Antonia R. Dela Pea, et al. vs Gemma Remilyn C.

Avila and Far East Bank & Trust Co

G.R. No. !"#$%., Fe&ruary !, '%'.
Fa(ts)
On 7 May 1996, Antonia obtained from A.C. Aguila & Sons, Co. (Aguila) a loan in te
sum of !"#$,$$$.$$ %i&, 'ursuant to te Promissory Note te former e(e&uted in fa)or of
te latter, %as 'ayable on or before 7 *uly 1996, %it interest 'egged at #+ 'er mont. On
te )ery same day, Antonia also e(e&uted in fa)or of Aguila a notari,edDeed o* Real Estate
+ort,a,e o)er te 'ro'erty, for te 'ur'ose of se&uring te 'ayment of said loan
obligation. -e deed 'ro)ided, in 'art, tat .(t)is &ontra&t is for a 'eriod of -ree (/)
monts from te date of tis instrument0.
On 1 2o)ember 1997, Antonia e(e&uted a notari,ed Deed o* A&solute -ale o)er te 'ro'erty
in fa)or of res'ondent 3emma 4emilyn C. A)ila (3emma), for te stated &onsideration
of !6$$,$$$.$$. 5tili,ing te do&ument, 3emma &aused te &an&ellation of -C- 2o. 26/"/1#
as %ell as te issuan&e of -C- 2o. //77/1 of te Mari8ina City 4egistry of 9eeds, naming er
as te o%ner of te sub:e&t realty. On "6 2o)ember 1997, 3emma also &onstituted a real
estate mortgage o)er said 'ar&el in fa)or of res'ondent ;ar <ast =an8 and -rust Com'any
>no% =an8 of te !ili''ine ?slands@ (;<=-C6=!?), to se&ure a loan fa&ility %it a &redit limit
of !1,"$$,$$$.$$.
Antonia Aled %it te 4egister of 9eeds of Mari8ina an A.davit o* Adverse Claim to te
eBe&t, among oters, tat se %as te true and la%ful o%ner of te 'ro'erty %i& ad been
titled in te name of 3emma under -C- 2o. /"/1#C and, tat te 9eed of Absolute Sale
3emma utili,ed in 'ro&uring er title %as simulated.
?ssueD
Eeter or not te CA erred in re)ersing te 4-C olding (;<=-C6=!?) a
mortgageeF'ur&aser in bad fait.
GeldD
Sin&e fore&losure of te mortgage is but te ne&essary &onseHuen&e of non6'ayment of te
mortgage debt, ;<=-C6=!? %as, li8e%ise, a&ting %ell %itin its rigts as mortgagee %en it
fore&losed te real estate mortgage on te 'ro'erty u'on 3emmaIs failure to 'ay te loans
se&ured tereby. <(e&uted on "6 2o)ember 1997, te mortgage 'redated AntoniaIs Aling of
an AJda)it of Ad)erse Claim %it te 4egister of 9eeds of Mari8ina on / Mar& 1997 and
te annotation of a 2oti&e of Kis !endens on -C- 2o. //77/1 on 1$ 9e&ember 1999. .-e
mortgage dire&tly and immediately sub:e&ts te 'ro'erty u'on %i& it is im'osed, %oe)er
te 'ossessor may be, to te fulAlment of te obligation for %ose se&urity it %as
&onstituted.0 Een te 'rin&i'al obligation is not 'aid %en due, te mortgagee
&onseHuently as te rigt to fore&lose te mortgage, sell te 'ro'erty, and a''ly te
'ro&eeds of te sale to te satisfa&tion of te un'aid loan.
1
Caridad -e,arra -a/on vs. 0ete(ia 1as2ue/3+enan(io,
G.R. No. $'%!4. Fe&ruary '', '%'
Fa(ts)
4es'ondent is a resident of te 5nited States of Ameri&a. Sometime in 1979, se
entrusted te management, administration, &are and 'reser)ation of er 'ro'erties to
'etitioner. !etitioner as te administrator as &olle&ted and re&ei)ed all te fruits and
in&ome a&&ruing terefrom.. A&&ording to res'ondent, 'etitioner ne)er rendered a full
a&&ounting of te fruits and in&ome deri)ed from te 'ro'erties, but as instead
a''ro'riated and in fa&t a''lied tese for er o%n use and beneAt. As a result of te
foregoing, res'ondent re)o8ed, in %riting, all te 'o%ers and autority of administration
granted to 'etitioner eBe&ti)e Mar& 1997.
?ssueD
Eeter 'etitioner is duty bound to render an a&&ounting
GeldD
Arti&le 1791 of te Ci)il Code &ontains a fe% of te obligations o%ed by an agent to is
'rin&i'al L <)ery agent is bound to render an a&&ount of is transa&tions and to deli)er to
te 'rin&i'al %ate)er e may a)e re&ei)ed by )irtue of te agen&y, e)en toug it may
not be o%ing to te 'rin&i'al. <)ery sti'ulation e(em'ting te agent from te obligation to
render an a&&ount sall be )oid.
?t is e)ident tat te reason beind te failure of 'etitioner to render an a&&ounting to
res'ondent is immaterial. Eat is im'ortant is tat te former fulAll er duty to render an
a&&ount of te rele)ant transa&tions se entered into as res'ondentIs agent.
"
C5ina Bankin, Cor6oration vs. 7BR8 Fis5in, Enter6rises, 9n(.,
G.R. No. !#44:, Fe&ruary '', '%'.
Fa(ts)
?n 1991, -rans6;ili'inas 4ealty Cor'oration (-;4C) obtained a loan from
'etitioner Cina =an8ing Cor'oration in te amount of Se)en Million !esos
(!7,$$$,$$$). -e loan %as se&ured by a real estate mortgage o)er t%o 'ar&els of land
&o)ered by -ransfer CertiA&ate of -itle (-C-) 2os. -6/1""6 and -6/1""7. -e &redit line of
-;4C %as later in&reased to !11,$$$,$$$. On May 1$, 1996, te =oard of 9ire&tors of
res'ondent M=4O ;ising <nter'rises, ?n&. issued a resolution autori,ing te mortgage of
its 'ro'erties to se&ure .te obligations in&urred or %i& may >t@ereafter be in&urred by
>-;4C@ %it >'etitioner@ irres'e&ti)e of te amount in&luding any rene%als, e(tensions andFor
roll6o)ers tereof.0
On *une /, 1996, res'ondent, re'resented by Armando Cesar A. 4eyes and
Con&e'&ion 4. Muintana, its 'resident and treasurer, res'e&ti)ely, e(e&uted a real estate
mortgage o)er nine 'ar&els of land, &o)ered by -C- 2os. -6/77#9 to -6/7767, in&lusi)e, as
&ollateral for -;4CIs additional loan in te amount of !/1,#$$,$$$. -e mortgage %as
annotated in te 4egistry of 9eeds of 3eneral Santos City. -;4C, o%e)er, defaulted on te
'ayment of its obligation and failed to settle its a&&ount des'ite a)ing re&ei)ed se)eral
demand letters from 'etitioner.
>
-us, 'etitioner Aled a 'etition for e(tra:udi&ial fore&losure
of te real 'ro'erties res'ondent and -;4C ad mortgaged.
?ssueD
Eeter a &or'oration not bound by te obligation may mortgage its o%n 'ro'erty to se&ure
su& obligation
GeldD
-ird 'ersons %o are not 'arties to te 'rin&i'al obligation may se&ure te latter by
'ledging or mortgaging teir o%n 'ro'erty. -e fa&t tat te loans %ere solely for te beneAt
of -;4C %ould not in)alidate te mortgage %it res'e&t to res'ondentIs 'ro'erty as long as
)alid &onsent %as gi)en. -us, %en res'ondent e(e&uted te real estate mortgage o)er its
'ro'erties, su& 'ro'erties tereby se&ured te 'erforman&e of te 'rin&i'al obligation
/
not%itstanding te fa&t tat res'ondent itself ad not assumed any liability for te debt of
-;4C.
Crisanta Al(ara/ +i,uel vs. ;erry D. +ontane/,
G.R. No. $<<:. ;anuary '4, '%'.
;a&tsD
On ;ebruary 1, "$$1, res'ondent *erry Montane, (Montane,) se&ured a loan of One
Gundred ;orty6-ree -ousand <igt Gundred Si(ty6;our !esos (!11/,761.$$), 'ayable in
one (1) year, or until ;ebruary 1, "$$", from te 'etitioner. -e res'ondent ga)e as
&ollateral terefor is ouse and lot lo&ated at =lo&8 /9 Kot /9 !ase /, !almera S'ring,
=agumbong, Caloo&an City.

9ue to te res'ondentIs failure to 'ay te loan, te 'etitioner Aled a &om'laint
against te res'ondent before te 0u6on, Ta,a6amaya6a of Baran,ay San *ose, 4odrigue,,
4i,al. -e 'arties entered into a =asunduan, Pa,3aayos %erein te res'ondent agreed to
'ay is loan in installments in te amount of -%o -ousand !esos (!",$$$.$$) 'er mont,
and in te e)ent te ouse and lot gi)en as &ollateral is sold, te res'ondent %ould settle
te balan&e of te loan in full. Go%e)er, te res'ondent still failed to 'ay, and on 9e&ember
1/, "$$1, te 0u6on, Ta,a6amaya6a issued a &ertiA&ation to Ale a&tion in &ourt in fa)or of
te 'etitioner.

On A'ril 7, "$$#, te 'etitioner Aled before te Metro'olitan -rial Court (Me-C) of
Ma8ati City, =ran& 66, a &om'laint for Colle&tion of Sum of Money.
?ssueD
Eeter te failure to &om'ly %it te 8asunduan is ground for its res&ission
GeldD
An ami&able settlement rea&ed at te barangay &on&iliation 'ro&eedings is binding
bet%een te &ontra&ting 'arties and, u'on its 'erfe&tion, is immediately e(e&utory insofar
1
as it is not &ontrary to la%, good morals, good &ustoms, 'ubli& order and 'ubli& 'oli&y. =eing
a by6'rodu&t of mutual &on&essions and good fait of te 'arties, an ami&able settlement
as te for&e and eBe&t of res >udi(ata e)en if not :udi&ially a''ro)ed. ?t is a8in to a
:udgment sub:e&t to e(e&ution in a&&ordan&e %it te 4ules. Go%e)er, te enfor&ement by
e(e&ution of te ami&able settlement by te =arangay Ku'on %itin si( monts from te
date of settlement, or by Aling an a&tion to enfor&e su& settlement in te a''ro'riate &ity
or muni&i'al &ourt, if beyond te si(6mont 'eriod, is only a''li&able if te &ontra&ting
'arties a)e not re'udiated su& settlement %itin ten days from te date tereof in
a&&ordan&e %it Se&tion 116 of te Ko&al 3o)ernment Code. ?f te ami&able settlement is
re'udiated by one 'arty, eiter e('ressly or im'liedly, te oter 'arty as t%o o'tionsD (1)
to enfor&e te &om'romise in a&&ordan&e %it te Ko&al 3o)ernment Code or 4ules of Court
as te &ase may be, or (") to &onsider it res&inded and insist u'on is original demand. -is
is in a&&ord %it Arti&le "$11 of te Ci)il Code, %i& HualiAes te broad a''li&ation of
Arti&le "$/7.
Arti&le "$11 does not reHuire an a&tion for res&ission, and te aggrie)ed 'arty, by te
brea& of te &om'romise agreement, may :ust &onsider it already res&inded. A 'artyIs
non&om'lian&e %it te ami&able settlement 'a)e te %ay for te a''li&ation of Arti&le
"$11 under %i& te oter 'arty may eiter enfor&e te &om'romise, follo%ing te
'ro&edure laid out in t5e Revised =atarun,an, Pam&aran,ay 0a?, or &onsider it as res&inded
and insist u'on is original demand. -e res'ondentIs non6&om'lian&e %it te terms and
&onditions of te =asunduan, Pa,3aayos, may be &onstrued as re'udiation be&ause it
denotes tat te res'ondent did not intend to be bound by te terms tereof, tereby
negating te )ery 'ur'ose for %i& it %as e(e&uted. -us, te 'etitioner as te o'tion
eiter to enfor&e te =asunduan, Pa,3aayos, or to regard it as res&inded and insist u'on is
original demand, in a&&ordan&e %it Arti&le "$11 of te Ci)il Code. Ga)ing instituted an
a&tion for &olle&tion of sum of money, te 'etitioner ob)iously &ose to res&ind
te=asunduan, Pa,3aayos. ?t %as error on te 'art of te Court of A''eals to rule tat te
enfor&ement by e(e&ution of said agreement is te a''ro'riate remedy under te
&ir&umstan&es.
#
F.F. Cru/ & Co., 9n(. vs. @R Constru(tion Cor6.A
G.R. No. !"4'. +ar(5 #, '%'
;a&tsD
Sometime in "$$1, ;;CC? entered into a &ontra&t %it te 9e'artment of !ubli&
Eor8s and Gig%ays (9!EG) for te &onstru&tion of te Magsaysay Niadu&t, 8no%n as te
Ko%er Agusan 9e)elo'ment !ro:e&t. On August 9, "$$1, ;;CC?, in turn, entered into a
Sub&ontra&t Agreement %it G4 Constru&tion Cor'oration (G4CC) for te su''ly of
materials, labor, eHui'ment, tools and su'er)ision for te &onstru&tion of a 'ortion of te
said 'ro:e&t &alled te <ast =an8 Ke)ee. G4CC sent ;;CC? a letter dated 9e&ember 1/, "$$1
demanding te 'ayment of its 'rogress billings in te total amount of !7,/1$,$16.$9, 'lus
interests, %itin tree days from re&ei't tereof. SubseHuently, G4CC &om'letely alted te
&onstru&tion of te sub&ontra&ted 'ro:e&t after ta8ing its Cristmas brea8 on 9e&ember 17,
"$$1.
?ssueD
Eeter G4CCIs 4es&ission of te Sub&ontra&t Agreement is )alid
GeldD
=ot te CA and te C?AC eld tat te %or8 sto''age of G4CC %as :ustiAed as te
same is but an e(er&ise of its rigt to res&ind te Sub&ontra&t Agreement in )ie% of ;;CC?Is
failure to 'ay te formerIs montly 'rogress billings. ;urter, te C?AC stated tat ;;CC?
&ould no longer assail te %or8 sto''age of G4CC as it failed to Ale any &ounter&laim against
G4CC 'ursuant to te terms of te Sub&ontra&t Agreement.
6
-e res&ission referred to in Arti&le 1191 of te Ci)il Code, more a''ro'riately referred to as
resolution, is on te brea& of fait by te defendant, %i& is )iolati)e of te re&i'ro&ity
bet%een te 'arties. -e rigt to res&ind, o%e)er, may be %ai)ed, e('ressly or im'liedly.
Eile te rigt to res&ind re&i'ro&al obligations is im'lied, tat is, tat su& rigt need not
be e('ressly 'ro)ided in te &ontra&t, ne)erteless te &ontra&ting 'arties may %ai)e te
same.
Gen&e, in s'ite of te e(isten&e of dis'ute or &ontro)ersy bet%een te 'arties during te
&ourse of te Sub&ontra&t Agreement, G4CC ad agreed to &ontinue te 'erforman&e of its
obligations 'ursuant to te Sub&ontra&t Agreement. ?n )ie% of te 'ro)ision of te
Sub&ontra&t Agreement, G4CC is deemed to a)e eBe&ti)ely %ai)ed its rigt to eBe&t
e(tra:udi&ial res&ission of its &ontra&t %it ;;CC?. A&&ordingly, G4CC, in te guise of
res&inding te Sub&ontra&t Agreement, %as not :ustiAed in im'lementing a %or8 sto''age.
Fontana Resort and Country Clu&, 9n(. and RN Develo6ment Cor6oration vs. -6ouses Roy -.
Tan and -usan C. TanA
G.R. No. 4#:"%. ;anuary <%, '%'.
;a&tsD
Sometime in Mar& 1997, res'ondent s'ouses 4oy S. -an and Susana C. -an bougt
from 'etitioner 42 9e)elo'ment Cor'oration (429C) t%o &lass .90 sares of sto&8 in
'etitioner ;ontana 4esort and Country Club, ?n&. (;4CC?), %ort !/77,/$$.$$, enti&ed by te
'romises of 'etitionersI sales agents tat 'etitioner ;4CC? %ould &onstru&t a 'ar8 %it Arst6
&lass leisure fa&ilities in Clar8 ;ield, !am'anga, to be &alled ;ontana Keisure !ar8 (;K!)C tat
;K! %ould be fully de)elo'ed and o'erational by te Arst Huarter of 1997C and tat ;4CC?
&lass .90 sareolders %ould be admitted to one membersi' in te &ountry &lub, %i&
entitled tem to use 'ar8 fa&ilities and stay at a t%o6bedroom )illa for .A)e (#) ordinary
%ee8days and t%o (") %ee8ends e)ery year for free.0
-%o years later, in Mar& 1999, res'ondents Aled before te S<C a Com'laint for
refund of te !/77,/$$.$$ tey s'ent to 'ur&ase ;4CC? sares of sto&8 from
'etitioners. 4es'ondents alleged tat tey ad been de&ei)ed into buying ;4CC? sares
be&ause of 'etitionersI fraudulent misre'resentations. Constru&tion of ;K! turned out to be
still unAnised and te 'oli&ies, rules, and regulations of te &ountry &lub %ere obs&ure.
?ssueD
7
Eeter te &ontra&t may be annulled
GeldD
-ere is fraud %en one 'arty is indu&ed by te oter to enter into a &ontra&t,
troug and solely be&ause of te latterIs insidious %ords or ma&inations. =ut not all forms
of fraud &an )itiate &onsent. 5nder Arti&le 1//$ of te Ci)il Code, tis fraud refers to dolo
(ausante or &ausal fraud, in %i&, 'rior to or simultaneous %it te e(e&ution of a &ontra&t,
one 'arty se&ures te &onsent of te oter by using de&e'tion, %itout %i& su& &onsent
%ould not a)e been gi)en. -e fraud must be te determining &ause of te &ontra&t, or
must a)e &aused te &onsent to be gi)en. One %o alleges fraud or mista8e in a
transa&tion must substantiate is allegation sin&e te 'resum'tion is tat a 'erson ta8es
ordinary &are for is &on&erns and 'ri)ate dealings a)e been entered into fairly and
regularly. -us, one %o alleges defe&t or la&8 of )alid &onsent to a &ontra&t by reason of
fraud or undue inOuen&e must establis by full, &lear and &on)in&ing e)iden&e su& s'e&iA&
a&ts tat )itiated a 'artyIs &onsentC oter%ise te 'resumed &onsent to te &ontra&t
're)ails. ?n tis &ase, te -an s'ouses failed to 'ro)e o% fraud %as em'loyed to indu&e
tem to buy te ;4CC? sares. -ere %as no so%ing tat insidious %ords or ma&inations
%ere used by te 'etitioners, %itout %i&, te s'ouses %ould not a)e bougt te sares.
-e rigt to res&ind a &ontra&t arises on&e te oter 'arty defaults in te
'erforman&e of is obligation. Go%e)er, res&ission %ill not be 'ermitted for a sligt or &asual
brea&, but only for substantial and fundamental brea& as %ould defeat te )ery ob:e&t of
te 'arties in ma8ing te agreement. Ki8e fraud, te burden of establising te default lies
u'on te 'arty %o alleges tat default %as &ommitted. -ere %as no e)iden&e 'resented
tat 'etitioners defaulted on any of teir obligations. -erefore, altoug te Com'laint in
tis &ase suJ&iently alleged a &ause of a&tion for te annulment or res&ission of te &ontra&t
of sale of ;4CC? sares, o%e)er, tere %as failure on te 'art of te -an s'ouses to
establis by 're'onderan&e of e)iden&e tat tey are entitled to te said annulment or
res&ission.
@eirs o* -ervando Fran(o vs. -6s. 1eroni(a & Danilo Gon/alesC
3.4. 2o. 1#97$9, *une "7, "$1".
;a&tsD
On 2o)ember 7, 197#, Ser)ando ;ran&o and Keti&ia Medel (ereafter
Ser)ando and Keti&ia) obtained a loan from Neroni&a 4. 3on,ales (ereafter
Neroni&a), %o %as engaged in te money lending business under te name
.3on,ales Credit <nter'rises0, in te amount of !#$,$$$.$$, 'ayable in t%o
monts. Neroni&a ga)e only te amount of !17,$$$.$$, to te borro%ers, as
se retained !/,$$$.$$, as ad)an&e interest for one mont at 6+ 'er mont.
Ser)ado and Keti&ia e(e&uted a 'romissory note for !#$,$$$.$$, to e)iden&e
te loan, 'ayable on *anuary 7, 1976. On 2o)ember 19, 197#, Ser)ando and
Keti&ia obtained from Neroni&a anoter loan in te amount of !9$,$$$.$$,
7
'ayable in t%o monts, at 6+ interest 'er mont. -ey e(e&uted a
'romissory note to e)iden&e te loan, maturing on *anuary 19, 1976. -ey
re&ei)ed only !71,$$$.$$, out of te 'ro&eeds of te loan. On maturity of te
t%o 'romissory notes, te borro%ers failed to 'ay te indebtedness.

On *une 11, 1976, Ser)ando and Keti&ia se&ured from Neroni&a still
anoter loan in te amount of !/$$,$$$.$$, maturing in one mont, se&ured
by a real estate mortgage o)er a 'ro'erty belonging to Keti&ia Ma8alintal
Pa'tin&ay, %o issued a s'e&ial 'o%er of attorney in fa)or of Keti&ia Medel,
autori,ing er to e(e&ute te mortgage. Ser)ando and Keti&ia e(e&uted a
'romissory note in fa)or of Neroni&a to 'ay te sum of !/$$,$$$.$$, after a
mont, or on *uly 11, 1976. Go%e)er, only te sum of !"7#,$$$.$$, %as gi)en
to tem out of te 'ro&eeds of te loan. Ki8e te 're)ious loans, Ser)ando and
Medel failed to 'ay te tird loan on maturity.

On *uly "/, 1976, Ser)ando and Keti&ia %it te latterQs usband, 9r.
4afael Medel, &onsolidated all teir 're)ious un'aid loans
totaling !11$,$$$.$$, and sougt from Neroni&a anoter loan in te amount
of !6$,$$$.$$, bringing teir indebtedness to a total of !#$$,$$$.$$, 'ayable
on August "/, 1976. -ey e(e&uted a 'romissory note.
?ssueD
Eas tere a no)ation of te August "/, 1976 'romissory note %en res'ondent
Neroni&a 3on,ales issued te ;ebruary #, 199" re&ei't.
GeldD
A no)ation arises %en tere is a substitution of an obligation by a subseHuent one
tat e(tinguises te Arst, eiter by &anging te ob:e&t or te 'rin&i'al &onditions, or by
substituting te 'erson of te debtor, or by subrogating a tird 'erson in te rigts of te
&reditor. ;or a )alid no)ation to ta8e 'la&e, tere must be, tereforeD (a) a 're)ious )alid
obligationC (&) an agreement of te 'arties to ma8e a ne% &ontra&tC (() an e(tinguisment of
te old &ontra&tC and (d) a )alid ne% &ontra&t. ?n sort, te ne% obligation e(tinguises te
'rior agreement only %en te substitution is uneHui)o&ally de&lared, or te old and te
ne% obligations are in&om'atible on e)ery 'oint. A &om'romise of a Anal :udgment o'erates
as a no)ation of te :udgment obligation u'on &om'lian&e %it eiter of tese t%o
&onditions.
-o be &lear, no)ation is not 'resumed. -is means tat te 'arties to a &ontra&t sould
e('ressly agree to abrogate te old &ontra&t in fa)or of a ne% one. ?n te absen&e of te
e('ress agreement, te old and te ne% obligations must be in&om'atible on e)ery 'oint.
-ere is in&om'atibility %en te t%o obligations &annot stand togeter, ea& one a)ing its
inde'endent e(isten&e. ?f te t%o obligations &annot stand togeter, te latter obligation
no)ates te Arst. Canges tat breed in&om'atibility must be essential in nature and not
merely a&&idental. -e in&om'atibility must aBe&t any of te essential elements of te
obligation, su& as its ob:e&t, &ause or 'rin&i'al &onditions tereofC oter%ise, te &ange is
merely modiA&atory in nature and insuJ&ient to e(tinguis te original obligation.
9
-e re&ei't dated ;ebruary #, 199" %as only te 'roof of Ser)andoIs 'ayment of is
obligation as &onArmed by te de&ision of te 4-C. ?t did not establis te no)ation of is
agreement %it te res'ondents. ?ndeed, te Court as ruled tat an obligation to 'ay a
sum of money is not no)ated by an instrument tat e('ressly re&ogni,es te old, or &anges
only te terms of 'ayment, or adds oter obligations not in&om'atible %it te old ones, or
te ne% &ontra&t merely su''lements te old one. A ne% &ontra&t tat is a mere reiteration,
a&8no%ledgment or ratiA&ation of te old &ontra&t %it sligt modiA&ations or alterations as
to te &ause or ob:e&t or 'rin&i'al &onditions &an stand togeter %it te former one, and
tere &an be no in&om'atibility bet%een tem. Moreo)er, a &reditorIs a&&e'tan&e of
'ayment after demand does not o'erate as a modiA&ation of te original &ontra&t.
Kastly, te e(tension of te maturity date did not &onstitute a no)ation of te 're)ious
agreement. ?t is settled tat an e(tension of te term or 'eriod of te maturity date does not
result in no)ation.
0a,rimas de ;esus Bamora v. -6ouses Beatri/ Bamora et al.
3.4. 2o. 16"9/$. 9e&ember #, "$1".
1$
;a&tsD
4es'ondent =eatri, Miranda %as te registered o%ner of te 'ro'erty in Huestion,
%i& is a 'ar&el of land, %it an area of more or less #,$9$ sHuare meters, &o)ered by
-ransfer CertiA&ate of -itle (-C-) 2o. 1#91 of te 4egister of 9eeds for te City of 9a)ao. -e
said 'ar&el of land is lo&ated at Carmelite, =a:ada, 9a)ao City. =eatri, Miranda sold to er
te said 'ro'erty for te sum of !#$,$$$.$$. !etitioner furter &laimed tat after 197", se
rented out 'ortions of te 'ro'erty in Huestion. <duardo Ce&ilio allegedly &ontinued to be er
en&argado as tere %ere sHuatters on te 'ro'erty. ?n *anuary 1996, te tenants re'orted to
er tat tere %ere t%o men %o %ent to te 'ro'erty in Huestion. On te Arst %ee8 of
;ebruary 1996, se ('etitioner) met Atty. Cabebe and Mr. *oe Ang. Se informed tem tat
se %as te o%ner of te 'ro'erty in Huestion as se bougt it in 197". After sometime, se
('etitioner) learned tat te o&&u'ants of te 'ro'erty in Huestion %ere being arassed and
%ere told to )a&ate. Se ('etitioner) %ent to Manila and &onfronted res'ondent =eatri,
Miranda, and told er tat se %ould Ale a &ase in &ourt. On *une 11, 1996, 'etitioner Aled
%it te 4-C of 9a)ao City, =ran& 1" (trial &ourt) an a&tion for s'e&iA& 'erforman&e,
annulment of sale and &ertiA&ate of title, damages, %it 'reliminary in:un&tion and
tem'orary restraining order.
?ssueD
%eter or not te Court of A''eals erred in aJrming te de&ision of te trial &ourt,
dismissing te &om'laint for s'e&iA& 'erforman&e, annulment of sale and &ertiA&ate of title
and damages.
GeldD
Arti&le 1/#7 of te Ci)il Code 'ro)ides tat a&ts and &ontra&ts %i& a)e for teir ob:e&t
te transmission of real rigts o)er immo)able 'ro'erty or te sale of real 'ro'erty must
a''ear in a 'ubli& do&ument. ?f te la% reHuires a do&ument or oter s'e&ial form, te
&ontra&ting 'arties may &om'el ea& oter to obser)e tat form, on&e te &ontra&t as been
'erfe&ted. ?n Fule v. Court o* A66eals, te Court eld tat Arti&le 1/#7 of te Ci)il Code,
%i& reHuires te embodiment of &ertain &ontra&ts in a 'ubli& instrument, is only for
&on)enien&e, and registration of te instrument only ad)ersely aBe&ts tird 'arties. ;ormal
reHuirements are, terefore, for te beneAt of tird 'arties. 2on6&om'lian&e tere%it does
not ad)ersely aBe&t te )alidity of te &ontra&t nor te &ontra&tual rigts and obligations of
te 'arties tereunder.
11
+alayan 9nsuran(e Co., 9n(. vs. Rodelio Al&erto and Enri(o Al&erto Reyes,
G.R. No. $#<'%. Fe&ruary , '%'
Fa(ts)
At around # oI&lo&8 in te morning of 9e&ember 17, 199#, an a&&ident o&&urred at
te &orner of <9SA and Ayala A)enue, Ma8ati City, in)ol)ing four (1) )ei&les, to %itD (1) a
2issan =us o'erated by Aladdin -ransit %it 'late number 2PS /71C (") an ?su,u -an8er %it
'late number !K4 671C (/) a ;u,o Cargo -ru&8 %it 'late number !9K "97C and (1) a
Mitsubisi 3alant %it 'late number -KM 7/". -e ?su,u -an8er %as in front of te Mitsubisi
3alant %it te 2issan =us on teir rigt side sortly before te )ei&ular in&ident. All tree
(/) )ei&les %ere at a alt along <9SA fa&ing te sout dire&tion %en te ;u,o Cargo -ru&8
simultaneously bum'ed te rear 'ortion of te Mitsubisi 3alant and te rear left 'ortion of
te 2issan =us. 9ue to te strong im'a&t, tese t%o )ei&les %ere so)ed for%ard and te
front left 'ortion of te Mitsubisi 3alant rammed into te rear rigt 'ortion of te ?su,u
-an8er.
Malayan ?nsuran&e &laimed in its Com'laint dated O&tober 17, 1999 tat it 'aid te
damages sustained by te assured amounting to !! 7$$,$$$, Maintaining tat it as been
subrogated to te rigts and interests of te assured by o'eration of la% u'on its 'ayment
to te latter, Malayan ?nsuran&e sent se)eral demand letters to res'ondents 4odelio Alberto
(Alberto) and <nri&o Alberto 4eyes (4eyes), te registered o%ner and te dri)er,
res'e&ti)ely, of te ;u,o Cargo -ru&8, reHuiring tem to 'ay te amount it ad 'aid to te
assured.
?ssueD
Eeter Malayan ?nsuran&e is te 'ro'er 'arty by %ay of subrogation
GeldD

