I.

Pure and Conditional Obligations

A. Pure Obligations

Article 1179 (1)

“Every obligation whose performance does not depend upon a future or uncertain event, or upon a
past event unknown to the parties, is demandable at once.

Xxx ”

 Even if t;he obligation is pure, the creditor must allow the debtor time within which the latter will
get the money.
 This provision defines a pure obligation. The use of ‘or’ connotes that the pure obligation should
not depend on a period or a condition. If the conjunctive word ‘and’ is used, an obligation subject
to a suspensive condition will be demandable also.
o Futurity and certainty – period
o Futurity and uncertainty – condition

B. Conditional Obligations

Article 1181

“In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition

1. Condition
a. Concept – depends on the happening of a future or uncertain event
b. Condition v. Period/Term – condition: future and uncertain event; period/term:
future and certain event

CASES:

See Catunggal v Rodriguez G.R. No. 146839 (March 23, 2011)

Gaite v Fonacier (1961)

 Shows the boundary between condition and period (there is only a fine line between them)
 The question to ask is whether or not the future event is certain to happen.

Facts: Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the
municipality of Jose Panganiban, province of Camarines Norte. By deed of assignment, he designated
Atty. Fernando Gaite as his attorney-in-fact for all transactions regarding the mining business. In 1954,
for some reason, Fonacier revoked the designation of Gaite as attorney-in-fact.

Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier
would receive from the mining claims, all his rights and interests on all the roads, improvements, and
facilities in or outside said claims, the right to use the business name Larap Iron Mines and its goodwill,
and all the records and documents relative to the mines. In the same document, Gaite transferred to
Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less that the former had
already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,-000.00 of
which was paid upon the signing of the agreement. To secure the payment of the said balance of
P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise,
Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal
and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico
Escandor, Francisco Dante, and Fernando Ty as sureties. However, Gaite refused to sign the revocation
papers unless there was going to be another surety. So, Fonacier executed a second surety bond with Far
Eastern Surety and Insurance, Co. But it provided that the liability of the surety company would attach
only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of
not less than P65,000.00, and that, furthermore, the liability of said surety company would automatically
expire on December 8, 1955. Up to December 8, 1955, no sale of the 24k tons of iron ore was made and
none of the 65k was paid to Gaite.

RTC decision: in favor of Gaite (pay 65k)

Issues:

WON the stipulation that the obligation of Fonacier to pay 65k to Gaite is one with a period or term that
expired on December 8, 1955  YES, it was not a suspensive condition.

WON there was short-delivery  NO, Gaite’s measurement is substantially correct considering that they
did not measure the iron ore exactly

Ratio: The shipment or sale of the local iron ore was not a suspensive condition to the payment of 65k but
was a suspensive period/term. The words of the contract express no contingency in the buyer’s obligation
to pay: “The balance of Sixty Five Thousand Pesos (P65,000.00) will be paid out of the first letter of
credit covering the first shipment of iron ores x x x etc.” There is no uncertainty that the payment will
have to be made sooner or later; what is undetermined is merely the exact date at which it will be made.
By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its
maturity or demandability is deferred. To subordinate the obligation to pay the remaining P65,000.00 to
the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at
the discretion of the debtor.

The appellants have forfeited their right to compel Gaite to wait for the sale of the ore before receiving
65k payment because they did not renew the bond of the Far Eastern Surety Company or replaced it with
an equivalent guarantee.

No short-delivery in this case as would entitle appellants to the payment of damages, nor could Gaite have
been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the
stockpiles of the mining claims in question, as charged by appellants, since Gaite’s estimate appears to be
substantially correct.

Gonzales v Heirs of Thomas (1999)

Facts: CRUZ entered into a Contract of Lease/Purchase with Gonzales (sole proprietor and manager of
Felgon Farms) of a half-portion of a ‘parcel of land containing an area of 12 hectares, more or less, and an
accretion of 2 hectares, more or less, situated in Rodriguez Town, Province of Rizal’ UNDER TERMS:

- Term of contract is for a period of one year upon the signing thereof.
After the period, GONZALES shall purchase the property P1,000,000.00, 2 years payable with
12% per annum interest subject to the devalued amount of the Philippine Peso, according to the
following schedule of payment:
Upon the execution of deed 50%
25% every 6 months thereafter
 Payable within first 10 days of the beginning of each 6 months

GONZALES shall pay annual rental equivalent to P2,500.00 per hectare, upon the signing of this
contract; LESSORS (CRUZ) shall undertake to obtain a separate certificate over leased portion to the
LESSEE within a reasonable period of time which shall not in any case exceed four (4) years; A new
Contract shall be executed by the herein parties which shall be the same in all respects with this Contract
of Lease/Purchase insofar as the terms and conditions are concerned.

GONZALES paid the P2,500.00 per hectare or P15,000.00 annual rental on the half-portion of the
property covered by certificate in accordance with the second provision of the Contract of
Lease/Purchase, took possession of the property, installing thereon the defendant Jesus Sambrano as his
caretaker. Did not purchase the property immediately after the expiration of the one-year lease. Remained
in possession of the property without paying the purchase price and without paying any further rentals

CRUZ SENT LETTER TO GONZALES INFORMING DECISION TO RESCIND CONTRACT DUE

TO GONZALES BREACH: Demanded defendant to vacate the premises within 10 days from receipt of
said letter. GONZALES refused to vacate the property and continued possession, case brought against
GONZALES.

LESSOR, PAULA CRUZ DIED. Final demand letter to vacate the premises was sent by the remaining
lessors. Title to the property remains in the name of CRUZ. Filed a complaint for recovery of possession
of the property - subject of the contract with damages, both moral and compensatory and attorney’s fees
and litigation expenses.

SAMBRANO (FOR GONZALES), upon motion, declared in default for failure to file an answer despite
valid service of summons.

RTC: COMPLAINT DISMISSED.

WON PAR 9 IS A CONDITION PRECEDENT BEFORE DOWNPAYMENT? –YES.

i. PAR 9 indicates CRUZ to obtain TCT for GONZALES within 4 years.

