INSULAR LIFE VS YOUNG

GR No. 140964 January 16, 2002

FACTS:

Respondent Robert Young obtained a short term loan of P170,000,000.00 from

interbank to finance the purchase 45% equity in Insular Savings Bank. He did this under
the assumption that Araneta would purchase 99.82% of the banks outsanding capital
stock and consolidate all shares in Young’s name. However, Araneta backed and
Young was left with a massive debt. Young entered into a Memorandum of Agreement
where Insular Life and its Pension Fund whereby Insular Life would purchase shares of
stock if Young would abide by certain conditions: one of them being to infuse additional
capital of P50,000,000.00 into the Bank.

It was discovered that Young was pilfering funds from the bank through check
kiting operations and he tendered his resignation. He also defaulted on his obligations.
His shares of stock were purchased by Insular Life in a public auction. The shares were
then consolidated in its name. On January 7, 1992, Young filed a case for annulment of
notarial sale, specific performance and damages.

ISSUE:

Is Insular Life entitled to ownership of majority of the Bank’s shares of stock?

RULING:

The provisions of the MOA negate the existence of a perfected contract of sale.
The MOA is merely a contract to sell since the parties therein specifically undertook to
enter into a contract of sale if the stipulated conditions are met and the representation
and warranties given by Young prove to be true. Here, the MOA provides that Young
shall infuse additional capital of P50,000,000.00 into the Bank. Young failed to infuse
the required additional capital. Moreover, the due diligence audit shows that Young was
involved in fraudulent schemes like check kiting. Since no sale transpired between the
parties, the CA erred in concluding that Insular Life purchased 55% of the total shares
of the Bank under the MOA.

It would be unfair on the part of Young to demand compliance by Insular Life of

its obligations when he himself was remiss in his own.
VDA. DE MISTICA VS NAGUIAT
418 SCRA 73 December 11, 2003

FACTS:

On April 5, 1979, Eulalio Mistica, predecessor-in-interest of herein [petitioner],

entered into a contract to sell with [respondent] Bernardino Naguiat over a lot. Pursuant
to said agreement, respondent gave a downpayment of P2,000.00. He made another
partial payment of P1,000.00 on February 7, 1980. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986. On December 4, 1991,
petitioner filed a complaint for rescission alleging that the failure and refusal of
respondents to pay the balance of the purchase price constitutes a violation of the
contract which entitles her to rescind the same.

ISSUE:

Is petitioner entitled to rescission of contract?

RULING:

The transaction between Eulalio Mistica and respondents, as evidenced by the

Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in
nature when there is neither a stipulation in the deed that title to the property sold is
reserved to the seller until the full payment of the price; nor a stipulation giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period.

In a contract of sale, the remedy of an unpaid seller is either specific

performance or rescission. Rescission, however, is allowed only where the breach is
substantial and fundamental to the fulfillment of the obligation. In the present case, the
failure of respondents to pay the balance of the purchase price within ten years from the
execution of the Deed did not amount to a substantial breach.

Moreover, it is undisputed that during the ten year period, petitioner never made
any demand for the balance of the purchase price. Petitioner even refused the payment
tendered by respondents during her husband’s funeral, thus showing she was not
exactly blameless for the lapse of the ten year period.
HERMOSA VS LONGARA
GR No. L-5267, October 27, 1953

FACTS:

This is an appeal by way of certiorari against a decision of the Court of Appeals,

fourth division, approving certain claims presented by Epifanio M. Longara against the
testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely,
P2,341.41 representing credit advances made to the intestate from 1932 to 1944,
P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson,
Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which
occurred in December, 1944. The claimant presented evidence and the Court of
Appeals found, in accordance therewith, that the intestate had asked for the said credit
advances for himself and for the members of his family "on condition that their payment
should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from
the sale of his property in Spain." Claimant had testified without opposition that the
credit advances were to be "payable as soon as Fernando Hermosa, Sr.'s property in
Spain was sold and he receive money derived from the sale." The Court of Appeals held
that payment of the advances did not become due until the administratrix received the
sum of P20,000 from the buyer of the property. Upon authorization of the probate court
in October, 1947, and the same was paid for subsequently. The Claim was filed on
October 2, 1948.

ISSUE:

Does said condition a potestative condition and thusly void and unenforceable?

RULING:

A careful consideration of the condition upon which payment of the sums

advanced was made to depend, "as soon as he (intestate) receive funds derived from
the sale of his property in Spain," discloses the fact that the condition in question does
not depend exclusively upon the will of the debtor, but also upon other circumstances
beyond his power or control. Circumstances show that the intestate had already
decided to sell his house lest he meant to fool his creditors. But in addition of the sale to
him (the intestate-vendor), there were still other conditions that had no concur to effect
the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the
property under the conditions demanded by the intestate. It is evident, therefore, that
the condition of the obligation was not a purely protestative one, depending exclusively
upon the will of the intestate, but a mixed one, depending partly upon the will of
intestate and partly upon chance. The Supreme Court upheld the ruling of the lower
courts.
TRILLANA VS QUEZON COLLEGES
GR No. L-5003, June 27, 1953

FACTS:

On June 1, 1948, Damasa Crisostomo applied for 200 shares of stock worth
PhP100.00 each at Quezon Colleges, Inc. Within her letter of application, she
stipulated, “You will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli
ng isda) pesos as my initial payment and the balance payable in accordance with law
and the rules and regulations of the Quezon College.” Damasa died on October 26,
1948. Since no payment was rendered on the subscription made in the foregoing letter,
Quezon College presented a claim of PhP20,000.00 on her intestate proceedings. The
petitioner – administrator of the estate then contests the validity of said proceedings.

ISSUE:

Is the condition laid down by Damasa Crisostomo valid?

RULING:

There is nothing in the record to show that the Quezon College, Inc. accepted
the term of payment suggested by Damasa Crisostomo, or that if there was any
acceptance the same came to her knowledge during her lifetime. As the application of
Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter
issued by the Quezon College, Inc., there was absolute necessity on the part of the
College to express its agreement to Damasa's offer in order to bind the latter.
Conversely, said acceptance was essential, because it would be unfair to immediately
obligate the Quezon College, Inc. under Damasa's promise to pay the price of the
subscription after she had caused fish to be caught. Thus, it cannot be said that the
letter ripened into a contract.

Indeed, the need for express acceptance on the part of the Quezon College,
Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to
pay the value of the subscription after she has harvested fish, a condition obviously
dependent upon her sole will and, therefore, facultative in nature, rendering the
obligation void. Under the Civil Code it is provided that if the fulfillment of the condition
should depend upon the exclusive will of the debtor, the conditional obligation shall be
void.
VISAYAN SAWMILL VS CA
219 SCRA 378 March 3, 1993

FACTS:

On May 1, 1983, herein plaintiff-appellee and defendants appellants entered into a

sale involving scrap iron, subject to the condition that plaintiff appellee will open a letter
of credit in the amount of P250,000.00 in favor of defendant-appellant corporation on or
before May 15, 1983. On May 24, 1983, plaintiff-appellee informed defendants-
appellants by telegram that the letter of credit was opened May 12, 1983 at the BPI
main office in Ayala, but that transmittal was delayed. On May 26, 1983, defendants-
appellants received a letter advice from the Dumaguete City Branch of BPI dated May
26, 1983, that a domestic letter of credit had been opened in favor of Visayan Sawmill
Company.

