oblicon provision notebook + cases

OBLIGATIONS AND CONTRACTS first examKristine Confesor

TITLE VChapter 1

PRESCRIPTIONS

PRESCRIPTION

Concept and Kinds of PrescriptionPrescription- acquisition of a right by a lapse of time. Limitation- actions under the common law; time within which an action must be brought after the right of action has accrued.

Mode of acquiring or losing ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law:

1. In the concept of an owner2. Public 3. Peaceful4. Uninterrupted5. Adverse

2 Kinds of Prescription as to acquisition /loss of rights1) Acquisitive Prescription - acquisition of a right by the lapse of

time, also known as adverse possession and usucapcion Ordinary Extraordinary

2) Extinctive Prescription - Loss of right of action by the lapse of time, also known as limitation of actions

2 Kinds of Prescription as to Object/SM1. Property (real/personal)2. Rights

Art. 1106 By prescription, one acquires ownership and other real rights through the lapse of time in the manner and under conditions laid down by law. In the same way, rights and actions are lost by prescription.

Basis of PrescriptionAbandonment, Negligence, Carelessness of owners provided with the most perfect titles may be deprived and dispossessed of their properties by usurpers, who, by the lapse of the time specified by law, acquire the same by prescription.

Sta. Maria: statute of repose whose object is to suppress fraudulent and stale claims from springing up at great distances of time and surprising the parties of their representatives when the facts have become obscure from the lapse of time or the defective memory or death or removal of witnesses.

ACQUISITIVE EXTINCTIVE

PRESCRIPTION PRESCRIPTIONacquisition of a right by the lapse of time; adverse possession and usucapcion

Loss of a rights and action due to lapse of time; limitation of action

Based on the assertion by a usurper of an adverse right for such a long time, uncontested by the true owner of the right, as to give rise to the presumption that the latter has given up such right in favor of the former.

Based on the probability, born of experience, that the alleged right which accrued in the distant past never existed or has already been extinguished; or if it exists, the inconvenience caused by the lapse of time should be borne by the party negligent in the assertion of his right.

Voluntary return of the property, even if not viewed as a performance of a natural obligation, can be regarded as a tacit renunciation of prescription under 1112.

To protect the diligent and vigilant, not the person who sleeps on his rights

AS A DEFENSE:plea of ownership is already sufficient to justify proof thereof even if there is no allegation of prescription of action.(ex. Defense that the occupant of property is the absolute owner due to prescription)

AS A DEFENSE: must be expressly relied upon in the pleadings, proved, and established with a certain degree of certainty

Retroactivity of PrescriptionAcquisition of ownership or other real rights through prescription is retroactive; once the period is completed, the new owner is considered as having acquired the thing or right from the moment the period began to run.

Doctrine of Stale Demands (LACHES)- Unreasonable delay in the bringing of a cause of action

before the courts of justice- Failure or neglect for an unreasonable and unexplained

length of time to do which by exercising due diligence, could or should have been done earlier

- Negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled thereto either has abandoned it or declined to assert it

- Based upon grounds of public policy which requires, for the peace of society, and the discouragement of stale claims

Requisites1) conduct on the part of the defendant, or of one

under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy

2) delay in asserting the complainant’s rights, the complainant having been afforded an opportunity to institute a suit

3) Lack of knowledge or notice on the part of the defendant that the complaint would assert the right on which he bases his suit;

4) Injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred

PRESCRIPTION LACHESStatute of Limitations

Concerned with the FACT of delay

Doctrine of Stale DemandsConcerned with the EFFECT of

delay

Matter of time

Question of inequity of permitting a claim to be enforced, founded on some change in the condition of the property or the relation of the parties

Statutory NotLaw EquityFixed Time Not

Applies independently of prescription so that laches has been successfully interposed even if a shorter time had elapsed and prescriptive period has not yet expired

Can bar filing or prosecution of a suit; determined by the ccourts

1107. Persons who are capable of acquiring property or rights by the other legal modes may acquire the same by means of prescription.

Minors and other incapacitated persons may acquire property or rights by prescription, either personally or through their parents, guardians, or legal representatives.

Art. 1108. Prescription, both acquisitive and extinctive,runs against:(1) Minors and other incapacitated persons who have

parents, guardians or other legal representatives;(2) Absentees who have

administrators, either appointed by them before their disappearance, or appointed by thecourts;

(3) Persons living abroad, who have managers or administrators;

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(4) Juridical persons, except the State and its subdivisions.

Persons who are disqualified from administering theirproperty have a right to claim damages from their legal representatives whose negligence has been the cause of prescription.

Art. 1110 Prescription, acquisitive and extinctive, runs in favor of, or against a married woman.

Capacity for Prescription-GR: Capacity to acquire property or rights by other legal modes is required for prescription.

Sta. Maria:Prescription is a mode of acquiring property or rights. The acquisition of a minor who personally acquires property or rights without the assistance of his parents/guardian is annullable or voidable.

However, when such minor comes of age, he may ratify the acquisition.

A person of majority age of 18 is already emancipated and is responsible for all acts of civil life, save for exceptions established by existing laws on special cases.

- If discernment is wanting, Minors and Incapacitated Persons may acquire prescription through their:

o Parentso Guardianso Legal representative

NOTES:***Capacity for possession is required because possession is an element common to all kinds of acquisitive prescription.

***Even if the donation is VOID, it may constitute the legal basis for adverse possession

***Act. No 190 under Code of Civil Procedure provides for the right to bring actions within 3 or 2 years after the minor/incapacitated persons’ disability has been removed.

- Has the effect of giving the incapacitated person the designated period after the removal of the disability within which to bring suit, if said prescription has already expired.

- Extends to all parties who have a joint and inseparable interest with the party under disability.

***No prescription can run against the State and its subdivisions, except with reference to patrimonial property

Art. 1109 Prescription does not run between

husband and wife, even though there be a separation of property agreed upon in the marriage settlements or by judicial decree.

Neither does prescription run between parents and children, during the minority or insanity of the latter, and between guardian and ward during the continuance of the guardianship.

Prescription by adverse possession does not run- Between H and W- Parents and Children during minority/insanity- Guardian and Ward during continuance or rel.

Except1. Legal separation (w/I 5 years from occurrence of the

cause)2. Annulment (5 years from the starting point provided by

law)3. Husband’s action Impugning the legitimacy of child’s wife

(1,2,3 depending upon the residence of the husband and the place of birth of the child)

4. Alienations made by the husband without the wife’s consent

Art. 1111 Prescription obtained by a co-proprietor or a co-owner shall benefit the others.

NB: applies only when property is owned in common because they have the same interest

No Need for Ratification- applies only when the co-owner in adverse possession clearly possesses in representation of the co-ownership. But mere existence of relationship of co-owners will not in itself suffice to give the benefit of prescription by one in favor of all the others. In the latter, ratification is now needed under Art. 532, CC.

- Furthermore, possession must be in the concept of owner in order to ripen into ownership by prescription

Art. 1112 Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future.Prescription is deemed to have been tacitly renounced when the renunciation results from act which imply the abandonment of the right acquired.

NB: ***Renunciation is Unilateral and does not require the acceptance of the person to be benefited by it.

Tacit Renunciation- where a party acknowledges the correctness of a debt and promises to pay it after the same has prescribed and w/ full knowledge of the prescription, he waives the benefit of prescription.

- Full knowledge and promise to pay beyond Prescribed period

- Extension of time to pay

***Advance renunciation is void. Only persons with the capacity to alienate property can renounce prescription already obtained

***Example: D formerly owed C but the debt has already prescribed.

If Sonia, knowing that the debt has prescribed, nevertheless still acknowledges the existence of the debt and promises to pay for it, there is an implied renunciation of the prescription.She still has a civil obligation.

If Sonia, knowing that the debt has prescribed, neverthelessvoluntarily pays the debt, she cannot recover what she had paid.This would be a natural obligation.

If Sonia, not knowing that the debt has prescribed pays it, there is no renunciation of the prescription;Can still recover on the basis of solutio indebiti

Art. 1113 All things which are within the commerce of men are susceptible of prescription, unless otherwise provided. Property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.

1) Subject to the Commerce of Man2) Patrimonial Property of the State

I. Object of prescription; Rules Possession is an essential element in prescription only things susceptible of being appropriated may be the

object of possession (530, CC) Hence, only things susceptible to appropriation may be

acquired through prescription Therefore the ff cannot be acquired by prescription

o Common thingso Intransmissible rights o Outside the commerce of meno Movables acquired through crimeo Lands registered under the Torrens system

(Javier v. Concepcion)o Properties of spouses, parents, and children,

wards and guardians, under the restrictions imposed by law (1109)

o Property of public dominion

429 provides The following are property of public dominion

1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and other of similar character

2) Those which belong to the State without being for public use, and are intended for some

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public service or for the development of the national wealth

502 adds1) Rivers and natural beds2) Continuous or intermittent waters of springs

and brooks running in their natural beds and beds themselves

3) Waters rising continuously or intermittently on lands of public dominion

4) Lakes and lagoons formed by Nature on public lands and their beds

Exception: RA 1942 (June 22, 1957) amending PLA or CA141

Sec. 48 of CA 141 provides that citizens therein described occupying lands of public domain or claiming to own any such land or an interest therein, but whose titles have not been perfected or complete, may apply to the CFI where the land is located for confirmation of their claims and the issuance of title under LRA.

o Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least 30 years immediately preceding the filing of the application for confirmation of the title except when prevented by war or force majeure. ***deals with judicial confirmation of imperfect or incomplete title until Dec. 31, 1957

Art. 1114 Creditors and all other persons interested in making the prescription effective may avail themselves thereof notwithstanding the express or tacit renunciation by the debtor or proprietor.

Creditors may plead prescription despite tacit renunciation of right by debtor/proprietor

Illustration:A is indebted to B in the amount of 50k. C guarantees the said indebtedness and waives his benefit of excussion. This means that should A fail to pay B, B need not exhaust all remedies against A for collection before he could demand payment from C, the guarantor.

In the event that the time within which to pay has already prescribed, but A nevertheless waives the prescription such that B can still collect from him, and should A fail again to pay, thereby prompting B to demand payment from C, the guarantor, the latter can resist payment by invoking that the collection of debt of A has already prescribed. C will not be prejudiced by the act of A in waiving the prescription. OKAY GETS!

Art. 1115 The provisions of the present Title are understood to be without prejudice to what in this Court or in special laws is established with respect to specific cases of prescription

Prescriptive Periods in specific cases. In case of conflict between period provided in this Title and period provided in another portion of Civil Code, the more specific provision will prevail.

Art. 1116 Prescription already running before the effectivity of this Code shall be governed by laws previously in force; but if since the time this Code took effect the entire period herein required for prescription should lapse, the present Code shall be applicable, even though by the former laws a longer period might be required.

TRANSITIONAL RULES FOR PRESCRIPTION1950 Civil Code took effect Aug. 30, 1950 (transitory provision)

1. If the period of prescription BEGAN and ENDED under the OLD laws, said OLD laws govern

2. If the period of prescription BEGAN under the NEW civil code, the NEW CC governs.

3. If the period began under the OLD law, and continues under NCC, the old law applies.Exception: Therefore, NCC applies provided

a. NEW CC requires shorter periodb. This shorter period has already lapsed since

Aug. 1950

1) (if NCC provides for a shorter period, it must apply NCC)o Thus, if under an old law previous to the

effectivity of the 1950 CC, X has 30 years to file a particular suit and by the time CC took effect is only 12 years, he cannot file the case on the 12th or even on the 11th year if the 1950 CC only provides for 10 years as prescriptive period for exactly the same kind of case.

o This is because by the 11 yr or 12th year, the prescriptive period of 10 years counted from the effectivity of the 1050 cc has already lapsed.

2) If the prescriptive period under the old law is still running upon the NCC’s effectivity and the remaining balance of such period since the effectivity of NCC is shorter than that provided under the old law, the old prescriptive period will apply. (whichever is shorter)

o If under the old law, the balance of the period is 12 years remaining upon 1950 NCC’s effectivity and the new law provides for a longer period, the old law of 12 years governs.

TITLE VChapter 2

PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS

Art. 1117 Acquisitive prescription of dominion and other real rights maybe ordinary or extraordinary.

Ordinary Acquisitive Prescription – requires possession of things in good faith and with just title for the time fixed by law.

REQUISITES FOR

ACQUISITIVE PRESCRIPTION

ORDINARY PRESCRIPTION

EXTRAORDINARY

PRESCRIPTION

Capacity to acquire by prescription

1107>persons who are capable of acquiring property/rights through other legal modes>any person incapacitated w/ legal representatives

Thing capable of acquisition by prescription

1113All things within the commerce of menProperty of the State or any of its subdivisions not patrimonial in character, not object of prescription

Possession of thing under certain conditions

Good faith with just titleConcept of an ownerOpen, Exclusive, Continuous Possession

Bad faithConcept of ownerUninterrupted ownership, open exclusive, continuous possession

Lapse of time provided by law

Movable/Personal (4 years)Immovable (10years)

Movable property(8 years)Immovable property (30 years)

Conversion of Possession- When the possession begins in good faith, but later on is converted to bad faith, extraordinary or ordinary? Three possible solutions:

1. Supervening bad faith erases the former possession in good faith, and extraordinary prescription will run from the date of the possession in bad faith

2. Prescription will be extraordinary, but the period will be counted from the time the possession began

3. The prescription will be extraordinary but the possession in good faith shall be computed

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in proportion that the period of extraordinary bears to that or ordinary prescription.

NB: the last solution appears to be the most acceptable because it reflects the difference between the 2 kinds of prescription and gives proper value to possession in good faith.

Art. 1118 Possession has to be in the concept of an owner, public, peaceful, and uninterrupted.

Art. 1119 Acts of possessory character executed in virtue of license or by mere tolerance of the owner shall not be available for the purposes of possession.

FOR POSSESSION TO BE VALID1) Concept of Owner – must be possessed in this manner for a

period of time so claim of acquisitive prescription would prosper; not due to license or mere tolerance***License- positive act of owner in favor of possessor***Tolerance- passive acquiescence of the owner to acts being performed by another which appear to be contrary to the rights of the former Acts pertaining to the concept of an owner (payment of

taxes) and continuous possession Not concept of an owner

o Mere possession with juridical title (unless such title is repudiated), such as being a trustee, usufructuary, lessee, agent, pledge

o That which subsists by mere tolerance or is in virtue of a license, because both of these imply consent on the part of the owner, and thus constitute a recognition by the possessor that somebody else owns the property

o Mere transient, in which case the owner is not divested of the title, but cannot exercise ownership in the meantime

2) Public- acts of enjoyment are executed in such manner as to be manifest or visible to all, especially to the person against whom the possession is being adversely asserted

3) Peaceful- acquired and maintained without any violence, physical or moral.

4) Uninterrupted- continuous when the possessor has never ceased to manifest with external acts his intention to exercise a right over the thing, which presupposes that he has never in fact ceased to exercise such right.

Art. 1120 Possession is interrupted for the purposes of prescription, naturally or civilly.

How Interrupted1. Naturally

o Cessation of possession for MORE THAN 1 yearo If 1 year or less, counted in favor of prescription

2. Civillyo Judicial summons

Except: When are judicial summons deemed not to have been issued?a. VOID for lack of legal solemnities. Hence, if the

judicial summons as well as the copy of the complaint have been served by a person not authorized by the court, it shall be deemed as not issued, thereby allowing the possession to run uninterrupted.

b. DESISTANCE by the Plaintiff from the complaint

c. ABSOLVED: Possessor/defendant3. Express Tacit Recognition of Owner’s right

Effects of Interruption All benefits acquired so far from the possession ceases When prescription runs again, it shall be a new one In suspension, past period is included in the computation

(insanity of the child or ward placed under guardianship)

Art. 1121 Possession is naturally interrupted when through any cause it should cease for more than one year.The old possession is not revived if a new possession should be exercised by the same adverse claimant.

Art. 1122 The natural interruption is for only one year or less, the time elapsed shall be counted in favor of the prescription.

Art.1123 Civil interruption is produced by judicial summons to the possessor.

Art. 1124 Judicial summons shall be deemed not to have been issued and shall not give rise to interruption:

If it should be void for lack of legal solemnities; If the plaintiff

should desist from the complaint or should allow the proceedings to lapse;If the possessor should be absolved from the complaint

In all these cases, the period of interruption shall be counted for the prescription

When possession is civilly interrupted? It is not the filing of the complaint in court which interrupts

the possession. It is interrupted upon receipt of the possessor of the judicial summons after the filing of the complaint. When the possessor receives the judicial summons and the copy of the complaint, it is only during that time that jurisdiction is acquired by the court of the person of the possessor and it is at that time that possession is interrupted.

Effect of Recovery of Possession;, in case natural interruption - Under 1121 & 1122, the old possession

loses all its juridical effects, and even if the possession is reacquired, the old possession cannot be tacked to the new possession for purposes of prescription. MUST BEGIN ALL OVER AGAIN

Civil interruption –if possession is recovered, it can be connected to the time that has elapsed as if it were in fact continuous; the period to be counted for the prescription.

Art. 1125 Any express or tacit recognition which the possessor may make of the owner’s right also interrupts possession.

Recognition by Possessor of owner’s rights – recognition of owner’s right must be made by the possessor or declared by a third person that the property does not belong to the possessor and it is authorized and ratified by the possessor.

Art. 1126 Against a title recorded in the Registry of Property, ordinary prescription of ownership or real rights shall not take place to the prejudice of a third person, except in virtue of another title also recorded; and the time shall begin to run from the recording of the latter.

As to lands registered under the Land Registration Act, the provisions of that special law shall govern.

Recorded Titles as to Third Persons; NB: the owner of the thing at the beginning of the prescriptive period is not considered as a third person.

- But those who acquire their right subsequently, relying on the registration of ownership in the Registry, must be considered as third persons, and they cannot be prejudiced by the period of possession prior to the date of their acquisition.

Requisites for 3rd Persons

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1. That the acquisition is by onerous title;2. Acquisition is from one who, according to the Registry,

can transmit the title;3. That the acquisition is registered;4. Such third person has no knowledge of prescription

NB: - one who acquires with knowledge that prescription is running

or has run with respect to the tenement, cannot be afforded the protection incident to registration.

- While the registered owner who executed the title which is the basis for prescription, is not considered a third person, he is however regarded as a third person with respect to a title executed by another who is not the registered owner.

- When the title of a first transferee is not registered, a subsequent transferee of a real right over the things is considered as a third person if his title is recorded.

- The time for prescription to the prejudice of those who are not considered as third persons with recorded titles, shall be counted from the commencement of the possession under title of ownership, although the title by virtue of which it is held may not have been registered.

Registered Lands- Adverse possession may not be allowed to defeat the owner’s

right to possession of land registered under Torrens system (otherwise, loss of land by prescription would be indirectly approved, in violation of LRA)

- Neither can prescription be allowed against the registered owner’s hereditary successors because the latter merely step into the shoes of a decedent and are merely the continuation of the personality of their predecessor in interest.

Art. 1127 The good faith of the possessor consists in the reasonable belief thatthe person from whom he received the thing was theowner thereof, andcould transmit his ownership.

Art. 1128 The conditions of good faith required for possession in Articles 526, 527, 528, and 529 of this Code are likewise necessary for the determination of good faith in the prescription of ownership and other real rights.

Defect is cured when: Well-founded Belief that the grantor is the owner with the right

to convey Presumed, unless the contrary is shown Good faith must not only exist at the beginning of the

possession, but throughout the entire period required for prescription.

If VOID, good faith/bad faith will be then immaterial If VOIDABLE, knowledge of the grantee of such defect does not

deprive him of good faith for purposes of prescription (because he can consider that the defect may not be set up and the title would thereby be invalidated)

Art. 1129 For the purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.

Art. 1130 The title for prescription must be true and valid

Art. 1131 For purposes of prescription, just title must be proved; it is never presumed.

Title for Prescription1) Just – an act which has for its purpose the transmission of

ownership, and which would have been actually transferred ownership if the grantor had been the owner (vice defect cured by prescription)

Ex. Sale with delivery, exchange, donation, succession, and dation in payment.

Does not constitute a Title Ex. Lease of things, loan, deposit, and all contracts which do not transmit property rights; and Partition, compromise and court decision, which are all declaratory property rights but do not transmit them.

2) True – title must exist actually, and not merely in the mind of possessor.

False title- one which does not exist but is believed by the possessor to exist, may or may not be sufficient. o May be based on error in fact/lawo Mistake of fact-

If act of a 3rd person, the title is sufficient for prescription

If act of possessor himself, not sufficient

o Mistake of law If validity of the act, title is not

adequate (ex. Belief that insane person can validly alienate)

If Mistake in application of law, adequate title (ex. If he did not know about insanity of owner, title is sufficient)

Revocable title- one which the transferor has made a reservation by virtue of which the right of

the possessor may disappear, cannot serve as a basis for prescription; Once the reservation becomes ineffective, the period that has run can be counter for the prescription (ex. A sale w/ right to repurchase)

3) Valid – validity of the title means that it should be sufficient to transmit the right if the grantor had been the owner.- VOID title: insufficient- VOIDABLE title: sufficient until annulled, can be the

basis of ordinary prescription- Suspensive Condition: period of prescription begin to

run from the fulfillment of the condition- Resolutory Condition: begins at once, w/o prejudice to

the effect of the resolution by the condition which may later happen

4) Proved – requirement of just title must be proved for purposes of prescription (exception to the GR in 541, CC which provides for a presumption of a just title for every possessor in the concept of owner).

Art. 1132 The ownership of movables prescribes through uninterrupted possession for 4years, in good faith.

The ownership of personal property also prescribes through uninterrupted possession of 8years, without need of any other condition.

With regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables acquired in public sale, fair, or market, or from a merchant’s store the provisions of articles 559 and 1505 of this Code shall be observed.

Art. 1133 Movables possessed through a crime can never be acquired through prescription by the offender.

Art. 1134 Ownership and other real rights over immovable property are acquired by ordinary prescription through possession of 10years.

Art. 1135 In case the adverse claimant possesses by mistake an area greater, or less, than that expressed in his title, prescription shall be based on the possession

Constructive Possession- possession upon which prescription is based, is not limited to the area actually occupied, but covers the area over which the possession is asserted.

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Therefore, the area referred to by the present article as possessed by mistake, must be deemed to include not only that actually and physically occupied but also everything under constructive possession.

Possession in the eyes of the law does not mean that a man has to have his feet on every sqm of the land (Ramos v. Dir.)

Possession prevails over title. If there is NO title, article cannot apply

Possession must be by MISTAKE

Art. 1136 Possession in wartime, when the civil courts are not open, shall not be counted in favor of the adverse claimant.

Possession of adverse claimant during wartime cannot be counted in favor of prescription

Art. 1137 Ownership and other real rights over immovable also prescribe through uninterrupted adverse possession thereof for 30 years, without need of title or of good faith.

When title is VOID. Even when the title of the possessor is void, such as an oral donation of real property, he may acquire ownership by prescription under this article.

Art. 1138 In the computation of time necessary for prescription, the following rules shall be observed.

1) The present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor or predecessor in interest;

2) It is presumed that the present possessor who was also the possessor at a previous time, has continued to be in possession during the intervening time, unless there is proof to the contrary; presumption of continuity

3) The first day shall be excluded and the last day included.

Tacking Possession- in order that there can be tacking of possession , present possessor must have obtained his possession from the previous possessor with privity between them.

A deed does not in itself create a privity Nor bare taking possession of the land Tacking is only possible only when there is a succession

of rights between the predecessor and the successor. A mere usurper cannot invoke the possession of any previous possessor.

Different Character of PossessionPredecessor: GoodfaithSuccessor: Bad Faith

Extraordinary Prescription

Tacking possession permitted; possession in good faith should be computed in the proportion that the period of extraordinary prescription bears to that of ordinary prescription.

Predecessor: Bad FaithSuccessor: Good Faith

Ordinary PrescriptionPossession of the Predecessor cannot be countedPeriod of Bad Faith cannot be counted for ordinary prescription. Ratio: Principle in 534: One who succeeds by hereditary title shall not suffer the consequences of the wrongful possession of the decedent, if it is not shown that he was aware of the flaws affecting it; ***but the effects of possession in good faith shall not benefit him except from the date of death of the decedent. The same applies to transfers of possession by acts inter vivos.

ACQUISITIVE PRESCRIPTIONMovables ORDINARY : 4 years

EXTRAORDINARY: 8 yearsImmovable ORDINARY: 10 years

EXTRAORDINARY: 30 yearsPersonal(ie. Shares of stock)

8 years; No condition

Personal(illegally deprived)Movables(acquired in public sale, fair, market, merchant’s store)

559 movable property acquired in good faith is equivalent to a title1505Goods sold by 3rd person not authorized by the owner, buyer acquires no better title than the seller had

Chapter 3PRESCRIPTION OF ACTIONS

Abandonment of Right of Action (Extinction)

PERIODIn Years

Prescription ofACTION

30 Immovable property

10Written contract

Obligation created by lawJudgment

Mortgage action8 Movables

6 Oral contractQuasi-contract

5 Actions not fixed by law

4 Injury to the rights of the plaintiffQuasi-delict

1Forcible entry

DetainerDefamation

Statutes of Limitations- acts limiting the time within which actions shall be brought.

- Does not confer any right of action, but are enacted to restrict the period within which the right, otherwise unlimited, might be asserted.

- Not matters of substantive right, but are available only as defenses.

- Founded in the general experience of mankind that claims which are valid are not usually allowed to remain neglected, and that the lapse of years without any attempt to enforce a demand creates a presumption against its original validity or that it has ceased to exist.

- PURPOSE: to protect the diligent and vigilant, not those who sleep on their rights

Art. 1139 Actions prescribe by the mere lapse of time fixed by law.

- Lapse of time has the effect of extinguishing the action- There is no extinctive prescription unless the period

provided by law expires- Mere delay in the enforcement of claim does not result in

any reduction or loss of right, unless the full period required by law for prescription has expired

Prescription as a defense must be pleaded by the debtor.- Bar of statute of limitations must be pleaded in the

answer and proven with the same degree of certainty by which any essential allegation in the pleadings is established.

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Art. 1140 Actions to recover movables shall prescribe 8years from the time the possession thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, according to Art. 1132, and without prejudice to the provisions of Articles 559, 1505, and 1133.

Article 559. The possession of movable property acquired in good faith is equivalent to title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same

Article 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.Nothing in this Title, however, shall affect:

(1) The provisions of any factors’ acts, recording laws, or any other provisions of law enabling the apparent owner of good to dispose of them as if he were the true owner thereof;(2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction;(3) Purchases made in a merchant’s store, or in fairs, or markets, in accordance with the Code of Commerce and special laws.

Art. 1141 Real actions over immovable prescribe after30 yearsThis provision is without prejudice to what is establishedfor the acquisition of ownership and other real rights by prescription.

Action affecting Realty- while an action for reformation of instrument, such as a contract of sale with pacto de retro alleged to be merely an equitable mortgage, is an action based upon a written contract which must be brought within 10 years from the time the right of action accrues (1144,CC), where, however, the accrual of such right could not be established, it is more logical to apply 1141, CC because in reality the action seeks to reassert one’s title of ownership over the real property, not to recover the same.

Art. 1142 A mortgage action prescribes after10 years

A mortgage is an accessory contract. It is constituted to secure a debt so that if the debtor fails to pay the principal obligation, the creditor can foreclose on the mortgage by selling the same in a public sale or bidding and the proceeds thereof are used to pay off the principal debt and interest if any. If there is any deficiency, the creditor can still go against the principal debtor to collect such deficiency.

Reckoning point: upon judicial/extrajudicial foreclosure of property

Not imprescriptible. The fact that mortgage is registered does not make the action to foreclose it imprescriptible.

Effects on Interest- it is not possible to separate legally the interest or any part thereof from the principal itself; hence, if the action to recover the mortgage debt itself has prescribed, the action to recover the interest must also be prescribed.

Art. 1143 The following rights, among others specified elsewhere in this Code, are not extinguished by prescription:

1) The demand a right of way, regulated in Art. 6492) To bring an action to abate a public or private

nuisanceBetween Co-owners and Co-heirs

- Under 494, CC, no prescription shall run in favor of a co-owner or co-heirs so long as he expressly/impliedly recognize the co-ownership. The possession of each of the co-owners or co-heirs is in the nature of a subsisting trust and considered to be in the name of the others.

The rule on imprescriptibility, however, applies only so long as it is admitted/presumed that the co-ownership exists. It cannot be invoke when one of the co-owners or co-heirs has possessed the property as exclusive owner for a period sufficient to acquire the property by prescription.

Other actions imprescriptible”

Action by the gov’t or its entity Action for mandamus Action to enforce an express trust, as long as the trustee

does not repudiate it Action to declare a contract null and void Action to quiet a title initiated by the person having

possession of property Action to partition a property among his co-heirs Right to demand support (present and future) except in

arrears Right of applicant-purchaser for registered land to ask for

the writ of possession

Art. 1144 The following actions must be brought within 10 years from the time the right of action accrues:

1) Upon a written contract;2) Upon an obligation created by law;3) Upon a judgment

Reckoning point of Accrual of Right of Actions1) A right in favor of plaintiff by whatever means and under

whatever law it arises or created2) Obligation on the part of such defendant to respect such

right3) Act or omission on the part of such defendant violative of

the right of plaintiff It is only when the last element occurs or takes place that

it can be said in law that a cause of action has arisen.

Art. 1145 The following actions must be commenced within 6 years1) Upon an Oral contract;2) Upon a Quasi-contract

Art. 1146 The following actions must be instituted within 4 years1) Upon an injury to the rights of the plaintiff;2) Upon a quasi-delict

Injury Rights- 1yr period fixed by RoC within which to file a petition for quo warranto should be filed, counted from the date of ouster, does not apply to a case where the plaintiff is separated from his employment of unjustifiable causes. Such unjustified separation from employment is an injury to the rights of the plaintiff and the action may be brought within 4 years under this Article.

Art. 1147 The following actions must be filed within 1year1) For forcible entry and detainer;2) For defamation

Art. 1148 The limitations of action mentioned in 1140-1142, and 1114 to 1147 are without prejudice to those specified in other parts of this code, in the Code of Commerce, and in special laws.

Art. 1149 All other actions whose periods are not fixed in this Code or in other laws must be brought within5 years from the time the right of action accrues

Right to collect Taxes- limitations here are not presumed in the absence of clear legislation to the contrary, and where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible.

Art. 1150 The time for prescription of all kinds of actions, when there is no special provision which ordains otherwise, shall be

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counted from the day they may be brought

Legal possibility of bringing the action which determines the starting point for the computation of the period.Essential Elements of a good cause of Action

1. Existence of Legal right of Plaintiff2. Corresponding legal duty of defendant3. Violation or breach of that right/duty w/

consequential injury or damage to the plaintiff, for which he may maintain an action for appropriate relief.

NB:1) When windows were opened in the bldg. of a neighbor in

violation of law, the period of prescription for the action to close the same must be counted from the day they were opened.

2) Payment upon receipt of an inheritance by the debtor, prescription begins to run from the date of such receipt (because when the obligation is subject to a suspensive condition, prescription runs only from the happening of the condition)

3) Obligations without date of maturity, or a note is payable on demand, prescription begins to run from the date of the not e or obligation and not from demand

4) Action based on fraud or deceit, the period of prescription will begin to run on the date of discovery of the fraud or deceit.

5) In Quasi-delict, the prescriptive period starts from the day the quasi-delict occurred or was committed.

6) In an action for Partition or Recoveyance based on implied or constructive trusts, the time for prescription begins to run from the date of issuance of original certificate of title because registration of an instrument in

the office of the RiD constitutes constructive notice to the whole world.

Obligations and Interest- runs only from the last payment of interest rule, is applicable only to cases where the principal debt is already due. It will cause to commence only after the maturity of the debt.

Art. 1152 The period for prescription of actions to demand the fulfillment of obligations declared by a judgment commences from the time the judgment became final

Final judgment- upon the expiration of the period for appeal; thereafter, prescription begins to run (RTC); but in CA or SC, the true judgment is that entered b the clerk of Court pursuant to the

dispositive portion of its decision, and the period of such prescription therefore is computed from the date such judgment is entered.

Art. 1153 The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions.

The period for the action arising from the result of the accounting runs from the date when said result was recognized by agreement of the interested parties

From the date of the retirement of members from whom accounting is demanded.

Current accounts: There is a distinction as to the time when the period of prescription begins to run in mutual current accounts and in simple current open accounts. In mutual, statute of limitations does not begin on the date of the last item; while in simple, the statute begins to run from the date of each particular item.

Art. 1154 The period during which the oblige was prevented by a fortuitous event from enforcing his right is not reckoned against him

Art. 1155 The prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgement of the debt by the debtor.INTERRUPTION OF PRESCRIPTION OF ACTION

1) Filed before the court (legal commencement)2) Written extrajudicial demand by creditors3) Written acknowledgment of the debt by the debtor

NB: No suspension – although an action is started within the prescriptive period, if the plaintiff desists in its prosecution or judgment is unconditionally stayed for one year or another, the running of the period of limitations is not suspended.

***interruption lasts during the pendency of the action and ends upon the dismissal of the case where it now runs anew

CAUSES NOT INTERRUPTING

1) Death of the debtor does not interrupt the running of the statute of limitations, because the creditor has at his disposal appropriate means for the prosecution of an action to enforce the collection of his claim

2) Transfer of the right to another person3) Institution of a criminal action cannot have the effect of

interrupting the institution of a civil action based on quasi-delict

4) An order to stay execution of a judgment does not suspend the running of prescription against it

5) Confinement in jail

BENTIR V. LEANDA (Reformation of Instrument)

FACTS: On May 15, 1992, RC (Lessee) filed against petitioners Bentir (lessor) and spouses Pormada a complaint for reformation of instrument, specific performance, annulment of conditional sale and damages with prayer for writ of injunction. RC alleged that he entered into a contract of lease of a parcel of land with Bentir for a period of twenty (20) years starting May 5, 1968 and was extended for another four (4) years or until May 31, 1992. Bentir sold the leased premises which RC questioned alleging that it had a right of first refusal and now seeking the reformation of the expired contract of lease. It further noted that its lawyer inadvertently omitted to incorporate in the contract of lease executed in 1968, which gave RC has the right to equal the highest offer. Bentir and spouses Pormada raised as defense the lease contract as not a ground for reformation as well as laches for not bringing the case for reformation of the lease contract within the prescriptive period of ten (10) years from its execution.

Respondent Judge Mateo M. Leanda reversed the lower court’s order dismissing the action of RC. “To the mind of this Court, the dismissal order adverted to above, was obviously premature and precipitate, thus resulting denial upon the right of plaintiff that procedural due process. The other remaining four (4) causes of action of the complaint must have been deliberated upon before that court acted hastily in dismissing this case.”

ISSUE: W/N complaint for reformation of instrument has prescribed. Yes.

RULING: (10 years from 1968 is 1978, action made on 1992, 24 yrs)The remedy for reformation of instrument is grounded on the principle of equity where, in order to express the true intention of the contracting parties, an instrument already executed is allowed by law to be reformed. The right of reformation is necessarily an invasion or limitation of the parol evidence rule since, when writing is reformed, the result is that an oral agreement is by court decree made legally effective. Consequently, the courts, as the agencies authorized by law to exercise the power to reform an instrument, must necessarily exercise that power sparingly and with great caution and zealous care subject to limitations as may be provided by law.

A suit for reformation of an instrument may be barred by lapse of time. The prescriptive period for actions based upon a written contract and for reformation of an instrument is ten (10) years under Article 1144 of the Civil Code.

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Art. 1151 the time for prescription of actions which have for their object theenforcement of obligations to pay principal with interest or annuity runs from the last payment of the annuity or of the interest.


PURPOSE: intended to suppress stale and fraudulent claims arising from transactions like the one at bar which facts had become so obscure from the lapse of time or defective memory. In the case at bar, RC had ten (10) years from 1968, the time when the contract of lease was executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of action has become stale, hence, time-barred.

Art. 1670 would not apply as this provision speaks of an implied new lease (tacita reconduccion) where at the end of the contract, the lessee continues to enjoy the thing leased "with the acquiescence of the lessor", so that the duration of the lease is "not for the period of the original contract, but for the time established in Article 1682 and 1687." In other words, if the extended period of lease was expressly agreed upon by the parties, then the term should be exactly what the parties stipulated, not more, not less.

Even if the supposed 4-year extended lease be considered as an implied new lease under Art. 1670, "the other terms of the original contract" contemplated in said provision are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. 15

RECKONING POINT:The prescriptive period of ten (10) years provided for in Art. 1144 16 applies by operation of law, not by the will of the parties. Therefore, the right of action for reformation accrued from the date of execution of the contract of lease in 1968.

What if action for reformation is not time-barred?Action will still not prosper.

Under Section 1, Rule 64 of the New RoC, 17 an action for the reformation of an instrument is instituted as a special civil action for declaratory relief, an action to secure an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or compliance therewith, and not to settle issues arising from an alleged breach thereof, it may be entertained only before the breach or violation of the law or contract to which it refers. 18

Here, RC brought the present action for reformation after an alleged breach or violation of the contract was already committed by petitioner Bentir. Consequently, the remedy of reformation no longer lies. Petition is GRANTED. CA decision REVERSED and SET ASIDE.

AINZA vs. SPOUSES PADUA Ainza (Concepcion) filed a complaint for partition of real property, annulment of titles against Spouses Eugenia Padua who caused a subdivision of the lot into three under their names w/o her consent. She bought a portion of the undivided lot on 1987 from

her daughter and husband for 100k. No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by the Paduas, and ownership was transferred to Concepcion through physical delivery to her attorney-in-fact and daughter, (Natividad) whom she allowed to occupy the premises, and make improvements on the unfinished building. However, the Paduas caused the subdivision of the property without her consent into three portions and registered it in their names under in violation of the restrictions annotated at the back of the title. Antonio averred that he bought the property in 1980 and introduced improvements thereon. An ejectment suit against Natividad was filed by Antonio for resisting to vacate the premises. Concepcion, represented by Natividad, also filed on May 4, 1999 a civil case for partition of real property and annulment of titles with damages. his wife, Eugenia, admitted that Concepcion offered to buy one third (1/3) of the property who gave her small amounts over several years which totaled P100,000.00 by 1987 and for which she signed a receipt.

RTC upheld the sale between Eugenia and Concepcion. the sale was consummated when both contracting parties

complied with their respective obligations. Eugenia transferred possession by delivering the property to Concepcion who in turn paid the purchase price.

