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GR No. 119379 September 25, 1998


Private respondent Security Diners International Corporation (Diners Club), a credit card
company, extends credit accomodations to its cardholders for the purchase of goods and other services
from member establishments. Said goods and services are reimbursed later on by cardholders upon
proper billing. Petitioner Rodelo G. Polotan, Sr. applied for membership and credit accmodations with
Diners Club in October 1985. The application form contained terms and conditions governing the use
and availment of the Diners Club card, among which is for the cardholder to pay all charges made
through the use of said card within the period indicated in the statement of account and any remaining
unpaid balance to earn 3% interest per annum plus prime rate of Security Bank & Trust Company.
Notably, in the application form submitted by petitioner, Ofricano Canlas obligated himself to pay jointly
and severally with petitioner the latter’s obligation to private respondent.

Upon acceptance of his application, petitioner was issued Diners Club card No. 3651-212766-
3005. As of May 8, 1987, petitioner incurred credit charges plus appropriate interest and service
charges in the aggregate amount of P33,819.84 which had become due and demandable. Demands for
payment made against petitioner proved futile. Hence, private respondent filed a Complaint for
Collection of Sum of Money against petitioner before the lower court.


Is petitioner liable for payment of credit charges plus interest and service charges?

A contract of adhesion is one in which one of the contracting parties imposes a ready-made
form of contract which the other party may accept or reject, but cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto,
giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.
Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason
being that the party who adheres to the contract is free to reject it entirely.

In this case, petitioner, in effect, claims that the subject contract is one-sided in that the
contract allows for the escalation of interests, but does not provide for a downward adjustment of the
same in violation of Central Bank Circular 905. Admittedly, the second paragraph of the questioned
proviso which provides that “the Cardholder hereby authorizes Security Diners to correspondingly
increase the rate of such interest in the event of changes in prevailing market rates x x x” is an escalation
clause. However, it cannot be said to be dependent solely on the will of private respondent as it is also
dependent on the prevailing market rates.

Escalation clauses are not basically wrong or legally objectionable as long as they are not solely
potestative but based on reasonable and valid grounds. Obviously, the fluctuation in the market rates is
beyond the control of private respondent.


G.R. No. 148753 2004 Jul 30


On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by Petitioner
NSBCI authorizing the company to x x x apply for or secure a commercial loan with the PNB in an
aggregate amount of P8.0M, under such terms agreed by the Bank and the NSBCI, using or mortgaging
the real estate properties registered in the name of its President and Chairman of the Board Petitioner
Eduardo R. Dee as collateral; and authorizing petitioner-spouses to secure the loan and to sign any and
all documents which may be required by Respondent PNB, and that petitioner-spouses shall act as
sureties or co-obligors who shall be jointly and severally liable with Petitioner NSBCI for the payment of
any [and all] obligations.

On August 15, 1989, Resolution No. 77 was approved by granting the request of Respondent PNB thru
its Board NSBCI for an P8 Million loan broken down into a revolving credit line of P7.7M and an
unadvised line of P0.3M for additional operating and working capital to mobilize its various construction

The loan of Petitioner NSBCI was secured by a first mortgage on the following: a) three (3)
parcels of residential land located at Mangaldan, Pangasinan; b) six (6) parcels of residential land
situated at San Fabian, Pangasinan; and c) a residential lot and improvements thereon located at
Mangaldan. The loan was further secured by the joint and several signatures of Petitioners Eduardo Dee
and Arcelita Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were
owned by them and registered in their names. Moreover Petitioner NSBCI executed three promissory
notes. In addition, petitioner corporation also signed the Credit Agreement dated August 31, 1989
relating to the ‘revolving credit line’ of P7.7 Million x x x and the Credit Agreement dated September 5,
1989 to support the ‘unadvised line’ of P300,000.00.

On August 31, 1989, petitioner-spouses executed a ‘Joint and Solidary Agreement’ (JSA) in favor
of Respondent PNB ‘unconditionally and irrevocably binding themselves to be jointly and severally liable
with the borrower for the payment of all sums due and payable to the Bank under the Credit Document.
Later on, Petitioner NSBCI failed to comply with its obligations under the promissory notes.

