Oblicon Digests: Ronquillo V. Ca
Oblicon Digests: Ronquillo V. Ca
Oblicon Digests: Ronquillo V. Ca
RONQUILLO V. CA Art 1212: Each one of the solidary creditors may do whatever may be useful to
Clearly, by express term of compromise agreement and the decision based upon it, the others but not anything which may be prejudicial to the latter
the defendants obliged themselves their obligation individually and jointly. Art 1214: Debtor may pay any of the solidary creditors; but if any demand,
Term individually = “collectively” “separately” “distinctively” or “severally” ; judicial or extrajudicial what has been made by any one of them, payment
should be made to him
undoubtedly it creates a several obligation
A several obligation is one by which one individual binds himself to perform the
Tolentino:::
whole obligation Joint Obligation Solidary Obligation
MALAYAN INSURANCE CO INC V. CA Each debtor is liable only for the Each debtor is liable for the entire
proportionate part of debt and each obligation and each creditor is entitled to
Sio Choy liable as owner of ill fated jeep pursuant to Art 2184 creditor is entitled only for a demand the whole obligation
2184: owner solidarily liable with driver if the former could have used due proportionate part of credit
diligence to prevent misfortune Creditor can recover only his share of Each creditor can enforce the entire
San Leon Rice Mill is liable for being the employer of the driver under 2180 obligation obligation and each debtor is obliged to
2180: employers shall be liable for damages caused by employees and household pay in full
helpers acting within their assigned task Active Solidarity
Sio Choy and San Leon Rice Mill are the principal tortfeasors who are primarily Question of who should sue was a personal issue between Quiombing and
liable to respondent Vallejos Biscocho in which the spouses Saligo has no right to interfere
While it is true that where the insurance contract provides for indemnity against It was not necessary for both Quiombing and Biscocho to file complaint, it will be
liability to third persons, such third persons can directly sue the insurer. a useless formality
However, directly liability of insurer under indemniy contract against liability
Art 1212: Each one of the solidary creditors may do whatever may be useful to the
does not mean that insurer can be held solidarily liable with insured and/or third
others but not anything which may be prejudicial to the latter
parties found at fault
Art 1214: Debtor may pay any of the solidary creditors; but if any demand,
Subrogation is a normal incident of insurance contracts
judicial or extrajudicial what has been made by any one of them, payment should
Art 1217 : be made to him
Payment made by one of the solidary debtors extinguishes obligation. If 2 or more
If Quiombing eventually collects the amount due from solidary debtors, Biscocho
solidary debtors offer to pay, the creditor may choose which to accept
may later claim his share thereof, that decision is for him alone to make
He who made payment may claim from his co-debtors only the share which
REPUBLIC PLANTERS BANK V. CA
corresponds to each, with the interest of payment made. If payment is made before
Negotiable instruments law : persons who write their names on the face of a promissory
the debt is due, no interest for intervening period may be demanded note are makers and are liable as such. By signing the notes, maker promises to pay to
RIZAL COMMERCIAL BANKING CORP V. CA order of the payee or any holder
ART 1207 : Where an obligation expressly states a solidary liability, the Change in name (x) change in liability
concurrence of two or more creditors or two or more debtors in one and the same “I”,”We” Either of Us” promise to pay = solidarily liable
obligation implies that each one of the former has a right o demand and that each Negotiable instruments law : persons who write their names on the face of a
one of the latter is bound to render the entire compliance with the prestation promissory note are makers and are liable as such. By signing the notes, maker
Art 1216: The creditor may proceed against any one of the solidary debtors or promises to pay to order of the payee or any holder
some or all of them simultaneously Fermin: one of the makers
There exist a Comprehensive Surety Agreement between RCBC and respondent “I promise to pay” = Joint & Severally :: Solidarily liable
Ching ---liability binds Ching as he is bou by the said contract In this case, solidary liability is even made clear by the words “Joint and several
SEC injuctive order can not effect a suspension of payment of respondent Surety’s describing unconditional promise to pay”
due and demandable obligation, it being clear therefrom that the rehabilitation “in his personal capacity” (x) affect liability, with or without it, he is primarily
receivers were limited to “taking custody and control over all existing assets and liable as a co-maker
property of PBM Change of name (x) New Corp : It is the same corp with a different name, no
QUIOMBING V. CA change in its property, rights and liability
OBLICON DIGESTS
INCIONG JR. V. CA When payment is made to wrong party, obligation is not extinguished as to
It should be noted however that petitioner signed the promissory note as a solidary the creditor who is without fault or negligence even if debtor acted in utmost
co-maker and not as a guarantor good faith and by mistake as to the person of the creditor or through error
A solidary or joint and several obligation is one which each debtor is liable for the induced by fraud of a third person
entire obligation and each creditor is entitled to demand the whole obligation In general—payment in order to be effective to discharge an obligation must be
Art 2047: by guaranty, a person called as guarantor binds himself to the creditor to made to proper person
fulfill the obligations of the principal debtor in case the latter should fail to do so . Proper person = obligee / its authorized agent
If a person binds himself solidarily, with the principal debtor, the provision of Sec When there is a concurrence of several creditors or of several debtors or of several
4, Chapt 3, Title I of this book shall be observed creditors and debtors in one and the same obligation, it is presumed that the
Guarantor Solidary Debtor obligation is joint and not solidary.
Binds himself I solidum with the principal Two or more debtors in one and the same The most fundamental effect of joint divisible obligations is that each
debtor under the provisions of 2nd par obligation, the presumption is that the creditor can demand only for the payment of his proportionate share of the
does not become solidary co-debtor to all obligation is join so that each of the credit, while each debtor can be held liable only for the payment of his
intents and purposes debtors is liable only for a proportionate proportionate share of the debt.
part of debt. There is solidary liability It necessarily follows that a joint creditor cannot act in representation of the
only when obligation expressly so states others.
when law so provides or when nature of Neither can a joint debtor be compelled to answer for the liability of the others.
obligation so requires The pertinent rules are provided in Articles 1207 and 1208 of the Civil Code.
Outside liability, he assumes to pay the No other rights than that bestowed upon REPUBLIC GLASS CORP V. QUA
debt before the property of principal him by Sec 4, Chapt 3 Title I, Book IV of Payment of the entire obligation by one or some of the solidary debtors results in a
debtor has been exhausted retains all the CC corresponding obligation of the other debtors to reimburse the paying debtor.
other rights, actions and benefits which Contrary to RGC and Gervels claim, payment of any amount will not
pertain to him automatically result in reimbursement. If a solidary debtor pays the obligation in
Promissory note involved expressly states that three signatories are jointly and part, he can recover reimbursement from the co-debtors only in so far as his
severally liable, any one, some or all of the may be proceeded against the entire payment exceeded his share in the obligation a solidary debtor pays an amount
obligations equal to his proportionate share in the obligation, then he in effect pays only what
TIU V CA is due from him
George Tiu never signed the receipts nor received any money from appellant Go If the debtor pays less than his share in the obligation, he cannot demand
while Joaquin Tiue signed and received he money for and in behalf of Rosalina reimbursement because his payment is less than his actual debt.
There is solidary obligation only when obligation expressly so states or when law No novation of the Agreements. The parties did not constitute a new obligation to
or nature of obligation requires solidarity(Art 1207) substitute the Agreements.
No truth in the allegation that George and Joaquin Tiu admitted that they are There was also no showing of complete incompatibility in the manner of payment
jointly and solidarily liable for said amount of the parties obligations. Contrary to the Court of Appeals ruling, the mode or
Only Rosalina Tiu received monies manner of payment by the parties did not change from one for the entire obligation
(Un Fak Leang v Nigurra) admission of two debtors in their brief that their to one merely of proportionate share.
liability in the contract is a solidary one does not convert the joint character of The creditors, namely Metrobank and PDCP, merely proceeded against RGC and
their obligation as appearing in the contract, for what determines the nature of Gervel for their proportionate shares only
obligation is the tenor of the contract itself, not the admission of parties. This preference is within the creditors discretion which did not necessarily affect
the nature of the obligations as well as the terms and conditions of the
CEMBRANO V. CITY OF BUTUAN Agreements.