Statute of Frauds was not violated by the transfer of the property because a fully executed contract does not fall within its coverage.

CA reversed the decision of the TC and declared the sale null and void. Article 124 of the FC, since the subject property is conjugal,

the written consent of Antonio must be obtained for the sale to be valid. It also ordered the spouses Padua to return the amount of P100,000.00 to petitioners plus interest.6

ISSUE: Is there a valid contract of sale between Eugenia and Concepcion? Yes. Has Antonio’s action to annul the sale prescribed? Yes.

RULING:(Oral Contract done without the consent of the husband, annullable. Six years from 1987 is 1993.) Antonio’s right to file an action to annul the sale has been extinguished by prescription.

A contract of sale is perfected by mere consent, upon a meeting of the minds on the offer and the acceptance thereof based on subject matter, price and terms of payment.7

In this case, there was a perfected contract of sale between Eugenia and Concepcion. The records show that Eugenia offered to sell a portion of the property to Concepcion, who accepted the offer and agreed to pay 100k as consideration. The contract of sale was consummated when both parties fully complied with their respective obligations. Eugenia delivered the property to Concepcion, who in turn, paid Eugenia the price of One Hundred Thousand Pesos (P100,000.00), as evidenced by the receipt which reads:

The verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the Statute of Frauds that a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is in writing and subscribed by the party charged or his agent. 9

As in this case When a verbal contract has been completed, executed or partially consummated as evidenced by the receipt signed by Eugenia. Hence, its enforceability will not be barred by the Statute of Frauds, which applies only to an executory agreement.10 Thus, where one party has performed his obligation, oral evidence will be admitted to prove the agreement.11

The contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the same must be commenced within six years from the time the right of action accrued.

Eugenia sold the property in April 1987 hence Antonio should have asked the courts to annul the sale on or before April 1993 . No action was commenced by Antonio to annul the sale, hence his right to seek its annulment was extinguished by prescription.

Even assuming that the ten (10)-year prescriptive period under Art. 173 should apply, Antonio is still barred from instituting an action to annul the sale because since April 1987, more than ten (10) years had already lapsed without any such action being filed.

In sum, the sale of the conjugal property by Eugenia without the consent of her husband is voidable. It is binding unless annulled. Antonio failed to exercise his right to ask for the annulment within the prescribed period, hence, he is now barred from questioning the validity of the sale between his wife and Concepcion.WHEREFORE, the petition is GRANTED.

ABALOS vs.HEIRS OF VICENTE TORIO, FACTS: HT filed a Complaint for Recovery of Possession and Damages against Abalos (Jaime) and spouses Salazar on 1996. HT alleged that it was only through HT’s tolerance , that Jaime and the Spouses Salazar were allowed to stay and build their respective houses on the subject parcel of land. In 1985, HT asked them to vacate the subject lot, but they refused to heed the demand forcing respondents to file the complaint. Jaime Abalos and the Spouses Salazar raised acquisitive prescription as a defense contending that their predecessors-in-interest had been in actual, continuous and peaceful possession of the subject lot as owners since time immemorial; defendants are faithfully and religiously paying real property taxes on the disputed lot as evidenced by Real Property Tax Receipts; they have continuously introduced improvements on the said land, such as houses, trees and other kinds of ornamental plants which are in existence up to the time of the filing of their Answer.

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ISSUE: whether petitioners possess the subject property as owners, or whether they occupy the same by mere tolerance of respondents. MERE TOLERANCE.

RULING: Abalos and Spouses Salazar’s possession did not ripen into ownership, because they failed to meet the required statutory period of extraordinary prescription.

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten (10) years. Without good faith and just title, acquisitive prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years.

Possession "in good faith" consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership. There is "just title" when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.

In the instant case, it is clear that during their possession of the property in question, Abalos and spouses Salazar acknowledged ownership thereof by the immediate predecessor-in-interest Vicente Torio. Petitioners' possession could not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription. Tax Declaration acknowledged the ownership of

Vicente Torio. TD in the name of Jaime for the year 1984 wherein it contains a statement admitting that Jaime's house was built on the land of

It was by mere tolerance of Heirs of Torio and Vicente and Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive prescription.

Possession, to constitute the foundation of a prescriptive right, must be en concepto de dueño, or, to use the common law equivalent of the term, that possession should be adverse, if not, such possessory acts, no matter how long, do not start the running of the period of prescription.

Even if adverse possession, still below 30 years. as evidenced by their declaration of the same for tax

purposes under the names of their predecessors-in-interest, their possession still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription which was only made starting 1974. Reckoned from such date, the thirty-year period was completed in 2004.

However, herein respondents' complaint was filed in 1996, effectively interrupting petitioners' possession upon service of summons on them. Thus, petitioners’ possession also did not ripen into ownership, because they failed to meet the required statutory period of extraordinary prescription.

This Court has held that the evidence relative to the possession upon which the alleged prescription is based, must be clear, complete and conclusive in order to establish the prescription. In the present case, the Court finds no error on the part of the CA in holding that petitioners

o failed to present competent evidence to prove their alleged good faith in neither possessing the subject lot nor their adverse claim thereon.

o Instead, the records would show that petitioners' possession was by mere tolerance of respondents and their predecessors-in-interest.

due execution and authenticity of the deed of sale upon which respondents anchor their ownership were not proven, Settled is the rule that points of law, theories, issues, and

arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court.26 They cannot be raised for the first time on appeal. To allow this would be offensive to the basic rules of fair play, justice and due process.27

Even granting that the issue of due execution and authenticity was properly raised, the Court finds no cogent reason to depart from the findings of the CA, to wit:x x x x

Based on the foregoing, respondents [Jaime Abalos and the Spouses Felix and Consuelo Salazar] have not inherited the disputed land because the same was shown to have already been validly sold to Marcos Torio, who, thereupon, assigned the same to his son Vicente, the father of petitioners [herein respondents]. A valid sale was amply established and the said validity subsists because the deed evidencing the same was duly notarized.

There is no doubt that the deed of sale was duly acknowledged before a notary public. As a notarized document, it has in its favor the presumption of regularity and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.28

MERCADO vs. ESPINOCILLA, FACTS: Doroteo Espinocilla owned a parcel of land in Sorsogon. After he died, his 5 children, Salvacion, Aspren, Isabel, Macario, and Dionisia divided the lot equally among themselves. Later, Dionisia died without issue ahead of her 4 siblings, and Macario took possession of Dionisia’s share. In an affidavit of transfer of real property4 dated November 1, 1948, Macario claimed that Dionisia had donated her share to him in May 1945.

Macario and his daughters Betty and Saida sold5to his son Roger Espinocilla on 1977. Roger’s wife Belen and son Ferdinand are respondents in this case.

Roger Espinocilla sold6 114 sq. m. to Caridad Atienza on March 8, 1985

Belen Espinocilla occupies 109 sq. m., Caridad Atienza occupies 120 sq. m., Caroline Yu occupies 209 sq. m., and Celerino Mercado, petitioner, Salvacion's son, occupies 132

sq. m.7

C. Mercado, son of Salvacion sued the Espinocillas and now claims that he is entitled to a total of 171 Sq. m recover two portions: He is entitled to own and possess 171 sq. m. of Lot No. 552,

having inherited from his mother Salvacion 142.5 sq. m and bought from his aunt Aspren 28.5 sq. m.

According to him, his mother’s inheritance is 142.5 sq. m., that is, 114 sq. m. from Doroteo plus 28.5 sq. m. from Dionisia.

Since the area he occupies is only 132 sq. m.,10 he claims that respondents encroach on his share by 39 sq. m.11

Espinocillas agree that Doroteo’s five children each inherited 114 sq. m. of Lot No. 552. However, Macario’s share increased when he received Dionisia’s share. Macario’s increased share was then sold to his son Roger, respondents’ husband and father.

- rightfully possess the land they occupy by virtue of acquisitive prescription and that there is no basis for petitioner’s claim of encroachment.

RTC decision ruled in favor of petitioner C. Mercado and held that he is entitled to 171 sq. m. and ordered respondents must return 39 sq. m. to petitioner who occupies only 132 sq. m as there was no public document to prove Dionisia’s donation, and Macario’s 1948 affidavit is void and is an invalid repudiation of the shares of his sisters Salvacion, Aspren, and Isabel in Dionisia’s share. Hence, Macario cannot acquire said shares by prescription. Furthermore, the oral partition by Doroteo’s heirs did not include Dionisia’s share and that partition should have been the main action. Thus, the RTC ordered partition and deferred the transfer of possession of the 39 sq. m. pending partition.14 The dispositive portion of the RTC decision reads:

The CA Decision reversed RTC and dismissed C. Mercado’s complaint as extraordinary acquisitive prescription has already set in in favor of respondent Espinocillas. Doroteo’s four remaining children made an oral partition of Lot No. 552 after Dionisia’s death in 1945 and occupied specific portions. The oral partition terminated the co-ownership of Lot No. 552 in 1945. Said partition also included Dionisia’s share because the lot was divided into four parts only. And since petitioner’s complaint was filed only on July 13, 2000, the CA concluded that prescription has set in.

ISSUE: whether C. Mercado’s action to recover the subject portion is barred by prescription. Yes.

RULING:CA’s decision Affirmed; action of petitioner barred by prescription. 55 years since 1945

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Prescription, as a mode of acquiring ownership and other real rights over immovable property, is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted, and adverse.

Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for 10 years.

In extraordinary prescription , ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for 30 years without need of title or of good faith.20

Here, C. Mercado himself admits the adverse nature of respondents’ possession with his assertion that Macario’s fraudulent acquisition of Dionisia’s share created a constructive trust. In a constructive trust, there is neither a promise nor any

fiduciary relation to speak of and the so-called trustee (Macario) neither accepts any trust nor intends holding the property for the beneficiary (Salvacion, Aspren, Isabel). The relation of trustee and cestui que trust does not in fact exist, and the holding of a constructive trust is for the trustee himself, and therefore, at all times adverse.21 Prescription may supervene even if the trustee does not repudiate the relationship.22

Then, too, respondents’ uninterrupted adverse possession for 55 years of the lot was established. Macario occupied Dionisia’s share in 1945 although his claim that Dionisia donated it to him in 1945 was only made in a 1948 affidavit. We also agree with the CA that Macario’s possession of Dionisia’s share was public and adverse since his other co-owners, his three other sisters, also occupied portions of Lot No. 552.

Acts of Ownership1) 1977 sale made by in favor of Roger confirms the

adverse nature of Macario’s possession because said sale was an act of ownership over Macario’s original share and Dionisia’s share.

2) In 1985, when Roger sold 114 sq. m. to Caridad Atienza.3) It was only in the year 2000, upon receipt of the

summons to answer petitioner’s complaint, that respondents’ peaceful possession of the remaining portion (109 sq. m.) was interrupted.- By then, however, extraordinary acquisitive

prescription has already set in in favor of respondents.

- That the RTC found Macario’s 1948 affidavit void is of no moment.

- Extraordinary prescription is unconcerned with Macario’s title or good faith.

- Accordingly, the RTC erred in ruling that Macario cannot acquire by prescription the shares of Salvacion, Aspren, and Isabel, in Dionisia’s 114-sq. m. share from Lot No. 552.

Moreover, the CA correctly dismissed petitioner’s complaint as an action for reconveyance based on an implied or constructive trust prescribes in 10 years from the time the right of action accrues. This is the other kind of prescription under the Civil Code, called extinctive prescription, where rights and actions are lost by the lapse of time. Petitioner’s action for recovery of possession having been filed 55 years after Macario occupied Dionisia’s share, it is also barred by extinctive prescription. The CA while condemning Macario’s fraudulent act of depriving his three sisters of their shares in Dionisia’s share, equally emphasized the fact that Macario’s sisters wasted their opportunity to question his acts.WHEREFORE, we DENY the petition , CA Affirmed.

VIRTUCIO vs. ALEGARBES FACTS: (Alegarbes) filed Homestead Application for a 24-hectare tract of unsurveyed land situated in Basilain in 1949 and approved on January 23, 1952. The Land was subdivided into three (3) lots in 1955 as a consequence of a public land subdivision. Lot 139 was allocated to (Custodio) while Lot 140 was allocated to (Virtucio).

Alegarbes opposed the homestead applications filed by Custodio and Virtucio, claiming that his approved application covered the whole area, including Lot Nos. 139 and 140. Director of Lands denied Alegarbes' protest and amended the latter's application to exclude Lots 139 and 140 (October 30, 1961). Only Lot 138 was given due course. The applications of Custodio and Virtucio for Lots 139 and 140, respectively, were likewise given due course.6

Secretary of Agriculture and Natural Resources likewise dismissed his appeal and affirmed by Office of the President (OP) in a decision, dated October 25, 1974. MR was likewise denied. OP’s decision was sought to be enforced through a May 11, 1989 order of execution and order by Alegarbes to vacate the premises as issued by the Lands Management Bureau of the Department of Environment and Natural Resources .

Virtucio then filed a complaint9 for "Recovery of Possession and Ownership with Preliminary Injunction" before the RTC.

Alegarbes - decision of the Bureau of Lands was void ab initio

considering that the Acting Director of Lands acted without jurisdiction and in violation of the provisions of the Public Land Act.

- said decision conferred no rights and imposed no duties and left the parties in the same position as they were before its issuance

- patent issued in favor of Virtucio was procured through fraud and deceit,

- his homestead application on January 23, 1952 by the Bureau of Lands had already attained finality and could not be reversed, modified or set aside.

- His possession of Lot Nos. 138, 139 and 140 had been open, continuous, peaceful and uninterrupted in the

concept of an owner for more than 30 years and had acquired such lots by acquisitive prescription.

- his now deceased brother, Alejandro Alegarbes, and the latter's family helped him develop Lot 140 in 1955.

- Alejandro and his family, as well as Alegarbes' wife and children, had been permanently occupying the said lot and, introducing permanent improvements thereon since 1960.

The RTC Ruling : VirtucioThe CA Ruling: Reversed. Alegarbes became ipso jure owner of Lot 140 and, therefore, entitled to retain possession of it.

- Even if the decision to approve Virtucio's homestead application over Lot 140 had become final, Alegarbes could still acquire the said lot by acquisitive prescription. The decisions on the issues of the approval of Virtucio's homestead application and its validity were impertinent as Alegarbes had earlier put in issue the matter of ownership of Lot 140 which he claimed by virtue of adverse possession.

- RTC committed reversible error in disregarding the evidence before it and relying entirely upon the decisions of the administrative bodies, none of which touched upon the issue of Alegarbes' open, continuous and exclusive possession of over thirty (30) years of an alienable land.

- The Director of Lands, the Secretary of Agriculture and Natural Resources and the OP did not determine whether Alegarbes' possession of the subject property had ipso jure segregated Lot 140 from the mass of public land and, thus, was beyond their jurisdiction.

ISSUES: W/N Alegarbes acquired ownership over the subject property by acquisitive prescription.

HELD: Yes.

On Acquisitive PrescriptionVirtucio

- period of acquisitive prescription was interrupted on October 30, 1961 (or in 1954 when Alegarbes filed the protest) when the Director of Lands rendered a decision giving due course to his homestead application and that of Ulpiano Custodio.

- since 1954, several extrajudicial demands were also made upon Alegarbes demanding that he vacate said lot. Those demands constitute the "extrajudicial demand" contemplated in Article 1155, thus, tolling the period of acquisitive prescription.19

Article 1106 of the NCC, in relation to its Article 712, provides that prescription is a mode of acquiring ownership through the lapse of time in the manner and under the conditions laid down by law. Under the same law, it states that acquisitive prescription may either be ordinary or extraordinary.20 Ordinary acquisitive prescription requires possession of things in good faith

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and with just title for a period of ten years,21 while extraordinary acquisitive prescription requires uninterrupted adverse possession of thirty years, without need of title or of good faith.22

There are 2 kinds of Prescription in CC. Acquisitive :, that is, the acquisition of a right

by the lapse of time as expounded in par. 1, Article 1106 or adverse possession and usucapcion.

Extinctive prescription whereby rights and actions are lost by the lapse of time as defined in Article 1106 and par. 2, Article 1139. Another name for extinctive prescription is litigation of action.23 These two kinds of prescription should not be interchanged.

Article 1155 of the NCC (Prescription of Actions; Interruption) - Filed before the court - Written extrajudicial demand by the creditors- Written acknowledgment of the debt by the debtor

Articles 1120-1125 (Acquisitive Prescription; Interruption) - Naturally (cessation of possession for more than 1

year)- Civilly (judicial summons, except when void,

plaintiff’s desistance, defendant is absolved)- Express or tacit recognition of the owner’s right

Virtucio’s reliance on Article 1155 for purposes of tolling the period of acquisitive prescription is misplaced. The only kinds of interruption that effectively toll the period of acquisitive prescription are natural and civil interruption.24

Civil interruption takes place with the service of judicial summons to the possessor.25 When no action is filed, then there is no occasion to issue a judicial summons against the respondents. The period of acquisitive prescription continues to run.

In this case, Virtucio claims that the protest filed by Alegarbes against his homestead application interrupted the thirty (30)-year period of acquisitive prescription. The law, as well as jurisprudence, however, dictates that only judicial summons can effectively toll the said period.

In the case of Heirs of Marcelina Azardon-Crisologo v. Rañon, 26 the Court ruled that a mere Notice of Adverse Claim did not constitute an effective interruption of possession.

In the case of Heirs of Bienvenido and Araceli Tanyag v. Gabriel, 27 which also cited the Rañon Case, the Court stated that the acts of declaring again the property for tax purposes and obtaining a Torrens certificate of title in one's name cannot defeat another's right of ownership acquired through acquisitive prescription.28

- A protest filed before an administrative agency and even the decision resulting from it cannot effectively toll the running of the period of acquisitive prescription.

- In such an instance, no civil interruption can take place. Only in cases filed before the courts may judicial summons be issued and, thus, interrupt possession.

- It was only in 1997 when Virtucio filed a case before the RTC.

- The CA was, therefore, correct in ruling that Alegarbesbecame ipso jure owner of Lot 140 entitling him to retain possession of it because he was in open, continuous and exclusive possession for over thirty (30) years of alienable public land.

- Virtucio emphasizes that the CA erred in disregarding the decisions of the administrative agencies which amended Alegarbes' homestead application excluding Lot 140 and gave due course to his own application for the said lot, which decisions were affirmed by the RTC.

- Well-settled is the rule that factual findings of the lower courts are entitled to great weight and respect on appeal and, in fact, are accorded finality when supported by substantial evidence on the record.29 It appears, however, that the conclusion made by the RTC was not substantially supported. Even the RTC itself noted in its decision:

- The approval of a Homestead Application merely authorizes the applicant to take possession of the land so that he could comply with the requirements prescribed by law before a final patent could be issued in his favor – what divests the government of title to the land is the issuance of a patent and its subsequent registration with the Register of Deeds.30

- A perusal of the records would reveal that there was no issuance of any patent in favor of either parties. This simply means that the land subject of the controversy remains to be in the name of the State.

Hence, neither Virtucio nor Alegarbes can claim ownership. There was, therefore, no substantial and legal basis for the RTC to declare that Virtucio was entitled to possession and ownership of Lot 140. It can be argued that the lower court had the decisions of the administrative agencies, which ultimately attained finality, as legal bases in ruling that Virtucio had the right of possession and ownership. In fact, the Department of Environment and Natural Resources (DENR) even issued the Order of Execution31 on May 11, 1989 ordering Alegarbes to vacate Lot 140 and place Virtucio in peaceful possession of it.

The CA, however, was correct in finding that:But appellant had earlier put in issue the matter of ownership of Lot 140 which he claims by virtue of adverse possession. On this issue, the cited decisions are impertinent. Even if the decision to approve appellee Virtucio's homestead application over Lot 140 had become final, appellant (Alegarbes) could still acquire the said lot by acquisitive prescription.32

In the case of Heirs of Gamos v. Heirs of Frando, 33 the Court ruled that the mere application for a patent, coupled with the fact of exclusive, open, continuous and notorious possession for the required period, is sufficient to vest in the applicant the grant applied for.34 It likewise cited the cases of Susi v. Razon 35 and Pineda v. CA ,36 where the Court ruled that the possession of a parcel of agricultural land of the public domain for the prescribed period of 30 years ipso jure converts the lot into private property.37

In this case, Alegarbes had applied for homestead patent as early as 1949. He had been in exclusive, open, continuous and notorious possession of Lot 140 for at least 30 years. By the time the DENR issued its order of execution in 1989, Alegarbes had Lot 140 in his possession for more than 30 years. Even more so when Virtucio filed the complaint before the RTC in 1997, Alegarbes was already in possession of the subject property for forty-eight (48) years.

The CA correctly observed that the RTC erred in disregarding the evidence before it and relying entirely upon the decisions of the Director of Lands, the Secretary of Agriculture and Natural Resources and the OP, which never touched the issue of whether Alegarbes’ open, continuous and exclusive possession of over thirty (30) years of alienable land had ipso jure segregated Lot 140 from the mass of public land and beyond the jurisdiction of these agencies.38

When the CA ruled that the RTC was correct in relying on the abovementioned decisions, it merely recognized the primary jurisdiction of these administrative agencies. It was of the view that the RTC was not correct in the other aspects of the case. Thus, it declared Alegarbes as owner ipso jure of Lot 140 and entitled to retain possession of it. There is no reason for the Court to disturb these findings of the CA as they were supported by substantial evidence, hence, are conclusive and binding upon this Court.39

On the CA Decision involving a similar caseVirtucio insists that the CA gravely erred in disregarding its decision in Custodio v. Alegarbes, CA-G.R. CV 26286, for Recovery of Possession and Ownership, which involved the same factual circumstances and ruled against Alegarbes.It must be noted that the subject property in the said case was Lot 139 allocated to Custodio and that Virtucio was not a party to that case.

- The latter cannot enjoy whatever benefits said favorable judgment may have had just because it involved similar factual circumstances. The Court also found from the

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records that the period of acquisitive prescription in that case was effectively interrupted by Custodio's filing of a complaint, which is wanting in this case.

- the CA does not establish judicial precedent.40 "The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by this Court in its final decisions.

- only final decisions of this Court are considered precedents.42

In view of the foregoing, the Court need not dwell on the complaint of Virtucio with regard to the deletion of the award of attorney's fees in his favor. It is ludicrous for the CA to order Alegarbes to pay attorney's fees, as a measure of damages, and costs, after finding him to have acquired ownership over the property by acquisitive prescription.WHEREFORE, the petition is DENIED BANEZ, JR. v. CONCEPCION

FACTS:Leodegario B. Ramos (Ramos), discovered that a parcel of land located in Meycauayan, Bulacan that he had adjudicated solely to himself upon his mother’s death on November 16, 1982 had been earlier transferred by his mother to one Ricardo Asuncion, who had, in turn, sold it to the late Rodrigo Gomez.

Ramos alleged that Gomez had induced him to sell the 1,233 square meters to Gomez on the understanding that Gomez would settle Ramos’ obligation to three other persons, commenced in the RTC in Valenzuela an action against Gomez, a.k.a Domingo Ng Lim, seeking the rescission of their contract of sale and the payment of damages.

Ramos and Gomez entered into a compromise agreement which the RTC approved. Atty. Banez, Jr, being then the counsel of Ramos in that civil case, assisted the latter in entering into the compromise agreement "to finally terminate this case."

The terms and conditions of the compromise agreement to finally terminate the casewere as follows:

That out of the total area of Three Thousand and Fifty Four (3,054) sq. m., more or less, defendant shall cause survey of said property, at its own expense, to segregate the area of, (1,233) sq. m. more or less, to take along lines two (2) to three (3), then to four (4) and up to five (5) of said plan

That upon completion of the technical survey and plan, Gomez shall cause the registration of the Deed of Absolute Sale executed by plaintiff Ramos over the 1,233 sq. m. in his favor and that defendant Gomez shall deliver the survey and plan pertaining to the 1,821 sq, m. to Ramos with both parties defraying the cost of registration and titling over their respective shares;

That to carry out the foregoing, plaintiff Ramos shall entrust the Owner’s Duplicate of title to the defendant Gomez upon approval of this COMPROMISE AGREEMENT by the Court;

. That upon the approval of this Compromise Agreement plaintiff shall execute a Deed of Absolute Sale in favor of defendant over the 1,233 sq. m. surveyed and segregated from the 1,821 sq. m. which should remain with the plaintiff and to be titled in his name;

That plaintiff Ramos obligates himself to return his loan obligation to the defendant Gomez, in the principal sum of P 80,000.00 plus P 20,000.00 for the use thereof, and an additional sum of P 10,000.00 in the concept of attorney’s fees, which sums shall be guaranteed by a post-dated check, in the amount of P 110,000.00 in plaintiff’s name with his prior endorsement, drawn and issued by plaintiff’s counsel, for a period of Sixty (60) days from October 9, 1990;

That in the event the check issued pursuant to paragraph 5 hereof, is dishonored for any reason whatsoever, upon presentment for payment, then this Compromise Agreement, shall be considered null and void and of no effect whatsoever;

That upon faithful compliance with the terms and conditions of this COMPROMISE AGREEMENT and the Decision based thereon, the parties hereto shall have respectively waived, conceded and abandoned all claims and rights of action of whatever kind or nature, against each other over the subject property.

One of the stipulations of the compromise agreement was for Ramos to execute a deed of absolute sale in favor of Gomez respecting the parcel of land with an area of 1,233 square meters, and covered by Transfer Certificate of Title in the name of Ramos.9 Another stipulation was for the petitioner to issue post-dated checks totaling P 110,000.00 to guarantee the payment by Ramos of his monetary obligations towards Gomez as stated in the compromise agreement broken down as follows: (a) P 80,000.00 as Ramos’ loan obligation to Gomez; (b) P 20,000.00 for the use of the loan; and (c) P 10,000.00 as attorney’s fees.

Of these amounts, only P 80,000.00 was ultimately paid to Gomez, because the petitioner’s check dated April 23, 1991 for the balance of P 30,000.00 was dishonored for insufficiency of funds.

Gomez meanwhile died on November 7, 1990. The Estate of Gomez sued Ramos and the petitioner for specific performance in the RTC in Caloocan City to recover the balance of P 30,000.00.

On February 28, 1994, however, this case was amicably settled through a compromise agreement, whereby the petitioner directly bound himself to pay to the Estate of Gomez P 10,000.00 on or before March 15, 1994; P 10,000.00 on or before April 15, 1994; and P 10,000.00 on or before May 15, 1994.

Estate of Gomez performed the obligations of Gomez under the first paragraph of the compromise agreement of October 9, 1990 by causing the survey of the bigger tract of land containing an area of 3,054 square meters, more or less, in order to segregate the area of 1,233 square meters that should be transferred by Ramos to Gomez in accordance with Ramos’ undertaking under the second paragraph of the compromise agreement of October 9, 1990.

But Ramos failed to cause the registration of the deed of absolute sale pursuant to the second paragraph of the compromise agreement of October 9, 1990 despite the Estate of Gomez having already complied with Gomez’s undertaking to deliver the approved survey plan and to shoulder the expenses for that purpose.

Nor did Ramos deliver to the Estate of Gomez the owner’s duplicate copy of TCT No. T-10179 P(M) of the Registry of Deeds of Meycauayan, Bulacan, as stipulated under the third paragraph of the compromise agreement of October 9, 1990. Instead, Ramos and the petitioner caused to be registered the 1,233 square meter portion in Ramos’s name under TCT No. T-13005-P(M) of the Registry of Deeds of Meycauayan, Bulacan.

Estate of Gomez brought a complaint for specific performance On July 6, 1995, against Ramos and the petitioner in the RTC in order to recover the 1,233 square meter lot.

However, it was dismissed on April 1, 1996 upon the motion of Ramos – - improper venue because the objective was to recover the

ownership and possession of realty situated in Meycauayan, Bulacan,

- proper recourse was to enforce the judgment by compromise Agreement rendered on October 9, 1990 through a motion for execution.

The Estate of Gomez appealed to (CA), affirmed Valenzuela RTC- commenced Civil Case No. 722-M-2002 in the Valenzuela

RTC, ostensibly to revive the judgment by compromise rendered on October 9, 1990 in Civil Case No. 3287-V-90,

- That Ramos be ordered to execute the deed of absolute sale covering the 1,233 square meter lot pursuant to the fourth stipulation of the compromise agreement of October 9, 1990.

- Petitioner lawyer was impleaded as a party-defendant because of his having guaranteed the performance by Ramos of his obligation and for having actively participated in the transaction.

Atty. Banez, JR. Moved for the dismissal of Civil Case On January 8, 2003- action was already barred by res judicata and by

prescription; - he was not a real party-in-interest; and- the amount he had guaranteed with his personal check had

already been paid by Ramos with his own money.11

RTC Granted the M for dismissal- right of action had already prescribed due to more than 12

years having elapsed from the approval of the compromise agreement on October 9, 1990,

Article 1143 (3) of the Civil Code (which provides a 10-year period within which a right of action based upon a judgment must be brought from).

RTC reversed itself and reinstated Civil Case No. 722-M-2002, - filing of the complaint for specific performance on July 6,

1995 in the Valenzuela RTC had interrupted the prescriptive period pursuant to Article 1155 of the Civil Code.

Issues: W/N Judge Concepcion abused his discretion, amounting to lack of, or in excess of jurisdiction, when, after ordered the dismissal of Civil Case, as prescription has set in, under Art. 1143 of the Civil Code, he set aside and reconsidered his said Order, on motion of plaintiff, by thereafter denied petitioner’s Motion for Reconsideration, and Second Motion for Reconsideration, insisting, despite his being presumed to know the law, that the said action is not barred by prescription, under Art. 1145 of the Civil Code;

2) W/N, the present pending action, Civil Case No. 722-M-2002, before Branch 12 of the Regional Trial Court of Malolos, Bulacan, is barred, and should be ordered be dismissed, on the ground of prescription, under the law and the rules, and applicable jurisprudence.

3) W/N, the same action may be dismissed on other valid grounds.17

Banez submits - Civil Case was one for the revival of the judgment upon a

compromise agreement rendered in previous case which already attained finality on October 9, 1990;

- considering that an action for revival must be filed within 10 years from the date of finality, pursuant to Article 1144 of the

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Civil Code,18in relation to Section 6, Rule 39 of the Rules of Court,19 Civil Case No. 722-M-2002 was already barred by prescription, having been filed beyond the 10-year prescriptive period;

- RTC gravely abused its discretion in reinstating the complaint despite prescription having already set in; that the dismissal of Civil Case No. 722-M-2002 was proper also because the judgment had already been fully satisfied; that the claim relative to the 1,233 square meter lot under the compromise agreement had been waived, abandoned, or otherwise extinguished on account of the failure of the Estate of Gomez’s counsel to move for the issuance of a writ of execution; and

- that the Estate of Gomez could not rely upon the pendency and effects of the appeal from the action for specific performance after its dismissal had been affirmed by the CA on grounds of improper venue, the plaintiff’s lack of personality, and improper remedy (due to the proper remedy being by execution of the judgment).

The Estate of Gomez - the filing on July 6, 1995 of the action for specific performance in

the RTC in Valenzuela stopped the running of the 10-year prescriptive period under Art. 1144;

- and commenced to run again after the CA dismissed that action on July 24, 2001;

- that the total elapsed period was only five years and 11 months; and that the action for the revival of judgment filed on September 20, 2002 was within the period of 10 years to enforce a final and executory judgment by action.

HELD:Banez, dismissed.Article 1144 of the Civil Code requires, indeed, that an action to revive a judgment must be brought before it is barred by prescription, which was ten years from the accrual of the right of action.

- such a defense could not be determined in the hearing of the petitioner’s motion to dismiss considering that the complaint did not show on its face that the period to bring the action to revive had already lapsed.

- An allegation of prescription, as the Court put it in Pineda v. Heirs of Eliseo Guevara,26 "can effectively be used in a motion to dismiss only when the complaint on its face shows that indeed the action has already prescribed, [o]therwise, the issue of prescription is one involving evidentiary matters requiring a full blown trial on the merits and cannot be determined in a mere motion to dismiss."

- At any rate, the mere lapse of the period per se did not render the judgment stale within the context of the law on prescription, for events that effectively suspended the running of the period of limitation might have intervened.

- In other words, the Estate of Gomez was not precluded from showing such events, if any. The Court recognized this possibility of suspension in Lancita v. Magbanua: 27

In computing the time limited for suing out of an execution, although there is authority to the contrary, the GR is that there should not be included the time when execution is stayed, either by agreement of the parties for a definite time, by injunction, by the taking of an appeal or writ of error so as to operate as a supersedeas, by the death of a party or otherwise. Any interruption or delay occasioned by the debtor will extend the time within which the writ may be issued without scire facias.

Verily, the need to prove the existence or non-existence of significant matters, like supervening events, in order to show either that Civil Case No. 722-M-2002 was barred by prescription or not was present and undeniable. Moreover, the

petitioner himself raised factual issues in his motion to dismiss, like his averment of full payment or discharge of the obligation of Ramos and the waiver or abandonment of rights under the compromise agreement. The proof thereon cannot be received in certiorari proceedings before the Court, but should be established in the RTC.

SC: DISMISSES the petition for certiorari; and DIRECTS the petitioner to pay the cost of suit.

REPUBLIC vs DOMINGO ESPINOSA, On March 3, 1999, respondent Domingo Espinosa (Espinosa) filed with the (MTC) Cebu an application3 for land registration covering a parcel of land with an area of 5,525 square meters In support of his application, Espinosa alleged that:

(a) the property, is alienable and disposable; (b) he purchased the property from his mother (Isabel), on July 4, 1970 and the latter’s other heirs had waived their rights thereto; and (c) he and his predecessor-in-interest had been in possession of the property in the concept of an owner for more than thirty (30) years.

Espinosa submitted the blueprint of Advanced Survey to prove the identity of the land.

As proof that the property is alienable and disposable, he marked as evidence the annotation on the advance survey plan made by Chief of the Map Projection Section, stating that "CONFORMED PER L.C. MAP NOTATION L.C. certified on June 25, 1963, verified to be within Alienable & Disposable Area".5

two (2) tax declarations for the years 1965 and 1974 in Isabel’s name –to prove she had been in possession since 1965

a Certification6 dated December 1, 1998 issued by the Office of the Treasurer of Consolacion, Cebu and three (3) tax declarations for the years 1978, 1980 and 1985

RP opposed Espinosa’s application, claiming that: (a) Section 48(b) of CA 141 or "Public Land Act" (PLA) had not been complied with as Espinosa’s predecessor-in-interest possessed the property only after June 12, 1945; and (b) the tax declarations do not prove that his possession and that of his predecessor-in-interest are in the character and for the length of time required by law.

MTC rendered a Judgment9 granting Espinosa’s petition for registration On 2000 since Espinosa was able to prove that the property is alienable and disposable and that he complied with the requirements of Section 14(1) of Presidential Decree (P.D.) No. 1529. Specifically:

is within the area considered by the Department of Environment and Natural Resources (DENR) as alienable and disposable land of the public domain.

predecessor-in-interest have been in open, actual, public, continuous, adverse and under claim of title thereto within the time prescribed by law (Sec. 14, sub-par. 1, P.D. 1529) and/or in accordance with the LRA

RP appealed to the CA and pointed Espinosa’s failure to prove that his possession and that of his predecessor-in-interest were for the period required by law.

Tax Declaration, Isabel’s possession commenced only in 1965 and not on June 12, 1945 or earlier as required by Section 48(b) of the PLA.

Espinosa came into possession of the property only in 1970 following the sale that transpired between him and his mother and the earliest tax declaration in his name was for the year 1978.

Espinosa and his predecessor-in-interest were supposedly in possession for more than thirty (30) years is inconsequential absent proof that such possession began on June 12, 1945 or earlier.12

Espinosa’s failure to present the original tracing cloth of the survey plan or a sepia copy thereof is fatal to his application as it is mandatory in establishing the identity of the land subject of the application.15

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annotation on the advance survey plan is not the evidence admissible to prove that the subject land is alienable and disposable.16

CA dismissed RPs appeal and affirmed the MTC Decision Possession for at least thirty (30) years, despite the fact that it commenced after June 12, 1945, sufficed to convert the property to private

Established jurisprudence has consistently pronounced that "open, continuous and exclusive possession for at least 30 years of alienable public land ipso jure converts the same into private property (Director of Lands vs. Intermediate Appellate Court, 214 SCRA 604). This means that occupation and cultivation for more than 30 years by applicant and his predecessor-in-interest vests title on such applicant so as to segregate the land from the mass of public land (National Power Corporation vs. Court of Appeals, 218 SCRA 41); and

b) It is true that the requirement of possession since June 12, 1945 is the latest amendment of Section 48(b) of the Public Land Act (C.A. No. 141), but a strict implementation of the law would in certain cases result in inequity and unfairness to Espinosa. As wisely stated by the Supreme Court in the case of Republic vs. Court of Appeals, 235 SCRA 567:

"Following the logic of the petitioner, any transferee is thus foreclosed to apply for registration of title over a parcel of land notwithstanding the fact that the transferor, or his predecessor-in-interest has been in open, notorious and exclusive possession thereof for thirty (30) years or more."17

registration can be based on other documentary evidence,.While the best evidence to identify a piece of land for registration purposes may be the original tracing cloth plan from the Land Registration Commission, the court may sufficiently order the issuance of a decree of registration on the basis of the blue print copies and other evidence (Republic of the Philippines vs. Intermediate Appellate Court, G.R. No. L-70594, October 10, 1986). The said case provides further:

"The fact that the lower court finds the evidence of the applicant sufficient to justify the registration and confirmation of her titles and did not find it necessary to avail of the original tracing cloth plan from the Land Registration Commission for purposes of comparison, should not militate against the rights of the applicant. Such is especially true in this case where no clear, strong, convincing and more preponderant proof has been shown by the oppositor to overcome the correctness of said plans which were found both by the lower court and the Court of Appeals as conclusive proofs of the description and identities of the parcels of land contained therein."

There is no dispute that, in case of Del Rosario vs. Republic, supra¸ the SC pronounced that the submission in evidence of the original tracing cloth plan, duly approved by the Bureau of Lands, in cases for application of original registration of land is a mandatory requirement, and that failure to comply with such requirement is fatal to one’s application for registration. However, such pronouncement need not be taken as an iron clad rule nor to be applied strictly in all cases without due regard to the rationale behind the submission of the tracing cloth plan.

x x x xAs long as the identity of and location of the lot can be established by other competent evidence like a duly approved blueprint copy of the advance survey plan of Lot 8499 and technical description of Lot 8499, containing and identifying the boundaries, actual area

and location of the lot, the presentation of the original tracing cloth plan may be excused.18

Moreover, the CA ruled that Espinosa had duly proven that the property is alienable and disposable:

Petitioner’s Case (a) Espinosa failed to property is alienable and disposable; (b) jurisprudence dictates that a survey plan identifies the property in preparation for a judicial proceeding but does not convert the property into alienable, much less, private; (c) under Section 17 of P.D. No. 1529, the submission of the original tracing cloth plan is mandatory to determine the exact metes and bounds of the property; and (d) a blueprint copy of the survey plan may be admitted as evidence of the identity and location of the property only if it bears the approval of the Director of Lands.