On July 19, 1983 plaintiffs then demanded that defendants comply with the deed
of sale. On July 20, 1983 defendant corporation informed plaintiff’s lawyer that it is
unwilling to continue with the sale due to plaintiff’s failure to comply with the essential
preconditions of the contract.

Private respondent prayed for judgment ordering the petitioner corporation to

comply with the contract by delivering to him the scrap iron subject thereof.

ISSUE:

Did petitioner corporation violate the terms and conditions of the contract?

RULING:

The petitioner corporation’s obligation to sell is unequivocally subject to a positive

suspensive condition. The failure of the private respondent to comply with the positive
suspensive condition cannot even be considered a breach – casual or serious – but
simply an event that prevented the obligation of petitioner corporation to convey title
from acquiring binding force.

The letter of credit in favor of petitioner was indisputably not in accordance with
the stipulation in the contract signed by the parties on at three counts: (1) it was not
opened, made or indorsed by the private respondent, but by a corporation which is not a
party to the contract; (2) it was not opened with the bank agreed upon and; (3) it is not
irrevocable and unconditional, for it is without recourse, it is set to expire on a specific
date and it stipulates certain conditions with respect to shipment.
 Consequently, the obligation of petitioner to sell did not arise; it therefore cannot
be compelled by specific performance to comply with its prestation.

HEIRS OF SANDEJAS VS LINA

GR No. 141634 February 5, 2001

FACTS:

Eliodoro Sandejas, Sr., served as administrator of the estate of Remedios R.

Sandejas. Eliodoro, in his capacity as seller, bound and obligated himself,
administrators, and assigns, to sell forever and absolutely and in their entirety parcels of
lands which formed part of the estate of the late Remedios to one Mr. Alex A. Lina for
the consideration of P1 Million. Eliodoro died and Mr. Alex Lina served as temporary
administrator of the estate until he was replaced by the heir of Eliodoro, Sixto Sandejas.
Mr. Lina filed an Omnibus motion to approve the deed of conditional sale executed
between Plaintiff-in-Intervention Alex A. Lina and Eliodoro Sandejas, Sr. on June 7,
1982. The administrator Sixto filed a motion to dismiss.

ISSUE:

Is Mr. Lina entitled to purchase parcels of lands forming the estate of

Remedios?

RULING:

In a contract to sell, the payment of the purchase price is a positive suspensive

condition. The vendor’s obligation to convey the title does not become effective in case
of failure to pay. On the other hand, the agreement between Eliodoro, Sr. and
respondent is subject to a suspensive condition – the procurement of a court approval,
not full payment. There was no reservation of ownership in the agreement. In
accordance with paragraph 1 of the Receipt, petitioners were supposed to deed the
disputed lots over to respondent. This they could do upon the court’s approval, even
before full payment. Hence, their contract was a conditional sale, rather than a contract
to sell as determined by the CA.

Because petitioners did not consent to he sale of their ideal shares in the
disputed lots, the CA correctly limited the scope of the Receipt to the pro-indiviso share
of Eliodoro, Sr. Thus, it correctly modified the intestate court’s ruling by excluding their
shares from the ambit of the transaction.

The petition was partially granted. The appealed decision and resolution are
affirmed with he modification that respondent is entitled to only a pro-indiviso share
equivalent to 11/20 of the disputed lots.
JESPAJO VS CA
GR No. 113626 September 27, 2002

FACTS:

On February 1, 1985, said corporation, represented by its President, Jesus L.

Uy, entered into separate contracts of lease with Tan Te Gutierrez and Co Tong.
Pursuant to the contract, Tan Te occupied room No. 217 of the subject building at a
monthly rent of P847.00 while Co Teng occupied the Penthouse at a monthly rent of
P910.00. The terms of the contract among others are the following:
“PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985
and shall continue for an indefinite period provided the lessee is up-to-date in the
payment of his monthly rentals. The LESSEE may, at his option, terminate this contract
any time by giving sixty (60) days prior written notice of termination to the LESSOR.

However, violation of any of the terms and conditions of this contract shall be a
sufficient ground for termination thereof by the LESSOR.”

The private respondents religiously paid the monthly rental fees. On January 2,
1990, the lessor corporation sent a written notice to the lessees informing them of the
formers’ intention to increase the monthly rentals on the occupied premises to
P3,500.00 monthly effective February 1, 1990. The private respondents refused
payment. An ejectment case was filed against them in court.

ISSUE:

Is the stipulation a potestative period and hence void?

RULING:

The lease contract between petitioner and respondents is with a period subject
to a resolutory condition. The wording of the agreement is unequivocal. The condition
imposed in order that the contract shall remain effective is that the lessee is up-to-date
in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong
religiously paid their rent at the increasing rate of 20% annually. The agreement
between the lessor and the lessees are therefore still subsisting, with the original terms
and conditions agreed upon, when the petitioner unilaterally increased the rental
payment to more than 20% or P3,500.00 a month.
 The petitioner is estopped from backing out of their representations in the
contract with respondent, that is, they may not renege on their own acts and
representations, to the prejudice of the respondents who relied on them.

BORROMEO VS CA
GR No. L-22962 September 28, 1972

FACTS:

Respondent Jose A Villamor was a distributor of lumber belonging to Mr. Miller

who was the agent of the Insular Lumber Company in Cebu City. Defendant usually
borrowed from his friend and former classmate-petitioner Canuto O. Borromeo several
amounts of money. On one occasion, with some pressing obligation to Mr. Miller,
defendant borrowed a large sum of money from Borromeo for which he mortgaged his
land and house in Cebu City. Mr. Miller filed a civil action against the defendant and
attached his properties including those mortgaged to plaintiff, inasmuch as the deed of
mortgage in favor of plaintiff could not be registered as it was not properly drawn up.
Plaintiff then pressed for settlement of his obligation, but defendant instead offered to
execute a document of future payment. Liquidation was made and defendant was found
to have owed plaintiff the sum of PhP7220.00, for which defendant signed a promissory
therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to
pay ‘as soon as I have money.’ The note further stipulates that the defendant would
waive the right of prescription as prescribed in the Civil Code of Procedure. Plaintiff did
not collect within the 1st ten years since defendant did not have any property attached
to his name. However after the second World War, plaintiff then pressed on his
demands. The RTC granted his motion but the CA reversed the ruling claiming that said
period was contrary to law.

ISSUE:

Is said period stipulated in the contract valid?

RULING:

The CA erred in its decision. It should be noted that the wordings in said contracts
should not instantly nullify the intent of the parties. The intent of the parties is clear –
that an extension of time be granted to respondent for payment of his debts.

In effect, the first 10 years should not be considered in the prescription of the
contract and that the next ten years is granted from which the counting of the period
should begin.
GONZALES VS JOSE
GR No. 43429 October 24, 1938

FACTS:

The plaintiff Benito Gonzales filed an action to recover from the defendant the total
amount of Php547.95 from two promissory notes dated June 22, 1922 and September
13, 1922. The CFI granted his petition. The defendant now assails that decision
claiming that the complaint was uncertain inasmuch as the notes did not specify when
the indebtedness was incurred or when it was demandable, and that, granting that
plaintiff has any cause of action, the same has prescribed in accordance with law.