On June 18, 1991, Petitioner Eduardo R. Dee on behalf of Petitioner NSBCI sent a letter to the
Branch Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment of
interests and restructuring of its loan for another term. Subsequently, NSBCI tendered payment to
Respondent PNB of three (3) checks aggregating P1,000,000.00.

In a meeting held on August 12, 1991, Respondent PNB’s representative, Mr. Rolly Cruzabra, was
informed by [Petitioner] Eduardo Dee of his intention to remit to Respondent PNB post-dated checks
covering interests, penalties and part of the loan principals of his due account.

On August 22, 1991, Respondent bank’s Crispin Carcamo wrote Petitioner Eduardo Dee,
informing him that Petitioner NSBCI’s proposal was acceptable, provided the total payment should be
P4,128,968.29 that would cover the amount of P1,019,231.33 as principal, P3,056,058.03 as interests
and penalties, and P53,678.93 for insurance[,] with the issuance of post-dated checks to be dated not
later than November 29, 1991.

On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch Manager reiterating his
proposals for the settlement of Petitioner NSBCI’s past due loan account amounting to P7,019,231.33.
Petitioner Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67
in favor of Respondent PNB

Upon presentment, however, x x x check nos. 03500087 and 03500088 dated September 29 and
October 29, 1991 were dishonored by the drawee bank and returned due to a ‘stop payment’ order
from petitioners.

On November 12, 1991, PNB’s Mr. Carcamo wrote Petitioner Eduardo Dee informing him that
unless the dishonored checks were made good, said PNB branch ‘shall recall its recommendation to the
Head Office for the restructuring of the loan account and refer the matter to its legal counsel for legal
action. Petitioners did not heed respondent’s warning and as a result, the PNB Dagupan Branch sent
demand letters to Petitioner NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr. Avenue,
Quezon City, asking it to settle its past due loan account.
Petitioners nevertheless failed to pay their loan obligations within the time frame given them
and as a result, Respondent PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for

The sheriff foreclosed the real estate mortgage and sold at public auction the mortgaged properties of
petitioner-spouses, with Respondent PNB being declared the highest bidder for the amount of
P10,334,000.00. Copies of the Sheriff’s Certificate of Sale were sent by registered mail to petitioner
corporation’s address petitioner-spouses’ address.

On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to petitioners at their address
informing them that the properties securing their loan account had been sold at public auction, that the
Sheriff’s Certificate of Sale had been registered with the Registry of Deeds of Pangasinan and that a
period of one (1) year therefrom was granted to them within which to redeem their properties.
Petitioners failed to redeem their properties within the one-year redemption period and so Respondent
PNB executed a Deed of Absolute Sale consolidating title to the properties in its name.

Respondent PNB informed Petitioner NSBCI that the proceeds of the sale conducted on
February 26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43 and thus
demanded from the latter the deficiency of P2,172,476.43 plus interest and other charges until the
amount was fully paid. Petitioners refused to pay the above deficiency claim which compelled
Respondent PNB to institute the instant Complaint for the collection of its deficiency claim.


Whether or not the escalation clause is valid and whether or not it is violative of the principle
of mutuality of contracts.


In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent
in the first, and 21.5 percent in the second and again in the third. However, a uniform clause therein
permitted respondent to increase the rate “within the limits allowed by law at any time depending on
whatever policy it may adopt in the future x x x,” without even giving prior notice to petitioners. The
Court holds that petitioners’ accessory duty to pay interest did not give respondent unrestrained
freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless
expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that
could be subsequently upgraded at whim by only one party to the agreement.