Issueswhether Espinosa has acquired an imperfect title over the subject property that is worthy of confirmation and registration is hinged on the determination of the following issues:a. whether the blueprint of the advanced survey plan substantially complies with Section 17 of P.D. No. 1529; No andb. whether the notation on the blueprint copy of the plan made by the geodetic engineer who conducted the survey sufficed to prove that the land applied for is alienable and disposable.No

HELD:Based on Espinosa’s allegations and his supporting documents, it is patent that his claim of an imperfect title over the property in question is based on Section 14(2) and not Section 14(1) of P.D. No. 1529 in relation to Section 48(b) of the PLA. Espinosa did not allege that his possession and that of his predecessor-in-interest commenced on June 12, 1945 or earlier as prescribed under the two (2) latter provisions. On the contrary, Espinosa repeatedly alleged that he acquired title thru his possession and that of his predecessor-in-interest, Isabel, of the subject property for thirty (30) years, or through prescription. Therefore, the rule that should have been applied is Section 14(2) of P.D. No. 1529, which states:

Sec. 14. Who may apply. – The following persons may file in the proper CFI an application for registration of landtitles (2) Those who have acquired ownership of private lands by prescription under the provision of existing laws.

Obviously, the confusion that attended the lower courts’ disposition of this case stemmed from their failure to apprise themselves of the changes that Section 48(b) of the PLA underwent over the years. Section 48(b) of the PLA originally states:

Sec. 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:x x x x(b) Those who by themselves or through their predecessors-in-interest have been in the open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, except as against the Government, since July 26, 1894 except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

Thus, the required possession and occupation for judicial confirmation of imperfect title was since July 26, 1894 or earlier.On June 22, 1957, Republic Act (R.A.) No. 1942 amended Section 48(b) of the PLA by providing a thirty (30)-year prescriptive period for judicial confirmation of imperfect title. Thus:

(b) Those who by themselves or through their predecessors-in-interest have been in the open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

On January 25, 1977, P.D. No. 1073 was issued, changing the requirement for possession and occupation for a period of thirty (30) years to possession and occupation since June 12, 1945 or earlier. Section 4 of P.D. No. 1073 states:

Sec. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII of the Public Land Act are hereby amended in the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessor-in-interest, under a bona fide claim of acquisition of ownership, since June 12, 1945.

On June 11, 1978, P.D. No. 1529 was enacted. Notably, the requirement for possession and occupation since June 12, 1945 or earlier was adopted under Section 14(1) thereof.

P.D. No. 1073, in effect, repealed R.A. No. 1942 such that applications under Section 48(b) of the PLA filed after the promulgation of P.D. No. 1073 should allege and prove possession and occupation that dated back to June 12, 1945 or earlier. However, vested rights may have been acquired under Section 48(b) prior to its amendment by P.D. No. 1073. That is, should petitions for registration filed by those who had already been in possession of alienable and disposable lands of the public domain for thirty (30) years at the time P.D. No. 1073 was promulgated be denied because their possession commenced after June 12, 1945? In Abejaron v. Nabasa, 21 this Court resolved this legal predicament as follows:

However, as petitioner Abejaron’s 30-year period of possession and occupation required by the Public Land Act, as amended by R.A. 1942 ran from 1945 to 1975, prior to the effectivity of P.D. No. 1073 in 1977, the requirement of said P.D. that occupation and possession should have started on June 12, 1945 or earlier, does not apply to him. As the Susi doctrine holds that the grant of title by virtue of Sec. 48(b) takes place by operation of law, then upon Abejaron’s satisfaction of the requirements of this law, he would have already gained title over the disputed land in 1975. This follows the doctrine laid down in Director of Lands v. Intermediate Appellate Court, et al., that the law cannot impair vested rights such as a land grant.

More clearly stated, "Filipino citizens who by themselves or their predecessors-in-interest have been, prior to the effectivity of P.D. 1073 on January 25, 1977, in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least 30 years, or at least since January 24, 1947" may apply for judicial confirmation of their imperfect or incomplete title under Sec. 48(b) of the Public Land Act.22 (Citations omitted)

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Consequently, for one to invoke Section 48(b) and claim an imperfect title over an alienable and disposable land of the public domain on the basis of a thirty (30)-year possession and occupation, it must be demonstrated that such possession and occupation commenced on January 24, 1947 and the thirty (30)-year period was completed prior to the effectivity of P.D. No. 1073 on 1/25/1977.

There is nothing in Section 48(b) that would suggest that it provides for two (2) modes of acquisition. It is not the case that there is an option between possession and occupation for thirty (30) years and possession and occupation since June 12, 1945 or earlier. It is neither contemplated under Section 48(b) that if possession and occupation of an alienable and disposable public land started after June 12, 1945, it is still possible to acquire an imperfect title if such possession and occupation spanned for thirty (30) years at the time of the filing of the application.

In this case, the lower courts concluded that Espinosa complied with the requirements of Section 48(b) of the PLA in relation to Section 14(1) of P.D. No. 1529 based on supposed evidence that he and his predecessor-in-interest had been in possession of the property for at least thirty (30) years prior to the time he filed his application. However, there is nothing on record showing that as of January 25, 1977 or prior to the effectivity of P.D. No. 1073 , he or Isabel had already acquired title by means of possession and occupation of the property for thirty (30) years. On the contrary, the earliest tax declaration in Isabel’s name was for the year 1965 indicating that as of January 25, 1977, only twelve (12) years had lapsed from the time she first came supposedly into possession.

The CA’s reliance on Director of Lands v. Intermediate Appellate Court 23 is misplaced considering that the application therein was filed on October 20, 1975 or before the effectivity of P.D. No. 1073. The same can be said with respect to National Power Corporation v. Court of Appeals. 24 The petition for registration therein was filed on August 21, 1968 and at that time, the prevailing rule was that provided under Section 48(b) as amended by R.A. No. 1942.

In Republic v. Court of Appeals,25 the applicants therein entered into possession of the property on June 17, 1978 and filed their application on February 5, 1987. Nonetheless, there is evidence that the individuals from whom the applicant purchased the property, or their predecessors-in-interest, had been in possession since 1937. Thus, during the effectivity of Section 48(b) as amended by R.A. No. 1942, or while the prevailing rule was possession and occupation for thirty (30) years, or prior to the issuance of P.D. No. 1073, the thirty (30)-year prescriptive period was already completed.Thus, assuming that it is Section 48(b) of the PLA in relation to Section 14(1) of P.D. No. 1529 that should apply in this case, as the lower courts held, it was incumbent upon Espinosa to prove, among other things, that Isabel’s possession of the property dated back at least to June 12, 1945. That in view of the established fact that Isabel’s alleged possession and occupation started much later, the lower courts should have dismissed Espinosa’s application outright.

In sum, the CA, as well as the MTC, erred in not applying the present text of Section 48(b) of the PLA. That there were instances wherein applications were granted on the basis of possession and occupation for thirty (30) years was for the sole reason discussed above. Regrettably, such reason does not obtain in this case.

Being clear that it is Section 14(2) of P.D. No. 1529 that should apply, it follows that the subject property being supposedly alienable and disposable will not suffice. As Section 14(2) categorically provides, only private properties may be acquired thru prescription and under Articles 420 and 421 of the Civil Code, only those properties, which are not for public use, public service or intended for the development of national wealth, are considered private. In Heirs of Mario Malabanan v. Republic, 26 this Court held that there

must be an official declaration to that effect before the property may be rendered susceptible to prescription:

Nonetheless, Article 422 of the Civil Code states that "property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State." It is this provision that controls how public dominion property may be converted into patrimonial property susceptible to acquisition by prescription. After all, Article 420(2) makes clear that those property "which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth" are public dominion property. For as long as the property belongs to the State, although already classified as alienable or disposable, it remains property of the public dominion if when it is "intended for some public service or for the development of the national wealth." (Emphasis supplied)

Without such express declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law. 27

Thus, granting that Isabel and, later, Espinosa possessed and occupied the property for an aggregate period of thirty (30) years, this does not operate to divest the State of its ownership. The property, albeit allegedly alienable and disposable, is not patrimonial. As the property is not held by the State in its private capacity, acquisition of title thereto necessitates observance of the provisions of Section 48(b) of the PLA in relation to Section 14(1) of P.D. No. 1529 or possession and occupation since June 12, 1945.

For prescription to run against the State, there must be proof that there was an official declaration that the subject property is no longer earmarked for public service or the development of national wealth. Moreover, such official declaration should have been issued at least ten (10) or thirty (30) years, as the case may be, prior to the filing of the application for registration. The period of possession and occupation prior to the conversion of the property to private or patrimonial shall not be considered in determining completion of the prescriptive period. Indeed, while a piece of land is still reserved for public service or the development of national wealth, even if the same is alienable and disposable, possession and occupation no matter how lengthy will not ripen to ownership or give rise to any title that would defeat that of the State’s if such did not commence on June 12, 1945 or earlier.

At any rate, as RP correctly pointed out, the notation on the survey plan does not constitute incontrovertible evidence that would overcome the presumption that the property belongs to the inalienable public domain.

REGALIAN DOCTRINE; All lands of the public domain belong to the State, which is the source of any asserted right to any ownership of land. All lands not appearing to be clearly within private ownership are presumed to belong to the State. Accordingly, public lands not shown to have been reclassified or released as alienable agricultural land, or alienated to a private person by the State, remain part of the inalienable public domain. The burden of proof in overcoming the presumption of State ownership of the lands of the public domain is on the person applying for registration (or claiming ownership), who must prove that the land subject of the application is alienable or disposable. To overcome this presumption, incontrovertible evidence must be established that the land subject of the application (or claim) is alienable or disposable.28

Espinosa To discharge the onus, relies on the blue print copy of the conversion and subdivision plan approved by the DENR Center which bears the notation of the surveyor-geodetic engineer that "this survey is inside the alienable and disposable area, Project No. 27-B. L.C. Map No. 2623, certified on January 3, 1968 by the Bureau of Forestry."Menguito v. Republic teaches, however, that reliance on such a notation to prove that the lot is alienable is insufficient and does not constitute incontrovertible evidence to overcome the presumption that it remains part of the inalienable public domain."To prove that the land in question formed part of the alienable and disposable lands of the public domain, petitioners relied on the printed words which read: "This survey plan is inside Alienable and Disposable Land Area, Project No. 27-B as per L.C. Map No. 2623, certified by the Bureau of Forestry on January 3, 1968,"

This proof is not sufficient. Section 2, Article XII of the 1987 Constitution, provides: "All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. . . ."

For the original registration of title, the applicant (petitioners in this case) must overcome the presumption that the land sought to be registered forms part of the public domain. Unless public land is shown to have been reclassified or alienated to a private person by the State, it remains part of the inalienable public domain. Indeed, "occupation thereof in the concept of owner, no matter how long, cannot ripen into ownership and be registered as a title." To overcome such presumption, incontrovertible evidence must be shown by the applicant. Absent such evidence, the land sought to be registered remains inalienable.

In the present case, petitioners cite a surveyor geodetic engineer’s notation in Exhibit "E" indicating that the survey was inside alienable and disposable land. Such notation does not constitute a positive government act validly changing the classification of the land in question. Verily, a mere surveyor has no authority to reclassify lands of the public domain

numerous grounds for its denial. The blueprint copy of the advanced survey plan may be admitted as evidence of the identity and location of the subject property if:

(a) it was duly executed by a licensed geodetic engineer; (b) it proceeded officially from the Land Management Services (LMS) of the DENR; and (c) it is accompanied by a technical description of the property which is certified as correct by the geodetic surveyor who conducted the survey and the LMS of the DENR.

As ruled in Republic v. Guinto-Aldana, 32 the identity of the land, its boundaries and location can be established by other competent evidence apart from the original tracing cloth such as a duly executed blueprint of the survey plan and technical description: Yet if the reason for requiring an applicant to adduce in evidence the original tracing cloth plan is merely to provide a convenient and necessary means to afford certainty as to the exact identity of the property applied for registration and to ensure that the same does not overlap with the boundaries of the adjoining lots, there stands to be no reason why a registration application must be denied for failure to present the original tracing cloth plan, especially where it is accompanied by pieces of evidence—such as a duly executed blueprint of the survey plan and a duly executed technical description of the property—which may likewise substantially and with as much certainty prove the limits and extent of the property sought to be registered.33

However, while such blueprint copy of the survey plan may be offered as evidence of the identity, location and the boundaries of the property applied for, the notation therein may not be admitted as evidence of alienability and disposability.

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In Republic v. Heirs of Juan Fabio, 34 this Court enumerated the documents that are deemed relevant and sufficient to prove that the property is already outside the inalienable public domain as follows:

In Republic v. T.A.N. Properties, Inc., we ruled that it is not enough for the Provincial Environment and Natural Resources Office (PENRO) or CENRO to certify that a land is alienable and disposable. The applicant for land registration must prove that the DENR Secretary had approved the land classification and released the land of the public domain as alienable and disposable, and that the land subject of the application for registration falls within the approved area per verification through survey by the PENRO or CENRO. In addition, the applicant must present a copy of the original classification of the land into alienable and disposable, as declared by the DENR Secretary, or as proclaimed by the President. Such copy of the DENR Secretary’s declaration or the President’s proclamation must be certified as a true copy by the legal custodian of such official record. These facts must be established to prove that the land is alienable and disposable.35

Therefore, Espinosa cannot avail the benefits of either Section 14(1) of P.O. No. 1529 in relation to Section 48(b) of the PLA or Section 14(2) of P.O. No. 1529. Applying Section 14(1) of P.O. No. 1529 and Section 48(b) of the PLA, albeit improper, Espinosa failed to prove that:

(a) Isabel's possession of the property dated back to June 12, 1945 or earlier; and (b) the property is alienable and disposable.

On the other hand, applying Section 14(2) of P.O. No. 1529, Espinosa failed to prove that the property is patrimonial. As to whether Espinosa was able to prove that his possession and occupation and that of Isabel were of the character prescribed by law, the resolution of this issue has been rendered unnecessary by the foregoing considerations.

REMMAN ENTERPRISES, INC v. RP

Remman Enterprises, Inc (Inocencio), filed with the RTC on June 4, 1998 an application for registration of the subject properties situated in Taguig, Metro Manila, with an area of 27,477 square meters, 23,179 sq m and 45,636 sq m, more particularly described as follows:

1) (27,477) sqm, more or less; 2) (23,179) square meters, more or less; and 3) (45,636) square meters, more or less, all brought under the

operation of the Property Registration Decree (PD 1529) or Commonwealth Act 141,

OSG, interposed its opposition to the application. During the initial hearing of the case on May 4, 1999, the REI presented and marked documentary evidence6 to prove its compliance with jurisdictional requirements.7

REI - purchased on August 28, 1989 from sellers Samonte, Aldana and

Navarro. - declared on August 9, 1989 for taxation purposes.- occupied the properties and planted thereon crops like rice, corn

and vegetables.8

- Witness (Serquiña) supported the application for registration by claiming that he had been the caretaker of the subject properties since 1957, long before the lots were purchased by the petitioner.

- Serquinia alleged that no person other than the applicant and its predecessors-in-interest had claimed ownership or rights over the subject properties.9

RTC granted: REI is the absolute owner in fee simple of three (3) parcels of land.

RP- identity of the subject properties was not sufficiently established. - character and length of possession required by law in land

registration cases were not satisfied by the petitioner.

CA reversed:- survey plans and technical descriptions submitted by the

petitioner failed to establish the true identity of the subject properties. T

- application should have been accompanied by the original tracing cloth plan duly approved by the Director of Lands.13

- no certification from the proper government office stating that the properties were already declared alienable and disposable.14

- a failure to establish that the petitioner and its predecessors-in-interest possessed the subject parcels of land under a bona fide claim of ownership since June 12, 1945 or earlier.15

SC: Petition must be dismissed.On the matter of proof of the subject property’s identity,

- presentation of the original tracing cloth plan may be dispensed with, subject however to certain conditions. Contrary to the petitioner’s claim, the original clothing plans that cover the subject properties do not form part of the case records. The Court has nonetheless held in Republic v. Espinosa: 16

- Republic v. Guinto-Aldana, the identity of the land, its boundaries and location can be established by other competent evidence apart from the original tracing cloth such as a duly executed blueprint of the survey plan and technical description:"Yet if the reason for requiring an applicant to adduce in evidence the original tracing cloth plan is merely to provide a convenient and necessary means to afford certainty as to the exact identity of the property applied for registration and to ensure that the same does not overlap with the boundaries of the adjoining lots, there stands to be no reason why a registration application must be denied for failure to present the original tracing cloth plan, especially where it is accompanied by piecesof evidence—such as a duly executed blueprint of the survey plan and a duly executed technical description of the property—which may likewise substantially and with as much certainty prove the limits and extent of the property sought to be registered."17

- Notwithstanding the foregoing, the CA’s dismissal of the petitioner’s application for original registration was proper considering the latter’s failure to sufficiently establish that the subject properties were already declared alienable and disposable by the government. Its reliance on a Report,18 issued by the CENRO, DENR National Capital Region, West Sector, was misplaced. The Court ruled in Republic v. Medida:19

- In Republic v. T.A.N. Properties, Inc.,this Court explained that a Provincial Environment and Natural Resources Office (PENRO) or CENRO certification, by itself, fails toprove the alienable and disposable character of a parcel of land. We ruled:

[I]t is not enough for the PENRO or CENRO to certify that a land is alienable and disposable.

The applicant for land registration must prove that 1) DENR Secretary had approved the land classification and released

the land of the public domain as alienable and disposable, 2) land falls within the approved area per verification through survey

by the PENRO or CENRO

3) present a copy of the original classification approved by the DENR Secretary and certified as a true copy by the legal custodian of the official records.

The burden of proof in overcoming the presumption of State ownership of the lands of the public domain is on the person applying for registration, who must provethat the properties subject of the application are alienable and disposable.21 Even the notations on the survey plans submitted by the petitioner cannot be admitted asevidence of the subject properties’ alienability and disposability. Such notations do not constitute incontrovertible evidence to overcome the presumption that the subject properties remain part of the inalienable public domain.22

Given the foregoing, the dismissal of the petitioner's application for registration was proper. Under pertinent laws and jurisprudence, the petitioner had to sufficiently establish that:

1) properties form part of the disposable and alienable lands of the public domain;

2) open, continuous, exclusive, and notorious possession anq occupation of the same; and

3) possession is under a bona fide claim of ownership since June 12, 1945 or earlier.23

Without sufficient proof that the subject properties had been declared alienable and disposable, the Court DENIES. SO ORDERED.

MANGASER, vs.DIONISIO UGAY,

"a case of forcible entry and damages.

Anacleto Mangaser on October 30, 2007, represented by his attorney-in-fact, Eustaquio Dugenia (petitioner), filed a complaint for Forcible Entry with Damages against respondent Dionisio Ugay before MTC La Union. In his complaint, Mangasaer alleged that he was the registered owner and possessor of a parcel of land situated in LU

that on October 31, 2006, he discovered that respondent stealthy intruded and occupied a portion of his property by constructing a residential house thereon without his knowledge and consent

a certification to file action was issued by the Lupon was issued after failing to reach at a compromise; and

that demand letters were sent to respondent but he still refused to vacate the premises, thus, he was constrained to seek judicial remedy.3

Ugay denied the material allegations that he had been a resident in La Union, since birth and when he

reached the age of reason, he started occupying a parcel of land in that place then known as Sta. Lucia, Aringay, La Union;

years later, this parcel of land was designated as part of Santiago Sur, Caba, La Union due to a survey made by the government;

that he introduced more improvements on the property by cultivating the land, and in March 2006, he put up a "bahay kubo";

that in October 2006, he installed a fence made of "bolo" to secure the property; that in installing the fence, he was guided by the concrete monuments which he knew to be indicators of the boundaries of Mangasaer’s property;

that while he could not locate some of the monuments, he based the boundaries on his recollection since he was around when these were installed;

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that he knew the boundaries of petitioner's property because he knew the extent of the "iron mining" activities done by a company on the said property;

that petitioner was never in actual possession of the property occupied by him, and it was only on October 31, 2006 when he discovered the al legccl intrusion;

that it was not correct to say that he refused to vacate and surrender the premises despite receipt of the demand letters because in his letter-reply, he assured petitioner that he would voluntarily vacate the premises if he would only be shown to have intruded into petitioner's titled lot after the boundaries were pointed out to him; and that instead of shmving the boundaries to him, petitioner filed an action for forcible entry before the MTC.4

MTC Ruling in favor of UGAY Mangasaer failed to adduce any evidence to prove that the lot

occupied by Ugay was within his lot. Mangasaer could have presented a relocation survey, which

would have pinpointed the exact location of the house and fence put up by respondent, and resolved the issue once and for all.6

He also failed to prove his prior physical possession of the subject property.

Lot registered under his name and the Tax Declaration were not proof of actual possession of the property.

RTC Reversed in ejectment cases, possession of the land did not only mean

actual or physical possession but also included the subject of the thing to the action of one's will or by the proper acts and legal formalities established for acquiring such right.

Mangasaer had clearly shown his possession of the property as evidenced by his OCT issued in March 1987 and tax declaration, dating back as early as 1995.11

the boundaries of the property were clearly indicated in the title, thus, there was no need to conduct a survey. As the owner, petitioner knew the exact metes and bounds of his property so that when respondent intruded stealthily, he filed the subject suit.12

CA reversed RTC Citing Quizon v. Juan,14 Mangasaer must allege and prove that he was in prior physical

possession of the property in dispute. The word "possession," as used in forcible entry and unlawful

detainer cases, meant nothing more than physical possession, not legal possession in the sense contemplated in civil law.

Mangasaer was not in physical possession despite the presentation of the OCT and his tax declarations.

when the law would speak of possession in forcible entry cases, it is prior physical possession or possession de facto, as distinguished from possession de Jure.

What petitioner proved was legal possession, not his prior physical possession

RTC misquoted Nunez v. SLTEAS Pheonix Solutions 16 by giving the wrong notion of what kind of possession was contemplated in forcible entry cases. In other words, physical possession was the crux in forcible entry, not possession that stemmed upon ownership.17 The dispositive portion of the assailed decision reads:

Hence, this petition, anchored on the following

ISSUES1. w/n ca failed to consider the evidence of ownership of petitioner

which may establish prior possession over the property by herein petitioner

2. w/n the resolution dated december 5, 2012 of CA, former special fourth division, denying the motion for reconsideration is valid.

Mangasaer argues that in ejectment cases, possession of the land does not only mean actual or physical possession or occupation but also by the fact that a land is subject to the action of one's will or by proper acts and legal formalities established for acquiring such right; that the CA should have considered OCT No. RP-174(13789) his tax declaration as proofs of prior physical possession over the property; and that the issuance of the same are considered to by law as proper acts and legal formalities established for acquiring such right. Petitioner cited Tolentino, as one of the authors and experts in Civil law, stating that the "proper acts and formalities" refer to juridical acts, or the acquisition of possession by sufficient title, inter vivas or mortis causa, onerous or lucrative. These are the acts which the law gives the force of acts of possession.

Petitioner also avers that the December 5, 2012 CA Resolution was not valid as it did not state the legal basis required by the Constitution.

On May 28, 2013, Ugay filed his Comment23 before this Court. He stated that the issues raised and the arguments presented by petitioner have been thoroughly resolved and ruled upon by the CA. The appellate court did not err in reversing the RTC decision because petitioner was never in prior physical possession of the property in dispute. Respondent asserts that he has been in prior, actual, continuous, public, notorious, exclusive and peaceful possession in the concept of an owner of the property in dispute.24

On March 28, 2014, petitioner filed his Reply,25 reiterating the case of Nunez v. SLTEAS Phoenix Solutions, Inc.,26where a party was able to demonstrate that it had exercised acts of ownership over the property by having it titled in its name and by paying real property taxes on it. Petitioner also laments the wrongful insistence of respondent that his possession over the property was one in the concept of an owner. To petitioner's mind, respondent failed to adequately adduce evidence to show proof of his right to possess the property when his possession came under attack with the filing of the subject case.27

HELD: Petition is with meritFor a forcible entry suit to prosper, the plaintiffs must allege and prove:

(a) that they have prior physical possession of the property; (b) that they were deprived of possession either by force, intimidation, threat, strategy or stealth; and, (c) action was filed within one (1) year from the time the owners or legal possessors learned of their deprivation of the physical possession of the property.28

There is only one issue in ejectment proceedings: who is entitled to physical or material possession of the premises, that is, to possession de facto, not possession de Jure? Issues as to the right of possession or ownership are not involved in the action; evidence thereon is not admissible, except only for the purpose of determining the issue of possession.29

As a rule, the word "possession" in forcible entry suits indeed refers to nothing more than prior physical possession or possession de facto, not possession de Jure or legal possession in the sense contemplated in civil law. Title is not the issue, and the absence of it "is not a ground for the courts to withhold relief from the parties in an ejectment case."30

The Court, however, has consistently ruled in a number of cases31 that while prior physical possession is an indispensable requirement in forcible entry

cases, the dearth of merit in respondent's position is evident from the principle that possession can be acquired not only by material occupation, but also by the fact that a thing is subject to the action of one's will or by the proper acts and legal formalities established for acquiring such right. The case of Quizon v. Juan,32 which surprisingly was relied on by the CA, also stressed this doctrine.

Possession can be acquired by juridical acts. These are acts to which the law gives the force of acts of possession.

Examples of these are donations, succession, execution and registration of public instruments, inscription of possessory information titles and the like.33

The reason for this exceptional rule is that possession in the eyes of the law does not mean that a man has to have his feet on every square meter of ground before it can be said that he is in possession.34 It is sufficient that petitioner was able to subject the property to the action of his will.35 Here, respondent failed to show that he falls under any of these circumstances. He could not even say that the subject property was leased to him except that he promised that he would vacate it if petitioner would be able to show the boundaries of the titled lot.

In the case of Nunez v. SLTEAS Phoenix Solutions, inc., 36 the subject parcel was acquired by the respondent by virtue of the June 4, 1999 Deed of Assignment executed in its favor by Spouses Ong Tiko and Emerenciana Sylianteng. The petitioner in the said case argued that, aside from the admission in the complaint that the subject parcel was left idle and unguarded, the respondent's claim of prior possession was clearly negated by the fact that he had been in occupancy thereof since 1999. The Court disagreed with the petitioner and said: Although it did not immediately put the same to active use, respondent appears to have additionally caused the property to be registered in its name as of February 27, 2002 and to have paid the real property taxes due thereon alongside the sundry expenses incidental thereto. Viewed in the light of the foregoing juridical acts, it consequently did not matter that, by the time respondent conducted its ocular inspection in October 2003, petitioner hml already been occupying the land since 1999.

Hence, in that case, the Court ruled that such juridical acts were sufficient to establish the respondent's prior possession of the subject property.

The case of Habagat Grill v. DMC-Urban Property Developer, Inc., 37 also involves an action for forcible entry. On June 11, 1981, David M. Consunji, Inc. acquired a residential lot situated in Matina, Davao City. it transferred the said lot to respondent DMC. Alleging that the petitioner forcibly entered the property in December 1993, the respondent filed on March 28, 1994 a complaint for forcible entry. One of the issues raised therein was whether respondent DMC had prior possession of the subject property, to which the Court answered in the affirmative. It ruled that:

Prior possession of the lot by respondent's predecessor was sufficiently proven by evidence of the execution and registration of public instruments and by the fact that the lot was subject to its will from then until December 1, 1993, when petitioner unlawfully entered the premises and deprived the former of possession thereof.

In the case at bench, the Court finds that Mangasaer acquired possession of the subject property by juridical act, specifically, through the issuance of a free patent under Commonwealth Act No. 141 and its subsequent registration with the Register of Deeds on March 18, 1987.38

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Before the Court continues any further, it must be determined first whether the issue of ownership is material and relevant in resolving the issue of possession. The Rules of Court in fact expressly allow this: Section 16, Rule 70 of the Rules of Court provides that the issue of ownership shall be resolved in deciding the issue of possession if the question of possession is intertwined with the issue of ownership. But this provision is only an exception and is allowed only in this limited instance - to determine the issue of possession and only if the question of possession cannot be resolved without deciding the issue of ownership.39

issue of ownership should be provisionally determined in this case Because there are conflicting claims of ownership, then it is proper to provisionally determine the issue of ownership to settle the issue of possession de facto.

1) the juridical act from which the right of ownership of petitioner arise would be the registration of the free patent and the issuance of OCT No. RP-174(13789). Apparently, the Torrens title suggests ownership over the land.

2) respondent also asserts ownership over the land based on his prior, actual, continuous, public, notorious, exclusive and peaceful possession in the concept of an owner of the property in dispute.40

petitioner's OCT No. RP-174(13789) and his tax declarations should absolutely be disregarded. The issuance of an original certificate of title to the petitioner evidences ownership and from it, a right to the possession of the property flows. Well-entrenched is the rule that a person who has a Torrens title over the property is entitled to the possession thereof.41

Moreover, his claim of possession is coupled with tax declarations. While tax declarations are not conclusive proof of possession of a parcel of land, they are good indicia of possession in the concept of an owner, for no one in his right mind would be paying taxes for a property that is not in his actual or constructive possession.42

Together with the Torrens title, the tax declarations dated 1995 onwards presented by petitioner strengthens his claim of possession over the land before his dispossession on October 31, 2006 by respondent.

The CA was in error in citing the case of De Grano v. Lacaba43 to support its ruling. In that case, the respondent tried to prove prior possession, by presenting only his tax declarations, tax receipt and a certification from the municipal assessor attesting that he had paid real property tax from previous years. The Court did not give credence to his claim because tax declarations and realty tax payments are not conclusive proof of possession. The situation in the present case differs because aside from presenting his tax declarations, the petitioner submitted OCT No. RP-174(13 789) which is the best evidence of ownership from where his right to possession arises.

Against the Torrens title and tax declarations of petitioner, the bare allegations of respondent that he had prior, actual, continuous, public, notorious, exclusive and peaceful possession in the concept of an owner, has no leg to stand on. Thus, by provisionally resolving the issue of ownership, the Court is satisfied that petitioner had prior possession of the subject property. When petitioner discovered the stealthy

intrusion of respondent over his registered prope1iy, he immediately filed a complaint with the Lupong Tagapamayapa and subsequently filed an action for forcible entry with the MTC . Instead of taking the law into his own hands and forcefully expelling respondent from his property, petitioner composed himself and followed the established legal procedure to regain possession of his land.

If the Court were to follow the ruling of the CA and disregard juridical acts to obtain prior possession, then it would create an absurd situation. It would be putting premium in favor of land intruders against Torrens title holders, who spent months, or even years, in order to register their land, and who religiously paid real property taxes thereon. They cannot immediately repossess their properties simply because they have to prove their literal and physical possession of their property prior to the controversy. The Torrens title holders would have to resort to ordinary civil procedure by filing either an accion publiciana or accion reinvidicatoria and undergo arduous and protracted litigation while the intruders continuously enjoy and rip the benefits of another man's land. It will defeat the very purpose of the summary procedure of an action for forcible entry.

The underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his. Ejectment proceedings are summary in nature so the authorities can speedily settle actions to recover possession because of the overriding need to quell social disturbances.44

As to the other requirements of an action for forcible entry, the Court agrees with the RTC that petitioner had sufficiently complied with them. Petitioner proved that he was deprived of possession of the property by stealth. The complaint was also filed on October 30, 2007, within the one year reglementary period counted from the discovery of the stealthy entry by respondent to the property on October 31, 2006.

OBLIGATIONS AND CONTRACTSTitle I- Obligations

Chapter 1- GENERAL PROVISIONSSee Arts. 1156-1162

Art. 1156. An obligation is a juridical necessity to give, to do or not to do.

OBLIGATION- juridical relation between 2 persons, known as C and D, whereby creditor can demand from debtor the observance of a determinate conduct and in case of breach, may obtain satisfaction from debtor’s assets.

Juridical necessity connotes that in case of noncompliance, there will be a legal sanction

Covers only civil obligations, not natural

Characteristics:1. Represents exclusively private interest2. Creates ties that are by nature transitory3. Involves the power to make the juridical tie effective in case of

non-fulfillment through an economic equivalent obtained from the debtor’s patrimony.

Types:1. Civil - derives their binding force from positive law, and can be

enforced by court action or other coercive power of public authority

2. Natural - derive their binding force from equity and natural justice, and its fulfillment cannot be compelled by court action but depends exclusively on the conscience of the debtor.

3. Moral - arise from moral law developed by the church and not enforceable in court.

Elements:1. Active Subject(Obligee/Creditor): one whose favor the

obligation is constituted; Has the power to demand the protestation

2. Passive Subject(Obligor/Debtor): Bound to perform the protestation; one who has the duty to give, to do, or not to do

3. Object(pretestation); the conduct which has to be observed by the debtor/obligor

to give: delivery of a movable or immovable thing which is either determinate (specific) or indeterminate (generic). This is in order to create a real right, or for the use of the creditor, or for its simple possession, or in order to return to its owner.

to do: involves all kinds of work or services whether physical or mental, but in most cases the essence of the act man not be such, but merely the necessity of concluding a juridical operation, such as, when a person promises to give a bond. not to do: is a negative obligation which consists of abstaining from some act, it includes “not to give”.

4. Efficient Cause: Juridical tie between 2 subjects by reason of which the debtor is bound in favor of the creditor to perform the protestation; The vinculum by which the debtor is bound to in favor of the creditor to perform the prestation. It is determined by knowing the sources of the obligation

5. Form: Not essential; no form required to be binding

Requisites1. Licit2. physically and juridically possible3. determinate or atleast determinable

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4. It must have pecuniary valuea. Vinculum Juria: juridical tie;binds the parties to the

obligationb. Causa (causa debend/causa obligationes): why

obligation exists

Art. 1157. Obligations arise from:(1) Law;(2) Contracts;(3) Quasi-Contracts;(4) Delict;(5) Quasi-delicts.

SOURCES OF OBLIGATION Art. 1157

Law- obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. [1158]

Contracts- obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. [1159]

Principle of autonomy of will. The parties can stipulate anything (they have the freedom), provided that the terms of the contract are not contrary to law, public policy or public order

Quasi-Contracts – obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, title XVII of this book

Juridical relation which arises from certain lawful, voluntary and unilateral acts, to the end that no one may be unjustly enriched or benefited at the expense of another.

o Lawful- distinguished from delicto Voluntary- “ from quasi-delicto Unilateral- “ from contracts

Kinds of Quasi-ContractNEGOTIORUM GESTIO- (officious manager) juridical relation which takes place when somebody takes charge of the agency or management of the business or property of another without any power form the latter. The owner shall reimburse the gestor for the necessary and useful expenses incurred by the latter, and for the damages suffered by him in the performance of his functions.

SOLUTIO INDEBITI – a juridical relation which takes place when somebody received something from another without any right to demand for it, and the thing was unduly delivered through mistake (compared to Art. 22 or unjust enrichment wherein

there was no mistake). Obligation to return the thing arises on the part of the recipient.

Delict- Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary title, on Human Relations, and of Title XVIII of this book, regulating damages.

Basis is Article 100 of RPC, that every person criminally liable is also civilly liable

o Restitutiono Reparation o Indemnification of Consequential Damages

Governing Rules1. Article 100-113 of RPC & other penal laws subject to

Art. 2177 of CC (quasi-delict)2. Chapter 2, Preliminary title, on Human Relations

(Civil Code)3. Title 18 of Book IV of the Civil Code on Damages

Effect of Acquittal in a Criminal Case1. Due to reasonable doubt –no civil liability2. Exempting circumstances- there is civil liability3. Preponderance of evidence- there is civil liability

Crimes without civil liability1. Contempt2. Insults to persons in Authority3. Gambling4. Violations of traffic Regulations

Quasi-Delict - Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.NB: The enumeration of the sources of obligation is exclusive; no obligation exists if its source is not one of those enumerated above.

1. Unilateral promise is admitted by modern doctrine, which recognizes that unilateral engagements may give rise to obligations without the need of acceptance.

2. Contrary to Pineda, Tolentino supports that it cannot be said with certainty that the enumeration in this article is exclusive because there is nothing which expressly precludes other sources of obligation, such as the unilateral promise to the public of an award for a certain act or accomplishment.

3. The clear implication of Sagrada Orden vs. Nacoco is that, these five (5) are the only sources of obligations.Articles 1158 - 1162 specify the general principles regarding the sources of obligation enumerated in Art. 1157.

NATURE AND EFFECTS OF OBLIGATIONS

Art. 1163Every person obliged TO GIVE something

- is also obliged to take care of it - with proper diligence of a good father of a family,

unless - the law or stipulation of the parties - requires another standard of care

Art. 1164The creditor has a right to the fruits of the thing

- from the time the obligation TO DELIVER it arises. However,

- he shall acquire no real right over it - until the same has been delivered to him.

Art. 1165When what is to be delivered is a DETERMINATE THING,

- The creditor, in addition to the right granted by him by Art. 1170,

- may compel the debtor to make the delivery.

If the thing is INDETERMINATE OR GENERIC, - he may ask that the obligation be complied with - at the expense of the debtor

If the obligor DELAYS, or has promised to deliver the same thing to two or more persons who do not have the same interest,

- he shall be responsible for fortuitous event - until he has effected the delivery

Art. 1166The obligation to deliver a DETERMINATE THING

- Includes that of delivering all its accessions and accessories,

- Even though they may not have been mentioned

Art. 1167If a person obliged TO DO something Fails to do it

- The same shall be executed at his cost

- This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has beenpoorly done

- be undone

Art. 1168When the obligation consists in NOT DOING, andThe obligor does what has been forbidden him,

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- It shall also be undone at his expense

Art. 1169Those obliged TO DELIVER or TO DO somethings incur in DELAY

- from the time the oblige judicially or extra-judicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

1. When the obligation or the law expressly so declares; or2. When from the nature and the circumstances of the

obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

3. When the demand would be useless, as when the obligor has rendered it beyond his power to perform

In RECIPROCAL OBLIGATIONS, - neither party incurs in delay

if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.

From the moment one of the parties fulfills his obligation,- delay by the other begins.