ISSUE:

Does plaintiff have a cause of action?

RULING:

Article 1128 of the Civil Code stipulates that if the obligation does not specify a
term, but it is inferred from its nature and circumstances that it was intended to grant the
debtor time for its performance, the period of the term shall be fixed by the Court.

The two promissory notes are governed by Article 1128 because under the terms
thereof, the plaintiff intended to grant the defendant a period within which to pay his
debts. However, the action to ask the court to fix a period has already prescribed. The
period of prescription is ten years, which has already elapsed from the execution of the
promissory notes until the filing of the action on June 1, 1934.
Song Fo and Co., vs. Hawaiian-Philippine Co.
G.R. No. 23769. September 16, 1925]

Facts:

Hawaiian-Philippine Co. got into a contract with Song Fo & Co. where it would deliver
molasses to the latter. Hawaiian-Philippine Co. was able to deliver 55,006 gallons of
molasses before the breach of contract. SFC filed a complaint for breach of contract
against Hawaiian-Philippine Co. and asked P70,369.50. Hawaiian-Philippine Co.
answered that there was a delay in the payment from Song Fo & Co. and that Hawaiian-
Philippine Co. has the right to rescind the contract due to that and claims it as a special
defense.

The judgment of the trial court condemned Hawaiian-Philippine Co. to pay Song Fo &
Co. a total of P35,317.93, with legal interest from the date of the presentation of the
complaint, and with costs.

Issue:

(1) Did Hawaiian-Philippine Co. agree to sell 400,000 gallons of molasses or 300,000
gallons of molasses?

(2) Had Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song
Fo & Co.?

(3) On the basis first, of a contract for 300,000 gallons of molasses, and second, of a
contract imprudently breached by Hawaiian-Philippine Co., what is the measure of
damages?

Held:

(1) Only 300,000 gallons of molasses was agreed to by Hawaiian-Philippine Co. as

seen in the documents presented in court. The language used with reference to the
additional 100,000 gallons was not a definite promise.

(2) With reference to the second question, doubt has risen as to when Song Fo & Co.
was supposed to make the payments for the delivery of molasses as shown in the
documents presented by the parties.

The Supreme Court said that Hawaiian-Philippine Co. does not have the right to rescind
the contract. It should be noted that the time of payment stipulated for in the contract
should be treated as of the presence of the contract. There was only a slight breach of
contract when the payment was delayed for 20 days after which Hawaiian-Philippine
Co. accepted the payment of the overdue accounts and continued with the contract,
waiving its right to rescind the contract. The delay in the payment of Song Fo & Co. was
not such a violation for the contract.
(3) With regard to the third question, the first cause of action of Song Fo & Co. is based
on the greater expense to which it was put in being compelled to secure molasses from
other sources to which Supreme Court ruled that P3,000 should be paid by Hawaiian-
Philippine Co. with legal interest from October 2, 1923 until payment.

The second cause of action was based on the lost profits on account of the breach of
contract. Supreme Court said that Song Fo & Co. is not entitled to recover anything
under the second cause of action because the testimony of Mr. Song Heng will follow
the same line of thought as that of the trial court which in unsustainable and there was
no means for the court to find out what items make up the P14,000 of alleged lost
profits.
Facts:

Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co (SFC)

where it would deliver molasses to the latter evidenced by a letter containing their
contract. The same states that Mr. Song Fo agreed to the delivery of 300,000 gallons of
molasses and the same requested for an additional 100,000 molasses which the HPC
promised that it will do its best to comply with the additional shipment. However, the
HPC was only able to deliver 55,006 gallons. SFC thereafter filed a complaint with two
causes of action for breach of contract against the HPC and asked for P70,369.50. HPC
answered that there was a delay in the payment from SFC and that HPC has the right to
rescind the contract because of the same· The trial court condemned HPC to pay SFC
a total of P35,317.93, with legal interest.

Issues: Does HPC have a right to rescind the contract?

RULING:

No. HPC has no right to rescind the contract. The court provided that the general rule is
that rescission will not be permitted for a slight or casual breach of the contract, but only
for such breaches as are so substantial and fundamental as to defeat the object of the
parties in making the agreement. It should be noted that the time of payment stipulated
for in the contract should be treated as of the essence of the contract. There was only a
slight breach of contract when the payment was delayed for 20 days and does not
violate essential condition of the contract which warrants rescission for non-
performance. Furthermore, HPC accepted the payment of the overdue accounts and
continued with the contract, waiving its right to rescind the same. Petition of partly
granted, and the judgment appealed is modified. Plaintiff shall have and recover from
the defendant the sum of P3,000, with legal interest from date of judgment, no special
costs.
Rios vs. Jacinto
G.R. No. L-23893 March 23, 1926

Facts:

It appears that by contract dated September 1, 1920, the plaintiffs, as owners of a

parcel of land on Gagalangin Street, Tondo District, Manila, let the same, with the
improvements thereon, to the firm of Jacinto, Palma y Hermanos, S. C., for the term of
fifteen years at a monthly rental of P400 payable in advance during the first ten days of
each month. Among the provisions contained in this contract we note clause 9, which is
to the effect that the terms and conditions of the contract shall be obligatory upon and
redound to the benefit of the persons composing the lessee firm, their heirs executors,
administrators, successors and assigns, as well as the successors and assigns of the
lessors.

Issue:

Ruling:

From what has been said it follows that the judgment absolving the defendants from the
complaint must be affirmed; and it is ordered, with costs against the appellants.

The plaintiffs were unable to find a new tenant until March 1, 1924, when the property
was leased to Walter A. Smith, Inc., for the period of three years at a rental of P250 per
month, P150 less than that which the plaintiffs would have received under the former
lease. On April 4, 1924, the plaintiffs brought the present action for damages alleged to
have been suffered by reason of the defendants’ breach of contract.

The theory that damages for the loss of profits suffered subsequent to the rescission of
a lease, but before the expiration of its original term, are incompatible with the idea of
rescission, is entirely new and in direct conflict with the views expressed by this court It
is also out of harmony with all other cases upon the subject of damages for breach of
contract in this jurisdiction and cannot be good law.
Pryce Corporation vs PAGCOR,
G.R. No. 157480, May 6, 2005

FACTS:

Pryce Corp made representations with PAGCOR on the possibility of setting up a

casino in Pryce PlazaHotel in Cagayan de Oro City (CDO). Parties executed a
contract of lease on November 11, 1992. Thecontract had a term of 3 years
beginning December 1, 1992 and ending on November 30, 1995.
TheSangguniang Panlungsod of CDO passed resolutions and ordinances
prohibiting the establishment of agambling casino in the city. The court
subsequently ruled that the ordinances were unconstitutional.Despite the absence
of legal obstacles, PAGCOR's operations were interrupted by demonstrations
andpublic rallies. PAGCOR decided to stop its operations upon advice from the
Office of the President.PAGCOR asked for a pre-termination of the contract and
demanded a refund of the reimbursable rentdeposits from Pryce Corp. Pryce Corp is
instead demanding damages pursuant to Art 20 of their contract

ISSUE:
1.) Whether or not Pryce Corporation is entitled to future rentals or lease payments
for the unexpiredperiod of contract of Lease between them and the PAGCOR.