The “unilateral determination and imposition” of increased rates is “violative of the principle of
mutuality of contracts ordained in Article 1308 of the Civil Code.” One-sided impositions do not have
the force of law between the parties, because such impositions are not based on the parties’ essential
Although escalation clauses are valid in maintaining fiscal stability and retaining the value of
money on long-term contracts, giving respondent an unbridled right to adjust the interest
independently and upwardly would completely take away from petitioners the “right to assent to an
important modification in their agreement” and would also negate the element of mutuality in their
contracts. The clause cited earlier made the fulfillment of the contracts “dependent exclusively upon
the uncontrolled will” of respondent and was therefore void. Besides, the pro forma promissory notes
have the character of a contract d’adhésion, “where the parties do not bargain on equal footing, the
weaker party’s the debtor’s participation being reduced to the alternative ‘to take it or leave it.’”


G.R. No. 174632 June 16, 2010


Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M. Garcia, Victoria M. Roldan,
and Benjamin T. Martin, Jr., as lessors, entered into a lease contract with the DBS Bank Philippines, Inc.,
covering a commercial warehouse and lots that DBS was to use for office, warehouse, and parking yard
for repossessed vehicles. The lease was for five years, from March 1, 1997 to March 1, 2002, at a
monthly rent of P300,000.00 for the first year, P330,000.00 for the second year, P363,000.00 for the
third year, P399,300.00 for the fourth year, and P439,230.00 for the final year, all net of withholding
taxes. DBS paid a deposit of P1,200,000.00 and advance rentals of P600,000.00. On May 25 and August
13, 1997 heavy rains flooded the leased property and submerged into water the DBS offices there along
with its 326 repossessed vehicles. As a result, on February 11, 1998 DBS wrote the Martins demanding
that they take appropriate steps to make the leased premises suitable as a parking yard for its vehicles.
DBS suggested the improvement of the drainage system or the raising of the property’s ground level. In
response, the Martins filled the property’s grounds with soil and rocks. But DBS lamented that the
property remained unsuitable for its use since the Martins did not level the grounds. Worse, portions of
the perimeter fence collapsed because of the excessive amount of soil and rock that were haphazardly
dumped on it. In June 1998, DBS vacated the property but continued paying the monthly rents. On
September 11, 1998, however, it made a final demand on the Martins to restore the leased premises to
tenantable condition on or before September 30, 1998, otherwise, it would rescind the lease contract.
On September 24, 1998 the Martins contracted the services of Altitude Systems & Technologies Co. for
the reconstruction of the perimeter fence on the property. On October 13, 1998 DBS demanded the
rescission of the lease contract and the return of its deposit. At that point, DBS had already paid the
monthly rents from March 1997 to September 1998. The Martins refused, however, to comply with DBS’
demand. On July 7, 1999 DBS filed a complaint against the Martins for rescission of the contract of lease
with damages before the Regional Trial Court of Makati City, Branch 141, in Civil Case 99-1266. Claiming
that the leased premises had become untenantable, DBS demanded rescission of the lease contract as
well as the return of its deposit of P1,200,000.00.

The Makati City RTC rendered a decision, dismissing the complaint against the Martins. The trial
court found that, although the floods submerged DBS’ vehicles, the leased premises remained
tenantable and undamaged. Moreover, the Martins had begun the repairs that DBS requested but were
not given sufficient time to complete the same. It held that DBS unjustifiably abandoned the leased
premises and breached the lease contract. Thus, the trial court ordered its deposit of P1,200,000.00
deducted from the unpaid rents due the Martins and ordered DBS to pay them the remaining
P15,198,360.00 in unpaid rents.

On appeal to the Court of Appeals, the court rendered judgment reversing and setting aside the
RTC decision. The CA found that floods rendered the leased premises untenantable and that the RTC
should have ordered the rescission of the lease contract especially since the contract provided for such
remedy. The CA ordered the Martins to apply the deposit of P1,200,000.00 to the rents due up to July 7,
1999 when DBS filed the complaint and exercised its option to rescind the lease. The CA ordered the
Martins to return the remaining balance of the deposit to DBS. With the denial of their separate motions
for reconsideration DBS and the Martins filed their respective petitions for review before this Court in
G.R. 174632 and 174804. The Court eventually consolidated the two cases.


Whether or not the CA erred in holding that DBS is entitled to the rescission of the lease
contract only from July 7, 1999 when it filed its action for rescission, entitling the Martins to
collect rents until that time.