HELD: NO A creditor may choose to proceed only against some and not all of the solidary
Payment made by debtor to person of the creditor or to one authorized by the law debtors. The creditor may also choose to collect part of the debt from some of the
to receive it extinguishes the obligation solidary debtors, and the remaining debt from the other solidary debtors.
ONGKEKO V. BPI EXPRESS CARD CORPORATION
OBLICON DIGESTS
Petitioner's liability shall be extinguished only when the obligations are fully paid Article 2180… employers shall be liable for the damages caused by their
and satisfied. employees and household helpers acting within the scope of their assigned
terms and conditions of his undertaking are unambiguous and well defined; there tasks, even thought eh former are not engaged in any business or activity
is no room for any interpretationonly application. Given that Lodovica reneged on Article 2176. Whoever by act or omission causes damage to another, there
her obligations covered by the credit card account, petitioner is, therefore, liable. being fault or negligence, is obliged to pay for the damage done. Such fault
PH CREDIT CROP V CA or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Solidary Joint Chapter
each of the debtors is liable for the entire each debtors is liable only for a While the above provisions do not expressly provide for the solidary liability,
obligation, and each of the creditors is proportionate part of the debt, and the they should be read in consonance with Article 2180 – one can be liable for
entitled to demand the satisfaction of the creditor is entitled to demand only a the acts or omission of another whom he is responsible for, meaning that an
whole obligation from any or all of the proportionate part of the credit from each employer is accountable for the actions of his employees. Article 2194
debtors. debtor. categorically states that responsibility of two or more persons who are liable
solidary obligations cannot be inferred lightly. They must be positively and clearly for quasi-delict is solidary.
expressed SC held that there exists an employer-employee relationship because by
A liability is solidary only when the obligation expressly so states, when the law so agreeing to the Hernandez, there would be a villation of the Public Service
provides or when the nature of the obligation so requires Law and we are going to place the riding public at the mercy of reckless and
We should stress that respondents obligation is based on the judgment rendered by irresponsible drivers because most drivers are in no position to pay for
the trial court. damages when accidents occur.
Where there is a conflict between the dispositive part and the opinion of the court STRONGHOLD INSURANCE COMPANY INC V. REPUBLIC ASAHI-GLASS
contained in the text or body of the decision, the former must prevail over the CORP
latter on the theory that the dispositive portion is the final order, while the opinion
is merely a statement ordering nothing. As a general rule, the death of either the creditor or the debtor does not extinguish
Hence the execution must conform with that which is ordained or decreed in the the obligation.
dispositive portion of the decision. Obligations are transmissible to the heirs, except when the transmission is
The final judgment, which superseded the action brought for the enforcement of prevented by the law, the stipulations of the parties, or the nature of the obligation.
said contract, declared the obligation to be merely joint, and the same cannot be Only obligations that are personal or are identified with the persons themselves are
executed otherwise. extinguished by death.
It would be the height of inequity if we allow judgment obligors to shoulder entire Hence, his death did not result in the extinguishment of those obligations or
monetary judgments when their legal liabilities are limited only to their liabilities, which merely passed on to his estate.
proportionate shares in the entire obligation. Death is not a defense that he or his estate can set up to wipe out the obligations
SMITH BELL & CO V CA under the performance bond. Consequently, Stronghold as surety cannot use his
Absence of Solidary Liability: There is a solidary liability only when the death to escape its monetary obligation under its performance bond.
obligation expressly so states, or when the law or the nature of the obligation TIU HIONG GUAN V. METROPOLITAN BANK TRUST COMPANY
requires solidarity. The Insurance Code is quite clear as to the purpose and Petitioners should be held liable for their unpaid obligation of
role of a resident agent. Such agent, as a representative of the foreign liability of a surety is determined strictly on the basis of the terms and conditions
insurance company, is tasked only to receive legal processes on behalf of its set out in the surety agreement."
principal and not to answer personally for any insurance claims. Solidary liability is one of its primary characteristics... creditor may... proceed
Not Real Party - In – Interest: Lastly, being a mere agent and representative, against any one of the solidary debtors or some or all of them simultaneously."[8]
petitioner is also not the real party - in - interest in this case. Thus, respondent may proceed against Sunta alone or some or all of petitioners
herein.
HERNANDEZ V. DOLOR Suretyship arises upon the solidary binding of a person deemed the surety with the
Hernandez spouses are solidarily liable. principal debtor, for the purpose of fulfilling an obligation... merely an accessory x
x x to a principal obligation...
OBLICON DIGESTS
surety becomes liable to the debt and duty of the principal obligor even without Being solidary, the claims against them can be pursued separately from and
possessing a direct or personal... interest in the obligations constituted by the latter independently of rehabilitation case
MWSS V. DAWAY Being a solidary obligation, letter of credit is exclude from the jurisdiction of the
The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to rehabilitation court and therefore in enjoining petitioner from proceeding against
the the standby letter of credit issued by the bank as the former prohibition is on Standby Letters of Credit to which it had clear right under the law and the terms of
the enforcement of claims against guarantors or sureties of the debtors whose the said Standby Letter of Credit.
obligations are not solidary with the debtor. GREAT ASIAN SALES CENTER CORP V. CA
Sec 6 (b) of Rule 4 of Interim Rules does not enjoin the enforcement of all claims Facts:
against guarantors and sureties but only those claims against guarantors and Great Asian : buying and selling general merchandise, in particular household
sureties who are NOT solidarily liable with the debtor appliances
The participating bank’s obligation under the letter of credit are solidary with 1981 board of directors of Great Asian approved a resolution authorizing its
respondent Maynilad in that it is a primary, direct, definite and an absolute Treasurer and General Manager Arsenio. :Secure a loan from Bancasia in an
undertaking to pay and is not conditioned on the prior exhaustion of the debtors amount not to exceed P1.0 million... authorized Arsenio to sign all papers,
assets. documents or promissory notes necessary to secure the loan
These are the same characteristics of a surety or solidary obligor. And being 1982,... second resolution authorizing Great Asian to secure a discounting line
solidary, the claims against them can be pursued separately from and with Bancasia in an amount not exceeding P2.0 million. also designated Arsenio
independently of the rehabilitation case. as the authorized signatory to sign all instruments, documents and... checks
Irrevocable Letter of Credit Guarnatee necessary to secure the discounting line.
Undertakes a primary obligation. Guarantors obligation is 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to
Engagement by bank or other persons made at the merely collateral and arises guarantee, solidarily, the debts of Great Asian to Bancasia.
request of a customer that issuer shall honor drafts or only upon default of person 1982 Comprehensive and Continuing Surety Agreement in favor of Bancasia to
other demands of payment upon compliance with primarily liable guarantee,... solidarily, the debts of Great Asian to Bancasia.
conditions specified in credit Tan Chong Lin signed two surety agreements
Insures seller payment of a definite amount upon the used to essentially insure a Sales Center Corporation," listing Bancasia as one of the creditors of Great Asian
presentation of documents buyer or seller from loss or in the amount of P1,243,632.00.
damage due to 1982, Bancasia filed a complaint for collection of a sum of money against Great
nonperformance by the other Asian and Tan Chong Lin.
party in a contract. Great Asian denied the material... allegations of the complaint claiming it was
Commitment by issuer that the party in whose favor sum is only paid if the unfounded, malicious, baseless, and unlawfully instituted since there was already a
it is issued and who can collect upon it will have his opposing party does not fulfill pending insolvency proceedings, although Great Asian subsequently withdrew its
credit against the applicant of letter, duly paid the the stipulated obligations under petition for voluntary insolvency.
