Obligations and Contracts Case Updates (2005-2014)

8/16/2019 Obligations and Contracts Case Updates (2005-2014)

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TABLE OF CONTENTS OBLIGATIONS AND CONTRACTS

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OBLIGATIONS

GENERAL PROVISIONS

Ernesto Uypitching, et al. v. Ernesto Quiamco .................................................................................... 10

Lourdes Dela Cruz v. Court of Appeals ............................................................................................... 10

Department of Health v. HTMC Engineers Co. .................................................................................. 10

International Finance Corporation v. Imperial Textile Mills, Inc. ..................................................... 11

Sebastian Siga-An v. Alicia Villanueva ................................................................................................. 11

Makati Stock Exchange, Inc., et al. v. Miguel V. Campos, substituted By Julia Ortigas Vda. DeCampos ...................................................................................................................................................... 12

Spouses Patricio and Myrna Bernales v. Heirs Of Julian Sambaan .................................................. 12

Vitarich Corporation v. Chona Losin .................................................................................................... 13

CBK Power Company Limited vs. Commissioner of Internal Revenue .......................................... 13

NATURE AND EFFECT OF OBLIGATIONS

Cortes v. Court of Appeals ..................................................................................................................... 13

Winifreda Ursal v. Court of Appeals, The Rural Bank of Larena (Siquijor), Inc. and Spouses Jesus Moneset and Cristita Moneset ..................................................................................................... 14

Prudential Bank v. Chonney Lim .......................................................................................................... 14

YHT Realty Corporation, Erlinda Lainez and Anicia Payam v. Court of Appeals and MauriceMcloughlin ................................................................................................................................................ 14

Schimtz Transport and Brokerage Corporation v. Transport Venture Inc. ..................................... 15

Lapreciosisima Cagungun, et. al. v. Planters Development Bank .................................................... 15

Radio Communication of the Philippines vs. Alfonso Verchez, et al. .............................................. 15

Crisostomo Alcaraz v. Court of Appeals .............................................................................................. 16

Metropolitan Bank and Trust Company vs. Renato D. Cabilzo ........................................................ 16

Ma. Elizabeth Kind and Mary Ann King v. Megaworld Properties and Holdings, Inc. ............... 16

Autocorp Group v. Intra Strata Assurance Corporation .................................................................... 16

J Plus Asia Development Corporation v. Utility Assurance Corporation ....................................... 17

Polo S. Pantaleon v. American Express International, Inc. ................................................................ 18

Sps. Guanio v. Makati Shangri-La Hotel .............................................................................................. 18

Marques v. Far East Bank ....................................................................................................................... 18

Philippine Realty and Holding Corp. v. Ley Const. and Dev. Corp. ............................................... 19


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Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General Insurance Co., Inc. ...... 19

Carlo F. Sunga v.Virjen Shipping Corporation, Nissho Odyssey Ship Management Pte. Ltd.,And/Or Capt. Angel Zambrano ............................................................................................................ 20

DIFFERENT KINDS OF OBLIGATIONS

PURE AND CONDITIONAL OBLIGATIONS

Sacobia Hills Development Corporation vs. Allan Ty ........................................................................ 20

Carrascoso v. Court of Appeals ............................................................................................................. 21

Spouses William And Jeanette Yao v. Carlomagno B. Matela .......................................................... 21

Spouses Jaime Benos And Marina Benos v. Spouses Gregorio Lawilao And Janice Gail Lawilao

.................................................................................................................................................................... 21

Darrel Cordero, et al. vs. F.S. Management and Development Corporation .................................. 22

Yamamoto v. Nishino Leather Industries, Inc. .................................................................................... 22

Spouses Jose T. Valenzuela and Gloria Valenzuela v. Kalayaan Development & IndustrialCorporation ............................................................................................................................................... 22

Solar Harvest, Inc. v. Davao Corrugated Carton Corporation .......................................................... 23

Republic v. Holy Trinity Realty Development Corporation .............................................................. 24

Subic Bay Metropolitan Authority v. Court of Appeals ..................................................................... 24

Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc. .................................................... 24

JOINT AND SOLIDARY OBLIGATIONS

Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation .................................. 25

Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al............................................... 25

Philippine Commercial International Bank v. CA .............................................................................. 25

Crystal v. Bank of the Philippine Islands ............................................................................................. 26

The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc., ................................................ 26

Alba v. Yupangco ..................................................................................................................................... 26

Sps. Rodolfo Berot v. Felipe Siapno ....................................................................................................... 27

Trade and Investment Development Corp. of the Philippines v. Asia Paces Corp. ...................... 27

Olongapo City, V. Subic Water And Sewerage Co., Inc., ................................................................... 27


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OBLIGATIONS WITH A PENAL CLAUSE

First Fil-Sin Lending Corporation v. Gloria D. Padillo ....................................................................... 28

Filinvest Land, Inc. vs. Hon. Court of Appeals, Philippine American General InsuranceCompany and Pacific Equipment Corporation ................................................................................... 28

Development Bank of the Philippines v. Family Foods Manufacturing Co. Ltd., and Spouses Julianco and Catalina Centeno ............................................................................................................... 28

Ileana Dr. Macalinao v. Bank of the Philippine Islands ..................................................................... 29

EXTINGUISHMENT OF OBLIGATIONS

PAYMENT OR PERFORMANCE

Jaime Biana v. George Gimenez ............................................................................................................. 29

G & M (Phil.), Inc. vs. Willie Batomalaque ........................................................................................... 29

Abacus Securities Corporation v. Ruben U. Ampil ............................................................................ 30

Almeda v. Bathala Marketing Industries, Inc. ..................................................................................... 30

ASJ Corporation v. Evangelista ............................................................................................................. 30

Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc. ......................................................... 31

Dao Heng Bank, Inc. (Now Banco De Oro Universal Bank) v. Laigo ............................................... 31

Royal Cargo Corporation v. DFS Sports Unlimited, Inc. ................................................................... 32

Allandale Sportsline, Inc. v. The Good Development Corporation .................................................. 32

Annabelle Dela Peña and Adrian Villareal v. The Court of Appeals and Rural Bank of Bolinao,Inc. .............................................................................................................................................................. 32

D.B.T. Mar-Bay Construction, Incorporated v. Ricaredo Panes et al. ............................................... 33

Rockville Excel International Exim Corporation v. Spouses Oligario Culla and BernarditaMiranda ..................................................................................................................................................... 33

Premiere Development Bank v. Central Surety & Insurance Company, Inc. ................................. 33

Cecilleville Realty and Service Corporation v. Acuña ........................................................................ 34

DBT Mar-Bay Construction, Inc. vs. Panes .......................................................................................... 34

Manuel Go Cinco and Araceli S. Go Cinco v. Court Of Appeals, Ester Servacio and MaasinTraders Lending Corporation ................................................................................................................ 35

Land Bank of the Philippines vs. Alfredo Ong .................................................................................... 35

Republic v. Thi Thu Thuy T. De Guzman ............................................................................................ 35

Dalton vs. FGR Realty and Development Corp ................................................................................... 36

Elizabeth Del Carmen v. Sps. Sabordo.................................................................................................. 36

Erlinda Gajudo, Fernando Gajudo, Jr., Estelita Gajudo, Baltazar Gajudo And Danilo ArahanChua v. Traders Royal Bank ................................................................................................................... 36

Luzon Development Bank v. Enriquez ................................................................................................. 37


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Telengtan Brothers & Sons, Inc. v. United States Lines, Inc. and the Court of Appeals ................ 37

Simplicio A. Palanca v. Ulyssis Guides ................................................................................................ 37

LOSS OF THE THING DUE

Ayala Construction and Development Corporation v. Philippine Commercial InternationalBank ........................................................................................................................................................... 38

Raymundo S. De Leon vs. Benita T. Ong .............................................................................................. 38

CONDONATION OR REMISSION OF THE DEBT

Ruben Reyna V. COA .............................................................................................................................. 38

