper Dishonor of Check Having ruled that Gonzales is solidarily liable for the three
promissory notes. It is not proper for PCIB to dishonor the check issued by Gonzales against the
credit line under the COHLA.
The courts a quo found and held that there was a proper dishonor of the PhP 250,000 check issued
by Gonzales against the credit line, because the credit line was already closed prior to the
presentment of the check by Unson; and the closing of the credit line was likewise proper pursuant to
the stipulations in the promissory notes on the bank’s right to set off or apply all moneys of the
debtor in PCIB’s hand and the stipulations in the COHLA on the PCIB’s right to terminate the credit
line on grounds of default by Gonzales.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October 22, 2007
in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The Philippine Commercial and
International Bank (now Banco De Oro) is ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal
damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary damages, and PhP 50,000 as
attorney’s fees.

COMSAVINGS BANK (NOW GSIS FAMILY BANK), PETITIONER, vs. SPOUSES DANILO AND
ESTRELLA CAPISTRANO, RESPONDENTS. G.R. No. 170942, August 28, 2013
Based on the provisions, a banking institution like Comsavings Bank is obliged to exercise the highest
degree of diligence as well as high standards of integrity and performance in all its transactions
because its business is imbued with public interest.
Gross negligence connotes want of care in the performance of one’s duties; it is a negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there is
duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to
consequences insofar as other persons may be affected. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.
There is no question that Comsavings Bank was grossly negligent in its dealings with respondents
because it did not comply with its legal obligation to exercise the required diligence and integrity.
As a banking institution serving as an originator under the UHLP and being the maker of the
certificate of acceptance/completion, it was fully aware that the purpose of the signed certificate was
to affirm that the house had been completely constructed according to the approved plans and
specifications, and that respondents had thereby accepted the delivery of the complete house.
Given the purpose of the certificate, it should have desisted from presenting the certificate to
respondents for their signature without such conditions having been fulfilled. Yet, it made
respondents sign the certificate (through Estrella Capistrano, both in her personal capacity and as the
attorney-in-fact of her husband Danilo Capistrano) despite the construction of the house not yet even
starting.
Its act was irregular per se because it contravened the purpose of the certificate. Worse, the pre-
signing of the certificate was fraudulent because it was thereby enabled to gain in the process the
amount of P17,306.83 in the form of several deductions from the proceeds of the loan on top of
other benefits as an originator bank.
On the other hand, respondents were prejudiced, considering that the construction of the house was
then still incomplete and was ultimately defective.
Compounding their plight was that NHMFC demanded payment of their monthly amortizations despite
the non-completion of the house.

HEIRS OF SERVANDO FRANCO VS. SPS. VERONICA & DANILO GONZALES, G.R. No. 159709.
June 27, 2012,
A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes
the first, either by changing the object or the principal conditions, or by substituting the person of the
debtor, or by subrogating a third person in the rights of the creditor.
For a valid novation to take place, there must be, therefore:
(a) a previous valid obligation;
(b) an agreement of the parties to make a new contract;
(c) an extinguishment of the old contract; and
(d) a valid new contract.