amount specified in the letter the contract. This can be used Great Asian further raised the... alleged lack of authority of Arsenio to sign the
Absolute undertakings to pay the money advanced or to essentially insure a buyer or Deeds of Assignment as well as the absence of consideration and consent of all the
the amount for which credit is given on the faith of seller from loss or damage due parties to the Surety Agreements signed by Tan Chong Lin.
instrument to nonperformance by the Ruling of the Trial Court
other party in a contract. - in favor of the plaintiff and against the two (2) defendants ordering the latter,
Primary Obligation Accessory Obligation jointly and severally, to pay the former
What distinguishes letters of credit from other accessory contracts is the Ruling of the Court of Appeals
engagement of issuing bank to pay the seller once the draft or other required - sustained the decision of the lower court, deleting only the award of attorney's
shipping documents are presented to it fees
Banks obligation are solidary with the respondent Maynilad in that it’s primary, - appellants contend that the foregoing warranties enlarged or increased the
direct, definite and an absolute undertaking to pay and is not conditioned on the surety's risk, such that appellant Tan Chong Lin should be released from his
prior exhaustion of debtor’s assets. liabilities... appellants' position is, however, soundly debunked by... the
These are the same characteristics of a surety or solidary obligor undertaking expressed in the Comprehensive and Continuing Surety Agreements
OBLICON DIGESTS
(Exhs. "W" and "X"), to the effect that the "xxx surety/ies, jointly and severally On the face of the Deeds of Assignment, the contracting parties are indisputably
among themselves and likewise with the principal, hereby agree/s and bind/s Great Asian and Bancasia as the names of... these entities are expressly mentioned
himself to pay at maturity all the... notes, drafts, bills of exchange, overdrafts and therein as the assignor and assignee, respectively.
other obligations which the principal may now or may hereafter owe the creditor Great Asian claims that Arsenio signed the Deeds of Assignment in his personal
xxx."... aving affixed his signature thereto, the appellant Tan Chong Lin is capacity because Arsenio signed above his printed name, below which was the
expected to have, at least, read and understood the... same word "Assignor", thereby... making Arsenio the assignor.
- Having affixed his signature thereto, the appellant Tan Chong Lin is expected to The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio.
have, at least, read and understood the... same. The Deeds of Assignment enabled Great Asian to generate instant cash from its
Issues: fifteen checks, which were still not due and demandable then. In short, instead of
First Issue: Authority of Arsenio to Sign the Deeds of Assignment waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the
Second Issue: Breach of Contract by Great Asian checks to Bancasia at less... than the total face value of the checks.In exchange for
Ruling: receiving an amount less than the face value of the checks, Great Asian obtained
First Issue: immediately much needed cash.
Corporation Code of the Philippines vests in the board of directors the exercise of In the financing industry, the term "discounting line" means a credit facility with a
the corporate powers of the corporation, save in those instances where the Code financing company or bank, which allows a business entity to sell, on a continuing
requires stockholders' approval for certain specific acts (SEC. 23. The Board of basis, its accounts receivable at a discount
Directors or Trustees) The term "discount" means the sale of... a receivable at less than its face value.
In the ordinary course of business, a corporation can borrow funds or dispose of Clearly, the discounting arrangements entered into by Arsenio under the Deeds of
assets of the corporation only on authority of the board of directors Assignment were the very transactions envisioned in the two board resolutions of
The first board resolution expressly authorizes Arsenio, as Treasurer of Great Great Asian to raise funds for its business. Arsenio acted completely within the
Asian, to apply for a "loan accommodation or credit line" with Bancasia for not limits of his authority under... the two board resolutions.
more than P1.0 million. Also, the first resolution explicitly authorizes Arsenio to Arsenio did exactly what the board of directors of Great Asian directed and
sign any... document, paper or promissory note, including mortgage deeds over authorized him to do
properties of Great Asian, to secure the loan or credit line from Bancasia. Arsenio signed the Deeds of Assignment as agent and authorized signatory of
The second board resolution expressly authorizes Great Asian to secure a Great Asian under an authority expressly granted by its board of directors.
"discounting line" from Bancasia for not more than P2.0 million. The second The signature of Arsenio on the Deeds of Assignment is effectively also the
board resolution also expressly empowers Arsenio, as the authorized signatory of signature of the board of directors of Great Asian, binding on the board of
Great Asian, "to sign,... execute and deliver any and all documents, checks x x x directors and on Great Asian itself. Evidently, Great Asian... shows its bad faith in
necessary or incidental to secure" the discounting line. The second board disowning the Deeds of Assignment signed by its own Treasurer, after receiving
resolution specifically authorizes Arsenio to secure the discounting line "under valuable consideration for the checks assigned under the Deeds.
such terms and conditions as (he) x x x... may deem fit and proper."... two board Second Issue: Breach of Contract by Great Asian
resolutions clearly authorize Great Asian to secure a loan or discounting line from Bancasia's complaint against Great Asian is founded on the latter's breach of
Bancasia.
contract under the Deeds of Assignment. The Deeds of Assignment uniformly
also categorically designate Arsenio as the authorized signatory to sign and deliver stipulate as follows: "If for any reason the receivables or any part thereof cannot
all the... implementing documents, including checks, for Great Asian. be paid by the obligor/s, the ASSIGNOR unconditionally and irrevocably agrees
There is no iota of doubt whatsoever about the purpose of the two board to pay the same, assuming the liability to pay, by way of penalty three per cent
resolutions, and about the authority of Arsenio to act and sign for Great Asian. (3%) of the total amount unpaid,... for the period of delay until the same is fully
The second board resolution even gave Arsenio... full authority to agree with paid.
Bancasia on the terms and conditions of the discounting line. The last Deed of Assignment contains the following added stipulation:
Significantly, the two board resolutions specifically refer to Bancasia as the "xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR
financing institution from whom Great Asian will secure the loan accommodation hereby made are deemed part of the consideration for this transaction, such that any
or discounting line. violation of any one, some, or all of said warranties shall be deemed as deliberate
Armed with the two board resolutions, Arsenio signed the Deeds of Assignment misrepresentation on... the part of the ASSIGNOR. In such event, the monetary
selling, and endorsing, the fifteen checks of Great Asian to Bancasia. obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed
OBLICON DIGESTS
defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to As endorsee of Great Asian, Bancasia had the option to proceed against Great
make good said obligation, and making the ASSIGNOR liable... to pay the penalty Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable
stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. Instruments Law would have governed
xxx"... ital suspensive condition in the Deeds of Assignment... n case the drawers fail to Bancasia, however, did not choose this... route. Instead, Bancasia decided to sue
pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face Great Asian for breach of contract under the Civil Code, a right that Bancasia had
value of the dishonored checks, including penalty and attorney's... fees. under the express with recourse stipulation in the Deeds of Assignment.
The failure of the drawers to pay the checks is a suspensive condition,... the The exercise by Bancasia of its option to sue for breach of contract under the Civil
happening of which gives rise to Bancasia's right to demand payment from Great Code will not leave Great Asian holding an empty bag. Great Asian, after paying
Asian. Bancasia, is subrogated back as creditor of the receivables. Great Asian can then
conditional obligation of Great Asian arises from its written... contracts with proceed against the... drawers who issued the checks.
Bancasia as embodied in the Deeds of Assignment. Article 1157 Even if Bancasia failed to give timely notice of dishonor, still there would be no
By express provision in the Deeds of Assignment, Great Asian unconditionally prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice
obligated itself to pay Bancasia the full value of the dishonored checks. In short, of dishonor is not required if the drawer has no right to expect or... require the
Great Asian sold the postdated checks on with recourse basis against itself. bank to honor the check, or if the drawer has countermanded payment.
Article 1159"Obligations arising from contracts have the force of law between the In the instant case, all the checks were dishonored for any of the following
contracting parties and should be complied with in good faith." reasons: "account closed", "account under garnishment", insufficiency of funds",
Great Asian and Bancasia agreed on this specific with recourse stipulation, despite or "payment... stopped".
the fact that the receivables were negotiable instruments with the endorsement of In the first three instances, the drawers had no right to expect or require the bank
Arsenio. to honor the checks, and in the last instance, the drawers had countermanded
separate and distinct from the warranties of an endorser under the Negotiable payment.