HELD:

Pryce Corporation has the right to collect future rentals upon the provision if the
Contract as it is notcontrary to law, morals, and public order or public policy. Art.
1159 of the Civil Code provides that “Obligations arising from contracts have the
force of law between the contracting parties and should becomplied with good faith.
In deference to the rights of the parties, the law allows to enter
intostipulations, clauses, terms and conditions they may deem convenient, that is, as
long as these are not contrary to law, morals, good customs, public order or public
policy. Likewise, it is settled that if the terms of the contract clearly express the intention
of the contracting parties, the literal meaning of the stipulations would be controlling.
PRYCE CORP. v PAGCOR G.R. No. 157480, 06 May 2005

FACTS:
PAGCOR leased some hotel space from Pryce Corp. (Pryce) in Cagayan de Oro City
to put up a casino. It is fraught with problems from the start as frequent protests by
locals and civic leaders plagued the casino. PAGCOR is subsequently advised to stop
operations by no less than the President of the Philippines. PAGCOR stopped paying
the rent after ceasing operations despite the fact that the lease contract had not yet
expired. Pryce sent several letters demanding the unpaid balance to no avail. After
exhausting all possible options, Pryce decided to exercise its contractual right to
terminate the lease contract and to claim the supposedly forfeited deposits of
PAGCOR. This right to forfeiture was stipulated in the contract as a penalty.

ISSUE:
Is Pryce entitled to the unpaid rentals by PAGCOR?

HELD:
Although the contract falls under one of those exceptions where both the actual
damages and the penalty may be claimed by virtue of the provision which states that
“aside from the payment of the rentals corresponding to the remaining term of the
lease, the lessee shall also be liable 'for any and all damages, actual or consequential,
resulting from such default and termination of this contract.” The right to claim the
forfeiture of the future rentals may not be exercised by Pryce, as such penalty would
be unconscionable and iniquitous. The question of whether a penalty is reasonable or
iniquitous is addressed to the sound discretion of the courts. To be considered in fixing
the amount of penalty are factors such as, but not limited to, the type, extent and
purpose of the penalty; the nature of the obligation; the mode of the breach and its
consequences; the supervening realities; the standing and relationship of the parties;
and the like. In this case, PAGCOR's breach was occasioned by events that, although
not fortuitous in law, were in fact real and pressing.

While petitioner's right to a stipulated penalty is affirmed, we consider the claim for
future rentals to the tune of Php 7,037,835.40 to be highly iniquitous. The amount
should be equitably reduced.
 GOLDEN VALLEY EXPLORATION, INC. vs. PINKIAN MINING COMPANY and
COPPER VALLEY, INC.
G.R. No. 190080, June 11, 2014
PERLAS-BERNABE, J.

Facts:

Pinkian Mining Company (PMI) is the owner of 81 mining, 15 of which are

covered by Mining Lease Contracts, the remaining 66 had pending applications for
lease. It entered into an Operating Agreement (OA) with Golden Valley Exploration, Inc.
(GVEI), granting the latter "full, exclusive and irrevocable possession, use, occupancy,
and control over the [mining claims], and every matter pertaining to the examination,
exploration, development and mining of the [mining claims] and the processing and
marketing of the products for a period of 25 years. Later, PMC extra-judicially rescinded
the OA upon GVEI’s violation of Section 5.01, Article V thereof.

GVEI contested PMC’s extra-judicial rescission of the OA averring therein that its
obligation to pay royalties to PMC arises only when the mining claims are placed in
commercial production which condition has not yet taken place. PMC no longer
responded to GVEI’s letter. It also reminded PMC of its prior payment of the amount
of P185,000.00 as future royalties in exchange for PMC’s express waiver of any breach
or default on the part of GVEI. Instead, it entered into a Memorandum of Agreement
with Copper Valley Inc., (CVI), whereby the latter was granted the right to "enter,
possess, occupy and control the mining claims" and "to explore and develop the mining
claims, mine or extract the ores, mill, process and beneficiate and/or dispose the
mineral products in any method or process," among others, for a period of 25 years.

Issue: Whether or not there was a valid rescission of the OA.

Held:

The rescission is valid. As a general rule, the power to rescind an obligation must
be invoked judicially and cannot be exercised solely on a party’s own judgment that the
other has committed a breach of the obligation. This is so because rescission of a
contract will not be permitted for a slight or casual breach, but only for such substantial
and fundamental violations as would defeat the very object of the parties in making the
agreement. As a well-established exception, however, an injured party need not resort
to court action in order to rescind a contract when the contract itself provides that it may
be revoked or cancelled upon violation of its terms and conditions.

With that in mind, the Court held that PMC’s unilateral rescission of the OA due
to GVEI’s non-payment of royalties considering the parties’ express stipulation in the
OA that said agreement may be cancelled on such ground. 
Fong v. Duenas
Gr. No. 185592, June 15, 2015

Facts:
Petitioner and respondent entered into a verbal joint venture agreement where
they agreed to engage in food business and to incorporate a holding company under
the name Alliance Holding, Inc. Its capitalization would be P65 Million to which they
would contribute in equal parts. The parties agreed that Fong would contribute P32.5
Million in cash while Duenas would contribute all his share in Danton and Bakcom (his
food manufacturing and retailing company) which he valued at P32.5 Million. Fong
required Duenas to submit the financial documents supporting the valuation of these
shares. In 1997, Fong sent Duenas a letter informing him that he is limiting his total
contribution to P5 Million because of certain personal factors. After sometime, Duenas
still failed to show the financial documents on the valuation of Danton and Bakcom. He
also failed to incorporate and register Alliance with the SEC thus prompting Fong to
cancel the joint venture and to request for the refund of the P5 Million. Demands to have
the P5 Million refunded proved futile which led to the institution of complaint for
collection of sum of money by Fong. The RTC decided in favour of Fong which was
reversed on appeal by the CA because according to the latter, the 1997 letter of Fong
evidenced his intention to convert his cash contributions from advances to mere
investments. It is therefore, according to the CA, right for Duenas to apply the P5 Million
on Bakcom and Danton which would eventually form part of the Alliance.

Issue:
1. Whether the case is an action for rescission or a collection for sum of money.
2. Whether rescission under Article 1191 is applicable in the present case.

Ruling:

1. Fong’s allegations primarily pertained to his cancellation of their verbal

agreement because Dueñas failed to perform his obligations to provide verifiable
documents on the valuation of the Danton’s and Bakcom’s shares, and to incorporate
the proposed corporation. These allegations clearly show that what Fong sought was
the joint venture agreement’s rescission.
As a contractual remedy, rescission is available when one of the parties
substantially fails to do what he has obligated himself to perform. It aims to address the
breach of faith and the violation of reciprocity between two parties in a contract. Under
Article 1191 of the Civil Code, the right of rescission is inherent in reciprocal obligations.

2. As the Court cannot precisely determine who between the parties first violated
the agreement, we apply the second part of Article 1192 which states: “if it cannot be
determined which of the parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.”
 In these lights, the Court holds that the joint venture agreement between Fong
and Dueñas is deemed extinguished through rescission under Article 1192 in relation
with Article 1191 of the Civil Code. Dueñas must therefore return the P5 Million that
Fong initially contributed since rescission requires mutual restitution. After rescission,
the parties must go back to their original status before they entered into the
agreement. Dueñas cannot keep Fong’s contribution as this would constitute unjust
enrichment.