Unless the terms of a contract are against the law, morals, good customs, and public policy, such
contract is law between the parties and its terms bind them. In Felsan Realty & Development
Corporation v. Commonwealth of Australia,13 the Court regarded as valid and binding a provision in the
lease contract that allowed the lessee to pre-terminate the same when fire damaged the leased
building, rendering it uninhabitable or unsuitable for living. Here, paragraph VIII14 of the lease contract
between DBS and the Martins permitted rescission by either party should the leased property become
untenantable because of natural causes. Thus In case of damage to the leased premises or any portion
thereof by reason of fault or negligence attributable to the lessee, its agents, employees, customers, or
guests, the lessee shall be responsible for undertaking such repair or reconstruction. In case of damage
due to fire, earthquake, lightning, typhoon, flood, or other natural causes, without fault or negligence
attributable to the lessee, its agents, employees, customers or guests, the lessor shall be responsible for
undertaking such repair or reconstruction. In the latter case, if the leased premises become
untenantable, either party may demand for the rescission of this contract and in such case, the deposit
referred to in paragraph III shall be returned to the lessee immediately. The Martins claim that DBS
cannot invoke the above since they undertook the repair and reconstruction of the leased premises,
incurring P1.6 million in expenses. The Martins point out that the option to rescind was available only if
they failed to do the repair work and reconstruction.

But, under their agreement, the remedy of rescission would become unavailable to DBS only if
the Martins, as lessors, made the required repair and reconstruction after the damages by natural cause
occurred, which meant putting the premises after the floods in such condition as would enable DBS to
resume its use of the same for the purposes contemplated in the agreement, namely, as office,
warehouse, and parking space for DBS’ repossessed vehicles. Here, it is undisputed that the floods of
May 25 and August 13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods
rendered the place unsuitable for its intended uses. And, while the Martins did some repairs, they did
not restore the place to meet DBS’ needs. The photographs16 taken of the place show that the Martins
filled the grounds with soil and rocks to raise the elevation but did not level and compact the same so
they could accommodate the repossessed vehicles. Moreover, the heaviness of the filling materials
caused portions of the perimeter walls to collapse or lean dangerously.17 Indeed, the Office of the City
Engineer advised DBS that unless those walls were immediately demolished or rehabilitated, they would
endanger passersby

Undeniably, the DBS suffered considerable damages when flood waters deluged its offices and
326 repossessed vehicles. Notably, DBS vacated the leased premises in June of 1998, without rescinding
the lease agreement, evidently to allow for unhindered repair of the grounds. In fact, DBS continued to
pay the monthly rents until September 1998, showing how DBS leaned back to enable the Martins to
finish the repair and rehabilitation of the place. 19 The Martins provided basis for rescission by DBS
when they failed to do so.

Hence the Court denied the petition and affirmed with mocifications the April 26, 2006 decision
of the Court of Appeals in CA-G.R. CV 76210 in that Felicidad T. Martin, Melissa M. Isidro, Grace M.
David, Caroline M. Garcia, Victoria M. Roldan, and Benjamin T. Martin, Jr. are ORDERED to return the full
deposit of P1,200,000.00 to DBS Bank Philippines, Inc. (formerly known as Bank of Southeast Asia, now
merged with and into BPI Family Bank) with interest of 12% per annum to be computed from the finality
of this decision until the amount is fully paid.


G.R. No. 189602 May 6, 2010

On April 1, 2002, respondent Vicente T. Manuel filed a Complaint for ejectment with damages
against Alfredo Zabala before the Municipal Trial Court in Cities of Balanga, Bataan. Respondent alleged
that he was in actual and peaceful possession of a fishpond (Lot No. 1483) located in Ibayo, Balanga City.
On October 15, 2001, Zabala allegedly entered the fishpond without authority, and dumped soil into the
fishpond without an Environment Compliance Certificate. Zabala continued such action until the time of
the filing of the Complaint, killing the crabs and the bangus that respondent was raising in the fishpond.
Thus, respondent asked that Zabala be restrained from touching and destroying the fishpond; that
Zabala be ejected therefrom permanently; and for actual and moral damages and attorney’s fees. Zabala
promptly moved for the dismissal of the Complaint for non-compliance with the requirement under the
Local Government Code to bring the matter first to barangay conciliation before filing an action in court.