Instruments Law. Moreover, under common law, delay in notice of dishonor, where such notice is
Article 1306"The contracting parties may establish such stipulations, clauses, required, discharges the drawer only to the extent of the loss caused by the delay.
terms and conditions as they may deem convenient, provided they are not contrary This rule finds application in this jurisdiction pursuant to Section 196 of the
to law, morals, good customs, public order, or public policy." Negotiable Instruments Law which states, "Any case not provided for in this Act
The explicit with recourse stipulation against Great Asian effectively enlarges, by shall be governed by the provisions of existing legislation, or in default thereof, by
agreement of the parties, the liability of Great Asian beyond that of a mere the rules of the Law Merchant." Under Section 186 of the Negotiable Instruments
endorser of a negotiable instrument. Law, delay in the presentment of checks... discharges the drawer. However,
there is nothing in the Negotiable Instruments Law or in the Financing Company Section 186 refers only to delay in presentment of checks but is silent on delay in
Act (old or new), that prohibits Great Asian and Bancasia parties from adopting giving notice of dishonor. Consequently, the common law or Law Merchant can
the with recourse stipulation uniformly found in the Deeds of Assignment. supply this gap in accordance with Section 196 of the Negotiable Instruments
Since in discounting of receivables the assignee is... subrogated as creditor of the Law.
receivable, the endorsement of the negotiable instrument becomes necessary to Moreover, Article 1354 of the Civil Code states that, "Although the cause is not
enable the assignee to collect from the drawer. This is particularly true with stated in the contract, it is presumed that it exists and is lawful, unless the debtor
checks because collecting banks will not accept checks unless endorsed by the... proves the contrary." The record is devoid of any showing on the part of Great
payee Asian rebutting this... presumption.
The purpose of the endorsement is merely to facilitate collection of the proceeds On the other hand, Bancasia's Loan Section Manager, Cynthia Maclan, testified
of the checks. that Bancasia paid Great Asian a consideration at the discount rate of less than
The purpose of the endorsement is not to make the assignee finance company a 24% of the face value of the postdated checks
holder in due course because policy considerations militate against according Moreover, in its verified... petition for voluntary insolvency, Great Asian admitted
finance companies the rights of a holder in due course its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial
Thus, the endorsement does not operate to make the finance company a holder in admission that Bancasia proved when it formally offered in evidence the verified
due... course. For its own protection, therefore, the finance company usually petition for insolvency.
requires the assignor, in a separate and distinct contract, to pay the finance Insolvency Law requires the petitioner to submit a schedule of debts that must
company in the event of dishonor of the notes or checks. "contain a full and true statement of all his debts and liabilities."
OBLICON DIGESTS
Great Asian cannot now claim that the listing of Bancasia as a creditor was not an Article 1207 of the Civil Code provides, "xxx There is a solidary liability only
admission of its debt to Bancasia but merely an acknowledgment that Bancasia when the obligation expressly so states, or when the law or nature of the obligation
had sent... a demand letter to Great Asian. requires solidarity."
Great Asian, moreover, claims that the assignment of the checks is not a loan The stipulations in the Surety Agreements undeniably mandate the solidary
accommodation but a sale of the checks. liability of Tan Chong Lin with Great Asian.
. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly Moreover, the stipulations in the Surety Agreements are sufficiently broad,
undertook to pay the full value of the checks in case of dishonor. Again, we expressly encompassing "all the notes, drafts, bills of exchange, overdraft and
reiterate that this obligation of Great Asian is separate and distinct... from its other obligations of every kind which the PRINCIPAL may now or may hereafter
warranties as indorser under the Negotiable Instruments Law. owe... the Creditor".
Great Asian is, however, correct in saying that the assignment of the checks is a Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for
sale, or more properly a discounting, of the checks and not a loan accommodation. the nonpayment of the fifteen dishonored checks, including penalty and attorney's
However, it is precisely because the transaction is a sale or a discounting of fees in accordance with the Deeds of Assignment.
receivables, embodied in... separate Deeds of Assignment, that the relevant PNB v. Independent Planters Association Inc
provisions of the Civil Code are applicable and not the Negotiable Instruments Facts:
Law. Appeal by PNB from the Order of the defunct Court of First Instance of Manila
In summary, Great Asian's four contracts assigning its fifteen postdated checks to dismissing PNB's complaint against several solidary debtors for the collection of a
Bancasia expressly stipulate the suspensive condition that in the event the drawers sum of money on the ground that one of the defendants (Ceferino Valencia) died
of the checks fail to pay, Great Asian itself will pay Bancasia. during the pendency of the case (i.e., after the plaintiff had presented its evidence)
Since the common condition in the... contracts had transpired, an obligation on the and therefore the complaint, being a money claim based on contract, should be
part of Great Asian arose from the four contracts, and that obligation is to pay prosecuted in the testate or intestate proceeding for the settlement of the estate of
Bancasia the full value of the checks, including the stipulated penalty and the deceased defendant
attorney's fees. Section 6 of Rule 86 of the Rules of Court which reads: SEC. 6. Solidary
obligation of decedent.— the obligation of the decedent is solidary with another
Third Issue: The liability of surety Tan Chong Lin debtor, the claim shall be filed against the decedent as if he were the only debtor,
Tan Chong Lin, the President of Great Asian, is being sued in his personal without prejudice to the right of the estate to recover contribution from the other
capacity based on the Surety Agreements he signed wherein he solidarily held debtor. In a joint obligation of the decedent, the claim shall be confined to the
himself liable with Great Asian for the payment of its debts to Bancasia. The portion belonging to him.
Surety Agreements contain the following... common condition: The appellant assails the order of dismissal, invoking its right of recourse against
"Upon failure of the Principal to pay at maturity, with or without demand, any of one, some or all of its solidary debtors under Article 1216 of the Civil Code —
the obligations above mentioned, or in case of the Principal's failure promptly to ART. 1216. The creditor may proceed against any one of the solidary debtors or
respond to any other lawful demand made by the Creditor, its successors, some or all of them simultaneously. The demand made against one of them shall
administrators or assigns,... both the Principal and the Surety/ies shall be not be an obstacle to those which may subsequently be directed against the others,
considered in default and the Surety/ies agree/s to pay jointly and severally to the so long as the debt has not been fully collected.
Creditor all outstanding obligations of the Principal, whether due or not due, and ISSUE: Whether in an action for collection of a sum of money based on contract
whether held by the Creditor as Principal or agent, and it is... agreed that a against all the solidary debtors, the death of one defendant deprives the court of
certified statement by the Creditor as to the amount due from the Principal shall be jurisdiction to proceed with the case against the surviving defendants.
accepted by the Surety/ies as correct and final for all legal intents and purposes." HELD:
Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay It is now settled that the quoted Article 1216 grants the creditor the substantive
Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on right to seek satisfaction of his credit from one, some or all of his solidary debtors,
due date. The condition on which Tan Chong Lin's obligation hinged had as he deems fit or convenient for the protection of his interests;
happened. As surety, Tan Chong and if, after instituting a collection suit based on contract against some or all of
Lin automatically became liable for the entire obligation to the same extent as them and, during its pendency, one of the defendants dies, the court retains
Great Asian jurisdiction to continue the proceedings and decide the case in respect of the
surviving defendants.