Pacific Banking Corp. vs. Court of Appeals

G.R. No. L-45656, May 5, 1989

FACTS:

Private respondents Joseph and Eleanor Hart organized Insular Farms Inc.
(Insular), applied for and after eleven (11) months, obtained a lease from the
Department of Agriculture for a period of twenty five (25) years and renewable for
another twenty five (25) years. Subsequently, Joseph approached John Clarkin for
financial assistance and the two signed a memorandum of agreement and that of 1,000
shares outstanding, so that Clarkin had 510 shares against the Hart’s. Hart was
appointed President and General Manager of the First City National Bank.

Due to financial difficulty, Insular Farms Inc. borrowed P250,000 from Pacific
Banking Corp. (Pacific) in July of 1956. On July 31, 1956, Insular executed a promissory
note of P250, 000 to the bank payable in five (5) installments. Said note provided that in
case there is default in the payment of any installment due; all other installments shall
become due and payable. As the business further deteriorated, Hart agreed to Clarkin’s
proposal that all Insular’s shares of stocks be pledged to petitioner bank in lieu of
additional collateral and to insure an extension of the period to pay the July 1957
installment.

ISSUE:

Whether the Court may fix a period in the parties’ agreement to extend the
payment of the loan, including the installment which was due on or before July 1957 it
being imprecise.

HELD:

In case the period of extension is not precise, the provisions of Article 1197 of
the Civil Code should apply. The pledge executed as collateral security no longer
contained a provision on installment due on or before July 1957. The pledge constituted
on February 19, 1958 on the shares of stocks of Insular was sufficient consideration for
the extension, considering that pledge was additional collateral required by the Pacific in
addition to the continuing guaranty of Carkin. Even the pledge did not provide for dates
of payment of installments; or any fixed date for maturity of the whole indebtedness.
Accordingly, the date of maturity of the indebtedness should be as may be determined
by the court under Article 1197 of the Civil Code. Hence, the disputed foreclosure and
subsequent sale were premature.

Lourdes Valerio Lim vs.People of the Philippines

G.R. No. L-34338, November 21, 1984

FACTS:

The appellant, a businesswoman, went to the house of Maria Ayroso and

proposed to sell Ayroso’s tobacco. Ayroso agreed to the proposition of the appellant to
sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the
overprice for which she could sell the tobacco. This agreement was made in the
presence of plaintiff’s sister, Salud G. Bantug. Salvador Bantug drew the document
dated January 10, 1966 in which appellant acknowledged the receipt of the tobacco. In
the document, the parties agreed that the proceeds of the sale will be given to Ayroso
as soon as the tobaccos were sold.

Appellant subsequently failed to pay the entire obligation prompting Ayroso to file
an estafa case against her. Both the Court of First Instance and the Court of Appeals
convicted her of the crime charged.

ISSUE:

Whether or not the provisions of Article 1197 of the Civil Code is applicable.

HELD:

It is clear in the agreement that the proceeds of the sale of the tobacco should be
turned over to the complainant as soon as the same was sold, or, that the obligation
was immediately demandable as soon as the tobacco was disposed of. Hence, Article
1197 of the New Civil Code, which provides that the courts may fix the duration of the
obligation if it does not fix a period, does not apply.

Anent the argument that petitioner was not an agent because the agreement
does not say that she would be paid the commission if the goods were sold, the fact that
appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given
to complainant as soon as it was sold, strongly negates transfer of ownership of the
goods to the petitioner. The agreement constituted her as an agent with the obligation
to return the tobacco if the same was not sold.
Felipe Agoncillo vs. Crisanto Javier
G.R. No. L-12611, August 7, 1918

FACTS:

Anastasio Alano, Jlose Alano and Florencio Alano executed in favor of the
plaintiff, Dra. Marcela Marino a document stipulating that the Alanos as testamentary
heirs of deceased Rev. Anastacio Cruz, would pay the sum of P2, 730.50 within one (1)
year with interest of 12 percent per annum representing the amount of debt incurred by
Cruz. Moreover, the agreement provided that the Alanos are to convey the house and
lot bequeathed to them by Cruz in the event of failure to pay the debt in money at its
maturity.

No part of interest or principal due has been paid except the sum of P200 paid in
1908 by Anastacio Alano. In 1912, Anastasio died intestate. On August 8, 1914, CFI of
Batangas appointed Crisanto Javier as administrator of Anastasio’s estate. On March
17, 1916, the plaintiffs filed the complaint against Florencio, Jose and Crisanto praying
that unless defendants pay the debt for the recovery of which the action was brought,
they be required to convey to plaintiffs the house and lot described in the agreement,
that the property be appraised and if its value is found to be less than the amount of the
debt, with accrued interest at the stipulation rate, judgment be rendered in favor of the
plaintiffs for the balance.

ISSUE:

whether the agreement that the defendant-appellant, at the maturity of the debt, will pay
the sum of the money lent by the appellees or will transfer the rights to the ownership
and possession of the house and lot bequeathed to the former by the testator in favor of
the appellees, is valid.

HELD:
This stipulation is valid because it is simply an alternative obligation, which is
expressly allowed by law. The agreement to convey the house and lot on an appraised
value in the event of failure to pay the debt in money at its maturity is valid. It is simply
an undertaking that if debt is not paid in money, it will be paid in another way. The
agreement is not open to the objection that the agreement is pacto comisorio.
The liability of the defendant as to the conveyance of the house and lot is subsidiary
and conditional, being dependent upon their failure to pay the debt in money. It must
follow therefore that if the action to recover the debt was prescribed, the action to
compel a conveyance of the house and lot is likewise barred, as the agreement to make
such conveyance was not an independent principal undertaking, but merely a subsidiary
alternative pact relating to the method by which the debt must be paid.

QUIZANA VS REDUGORIO
GR No. L-6620 May 7, 1954

FACTS:

This is an appeal to this Court from a decision rendered by the Court of First
Instance of Marinduque, wherein the defendants-appellants are ordered to pay the
plaintiff-appellee the sum of P550, with interest from the time of the filing of the
complaint, and from an order of the same court denying a motion of the defendants-
appellants for the reconsideration of the judgment on the ground that they were
deprived of their day in court.

ISSUE:

Whether the second part of the written obligation, in which the obligors agreed
and promised to deliver a mortgage over the parcel of land described therein, upon their
failure to pay the debt on a date specified in the proceeding paragraph, is valid and
binding and effective upon the plaintiff-appellee, the creditor.

RULING:

This second part of the obligation in question is valid to what is known in law as a
facultative obligation, defined in article 1206 of Civil Code of the Philippines, which
provides that “When only one prestation has been agreed upon, but the obligor may
render another in substitution, the obligation is called facultative”.

There is nothing in the agreement which would argue against its enforcement. it is
not contrary to law or public morals or public policy, and notwithstanding the absence of
any legal provision at the time it was entered into government it, as the parties had
freely and voluntarily entered into it, there is no ground or reason why it should not be
given effect. It is a new right which should be declared effective at once.
PH CREDIT CORP VS CA
GR No. 109648 November 22, 2001

FACTS:

PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales,
Thomas H. Van Sebille and Federico C. Lim, for a
sum of money. After service of summons upon the defendants, they failed to file their
answer within the reglementary period, hence they were declared in default. PH Credit
Corp., was then allowed to present its evidence ex-parte. The RTC judged in favor of
PH Credit Corp.