Subrogation is te substitution of one 'erson by anoter %it referen&e to a la%ful
&laim or rigt, so tat e %o is substituted su&&eeds to te rigts of te oter in relation to
a debt or &laim, in&luding its remedies or se&urities. -e 'rin&i'le &o)ers a situation %erein
an insurer as 'aid a loss under an insuran&e 'oli&y is entitled to all te rigts and remedies
belonging to te insured against a tird 'arty %it res'e&t to any loss &o)ered by te 'oli&y.
?t &ontem'lates full substitution su& tat it 'la&es te 'arty subrogated in te soes of te
&reditor, and e may use all means tat te &reditor &ould em'loy to enfor&e 'ayment.
1"
+anila 9nternational Air6ort vs. Avia Fili6inas 9nternational, 9n(.,
G.R. No. !%:!. Fe&ruary '", '%'
Fa(ts)
?n Se'tember 199$, erein 'etitioner Manila ?nternational Air'ort Autority (M?AA)
entered into a &ontra&t of lease %it erein res'ondent A)ia ;ili'inas ?nternational
Cor'oration (A;?C), %erein M?AA allo%ed A;?C to use s'e&iA& 'ortions of land as %ell as
fa&ilities %itin te 2inoy AHuino ?nternational Air'ort e(&lusi)ely for te latterQs air&raft
re'air station and &artering o'erations. -e &ontra&t %as for one (1) year, beginning
Se'tember 1, 199$ until August /1, 1991, %it a montly rental of !6,#7$.$$. ?n 9e&ember
199$ M?A re)ised te rates of dues, &arges, fees or assessments for te use of its
'ro'erties, fa&ilities and ser)i&es %itin te air'ort &om'le(. -e Administrati)e Order %as
made eBe&ti)e on 9e&ember 1, 199$. As a &onseHuen&e, te montly rentals due from A;?C
%as in&reased to!1#,996.#$. 2oneteless, M?AA did not reHuire A;?C to 'ay te ne% rental
fee. -us, it &ontinued to 'ay te original fee of !6,#7$.$$. After te e('iration of te
&ontra&t, A;?C &ontinued to use and o&&u'y te leased 'remises gi)ing rise to an im'lied
lease &ontra&t on a montly basis. A;?C 8e't on 'aying te original rental fee %itout 'rotest
on te 'art of M?AA. -ree years after te e('iration of te original &ontra&t of lease, M?AA
informed A;?C, troug a billing statement dated O&tober 6, 1991, tat te montly rental
o)er te sub:e&t 'remises %as in&reased to !1#,966.#$ beginning Se'tember 1, 1991, %i&
is te date immediately follo%ing te e('iration of te original &ontra&t of lease. M?AA
sougt re&o)ery of te diBeren&e bet%een te in&reased rental rate and te original rental
fee amounting to a total of !/17,/$$.#$ &o)ering tirty6se)en (/7) monts bet%een
Se'tember 1, 1991 and Se'tember /1, 1991. =eginning O&tober 1991, A;?C 'aid te
in&reased rental fee. Go%e)er, it refused to 'ay te lum' sum of !/17,/$$.#$ sougt to be
re&o)ered by M?AA.
?ssueD
EG<-G<4 -G< GO2O4A=K< CO54- O; A!!<AKS CO44<C-KP ?2-<4!4<-<9
-G< !4ON?S?O2S O; -G< K<AS< CO2-4AC- ?2 K?2< E?-G -G< !4ON?S?O2S O;
-G< C?N?K CO9< A29 <R?S-?23 *54?S!459<2C< O2 CO2-4AC-S.
GeldD
1/
Arti&le 1/71 of te Ci)il Code &learly 'ro)ides tat .>t@e )arious sti'ulations of a
&ontra&t sall be inter'reted togeter, attributing to te doubtful ones tat sense %i& may
result from all of tem ta8en :ointly. ?t is true tat Arti&le ??, !aragra' ".$1 of te Contra&t of
Kease states tat .>a@ny subseHuent amendment to Administrati)e Order 2o. 1, Series of
197", %i& %ill eBe&t a de&rease or es&alation of te montly rental or im'ose ne% and
additional fees and &arges, in&luding but not limited to go)ernmentFM?AA &ir&ulars, rules
and regulation to tis eBe&t, sall be deemed in&or'orated erein and sall automati&ally
amend tis Contra&t insofar as te montly rental is &on&erned.0 Go%e)er, te abo)e
Huoted 'ro)ision of te lease &ontra&t sould not be read in isolation. 4ater, it sould be
read togeter %it te 'ro)isions of Arti&le N???, !aragra' 7.1/, %i& 'ro)ide tat
.>a@ny amendment, alteration or modiA&ation of t>e@ Contra&t sall not be )alid and
binding, unless and until made in %riting and signed by te 'arties tereto.0 ?t is &lear from
te foregoing tat te intention of te 'arties is to sub:e&t su& amendment to te
&onformity of bot 'etitioner and res'ondent.
11
Paulita CEdit5D -erra vs. Nel*a T. +umar
G.R. No. $<!:. +ar(5 #, '%'
;a&tsD
One Armando -enerife (-enerife) %as dri)ing is -oyota Corolla sedan on te 2ational
Gig%ay eading in te dire&tion of !olomolo8, Sout Cotabato. -enerife noti&ed te )an
o%ned by 'etitioner !aulita .<dit0 Serra ('etitioner) &oming from te o''osite dire&tion,
%i& %as trying to o)erta8e a 'assenger :ee', and in te 'ro&ess en&roa&ed on is lane.
-e left side of te sedan %as it by te )an, &ausing te sedan to s%er)e to te left and
end u' on te oter side of te road. -e )an &ollided ead on %it te motor&y&le, %i&
%as about 1" meters beind te sedan on te outer lane, &ausing in:uries to Mumar, %i&
e)entually led to is deat.

On te oter and, 'etitioner denied tat er )an %as o)erta8ing te :ee'ney at te time of
te in&ident. Se &laimed tat te left tire of -enerifeIs sedan burst, &ausing it to sides%i'e
er )an. ConseHuently, te left front tire of te )an also burst and te )anIs dri)er, Mar&iano
de Castro (de Castro), lost &ontrol of te )ei&le. -e )an s%er)ed to te left
to%ardsMumarIs motor&y&le. -e im'a&t resulted in te deat of Mumar.
?ssueD
Eeter damages may be a%arded
GeldD
9amages for loss of earning &a'a&ity is in te nature of a&tual damages, %i& as a rule
must be duly 'ro)en by do&umentary e)iden&e, not merely by te self6ser)ing testimony of
te %ido%. =y %ay of e(&e'tion, damages for loss of earning &a'a&ity may be a%arded
des'ite te absen&e of do&umentary e)iden&e %en (1) te de&eased is self6em'loyed
earning less tan te minimum %age under &urrent labor la%s, and :udi&ial noti&e may be
ta8en of te fa&t tat in te de&easedIs line of %or8 no do&umentary e)iden&e is a)ailableC
1#
or (") te de&eased is em'loyed as a daily %age %or8er earning less tan te minimum
%age under &urrent labor la%s.
?t %as error for te Court of A''eals to a)e a%arded damages for loss of earning &a'a&ity
based on 2elfaIs testimony alone. ;irst, %ile it is &on&eded tat te de&eased %as self6
em'loyed, te Court &annot a&&e't tat in is line of %or8 tere %as no do&umentary 'roof
a)ailable to 'ro)e is in&ome from su& o&&u'ation. -ere %ould a)e been re&ei'ts, :ob
orders, or some form of %ritten &ontra&t or agreement bet%een te de&eased and is &lients
%en e is &ontra&ted for a :ob. Se&ond, and more im'ortantly, de&edent %as not earning
.less tan te minimum %age0 at te time of is deat.
Petron Cor6oration vs. -6s. Cesar ;overo and Erma F. Cudilla, et al.,
G.R. No. 4%<!. ;anuary !, '%'.
;a&tsD
On "# A'ril 1971, 4ubin 5y entered into a Contra&t of Kease %it Cesar *.
*o)ero o)er a 'ro'erty lo&ated at <. 4eyes A)e., <stan&ia, ?loilo for te 'ur'ose of o'erating
a gasoline station for a 'eriod of A)e (#) years. !etron entered into a 4etail 9ealer
Contra&t %it 4ubin 5y for te 'eriod 1 May 1971 to /$ A'ril 1979. 5nder te dealersi'
&ontra&t, 'etitioner sold its 'rodu&ts in Huantities as ordered by te dealer. ?t li8e%ise
obligated itself to deli)er te 'rodu&ts to te dealer at te 'la&es agreed u'on by te
'arties. -e dealer, mean%ile, obligated imself to e(&lusi)ely maintain 'etitionerIs
trademar8s and brand names in is gasoline station. -e 'arties also agreed tat te dealer
sall ma8e good, settle and 'ay, and old 'etitioner armless against all losses and &laims
in&luding tose of te 'arties, teir agents and em'loyees L for deat, 'ersonal in:ury or
'ro'erty damage arising out of any use or &ondition of te dealerIs 'remises or te
eHui'ment and fa&ilities tereon, regardless of any defe&ts tereinC te dealerIs non6
'erforman&e of te &ontra&tC or te storage and andling of 'rodu&ts on te 'remises. ?n
order to &om'ly %it its obligation to deli)er te 'etroleum 'rodu&ts to te dealer, 'etitioner
&ontra&ted te auling ser)i&es of *ose Nillaru,, %o did business under te name 3ale
16
;reigt Ser)i&es. 9uring te unloading of te 'etroleum from te tan8 tru&8 into te All 'i'e
tat led to te gasoline stationIs underground tan8, for reasons un8no%n, a Are started in
te All 'i'e and s'read to te rubber ose &onne&ted to te tan8 tru&8. 9uring tis time,
dri)er !e'ito ?gdanis %as no%ere to be found. =ystanders ten tried to 'ut out te Oames.
?t %as ten tat ?gdanis returned to te gasoline station %it a bag of dried As in and.
Seeing te Are, e got into te tru&8 %itout deta&ing te rubber ose from te All 'i'e and
dro)e in re)erse, dragging te burning fuel ose along te %ay. As a result, a &onOagration
started and &onsumed te nearby 'ro'erties of erein defendants, s'ouses Cesar *. *o)ero
and <rma Cudilla6*o)ero, amounting to !1,#$$,$$$C of s'ouses Keonito -an and Ku,)illa
Samson, amounting to !7$$,$$$C and of s'ouses 4ogelio Kim'o&o and Ku&ia *osue Kim'o&o,
amounting to !1,11",$$$.
Gerein res'ondents tereafter Aled se'arate a&tions for damages against 'etitioner,
Nillaru,, 4ubin 5y, and 9ortina 5y
?ssueD
Eeter tey are solidarily liable
GeldD
A&&ording to Arti&le 1"17 of te Ci)il Code, 'ayment made by one of te solidary
debtors e(tinguises te obligation. ?f t%o or more solidary debtors oBer to 'ay, te &reditor
may &oose %i& oBer to a&&e't. -e debtor %o made te 'ayment may &laim from is
&o6debtors only te sare %i& &orres'onds to ea&, %it te interest for te 'ayment
already made. ?f te 'ayment is made before te debt is due o%e)er, no interest for te
inter)ening 'eriod may be demanded. Arti&le 1"$7 'ro)ides for te sare of solidary debtors
%i& states tatif from te la%, or te nature of te %ording of te obligations to %i& te
're&eding arti&le refers te &ontrary does not a''ear, te &redit of debt sall be 'resumed
to be di)ided into as many eHual sares as tere are &reditors or debtors, te &redits or
debts being &onsidered distin&t from one anoter, sub:e&t to te 4ules of Court go)erning
te multi'li&ity of suits.
17
P5ili66ine C5arter 9nsuran(e Cor6oration vs. Central Colle,es o* t5e P5ili66ines and Dynami(
Planners and Constru(tion Cor6oration,
3.4. 2o. 17$6/16//. ;ebruary "", "$1".
Fa(ts)
On May 16, "$$$, Central Colleges of te !ili''ines ECCPF, an edu&ational institution,
&ontra&ted te ser)i&es of 9ynami& !lanners and Constru&tion Cor'oration (DPCC) to be its
general &ontra&tor for te &onstru&tion of its A)e (#)6storey s&ool building at 2o. /9 Aurora
=oule)ard, Mue,on City, %it a total &ontra&t 'ri&e of!"17,$$$,$$$.$$. -e &onstru&tion of
te entire building %ould be done in t%o 'ases, -e !ase 1 of te 'ro:e&t %as &om'leted
%itout issue. -ereafter, CC! 'aid 9!CC !11,77$,$$$.$$ or 1"+ of te agreed 'ri&e
of !1"1,$$$,$$$.$$ %it a &e&8 datedMar& 11, "$$" as do%n'ayment for te !ase " of
te 'ro:e&t. -e !ase " of te 'ro:e&t, o%e)er, en&ountered numerous delays. Een CC!
audited 9!CC on *uly "#, "$$/, only 17+ of te %or8 to be done %as a&tually Anised.
?ssueD
17
Eeter tere is delay on &om'lying %it te obligation
GeldD
Art. 1169. -ose obliged to deli)er or to do someting in&ur in delay from te
time te obligee :udi&ially or e(tra:udi&ially demands from tem te fulAllment
of teir obligation.

-e &i)il la% &on&e't of delay or default &ommen&es from te time te obligor
demands, :udi&ially or e(tra:udi&ially, te fulAllment of te obligation from te obligee. ?n
legal 'arlan&e, demand is te assertion of a legal or 'ro&edural rigt.
>1/@
Gen&e, 9!CC
in&urred delay from te time CC! &alled its attention tat it ad brea&ed te &ontra&t and
e(tra:udi&ially demanded te fulAllment of its &ommitment against te bonds.

?t is te obligorIs &ul'able delay, not merely te time element, %i& gi)es te
obligee te rigt to see8 te 'erforman&e of te obligation. As su&, CC!Is &ause of a&tion
a&&rued from te time tat 9!CC be&ame in &ul'able delay as &ontem'lated in te surety
and 'erforman&e bonds.
-6s. Fernando and 0ourdes 1iloria vs. Continental Airlines, 9n(.,
G.R. No. !!'!!. ;anuary :, '%'.
Fa(ts)
-6ouses 1iloria (laim t5at CA9 a(ted in &ad *ait5 ?5en it re2uired t5em to 6ay a
5i,5er amount *or a round tri6 ti(ket to 0os An,eles (onsiderin, CA9Gs undertakin, to re3
issue ne? ti(kets to t5em ?it5in t5e 6eriod stated in t5eir +ar(5 '#, $$! letter. CA9
like?ise a(ted in &ad *ait5 ?5en it disallo?ed Fernando to use 0ourdesG ti(ket to 6ur(5ase a
round tri6 to 0os An,eles ,iven t5at t5ere is not5in, in 0ourdesG ti(ket indi(atin, t5at it is
non3trans*era&le. As a (ommon (arrier, it is CA9Gs duty to in*orm its 6assen,ers o* t5e terms
and (onditions o* t5eir (ontra(t and 6assen,ers (annot &e &ound &y su(5 terms and
(onditions ?5i(5 t5ey are not made a?are o*. Also, t5e su&>e(t (ontra(t o* (arria,e is a
(ontra(t o* ad5esionA t5ere*ore, any am&i,uities s5ould &e (onstrued a,ainst CA9. Nota&ly,
19
t5e 6etitioners are no lon,er 2uestionin, t5e validity o* t5e su&>e(t (ontra(ts and limited its
(laim *or a re*und on CA9Gs alle,ed &rea(5 o* its undertakin, in its +ar(5 '#, $$! letter.
9ssue)
Does a 6rin(i6al3a,ent relations5i6 eHist &et?een CA9 and @oliday Travel
@eld)
T5e relations5i6 o* a,en(y is one ?5ere one 6arty (alled t5e 6rin(i6al EmandanteF,
aut5ori/es anot5er, (alled t5e a,ent EmandatarioF, to a(t *or and in 5is &e5al* in transa(tions
?it5 t5ird 6ersons. T5e essential elements o* a,en(y are) EF t5ere is (onsent, eH6ress or
im6lied o* t5e 6arties to esta&lis5 t5e relations5i6A E'F t5e o&>e(t is t5e eHe(ution o* a
>uridi(al a(t in relation to a t5ird 6ersonA E<F t5e a,ent a(ts as a re6resentative and not *or
5imsel*, and E#F t5e a,ent a(ts ?it5in t5e s(o6e o* 5is aut5ority.
A,en(y is &asi(ally 6ersonal, re6resentative, and derivative in nature. T5e aut5ority o* t5e
a,ent to a(t emanates *rom t5e 6o?ers ,ranted to 5im &y 5is 6rin(i6alA 5is a(t is t5e a(t o*
t5e 6rin(i6al i* done ?it5in t5e s(o6e o* t5e aut5ority. 7ui *a(it 6er alium *a(it se. @e ?5o
a(ts t5rou,5 anot5er a(ts 5imsel*.
As 6rovided under Arti(le !:$ o* t5e Civil Code, a,en(y may &e eH6ress, or im6lied *rom
t5e a(ts o* t5e 6rin(i6al, *rom 5is silen(e or la(k o* a(tion, or 5is *ailure to re6udiate t5e
a,en(y, kno?in, t5at anot5er 6erson is a(tin, on 5is &e5al* ?it5out aut5ority.
T5e ,uidelines t5at ?ould aid in diIerentiatin, sale and an a,en(y 5as &een *ormulated &y
t5e Court sin(e $"%. T5e 6rimordial diIerentiatin, (onsideration &et?een t5e t?o E'F
(ontra(ts is t5e trans*er o* o?ners5i6 or title over t5e 6ro6erty su&>e(t o* t5e (ontra(t. 9n an
a,en(y, t5e 6rin(i6al retains o?ners5i6 and (ontrol over t5e 6ro6erty and t5e a,ent merely
a(ts on t5e 6rin(i6alGs &e5al* and under 5is instru(tions in *urt5eran(e o* t5e o&>e(tives *or
?5i(5 t5e a,en(y ?as esta&lis5ed. 8n t5e ot5er 5and, t5e (ontra(t is (learly a sale i* t5e
6arties intended t5at t5e delivery o* t5e 6ro6erty ?ill eIe(t a relin2uis5ment o* title, (ontrol
and o?ners5i6 in su(5 a ?ay t5at t5e re(i6ient may do ?it5 t5e 6ro6erty as 5e 6leases.
-tolt3Nielsen Trans6ortation Grou6, 9n(., et al. vs. -ul6e(io +ode2uillo
G.R. No. ""#$!. ;anuary !, '%'.
;a&tsD
On 6 2o)ember 1991(;irst Contra&t), e %as ired by Stolt62ielsen Marine
Ser)i&es, ?n& on bealf of its 'rin&i'al Cung63ai Si' Management of !anama as
-ird Assistant <ngineer on board te )essel .Stolt As'iration0 for a 'eriod of nine
"$
(9) montsC Ge %ould be 'aid %it a montly basi& salary of S7$7.$$ and a A(ed
o)ertime 'ay of S1$1.$$ or a total of S1,"1".$$ 'er mont during te
em'loyment 'eriod &ommen&ing on 6 2o)ember 1991C On 7 2o)ember 1991, e
:oined te )essel MN .Stolt As'iration0C On ;ebruary 199" or for nearly tree (/)
monts of rendering ser)i&e and %ile te )essel %as at =atangas, e %as
ordered by te si'Is master to disembar8 te )essel and re'atriated ba&8 to
Manila for no reason or e('lanationC 5'on is return to Manila, e immediately
'ro&eeded to te 'etitionerIs oJ&e %ere e %as transferred em'loyment %it
anoter )essel named MN .Stolt !ride0 under te same terms and &onditions of
te ;irst Contra&tC On "/ A'ril 199", te Se&ond Contra&t %as noted and
a''ro)ed by te !O<AC -e !O<A, %itout 8no%ledge tat e %as not de'loyed
%it te )essel, &ertiAed te Se&ond <m'loyment Contra&t on 17 Se'tember
199". 9es'ite te &ommen&ement of te Se&ond Contra&t on "1 A'ril 199",
'etitioners failed to de'loy im %it te )essel MN .Stolt !ride0C Ge made a
follo%6u' %it te 'etitioner but te same refused to &om'ly %it te Se&ond
<m'loyment Contra&t. On "" 9e&ember 1991, e demanded for is 'ass'ort,
seamanIs boo8 and oter em'loyment do&uments. Go%e)er, e %as only allo%ed
to &laim te said do&uments in e(&ange of is signing a do&umentC
Ge %as &onstrained to sign te do&ument in)oluntarily be&ause %itout tese
do&uments, e &ould not see8 em'loyment from oter agen&ies. On 6 Mar&
199#, Sul'e&io MadeHuillo (res'ondent) Aled a &om'laint before te Ad:udi&ation
OJ&e of te !ili''ine O)erseas <m'loyment Administration (!O<A) against te
'etitioners for illegal dismissal under a Arst &ontra&t and for failure to de'loy
under a se&ond &ontra&t.
?ssueD
Eeter te Arst &ontra&t entered into by and bet%een te &om'lainant and te
res'ondents a)e been no)ated by te e(e&ution of te se&ond &ontra&t.
GeldD
2o)ation is te e(tinguisment of an obligation by te substitution or &ange of te
obligation by a subseHuent one %i& e(tinguises or modiAes te Arst, eiter by
&anging te ob:e&t or 'rin&i'al &onditions, or, by substituting anoter in 'la&e of te
debtor, or by subrogating a tird 'erson in te rigts of te &reditor. ?n order for
no)ation to ta8e 'la&e, te &on&urren&e of te follo%ing reHuisites is indis'ensableD
1. -ere must be a 're)ious )alid obligation,
". -ere must be an agreement of te 'arties &on&erned to a ne% &ontra&t,
/. -ere must be te e(tinguisment of te old &ontra&t, and
1. -ere must be te )alidity of te ne% &ontra&t.
"1
A &ontra&t is a meeting of minds bet%een t%o 'ersons %ereby one binds imself,
%it res'e&t to te oter, to gi)e someting or to render some ser)i&e. -e &ontra&ting
'arties may establis su& sti'ulations, &lauses, terms and &onditions as tey may deem
&on)enient, 'ro)ided tey are not &ontrary to la%, morals, good &ustoms, 'ubli& order, or
'ubli& 'oli&y. !arties are bound not only to te fulAllment of %at as been e('ressly
sti'ulated but also to all te &onseHuen&es %i&, a&&ording to teir nature, may be in
8ee'ing %it good fait, usage and la%.
9istin&tion must be made bet%een te 'erfe&tion of te em'loyment &ontra&t and
te &ommen&ement of te em'loyer6em'loyee relationsi'. -e 'erfe&tion of te &ontra&t,
%i& in tis &ase &oin&ided %it te date of e(e&ution tereof, o&&urred %en 'etitioner and
res'ondent agreed on te ob:e&t and te &ause, as %ell as te rest of te terms and
&onditions terein. -e &ommen&ement of te em'loyer6em'loyee relationsi', %ould a)e
ta8en 'la&e ad 'etitioner been a&tually de'loyed from te 'oint of ire. -us, e)en before
te start of any em'loyer6em'loyee relationsi', &ontem'oraneous %it te 'erfe&tion of
te em'loyment &ontra&t %as te birt of &ertain rigts and obligations, te brea& of %i&
may gi)e rise to a &ause of a&tion against te erring 'arty. -us, if te re)erse ad
a''ened, tat is te seafarer failed or refused to be de'loyed as agreed u'on, e %ould be
liable for damages.
""
-u&i( Bay +etro6olitan Aut5ority vs. @onora&le Court o* A66eals and -u&i( 9nternational
@otel Cor6oration
3.4. 2o. 19"77#, *uly 1, "$1".
;a&tsD
On 9e&ember 1, 199" and *une 7, 199/, 'etitioner and 'ri)ate res'ondent entered
into t%o se'arate lease agreements %ereby te 'ri)ate res'ondent undertoo8 to el'
'etitioner in te de)elo'ment and reabilitation of te Subi& 2a)al =ase by ta8ing o)er
abandoned barra&8s and &onstru&ting otel and restaurant fa&ilities tat %ill a&&ommodate
te needs of te gro%ing number of businessmen and tourists in te ;ree'ort Tone. -e t%o
agreements %ere later &onsolidated into a Kease and 9e)elo'ment Agreement. Se&tion 6.1
of te said Agreement sti'ulated for te 'ayment of ser)i&e fees, %i& 'ertain to te
'ro'ortionate sare of te 'ri)ate res'ondent in te &osts tat te 'etitioner may in&ur in
te 'ro)ision of ser)i&es, maintenan&e and o'eration of &ommon fa&ilities &om'uted at
S$.1$ 'er sHuare meter of te gross land area of te leased 'ro'erty. SubseHuently, u'on a
&ondu&t of lease &om'lian&e audit, te S=MA ?nternal Audit 9e'artment found out tat
'ri)ate res'ondent and oter ;ree'ort lo&ators a)e not been &arged for ser)i&e fees.
!ri)ate res'ondent ten formally reHuested for te re&onsideration of te billing for
a&&umulated ser)i&e fees alleging tat te ser)i&es for %i& te billing %as su''osed to be
based %ere not a&tually 'ro)ided by 'etitioner but by inde'endent &ontra&tors. On te oter
and, 'etitioner &lariAed tat ser)i&e fees also in&lude oter ser)i&es %i& indire&tly
redound to te beneAt of te tenants.
?ssueD
Eeter te obligation in)ol)ed is re&i'ro&al in nature
GeldD
4e&i'ro&al obligations are tose %i& arise from te same &ause, and in %i& ea&
'arty is a debtor and a &reditor of te oter, su& tat te obligation of one is de'endent
u'on te obligation of te oter. -ey are to be 'erformed simultaneously su& tat te
'erforman&e of one is &onditioned u'on te simultaneous fulAllment of te oter. ;or one
'arty to demand te 'erforman&e of te obligation of te oter 'arty, te former must also
'erform its o%n obligation. A&&ordingly, 'etitioner, not a)ing 'ro)ided te ser)i&es tat
%ould reHuire te 'ayment of ser)i&e fees as sti'ulated in te Kease 9e)elo'ment
Agreement, is not entitled to &olle&t te same.
"/
Tan -5uy vs -6ouses Guillermo +aula?in, et al
G.R. No. $%<"4. Fe&ruary !, '%'.
!etitioner -an Suy is engaged in te business of buying &o'ra and &orn in te ;ourt
9istri&t of Mue,on !ro)in&e. A&&ording to Ni&ente -an (Ni&ente), son of 'etitioner, %ene)er
tey %ould buy &o'ra or &orn from &ro' sellers, tey %ould 're'are and issue a 6esada in
teir fa)or. A 6esada is a do&ument &ontaining details of te transa&tion, in&luding te date
of sale, te %eigt of te &ro' deli)ered, te tru&8ing &ost, and te net 'ri&e of te &ro'. Ge
ten e('lained tat %en a 6esada &ontained te annotation .'d0 on te total amount of
te 'ur&ase 'ri&e, it meant tat te &ro' deli)ered ad already been 'aid for by 'etitioner.
3uillermo Maula%in (3uillermo), res'ondent in tis &ase, is a farmer6businessman engaged
in te buying and selling of &o'ra and &orn. On 1$ *uly 1997, -an Suy e(tended a loan to
3uillermo in te amount of U1"$,$$$. ?n &onsideration tereof, 3uillermo obligated imself
to 'ay te loan and to sell lu(ad or &o'ra to 'etitioner.
-an alleged tat des'ite re'eated demands, 3uillermo remitted only U"/,$$$ in
August 1997 and U#,#$$ in O&tober 1997, or a total of U"7,#$$.
>1@
Ge &laimed tat
res'ondent ad an outstanding balan&e of U/91,#$$. -us, &on)in&ed tat 3uillermo no
longer ad te intention to 'ay te loan, 'etitioner brougt te &ontro)ersy to te 0u6on
Ta,a6amaya6a. Een no settlement %as rea&ed, 'etitioner Aled a Com'laint before te
4egional -rial Court (4-C).
?ssueD
Eeter te subseHuent arrangement amounts to da&ion en 'ago
GeldD
?ndeed, 'ursuant to Arti&le 1"/" of te Ci)il Code, an obligation is e(tinguised by
'ayment or 'erforman&e. -ere is 'ayment %en tere is deli)ery of money or 'erforman&e
of an obligation. Arti&le 1"1# of te Ci)il Code 'ro)ides for a s'e&ial mode of 'ayment &alled
dation in 'ayment (da&iVn en 'ago). -ere is dation in 'ayment %en 'ro'erty is alienated
to te &reditor in satisfa&tion of a debt in money. Gere, te debtor deli)ers and transmits to
te &reditor te formerIs o%nersi' o)er a ting as an a&&e'ted eHui)alent of te 'ayment
or 'erforman&e of an outstanding debt. ?n su& &ases, Arti&le 1"1# 'ro)ides tat te la% on
sales sall a''ly, sin&e te underta8ing really 'arta8es L in one sense L of te nature of saleC
tat is, te &reditor is really buying te ting or 'ro'erty of te debtor, te 'ayment for
"1
%i& is to be &arged against te debtorIs obligation. 9ation in 'ayment e(tinguises te
obligation to te e(tent of te )alue of te ting deli)ered, eiter as agreed u'on by te
'arties or as may be 'ro)ed, unless te 'arties by agreement L e('ress or im'lied, or by
teir silen&e L &onsider te ting as eHui)alent to te obligation, in %i& &ase te obligation
is totally e(tinguised.
-e subseHuent arrangement bet%een -an Suy and 3uillermo &an tus be &onsidered as
one in te nature of dation in 'ayment. -ere %as 'artial 'ayment e)ery time 3uillermo
deli)ered &o'ra to 'etitioner, &ose not to &olle&t te net 'ro&eeds of is &o'ra deli)eries,
and instead a''lied te &olle&tible as installment 'ayments for is loan from -an Suy. Ee
terefore u'old te Andings of te trial &ourt, as aJrmed by te CA, tat te net 'ro&eeds
from 3uillermoIs &o'ra deli)eries amounted to U/77,9#".1/. Eit tis 'artial 'ayment,
res'ondent remains liable for te balan&e totaling U11,$17.#7.
Jnited Pul6 and Pa6er Co., 9n(. vs. A(ro6olis Central Guaranty Cor6orationA
G.R. No. ""4%. ;anuary '4, '%'.
Fa(tsD
On May 11, "$$", 5nited !ul' and !a'er Co., ?n&. (JPPC) Aled a &i)il &ase for
&olle&tion of te amount of !1",711,/#/.11 against 5nibo( !a&8aging Cor'oration (Jni&oH)
and Ni&ente Ortega (8rte,a). 5!!C also 'rayed for a Erit of !reliminary Atta&ment against
te 'ro'erties of 5nibo( and Ortega for te reason tat te latter %ere on te )erge of
insol)en&y and %ere transferring assets in fraud of &reditors. On August "9, "$$", te 4-C
issued te Erit of Atta&ment after 5!!C 'osted a bond in te same amount of its &laim. =y
)irtue of te said %rit, se)eral 'ro'erties and assets of 5nibo( and Ortega %ere atta&ed.
On O&tober 1$, "$$", 5nibo( and Ortega Aled teir Motion for te 9is&arge of
Atta&ment, 'raying tat tey be allo%ed to Ale a &ounter6bond in te amount
of!1",711,/#/.11 and tat te %rit of 'reliminary atta&ment be dis&arged after te Aling
of su& bond. Altoug tis %as o''osed by 5!!C, te 4-C, in its Order dated O&tober "#,
"$$", granted te said motion for te dis&arge of te %rit of atta&ment sub:e&t to te
&ondition tat 5nibo( and Ortega Ale a &ounter6bond. -us, on 2o)ember "1, "$$",
res'ondent A&ro'olis Central 3uaranty Cor'oration (A(ro6olis) issued te 9efendantIs =ond
for 9issolution of Atta&ment in te amount of !1",711,/#/.11 in fa)or of 5nibo(.
On te basis of te said return, 5!!C Aled its Motion to Order Surety to !ay Amount of
Counter6=ond dire&ted at A&ro'olis. On 2o)ember /$, "$$1, te 4-C issued its
Order granting te motion and ordering A&ro'olis to &om'ly %it te terms of its &ounter6
bond and 'ay 5!!C te un'aid balan&e of te :udgment in te amount of!"7,$17,#67.77
%it interest of 1"+ 'er annum from default.