Respondent subsequently filed a Motion for Judgment on the ground of petitioner’s failure to file a
responsive pleading or answer. The MTCC, in an Order dated May 27, 2003, granted Zabala’s motion and
dismissed the Complaint, holding that respondent indeed violated the requirement of barangay
conciliation. Respondent then appealed the ruling to the Balanga, Bataan Regional Trial Court. In a
decision dated March 30, 2004,[5] the RTC reversed the MTCC’s May 27, 2003 Order and rendered
judgment directing Zabala, his heirs or subalterns to immediately vacate Lot No. 1483 and restore
respondent to his peaceful possession thereof. The RTC also directed Zabala to pay respondent actual
damages, moral damages, and attorney’s fees. The RTC found that Zabala did not, in fact, file an answer
to the Complaint. Zabala then filed a Petition for Review before the Court of Appeal. The CA
promulgated a Decision upholding the RTC’s reversal of the MTCC’s Order. The CA held that, based on
the allegations in the Complaint, the requirement for prior conciliation proceedings under the Local
Government Code was inapplicable to the suit before the MTCC, the action being one for ejectment and
damages, with application for a writ of preliminary injunction, even without the use of those actual
terms in the Complaint. However, the CA granted Zabala’s prayer for the deletion of the awards for
actual and moral damages, and for attorney’s fees. Zabala filed a Motion for Reconsideration, which the
CA denied. Zabala’s heirs filed this Verified Petition for Certiorari. They prayed for the annulment of the
CA’s December 19, 2008 Decision and August 26, 2009 Resolution, and for the reinstatement of the
MTCC’s May 27, 2003 Order. In the alternative, they prayed that the Court remand the records to the
MTCC, so that they could file their Answer, and that due proceedings be undertaken before judgment. In
a Resolution dated November 18, 2009, respondents were required to file their Comment on the
Petition. Subsequently a Compromise Agreement was entered into by the parties.


Whether or not the case must prosper and continue considering the present circumstances

No. The Court ruled that Under Article 2028 of the Civil Code, a compromise agreement is a
contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one
already commenced. Compromise is a form of amicable settlement that is not only allowed, but also
encouraged in civil cases. Contracting parties may establish such stipulations, clauses, terms, and
conditions as they deem convenient, provided that these are not contrary to law, morals, good customs,
public order, or public policy. Thus, finding the above Compromise Agreement to have been validly
executed and not contrary to law, morals, good customs, public order, or public policy, we approve the
same. Thus the Compromise Agreement was and judgment is hereby rendered in accordance therewith.
By virtue of such approval, this case was deemed terminated.


G.R. No. 183612 March 15, 2010


Petitioner National Development Company (NDC) is a government- owned and controlled

corporation, created under Commonwealth Act No. 182, as amended by Com. Act No. 311 and
Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the Philippines (PUP) is a public,
non-sectarian, non-profit educational institution created in 1978 by virtue of P.D. No. 1341. In the early
sixties, NDC had in its disposal a ten -hectare property located along Pureza St., Sta. Mesa, Manila. The
estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title Nos.
92885, 110301 and 145470.On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with
Golden Horizon Realty Corporation (GHRC) over a portion of the property, with an area of 2,407 square
meters for a period of ten years, renewable for another ten years with mutual consent of the parties.On
May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering
3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year
lease period. In addition, GHRC as lessee was granted the "option to purchase the area leased, the price
to be negotiated and determined at the time the option to purchase is exercised." Under the lease
agreements, GHRC was obliged to construct at its own expense buildings of strong material at no less
than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor
upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and
structures as required by the terms of the contract. After the completion of the industrial complex
project, for which GHRC spent P5 million, it was leased to various manufacturers, industrialists and other
businessmen thereby generating hundreds of jobs. On June 13, 1988, before the expiration of the ten
(10)-year period under the second lease contract, GHRC wrote a letter to NDC indicating its exercise of
the option to renew the lease for another ten years. As no response was received from NDC, GHRC sent
another letter on August 12, 1988, reiterating its desire to renew the contract and also requesting for
priority to negotiate for its purchase should NDC opt to sell the leased premises. NDC still did not reply
but continued to accept rental payments from GHRC and allowed the latter to remain in possession of
the property. Sometime after September 1988, GHRC discovered that NDC had decided to secretly
dispose the property to a third party. On October 21, 1988, GHRC filed in the RTC a complaint for
specific performance, damages with preliminary injunction and temporary restraining order.