OBLICON DIGESTS
Similarly, in PNB vs. Asuncion, A cursory perusal of Section 6, Rule 86 of the As of September 16, 1965, the balance of said account was P40,945.31. But
Revised Rules of Court reveals that nothing therein prevents a creditor from despite repeated demands, the PRs failed to pay.
proceeding against the surviving solidary debtors. On January 4, 1966 P filed a complaint for the recovery of the unpaid balance with
Said provision merely sets up the procedure in enforcing collection in case a the CFI of Manila.
creditor chooses to pursue his claim against the estate of the deceased solidary, PRs in their Answer with Counterclaim admitted the principal allegations of the
debtor. Complaint, except that they insisted that their outstanding account was only
It is crystal clear that Article 1216 of the New Civil Code is the applicable P28,911.10 as of October 31, 1965.
provision in this matter. The P then filed a motion for summary judgment, but the same was denied by the
Said provision gives the creditor the right to 'proceed against anyone of the lower court.
solidary debtors or some or all of them simultaneously.' When the case was called for hearing on February 9, 1967, neither the PRs nor
The choice is undoubtedly left to the solidary, creditor to determine against whom their counsel appeared despite due notice, hence upon motion of the P's counsel, P
he will enforce collection. In case of the death of one of the solidary debtors, he was allowed to present evidence ex-parte. On the basis of such evidence, the lower
(the creditor) may, if he so chooses, proceed against the surviving solidary debtors court on February 10, 1967 rendered judgment in favor of the P.
without necessity of filing a claim in the estate of the deceased debtors. On April 8, 1968, after re-hearing the case on motion filed by PR Verendia,
It is not mandatory for him to have the case dismissed against the surviving wherein PR claimed that he overpaid P. The court reiterated their Feb. 10,
debtors and file its claim in the estate of the deceased solidary debtor . . . judgment.
Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over PRs filed an appeal to the CA claiming that the LC erred when it did not give
Article 1216 of the New Civil Code, the former being merely procedural, while
merit to Verendia’s attempt to prove that he was not indebted to P and when it
the latter, substantive.
allowed execution pending appeal (However, P could not find any visible
properties belonging to PRs that may be levied upon, and, therefore, the writ of
execution remained unenforced.).
CA reversed the LC decision.
P filed a MR which was denied by CA.
Issues/Held:
WoN the CA committed an error of law when it allowed PRs, who have admitted their
liability to P in their answer, to change their defense when they have not amended their
pleadings at any stage of the proceedings- NO.
WoN the CA erred in holding that the appeal interposed by Verendia (being a solidary
debtor) will inure to the benefit of the other PRs who have not appealed- NO.
HELD:
We already stressed in the case of Bustamante v. Hon. Court of Appeals that as a
UNIVERSAL MOTORS CORP V. CA rule, findings of fact of the CA are final and conclusive and cannot be reviewed on
Facts: appeal, provided, they are borne out by the record or are based on substantial
On December 15, 1962 private respondents purchased from petitioner 2 Mercedes evidence. However, this rule admits of certain exceptions:
Benz trucks at a cash price of P33,608.27 each payable within 90 days. 1. as when the findings of facts are conclusions without citation of specific
The PRs made several payments amounting to the sum of P7100.00 which were evidence on which they are based;
applied to the principal, interest and to the expenses incurred in executing and 2. or the appellate court's findings are contrary to those of the trial court
registering a deed of chattel mortgage in favor of P. For failure of the PRs to pay Furthermore, only question of law may be raised on a petition for review on
the cash price of P67,216.54 for the two vehicles within the 90-day period, their certiorari under Rule 45 of the Revised Rules of Court.
account was re-scheduled to allow them a period of 30 months within which to It is not the function of the SC to analyze or weigh such evidence all over again,
complete the payments. its jurisdiction being limited to reviewing errors of law that might have been
On June 3, 1963 PRs executed a promissory note in favor of the P for the sum of committed.
P74,064.40 covering the re-scheduled account thereby promising to pay the same Barring, therefore, a showing that the findings complained of are totally devoid of
in monthly installments at the rates stipulated on the PN with 12% interest. support in the records, or that they are so glaringly erroneous as to constitute
OBLICON DIGESTS
serious abuse of discretion, such findings must stand for the SC is not expected or against a party especially if that party failed to appeal. (Olacao v. National Labor
required to examine or contrast the oral and documentary evidence submitted by Relations Commission; Quigui v. Boncaros,; Orata v. IAC)
the parties. (Andres v. Manufacturers Hanover and Trust Corp.) It is obvious that the CA committed no error in ruling that its decision inures to the
CA opined that the record consisting of both the oral and documentary evidence benefit of all the PRs regardless of the fact that only one appealed.
presented in the case outweighed the findings of fact of the trial court. It is erroneous to rule that the decision of the trial court could be reversed as to the
The apparent conflict between the findings of the appellate court and that of the appealing private respondent and continue in force against the other PRs.
trial court is due to the fact that evidence was presented ex parte in the lower court The latter could not remain bound after the former had been released; although the
while the evidence of the PRs were presented only on appeal. other PRs had not joined in the appeal, the decision rendered by the CA inured to
Hence, the trial court decided the case on the basis solely of the evidence of the P their benefit.
while the respondent court reached a decision with the advantage of weighing and When the obligation of the other solidary debtors is so dependent on that of
analyzing both the evidence of the P and the PRs. their co-solidary debtor, the release of the one who appealed, provided it be
Bearing in mind these facts and in the absence of any showing that the findings not on grounds personal to such appealing private respondent, operates as
complained of are totally devoid of support in the records, such findings must well as to the others who did not appeal. It is for this reason, that a decision
stand and be admitted as final and conclusive. or judgment in favor of the PR who appealed can be invoked as res judicata
Re P's contention that the CA committed an error in allowing PRs to change their by the other PRs.
defense when they have not at any stage of the proceedings amended their pleadings,
Section 5, Rule 10 of the ROC provides:
. . . Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure so to amend does not affect the
result of the trial of these issues.
Judgment may still be rendered not on the basis of the issues alleged, but on the
basis of the issues discussed and proved in the course of the trial. (Paras, Rules of
Court Annotated, Vol. I) Hence, the failure of the PRs to amend their pleadings in
order to conform to the evidence presented will not at all affect the result of the
trial.
Re Effect of An Appeal of a Solidary Debtor to the Other Debtors Who Have Not Filed
An Appeal
In the case of Citytrust Banking Corporation v. The Court of Appeals and William
Samara, We already ruled that "the Court will not allow the absurd situation where
a co-defendant who is adjudged to be primarily liable for sums of money and for
tort would be charged for an amount lesser than what its co-defendant is bound to
pay to the common creditor and allowed to collect from the first co-defendant.
Such a situation runs counter to the principle of solidarity in obligations as
between co-defendants established by a judgment for recovery of sum of money
and damages . . ."
The Court therein noted the modification made by the CA which ordered not only
the appellant therein but both "defendants jointly and severally" to pay the new
amount.
It explained that though, as a matter of procedure, the modification shall be SECURITY BANK AND TRUST COMPANY INC V. CUENCA
applied only to the appellant, substantial justice and equity also demand that the petitioner bank cannot hold herein respondent liable for loans obtained in excess
decision should be interpreted to refer to the non-appealing defendant as well. of the amount or beyond the period stipulated in the original agreement, absent
There exists a strong and compelling reason to warrant an exception to the rule any clear stipulation showing that the latter waived his right to be notified thereof,
that a judgment creditor is entitled to execution of a final and executory judgment or to give consent thereto.
FACTS:
OBLICON DIGESTS
It did not give the bank or Sta. Ines any license to modify the nature and scope of because at that time, he was no longer an officer or a stockholder of the
the original credit accommodation, without informing or getting the consent of debtor-corporation.
respondent who was solidarily liable. Verily, he was not in a position then to ensure the payment of the obligation.
A contract of surety "cannot extend to more than what is stipulated. Neither did he have any reason to bind himself further to a bigger and more
It is strictly construed against the creditor, every doubt being resolved against onerous obligation.
enlarging the liability of the surety."31 Likewise, the Court has ruled that "it is a
well-settled legal principle that if there is any doubt on the terms and conditions of
the surety agreement, the doubt should be resolved in favor of the surety x x x.
Ambiguous contracts are construed against the party who caused the ambiguity.
In the absence of an unequivocal provision that respondent waived his right to be
notified of or to give consent to any alteration of the credit accommodation, we
cannot sustain petitioner’s view that there was such a waiver.