Thus, before a deed of Sale can be entered into between the plaintiffs and
the defendant, the plaintiffs have to obtain TCT in favor of GONZALES

WON CRUZ can rescind the Contract of Lease/Purchase – NO

i. Failure of the plaintiffs to secure TCT, as provided for in the contract, does not entitle them
to rescind the contract

ART 1191: Power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. The injured party may choose between the fulfillment of
the obligation, with the payment of damages in either case. He may seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.’ The power to rescind is given to the injured
party.

Where the plaintiff is the party who did not perform, he is not entitled to insist upon the performance of
the contract by the defendant or recover damages by reason of his own breach

ii. CRUZ failed to comply with the conditions precedent after 2-1/2 years from the execution
of the contract so as to entitle them to rescind the contract. Although the contract stated
that the same be done within 4 years from execution, still, the defendant has to be assured
that the land subject of the case will be transferred in his name without any encumbrances
The failure to secure the Transfer Certificate of Title in favor of the defendant entitles not the plaintiffs
but, rather, the defendant to either rescind or to ask for specific performances.

WON CRUZ can terminate the Contract of Lease. – NO

i. Article 1670 of the New Civil Code states that:

If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor and unless a notice to the contrary by either party has previously been given, it
is understood that there is an implied new lease

CA REVERSED TRIAL COURT DECISION: Transfer of title to the property cannot be interpreted as a
condition precedent to the payment of the agreed purchase price because such interpretation IS
COUNTER-EXPLICIT and CONTRARY TO NORMAL COURTS OF SALE OF REAL PROPERTIES.

Reason for this four (4) year period is [that] title to the property still remains in the name of the original
owners, the predecessors-in-interest of the herein appellants and [transferring] the title to their names and
eventually to the lessee-purchaser, appellee herein, would take quite some time.

GONZALES wanted to have the title to the property transferred in his name first before he exercises his
option to purchase allegedly in accordance with the ninth provision of the contract. But the ninth
provision does not give him this right: 4-year period asked for by the appellants within which to have title
to the property transferred in the appellee’s name will only start to run when the appellee exercises his
option to purchase.

Since the appellee never exercised his option to purchase, then appellee is not entitled to have the title to
the property transferred in his name.

Issue: WON the obtainment of distinct TCTs is a condition precedent to Gonzales’ obligation to purchase
the land and pay  YES

WON respondents can rescind their contract  NO

Ratio: The clear intent of paragraph 9 is for the respondents to obtain separate and distinct TCTs because
the land was still under the name of their parents.

The 1st paragraph cannot be enforced until the heirs fulfill their part according to the 9th paragraph.

The obtainment of distinct TCTs is a condition precedent to Gonzales' obligation to purchase and pay the
land.

Because the private respondents have not yet fulfilled their obligation - the suspensive condition has not
yet happened – they cannot rescind the contract yet.

2. Kinds of Condition
 Suspensive and resolutory conditions are exact opposites.
 Note that there is physical impossibility and there is a legal impossibility. There is also a legal loss
and a physical loss.
 The effect of an impossible condition attached to an obligation will make the entire obligation
void EXCEPT if the obligation is created, for example, by a gratuitous donation, the imposition of
the impossible condition shall be disregarded but the obligation is still valid. It is deemed as if the
impossible condition has been imposed.
 o However, if the obligation is created by an onerous donation, then the whole obligation to
which the impossible condition is attached is invalid.
 {Positive suspensive condition} If the obligation is subject to a positive condition and it is clear
that the future and uncertain event is not going to occur, the obligation is extinguished.
 {Negative suspensive condition} “I will give you this property if you will not marry until you
reach the age of 31.” If still unmarried by 30, the property will be given. Observe that the
condition is couched in the negative and the obligation is NOT extinguished.
a. As to effect on obligation

Article 1181

“In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition.”

i. Suspensive (condition precedent or antecedent)

 The future event has not yet occurred. There is uncertainty of its occurrence. It may or may not
happen. Until the future and uncertain event has happened, the obligation will not exist. There is
no obligation before the condition happens, only an expectation. Although, there is already an
agreement. It will seem as if the obligation is in the process of being. An obligation that is
dependent on a suspensive condition has a chance of arising. Therefore, there exist both expectant
creditor and expectant debtor.
 The condition must not be frustrated by the would-be debtor.
 Note that there is a very thin line between a suspensive condition and a supensive indefinite
condition

Retroactive effect when condition is fulfilled

Article 1187
“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. Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed
to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits
and interests received, unless from the nature and circumstances of the obligation it should be inferred
that the intention of the person constituting the same was different.
In obligations to do and not to do, the court shall determine, in each case, the retroactive effect of
the condition that has been complied with.”

Rights of creditor and debtor before fulfillment of condition

Article 1188
“The creditor may, before the fulfillment of the condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case of a suspensive
condition.”

CASE:

Coronel v CA (1996)

Facts: This case is about a sale of land in Roosevelt Avenue, Quezon City by the vendor Romulo Coronel
to the vendees Conception Alcaraz and her daughter Ramona Patricia Alcaraz with the following
conditions:
 - The Coronel’s will immediately transfer the certificate of title in their name upon receipt of the
downpayment which is ₱50,000.
- Upon the transfer in their names of the subject property, the Coronel’s will execute the deed of
absolute sale in favor of Ramona and then Ramona shall immediately pay the Coronel’s the whole
balance of ₱1,190,000.

On January 15, 1985, Conception paid the downpayment of ₱50,000 and then on February 6, 1985, the
property was now registered under the name of Coronel’s. By Feb. 18, 1985, the Coronel’s sold the
property to Catalina B. Mabanag for ₱1,580,000 after she made a ₱300,000 downpayment. This is the
reason why the Coronel’s cancelled and rescind the contract with the Alcaraz by depositing back the
₱50,000 to Ramona’s bank account.