On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its
attorneys, representatives, agents and any other persons assisting it from proceeding with the sale and
disposition of the leased premises. On February 23, 1989, PUP filed a motion to intervene as party
defendant, claiming that as a purchaser pendente lite of a property subject of litigation it is entitled to
intervene in the proceedings. The RTC granted the said motion and directed PUP to file its Answer-in-
Intervention.PUP also demanded that GHRC vacate the premises, insisting that the latter’s lease contract
had already expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No.
134416) before the Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.

Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as
additional defendants PUP, Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of
the Manila MeTC, and to enjoin the afore-mentioned defendants from prosecuting Civil Case No.
134416 for ejectment. A temporary restraining order was subsequently issued by the RTC enjoining PUP
from prosecuting and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case.

On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic
University of the Philippines v. Court of Appeals) and 143590 (National Development Corporation v.
Firestone Ceramics, Inc.),15 which declared that the sale to PUP by NDC of the portion leased by
Firestone pursuant to Memorandum Order No. 214 violated the right of first refusal granted to Firestone
under its third lease contract with NDC.


Whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals applies
in this case involving another lessee of NDC who claimed that the option to purchase the portion
leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to
Memorandum Order No. 214.


The CA was correct in declaring that there exists no justifiable reason not to apply the same
rationale in Polytechnic University of the Philippines v. Court of Appeals in the case of respondent who
was similarly prejudiced by petitioner NDC’s sale of the property to PUP, as to entitle the respondent to
exercise its option to purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the
option to renew the lease for another ten (10) years upon mutual consent and giving respondent the
option to purchase the leased premises for a price to be negotiated and determined at the time such
option was exercised by respondent. It is to be noted that Memorandum Order No. 214 itself declared
that the transfer is "subject to such liens/leases existing on the subject property."

The option in this case was incorporated in the contracts of lease by NDC for the benefit of
firestone which, in view of the total amount of its investments in the property, wanted to be assured
that it would be given the first opportunity to buy the property at a price for which it would be offered.
Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises of
2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right
of first priority could NDC lawfully sell the property to petitioner PUP.

In the light of the foregoing, the Court held that respondent, which did not offer any amount to
petitioner NDC, and neither disputed the P1,500.00 per square meter actual value of NDC’s property at
that time it was sold to PUP at P554.74 per square meter, as duly considered by this Court in the
Firestone case, should be bound by such determination. Accordingly, the price at which the leased
premises should be sold to respondent in the exercise of its right of first refusal under the lease contract
with petitioner NDC, which was pegged by the RTC at P554.74 per square meter, should be adjusted to
P1,500.00 per square meter, which more accurately reflects its true value at that time of the sale in
favor of petitioner PUP. Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a
right of first refusal that stands upon valuable consideration.40 We have categorically ruled that it is not
correct to say that there is no consideration for the grant of the right of first refusal if such grant is
embodied in the same contract of lease. Since the stipulation forms part of the entire lease contract, the
consideration for the lease includes the consideration for the grant of the right of first refusal. In
entering into the contract, the lessee is in effect stating that it consents to lease the premises and to pay
the price agreed upon provided the lessor also consents that, should it sell the leased property, then,
the lessee shall be given the right to match the offered purchase price and to buy the property at that
price. We have further stressed that not even the avowed public welfare or the constitutional priority
accorded to education, invoked by petitioner PUP in the Firestone case, would serve as license for us,
and any party for that matter, to destroy the sanctity of binding obligations. While education may be
prioritized for legislative and budgetary purposes, it is doubtful if such importance can be used to
confiscate private property such as the right of first refusal granted to a lessee of petitioner NDC.42
Clearly, no reversible error was committed by the CA in sustaining respondent’s contractual right of first
refusal and ordering the reconveyance of the leased portion of petitioner NDC’s property in its favor.
Hence the petition was denied.