CONFUSION OR MERGER OF RIGHTS

Cecilleville Realty and Service Corporation vs. Spouses Tito Acuña and Ofelia B. Acuña .......... 39

Sps. Dominador R. Narvaez and Lilia W. Narvaez vs. Sps. Rose Ogas Alciso and Antonio Alciso .................................................................................................................................................................... 39

COMPENSATION

Mavest (USA) Inc. and Mavest Manila Liaison Office vs. Sampaguita Garment Corporation .... 39

Manuel B. Aloria v. Estrellita B. Clemente ........................................................................................... 40

Premiere Development Bank v. Flores.................................................................................................. 40

Soriano v. People ...................................................................................................................................... 40

United Planters Sugar Milling Co., Inc., (UPSUMCO) vs. Court of Appeals, et al. ....................... 41

Lao v. Special Plans, Inc. ......................................................................................................................... 41

Traders Royal Bank vs. Norberto Castañares and Milagros Castañares ......................................... 42

Cesar V. Areza and Lolita B. Areza v. Express Savings Bank, Inc. ................................................... 42

Mondragon Personal Sales, Inc. v. Victoriano S. Sola, Jr. ................................................................... 42

NOVATION

Philippine Savings Bank v. Sps. Rodelfo Malanac Jr. ......................................................................... 43

Isaisas F. Fabrigas and Marcelina R. Fabrigas v. San Francisco del Monte, Inc. ............................. 43

Sps. Francisco and Ruby Reyes v. BPI Family Savings Bank, Inc., And Magdalena L. Lometillo,in her capacity as Ex-Officio Provincial Sheriff for Iloilo ................................................................... 44

Gammon Philippines, Inc. v. Metro Rail Transit Development Corporation ................................. 44

Ek Lee Steel Works Corporation v. Manila Castor Oil Corporation ................................................ 45


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Sueno v. Land Bank of the Philippines ................................................................................................. 45

S.C. Megaworld Construction And Development Corporation v. Parado ...................................... 45

Foundation Specialists, Inc., vs. Betonval Ready Concrete, Inc. and Stronghold Insurance Co.,Inc. .............................................................................................................................................................. 46

Carolina Hernandez-Nievera v. Wilfredo Hernandez ....................................................................... 47

Sime Darby Pilipinas, Inc. v. Goodyear Philippines, Inc.................................................................... 47

Heirs of Servando Franco v. Sps. Gonzales .......................................................................................... 47

Roberto R. David vs. Eduardo C. David ............................................................................................... 48

First United Constructors Corporation vs. Bayanihan Automotiv ................................................... 48

CONTRACTS

GENERAL PROVISIONS

Asian Construction and Development Corporation v. Tulabut ....................................................... 48

Tanay Recreation Center and Development Corp. v. Catalina Matienzo Fausto and AnunciacionFausto Pacunayen .................................................................................................................................... 49

Litonjua v. Litonjua .................................................................................................................................. 49

Bortikey v. AFP Retirement and Separation Benefits System ........................................................... 49GF Equity, Inc. vs. Arturo Valenzona ................................................................................................... 50



Sunace International vs. NLRC .............................................................................................................. 51

Greater Metropolitan Manila Solid Waste Management Committee v. Jancom Environmental

Corporation ............................................................................................................................................... 51

Roxas v. Zuzuarregui, Jr. ........................................................................................................................ 51

Bonifacio Nakpil v. Manila Towers Development Corp. ................................................................... 52

Xavierville III Homeowners Association, Inc., v. Xavierville Ii Homeowners Association, Inc., 52

William Golangco Construction Corporation v. Philippine Commercial International Bank ...... 53

Spouses Anthony and Percita Oco v. Victor Limbaring ..................................................................... 53

Rolando Limpo v. Court of Appeals ..................................................................................................... 53

Caltex (Philippines), Inc., v. PNOC Shipping and Transport Corporation ..................................... 54

Mr. & Mrs. George R. Tan v. G.V.T Engineering Services, Acting through its Owner/ManagerGerino V. Tactaquin ................................................................................................................................. 54

William Ong Genato vs. Benjamin Bayhon et al. ................................................................................ 54


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Francisco Landicho et al. vs. Felix Sia ................................................................................................... 63

XYST Corp. v. DMC Urban Properties Development Inc. ................................................................. 63

Gloria Ocampo and Teresita Tan v. Land Bank of the Philippines et al. ......................................... 64

Government Service Insurance System vs. Abraham Lopez ............................................................. 64

Sps. Ramon Lequin and Virginia Lequin vs. Sps. Raymundo Vizconde and Salome LequinVizconde .................................................................................................................................................... 65

Spouses Exequiel Lopez and Eusebia Lopez v. Spouses Eduardo Lopez and Marcelina Lopez . 65

Heirs Of Dr. Mario S. Intac v. Court of Appeals ................................................................................. 65

Korean Air Co., Ltd. V. Yuson ............................................................................................................... 66

Doña Rosana Realty and Development Corporation vs. Molave Development Corporation ...... 66

Jocelyn M. Toledo vs. Marilou M. Hyden ............................................................................................ 66

ECE Realty and Development Inc. v. Rachel G. Mandap .................................................................. 67

OBJECT OF CONTRACTS

Atty. Pedro M. Ferrer vs. Spouses Alfredo Diaz and Imelda Diaz ................................................... 67

CAUSE OF CONTRACTS

J.L.T. Agro Inc. v. Balansag ..................................................................................................................... 68

Alvarez v. PICOP Resources .................................................................................................................. 68

FORM OF CONTRACTS

Manuel Mallari and Millie Mallari v. Rebecca Alsol .......................................................................... 69

Serafin Naranja et al. vs. Court of Appeals ......................................................................................... 69

REFORMATION OF INSTRUMENTS

Benny Go v. Eliodoro Bacaron ............................................................................................................... 69

INTERPRETATION OF CONTRACTS

Holy Cross of Davao College, Inc. vs. Holy Cross of Davao Faculty Union – Kampi ................... 70

Agas vs. Sabico ......................................................................................................................................... 70

Berman Memorial Park, Inc. and Luisa Chong v. Francisco Cheng ................................................. 70


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Rosalina Tagle v. Court of Appeals, Fast International Corporation and/or Kuo Tung Yu Huang .................................................................................................................................................................... 71

Martha R. Horrigan v. Troika Commercial, Inc. .................................................................................. 71

Aurelio P. Alonzo and Teresita A. Sison v. Jaime and Perlita San Juan .......................................... 71

Vicente Go v. Pura Kalaw, Inc. .............................................................................................................. 72

Sps. Alvaro v. Sps. Returban .................................................................................................................. 72

Ayala Inc. v. Ray Burton Corp ............................................................................................................... 72

Laureano T. Angeles v. Philippine National Railways (PNR) And Rodolfo Flores ....................... 73

Elenita Ishida and Continent Japan Co., Inc. v. Antusa de Mesa-Magno, Firmo de Mesa et.al. .. 73

Heirs of the Deceased Carmen Cruz-Zamora v. Multiwood International, Inc. ............................ 73

Antipolo Properties v. Nuyda ............................................................................................................... 74

Adriatico Consortium, Inc., et al. vs. Land Bank of the Philippines ................................................. 74

Manila International Airport Authority v. Avia Filipinas International, Inc., ................................ 74

RESCISSIBLE CONTRACTS

Oliverio Laperal and Filipinas Golf & Country Club, Inc. v. Solid Homes, Inc. ............................ 75

C-J Yulo & Sons, Inc. v. Roman Catholic Bishop of San Pablo, Inc. .................................................. 75

Spouses Felipe and Leticia Cannu v. Spouses Gil And Fernandina Galang and National HomeMortgage Finance Corporation .............................................................................................................. 75

Bienvenido M. Casino Jr. v. Court of Appeals ..................................................................................... 76

Pryce Corporation (Formerly Pryce Properties Corporation), v. Philippine Amusement AndGaming Corporation ............................................................................................................................... 76