On Feb. 22, Conception filed a complaint for specific performance against the Coronel’s. On April, the
Coronel’s executed a deed of absolute sale over the subject property to Catalina after which on June
Catalina was issued a new title over the subject property.

RTC decision, affirmed by CA:

“WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in
favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by
Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon
City, together with all the improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the
plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to
P1,190,000.00 in cash.”

Issue:

WON the agreement was a contract to sell  No, it was a conditional contract to sell

WON the suspensive condition was fulfilled Yes, it was indisputably fulfilled on February 6, 1985
when the new title was issued in the name of the petitioners

WON rescission of the contract is valid  No, because the suspensive condition was fulfilled

Ratio:

1. In a contract to sell, there being no previous sale of the property, a third person buying such
property despite the fulfillment of the suspensive condition such as the full payment of the
purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the
sale becomes absolute and this will definitely affect the seller’s title thereto.
This was not a contract to sell because there was no express reservation of the right of ownership
or title. Petitioners in the case at bar did not merely promise to sell the property to private
respondent upon the fulfillment of the suspensive condition. On the contrary, having already
agreed to sell the subject property, they undertook to have the certificate of title changed to their
names and immediately thereafter, to execute the written deed of absolute sale. The suspensive
condition of payment of 50k was fulfilled.
2. Yes, it was fulfilled on February 6, 1985 upon issuance of a new title in the name of petitioners.
The suspensive condition is the receipt of down payment which was obliged with by the obligor.
3. It was the sellers’ fault which prevented the execution of the contract because the title was still in
their father’s name. What is clearly established by the plain language of the subject document is
 that when the said “Receipt of Down Payment” was prepared and signed by petitioners Romulo A.
Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is
subject only to the successful transfer of the certificate of title from the name of petitioners’ father,
Constancio P. Coronel, to their names.

ii. Resolutory (condition subsequent)

 The obligation will be extinguished if the future and uncertain event occurs.
 What is that future and uncertain event that is attached to a reciprocal obligation that has
the effect of extinguishing the reciprocal obligation?

CASES:

Central Philippine University (1995) v Lopez

Facts: In 1939, late Don Ramon Lopez, Sr. executed a deed of donation in favor of Central Philippines
University (CPU) of a parcel of land with the following conditions:

1. The land shall be exclusively used for the establishment of and use of a medical college.
2. CPU shall not sell, transfer or convey to any third party or any way the land.
3. The said land shall be called “Ramon Lopez Campus”

However in 1989, the respondents who are heirs of Don Ramon filed an action for annulment of donation,
re-conveyance and damages against CPU alleging that since 1939 has not complied with the conditions of
the donation and that the University negotiated with National Housing Authority (NHA) to exchange the
donated land with another land.

RTC decision: CPU failed to comply with condition therefore donation was null and void

CA: CA decision: reverse RTC decision and remand the case to determine the time within which
petitioner should comply with the first condition: establishment of a medical school.

Issue: WON there was a resolutory condition  YES

Ratio: The donation was an onerous one, where failure of the school to construct a medical college would
give the heirs the power to revoke the donation, reverting the property back to the heirs of the donor. It is
therefore a resolutory condition. Although, the period was not stated, and the courts should have fixed a
period, in this case, 50 years has lapsed since the donation was executed, thus fixing a period would serve
no purpose and the property must already be reverted back.

There is no specified period therefore, the starting point begins with the expiration of a reasonable period
and opportunity for petitioner to fulfill what has been charged upon it by the donor.

Records are clear and facts are undisputed that since the execution of the deed of donation up to the time
of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has
slept on its obligation for an unreasonable length of time.

Quijada v CA (1998)

Facts:

Petitioners are the children of the late Trinidad Quijada. Trinidad and her siblings executed a deed of
donation of a two-hectare lot in favor of the Municipality of Talacogon (Agusan del Sur), exclusively for
the purpose of constructing the proposed provincial high school. However, possession remained with
Trinidad. She subsequently sold the two hectares on two separate occasions to Regalado Mondejar, who
sold it to different persons. Eventually, the Municipality, failing to construct the high school, reverted
ownership to the donors. Petitioners filed an action for quieting of title and recovery of possession and
ownership. RTC ruled in favor of petitioners, but CA reversed.

CA: On appeal, the Court of Appeals reversed and set aside the judgment a quoruling that the sale made
by Trinidad Quijada to respondent Mondejar was valid as the former retained an inchoate interest on the
lots by virtue of the automatic reversion clause in the deed of donation.

Issue:

WON the deed of donation had a resolutory condition  YES

WON petitioners’ cause of action had prescribed  NO

WON the sale was valid  YES

Ratio: When the donation was accepted, the ownership was transferred to the school, only subject to a
condition that a school must be constructed over the lot. Since ownership was transferred, and failure to
fulfill the condition reverts the ownership back to the donor, it is a resolutory condition. The ownership
reverted back to Quijada when the Municipality stated that they cannot comply with the condition of
building a school.

They initiated action the next year so they did not sleep on their rights for a long time. The sale made by
Trinidad Quijada cannot be the reckoning point because they had no interest over the property at that
time.

What the law requires is that the seller has the right to transfer ownership at the time the thing sold is
delivered. This is because perfection does not transfer ownership but occurs upon actual or constructive
delivery of the things sold. Note that perfection of the contract of sale is not an element for its perfection.

b. As to cause or origin
i. Potestative
 Effect if fulfillment of condition depends solely on the will of the debtor  to be void, it should
be in the sense of a positive, suspensive condition. Why? Because it will render the obligation
illusory.
o However, if it is a negative, suspensive condition, it has to be determined whether the
obligation is indeed illusory or not. If there is somehow a chance that a choice of a third
person will come in, then the condition is valid.
 Purely potestative – ANSWERABLE WHEN WE REACH CONTRACTS; purely dependent on
the will of either the creditor or the debtor
 Simply potestative – ASNWERABLE WHEN WE REACH CONTRACTS
 Most creditors are thinking of being paid [sooner than later/soonest possible time]. They do not
want the debt to prescribe. Note that there are very few imprescriptible actions [memorize them].
 Debtor’s promise to pay when he can is not a conditional obligation

CASE:

Lim v CA

Facts: Herein private respondent Dy and petitioner entered into a contract of lease for three years. After
the term of the contract, Dy did not want to vacate premises so petitioner Lim filed an ejectment suit.
However, the case was terminated by a judicially approved compromise agreement. The lease continued
from 1979-1985 (three-year divisions). In 1985, Dy wrote to Lim that he wanted to extend said lease.
Lim, however, responded that he had no intention to renew the contract.