It should also be observed that the Credit Approval Memorandum clearly shows
that the bank did not have absolute authority to unilaterally change the terms of
the loan accommodation.
At most, the alleged basis of respondent’s waiver is vague and uncertain. It
confers no clear authorization on the bank or Sta. Ines to modify or extend the
original obligation without the consent of the surety or notice thereto.
1) NOT Continuing Surety
That the Indemnity Agreement is a continuing surety does not authorize the
bank to extend the scope of the principal obligation inordinately.
To repeat, in the present case, the Indemnity Agreement was subject to the
two limitations of the credit accommodation: (1) that the obligation should
not exceed P8 million, and (2) that the accommodation should expire not later
than November 30, 1981.
Hence, it was a continuing surety only in regard to loans obtained on or
before the aforementioned expiry date and not exceeding the total of P8
million.
NO PROVISION: ”each suretyship is a continuing one which shall remain in
full force and effect until this bank is notified of its revocation.
2) Special Nature of the JSS
It is a common banking practice to require the JSS ("joint and solidary
signature") of a major stockholder or corporate officer, as an additional
security for loans granted to corporations.
There are at least two reasons for this. First, in case of default, the creditor’s
recourse, which is normally limited to the corporate properties under the veil
of separate corporate personality, would extend to the personal assets of the
surety. Second, such surety would be compelled to ensure that the loan would
be used for the purpose agreed upon, and that it would be paid by the
corporation.
Following this practice, it was therefore logical and reasonable for the bank
to have required the JSS of respondent, who was the chairman and president DIFFERENT KINDS OF OBLIGATIONS: OBLIGATIONS WITH A PENAL
of Sta. Ines in 1980 when the credit accommodation was granted. CLAUSE
There was no reason or logic, however, for the bank or Sta. Ines to assume
that he would still agree to act as surety in the 1989 Loan Agreement, BACHRACH V. ESPIRITU
OBLICON DIGESTS
Facts;
July 28, 1925-The defendant (Faustino Espiritu)purchased plaintiff corp. a two-ton
white truck for P11,983.50, paying P1,000.00 down to apply on account of this
price and obligating himself to pay the remaining P10,983.50 within the period
agreed upon.
The defendants mortgaged the purchased trucks and three others which are
numbered 77197 and 92744 respectively to secure the payments.
The defendant failed to pay P10,477.82 of the price secured by mortgage.
In case 28498 dated Feb. 18, 1925-defendant bought a one-ton white truck of the
plaintiff corporation for the sum of P7,136.50 and the P500 cash deducted and 12
percent annual interest on the unpaid principal, obligated himself to make payment
within the periods agreed upon and mortgage truck 77197 and 92744 respectively
in purchased of the other truck.
The defendant failed to pay P4,208.28 if the sum.
In both sales, it was agreed that 12 percent to be paid upon portion of the unpaid
at execution of contracts, if failed to non-payment in its maturity, 25 percent
thereon as penalty.
The defendant signed a promissory note solidarily with his brother Rosario
Espiritu for several sums secured by the two mortgages.
While two cases were pending in the lower court the two trucks were sold by
virtue of mortgage
ISSUE
Whether or not that the plaintiff has the right to impose higher interest as penalty twice
the fixed rate by law.
ROBES-FRANCISCO v. REALTY DEVELOPMENT CORPORATION V. CFI
HELD
No, Article 1152 of the civil code permits the agreement upon a penalty apart Facts:
from the interest. This is an appeal from the decision of the CFI of Rizal rendering judgment against
Should there be such agreement, penalty, does not include the interest; and Robes-Francisco Corporation to register the deed of absolute sale in favor of
which may be demanded separately (as was held in case of Lopez vs. Millan with the Register of Deeds of Caloocan City and secure the corresponding
Hernaez-32 phil 631), but considering that the obligation was partly title within ten days and if not possible said Corporation shall pay Millan the total
performed and making use of the power given to the court by article 1154 of amount she paid P5,193.63 with interest at 4% per annum from June 22, 1972
the civil code, the penalty is reduced to 10 percent of the unpaid debt. until fully paid.
Penalty is not to be added to interest for the determination of whether interest In either case Robes Corporation is sentenced to pay Millan nominal damages of
exceeds the rate fixed by law, since said rate was fixed only for interest. P20,000.00 plus P5,000.00 attorney’s fees
In view of this conclusion that intervenor signed the promissory notes Petitioner Corporation questions the award of P20,000.00 nominal damages and
secured by trucks,and consented to the mortgage of the same, it is immaterial P5,000.00 attorney’s fees alleging such to be excessive and unjustified.
whether he was or was not the exclusive owner thereof In May 1962, Robes Corporation entered into a contract of sale with Millan for a
The judgment appealed from is affirmed. parcel of land in the amount of 3,864.00 payable in installments.
Millan complied with her obligation and made her final payment on December 22,
1971 for a total payment of P5,193.63 including interests and expenses for
registration of title.
OBLICON DIGESTS
On March 2, 1973 the deed of absolute sale was executed but the transfer
certificate of title could not be executed because the parcel of land conveyed to
Millan was included among other properties of the corporation mortgaged to GSIS
to secure an obligation of P10 million, hence, the owner’s duplicate certificate of
title of the subdivision was in the possession of the GSIS.
ISSUE:
Is the 4% interest provision of the contract a penal clause?
HELD: NO
Said clause does not convey any penalty, for even without it, pursuant to Article
2209 of the Civil Code, the vendee would be entitled to recover the amount paid
by her with legal rate of interest which is even more than the 4% provided for in COUNTRY BANKERS INSURANCE CORP V. CA
the clause Facts:
A penal clause is an accessory undertaking to assume greater liability in case of Respondent and petitioner entered into a lease agreement for the term six (6) years
breach. over the Avenue, Broadway and Capitol Theaters and the land on which they are
From this alone, the 4% provision does not come to be penal in character, hence, situated.
Robes Corporation’s contention that the penalty shall substitute the indemnity for After more than two (2) years of operation, the respondent lessor made demands
damages and the payment of interest in case of non-compliance does not hold for the repossession of the said leased properties in view of the Sy's arrears in
water. monthly rentals and non-payment of amusement taxes.
Unfortunately, Millan failed to show the actual damages she suffered as a result of In pursuance of their latter agreement, Sy's arrears in rental were reduced.
the nonperformance. Nonetheless, the facts show that the right of the vendee was However, the accrued amusement tax liability of the three (3) theaters to the City
violated and this entitles her at the very least to nominal damages. Government of Cabanatuan City had accumulated despite the fact that Sy had
“In the situation before Us, We are of the view that the amount of P20,000.00 is been deducting the amount of P4,000.00 from his monthly rental.
excessive.” Bad faith can not be presumed. Petitioner Corporation expected that Sy filed the present action for reformation of the lease agreement, damages and
arrangements were possible for the GSIS to make partial releases of the injunction and prayed for the issuance of a preliminary injunction to enjoin OVEC
subdivision lots from the overall real estate mortgage. It was only unfortunate for from entering and taking possession of the three theaters.
it not to succeed in that regard. Hence, the sum of ten thousand pesos by way of OVEC on the other hand, alleged in its answer by way of counterclaims that by
nominal damages is fair and just. reason of Sy's violation of the terms of the subject lease agreement and became
authorized to enter and possess the three theaters in question and to terminate said
agreement.
The trial court arrived at the conclusions that Sy is not entitled to the reformation
of the lease agreement and further concluded that Sy was not entitled to the writ of
preliminary injunction issued in his favor after the commencement of the action
and that the injunction bond filed by Sy is liable for whatever damages OVEC
may have suffered by reason of the injunction.
Issue:
Whether or not Sy is entitled to reformation of the lease agreement.
Held:No.
A provision which calls for forfeiture of the remaining deposit still in possession
of lessor without prejudice to any other obligation still owing in the event of
termination or cancellation of agreement by reason of lessee’s violations of any of
the terms and conditions of the agreement is a penal clause that may be validly
entered into.