Coastal Pacific Trading Inc., v. Southern Rolling Mills, Co., Inc. et al. ............................................ 77

Pan Pacific Industrial Sales Co., v. Court of Appeals ......................................................................... 77

Laurencio Ramel, et.al. v. Daniel Aquino and Guadaluper Abalahin ............................................. 77

Union Bank of the Philippines v. Sps. Ong .......................................................................................... 77

Philippine Leisure and Retirement Authority v. Court of Appeals ................................................. 78

Uniwide Holdings, Inc. v. Jandecs Transportation Co., Inc............................................................... 78

Bonrostro v. Luna..................................................................................................................................... 79

Armand O. Raquel-Santos and Annalissa Mallari v. Court of Appeals and Finvest Securities Co.,

Inc. .............................................................................................................................................................. 79

Heirs of Sofia Quirong v. Development Bank of the Philippines ..................................................... 79

“G” Holdings, Inc., v. National Mines and Allied Workers Union Local 103 (NAMAWU) ........ 80


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VOIDABLE CONTRACTS

Jorge Gonzales v. Climax Mining Ltd. .................................................................................................. 80

Felicitas Asycong and Teresa Polan v. Court of Appeals and Moller Lending Investor ............... 80

Development Bank of the Philippines and Privatization and Management Office v. CA ............ 80

Barceliza P. Capistrano vs. Darryl Limcuando and Fe S. Sumiran ................................................... 81

Hernania “Lani” Lopez vs. Gloria Umale-Cosme ............................................................................... 81

First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities, Inc. ..................... 82

ECE Realty And Development Inc. v. Rachel G. Mandap ................................................................. 82

UNENFORCEABLE CONTRACTS

Spouses Mario and Elizabeth Torcuator v. Spouses Remigio and Gloria Bernabe and SpousesDiosdado and Lourdes Salvador ........................................................................................................... 82

Banco Filipino Savings v. Diaz ............................................................................................................... 83

Lina Peñalber vs. Quirino Ramos et al. ................................................................................................. 83

Orduña, et al. v. Fuentebella, et al. ........................................................................................................ 83

Municipality of Hagonoy, Bulacan vs. Dumdum, Jr. ......................................................................... 84

Rogelio Dantis, v. Julio Maghinang, Jr. ................................................................................................. 84

VOID OR INEXISTENT

Menchavez vs. Teves ............................................................................................................................... 84

Department of Health v. C.V. Canchela & Associates, Architects (CVCAA), in Association WithMCS Engineers Co., and A.O. Mansueto IV – Electrical Engineering Services, and Luis Alina,Sheriff IV, RTC, Manila ........................................................................................................................... 85

The Manila Banking Corporation v. Edmundo S. Silverio and The Court of Appeals, ................. 85

La’o v. Republic of the Philippines and the Government Service Insurance System .................... 86

Potenciano Ramirez v. Ma. Cecilia Ramirez ........................................................................................ 86

Joaquin Villegas and Emma M. Villegas v. Rural Bank of Tanjay Inc. ............................................ 86

Land Bank of the Philippines v. Eduardo M. Cacayuran .................................................................. 87

Queensland-Tokyo Commodities, Inc. vs. George ............................................................................. 87

Anuel O. Fuentes and Leticia L. Fuentes vs. Conrado G. Roca ......................................................... 87

Domingo Gonzalo vs. John Tarnate, Jr. ................................................................................................ 87


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CASE DOCTRINES OBLIGATIONS AND CONTRACTS

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OBLIGATIONS

CHAPTER 1. GENERAL PROVISIONS

Ernesto Uypitching, et al. v. Ernesto QuiamcoGR No. 146322, December 6, 2006Corona, J .

ISSUE: Can an obligation to pay damages arise from an abuse of a right which is exercised to theprejudice or injury of another person as when a corporation seized a motorcycle with the assistanceof policemen without a search warrant or order?

DOCTRINE: A blatant disregard for the lawful procedure for the enforcement of its right, to the

prejudice of respondent violated the law as well as public morals, and transgressed the proper normsof human relations. Article 19, also known as the ―principle of abuse of right,‖ prescribes tha t aperson should not use his right unjustly or contrary to honesty and good faith, otherwise he openshimself to liability. There is an abuse of right when it is exercised solely to prejudice or injureanother. The exercise of a right must be in accordance with the purpose for which it was establishedand must not be excessive or unduly harsh; there must be no intention to harm another. Otherwise,liability for damages to the injured party will attach.

Lourdes Dela Cruz v. Court of AppealsG.R No. 139442, December 6, 2006 Velasco, Jr. J.:

ISSUE: Can a person under a contract of lease possess such land by tolerance even after theexpiration of the contract of lease and after a demand to vacate.

DOCTRINE: Obligations arising from contracts have the force of law between the contractingparties and should be complied with in good faith. Thus, initially petitioner as lessee is the legalpossessor of the subject lot by virtue of a contract of lease. When fire destroyed her house, theReyeses considered the lease terminated. It has been held that a person who occupies the land ofanother at the latter‘s tolerance or permission, without any contract between them, is necessarilybound by an implied promise that he will vacate upon demand, failing which a summary action forejectment is the proper remedy against them.

Department of Health v. HTMC Engineers Co.G.R. No. 146120. January 27, 2006Chico-Nazario, J .

ISSUE: Can a perfected contract be renounced unilaterally?

DOCTRINE: No. A contract properly executed between parties continues to be the law betweensaid parties and should be complied with in good faith. There being a perfected contract, DOHcannot revoke or renounce the same without the consent of the other party. Just as nobody can beforced to enter into a contract, in the same manner, once a contract is entered into, no party canrenounce it unilaterally or without the consent of the other. It is a general principle of law that no

one may be permitted to change his mind or disavow and go back upon his own acts, or toproceed contrary thereto, to the prejudice of the other party. As no revision to theoriginal agreement was ever arrived at, the terms of the original contract shall continue to governover both the HTMC and the DOH with respect to the infrastructure projects as if no amendments were ever initiated. In the absence of a new perfected contract between HTMC and DOH, bothparties shall continue to be bound by the stipulations of the original contract and all its naturaleffects.


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International Finance Corporation v. Imperial Textile Mills, Inc.G.R. No. 160324; November 15, 2005Panganiban, J.:

ISSUES:

(1)

What is the nature of the contract entered into between the parties denominated as Guarantee Agreement?(2) Under Suretyship, what are the obligations of the parties under the contract?

DOCTRINES: (1) The terms of a contract govern the rights and obligations of the contracting parties. When theobligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. Ifsolidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to beone of suretyship.

The creditor in the present Petition was able to show convincingly that, although denominated as a"Guarantee Agreement," the Contract was actually a surety. Notwithstanding the use of the words

"guarantee" and "guarantor," the subject Contract was indeed a surety, because its terms were clearand left no doubt as to the intention of the parties.

The obligations of the guarantors are meticulously expressed in the following provision:

"Section 2.01. The Guarantors jointly and severally , irrevocably, absolutely and unconditionallyguarantee, as primary obligors and not as sureties merely , the due and punctual payment of theprincipal of, and interest and commitment charge on, the Loan, and the principal of, andinterest on, the Notes, whether at stated maturity or upon prematuring, all as set forth in theLoan Agreement and in the Notes."

The Agreement uses "guarantee" and "guarantors," prompting ITM to base its argument on those words. This Court is not convinced that the use of the two words limits the Contract to a mereguaranty. The specific stipulations in the Contract show otherwise.

(2) While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was "jointly and severally" liable. To put emphasis on the nature of that liability, the Contract furtherstated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing:that at bottom , and to all legal intents and purposes, it was a surety.

Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter‘s obligationsunder the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not

be deemed merely secondarily liable.

Sebastian Siga-An v. Alicia VillanuevaG.R. No. 173227, January 20, 2009Chico-Nazario J.:

ISSUE: Whether solutio indebiti applies to situations wherein there was a wrongful payment ofinterest?