MeTC dismissed the complaint: the lease contract states that the contract has not expired yet since it
depends on how long Dy needs it and how long he has the capacity to pay. Both RTC and CA affirmed
said decision. According to the CA, the compromise agreement is valid because it contains a resolutory
condition.

Issue: WON the compromise agreement contains a potestative condition  YES

Ratio: The Supreme Court held that the compromise agreement contains a potestative condition because it
leaves the effectivity of the CA and the enjoyment of the property to the private respondent who is the
lessee. The stipulation is also a suspensive condition. Note that the stipulation does not terminate the lease
therefore it is not a resolutory condition.

The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively
upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not,
completely depriving the owner of any say in the matter because then there will be no equality and
mutuality between the parties.

A lease will not be construed to create a right to perpetual renewals unless the language employed
indicates clearly and unambiguously that it was the intention and purpose of the parties to do so. Perpetual
leases are not favored by law. The stipulation in paragraph 3 is good for one renewal only and it should be
upon agreement of BOTH parties.

Furthermore, res judicata does not apply because the first cause of action was about the contract of lease
while the second one is about the compromise agreement.

ii. Casual
 Depends upon chance or the will of a third person

NATELCO v CA

Facts: NATELCO Entered into contract with Camarines Sur II Electric Cooperative for the use in
operation of its telephone service, electric light posts of CASURECO II and in return, there will be free
use of 10 telephone connections as long as NATELCO needs electric light posts. The contract will
terminate when they are forced to stop, abandon operation and remove light posts. After 10 years,
CASURECO files for reformation of contract with damages, not conforming to the guidelines of National
Electrification Administration of reasonable compensation for use of posts. Compensation is worth P10,
but the consumption of telephone cables costs P2630 NATELCO, who used 319, without the contract of
P10 each, refused to pay. The latter barred by the prescription.

RTC decision: Contract should be reformed to abolish the inequities and to allow petitioners to use private
respondents’ posts outside Naga.

CA: Contract was subject to a potestative condition which rendered it void.

Issue:

WON private respondents’ cause of action has prescribed  NO

WON contract was subject to a potestative condition NO

Ratio: Private respondents’ cause of action only arose when they realized that the contract was
disadvantageous to them.

Petitioners claim that the condition is not potestative. A potestative condition is that whose fulfillment
depends upon the sole will of the debtor, in which case, the conditional obligation is void. In this case, the
other conditions in the same provision show casual conditions which depend on chance, hazard or the will
of a third person. Therefore, the condition is not potestative but rather casual.

iii. Mixed
 Example: depends on the happening of a marriage – dependent upon the proposal, answer to the
proposal, the future in-laws, but most of all, it is dependent upon chance

Hermosa v Longara

- The debt was already preexisting. The original debtor has already died. The claims are upon the
intestate estate of the debtor.
- The condition does not depend exclusively on the will of the debtor but on other circumstances
beyond his power or control.

Osmena v Rama

- The condition was mixed: depends upon chance/will of the third persons and the will of the debtor
o Condition: If the house is sold
- Note that the promissory notes of 1901 and 1903 novated the obligation. A natural obligation may
be the subject matter of novation although you cannot force a debtor through a court action to pay
a natural obligation. However, if he pays, he cannot recover what he paid.

Rustan’s Pulp and Paper Mills v IAC

Facts: When Rustan Pulp & Paper Mills started operations Romeo Lluch offered to supply raw materials.
Rustan Pulp proposed a non-exclusive contract to buy wood pulp from Lluch . However, a condition in
the contract gave Rustan Pulp the right to stop accepting deliveries when the supply became sufficient
until such time the raw materials are needed.

During the test run of the pulp mill, major defects on the machinery were discovered prompting the
Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were
informed to stop deliveries, but were not informed as to the reasons for the stoppage.

Lluch sought to clarify the tenor of the notice as to whether stoppage of delivery or termination of the
contract of sale was intended, but Rustan Pulp failed to reply. This alleged ambiguity notwithstanding,
Lluch and the other suppliers resumed deliveries after a series of talks between Lluch and Romeo
Vergara, the manager of Rustan Pulp.

When petitioners informed herein private respondents to stop the delivery of pulp wood supplied by the
latter pursuant to a contract of sale between them, private respondents sued for breach of their covenant.
The court of origin dismissed the complaint but at the same time enjoined petitioners to respect the
contract of sale if circumstances warrant the full operation in a commercial scale of petitionersÊ Baloi
plant and to continue accepting and paying for deliveries of pulp wood products from Romeo Lluch. On
appeal to the then Intermediate Appellate Court, Presiding Justice Ramon G. Gaviola, Jr., who spoke for
the First Civil Cases Division, with Justices Caguioa, Quetulio-Losa, and Luciano, concurring, modified
the judgment by directing herein petitioners to pay private respondents, jointly and severally, the sum of
P30,000.00 as moral damages and P15,000.00 as attorney’s fees .
Issues: WON suspension of deliveries by Rustan proper exercise of its rights under the contract of sale 
NO

Ratio: There is basis for the apprehension on the illusory resumption of deliveries at Rustan Pulp because
the prerogative suggests a condition solely dependent upon its exclusive will. The literal import of
contested condition is that Rustan Pulp can stop delivery of pulp wood from Lluch if the supply at the
plant is sufficient as ascertained by Rustan Pulp, subject to re-delivery when the need arises as determined
likewise by Rustan Pulp.

A purely potestative imposition of this character must be obliterated from the face of the contract without
affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already
existing obligation and not to its inception.