-ereafter, on 9e&ember 1/, "$$1, A&ro'olis Aled its Manifestation and Nery 5rgent
Motion for 4e&onsideration, arguing tat it &ould not be made to 'ay te amount of te
&ounter6bond be&ause it did not re&ei)e a demand for 'ayment from 5!!C. ;urtermore, it
"#
reasoned tat its obligation ad been dis&arged by )irtue of te no)ation of its obligation
'ursuant to te &om'romise agreement e(e&uted by 5!!C, 5nibo( and Ortega.
?ssueD
Eeter te e(e&ution of te &om'romise agreement bet%een 5!!C and 5nibo( and
Ortega %as tantamount to a no)ation %i& ad te eBe&t of releasing A&ro'olis from its
obligation under te &ounter6atta&ment bond.
GeldD
?n order for no)ation to e(tinguis an obligation, it must be so%n tat tere is
in&om'atibility bet%een te &om'romise agreement and te terms of te &ounter6bond, as
reHuired by Arti&le 1"9" of te Ci)il Code. 2oting in te &om'romise agreement indi&ates,
or e)en ints at, releasing A&ro'olis from its obligation as a surety to 'ay 5nited !ul' and
!a'er Co. ?n&. after te latter as obtained a fa)orable :udgment. Clearly, tere is no
in&om'atibility bet%een te &om'romise agreement and te &ounter6bond. 2eiter &an
no)ation be 'resumed. 2o)ation by 'resum'tion as ne)er been fa)ored. -o be sustained, it
need be establised tat te old and ne% &ontra&ts are in&om'atible in all 'oints, or tat te
%ill to no)ate a''ears by e('ress agreement of te 'arties or in a&ts of similar im'ort.
"6
?nsular ?n)estment and -rust Cor'oration )s. Ca'ital One <Huities Cor'. and !lanters
9e)elo'ment =an8
3.4. 2o., 17//$7, A'ril "#, "$1"
;AC-SD
!etitioner ?nsular ?n)estment and -rust Cor'oration E99TCF and res'ondents Ca'ital
One <Huities Cor'oration EC8ECF and !lanters 9e)elo'ment =an8 EPDBF are regularly
engaged in te trading, sale and 'ur&ase of !ili''ine treasury bills. CO<C 'ur&ased
treasury bills %it a fa&e )alue of !176,771,7/9.19 Et5e C8EC T3BillsF. ??-C issued
&onArmations of sale in fa)or of CO<C &o)ering te said transa&tion. CO<C 'aid te
'ur&ase 'ri&e by issuing &e&8s %it !lanters 9e)elo'ment =an8 (!9=) as !ayee. =ot ??-C
and !9= re&ei)ed te 'ro&eeds of te &e&8s. !9= issued &onArmations of sale in fa)or of
??-C for te sale of treasury bills and ??-C, in turn, issued &onArmations of 'ur&ase in fa)or of
!9= o)er treasury bills. -ereafter, !9= sent a letter to ??-C underta8ing to deli)er treasury
bills %ort !176,79$,$$$.$$, %i& ??-C 'ur&ased from !9= as soon as tey %ould be
a)ailable. CO<C %rote a letter to ??-C demanding te 'ysi&al deli)ery of te treasury bills
%i& te former 'ur&ased from te latter. ?n its Ketter to !9=, ??-C reHuested, on bealf of
CO<C, te deli)ery to ??-C of treasury bills %ort !176,79$,$$$.$$ %i& ad been 'aid in
full by CO<C. CO<C %as furnised %it a &o'y of te said letter. CO<C 'rotested te tenor of
??-CIs letter to !9= and too8 e(&e'tion to ??-CIs assertion tat it merely a&ted as a fa&ilitator
%it regard to te sale of te treasury bills.
??-C sent CO<C a letter demanding tat CO<C deli)er to it (??-C) te !1/9,7//,/9".$$
%ort of treasury bills or return te full 'ur&ase 'ri&e. ?n eiter &ase, it also demanded tat
CO<C deli)er treasury bills %ort !1"1,$#$,$$$ %it te same maturity dates originally
'ur&ased by ??-C. CO<C sent a letter6re'ly to ??-C in %i& it a&8no%ledged its obligation to
deli)er te treasury bills %ort !1/9,7//,/9".$$ %i& it sold to ??-C and formally demanded
te deli)ery of te treasury bills %ort !176,771,7/9.19 %i& it 'ur&ased from ??-C.
Considering tat CO<C and ??-C bot a)e &laims against ea& oter for te deli)ery of
treasury bills, CO<C 'ro'osed tat a legal set6oB be eBe&ted, %i& %ould result in ??-C
o%ing CO<C te diBeren&e of !16,911,116.19. ?n its letter to CO<C, ??-C re:e&ted te
suggestion for a legal setting6oB of obligations, alleging tat it merely a&ted as a fa&ilitator
bet%een !9= and CO<C.
"7
9es'ite re'eated demands, o%e)er, !9= failed to deli)er te balan&e of
!1/6,79$,$$$.$$ %ort of treasury bills %i& ??-C 'ur&ased from !9= allegedly for CO<C.
CO<C %as li8e%ise unable to deli)er te remaining ??-C -6=ills amounting to
!119,6//,/9".$$. 2eiter !9= and CO<C returned te 'ur&ase 'ri&e for te duly 'aid
treasury bills. -is 'rom'ted ??-C to Ale Com'laint before te 4egional -rial Court 'raying
tat CO<C be ordered to deli)er treasury bills %ort !119,6//,/9".$$ to ??-C or 'ay te
monetary eHui)alent 'lus legal interestsC and, in te alternati)e, tat !9= be ordered to
&om'ly %it its obligations under te &onduit transa&tion in)ol)ing treasury bills %ort
!1/6,79$,$$$.$$ by deli)ering te treasury bills to ??-C, in addition to a&tual and e(em'lary
damages and attorneyIs fees. CO<C Aled its Ans%er admitting tat it o%ed ??-C treasury bills
%ort !119,6//,/9".$$. ?t &ountered, o%e)er, tat ??-C ad an outstanding obligation to
deli)er to CO<C treasury bills %ort !1/6,771,7/9.19. CO<C 'rayed tat ??-C be reHuired to
deli)er !17,111,/17.19 (te amount ??-C still o%ed CO<C after a legal oB6setting of teir
debts against ea& oter) to CO<C.
!9=, for its 'art, insisted in its Ans%er Ad Cautelam tat it ad no 8no%ledge or
'arti&i'ation in te sale by ??-C of treasury bills to CO<C. ?t admitted tat it sent a letter to
??-C, underta8ing to deli)er treasury bills %ort !176,79$,$$$.$$ %i& ??-C 'ur&ased from
!9=. !9= 'osited, o%e)er, tat ??-C %as not entitled to te deli)ery of te said treasury
bills be&ause ??-C did not remit 'ayment to !9=. 2eiter did te sub:e&t se&urities be&ome
a)ailable to !9=. ?n its *udgment te 4-C found tat ??-C %as not merely a &onduit in te
'ur&ase a sale of treasury bills bet%een !9= and CO<C. 4ater, ??-C a&ted as a 'rin&i'al in
t%o transa&tionsD as a buyer of treasury bills from !9= and as a seller to CO<C. Sin&e ??-C
and CO<C %ere bot debtors and &reditors of ea& oter, te 4-C oB6set teir debts,
resulting in a diBeren&e of U17,$#6,6$7.$$ in fa)or of CO<C.
Aggrie)ed, all 'arties a''ealed to te CA %i& aJrmed te 4-C Anding tat ??-C %as
not a mere &onduit but rater a dire&t seller to CO<C of te treasury bills. Gen&e, tis
'etition.
?SS5<D

Eeter CO<C &an set6oB its obligation to ??-C as against te latterIs
obligation to it.
45K?23D
Kes, it (an. -et3oI is allo?ed.
??-C argues tat te 4-C and te CA erred in olding tat CO<C &an )alidly set oB its
&laims for te undeli)ered ??-C -6=ills against te CO<C -6=ills. ??-C reiterates tat CO<C did
not be&ome a &reditor of ??-C be&ause te former did not 'ay te latter for te 'ur&ased
treasury bills. 4ater, it %as !9= %i& re&ei)ed te 'ro&eeds of te 'ayment from CO<C. ?n
addition, teir obligations do not &onsist of a sum or money. 2eiter are tey of te same
8ind be&ause te obligations &all for te deli)ery of s'e&iA& determinate tings L treasury
bills %it s'e&iA& maturity dates and )arious interest rates. -us, legal &om'ensation
&annot ta8e 'la&e.
CO<C, on te oter and, 'oints out tat it as already unHuestionably 'ro)en tat
??-C a&ted as a 'rin&i'al, and not as a &onduit, in te sale of treasury bills to CO<C.
;urtermore, it asserts tat te treasury bills in Huestion are generi& in nature be&ause te
&onArmations of sale and 'ur&ase do not mention s'e&iA& treasury bills %it serial
numbers. -e se&urities %ere sold as indeterminate ob:e&ts %i& a)e a monetary
"7
eHui)alent, as a&8no%ledged by te 'arties in te -ri'artite Agreement. As su&, be&ause
bot ??-C and CO<C are 'rin&i'al &reditors of te oter o)er debts %i& &onsist of
&onsumable tings or a sum of money, te 4-C &orre&tly ruled tat CO<C may )alidly set6oB
its &laims for undeli)ered treasury bills against tat of ??-CIs &laims.
-e Court Ands in fa)or of res'ondent CO<C.
-e a''li&able 'ro)isions of la% are Arti&les 1"77, 1"79 and 1"9$ of te Ci)il Code of
te !ili''inesD

Art. 1"77. Com'ensation sall ta8e 'la&e %en t%o 'ersons, in teir o%n
rigt, are &reditors and debtors of ea& oter.

Art. 1"79. ?n order tat &om'ensation may be 'ro'er, it is ne&essaryD

(1) -at ea& one of te obligors be bound 'rin&i'ally, and tat e be
at te same time a 'rin&i'al &reditor of te oterC

(") -at bot debts &onsist in a sum of money, or if te tings due are
&onsumable, tey be of te same 8ind, and also of te same
Huality if te latter as been statedC

(/) -at te t%o debts be dueC

(1) -at tey be liHuidated and demandableC

(#) -at o)er neiter of tem tere be any retention or &ontro)ersy,
&ommen&ed by tird 'ersons and &ommuni&ated in due time to
te debtor.