On July 27, 1990, a motion for the issuance of a writ of possession was filed and
on October 12, 1990, the same was granted. The writ of possession itself was issued
on October 26, 1990. Said order and writ of possession are now the subject of this
petition. Petitioner claims that Respondent Judge erred in applying the presumption of a
joint obligation in the face of the conclusion of fact and law contained in the decision
showing that the obligation is solidary.

ISSUE:

Is the petitioner’s contention tenable?

RULING:

The Rules of Court requires that all available objections to a judgment or

proceeding must be set up in an Omnibus Motion assailing it; otherwise, they are
deemed waived. In the case at bar, the objection of private respondent to his solidary
liability became available to him, only after his real property was sold at public auction.
At the time his personal properties were levied and sold, it was not evident to him that
he was being held solely liable for the monetary judgment rendered against him and his
co-respondents. That was why his objections then did not include those he asserted
when his solidary liability became evident.
 In the dispositive portion of the January 31, 1984 Decision of the trial court, the
word solidary neither appears nor can it be inferred therefrom. The fallo merely stated
that the following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van
Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability
is joint, as provided by the Civil Code. Where there is a conflict between the dispositive
part and the opinion of the court contained in the text or body of the decision, the former
must prevail over the latter on the theory that the dispositive portion is the final order,
while the opinion is merely a statement ordering nothing. Hence the execution must
conform with that which is ordained or decreed in the dispositive portion of the decision.

CDCP VS ESTRELLA
GR No. 147791 September 8, 2006

FACTS:

On December 29, 1978, respondents Rebecca G. Estrella and her

granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for
Pasay City. However, they never reached their destination because their bus was
rammed from behind by a tractor-truck of CDCP in the South Expressway. The strong
impact pushed forward their seats and pinned their knees to the seats in front of them.
They regained consciousness only when rescuers created a hole in the bus and
extricated their legs from under the seats. They suffered physical injuries as a result.
Thereafter, respondents filed a Complaint for damages against CDCP, BLTB, Espiridion
Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila,
Branch 13.

ISSUE:

Are the accused jointly or solidarily liable?

RULING:

The case filed by respondents against petitioner is an action for culpa aquiliana
or quasi-delict under Article 2176 of the Civil Code. The liability for the negligent
conduct of the subordinate is direct and primary, but is subject to the defense of due
diligence in the selection and supervision of the employee. In the instant case, the trial
court found that petitioner failed to prove that it exercised the diligence of a good father
of a family in the selection and supervision of Payunan, Jr.

It is well-settled in Fabre, Jr. v. Court of Appeals, that the owner of the other
vehicle which collided with a common carrier is solidarily liable to the injured passenger
of the same. The Peitition was thusly DENIED.
INCIONG VS. COURT OF APPEALS
G.R. No. 96405, June 26, 1996

FACTS:

On February 3, 1983, petitioner Baldomero L. Inciong, Jr. together with Rene C.

Naybe and Gregorio D. Pantanosas signed a promissory note in the amount of P50,
000.00 holding themselves jointly and severally liable to private respondent Philippine
Bank of Communications. The promissory note was due on May 5, 1983. Said due date
expired without the promissors having paid their obligation.

On November 14, 1983 and on June 8, 1984, private respondent sent petitioner
telegrams demanding payment thereof. On December 11, 1983, private respondent
also sent registered mail a final letter of demand to Rene C. Naybe. Since both obligors
did not respond to the demand made, private respondent filed on January 24, 1986 a
complaint for collection of the sum of P50, 000.00 against the three (3) obligors.

The lower court rendered its decision holding petitioner solidarily liable and to
pay herein respondent bank the amount of P50, 000.00 plus interest thereon. Petitioner
appealed the said decision to the Court of Appeals. The respondent court, however,
affirmed the decision of the lower court. The petitioner moved for reconsideration, which
was later on denied by the respondent Court of Appeals.

ISSUE:

Whether or not the dismissal of the complaint against Naybe, the principal
debtor, and against Pantanosas, his co-maker, constituted a release of his obligation.

HELD:

The dismissal of the complaint against Naybe and Pantanosas did not
constitute a release of petitioner’s obligation, especially because the dismissal of the
case against Pantanosas was upon the motion of private respondent itself. Petitioner
signed the promissory note as a solidary co-maker and not as a guarantor. 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. The promissory note
involved in this case expressly states that the three signatories therein are jointly and
severally liable, any one, some or all of them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor to determine against whom he will
enforce collection.

Under Article 1207 of the Civil Code, when there are two or more debtors in
one and the same obligation, the presumption is that the obligation is joint so that each
of the debtors is liable only for a proportionate part of the debt. There is solidary liability
only when the obligation expressly so states, when the law so provides or when the
nature of the obligation so requires.

PHILIPPINE BLOOMING MILLS VS CA

GR No. 142381 October 15, 2003

FACTS:

This is a petition for review on certiorari to annul the Decision dated 16 July
1999 of the Court of Appeals in CA-G.R. CV No. 39690, as well as its Resolution dated
17 February 2000 denying the motion for reconsideration. The Court of Appeals
affirmed with modification the Decision dated 31 August 1992 rendered by Branch 113
of the Regional Trial Court of Pasay City ("trial court"). The trial court’s Decision
declared petitioner Alfredo Ching ("Ching") liable to respondent Traders Royal Bank
("TRB") for the payment of the credit accommodations extended to Philippine Blooming
Mills, Inc. ("PBM"). The petition is a thinly veiled attempt to make the Supreme Court
reconsider its decision in the prior case of Traders Royal Bank v. Court of Appeals.

ISSUE:

Is Ching is liable for obligations PBM contracted after execution of the Deed of
Suretyship?

RULING:

Ching is liable for credit obligations contracted by PBM against TRB before and
after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the
tenor of the deed itself, referring to amounts PBM "may now be indebted or may
hereafter become indebted" to TRB. The law expressly allows a suretyship for "future
debts (Article 2053).

Ching would like the Court to rule that his liability is limited, at most, to the
amount stated in PBM’s rehabilitation plan. In claiming this reduced liability, Ching
invokes Article 1222. In granting the loan to PBM, TRB required Ching’s surety precisely
to insure full recovery of the loan in case PBM becomes insolvent or fails to pay in full.
This was the very purpose of the surety. Thus, Ching cannot use PBM’s failure to pay in
full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in
full PBM’s loan in case PBM fails to pay in full for any reason, including its insolvency.

TRB, as creditor, has the right under the surety to proceed against Ching for the
entire amount of PBM’s loan. This is clear from Article 1216 of the Civil Code whereby
the creditor may proceed against any one of the solidary debtors.