A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving
clause is left to the will of the obligor as this Court ruled in Taylor vs. Uy Tieng Piao (43 Phil. 873). But
the Taylor case, which allowed a condition for unilateral cancellation dependent on the arrival of factory
machinery, cannot be applied because the facts relate to the birth of the undertaking and not to the
fulfillment of an existing obligation.

c. As to possibility

Article 1183

i. Possible
ii. Impossible
- Effect

Roman Catholic Arch of Manila v CA

d. As to mode
i. Positive

Article 1184

ii. Negative

Article 1185

3. Rules in case of loss, deterioration or improvement pending the happening of the

condition

Article 1189

Article 1190

a. Meaning of loss, deterioration and improvement

b. Effect of loss or deterioration
i. Without debtor’s fault
ii. With debtor’s fault
c. Effect of improvement
i. By nature or time
ii. At the debtor’s expense
4. Effect of prevention of the fulfillment of the condition by the obligor
Article 1186

Taylor v Uy Tieng Pao

Herrera v Leviste

Heirs of Gaite v The Plaza, Inc.

Facts: RTC decision – Gaite, Cynthia Gaite and Rhogen Builders are jointly and severally ordered to pay
the plaintiffs damages and to return the down payment. Since FGU is a surety of Rhogen, Rhogen and
FGU are jointly and severally liable to pay the down payment. In that case, the third-party defendants are
jointly and severally liable to pay the same amount to FGU plus attorney’s fees because they had to
litigate.

CA: The Plaza cannot now be demanded to comply with its obligation under the contract since Rhogen
has already failed to comply with its own contractual obligation. Thus, The Plaza had every reason not to
pay the progress billing as a result of Rhogen’s inability to perform its obligations under the contract.
Further, the stoppage and revocation orders were issued on account of Rhogen’s own violations involving
the construction as found by the local building official. Clearly, Rhogen cannot blame The Plaza for its
own failure to comply with its contractual obligations. The CA stressed that Rhogen obliged itself to
comply with “all the laws, city and municipal ordinances and all government regulations insofar as they
are binding upon or affect the parties [to the contract], the work or those engaged thereon.” As such, it
was responsible for the lifting of the stoppage and revocation orders.

Petitioners contend that Rhogen had valid grounds to terminate the contract because The Plaza failed to
pay for the work done from July to September. Petitioners also invoke Article 1191 of the Civil Code,
which states that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

Issue: WON Rhogen may terminate the contract with The Plaza, Inc.  NO

Ratio: Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously such that the performance of one is conditioned upon the
simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191 of the
Civil Code, which provides for the remedy of “rescission” or more properly resolution, a principal action
based on breach of faith by the other party who violates the reciprocity between them. The breach
contemplated in the provision is the obligor’s failure to comply with an existing obligation. Thus, the
power to rescind is given only to the injured party. The injured party is the party who has faithfully
fulfilled his obligation or is ready and willing to perform his obligation.

Note that the construction contract between Rhogen and The Plaza provides for reciprocal obligations
whereby the latter’s obligation to pay the contract price or progress billing is conditioned on the former’s
performance of its undertaking to complete the works within the stipulated period and in accordance with
approved plans and other specifications by the owner. However, just two months after commencement of
the project, construction works were ordered stopped by the local building official and the building
permit subsequently revoked on account of several violations of the National Building Code and other
regulations of the municipal authorities.

Petitioners may not justify Rhogen’s termination upon grounds of non-payment and uncooperative
attitude of The Plaza because Rhogen was already at fault for breach of contract by violating the National
Building Code.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing
or services rendered despite the lack of a written contract, in order to avoid unjust enrichment. Quantum
meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff
reasonably deserves. To deny payment for a building almost completed and already occupied would be to
permit unjust enrichment at the expense of the contractor. However, Rhogen was not even able to finish a
substantial amount of work due to stoppage issued only two months after the start of the construction.
Rhogen was also found to have executed construction not in accordance with the plans.

The SC also upheld CA decision to grant temperate damages to respondents: “Since Rhogen failed to
account either for those items which it had caused to be withdrawn from the premises, or those considered
damaged or lost due spoilage, or disappeared for whatever reason – there was no way of determining the
exact quantity and cost of those materials. Hence, The Plaza was correctly allowed to recover temperate
damages.”

C. Reciprocal Obligations

Article 1191

Article 1192

1. Concept – Best exemplified by a purchase-and-sale contract

- If the seller wants to make the buyer in default, the seller must deliver the thing.
- Another term for reciprocal obligation contracts  synallagmatic contracts
2. Alternative remedies of injured party in case of breach
a. Action for Fulfillment
i. When fulfillment no longer possible; effect
b. Action for rescission
i. Requisites
ii. How made
iii. Effects

De Erquiga v Court of Appeals

178 SCRA 1 (1989)
Ponente: Grino-Aquino, J.

FACTS

 Santiago de Erquiaga was the owner of 100% or 3,100 paid- up shares of stock of the Erquiaga
Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon. On November
4, 1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares
(or 100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite
dates fixed in the contract but not later than November 30, 1968. Because Reynoso failed to pay
the second and third installments on time, the total price of the sale was later increased to
P971,371.70 payable on or before December 17, 1969.

 As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who
thereupon transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation
to Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the corporation

 As provided in the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security
for the balance of his obligation. Reynoso failed to pay the balance of P561,321.70 on or before
December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2,
 1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale of his
shares in the Erquiaga Development Corporation.

 30 September 1972: CFI found for Erquiaga; neither party appealed – decision final and
executory.

 21 March 1973: CFI issued an order putting the payment on hold until the accounting was
completed. Also appointed a receiver upon the filing of a bond of P 100,000.00

 26 April 1973: Reynoso died; was replaced by surviving spouse Africa Valdez Vda. de Reynoso
and children, as party defendants.

 Defendants filed motion to dissolve said order with the CA – denied. SC also denied.