DOCTRINE: Yes. Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutioindebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti . Said

provision provides that if something is received when there is no right to demand it, and it wasunduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtorrelationship is created under a quasi-contract whereby the payor becomes the creditor who then hasthe right to demand the return of payment made by mistake, and the person who has no right toreceive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense ofanother. The principle of solutio indebiti applies where (1) a payment is made when there exists no


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binding relation between the payor, who has no duty to pay, and the person who received thepayment; and (2) the payment is made through mistake, and not through liberality or some othercause. We have held that the principle of solutio indebiti applies in case of erroneous payment ofundue interest.

Makati Stock Exchange, Inc., et al. v. Miguel V. Campos, substituted By Julia Ortigas Vda.De CamposG.R. No. 138814, April 16, 2009Chico-Nazario, J.:

ISSUE: Whether the claim of a right or an obligation may be made even without identifying itssource.

DOCTRINE: No. Right and obligation are legal terms with specific legal meaning. A right is aclaim or title to an interest in anything whatsoever that is enforceable by law. An obligation isdefined in the Civil Code as a juridical necessity to give, to do or not to do. For every right enjoyedby any person, there is a corresponding obligation on the part of another person to respect such

right. Thus, Justice J.B.L. Reyes offers the definition given by Arias Ramos as a more completedefinition:

An obligation is a juridical relation whereby a person (called the creditor) maydemand from another (called the debtor) the observance of a determinative conduct(the giving, doing or not doing), and in case of breach, may demand satisfactionfrom the assets of the latter.

Therefore, an obligation imposed on a person, and the corresponding right granted to another, mustbe rooted in at least one of these five sources. The mere assertion of a right and claim of anobligation in an initiatory pleading, whether a Complaint or Petition, without identifying the basis orsource thereof, is merely a conclusion of fact and law. A pleading should state the ultimate facts

essential to the rights of action or defense asserted, as distinguished from mere conclusions of factor conclusions of law. Thus, a Complaint or Petition filed by a person claiming a right to the Officeof the President of this Republic, but without stating the source of his purported right, cannot besaid to have sufficiently stated a cause of action. Also, a person claiming to be the owner of a parcelof land cannot merely state that he has a right to the ownership thereof, but must likewise assert inthe Complaint either a mode of acquisition of ownership or at least a certificate of title in his name.

Spouses Patricio and Myrna Bernales v. Heirs Of Julian SambaanG.R. No. 163271, January 15, 2010Del Castillo, J.:

ISSUE: Whether title to the subject parcel of land was transferred by virtue of a forged deed ofabsolute sale allegedly executed by the late Julian and Guillerma Sambaan in favor of Myrna Bernalesand her husband.

DOCTRINE: No. With the presentation of the forged deed, even if accompanied by the owner‘sduplicate certificate of title, the registered owner did not thereby lose his title, and neither does theassignee in the forged deed acquire any right or title to the said property. The valid execution of theDeed of Absolute Sale will convey and transfer ownership in favor of appellants title based on therule that by the contract of sale one of the contracting parties obligates himself to transferownership of and to deliver a determinate thing, and the other to pay therefor a sum certain inmoney or its equivalent. The fact that the assailed Deed was not signed by Julian and the signaturesof Julian and Guillerma were forged per findings of the NBI Senior Document Examiner, it can

therefore be inferred that the subsequent issuance of Transfer Certificate of Title No. T-14204 hasno basis at all since ownership was not conveyed to appellants by reason of the forged Deed.


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Vitarich Corporation v. Chona LosinG.R. No. 181560, November 15, 2010Mendoza, J.:

ISSUE: Whether Vitarich should be held liable for the conduct of its employee, Dericto, in taking

out dressed chickens from the bodega of Vitarich and receiving the same but charging it as ChargeSales Invoice against its client, Losin.

DOCTRINE: No. Pursuant to Article 2180 of the Civil Code, that vicarious liability attaches onlyto an employer when the tortuous conduct of the employee relates to, or is in the course of, hisemployment. The question to ask should be whether at the time of the damage or injury, theemployee is engaged in the affairs or concerns of the employer or, independently, in that of his own? Vitarich incurred no liability when Directo‘s conduct, act or omission went beyond the range of hisemployment.

CBK Power Company Limited vs. Commissioner of Internal RevenueG.R. Nos. 198729-30 January 15, 2014

Sereno, C.J.:

ISSUE: Whether the principle of solutio indebiti applies in a claim for the issuance of a tax creditcertificate representing the latter's alleged unutilized input taxes on local purchases of goods andservices attributable to effectively zero-rated sales to National Power Corporation (NPC) for thesecond and third quarters of 2005.

DOCTRINE: No. Devoid of merit is the applicability of the principle of solutio indebiti to thepresent case. According to this principle, if something is received when there is no right to demandit, and it was unduly delivered through mistake, the obligation to return it arises. In that situation, acreditor-debtor relationship is created under a quasi-contract, whereby the payor becomes the

creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive the payment becomes obligated to return it. The quasi-contract ofsolutio indebiti is based on the ancient principle that no one shall enrich oneself unjustly at theexpense of another .There is solutio indebiti when: (1) Payment is made when there exists nobinding relation between the payor, who has no duty to pay, and the person who received thepayment; and (2) Payment is made through mistake, and not through liberality or some other cause. Though the principle of solutio indebiti may be applicable to some instances of claims for a refund,the elements thereof are wanting in this case. First, there exists a binding relation between petitionerand the CIR, the former being a taxpayer obligated to pay VAT. Second, the payment of input tax was not made through mistake, since petitioner was legally obligated to pay for that liability. Theentitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the

VAT system. At the time of payment of the input VAT, the amount paid was correct and proper.

CHAPTER 2. NATURE AND EFFECT OF OBLIGATIONS

Cortes v. Court of AppealsGR No. 126083. July 12, 2006 Ynares-Santiago, J.

ISSUES: What is the effect if both parties incur in delay in a reciprocal obligation?

DOCTRINE: Considering that both parties were in delay and that their obligation was reciprocal,performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporationtherefore gave rise to a compensatio morae or default on the part of both parties because neither hascompleted their part in their reciprocal obligation. This mutual delay of the parties cancels out theeffects of default such that it is as if no one is guilty of delay.


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Winifreda Ursal v. Court of Appeals, The Rural Bank of Larena (Siquijor), Inc. and Spouses Jesus Moneset and Cristita MonesetGR No. 142411. October 14, 2005 Austria-Martinez, J.:

ISSUE: Is the vendor liable for damages in reciprocal obligations?

DOCTRINE: Where the vendee in the contract to sell also took possession of the property, thesubsequent mortgage constituted by the owner over said property in favor of another person was valid since the vendee retained absolute ownership over the property. At most, the vendee in thecontract to sell was entitled only to damages pursuant to Art. 1169 of the Civil Code on reciprocalobligations.

Prudential Bank v. Chonney LimG.R. No. 136371 November 11, 2005 Tinga, J .:

ISSUE: Whether the failure of the bank‘s employees to credit the deposit to respondent‘s savingsaccount constitutes actionable negligence in law.

DOCTRINE: Article 1172 of the Civil Code ordains that responsibility arising from negligence inthe performance of an obligation is demandable. The failure of the bank‘s employees to credit theamount of P34,000.00 to respondent‘s savings account, resulting as it did in the dishonor ofrespondent‘s checks, constitutes actionable negligence in law.

From another perspective, the negligence of the bank constitutes a breach of duty to its client. It is worthy of note that the banking industry is impressed with public interest. As such, it must observea high degree of diligence and observe lofty standards of integrity and performance. By the nature of

its functions, a bank is under obligation to treat the accounts of its depositors with meticulous careand always to have in mind the fiduciary nature of its relationship with them.

YHT Realty Corporation, Erlinda Lainez and Anicia Payam v. Court of Appeals andMaurice McloughlinG.R. No. 126780. February 17, 2005 Tinga, J .:

ISSUE: When will the hotelkeepers/innkeepers liable for the effects of their guests?