Art. 1"9$. Een all te reHuisites mentioned in Arti&le 1"79 are 'resent,
&om'ensation ta8es eBe&t by o'eration of la%, and e(tinguises bot debts
to te &on&urrent amount, e)en toug te &reditors and debtors are not
a%are of te &om'ensation.
=ased on te foregoing, in order for &om'ensation to be )alid, te A)e reHuisites
mentioned in te abo)eHuoted Arti&le 1"79 sould be 'resent, as in te &ase at ben&. -e
lo%er &ourts a)e already determined, to %i& tis Court &on&urs, tat ??-C a&ted as a
'rin&i'al in te 'ur&ase of treasury bills from !9= and in te subseHuent sale to CO<C of
te CO<C -6=ills. -us, CO<C and ??-C are 'rin&i'al &reditors of ea& oter in relation to te
sale of te CO<C -6=ills and ??-C -6=ills, res'e&ti)ely.
??-C also &laims tat te CO<C -6=ills &annot be set6oB against te ??-C -6=ills be&ause
te latter are s'e&iA& determinate tings %i& &onsist of treasury bills %it s'e&iA&
maturity dates and )arious interest rates. ??-CIs a&tions belie its o%n assertion. -e fa&t tat
??-C a&&e'ted te assignment by CO<C of Central =an8 =ills %it an aggregate fa&e )alue of
!"$,$$$,$$$.$$ as 'ayment of 'art of te ??-C -6=ills is e)iden&e of ??-CIs %illingness to
a&&e't oter forms of se&urity as satisfa&tion of CO<CIs obligation. ?t sould be noted tat
te se&ond reHuisite only reHuires tat te ting be of te same 8ind and Huality. -e CO<C
-6=ills and te ??-C -6=ills are bot go)ernment se&urities %i&, %ile a)ing diBering
interest rates and dates of maturity, a)e ea& been assigned a &ertain fa&e )alue to
determine teir monetary eHui)alent. ?n fa&t, in te -ri'artite Agreement, te CO<C6??-C
Agreement and in te memoranda of te 'arties, te 'arties re&ogni,ed te monetary )alue
"9
of te treasury bills in Huestion, and, in some instan&es, treated tem as sums of money.
-us, tey are of te same 8ind and are &a'able of being sub:e&t to &om'ensation.
-e tird, fourt and Aft reHuirements are &learly 'resent and are not denied by te
'arties. =ot debts are due and demandable be&ause bot remain unsatisAed, des'ite
'ayment made by ??-C for te ??-C -6=ills and by CO<C for te CO<C -6=ills. Moreo)er, CO<C
readily admits tat it as an outstanding balan&e in fa)or of ??-C. Con)ersely, ??-C as been
found by te lo%er &ourts to be liable, as 'rin&i'al seller, for te deli)ery of te CO<C -6=ills.
-e debts are also liHuidated be&ause teir e(isten&e and amount are determined. ;inally,
tere e(ists no retention or &ontro)ersy o)er te CO<C -6=ills and te ??-C -6=ills.
N?43?K?O S. 9AN?9 )s. M?SAM?S OCC?9<2-AK ?? <K<C-4?C COO!<4A-?N<, ?2C.
3.4. 2o. 19177# *uly 11, "$1"
;AC-SD
!etitioner Nirgilio S. 9a)id (9a)id) %as te o%ner or 'ro'rietor of NS9 <le&tri& Sales, a
&om'any engaged in te business of su''lying ele&tri&al ard%are in&luding transformers
for rural ele&tri& &oo'erati)es li8e res'ondent Misamis O&&idental ?? <le&tri& Coo'erati)e, ?n&.
(MO<KC?), %it 'rin&i'al oJ&e lo&ated in O,amis City.
-o sol)e its 'roblem of 'o%er sortage aBe&ting some areas %itin its &o)erage,
MO<KC? e('ressed its intention to 'ur&ase a 1$ MNA 'o%er transformer from 9a)id. ;or tis
reason, its 3eneral Manager, <ngr. 4eynaldo 4ada (<ngr. 4ada), %ent to meet 9a)id in te
latterIs oJ&e in Mue,on City. ((( 9a)id 'resented is 'ro'osal for te a&Huisition of said
/$
transformer. After te reading of te 'ro'osal and te dis&ussion of terms, <ngr. 4ada and
*imene, bot signed te do&ument under te %ord W&onforme.W -e board resolution %as
tereafter atta&ed to te 'ro'osal. -e =oard 4esolution stated tat te 'ur&ase of te
said transformer %as to be Anan&ed troug a loan from te 2ational <le&triA&ation
Administration (2<A).
As tere %as no immediate a&tion on te loan a''li&ation, <ngr. 4ada returned to
Manila in early 9e&ember 199" and reHuested 9a)id to deli)er te transformer to tem e)en
%itout te reHuired do%n'ayment. 9a)id granted te reHuest. -e goods %ere si''ed to
O,ami, . Een no 'ayment %as made after se)eral monts, Medina %as &onstrained to
send a demand letter, %i& MO<KC? duly re&ei)ed. <ngr. 4ada re'lied in %riting tat te
goods %ere still in te %areouse of Eilliam Kines again reiterating tat te loan ad not
been a''ro)ed by 2<A. -is 'rom'ted Medina to ead ba&8 to O,ami, City %ere e found
out tat te goods ad already been released to MO<KC? e)iden&ed by te si''ing
&om'anyIs &o'y of te =ill of Kading %i& %as stam'ed W4eleasedW.
SubseHuently, demand letters %ere sent to MO<KC? demanding te 'ayment of te
%ole amount.9a)id Aled a &om'laint for s'e&iA& 'erforman&e %it damages %it te 4-C.
?n res'onse, MO<CK? mo)ed for its dismissal on te ground tat tere %as la&8 of &ause of
a&tion as tere %as no &ontra&t of sale (((. MO<KC? argued tat te Huotation letter &ould
not be &onsidered a binding &ontra&t be&ause tere %as noting in te said do&ument from
%i& &onsent, on its 'art, to te terms and &onditions 'ro'osed by 9a)id &ould be inferred.
9a)id 8ne% tat MO<KC?Is assent &ould only be obtained u'on te issuan&e of a 'ur&ase
order in fa)or of te bidder &osen by te Can)ass and A%ards Committee.
?n its 9e&ision, te 4-C dismissed te &om'laint. ?t found tat altoug a &ontra&t of
sale %as 'erfe&ted, it %as not &onsummated be&ause 9a)id failed to 'ro)e tat tere %as
indeed a deli)ery of te sub:e&t item and tat MO<KC? re&ei)ed it.
Aggrie)ed, 9a)id a''ealed is &ase to te CA, reasoning out tat altoug 9a)id
failed to oBer any te(tual su''ort to is stand tat it %as a &ontra&t of sale instead of a
mere 'ri&e Huotation agreed to by MO<KC? re'resentati)es. ?n oter %ords, te CA %as of
te 'osition tat <(ibit A %as at best a &ontra&t to sell.
?SS5<D
Eeter or not tere %as a Contra&t to Sell or a Contra&t of SaleX
45K?23D
9t ?as a Contra(t o* -ale.
-e elements of a &ontra&t of sale are, to %itD a) Consent or meeting of te minds,
tat is, &onsent to transfer o%nersi' in e(&ange for te 'ri&eC b) 9eterminate sub:e&t
matterC and &) !ri&e &ertain in money or its eHui)alent. ?t is te absen&e of te Arst element
%i& distinguises a &ontra&t of sale from tat of a &ontra&t to sell.
?n a &ontra&t to sell, te 'ros'e&ti)e seller e('li&itly reser)es te transfer of title to
te 'ros'e&ti)e buyer, meaning, te 'ros'e&ti)e seller does not as yet agree or &onsent to
transfer o%nersi' of te 'ro'erty sub:e&t of te &ontra&t to sell until te a''ening of an
e)ent, su& as, in most &ases, te full 'ayment of te 'ur&ase 'ri&e. Eat te seller agrees
or obliges imself to do is to fulAll is 'romise to sell te sub:e&t 'ro'erty %en te entire
amount of te 'ur&ase 'ri&e is deli)ered to im. ?n oter %ords, te full 'ayment of te
/1
'ur&ase 'ri&e 'arta8es of a sus'ensi)e &ondition, te non6fulAllment of %i& 're)ents te
obligation to sell from arising and, tus, o%nersi' is retained by te 'ros'e&ti)e seller
%itout furter remedies by te 'ros'e&ti)e buyer.
?n a &ontra&t of sale, on te oter and, te title to te 'ro'erty 'asses to te )endee
u'on te deli)ery of te ting sold. 5nli8e in a &ontra&t to sell, te Arst element of &onsent is
'resent, altoug it is &onditioned u'on te a''ening of a &ontingent e)ent %i& may or
may not o&&ur. ?f te sus'ensi)e &ondition is not fulAlled, te 'erfe&tion of te &ontra&t of
sale is &om'letely abated. Go%e)er, if te sus'ensi)e &ondition is fulAlled, te &ontra&t of
sale is tereby 'erfe&ted, su& tat if tere ad already been 're)ious deli)ery of te
'ro'erty sub:e&t of te sale to te buyer, o%nersi' tereto automati&ally transfers to te
buyer by o'eration of la% %itout any furter a&t a)ing to be 'erformed by te seller. -e
)endor loses o%nersi' o)er te 'ro'erty and &annot re&o)er it until and unless te &ontra&t
is resol)ed or res&inded.
An e(amination of te alleged &ontra&t to sell, W<(ibit A,W des'ite its un&on)entional
form, %ould so% tat said do&ument, %it all te sti'ulations terein and %it te
attendant &ir&umstan&es surrounding it, %as a&tually a Contra&t of Sale. -e rule is tat it is
not te title of te &ontra&t, but its e('ress terms or sti'ulations tat determine te 8ind of
&ontra&t entered into by te 'arties. ;irst, tere %as meeting of minds as to te transfer of
o%nersi' of te sub:e&t matter. -e letter (<(ibit A), toug a''earing to be a mere 'ri&e
HuotationF'ro'osal, %as not %at it seemed. ?t &ontained terms and &onditions, so tat, by
te fa&t tat *imene,, Cairman of te Committee on Management, and <ngr. 4ada, 3eneral
Manager of MO<KC?, ad signed teir names under te %ord WCO2;O4M<,W tey, in eBe&t,
agreed %it te terms and &onditions %it res'e&t to te 'ur&ase of te sub:e&t 1$ MNA
!o%er -ransformer. As &orre&tly argued by 9a)id, if teir 'ur'ose %as merely to
a&8no%ledge te re&ei't of te 'ro'osal, tey %ould not a)e signed teir name under te
%ord WCO2;O4M<.W
=esides, te un&ontro)erted attending &ir&umstan&es bolster te fa&t tat tere %as
&onsent or meeting of minds in te transfer of o%nersi'. -o begin %it, a board resolution
%as issued autori,ing te 'ur&ase of te sub:e&t 'o%er transformer. 2e(t, armed %it te
said resolution, to' oJ&ials of MO<KC? )isited 9a)idIs oJ&e in Mue,on City tree times to
dis&uss te terms of te 'ur&ase. -en, %en te loan tat MO<KC? %as relying u'on to
Anan&e te 'ur&ase %as not fort&oming, MO<KC?, troug <ngr. 4ada, &on)in&ed 9a)id to
do a%ay %it te #$+ do%n'ayment and deli)er te unit so tat it &ould already address its
a&ute 'o%er sortage 'redi&ament, to %i& 9a)id a&&eded %en it made te deli)ery,
troug te &arrier Eilliam Kines, as e)iden&ed by a bill of lading.
Se&ond, te do&ument s'e&iAed a determinate sub:e&t matter %i& %as one (1) 5nit
of 1$ MNA !o%er -ransformer %it &orres'onding YN Kine A&&essories. And tird, te
do&ument stated &ategori&ally te 'ri&e &ertain in money %i& %as !#,"$$,$$$.$$ for one
(1) unit of 1$ MNA !o%er -ransformer and !",169,#$$.$$ for te YN Kine A&&essories.
?n sum, sin&e tere %as a meeting of te minds, tere %as &onsent on te 'art of
9a)id to transfer o%nersi' of te 'o%er transformer to MO<KC? in e(&ange for te 'ri&e,
tereby &om'lying %it te Arst element. -us, te said do&ument &annot :ust be &onsidered
a &ontra&t to sell but rater a 'erfe&ted &ontra&t of sale.
3OK9KOO! !4O!<4-?<S ?2C., )s. 3ON<42M<2- S<4N?C< ?2S54A2C< SPS-<M
/"
3.4. 2o. 171$76 August 1, "$1"
;AC-SD
-e 3o)ernment Ser)i&e ?nsuran&e System (3S?S) o%ns a ",1116sHuare meter (sH.
m.) 'ar&el of land lo&ated in A9= A)enue &or. Sa''ire St., Ortigas Center, !asig City as %ell
as te !il&om&en =uilding standing on a 'ortion tereof. On *une 16, 199#, 3S?S and
3oldloo' e(e&uted a Memorandum of Agreement (MOA) %ereby 3oldloo', at its o%n
e('ense and a&&ount, %ould reno)ate te faZade of te !il&om&en =uilding as %ell as
&onstru&t a &ondominium building on te 1,19# sH. m. 'ortion of said land. 3oldloo' also
undertoo8 to 'ay 3S?S te amount of ! 11$,79$,$$$.$$ for te 'ortion of te land on %i&
te &ondominium building sall stand to be remitted in eigt installments %itin te four6
year 'eriod follo%ing te e(e&ution of te MOA. Said amount is a'art from te guaranteed
re)enue of ! 1,1"7."7 million tat te 'arties %ould sare %en te 'ro:e&t is already
&om'leted and te &ondominium units sold. ?t %as furter agreed tat sould te gross sales
of te &ondominium 'ro:e&t e(&eed te said guaranteed re)enue, 3S?S %ould be entitled to
9.76+ of te amount in e(&ess of ! 1,1"7."7 million and 3oldloo', to te balan&e of 9$.11+.
On *une 17, 1996, te 'arties e(e&uted an Addendum to te Memorandum of
Agreement (Addendum) to in&lude in te 'ro:e&t te relo&ation of an e(isting 'o%erouse
and &istern tan8 %itin te site of te 'ro'osed &ondominium building.
3oldloo' ten 'erformed te ne&essary 're'aratory %or8s. ?t also formally laun&ed
te 'ro:e&t and &ondu&ted te 're6selling of te &ondominium units. 5nfortunately,
&onstru&tion &ould not 'ro&eed be&ause Mayor Ni&ente !. <usebio (Mayor <usebio) of !asig
City refused to a&t on te a''li&ations for building 'ermits &laiming tat 3S?S o%ed !asig
City !#1 million in un'aid real estate ta(es. -e 3S?S, for its 'art, &laimed tat 3S?S is
e(em't from 'ayment. =e&ause of tis im'asse, Mayor <usebio o'ted to old in abeyan&e
any a&tion on te a''li&ations for building 'ermit.
Kater, o%e)er, 3oldloo' re&ei)ed from 3S?S a letter informing it of a
re&ommendation to res&ind te MOA. Ta'anta tus %rote 3S?S and reiterated tat te %or8
sto''age due to non6issuan&e of 'ermit %as not 3oldloo'Is fault. 9es'ite tis, 3S?S still sent
3oldloo' a noti&e of res&ission stating tat /$ days from te latterIs re&ei't tereof, te
MOA sall be deemed res&inded for 3oldloo'Is brea& of its obligations and &ommitments
tereunder. SubseHuently, 3S?S sent 3oldloo' a letter informing it tat te MOA %as
already oJ&ially res&inded. ?t tus ordered 3oldloo' to )a&ate te 'remises and &lear te
same of all debris, ma&ineries and eHui'ment %itin A)e days from re&ei't tereof. ;ailing
%i&, 3S?S %arned tat it %ould underta8e te same on 3oldloo'Is a&&ount %itout
res'onsibility on its 'art for any resulting loss or damage. =e&ause of tis, 3oldloo' Aled a
Com'laint for S'e&iA& !erforman&e %it 9amages before te 4-C of !asay City against 3S?S
3oldloo' also a)erred tat it %as ready, %illing and able to 'erform all of its
obligations under te MOA as so%n by te 're'aratory %or8s it ad underta8en. Go%e)er,
be&ause of te non6issuan&e of building 'ermits by Mayor <usebio, te 'ro:e&t &ould not
'us tru. 3oldloo' furter alleged tat 3S?S made assuran&es tat it %ould se&ure te
ne&essary 'ermits but 3S?S still failed to obtain te same. 3oldloo' also alleged tat 3S?S
delayed te issuan&e of noti&e to 'ro&eed des'ite re'eated reminders from 3oldloo'.
Gen&e, 3oldloo' asserted tat te res&ission %as %itout basis and &learly made in
bad fait. ?t terefore as8ed te 4-C to de&lare te same as null and )oid, to dire&t 3S?S to
&om'ly %it te 'ro)isions of te MOA and te Addendum, and to se&ure all te ne&essary
'ermits from !asig City.
//
?n its Ans%er %it AJrmati)e 9efenses and Com'ulsory Counter&laims, 3S?S in gist,
insisted tat te res&ission of te MOA and te Addendum %as a )alid and legitimate
e(er&ise of its rigt under te 'ro)isions tereofC en&e, te &om'laint against it must be
dismissed.
?n a 9e&ision te 4-C found 3S?SIs res&ission %itout )alid basis. ?t ruled tat te
failure to 'ro&eed %it te &onstru&tion %as not due to 3oldloo'Is fault and tat 3S?S %as
%ell a%are of tis. As to 3oldloo'Is failure to fully 'ay te guaranteed amount, te 4-C ruled
tat te same is li8e%ise attributable to te non6issuan&e of 'ermits. -e 4-C noted tat
%en te &onstru&tion failed to 'ro&eed due to said non6issuan&e, %ould6be buyers %o
made initial de'osits andFor reser)ation fees for te &ondominium units ba&8ed out.
3oldloo' %as tus &onstrained to return teir de'osits, some %it interest, in te amount of
! 7$ million. Said amount %as a'art from te ! 11 million tat it already 'aid to agents and
bro8ers as &ommissions. -ese indered 3oldloo' from &om'lying %it its obligation to 'ay
te guaranteed amount.
ConseHuently, te 4-C ad:udged 3S?S liable to 3oldloo' for damages.
-e CA &on&luded tat 3S?S &annot res&ind te agreement &onsidering tat 3oldloo'Is
failure to 'ro&eed %it te &onstru&tion %or8s %itin te said 'eriods %as te ne&essary
&onseHuen&e of te non6issuan&e of 'ermits %i&, o%e)er, &annot be attributed to
3oldloo'Is fault. 2e)erteless, sin&e nine years ad already 'assed sin&e te e(e&ution of
te MOA and te Addendum, 3oldloo' is deemed to a)e abandoned te 'ro:e&t e)en if te
same be due to a :ustiAable &ause, tat is, te non issuan&e of 'ermits. -e CA de&lared tat
te delay in te im'lementation of te 'ro:e&t as been detrimental to te interest of 3S?S
and its members but not on te 'art of 3oldloo', %i&, on te &ontrary, ad been
beneAting from te same be&ause it ad been using te 'ro'erty free of &arge. -o te
a''ellate &ourt, tis amounts to un:ust enri&ment and, en&e, te MOA must be eHuitably
res&inded under tis ground. -e CA also e(tinguised te obligations of te 'arties relati)e
tereto and ordered ea& of tem to bear its o%n damage.
?SS5<D
3oldloo' faults te CA in res&inding te MOA and te Addendum, in e(tinguising te
obligations of te 'arties relati)e tereto, in de&laring tat ea& 'arty sould bear its o%n
damage and, in dis&arding te Andings of fa&ts and &on&lusions of te 4-C.
G<K9D
T5e Court u65olds t5e res(ission .
G-9- res(inded t5e (ontra(t 6ursuant to its ri,5t to res(ind under t5e relevant 6rovisions o*
t5e +8A.
-e 'arties &onferred u'on 3S?S te rigt to unilaterally res&ind te MOA .One of te
grounds under %i& 3S?S may )alidly res&ind te MOA is if at any gi)en time, 3oldloo'
abandons te &onstru&tion or oter%ise &ommit any brea& of its obligations and
&ommitments tereunder.
-e noti&e &learly s'e&iAed tat 3S?S is res&inding te &ontra&t for failure of 3oldloo'
to 'ay te guaranteed amount of !11$,79$,$$$.$$ under Se&. 1.1 of te MOA. -is falls
under te said ground, it being a brea& of an obligation and &ommitment under te said
/1
agreement. =e&ause of said brea&, Se&. 1./ of te MOA %i& 'ro)ides for te &onseHuen&e
of te non'ayment tereof sould be read in relation to Se&. ".1.
5nder Se&. 1./, 3oldloo'Is failure to 'ay te guaranteed amount %itin te 'eriods
'ro)ided for in Se&. 1.1 of te MOA sall entitle 3S?S to interest, ?it5out 6re>udi(e to its
ot5er ri,5ts and remedies under t5e a,reement and a66li(a&le la?s. -is rigt referred to is
te rigt of res&ission under Se&. ".1 autori,ing 3S?S to e(er&ise te same u'on 3oldloo'Is
brea& of any of its obligations and &ommitments. Clearly terefore, %en 3S?S res&inded
te MOA and te Addendum, it merely e(er&ised its rigt to res&ind under Se&. ".1 in relation
to Se&. 1./ of te MOA.
3S?S is, o%e)er, not entirely faultless. ?t also failed to &om'ly %it its obligation,
altoug it &annot be &on&lusi)ely determined %en it a&tually begun as te same only
be&ame a''arent to 3oldloo' after te e(e&ution of te MOA and te Addendum. -is %as
%en te City of !asig formally notiAed 3S?S tat it %as olding in abeyan&e any a&tion on
te latterIs a''li&ation for building 'ermits due to its outstanding real estate ta(es in te
amount of !#1 million. -e fa&t tat 3S?S dis'utes su& ta( liability be&ause of its Arm stand
tat it %as ta( e(em't is beside te 'oint. Eat is 'lain is tat te 'ro'erty %as by ten not
free from burden sin&e real estate ta(es %ere im'osed u'on it and tese ta(es remained
un'aid. -ere %as, terefore, on te 'art of 3S?S, a failure to &om'ly %it its obligation to
deli)er te 'ro'erty free from burden.
As &orre&tly obser)ed by te 4-C, te res&issory a&tion ta8en by 3S?S is 'ursuant to
Arti&le 1191 of te Ci)il Code. ?n &ases in)ol)ing res&ission under te said 'ro)ision, mutual
restitution is reHuired. -e 'arties sould be brougt ba&8 to teir original 'osition 'rior to
te in&e'tion of te &ontra&t. WA&&ordingly, %en a de&ree of res&ission is anded do%n, it is
te duty of te &ourt to reHuire bot 'arties to surrender tat %i& tey a)e res'e&ti)ely
re&ei)ed and to 'la&e ea& oter as far as 'ra&ti&able in >teir@ original situation.W !ursuant
to tis, 3oldloo' sould return to 3S?S te 'ossession and &ontrol of te 'ro'erty sub:e&t of
teir agreements %ile 3S?S sould reimburse 3oldloo' %ate)er amount it ad re&ei)ed
from te latter by reason of te MOA and te Addendum.
Gere, out of te total amount of e('enses %i& 3oldloo' &laims to a)e in&urred for
te 'ro:e&t, it a''ears tat te only sum it 'aid to 3S?S %as tat amount it e('ended by %ay
of &ange order of e('ense items su''osed to be for 3S?SIs a&&ount and, %i& under te
Addendum %as to be &redited as full 'ayment and 'artial 'ayment of te Arst and se&ond
installments of te guaranteed amount, res'e&ti)ely. -e Agure, o%e)er, remains dis'uted.
?n )ie% of tis, te Court &an only &onsider te sum s'ent %it res'e&t to te &om'leted
installation of te &istern tan8 %i& te 3S?S admitted in its Ans%er as amounting to !
1,1"",1//.19. Aside from te said amount, 3S?S must also return to 3oldloo' all eHui'ment,
ma&ineries and oter 'ro'erties of te latter %i& may be found in te 'remises of te
sub:e&t 'ro'erty.
/#
K?K?A =. A9A, K5T =. A9A2TA, ;KO4A C. =A PKO2, 4<MO =A PKO2, *OS< =A PKO2, <4?C =A
PKO2, ;KO4<2-?2O =A PKO2, and MA. 45=P =A PKO2, )s. ;KO4A2-< =APKO2
3.4. 2o. 17"1/# August 1/, "$1"
;AC-SD
-is &ase in)ol)es te estate of s'ouses ;lorentino =aylon and Ma(imina <lnas
=aylon (S'ouses =aylon). At te time of teir deat, S'ouses =aylon %ere sur)i)ed by teir
legitimate &ildren, namely, 4ita =aylon (4ita), Ni&toria =aylon (Ni&toria), 9olores =aylon
(9olores), !anAla 3ome, (!anAla), 4amon =aylon (4amon) and erein 'etitioner Kilia =. Ada
(Kilia).
9olores died intestate and %itout issue . Ni&toria died and %as sur)i)ed by er
daugter, erein 'etitioner Ku, =. Adan,a. 4amon died intestate and %as sur)i)ed by erein
res'ondent ;lorante =aylon (;lorante), is &ild from is Arst marriage, as %ell as by
'etitioner ;lora =aylon, is se&ond %ife, and teir legitimate &ildren, namely, 4amon, *r.
and erein 'etitioners 4emo, *ose, <ri&, ;lorentino and Ma. 4uby, all surnamed =aylon.
-e 'etitioners Aled %it te 4-C a Com'laint for 'artition, a&&ounting and damages
against ;lorante, 4ita and !anAla. -ey alleged terein tat S'ouses =aylon, during teir
lifetime, o%ned 1/ 'ar&els of land all situated in 2egros Oriental. After te deat of S'ouses
=aylon, tey &laimed tat 4ita too8 'ossession of te said 'ar&els of land and a''ro'riated
for erself te in&ome from te same. 5sing te in&ome 'rodu&ed by te said 'ar&els of
land, 4ita allegedly 'ur&ased t%o 'ar&els of land, Kot 2o. 17$9 and alf of Kot 2o. 17$6,
situated in Canda6uay, 9umaguete City. -e 'etitioners a)erred tat 4ita refused to eBe&t a
'artition of te said 'ar&els of land.
?n teir Ans%er, ;lorante, 4ita and !anAla ((( &laimed tat Kot 2o. 17$9 and alf of
Kot 2o. 17$6 %ere a&Huired by 4ita using er o%n money. -ey denied tat 4ita
a''ro'riated solely for erself te in&ome of te estate of S'ouses =aylon, and e('ressed no
ob:e&tion to te 'artition of te estate of S'ouses =aylon, but only %it res'e&t to te &o6
o%ned 'ar&els of land.
9uring te 'enden&y of te &ase, 4ita, troug a 9eed of 9onation , &on)eyed Kot
2o. 17$9 and alf of Kot 2o. 17$6 to ;lorante. 4ita died intestate and %itout any issue.
-ereafter, learning of te said donation inter vivos in fa)or of ;lorante, te 'etitioners Aled
a Su''lemental !leading, 'raying tat te said donation in fa)or of te res'ondent be
res&inded in a&&ordan&e %it Arti&le 1/71(1) of te Ci)il Code. -ey furter alleged tat 4ita
%as already si&8 and )ery %ea8 %en te said 9eed of 9onation %as su''osedly e(e&uted
and, tus, &ould not a)e )alidly gi)en er &onsent tereto.
/6
;lorante and !anAla o''osed te res&ission of te said donation, asserting tat
Arti&le 1/71(1) of te Ci)il Code a''lies only %en tere is already a 'rior :udi&ial de&ree on
%o bet%een te &ontending 'arties a&tually o%ned te 'ro'erties under litigation.
-e 4-C rendered a de&ision de&laring te donation inter )i)os res&inded ((( on te
ground tat it %as entered into by te defendant 4ita =aylon %itout te 8no%ledge and
a''ro)al of te litigants >or@ of &om'etent :udi&ial autority. -e sub:e&t 'ar&els of lands are
in)ol)ed in te &ase for %i& 'laintiBs a)e as8ed te Court to 'artition te same among
te eirs of ;lorentino =aylon and Ma(imina <lnas.
On a''eal, te CA eld tat before te 'etitioners may Ale an a&tion for res&ission,
tey must Arst obtain a fa)orable :udi&ial ruling tat Kot 2o. 17$9 and alf of Kot 2o. 17$6
a&tually belonged to te estate of S'ouses =aylon and not to 4ita. 5ntil ten, te CA
asserted, an a&tion for res&ission is 'remature. ;urter, te CA ruled tat te 'etitionersI
a&tion for res&ission &annot be :oined %it teir a&tion for 'artition, a&&ounting and damages
troug a mere su''lemental 'leading.
?SS5<D
Eeter te donation inter )i)os of Kot 2o. 17$9 and alf of Kot 2o. 17$6 in fa)or of
;lorante may only be res&inded if tere is already a :udi&ial determination tat te same
a&tually belonged to te estate of S'ouses =aylon.
G<K9D
Contra&ts %i& are res&issible due to fraud or bad fait in&lude tose %i& in)ol)e
tings under litigation, if tey a)e been entered into by te defendant %itout te
8no%ledge and a''ro)al of te litigants or of &om'etent :udi&ial autority. -us, Arti&le
1/71(1) of te Ci)il Code 'ro)idesD
Art. 1/71. -e follo%ing &ontra&ts are res&issibleD
( ( ( (
(1) -ose %i& refer to tings under litigation if tey entered into by te defendant %itout
te 8no%ledge and a''ro)al of te litigants or of &om'etent :udi&ial autority.
-e res&ission of a &ontra&t under Arti&le 1/71(1) of te Ci)il Code only reHuires te
&on&urren&e of te follo%ingD Arst, te defendant, during te 'enden&y of te &ase, enters
into a &ontra&t %i& refers to te ting sub:e&t of litigationC and se&ond, te said &ontra&t
%as entered into %itout te 8no%ledge and a''ro)al of te litigants or of a &om'etent
:udi&ial autority. As long as te foregoing reHuisites &on&ur, it be&omes te duty of te
&ourt to order te res&ission of te said &ontra&t.
-e reason for tis is sim'le. Arti&le 1/71(1) see8s to remedy te 'resen&e of bad
fait among te 'arties to a &ase andFor any fraudulent a&t %i& tey may &ommit %it
res'e&t to te ting sub:e&t of litigation.
Een a ting is te sub:e&t of a :udi&ial &ontro)ersy, it sould ultimately be bound by
%ate)er dis'osition te &ourt sall render. -e 'arties to te &ase are terefore e('e&ted,
in deferen&e to te &ourtIs e(er&ise of :urisdi&tion o)er te &ase, to refrain from doing a&ts
%i& %ould dissi'ate or debase te ting sub:e&t of te litigation or oter%ise render te
im'ending de&ision terein ineBe&tual.
/7
-ere is, ten, a restri&tion on te dis'osition by te 'arties of te ting tat is te
sub:e&t of te litigation. Arti&le 1/71(1) of te Ci)il Code reHuires tat any &ontra&t entered
into by a defendant in a &ase %i& refers to tings under litigation sould be %it te
8no%ledge and a''ro)al of te litigants or of a &om'etent :udi&ial autority.
;urter, any dis'osition of te ting sub:e&t of litigation or any a&t %i& tends to
render inutile te &ourtIs im'ending dis'osition in su& &ase, sans te 8no%ledge and
a''ro)al of te litigants or of te &ourt, is unmista8ably and irrefutably indi&ati)e of bad
fait. Su& a&ts undermine te autority of te &ourt to lay do%n te res'e&ti)e rigts of te
'arties in a &ase relati)e to te ting sub:e&t of litigation and bind tem to su&
determination.
?t sould be stressed, toug, tat te defendant in su& a &ase is not absolutely
'ros&ribed from entering into a &ontra&t %i& refer to tings under litigation. ?f, for
instan&e, a defendant enters into a &ontra&t %i& &on)eys te ting under litigation during
te 'enden&y of te &ase, te &on)eyan&e %ould be )alid, tere being no deAnite dis'osition
yet &oming from te &ourt %it res'e&t to te ting sub:e&t of litigation. After all,
not%itstanding tat te sub:e&t tereof is a ting under litigation, su& &on)eyan&e is but
merely an e(er&ise of o%nersi'.
-is is true e)en if te defendant eBe&ted te &on)eyan&e %itout te 8no%ledge
and a''ro)al of te litigants or of a &om'etent :udi&ial autority. -e absen&e of su&
8no%ledge or a''ro)al %ould not 're&i'itate te in)alidity of an oter%ise )alid &ontra&t.
2e)erteless, su& &ontra&t, toug &onsidered )alid, may be res&inded at te instan&e of
te oter litigants 'ursuant to Arti&le 1/71(1) of te Ci)il Code.
Altoug te gratuitous &on)eyan&e of te said 'ar&els of land in fa)or of ;lorante
%as )alid, te donation inter )i)os of te same being merely an e(er&ise of o%nersi', 4itaIs
failure to inform and see8 te a''ro)al of te 'etitioners or te 4-C regarding te
&on)eyan&e ga)e te 'etitioners te rigt to a)e te said donation res&inded 'ursuant to
Arti&le 1/71(1) of te Ci)il Code.
?t bears stressing tat te rigt to as8 for te res&ission of a &ontra&t under Arti&le
1/71(1) of te Ci)il Code is not &ontingent u'on te Anal determination of te o%nersi' of
te ting sub:e&t of litigation. -e 'rimordial 'ur'ose of Arti&le 1/71(1) of te Ci)il Code is
to se&ure te 'ossible eBe&ti)ity of te im'ending :udgment by a &ourt %it res'e&t to te
ting sub:e&t of litigation. ?t see8s to 'rote&t te binding eBe&t of a &ourtIs im'ending
ad:udi&ation )is6[6)is te ting sub:e&t of litigation regardless of %i& among te
&ontending &laims terein %ould subseHuently be u'eld. A&&ordingly, a deAniti)e :udi&ial
determination %it res'e&t to te ting sub:e&t of litigation is not a &ondition sine Hua non
before te res&issory a&tion &ontem'lated under Arti&le 1/71(1) of te Ci)il Code may be
instituted.
/7
4oman Catoli& Cur& )s. !ante
3.4. 2o. 171117, A'ril 11,"$1"
;AC-SD
-e Cur&, re'resented by te Ar&biso' of Ca&eres, o%ned a /"6sHuare meter lot
tat measured "(16 meters lo&ated in Baran,ay 9inaga, Canaman, Camarines Sur. On
Se'tember "#, 199", te Cur& &ontra&ted %it res'ondent 4egino !ante for te sale of te
lot (tru a Contra&t to Sell and to =uy) on t5e &elie* tat te latter %as an a&tual o&&u'ant
of te lot. -e &ontra&t bet%een tem A(ed te 'ur&ase 'ri&e at !11,"$$.$$, %it te initial
!1,1"$.$$ 'ayable as do%n 'ayment, and te remaining balan&e 'ayable in tree years or
until Se'tember "#, 199#.
On *une "7, 1991, te Cur& sold in fa)or of te s'ouses 2estor and ;idela 4ubi
(s6ouses Ru&i) a "1#6sHuare meter lot tat in(luded t5e lot 6reviously sold to Pante. -e
s'ouses 4ubi asserted teir o%nersi' by ere&ting a &on&rete fen&e o)er te lot sold to
!ante, eBe&ti)ely blo&8ing !ante and is familyIs a&&ess from teir family ome to te
muni&i'al road. As no settlement &ould be rea&ed bet%een te 'arties, !ante instituted
%it te 4-C an a&tion to annul te sale bet%een te Cur& and te s'ouses 4ubi, insofar
as it in&luded te lot 're)iously sold to im.
-e Cur& Aled its ans%er %it a &ounter&laim, see8ing te annulment of its
&ontra&t %it !ante. -e Cur& alleged tat its (onsent to t5e (ontra(t ?as o&tained &y
*raud %en !ante, in bad fait, misre'resented tat e ad been an a&tual o&&u'ant of te
lot sold to im, %en in trut, e %as merely using te /"6sHuare meter lot as a 'assage%ay
from is ouse to te to%n 'ro'er. ?t &ontended tat it %as its 'oli&y to sell its lots only to
a&tual o&&u'ants.
-e 4-C ruled in fa)or of te Cur&, Anding tat te Cur&Is &onsent to te sale
%as se&ured troug !anteIs misre'resentation (((. As te Cur&Is &onsent %as se&ured
/9
troug its mista8en belief tat !ante %as a HualiAed .o&&u'ant,0 te 4-C annulled te
&ontra&t bet%een te Cur& and !ante, 'ursuant to Arti&le 1/9$ of te Ci)il Code.
-e CA re)ersed te 4-CIs ruling. -e CA &ara&teri,ed te &ontra&t bet%een !ante
and te Cur& as a &ontra&t of sale, sin&e te Cur& made no e('ress reser)ation of
o%nersi' until full 'ayment of te 'ri&e is made. ?n fa&t, te &ontra&t ga)e te Cur& te
rigt to re'ur&ase in &ase !ante fails to 'ay te installments %itin te gra&e 'eriod
'ro)idedC te CA ruled tat te rigt to re'ur&ase is unne&essary if o%nersi' as not
already been transferred to te buyer.
<)en assuming tat te &ontra&t ad been a &ontra&t to sell, te CA de&lared tat
!ante fulAlled te &ondition 're&edent %en e &onsigned te balan&e %itin te tree6year
'eriod allo%ed under te 'artiesI agreementC u'on full 'ayment, !ante fully &om'lied %it
te terms of is &ontra&t %it te Cur&.
-e Cur& Aled te 'resent 'etition &ontending tat te sale of te lot to !ante is
)oidable under Arti&le 1/9$ of te Ci)il Code.
?SS5<D
Eeter or not &onsent of te Cur& %as )itiated to render te Contra&t )oidableX
G<K9D
No it ?as not.
2o misre'resentation e(isted )itiating te sellerIs &onsent and in)alidating te
&ontra&t.
Consent is an essential reHuisite of &ontra&ts as it 'ertains to te meeting of te
oBer and te a&&e'tan&e u'on te ting and te &ause %i& &onstitute te &ontra&t. -o
&reate a )alid &ontra&t, te meeting of te minds must be free, )oluntary, %illful and %it a
reasonable understanding of te )arious obligations te 'arties assumed for temsel)es.
Eere &onsent, o%e)er, is gi)en troug mista8e, )iolen&e, intimidation, undue inOuen&e,
or fraud, te &ontra&t is deemed )oidable. Go%e)er, not e)ery mista8e renders a &ontra&t
)oidable. -e Ci)il Code &lariAes te nature of mista8e tat )itiates &onsentD
Arti&le 1//1. ?n order tat mista8e may in)alidate &onsent, it sould
refer to te substan&e of te ting %i& is te ob:e&t of te &ontra&t, or to
tose &onditions %i& a)e 'rin&i'ally mo)ed one or bot 'arties to enter
into te &ontra&t.

Mista8e as to te identity or HualiA&ations of one of te 'arties %ill
)itiate &onsent only %en su& identity or HualiA&ations a)e been te
'rin&i'al &ause of te &ontra&t.

A sim'le mista8e of a&&ount sall gi)e rise to its &orre&tion.
;or mista8e as to te HualiA&ation of one of te 'arties to )itiate &onsent, t%o reHuisites
must &on&urD
1. te mista8e must be eiter %it regard to te identity or %it regard to te
HualiA&ation of one of te &ontra&ting 'artiesC and
1$
". te identity or HualiA&ation must a)e been te 'rin&i'al &onsideration for te
&elebration of te &ontra&t.
-e abo)e fa&ts, in our )ie%, establis tat tere &ould not a)e been a deliberate,
%illful, or fraudulent a&t &ommitted by !ante tat misled te Cur& into gi)ing its &onsent
to te sale of te sub:e&t lot in is fa)or. -at !ante %as not an a&tual o&&u'ant of te lot e
'ur&ased %as a fa&t tat te Cur& eiter ignored or %ai)ed as a reHuirement. ?n any
&ase, te Cur& %as by no means led to belie)e or do so by !anteIs a&tC tere ad been no
)itiation of te Cur&Is &onsent to te sale of te lot to !ante.
?n te absen&e of any )itiation of &onsent, te &ontra&t bet%een te Cur& and
!ante stands )alid and e(isting. Any delay by !ante in 'aying te full 'ri&e &ould not nullify
te &ontra&t, sin&e (as &orre&tly obser)ed by te CA) it %as a &ontra&t of sale. =y its terms,
te &ontra&t did not 'ro)ide a sti'ulation tat te Cur& retained o%nersi' until full
'ayment of te 'ri&e. -e rigt to re'ur&ase gi)en to te Cur& in &ase !ante fails to 'ay
%itin te gra&e 'eriod 'ro)ided %ould a)e been unne&essary ad o%nersi' not already
'assed to !ante.
S'ouses *ose and Milagros Nilla&eran )s. *ose'ine de 3u,man
3.4. 2o. 169$##, ;ebruary "","$1"
;AC-SD
*ose'ine 9e 3u,man Aled a Com'laint %it te 4-C of <&ague, ?sabela against te
s'ouses *ose and Milagros Nilla&eran and ;ar <ast =an8 & -rust Com'any (;<=-C), Santiago
City =ran&, for de&laration of nullity of sale, re&on)eyan&e, redem'tion of mortgage and
damages %it 'reliminary in:un&tion. 9e 3u,man alleged tat se is te registered o%ner of
a 'ar&el of land lo&ated in <&ague, ?sabela. On A'ril 17, 199#, se mortgaged te lot to te
!ili''ine 2ational =an8 (!2=) of Santiago City to se&ure a loan. ?n order to se&ure a bigger
loan to Anan&e a business )enture, 9e 3u,man as8ed Milagros Nilla&eran to obtain an
additional loan on er bealf. Considering 9e 3u,manIs unsatisfa&tory loan re&ord %it te
!2=, Milagros suggested tat te title of te 'ro'erty be transferred to er and *ose
Nilla&eran and tey %ould obtain a bigger loan.
9e 3u,man e(e&uted a simulated 9eed of Absolute Sale in fa)or of te s'ouses
Nilla&eran. On te same day, tey %ent to te !2= and 'aid te amount of !7"1,791.67
using te money of te s'ouses Nilla&eran. -e s'ouses Nilla&eran registered te 9eed of
11
Sale and se&ured -C- in teir names. -ereafter, tey mortgaged te 'ro'erty %it ;<=-C
Santiago City to se&ure a loan. Go%e)er, te s'ouses Nilla&eran &on&ealed te loan release
from 9e 3u,man. Kater, %en 9e 3u,man learned of te loan release, se as8ed for te
loan 'ro&eeds less te amount ad)an&ed by te s'ouses Nilla&eran to 'ay te !2= loan.
Go%e)er, te s'ouses Nilla&eran refused to gi)e te money stating tat tey are already te
registered o%ners of te 'ro'erty and tat tey %ould re&on)ey te 'ro'erty to 9e 3u,man
on&e se returns te !7"1,791.67 tey 'aid to !2=.
9e 3u,man oBered to 'ay !/#$,$$$ 'ro)ided tat te s'ouses Nilla&eran %ould
e(e&ute a deed of re&on)eyan&e of te 'ro'erty. ?n )ie% of te simulated &ara&ter of teir
transa&tion, te s'ouses Nilla&eran e(e&uted a 9eed of Absolute Sale in fa)or of 9e 3u,man.
-ey also 'romised to 'ay teir mortgage debt %it ;<=-C to a)oid e('osing te 'ro'erty to
'ossible fore&losure and au&tion sale. Go%e)er, te s'ouses Nilla&eran failed to settle te
loan and subseHuently te 'ro'erty %as e(tra:udi&ially fore&losed. A SeriBIs CertiA&ate of
Sale %as issued in fa)or of ;<=-C. 9e 3u,man asserted tat te s'ouses Nilla&eran sould
be &om'elled to redeem teir mortgage so as not to 're:udi&e er as te real o%ner of te
'ro'erty.
On te oter and, te s'ouses Nilla&eran and ;<=-C, in teir Amended Ans%er,
a)erred tat ((( 9e 3u,man reHuested Milagros to el' er relati)e %o ad a loan
obligation %it te !2=. As a &onsideration for te a&&ommodation, 9e 3u,man %ould
&on)ey er 'ro'erty lo&ated at Maligaya, <&ague, ?sabela %i& %as ten being eld in
trust by er &ousin, 4aul Sison. R(( ?n order for 9e 3u,man to settle er obligation, se
oBered to sell er ouse and lot in <&ague, ?sabela. At Arst, Milagros signiAed er non6
interest in a&Huiring te same be&ause se 8ne% tat it %as mortgaged %it te !2=
Santiago for !6$$,$$$. 9e 3u,man 'ro'osed tat tey %ill :ust se&ure a bigger loan from
anoter ban8 using er ouse and lot as se&urity. -e additional amount %ill be used in
settling 9e 3u,manIs obligation %it !2=. Kater, 9e 3u,man 'ro'osed tat se borro% an
additional amount from Milagros %i& se %ill use to settle er loan %it !2=. -o tis
reHuest, Milagros a&&eded. Gen&e, tey %ent to te !2= and 'aid in full 9e 3u,manIs
outstanding obligation %it !2= %i& already rea&ed !77$,$$$.
Sin&e 9e 3u,manIs total obligation already rea&ed !1,/7$,$$$, te s'ouses
Nilla&eran reHuested er to e(e&ute a deed of absolute sale o)er te sub:e&t 'ro'erty in teir
fa)or. -us, te 9eed of Absolute Sale is su''orted by a )aluable &onsideration, and te
s'ouses Nilla&eran be&ame te la%ful o%ners of te 'ro'erty. Kater, tey mortgaged te
'ro'erty to ;<=-C for !1,17#,$$$.
-e 4-C ruled tat te 9eed of Sale e(e&uted by 9e 3u,man in fa)or of te s'ouses
Nilla&eran &o)ering te 'ro'erty %as )alid and binding on te 'arties. -e 4-C ruled tat
te said &ontra&t %as a relati)ely simulated &ontra&t, simulated only as to te 'ur&ase
'ri&e, but noneteless binding u'on te 'arties insofar as teir true agreement is &on&erned.
-e 4-C ruled tat 9e 3u,man e(e&uted te 9eed of Absolute Sale dated *une 19, 1996 so
tat te s'ouses Nilla&eran may use te 'ro'erty lo&ated in <&ague, ?sabela as &ollateral
for a loan in )ie% of 9e 3u,manIs need for additional &a'ital to Anan&e er business
)enture. -e true &onsideration for te sale, a&&ording to te 4-C, %as te !/$$,$$$ te
s'ouses Nilla&eran ga)e to 9e 3u,man 'lus te !7"1,791.67 tey 'aid to !2= in order tat
te title to te sub:e&t 'ro'erty may be released and used to se&ure a bigger loan in anoter
ban8.
Aggrie)ed, te s'ouses Nilla&eran a''ealed to te CA .-e CA ruled tat te 4-C %as
&orre&t in de&laring tat tere %as relati)e simulation of &ontra&t be&ause te deeds of sale
did not reOe&t te true intention of te 'arties. ?t found tat te e)iden&e establised tat
1"
te do&uments %ere e(e&uted for te 'ur'ose of an agen&y to se&ure a iger loan %ereby
te s'ouses Nilla&eran only a&&ommodated 9e 3u,man.
?SS5<D
Eeter te 9eed of Sale dated *une 19, 1996 is a simulated &ontra&t and not a true
sale of te sub:e&t 'ro'ertyX
G<K9D
Kes, it is a simulated (ontra(t.
Arti&le 1/1# of te Ci)il Code 'ro)ides tat te simulation of a &ontra&t may eiter
be absolute or relati)e. ?n absolute simulation, tere is a &olorable &ontra&t but it as no
substan&e as te 'arties a)e no intention to be bound by it. -e main &ara&teristi& of an
absolute simulation is tat te a''arent &ontra&t is not really desired or intended to 'rodu&e
legal eBe&t or in any %ay alter te :uridi&al situation of te 'arties. As a result, an absolutely
simulated or A&titious &ontra&t is )oid, and te 'arties may re&o)er from ea& oter %at
tey may a)e gi)en under te &ontra&t. Go%e)er, if te 'arties state a false &ause in te
&ontra&t to &on&eal teir real agreement, te &ontra&t is only relati)ely simulated and te
'arties are still bound by teir real agreement. Gen&e, %ere te essential reHuisites of a
&ontra&t are 'resent and te simulation refers only to te &ontent or terms of te &ontra&t,
te agreement is absolutely binding and enfor&eable bet%een te 'arties and teir
su&&essors in interest.
-e 'rimary &onsideration in determining te true nature of a &ontra&t is te
intention of te 'arties. ?f te %ords of a &ontra&t a''ear to &ontra)ene te e)ident
intention of te 'arties, te latter sall 're)ail. Su& intention is determined not only from
te e('ress terms of teir agreement, but also from te &ontem'oraneous and subseHuent
a&ts of te 'arties. ?n te &ase at bar, tere is a relati)e simulation of &ontra&t as te 9eed
of Absolute Sale dated *une 19, 1996 e(e&uted by 9e 3u,man in fa)or of 'etitioners did not
reOe&t te true intention of te 'arties.
((( te aforesaid do&ument of sale %as e(e&uted only to enable 'etitioners to use
te 'ro'erty as &ollateral for a bigger loan, by %ay of a&&ommodating 9e 3u,man. -us, te
'arties a)e agreed to transfer title o)er te 'ro'erty in te name of 'etitioners %o ad a
good &redit line %it te ban8. -e CA found it in&on&ei)able for 9e 3u,man to sell te
'ro'erty for !7#,$$$ as stated in te *une 19, 1996 9eed of Sale %en 'etitioners %ere able
to mortgage te 'ro'erty %it ;<=-C for !1,17#,$$$. Anoter indi&ation of te la&8 of
intention to sell te 'ro'erty is %en a fe% monts later, on Se'tember 6, 1996, te same
'ro'erty, tis time already registered in te name of 'etitioners, %as re&on)eyed to 9e
3u,man allegedly for !/#$,$$$.
4.S. -omas, ?n&. )s. 4i,al Cement Com'any, ?n&.
3.4. 2o. 17/1##, Mar& "1, "$1"
;AC-SD
4es'ondent and 'etitioner entered into a Contra&t for te su''ly of labor, materials,
and te&ni&al su'er)ision of te follo%ing 'ro:e&tsD
1/
1. *.O. \!69$6"1" L Eiring and installation of 'rimary and se&ondary lines
system.
". *.O. \!69$6"1/ L Su''ly and installation of 'rimary 'rote&tion and
dis&onne&ting s%it&.
/. *.O. \!69$6"11 L 4e%inding and &on)ersion of one (1) unit /1"# YNA,
/1.# YNF".1 YN, /] -ransformer to 1$$$ YNA, /1.# YNF17$N, /] 9elta
!rimary, Eye %it neutral se&ondary.