ASSET BUILDERS CORPORATION vs. STRONGHOLD INSURANCE COMPANY,

INC. G.R. No. 187116 October 18, 2010

FACTS:

(Lucky Star) as part of the completion of its project to construct the ACG Commercial
On April 28, 2006, Asset Builders Corporation (ABC) entered into an agreement with
Lucky Star Drilling & Construction Corporation Complex 3 Lucky Star was to supply
labor, materials, tools, and equipment including technical supervision to drill one (1)
exploratory production well on the project site. The total contract price for the said
project was P1,150,000.00. To guarantee faithful compliance with their agreement,
Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of
petitioner. The first, SURETY BOND G(16) No. 141558, dated May 9, 2006, covers the
sum of P575,000.004 or the required downpayment for the drilling work. On May 20,
2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax) as advance
payment, representing 50% of the contract price. Lucky Star, thereafter, commenced
the drilling work. By July 18, 2006, just a few days before the agreed completion dat
e of 60 calendar days, Lucky Star managed to accomplish only ten (10) % of the drilling
work. On the same date, petitioner sent a demand letter to Lucky Star for the immediate
completion of the drilling work with a threat to cancel the agreement and forfeit the
bonds should it still fail to complete said project within the agreed period.

On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for
Damages to Lucky Star

ISSUE:

Whether Stronghold should be held liable.

RULING:

Suretyship, in essence, contains two types of relationship – the principal

relationship between the obligee (petitioner) and the obligor (Lucky Star), and the
accessory surety relationship between the principal (Lucky Star) and the surety
(respondent). In this arrangement, the obligee accepts the surety’s solidary undertaking
to pay if the obligor does not pay. Such acceptance, however, does not change in any
material way the obligee’s relationship with the principal obligor. Neither does it make
the surety an active party to the principal obligee-obligor relationship. Thus, the
acceptance does not give the surety the right to intervene in the principal contract. The
surety’s role arises only upon the obligor’s default, at which time, it can be directly held
liable by the obligee for payment as a solidary obligor.

In the case at bench, when Lucky Star failed to finish the drilling work within the
agreed time frame despite petitioner’s demand for completion, it was already in delay.
Due to this default, Lucky Star’s liability attached and, as a necessary consequence,
respondent’s liability under the surety agreement arose. In fine, respondent should be
answerable to petitioner on account of Lucky Star’s non-performance of its obligation as
guaranteed by the performance bond.

Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement
from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the one who
paid (the surety). Thus, respondent is entitled to reimbursement from Lucky Star for the
amount it may be required to pay petitioner arising from its bonds.

ESPARWA SECURITY, v. LICEO DE CAGAYAN UNIVERSITY

G.R. No. 150402 Nov 8, 2006

FACTS:

On 1 December 1997, Esparwa and LDCU, entered into a Contract for Security
Services. On 21 December 1998, 11 security guards (“security guards”) whom Esparwa
assigned to LDCU from 1 December 1997 to 30 November 1998, filed a complaint
before the NLRC Regional Arbitration Branch No. 10 in Cagayan de Oro City. The
complaint was filed against both Eparwa and LDCU for underpayment of salary, legal
holiday pay, 13th month pay, rest day, service incentive leave, night shift differential,
overtime pay, and payment for attorney’s fees.
The Labor Arbiter found that the security guards are entitled to wage differentials and
premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU
solidarily liable pursuant to Article 109 of the Labor Code. LDCU filed an appeal before
the NLRC. LDCU agreed with the Labor Arbiter’s decision on the security guards’
entitlement to salary differential but challenged the propriety of the amount of the award.
LDCU alleged that security guards not similarly situated were granted uniform
monetary awards and that the decision did not include the basis of the computation of
the amount of the award.

ISSUE:

Whether LDCU alone ultimately liable to the security guards for the wage differentials
and premium for holiday and rest day pay.
RULING:

Articles 106, 107 and 109 of the Labor Code read:Art. 106. Contractor or
subcontractor. — Whenever an employer enters into a contract with another person for
the performance of the former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.Article
107. Indirect employer. — The provisions of the immediately preceding Article shall
likewise apply to any person, partnership, association or corporation which, not being an
employer, contracts with an independent contractor for the performance of any work,
task, job or project. Article 109. Solidary liability. — The provisions of existing laws to
the contrary notwithstanding, every employer or indirect employer shall be held
responsible with his contractor or subcontractor for any violation of any provision of this
Code. For purposes of determining the extent of their civil liability under this Chapter,
they shall be considered as direct employers.

This joint and several liability of the contractor and the principal is mandated by
the Labor Code to assure compliance of the provisions therein including the statutory
minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his
status as direct employer. The principal, on the other hand, is made the indirect
employer of the contractor’s employees for purposes of paying the employees their
wages should the contractor be unable to pay them. This joint and several liability
facilitates, if not guarantees, payment of the workers’ performance of any work, task, job
or project, thus giving the workers ample protection as mandated by the 1987
Constitution. For the security guards, the actual source of the payment of their wage
differentials and premium for holiday and rest day work does not matter as long as they
are paid. This is the import of Eparwa and LDCU’s solidary liability. Creditors, such as
the security guards, may collect from anyone of the solidary debtors. Solidary liability
does not mean that, as between themselves, two solidary debtors are liable for only half
of the payment.
LDCU’s ultimate liability comes into play because of the expiration of the
Contract for Security Services. There is no privity of contract between the security
guards and LDCU, but LDCU’s liability to the security guards remains because of
Articles 106, 107 and 109 of the Labor Code.

DIMAYUGA vs. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK

Division G.R. No. 42542 Aug 5, 1991

FACTS:

On February 6, 1962, petitioner borrowed from the plaintiff-respondent, the sum

of ten thousand (P10,000.00) pesos as evidenced by a promissory note executed and
signed by Pedro Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on
May 7, 1962 with interest at the rate of ten percent (10%) per annum in case of non-
payment at maturity as evidenced by and in accordance with the terms and conditions
of the promissory note executed jointly and severally by defendants.

In the aforementioned promissory note, Carlos Dimayuga bound himself to pay

jointly and severally with Pedro Tanjuatco interest at the rate of 10% per annum on the
said amount of P10,000.00 until fully paid. Moreover, both undertook to "jointly and
severally authorize the respondent Philippine Commercial and Industrial Bank, at its
option to apply to the payment of this note any and all funds, securities or other real or
personal property of value which hands (sic) on deposit or otherwise belonging to
anyone or all of us. Upon the default of the promissors to pay, a complaint was filed on
July 11, 1969 by the PCIB for some of money.
Defendant Carlos Dimayuga, however, had remitted to the plaintiff -respondent the
amount totalling P4,000.00 by way of partial payments made from August 1, 1969 to
May 7, 1970 as evidenced by corresponding receipts thereto. These payments were
nevertheless applied to past interests, charges and partly on the principal. On May 28,
1974, the trial court rendered a decision holding defendants jointly and severally liable
to pay the plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid
plus P913.96 as attorneys' fees.
On July 11, 1974, petitioner filed a motion alleging that since Pedro Tanjuatco died on
December 23, 1973, the money claim of the respondents should be dismissed and
prosecuted against the estate of the late Pedro Tanjuatco. On June 22, 1974, the trial
court denied the motion for lack of merit.Not satisfied, the petitioner appealed to the
respondent court. The Court of Appeals dismissed the appeal. Hence, this petition.

ISSUE:

Whether the position of the petitioner that Pedro Tanjuatco having died on
December 23, 1973, the money claim of PCIB should be dismissed and prosecuted
against the estate of the late Tanjuatco.