 March 3, 1975: CFI approved the P410,000.00 bond submitted by Erquiaga and the possession,
management and control of the hacienda were turned over to Erquiaga. Petitioners (Reynosos)
filed MR – denied.

 Court of Appeals: CFI acted with grave abuse of discretion in: (1) giving private respondent
voting rights on the 3,100 shares of stock of the Erquiaga Development Corporation without first
divesting petitioners of their title thereto and ordering the registration of the same in the
corporation books in the name of private respondent, pursuant to Section 10, Rule 39 of the
Revised Rules of Court; (2) authorizing corporate meetings and election of members of the Board
of Directors of said corporation; and (3) refusing to order the reimbursement of the purchase price
of the 3,100 shares of stock in the amount of P410,000.00 plus interests awarded in said final
decision of September 30, 1972 and the set-off therewith of the amount of P62,000.00 as damages
and attorney’s fees in favor of herein private respondent. Also issued writ of mandamus for
execution of the deed of conveyance of the 3,100 shares of stock and upon delivery of said stocks,
writ of execution for ordering private respondent to pay petitioners the amount of P410,000.00
plus interests

What the parties have done:

1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of Erquiaga’s
surety bond of P410,000 in favor of Reynoso;

2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga
Development Corporation, instead of 3,100 shares, as ordered in paragraph (a) of the final
judgment.

What the parties have not done:

1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a) of the
decision;

2. Reynoso has not rendered a full accounting of the fruits he has received from Hacienda San Jose
by virtue of the 3,100 shares of stock of the Erquiaga Development Corporation delivered to him
under the sale, as ordered in paragraph (b) of the decision;

3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the sale, with legal interest
from November 4, 1968 and P310,000 plus legal interest from December 17, 1968, until paid
(total: P410,000) as ordered in paragraph (c) of the decision;
 4. Reynoso has not paid the judgment of P12,000 as actual damages in favor of Erquiaga, under
paragraph (d) of the judgment;

5. Reynoso has not paid the sum of P50,000 as attorneyÊs fees to Erquiaga under paragraph (e) of
the judgment; and

6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph (f) of the
final judgment.

COURT

 CC Art. 1385

 The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga.
Therefore, upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs)
should return to Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to
the rescission decreed in the final judgment, there should be simultaneous mutual restitution of the
principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000).
This should not await the mutual restitution of the fruits, namely: the legal interest earned by
Reynoso’s P410,000 while in the possession of Erquiaga, and its counterpart: the fruits of
Hacienda San Jose which Reynoso received from the time the hacienda was delivered to him on
November 4, 1968 until it was placed under receivership by the court on March 3, 1975.

 Since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga’s
obligation to deliver to Reynoso the legal interest earned by his money, should await the rendition
and approval of his accounting.

Decision of the Court of Appeals modified.

Visayan Saw Mill v Court of Appeals

G.R. No. 83851 (1993)
Ponente: Davide, Jr., J.
FACTS

 1 May 1983: Visayan Sawmill and RJH Trading entered into a “Purchase and Sale of Scrap Iron” -
sale involving scrap iron located at the stockyard of petitioner corporation at Cawitan, Sta.
Catalina, Negros Oriental, subject to the condition that respondent RJH Trading will open a letter
of credit in the amount of P250,000.00 in favor of petitioner corporation on or before May 15,
1983.

 May 17: RJH Trading started to dig and gather scrap iron at Visayan Sawmill’s premises, until
May 30 when Visayan Sawmill allegedly directed RJH Trading’s men to desist from pursuing the
work in view of an alleged case filed against them by a certain Alberto Pursuelo (according to
RJH Trading).

 Visayan Sawmill in turn alleges that on May 23, 1983, they sent a telegram to plaintiff- appellee
cancelling the contract of sale because of failure of the latter to comply with the conditions
thereof.

 May 24: RJH Trading informed petitioners by telegram that the letter of credit was opened May
12, 1983 at the Bank of the Philippine Islands main office in Ayala, but that the transmittal was
delayed.
  May 26: Visayan Sawmill received a letter advice from the Dumaguete City Branch of the Bank of
the Philippine Islands dated May 26, 1983, informing them that the letter of credit had been
opened.

 19 July: RJH Trading sent a series of telegrams stating that the case filed against him by Pursuelo
had been dismissed and demanding that Visayan comply with the deed of sale, otherwise a case
will be filed against them.

 20 July: Petitioner’s lawyer informed respondent’s lawyer that they were unwilling to continue
with the sale due to respondent’s failure to comply with essential preconditions of the contract.

 29 July 1983: complaint for specific performance and damages filed by RJH Trading with a
petition for preliminary attachment – unserved because Visayan Sawmill was no longer in
operation and also because the scrap iron as well as other pieces of machinery could no longer be
found.

 RTC of Iloilo found for respondents; CA affirmed but lowered the amount of moral damages.

COURT

 Both the trial court and the public respondent erred in the appreciation of the nature of the
transaction between the petitioner corporation and the private respondent. What obtains in the case
at bar is a mere contract to sell, rather than a contract of sale.

 In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, the seller
bound and promised itself to sell the scrap iron upon the fulfillment by the private respondent of
his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of
the purchase price.

 The petitioner’s obligation to sell was thus subject to a positive suspensive condition – the
opening of the letter of credit.

 The contract is not one of sale where the buyer acquired ownership over the property subject to the
resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no
actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of
credit.

 Not only did the private respondent fail to open, make or indorse an irrevocable and unconditional
letter of credit on or before 15 May 1983 despite his earlier representation in his 24 May 1983
telegram that he had opened one on 12 May 1983, the letter of advice received by the petitioner
corporation on 26 May 1983 from the Bank of the Philippine Islands Dumaguete City branch
explicitly makes reference to the opening on that date of a letter of credit in favor of petitioner
Ang Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on ARMACO-MARSTEEL
ALLOY CORPORATION and set to expire on 24 July 1983, which is indisputably not in
accordance with the stipulation in the contract signed by the parties on at least three (3) counts: (1)
it was not opened, made or indorsed by the private respondent, but by a corporation which is not a
party to the contract; (2) it was not opened with the bank agreed upon; and (3) it is not irrevocable
and unconditional, for it is without recourse, it is set to expire on a specific date and it stipulates
certain conditions with respect to shipment.

 Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the
Civil Code, the petitioner corporation may totally rescind, as it did in this case, the contract.
  The permission given to private respondents to begin digging and gathering scraps is not
tantamount to delivery, which would have perfected the sale.

Decision of the Court of Appeals reversed; case dismissed.

Iringan v CA (2001) Ponente: Justice Quisumbing

Facts: Antonio Palao sold an undivided portion of land in Tuguegarao to Alfonso Iringan. A Deed of Sale
was executed with the purchase priceof P295,000 payable as follows: P10,000 upon execution of
thecontract, P140,000 on or before Apr. 30, 1985, and P145,000 on or before Dec. 31, 1985. On the 2nd
payment, Iringan only paid P40,000, and Palao sent a letter on Jul. 18, 1985 stating that he considered the
contract as rescinded. Iringan replied that they were not opposing the revocation of the contract but asked
for reimbursement of the following amounts: P50,000 as cash received by Palao, P3,200 as geodetic
engineer’s fee, attorney’s fee and the current interest of P53,700. Palao replied that he was not amenable
to this. Iringan proposed that theP50,000 be reimbursed or a portion of the land be sold to him. Palao
replied that Iringan’s standing obligation had reached P61,600.00 for rental arrears. Palao filed a
complaint for Judicial Confirmation of Rescission of Contract and Damages. The RTC ruled in favor of
Palao and affirmed the rescission of the contract, which the CA affirmed.

Issues:

WON the contract of sale was validly rescinded  YES, it was brought within the prescriptive period (6
years from default; 10 years is the prescription period)

WON the award for moral and exemplary damages is proper  YES

Ratio:

Petitioner Iringan – there has to be judiciary action before a contract can be rescinded unilaterally

Respondent Palao – the oblige may rescind the contract and since there was no objection on the part of
Iringan, it had the legal effect of a mutual rescission.

SC: Article 1592 requires a judicial/notarial act before a valid rescission may take place whether or not
there was a stipulation of automatic rescission. The CA, however, used Article 1191. Using Article 1191,
there is still need for a judicial act: “Article 1191: the right to resolve reciprocal obligations is deemed
implied in case one of the obligors shall fail to comply with what is incumbent upon him but that right
must be invoked judicially.” The respondent's letter declaring his intention did not operate to validly
rescind the contract. However, the complaint filed by private respondent before the RTC (Judicial
Confimation of Rescission and Damages) suits to have complied with the legal requirement.

Petitioner refused to formally execute an instrument showing their mutual decision to rescind the contract
of sale even if it was his fault that he was not able to comply with his obligation. Petitioner was also not
able to substantiate his claim that he was ready to pay respondent. It appears to have been a mere
afterthought.

Vida De Mistica v Spouses Naguiat [Ponente: Justice Panganiban]

Facts: Eulalio Mistica is the owner of a parcel of land located at Malhacan, Meycauayan, Bulacan. A
portion thereof was leased to respondent Naguiat.

Consequently, Mistica entered into a contract to sell with respondent over a portion of lot containing an
area of 200 sq. meters.
The agreement was reduced to writing in a document entitled “Kasulatan sa Pagbibilihan”

P 20k – as the total purchase:

P 2k – upon signing;

P 18k – to be paid within 10yrs;

In case nonpayment, vendee shall pay an interest of 12% per annum.

Pursuant to said agreement, respondent gave a downpayment of P2K & made another partial payment of
P1K & thereafter failed to make any payments.

Eulalio Mistica died sometime in Oct. 1986.

Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, because
respondents committed a substantial breach when they did not pay the balance of the purchase price
within the ten-year period.

Issue: WON rescission is still possible  NO

Ratio: The failure to pay by the respondents do not amount to a substantial breach which will make
rescission possible because according to the Kasulatan itself, the buyers may pay even after 10 years
provided that there will be 12% interest. The Kasulatan is a contract of sale which is absolute and its
stipulations have the force of law between the parties.

As to the propriety of the issued title [of the 58 sq. meters included in the title] made for the respondents,
the CA correctly ruled that it could not be resolved in the same proceedings. The contents of the title may
not be attacked collaterally. However, evidence shows that an action has already been filed by the State in
favor of petitioner and heirs of her husband regarding the reversion of the title.

II. Obligation with a Period

Article 1193

Article 1180

A. Period or Term

Concept

 There’s always futurity and certainty. Determine whether or not the future event will arrive.
 The period is either a definite period or indefinite period, or suspensive or resolutory.

Period/Term v Condition

B. Kinds of Period/Term
1. As to effect
 What is the legal reason behind the prohibition against compelling the creditor to accept the
payment before the arrival of the period? It is assumed that the stipulation was made for the
benefit of both creditor and debtor. To compel the creditor to accept the payment before the arrival
of the period is to imply that the stipulation is only for the benefit of the debtor.
 What is the point in the milling of a coin? To prevent from scraping the edges and getting the
gold in the middle (applicable way back when coins were made out of silver and gold).
 o Milling of a coin – the serated, raised edge of the coin

Suspensive (Ex die) Article 1193 (1) – obligation exists from a day certain; ex means from

 If the debtor pays before the arrival of the suspensive period and the creditor accepts it, they shall
be deemed to have waived the period

Resolutory (In diem) Article 1193 (2) – obligation exists up to a day certain

2. As to expression

Express – clearly states the date when the obligation is due and demandable or until when the obligation
will be demandable

Implied – based on the interpretation of the stipulation of the contract

3. As to definiteness

Definite – date is certain and arrival of the date is also specified

Indefinite – it is certain but the arrival of the date is not specified. Example: death of a person, end of a
war

4. As to source

Voluntary – by stipulation of the parties

Legal – period fixed by law – check the Civil Code for examples

Judicial – the court sets the period – gives the party the benefit of the period

C. Rules in case of loss, deterioration or improvement before arrival of period

Article 1194

Article 1189

D. Effect of payment in advance

Article 1195

Note: Article 1197 (3)

E. Benefit of Period
1. For whose benefit
- Creditor – may demand performance at any time
- Debtor – may oppose a premature demand for payment but may validly pay at any time before the
period expires
- Both – general rule: a period is for the benefit of both creditor and debtor
o The effect: The creditor cannot demand until the arrival of the period and the debtor cannot
pay before the said period.
2. Effects
 3. Presumption

Article 1196

Buce v CA Ponente: Chief Justice Davide, Jr.