!etitioner agreed to 'erform te abo)e6mentioned :ob orders. ;or its 'art, res'ondent
agreed to 'ay te total sum of !",911,$$$.$$ in &onsideration of te 'erforman&e of te :ob
orders. !etitioner undertoo8 to &om'lete te 'ro:e&ts %itin one undred t%enty (1"$) days
from te eBe&ti)ity of te &ontra&t.
?n a letter 'etitioner reHuested for an e(tension of se)enty6A)e (7#) days %itin
%i& to &om'lete te 'ro:e&ts be&ause of te need to im'ort some of te materials needed.
?n te same letter, it also as8ed for a 'ri&e ad:ustment to &o)er te iger &ost of materials.
?n anoter letter, 'etitioner reHuested for anoter 7# days e(tension for te &om'letion of
te transformer 'ortion of te 'ro:e&ts for failure of its su''lier to deli)er te materials.
!etitioner reHuested for res'ondentIs assistan&e by fa&ilitating te a&Huisition of materials
and su''lies needed to &om'lete *.O. \!69$6"1" and *.O. \!69$6"1/ by dire&tly 'aying te
su''liers. ?t furter sougt tat it be allo%ed to ba&8 out from *.O. \!69$6"11 &o)ering te
re%inding and &on)ersion of te damaged transformer.
?n res'onse to 'etitionerIs reHuests, res'ondent, troug &ounsel, manifested its
obser)ation tat 'etitionerIs Anan&ial status so%ed tat it &ould no longer &om'lete te
'ro:e&ts as agreed u'on. 4es'ondent also informed 'etitioner tat it %as already in default
a)ing failed to &om'lete te 'ro:e&ts %itin 1"$ days from te eBe&ti)ity of te &ontra&t.
4es'ondent furter notiAed 'etitioner tat te former %as terminating te &ontra&t. ?t also
demanded for te refund of te amount already 'aid to 'etitioner, oter%ise, te ne&essary
a&tion %ould be instituted. ((( Gen&e, te Com6laint *or -um o* +oney Aled by res'ondent
against 'etitioner and -imes Surety & ?nsuran&e Co., ?n&..
;or its 'art, 'etitioner denied liability and &laimed instead tat it failed to &om'lete
te 'ro:e&ts due to res'ondentIs fault. ?t e('lained tat it relied in good fait on
res'ondentIs re'resentation tat te transformer sub:e&t of te &ontra&t &ould still be
re%ound and &on)erted but u'on dismantling te &ore6&oil assembly, it dis&o)ered tat te
&oils %ere already badly damaged and te 'rimary busing bro8en. -is dis&o)ery allegedly
entailed 'ri&e ad:ustment. !etitioner tus reHuested res'ondent for additional time %itin
%i& to &om'lete te 'ro:e&t and additional amount to Anan&e te same. !etitioner also
insisted tat te 'ro(imate &ause of te delay is te misre'resentation of te res'ondent on
te e(tent of te defe&t of te transformer.
-e 4-C rendered a de&ision in fa)or of 'etitioner olding tat te failure of 'etitioner
to &om'lete te 'ro:e&ts %as not solely due to its fault but more on res'ondentIs
misre'resentation and bad fait. -erefore, te Court dismissed res'ondentIs &om'laint.
4es'ondent, o%e)er, su&&essfully obtained a fa)orable de&ision %en its a''eal %as
granted by te CA. -e a''ellate &ourt re)ersed and set aside te 4-C de&ision. Contrary to
te &on&lusion of te 4-C, te CA found tat 'etitioner failed to 'ro)e tat res'ondent made
fraudulent misre'resentation to indu&e te former to enter into te &ontra&t. ?t furter eld
tat 'etitioner %as gi)en te o''ortunity to ins'e&t te transformer before oBering its bid.
-is being so, te CA added tat 'etitionerIs failure to a)ail of su& o''ortunity is
11
ine(&usable, &onsidering tat it is a &om'any engaged in te ele&tri&al business and te
&ontra&t in)ol)ed a si,able amount of money.
Aggrie)ed, 'etitioner &omes before te Court in tis 'etition.
?SS5<D
Eeter or not res'ondent %as guilty of fraud or misre'resentation as to te a&tual
&ondition of te transformer sub:e&t of te &ontra&tX
G<K9D
No, it is not.
=ad fait does not sim'ly &onnote bad :udgment or negligen&eC it im'orts a
disonest 'ur'ose or some moral obliHuity and &ons&ious doing of a %rong, a brea& of a
8no%n duty troug some moti)e or interest or ill %ill tat 'arta8es of te nature of fraud.
;raud as been deAned to in&lude an indu&ement troug insidious ma&ination. ?nsidious
ma&ination refers to a de&eitful s&eme or 'lot %it an e)il or de)ious 'ur'ose. 9e&eit
e(ists %ere te 'arty, %it intent to de&ei)e, &on&eals or omits to state material fa&ts and,
by reason of su& omission or &on&ealment, te oter 'arty %as indu&ed to gi)e &onsent
tat %ould not oter%ise a)e been gi)en. -ese are allegations of fa&t tat demand &lear
and &on)in&ing 'roof. -ey are serious a&&usations tat &an be so &on)eniently and &asually
in)o8ed, and tat is %y tey are ne)er 'resumed. ?n tis &ase, te e)iden&e 'resented is
insuJ&ient to 'ro)e tat res'ondent a&ted in bad fait or fraudulently in dealing %it
'etitioner.
!etitioner in fa&t admitted tat its re'resentati)es %ere gi)en te o''ortunity to
ins'e&t te sub:e&t transformer before it oBered its bid. ?f indeed te transformer %as
&om'letely sealed, it sould a)e demanded tat te same be o'ened if it found it
ne&essary before it oBered its bid. As &ontra&tor, 'etitioner ad been remiss in its obligation
to obtain as mu& information as 'ossible on te a&tual &ondition of te sub:e&t transformer
or at least it sould a)e 'ro)ided a HualiA&ation in its bid so as to ma8e &lear its rigt to
&laim &ontra&t 'ri&e and time ad:ustment. As a'tly eld by te CA, &onsidering tat
'etitioner is a &om'any engaged in te ele&tri&al business and te &ontra&t it ad entered
into in)ol)ed a si,able amount of money, its failure to &ondu&t an ins'e&tion of te sub:e&t
transformer is ine(&usable.
1#
9e'artment of !ubli& Eor8s and Gig%ays )s. 4onaldo <. Mui%a
3.4. 2o. 17/111, ;ebruary 7,"$1"
;AC-SD
After te Mt. !inatubo tragedy in 1991, 9!EG engaged a number of &ontra&tors,
in&luding te res'ondents, for te urgent reabilitation of te aBe&ted ri)er systems. ((( te
&ontra&tors signed %ritten agreements %it <ngineer !ili' Me^e,, !ro:e&t Manager ?? of te
9!EG.
?t is undis'uted tat te &ontra&tors a)e &om'leted teir assigned reabilitation
%or8s. =ut 9!EG refused to 'ay te &ontra&tors for te reason tat te &ontra&ts %ere
in)alid due to non6&om'lian&e %it legal reHuirements. As su&, res'ondents Aled an a&tion
for a sum of money against 9!EG. -e 4egional -rial Court (4-C) of Manila eld tat te
&ontra&ts %ere )alid and tus dire&ted 'ayment of &om'ensation to te &ontra&tors. 9!EG
a''ealed to te Court of A''eals (CA), %i& li8e te 4-C, ruled tat te res'ondents are
entitled to teir &laim of &om'ensation.
!etitioner a''ealed by (ertiorari before tis Court. ?n te Huestioned 9e&ision, te
Court 'rimarily aJrmed te trial and te a''ellate &ourtsI :udgments in fa)or of
res'ondentsI entitlement to &om'ensation against 'etitioner 9!EG.
!etitioner Aled a Motion for !artial 4e&onsideration assailing te aforementioned
9e&ision.
!etitioner alleges tat te &ontra&ts are )oid, %itout legal eBe&t, and &annot be
&ured by ratiA&ation. ?t &laims tat te &ontra&ts %ere unenfor&eable, as tey %ere entered
into beyond te autority of <ngineer Me^e,. !etitioner also stresses tat sin&e te
&onstru&tion &ontra&ts %it 4igor and 9imatula& are un%ritten, 9!EG &annot be eld liable.
?t raises te 'oint tat te %riting of go)ernment &ontra&ts is a reHuirement for e(isten&e,
)alidity and enfor&eability. Citing te treatise of =artolome C. ;ernande,, 'etitioner 9!EG
furter asserts tat te go)ernment, being an artiA&ial 'erson, &annot )erbally &onsent to
te &ontra&t.
?SS5<D
Eeter or not te &ontra&t is unenfor&eableX
G<K9D
No, it is not.
?t as been settled in se)eral &ases tat 'ayment for ser)i&es done on a&&ount of te
go)ernment, but based on a )oid &ontra&t, &annot be a)oided. -e go)ernment is un:ustiAed
in denying %at it o%es to &ontra&tors and in lea)ing tem un&om'ensated after it as
beneAtted from te already &om'leted %or8. *uris'ruden&e re&ogni,es te 'rin&i'le of
2uantum meruit. A&&ordingly, in te interest of substantial :usti&e, te &ontra&torIs
entitlement to &om'ensation as been and is ereby dire&ted.
16
Se)erino M. Manoto8 ?N )s. Geirs of Gomer K. =arHue
3.4. 2o. 16"//# & 16"6$#, Mar& 6, "$1"
;AC-SD
te 'etitions Aled by te Manoto8s under 4ule 1# of te 1997 4ules of Ci)il !ro&edure, as
amended, as %ell as te 'etition6in6inter)ention of te Manaans, are 9<2?<9. -e 'etition
for re&onstitution of title Aled by te =arHues is li8e%ise 9<2?<9. -C- 2o. 4-6""171
(/7"/$") in te name of Se)erino Manoto8 ?N, et al., -C- 2o. "1$177 in te name of Gomer
K. =arHue and 9eed of Con)eyan&e 2o. N6"$$$"" issued to ;eli&itas =. Manaan, are all
ereby de&lared 25KK and NO?9. -e 4egister of 9eeds of Caloo&an City andFor Mue,on City
are ereby ordered to CA2C<K te said titles. -e Court ereby 9<CKA4<S tat Kot 7"/ of
te !iedad <state, Mue,on City legally belongs to te 2A-?O2AK 3ON<42M<2- O; -G<
4<!5=K?C O; -G< !G?K?!!?2<S, %itout 're:udi&e to te institution of 4<N<4S?O2
'ro&eedings by te State troug te OJ&e of te Soli&itor 3eneral.
-e Manoto8s raised te follo%ing grounds in teir motion for re&onsideration %it
motion for oral argumentsD
-e Gonorable Court erred in Anding tat Sale CertiA&ate 2o. 1$#1,
%i& Se)erino Manoto8 a&Huired by assignment in 19"/, %as not a''ro)ed
by te 9ire&tor of Kands and te Se&retary of Agri&ulture and 2atural
4esour&es, and in Anding tat a Sale CertiA&ate %itout te Se&retaryIs
a''ro)al is )oid.
?SS5<D
Eeter or not te sale %as )alid absent te a''ro)al of te Se&retary of
?nteriorFAgri&ulture and natural 4esour&esX
G<K9D
9t ?as not.
As tis Court &ategori&ally ruled in Alonso v. Ce&u Country Clu&, 9n(., .a''ro)al by
te Se&retary of Agri&ulture and Commer&e of te sale of friar lands is indis'ensable for its
)alidity, en&e, te absen&e of su& a''ro)al made te sale null and void a& initio.0 ?n tat
&ase, te ma:ority de&lared tat no )alid titles &an be issued on te basis of te sale or
assignment made in fa)or of 'etitionerIs fater due to te absen&e of signature of te
9ire&tor of Kands and te Se&retary of te ?nterior, and te a''ro)al of te Se&retary of
2atural 4esour&es in te -ale CertiL(ate and Assi,nment o* -ale CertiL(ate. A''lying te
17
Alonso ruling to tese &ases, %e tus eld tat no legal rigt o)er te sub:e&t friar land &an
be re&ogni,ed in fa)or of te Manoto8s under te assignment do&uments in te absen&e of
te &ertiA&ate of sale duly signed by te 9ire&tor of Kands and a''ro)ed by te Se&retary of
Agri&ulture and 2atural 4esour&es.
-at a )alid &ertiA&ate of sale %as issued to Se)erino Manoto8Is assignors &annot
sim'ly be 6resumed from te e(e&ution of assignment do&uments in is fa)or. 2eiter &an
it be dedu&ed from te alleged issuan&e of te alf6torn -C- 2o. ""71/, itself a doubtful
do&ument as its autenti&ity %as not establised, mu& less te )era&ity of its re&itals
be&ause te name of te registered o%ner and date of issuan&e do not a''ear at all. -e
Manoto8s until no% as not oBered any e('lanation as to su& &ondition of te alleged title
of Se)erino Manoto8C tey assert tat it is te 4egister of 9eeds imself .%o sould be in a
'osition to e('lain tat &ondition of te -C- in 5is (ustody.0 =ut ten, no 4egister of 9eeds
ad testiAed and attested to te fa&t tat t5e ori,inal o* -C- 2o. ""71/ %as under isFer
&ustody, nor tat said &ertiA&ate of title in t5e name o* -everino +anotok e(isted in te Ales
of te 4egistry of 9eeds of Caloo&an or Mue,on City. -e Manoto8s &onsistently e)aded
a)ing to e('lain te &ir&umstan&es as to o% and %ere -C- 2o. ""71/ &ame about.
?nstead, tey urge tis Court to )alidate teir alleged title on te basis of te dis'utable
'resum'tion of regularity in te 'erforman&e of oJ&ial duty. Su& stan&e ardly satisAes
te standard of &lear and &on)in&ing e)iden&e in tese &ases. <)en te e(isten&e of te
oJ&ial re&ei'ts so%ing 'ayment of te 'ri&e to te land by Se)erino Manoto8 does not
'ro)e tat te land %as legally &on)eyed to im %itout any &ontra&t of sale a)ing been
e(e&uted by te go)ernment in is fa)or. 2eiter did te alleged issuan&e of -C- 2o. ""17/
in is fa)or )est o%nersi' u'on im o)er te land nor did it )alidate te alleged 'ur&ase of
Kot "7/, %i& is null and )oid. -e absen&e of te Se&retaryIs a''ro)al in CertiA&ate of
Sale 2o. 1$#1 made te su''osed sale null and )oid a& initio.
?n te ligt of te foregoing, te &laim of te =arHues %o, :ust li8e te Manaans,
%ere unable to 'rodu&e an autenti& and genuine sale &ertiA&ate, must li8e%ise fail. -e
9e&ision dis&ussed e(tensi)ely te Andings of te CA tat te =arHuesI do&umentary
e)iden&e %ere eiter s'urious or irregularly 'ro&ured, %i& e)en buttressed te earlier
Andings mentioned in te 9e&ember 17, "$$7 4esolution. -e CAIs Andings and
re&ommendations %it res'e&t to te &laims of all 6arties, a)e been fully ado'ted by tis
Court, as e)ident in our disHuisitions on te indis'ensable reHuirement of a )alidly issued
CertiA&ate of Sale o)er Kot 7"/, !iedad <state.
As to te motion of te Manaans to admit an alleged &ertiAed true &o'y of Sale
CertiA&ate 2o. #11 dated *une "/, 191/ in te name of Nalentin Manaan %i&, as alleged
in te atta&ed S%orn <('lanation of <)elyn 3. Cel,o, te latter adinad)ertently failed to
atta& to er ?n)estigation 4e'ort for%arded to te C<24O, tis Court &annot grant said
motion.
As to te a''li&ability of Art. 1/17 of te Ci)il Code, %e maintain tat &ontra&ts of
sale la&8ing te a''ro)al of te Se&retary fall under te &lass of )oid and ine(istent
&ontra&ts enumerated in Art. 11$9 %i& &annot be ratiAed. Se&tion 17 of A&t 2o. 11"$
mandated te a''ro)al by te Se&retary for a sale of friar land to be )alid.
-e oJ&ial do&ument denominated as .Sale CertiA&ate0 &learly reHuired bot te
signatures of te 9ire&tor of Kands %o issued su& sale &ertiA&ate to an a''li&ant
settlerFo&&u'ant and te Se&retary of te ?nteriorFAgri&ulture and 2atural 4esour&es
indi&ating is a66roval of te sale. -ese forms ad been 're'ared and issued by te Cief
of te =ureau of !ubli& Kands under te su'er)ision of te Se&retary of te ?nterior,
17
&onsistent %it A&t 2o. 11"$ .as may be ne&essary ( ( ( to &arry into eBe&t all te
'ro)isions >tereof@ tat are to be administered by or under >is@ dire&tion, and for te
&ondu&t of all 'ro&eedings arising under su& 'ro)isions.0
Nillamar )s. Mangaoil
3.4. 2o. 177661, A'ril 11, "$1"
;AC-SD
-e CA a'tly summari,ed as follo%s te fa&ts of te &ase 'rior to te Aling by
Mangaoil of te &om'laint for res&ission of &ontra&t before te 4-CD

Nillamar is te registered o%ner of a /.6$7$ e&tares 'ar&el of land
>ereinafter referred as te sub:e&t 'ro'erty@ in San ;ran&is&o, Manuel, ?sabela
&o)ered by -ransfer CertiA&ate of -itle (-C-) 2o. -69"9#76A. On Mar& /$,
1997, se entered into an Agreement %it Mangaoil for te 'ur&ase and sale
of said 'ar&el of land,
(((0

On A'ril 1, 1997, te 'arties e(e&uted a 9eed of Absolute Sale %ereby
Nillamar (ten <stelita =ernabe) transferred te sub:e&t 'ar&el of land to
Mangaoil for and in &onsideration of >!@1#$,$$$.$$.

?n a letter dated Se'tember 17, 1997, Mangaoil informed Nillamar tat
e %as ba&8ing out from te sale agreed u'on gi)ing as one of te reasons
tereforD

./. -at te area is not yet fully &leared by
in&umbran&es as tere are tenants %o are not %illing to )a&ate
te land %itout gi)ing tem ba&8 te amount tat tey
mortgaged te land.0

Mangaoil demanded refund of is >!@17#,$$$.$$ do%n 'ayment. 4eiterating
said demand in anoter letter dated A'ril "9, 1999, te same, o%e)er, %as
uneeded. ( ( ( (Citations omitted)
On *anuary "7, "$$", te res'ondent Aled before te 4-C a &om'laint for res&ission of
&ontra&t against te 'etitioner.
19
?n te res'ondentIs ans%er to te &om'laint, se a)erred tat se ad &om'lied %it
er obligations to te res'ondent. S'e&iA&ally, se &laimed a)ing &aused te release of -C-
2o. -69"9#76A by te 4ural =an8 of Cauayan and its deli)ery to a &ertain .Atty. !edro C.
Antonio0 (Atty. Antonio). -e 'etitioner li8e%ise insisted tat it %as te res'ondent %o
un&eremoniously %itdre% from teir agreement for reasons only te latter 8ne%.
-e 4-C ordered te res&ission of te agreement and te deed of absolute sale
e(e&uted bet%een te res'ondent and te 'etitioner.
-e 'etitioner Aled before te CA an a''eal to &allenge te foregoing. Se as&ribed
error on te 'art of te 4-C %en te latter ruled tat te agreement and deed of sale
e(e&uted by and bet%een te 'arties &an be res&inded as se failed to deli)er to te
res'ondent bot te sub:e&t 'ro'erty and te &ertiA&ate of title &o)ering te same. -e CA
rendered te no% assailed de&ision dismissing te 'etitionerIs a''eal. -e 'etitioner a)ers
tat te CA, in ordering te res&ission of te agreement and deed of sale, %i& se entered
into %it te res'ondent, on te basis of er alleged failure to deli)er te &ertiA&ate of title,
eBe&ti)ely im'osed u'on er an e(tra duty %i& %as neiter sti'ulated in te &ontra&t nor
reHuired by la%. Se argues tat under Arti&les 119# and 1196 of te 2e% Ci)il Code (2CC),
te obligation to deli)er te ting sold is &om'lied %it by a seller %o e(e&utes in fa)or of a
buyer an instrument of sale in a 'ubli& do&ument. Citing C5ua v. Court o* A66eals, se
&laims tat tere is a distin&tion bet%een transferring a &ertiA&ate of title in te buyerQs
name, on one and, and transferring o%nersi' o)er te 'ro'erty sold, on te oter. -e
latter &an be a&&om'lised by te sellerQs e(e&ution of an instrument of sale in a 'ubli&
do&ument. -e re&ording of te sale %it te 4egistry of 9eeds and te transfer of te
&ertiA&ate of title in te buyerQs name are ne&essary only to bind tird 'arties to te transfer
of o%nersi'.
-e 'etitioner &ontends tat in er &ase, se ad already &om'lied %it er
obligations under te agreement and te la% %en se ad &aused te release of -C- 2o. -6
9"9#76A from te 4ural =an8 of Cauayan, 'aid indi)idual mortgagees 4omeo Ka&aden
(Ka&aden) and ;lorante !arangan (!aranga), and e(e&uted an absolute deed of sale in te
res'ondentQs fa)or. Se adds tat before -69"9#76A &an be &an&elled and a ne% one be
issued in te res'ondentQs fa)or, te latter de&ided to %itdra% from teir agreement. Se
also 'oints out tat in te letters see8ing for an outrigt res&ission of teir agreement sent
to er by te res'ondent, not on&e did e demand for te deli)ery of -C-.
?n te res'ondentQs &omment, e see8s te dismissal of te instant 'etition.
Ge in)o8es Arti&les 1191 and 11#7 to argue tat %en a seller fails to transfer te o%nersi'
and 'ossession of a 'ro'erty sold, te buyer is entitled to res&ind te &ontra&t of sale.
?SS5<D
Eeter or not te failure of te 'etitioner to deli)er to te res'ondent bot te
'ysi&al 'ossession of te sub:e&t 'ro'erty and te &ertiA&ate of title &o)ering te same
amount to a substantial brea& of te formerQs obligations to te latter &onstituting a )alid
&ause to res&ind te agreement and deed of sale entered into by te 'arties.
G<K9D
Arti&le 1191 of te 2CC is &lear tat .te 'o%er to res&ind obligations is im'lied in
re&i'ro&al ones, in &ase one of te obligors sould not &om'ly %it %at is in&umbent u'on
im.0
#$
Arti&le 1197 of te 2CC generally &onsiders te e(e&ution of a 'ubli& instrument as
&onstru&ti)e deli)ery by te seller to te buyer of te 'ro'erty sub:e&t of a &ontra&t of sale.
-e &ase at bar, o%e)er, falls among te e(&e'tions to te foregoing rule sin&e a mere
'resum'ti)e and not &on&lusi)e deli)ery is &reated as te res'ondent failed to ta8e material
'ossession of te sub:e&t 'ro'erty.
?n P5ili66ine -u&ur&an Develo6ment Cor6oration v. T5e Auditor General, %e eldD
Een te sale of real 'ro'erty is made in a 'ubli& instrument, te e(e&ution
tereof is eHui)alent to te deli)ery of te ting ob:e&t of te &ontra&t, if from
te deed te &ontrary does not a''ear or &annot &learly be inferred.