RULING:

From the evidence presented, there can be no dispute that Carlos Dimayuga
bound himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the
obligation with PCIB in the amount of P10,000.00 plus 10% interest per annum. In
addition, as above stated, in case of non-payment, they undertook among others to
jointly and severally authorize respondent bank, at its option to apply to the payment of
this note, any and all funds, securities, real or personal properties, etc. belonging to
anyone or all of them. Otherwise stated, the promissory note in question provides in
unmistakable language that the obligation of petitioner Dimayuga is joint and several
with Pedro C. Tanjuatco.
It is well settled under the law and jurisprudence that when the obligation is solidary, the
creditor may bring his action in toto against the debtors obligated in solidum. As
expressly allowed by Article 1216 of the Civil Code, the creditor may proceed against
any one of the solidary debtors or some or all of them simultaneously. "Hence, there is
nothing improper in the creditor's filing of an action against the surviving solidary
debtors alone, instead of instituting a proceeding for the settlement of the estate of the
deceased debtor wherein his claim could be filed." The notice is undoubtedly left to the
solidary creditor to determine against whom he will enforce collection. Thus, the appeal
interposed by petitioner-appellant is dismissed for lack of merit and the decision of the
Court of First Instance is Affirmed in toto.
CERNA VS CA
GR No. L-48359 March 30, 1993

FACTS:

On or about October 16, 1972, Celerino Delgado (Delgado) and Conrad Leviste
(Leviste) entered into a loan agreement which was evidenced by a promissory note
worded as follows:
FOR VALUE RECEIVED, I, CELERINO DELGADO, with postal address at 98 K-11 St.,
Kamias Rd., Quezon City, promise to pay to the order of CONRAD C. LEVISTE,
NINETY (90) DAYS after date, at his office at 215 Buendia Ave., Makati, Rizal, the total
sum of SEVENTEEN THOUSAND FIVE HUNDRED (P17,500.00) PESOS, Philippine
Currency, without necessity of demand, with interest at the rate of TWELVE (12%)
PERCENT per annum
On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by
him. And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna (petitioner),
he also mortgaged a "Taunus" car owned by the latter. The period lapsed without
Delgado paying the loan. This prompted Leviste to file a collection suit docketed as Civil
Case No. 17507 with the Court of First Instance of Rizal, Branch XXII against Delgado
and petitioner as solidary debtors. The Court of Appeals held that petitioner and
Delgado were solidary debtors.

ISSUE:

Are petitioner and Delgado solidary debtors?

RULING:

Only Delgado signed the promissory note and accordingly, he was the only one
bound by the contract of loan. Nowhere did it appear in the promissory note that
petitioner was a co-debtor. The law is clear that "(c)ontracts take effect only between
the parties. But by some stretch of the imagination, petitioner was held solidarily liable
for the debt allegedly because he was a co-mortgagor of the principal debtor, Delgado.
This ignores the basic precept that "(t)here is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity."
We have already stated that the contract of loan, as evidenced by the promissory note,
was signed by Delgado only. Petitioner had no part in the said contract. Thus, nowhere
could it be seen from the agreement that petitioner was solidarily bound with Delgado
for the payment of the loan.

NAZARENO VS. COURT OF APPEALS

G.R. No. 131641, February 23, 2000

FACTS:

Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died
on April 15, 1970, while Maximino, Sr. died on December 18, 1980. After the death of
Maximino, Sr., Romeo filed an intestate case in the Court of First Instance of Cavite,
Branch XV, where the case was docketed as Sp. Proc. No. NC-28. Upon the
reorganization of the courts in 1983, the case was transferred to the Regional Trial
Court of Naic, Cavite. Romeo was appointed administrator of his father’s estate. In the
course of the intestate proceedings, Romeo discovered that his parents had executed
several deeds of sale conveying a number of real properties in favor of his sister,
Natividad. One of the deeds involved six lots in Quezon City which were allegedly sold
by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for the
total amount of P47,800.00.

ISSUE:

Whether or not the Deed of Absolute of Sale can be equated as a divisible

obligation.

HELD:

The Supreme court held that the Deed of Absolute Sale is an indivisible
contract founded on an indivisible obligation. As such, it being indivisible, it can not be
annulled by only one of them. And since this suit was filed only by the estate of
Maximino A. Nazareno, Sr. without including the estate of Aurea Poblete, the present
suit must fail. The estate of Maximino A. Nazareno, Sr. can not cause its annulment
while its validity is sustained by the estate of Aurea Poblete. An obligation is indivisible
when it cannot be validly performed in parts, whatever may be the nature of the thing
which is the object thereof. The indivisibility refers to the prestation and not to the
object. The Deed of Sale of January 29, 1970 supposedly conveyed the six lots to
Natividad. The obligation is clearly indivisible because the performance of the contract
cannot be done in parts, otherwise the value of what is transferred is diminished.
Petitioners are mistaken in basing the indivisibility of a contract on the number of
obligors. In any case, if petitioners’ only point is that the estate of Maximino, Sr. alone
cannot contest the validity of the Deed of Sale because the estate of Aurea has not yet
been settled, the argument would nonetheless be without merit. The validity of the
contract can be questioned by anyone affected by it. A void contract is inexistent from
the beginning. Hence, even if the estate of Maximino, Sr. alone contests the validity of
the sale, the outcome of the suit will bind the estate of Aurea as if no sale took place at
all.

Tan vs. Court f Appeals

G.R. No. 116285, October 19, 2001
367 SCRA 571

FACTS:

On May 14, 1978, petitioner Antonio Tan obtained two (2) loans in the total
principal amount of four (4) million pesos from respondent Cultural Center of the
Philippines (CCP), evidenced by 2 promissory notes with maturity dates on May 14,
1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial
payments he had the loans restructured by respondent CCP, and petitioner accordingly
executed a promissory note on August 31, 1979 in the amount of P3,411,421.32
payable in five (5) installments. Petitioner Tan, however, failed to pay any of the
supposed installments and again offered another mode of paying restructured loan
which respondent CCP refused to consent.

On May 30, 1984, respondent, thru counsel, wrote petitioner demanding the full
payment, within ten (10) days, from receipt of the letter, of the latter’s restructured loan
which as of April 30, 1984 amounted to P6, 088,735.03.

On August 29, 1984, respondent CCP filed with the RTC of Manila a complaint
for a collection of a sum of money. Eventually, petitioner was ordered to pay said
amount, with 25% thereof as attorney’s fees and P500, 000.00 as exemplary damages.
The Court of Appeals, on appeal, reduced the attorney’s fees to 5% of the principal
amount to be collected from petitioner and deleted the exemplary damages.

Still unsatisfied with the decision, petitioner comes to this Court seeking for the
deletion of the attorney’s fees and the reduction of the penalties.

ISSUE:
 The issue is whether or not interests and penalties may be both awarded in the
case at bar.

HELD:

YES. Article 1226 of the New Civil Code provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the payment of
interests in case of non-compliance, 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. In the case at bar, the
promissory note expressly provides for the imposition of both interest and penalties in
case of default on the part of the petitioner in the payment of the subject restructured
loan, and since the said stipulation has the force of law between the parties and does
not appear to be inequitable or unjust, the said stipulation must be respected.