In short, the new obligation extinguishes the prior agreement only when the substitution is
unequivocally declared, or the old and the new obligations are incompatible on every point. A
compromise of a final judgment operates as a novation of the judgment obligation upon compliance
with either of these two conditions.
The receipt dated February 5, 1992, excerpted below, did not create a new obligation incompatible
with the old one under the promissory note, viz: February 5, 1992 Received from SERVANDO
FRANCO BPI Manager’s Check No. 001700 in the amount of ₱400,00.00 as partial payment of loan.
Balance of ₱375,000.00 to be paid on or before FEBRUARY 29, 1992.
In case of default an interest will be charged as stipulated in the promissory note subject of this case.
(Sgd) V. Gonzalez To be clear, novation is not presumed. This means that the parties to a contract
should expressly agree to abrogate the old contract in favor of a new one. In the absence of the
express agreement, the old and the new obligations must be incompatible on every point.
According to California Bus Lines, Inc. v. State Investment House, Inc.: 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 is incompatibility when the two obligations cannot stand together, each one having its
independent existence. If the two obligations cannot stand together, the latter obligation novates the
first. Changes that breed incompatibility must be essential in nature and not merely accidental.
The incompatibility must affect any of the essential elements of the obligation, such as its object,
cause or principal conditions thereof; otherwise, the change is merely modificatory in nature and
insufficient to extinguish the original obligation.
In light of the foregoing, the issuance of the receipt created no new obligation. Instead, the
respondents only thereby recognized the original obligation by stating in the receipt that the
₱400,000.00 was "partial payment of loan" and by referring to "the promissory note subject of the
case in imposing the interest."
The loan mentioned in the receipt was still the same loan involving the ₱500,000.00 extended to
Servando. Advertence to the interest stipulated in the promissory note indicated that the contract still
subsisted, not replaced and extinguished, as the petitioners claim.
The receipt dated February 5, 1992 was only the proof of Servando’s payment of his obligation as
confirmed by the decision of the RTC. It did not establish the novation of his agreement with the
respondents.
Indeed, the Court has ruled that an obligation to pay a sum of money is not novated by an
instrument that expressly recognizes the old, or changes only the terms of payment, or adds other
obligations not incompatible with the old ones, or the new contract merely supplements the old one.
A new contract that is a mere reiteration, acknowledgment or ratification of the old contract with
slight modifications or alterations as to the cause or object or principal conditions can stand together
with the former one, and there can be no incompatibility between them.
Moreover, a creditor’s acceptance of payment after demand does not operate as a modification of the
original contract.
Worth noting is that Servando’s liability was joint and solidary with his co-debtors. In a solidary
obligation, the creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The choice to determine against whom the collection is enforced belongs to the
creditor until the obligation is fully satisfied.
Thus, the obligation was being enforced against Servando, who, in order to escape liability, should
have presented evidence to prove that his obligation had already been cancelled by the new
obligation or that another debtor had assumed his place.
In case of change in the person of the debtor, the substitution must be clear and express, and made
with the consent of the creditor. Yet, these circumstances did not obtain herein, proving precisely
that Servando remained a solidary debtor against whom the entire or part of the obligation might be
enforced.
Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It
is settled that an extension of the term or period of the maturity date does not result in novation. II
Total liability to be reduced by ₱400,000.00 The petitioners cannot be upheld.
The balance of ₱375,000.00 was premised on the taking place of a novation. However, as found now,
novation did not take place.
Accordingly, Servando’s obligation, being solidary, remained to be that decreed in the December 9,
1991 decision of the RTC, inclusive of interests, less the amount of ₱400,000.00 that was meanwhile
paid by him.
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on March 19,
2003; ORDERS the Regional Trial Court, Branch 16, in Malolos, Bulacan to proceed with the execution
based on its decision rendered on December 9, 1991, deducting the amount of ₱400,000.00 already
paid by the late Servando Franco; and DIRECTS the petitioners to pay the costs of suit. SO
ORDERED.

METRO CONCAST STEEL CORP., SPOUSES JOSE S. DYCHIAO AND TIU OH YAN, ET AL. VS.
ALLIED BANK CORPORATION, G.R. No. 177921. December 4, 2013
Article 1231 of the Civil Code states that obligations are extinguished either by payment or
performance, the loss of the thing due, the condonation or remission of the debt, the confusion or
merger of the rights of creditor and debtor, compensation or novation.
In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already
been extinguished due to Peakstar’s failure to perform its own obligations to Metro Concast pursuant
to the MoA.
Petitioners classify Peakstar’s default as a form of force majeure in the sense that they have, beyond
their control, lost the funds they expected to have received from the Peakstar (due to the MoA)
which they would, in turn, use to pay their own loan obligations to Allied Bank.
They further state that Allied Bank was equally bound by Metro Concast’s MoA with Peakstar since its
agent, Atty. Saw, actively represented it during the negotiations and execution of the said
agreement. Petitioners’ arguments are untenable. At the outset, the Court must dispel the notion that
the MoA would have any relevance to the performance of petitioners’ obligations to Allied Bank.
The MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from various
loan transactions. Absent any showing that the terms and conditions of the latter transactions have
been, in any way, modified or novated by the terms and conditions in the MoA, said contracts should
be treated separately and distinctly from each other, such that the existence, performance or breach
of one would not depend on the existence, performance or breach of the other.
In the foregoing respect, the issue on whether or not Allied Bank expressed its conformity to the
assets sale transaction between Metro Concast and Peakstar (as evidenced by the MoA) is actually
irrelevant to the issues related to petitioners’ loan obligations to the bank.
Besides, as the CA pointed out, the fact of Allied Bank’s representation has not been proven in this
case and hence, cannot be deemed as a sustainable defense to exculpate petitioners from their loan
obligations to Allied Bank. Now, anent petitioners’ reliance on force majeure, suffice it to state that
Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be classified as a
fortuitous event under jurisprudential formulation.
As discussed in Sicam v. Jorge: Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply
with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a
normal manner; and
(d) the obligor must be free from any participation in the aggravation of the injury or loss.40
(Emphases supplied)

While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the same us
clearly not "impossible"to foresee or even an event which is independent of human will." Neither has
it been shown that said occurrence rendered it impossible for petitioners to pay their loan obligations
to Allied Bank and thus, negates the former’s force majeure theory altogether.
In any case, as earlier stated, the performance or breach of the MoA bears no relation to the
performance or breach of the subject loan transactions, they being separate and distinct sources of
obligations.
The fact of the matter is that petitioners’ loan obligations to Allied Bank remain subsisting for the
basic reason that the former has not been able to prove that the same had already been paid or, in
any way, extinguished.
In this regard, petitioners’ liability, as adjudged by the CA, must perforce stand. Considering,
however, that Allied Bank’s extra-judicial demand on petitioners appears to have been made only on
December 10, 1998, the computation of the applicable interests and penalty charges should be
reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution dated
May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with
MODIFICATION reckoning the applicable interests and penalty charges from the date of the
extrajudicial demand or on December 10, 1998. The rest of the appellate court’s dispositions stand.
SO ORDERED.