NATURE OF OBLIGATIONS1. Personal Obligations: obligations to do or not to do; where

the subject matter is an act to be done or not to be donea. Positive obligationobligation to dob. Negative obligationobligation not to do

2. Real Obligations: obligations to give; where the subject matter is a thing which the obligor must deliver to the obligea. Determinate/specific- object is particularly designated

or physically segregated from all other things of the same class

b. Generic- object is designated by its class or genusc. Limited Generic- generic objects confined into a

particular class

EFFECTS OF OBLIGATIONS

A. DUTIES OF DEBTOR IN AN OBLIGATION TO GIVE A DETERMINATE THING (see Art. 1163, 1164, 1166)

1. To preserve or take care of the thing due with diligence of a good father of a family

Diligence of a Good Father of a Family: ordinary care or that diligence which an average or reasonably prudent person would exercise over his own property.

Standard of Care required1) Which the law requires

2) Stipulation of the parties3) In the absence of the two, diligence of a good father of a

family

2. To deliver the fruit of the thing: Right to the fruits of the thing from the time the obligation to deliver it arises

When obligation to deliver arisesGR: From the time of the perfection of the contract (meeting of the minds between the parties)Exception:

a) When the parties made a stipulation as regards the right of the creditor to the fruits of the thing

b) When the obligation is subject to a suspensive condition or period; arises upon the fulfillment of the condition or arrival of the period

Personal Right (Jus ad Rem)- a right enforceable only against a definite person or group of persons; Right pertaining to a person to demand to another, as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do.

Real Right (Jus in re)- a right enforceable against the whole world; right pertaining to a person over a specific thing, without definite passive subject against whom the right may be personally enforced.

Kinds of Delivery1. Actual (tradition)- where physically, the property

is handed over2. Constructive- where the physical transfer is

implieda. Traditio Simbolica-

key to a car delivery of ideal share

b. Tradition Longa Manu- delivery by mere consent or the pointing out of the object

c. Traditio brevi manu –delivery by short hand; that kind of delivery whereby a possessor of a thing not as an owner, becomes the possessor as owner)

d. Tradition Constitutum Possessorium- The opposite of brevi manu; thus the delivery whereby a possessor of a thing as na owner, retains possession no longer as an owner, who sells a house, but remains in possession as tenant of the same house.

e. Tradition by the execution of legal forms or solemnities- execution of a public instrument selling land

3. To deliver its accessions and accessories

Accessions: everything which is produced by a thing, or which is incorporated or attached thereto, either naturally or artificially

o Continua- o Natural- alluvion, o Industrial- building, planting, sowing

Accessories: things joined to, or included with the principal things for its better use, embellishment or completion

4. To deliver the thing itself5. To pay damages in case of breach of the obligation by reason

of delay, fraud, negligence, or contravention of the tenor of the obligation.

B. DUTIES OF DEBTOR IN AN OBLIGATION TO GIVE A GENERIC THING

1. To deliver the thing which is neither of superior or inferior quality

2. To pay damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor of the obligation

C. REMEDIES OF THE CREDITOR IN CASE OF NON-PERFORMANCE(See Arts 1165-1168)

Real Obligations 1. Specific Performance by the debtor of prestation itself

(determinate thing)2. Substitute performance by another at the expense of

the debtor(indeterminate thing/generic)

3. Equivalent Performance , damages and bears the loss in fortuitous events(in case of delay, or promise to deliver the same thing to 2/+ persons not having the same interest)

Personal Obligations [1167]1. Executed at his cost

a) Fails to do itb) Does it in contravention of the tenor of the

obligationc) Poorly doned) Does what has been forbidden (undone at his

expense)

D. BREACH OF OBLIGATIONS(See Arts 1170-1174)

1. Voluntary- debtor in the performance of the obligation is guilty of:

a. Fraud (dolo)b. Negligence (culpa)c. Delay (mora)d. Contravention of the tenor of the obligation

NB: debtor is liable for damages

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DAMAGES:1) Moral (mental and physical anguish: must be proved)2) Exemplary (corrective/set an example)

Punish the intent- this cannot be presumed on the part of the employer merely because of the wanton, or malicious intent on the part of the agent

3) Nominal (vindication of the right violated, court’s discretion)

4) Temperate (when the exact amount of damages cannot be determined)

5) Actual (actual losses as well as unrealized profit)6) Liquidated (predetermined beforehand-by agreement)

2. Involuntary- debtor is unable to comply with his obligation due to fortuitous events

NB: debtor is not liable for damages unless indeterminate thing

FRAUDDeliberate or intentional evasion of the normal fulfillment of an obligationFraud in the Performance(Art. 1170)Malice/bad faith

Causal Fraud

(Art. 1338)deceit

Incidental Fraud

(Art. 1344)

Present during the performance of a pre-existing obligation

Present during the perfection of the contract

Present during the perfection of a contract

Purpose is to evade the normal fulfillment of the obligation

Purpose is to secure the consent of another to enter into a contract

Purpose is to secure the consent of the other party but the fraud was not the principal inducement in the making of the contract

Results in the breach of the obligation

Results in the vitiation of the consent; voidable contract

Does not result in vitiation of consent

Gives rise to a right in favor of the creditor to recover damages

Gives rise to the right of an innocent party to annul the contract

Gives rise to a right of an innocent party to claim for damages

NB: Future fraud cannot be waived. However, the law does not prohibit renunciation of the action for damages on the ground of fraud already committed.

REMEDIES OF DEFRAUDED PARTY1. Insist on specific performance2. Resolve the contract

3. Claim damages in either case

FRAUD NEGLIGENCEThere is deliberate intention to cause damage

No deliberate intent

Liability cannot be mitigated Liability may be mitigatedWaiver of future fraud is VOID Waiver of future negligence

may be WAIVED in certain cases, like simple negligence

***waiver of gross negligence is against public policy

NEGLIGENCE: consists in the omission of that diligence which is required by the nature of the conditions of the obligation and corresponds with the circumstances of the persons, time, and place.

CULPA ACQUILANIATORT (2176)

CULPA CONTRACTUAL

Negligence is substantive and independent

Negligence is merely an incident of performance of an obligation

There may or may not be a pre-existing contractual obligation

There is a pre-existing contractual relation

Source of the obligation is the negligence itself

Source of the obligation is the breach of the contractual obligation

Negligence must be proved Proof of existence of the contract and its breach is prima facie sufficient to warrant recovery

Diligence in the selection and supervision of the employees is a defense

Diligence in the selection and supervision of the employees is not available as a defenseMaster-servant rule (negligence of the servant is negligence of the master)- but may be mitigated; direct and immediate liability of the owner, not subsidiary

Negligence of employer is presumptive and may be rebutted

A passenger in a taxi was hurt because of the driver’s negligence (breach of contract of carriage)

EFFECTS OF THE CONTRIBUTORY NEGLIGENCE OF THE CREDITORGR: Reduces or mitigates the damages which he can recoverException: if the negligent act or omission of the creditor is the proximate cause of the event which led to the damage or injury complained of, he cannot recover.

DELAY1. Ordinary delay: failure to perform on time 2. Legal delay/default: failure to perform an obligation on time

which failure constitutes a breach of the obligation

Requisites:1. Obligation must be due, demandable, and liquidated2. Debtor fails to perform his positive obligation on the date

agreed upon3. A judicial or extra-judicial demand (not merely a reminder or

notice) was made by the creditor upon the debtor to perform or comply with his obligation otherwise, he will be in default

4. Failure of the debtor to comply with such demand

Demand not necessary to constitute the debtor in default1. Where there is express stipulation to that effect2. Where the law so provides3. When the period is the controlling motive or the principal

inducement for the creation of the obligation4. Where demand would be useless

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PRINCIPL;E OF DELAY, SEE 1169

MORA SOLVENDIDefault on part of the debtorEx re- real obligationsEx persona- personal obligations

MORA ACCIPIENDIDefault on part of the creditor when he unjustifiably refuses to accept the performance of the obligation

COMPENSATIO MORAEBoth parties are in default (in reciprocal obligations); there is no actionable default on the part of both parties

REQUISITES 1. Demandable and liquidated;2. Debtor delays performance;3. Creditor requires performance judicially/extra-judicially

1. Offer of performance by debtor2. Offer must be to comply with the prestation as it

should be performed3. Creditor refuses the performance without just cause

RULE ONRECIPROCAL OBLIGATIONS

GR: fulfillment of the parties must be simultaneous

Neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.Performance must be simultaneous unless different dates for the performance of the obligation was fixed by the parties

EFFECTS 1. Debtor is guilty of breach of obligationLiability:2. if the obligation to pay money- pay interest. If no extra-

judicial demand, interest runs from the filing of the complaint. In other obligations, pay damages.

3. Obligations to deliver a determinate thing, liable for fortuitous events. If debtor can prove that loss would have resulted even if he had not been in default, the court may equitably mitigate the damages (Art. 2215 [4])

4. Resolution (Art. 1170, in proper cases)

1. Responsibility of debtor is limited to fraud and gross negligence

2. Debtor is exempted from, risk of loss of thing; creditor bears risk of loss

3. Expenses by debtor for preservation of thing after delay is chargeable to creditor

4. If obligation bears interest, debtor does not have to pay from time of delay

5. Creditor liable for damages6. Debtor may relieve himself of obligation by consigning

the thing

CESSATION OF EFFECTS OF MORA1. Renunciation2. Prescription

NB: no delay in natural and negative obligations

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Art. 1170Those who in the performance of their obligations are guilty of

- fraud - negligence, or- delay, and - those who in any manner contravene the tenor thereof,- are liable for damages

Art. 1171Responsibility arising from FRAUD is demandable in all obligations.Any waiver of an action for future fraud is VOID.

Art. 1172Responsibility arising from NEGLIGENCE in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.

Art. 1173The FAULT or NEGLIGENCE of the obligor consists in the

- omission of that diligence which is - required by the nature of the obligation and - corresponds with the circumstances of - the persons, of - the time and of- the place.

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When negligence shows bad faith, the provisions of Art. 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

Art. 1174Except in cases

expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk,

No person shall be responsible for those events which, Could not be foreseen, or which Though foreseen, were inevitable

Art. 1175Usurious transactions

shall be governed by special laws

Art. 1176The receipt of the principal by the creditor, Without reservation with respect to the interest,

Shall give rise to the presumption that said interest has been paid

The receipt of a later installment of a debtWithout reservation as to the prior installments,

Shall likewise raise the presumption that such installments have been paid.

Art. 1177The creditors, after having

pursued the property in possession of the debtor to satisfy their claims, May exercise all rights and Bring all the actions of the latter for the same purpose,

Save those which are inherent in his person; They may also impugn the acts which the debtor may have done to defraud them.

Art. 1178Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary.

FORTUITOUS EVENT- an event which could not be foreseen, or which though foreseen, was inevitable.

REQUIREMENTS:1. The cause of the breach of the obligation must be independent of the will of the debtor2. The event must be either unforeseeable or unavoidable3. The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner4. The debtor must be free from any participation in, or aggravation of injury to the creditor

RULE ON FORTUITOUS EVENTGENERAL RULE: No liability for fortuitous eventExceptions:1. When expressly declared by law

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Bad faith, subject matter is generic, delay2. When expressly declared by the stipulation of the parties3. When the nature of the obligation requires the assumption of risk4. When the obligor is in default or has promised to deliver the same thing to 2 or more persons who do not have the same interest (Art. 165[3])

Ruling:One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss.

EFFECT OF FORTUITOUS EVENTDETERMINATE OBLIGATION GENERIC OBLIGATIONObligation is extinguished Obligation is not extinguished based on the rule that genus never persishes (genus nunquam peruit)

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Article 1169PRINCIPLE OF DELAY

LEANO V. CA (Contract to Sell)PARDO, J.:

On 1985, Fernando (vendor) and Leaño, (vendee) executed a contract to sell involving a piece of land.In the contract, Carmelita Leaño bound herself to pay Fernando the sum of (P107,750.00) as the total purchase price of the lot. The manner of paying the total purchase price was as follows:

(P10,775.00) DOWN PAYMENT, (P96,975.00) shall be paid within a period of 10 years at a monthly amortization of P1,747.30 to begin from December 7, 1985 with interest at eighteen per cent (18%) per annum based on balances.

The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to the month of grace. If the period expires without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments.5

Should a period of ninety (90) days elapse from the expiration of the grace period without the overdue and unpaid installments having been paid with the corresponding interests up to that date, respondent Fernando, as vendor, was authorized to declare the contract cancelled and to dispose of the parcel of land, as if the contract had not been entered into.

The payments made, together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the premises and as liquidated damages.6

The last payment that she made was on 1989. 1991 Leaño was ordered to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the property from May 27, 1991 until she vacated the premises pursuant to an order by the TC in the ejectment suit. 1993, TC issued a writ of execution which was duly served on petitioner Leaño. She then filed before RTC a complaint for specific performance with preliminary injunction.11

- judgment is violative of her right to due process - contrary to the avowed intentions of Republic Act No. 6552 regarding protection to buyers of lots on installments. - deposited P18,000.00 with the clerk of court RTC to cover the balance of the total cost of Lot in dispute., granted.

On 1995, Fernando filed MR and the supplement19 thereto. The trial court increased the amount of P103,090.70 to P183,687.00 and ordered petitioner Leaño ordered to pay attorney's fees.20

- TC: an absolute sale, making petitioner Leaño the owner of the lot upon actual and constructive delivery thereof. - the seller, was divested of ownership and cannot recover the same - unless the contract is rescinded pursuant to Article 1592 of the Civil Code which requires a judicial or notarial demand. Since there had been no rescission, petitioner Leaño, as the owner in possession of the

property, cannot be evicted.

- On the issue of delay, the trial court held: "While the said contract provides that the whole purchase price is payable within a ten-year period, yet the same contract clearly specifies that the purchase price shall be payable in monthly installments for which the corresponding penalty shall be imposed in case of default. The plaintiff certainly cannot ignore the binding effect of such stipulation by merely asserting that the ten-year period for payment of the whole purchase price has not yet lapsed. In other words, the plaintiff has clearly defaulted in the payment of the amortizations due under the contract as recited in the statement of and she should be liable for the payment of interest and penalties in accordance with the stipulations in the contract pertaining thereto."21

- disregarded Leaños claim that she made a downpayment of P10,000.00, at the time of the execution of the contract.- relied on the statement of account22 and the summary23 prepared by respondent Fernando to determine petitioner Leaño's liability for the payment of interests and penalties.- consignation did not produce any legal effect as the same was not done in accordance with Articles 1176, 1177 and 1178 of the Civil Code.

ISSUES(1) absolute sale or a conditional sale; (2) Was there a proper cancellation of the contract to sell; none (3) Was there a delay in the payment of the monthly amortizations? yes

HELD:CONDITIONAL SALE not an absolute sale. The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price.

- the contract to sell makes the sale, cession and conveyance "subject to conditions" set forth in the contract to sell. - transferred was the possession of the property, not ownership. even limited by the following:

o (1) that the vendee may continue therewith "as long as the VENDEE complies with all the terms and conditions mentioned, and (o 2) that the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber any right, interest or equity that she may have or acquire in and to the said parcel of land nor to lease or to

sublease it or give possession to another person without the written consent of the seller.30

- the land is covered by a torrens title, the act of registration of the deed of sale was the operative act that could transfer ownership over the lot.- There is not even a deed that could be registered since the contract provides that the seller will execute such a deed "upon complete payment by the VENDEE of the total purchase price of the property" with the

stipulated interest.32

IN A CONTRACT TO SELL REAL PROPERTY ON INSTALLMENTS, THE FULL PAYMENT OF THE PURCHASE PRICE IS A POSITIVE SUSPENSIVE CONDITION

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the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force. 33 The transfer of ownership and title would occur after full payment of the price.34

In the case at bar, petitioner Leaño's non-payment of the installments after April 1, 1989, prevented the obligation of respondent Fernando to convey the property from arising. In fact, it brought into effect the provision of the contract on cancellation.

Article 1592 CC is inapplicable to the case at bar.35 - However, any attempt to cancel the contract to sell would have to comply with the provisions Realty Installment Buyer Protection Act. which recognizes the right of the seller to cancel the contract upon

non-payment of an installment by the buyer in conditional sales of all kinds of real estate (industrial, commercial, residential), which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.36

- The law also provides for the rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law provides that:"If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payment made

: - Provided, Thatthe actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon

full payment of the cash surrender value to the buyer." [Emphasis supplied]

THE DECISION IN THE EJECTMENT CASE37 OPERATED AS THE NOTICE OF CANCELLATION Leaño was not given then cash surrender value of the payments that she made, there was still no actual cancellation of the contract Leaño may still reinstate the contract by updating the account during the grace period and before actual cancellation. 38 Leano would then have to pay respondent Fernando in accordance with the statement of account39 which amount was P183,687.00.40

PETITIONER LEANO WAS ON DELAY. contract provided that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Leaño cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed. Yes.

Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leaño to continue in possession and use of the property. Clearly, when petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages.41 However, we agree with the trial court that the default committed by petitioner Leaño in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question.42

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. 43 Thus, as there is no ambiguity in the language of the contract, there is no room for construction, only compliance. Petition denied.

HEIRS OF BACUS V. CA (option to buy)QUISUMBING, J.:

on June 1, 1984 Luis Bacus leased to private respondent Duray a parcel of agricultural land in Cebu to expire after 6 years, ending May 31, 1990. The contract contained an option to buy clause. the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract, at P200 per square meter.

Luis Bacus died Close to the expiration of the contract on October 10, 1989. 1990, Duray spouses informed one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary

documents, such as a SPA authorizing him to enter into a contract of sale,2 on behalf of his sisters who were then abroad.

adverse claim was annotated by the Register of Deeds of Cebu, at the back of TCT Duray filed a complaint for specific performance asking that he be allowed to purchase the lot specifically referred to in the lease contract Duray presented a bank certification addressed to Luis Bacus, stating that arrangements were being made to allow Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the

contract with Luis Bacus.5

filed a complaint for specific performance with damages against petitioners before the RTC, praying that the latter(a) execute a deed of sale over the subject property in favor of private respondents; (b) receive the payment of the purchase price; and (c) pay the damages.

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Heirs alleged- did not deposit the money as required by the Lupon and instead presented a bank certification which cannot be deemed legal tender.- Durays manifested in court that they caused the issuance of a cashier's check in the amount of P650,0006 payable to petitioners at anytime upon demand.

RTC ruled in favor of Durays. CA denied Heirs’ appeal. the private respondents exercised their option to buy the leased property before the expiration of the contract of lease. It held:. . . After a careful review of the entire records of this case, we are convinced that the

plaintiffs-appellees (Durays) validly and effectively exercised their option to buy the subject property. As opined by the lower court, "the readiness and preparedness of Duray on his part, is manifested by his cautionary letters, the prepared bank certification long before the date of May 31, 1990, the final day of the option, and his filing of this suit before said date. If the plaintiff-appellee Francisco Duray had no intention to purchase the property, he would not have bothered to write those letters to the defendant-appellants (which were all received by them) and neither would he be interested in having his adverse claim annotated at the back of the T.C.T. of the subject property, two (2) months before the expiration of the lease. Moreover, he even went to the extent of seeking the help of the Lupon Tagapamayapa to compel the defendants-appellants to recognize his right to purchase the property and for them to perform their corresponding obligation.8

ISSUES:a) When private respondents opted to buy the property covered by the lease contract with option to buy, were they already required to deliver the money or consign it in court before petitioner executes a deed of transfer? Nob) Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract?

HELD:OBLIGATIONS UNDER AN OPTION TO BUY ARE RECIPROCAL OBLIGATIONS.12 The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation.13 In other words, in an option to buy, the payment of the purchase price by the creditor depends upon the execution and delivery of a deed of sale by the debtor.

In this case, when Durays opted to buy the property, their obligation was to advise Heirs of their decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon Heir's actual execution and delivery of the deed of sale were they required to pay. As earlier stated, the creditor was contingent upon the debtor.

In Nietes vs. Court of Appeals , 46 SCRA 654 (1972), we held that NOTICE OF THE CREDITOR'S DECISION TO EXERCISE HIS OPTION TO BUY NEED NOT BE COUPLED WITH ACTUAL PAYMENT OF THE PRICE, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required.

CONSIGNATION is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. In instances, where no debt is due and owing, consignation is not proper.14

DURAYS DID NOT INCUR IN DELAY WHEN THEY DID NOT YET DELIVER PAYMENT NOR MAKE A CONSIGNATION BEFORE THE EXPIRATION OF THE CONTRACT. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does delay by the other begin.15

In this case, Durays, as early as March 15, 1990, communicated to petitioners their intention to buy the property and they were at that time undertaking to meet their obligation before the expiration of the contract on May 31, 1990. However, petitioners refused to execute the deed of sale and it was their demand to Durays to first deliver the money before they would execute the same which prompted Durays to institute a case for specific performance in the Lupong Tagapamayapa and then in the RTC. On October 30, 1990, after the case had been submitted for decision but before the trial court rendered its decision, Durays issued a cashier's check in Heirs’ favor purportedly to bolster their claim that they were ready to pay the purchase price. The trial court considered in Durays’ favor and we believe that it rightly did so, because at the time the check was issued, Heirs had not yet executed a deed of sale nor expressed readiness to do so. Accordingly, as there was no compliance yet with what was incumbent upon the Heirs under the option to buy, private respondents had not incurred in delay when the cashier's check was issued even after the contract expired.

MEGAWORLD vs. TANSECO (Contract to Buy and Sell)CARPIO MORALES, J.:

1995 Megaworld and Tanseco entered into a Contract to Buy and Sell a condominium unit at a pre-selling project, "The Salcedo Park” with a purchase price of P16m to be paid as follows: 30% less the reservation fee of P100k orP4m, by postdated check payable on July 14, 1995; 9m through 30 equal monthly installments of P300k from August 14, 1995 to January 14, 1998; and the balance of P2m on October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover.

Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows: 4. CONSTRUCTION SCHEDULE – The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil

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disturbances, strikes or other labor disturbances, government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this contract if for any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it can only be completed at a financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the SELLER. (Underscoring supplied)

Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2m pending delivery of the unit.2 Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period. A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.3 Tanseco replied through counsel demanding the return of the total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that none of the excepted causes of delay existed.4

Tanseco filed on June 5, 2002 for rescission of contract, refund of payment, and damages against Megaworld with (HLURB).Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of turnover.6

HLURB Arbiter dismissed Tanseco’s complaint for lack of cause of action. Board of Commissioners sustained the HLURB Arbiter’s Decision laches for failure to demand rescission when the right thereto accrued. OP dismissed not shown that findings of the HLURB were tainted with grave abuse of discretion.

CA assailed decision of the HLURB Field Office, and Resolution of the Office of the President. (1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the contract to buy and sell; (2) DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid totaling 14m with (12%) interest per annum from October 31, 1998; damages and attys fees

- Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in default if the contract , as in the herein parties’ contract, states the date when the obligation should be performed; that time was of the essence because Tanseco relied on Megaworld’s promise of timely delivery when she agreed to part with her money; that the delay should be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April 30, 1999 alternative date; and that specific performance could not be ordered in lieu of rescission as the right to choose the remedy belongs to the aggrieved party.

ISSUE: Whether or not Megaworld has incurred delay in its failure to deliver on stipulated date in the contract.

HELD: Yes.Article 1169 of the Civil Code provides:. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or(3) When demand would be useless , as when the obligor has rendered it beyond his power to perform .

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

In this case, THE CONTRACT TO BUY AND SELL OF THE PARTIES CONTAINS RECIPROCAL OBLIGATIONS, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco.

COMPLIANCE BY MEGAWORLD WITH ITS OBLIGATION IS DETERMINATIVE OF COMPLIANCE BY TANSECO with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor. That Megaworld’s sending of a notice of turnover came before Tanseco’s demand for refund does not abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date.

Article 1174 of the Civil Code provides: Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

In this case, The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito.19 Megaworld’s excuse for its delay does not thus lie.

As for Megaworld’s argument that Tanseco’s claim is considered barred by laches on account of her belated demand, it does not lie too. Laches is a creation of equity and its application is controlled by equitable considerations.20 It bears noting that Tanseco religiously paid all the installments due up to January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco.

Pursuant to Section 23 of Presidential Decree No. 95721 which reads:

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Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortizationinterests but excluding delinquency interests, with interest thereon at the legal rate.

Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld. While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be 6% per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the time this judgment becomes final and executory.

ARTICLE 119125 OF THE CIVIL CODE DOES NOT APPLY TO A CONTRACT TO BUY AND SELL, the suspensive condition of full payment of the purchase price not having occurred to trigger the obligation to convey title, cancellation, not rescission, of the contract is thus the correct remedy in the premises. The July 7, 1995 Contract to Buy and Sell between the parties is cancelled.

GMC vs. RAMOS(Growers Contract)VELASCO, JR., J.: Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.

(GMC) entered into a Growers Contract with Spouses Ramos on August 24, 1989. Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land in Lipa City, Batangas.1 To guarantee full compliance, spouses mortgaged the real property upon which their conjugal home was built which extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an indefinite

period with an interest of twelve percent (12%) per annum.2 Spouses also put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC.

Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses because of the negligence of GMC and its violation of the Growers Contract. 3 On March 31, 1997, GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their mortgaged property.4 On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. subsequently sold by public auction to GMC after the required posting and publication.5 Foreclosed at PhP 9m an amount representing the losses on chicks and feeds exclusive of interest at 12% per annum and attorney’s fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness Division had closed its business and poultry operations.7

Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. - extrajudicial foreclosure sale on June 10, 1997 was null and void, - no compliance with the requirements of posting and publication of notices under Act No. 3135, as amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate

Mortgages. - no sheriff’s affidavit to prove compliance with the requirements on posting and publication of notices- the Deed of Real Estate Mortgage had no fixed term- when the property was foreclosed, GMC did not notify him at all of the foreclosure.9

RTC granted.- Deed of Real Estate Mortgage was valid even if its term was not fixed. - duration of the term was made to depend exclusively upon the will of the debtors-spouses, - "the obligation is not due and payable until an action is commenced by the mortgagee GMC against the mortgagor Spouses for the purpose of having the court fix the date on and after which the instrument is

payable and the date of maturity is fixed in pursuance thereto."12

- action of GMC in moving for the foreclosure of the spouses’ properties was premature, because the latter’s obligation under their contract was not yet due.

CA sustained w/ different ruling- publication requirement was complied with, but GMC’s action was premature, as they were not in default when the action was filed on May 7, 1997.14

- GMC made no demand to spouses Ramos for the full payment of their obligation. - While it was alleged in the Answer as well as in the Affidavit constituting the direct testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were sent to spouses Ramos, the

documentary evidence proves otherwise.- GMC did not "demand" but only request spouses Ramos to go to the office of GMC to "discuss" the settlement of their account.15

Can the CA consider matters not alleged? Yes.an appellate court has a broad discretionary power in waiving the lack of assignment of errors if consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;

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Was there sufficient demand? NoneThere are three requisites necessary for a finding of default.

obligation is demandable and liquidated; debtor delays performance; and creditor judicially or extrajudicially requires the debtor’s performance.

According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMC’s office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of demand.

Article 1169 of the Civil Code on delay requires the following: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation. However, the demand bythe creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; x x x

in the instant case As the contract carries no such provision on demand not being necessary for delay to exist, We agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage.

DBP v. Licuanan finds application to the instant case: The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper.

However, if demand was not made, then the loans had not yet become due and demandable . This meant that respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of his obligation.22

Whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of Court shall raise only questions of law. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will defer to the factual findings of the trial court, because petitioner GMC has not shown any circumstances making this case an exception to the rule. DENIED.

R.S. TOMAS, INC., vs. RIZAL CEMENT COMPANY, INC. (Breach of Contract; Job Orders) PERALTA, J.: Rizal Cement’s action for sum of money or damages arising from breach of contract for supply by RS Tomas

FACTS:The contract involved in this case refers to the rewinding and conversion of one unit of transformer to be installed and energized to supply respondents power requirements.[38] This project was embodied in three (3) job orders, all of which were awarded to petitioner who represented itself to be capable, competent, and duly licensed to handle the projects.[39] Petitioner, however, failed to complete the projects within the agreed period allegedly because of misrepresentation and fraud committed by respondent as to the true nature of the subject transformer. The trial court found that respondent indeed failed to inform petitioner of the true condition of the transformer which amounted to fraud thereby justifying the latters failure to complete the projects. The CA, however, had a different conclusion and decided in favor of respondent.

On December 28, 1990, Rizal Cement and R.S. Tomas entered into a Contract[5] for the supply of labor, materials, and technical supervision of the following projects:

1) Wiring and installation of primary and secondary lines system. 2) Supply and installation of primary protection and disconnecting switch. 3) Rewinding and conversion of Transformers

R.S. TOMAS agreed to perform the above-mentioned job orders. Specifically, it undertook to supply the labor, equipment, supervision, and materials as specified in the detailed scope of work. Rizal Cement agreed to pay the total sum of almost 3million in consideration of the performance of the job orders.

Rizal Cement - made an initial payment of P1,458,618.18 on January 8, 1991.[11]

R.S. TOMAS - undertook to complete the projects within (120) days from the effectivity of the contract. Otherwise, failure would amount to liquidated damages in the amount of 30k/day of delay in the completion of the

projects which shall be limited to 10% of the project cost. - obtained from (Times Insurance) a performance bond amounting to secure the full and faithful performance of all its obligations and responsibilities under the contract

- requested for an extension of seventy-five (75) days within which to complete the projects because of the need to import some of the materials needed.

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- for a price adjustment of P255,000.00 to cover the higher cost of materials.[13] - requested for another 75 days extension for the completion of the transformer portion of the projects for failure of its supplier to deliver the materials.- Requested for respondents assistance by facilitating the acquisition of materials and supplies needed to complete by directly paying the suppliers. - Sought to be allowed to back out from 3rd JO covering the rewinding and conversion of the damaged transformer.

RC through counsel manifested

- that RS TOMAS’ financial status showed that it could no longer complete the projects as agreed upon. - informed RS that it was already in default having failed to complete the projects within 120 days from the effectivity of the contract. - terminating the contract- refund of the amount already paid, otherwise, the necessary action would be instituted. - sent another demand letter] to Times Insurance for the payment of P1,472,000.00 pursuant to the performance bond it issued- entered into two contracts with Geostar Philippines, Inc. (Geostar) for the completion of the projects commenced but not completed by petitioner for a total consideration ofP3,435,000.00.- Complaint for Sum of Money filed by RC against RS Tomas and Times Surety & Insurance Co., Inc. praying for the payment of the following: P493,695.00 representing the amount which they owed respondent from

the down payment and advances made by the latter vis--vis the work accomplishment; P2,550,945.87 representing the amount incurred in excess of the cost of the projects as agreed upon; RS Tomas

- denied liability and claimed instead that it failed to complete the projects due to respondents fault - it relied in good faith on respondents representation that the transformer subject of the contract could still be rewound but the coils were already badly damaged and the primary bushing broken which entailed

price adjustment. - requested respondent for additional time within which to complete the project and additional amount to finance the same. - proximate cause of the delay is the misrepresentation of the respondent on the extent of the defect of the transformer.

RTC DISMISSED- Since respondent was found to have committed deceit in its dealings with petitioner, the court awarded damages in favor of the latter.

CA REVERSED- failed to prove that RC made fraudulent misrepresentation to induce the former to enter into the contract. - petitioner was given the opportunity to inspect the transformer before offering its bid. [28] - petitioners failure to avail of such opportunity is inexcusable, considering that it is a company engaged in the electrical business and the contract involved a sizable amount of money. [29] - testimony was insufficient to prove that the transformer could no longer be rewound or converted[ - the reimbursement of what respondent paid to Geostar for the unfinished projects of petitioner as well as the payment of liquidated damages as stipulated in the contract.

ISSUES:

1) W/N RC was guilty of fraud or misrepresentation as to the actual condition of the transformer subject of the contract;2) W/N RST is guilty of inexcusable delay in the completion of the projects;3) W/N RST is liable for the cost of the contract between respondent and Geostar

HELD: 1) NO FRAUD OR MISREPRESENTATION. CA conclusions upheld.

- Records show that in a letter, petitioner justified its inability to complete the projects within the stipulated period on the alleged unavailability of the materials to be used to perform the projects as stated in the job orders.

- Nowhere in said letters did petitioner claim that it could not finish the projects, particularly the conversion of the transformer unit because the defects were worse than the representation of respondent. In other words, there was no allegation of fraud, bad faith, concealment or misrepresentation on the part of respondent as to the true condition of the subject transformer.

- petitioner was aware that there was a need for complete replacement of windings to copper and of secondary bushings- FAILED TO PROVE THAT RESPONDENT WAS GUILTY OF BAD FAITH, FRAUD, DECEIT OR MISREPRESENTATION. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some

moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud. Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state material facts and, by reason of such omission or concealment, the other party was induced to give consent that would not otherwise have been given.

- In this case, the evidence presented is insufficient to prove that respondent acted in bad faith or fraudulently in dealing with petitioner. Petitioner in fact admitted that its representatives were given the opportunity to inspect the subject transformer before it offered its bid.

(1) that the projects were not completed by petitioner; (2) that petitioner was given the opportunity to inspect the subject transformer; (3) that petitioner failed to thoroughly study the entirety of the projects before it offered its bid; (4) that petitioner failed to complete the projects because of the unavailability of the required materials and that petitioner needed financial assistance; (5) that the evidence presented by petitioner were inadequate to prove that the subject transformer could no longer be repaired; and (6) that there was no evidence to show that respondent was in bad faith, acted fraudulently, or guilty of deceit and misrepresentation in dealing with petitioner.

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Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract.[64] In the present case, petitioner did not complete the projects. This gives respondent the right to terminate the contract by serving petitioner a written notice 2) PETITIONER IS LIABLE FOR LIQUIDATED DAMAGES

- In this case, petitioner bound itself to complete the projects within 120 days from December 29, 1990. - despite the lapse of eleven months from the time of the effectivity of the contract entered into between respondent and petitioner, the latter had not completed the projects. Undoubtedly, petitioner may be held to

answer for liquidated damages in its maximum amount which is 10% of the contract price- it is liable for damages that are the natural and probable consequences of its breach of obligation.- Since advanced payments had been made by respondent, petitioner is bound to return the excess vis--vis its work accomplishments. - In order to finish the projects, respondent had to contract the services of another contractor. We, therefore, find no reason to depart from the CA conclusion requiring the return of the

excess payments as well as the payment of the cost of contracting Geostar, in addition to liquidated damages.[70]

CRUZ vs. ATTY. GRUSPE (Joint Affidavit of Undertaking)BRION, J.:Atty. Delfin Grupe’s claim for payment of sum of money against petitioners Rodolfo G. Cruz and Esperanza Ibias.4

A mini bus owned and operated by Cruz and driven by one Arturo Davin collided with the Toyota Corolla car of Gruspe; The next day, Cruz along with Leonardo Q. Ibias went to Gruspe’s office, apologized for the incident, and executed a Joint Affidavit of Undertaking

promising jointly and severally to replace the Gruspe’s damaged car in 20 days, or until November 15, 1999, of the same model and of at least the same quality; or, alternatively, to pay the cost of the car 350k with interest at 12% per month for any delayed payment after November 15, 1999, until fully paid.5

Gruspe filed a complaint for collection of sum of money November 19, 1999 against Cruz and Leonardo when it failed to comply with their undertaking

Cruz and Leonardo denied Gruspe’s allegation- Atty. Gruspe prepared the JAU and forced them to affix their signatures thereon, without explaining and informing them of its contents; - Cruz affixed his signature so that his mini bus could be released as it was his only means of income; Leonardo, a barangay official, accompanied Cruz to Gruspe’s office for the release of the mini bus, but was also

deceived into signing the Joint Affidavit of Undertaking.

RTC favor of Gruspe CA affirmed but reduced the interest rate to 12% per annum pursuant to the JAU

- It declared that despite its title, JAU is a contract, as it has all the essential elements of consent, object certain, and consideration required under Article 1318 of the CivilCode. - failure to present evidence to support their contention of vitiated consent.- By signing the JAU, they voluntarily assumed the obligation for the damage they caused to Gruspe’s car; Leonardo, who was not a party to the incident, could have refused to sign the affidavit, but he did not.

Cruz and Esperanza assail the CA ruling- JAU is not a contract that can be the basis of an obligation to pay a sum of money in favor of Gruspe. T- an affidavit’s purpose is simply to attest to facts that are within his knowledge, while a contract requires that there be a meeting of the minds between the two contracting parties.- invalid because Cruz and Leonardo’s consent thereto was vitiated; - the contract was prepared by Gruspe who is a lawyer, and its contents were never explained to them. Moreover, Cruz and Leonardo were simply forced to affix their signatures, otherwise, the mini van would not be

released.- prior to the filing of the complaint for sum of money, Gruspe did not make any demand upon them. Hence, pursuant to Article 1169 of the Civil Code, they could not be considered in default. Without this

demand, Cruz and Esperanza contend that Gruspe could not yet take any action.

ISSUE: 1) Whether JAU partakes of a nature of a contract2) Whether the contract is tainted with a vice of consent3) Demand

HELD: CONTRACTS ARE OBLIGATORY NO MATTER WHAT THEIR FORMS MAY BE, whenever the essential requisites for their validity are present. In determining whether a document is an affidavit or a contract, the Court looks beyond the title of the document, since the denomination or title given by the parties in their document is not conclusive of the nature of its contents. 8 In the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. If the terms of the document are clear and leave no doubt on the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the parties’ evident intention, the latter shall prevail over the former.9

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- JAU contains stipulations characteristic of a contract where Cruz and Leonardo promised to replace the damaged car of Gruspe, 20 days from of the same model and of at least the same quality. - In the event that they cannot replace the car within the same period, they would pay the cost of Gruspe’s car in the total amount of P350,000.00, with interest at 12% per month for any delayed payment after

November 15, 1999, until fully paid. - These, as read by the CA, are very simple terms that both Cruz and Leonardo could easily understand.

VALIDITY AND ENFORCEABLE; NOT A VITIATED CONSENT. An allegation of vitiated consent must be proven by preponderance of evidence; - They, in fact, admitted they signed the same to secure possession of their vehicle. If they truly believed that the vehicle had been illegally impounded, they could have refused to sign the JAU and filed a complaint,

but they did not. That the release of their mini bus was conditioned on their signing the JAU does not, by itself, indicate that their consent was forced – they may have given it grudgingly, but it is not indicative of a vitiated consent that is a ground for the annulment of a contract.