DOCTRINE: Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by postingnotices to the effect that he is not liable for the articles brought by the guest. Anystipulation between the hotel-keeper and the guest whereby the responsibility of theformer as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void.

Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely toapply to situations such as that presented in this case. The hotel business like the common carrier'sbusiness is imbued with public interest. Catering to the public, hotelkeepers are bound to providenot only lodging for hotel guests and security to their persons and belongings. The twin dutyconstitutes the essence of the business. The law in turn does not allow such duty to the public to benegated or diluted by any contrary stipulation in so-called "undertakings" that ordinarily appear in

prepared forms imposed by hotel keepers on guests for their signature.

In an early case it was ruled that to hold hotelkeepers or innkeeper liable for the effects of theirguests, it is not necessary that they be actually delivered to the innkeepers or their employees. It isenough that such effects are within the hotel or inn. With greater reason should the liability of thehotelkeeper be enforced when the missing items are taken without the guest's knowledge andconsent from a safety deposit box provided by the hotel itself, as in this case.


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Schimtz Transport and Brokerage Corporation v. Transport Venture Inc.G.R. No. 150255, April 22, 2005Carpio-Morales J:

ISSUE: How must the liability of the common carrier, on one hand, and an independent contractor,on the other hand, be described?

DOCTRINE: It would be solidary. A contractual obligation can be breached by tort and when thesame act or omission causes the injury, one resulting in culpa contractual and the other in culpaaquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise evenunder a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictualliability had no contract existed between the parties, the contract can be said to have been breachedby tort, thereby allowing the rules on tort to apply.

As for Black Sea, its duty as a common carrier extended only from the time the goods were

surrendered or unconditionally placed in its possession and received for transportation until they were delivered actually or constructively to consignee Little Giant.

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends theservices rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipmentprovides that delivery be made ―to the port of discharge or so near thereto as she may safely get,always afloat.‖ The delivery of the goods to the consignee was not from ―pier to pier‖ but from theshipside of ―M/V Alexander Saveliev‖ and into barges, for which reason the consignee contractedthe services of petitioner. Since Black Sea had constructively delivered the cargoes to Little Giant,through petitioner, it had discharged its duty. In fine, no liability may thus attach to Black Sea.

Lapreciosisima Cagungun, et. al. v. Planters Development BankGR No. 158674. October 17, 2005Chico-Nazario, J.:

ISSUE: What is the degree of diligence required in the performance of an obligation?

DOCTRINE: The fiduciary nature of banking requires banks to assume a degree of diligencehigher than that of a good father of a family. Article 1172 of the New Civil Code states that thedegree of diligence required of an obligor is that prescribed by law or contract, and absent suchstipulation then the diligence of a family. In every case, the depositor expects the bank to treat hisaccount with utmost fidelity, whether such accounts consists only of a few hundred pesos or of

millions of pesos.

Radio Communication of the Philippines vs. Alfonso Verchez, et al.G.R. No. 164349. January 31, 2006Carpio Morales, J.:

ISSUE: Must a causal connection between the delay of the respondent in the performance of itsduty and the injury suffered by the plaintiffs be proved in culpa contractual?

DOCTRINE: No. In culpa contractual, the mere proof of the existence of the contract and the failureof its compliance justify, prima facie , a corresponding right of relief. The law, recognizing theobligatory force of contracts, will not permit a party to be set free from liability for any kind of

misperformance of the contractual undertaking or a contravention of the tenor thereof. A breachupon the contract confers upon the injured party a valid cause for recovering that which may havebeen lost or suffered.


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Crisostomo Alcaraz v. Court of AppealsG.R. No. 152202. July 28, 2006Puno, J.:

ISSUE: Is a credit card holder liable to pay the interests and surcharges imposed by the bank for

non-payment of his obligations absent any stipulation for such payment?

DOCTRINE: No. Absence of any proof that the terms and conditions of the credit card use hasbeen shown to its client, and failure to by respondent to show that an application form or documentprior to the issuance of the credit card has been submitted or signed by the same, the client shouldnot be condemned to pay the interest and charges provided under its terms and conditions.

Metropolitan Bank and Trust Company vs. Renato D. CabilzoGR No. 154469. December 6, 2006Chico-Nazario, J:

ISSUE: Can a Banking Institution Who Relied To Another Bank‘s indorsement of a check evade

liability by failing to detect alterations made in a check.

DOCTRINE: No. The point is that as a business affected with public interest and because of thenature of its functions, the bank is under obligation to treat the accounts of its depositors withmeticulous care, always having in mind the fiduciary nature of their relationship. The appropriatedegree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence.In every case, the depositor expects the bank to treat his account with the utmost fidelity, whethersuch account consists only of a few hundred pesos or of millions.

Ma. Elizabeth Kind and Mary Ann King v. Megaworld Properties and Holdings, Inc.G.R. No. 162895. August 16, 2006

Quisumbing, J.:

ISSUE: Is refund a remedy in case there is a defect in the object of the obligation?

DOCTRINE: There is nothing on record to show that the original structure was unstable. One who alleges a fact has the burden of proving it. Aside from the pictures and videos of the crackedperimeter fence, petitioners did not present any other evidence. These pictures and videos areinsufficient to show that the townhouse‘s foundation was structurally defective. The cracks could bemerely superficial. Other than that, the presumption is that there was no irregularity regarding theapproval of the building plan. Moreover, respondent presented an affidavit of a structural engineerattesting that the cracks and leaks on the perimeter fence do not affect the structural integrity of the

townhouse. Absent any showing that the townhouse structure was unstable and unsafe forhabitation, petitioners are not entitled to a refund.

Autocorp Group v. Intra Strata Assurance CorporationG.R. No. 166662, 556 SCRA 250

ISSUES:(1) Is demand necessary to make an obligation become due and demandable?(2) Are defenses against the Bureau of Customs completely available against ISAC, since the right ofthe latter to seek indemnity from petitioner depends on the right of the BOC to proceed against thebonds?

DOCTRINE:(1) Demand, whether judicial or extrajudicial, is not required before an obligation becomes due anddemandable-a demand is only necessary in order to put an obligor in a due and demandableobligation in delay, which in turn is for the purpose of making the obligor liable for interests ordamages for the period of delay.


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(2) ISAC‘s right to seek indemnity from petitioners does not constitute subrogation under the CivilCode, considering that there has been no payment yet by ISAC to the BOC. There are indeed casesin the aforementioned Article 2071 of the Civil Code wherein the guarantor or surety, even beforehaving paid, may proceed against the principal debtor, but in all these cases, Article 2071 of the CivilCode merely grants the guarantor or surety an action ―to obtain release from the guaranty, or to

demand a security that shall protect him from any proceedings by the creditor and from the dangerof insolvency of the debtor.‖ The benefit of subrogation, an extinctive subjective novation by achange of creditor, which ―transfers to the person subrogated, the credit and all the rights theretoappertaining, either against the debtor or against third persons,‖ is granted by the Article 2067 of theCivil Code only to the ―guarantor (or surety) who pays.‖

ISAC cannot be said to have stepped into the shoes of the BOC, because the BOC still retains saidrights until it is paid. ISAC‘s right to file Civil Case No. 95-1584 is based on the express provisionof the Indemnity Agreements making petitioners liable to ISAC at the very moment ISAC‘s bondsbecome due and demandable for the liability of Autocorp Group to the BOC, without need foractual payment by ISAC to the BOC. But it is still correct to say that all the defenses available topetitioners against the BOC can likewise be invoked against ISAC because the latter‘s contractual

right to proceed against petitioners only arises when the Autocorp Group becomes liable to theBOC for non-compliance with its undertakings. Indeed, the arguments and evidence petitioners canpresent against the BOC to prove that Autocorp Group‘s liability to the BOC is not yet due anddemandable would also establish that petitioners‘ liability to ISAC under the Indemnity Agreementshas not yet arisen.