A penal clause is an accessory obligation which the parties attach to a principal
obligation for the purpose of ensuring the performance thereof by imposing on the
OBLICON DIGESTS
debtor a special prestation (generally consisting of payment of sum of money) in said agreement and the law applicable thereto and that the consequent forfeiture of
case the obligation is not fulfilled or is irregularly or inadequately fulfilled Sy's cash deposit in favor of OVEC was clearly agreed upon by them in the lease
General rule : In obligations with a penal clause, the penalty shall substitutute the agreement.
indemnity for damages and the payment of interest in case of non-compliance. The court found no ambiguity in the provisions of the lease agreement. It held
This is specifically provided for in Article 1226, par. 1, New Civil Code. that the provisions are fair and reasonable and therefore, should be respected and
In such case, proof of actual damages suffered by the creditor is not necessary in enforced as the law between the parties.
order that the penalty may be demanded (Article 1228, New Civil Code). It held that the cancellation or termination of the agreement prior to its expiration
However, there are exceptions to the rule that the penalty shall substitute the period is justified as it was brought about by Sy's own default in his compliance
indemnity for damages and the payment of interests in case of non-compliance with the terms of the agreement and not motivated by fraud or greed.
with the principal obligation.
They are first, when there is a stipulation to the contrary; second, when the obligor
is sued for refusal to pay the agreed penalty; and third, when the obligor is guilty
of fraud (Article 1226, par. 1, New Civil Code). It is evident that in all said cases,
the purpose of the penalty is to punish the obligor.
Therefore, the obligee can recover from the obligor not only the penalty but also
the damages resulting from the non-fulfillment or defective performance of the
principal obligation.
In the case at bar, inasmuch as the forfeiture clause provides that the deposit shall
be deemed forfeited, without prejudice to any other obligation still owing by the
lessee to the lessor, the penalty cannot substitute for the P100,000.00 supposed
damage resulting from the issuance of the injunction against the P290,000.00
remaining cash deposit.
This supposed damage suffered by OVEC was the alleged P10,000.00 a month
increase in rental from P50,000.00 to P60,000,00), which OVEC failed to realize
for ten months from February to November, 1980 in the total sum of P100,000.00. HEIRS OF MANUEL UY EK LIONG V. CASTILLO
This opportunity cost which was duly proven before the trial court, was correctly FACTS:
made chargeable by the said court against the injunction bond posted by CBISCO. Respondents in this case were petitioners in a civil case to annul the title of
The undertaking assumed by CBISCO under subject injunction refers to "all such PMPCI over respondents’ land. Respondents entered into an AGREEMENT
damages as such party may sustain by reason of the injunction if the Court should whereby in exchange for the legal services of Atty. Zepeda and the financial
finally decide that the Plaintiff was/were not entitled thereto. assistance of MANUEL UY EK LIONG, in the event of a favorable decision in
Thus, the respondent Court correctly sustained the trial court in holding that the the civil case, Atty Zepeda and Manuel would be entitled to 40% of the realties
bond shall and may answer only for damages which OVEC may suffer as a result and/or monetary benefits which may be adjudicated in favor of the respondents.
of the injunction. The arrears in rental, the unmeritted amounts of the amusement Respondents, on the same day entered into a Kasunduan, agreeing to sell the
tax delinquency, the amount of P100,000.00 (P10,000.00 portions of each monthly remaining 60% share in the land in favor of Manuel for the sum of 180k. Manuel
rental which were not deducted from plaintiffs cash deposit from February to would pay a 1K down payment upon execution of the Kasunduan.
November, 1980 after the forfeiture of said cash deposit on February 11, 1980) They agreed that any party violating the Kasunduan would pay the aggrieved party
and attorney's fees which were all charged against Sy were correctly considered by a penalty fixed in the sum of P50K, together with the attorney’s fees and litigation
the respondent Court as damages which OVEC sustained not as a result of the expenses incurred should a case be subsequently filed in court.
injunction. The respondents won in the CIVIL CASE. The land was divided in accordance
We held that where the filing of the initiatory pleading is not accompanied by with the Agreement but the respondents refused to comply with the
payment of the docket fee, the court may allow payment of the fee within a KASUNDUAN, despite Manuel’s offer to pay the remaining 179K balance,
reasonable time but in no case beyond the applicable prescriptive or reglemen tary claiming that the same was void ab initio for being violative violative of Art 1491
period. of the NCC and the Canons of Professional Responsibility.
The repossession of the leased premises by OVEC after the cancellation and
termination of the lease was in accordance with the stipulation of the parties in the
OBLICON DIGESTS
Ruling:
Generally, courts are not at liberty to ignore the freedom of the parties to agree on
such terms and conditions as they see fit as long as they are not contrary to law,
morals, good customs, public order or public policy.
This power of the courts is explicitly sanctioned by Article 1229 of the Civil Code
which provides:
Article 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or... unconscionable.
OBLICON DIGESTS
question of whether a penalty is reasonable or iniquitous is addressed to the sound 1962, the GSIS,... and Office of the Economic Coordinator, upon request of the
discretion of the court and depends on several factors, including, but not limited Medinas, both... approved the restoration of the amount of P350,000.00
to, the following: the type, extent and purpose of the penalty, the nature of the (P295,000.00 + P55,000.00)
obligation, the mode of... breach and its consequences, the supervening realities, Upon application by the Medinas, the GSIS Board of Trustees adopted Resolution
the standing and relationship of the parties No. 121 on January 18, 1963, as amended by Resolution No. 348 dated February
In this case, the stipulated penalty was reduced by the appellate court for being 25, 1963, approving an additional loan of P230,000.00 in favor of the Medinas
unconscionable and iniquitous. March 18, 1963, the Economic Coordinator thru the Auditor General interposed
respondent was an agricultural cooperative, collectively owned by farmers with no objection thereto, subject to the conditions of Resolution No. 121 as amended
limited resources, ordering it to pay a penalty of P150,000 per month on top of... by Resolution No. 348 of the GSIS.
the monthly rent of P30,000 would seriously deplete its income and drive it to 1965, the Medinas having defaulted in the payment of the monthly amortization
bankruptcy. In Rizal Commercial Banking Corp. vs. Court of Appeals,... Court on their loan, the GSIS imposed 9%/12% interest on all installments due and
tempered the penalty charges after taking into account the debtor's pitiful unpaid.
financial... condition. In 1967, the Medinas began defaulting in the payment of fire insurance premiums.
1974, the GSIS notified the Medinas that they had arrearages in the aggregate
amount of P575,652.42 as of April 18, 1974... and demanded payment within
seven (7) days from notice thereof, otherwise, it would... foreclose the mortgage
1975, the GSIS filed an Application for Foreclosure of Mortgage with the Sheriff
of the City of Manil
Medinas filed with the Court of First Instance of Manila a complaint, praying,...
among other things, that a restraining order or writ of preliminary injunction be
issued to prevent the GSIS and the Sheriff of the City of Manila from proceeding
with the extra-judicial foreclosure of their mortgaged properties... no restraining
order or writ of preliminary injunction was issued by the trial court
Under a Notice of Sale on Extra-Judicial Foreclosure dated June 18, 1975, the real
properties of the Medinas covered by Transfer Certificates of Title Nos. 32231,
43527, 51394, 58626, 60534, 63304, 67550, 67551 and 67552 of the Registry of
Property of the City of Manila were... sold at public auction to the GSIS as the
highest bidder
1976, the Medinas filed an Amended Complaint with the trial court, praying for
(a) the declaration of nullity of their two real estate mortgage contracts with the
GSIS as well as of the extra-judicial foreclosure proceedings; and (b) the refund of
excess payments,... plus damages and attorney's fees
1976, the GSIS filed its Amended Answer
After trial, the trial court rendered a Decision dated January 21, 1977
"WHEREFORE, judgment is hereby rendered declaring the extra-judicial
GSIS V CA foreclosure conducted by the Sheriff of Manila of real estate mortgage contracts
Facts: executed by plaintiffs on April 4, 1962, as amended on July 6, 1962, and February
1961,... Medinas X GSIS... for a loan of P600,000.00. 17, 1963, null and void and the Sheriff's Certificate of Sale dated January 27,
1976, in favor of the GSIS of no legal force and effect; and directing plaintiffs to
GSIS Board of Trustees, in its Resolution... approved under Resolution No. 5041
pay the GSIS the sum of P1,611.12 in full payment of their obligation to the latter
only the amount of P350,000.00... ffice of the Economic Coordinator, in a 2nd
with interest of 9% per annum from December 11, 1975, until... fully paid."