- . the CA did not commit any legal error that merits the reversal of the assailed decision.- The 15% interest (later modified by the CA to be 12%) was computed from November 15, 1999 – the date stipulated in the Joint Affidavit of Undertaking for the payment of the value of Gruspe’s car.

In the absence of a finding by the lower courts that Gruspe made a demand prior to the filing of the complaint, the interest cannot be computed from November 15, 1999 because until a demand has been made, Cruz and Leonardo could not be said to be in default.12 "In order that the debtor may be in default, it is necessary that the following requisites be present:

(1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extrajudicially." Default generally begins from the moment the creditor demands the performance of the obligation. - In this case, demand could be considered to have been made upon the filing of the complaint on November 19, 1999, and it is only from this date that the interest should be computed.

DOCTRINE OF FORTUITOUS EVENT

GACAL V. PAL (Hi-Jacking Incident under Martial Law) PARAS, J.:Franklin G. Gacal and his wife, Bonifacio S. Anislag and his wife and the late Elma de Guzman, were then passengers boarding PAL’s BAC 1-11 at DVO-MNL. not knowing that on the same flight (MNLF) members were their co-passengers, three (3) armed with grenades, two (2) with .45 caliber pistols, and one with a .22 caliber pistol. Ten (10) minutes after take off at about 2:30 in the afternoon, the hijackers brandishing their respective firearms announced the hijacking of the aircraft and directed its pilot to fly to Libya. With the pilot explaining to them especially to its leader, Commander Zapata, of the inherent fuel limitations of the plane and that they are not rated for international flights, the hijackers directed the pilot to fly to Sabah. With the same explanation, they relented and directed the aircraft to land at Zamboanga Airport, Zamboanga City for refueling. The aircraft landed at 3:00 o'clock in the afternoon of May 21, 1976 at Zamboanga Airport.

When the plane began to taxi at the runway, it was met by two armored cars of the military with machine guns pointed at the plane, and it stopped there. The demanded that a DC-aircraft take them to Libya with the President of PAL as hostage and that they be given $375,000 and six (6) armalites, otherwise they will blow up the plane if their demands will not be met by the government and PAL.

Meanwhile, the passengers were not served any food nor water and it was only on May 23, a Sunday, at about 1:00 o'clock in the afternoon that they were served 1/4 slice of a sandwich and 1/10 cup of PAL water. After that, relatives of the hijackers were allowed to board the plane but immediately after they alighted therefrom, an armored car bumped the stairs. That commenced the battle between the military and the hijackers which led ultimately to the liberation of the surviving crew and the passengers, with the final score of ten (10) passengers and three (3) hijackers dead on the spot and three (3) hijackers captured.

City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries in the course of her jumping out of the plane when it was peppered with bullets by the army and after two (2) hand grenades exploded inside the plane. She was hospitalized at General Santos Doctors Hospital, General Santos City, for two (2) days, spending P245.60 for hospital and medical expenses, Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt but Mrs. Anislag suffered a fracture at the radial bone of her left elbow for which she was hospitalized and operated on at the San Pedro Hospital, Davao City, and therefore, at Davao Regional Hospital, Davao City, spending P4,500.00. Elma de Guzman died because of that battle. Hence, the action of damages instituted by the plaintiffs demanding the following damages, to TC on dismissed the complaints

- damages sustained in the premises were attributed to force majeure.

Petitioners alleged - main cause of the unfortunate incident is the gross, wanton and inexcusable negligence of respondent Airline personnel in their failure to frisk the passengers adequately in order to discover hidden weapons in

the bodies of the six (6) hijackers. - despite the prevalence of skyjacking, PAL did not use a metal detector which is the most effective means of discovering potential skyjackers among the passengers

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PAL- in the performance of its obligation to safely transport passengers as far as human care and foresight can provide, it has exercised the utmost diligence of a very cautious person with due regard to all

circumstances, but the security checks and measures and surveillance precautions in all flights, including the inspection of baggages and cargo and frisking of passengers at the Davao Airport were performed and rendered solely by military personnel who under appropriate authority had assumed exclusive jurisdiction over the same in all airports in the Philippines.

- negotiations with the hijackers were a purely government matter and a military operation, handled by and subject to the absolute and exclusive jurisdiction of the military authorities. - the accident that befell RP-C1161 was caused by fortuitous event, force majeure and other causes beyond the control of the respondent Airline.

ISSUE: whether or not hijacking or air piracy during martial law and under the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft from payment of damages to its passengers whose lives were put in jeopardy and whose personal belongings were lost during the incident.

HELD:Under the Civil Code, common carriers are required to exercise extraordinary diligence in their vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case (Article 1733). They are presumed at fault or to have acted negligently whenever a passenger dies or is injured (Philippine Airlines, Inc. v. NLRC) or for the loss, destruction or deterioration of goods in cases other than those enumerated in Article 1734 of the Civil Code (Eastern Shipping Lines, Inc. v. IAC).

THE SOURCE OF A COMMON CARRIER'S LEGAL LIABILITY IS THE CONTRACT OF CARRIAGE, and by entering into said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide. There is breach of this obligation if it fails to exert extraordinary diligence according to all the circumstances of the case in exercise of the utmost diligence of a very cautious person

IT IS THE DUTY OF A COMMON CARRIER TO OVERCOME THE PRESUMPTION OF NEGLIGENCE and it must be shown that the carrier had observed the required extraordinary diligence of a very cautious person as far as human care and foresight can provide or that the accident was caused by a fortuitous event. Thus, as ruled by this Court, no person shall be responsible for those "events which could not be foreseen or which though foreseen were inevitable. (Article 1174, Civil Code). The term is synonymous with caso fortuito which is of the same sense as "force majeure"

In order to constitute a caso fortuito or force majeure that would exempt a person from liability under Article 1174 of the Civil Code, it is necessary that the following elements must concur: (a) the cause of the breach of the obligation must be independent of the human will (the will of the debtor or the obligor); (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor

Caso fortuito or force majeure, by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same.

Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao to Manila was due to the skyjacking incident staged by six (6) passengers of the same plane, all members of the (MNLF), without any connection with PAL hence, independent of the will of either the PAL or of its passengers.

Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been avoided had there been a more thorough frisking of passengers and inspection of baggages as authorized by R.A. No. 6235. But the incident in question occurred during Martial Law where there was a military take-over of airport security including the frisking of passengers and the inspection of their luggage preparatory to boarding domestic and international flights. In fact military take-over was specifically announced by Commanding General of the Philippine Air Force in a letter to then Director of the Civil Aeronautics Administration later confirmed shortly before the hijacking incident of May 21, 1976 by Letter of Instruction No. 399 issued on April 28, 1976

Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a nominal manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the Armed Forces of the Philippines to the exclusion of the former.

Finally, there is no dispute that the fourth element has also been satisfied.

SOUTHEASTERN COLLEGE INC., vs. CA & DIMAANOPURISIMA, J.:Dimaanos are owners of a house at 326 College Road, Pasay City, while SEC owns a four-storey school building along the same College Road. On October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit Metro Manila. Buffeted by very strong winds, the roof of SEC building was partly ripped off and blown away, landing on and destroying portions of the roofing of Dimaano’s house.

After the typhoon had passed, an ocular inspection of the destroyed building was conducted by engineers and the report were as follows.5. One of the factors that may have led to this calamitous event is the formation of the building in the area and the general direction of the wind. Situated in the peripheral lot is an almost U-shaped formation of 4-storey building. Thus, with the strong winds having a westerly direction, the general formation of the building becomes a big funnel-like structure, the one situated along College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of the roofing, those located on both ends of the building, which remained intact after the storm.

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6. Another factor and perhaps the most likely reason for the dislodging of the roofing structural trusses is the improper anchorage of the said trusses to the roof beams. The 1/2' diameter steel bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor nailed to the trusses. Still , there are other steel bars which were not even bent to the trusses , thus, those trusses are not anchored at all to the roof beams.

It then recommended that "to avoid any further loss and damage to lives, limbs and property of persons living in the vicinity," the fourth floor of subject school building be declared as a "structural hazard."

Dimaanos filed a complaint for damages based on culpa aquiliana- house became uninhabitable, forcing them to stay temporarily in others' houses. - P117,116.00, as actual damages- P1,000,000.00, as moral damages, - P300,000.00, as exemplary damages and - P100,000.00, for and as attorney's fees; plus costs.

SEC - school building had withstood several devastating typhoons and other calamities in the past, without its roofing or any portion thereof giving way; - that it has not been remiss in its responsibility to see to it that said school building, which houses school children, faculty members, and employees, is "in tip-top condition"; - typhoon "Saling" was "an act of God and therefore beyond human control" such that petitioner cannot be answerable for the damages wrought thereby, absent any negligence on its part

RTC, - , the damage to private respondents' houses "could have been avoided if the construction of the roof of [petitioner's] building was not faulty."

CA affirmed with modification the trial court's disposition by reducing the award of moral damages from P1,000,000.00 to P200,000.00. Hence, petitioner's resort to this Court, raising for resolution the issues of:

ISSUE: whether the damage on the roof of the building of Dimaanos resulting from the impact of the falling portions of the school building's roof ripped off by the strong winds of typhoon "Saling", was, within legal contemplation, due to fortuitous event?

HELD: YES

1174 of Civil Code, which provides:Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as "an event which takes place by accident and could not have been foreseen." "an unexpected event or act of God which could neither be foreseen nor resisted." TOLENTINO: "[f]ortuitous events may be produced by two general causes:

(1) by nature, such as earthquakes, storms, floods, epidemics, fires(2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc."

In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous negligence or misconduct by reason of which the loss may have been occasioned. An act of God cannot be invoked for the protection of a person who has been guilty of gross negligence in not trying to forestall its possible adverse consequences. When a person's negligence concurs with an act of God in producing damage or injury to another, such person is not exempt from liability by showing that the immediate or proximate cause of the damages or injury was a fortuitous event . When the effect is found to be partly the result of the participation of man — whether it be from active intervention, or neglect, or failure to act — the whole occurrence is hereby humanized, and removed from the rules applicable to acts of God.

In the case under consideration, the lower court accorded full credence to the finding of the investigating team that subject school building's roofing had "no sufficient anchorage to hold it in position especially when battered by strong winds." Based on such finding, the trial court imputed negligence to petitioner and adjudged it liable for damages to private respondents.

THE LOWER COURTS MISAPPRECIATED THE EVIDENCE PROFFERED.There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is unavoidable despite any amount of foresight, diligence or care. In order to be exempt from liability arising from any adverse consequence engendered thereby, there should have been no human participation amounting to a negligent act . In other words; the person seeking exoneration from liability must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance which the circumstances justify demand, 17 or the omission to do something which a prudent and reasonable man, guided by considerations which ordinarily regulate the conduct of human affairs, woulddo. 18 From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the damage caused to private respondents' house could have been avoided?

A PERSON CLAIMING DAMAGES FOR THE NEGLIGENCE OF ANOTHER HAS THE BURDEN OF PROVING THE EXISTENCE OF FAULT OR NEGLIGENCE CAUSATIVE OF HIS INJURY OR LOSS. - must be affirmatively established by competent evidence, 19 not merely by presumptions and conclusions without basis in fact. - merely relied on the aforementioned report submitted by a team which made an ocular inspection of petitioner's school building after the typhoon. - an ocularinspection is one by means of actual sight or viewing. - What is visual to the eye through, is not always reflective of the real cause behind.

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- In the present case, other than the said ocular inspection, no investigation was conducted to determine the real cause of the partial unroofing of petitioner's school building.- Private respondents did not even show that the plans, specifications and design of said school building were deficient and defective.- Neither did they prove any substantial deviation from the approved plans and specifications. Nor did they conclusively establish that the construction of such building was basically flawed. - Having obtained both building permit and certificate of occupancy, these are, at the very least, prima facieevidence of the regular and proper construction of subject school building. - when part of its roof needed repairs of the damage inflicted by typhoon "Saling", the same city official gave the go-signal for such repairs — without any deviation from the original design — and

subsequently, authorized the use of the entire fourth floor of the same building. - These only prove that subject building suffers from no structural defect, contrary to the report that its "U-shaped" form was "structurally defective."

SEC - SEC VP testified that an annual maintenance inspection and repair of subject school building were regularly undertaken- even willing to present its maintenance supervisor to attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and simply stipulated that it would be

corroborative of the vice president's narration.- Moreover, the city building official, said no complaint regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at bench. It is a matter of judicial

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

- typhoon "Saling" was the proximate cause of the damage suffered by private respondents' house.- More so because no bad faith or willful act to cause damage was alleged and proven to warrant moral damages.

PHILCOMSAT vs.GLOBE TELECOM, INC. TINGA, J.:.For several years prior to 1991, Globe Telecom, Inc. (Globe), had been engaged in the coordination of the provision of various communication facilities for the military bases of (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities were installed and configured for the exclusive use of the US Defense Communications Agency (USDCA), and for security reasons, were operated only by its personnel or those of American companies contracted by it to operate said facilities. The USDCA contracted with said American companies, and the latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the other hand, contracted with local service providers such as the (Philcomsat) for the provision of the communication facilities.

On 07 May 1991, Philcomsat and Globe entered into an Agreement Philcomsat obligated itself to establish, operate and provide an (earth station) within Cubi Point for the exclusive use of the USDCA. The term of the contract was for 60 months, or five (5) years. In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved.

At the time of the execution of the Agreement, both parties knew that the MBA (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same.On 16 September 1991, the Senate passed did not concur in the ratification of the Treaty that was supposed to extend the term of the use by the US of Subic Naval Base, among others. The last two paragraphs of the Resolution state:

In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the RP-US Military Bases Agreement. Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement, which provides:

Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either party is thus precluded from performing its obligation until such force majeure or fortuitous event shall terminate. For the purpose of this paragraph , force majeure shall mean circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God.

Philcomsat sent a reply letter dated 10 August 1992 to Globe, - we expect [Globe] to know its commitment to pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of the earth station after November 08,

1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:7. DISCONTINUANCE OF SERVICE

Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation , a written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination. Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the remaining life of the agreement. However, should PHILCOMSAT make use or sell the earth station subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such monthly rate as may be agreed upon by the parties.8

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed Philcomsat’s demand.

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Philcomsat filed with RTC of Makati a Complaint against Globe- to pay liquidated damages under the Agreement

Globe filed an Answer to the Complaint, - constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events constituted force

majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of the Agreement. Decided in favor of complainant.

CA dismissing Philcomsat’s appeal for lack of merit and affirming the trial court’s finding that certain events constituting force majeure under Section 8 the Agreement occurred and justified the non-payment by Globe of rentals for the remainder of the term of the Agreement.

- non-ratification by the Senate are acts, directions, or requests of the Government of the Philippines which constitute force majeure- there were circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification from ATT and the complete withdrawal

of all US military forces and personnel from Cubi Point, which prevented further use of the earth station under the Agreement.- although Globe sought to terminate Philcomsat’s services by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest , considering that the US

military forces and personnel completely withdrew from Cubi Point only on 31 December 1992.

Philcomsat- cannot be considered a fortuitous event because the happening thereof was foreseeable. Although the Agreement was freely entered into by both parties, Section 8 should be deemed ineffective because it is

contrary to Article 1174 of the Civil Code- the view that the validity of the parties’ definition of force majeure in Section 8 of the Agreement as "circumstances beyond the control of the party involved including, but not limited to, any law, order,

regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which defines fortuitous events as events which could not be foreseen, or which, though foreseen, were inevitable.

- CA erred in holding that Globe is not liable to pay for the rental of the earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the parties in Section 7 thereof. - said ruling is inconsistent with the appellate court’s pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated Philcomsat’s services effective 08 November 1992, because the

US military and personnel completely withdrew from Cubi Point only in December 1992. - it was Globe which proposed the five-year term of the Agreement, and that the other provisions of the Agreement, such as Section 4.114 thereof, evince the intent of Globe to be bound to pay rentals for the

entire five-year term.

Globe asserts- that Section 8 of the Agreement is not contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a contract from providing for other instances when they would be exempt from

fulfilling their contractual obligations. - termination of the RP-US Military Bases Agreement constitutes force majeure and exempts it from complying with its obligations under the Agreement.

ISSUES: (1) whether the termination of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the Agreement for the month of December 1992;

HELD: YES. GLOBE IS EXEMPTED. NON-RATIFICATION IS A FORTUITOUS EVENT THAT COULD BE FORESEEN BUT NONETHELESS INEVITABLE.Section 8 of the Agreement must be given effect

Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen in order to exempt a party to a contract from complying with its obligations therein. It insists that since the expiration of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US military forces and personnel from Cubi Point were not unforeseeable, but were possibilities known to it and Globe at the time they entered into the Agreement, such events cannot exempt Globe from performing its obligation of paying rentals for the entire five-year term thereof. However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable:

Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though foreseen were inevitable.

A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or typhoons,24 or an "act of man," such as riots, strikes or wars.

- Stipulations are not contrary or expanding to the concept of a fortuitous event under Article 1174.- Article 1306 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs,

public order or public policy.- Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."- Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has the force of law between them.

- Elements to exempt globe:

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(1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor.

- Requisites are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991 , because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992:

- acts, direction or request of the Government and circumstances beyond the control of the defendant. - formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and

circumstances beyond the control of the defendant.- "force majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement- impossible the continuation of the Agreement until the end of its five-year term without fault on the part of either party.

- FORTUITOUS EVENTS RENDERED GLOBE EXEMPT FROM PAYMENT OF RENTALS FOR THE REMAINDER OF THE TERM OF THE AGREEMENT. - unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding obligation under the Agreement.- grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and could not have been rendered due to an act of the government which was clearly beyond GLOBE’s control.

GLOBE IS LIABLE FOR PAYMENT OF RENTALS FOR THE MONTH OF DECEMBER 1992- Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased

using the earth station subject of the Agreement was not established during the trial- TC found that US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992.- Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time.

EXEMPLARY DAMAGES MAY BE AWARDED IN CASES INVOLVING CONTRACTS OR QUASI-CONTRACTSif the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner

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GAISANO CAGAYAN, INC. vs.INSURANCE COMPANY OF NORTH (BLUE JEANS)AUSTRIA-MARTINEZ, J.:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from ICNA fire insurance policies with book debt endorsements. The insurance policies

provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines." The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."

the ICNA shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur.

Insured shall submit to the ICNA within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and dealers.

Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in CDO was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

ICNA filed a complaint for damages against Gaisano on February 4, 1992,. - IMC and LSPI filed with ICNA their claims under their respective fire insurance policies with book debt endorsements; - As of February 25, 1991, the unpaid accounts of Gaisano on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; - They paid the claims of IMC and LSPI and, by virtue thereof, ICNA was subrogated to their rights against Gaisano; - made several demands for payment but went unheeded

Gaisano - Fortuitous event or force majeure- respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee;- that IMC and LSPI never communicated to it that they insured their properties; - it never consented to paying the claim of the insured.

RTC dismissed ICNA’s complaint.- Fire was purely accidental and cause was not attributable to the negligence of the Gaisano; - it has not been established that Gaisano is the debtor of IMC and LSPI;- that since the sales invoices state that "it is further agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise remains the property of the

vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.

CA reversed. - sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing sold; - that loss must be borne by Gaisano since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event,

the risk is borne by the owner of the thing at the time the loss under the principle of res perit domino; - that Gaisano’s obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not extinguished, even if the fire is considered a

fortuitous event;- that by subrogation, the ICNA has the right to go against Gaisano; - being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.

ISSUES: 1) W/N CA erred in holding that the insurance in the instant case was one over credit.2) W/N CA erred in holding that all risk over the subject goods in the instant case had transferred to petitioner upon delivery thereof.3) W/N CA erred in holding that there was automatic subrogation under art. 2207 of the civil code in favor of respondent.

1) petitioner contends - insurance in the present case cannot be deemed to be over credit since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; - it was not credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; - even if the insurance is deemed as one over credit, there was no loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such

demands came from respondent only after it had already paid IMC and LSPI under the fire insurance policies.15

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2) petitioner avers - despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the goods.

3) petitioner submits - no subrogation in favor of respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; - that petitioner was not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval ever secured; - that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire.

Respondent counters - while ownership over the ready- made clothing materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from

its destruction by fire; - petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the presumption of liability under Article 1265 of the Civil Code; - fire was caused through petitioner's negligence in failing to provide stringent measures of caution , care and maintenance on its property because electric wires do not usually short circuit unless there

are defects in their installation or when there is lack of proper maintenance and supervision of the property;

PROPER INTERPRETATION OF THE QUESTIONED INSURANCE POLICY. Gaisano claims that the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner.

WORDS OF A CONTRACT ARE PLAIN AND READILY UNDERSTOOD, THERE IS NO ROOM FOR CONSTRUCTION. In this case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers (Gaisano) of the Insured anywhere in the Philippines ." and defined book debts as the "unpaid account still appearing in the Book of Account of the Insured (Blue Jeans Distributors) 45 days after the time of the loss covered under this Policy."

Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured. Thus, what were insured were the accounts of IMC and LSPI with Gaisano which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.

Gaisano argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[ i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid."

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; x

when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer (gaisano). gaisano bears the loss of the goods delivered. IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, IN PROPERTY INSURANCE, ONE'S INTEREST IS NOT DETERMINED BY CONCEPT OF TITLE, BUT WHETHER INSURED HAS SUBSTANTIAL ECONOMIC INTEREST IN THE PROPERTY.

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or(c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Therefore, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien.

In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies.

Is petitioner liable for the unpaid accounts? YESPetitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 of the Civil Code is misplaced.

petitioner bears the loss under Article 1504 (1) of the Civil Code. insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. petitioner's obligation is for the payment of money.

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where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the obligation. This rule is based on the principle that the genus of a thing can never perish. Genus nunquan perit.

An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor. Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Records show that Gaisano has an outstanding account with IMC in the amount of P2,119,205.00. The check voucher as evidencing payment to IMC and the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim . The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x

Gaisano failed to refute respondent's evidence. As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

ROBERTO SICAM vs. LULU JORGE (pawn)AUSTRIA-MARTINEZ, J.:On different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with Sicam to secure a loan of P59,500.00. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Parañaque Police Station.

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu filed a complaint against petitioner Sicam with the RTC seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages. Petitioner Sicam filed his Answer

- he is not the real party-in-interest as the pawnshop was incorporated - that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous.Respondents subsequently filed an

Amended Complaint to include petitioner corporation.

- filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents opposed the same

The RTC dismissed respondents’ complaint as well as petitioners’ counterclaim.- petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; - in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the

corporate debt or credit is not the debt or credit of a stockholder.- had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the

victim from liability for the loss and that the parties’ transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen.

CA reversed the RTC, the dispositive portion of which reads as follows:- ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8

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- DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C. Sicam";

- there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation.- corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its

custody as it derives earnings from the pawnshop trade which petitioners failed to do; - Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at least guilty of contributory

negligence and should be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9Anent the first assigned error, petitioners point out that the CA’s finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants’ brief."10Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from infirmities, as follows:(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of respondents;(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members.Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents’ brief which had the following defects:(1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place;(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies;(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers.Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda.

We find no merit in the petition.- CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to

perpetrate fraud and/or confuse legitimate issues. The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them.- Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by Sicam himself. As correctly observed by the CA, in all the pawnshop receipts issued to

respondent Lulu in September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong impression to respondents and the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation.

- Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.

We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC.- Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and known as

Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real party in interest against whom the complaint should be directed. In fact, he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its Decision

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case.

ISSUE: whether petitioners are liable for the loss of the pawned articles in their possession. Yes.Article 1174 of the Civil Code provides: Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following elements must concur:

a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will;b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid;c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, d) the obligor must be free from any participation in the aggravation of the injury or loss.

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THE BURDEN OF PROVING THAT THE LOSS WAS DUE TO A FORTUITOUS EVENT RESTS ON HIM WHO INVOKES it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God.

In this case, Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event.

- Sicam failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned.- Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. - It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. - Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not

automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation.

On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.

Article 2099 of the Civil Code, the provision on pledge, particularly provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property.

Article 1173 of the Civil Code further provides:The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

- NEGLIGENCE is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do. It is want of care required by the circumstances.

- failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus:

- NO SECURITY MEASURES ADOPTED. There was no clear showing that there was any security guard at all; Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded.

- We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries since there is no statutory basis. Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code. The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform.

- the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence (Austria)- Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the persons

who were allowed entrance to the premises and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart away the pawned articles.

- In Cruz, Dr. Filonila O. Cruz, Camanava District Director of (TESDA),. We held that riding the LRT cannot per se be denounced as a negligent act more so because Cruz’s mode of transit was influenced by time and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance can reasonably be expected to do the

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same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position and pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and negligence can never be presumed.

- Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop.

METRO CONCAST STEEL vs.ALLIED BANK CORPORATION, PERLAS-BERNABE, J.:On various dates and for different amounts, Metro Concast, a corporation duly organized and existing under and by virtue of Philippine laws and engaged in the business of manufacturing steel, through its officers, herein individual petitioners, obtained several loans from Allied Bank. These loan transactions were covered by a promissory note and separate letters of credit/trust receipts, the details of which are as follows:

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.), with penalty charge of 3% per month in case of default; while the twelve (12) trust receipts uniformly provided for an interest rate of 14% p.a. and 1% penalty charge. By way of security, the individual petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements in favor of Allied Bank. Petitioners failed to settle their obligations under the aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent them demand letters, all dated December 10, 1998, seeking payment of the total amount of P51m but to no avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of money (subject complaint) against petitioners before the RTC.

Petitioners - admitted their indebtedness to Allied Bank but denied liability for the interests and penalties charged, claiming to have paid the total sum of P65,073,055.73 by way of interest charges for the period covering 1992

to 1997.- the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation of the peso against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the business

of Metro Concast and eventually leading to its cessation.- Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter, however,

refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of the sale to their outstanding obligations. - petitioners offered the equipment for sale, but since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the years. - In 2002, Peakstar, expressed interest in buying the scrap metal. During the negotiations with Peakstar, petitioners claimed that (Atty. Saw), a member of Allied Bank’s legal department, acted as the latter’s agent. - Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a MOA was drawn between Metro Concast, represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar

obligated itself to purchase the scrap metal for a total consideration of P34,000,000.00, payable as follows:(a) P4m by way of earnest money – 2m to be paid in cash and the other 2m to be paid in two (2) post-dated checks and(b) the balance of P30m to be paid in ten (10) monthly installments of P3,000,000.00, secured by bank guarantees from Bankwise, Inc. (Bankwise) in the form of separate post-dated checks.

Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard, petitioners asseverated that:(a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as force majeure ; and(b) since Allied Bank was the party that accepted the terms and conditions of payment proposed by Peakstar, petitioners must therefore be deemed to have settled their obligations to Allied Bank.

- it was Atty. Saw himself who drafted the MoA and subsequently received the P2m cash and the two (2) Bankwise post-dated checks worth P1m each from Camiling. However, Atty. Saw turned over only the two (2) checks and P1.5 in cash to the wife of Jose Dychiao.

RTC dismissed the subject complaint, - "causes of action sued upon had been paid or otherwise extinguished." - since Allied Bank was duly represented by its agent, Atty. Saw, in all the negotiations and transactions with Peakstar – considering that Atty. Saw

(a) drafted the MoA,(b) accepted the bank guarantee issued by Bankwise, and(c) was apprised of developments regarding the sale and disposition of the scrap metal

- then it stands to reason that the MoA between Metro Concast and Peakstar was binding upon said bank.

The CA reversed and set aside the ruling of the RTC, - "no legal basis in fact and in law to declare that when Bankwise reneged its guarantee under the [MoA], herein [petitioners] should be deemed to be discharged from their obligations lawfully incurred in favor of

[Allied Bank]."- MOA did not indicate that Allied Bank intervened or was a party thereto. - the post-dated checks pursuant to the MoA were issued in favor of Jose Dychiao. - no sufficient evidence on record showing that Atty. Saw was duly and legally authorized to act for and on behalf of Allied Bank, opining that the RTC was "indulging in hypothesis and speculation"- While Atty. Saw received the earnest money from Peakstar, the receipt was signed by him on behalf of Jose Dychiao.- aforesaid checks and receipts were signed by [Atty.] Saw either as representative of [petitioners] or as partner of the latter’s legal counsel, and not in anyway as representative of [Allied Bank]."

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ISSUE: W/N the loan obligations incurred by the petitioners under the subject promissory note and various trust receipts have already been extinguished when Peakstar reneged its obligation under its MOA with Allied Bank it being a force majeure?

HELD: NO. - Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance, the loss of the thing due, the condonation or remission of the debt, the confusion or merger of the rights

of creditor and debtor, compensation or novation.

- The MoA does not have any relevance to the performance of petitioners’ obligations to Allied Bank. The MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from various loan transactions. Absent any showing that the terms and conditions of the latter transactions have been, in any way, modified or novated by the terms and conditions in the MoA, said contracts should be treated separately and distinctly from each other, such that the existence, performance or breach of one would not depend on the existence, performance or breach of the other.

- as the CA pointed out, the fact of Allied Bank’s representation has not been proven in this case and hence, cannot be deemed as a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank.

Now, anent petitioners’ reliance on force majeure, - Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event under jurisprudential formulation. As discussed in Sicam v. Jorge:

- Fortuitous events: extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following elements must concur:

(a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury or loss.

- Peakstar’s breach is not "impossible"to foresee or even an event which is independent of human will." - Neither has it been shown that said occurrence rendered it impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the former’s force majeure theory altogether.- In any case, as earlier stated, the performance or breach of the MoA bears no relation to the performance or breach of the subject loan transactions, they being separate and distinct sources of obligations.- No proof that the obligations in Allied bank by petitioners had already been paid or, in any way, extinguished. - Considering, however, that Allied Bank’s extra-judicial demand on petitioners appears to have been made only on December 10, 1998, the computation of the applicable interests and penalty charges should be

reckoned only from such date.

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Art. 1176: The receipt of the principal by the creditor without the reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid.

Principle in 1176: Before the presumption that a prior installment had been paid may arise, the receipt must specify the installment of which payment is made

Art. 1177: The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all rights and bring all the actions of the latter for the same purpose, save those which are inherent In his person; they may also impugn acts which the debtor may have done to defraud them.

Art. 1178 Subject to the law, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary.

Art. 1191 The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing , in accordance with Art. 1385 and 1388 and the Mortgage Law.

Art. 1192 In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. IF it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.

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REMEDIES AVAILABLE TO CREDITORS FOR THE SATISFACTION OF THEIR CLAIMS1. Exact fulfillment of the obligation by specific or substitute performance with a right to damages in either case;2. In case of reciprocal obligations, petition the court to resolve the contract;3. Pursue the leviable (not exempt from attachment under the law) property of the debtor;4. Accio Ddirecta (1729 and 1652): Right of the lessor to go directly to the sublessee for the unpaid rents of the lessee, Right of the laborers or persons who furnish materials for a piece of work undertaken by a

contractor to go directly to the owner for any unpaid claims due to the contractor5. Accion Subrogatoria- to be subrogated to all the right and actions of the debtor save those which are inherent in his persons

REQUISITES1. The debtor to whom the right of action properly pertains must be indebted to the creditor;2. The creditor must be prejudiced by the inaction or failure of the debtor to proceed against third person;3. The creditor must have pursued first or exhausted all the properties of the debtor which are not exempt from execution;4. The debtors assets are insufficient to satisfy his claims; and5. The right of account is not purely personal

Personal rights of debtor (cannot be exercised by creditor) Right to existence (support) Rights or relations of public character Rights of an honorary character Rights consisting of powers which have not been used, including:

o Power to administer, such as when the debtor fails to have some property leased the creditor cannot give it in lease for himo Power to carry out an agency or deposit, which are purely personal actso Power to accept for a contract

Non-patrimonial rights (action to establish the debtor’s status as a legitimate/illegitimate child, the action for legal separation / annulment of marriage, and other rights arising from family relations Patrimonial rights inherent in the person of the debtor, such as the right to revoke a donation by reason of ingratitude and the right to demand the exclusion of an unworthy heir

6. Accion Pauliana- asking the court to rescind or to impugn all the acts which the debtor may have done to defraud the creditors (Art. 1380-1389)REQUISITES1. There is credit in favor of the plaintiff2. Debtor has performed an act subsequent to the contract, giving advantage to other persons3. Creditor is prejudiced by the debtor’s act which are in favor of 3rd parties and rescission will benefit the creditor4. The creditor has no other legal remedy5. The debtor’s acts are fraudulent

Without the fault of the debtor With the fault of the debtorLOSS Obligation is extinguished Debtor obliged to pay damagesDETERIORATION Impairment borne by the creditor Creditor may choose between rescission or its fulfillment with damages

in either case

1175Usury

contracting for or receiving something in excess of the amount allowed by law for the loan or use of money, goods, chattels, or credits; exaction of excessive interest.

Kinds of Interest1) Interest given for compensation or use of the money (moratory interest)2) Interest given by way of damages (compensatory interest)

Simple Laon (Mutuum) One of the parties delivers to another money or other consumable things upon the condition that the same amount of the same kind and quality shall be paid.

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CHAPTER 3DIFFERENT KINDS OF OBLIGATIONS

See Art. 1179-1230

Section 1. Pure and Contractual Obligations

Art. 1179 (PURE)Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event.

Art. 1180When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197.

Art. 1181 SUSPENSIVE AND RESOLUTORYIn conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

Art. 1182 POTESTATIVE, CASUAL, AND MIXEDWhen the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.

Art. 1183 IMPOSSIBLE, DIVISIBLE, AND INDIVISIBLEImpossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them.

If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon.

Art. 1184 POSITIVEThe condition that some event happen at a determinate timeShall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place.

Art. 1185 NEGATIVEThe condition that some event will not happen at a determinate time Shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated,

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Bearing in mind the nature of the obligation

Art. 1186The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Art. 1187The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestation upon the parties,

The fruits and interests during the pendency of the conditionShall be deemed to have been mutually compensated.

If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.

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Art. 1188The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he paid by mistake in case of a suspensive condition.

Art. 1189When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears 3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;4) If it deteriorates through the fault of the debtor, the creditor my choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary.

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CHAPTER 3

DIFFERENT KINDS OF OBLIGATIONSSee Art. 1179-1230

Classification of Obligations [PARAS]a) According to the PRIMARY classification of Civil Code:

1. Pure as distinguished from conditional2. Pure as distinguished from that with a period or term3. Alternative or facultative obligations (as distinguished from conjunctive)4. Joint as distinguished from solidary5. Divisible as distinguished from indivisible6. With a penal clause (as distinguished from those without)

b) SECONDARY classification by the Civil Code:1. Unilateral as distinguished from bilateral 2. Real and Personal3. Determinate and Generic4. Positive and Negative5. Legal, Conventional, Penal6. Civil and Natural

c) According to Sanchez Roman, IV1. According to juridical quality and efficaciousness

i. Natural- according to natural lawii. Civil- according to civil lawiii. Mixed- according to both natural and civil laws

2. By the parties or subjectsi. Unilateral, bilateralii. Individual, collectiveiii. Joint, solidary

3. By the object of the obligationi. Specific, genericii. Positive, negativeiii. Real, personaliv. Possible, impossiblev. Divisible, indivisiblevi. Principal, accessoryvii. Simple, compound

[if compound-may be1. Conjunctive- demandable at the same time2. Distributive- either alternative or facultative]

4. Classification by the Code according to Defects:i. No defect- validii. Defective

1. Rescissible2. Voidable 3. Unenforceable4. Void

PRIMARY CLASSIFICATION OF OBLIGATIONS UNDER THE CIVIL CODE

1. Demandability a) Pureb) Conditionalc) With a period

2. Plurality of Object

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a) Simpleb) Alternativec) facultative

3. Plurality of Subjecta) Simpleb) Jointc) Solidary

4. Performancea) Divisibleb) Indivisible

5. Sanctions for Breacha) With a penal clauseb) Without a penal clause

Classification of ConditionsAs to effect:

Suspensive- happening of the condition gives rise to the obligationResolutory- the happening of the condition extinguishes the obligation

Effects: No retroactive effect Obligation is extinguished Restore to each other what was received plus interest/fruits

As to Cause or OriginPotestative- depends upon the will of the debtor

(I’ll sell you my car if I like)Casual- depends on chance or hazard or the will of a third person

(If I win the lotto)Mixed- depends partly on the will of one of the parties and partly on chance or the will of a third person

(If I pass the bar)

As to DivisibilityDivisible – capable of partial performanceIndivisible- not capable of partial performance because of the nature of the thing or the intention of the parties.

As to ModePositive- an act is to be performedNegative – something will be omitted

As to FormExpress- the condition is statedImplied- the condition merely inferred

As to PossibilityPossible- capable of fulfillment in nature and in lawImpossible- not capable of fulfillment due to nature or due to the operation of the law or morals or public policy, or due to a contradiction on its termsGR: Impossible and illegal conditions shall annul the obligation which depends upon themException:

Pre-existing obligation If obligation is divisible In simple or remuneratory donations Testamentary dispositions Conditions not to do an impossible thing

As to numberConjunctive- if all the conditions must be performed

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Alternative- if only a few of the conditions has to be performed

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PURE AND CONDITIONAL OBLIGATIONS(See Articles 1179-1190)

PURE- one whose effectivity or extinguishment does not depend upon the fulfillment or nonfulfillment of a condition or upon the expiration of a period and is demandable at once; Nothing to exempt the debtor from compliance therewith (no condition/date=immediately demandable)

CONDITION – future and uncertain event or a past event unknown to the parties Must be imposed by the will of the party and not a necessary requisite of a legal act

CONDITIONAL – one whose effectivity is subordinated to the fulfillment of a future AND uncertain event or upon a past event unknown to the parties

CHARACTERISTICS OF CONDITIONS1) Future and uncertain

An event which is NOT uncertain but must necessarily happen cannot be a condition, but a TERM.2) Past but unknown

Future knowledge of a past event3) Must NOT be impossible

PRINCIPAL KINDS1. Suspensive- (condition precedent/antecedent)- happening of condition gives rise to obligation; demandability is suspended until the happening of a future and uncertain event which constitutes the condition

Birth of the contract takes place only if and when the condition happens or is fulfilled It must appear that the performance of an act or the happening of an event was intended by the parties as a suspensive condition There can be no rescission (1191) of an obligation that is still non-existent, the suspensive condition not having been fulfilledEffects: a) Effectivity retroacts to the day of the constitution of the obligationb) No retroactivity with reference to fruits or interest and prescriptionc) Creditor may preserve rightsd) Debtor- recovery of payment by mistake or even w/o mistake

2. Resolutory (condition subsequent) happening of condition extinguishes obligation (or right) already existing

Effects: where a contract is subject to a resolutory condition, non-compliance with or non-fulfillment of the condition resolves the contract by force of law and without need of judicial intervention

WHEN OBLIGATION IS DEMANDABLE AT ONCE1. When it is pure2. Or when it has a resolutory condition

(I’ll give you my car, but you should not marry Maria this year.) (This is demandable NOW).3. When it is subject to a resolutory period (Art. 1193, 2)

[1180] comments1) Debtor to pay ‘when his means permit’: considers the obligation as one with a TERM or PERIOD

o Art. 1197 shall apply and the court is obliged to fix the duration of the period within which payment is to be made

[1181] comments1) Suspensive conditions

happening of which will give rise to the acquisition of a right (condition precedent) not demandable at once characterized by its efficacy or obligatory force is subordinated to the happening of a future AND uncertain event; If the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. Where suspensive condition depends upon the will of the creditor, it is VALID Positive suspensive condition:

o Contract to sell- property on installmento Promise to give a book to a person if it rains the next day (uncertain event)

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2) Resolutory conditions Conditions subsequent Demandable at once Rights already acquired are lost once the condition is fulfilled Where resolutory condition depends upon the will of the debtor, it is VALID

3) Conditional Perfection of a Contract If the Nature of the contract depends upon the fulfillment of a condition, non-fulfillment thereof means the non-perfection of the contract since the suspensive condition should have been first fulfilled.