J Plus Asia Development Corporation v. Utility Assurance Corporation G.R. No. 199650, 700 SCRA 134

ISSUE: Can delay take place even if the obligation to perform or complete the project was not yetdemandable because the agreed completion date is yet to come?

DOCTRINE: Default or mora on the part of the debtor is the delay in the fulfillment of theprestation by reason of a cause imputable to the former. It is the non-fulfillment of an obligation with respect to time.

In this jurisdiction, the following requisites must be present in order that the debtor may be indefault: (1) that the obligation be demandable and already liquidated; (2) that the debtor delaysperformance; and (3) that the creditor requires the performance judicially or extrajudicially.

Since the parties contemplated delay in the completion of the entire project as can be seen in theConstruction Agreement, the CA concluded that the failure of the contractor to catch up with

schedule of work activities did not constitute delay giving rise to the contractor‘s liability fordamages.

Article 1374 of the Civil Code requires that the various stipulations of a contract shall be interpretedtogether, attributing to the doubtful ones that sense which may result from all of them taken jointly.Here, the work schedule approved by petitioner was intended, not only to serve as its basis for thepayment of monthly progress billings, but also for evaluation of the progress of work by thecontractor. Article 13.01 (g) (iii) of the Construction Agreement provides that the contractor shall bedeemed in default if, among others, it had delayed without justifiable cause the completion of theproject "by more than thirty (30) calendar days based on official work schedule duly approved by theOWNER."

Where a party to a building construction contract fails to comply with the duty imposed by theterms of the contract, a breach results for which an action may be maintained to recover thedamages sustained thereby, and of course, a breach occurs where the contractor inexcusably fails toperform substantially in accordance with the terms of the contract.


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Polo S. Pantaleon v. American Express International, Inc.G.R. No. 174269, May 8, 2009 Tinga, J.:

ISSUE: Whether delay by itself gives rise to moral damages.

DOCTRINE: No. It should be emphasized that the reason why petitioner is entitled to damages isnot simply because respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which moraldamages are remunerative. Moral damages do not avail to soothe the plaints of the simply impatient,so this decision should not be cause for relief for those who time the length of their credit cardtransactions with a stopwatch. The somewhat unusual attending circumstances to the purchase atCoster – that there was a deadline for the completion of that purchase by petitioner before any delay would redound to the injury of his several traveling companions – gave rise to the moral shock,mental anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner,as concluded by the RTC. Those circumstances are fairly unusual, and should not give rise to ageneral entitlement for damages under a more mundane set of facts.

Sps. Guanio v. Makati Shangri-La HotelGR No. 190601, February 7, 2011

ISSUE: Whether the doctrine of proximate cause is applicable to a breach of contract.

DOCTRINE: No. The Court finds that since petitioners‘ complaint arose from a contract, thedoctrine of proximate cause finds no application to it, the latter applicable only to actions for quasi-delicts, not in actions involving breach of contract. Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. The appellate court, and even the trialcourt, observed that petitioners were remiss in their obligation to inform respondent of the change

in the expected number of guests. Petitioners‘ failure to discharge such obligation thus excusedrespondent from liability for ―any damage or inconvenience‖ occasioned thereby.

What applies in the present case is Article 1170 of the Civil Code which reads: Art. 1170. Those who in the performance of their obligations are guilty of fraud,negligence or delay, and those who in any manner contravene the tenor thereof, areliable for damages.

In culpa contractual the mere proof of the existence of the contract and the failure of its compliancejustify, prima facie , a corresponding right of relief. The law, recognizing the obligatory forceof contracts, will not permit a party to be set free from liability for any kind of misperformance of

the contractual undertaking or a contravention of the tenor thereof. A breach upon the contractconfers upon the injured party a valid cause for recovering that which may have been lost orsuffered. The remedy serves to preserve the interests of the promissee that may includehis “expectation interest,” which is his interest in having the benefit of his bargain by being put inas good a position as he would have been in had the contract been performed, or his “relianceinterest,” which is his interest in being reimbursed for loss caused by reliance on the contract bybeing put in as good a position as he would have been in had the contract not been made; orhis “restitution interest,” which is his interest in having restored to him any benefit that he hasconferred on the other party.

Marques v. Far East BankG.R. No. 171379; January 10, 2011

ISSUE: Whether FEBTC is estopped from claiming that the insurance premium in the contract hasbeen paid, making it liable for damages.

DOCTRINE: Yes. In estoppel, a party creating an appearance of fact, which is false, is bound bythat appearance as against another person who acted in good faith on it. In Santiago Syjuco, Inc. v.Castro, the Court stated that ―estoppel may arise from silence as well as from words.‖ ‗Estoppel by


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silence‘ arises where a person, who by force of circumstances is obliged to another to speak, refrainsfrom doing so and thereby induces the other to believe in the existence of a state of facts in relianceon which he acts to his prejudice.

As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article

1172 in relation to Article 2176 of the Civil Code which states ―whoever by act or omission causesdamage to another, there being fault or negligence, is obliged to pay for the damage done.‖Indisputably, had the insurance premium been paid, through the automatic debit arrangement withFEBTC, Maxilite‘s fire loss claim would have been approved.

Mondragon Leisure and Resorts Corporation v. Court of Appeals et al.G.R. No. 154188, June 15, 2005Quisumbing, J.:

ISSUE: In 1997, the Asian Financial crisis occurred. Is this a fortuitous event contemplated under Article 1174 such that a debtor cannot be held in default under a loan agreement?

DOCTRINE: No. To exempt the obligor from liability for a breach of an obligation by reason ofa fortuitous event, the following requisites must concur: (a) the cause of the breach of the obligationmust be independent of the will of the debtor; (b) the event must be either unforeseeable orunavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill hisobligation in a normal manner; and (d) the debtor must be free from any participation in, oraggravation of the injury to the creditor. The following are excepted from the rule: (1) when the lawexpressly so specifies; (2) when it is otherwise declared by the parties; and (3) when the nature of theobligation requires the assumption of risks. Every business venture involves risks. Risks are notunforeseeable; they are inherent in business. Hence, a corporation that enters into a loan agreement,being aware of the economic environment at the time it entered into such agreement, can bedeclared in default despite events such as the Asian financial crisis. It is not a fortuitous event so as

to exonerate a party from its obligation.

Philippine Realty and Holding Corp. v. Ley Const. and Dev. Corp. G. R. No. 165548, June 13, 2011

ISSUE: Whether there is a fortuitous event that will exempt the obligor from liability for the breachof an obligation.

DOCTRINE: Yes. Under Article 1174 of the Civil Code, to exempt the obligor from liability for abreach of an obligation due to an "act of God" or force majeure, the following must concur: (a) thecause of the breach of the obligation must be independent of the will of the debtor; (b) the event

must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossiblefor the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from anyparticipation in, or aggravation of the injury to the creditor. The shortage in supplies and cementmay be characterized as force majeure. In the present case, hardware stores did not have enoughcement available in their supplies or stocks at the time of the construction in the 1990s. Likewise,typhoons, power failures and interruptions of water supply all clearly fall under force majeure. SinceLCDC could not possibly continue constructing the building under the circumstances prevailing, itcannot be held liable for any delay that resulted from the causes aforementioned.

Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General Insurance Co., Inc.G.R. No. 189563; April 7, 2014Sereno , CJ:

ISSUE: Whether the delay started to run from the time it demanded the fulfillment of respondent‘sobligation under the suretyship contract.

DOCTRINE: Yes. As to the issue of when interest must accrue, the Civil Code is explicit in statingthat it accrues from the time judicial or extrajudicial demand is made on the surety. This ruling is inaccordance with the provisions of Article 1169 of the Civil Code and of the settled rule that where


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there has been an extra-judicial demand before an action for performance was filed, interest on theamount due begins to run, not from the date of the filing of the complaint, but from the date of thatextra-judicial demand.60 Considering that respondent failed to pay its obligation on 30 May 2000 inaccordance with the Purchase Agreement, and that the extrajudicial demand of petitioner was senton 5 June 2000,61 we agree with the latter that interest must start to run from the time petitioner

sent its first demand letter (5 June 2000), because the obligation was already due and demandable atthat time.