?n oter %ords, tere is symboli& deli)ery of te 'ro'erty sub:e&t of te
sale by te e(e&ution of te 'ubli& instrument, unless from te e('ress terms
of te instrument, or by &lear inferen&e terefrom, tis %as not te intention
of te 'arties. Su& %ould be te &ase, for instan&e, ( ( ( %ere te )endor
as no &ontrol o)er te ting sold at te moment of te sale, and, terefore,
its material deli)ery &ould not a)e been made. (5nderlining su''lied and
&itations omitted)
Stated diBerently, as a general rule, te e(e&ution of a 'ubli& instrument amounts to
a &onstru&ti)e deli)ery of te ting sub:e&t of a &ontra&t of sale. Go%e)er, e(&e'tions e(ist,
among %i& is %en mere 'resum'ti)e and not &on&lusi)e deli)ery is &reated in &ases
%ere te buyer fails to ta8e material 'ossession of te sub:e&t of sale. A 'erson %o does
not a)e a&tual 'ossession of te ting sold &annot transfer &onstru&ti)e 'ossession by te
e(e&ution and deli)ery of a 'ubli& instrument.
!ili''ine Carter ?nsuran&e Cor'oration )s. !etroleum 9istributors & Ser)i&e Cor'oration
3.4. 2o. 17$797, A'ril 17, "$1"
;AC-SD
On *anuary "7, 1999, res'ondent !etroleum 9istributors and Ser)i&es Cor'oration
EPD-CF entered into a building &ontra&t %it 2.C. ;ran&ia Constru&tion Cor'oration EFCCF for
te &onstru&tion of a four6story &ommer&ial and 'ar8ing &om'le( 8no%n as !ar8 _2 ;ly
=uilding EPark MN Fly). -e 'arties agreed tat te &onstru&tion %or8 %ould begin on
;ebruary 1, 1999. -e 'ro:e&t sould be turned o)er by O&tober "1, 1999. -o ensure
&om'lian&e %it its obligation, ((( ;CC 'ro&ured !erforman&e =ond 2o. /191# amounting to
U6,7"7,/"9.$$ from 'etitioner !ili''ine Carter ?nsuran&e Cor'oration EPC9CF to se&ure full
and faitful 'erforman&e of its obligation under te =uilding Contra&t. 9uring te !ase 1 of
te 'ro:e&t, !9SC noti&ed tat ;CC %as si(teen (16) days beind s&edule. ?n a Ketter, it
reminded ;CC to &at& u' %it te s&edule of te 'ro:e&ted %or8 'at, (((. -e 'roblem,
o%e)er, %as not addressed, as te delay in&reased to /$ days and ballooned to 6$ days.
;or failure of ;CC to a&&om'lis te 'ro:e&t %itin te agreed &om'letion 'eriod, !9SC,
informed ;CC tat it %as terminating teir &ontra&t. SubseHuently, ((( !9SC %rote !C?C
as8ing for remuneration 'ursuant to !erforman&e =ond 2o. /191#.
9es'ite noti&e, !9SC did not re&ei)e any re'ly from eiter ;CC or !C?C, &onstraining
it to Ale a &om'laint against ;CC before te 4-C. !9SC later Aled a su''lemental &om'laint
im'leading !C?C, &laiming &o)erage under !erforman&e =ond 2o. /191# in te amount of
U6,7"7,/"9.66.
#1
;or its 'art, !C?C a)erred tat as a surety, it %as not liable as a 'rin&i'al obligorC tat
its liability under te bond %as &onditional and subsidiary and tat it &ould be made liable
only u'on ;CCIs default of its obligation in te =uilding Contra&t u' to te e(tent of te
terms and &onditions of te bond. !C?C also alleged tat its obligation under te
'erforman&e bond %as terminated %en it e('ired on O&tober 1#, 1999 and te e(tension of
te 'erforman&e bond until Mar& ", "$$$ %as not binding as it %as made %itout its
8no%ledge and &onsent.
R(( 2oneteless, in te e)ent tat !C?C %ould be made liable, its liability sould be
in 'ro'ortion to te liabilities of te oter sureties. -e 4-C and CA rendered its 9e&ision in
fa)or of !9SC. !C?C argues tat in &ase of a brea& of &ontra&t, te 'erforman&e bond is
ans%erable only for a&tual or &om'ensatory, not for liHuidated damages. -e terms of te
bond are &lear tat te liability of te surety is determined by te &ontra&t of suretysi' and
&annot be e(tended by im'li&ation beyond te terms of te &ontra&t. 2oneteless, e)en
assuming tat it is liable under te 'erforman&e bond, te liability sould be based on
eHuity. ?t &laims tat it is unla%ful and iniHuitous to old ;CC res'onsible for te delay of te
sub&ontra&tor &ommissioned by !9SC.
!C?C adds tat te a&t of !9SC of sub&ontra&ting te )arious stages of te 'ro:e&t
resulted in a re)ision of %or8 s&edule and e(tension of te &om'letion date tat ultimately
released bot ;CC and !C?C of %ate)er &laims !9SC may a)e against tem. !C?C is of te
im'ression tat sin&e te sub&ontra&ting made by !9SC %as made %itout its &onsent and
8no%ledge, its liability under te 'erforman&e bond sould be e(tinguised.
!C?C also 'ointed out tat te re&ei)able in te amount of U",79/,$$$.$$ a&Huired by
!9SC from Calte( and te 'ro&eeds from te au&tion sale in te sum of U66",7/6.#$ sould
be dedu&ted from te a%ard of U/,77",7"#.1/.
?SS5<D
(1) %eter or not !C?C is liable for liHuidated damages under te 'erforman&e bondC
(") %eter or not te Se'tember 1$, 1999 MOA e(e&uted by !9SC and ;CC
e(tinguised !C?CIs liability under te 'erforman&e bond.
G<K9D
Kes, it is.
=y te language of te 'erforman&e bond issued by !C?C, it guaranteed te full and
faitful &om'lian&e by ;CC of its obligations in te &onstru&tion of te !ar8 _2 ;ly. ?n fa&t, te
'rimary 'ur'ose for te a&Huisition of te 'erforman&e bond %as to guarantee to !9SC tat
te 'ro:e&t %ould 'ro&eed in a&&ordan&e %it te terms and &onditions of te &ontra&t and
to ensure te 'ayment of a sum of money in &ase te &ontra&tor %ould fail in te full
'erforman&e of te &ontra&t. -is guaranty made by !C?C ga)e !9SC te rigt to 'ro&eed
against it (!C?C) follo%ing ;CCIs non6&om'lian&e %it its obligation.
A &ontra&t of suretysi' is an agreement %ereby a 'arty, &alled te surety,
guarantees te 'erforman&e by anoter 'arty, &alled te 'rin&i'al or obligor, of an
obligation or underta8ing in fa)or of anoter 'arty, &alled te obligee. Altoug te &ontra&t
of a surety is se&ondary only to a )alid 'rin&i'al obligation, te surety be&omes liable for te
debt or duty of anoter altoug it 'ossesses no dire&t or 'ersonal interest o)er te
obligations nor does it re&ei)e any beneAt terefrom. -e suretyIs obligation is not an
#"
original and dire&t one for te 'erforman&e of is o%n a&t, but merely a&&essory or &ollateral
to te obligation &ontra&ted by te 'rin&i'al. 2e)erteless, altoug te &ontra&t of a surety
is in essen&e se&ondary only to a )alid 'rin&i'al obligation, is liability to te &reditor or
'romisee of te 'rin&i'al is said to be dire&t, 'rimary and absoluteC in oter %ords, e is
dire&tly and eHually bound %it te 'rin&i'al.
Corollary, %en !9SC &ommuni&ated to ;CC tat it %as terminating te &ontra&t,
!C?CIs liability, as surety, arose. -e &laim of !9SC against !C?C o&&urred from te failure of
;CC to 'erform its obligation under te building &ontra&t.
-us, suretysi' arises u'on te solidary binding of a 'erson deemed te surety %it
te 'rin&i'al debtor for te 'ur'ose of fulAlling an obligation. A surety is &onsidered in la% as
being te same 'arty as te debtor in relation to %ate)er is ad:udged tou&ing te
obligation of te latter, and teir liabilities are inter%o)en as to be inse'arable. -erefore,
as surety, !C?C be&omes liable for te debt or duty of ;CC altoug it 'ossesses no dire&t or
'ersonal interest o)er te obligations of te latter, nor does it re&ei)e any beneAt terefrom.
-e Court also found untenable te &ontention of !C?C tat te 'rin&i'al &ontra&t %as
no)ated %en !9SC and ;CC e(e&uted te Se'tember 1$, 1999 MOA, %itout informing te
surety, %i&, in eBe&t, e(tinguised its obligation.
A surety agreement as t%o ty'es of relationsi'D (1) te 'rin&i'al relationsi'
bet%een te obligee and te obligorC and (") te a&&essory surety relationsi' bet%een te
'rin&i'al and te surety. -e obligee a&&e'ts te suretyIs solidary underta8ing to 'ay if te
obligor does not 'ay. Su& a&&e'tan&e, o%e)er, does not &ange in any material %ay te
obligeeIs relationsi' %it te 'rin&i'al obligor. 2eiter does it ma8e te surety an a&ti)e
'arty in te 'rin&i'al obligor6obligee relationsi'. ?t follo%s, terefore, tat te a&&e'tan&e
does not gi)e te surety te rigt to inter)ene in te 'rin&i'al &ontra&t. -e suretyIs role
arises only u'on te obligorIs default, at %i& time, it &an be dire&tly eld liable by te
obligee for 'ayment as a solidary obligor.
5ndoubtedly, a surety is released from its obligation %en tere is a material
alteration of te 'rin&i'al &ontra&t in &onne&tion %it %i& te bond is gi)en, su& as a
&ange %i& im'oses a ne% obligation on te 'romising 'arty, or %i& ta8es a%ay some
obligation already im'osed, or one %i& &anges te legal eBe&t of te original &ontra&t
and not merely its form. ?n tis &ase, o%e)er, no ne% &ontra&t %as &on&luded and
'erfe&ted bet%een !9SC and ;CC. ((( -ere %as no ne% &ontra&tFagreement %i& &ould
be &onsidered to a)e substituted te =uilding Contra&t.
!G?K?!!?2< CGA4?-P SE<<!S-AY<S O;;?C< (!CSO) )s. 2<E 9A35!A2 M<-4O 3AS
CO4!O4A-?O2
3.4. 2o. 17/171 *uly 11, "$1"
;AC-SD
4es'ondent !urita <. !eralta (!eralta) is te registered o%ner of a 'ar&el of land
lo&ated at =onuan =lue =ea& Subdi)ision, 9agu'an City under -C- 2o. #"1/#. On Mar& 7,
1979, a real estate mortgage %as &onstituted o)er su& 'ro'erty in fa)or of !CSO to se&ure
te 'ayment of te s%ee'sta8es ti&8ets 'ur&ased by one of its 'ro)in&ial distributors,
!atri&ia !. 3alang (3alang).
#/
!eralta sold, under a &onditional sale, te sub:e&t 'ro'erty to 2e% 9agu'an. !eralta
so%ed to 2e% 9agu'an a 'oto&o'y of -C- 2o. #"1/#, %i& bore no liens and
en&umbran&es, and undertoo8 to deli)er te o%nerIs du'li&ate %itin tree (/) monts from
te e(e&ution of te &ontra&t. R((
9uring te 'enden&y of 2e% 9agu'anIs &om'laint against !eralta, !CSO &aused te
registration of te mortgage. !CSO Aled an a''li&ation for te e(tra:udi&ial fore&losure sale
of te sub:e&t 'ro'erty in )ie% of 3alangIs failure to fully 'ay te s%ee'sta8es se
'ur&ased in 199". A 'ubli& au&tion too8 'la&e %ere !CSO %as te igest bidder. A
&ertiA&ate of sale %as &orres'ondingly issued to !CSO.
-e &ertiAed true &o'y of -C- 2o. #"1/# tat 2e% 9agu'an obtained from te
4egister of 9eeds of 9agu'an City for its use in Ci)il Case 2o. 961$16$ reOe&ted !CSOIs
mortgage lien. 2e% 9agu'an, &laiming tat it is only ten tat it %as informed of te sub:e&t
mortgage, sent a letter to !CSO, notifying te latter of its &om'laint against !eralta and its
&laim o)er te sub:e&t 'ro'erty and suggesting tat !CSO inter)ene and 'arti&i'ate in te
&ase.
((( 2e% 9agu'an on&e again demanded !eraltaIs deli)ery of te o%nerIs du'li&ate
of -C- 2o. #"1/#. Also, in a letter, 2e% 9agu'an made a similar demand from !CSO, %o in
res'onse, stated tat it ad already fore&losed te mortgage on te sub:e&t 'ro'erty and it
as in its name a &ertiA&ate of sale for being te igest bidder in te 'ubli& au&tion.
-us, 2e% 9agu'an Aled %it te 4-C a 'etition against !CSO for te annulment of
-C- 2o. #"1/# or surrender of te o%nerIs du'li&ate tereof. te 4-C =ran& 1" rendered a
9e&ision in 2e% 9agu'anIs fa)or ruling tat 2e% 9agu'an is a buyer in good fait.
!CSOIs a''eal from te foregoing ad)erse de&ision %as dismissed. =y %ay of its
assailed de&ision, te CA did not agree %it !CSOIs &laim tat te sub:e&t mortgage is in te
nature of a &ontinuing guaranty, olding tat !eraltaIs underta8ing to se&ure 3alangIs
liability to !CSO is only for a 'eriod of one year and %as e(tinguised %en !eralta
&om'leted 'ayment on te s%ee'sta8es ti&8ets se 'ur&ased in 1979.
-e instant a''eal must fail. -ere is noting in te 9eed of 5nderta8ing %it ;irst
4eal <state Mortgage, e('ressly or im'liedly, tat %ould indi&ate tat !eralta agreed to let
er 'ro'erty be burdened as long as te &ontra&t of underta8ing %it real estate mortgage
%as not &an&elled or re)o8ed. ( ( (
?n tis 'etition, !CSO &laims tat te CA erred in olding tat te sub:e&t mortgage
ad been e(tinguised by 3alangIs 'ayment of !1#$,$$$.$$, re'resenting te amount of te
s%ee'sta8es ti&8ets se 'ur&ased in 1979. A&&ording to !CSO, te said amount is a&tually
te &redit line granted to 3alang and te 'rase Wall dra%sW refers to er ti&8et 'ur&ases for
subseHuent years dra%n against su& &redit line. ConseHuently, !CSO 'osits, te sub:e&t
mortgage ad not been e(tinguised by !eraltaIs 'ayment of er ti&8et 'ur&ases in 1979
and its &o)erage e(tends to er 'ur&ases after 1979, %i& se made against te &redit
line tat %as granted to er. -at %en 3alang failed to 'ay er ti&8et 'ur&ases in 199",
!CSOIs rigt to fore&lose te sub:e&t mortgage arose.
!CSO also maintains tat its rigts o)er te sub:e&t 'ro'erty are su'erior to tose of
2e% 9agu'an. Considering tat te &ontra&t bet%een 2e% 9agu'an is a &onditional sale,
tere %as no &on)eyan&e of o%nersi' at te time of te e(e&ution tereof on *uly /1, 1979.
?t %as only on *anuary "1, 1991, or %en te 4-C =ran& 1/ a''ro)ed te &om'romise
agreement, tat a su''osed transfer of title bet%een !eralta and 2e% 9agu'an too8 'la&e.
Go%e)er, sin&e !CSO ad earlier fore&losed te sub:e&t mortgage and obtained title to te
#1
sub:e&t 'ro'erty as e)iden&ed by te &ertiA&ate of sale dated *une 1#, 199/, !eralta ad
noting to &ede or assign to 2e% 9agu'an. !CSO li8e%ise attributes bad fait to 2e%
9agu'an, &laiming tat !eraltaIs 'resentation of a mere 'oto&o'y of -C- 2o. #"1/#, albeit
%itout any annotation of a lien or en&umbran&e, suJ&ed to raise reasonable sus'i&ions
against !eraltaIs &laim of a &lean title and sould a)e 'rom'ted it to &ondu&t an
in)estigation tat %ent beyond te fa&e of -C- 2o. #"1/#. !CSO e)en assails te )alidity of
te sub:e&t sale for being against te 'roibition &ontained in te 9eed of 5nderta8ing %it
;irst 4eal <state Mortgage.
?SS5<D
Eo bet%een 2e% 9agu'an and !CSO as a better rigt to te 'ro'erty in Huestion.
G<K9D
Ne? Da,u6an.
As a general rule, a mortgage liability is usually limited to te amount mentioned in
te &ontra&t. Go%e)er, te amounts named as &onsideration in a &ontra&t of mortgage do
not limit te amount for %i& te mortgage may stand as se&urity if from te four &orners
of te instrument te intent to se&ure future and oter indebtedness &an be gatered.
Alternati)ely, %ile a real estate mortgage may e(&e'tionally se&ure future loans or
ad)an&ements, tese future debts must be s'e&iA&ally des&ribed in te mortgage &ontra&t.
An obligation is not se&ured by a mortgage unless it &omes fairly %itin te terms of te
mortgage &ontra&t.
-e sti'ulation e(tending te &o)erage of a mortgage to ad)an&es or loans oter
tan tose already obtained or s'e&iAed in te &ontra&t is )alid and as been &ommonly
referred to as a Wblan8et mortgageW or WdragnetW &lause. A Wblan8et mortgage &lause,W also
8no%n as a Wdragnet &lauseW in Ameri&an :uris'ruden&e, is one %i& is s'e&iA&ally 'rased
to subsume all debts of 'ast or future origins. Su& &lauses are W&arefully s&rutini,ed and
stri&tly &onstrued.W Mortgages of tis &ara&ter enable te 'arties to 'ro)ide &ontinuous
dealings, te nature or e(tent of %i& may not be 8no%n or anti&i'ated at te time, and
tey a)oid te e('ense and in&on)enien&e of e(e&uting a ne% se&urity on ea& ne%
transa&tion. A Wdragnet &lauseW o'erates as a &on)enien&e and a&&ommodation to te
borro%ers as it ma8es a)ailable additional funds %itout teir a)ing to e(e&ute additional
se&urity do&uments, tereby sa)ing time, tra)el, loan &losing &osts, &osts of e(tra legal
ser)i&es, re&ording fees, et &etera. ( ( (. (Citations omitted)
A mortgage tat 'ro)ides for a dragnet &lause is in te nature of a &ontinuing
guaranty and &onstitutes an e(&e'tion to te rule tan an a&tion to fore&lose a mortgage
must be limited to te amount mentioned in te mortgage &ontra&t. ?ts )alidity is an&ored
on Arti&le "$#/ of te Ci)il Code and is not limited to a single transa&tion, but &ontem'lates
a future &ourse of dealing, &o)ering a series of transa&tions, generally for an indeAnite time
or until re)o8ed. ?t is 'ros'e&ti)e in its o'eration and is generally intended to 'ro)ide
se&urity %it res'e&t to future transa&tions %itin &ertain limits, and &ontem'lates a
su&&ession of liabilities, for %i&, as tey a&&rue, te guarantor be&omes liable. ?n oter
%ords, a &ontinuing guaranty is one tat &o)ers all transa&tions, in&luding tose arising in
te future, %i& are %itin te des&ri'tion or &ontem'lation of te &ontra&t of guaranty,
until te e('iration or termination tereof.
##
S?-5S 9<N<KO!M<2- CO4!O4A-?O2 )s. AS?A-45S- =A2Y
3.4. 2o. 17$$/6 *uly "#, "$1"
;AC-SD
?n 197", te Cua ;amily, eaded by its 'atriar&, Cua Pong Gu, a.8.a. -ony Cua,
started a 'rinting business and 'ut u' Color Kitogra'i& !ress, ?n&. (COKO4). On *une 6,
199#, te Cua ;amily )entured into real estate de)elo'mentFleasing by organi,ing Situs
9e)elo'ment Cor'oration (S?-5S) in order to build a so''ing mall &om'le(, 8no%n as
Metrolane Com'le( (COM!K<R). -o Anan&e te &onstru&tion of te COM!K<R, S?-5S, COKO4
and -ony Cua and is %ife, Sio8 Ku Cua, obtained se)eral loans from se&ured by a real
estate mortgages to (1) AKK?<9C (") AS?A-45S- and (/) 3lobal =an8ing Cor'oration, no%
M<-4O=A2Y. -e COM!K<R %as built on said four (1) lots, all of %i& are registered in te
names of -ony Cua and is %ife, Sio8 Ku Cua. S?-5S, COKO4 and 9A?KP obtained additional
loans from AKK?<9, AS?A-45S- and M<-4O=A2Y and teir real estate mortgages %ere
u'dated andFor amended. S'ouses Cua li8e%ise e(e&uted A)e (#) Continuing
3uaranteeFCom'reensi)e Surety in fa)or of AKK?<9 to guarantee te 'ayment of te loans
of S?-5S and 9A?KP.
S?-5S, COKO4, 9A?KP and te s'ouses Cua failed to 'ay teir obligations as tey fell
due, des'ite demands.
AKK?<9 Aled an a''li&ation for e(tra:udi&ial fore&losure of te mortgage on te
'ro'erties of s'ouses Cua .-e s&eduled au&tion sale 'ro&eeded %erein AKK?<9 emerged
as te igest bidder. -e CertiA&ate of Sale in fa)or of AKK?<9 %as a''ro)ed by te
<(e&uti)e *udge and te same %as annotated on -C-.M<-4O=A2Y li8e%ise Aled an
a''li&ation for e(tra:udi&ial fore&losure of te mortgage on te 'ro'erty of s'ouses Cua.
-e au&tion sale %as &ondu&ted, %it M<-4O=A2Y as te igest bidder. AS?A-45S- sent a
demand letter to 9A?KP and COKO4 for te 'ayment of teir outstanding obligations.
S?-5S, 9A?KP and COKO4, erein 'etitioners, Aled a 'etition for te de&laration of
state of sus'ension of 'ayments %it a''ro)al of 'ro'osed reabilitation 'lan, %it te
4egional -rial Court. A Stay Order %as issued by te &ourt a Huo .
Aggrie)ed, AKK?<9, AS?A-45S- and M<-4O=A2Y Aled teir se'arate noti&es of
a''eal.
!etitioners Aled %it te &ourt a Huo a motion for de&laration of nullity of te
&ertiA&ate of sale in fa)or of AKK?<9 alleging tat te issuan&e tereof %as in )iolation of te
Stay Order. Said motions %ere o''osed by AKK?<9 on te grounds tat te 'ro'erties
fore&losed by it belonged to s'ouses Cua and not to 'etitionersC tat te au&tion sale %as
&ondu&ted on ;ebruary 6, "$$1, or more tan a year 'rior to te Aling of te 'etition for
reabilitationC and tat te issuan&e of te CertiA&ate of Sale and its annotation on te
&ertiA&ates of title are merely in&idental to te fore&losure 'ro&eedingsC and tat te Stay
Order does not &o)er te issuan&e of te CertiA&ate of Sale and te registration tereof on
te &ertiA&ates of title as tey do not in any %ay refer to its enfor&ement of a monetary
&laim against 'etitioners.
?n Se'arate Orders dated *anuary 9, "$$1, te &ourt a Huo granted bot motions of
'etitioners. -e &ourt a Huo eld tat %ile te fore&losure %as &ondu&ted 'rior to te
#6
issuan&e of te Stay Order, o%e)er, te fore&losure does not fully and eBe&ti)ely terminate
until after te issuan&e of te title in te name of te &reditor, su& tat until a ne% title is
issued, any a&tion in te interregnum, :udi&ial or not, is deemed an enfor&ement of te &laim
arising from su& fore&losure, %i& in tis &ase %ill be in 'atent )iolation of te Stay Order.
-e a''ellate &ourt rendered te assailed 9e&ision, re)ersing and setting aside te
Ad:udi&ation Order and lifting te Stay Order. ?n so &on&luding, te CA reasoned tat te
Stay Order did not aBe&t te &laims of Allied =an8 and Metroban8, be&ause tese &laims
%ere not dire&ted against te 'ro'erties of 'etitioners, but against tose of s'ouses Cua.
-e CA also reasoned tat %en te Stay Order %as issued, Allied =an8 and Metroban8 %ere
already te o%ners of te fore&losed 'ro'erties, sub:e&t only to te rigt of redem'tion of
S'ouses -ony and Sio8 Ku Cua (s'ouses Cua), be&ause te e(tra:udi&ial fore&losure
'ro&eedings ad ta8en 'la&e 'rior to te Aling of te !etition for 4eabilitation and te
issuan&e of te Stay Order.
!etitioners &laim tat, based on 4e'ubli& A&t (4.A.) 2o. 917" or te S'e&ial !ur'ose
Nei&le (S!N) A&t of "$$", tey a)e te rigt of legal redem'tion by 'aying Cameron te
transfer 'ri&e 'lus te &ost of money u' to te time of redem'tion and te :udi&ial &osts in
&ase of sale or transfer of 2on6!erforming Koans (2!Ks) under litigation.
!etitionersI &laim is an&ored on Se&tion 1/ of te S!N A&t, %i& 'ro)idesD
Se&. 1/. 2ature of -ransfer. L All sales or transfers of 2on6!erforming Assets to an S!N
sall be in te nature of a true sale after 'ro'er noti&e in a&&ordan&e %it te 'ro&edures as
'ro)ided for in se&tion 1"D !ro)ided, -at 3;?s and 3OCCs sall be sub:e&t to e(isting la% on
te dis'osition of assetsD !ro)ided, furter, -at in te transfer of te 2!Ks, te 'ro)isions on
subrogation and assignment of &redits under te 2e% Ci)il Code sall a''ly.
?n turn, Art. 16/1 of te Ci)il Code on Assignment of Credits and Oter ?n&or'oreal
4igts 'ro)idesD
Art. 16/1. Een a &redit or oter in&or'oreal rigt in litigation is sold, te debtor sall a)e
a rigt to e(tinguis it by reimbursing te assignee for te 'ri&e te latter 'aid terefor, te
:udi&ial &osts in&urred by im, and te interest on te 'ri&e from te day on %i& te same
%as 'aid.
A &redit or oter in&or'oreal rigt sall be &onsidered in litigation from te time te
&om'laint &on&erning te same is ans%ered.
-e debtor may e(er&ise is rigt %itin tirty days from te date te assignee demands
'ayment from im.
?SS5<D
Eeter 'etitioners &an redeem te &redit transferred by Metroban8 to Cameron by
'aying only te 'ri&e 'aid by te transferee.
G<K9D
Petitioners (annot redeem t5e (redit trans*erred &y +etro&ank to Cameron &y reim&ursin,
t5e trans*eree.
#7
((( 'etitioners &annot ta8e refuge in te 'ro)isions of te S!N A&t of "$$1 in &on:un&tion
%it Art. 16/1 of te Ci)il Code.
;or te debtor to be entitled to e(tinguis is &redit by reimbursing te assignee under Art.
16/1, te follo%ing reHuisites must &on&urD
(a) tere must be a &redit or oter in&or'oreal rigtC
(b) te &redit or oter in&or'oreal rigt must be in litigationC
(&) te &redit or oter in&or'oreal rigt must be sold to an assignee 'ending
litigationC
(d) te assignee must a)e demanded 'ayment from te debtorC
(e) te debtor must reimburse te assignee for te 'ri&e 'aid by te latter, te
:udi&ial &osts in&urred by te latter and te interest on te 'ri&e from te day on
%i& te same %as 'aidC and
(f) te reimbursement must be done %itin /$ days from te date of te assigneeIs
demand.
?n tis &ase, te &redit o%ed by 'etitioner &or'orations to Metroban8 ad already
been e(tinguised %en te ban8 fore&losed u'on te 'ar&el of land mortgaged to it by te
s'ouses Cua as se&urity for 'etitionersI debts, in full satisfa&tion of te loan te ban8 ad
e(tended. -erefore, during te 'enden&y of tese 'ro&eedings, %at %as transferred by
Metroban8 to Cameron %as o%nersi' o)er te fore&losed 'ro'erty, sub:e&t only to te rigt
of redem'tion by te 'ro'er 'arty %itin one year re&8oned from te date of registration of
te CertiA&ate of Sale.
Moreo)er, te 'ro)isions of te Ci)il Code on subrogation and assignment of &redits
are only a''li&able to 2!Ks, deAned in te S!N A&t of "$$" as follo%sD
W2on6!erforming Koans or 2!KsW refers to loans and re&ei)ables su& as mortgage
loans, unse&ured loans, &onsum'tion loans, trade re&ei)ables, lease re&ei)ables, &redit &ard
re&ei)ables and all registered and unregistered se&urity and &ollateral instruments, in&luding
but not limited to, real estate mortgages, &attel mortgages, 'ledges, and anti&resis,
%ose 'rin&i'al andFor interest a)e remained un'aid for at least one undred eigty (17$)