Indorsement... further reduced the approved amount to P295,000.00.
Court of Appeals,... , ruled in favor of the Medinas –
1962, the Medinas accepting the reduced amount, executed a promissory note and
"WHEREFORE, the defendant GSIS is ordered to reimburse the amount of
a real estate mortgage in favor of GSIS
P9,580.00 as overpayment and to... pay plaintiffs P3,000.00 and P1,000.00 as
OBLICON DIGESTS
attorney's fees and litigation expenses, respectively. With these modifications, the to be in full... force and effect, and that the parties hereto agree that the
judgment appealed from is amendment be an integral part of said real estate mortgage."
AFFIRMED in all other respects, with costs against defendant GSIS." The fact is the GSIS, as a matter of policy, imposes uniform terms and conditions
Issues: for all its... real estate loans, particularly with respect to compounding of interest.
issues in this case are limited to the loan of P350,000.00 denominated as Account No. A s shown in the case at bar, the original mortgage contract embodies the same
31055... subject of the Amendment of Real Estate Mortgage dated July 6, 1962, the terms and conditions as in the additional loan denominated as Account No, 31442
interpretation of which is the major issue in this case. while the amendment carries the provision... that it shall be subject to the same
Ruling: terms and conditions as the real estate mortgage of April 4, 1962 except as to
GSIS claims that the amendment of the real estate mortgage did not supersede the amount and amortization.
original mortgages II.
All other provisions of... aforesaid mortgage contract including that on error in the ruling of the Court of Appeals in its Decision dated January 18, 1980
compounding of interest were deemed re-written and thus binding on and "x x x We agree that plaintiff should be credited with P11,152.02 of the fire insurance
enforceable against the respondent spouses,... proceeds as the same is admitted in paragraph (4) of its Answer and should be added to
On the other hand the Medinas maintain that there is no express stipulation on their payments."
compounded interest in the amendment of mortgage contract of July 6, 1962 so Contrary... paragraph 4 of the Answer of the GSIS states
that the compounded interest stipulation in the original mortgage contract of April "That they (GSIS) specifically deny the allegations in Paragraph 11, the truth being that
4, 1962 which has been superseded... cannot be enforced in the later mortgage. plaintiffs are not entitled to a credit of P19,381.07 as fire insurance proceeds since they
Hence the Medinas claim an overpayment in Account No. 31055. were only entitled to, and were credited with, the amount of P11,152.02 as proceeds of
To recapitulate, the difference in the computation lies in the inclusion of the their fire... insurance policy."... when the Court of Appeals made the aforequoted
compounded interest as demanded by the GSIS on the one hand and the exclusion ruling, it was actually doubly crediting the amount of P11,152.02 which had been
thereof, as insisted by the Medinas on the other. previously credited by... petitioner-appellant GSIS
There appears no ambiguity whatsoever in the terms and conditions of the III.
amendment of the mortgage contract herein quoted earlier. On the contrary, an whether or not the interest rates on the loan accounts of the Medinas are usurious, it has
opposite conclusion cannot be otherwise but absurd. already been settled that the Usury Law applies only to interest by way of
a careful perusal of the title, preamble and body of the Amendment of Real Estate compensation for the use or forbearance of money, Interest by way of damages is
Mortgage dated July 6, 1962, taking into account the prior, contemporaneous, and governed by Article 2209 of the Civil Code of the Philippines which provides:
subsequent acts of the parties,... ineluctably shows that said Amendment was "Art. 2209. If the obligation consists in the payment of a sum of moneys, and the
never intended to completely supersede the mortgage contract dated April 4, 1962. debtor incurs in delay, the indemnity for damages, there being no stipulation to the
First, the title "Amendment of Real Estate Mortgage" recognizes the existence and contrary, shall be the payment of the interest agreed upon, x x x."
effectivity of the previous mortgage contract.
Second, nowhere in the aforesaid Amendment did the parties manifest their IV.
intention to supersede the original contract. Based on the finding that the GSIS had the legal right to impose an interest 9% per
On the contrary in... the WHEREAS clauses, the existence of the previous annum, compounded monthly, on the loans of the Medinas and an interest of
mortgage contract was fully recognized and the fact that the same was just being 9%/12% per annum on all due and unpaid amortizations or installments,
amended as to amount and amortization is fully established as to obviate any there is no question that the Medinas failed to... settle their accounts with the GSIS
doubt. which as computed by the latter reached an outstanding balance of P630,130.55 as
Third, the Amendment of Real Estate Mortgage dated July of April 12, 1975 and that the GSIS had a perfect right to foreclose the mortgage.
1962 does not embody the act of conveyancing the subject properties by way of
mortgage.
In fact the intention of the parties to be bound by the unaffected provisions of the
mortgage contract of April 4, 1962 expressed in unmistakable language is clearly
evident in the... last provision of the Amendment of Real Estate Mortgage
"It is hereby expressly understood that with the foregoing amendment, all other
terms and conditions of the said real estate mortgage dated April 4, 1968, insofar
as they are not inconsistent herewith, are hereby confirmed, ratified and continued
OBLICON DIGESTS
judicial action for the rescission of a contract is not necessary where the contract
provides... that it may be cancelled for violation of any of its terms and conditions.
However, even in the cited cases, there was at least a written notice sent to the
defaulter informing him of the rescission.
In other words, resolution of reciprocal contracts may be made extrajudicially
unless successfully impugned in Court. If the debtor impugns the declaration it
shall be subject to judicial determination.
In this case, private respondent has denied that rescission is justified and has
resorted to judicial action. It is now for the Court to determine whether resolution
of the contract by petitioner was warranted.
There is no denying that in the instant case the resolution or rescission of the
Contract to Sell was valid. Neither can it be said that the cancellation of the
contract was ineffective for failure of private respondents to give petitioners notice
thereof as petitioners were... informed by private respondent that the contract was
cancelled in the letter dated April 6, 1967 (Exh. "D"). As R.A. No. 6552 was not
yet effective, the notice of cancellation need not be by notarial act, private
respondent's letter being sufficient compliance with the legal... requirement.
While the resolution of the contract and the forfeiture of the amounts already paid
are valid and binding upon petitioners, the Court is convinced that the forfeiture of
the amount of P47,312.64, although it includes the accumulated fines for
petitioners' failure to construct... a house as required by the contract, is clearly
iniquitous considering that the contract price is only P55,000.00.
The forfeiture of fifty percent (50%) of the amount already paid, orP23,656.32,
appears to be a fair settlement. In arriving at this amount the Court gives weight...
to the fact that although petitioners have been delinquent in paying their
amortizations several times to the prejudice of private respondent, with the
cancellation of the contract the possession of the lot reverts to private respondent
who is free to resell it to another party.
Also, had R.A. No. 6552 been applicable to the instant case, the same percentage
of the amount already paid would have been forfeited
The Court's decision to reduce the amount forfeited finds support in the Civil
Code. As stated in paragraph 3 of the contract, in case the contract is cancelled,
the amount already paid shall be forfeited in favor of the vendor as liquidated
damages.
The Code provides that... liquidated damages, whether intended as an indemnity or
a penalty, shall be equitably reduced if they are iniquitous or unconscionable
Further, in obligation with a penal clause, the judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with
by the debtor