G.R. No. 184041 Oct 13, 2010

On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC in the amount of
P10,000,000.00. Said loan was covered by a Credit Agreement and a Continuing Suretyship with
petitioner as surety, both documents dated 1 August 1996, to secure full payment and performance of
the obligations arising from the credit accommodation. Booklight drew several availments of the
approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On 30
October 1997, SBC approved the renewal of credit facility of Booklight in the amount of P10,000,000.00
under the prevailing security lending rate. From August 3 to 14, 1998, Booklight executed nine
promissory notes in favor of SBC in the aggregate amount of P9,652,725.00. For failure to settle the
loans upon maturity, demands were made on Booklight and petitioner for the payment of the obligation
but the duo failed to pay. As of 15 May 2000, the obligation of Booklight stood at P10,487,875.41,
inclusive of interest past due and penalty. On 16 June 2000, SBC filed against Booklight and herein
petitioner an action for collection of sum of money with the RTC. Booklight initially filed a motion to
dismiss, which was later on denied for lack of merit. In his Answer, Booklight asserted that the amount
demanded by SBC was not based on the omnibus credit line facility of 30 May 1996, but rather on the
amendment of the credit facilities on 15 October 1996 increasing the loan line from P8,000,000.00 to
P10,000,000.00. Booklight denied executing the promissory notes. It also claimed that it was not in
default as in fact, it paid the sum of P1,599,126.11 on 30 September 1999 as a prelude to restructuring
its loan for which it earnestly negotiated for a mutually acceptable agreement until 5 July 2000, without
knowing that SBC had already filed the collection case.

In his Answer to the complaint, herein petitioner alleged that under the Continuing Suretyship, it
was the parties’ understanding that his undertaking and liability was merely as an accommodation
guarantor of Booklight. He countered that he came to know that Booklight offered to pay SBC the
partial payment of the loan and proposed the restructuring of the obligation. Petitioner argued that said
offer to pay constitutes a valid tender of payment which discharged Booklight’s obligation to the extent
of the offer. Petitioner also averred that the imposition of the penalty on the supposed due and unpaid
principal obligation based on the penalty rate of 2% per month is clearly unconscionable. On 7 March
2005, Booklight was declared in default. Consequently, SBC presented its evidence ex-parte. The case
against petitioner, however, proceeded and the latter was able to present evidence on his behalf. After
trial, the RTC ruled that petitioner is jointly and solidarily liable with Booklight under the Continuing
Suretyship Agreement. The Court of Appeals affirmed in toto the ruling of the RTC. Petitioner filed a
motion for reconsideration but it was denied by the Court of Appeals on 7 August 2008. Hence, the
instant petition.


Whether or not petitioner should be held solidarily liable for the second credit facility extended
to Booklight.

We rule in the affirmative. There is no doubt that Booklight was extended two (2) credit
facilities, each with a one-year term, by SBC. Booklight availed of these two (2) credit lines. While
Booklight was able to comply with its obligation under the first credit line, it defaulted in the payment of
the loan obligation amounting to P9,652,725.00 under the second credit line. There is likewise no
dispute that the first credit line facility, with a term from 30 June 1996 to 30 June 1997, was covered by
a Continuing Suretyship with petitioner acting as the surety. The dispute is on the coverage by the
Continuing Suretyship of the loan contracted under the second credit facility. Comprehensive or
continuing surety agreements are, in fact, quite commonplace in present day financial and commercial
practice. A bank or financing company which anticipates entering into a series of credit transactions with
a particular company, normally requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the principal places itself in a
position to enter into the projected series of transactions with its creditor; with such suretyship
agreement, there would be no need to execute a separate surety contract or bond for each financing or
credit accommodation extended to the principal debtor.