days after tey a)e be&ome 'ast due or any of te e)ents of default under te loan
agreement as o&&urred.
//
Eat is in)ol)ed in tis &ase is more 'ro'erly a real 'ro'erty a&Huired by a Anan&ial
institution in settlement of a loan (4O!OA).N?65i 5nder te la%, 4O!OAs are deAned in
tis mannerD W4O!OAsW refers to real and oter 'ro'erties o%ned or a&Huired by an Anan&ial
institution in settlement of loans and re&ei)ables, in&luding real 'ro'erties, sares of sto&8s,
and &attels formerly &onstituting &ollaterals for se&ured loans %i& a)e been a&Huired by
%ay of dation in 'ayment (da&ion en 'ago) or :udi&ial or e(tra6:udi&ial fore&losure or
e(e&ution of :udgment.
May te sub:e&t 'ro'erty be &onsidered as one a&Huired by Metroban8 'ursuant to an
e(tra:udi&ial fore&losure saleX
#7
-e ?m'lementing 4ules and 4egulations of te S!N A&t of "$$" 'ro)ide tat, in &ase
of e(tra:udi&ial fore&losure, a 'ro'erty is deemed a&Huired by a Anan&ial institution on te
date of notari,ation of te SeriBIs CertiA&ate.
?n tis &ase, a CertiA&ate of Sale as not been e(e&uted in fa)or of Metroban8 in
deferen&e to te Stay Order issued by te reabilitation &ourt. Go%e)er, %e reiterate tat
te reabilitation &ourt as no :urisdi&tion to sus'end fore&losure 'ro&eedings o)er a tird6
'arty mortgage. Mu& less &an it restrain te issuan&e of a CertiA&ate of Sale after te
sub:e&t 'ro'erties a)e been sold at 'ubli& au&tion more tan a year before te !etition for
4eabilitation %as Aled. -e 'ro'erty fore&losed by Metroban8 %as &learly beyond te ambit
of te Stay Order. ConseHuently, tere %as no )alid ground for te SeriB to %itold te
issuan&e and e(e&ution of te CertiA&ate of Sale.
-e 'ar&el of land mortgaged to Metroban8 and subseHuently transferred to Cameron
sould be treated as a 4O!OA as 'ro)ided for by la%. Gen&e, te a''li&ation of Art. 16/1
Ands no basis in la%.
=an8 of te !ili''ine ?slands, as su&&essor6in6interest of ;ar <ast =an8 & -rust Co. )s.
Cyntia K. 4eyes
3.4. 2o. 17"769 ;ebruary 1,"$1"
;AC-SD
9efendant 4eyes borro%ed, rene%ed and re&ei)ed from ;ar <ast =an8 te
'rin&i'al of -%enty Million 2ine Gundred -ousand !esos >si&@ (!"$,9#$,$$$.$$). As
se&urity for te obligation, defendant 4eyes e(e&uted 4eal <state Mortgage
Agreements in)ol)ing t%enty>6@t%o ("") 'ar&els of land. Een te debt be&ame due
and demandable, te defendant failed to settle er obligation and te 'laintiB %as
&onstrained to fore&lose te 'ro'erties. As alleged, after due 'ubli&ation, te
mortgaged 'ro'erties %ere sold at 'ubli& au&tion on 9e&ember "$, "$$1 by te
OJ&e of te Cler8 of Court & <(6OJ&io SeriB of te 4egional -rial Court of Malolos,
=ula&an.
At te 'ubli& au&tion, te mortgaged 'ro'erties %ere a%arded to =!? in
&onsideration of its igest bid 'ri&e amounting to 2ine Million -irty>6@-%o -ousand
2ine Gundred Si(ty !esos (!9,$/",96$.$$). On said date, te obligation already
rea&ed -irty Million ;orty (si&) Gundred -%enty -ousand ;orty>6@One & 67F1$$
!esos (!/$,1"$,$11.67), in&lusi)e of interest but e(&luding attorneyIs fees,
'ubli&ation and oter &arges. After a''lying te 'ro&eeds of te 'ubli& au&tion to
te outstanding obligation, tere remains to be a deA&ien&y and defendant 4eyes is
still indebted, as of *anuary "$, "$$/, to te 'laintiB in te amount of
!"1,#1#,$91.67. Also in&luded in te 'rayer of te 'laintiB is te 'ayment of
attorneyIs fees of at least ;i)e Gundred -ousand !esos and te &ost of suit.
After due trial, te trial &ourt rendered its 9e&ision in fa)or of 'laintiB =A2Y O;
-G< !G?K?!!?2< ?SKA29S, as su&&essor6in6interest of ;ar <ast =an8 & -rust Com'any,
and against defendant CP2-G?A K. 4<P<S. An a''eal %it te Court of A''eals
resulted in a re)ersal of te trial &ourtIs :udgment.
#9
?SS5<D
Eeter or not 'etitioner is entitled to re&o)er te un'aid balan&e or deA&ien&y from
res'ondent
G<K9D
Gen&e, it is %rong for 'etitioners to &on&lude tat %en res'ondent ban8
su''osedly bougt te fore&losed 'ro'erties at a )ery lo% 'ri&e, te latter
eBe&ti)ely 're)ented te former from satisfying teir %ole obligation.
!etitioners still ad te o'tion of eiter redeeming te 'ro'erties and,
tereafter, selling te same for a 'ri&e %i& &orres'onds to %at tey &laim
as te 'ro'ertiesI a&tual mar8et )alue or by sim'ly selling teir rigt to
redeem for a 'ri&e %i& is eHui)alent to te diBeren&e bet%een te su''osed
mar8et )alue of te said 'ro'erties and te 'ri&e obtained during te
fore&losure sale. ?n eiter &ase, 'etitioners %ill be able to re&ou' te loss tey
&laim to a)e suBered by reason of te inadeHuate 'ri&e obtained at te
au&tion sale and, tus, enable tem to settle teir obligation %it res'ondent
ban8. Moreo)er, 'etitioners are not :ustiAed in &on&luding tat tey sould be
&onsidered as a)ing 'aid teir obligations in full sin&e res'ondent ban8 %as
te one %o a&Huired te mortgaged 'ro'erties and tat te 'ri&e it 'aid %as
)ery inadeHuate. -e fa&t tat it is res'ondent ban8, as te mortgagee, %i&
e)entually a&Huired te mortgaged 'ro'erties and tat te bid 'ri&e %as lo%
is not a )alid reason for 'etitioners to refuse to 'ay te remaining balan&e of
teir obligation. Settled is te rule tat a mortgage is sim'ly a se&urity and
not a satisfa&tion of indebtedness.
S!O5S<S -<O9O4O and 2A2<--< !<4<2A
)s. S!O5S<S -<4<S?-A !G?K?!!?2< 2?COKAS and K. TA4A-<, 2A-?O2AK 4A?KEAPS, and te
CO54- O; A!!<AKS
3.4. 2o. 1#7917 August "9, "$1"
;AC-SD
-e !ere^as %ere engaged in te business of trans'orting students from teir
res'e&ti)e residen&es in !ara^aHue City to 9on =os&o in !asong -amo, Ma8ati City, and
ba&8. ?n teir business, te !ere^as used a Y?A Ceres Nan ()an), %i& ad te &a'a&ity to
trans'ort 11 students at a time, t%o of %om %ould be seated in te front beside te dri)er,
and te oters in te rear, %it si( students on eiter side. -ey em'loyed Clemente Alfaro
(Alfaro) as dri)er of te )an.
-e Tarates &ontra&ted te !ere^as to trans'ort Aaron to and from 9on =os&o. On
August "", 1996, as on 're)ious s&ool days, te )an 'i&8ed Aaron u' around 6D$$ a.m.
from te TaratesI residen&e. Aaron too8 is 'la&e on te left side of te )an near te rear
door. Considering tat te students %ere due at 9on =os&o by 7D1# a.m., and tat tey %ere
already running late be&ause of te ea)y )ei&ular traJ& on te Sout Su'erig%ay,
6$
Alfaro too8 te )an to an alternate route by tra)ersing te narro% 'at underneat te
Magallanes ?nter&ange tat %as ten &ommonly used by Ma8ati6bound )ei&les as a sort
&ut into Ma8ati. At te time, te narro% 'at %as mar8ed by 'iles of &onstru&tion materials
and 'ar8ed 'assenger :ee'neys, and te railroad &rossing in te narro% 'at ad no railroad
%arning signs, or %at&men, or oter res'onsible 'ersons manning te &rossing. ?n fa&t, te
bamboo barandilla %as u', lea)ing te railroad &rossing o'en to tra)ersing motorists.
At about te time te )an %as to tra)erse te railroad &rossing, !24 Commuter 2o.
/$" (train), o'erated by *onny Alano (Alano), %as in te )i&inity of te Magallanes
?nter&ange tra)elling nortbound. As te train neared te railroad &rossing, Alfaro dro)e te
)an east%ard a&ross te railroad tra&8s, &losely tailing a large 'assenger bus. Gis )ie% of te
on&oming train %as blo&8ed be&ause e o)ertoo8 te 'assenger bus on its left side. -e
train ble% its orn to %arn motorists of its a''roa&. Een te train %as about #$ meters
a%ay from te 'assenger bus and te )an, Alano a''lied te ordinary bra8es of te train. Ge
a''lied te emergen&y bra8es only %en e sa% tat a &ollision %as imminent. -e
'assenger bus su&&essfully &rossed te railroad tra&8s, but te )an dri)en by Alfaro did not.
-e train it te rear end of te )an, and te im'a&t tre% nine of te 1" students in te
rear, in&luding Aaron, out of te )an. Aaron landed in te 'at of te train, %i& dragged
is body and se)ered is ead, instantaneously 8illing im.
9e)astated by te early and une('e&ted deat of Aaron, te Tarates &ommen&ed
tis a&tion for damages against Alfaro, te !ere^as, !24 and Alano. -e !ere^as and !24
Aled teir res'e&ti)e ans%ers, %it &ross6&laims against ea& oter, but Alfaro &ould not be
ser)ed %it summons.
-e TaratesI &laim against te !ere^as %as u'on brea& of te &ontra&t of &arriage
for te safe trans'ort of AaronC but tat against !24 %as based on Huasi6deli&t under Arti&le
"176, Ci)il Code.
?SS5<SD
Eeter te !ere^as and !24 liable for negligen&eX
G<K9D
9es'ite &atering to a limited &lient`le, te !ere^as o'erated as a &ommon &arrier
be&ause tey eld temsel)es out as a ready trans'ortation indis&riminately to te students
of a 'arti&ular s&ool li)ing %itin or near %ere tey o'erated te ser)i&e and for a fee.
-e &ommon &arrierIs standard of &are and )igilan&e as to te safety of te
'assengers is deAned by la%. Arti&le 17## of te Ci)il Code s'e&iAes tat te &ommon
&arrier sould W&arry te 'assengers safely as far as uman &are and foresigt &an 'ro)ide,
using te utmost diligen&e of )ery &autious 'ersons, %it a due regard for all te
&ir&umstan&es.W -o su&&essfully fend oB liability in an a&tion u'on te deat or in:ury to a
'assenger, te &ommon &arrier must 'ro)e is or its obser)an&e of tat e(traordinary
diligen&eC oter%ise, te legal 'resum'tion tat e or it %as at fault or a&ted negligently
%ould stand.
-e !ere^as %ere liable for te deat of Aaron des'ite te fa&t tat teir dri)er migt
a)e a&ted beyond te s&o'e of is autority or e)en in )iolation of te orders of te
&ommon &arrier. ?n tis &onne&tion, te re&ords so%ed teir dri)erIs a&tual negligen&e.
-ere %as a so%ing, to begin %it, tat teir dri)er tra)ersed te railroad tra&8s at a 'oint
at %i& te !24 did not 'ermit motorists going into te Ma8ati area to &ross te railroad
61
tra&8s. On te oter and, %it is familiarity %it tat sort&ut, teir dri)er %as fully a%are
of te ris8s to is 'assengers but e still disregarded te ris8s. Com'ounding is la&8 of &are
%as tat loud musi& %as 'laying inside te air6&onditioned )an at te time of te a&&ident.
-e loudness most 'robably redu&ed is ability to ear te %arning orns of te on&oming
train to allo% im to &orre&tly a''re&iate te lur8ing dangers on te railroad tra&8s. Also, e
sougt to o)erta8e a 'assenger bus on te left side as bot )ei&les tra)ersed te railroad
tra&8s. ?n so doing, e lost is )ie% of te train tat %as ten &oming from te o''osite side
of te 'assenger bus, leading im to mis&al&ulate is &an&es of beating te bus in teir
ra&e, and of getting &lear of te train. As a result, te bus a)oided a &ollision %it te train
but te )an got slammed at its rear, &ausing te fatality. Kastly, e did not slo% do%n or go
to a full sto' before tra)ersing te railroad tra&8s des'ite 8no%ing tat is sla&8ening of
s'eed and going to a full sto' %ere in obser)an&e of te rigt of %ay at railroad tra&8s as
deAned by te traJ& la%s and regulations. Ge tereby )iolated a s'e&iA& traJ& regulation
on rigt of %ay, by )irtue of %i& e %as immediately 'resumed to be negligent.
Nerily, te !ere^as and te !24 %ere :oint tortfeasors.
!ili''ine 2ational 4ail%ays Cor'oration, et al. )s. !uriA&a&ion Ni,&ara, et al.
3.4. 2o. 19$$"" ;ebruary 1#,"$1"
;AC-SD
On May 11, "$$1, at about tree oI&lo&8 in te morning, 4eynaldo Ni,&ara (4eynaldo)
%as dri)ing a 'assenger :ee'ney eaded to%ards =i&ol to deli)er onion &ro's. Eile &rossing
te railroad tra&8 in -iaong, Mue,on, a !ili''ine 2ational 4ail%ays (!24) train, ten being
o'erated by res'ondent *a'et <stranas (<stranas), suddenly turned u' and rammed te
'assenger :ee'ney. -e &ollision resulted to te instantaneous deat of 4eynaldo, Cresen&io,
6"
Cris'in, and Samuel. On te oter and, 9ominador and *oel, sustained serious 'ysi&al
in:uries.
At te time of te a&&ident, tere %as no le)el &rossing installed at te railroad
&rossing. Additionally, te .Sto', Koo8 and Kisten0 signage %as 'oorly maintained. -e
.Sto'0 signage %as already faded %ile te .Kisten0 signage %as 'artly blo&8ed by anoter
signboard.
-e sur)i)ors of te misa'togeter %it te eirs of te de&eased )i&tims, Aled an
a&tion for damages against !24, <stranas and =en Saga, te alternate dri)er of te train,
before te 4-C of !alayan City. ?n teir &om'laint, te res'ondents alleged tat te
'ro(imate &ause of te
fatalities and serious 'ysi&al in:uries sustained by te )i&tims of te a&&ident %as te
'etitionersI gross negligen&e in not 'ro)iding adeHuate safety measures to 're)ent in:ury to
'ersons and 'ro'erties. -ey 'ointed out tat in te railroad tra&8 of -iaong, Mue,on %ere
te a&&ident a''ened, tere %as no le)el &rossing bar, ligting eHui'ment or bell installed
to %arn motorists of te e(isten&e of te tra&8 and of te a''roa&ing train. -ey &on&luded
teir &om'laint %it a 'rayer for a&tual, moral and &om'ensatory damages, as %ell as
attorneyIs fees.
?SS5<D
1
st
, Eeter te 'etitionersQ negligen&e in maintaining adeHuate and ne&essary
'ubli& safety de)i&es in te area of te a&&ident %as te 'ro(imate &ause of te misa'.
"
nd
, %eter res'ondents are guilty of &ontributory negligen&e.
/
rd
, %ter te Kast Clear Can&e do&trine is a''li&able.
G<K9D
1
st
?ssue
Arti&le "176 of te 2e% Ci)il Code 'res&ribes a &i)il liability for damages &aused by a
'ersonQs a&t or omission &onstituting fault or negligen&e.
At any rate, te re&ords bear out tat te fa&tual &ir&umstan&es of te &ase %ere
meti&ulously s&rutini,ed by bot te 4-C and te CA before arri)ing at te same Anding of
negligen&e on te 'art of te 'etitioners, and %e found no &om'elling reason to disturb te
same. =ot &ourts ruled tat te 'etitioners fell sort of te diligen&e e('e&ted of it, ta8ing
into &onsideration te nature of its business, to forestall any unto%ard in&ident. ?n 'arti&ular,
te 'etitioners failed to install safety railroad bars to 're)ent motorists from &rossing te
tra&8s in order to gi)e %ay to an a''roa&ing train. Aside from te absen&e of a &rossing
bar, te .Sto', Koo8 and Kisten0 signage installed in te area %as 'oorly maintained, en&e,
inadeHuate to alert te 'ubli& of te im'ending danger. A reliable signaling de)i&e in good
&ondition, not :ust a dila'idated .Sto', Koo8 and Kisten0 signage, is needed to gi)e noti&e to
te 'ubli&. ?t is te res'onsibility of te railroad &om'any to use reasonable &are to 8ee' te
signal de)i&es in %or8ing order. ;ailure to do so %ould be an indi&ation of negligen&e. Ga)ing
establised te fa&t of negligen&e on te 'art of te 'etitioners, tey %ere rigtfully eld
liable for damages.
"
nd
?ssue
6/
T5ere ?as none. ?t %as establised during te trial tat te :ee'ney &arrying te
res'ondents %as follo%ing a ten6%eeler tru&8 %i& %as only about tree to A)e meters
aead. Een te tru&8 'ro&eeded to tra)erse te railroad tra&8, 4eynaldo, te dri)er of te
:ee'ney, sim'ly follo%ed troug. Ge did so under te im'ression tat it %as safe to
'ro&eed. -o begin %it, te tru&8 tey %ere trailing %as able to safely &ross te tra&8.
Ki8e%ise, tere %as no &rossing bar to 're)ent tem from 'ro&eeding or, at least, a sto'ligt
or signage to fore%arn tem of te a''roa&ing 'eril. -us, relying on is fa&ulties of sigt
and earing, 4eynaldo ad no reason to anti&i'ate te im'ending danger. Ge 'ro&eeded to
&ross te tra&8 and, all of a sudden, is :ee'ney %as rammed by te train being o'erated by
te 'etitioners. <)en ten, te &ir&umstan&es before te &ollision negate te im'utation of
&ontributory negligen&e on te 'art of te res'ondents. Eat &learly a''ears is tat te
a&&ident %ould not a)e a''ened ad te 'etitioners installed reliable and adeHuate safety
de)i&es along te &rossing to ensure te safety of all tose %o may utili,e te same.
/
rd
?ssue
No, it is not a66li(a&le. -o reiterate, te 'ro(imate &ause of te &ollision %as te
'etitionersI negligen&e in ensuring tat motorists and 'edestrians ali8e may safely &ross te
railroad tra&8. -e unsus'e&ting dri)er and 'assengers of te :ee'ney did not a)e any
'arti&i'ation in te o&&urren&e of te unfortunate in&ident %i& befell tem. Ki8e%ise, tey
did not e(ibit any o)ert a&t manifesting disregard for teir o%n safety. -us, absent
're&eding negligen&e on te 'art of te res'ondents, te do&trine of last &lear &an&e
&annot be a''lied.
!ilam ?nsuran&e Com'any, ?n&. et al. Ns. Court of A''eals and 9.M. Consun:i, ?n&.
61
3.4. 2o. 16#11/ ;ebruary "","$1"
;AC-SD
;our gensets from te 5nited States of Ameri&a %ere ordered by Citiban8, 2.A.
(Citiban8). !etitioner AG?C insured tese gensets for 5S9 7#1,#$$ &o)ering )arious ris8s. -e
insuran&e 'oli&y 'ro)ided tat te &laim may be 'aid in te !ili''ines by !ilam ?nsuran&e
Co., ?n&, AG?CIs lo&al settling agent.
Citiban8Is bro8er6for%arder, Meli&ia ?nternational Ser)i&es (M?S), trans'orted te
gensets in se'arate &ontainer )ans. M?S %as furter instru&ted to 'la&e te 1/6ton genset at
te to' of Citiban8Is building. -e bro8er6for%arder de&lined, sin&e it ad no 'o%er &ranes.
-us, Citiban8 assigned te :ob to 'ri)ate res'ondent 9MC?, %i& a&&e'ted te tas8.
9MC? lifted te genset %it a &rane (5ni&6Y6"$$$) tat ad a ydrauli& teles&o'i&
boom and a loading &a'a&ity of "$ tons. 9uring te lifting 'ro&ess, bot te &raneIs boom
and te genset fell and got damaged.
Citiban8 demanded from 9MC? te full )alue of te damaged genset, in&luding te
&ost, insuran&e and freigt amounting to 5S9 "1",7#$. !ri)ate res'ondent refused to 'ay,
asserting tat te damage %as &aused by an a&&ident. -ereafter, Citiban8 Aled an
insuran&e &laim %it !ilam, AG?CIs lo&al settling agent, for te )alue of te genset. !ilam
'aid te &laim for !! #,766,116.
Claiming te rigt of subrogation, !ilam demanded te reimbursement of te
gensetIs )alue from 9MC?, %i& denied liability. -us, on 19 A'ril 1991, !ilam Aled a
Com'laint %it te 4-C to re&o)er te )alue of te insured genset. At te trial &ourt,
'etitioner !ilam did not in)o8e res i6sa lo2uitur. 4ater, during te 're6trial &onferen&e, te
'arties agreed on tis sole issueD .Eeter or not te damage %as te fault of te
defendant or %itin teir area of su'er)ision at te time te &ause of damage o&&urred.0
-e 4-C ruled in fa)or of !ilam . -e trial &ourt ruled tat te loss or damage to te
genset %as due to te negligent o'eration of te &rane. 9MC? a''ealed to te CA, %i&
re)ersed and set aside te 4-CIs 9e&ision. -e a''ellate &ourt ruled tat te falling of te
genset %as a &lear &ase of a&&ident and, en&e, 9MC? &ould not be eld res'onsible.
?SS5<D
1
st
, Eeter 'etitioners a)e suJ&iently establised te negligen&e of 9MC? for te
former to re&o)er te )alue of te damaged genset.
"
nd
, %eter te do&trine os 4es ?'sa KoHuitor is a''li&able.
G<K9D
1
st
?ssue
No, it did not.
6#
;or 9MC? to be liable for damages, negligen&e on its 'art must be establised. Additionally,
tat Anding must be te 'ro(imate &ause of te damage to te genset. Ee agree %it te
CA tat !ilam failed to establis 9MC?Is negligen&e.
2egligen&e is te %ant of &are reHuired by te &ir&umstan&es. ?t is a &ondu&t tat in)ol)es
an unreasonably great ris8 of &ausing damageC or, more fully, a &ondu&t tat falls belo% te
standard establised by la% for te 'rote&tion of oters against unreasonably great ris8 of
arm.
2ot all omissions &an be &onsidered as negligent. -e test of negligen&e is as follo%sD
Could a 'rudent man, in te &ase under &onsideration, foresee arm as a
result of te &ourse a&tually 'ursuedX ?f so, it %as te duty of te a&tor to ta8e
're&autions to guard against tat arm. 4easonable foresigt of arm,
follo%ed by ignoring of te suggestion born of tis 're)ision, is al%ays
ne&essary before negligen&e &an be eld to e(ist.
A''lying te test, te &ir&umstan&es %ould so% tat te a&ts of te &rane o'erator %ere
rational and :ustiAed.
"
nd
?ssue
Res i6sa lo2uitur is not a''li&able, sin&e tere is dire&t e)iden&e on te issue of
diligen&e or la&8 tereof 'ertaining to te lifting of te genset. -e do&trine is not a rule of
substanti)e la%, but merely a mode of 'roof or a mere 'ro&edural &on)enien&e.
?n any e)ent, res i6sa lo2uitur merely 'ro)ides a rebuttable 'resum'tion of negligen&e. On
tis, %e a)e already 'ointed out tat te e)iden&e does not 'ro)e negligen&e on te 'art of
9MC?, and tat due diligen&e on its 'art as been establised.
Gen&e, it as generally been eld tat te 'resum'tion arising from te do&trine &annot be
a)ailed of, or is o)er&ome %en te 'laintiB as 8no%ledge and testiAes or 'resents
e)iden&e as to te s'e&iA& a&t of negligen&e tat &aused te in:ury &om'lained ofC or %en
tere is dire&t e)iden&e as to te 're&ise &ause of te a&&ident, and %it all te attendant
fa&ts &learly 'resent. ;inally, neiter te 'resum'tion nor te do&trine %ould a''ly %en te
&ir&umstan&es a)e been so &om'letely elu&idated tat no inferen&e of te defendantQs
liability &an reasonably be made, %ate)er te sour&e of te e)iden&e.
66
9r. <mmanuel *ar&ia, *r. And 9r. Marilou =astan )s. !eo'le of te !ili''ines
3.4. 2o. 1779"6 ;ebruary 1#,"$1"
;AC-SD
=elinda Santiago E+rs. -antia,oF lodged a &om'laint %it te 2ational =ureau of
?n)estigation ENB9F against te 'etitioners, 9r. <mmanuel *ar&ia, *r. EDr. ;ar(iaF and 9r.
Marilou =astan EDr. BastanF, for teir alleged negle&t of 'rofessional duty %i& &aused er
son, 4oy Alfonso Santiago ERoy ;r.F, to suBer serious 'ysi&al in:uries. 5'on in)estigation, te
2=? found tat 4oy *r. %as it by a ta(i&abC tat e %as rused to te Manila 9o&tors Gos'ital
for an emergen&y medi&al treatmentC tat an R6ray of te )i&timIs an8le %as orderedC tat
te R6ray result so%ed no fra&ture as read by 9r. *ar&iaA tat 9r. =astan entered te
emergen&y room EERF and, after &ondu&ting er o%n e(amination of te )i&tim, informed
Mrs. Santiago tat sin&e it %as only te an8le tat %as it, tere %as no need to e(amine
te u''er legC tat ele)en (11) days later, 4oy *r. de)elo'ed fe)er, s%elling of te rigt leg
and misalignment of te rigt footC tat Mrs. Santiago brougt im ba&8 to te os'italC and
tat te R6ray re)ealed a rigt mid6tibial fra&ture and a linear airline fra&ture in te saft of
te bone.
-e 2=? indorsed te matter to te OJ&e of te City !rose&utor of Manila for
'reliminary in)estigation. !robable &ause %as found and a &riminal &ase for re&8less
im'ruden&e resulting to serious 'ysi&al in:uries, %as Aled against 9r. *ar&ia, 9r. =astan and
9r. !amittan, before te 4-C. On *une 11, "$$#, te 4-C found te 'etitioners guilty beyond
reasonable doubt of te &rime of -im6le 9m6ruden(e Resultin, to -erious P5ysi(al 9n>uries.
9issatisAed, te 'etitioners a''ealed to te CA. -e CA aJrmed te 4-C de&ision in toto.
?SS5<D
1
st
, %eter or not te do&trine of res i6sa lo2uitur is a''li&able in tis &aseC
"
nd
, %eter or not te 'etitioners are liable for &riminal negligen&e.
G<K9D
1
st
?ssue
-e do&trine of res i6sa lo2uitur as a rule of e)iden&e is unusual to te la% of
negligen&e %i& re&ogni,es tat 6rima *a(ie negligen&e may be establised %itout dire&t
'roof and furnises a substitute for s'e&iA& 'roof of negligen&e. -e do&trine, o%e)er, is
not a rule of substanti)e la%, but merely a mode of 'roof or a mere 'ro&edural &on)enien&e.
-e rule, %en a''li&able to te fa&ts and &ir&umstan&es of a gi)en &ase, is not meant to
and does not dis'ense %it te reHuirement of 'roof of &ul'able negligen&e on te 'arty
&arged. ?t merely determines and regulates %at sall be 6rima *a(ie e)iden&e tereof and
el's te 'laintiB in 'ro)ing a brea& of te duty. -e do&trine &an be in)o8ed %en and
only %en, under te &ir&umstan&es in)ol)ed, dire&t e)iden&e is absent and not readily
a)ailable.
-e reHuisites for te a''li&ation of te do&trine of res i6sa lo2uitur areD EF te
a&&ident %as of a 8ind %i& does not ordinarily o&&ur unless someone is negligentC E'F te
67
instrumentality or agen&y %i& &aused te in:ury %as under te e(&lusi)e &ontrol of te
'erson in &argeC and E<F te in:ury suBered must not a)e been due to any )oluntary a&tion
or &ontribution of te 'erson in:ured.
?n tis &ase, te &ir&umstan&es tat &aused 'atient 4oy *r.Is in:ury and te series of
tests tat %ere su''osed to be undergone by im to determine te e(tent of te in:ury
suBered %ere not under te e(&lusi)e &ontrol of 9rs. *ar&ia and =astan.