SPS. GODFREY AND GERARDINA SERFINO VS. FAR EAST BANK AND TRUST COMPANY,
INC., NOW BANK OF THE PHILIPINE ISLANDS, G.R. No. 171845. October 10, 2012,
The spouses Serfino’s claim for damages against FEBTC is premised on their claim of ownership of
the deposit with FEBTC. The deposit consists of Magdalena’s retirement benefits, which the spouses
Serfino claim to have been assigned to them under the compromise judgment. That the retirement
benefits were deposited in Grace’s savings account with FEBTC supposedly did not divest them of
ownership of the amount, as "the money already belongs to the [spouses Serfino] having been
absolutely assigned to them and constructively delivered by virtue of the x x x public instrument[.]"
By virtue of the assignment of credit, the spouses Serfino claim ownership of the deposit, and they
posit that FEBTC was duty bound to protect their right by preventing the withdrawal of the deposit
since the bank had been notified of the assignment and of their claim.
We find no basis to support the spouses Serfino’s claim of ownership of the deposit.
"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against the
debtor. It may be in the form of sale, but at times it may constitute a dation in payment, such as
when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has
against a third person."
As a dation in payment, the assignment of credit operates as a mode of extinguishing the obligation;
the delivery and transmission of ownership of a thing (in this case, the credit due from a third
person) by the debtor to the creditor is accepted as the equivalent of the performance of the
obligation.
The terms of the compromise judgment, however, did not convey an intent to equate the assignment
of Magdalena’s retirement benefits (the credit) as the equivalent of the payment of the debt due the
spouses Serfino (the obligation).
There was actually no assignment of credit; if at all, the compromise judgment merely identified the
fund from which payment for the judgment debt would be sourced: (c) That before the plaintiffs file
a motion for execution of the decision or order based [on this] Compromise Agreement, the
defendant, Magdalena Cortez undertake[s] and bind[s] herself to pay in full the judgment debt out of
her retirement benefits as Local [T]reasury Operation Officer in the City of Bacolod, Philippines, upon
which full payment, the plaintiffs waive, abandon and relinquish absolutely any of their claims for
attorney’s fees stipulated in the Promissory Note (Annex "A" to the Complaint).15 [emphasis ours]
Only when Magdalena has received and turned over to the spouses Serfino the portion of her
retirement benefits corresponding to the debt due would the debt be deemed paid.
AQUITEY V. TIBONG,
The issue raised was whether the obligation to pay the loan was extinguished by the execution of the
deeds of assignment. The Court ruled in the affirmative, given that, in the deeds involved, the
respondent (the debtor) assigned to the petitioner (the creditor) her credits "to make good" the
balance of her obligation; the parties agreed to relieve the respondent of her obligation to pay the
balance of her account, and for the petitioner to collect the same from the respondent’s debtors.
The Court concluded that the respondent’s obligation to pay the balance of her accounts with the
petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by the
respondent in favor of the petitioner.
In the present case, the judgment debt was not extinguished by the mere designation in the
compromise judgment of Magdalena’s retirement benefits as the fund from which payment shall be
sourced. That the compromise agreement authorizes recourse in case of default on other executable
properties of the spouses Cortez, to satisfy the judgment debt, further supports our conclusion that
there was no assignment of Magdalena’s credit with the GSIS that would have extinguished the
obligation.
The compromise judgment in this case also did not give the supposed assignees, the spouses
Serfino, the power to enforce Magdalena’s credit against the GSIS. In fact, the spouses Serfino are
prohibited from enforcing their claim until after the lapse of one (1) week from Magdalena’s receipt of
her retirement benefits: (d) That the plaintiffs shall refrain from having the judgment based upon this
Compromise Agreement executed until after one (1) week from receipt by the defendant, Magdalena
Cortez of her retirement benefits from the [GSIS] but fails to pay within the said period the
defendants’ judgment debt in this case, in which case [this] Compromise Agreement [may be]
executed upon any property of the defendants that are subject to execution upon motion by the
plaintiffs.
An assignment of credit not only entitles the assignee to the credit itself, but also gives him the
power to enforce it as against the debtor of the assignor.
Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of
the retirement benefits that were deposited with FEBTC.
Without ownership rights over the amount, they suffered no pecuniary loss that has to be
compensated by actual damages. The grant of actual damages presupposes that the claimant
suffered a duly proven pecuniary loss.
WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the
decision dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil Case
No. 95-9344 is AFFIRMED. Costs against the petitioners. SO ORDERED.