Carlo F. Sunga v.Virjen Shipping Corporation, Nissho Odyssey Ship Management Pte. Ltd., And/Or Capt. Angel ZambranoGr no. 198640; April 23, 2014Brion, J.:

ISSUE: Whether Sunga‘s injury was a result of an accident.

DOCTRINE: Yes. In Jarco Marketing Corporation, et al., v. Court of Appeals, SC ruled that an

accident pertains to an unforeseen event in which no fault or negligence attaches to the defendant. Itis "a fortuitous circumstance, event or happening; an event happening without any human agency, orif happening wholly or partly through human agency, an event which under the circumstances isunusual or unexpected by the person to whom it happens." In the present case, Sunga did not incurthe injury while solely performing his regular duties; an intervening event transpired which broughtupon the injury. To repeat, the two other oilers who were supposed to help carry the weight of the200-kilogram globe valve lost their grasp of the globe valve. As a result, Sunga‘s back snapped whenthe entire weight of the item fell upon him. The sheer weight of the item is designed not to becarried by just one person, but as was observed, meant to be undertaken by several men andexpectedly greatly overwhelmed the physical limits of an average person. Notably, this incidentcannot be considered as foreseeable, nor can it be reasonably anticipated. Sunga‘s duty as a fitter

involved changing the valve, not to routinely carry a 200-kilogram globe valve singlehandedly. Theloss of his fellow workers‘ group was also unforeseen in so far as Sunga was concerned.

CHAPTER 3. DIFFERENT KINDS OF OBLIGATIONS

SECTION 1. PURE AND CONDITIONAL OBLIGATIONS

Sacobia Hills Development Corporation vs. Allan TyG.R. No. 165889. September 20, 2005 Ynares-Santiago, J.:

ISSUE: Can a non-existent obligation be the subject of rescission?

DOCTRINE: No. Ty did not pay the full purchase price which is his obligation under the contractto sell, therefore, it cannot be said that Sacobia breached its obligation. No obligations arose on itspart because respondent‘s non-fulfillment of the suspensive condition rendered the contract to sellineffective and unperfected. Indeed, there can be no rescission under Article 1191 of the Civil Codebecause until the happening of the condition, i.e. full payment of the contract price, Sacobia‘sobligation to deliver the title and object of the sale is not yet extant. A non-existent obligation

cannot be subject of rescission. Article 1191 speaks of obligations already existing, which may berescinded in case one of the obligors fails to comply with what is incumbent upon him.


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Carrascoso v. Court of AppealsG.R. No. 123672. December 14, 2005Carpio Morales, J.:

ISSUE: May the partially unpaid seller rescind the sale for failure of the buyer to pay the balance of

the purchase price of the property in the manner and within the period agreed upon?

DOCTRINE: Yes. Reciprocal obligations are those which arise from the same cause, and in whicheach party is a debtor and a creditor of the other, such that the obligation of one is dependent uponthe obligation of the other. They are to be performed simultaneously such that the performance ofone is conditioned upon the simultaneous fulfillment of the other. The right of rescission of a partyto an obligation under Article 1191 of the New Civil Code is predicated on a breach of faith by theother party who violates the reciprocity between them. A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership ofand deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain inmoney or its equivalent The non-payment of the price by the buyer is a resolutory condition whichextinguishes the transaction that for a time existed, and discharges the obligations created

thereunder. Such failure to pay the price in the manner prescribed by the contract of sale entitles theunpaid seller to sue for collection or to rescind the contract.

Spouses William And Jeanette Yao v. Carlomagno B. MatelaG.R. No. 167767. August 29, 2006 Ynares-Santiago, J.:

ISSUE: May a court annul a contract on the ground that its object is a disastrous deal or an unwiseinvestment? What is the role of the court in determining the liability of the contracting parties whoare both guilty of violating the terms therein?

DOCTRINE: The well-entrenched doctrine is that the law does not relieve a party from the effectsof an unwise, foolish or disastrous contract, entered into with full awareness of what he was doingand entered into and carried out in good faith. Such a contract will not be discarded even if there was a mistake of law or fact. Courts have no jurisdiction to look into the wisdom of the contractentered into by and between the parties or to render a decision different therefrom. They have nopower to relieve parties from obligation voluntarily assumed, simply because their contracts turnedout to be disastrous deals or unwise investments. However, in situations such as the one discussedabove, where it cannot be conclusively determined which of the parties first violated the contract,equity calls and justice demands that we apply the solution provided in Article 1192 of the CivilCode.

Spouses Jaime Benos And Marina Benos v. Spouses Gregorio Lawilao And Janice GailLawilaoG.R. No. 172259, December 5, 2006 Ynares-Santiago, J .:

ISSUE: In reciprocal obligations in a pacto de retro sale, is the vendee precluded to pay even after thedate agreed upon due to a cross-claim found in the answer?

DOCTRINE: Yes. While the vendors did not rescind the Pacto de Retro Sale through a notarial act,they nevertheless rescinded the same in their Answer with Counterclaim. Even a cross-claim foundin the Answer could constitute a judicial demand for rescission that satisfies the requirement of thelaw. The counterclaim of the vendors in their answer satisfied the requisites for the judicial

rescission of the subject Pacto de Retro Sale


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Darrel Cordero, et al. vs. F.S. Management and Development CorporationG.R. No. 167213. October 31, 2006Carpio Morales, J.:

ISSUE: May the contract be rescinded in case of failure of a party to comply with its obligations

under a contract, such as the obligation to pay the down payment of the purchase price in a contractto sell?

DOCTRINE: No. A contract to sell is not a contract of sale. Article 1191 applies only in reciprocalcontracts. A contract to sell is not a reciprocal contract. Under a contract to sell, the seller retainstitle to the thing to be sold until the purchaser fully pays the agreed purchase price. The full paymentis a positive suspensive condition, the non-fulfillment of which is not a breach of contract butmerely an event that prevents the seller from conveying title to the purchaser. The non-payment ofthe purchase price renders the contract to sell ineffective and without force and effect. Nevertheless, while rescission does not apply in this case, petitioners may cancel the contract to sell, theirobligation not having arisen.

Yamamoto v. Nishino Leather Industries, Inc.G.R. No. 150283, 551 SCRA 447

ISSUE: Will an offer to a stockholder to that he could take out the Machinery in the corporation ifhe wanted to so, provided that the value of said machines would be deducted from his capitalcontribution, give rise to an obligation to the corporation to deliver said properties to the prior?

DOCTRINE: Without acceptance, a mere offer produces no obligation. Thus, under Article 1181of the Civil Code, "in conditional obligations, the acquisition of rights, as well as the extinguishmentor loss of those already acquired, shall depend upon the happening of the event which constitutesthe condition." In the case at bar, there is no showing of compliance with the condition for allowing

Yamamoto to take the machineries and equipment, namely, his agreement to the deduction of their value from his capital contribution due him in the buy-out of his interests in the corporation. Yamamoto‘s allegation that he agreed to the condition remained just that, no proof thereof havingbeen presented.

The machineries and equipment, which comprised Yamamoto‘s investment in NLII, thus remainedpart of the capital property of the corporation.

Spouses Jose T. Valenzuela and Gloria Valenzuela v. Kalayaan Development & IndustrialCorporationG.R. No. 163244, June 22, 2009

Peralta, J.:

ISSUE: Whether there can be a rescission of contract if a positive suspensive condition under acontract to sell has not been complied with.

DOCTRINE: No. Under a contract to sell, the seller retains title to the thing to be sold until thepurchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition,the non-fulfillment of which is not a breach of contract, but merely an event that prevents the sellerfrom conveying title to the purchaser. The non-payment of the purchase price renders the contractto sell ineffective and without force and effect.

Since the obligation of respondent did not arise because of the failure of petitioners to fully pay the

purchase price, Article 1191 of the Civil Code would have no application.