"
nd
?ssueD

No, t5e are not. -e Court is not satisAed tat 9r. *ar&ia and 9r. =astan are &riminally
negligent in tis &ase.
2egligen&e is deAned as te failure to obser)e for te 'rote&tion of te interests of
anoter 'erson tat degree of &are, 're&aution, and )igilan&e %i& te &ir&umstan&es :ustly
demand, %ereby su& oter 'erson suBers in:ury. 4e&8less im'ruden&e &onsists of
)oluntarily doing or failing to do, %itout mali&e, an a&t from %i& material damage results
by reason of an ineH(usa&le la(k o* 6re(aution on te 'art of te 'erson 'erforming or
failing to 'erform su& a&t.-e elements of sim'le negligen&e areD (1) tat tere is la&8 of
're&aution on te 'art of te oBender, and (") tat te damage im'ending to be &aused is
not immediate or te danger is not &learly manifest. ?n tis &ase, te Court is not &on)in&ed
%it moral &ertainty tat te 'etitioners are guilty of re&8less im'ruden&e or sim'le
negligen&e. -e elements tereof %ere not 'ro)ed by te 'rose&ution beyond reasonable
doubt.

67
!G?K?!!?2< 2A-?O2AK =A2Y NS. S!O5S<S CG<AG CG<< CGO23 A29 O;<K?A CAMACGO
CG<AG
3.4. 2o. 17$76# D A'ril "#, "$1"
;AC-SD
?n doing a friend a fa)or to el' te latterIs friend &olle&t te 'ro&eeds of a foreign
&e&8, a %oman de'osited te &e&8 in er and er usbandIs dollar a&&ount. -e lo&al
ban8 a&&e'ted te &e&8 for &olle&tion and immediately &redited te 'ro&eeds tereof to
said s'ousesI a&&ount e)en before te la'se of te &learing 'eriod. And :ust %en te
money ad been %itdra%n and distributed among diBerent beneA&iaries, it %as dis&o)ered
tat all along, to te orror of te %oman %ose intention to a&&ommodate a friendIs friend
ba&8Ared, se and er ban8 ad dealt %it a rubber &e&8.
-ese &onsolidated !etitions for 4e)ie% on Certiorari Aled by te !ili''ine 2ational
=an8 (!2=) and by te s'ouses Cea Cee Cong and Ofelia Cama&o Cea (s'ouses
Cea) bot assail te August "", "$$# 9e&ision and 9e&ember "1, "$$# 4esolution of te
Court of A''eals (CA) %i& de&lared bot 'arties eHually negligent and, en&e, sould
eHually suBer te resulting loss. ;or its 'art, !2= Huestions %y it %as de&lared
blame%orty togeter %it its de'ositors, s'ouses Cea, for te amount %rongfully 'aid
te latter, %ile te s'ouses Cea 'lead tat tey be de&lared entirely faultless.
?SS5<D
Eat is te 'ro(imate &ause and %o is liable for negligen&eX
G<K9D
!2=Is a&t of releasing te 'ro&eeds of te &e&8 'rior to te la'se of te 1#6day
&learing 'eriod %as te 'ro(imate &ause of te loss. .!ro(imate &ause is _tat &ause, %i&,
in natural and &ontinuous seHuen&e, unbro8en by any eJ&ient inter)ening &ause, 'rodu&es
te in:ury and %itout %i& te result %ould not a)e o&&urred.I ( ( ( -o determine te
'ro(imate &ause of a &ontro)ersy, te Huestion tat needs to be as8ed isD ?f te e)ent did
not a''en, %ould te in:ury a)e resultedX ?f te ans%er is no, ten te e)ent is te
'ro(imate &ause.0
Gere, %ile !2= igligts OfeliaIs fault in a&&ommodating a strangerIs &e&8 and
de'ositing it to te ban8, it remains mum in its release of te 'ro&eeds tereof %itout
e(austing te 1#6day &learing 'eriod, an a&t %i& &ontra)ened establised ban8ing rules
and 'ra&ti&e. ?t is %orty of noti&e tat te 1#6day &learing 'eriod alluded to is &onstrued as
1# ban8ing days. ?t bears stressing tat .te diligen&e reHuired of ban8s is more tan tat
of a 4oman 'ater familias or a good fater of a family. -e igest degree of diligen&e is
e('e&ted.0 !2= miserably failed to do its duty of e(er&ising e(traordinary diligen&e and
69
reasonable business 'ruden&e. -e disregard of its o%n ban8ing 'oli&y amounts to gross
negligen&e, %i& te la% deAnes as .negligen&e &ara&teri,ed by te %ant of e)en sligt
&are, a&ting or omitting to a&t in a situation %ere tere is duty to a&t, not inad)ertently but
%ilfully and intentionally %it a &ons&ious indiBeren&e to &onseHuen&es in so far as oter
'ersons may be aBe&ted.0 Eit regard to &olle&tion or en&asment of &e&8s, suJ&e it to
say tat te la% im'oses on te &olle&ting ban8 te duty to s&rutini,e diligently te &e&8s
de'osited %it it for te 'ur'ose of determining teir genuineness and regularity. .-e
&olle&ting ban8, being 'rimarily engaged in ban8ing, olds itself out to te 'ubli& as te
e('ert on tis Aeld, and te la% tus olds it to a ig standard of &ondu&t.0 A ban8 is
e('e&ted to be an e('ert in ban8ing 'ro&edures and it as te ne&essary means to as&ertain
%eter a &e&8, lo&al or foreign, is suJ&iently funded.
-e s'ouses Cea are guilty of &ontributory negligen&e and are bound to sare te
loss %it te ban8.
.Contributory negligen&e is &ondu&t on te 'art of te in:ured 'arty,
&ontributing as a legal &ause to te arm e as suBered, %i& falls belo% te standard to
%i& e is reHuired to &onform for is o%n 'rote&tion.0 Ofelia failed to obser)e &aution in
gi)ing er full trust in a&&ommodating a &om'lete stranger and tis led er and er usband
to be s%indled. Anoter &ir&umstan&e %i& sould a)e goaded Ofelia to be more
&ir&ums'e&t in er dealings %as %en a ban8 oJ&er &alled er u' to inform tat te =an8 of
Ameri&a &e&8 as already been &leared %ay earlier tan te 1#6day &learing 'eriod. -e
fa&t tat te &e&8 %as &leared after only eigt ban8ing days from te time it %as de'osited
or &ontrary to %at 3arin told er tat &learing ta8es 1# days sould a)e already 'ut Ofelia
on guard.
7$
<234. <M<KP2< !. CAP<-A2O6A=A2O, O!<4A-?23 529<4 -G< 2AM< A29 S-PK< *ACO=
*OS<!G =5?K9<4S & !KA22<4S, A29 <234. 9A4?O C. A=A2O, )s. COK<3?O 9< SA2 *5A2
9< K<-4A26CAKAM=A
3.4. 2o. 179#1# *uly 11, "$1"
;AC-SD
?n early "$$/, res'ondent, an edu&ational institution &reated and e(isting under
!ili''ine la%s, de&ided to build a &entral library building on its &am'us %i& %ould
li8e%ise ouse te &lassrooms and laboratory fa&ilities of its 2ursing 'rogram. !etitioners
%ere &ommissioned to underta8e te 'ro:e&t. ?n &onne&tion %it tis, 'etitioners ga)e
res'ondent a -e&ni&al S'e&iA&ations =oo8 %i& formed 'art of te Contra&t and %i&
detailed o% 'etitioners %ould im'lement te &onstru&tion 'ro:e&t. -e 'arties agreed on a
'ro:e&t duration of fourteen (11) monts eBe&ti)e u'on te signing of te Contra&t and te
issuan&e of te ne&essary building 'ermit. !etitioners ad until "7 Mar& "$$# to &om'lete
te 'ro:e&t. ;ourteen (11) monts after te &onstru&tion 'ermits %ere se&ured, or by "7
Mar& "$$#, te building ad not been &om'leted.
On /$ A'ril "$$#, 'etitioners submitted to res'ondent its ;inal =illingD (1) indi&ating a
1$$+ &om'letion of te 'ro:e&tC (") informing res'ondent tat its un'aid balan&e %as !1$
millionC and (/) reHuesting a Anal ins'e&tion of te building. -e :oint ins'e&tion %as &arried
out on 16 and 17 May "$$#. 9uring te t%o6day ins'e&tion, serious 'roblems regarding
%or8mansi' and te materials used %ere dis&o)ered and do&umented by res'ondents. -e
'arties agreed tat all te ne&essary &orre&ti)e and &om'letion %or8s on te 'ro:e&t %ould
be done in a&&ordan&e %it te ins'e&tion results.
On 7 *uly "$$#, 'etitionersI &ounsel %rote res'ondent to &on)ey tat 'etitioners ad
fully a&&om'lised te 'ro:e&t under te Contra&t, in&luding te agreements rea&ed on 6
*une "$$#, and reHuested a :oint ins'e&tion ane%. -e se&ond :oint ins'e&tion %as
&ondu&ted on "# *uly "$$#. -e follo%ing day, "6 *uly "$$#, res'ondent %rote 'etitioners a
letter detailing te )arious defe&ts and deA&ien&ies in te building tat need to be &orre&ted
and &om'leted before res'ondent Anally a&&e'ts te 'ro:e&t and 'ay te Anal billing.
4es'ondent reiterated its demand for &orre&ti)e and oter reabilitati)e %or8s on te
'ro:e&t in a letter dated 1" August "$$#.
71
?n anoter meeting eld on "6 August "$$#, 'etitioners demanded full 'ayment of its
billings. 2o 'ayment from res'ondent a''arently fort&oming, 'etitioners, on "6 Se'tember
"$$#, ga)e res'ondent a se&ond noti&e and demand for arbitration to 'ress settlement of
teir un'aid &laims.
?n a letter dated 1$ O&tober "$$#, &ounsel for res'ondent insisted tat 'etitioners
enter te &onstru&tion site %itin se)en days from noti&e to &om'lete and &orre&t all te
unAnised and defe&ti)e %or8s &onsistent %it res'ondentIs letter of "6 *uly "$$#.
4es'ondent %arned 'etitioners tat sould tey ignore te matter, tey %ould be
&onsidered to a)e abandoned te 'ro:e&t, gi)ing res'ondent te rigt to ta8e full
'ossession of te building and allo% oter &ontra&tors to &om'lete te unAnised %or8s,
%it a rigt to &olle&t te &osts of &om'letion from 'etitioners.
?n order to as&ertain te e(tent of 'etitionersI a&&om'lisment on te 'ro:e&t and its
&orres'onding )alue, res'ondent engaged te ser)i&es of 9a)is Kangdon and Sea
!ili''ines, ?n&. (9KS!?), a s'e&iali,ed Huantity sur)eyor Arm. Contrary to 'etitionersI &laim
of 1$$+ 'ro:e&t &om'letion, te &ost analysis and e)aluation 'erformed by 9KS!? re)ealed
tat te building %as only 91.1"+ &om'lete and tat te a&tual &ost of %or8 'erformed %as
%ort only !19,"11,711.$9. Aggrie)ed, res'ondent Aled an arbitration &om'laint before te
C?AC 'ursuant to te arbitration &lause &ontained in te -e&ni&al S'e&iA&ations =oo8.
4es'ondent &laimed tat it is entitled to 'ayment in te total amount of
!17,9"/,#19.#1 re'resenting e('enses in&urred in te &onstru&tion of tem'orary fa&ilities,
iring of &onsultants for te detailed ins'e&tion of te building, damages, attorneyIs fees
and arbitration e('enses.
After earing, te C?AC issued a ;inal A%ard in fa)or of 'etitioners, ordering
res'ondent to 'ay among oters moral damages of !1,#$$,$$$ and e(em'lary damages of
#$$,$$$.
-e C?AC :ustiAed its grant of te amounts &laimed by 'etitioners in tat
(((!etitioners are entitled to moral damages for res'ondentIs gross )iolation of teir
&ontra&t amounting to bad fait or mali&ious brea& tereof. 4es'ondent did not only fail to
'ay te do%n 'ayment %itin se)en (7) days from te signing of te Contra&t, it also 'aid
te amount on a staggered basis. R(( Considering tat 'etitioners are entitled to moral
damages, te C?AC ruled tat tey are also entitled to re&o)er e(em'lary damages by %ay
of e(am'le or &orre&tion for te 'ubli& good.
On a''eal by res'ondent, te CA &on&luded, te C?AC ad no basis in granting te
monetary a%ards &ontained in its &allenged de&ision. A&&ording to te CA, res'ondent and
not 'etitioners deser)ed te a%arded moral damages, e(em'lary damages, and attorneyIs
fees, in addition to a&tual and liHuidated damages.
?SS5<D
Eo among te 'arties is entitled to moral and e(em'lary damages.
G<K9D
A brea& of &ontra&t may gi)e rise to an a%ard of moral damages only if te 'arty
guilty of te brea& a&ted fraudulently or in bad fait. Ki8e%ise, a brea& of &ontra&t may
gi)e rise to e(em'lary damages if te guilty 'arty a&ted in a %anton, fraudulent, re&8less,
o''ressi)e or male)olent manner.
7"
-e C?AC a%arded moral and e(em'lary damages in fa)or of 'etitioners on te basis
of res'ondentIs failure to ma8e 'ayments on time and in full. -e C?AC ga)e merit to te
allegations of 'etitioners tat te delayed and staggered 'ayments drained tem Anan&ially
and emotionally, &om'elled tem to a''ly for additional loans, aBe&ted teir re'utation and
&redit standing ad)ersely, made tem suBer mental anguis, serious an(iety and slee'less
nigts, and 're)ented tem from 'arti&i'ating in te bidding of oter 'ro:e&ts be&ause of
teir Anan&ial 'roblems. Go%e)er, as already e('lained abo)e, %it te e(&e'tion of te
do%n 'ayment, 'etitioners agreed to a staggered 'ayment of te 'rogress billingsC en&e,
tey &annot no% &laim tat tey %ere ad)ersely aBe&ted by res'ondentIs 'ayments in
installment. Also, %it res'e&t to te do%n 'ayment, tere %as no so%ing tat
res'ondentIs failure to 'ay te same on time and in full %as attended by fraud or bad fait
or %as in %anton or o''ressi)e disregard of 'etitionersI rigts.
More im'ortantly, an a%ard of moral damages must be an&ored on a &lear so%ing
tat te 'arty entitled tereto a&tually e('erien&ed mental anguis, besmir&ed re'utation,
slee'less nigts, %ounded feelings, or similar in:ury. Gere, %ile 'etitioners alleged tat teir
Anan&es %ere ad)ersely aBe&ted, tey did not 'resent any e)iden&e tereof, su& as
do&uments e)iden&ing te loans tey %ere su''osedly &om'elled to obtain.
?n te same manner, res'ondent also failed to 'resent suJ&ient e)iden&e of teir
entitlement to moral and e(em'lary damages. -e alleged besmir&ed re'utation it
allegedly suBered as a result of te building not a)ing been Anised on time %as not
su''orted by any e)iden&e oter tan res'ondentIs bare allegation.
Absent any so%ing tat te 'arties are entitled to moral and e(em'lary damages,
teir res'e&ti)e &laims terefor must be disallo%ed.
25M<4?A2O !. A=O=O2 )s. ;<K?C?-AS A=A-A A=O=O2 and 3<K?MA A=A-A A=O=O2
3.4. 2o. 1##7/$ August 1#, "$1"
;AC-SD
4es'ondents ;eli&itas and 3elima Abobon %ere te 'laintiBs in tis a&tion for
re&o)ery of 'ossession and damages brougt against 'etitioner 2umeriano Abobon
(2umeriano) in te "nd Muni&i'al Cir&uit -rial Court of Kabrador6Sual in !angasinan (MC-C).
After due 'ro&eedings, te MC-C ruled in fa)or of te res'ondents, de&laring tem as te
true and la%ful o%ner and 'ossessor of te land in HuestionC and ordering erein 'etitioner
to 'ay te te amount of !"$,$$$.$$ as moral damages C te amount of !#,$$$.$$ as
e(em'lary damagesC and te amount of !1$,$$$.$$ as and for attorneyIs feesC
-e 4egional -rial Court and te CA u'eld te MC-C.
?SS5<D
Eeter te a%ard of damages and attorneyCs fees is 'ro'er.
G<K9D
No, it is not.
7/
-o be re&o)erable, moral damages must be &a'able of 'roof and must be a&tually
'ro)ed %it a reasonable degree of &ertainty. Courts &annot sim'ly rely on s'e&ulation,
&on:e&ture or guess%or8 in determining te fa&t and amount of damages. Pet, noting %as
addu&ed ere to :ustify te grant of moral damages. Eat %e a)e %as only te allegation
on moral damages, %it te &om'laint stating tat te res'ondents ad been for&ed to
litigate, and tat tey ad suBered mental anguis, serious an(iety and %ounded feelings
from te 'etitionerIs refusal to restore te 'ossession of te land in Huestion to tem. -e
allegation did not suJ&e, for allegation %as not 'roof of te fa&ts alleged. -e Court &annot
also aJrm te e(em'lary damages granted in fa)or of te res'ondents. <(em'lary damages
%ere 'ro'er only if te res'ondents, as te 'laintiBs, so%ed teir entitlement to moral,
tem'erate or &om'ensatory damages. Pet, tey did not establis teir entitlement to su&
oter damages.
As to attorneyIs fees, te general rule is tat su& fees &annot be re&o)ered by a
su&&essful litigant as 'art of te damages to be assessed against te losing 'arty be&ause of
te 'oli&y tat no 'remium sould be 'la&ed on te rigt to litigate. ?ndeed, 'rior to te
eBe&ti)ity of te 'resent Civil Code, su& fees &ould be re&o)ered only %en tere %as a
sti'ulation to tat eBe&t. ?t %as only under te 'resent Civil Code tat te rigt to &olle&t
attorneyIs fees in te &ases mentioned in Arti&le ""$7 of te Civil Code &ame to be
re&ogni,ed. Su& fees are no% in&luded in te &on&e't of a&tual damages. <)en so,
%ene)er attorneyIs fees are 'ro'er in a &ase, te de&ision rendered terein sould still
e('ressly state te *a(tual basis and le,al :ustiA&ation for granting tem. 3ranting tem in
te dis'ositi)e 'ortion of te :udgment is not enougC a dis&ussion of te .*a(tual basis and
le,al :ustiA&ation for tem must be laid out in te body of te de&ision. Considering tat te
a%ard of attorneyQs fees in fa)or of te res'ondents fell sort of tis reHuirement, te Court
disallo%s te a%ard for %ant of te fa&tual and legal 'remises in te body of te de&ision.
-e reHuirement for e('ress Andings of fa&t and la% as been set in order to bring te &ase
%itin te e(&e'tion and :ustify te a%ard of te attorneyQs fees. Oter%ise, te a%ard is a
&on&lusion %itout a 'remise, its basis being im'ro'erly left to s'e&ulation and &on:e&ture.
Germo:ina <stores )s. S'ouses Arturo and Kaura Su'angan
3.4. 2o. 17#1/9 A'ril 17,"$1"
;AC-SD
!etitioner Germo:ina <stores and res'ondent6s'ouses Arturo and Kaura Su'angan entered
into a Conditional 9eed of Sale %ereby 'etitioner oBered to sell, and res'ondent6s'ouses oBered
to buy, a 'ar&el of land.
After almost se)en years from te time of te e(e&ution of te &ontra&t and not%itstanding
'ayment of !/.# million on te 'art of res'ondent6s'ouses, 'etitioner still failed to &om'ly %it er
obligation. Gen&e, in a letter , res'ondent6s'ouses demanded te return of te amount of !/.#
million %itin 1# days from re&ei't of te letter. ?n re'ly, 'etitioner a&8no%ledged re&ei't of te !/.#
million and 'romised to return te same %itin 1"$ days. 4es'ondent6s'ouses %ere amenable to
te 'ro'osal 'ro)ided an interest of 1"+ &om'ounded annually sall be im'osed on te !/.#
million. Een 'etitioner still failed to return te amount des'ite demand, res'ondent6s'ouses %ere
&onstrained to Ale a Com'laint for sum of money before te 4egional -rial Court (4-C) of Malabon
against erein 'etitioner as %ell as 4oberto 5. Arias (Arias) %o allegedly a&ted as 'etitionerIs
agent.
71
-e 4-C rendered its 9e&ision in fa)or of res'ondents and Anding res'ondent6s'ouses
entitled to interest but only at te rate of 6+ 'er annum and not 1"+ as 'rayed by tem. ?t also
found res'ondent6s'ouses entitled to attorneyIs fees as tey %ere &om'elled to litigate to 'rote&t
teir interest. -e CA rendered te assailed 9e&ision aJrming te ruling of te 4-C Anding te
im'osition of 6+ interest 'ro'er. Go%e)er, te same sall start to run only from Se'tember "7,
"$$$ %en res'ondent6s'ouses formally demanded te return of teir money and not from O&tober
199/ %en te &ontra&t %as e(e&uted as eld by te 4-C.
?SS5<D
Eeter te im'osition of interest and attorneyIs fees is 'ro'er.
G<K9D
Pes, it is 'ro'er to im'ose interest not%itstanding te absen&e of sti'ulation in te &ontra&t.
Arti&le ""1$ of te Ci)il Code e('ressly 'ro)ides tat .>i@nterest may, in te dis&retion of te &ourt,
be allo%ed u'on damages a%arded for brea& of &ontra&t.0
Anent te interest rate, te general rule is tat te a''li&able rate of interest .sall be
&om'uted in a&&ordan&e %it te sti'ulation of te 'arties.0 Absent any sti'ulation, te a''li&able
rate of interest sall be 1"+ 'er annum .%en te obligation arises out of a loan or a forbearan&e of
money, goods or &redits. ?n oter &ases, it sall be si( 'er&ent (6+).0 ?n tis &ase, te 'arties did not
sti'ulate as to te a''li&able rate of interest.
-e &ontra&t in)ol)ed in tis &ase is admittedly not a loan but a Conditional 9eed of Sale.
Go%e)er, te &ontra&t 'ro)ides tat te seller ('etitioner) must return te 'ayment made by te
buyer (res'ondent6s'ouses) if te &onditions are not fulAlled. -ere is no Huestion tat tey a)e in
fa&t, not been fulAlled as te seller ('etitioner) as admitted tis. 2ot%itstanding demand by te
buyer (res'ondent6s'ouses), te seller ('etitioner) as failed to return te money and sould be
&onsidered in default from te time tat demand %as made.
<)en if te transa&tion in)ol)ed a Conditional 9eed of Sale, &an te sti'ulation go)erning te
return of te money be &onsidered as a forbearan&e of money %i& reHuired 'ayment of interest at
te rate of 1"+X Ee belie)e so.
-e a%ards of attorneyIs fees is %arranted. 5nder Arti&le ""$7 of te Ci)il Code, attorneyIs
fees may be re&o)eredD

(") Een te defendantIs a&t or omission as &om'elled te 'laintiB to litigate %it
tird 'ersons or to in&ur e('enses to 'rote&t is interestC


(11) ?n any oter &ase %ere te &ourt deems it :ust and eHuitable tat
attorneyIs fees and e('enses of litigation sould be re&o)ered.

?n all &ases, te attorneyIs fees and e('enses of litigation must be reasonable.
Considering te &ir&umstan&es of te instant &ase, %e And res'ondent6s'ouses entitled to
re&o)er attorneyIs fees. -ere is no doubt tat tey %ere for&ed to litigate to 'rote&t teir interest,
i.e., to re&o)er teir money
7#
Danilo A. Du vs. Venancio R. Jayoma, et al.
G.R. No. 175042 April 2, 2012
!A"#$%
On *uly 7, 1977, te -an,,unian, Bayan of te Muni&i'ality of Mabini, =ool, ena&ted
Muni&i'al Ordinan&e reHuiring te &ondu&t of a 'ubli& bidding for te o'eration of a &o&8'it in te
said muni&i'ality e)ery four years.
;or te 'eriod *anuary 1, 1979 to 9e&ember /1, 199", te %inning bidder %as <ngr. <dgardo
Carabuena. Go%e)er, due to is failure to &om'ly %it te legal reHuirements for o'erating a
&o&8'it, te -an,,unian, Bayan ado'ted 4esolution autori,ing 'etitioner 9anilo 9u to &ontinue is
&o&8'it o'eration until te %inning bidder &om'lies %it te legal reHuirements.
76
On *uly 9, 1997, u'on dis&o)ering tat 'etitioner as been o'erating is &o&8'it in )iolation
of Muni&i'al Ordinan&e te -an,,unian, Bayan 'assed Muni&i'al 4esolution sus'ending 'etitionerIs
&o&8'it o'eration
;eeling aggrie)ed, 'etitioner Aled %it te 4egional -rial Court (4-C) of =ool, a !etition for
!roibition %it damages, against res'ondent mayor and nine members of te -an,,unian, Bayan
of Mabini. !etitioner 'rayed tat a 'reliminary in:un&tion andFor a tem'orary restraining order be
issued to 're)ent res'ondents from sus'ending is &o&8'it o'eration. A -em'orary 4estraining
Order %as issued by te 4-C en:oining res'ondents from sus'ending te &o&8'it o'eration of
'etitioner until furter orders from te &ourt.
-e 4-C rendered a 9e&ision in fa)or of 'etitioner ordering te res'ondents :ointly and
se)erally to 'ay te 'etitioner moral damagesC unearned in&ome C e(em'lary damages andC
attorneyIs fees, and to 'ay te &ost. On a''eal, te CA re)ersed te 9e&ision of te 4-C. A&&ording
to te CA, 'etitioner did not a&Huire a )ested rigt to o'erate a &o&8'it in te muni&i'ality as e %as
only granted a tem'orary 'ri)ilege by te -an,,unian, Bayan. Gen&e, tere being no rigt in esse,
'etitioner is not entitled to damages.
&$$'(%
Eeter te 'etitioner is entitled to damages.
)(*D%
2o, e is not.
Eitout any legal rigt to o'erate a &o&8'it in te muni&i'ality, 'etitioner is not entitled to
damages. ?n:ury alone does not gi)e 'etitioner te rigt to re&o)er damagesC e must also a)e a
rigt of a&tion for te legal %rong inOi&ted by te res'ondents. Ee need not belabor tat .in order
tat te la% %ill gi)e redress for an a&t &ausing damage, tere must be damnum et in>uria L tat a&t
must be not only urtful, but %rongful.0
+scar ,el "armen, Jr. )s. Geronimo -acoy, .uar,ian an, representin. t/e c/il,ren,
namely,
0ary 0ar1orie -. 0onsalu,, et al.
G.R. No. 17270 April 25, 2012
!A"#$%

At da%n on 2e% PearIs 9ay of 199/, <milia =a&oy Monsalud (<milia), along %it er s'ouse
Keonardo Monsalud, Sr. and teir daugter 3lenda Monsalud, %ere on teir %ay ome from a
Cristmas 'arty tey attended %en tey %ere run o)er by a ;uso 'assenger :ee' tat %as being
77
dri)en by Allan Maglasang (Allan). -e :ee' %as registered in te name of 'etitioner Os&ar del
Carmen, *r. (Os&ar *r.) and used as a 'ubli& utility )ei&le.

=e&ause of te unfortunate in&ident, Criminal Case for 4e&8less ?m'ruden&e 4esulting in
Multi'le Gomi&ide %as Aled against Allan before te 4egional -rial Court. ?n a 9e&ision, said &ourt
de&lared Allan guilty beyond reasonable doubt of te &rime &arged.

9uring te 'enden&y of said &riminal &ase, <miliaIs fater, 3eronimo =a&oy (3eronimo), in
bealf of te si( minor &ildren of te Monsaluds, Aled an inde'endent &i)il a&tion for damages
based on (ul6a a2uiliana. Aside from Allan, also im'leaded terein %ere is alleged em'loyers,
namely, te s'ouses Os&ar del Carmen, Sr. (Os&ar Sr.) and 2orma del Carmen (S'ouses del
Carmen) and te registered o%ner of te :ee', teir son Os&ar *r.

-e 4-C e(&ul'ated te s'ouses del Carmen from &i)il liability for insuJ&ien&y of e)iden&e
and absol)ed Os&ar *r. from &i)il liability. ?t &ited Arti&le 1$/ of te 4e)ised !enal Code %i&
'ro)ides tat for an em'loyer to be subsidiarily liable for te &riminal a&ts of is em'loyee, te latter
sould a)e &ommitted te same in te dis&arge of is duties. -e &ourt agreed %it Os&ar *r. tat
tis &ondition is %anting in AllanIs &ase as e %as not a&ting in te dis&arge of is duties as a
&ondu&tor %en e dro)e te :ee'.

-e &ourt also de&lared te do&trine of res i6sa lo2uitur ina''li&able sin&e te 'ro'erty
o%ner &annot be made res'onsible for te damages &aused by is 'ro'erty by reason of te
&riminal a&ts of anoter. ?t ten ad:udged tat only Allan sould bear te &onseHuen&es of is
&riminal a&ts.

-e CA ruled OSCA4 9<K CA4M<2, *r. and AKKA2 MA3KASA23 'rimarily liable, :ointly and
se)erally, to 'ay & indemnity ,tem'erate damages , moral damages andC e(em'lary damages.

&$$'($%
Eeter Os&ar *r. is liable and te do&trine of 4es ?'sa KoHuitor a''li&able.
)(*D%

Kes, 5e is.

Os&ar *r.Is &ore defense to release im from res'onsibility for te deat of te Monsaluds is
tat is :ee' %as stolen. sans te testimony of %itnesses and oter rele)ant e)iden&e to su''ort
te defense of unautori,ed ta8ing, %e &annot subs&ribe to Os&ar *r.Is &laim tat is :ee' %as stolen.
-e e)iden&e on re&ord brings fort more Huestions tan &lear6&ut ans%ers.

5nder te do&trine of res i6sa lo2uitur, .>%@ere te ting tat &aused te in:ury &om'lained
of is so%n to be under te management of te defendant or is ser)antsC and te a&&ident, in te
ordinary &ourse of tings, %ould not a''en if tose %o ad management or &ontrol used 'ro'er
&are, it aBords reasonable e)iden&e L in te absen&e of a suJ&ient, reasonable and logi&al
e('lanation by defendant L tat te a&&ident arose from or %as &aused by te defendantIs %ant of
&are.0 Res i6sa lo2uitur is .merely e)identiary, a mode of 'roof, or a mere 'ro&edural &on)enien&e,
sin&e it furnises a substitute for, and relie)es a 'laintiB of, te burden of 'rodu&ing a s'e&iA& 'roof
of negligen&e.0 ?t .re&ogni,es tat 'arties may establis 6rima *a(ie negligen&e %itout dire&t 'roof,
tus, it allo%s te 'rin&i'le to substitute for s'e&iA& 'roof of negligen&e. ?t 'ermits te 'laintiB to
'resent along %it 'roof of te a&&ident, enoug of te attending &ir&umstan&es to in)o8e te
do&trine, &reate an inferen&e or 'resum'tion of negligen&e and tereby 'la&e on te defendant te
burden of 'ro)ing tat tere %as no negligen&e on is 'art.0 -e do&trine is based 'artly on .te
teory tat te defendant in &arge of te instrumentality %i& &auses te in:ury eiter 8no%s te
77
&ause of te a&&ident or as te best o''ortunity of as&ertaining it %ile te 'laintiB as no su&
8no%ledge, and is terefore &om'elled to allege negligen&e in general terms.0
-e reHuisites of te do&trine of res i6sa lo2uitur as establised by :uris'ruden&e are as
follo%sD
1) te a&&ident is of a 8ind %i& does not ordinarily o&&ur unless someone
is negligentC

") te &ause of te in:ury %as under te e(&lusi)e &ontrol of te 'erson in
&arge and

/) te in:ury suBered must not a)e been due to any )oluntary a&tion or
&ontribution on te 'art of te 'erson in:ured.

-e aforementioned reHuisites a)ing been met, tere no% arises a 'resum'tion of
negligen&e against Os&ar *r. %i& e &ould a)e o)er&ome by e)iden&e tat e e(er&ised due &are
and diligen&e in 're)enting strangers from using is :ee'. 5nfortunately, e failed to do so.

Absent te &ir&umstan&e of unautori,ed use or tat te sub:e&t )ei&le %as stolen %i&
are )alid defenses a)ailable to a registered o%ner, Os&ar *r. &annot es&a'e liability for 2uasi3deli(t
resulting from is :ee'Is use.
79