ACQUISITION AND EXTINGUISHMENT OF RIGHTS

DBP v. CAJ. Padilla

FACTS:Private respondents were original land owners of a parcel of agricultural land which they mortgaged to DBP on May 1977. When PR defaulted in their obligation, DBP foreclosed the mortgage and emerged as sole bidder in the ensuing auction sale.

On 1984, both parties entered into A deed of Conditional Sale where DBP agreed to reconvey the foreclosed property to PRs for 73k and the balance is payable on an installment basis for six years. The PRs religiously paid and were able to pay the full repurchase price on 1990.

However, DPB informed them that it was already legally impossible for them to reconvey the property in view of Sec. 6 of RA 6657 (CARL) approved on June 10, 1988 and Sec. 1 of EO 407 issue on June 10, 1990.

RTC ruled in favor of PR and maintained that Sec. of CARL taken in its entirety, is a provision dealing primarily with retention limits in agricultural land allowed the landowner and his family and that the 4 th para , which nullifies any sale by the original landowner does not cover sale by DPB as they only acquired the property through the foreclosure

CA maintained that if the obligation depends upon a suspensive condition, the demandability as well as the acquisition or effectivity of the rights arising from the obligation is suspended pending the happening or fulfillment of the fact or event which constitutes the condition . Once the event which constitutes the condition is fulfilled resulting in the effectivity of the obligation, its effects retroact to the moment when the essential elements which gave birth to the obligation have taken place.

- In this case, full payment by the appellee on 1990 retroacts to the time the contract of Conditional sale was executed on 1984. As such, it cannot be covered by CARL.- It also accepted payments until full payment - EO 407 cannot affect appellant’s obligation since the property has already been obtained prior to the effectivity of the EO.

ISSUE: W/N it is legally impossible for the DBP to reconvey the agricultural land to its original owners due to supervening event of enacting the laws they invoke?

HELD: No.

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. The deed of conditional sale executed by the parties on 1984 was faithfully complied with by PRs as they paid the full repurchase price on 1990. They allowed PRs to fulfill the condition and they only invoked Sec. 6

of RA 6657 after full payment and demand of PRs for the execution of Deed of Sale.

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Sec. 6 of RA 6657 was enacted on June 10, 1988 (deals with “any sale, lease, management contract or transfer or possession of private lands executed by original landowner”) DBP only acquired the land through foreclosure proceedings; original owner is PR CARL deals with retention limits Enacted 2 months after PRs had legally fulfilled the condition in the contract of conditional sale by the payment of all installments on their due dates. (the laws are prospective in application)

CPU v. CAJ. Padilla

Don Ramon Lopez, Sr. was a member of the Board of Trustees of the CPU who donated a parcel of land in favor of CPU (petitioner) with a condition that the land shall be utilized by CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum. (1939)Conditions

1. Utilized by CPU exclusively for establishment and use of medical college with all its buildings as part of the curriculum2. CPU must not sell/transfer/convey to any 3rd persons or encumber the land3. It shall be called RAMON LOPEZ CAMPUS

The Heirs of Lopez, Sr. filed an action for annulment of donation and reconveyance against CPU for its failure to comply with the conditions of the donation. It also argued that it had in fact negotiated the donated property to be exchanged with NHA.

CPU raised prescription as defense and denied having violated the conditions.

RTC ruled that CPU failed to comply with the conditions which was affirmed by CA Reversed and maintained annotations of the title are resolutory conditions and the breach of which should terminate the rights of the donee thus making the donation revocable. No fixed period within which the condition must be fulfilled; hence until a period is fixed, pet could not be considered as having failed to comply Remanded

ISSUE: W/N the annotations are resolutory conditions and breach of which would terminate the rights of the donee and render the donation revocable.

HELD: Yes.The donation made was onerous and one executed for a valuable consideration which is considered the equivalent of the donation itself since it imposes a burden (to build a medical school)

Art. 1181 of the Civil Code on Conditional Obligations: the acquisition of rights as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition.

When a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a resolutory one. It is not correct to say that the schoolhouse had to be constructed before the donation became effective, that is, before the done could become the owner of the land, otherwise, it would be invading the property

rights of the donor.

The condition had to be valid before the fulfillment of the condition. If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished.

PRESCRIPTION DOES NOT APPLY. The condition imposed by the donor depended upon the exclusive will of the donee as to when it shall be fulfilled. When CPU accepted the donation, it bound itself to comply with the conditions thereof. Since the time within which the condition should be fulfilled depended upon the donee’s will, it has been held that is absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of the heirs of the donor upon the original contract.

Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically determined in the instant case. Period must then be counted from the day on which the corresponding action could have been instituted. (legal possibility of bringing the action as starting point) In this case, the reckoning point is the expiration of a reasonable opportunity for CPU to fulfill (court must determine this)

Art. 1197 APPLIES WHERE PERIOD IS NOT FIXED. The courts may fix the duration because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such has arrived.

BUT NOT IN THIS CASE. More than reasonable period of 50 years has already been allowed for CPU to avail of the opportunity to comply with the condition even if it be burdensome, but it failed to do so.

Art. 1191 When one of the obligors cannot comply with what is incumbent upon him, the oblige may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.

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[1182] comments POTESTATIVE CONDITIONS- a condition both potestative and resolutory may be valid even if the condition is made to depend upon the will of the obligor

1) Potestative, Casual, and Mixed Conditionsa. Potestative- depends on the exclusive will of one of the partiesb. Casual- depends on chance or upon the will of a third person

2) Potestative (Facultative) Conditiona. On part of debtor

i. If suspensive- both the condition and obligation are VOID, for the obligation is illusory (I’ll give you 1000 next month if I live)(I’ll pay you only after I have harvested fish)

ii. If resolutory- VALID(A promises to put in possession his house in Phil to B while A is abroad, but requires that the house be returned to A’s possession in the event A returns, the condition is VALID as it is in resolutory character)

b. On part of the creditor- VALID(I’ll give you my fountain pen if you desire to have it)

but if the potestative condition is imposed not upon the birth of the contract but on the fulfillment, only the condition is avoided, leaving the obligation unaffectedo court must fix a period

[1183 ] commentsIMPOSSIBLE AND ILLEGAL CONDITIONSGR: They shall annul the obligation which depends upon themExcept:a) Pre-existing obligationb) Divisible obligationc) Simple or remuneratory donationsd) Testamentary dispositionse) Conditions not to do an impossible thing

Only applies to positive suspensive conditions Only applies to contracts

Classificationa) Impossible

a. Physically- to make a dead man aliveb. Logically- to make a circle and at the same time square

b) Illegala. Prohibited by good customs, public policy, prohibited, directly, or indirectly, by law, like killing X, a friend

Effects:a) If the condition is to do an impossible or illegal thing, BOTH the condition and the obligation are VOID (because the debtor knows that no fulfillment can be done and therefore is not serious about being liable)

a. I’ll sell you my land if you can make a dead man live againb) If the condition is NEGATIVE, that is, not to do the impossible, just disregard the condition BUT the obligation remains.

a. I’ll sell you my land if you cannot make a circle that is at the same time square (useless; doesn’t make sense)c) If the condition is NEGATIVE, i.e. not to do an illegal thing, both the condition and the obligation are VALID

a. I’ll sell you my land if you do not kill X. (Valid, if you kill X, you cannot but the land)NB: Example given only applies to ObliCon, not to Testamentary dispositions or Donations because in such cases, impossible or illegal condition is just disregarded, and the disposition or donation remains valid.

Reason: the liberality of the giver is the consideration of the gift

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Rulings: The duty of a successful bidder to make a construction within one and one-half years from the award is extinguished, if because of the confiscation of his materials by the Japanese army, the work has become

physically impossible.

FACTS: Seller owned a piece of land mortgaged to X. Land was sold to buyer on the condition that the mortgage would first be cancelled. Seller, however, could not have contact with X.Issue: Is he still bound to sell?HELD: No, since the condition has become impossible.

If some conditions in a contract are impossible to comply with, the insurer cannot validly assert a breach of said conditions.

[1184] commentsPOSITIVE CONDITIONS

Extinguished if time expires or indubitable of condition to happen

Example: I’ll give you my land if you marry Maria X this year. If by the end of the year, Maria X is already dead, or you have not yet married her, the obligation is extinguished.

If the period is not fixed in the contract, the court, considering the parties’ intentions, should determine what period was really intended.

[1185]NEGATIVE CONDITIONS

Effective from the moment the time elapsed, or Evident that it cannot happen If no time or period is fixed, it is deemed fulfilled at such time as may have probably been contemplated has elapsed Bearing in mind the nature of the obligation

Example: I’ll give you P1m if by 10/1/2005 you have not yetmarried Maria X.” If by said date, you are not yet married, or if prior thereto, Maria X had died, the obligation is effective — in the first case, from Oct. 1, 2005; and in the second case, from Maria’s death.

[1186]CONSTRUCTIVE OR PRESUMED FULFILLMENTReason: one must not profit by his own faultRequisites:a) Intent of the obligor to prevent the fulfillment of the obligation

either maliciously or not, the intent to prevent must be presentb) actual prevention of compliance

intention without prevention or prevention without intention is not sufficient. But intention and prevention in the exercise of a lawful right will not render this article applicable.

Example: A promised to sell to B a car if C could pass the bar. On the day of the examination, A caused C to be poisoned and be hospitalized. A is still bound to sell the car. (If, however, it turns out that C was really disqualifed to take the bar, as when he had not finished high school, or had taken his first year law in the prohibited special class, A is not bound.)

FACTS: A employed B for 2 years unless within 6 months, machinery already ordered would not, for any reason, arrive. A cancelled the order, so the machines did not arrive. At the end of six months B was discharged. B now claims salary for the period of two years on the ground that the debtor (A) had voluntarily prevented compliance with the condition. HELD: B has no right. First, because the condition here is resolutory and not suspensive; second, it was expressly agreed that the failure to arrive could be for “any reason,” including A’s own acts. Ordinary words should be given their ordinary significations, unless the parties intended otherwise

Although in general, Art. 1186 applies only to a suspensive condition, it may sometimes apply to a resolutory condition as in this case: A sold land now to B on condition that B marries C within one year, otherwise B should return the land. If A kills C, B does not have to return the land. This is because A is at fault

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CONSTRUCTIVE FULFILLMENT

TAYAG v. CA & LeyvaJ. Melo

FACTS: Deed of conveyance was executed on May 28, 1975 by Juan Galicia Sr and sister Celerina in favor of Leyva involving an undivided ½ portion of a piece of land. In consideration was an amount of 50k to be paid under the ff terms

1. 3k dp2. 10k to be paid 10 days after execution3. 10k to substitute indebtedness in PVB4. 27k within 1 year

An action for specific performance was filed by Leyva which ruled in their favor while Heirs opposed alleging breach of conditions:1. 3k paid2. 10 k staggered but only 9k was paid3. 10 k for PVB, only 6k was paid4. 27 k not paid

RTC upheld the theory of Constructive notice under 1186 and estoppel through acceptance of piecemeal payments in line with Article 1235 of the Civil Code. Josefina tayag admitted that the check issued as payment of the second installment was paid on staggered basis when it was dishonored; 3rd condition: Leyva paid BUT the sister co-vendor paid almost 4k which circumstance was construed to be a ploy under Art. 1186 of the Civil Code that “prematurely prevented plaintiff from paying the installment fully” and “for the purpose of withdrawing the title of the lot”. ; The acceptance by petitioners of the various payments even beyond the periods agreed upon, was perceived as tantamount to faithful performance of obligation under Art. 1235 CC. ; Leyva also consigned an amount to offset the remaining balance Petitioners are of the impression that the contract must be rescinded and

ISSUE:Did CA err in applying 1186 on constructive fulfillment where the proviso speaks of an obligor, while the petitioners are obligees? NOHELD:Instead of filing the case precisely to rescind the instrument because of non-compliance, they allowed PR to effect numerous payments after the grace periods in the contract. They even permitted PRs to take the initiative in filing a case for specific performance against them which is akin to a waiver or abandonment of their right to rescind normally under Art. 1191 of the Civil Code.

When the oblige accepts the performance, knowing its completeness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

The right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments. By and large, petitioner’s actuation is susceptible of but one construction- that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of PR.

Yes. CA correctly applied 1186 anent the third item of the contract. In a reciprocal obligation like a contract of purchase, both parties are mutually obligors and also obligees, and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment (Art. 1191).

Petitioners are also bound as obligors to respect the stipulation in permitting PR to assume the loan with the PVB which petitioners impeded when they paid the balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as determined thereafter.

[1187] commentsEFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITIONSGR: The obligation becomes effective from the time the obligation was constitutedExcept:

1) fruits or interests during pendency of the condition unilateral obligations, debtor gets the fruits and interests unless there is contrary intent in reciprocal obligations, the fruits and interests during the pendency of the condition shall be deemed to compensate each other personal obligations, courts shall determine the retroactive effect of the condition that has been complied

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2) period of prescription

Scope of Fruits Fruits refer to natural, industrial, and civil fruits (rent)

[1188]1. ACTION TO PRESERVE CREDITOR’S RIGHTSReason: if not allowed to take the appropriate actions, there is a danger the creditor will receive nothing, as when the object is deliberately destroyed, or hidden, or alienateda. To prevent loss/deterioration, enjoin and restrain acts of alienation or destruction by the debtor himself or by 3rd personsb. Prevent concealment of the debtor’s properties which constitute the guaranty in case of nonperformance of the obligationc. Demand security in case the debtor becomes insolventd. To compel the acknowledgment of the debtor’s signature on a private document or the execution of the proper public documents for registration so as to affect 3 rd personse. Register the deeds of sale or mortgages evidencing the contractf. Set aside fraudulent alienations made by the debtorg. Interrupt the period of prescription by actions against adverse possessors of the things which are the objects of the obligation

Example:ISSUES:(a) Pending fulfillment of the conditions (such as the employee’sservice), do the employees have any right with respect to the pension plan?(b) Would financial losses during the war authorize abolitionof the plan?

HELD:(a) Pending fulfillment of the conditions, the employees havea right in expectancy, which the law protects. Hence, underArt. 1188, appropriate actions may be taken by them.

(b) Financial losses will not excuse abolition of the pension plan because the obligation to pay money is an obligation to give a GENERIC thing.

RIGHT OF DEBTOR TO RECOVER WHAT WAS PAID BY MISTAKEReason: Solutio Indebiti, After all, the condition may not materialize

The debtor is also entitled to fruits or legal interest if the creditor be in BAD FAITH, that is, if the creditor knew that payment was being made prior t the fulfillment of the condition

If not paid by mistake, can there be recovery?1) If the condition is fulfilled, none (because of retroactivity)2) If not fulfilled, there is recovery (for this would be unjust enrichment) unless a pure donation was intended

[1189] commentsRULES ON LOSS, DETERIOARATION, AND IMPROVEMENTS DURING PENDENCY OF A SUSPENSIVE CONDITION (Art. 1189)

Improvement If by nature or by time inures to the benefit of the creditor If at the expense of the debtor debtor’s right is only that or a usufructuary

Requisites for application of 11891) The obligation must be a real obligation (to give)2) The object is a specific or determinate thing3) The obligation is subject to a suspensive condition4) The condition is fulfilled 5) There is loss, deterioration, or improvement of the thing during the pendency of the happening of the condition

LOSS Perishes

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Goes out of commerce Disappears, in such a way that its existence is unknown Disappears, in such a way that it cannot be recovered

Effects of partial loss That would amount to loss important enough to be considered a complete loss (determined by the courts) That would merely be considered a deterioration of the thing, in which case the rules on deterioration should apply

Deterioration Any reduction or impairment in the substance or value of a thing which does not amount to a loss If not imputable to the debtor, he is not liable for any damages But if due to fault of debtor, then creditor may either demand the thing or ask for rescission, w/ damages in either case

Improvement of a thing Anything added to or incorporated in, or attached to the thing that is due, is an improvement. If caused by nature of the thing or by time, such as alluvion or deposits of soil on the edge of the land bordering a river, or the natural growth of trees or plants on a piece of land, the improvement shall inure to the

benefit of the creditor (principle of retroactivity) If done at the expense of the debtor, rights of usufructuary (579, 580)- improvements may be removed without damage

1190. RESOLUTORY CONDITION HAPPENING; MUTUAL RESTITUTION When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received

In case of loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article which shall be applied to the party who is bound to return

As for obligations to do and not to do, the provisions of the second paragraph of Art. 1187 shall be observed as regards to the effect of the extinguishment of the obligation

[1190] CommentsRights of 3rd Persons- the happening of a resolutory condition does not ipso jure revest ownership in him; he merely becomes entitled to the delivery which would give him the ownership anew. (personal right)Loss, Deterioration, Improvement before the RC happens, the party who has a right, is practically in the same position as one who has an obligation subject to a suspensive condition; there is the possibility that he may have to return or deliver the thing

to the other party, and that possibility becomes a positive duty when the resolutory condition is fulfilled; in case of loss of the thing, deteriorations suffered by it, or improvements made thereon, the provisions of Article 1189 shall apply

Fruits and Interests no express provision unlike in reciprocal obligation where pending the happening of a suspensive condition, fruits and interests compensate each other and in unilateral obligations, the debtor shall keep the fruits

received expenses incurred by the person obliged to make restitution should be deducted from the gross value of the fruits to be returned

Protection of Rights party who would be entitled to restitution from the other in the event of resolutory condition is fulfilled, stands in the same position as a creditor in an obligation with a suspensive condition, in that he has expectancy of

recovery of the thing. Pending the fulfillment of resolutory condition, therefore, he should be entitled to take the same steps and bring the same actions allowed to the creditor under the 1st para. of art. 1188 for the protection of his rights.

1191. RECIPROCAL OBLIGATIONSThe power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,if the latter should become impossible.

The court shall decree the rescission claimed,

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Unless there be just cause authorizing the fixing of the period.This is understood to be without prejudice to the rights of 3rd person who have acquired the thing, In accordance w/ articles 1385 and 1388 and the Mortgage Law.

[1191] Comments:RECIPROCAL OBLIGATIONS Arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. To be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other

Tacit Resolutory Condition Condition imposed exclusively by law, even if there is no corresponding agreement between the parties When one party has performed his part of the contract, the other party incurs in delay

Declaration of Rescission by the Injured Party Does not require rescission by the courts Extrajudicial declaration by the creditor, electing rescission produces legal effect Mere failure of one party to perform his undertaking does not ipso jure produce the resolution of the contract; the party entitled to resolve should apply to the court for a decree of rescission or resolution In the absence of previous judicial decree declaring resolved the contract of sale of property by reason of the failure of the vendee to pay the stipulated price, the vendor cannot just recover possession of the property or

sell the same to another person

NB: If the obligation has not yet been performedrescission by the party who is ready and willing to perform would suffice But where the injured party has already performed such as when property has already been delivered by him, he cannot by his own declaration rescind the contract and reacquire title to the property, if the other party

opposes the rescission; court action must be taken

1192.In case both parties have committed a breach of the obligation,The liability of the first shall be equitably tempered by the courts.If it cannot be determined which of the parties first violated the contract, The same shall be deemed extinguished, andEach shall bear his own damages.

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RESCISSION/RESOLUTION(1191)

CANNU v. GALANG (resolution in 1191 is a principal action)J. Melo

FACTS:Spouses Galang obtained a loan from Fortune Savings and Loan Association (FSLA) for 173k to purchase a House and Lot. To secure payment, a real estate mortgage was constituted on the said property in favor of the bank. Subsequently, National Home Mortgage Finance Corp (NHMFC) purchased the mortgage loan of the spouses from FSLA for 173k.

Galang (wife) authorized her atty-in-fact to sell the H&L in favor of Leticia Cannu who agreed to buy the property for 120k and assume the balance of the mortgage obligations w/ the NHMFC and with CERF realty

Date Amount paidJuly 19, 1990 40kMarch 13, 1190 15kApril 6, 1991 15kNovember 28, 1991 5kBalance45k

Total75k

A deed of sale w/ Assumption of Mortgage obligation was made and entered into by the parties which stated among others that a consideration of 250k was received by the vendors. Cannus then immediately took possession of the property and paid 55k to NHMFC and paid the “equity” or second mortgage to CERF.

Despite requests from Timbang and Galang to pay the balance of 45k, or in the alternative vacate the property, Cannus refused. On the other hand, the Cannus informed the NHMFC of their assumption of mortgage which was not formally approved by the mortgagee.

Since Cannus failed to comply with their obligations, Galang paid 200k as full payment of her remaining mortgage loan with NMHFC . However, the release of the TCT in favor of the Galangs was held in abeyance due to the opposition made by the Cannus (they subsequently filed a specific performance against NMFHC)

NMFHC claimed that Cannus have no cause of action against it because they have not submitted the formal requirements. While Galangs said that their failure to fully pay the consideration and update the monthly amortizations with the NHMFC, they paid full the existing obligations as an initial step in the rescission and annulment of the Deed of Sale with Assumption of Mortgage .

RTC: no cause of action; admitted failure to pay 45k in consideration of the deed of sale w/ assumption of mortgage obligation (breach of contract); no legal personality since failed to comply with formal requirements

CA: breach is substantial; rescission is warranted and justifiedOut of the 250k purchase price which was supposed to be paid on the day of the execution of the contract in July, 1990, they only paid in the span of 8 years from 1990 to present the amount of 75k. Tender made by Cannus after the filing of the case in the amount of 278k cannot be considered as an effective mode of payment. It must not be by tender alone but by tender and consignation. 1990-1993 only six payments; not even sufficient for arrears and interests and penalties

ISSUES:1st error: Was the breach substantial so as to warrant rescission? Yes.2nd error: Was there non-compliance with the monthly amortization? Yes.3rd error: Did the facts and circumstances militate against rescission? No4th error: Is the action for rescission subsidiary? No

HELD:#1: YesArt. 1191 the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

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Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement. The question of whether a breach of contract is substantial depends upon the attending circumstances and not merely on the percentage of the amount not paid.

In this case, petitioner’s failure to pay the remaining balance of 45k is substantial. Even if assuming arguendo that it is the remaining balance left out of 250k or 18%, it is still substantial take together with the fact that the last payment was made only 18mos. before Galang paid the outstanding balance of the mortgage loan. The tender was only made 7months after the filing of the case; it is not legal payment unless it is completed by consignation.

#2: Yes Petitioners were not religious in paying the amortization with the NHMFC, as admitted by them in a span of 3 years from 1990-93. There was no formal assumption of mortgage obligation with NHMFC because of the lack of approval on account of petitioner’s non-submission of requirements in order to be considered as assingnees/successors-in-interest over the property covered by the mortgage obligation.

#3. The Atty-in-fact made constant follow-ups after the last payment made on 1991 but petitioners did not pay. Galang in her answer stated that she ordered Cannus for the complete compliance of their obligation by paying the full amount of the consideration or in the alternative vacate the property in question.

The fact that they later accepted installments does not constitute waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage. It was merely accepted as accommodation to petitioners since they kept on promising they would pay. But still, 18 months have lapsed and it never fully paid. Galangs exercised their right of rescission when they paid the outstanding balance of the mortgage loan with NHMFC. It was only after petitioners stopped paying that Galangs moved to exercise such right. Right to rescind or resolve can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation, and the other is not (paras)

#4. RESOLUTION UNDER 1191 IS A PRINCIPAL ACTION UNLIKE IN 1381. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the plaintiff but on the breach of faith by the defendant. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. Hence, reparation of damages for the breach is purely secondary.

On the contrary, rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison deter as well as the measure of the right to rescind. Hence, when the defendant makes good the damages caused, the action cannot be maintained or continued. But the operation of this provision is limited to rescission enumerated under 1381.

#5. UNILATERAL RESCISSION OF CONTRACT. The power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him. However, it is likewise settled in the absence of any stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a party’s own judgment that the other has committed a breach of the obligation. Where there is nothing in the contract empowering the petitioner to rescind it without resort to the courts, the petitioner’s action is unilaterally terminating the contract is unjustified [Tan v. CA]

In the case at bar, Galangs should have asked for judicial intervention to obtain judicial declaration of rescission. Be that as it may, the court still considered it to avoid the issues to undergo a new litigation since it was already found that the petitioners have substantially breached the contract.

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PAGTALUNAN v. DELA CRUZ (Maceda Law, Unlawful detainer)J. Azcuna

FACTS:

Patricio Pagtalunan entered into a Contract to Sell with respondent whereby the former agreed to sell and the latter to buy a house and lot which formed half of a parcel of land owned by Patricio for a purchase price of 17, 800 to be paid with a DP of 1,500 and through monthly installments of 150.

Among the stipulations in the contract is that respondent could immediately occupy the house and lot and in case of default of payment of any of the installments and upon lapse of 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration and all the payments made will be considered as rentals.

Petitioners claimed- Respondents only paid 12, 950 and stopped paying on 1979 - Kasunduan (respo borrowed 3k payable in 1 year but failed at it so it would be added to the monthly amortizations)- Her status as buyer automatically converted to lessee upon non-payment; continued possession was by mere tolerance

Respondent alleged- Patricio changed his mind and offered to refund all her payments provided she would surrender the house, but she refused- Harassments and demolitions plus nonpayment ensued- Admission of nonpayment but resumption of payment made on 1980- Patricio never sued for ejectment despite delayed payment- Accepted delayed payments- Agreement where Patricio consented to the suspension of installments but Patricio resumed demolishing even before the lapse of period agreed upon- Brgy. Capt. Said she should continue w/ suspension until her materials be returned by Patricio which he did not do until he died- Denied about kasunduan

MTC (unlawful detainer case)- Although the Contract to Sell provides for a rescission of the agreement upon failure of the vendee to pay any installment, what the contract actually allows is properly termed a resolution under 1191- Respondents failure to pay not a few installments caused the resolution or termination of the Contract to Sell- Last payment was made on January 9, 1980 and thereafter respondent’s right ceased to be a legal right and became possession by mere tolerance

RTC reversed- Agreement could not be automatically rescinded since there was delivery to the buyer- Judicial determination of rescission must be secured as a condition precedent to convert the possession de facto of respondent from lawful to unlawful

CA found that- Lower courts did not consider the MAceda Law’s application which protects the buyers of real estate on installment payments against onerous and oppressive conditions- Under said law, a buyer who has paid atleast two years of installments has a grace period of one month for every year of installment paid

Petitioner contends that - his demand letter be considered as a notice of cancellation for it would be a mere superfluity on part of the seller to have a rescission by a notarial act. - Assuming Patricio accepted payments after delayed installments, such act cannot prevent the cancellation of the Contract to Sell.

ISSUE: W/N the contract to sell was validly cancelled.

HELD: NO. non-compliance of the Maceda Law.RA 6552 or the “REALTY INSTALLEMNT BUYER PROTECTION ACT” governs the sale of real estate on installment. Petitioner must prove that the Contract of sell had been cancelled in accordance with this law which provides among others that:

If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments of the property equivalent to 50% of the total payments made and after 5 years of installments, an additional 5% every year.

The actual cancellation of the contract shall take place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender of the value to the buyer.

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This law recognizes the rights of seller to cancel the contract upon nonpayment of an installment by the buyer which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. Cancellation of the contract to sell may be done outside the court particularly when the buyer agrees to such.

However, the cancellation of the contract by the seller must be by a o notarial act of rescission and must also o refund to the buyer of the full payment of the cash surrender value of the payment of the property.o Actual cancellation of the contract takes place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission.

Non-compliance Patricio died without cancelling the contract; petitioner likewise failed to cancel in accordance w/ the law Demand letter cannot operate as a substitute to the requirement of a rescission by a notarial act Filing of the case does not exempt him from complying with the requirement unlike in Layug where the case is one for annulment of contract which is akin to the concept of rescission by notarial act Refund is likewise required; cash surrender value cannot be substituted by the rentals of the property after respondent failed to pay the installments due as the law does not provide a different mode of refund. 22 years of continued possession also noted Allowed to balance the purchase price Filing of complaint as reckoning point for determining the period for interests

DIEGO v. DIEGO (Oral contract to sell)J. Del Castillo

FACTS:Nicolas entered into an oral contract to sell with his brother Rodolfo where he sold his share in a family building in consideration of an amount of 500k. DP was 250k, the remaining half remained unpaid. It being a contract to sell, Nicolas still retains ownership. The rents of the building however, were remitted to by their brother, who was designated as administrator of the family building to Rodolfo. He demanded his two brothers to make an accounting and remit his share in the rents and fruits of the building but it remained unheeded. Hence, a suit was filed. Rodolfo however countered that Nicolas could no longer claim of the rents to the building since it was already sold to him and that he would pay the balance only after Nicolas would execute the deed of absolute sale.

RTC dismissed- As early as 1993, Nicolas was no longer entitled to the fruits of his share in the building upon acceptance of the partial consideration of his share in the building, it being a contract of sale that was perfected. - It was in 1997 when plaintiff was being required by Eduardo to sign the Deed of Absolute sale, hence no default on Rodolfo’s part.- Equity and fairness dictate that defendant has to execute the necessary document regarding the sale of his share to defendant- 250k balance will only be due and demandable when Nicolas executes a absolute deed of sale

CA- Sustained- No valid rescission

o There’s already a partial payment o Nicolas had already performed his part regarding the contracto Rodolfo opposes the rescission

- No period was stipulated within which Rodolfo shall deliver the balance of the purchase price and he should have acted to have it fixed by the courts; hence, no default- He can only demand payment, nothing more

ISSUE: W/N what transpired is a Contract to Sell or Contract of Sale

HELD: Contract to Sell Indicators

The stipulation to execute a deed of sale upon full payment of the purchase price is a unique and distinguishing characteristic of a contract to sell. It also shows that the vendor reserved title to the property until full payment.

The absence of a formal deed of reconveyance Acknowledgment receipt signed by Nicolas as well as the contemporaneous acts of the parties show that they agreed on a contract to sell, NOT of sale. Parties could have executed a document of sale upon receipt of the partial payment but they did not No intention to immediately transfer title over his share but only upon payment of the total purchase price Hence, Nicolas cannot be compelled to deliver the property until after the full-payment of the buyer

Nicolas did not surrender the title/possession to Rodolfo Nature; repeated demands to return the fruits Repeated demands to execute the deed of sale, recognition of nic’s ownership

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The contract is terminated or cancelled. The remedy of rescission is not available to parties in a contract to sell. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it since he retains ownership. Full payment of the purchase price partakes of a suspensive condition, the nonfulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective buyer. It does not, by itself, transfer the ownership to the buyer.

It was error for the CA to rule that Nicolas should have filed a case to fix a period for Rodolfo’s payment of the balance of the purchase price. It was not Nicolas’ obligation to compel Rodolfo to pay, it is the latter’s duty.

Rodolfo and Eduardo hired the services of an accounting firm for the purpose of estimating the amount to which Nicolas still owes Rodolfo as a consequence of the unconsummated verbal agreement The report said that after the revocation of Nicolas, the DP was considered as loan by Nicolas to Rodolfo which should earn 18% interest. Nicolas opposed, it was not previously agreed upon Eduardo is solidarily liable with Rodolfo as regards the share of Nicolas in the rents. Bad faith, abuse of authority, complicity Eduardo must be held solidarily liable with Rodolfo

GOTESCO PROP v. EUGENIO & FAJARDOJ, Perlas-Bernabe

FACTS:Sps Fajardo entered into a Contract to Sell with GPI for the purchase of a subdivision lot owned and developed by the latter. Under the contract, Sps Fajardo undertook to pay the purchase price of 126k within 10 yr including the interest at the rate of 9% /annum. GPI agreed to execute the final deed of sale in favor of Sps Fajardo upon full payment of the stipulated consideration. However, despite its full payment of the price and subsequent demands, GPI failed to full its obligation and to deliver the title and physical possession of the subject lot. Thus, Sps Fajardo filed before the HLURB a complaint for specific performance or rescission of contract against GPI.

Sps Fajardo- Violation sec. 20 of PD 957 due to its failure to construct and provide water facilities, improvements, etc.- Failed to provide boundary marks for each lot and the mother title had no technical description and was even levied in BSP w/o their knowledge- They pray to deliver or in the alternative, cancel or rescind and refund the total payments made plus legal interest

Gotesco- Sps are already aware that the title had no technical description- Failure to deliver the title to subject lot was beyond their control because while GPI’s petition for inscription of technical description was favorably granted, the same was reversed by CA which caused the delat in

the subdivision of the property into individual lots w/ individual titles- Hence, 1191 does not apply since they were actually willing to comply w/ their obligation but were only prevented from doing so due to circumstances beyond their control

HLURB- GPIs obligation to execute the corresponding deed and to deliver the TCT and possession of the subject lot arose and thus became due and demandable at the time the Sps had fully paid the purchase price for the

subject lot- Consequently, GPIs failure to meet the said obligation constituted SUBSTANTIAL BREACH of the contract which perforce warranted ITS RESCISSION. Hence, they have the option to recover the money

ISSUE: Does the Sps have the right to rescind the contract

HELD: YesIt is settled that in a contract to sell, the seller's obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer's full payment of the purchase price. In this relation, Section 25 of PD 957, which regulates the subject transaction, imposes on the subdivision owner or developer the obligation to cause the transfer of the corresponding certificate of title to the buyer upon full payment

GPI only filed a petition for inscription after almost 8 years after the acquisition of said property from its original owner. Moreover, despite petitioners’ allegation29 that the claim of BSP had been settled, there appears to be no cancellation of the annotations30 in GPI’s favor. Clearly, the long delay in the performance of GPI's

obligation from date of demand on September 16, 2002 was unreasonable and unjustified. It cannot therefore be denied that GPI substantially breached its contract to sell with Sps. Fajardo which thereby accords the latter the right to rescind the same pursuant to Article 1191 of the Code, viz:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter

should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

RESCISSION DOES NOT MERELY TERMINATE THE CONTRACT AND RELEASE THE PARTIES FROM FURTHER OBLIGATIONS TO EACH OTHER, BUT ABROGATES THE CONTRACT FROM ITS INCEPTION AND RESTORES THE PARTIES TO THEIR ORIGINAL POSITIONS AS IF NO CONTRACT HAS BEEN MADE. Consequently, mutual restitution, which entails the return of the benefits that each party may have received as a result of the contract, is thus required. To be sure, it has been settled that the effects of rescission as provided for in Article 1385 of the Code are equally applicable to cases under Article 1191, to wit:

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x x x xMutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties back to their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obligated to restore.Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

This Court has consistently ruled that this provision applies to rescission under Article 1191:

Since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return the things which were the object of the contract, together with their fruits , and the price with its interest," the Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to rescission under Article 1191.

In this light, it cannot be denied that only GPI benefited from the contract, having received full payment of the contract price plus interests as early as January 17, 2000, while Sps. Fajardo remained prejudiced by the persisting non-delivery of the subject lot despite full payment. As a necessary consequence, considering the propriety of the rescission as earlier discussed, Sps. Fajardo must be able to recover the price of the property pegged at its prevailing market value consistent with the Court’s pronouncement in Solid Homes

Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase price plus interest. It is definite that the value of the subject property already escalated after almost two decades from the time the petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value. Surely, such a situation should not be countenanced for to do so would be contrary to reason and therefore, unconscionable. Over time, courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law.

On this score, it is apt to mention that it is the intent of PD 957 to protect the buyer against unscrupulous developers, operators and/or sellers who reneged on their obligations .Thus, in order to achieve this purpose, equity and justice dictate that the injured party should be afforded full recompense and as such, be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for.

MAGLASANG v. NORTHWESTERN UNIVERSITY(IBS)J, Sereno

FACTS: Northwestern, an educational institution offering maritime-related courses engaged the services of a QC-based firm, GL Enterprises (Maglasang) to install a new IBS in Laoag. The installation of an IBS used as the student’s training lab was required by CHED to schools offering maritime transportation programs. Fort this purpose, the parties executed two contracts.

Total cost- 3.8mTrade in value of OLD IBS- 1mDiscount- 100kPayment-1m

Common to both contracts are the ff provisions1. The IBS and its components must be compliant with the International Maritime Organization and CHED standard and w/ manuals for simulators/major equipment;2. Contracts may be terminated if one party commits a substantial breach of its undertaking and3. Dispute under the agreement shall first be settled mutually between the parties, and if settlement is not obtained, resort shall be sought in the courts of law

Northwestern - paid 1m as DP to GL Enterprises who in turn assumed possession of Northwestern’s old IBS as trade-in payment for its service. Thus the balance of the contract price remained at 1.97 m.

- 2 months after the execution of the contract, Northwestern halted the installment operations of GLE upon finding that the materials are substandard (components were old, did not have instruction manuals, and warranty certificates; contained indications of being reconditioned; did not meet IMO and CHED stds.

- demanded compliance w/ agreement and suggested that GLE meet w/ its representatives to settle the situation. Instead of heeding this suggestion, - prayed for the rescission of contracts

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GLE - Instead of heeding the demand, filed a complaint for breach of contract and prayed for the payment of the remaining balance.