Petitioner argues that the approval of the second credit facility necessitates his consent
considering the onerous and solidary liability of a surety. This is contrary to the express waiver of his
consent to such renewal, contained in paragraph 12 of the Continuing Suretyship. Respondent, as last
resort, harps on the novation of the first credit facility to exculpate itself from liability from the second
credit facility. At the outset, it must be pointed out that the Credit Agreement is actually the principal
contract and it covers “all credit facilities now or hereafter extended by SBC to Booklight;” and that the
suretyship agreement was executed precisely to guarantee these obligations, i.e., the credit facilities
arising from the credit agreement. The principal contract is the credit agreement covered by the
Continuing Suretyship. The two loan facilities availed by Booklight under the credit agreement are the
Omnibus Line amounting to P10,000,000.00 granted to Booklight in 1996 and the other one is the Loan
Line of the same amount in 1997. Petitioner however seeks to muddle the issue by insisting that these
two availments were two separate principal contracts, conveniently ignoring the fact that it is the credit
agreement which constitutes the principal contract signed by Booklight in order to avail of SBC’s credit
facilities. The two credit facilities are but loans made available to Booklight pursuant to the credit
agreement. On these facts the novation argument advanced by petitioner must fail. There is no
novation to speak of. It is the first credit facility that expired and not the Credit Agreement. There was a
second loan pursuant to the same credit agreement. The terms and conditions under the Credit
Agreement continue to apply and the Continuing Suretyship continues to guarantee the Credit
Agreement. Hence the petition is denied.


G.R. No. 156966. May 7, 2004


On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone subscriptions with
petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the telecommunications
business, which applications were each approved and covered, respectively, by six mobiline service
agreements. On 05 April 2001, respondent filed with the Regional Trial Court a complaint against
petitioner for a “Sum of Money and Damages.” Petitioner moved for the dismissal of the complaint on
the ground of improper venue, citing a common provision in the mobiline service agreements to the
effect that - “Venue of all suits arising from this Agreement or any other suit directly or indirectly arising
from the relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro
Manila. Subscriber hereby expressly waives any other venues.” The Regional Trial Court of Iligan City,
Lanao del Norte, denied petitioner’s motion to dismiss and required it to file an answer within 15 days
from receipt thereof.

Petitioner filed a petition for certiorari before the Court of Appeals. The Court of Appeals saw no
merit in the petition and affirmed the assailed orders of the trial court.


Whether or not the Court of Appeals erred in affirming the orders of the trial court.


The contract herein involved is a contract of adhesion. But such an agreement is not per se inefficacious.
The rule instead is that, should there be ambiguities in a contract of adhesion, such ambiguities are to
be construed against the party that prepared it. If, however, the stipulations are not obscure, but are
clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be
held controlling. A contract of adhesion is just as binding as ordinary contracts. It is true that this Court
has, on occasion, struck down such contracts as being assailable when the weaker party is left with no
choice by the dominant bargaining party and is thus completely deprived of an opportunity to bargain
effectively. Nevertheless, contracts of adhesion are not prohibited even as the courts remain careful in
scrutinizing the factual circumstances underlying each case to determine the respective claims of
contending parties on their efficacy. In the case at bar, respondent secured 6 subscription contracts for
cellular phones on various dates. It would be difficult to assume that, during each of those times,
respondent had no sufficient opportunity to read and go over the terms and conditions embodied in the
agreements. Respondent continued, in fact, to acquire in the pursuit of his business subsequent
subscriptions and remained a subscriber of petitioner for quite sometime.

Hence, the petition was granted by the Court and the decision of the Court of Appeals is reversed and
set aside. The Civil Case pending before the Regional Trial Court of Iligan City, Branch 4, was DISMISSED
without prejudice to the filing of an appropriate complaint by respondent against petitioner with the
court of proper venue.