The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition tothe obligation of the petitioners to sell and deliver the title to the property, rendered the contract tosell ineffective and without force and effect. The parties stand as if the conditional obligation hadnever existed. Article 1191 of the New Civil Code will not apply because it presupposes an


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obligation already extant. There can be no rescission of an obligation that is still non-existing, thesuspensive condition not having happened.

Solar Harvest, Inc. v. Davao Corrugated Carton CorporationG.R. No. 176868 July 26, 2010

Nachura , J.:

ISSUE: Whether petitioner failed to establish a cause of action for rescission it being shown thatrespondent did not commit any breach of its contractual obligation.

DOCTRINE: Yes, in reciprocal obligations, as in a contract of sale, the general rule is that nodemand is generally necessary because, once a party fulfills his obligation and the other party doesnot fulfill his, the latter automatically incurs in delay. But when different dates for performance ofthe obligations are fixed the other party would incur in delay only from the moment the other partydemands fulfillment of the former‘s obligation. Evident from the records and even from theallegations in the complaint was the lack of demand by petitioner upon respondent to fulfill itsobligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a

―follow -up‖ upon respondent, which, however, would not qualify as a demand for the fulfillment ofthe obligation. Petitioner‘s witness also testified that they made a follow -up of the boxes, but not ademand. Without a previous demand for the fulfillment of the obligation, petitioner would not havea cause of action for rescission against respondent as the latter would not yet be considered inbreach of its contractual obligation.

International Hotel Corporation, v. Francisco Joaquin, Jr. and Rafael Suarez G.R. No. 158361. April 10, 2013Bersamin, J.:

ISSUES:

(1) Will the absence of intent on the part of the obligor to pre-empt the fulfillment of the condition warrant the application of Art. 1186?(2) Will substantial compliance warrant the application of Art. 1234?

DOCTRINE:(1) No. This provision refers to the constructive fulfillment of a suspensive condition, whoseapplication calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment ofthe condition, and (b) the actual prevention of the fulfillment. Since the debtor had no intent toprevent the fulfillment of the condition, Art. 1186 cannot be applied.

(2) Generally, yes. Art. 1234 applies only when an obligor admits breaching the contract after

honestly and faithfully performing all the material elements thereof except for some technicalaspects that cause no serious harm to the obligee. However, if incomplete performance amounts toa material breach of the contract, the same shall no longer be applicable.

In order that there may be substantial performance of an obligation, there must have been anattempt in good faith to perform, without any willful or intentional departure therefrom. Thedeviation from the obligation must be slight, and the omission or defect must be technical andunimportant, and must not pervade the whole or be so material that the object which the partiesintended to accomplish in a particular manner is not attained. The non-performance of a materialpart of a contract will prevent the performance from amounting to a substantial compliance.

Conversely, the principle of substantial performance is inappropriate when the incomplete

performance constitutes a material breach of the contract. A contractual breach is material if it willadversely affect the nature of the obligation that the obligor promised to deliver, the benefits thatthe obligee expects to receive after full compliance, and the extent that the non-performancedefeated the purposes of the contract.


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Republic v. Holy Trinity Realty Development CorporationG.R. No. 172410, 551 SCRA 303

ISSUE: Will the effects of the fulfillment of a condition retroact to the date of the constitution ofthe obligation?

DOCTRINE: The effects of a conditional obligation to give, once the condition has been fulfilled,shall retroact to the day of the constitution of the obligation. Hence, when HTRDC complied withthe given conditions, as determined by the RTC in its Order dated April 21, 2003, the effects of theconstructive delivery retroacted to the actual date of the deposit of the amount in the expropriationaccount of DPWH.

Subic Bay Metropolitan Authority v. Court of AppealsG.R. No. 192885, July 4, 2012.

ISSUE: Whether SBMA is entitled to receive service fees pursuant to the contract despite failing torender the services required from them?

.DOCTRINE: No. Reciprocal obligations are those which arise from the same cause, and in whicheach party is a debtor and a creditor of the other, such that the obligation of one is dependent uponthe obligation of the other. They are to be performed simultaneously such that the performance ofone is conditioned upon the simultaneous fulfillment of the other. For one party to demand theperformance of the obligation of the other party, the former must also perform its ownobligation. Accordingly, petitioner, not having provided the services that would require thepayment of service fees as stipulated in the Lease Development Agreement, is not entitled to collectthe same.

The records show that petitioner did not actually provide most of the services enumerated in the

Lease and Development Agreement and that the obligation involved in the agreement wasreciprocal in nature; therefore, private respondent's obligation to pay was dependent uponpetitioner's performance of its reciprocal duty to provide the agreed service, and since petitionerfailed to perform its part of the deal, it cannot exact compliance from private respondent of its dutyto pay.

Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.G.R. No. 188288. January 16, 2012.

ISSUE: Whether annulment in Art 1390 is the same as rescission under Art. 1191.

DOCTRINE: No. Annulment and rescission are two inconsistent remedies. In resolution, all theelements to make the contract valid are present; in annulment, one of the essential elements to aformation of a contract, which is consent, is absent. In resolution, the defect is in the consummationstage of the contract when the parties are in the process of performing their respective obligations;in annulment, the defect is already present at the time of the negotiation and perfection stages of thecontract. Accordingly, by pursuing the remedy of rescission under Article 1191, there was impliedadmission of the validity of the subject contracts, forfeiting their right to demand their annulment. Aparty cannot rely on the contract and claim rights or obligations under it and at the same timeimpugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.

The right to rescind a contract for non-performance of its stipulations is not absolute. The generalrule is that rescission of a contract will not be permitted for a slight or casual breach, but only for

such substantial and fundamental violations as would defeat the very object of the parties in makingthe agreement. Whether a breach is substantial is largely determined by the attendant circumstances.

Under Article 1192, in case both parties have committed a breach of the obligation, the liability ofthe first infractor shall be equitably tempered by the courts. If it cannot be determined which of theparties first violated the contract, the same shall be deemed extinguished, and each shall bear hisown damages.

http://sc.judiciary.gov.ph/jurisprudence/2012/july2012/192885.htmhttp://sc.judiciary.gov.ph/jurisprudence/2012/january2012/188288.htmlhttp://sc.judiciary.gov.ph/jurisprudence/2012/january2012/188288.htmlhttp://sc.judiciary.gov.ph/jurisprudence/2012/july2012/192885.htm


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SECTION 4. JOINT AND SOLIDARY OBLIGATIONS

Stronghold Insurance Company, Inc. v. Republic-Asahi Glass CorporationG.R. No. 147561. June 22, 2006

Panganiban, C.J.

ISSUE: Is a surety‘s liability under a performance bond automatically extinguished by the death ofthe principal?

DOCTRINE: No. A surety company‘s liability under the performance bond it issues is solidary. The death of the principal obligor does not, as a rule, extinguish the obligation and the solidarynature of that liability. As a general rule, the death of either the creditor or the debtor does notextinguish the obligation. Obligations are transmissible to the heirs, except when the transmission isprevented by the law, the stipulations of the parties, or the nature of the obligation. Only obligationsthat are personal or are identified with the persons themselves are extinguished by death.

Section 5 of Rule 86 of the Rules of Court expressly allows the prosecution of money claims arisingfrom a contract against the estate of a deceased debtor. Evidently, those claims are not actuallyextinguished. What is extinguished is only the obligee‘s action or suit filed before the court, which isnot then acting as a probate court.

The death of the principal debtor will not work to convert, decrease or nullify the substantive rightof the solidary creditor. Evidently, despite the death of the principal debtor, [the obligee] may stillsue petitioner alone, in accordance with the solidary nature of the latter‘s liability under theperformance bond.

Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al.

G.R. No. 151038. January 18, 2012

ISSUE: Whether payment made by one of the solidary debtor is enough to extinguish the liability ofall the co-deb

Documents

Obligations and Contracts Case Updates (2005-2014)