RTC- Both are at fault; each party must bear his own loss- Northwestern unduly halted the operations- GLE delivered substandard equipment - Mutual restitution and restore to original situation

CA- GLE is at fault- Since the parties essentially sought to have an IBS compliant with the CHED and IMO stds, it was GLE’s delivery of defective equipment that materially and substantially breached the contracts.- Northwestern only exercised ordinary prudence to prevent inevitable rejection of the IBS- Declared rescission under 1191 and ordered mutual restitution

ISSUE: W/N GLE committed substantial breach of contract

HELD: YesThe power to rescind the obligations of the injured party is implied in reciprocal obligations, such as in this case. See 1191

The two contracts require no less than substantial breach before they can be rescinded. Since the contracts do not provide for a definition of substantial breach that would terminate the rights and obligations of the parties, we apply the definition in our jurisprudence.

In Cannu v. Galang Substantial breaches are fundamental ones that defeat the object of the parties in entering into an agreement since the law is not concerned with trifles. W/N it is substantial depends upon the circumstances

In this case, Parties explicitly agreed that the materials to be delivered must be compliant with the CHED and IMO stds and must be complete w/ manuals According to CHED Memo, any simulator used for simulator-based training school shall be capable of simulating the operating capabilities of the shipboard equipment concerned; must achieve physical realism

appropriate for training objectives, etc. It was thus incumbent upon GLE to supply the components that would create an IBS that would effectively facilitate the learning of the students However, it miserably failed

o Old and substandard equipmentso No instruction manuals and warranty certso Indications of being reconditionedo Does not accurately point to the true northo Steering wheel is not one used in ships but came from an automobile

In contrast, the breach committed by Northwestern was considered as casual or slight. By way of negative definition, a breach is considered casual if it does not fundamentally defeat the object of the parties in entering into agreement. Furthermore, for there to be a breach to begin with, there must be “failure, without legal excuse, to perform any promise which forms the whole or part of the contract”. The stoppage of the installation in this case was justified in order to prevent the highly possible rejection of the IBS. It was an exercise of ordinary prudence to avert a possible wastage of time, effort, and resources.

OPTIMUM DEV BANK v. JOVELLANOSJ, Perlas-Bernabe

FACTS:Sps Jovellanos entered into a Contract to Sell with Palmera Homes for the purchase of residential HL for a total consideration of 1m. Pursuant to the contract, sps took possession of the subject property upon DP of 91, 500 undertaking to pay the remaining balance of the contract price in monthly installments for a period of 10 years.

Palmera homes assigned all its rights, titles, and interest in the Contract to Sell in favor of ODB through a deed of assignment. The latter issued a Notice of Delinquency and cancellation for sps Jovellanos’s failure to pay their monthly installments despite several written and verbal notices. Demand letters made by ODB remained unheeded which prompted ODB to file for unlawful detainer before the MeTC.

MeTC

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- Ordered the sps to vacate the premises- Contract to sell; cancelled for nonpayment of the stipulated monthly installment- Rights of possession is terminated or expired hence, their continued possession thereof constituted unlawful detainer

Sps contended- ODB made them believe that a compromise agreement is being prepared

RTC- Affirmed MeTC- Action involves the rights of the respective parties under the contract but merely the recovery of possession by ODB of the subject property after the spouses’ default

CA- Reversed- Controversy does not only involve issue on possession but also validity of cancellation of Contract to Sell and the determination of rights of the parties thereunder as well as the governing law RA6552. - MeTC had no jurisdiction over the complaint for unlawful detainer, for the case involves a matter not capable of pecuniary estimation

o Determination of rights of the parties under the contracto Hence within the jurisdiction of the RTC

ISSUE: W/N there was a valid cancellation of the contract to sell

HELD: Yes.Cause of action for unlawful detainer (physical or material possession at issue)

- Possession of property by defendant was by contract w/ or by tolerance of the plaintiff- Possession became illegal upon notice by plaintiff to defendant of the termination of the latter’s right of possession- Defendant remained in possession of the property and deprived plaintiff of the enjoyment thereof- W/in 1 yr from last demand on defendant to vacate the premises, plaintiff instituted an ejectment- MeTC are conditionally vested with authority to resolve question of ownership raised as an incident in an ejectment case where the determination is essential to complete adjudication of the issue of possession.- Concomitant to this authority is the ejectment court’s authority to look into the claim of ownership for purposes of resolving the issue of possession is its authority to interpret the contract or agreement upon which

the claim is premised.

The full payment of the purchase price in a contract to sell is a suspensive condition, the non-fulfillment of which prevents the prospective seller’s obligation to convey title from becoming effective. Further, it is significant to note that given that the Contract to Sell in this case is one which has for its object real property to be sold on an installment basis, the said contract is especially governed by – and thus, must be examined under the provisions of – RA 6552, or the "Realty Installment Buyer Protection Act", which provides for the rights of the buyer in case of his default in the payment of succeeding installments.

Pertinently, since Sps. Jovellanos failed to pay their stipulated monthly installments as found by the MeTC, the Court examines Optimum’s compliance with Section 4 of RA 6552, as above-quoted and highlighted, which is the provision applicable to buyers who have paid less than two (2) years-worth of installments. Essentially, the said provision provides for three (3) requisites before the seller may actually cancel the subject contract:

first, the seller shall give the buyer a 60-day grace period to be reckoned from the date the installment became due; second, the seller must give the buyer a notice of cancellation/demand for rescission by notarial act if the buyer fails to pay the installments due at the expiration of the said grace period; and third, the seller may actually cancel the contract only after thirty (30) days from the buyer’s receipt of the said notice of cancellation/demand for rescission by notarial act.

In the present case, the 60-day grace period automatically operated in favor of the buyers, Sps. Jovellanos, and took effect from the time that the maturity dates of the installment payments lapsed. With the said grace period having expired bereft of any installment payment on the part of Sps. Jovellanos,

Optimum then issued a notarized Notice of Delinquency and Cancellation of Contract on April 10, 2006. Finally, in proceeding with the actual cancellation of the contract to sell, Optimum gave Sps. Jovellanos an additional thirty (30) days within which to settle their arrears and reinstate the contract, or sell or assign their rights to another.

It was only after the expiration of the thirty day (30) period did Optimum treat the contract to sell as effectively cancelled – making as it did a final demand upon Sps. Jovellanos to vacate the subject property only on May 25, 2006. Thus, based on the foregoing, the Court finds that there was a valid and effective cancellation of the Contract to Sell in accordance with Section 4 of RA 6552 and since Sps. Jovellanos had already lost their right to retain possession of the subject property as a consequence of such cancellation, their refusal to vacate and turn over possession to Optimum makes out a valid case for unlawful detainer as properly adjudged by the MeTC.

FIL ESTATE PROP v. RON QUILLOJ. Perez

FACTS:

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Fil-Estate Properties, Inc. is the owner and developer of the Central Park Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Ronquillo purchased from petitioners an 82sqm condominium unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of 5m. They executed and signed a Reservation Application Agreement wherein they deposited 200k as reservation fee. As agreed upon, respondents paid the full DP of 1.5m and had been paying the 63k monthly amortizations until September 1998.

Upon learning that construction works had stopped, Ronquillo likewise stopped paying their monthly amortization. Claiming to have paid a total of P2m to petitioners, Ronquillo through two (2) successive letters, demanded a full refund of their payment with interest. When their demands went unheeded, respondents were constrained to file a Complaint for Refund before (HLURB) which then issued an Order of Default against petitioners.

Petitioners attributed their delay in construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or misrepresentation which could entitle respondents to an award of moral damages.

HLURB rendered judgment - ordering petitioners to jointly and severally pay respondents total sum plus damages. - failure to develop the condominium project as a substantial breach of their obligation - entitles respondents to seek for rescission with payment of damages. - mere economic hardship is not an excuse for contractual and legal delay.

CA denied the petition for review for lack of merit. - "a buyer for a condominium/subdivision unit/lot unit which has not been developed in accordance with the approved condominium/subdivision plan within the time limit for complying with said developmental

requirement may opt for reimbursement under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x x."9 - failure to develop the condominium project is tantamount to a substantial breach which warrants a refund of the total amount paid, including interest. - petitioners failed to prove that the Asian financial crisis constitutes a fortuitous event which could excuse them from the performance of their contractual and statutory obligations.

ISSUES: 1) W/N the Asian financial crisis constitute a fortuitous event which would justify delay by petitioners in the performance of their contractual obligation; 2) assuming that petitioners are liable, whether or not 12% interest was correctly imposed on the judgment award, and 3) whether the award of moral damages, attorney’s fees and administrative fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings were consistent that first, the Asian financial crisis is not a fortuitous event that would excuse petitioners from performing their contractual obligation; second, as a result of the breach committed by petitioners, respondents are entitled to rescind the contract and to be refunded the amount of amortizations paid including interest and damages; and third, petitioners are likewise obligated to pay attorney’s fees and the administrative fine.

HELD: non-performance of petitioners’ obligation entitles respondents to rescission under Article 1191 of the New Civil Code which states:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums, which provides:Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.

Conformably with these provisions of law, respondents are entitled to rescind the contract and demand reimbursement for the payments they had made to petitioners. The principle of stare decisis, which means adherence to judicial precedents, applies.

we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation. a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso fortuito.16

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in breach of contract cases, the defendant must have acted in bad faith, must be found guilty of gross negligence amounting to bad faith, or must have acted in wanton disregard of contractual obligations.19 The Arbiter found petitioners to have acted in bad faith when they breached their contract, when they failed to address respondents’ grievances and when they adamantly refused to refund respondents' payment.

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http://www.lawphil.net/judjuris/juri2014/jan2014/gr_185798_2014.html#fnt19




CHAPTER 3Sec. 2

OBLIGATIONS WITH A PERIOD(See Arts. 1193, 1196)

1193.Obligations for whose fulfillment a day certain has been fixed, Shall be demandable only when that day comes

Obligations with a resolutory period take effect at once, But terminate upon the arrival of the day certain

A day certain is understood to be that which must necessarily come,Although it may not be known when

If the uncertainty consists in whether the day will come or not,The obligation is conditional, and it shall be regulated by the rules of the preceding section

1194.In case of loss, deterioration, or improvement of the thing before the arrival of the day certain, The rules in Art. 1189 shall be observed

Rules in 1189 providing for rules during pendency of the condition suspending the efficacy of an obligation to give. The same applies in obligations subject to a suspensive and to a resolutory condition

[1193] comments With a Period An obligation which depends on a future and certain event Example: “payable when able”

Remedy:1. Agreement among the parties2. Court shall fix period of payment when parties unable to agree

Requisites for a valid period or term1. It must refer to future2. It must be certain but can be extended (becomes pure if eliminated subsequently by mutual agreement)3. It must be physical and legally possible, otherwise VOID.

KINDS:1. Resolutory (In diem) – demandable at once but terminates upon arrival of day certain

Ex. I will support you until the first day of next year

2. Suspensive (Ex die) obligation becomes demandable on the day stipulatedEx. I will support you, beginning the first day of next year

1. Definite- the exact date or time is known and given (1st Monday of May)2. Indefinite- something that will surely happen, but the date of

happening is unknown (death/birth)

1. Legal- a period granted under the provisions of law2. Conventional/Voluntary- period agreed upon or stipulated by the parties3. Judicial- the period or term fixed by the courts for the performance

of an obligation or for its termination

Day Certain

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- Understood to be that which must necessarily come, although it may not be known when- Arrival commences the prescription period

TERM CONDITIONinterval of time which isfuture or certain

Fact or event which isfuture or uncertain ora past event unknown to the parties

Time which must necessarily come although it may not be known when

Future and uncertain fact or event which may or may not happen

Exerts an influence upon the time of demandability or extinguishment of an obligation

Exerts an influence upon the very existence of an obligation itself

Does not have any retroactive effect unless there is an agreement to the contrary

Has retroactive effect

when it is left exclusively to the will of the debtor, the existence of the obligation is affected

When it is left exclusively to the will of the debtor, the obligation is VOID

[1194] comments RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT before arrival of day certain (1189)

1195.Anything paid or delivered before the arrival of the period, the obligor being unaware of the period, or believing that the obligation has become due and demandable, may be recovered with the fruits and interests.

To recover:1) must have been unaware of the period; or2) must have believed that the obligation has becomedue and demandable.

1196.Whenever in an obligation a period is designated, It is presumed to have been established for the benefit of BOTH the creditor and the debtor,Unless from the tenor of the same or other circumstances it should appearThat the period has been established in favor of one or of the other

General Rule1. Term is for the benefit of both debtor and creditor (the debtor cannot pay prematurely and the creditor cannot demand prematurely)

Exceptions: (if there is intent)1. Benefit of DEBTOR

He is required to pay at the end, but he may pay even before Ex. D will pay C within 6 years

2. Benefit of the CREDITOR Creditor can demand at any time even before the term expires, and he cannot be compelled to accept payment from the debtor prior to the stipulated period Ex. D promised to pay on Dec. 1, 2005 with the creditor given the right to demand performance even before said date

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3. INDICATORSFor BOTH

a. WITH INTEREST, creditor is interested in the term because of the interests that would be earned; the debtor is interested because he is given enough time to pay.Ex. With interest, to be paid Within the 6th yearWhen the creditor is interested in keeping his money safely invested (depository), or when the creditor wants to protect himself from the dangers of currency depreciation

For DEBTORa. NO INTERESTb. When payment is to be made “within” a certain period from the date of contract

For CREDITORa. No payment to be made until after a certain given periodb. Acceptance of partial payment even before the expiration of the period means a waiver on the part of the creditor of his right to refuse payment before the end of said period

1197.If the obligation does not fix a period but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

When Court may fix a Period1. When duration depends upon the will of the debtor

(When my means permit me to do so)(I’ll pay you little by little)(As soon as possible)(As soon as I have money)(In partial payments)When the debtors (is in a position to discharge his obligation)

2. When although the obligation does not fix a period, it can be inferred that a period is intendedEx.a. A contract to construct a house where the period was not statedb. A donation where the land was given provided certain construction was to be made on itc. An obligation with an indefinite period, such as when the time for the payment of a subscription of shares of stocks has not been fixed

Must be immediately fulfilled, giving the debtor only such time as might be reasonably be necessary for its actual fulfillment

When Court may NOT fix a Period1. When no term was specified by the parties because no term was even intended (pure obligation)2. Payable on demand3. Substantial breach4. Specific periods are provided for by law, as in employment contract where if no period was agreed upon, the time of employment depends upon the time for payment of salary

1198The debtor shall lose every right to make use of the period:1. When after the obligation has been contracted, he becomes insolvent,

unless he gives a guaranty or security for the debt2. When he does not furnish to the creditor the guaranties or securities which he has promised3. When by his own acts he has impaired said guaranties and securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory

4. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period

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5. When the debtor attempts to abscond

When Debtor loses the benefit of the periodMeans, the term is extinguished and the obligation is demandable at once

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Sec. 3ALTERNATIVE OBLIGATIONS

(See Arts. 1199-1206)

1199.A person alternatively bound by different prestations shall completely perform one of them.The creditor cannot be compelled to receive part of one and part of the other undertaking.

Obligations with Several Objects1. Conjunctive – debtor has to perform several prestations; extinguished only by performance of all of them2. Alternative - 3. Facultative

FACULTATIVE – Only one prestation has been agreed upon but another may be given in substitution

EFFECT OF LOSS OR DETERIORATION THRU NEGLIGENCE, DELAY OR FRAUD OF THE OBLIGOR of the thing intended as substitute- no liability of the substitute after substitution is made- with liability

ALTERNATIVE- bound by different prestations but only one is due right of choice belongs to debtor

EFFECT OF LOSS OF OBJECTS OF ALTERNATIVE OBLIGATIONS1. if the right of choice belongs to the debtor

if through a fortuitous event all were lost, debtor cannot be held liable for damages if 1 or more but not all of the things are lost or one or some but not all of the prestations cannot be performed due to the fortuitous event or fault of the debtor, creditor cannot hold the debtor liable for damages

because the debtor can still comply with his obligation if all things, except one, were lost, the debtor must comply by performing that which remain if all were lost by fault of the debtor the latter is liable for the value of the last thing or service which became impossible

2. If the right of choice belongs to the creditor If 1 of the things is lost through a fortuitous event, the debtor

shall perform the obligation by delivering that which the creditor should choose from among the remainder or that which remains if only 1 subsists If the loss of 1 of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting or the price of that which, through the fault of the former, has disappeared with a right of damages If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any 1 of them, also with indemnity for damages

REQUISITES FOR MAKING THE CHOICE1. Made properly so that the creditor or his agent will actually know2. Made will full knowledge that a selection is indeed being made3. Made voluntarily and freely 4. Made in due time- before or upon maturity5. Made to all proper persons6. Made without conditions unless agreed by the creditor7. Maybe waived, expressly or impliedly

ALTERNATIVE FACULTATIVEVarious things are due but the giving principally of one is sufficient Only one thing is due but a substitute may be given to render payment/fulfillment easyIf one of prestations is illegal, other may be valid but obligation remains If principal obligations is void and there is no necessity of giving the substitute; nullity of P carries with it

nullity of SIf it is impossible to give all except one, the last one must still be given If it is impossible to give the principal, the substitute does not have to be given; if it is impossible to give the

substitute, the principal must be givenRight to choose may be given either to debtor or creditor The right of choice is given only to the debtor

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Sec. 3JOINT AND SOLIDARY OBLIGATIONS

(See Arts 1207-1222) Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that

- each one of the former has a right to demand, or that- each one of the latter is bound to render, entire compliance with the prestation.

There is a solidary liability only when - the obligation expressly so states, or - when the law or the nature of the obligation requires solidarity. (1137a)

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear,

- the credit or debt shall be presumed to be divided into asmany shares as there are creditors or debtors, the credits or debts being considered distinct from one another,

- subject to the Rules of Court governing the multiplicity of suits. (1138a)

JOINT- presumption when two or more creditors or two or more debtors concur in one and the same obligation (to each his own)Exception:1. when expressly stated that there is solidarity2. when the law requires solidarity3. when the nature of the obligation requires solidarity4. when a charge or condition is imposed upon heirs or legatees and the testament expressly makes the charge or condition in solidum5. when a solidary responsibility is imputed by a final judgment upon several defendants

EFFECTS OF JOINT LIABILITY1. demand on one produces delay only with respect to the debt2. interruption in payment by one does not benefit or prejudice the other3. vices of one debtor to creditor has no effect on the others4. insolvency of one debtor does not affect the other debtors5. defenses of one debtor are not necessarily available to others

JOINT DIVISIBLE OBLIGATIONS1. Each creditor can demand for the payment of his proportionate share of the credit, while each debtor can be held liable only for the payment of his proportionate share of the debt2. A joint creditor cannot act in representation of the other creditors while a joint debtor cannot be compelled to answer for the acts or liability of the other debtors

KEYWORDS (JOINT)1. Mancomunada2. Mancomunada simple3. Proportionate4. Pro-rata5. We promise to pay (2 or more signatures)6. Arises out of contract

Art. 1209. JOINT INDIVISIBLE OBLIGATIONSIf the division is impossible,

- the right of the creditors may be prejudiced only by their collective acts, and

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- the debt can be enforced only by proceeding against all the debtors. - If one of the latter should be insolvent, the others shall not be liable for his share. (1139)

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n)

JOINT INDIVISIBLE OBLIGATIONS (1209)1. if there are 2 or more debtors, the fulfillment of or compliance with the obligation requires the concurrence of all the debtors, although each for his own share. The obligation can be enforced only by proceedings against

all of the debtors2. if there are 2 or more creditors, the concurrence or collective act of all the creditors although each for his own share, is also necessary for the enforcement of the obligation

CHARACTERISTICSa. The obligation is joint but since the object is indivisible, the creditor must proceed against ALL the joint debtors (Art. 1209), for compliance is possible only if all the joint debtors would act TOGETHER.b. Demand must, therefore, be made on ALL the joint debtors.c. A demand by one joint creditor is NOT a demand by othersd. If any one of the debtors does not comply with his monetary obligation for damages. (Art. 1224, Civil Code; 8 Manresa 237-238).e. If any of the joint debtors be insolvent, the others shall not be liable for his share. (Art. 1209, Civil Code). (NOTE: The obligation to pay monetary damages is of course no longer indivisible, and therefore, the creditor may

go against each debtor individually, subject to the provisions of the Rules of Court.)f. If there be joint creditors, delivery must be made to all, and not merely to one, unless that one be specifically authorized by the others.g. Each joint creditor is allowed to renounce his proportionate credit.

EFFECT OF BREACH If one of the joint debtors fails to comply with his undertaking, the obligation can no longer be fulfilled or performed.. Consequently, it is converted into one of indemnity for damages. Innocent joint debtor shall NOT contribute to the indemnity beyond their corresponding share of the obligation.

(See 1224) The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists.

Example:(1) A, B, and C are jointly liable to give D a car valued at P240,000.00.On the date of delivery, A and B are willing to deliver but C is not.

In this case, D has no cause of action against C for the delivery of the car because, as a joint-debtor, C is liable only for a proportionate part of the obligation which is P80,000.00. Since the object (car) is indivisible, the debt can only be enforced by proceeding against all the debtors for compliance is not possible unless they act together. Pursuant to Article 1224 (infra.), the liability is converted into one for damages. So, A, B, and C will be liable for P80,000.00 each or a total of P240,000.00 which is the value of the car without increase of responsibility for

A and B. C, the unwilling debtor, shall be liable for damages to D for having violated the obligation.

If A and B suffered damages by reason of the non-fulfillment by C, they may recover them from C.

Should anyone of the debtors be insolvent, the others shall not be liable for their share. (Art. 1209.) D must wait until the insolvent debtor can pay.

(2) If there are two creditors, say D and E, and one debtor, A, the obligation can be performed only by delivering the car to them jointly. A (there may be more than one debtor) can insist that both D and E together accept the car; and if either of them refuses to join the other, Amay legally refuse to deliver the car. He may deposit the car in court by way of consignation. (see Art. 1256.)

If A becomes liable to pay damages for non-performance, D and E can recover only their respective shares in the indemnity. Neither D nor E may do anything which may be prejudicial to the other (Art. 1212.) like renouncing or assigning the entire obligation without the consent of the other. This is so because the obligation is joint, i.e., the credit of D is separate from that of E, and, therefore, neither D nor E can act in representation of the other. Their rights may be prejudiced only by their collective acts. (Art. 1209.)

INDIVISIBILITY SOLIDARITYRefers to the prestation which constitutes the object of the obligation

Refers to the legal tie and consequently to the subject or parties of the obligation

Plurality of subjects is not Plurality of subjects is

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required indispensableIn case of breach, obligation is converted to 1 of indemnity for damages because of breach, indivisibility of the obligation is terminated

When there is liability on the part of the debtors because of the breach, the solidarity among the debtor remains

SOLIDARY- must be expressed in the stipulation or provided by law or by nature of the obligation (one for all, all for one)

1. Active- on the part of the creditor or obligeEFFECTS:a) Death of 1 solidary creditor transmits share to heirs (but collectively)b) Each creditor represents the other in the act of recovery of paymentc) Credit is divided equally between creditors as among themselves

2. Passive- on the part of debtors or obligorsEFFECTS:a) Each debtor may be requested to pay the whole obligation with right to recover from co-debtorsb) Interruption of prescription to one creditor affects allc) Interest from delay on 1 debtor is borne by all

3. Mixed- on the part of both obligors and obliges, or the part of the debtors and the creditors4. Conventional- agreed upon by the parties5. Legal- imposed by law

Instances where the law imposes solidary obligationa) Obligations arising from tortb) Obligations arising from quasi-contractsc) Legal provisions regarding obligation of devisees and legateesd) Liability of principals, accomplices, and accessories of a felonye) Bailees in commodatum

EFFECTS:a) Payment made before debt is due, no interest can be charged,

otherwise interest can be chargedb) Insolvency of one

Others are liable for share pro-ratac) If different terms and conditions

collect only wat is due, later on collect from anyd) if payment is made after prescription or became illegal

No reimbursemente) Remission made after payment is made- co-debtor

still entitled to reimbursementf) Effect of insolvency or death of co-debtor

still liable for the whole amountg) Fault of any debtor- every one is responsible

price, damage, and interest. h) Complete/personal defense

total or partial (up to the amount of share only) if not personal to him

KEYWORDS (SOLIDARY)1. Joint and several2. In solidum3. Mancomunada solidaria4. Juntos o separadamente5. Individually and collectively

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6. Each will pay the whole value7. I promise to pay (2 or more signatures)8. Arises out of a crime (quasi-delict)9. Liability of Violators of 19, 20, 21, 22 on Human Relations (Civil Code)

- Penal in nature or contrary to morals; nature of the obligation

PASSIVE SOLIDARITY SOLIDARY GUARANTYIn passive solidarity although some sort of mutual agency may be seen as in active solidarity, guaranty is a characteristic which predominates over that of mere agency.By virtue of this, the solidary debtor like the surety, answers for a debt which is not properly his own.

Like the surety also, after paying, he may demand reimbursement from the debtor personally bound in the obligation paidSolidary debtor is liable not only for the debt of another but also for one properly his own

Guaranty does NOT incur liability unless the principal debtor is held liable

It does not mean that the surety cannot be held liable to the same extent of the liabilities of a surety is determined by the contract of suretyship

debtor who made the payment may claim reimbursement from his co-debtors for the share which corresponds to each

Surety who paid the obligation is entitled to be indemnified by the principal debtor w/ the right to be subrogated by virtue of such payment to all the rights which the creditor had against the debtor

Extension granted by the creditor to one of the solidary debtors without the consent of the other solidary debtors would not release the latter from their obligations. They are still liable for the whole obligation less the share of the debtor granted the extension. Upon the arrival of the extended period, the creditor can demand the remaining balance from any of the solidary creditors

An extension granted to the principal debtor without the consent of the surety should have the effect of extinguishing the suretyship.

Art. 1211. Solidarity may exist although the creditors and the debtors may not be

- bound in the same manner and- by the same periods and - conditions. (1140)

Solidarity Despite Different Terms or Conditions

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Example of a case when solidarity may exist even when the creditors and the debtors are not bound in the same manner:A and B solidarily bound themselves to pay a total of P1,000,000 to C, D, and E subject to the following conditions and terms:

C’s share will be due at the end of the year; D will get his share only if he passes the bar; and E will get his share only after he (E) has painted the house of X. Here, the obligation is still solidary.

The obligation is still solidary but C’s share will only be due and demandable at the end of the year, and E and D’s shares will be due and demandable only upon the fulfillment of the condition. Supposing the obligation is to be subject to different terms and conditions, the following is the solution: the creditor may recover that part which is pure and unconditional, and should leave in suspense or pending, the

right to demand the payment of the remainder until the expiration of the term or the fulfillment of the condition. Solidarity is still preserved by recognizing in the creditor the power, upon the fulfi llment of the condition or the expiration of the term, of claiming from any or all of the debtors, that part of the obligation effected by these conditions.’’

CASE:Inchausti & Co. v. Yulo34 Phil. 978FACTS: A, B, C, D, and E borrowed money from F. The contract stipulated solidary one, and the debtors were bound under different terms and conditions. F brought an action to recover from A, whose obligation was already due. A claims that he cannot be made to pay because the obligations incurred by his solidary co-debtors were not yet due. Issue: When the debtors of a solidary obligation are bound by different terms and conditions,may the creditor sue one of them?

HELD: Yes, the creditor may sue the one whose share has already become due and demandable but the creditor cannot recover yet from the debtor sued, the shares of the other debtors, until the conditions or terms of the others have already been fulfilled. In other words, F may recover now from A only A’s share; and when the conditions and terms have been fulfilled for the shares of B, C, D, and E, the creditor F can recover their shares from A. This, after all, is still a solidary obligation.

PROBLEMFACTS: In 2004, A, B, and C bound themselves in solidum to give X P300,000 subject to the following stipulations: A to pay in 2005; B, if he passes the bar; C, in 2007.

ISSUE:(a) In 2005, how much can X demand from A?

ANS.: Only P100,000. Since this is solidary, X has a right to P300,000 (the whole) MINUS B’s share of P100,000 and C’s share of P100,000, or a total of only P100,000. In 2007, X can collect from A the P100,000 corresponding to C. The moment B passes the bar, X can also collect from A, B’s share of P100,000.

rule is that the whole solidary obligation can be recovered from ANY of the solidary debtors MINUS the share of those with unmatured conditions or terms. (See 8 Manresa 203).

JOINT OBLIGATION ON ONE SIDE,SOLIDARY ON THE OTHER.An obligation may be joint on the side of the creditors and solidary on the side of the debtors, or vice versa. In such cases, the rules applicable to each subject of the obligation should be applied, the character of the creditors or the debtors determining their respective rights and liabilities. Thus, if the obligation is joint on the side of the creditors, and solidary on the side of the debtors, each creditor can demand only his share in the obligation; but each debtor may be compelled to pay the entire obligation to the creditors.

EXAMPLES:(1) A and B, joint debtors, are liable to C and D, solidary creditors, for P1,000.00. Here, we have two (2) separate debts of A and B (P500.00 each), and one (1) credit (P1,000.00) of C and D. C or D can demand fromA and B P500.00 each only, their respective share in the debt; and A and B may be required to pay P500.00 each, either to C or to D. In other words, A and B are not liable for more than P500.00 each and C or D is entitled to receive not more than P1,000.00.

(2) Assume that A and B are the solidary debtors, and C and D, the joint creditors. Now we have one (1) debt (P1,000.00) of A and B, and two (2) separate credits (P500.00 each) of C and D. C and D can demand P500.00 each, their respective share in the credit, from A or B; and A or Bmay be compelled to pay P1,000.00 (the entire obligation), P500.00 to Cand P500.00 to D.

In other words, A or B may be made liable for P1,000.00 and C and Bare entitled to receive not more than P500.00 each.

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Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a)

SOLIDARY CREDITORS MAY DO USEFUL, NOT PREJUDICIAL ACTS (a) Example of Beneficial Act — To interrupt the running of prescription, the act of one solidary creditor in making a judicial demand upon any of the solidary debtors is sufficient. The law provides that: “The prescription of actions is interrupted when they are filed before the Courts.” (Art. 1155, 1st clause, Civil Code).

(b) Prejudicial Acts — should not be performed, otherwise, there will be liability for damages. However, in the case of remission or condonation (which is really prejudicial), the solidary creditor is allowed to so remit, and the obligation is extinguished, without prejudice to his liability to the other creditors. (See Art. 1215, Civil Code).

based on the theory of mutual agency among the solidary creditors. A joint creditor cannot act in representation of the others

EXAMPLE:A owes B and C, solidary creditors, the sum of P2,000.00. B may make a demand for the payment of the obligation for this will benefit C. Under the law, the prescription of action is interrupted when they are filed before the court. (Art. 1155.) So also, if B collects from A, C will be benefited. In case of remission or condonation effected by B, the obligation will be extinguished but since C cannot be prejudiced by the remission, B has to reimburse C for the latter’s share. (Art. 1215.)Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)

REASON FOR THE LAW:Essentially, a solidary obligation implies mutual agency and mutual confidence. Should the assignee or substitute do acts which would prejudice the others (as when he absconds after receiving payment), there is no doubt that the other creditor’s right are endangered, hence, the necessity of their consent.

EFFECT OF UNAUTHORIZED ASSIGNMENT.Suppose a solidary creditor did assign his rights, will payment tothe assignee extinguish the obligation? Article 1213 seems to imply thatsuch assignment is invalid. This article has been criticized as follows:

“This rule is unjustifiable and places an unnecessary restriction on the rights of the solidary co-creditor upon his share. The reason behind it seems to be that each creditor represents the others and, therefore, must have the confidence of the latter. But in the first place, confidence between co-creditors cannot properly be said to exist except in the case of a solidary credit by contract.

In the second place, the representation (by each creditor) of the solidary creditors is created by law and not by consent or agreement of the parties. If danger is seen in the possible misfeasance of the assignee, the remedy is not the paralyzation of the proprietary rights of the solidary creditor, but to impose upon him a subsidiary responsibility for the acts of the assignee, similar to that of the agent for the acts of the sub-agent under Art. 1892.4

This is Manresa’s view in his comment to Art. 1141 of the Code of 1889. So that Art. 1213 could have been made to read : ‘A solidary creditor who assigns his rights without the consent of his co-creditors shall answer subsidiarily for any prejudice caused to the latter by the assignee in connection with the credit.’ ” (Justice J.B.L. Reyes, Observation on the New Civil Code, XVI L.J. 48, Jan. 31, 1951.)

Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a)

TO WHOM DEBTOR MUST PAY(a) to any of the solidary creditors(b) exception — payment must be made to solidary creditor who made a demand (judicial or extrajudicial)

The demand has the effect of terminating the mutual agency among the solidary creditors.

PROBLEMS1. A and B are solidary debtors of C, D, and E, solidary creditors.

May A pay C the whole obligation?ANS.: Yes, provided, no judicial or extrajudicial demand had been made by either D or E.

2. A and B are solidary debtors of C, D, and E, solidary creditors. E makes judicial demand. There is no extrajudicial demand upon A. To whom should A pay?ANS: Only E, who had made the judicial demand. Payment to any other creditor will not extinguish the obligation except insofar as the payee’s share is concerned

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3. A and B are solidary debtors of C, D, and E, solidary creditors. C makes a judicial demand on A. Can D and E sue A?ANS: In the meantime, no, because C is supposed to be representing already D and E. If judgment is rendered against A, and A does not have enough money, then D, E, or C (individually or collectively) may still sue B for the remainder. But it is essential that the first action be first terminated.

4. A and B are solidary debtors of C, D, and E. C makes an extrajudicial demand upon A, who does not pay. Can D and E sue (judicial demand) A?ANS.: Although strictly speaking, the answer may be in the NEGATIVE since under the law payment must be made to C, who had made the extrajudicial demand, still the law should not be construed to effect an absurdity in that D and E would be compelled to just stand by idly, since C does not institute any judicial action. Since C’s act (or inaction) is prejudicial to D and E, both should be allowed to make the judicial demand (See Art. 1212, Civil Code)

Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143)

(1) EFFECT OF NOVATIONNovation is the modification of an obligation by changing its object or principal conditions, or by substituting the person of the debtor, or by subrogating the person of the debtor, or by subrogating a third person in the rights of creditor. (Art. 1291,Civil Code).(a) Example:A and B are solidarily liable to X and Y, solidary creditors, for the payment of P800,000. A and X agreed that instead of paying P800,000, A will just paint X’s house (including costs of the points to be used).

ANS :Here the solidary obligation of paying P800,000 is extinguished but a new one, that of painting X’s house, has arisen. If B did not consent to the novation, B will not be bound to X and Y in any way, and moreover, will not be obliged to give A anything except insofar as he (B) has been benefited. Upon the other hand, only X will be allowed to prejudice his co-creditor Y, so X must reimburse Y for P400,000 (which is really Y’s share of the credit). (Art. 1215, 2nd par.).

(b) A and B are solidary debtors of X. If A is granted an extension of time within which to pay, is B released from the obligation?

ANS.: No. The only effect is this: if X sues B, B will pay the whole debt minus the share of A. When the extended period terminates, X can demand the remaining balance (A’s share) from either A or B. And if B pays again, B will now have the right to collect reimbursement from A, for A’s share. (See Inchausti and Co. v. Yulo, 34 Phil. 978).

[NOTE: The rule is different in suretyship, where although the surety is also, in a way, a solidary debtor, an extension of time to the principal debtor without thesurety’s consent will release the surety from the contract.(See Phil. Nat. Bank v. Veraguth, 50 Phil. 253).]

(2) EFFECT OF COMPENSATIONCompensation is that which takes place when two persons, in their own right, are creditors and debtors of each other. (Art. 1278, Civil Code) — (as when A owes B P1,000,000 and B owes A P1,000,000). Compensation may be total or partial, depending upon the amount involved. Total compensation of courseautomatically extinguishes the obligation, whether known or unknown to the parties. (See Art. 1290, Civil Code).

(a) Example of Total Compensation in Connection with Solidary Obligation:A and B are solidary debtors of X and Y, solidary creditors to the amount of P400,000. But X owes A P400,000 on account of a different obligation. Here we have a case of automatic extinguishment of the obligation by virtue of totalcompensation. But B should not benefit completely since it was A’s credit that was used to compensate. So B owes A P200,000 (his share of the debt). Upon the other hand,Y should not be prejudiced, so Y can recover P200,000 (hiscredit) from X. (Art. 1215, par. 2).

(b) Example of Partial Compensation in Connection with SolidaryObligations:A and B are solidary debtors of C to the amount of P2,000,000, but C is indebted to A for P500,000. This is a case of partial compensation, and therefore the solidary obligation amounting to P1,500,000 still subsists.

(3) EFFECT OF CONFUSION (OR MERGER)Confusion or merger is that which takes place when the characters of creditor and debtor are merged in the same person (Art. 1275, Civil Code), as when my check in the course of negotiation, is eventually endorsed to me.

Example:

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A and B made a negotiable promissory note in favor of C and D, whereby A and B bound themselves solidarily to C and D, solidary creditors. C and D endorsed the note in favor of E; E in favor of F; F in favor of A. Notice that A, who is a debtor, now becomes a creditor. There is merger or confusion of rights here; the solidary obligation is extinguished; but B is indebted to A for his (B’s) share of the debt.

(4) EFFECT OF REMISSION (OR WAIVER)Remission or waiver is that act of liberality whereby a creditor condones the obligation of the debtor; that where the creditor tells the debtor to “forget about the whole thing.” (See Art. 1270, Civil Code). (Remission may be total or partial).

(a) Example of Total Remission:A and B are solidary debtors of X and Y, solidary creditors to the amount of P4 million. X tells A that he was waiving the whole obligation. Here, the total remission completely extinguishes the whole obligation, without prejudice to Y collecting from X his (Y’s) share of the creditof P2 million, otherwise X’s remission would prejudice Y. Upon the other hand, B does not have to reimburse A for anything, for after all the remission was a gratuitous act, and A did not have to give anything to the creditors. (See 8 Manresa, pp. 225-226).

(b) Example of Partial Remission:A, B, and C are solidary debtors of X in the amount of P3 million. X then made a demand from A but collected only P2 million because he (X) was remitting A’s share (of P1 million). How much can A recover from B and C?

ANS: Only P1 million from each because the solidary debt of P3 million had been reduced by partial remission to only P2 million.

[NOTE: It follows, in the example given, that A can be reimbursed the whole P2 million (plus interest in the proper case), and therefore it is as if A did not have to pay from his own pocket. This is but just because after all, A’s share had been remitted. This example is also a correct illustration of the rule that a partial remission benefits ALL in that the solidary debt is diminished, so that if A had not been able to pay, or had the creditor chosen to collect from either B or C, he can demand not P3 million but only P2 million. (See Inchausti & Co. v. Yulo, 34 Phil. 978).] (NOTE: Although from said viewpoint all had been benefited, it should be noted that the individual shares of B and C have NOT really been diminished.)

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a)

EFFECT OF NOT PROCEEDING AGAINST ALLIf the creditor sues only one, or two, or several of the debtors (but not all) there is no waiver against those not yet sued. They may be proceeded against later.

APPLICABILITY OF ART. 1216Note that Art. 1216 applies only to solidary obligations, not to joint ones, for in the latter, failure to collect from one joint debtor his share does not authorize the creditor to proceed against the others, regarding the insolvent debtor’s share.

PASSIVE SOLIDARITYArt. 1216 applies to what is called passive solidarity (solidarity among the debtors). It can also apply to mixed solidarity.

PASSIVE SOLIDARITY(debtor)

SURETYSHIP

Both the solidarity debtor and the surety guarantee for another personBoth can demand reimbursementSolidarity debtor is indebted for his own share only

The surety is indebted only for the share of the principal debtor

Solidary debtor can be reimbursed what he has paid MINUS his own share

Surety can be reimbursed of the ENTIRE payment he made

If a solidary debtor receives an extension of the period for payment, the others are still liable for the whole obligation now, minus the share of the debtor who has received the extension (but same share can be demandable also from them

If a principal debtor receives an extension, without the surety’s consent, the surety is released

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upon the arrival of the extended term)

(6) Examples(a) A and B are solidary debtors of C to the amount of P1,000,000. Either A or B may be made to pay the whole P1,000,000 but the payer can collect half (P500,000) from the other (since each is a principal debtor).

(b) A borrowed from C P1,000,000. B acted as surety (solidary guarantor) for A. C can demand P1,000,000 from either A or B. But if B is made to pay, B can demand the whole P1,000,000 from A since B is not really a principal debtor.

PROBLEMSa. A and B are solidary debtors of X and Y to the amount of P4 million. X sued A but recovered only P3.5 million. May Y still sue B for P500,000?

ANS.: Yes, because the debt has not yet been entirely satisfied.

b. A and B are solidary debtors of X and Y. X sues A but A wins the case (for example, on the ground that the subject matter is illegal). Can Y still sue B?ANS.: No more because here the principle of res judicata clearly applies. Since X was representing Y, there would be identity of parties.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a)

EFFECTS OF PAYMENTPayment is one of the ways by which an obligation is extinguishedand consists in the delivery of the thing or the rendition of the service which is the object of the obligation.

(1) Between the solidary debtors and creditor(s). — Payment madeby one of the solidary debtors extinguishes the obligation. (Whenspeaking of payment that extinguishes an obligation, the law refers topayment in full.) However, the creditor for his protection is given theright to choose which offer to accept if two or more solidary debtorsoffer to pay. (par. 1.)

(2) Among the solidary debtors. — Payment by one of the solidary debtors does not create a real case of subrogation. (see Arts. 1302,1303.) It merely entitles him to claim reimbursement from his co-debtors“only the share which corresponds to each.’’ (see Art. 1277.), i.e., onlyfor their proportionate shares with (legal) interest only from the timeof payment.(a) The other debtors do not become by virtue of such payment solidary debtors of the debtor-payer. Their liability is not based on the original obligation which has been extinguished, but upon the payment made by the co-debtor which creates a joint obligation of reimbursement on the part of the others. (Art. 1208.) However, in case of insolvency of any of the solidary debtors, the others assume the share of the insolvent one pro rata. (pars. 2 and 3.)

(b) Payment by a solidary debtor does not automatically result in a corresponding obligation of the other debtors to reimburse the paying debtor. If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment exceeded his share in the obligation.

(c) If the amount is equal to his proportionate share in the obligation he, in effect, pays only what is due from him; if the amount is less than his share, he cannot demand reimbursement because his payment is less than his actual debt. (see Republlic Glass Corporation vs. Qua, 435 SCRA 480 [2004].)

(3) Among the solidary creditors. — The receiving creditor is jointlyliable to the others for their corresponding shares. (Art. 1208.)

a. A, B, and C are the solidary debtors of D. A and B offer to pay. Is the creditor allowed to choose which offer to accept?ANS.: Yes. “If two or more solidary debtors offer to pay, the creditor may choose which to accept.” (Art. 1217, 2nd sentence, Civil Code). Even if C has not offered to pay, it is believed that D would be allowed to make a demand upon C. “The creditor may proceed against any one of the solidary debtors.”

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b. A, B, C, and D are solidary debtors of E to the amount of P1.2 million. A pays E the whole P1.2 million. Is A entitled to reimbursement from B, C, and D?ANS.: Yes, reimbursement plus interest from the date of payment.

Are B, C, and D considered the solidary debtors of A?

ANS: No. With reference to the reimbursement B, C, and D are not solidary debtors of A but merely joint debtors of A. It is true that B, C, and D, together with A, used to be solidary debtors of E, but A’s payment to E of the whole amount has extinguished that solidary obligation, and what remains now is merely the joint obligation of reimbursement. As a matter of fact, the law provides that: “He who made the payment may claim fromhis co-debtors only the share which corresponds to each, with the interest for payment already made.” (1st sentence, second paragraph, Art. 1217, Civil Code)

Since originally there were four debtors, each has a proportional share of P300,000 in the obligation. Hence, A can recover P300,000 with interest from each of the other three.

It should be noted, however, that the liability is not the ordinary joint one, for in the instant case, the insolvency of one must in the meantime be shouldered by the rest. (Last paragraph,Art. 1217, Civil Code).

CASEINCHAUSTI & CO. V. YULO

34 PHIL. 978FACTS: A, B, C, D, E, and F were solidary debtors of G to the amount of P253,445.42. Later in an agreement with B, C, D, E, and F, the debt was reduced by G to P225,000. G sued A. Because of the partial remission, A was made to pay only P225,000. Issue: How much can A recover from the other solidary debtors?

HELD: A can recover the proportional shares of the other, not with respect to P253,445.42 but with respect to P225,000, the amount as reduced. Since there are 6 solidary debtors, he can recover 1/6 of P225,000 from each plus interest from the time of payment.

BASIS OF THE RIGHT TO BE REIMBURSEDThe fact of payment (and not the original contract) is the basis of the right to be reimbursed, for not until then had he the right to be reimbursed. Hence, the obligation of the others to reimburse him arises only from the time payment is made.

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SUBSTITUTION OF PARTIESA, B, and C are solidary debtors of X who sued all of them. If during the pendency of the case, A pays X, in the same action A can be changed from defendant to plaintiff in substitution of X. This is to enable A to collect reimbursement of contribution from B and C.

PROBLEM #1A and B were sued on a promissory note which read as follows: “Manila, May 1, 2004. For value received, we, the undersigned, promise solidarily to pay C or his order, on or before May 1, 2005, the sum of P1,000,000, plus an interest of 6% (Sgd.) A and B.” Should B turn out to be insolvent, may C recover allhis claim from A who is solvent? Why?

ANS.: Yes, because A had bound himself solidarily, without prejudice, of course, to his recovering later on from B, the share of B in the debt, plus interest from the date of payment. (Art. 1217, Civil Code).

PROBLEM #2A, B, and C are joint and several debtors of D. D allows C an extension of two years within which to pay his portion of the indebtedness. Upon being sued by D, may A and B interpose the defense of the extension of the time granted to C? Should A and B eventually pay the entire obligation, may they compel C to reimburse them with his share without waiting for the two-year extension granted to D? Reasons.

ANS.: Yes, A and B can set up the extension but only as partial defense, limited to C’s share. Hence, they should now pay ALL minus C’s share. (See Inchausti v. Yulo, 34 Phil. 978). If they paid ALL (without deductions) they must wait for the 2-year period before they can compel reimbursement from C.

This is because A and B merely stepped into the shoes of the creditor D, and therefore C can plead against them the defense of extension of payment.

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n)

EFFECT OF PAYMENT OF PRESCRIBED DEBTA and B are solidary debtors of C to the amount of P1,000,000. The debt prescribed. But A voluntarily paid C, nevertheless, because A felt morally obliged to so pay.(a) May A recover from C what he has paid?(b) May A get any reimbursement from B?

ANS.:(a) A cannot recover from C what he has paid because it was voluntarily given after A knew of the prescription of the debt. The law says, “when a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor cannot recover what he has delivered or the value of theservice he has rendered.’’ (Art. 1424, Civil Code).

(NOTE: If payment had been made by A to C, without A knowing that the debt had prescribed, A can recover from C on the basis of solutio indebiti.)

(b) A cannot get any reimbursement from B because A paid the debt after it had prescribed. The law says, “Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal.” (Art. 1218, Civil Code).

EFFECT OF PAYMENT OF AN ILLEGAL OBLIGATIONA and B are solidarily bound to give C some drugs worth P1,000,000. Later, the law prohibits the transaction of said drugs, and declares the drugs to be outside the commerce of man. Knowing this, A nevertheless delivers the drugs to C. May A now get reimbursement from B?

ANS.: No, A cannot get any reimbursement from B because A made the payment after the obligation had become illegal.

Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a)

If payment is made first, the remission (see Art. 1270.) or waiver is of no effect. There is no more obligation to remit. The purpose of the article is to forestall fraud whereby the debt having been paid, the creditor, who does not stand to suffer any loss or damage, remits the share of a particular debtor. Inferentially, had remission preceded payment, the debtor whose share has been remitted cannot be made to reimburse anything, for after all, the payor-debtor will have paid only the balance of the debt (after deducting the share of the debtors who has received the benefit of the remission).

EFFECT OF REMISSION MADE AFTER TOTAL PAYMENT HAD ALREADYEXTINGUISHED THE OBLIGATION

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This Article is designed to prevent fraud and to give justice to the paying debtor. (See 8 Manresa 226).Example: A and B solidarily owe X P1,000,000. A paid X the whole amount. Later, X remitted B’s share. Can A still recover reimbursement ofP500,000 from B?

ANS.: Yes. Because there is nothing more to remit since the obligation has been extinguished by payment already made by X.

PROBLEMSa. A, B, and C solidarily owe X P3 million. X remitted C’s share. A, therefore, paid later only P2 million. Can A recover reimbursement?

ANS.: Yes, but only from B and not from C, whose share had previously been remitted. Here, remission was previous to the payment.

b. In problem (a), how much can A recover from B and C?ANS.: From B, P1 million with interest. From C, nothing, because C’s share had been remitted.

c. In problem (b), suppose B is insolvent, can C be made liable in the meantime for part of the insolvency? In other words, can A get anything from C, whose share the creditor had remitted?

ANS.: Yes, because under Art. 1217, “when one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share must be borne by all his co-debtors in proportion to the debt of each.” In other words, even if C’s share has been remitted (and even if he therefore does not have to reimburse for his own share) he will still have to bear part of the burden of B’s insolvency, because the creditor’s act of liberality towards him cannot excuse him from fulfilling his legal duty under the provision hereinabove mentioned. Thus, B’s share of P1 million will be borne in the meantime by A and C, and C will have to give P500,000 to A. Later, C can recover from B, should the latter’s finances improve.

Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n)Remission, it must be borne in mind, is essentially gratuitous. Note that this Article applies only when the whole obligation is remitted.

PROBLEMA and B are solidary debtors of C to the amount of P1,000,000. C remitted the whole obligation when A offered to pay.

ANS: A here cannot get any reimbursement from B since after all, A did not pay anything to C. To allow the contrary would be to induce fraud and to countenance partiality.

Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a)

EFFECT OF LOSS OR IMPOSSIBLITY OF THE PRESTATION1. If without fault- no liability2. If with fault – there is liability (also for damage and interest)3. Loss due to fortuitous event after default- there is liability (because of delay)

PROBLEMSa. A and B are solidarily obliged to give C this particular car. The car was lost by a fortuitous event, and without any fault on the part of the debtors. What happens to the obligation?

ANS.: The obligation is extinguished. It is essential here, however, that the debtors be not guilty of default.

b. If in problem (a), the car was lost through the fault of A, and C makes a demand later upon B, should B be liable for the price of the car as well as damages or interest?ANS.: Yes, B will still be liable even if he was not at fault at all. Remember that a solidary obligation implies mutual agency and mutual confidence. The law expressly makes B liable in such a case both for the price of the car as well as damages or interests, but B can later on recover from A the whole of what he paid, for had A not been at fault, the obligation would have been already extinguished.

c. A, B, and C are solidary debtors of D in an obligation to give a particular car. D makes an extrajudicial demand upon A. After the demand, the car was lost by a fortuitous event. Is the obligation extinguished? If not, what is D’s right?ANS.: The obligation is not extinguished because the loss through a fortuitous event occurred after default on the part of the debtors had arisen. D’s right is to exact the price of the car from any of them. The debtors, however, who did not have a hand in the default (B and C) have the right to recover from their co-debtor, A, who after all, wasresponsible due to his default.

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Tolentino CommentLimited to the loss of the thing Effects provided in the present article are limited to the case of non-performance because of loss of the thing or impossibility of the prestation that is due. If the loss or impossibility is due to fortuitous event, without fault

or delay on the part of any debtor, then the obligation is extinguished; no debtor can be held liable for damages.

LOSS/IMPOSSIBILITYDUE TO FAULT OR DELAY OF

1

NON-PERFORMANCE W/O LOSS but there is fraud,

fault, negligence, breach, etc

The obligation is converted into an obligation to pay indemnity (price, damages, interest).

The creditor may also recover indemnity for damages from any of the solidary debtors

The entire indemnity may be recovered by the creditor from the other debtors who were free from default or delay

As among themselves, however, the guilty debtor cannot be made to shoulder, as part of the indemnity, the shares of the co-debtors in the original obligation

But the innocent debtors can recover from the guilty debtor the FULL AMOUNT OF THE INDEMNITY they have paid to the creditor

Even the debtors who were free from delay must bear a PART OF THE PRICE OF THING; burden of innocent debtors not increased.

The guilty debtor must shoulder ALL THE CONSEQUENCES of the loss because of his fault or delay

The guilty debtor must shoulder the DAMAGES exclusively

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a)

DEFENSES IN ACTIONS FILEDThis Article applies in ACTIONS filed by the creditor.KINDS OF DEFENSESA. Those derived from the NATURE of the obligation (this is a complete defense).

Examples:1) lack of consideration or cause2) absolute simulation (as when the contract is totally fictitious)3) illegal consideration4) extinguishment of the obligation (as when the whole debt has been paid, remitted, or has prescribed)5) non-fulfillment of the suspensive condition (if made upon the whole object or upon all the debtors)6) Statute of Frauds7) when ALL the debtors were incapacitated to give consent (such as unemancipated minors, insane, idiots, persons under a hypnotic spell)8) when there are VICES OF CONSENT (vitiated consent) on the part of ALL the debtors (such as when all were forced or intimidated or unduly influenced or were led into error)

B. Those PERSONAL to the debtor sued. (This is a complete defense generally, but if the defense is non-fulfillment yet of a condition or the non-arrival yet of the term, this is only a PARTIAL defense, that is, he will still be liable except for his own share in the meantime).

Examples:1) Vitiated consent (as when he was forced, etc.) — COMPLETE defense.2) Incapacity to give consent (as when he is a minor)- COMPLETE defense.3) Non-fulfillment of condition imposed regarding his share (PARTIAL defense, unless provided otherwise).4) Non-arrival of term (regarding his share — PARTIAL defense — unless provided otherwise)

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C. Those PERSONAL TO THE OTHERS — same as (b) — (Partial defense regarding share of others involved).

Examples1) A, B, and C are solidarily indebted to X for the selling of shabu or the sale of property of public dominion. If A, B, or C is sued, none can be held liable. This is a complete defense.2) A, B, and C are solidarily indebted to X for P3 million but A’s consent had been obtained by intimidation. If X sues A, how much will A be liable for?

ANS.: Nothing, for as to him, this is a complete defense. After all, he would not have been involved at all, had there been no intimidation.

If X sues B, how much will B be liable for?ANS.: For the whole P3 million MINUS A’s share (P1 million) if B puts up A’s vitiated consent as a defense. Having only a PARTIAL defense, B can still be held liable for P2 million.

PROBLEMOn Jun. 15, 2005, X, Y, and Z executed a promissory note promising to pay B the sum of P3,000,000 jointly and severally with interest of 10% per annum within 6 months. In an action by B against X for nonpayment of the note, X interposed the defenses

(1) that Y was a minor when the note was executed, and (2) that B had given an extension of one year to Z. What are the effects of these defenses?

ANS.: B can recover P1,000,000 because Y’s minority is a partial defense for X (for Y’s share of P1,000,000). The extension to Z is also a partial defense for X (for Z’s share of P1,000,000). (Art. 1222; see Inchausti v. Yulo, 34 Phil. 978).

CASESBraganza v. Villa AbrilleL-12471, Apr. 13, 1957FACTS: On Oct. 20, 1944, Rosario de Braganza and her two minor sons (18 and 16 years of age) borrowed from Villa Abrille P70,000 in Japanese money, promising to pay solidarily P10,000 in legal currency of the Philippines 2 years after the war. The money was used for the support of the children. For failure to pay, Villa Abrille sued in March 1949. The mother and the two sons pleaded in defense the minority of the two children at the time the contract was entered into.HELD:1) The mother is liable for 1/3 of the P10,000. Reason: The minority of her children did not completely release her from liability, since minority is a personal defense of the minors. She can avail herself of said defense only as regards that part of the debt for which the minors are liable. 2) The contract entered into by the minors is voidable, but since it cannot be denied that they had profited by the money they received (for their support), it is fair to hold them liable to the extent of said benefit (computed in accordance with the Ballantyne scale).

EFFECT OF DEBTOR’S DEATHX is Y’s surety. Creditor sued Y, who died pending the proceedings. Although the credit must now be brought in the special settlement proceedings of Y’s estate, an ordinary action filed against X as surety would prosper, the transfer not being a defense of X. (See Chinese Chamber of Commerce v. Pua Te Ching, 16 Phil. 406).

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1207-CASES

PACIFIC BANKING CORPORATION, vs.IAC

MEDIALDEA, J.:p

FACTS: On October 24, 1975, defendant Celia Syjuco Regala (hereinafter referred to as Celia Regala for brevity), applied for and obtained from the plaintiff the issuance and use of Pacificard credit card under the Terms and Conditions Governing the Issuance and Use of Pacificard a copy of which was issued to and received by the said defendant on the date of the application and expressly agreed that the use of the Pacificard is governed by said Terms and Conditions. On the same date, the Robert Regala, Jr, the husband, executed a "Guarantor's Undertaking” in favor of the appellee Bank, whereby the latter agreed "jointly and severally of his wife, to pay the Pacific Banking Corporation upon demand, any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Aurora Syjuco Regala with the use of the Pacificard, or renewals thereof, issued in her favor by the Pacific Banking Corporation". It was also agreed that "any changes of or novation in the terms and conditions in connection with the issuance or use of the Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from responsibility hereunder, it being understood that I fully agree to such charges, novation or extension, and that this understanding is a continuing one and shall subsist and bind me until the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid..

In view of defendant Celia Regala's failure to settle her account for the purchases, a written demand was sent to the latter and also to the defendant Roberto Regala, Jr under his "Guarantor's Undertaking."A complaint was subsequently filed in Court for defendant's (sic) repeated failure to settle their obligation. Defendant Celia Regala was declared in default for her failure to file her answer within the reglementary period. Defendant-appellant Roberto Regala, Jr., on the other hand, filed his Answer with Counterclaim admitting his execution of the "Guarantor's Understanding", "but with the understanding that his liability would be limited to P2,000.00 per month."

ISSUE: W/N husband is a surety and is solidarily liable. Yes. HELD: The pertinent portion of the "Guarantor's Undertaking" which private respondent Roberto Regala, Jr. signed in favor of Pacific Banking Corporation provides:

I/We, the undersigned, hereby agree, jointly and severally with Celia Syjuco Regala to pay the Pacific Banking Corporation upon demand any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Syjuco Regala with the use of the Pacificard or renewals thereof issued in his favor by the Pacific Banking Corporation. Any changes of or Novation in the terms and conditions in connection with the issuance or use of said Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from the responsibility hereunder, it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. (p. 12,Rollo)

SURETY V. GUARANTY. The undertaking signed by Roberto Regala, Jr. although denominated "Guarantor's Undertaking," was in substance a contract of surety. As distinguished from a contract of guaranty where the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor only in case the latter should fail to do so, in a contract of suretyship, the surety binds himself solidarily with the principal debtor (Art. 2047, Civil Code of the Philippines).

We need not look elsewhere to determine the nature and extent of private respondent Roberto Regala, Jr.'s undertaking. As a surety he bound himself jointly and severally with the debtor Celia Regala "to pay the Pacific Banking Corporation upon demand, any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Syjuco Regala with the use of Pacificard or renewals thereof issued in (her) favor by Pacific Banking Corporation." This undertaking was also provided as a condition in the issuance of the Pacificard to Celia Regala, thus:

5. A Pacificard is issued to a Pacificard-holder against the joint and several signature of a third party and as such, the Pacificard holder and the guarantor assume joint and several liabilities for any and all amount arising out of the use of the Pacificard. (p. 14, Rollo)

The respondent appellate court held that "all the other rights of the guarantor are not thereby lost by the guarantor becoming liable solidarily and therefore a surety." It further ruled that although the surety's liability is like that of a joint and several debtor, it does not make him the debtor but still the guarantor (or the surety), relying on the case of Government of the Philippines v. Tizon. G.R. No. L-22108, August 30, 1967, 20 SCRA 1182. Consequently, Article 2054 of the Civil Code providing for a limited liability on the part of the guarantor or debtor still applies.

It is true that under Article 2054 of the Civil Code, "(A) guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. 2 We do not agree however, that Roberto Jr.'s liability should be limited to that extent. Private respondent Roberto Regala, Jr., as surety of his wife, expressly bound himself up to the extent of the debtor's (Celia) indebtedness likewise expressly waiving any "discharge in case of any change or novation of the terms and conditions in connection with the issuance of the Pacificard credit card." Roberto, in fact, made his commitment as a surety a continuing one, binding upon himself until all the liabilities of Celia Regala have been fully paid. All these were clear under the "Guarantor's Undertaking" Roberto signed. As in guaranty, a surety may secure additional and future debts of the principal debtor the amount of which is not yet known (see Article 2053, supra)..

A guarantor or surety does not incur liability unless the principal debtor is held liable. It is in this sense that a surety, although solidarily liable with the principal debtor, is different from the debtor. It does not mean, however, that the surety cannot be held liable to the same extent as the principal debtor. The nature and extent of the liabilities of a guarantor or a surety is determined by the clauses in the contract of suretyship.

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(INIMACO), v. NLRCBUENA, J.:

FACTS: This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the National Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of the Decision dated March 10, 1987, thereby holding that the liability of the six respondents in the case below is solidary despite the absence of the word "solidary" in the dispositive portion of the Decision, when their liability should merely be joint. S-jcj

In September 1984, 6 PRs filed a complaint with DOLE against (INIMACO)et al, for payment of separation pay and unpaid wages. The labor arbiter ordered respondents (INIMACO) et al, to pay complainants to be deposited with this Commission within ten (10) days from receipt of this Decision for appropriate disposition. No appeal was filed within the reglementary period thus, the above Decision became final and executory. On June 16, 1987, the Labor Arbiter issued a writ of execution but it was returned unsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ of Execution which ordered to proceed to the premises of INIMACO et al to collect the aggregate award in favor of complainants. Petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside Decision," [3] alleging among others that the alias writ of execution altered and changed the tenor of the decision by changing the liability of therein respondents from joint to solidary, by the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial Management Development Corporation and Filipinas Carbon and Mining Corporation, et al." However, in an order dated September 14, 1987, the Labor Arbiter denied the motion. The respondent NLRC dismissed the appeal. Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent NLRC committed grave abuse of discretion in affirming the Order of the Labor Arbiter dated August 15, 1989, which declared the liability of petitioner to be solidary.

ISSUE: W/N liability is joint/solidary?

HELD: JOINT. A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. [9] In a joint obligation each obligor answers only for a part of the whole liability and to each obligee belongs only a part of the correlative rights. [10] Well-entrenched is the rule that solidary obligation cannot lightly be inferred. [11] There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.[12]

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6) respondents in the case below is solidary, thus their liability should merely be joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment. In Oriental Commercial Co. vs. Abeto and Mabanag[13] this Court held:"It is of no consequence that, under the contract of suretyship executed by the parties, the obligation contracted by the sureties was joint and several in character. The final judgment, which superseded the action for the enforcement of said contract, declared the obligation to be merely joint, and the same cannot be executed otherwise."[14]

Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of respondents therein is solidary, the correction -- which is substantial -- can no longer be allowed in this case because the judgment has already become final and executory.

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Sec. 5DIVISIBLE AND INDIVISIBLE OBLIGATIONS

(See Arts 1223-1225)

Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this title.

KINDS OF DIVISION1) QUANTITATIVE DIVISION (depends on quantity: Example —

if 10 chairs are equally divided between two brothers.)- In the next following example, if the inheritance consists

only of a ricefield its partition by metes and bounds into two equal parts is a quantitative division. Another example, is when A and B divide 300 cavans of palay harvested from the ricefield or the P100,000.00 cash.

2) QUALITATIVE DIVISION (depends on quality, irrespective of quantity. Example: If one child inherits land, and another inherits cash.)- A and B are heirs of C. They agreed to divide the

inheritance as follows: to A — a house and lot and home appliances and to — a ricefield, a car and P100,000.00 cash.

3) INTELLECTUAL OR MORAL DIVISION (one that exists merely in the mind, and not in physical reality. Example: My brother and I own in common a car. My one-half share is only in the mind.)

KINDS OF INDIVISIBILITY.They are:(1) LEGAL INDIVISIBILITY. — where a specific provision of law declares as indivisible, obligations which, by their nature, are divisible (Art. 1225, par. 3.);

(2) CONVENTIONAL INDIVISIBILITY. — where the will of the parties makes as indivisible, obligations which, by their nature, are divisible (Ibid.); and

(3) NATURAL INDIVISIBILITY. — where the nature of the object or prestation does not admit of division, e.g., to give a particular car, to sing a song, etc. (Ibid., par. 1.)

INDIVISIBILITY V. SOLIDARITY (See page, 67)

1224. A joint indivisible obligation gives rise to indemnity for damages

from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists.

JOINT INDIVISIBLE OBLIGATIONHere the object is indivisible and yet the parties are merely bound jointly. Example: Mila and Ligaya are jointly bound to give a specific car to Jose.

EFFECT OF NON-COMPLIANCEThe obligation is converted into a monetary one for indemnity.Example: Mila and Ligaya promised jointly to give a specific car worth P2,400,000 to Jose. In the meantime, the car is with Honda Motors Co. Mila’s share is, therefore, P1,200,000. If Mila, because of gambling, does not have the money, but Ligaya has P1,200,000 it is clear that they cannot get the car from Honda Motors Co. So they also cannot comply with their obligation of delivering the car to Jose. Here, the obligation to give the car is converted to a monetary obligation to give P2,400,000 to Jose. Ligaya is not responsible for Mila’s insolvency, so she is duty bound to give only P1,200,000. Mila will be indebted to Jose for her share of P1,200,000.

(c) Suppose in the preceding problem, the obligation was SOLIDARY and INDIVISIBLE, what would be the effect?ANS.: Jose can demand the whole car or its price of P2,400,000 from Ligaya alone, but Ligaya can later recover reimbursement from Mila.

EFFECTS OF NONCOMPLIANCE BY A DEBTORJOINT INDIVISIBLE SOLIDARY INDIVISIBLE

the obligation is transformed into one for damages. NOT specific performance/rescission because there is no cause of action against the other debtors who are willing to fulfill their promises. ALL debtors liable for damages but the innocent debtors shall not contribute beyond their respective shares of the obligation. The obligation becomes a divisible one.

breach by a co-debtor makes all debtors liable for damages. The obligation REMAINS SOLIDARY without prejudice to their right against the guilty or negligent debtor. (Art. 1221, par. 2.)

1225. For the purposes of the preceding articles, obligations - to give definite things and - those which are not susceptible of partial performance

shall be deemed to be INDIVISIBLE.

When the obligation has for its object the - execution of a certain number of days of work, - the accomplishment of work by metrical units, or - analogous things which by their nature are susceptible of

partial performance, shall be DIVISIBLE.

However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or

intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case

(1) Obligations That Are Deemed Indivisible

a. Obligations to give definite things. (Example: to give this car)

b. Those which are not susceptible of partial performance.(Example: to conduct the orchestra in a single rendition of Buencamino’s “Mayon Concerto”)

c. Even if the thing is physically divisible, it may be indivisible if so provided by law.

d. Even if the thing is physically divisible, it may be indivisible if such was the intention of the parties concerned.

(2) Obligations That Are Deemed Divisiblea. Execution of certain number of days work

Example: When a laborer is hired to work for 10days.b. Expressed by metrical units

Example: When a laborer is hired to construct a street 3 meters wide and 50 meters long.

c. Nature of obligation- susceptible of partial fulfillmentExample: When a debtor is required to pay in ten annual installments

d. When the object of the obligation is the accomplishment of work susceptible of partial performance. [NOTE: The character of the prestation or obligation will determine the divisibility or indivisibility

(3) Effect of Illegality on a Divisible Contract In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. (Art. 1420, Civil Code)

CASESBlossom & Co. v. Manila Gas Corp.

55 Phil. 226FACTS: P and D entered into a contract whereby D will supply P with gas tar at the price of P65 per ton. The contract was to run for 10 years, to start from the year 1919. D began delivering but later on he refused to continue. In 1923, P brought an action for damages against D and asked for damages. P was awarded damages up to 1923. The judgment became final, and P did not then ask for more. Later, P brought an action to recover damages from 1923 to 1929. Issue: Is he allowed to do so?

HELD: No, P is not allowed to recover any more damages. He should have questioned the judgment before it became final, but he did not. He had brought the first action to recover damages for the contract, the whole contract, and because the judgment in that case had already become final it cannot be changed although what he had obtained was only partial recovery. As a general rule, a contract to do several things at several times is divisible, and a

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judgment for a single breach of a continuing contract is not a bar to a suit for the subsequent breach. “When the defendant (D) terminated a continuing contract by absolute refusal in bad faith to perform (absolute, because he refused not only a single delivery but all subsequent deliveries — Author’s comments), a claim for damages for a breach is an indivisible demand, and where as in this case, a former final judgment was rendered, it is a bar to any damages which the plaintiff may thereafter sustain.”

L. Buck & Son Lumber Co. v. Atlantic Lumber Co.109 Federal 411

FACTS: A contract was made for the sale of a large quantity of logs to be delivered in monthly installments during a period of 8 years, payments to be made also in installment, at times having relations to the deliveries. It contained stipulations as to such payments, and guaranties as to the average size of the logs to be delivered in each installment. The seller terminated the contract for alleged breaches by the buyer and brought suit for damages, among them payments due for installments of the logs already delivered. The seller got some damages. Later, he wanted to recover for the other installments.

ISSUES:(a) Is this a divisible or indivisible obligation?(b) After recovery has been had of prior installments in a court action, may another court action prosper for the recovery of the remaining installments?

HELD:(a) “This is an indivisible contract, and not a number of separate and independent agreements for the sale of the quantity to be delivered and paid for each month, although there might be breaches of the minor stipulations and warranties with reference thereto which would warrant suits with a termination of the contract.”

b) The later court action for the recovery of the remaining installments cannot prosper. “The judgment in such action was conclusive as to all claims or demands of either party against the other, growing out of the indivisible contract.’’

Sec. 6OBLIGATIONS WITH A PENAL CLAUSE

(See Arts 1226-1230)

1226. In obligations with a penal clause, the penalty shall substitute

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

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

1227. The debtor cannot exempt himself from the performance of the obligation by paying

the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced.

1228. Proof of actual damages suffered by the creditor is not necessary in order that the

penalty may be demanded.

1229. The judge shall equitably reduce the penalty when the principal obligation has been

partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

1230. The nullity of the penal clause does not carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that of the penal clause.

WITH A PENAL CLAUSE- one to which an accessory undertaking is attached for the purpose of insuring its performance by virtue of which the obligor is bound to pay a stipulated indemnity to perform a stipulated prestation in case of breach

Meaning of principal and accessory obligations.(1) Principal obligation is one which can stand by itself and does not depend for its validity and existence upon another obligation.

(2) Accessory obligation is one which is attached to a principal obligation and, therefore, cannot stand alone.

a. It is a coercive means to obtain from the debtor compliance from the debtor. (Georg).

b. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to obligations in order to insure their performance. (8 Manresa245).

PRINCIPAL PURPOSE OF THE PENAL CLAUSEa. to insure the performance of an obligation b. to substitute for damages and the payment of interest in case

of non-compliance. c. to punish the debtor for the non-fulfillment or violation of his

obligation.

PENAL CLAUSE DISTINGUISHED FROM A CONDITION

“Between a condition and a penalty, there are notable differences: the PENALTY constitutes an obligation although accessory; CONDITION does not. Therefore, the PENALTY may become demandable in default of the unperformed principal obligation, and sometimes jointly with it, while CONDITION is never demandable.”

CHARACTERISTICS OF PENAL CLAUSES1. Subsidiary- as a general rule, only penalty can be demanded,

principal cannot be demanded because it takes place of indemnity for damages and the payment of interest, except:- Penalty is joint or cumulative

2. Exclusive- takes place of damage, damage can only be demanded in the ff cases(exception to GR, INSTANCES WHEN ADDITIONAL DAMAGES MAY BE RECOVERED):a) Stipulation- granting rightb) Refusal to pay penaltyc) With dolo (not of creditor)

The reason for the third exception is clear: there can be no renunciation of an action to enforce liability for future fraud because, as we have seen, this is against public policy and against the express provisions of the law.

MAY ANY PENALTY BE DEMANDABLE?ANS.: No. The penalty may be enforced only when it is demandable in accordance with the provisions of the Civil Code, one of which states that the penalty may be reduced if it is iniquitous or unconscionable. (Art. 1229, Civil Code).

CAUSES FOR REDUCTION OF PENALTY1. Partial or irregular performance2. Penalty provided is iniquitous/unconscionable

CASESNavarro v. Mallari

45 Phil. 242FACTS: In a building contract, there was stipulation for a penalty clause. The builder, however, was sued for additional damages on account of breach of the contract. But the breach was not occasioned by fraud. Issue: Is the owner entitled to get more damages from the builder?

HELD: No, he cannot get damages other than what has been stipulated upon as the penalty or waiver of other damages, except if otherwise provided by law. A party to a building contract who is given the benefi t of a stipulation fixing a round sum as liquidated damages for breach of contract on the part of the builder cannot be awarded additional damages at large for the same breach. Insistence upon receiving satisfaction of the penal clause operates as a renunciation of the right to other damages

Lambert v. Fox26 Phil. 588

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FACTS: In the promissory notes executed by the defendants, and incorporated in the mortgage deeds, they voluntarily undertook to pay the sum of P1,300 as court costs, expenses of collection, and attorney’s fees, whether incurred or not. Issue: Is this penal clause valid?HELD: Yes, this stipulation is valid and permissible penal clause, not contrary to any law, morals, or public order, and is therefore, strictly binding upon the defendants.

OBLIGATIONS WITH A PENAL CLAUSE DISTINGUISHED FROM EXAMPLES FROM THE FACULTATIVE AND THE ALTERNATIVE OBLIGATIONS

1. Obligations with a penal clauseExample: Gloria is obliged to give me a particular diamond ring. If she fails to do so, she must give P700,000.

(NOTE: Ordinarily, Gloria cannot excuse herself from the duty of giving me the ring by simply paying P700,000. For her to substitute the penalty, she must be expressly given the right to do so)

1. Facultative ObligationExample: Gloria is obliged to give me a particular diamond ring. However, if she so desires, she may instead give me P700,000.

(NOTE: Here, Gloria is clearly and expressly allowed to make the substitution. If the ring is lost by a fortuitous event, she is excused from giving me the substitute of P700,000, for indeed the principal obligation has been extinguished.)

2. Alternative ObligationExample: Gloria is obliged to give me either a particular diamond ring or P700,000.

(NOTE: Here, the choice given to Gloria is absolute .If, however, the ring is lost by a fortuitous event, she isstill obliged to give me the P700,000.)\

1227Generally, Debtor Cannot Substitute Penalty for the Principal ObligationThe general rule is that the debtor is not allowed to just pay the penalty instead of fulfi lling the obligation. He can only do so if the right has been EXPRESSLY reserved. The reason is that if he can just pay, fulfi llment of the obligation will be considered an alternative one. The word EXPRESSLY means that any implied reservation is not allowed.

ExampleA promises to fi nish a certain piece of work within six months. The contract stipulates that in case he does not build the house at all, he is supposed to forfeit the sum of P1,000,000. In this case, as a general rule the contractor cannot just give the sum of P1,000,000 as a substitute for his non-performance of the obligation. It must be remembered that as a general rule, therefore, the penal clause is not supposed to substitute the

performance of the principal obligation. He may, however, be expressly granted by the creditor the right to refrain from the execution of the contract by a forfeiture of the penalty.

Cui v. Sun Chan41 Phil. 523FACTS: A lessee rented property from a lessor. The contract of lease contained a stipulation to the effect that the lessee should not make any construction on the property without the permission of the lessor, and that should the lessee do so without the permission of the lessor said improvements would inure to the benefi t of the estate (lessor) and the lessee, in such a case, would not have any right to ask for any reimbursement for the cost of the construction. The lessee made some improvements without the consent of the lessor. Now, the lessor wantsto evict the lessee for the violation of the conditions of the lease. The lessee, on the other hand, said that he should not be ousted because he was ready to forfeit the improvements in favor of the lessor’s estate.

Issue: Is the fact that the lessee is ready to forfeit the improvement on the estate suffi cient to prevent his being ousted from the premises?

: Even if the lessee is ready to forfeit the improvements on the estate, he may still be ousted from the premises for his having violated the condition imposed upon him, namely, not to make any such improvements without the permission of the lessor. It is true that the lessee was ready to fulfi ll what may perhaps be termed a penalty, but this does not excuse him from complying with the principal obligation of not making any improvements without the consent of the lessor. It must be borne in mind that a debtor (the lessee) cannot escape the fulfi llmentof the obligation by just paying the penalty, unless such right has expressly been granted him. Hence, everything considered, the lessee may lawfully be ousted from the premises.

(3) Generally, Creditor Cannot Demand Both Fulfi llment and Penalty at the same timeAs a general rule, the creditor does not have this right to demand fulfi llment of the obligation and the penalty at the same time. The exception arises when such a right has been CLEARLY granted to him

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