Facts: Petitioner leased a 56-square meter parcel of land located at 2068 Quirino Avenue, Pandacan,
Manila. The lease contract was for a period of fifteen years to commence on 1 June 1979 and to end on 1
June 1994 “subject to renewal for another ten (10) years, under the same terms and conditions.”Petitioner
then constructed a building and paid the required monthly rental of P200. Private respondents, through
their administrator Jose Tiongco, later demanded a gradual increase in the rental until it reached P400 in
1985. For July and August 1991, petitioner paid private respondents P1,000 as monthly rental.

On 6 December 1991, private respondents’ counsel wrote petitioner informing her of the increase in the
rent to P1,576.58 effective January 1992 pursuant to the provisions of the Rent Control Law.

Petitioner, however, tendered checks dated 5 October 1991, 5 November 1991,

5 December 1991, 5 January 1992, 31 May 1992, 2 January 1993 for only P400 each, payable to Jose
Tiongco as administrator. As might be expected, private respondents refused to accept the same.

On 9 August 1993, petitioner filed with the Regional Trial Court of Manila a complaint for specific
performance with prayer for consignation, which was docketed as Civil Case No. 93-67135. She prayed
that private respondents be ordered to accept the rentals in accordance with the lease contract and to
respect the lease of fifteen years, which was renewable for another ten years, at the rate of P200 a month.

Respondents said that the language of the contract shows that the renewal was not automatic and they
were justified in not accepting petitioner’s payment. During the pendency of the controversy, private
respondents’ counsel wrote to the petitioners reminding her that the contract had already expired and to
pay the rent in arrears.

RTC: Contract was automatically renewed

CA: Reversed RTC decision and ordered petitioner to immediately vacate the premises

Issue:

WON the CA erred in ruling that the Fernandez doctrine is applicable in this case  NO

WON the CA erred in ruling that the stipulation in the contract shows that the renewal is not automatic
and must depend on the mutual agreement between the parties  NO

Ratio: Article 1196 and the Fernandez ruling show that the period of the lease contract is deemed to have
been set for the benefit of both parties. If there is ambiguity, such as in this case, in the stipulations in a
contract, the presumption is that the intention was to benefit both parties. The continuance, effectivity and
fulfillment of a contract of lease cannot be made to depend exclusively upon the free, uncontrolled choice
of the lessee, completely depriving the owner of his rights. There has to be mutuality and equality. To rule
otherwise in this case is to remove such mutuality and equality.

Nothing in the stipulations shows that the parties intended for an automatic renewal of the lease. Besides,
a stipulation for the renewal of contract means that the old one is extinguished and a new one has to be
made by the parties. The private respondents’ action of reminding the lessees of the expiration of the
contract and the demand for payment in arrears signify that they do not want to renew the contract.
MARIA LACHICA VS GREGORIO ARANETA

FACTS: Gregorio Araneta, Inc. (through President Jose Araneta) offered for sale a parcel of land with the
improvements thereon. This property was bought by Investment Corporation through Maria Lachica, the
wife of the Esteban Sadang who was sales agent of defendant-corporation.

The terms of the contract stated that the price was P20, 000, of which P8, 000 was to be paid in cash and
the balance of P12,000 in installments of –

P 1,000 on or before December 31, 1943

P 1,000 on or before December 31, 1944

P 10,000 on or before December 31, 1945.

What the parties signed was a contract of exact content as stated, which however omitted the words “or
before.” Thus, it would appear that the payment of the installments would be “on” and not “on or before”
the dates as specified.

The contract further added that “this same property will be mortgaged to us to guarantee the unpaid
balance, and the same will bear an interest of 8 percent per annum; said interest to be paid monthly in
advance.”

The terms were complied with, together with some resolved differences, until on Sept. 5, 1944, plaintiff
Sadang went to see Araneta to pay the entire balance, including the interest thereon and ask for the
cancellation of the mortgage, but Araneta refused to accept the tender of payment. Araneta gave as his
reason for his non-acceptance that such payment was not in accordance with the terms of the deed of sale
with mortgage.

Plaintiff, through counsel, deposited the sum (balance) supposed to be paid to Araneta with the CFI of
Manila by way of consignation, and at the same time presented the complaint.

The defendant alleges that payment should be on the date specified, not before; the plaintiffs claim that
such payment may be made on or before the date specified.

ISSUE: Should Araneta be compelled to accept the payment?

RULING: Yes. The contract does not prohibit if it is done before. A term is fixed and “it is presumed to
have been established for the benefit of the creditor as well as that of the debtor, unless from its tenor or
from other circumstances it should appear that the terms as established for the benefit of one or the other.”
(Art. 1127, now 1196 Civil Code). And the contract specifically provides that “these periods of payment
have been agreed for the benefit of the vendor and the vendee.” Such mutual benefit has been interpreted
to consist of the time granted a debtor to find means to comply with his obligation, and the fruits, such as
interest, accruing to the creditor.

From the SC decision in Villaseñor vs. Javellana, the only impediment to a debtor making payment before
the term fixed, is the denial to the creditor of the benefits, such as interests, accruing to the later by reason
of the fixed term. This, coupled with the fact that the contract did not prohibit payment before the fixed
date, justifies the conclusion that under the terms signed, plaintiffs could do so. To hold otherwise, would
be virtually compelling an obligor to assume an obligation later when he offers to, and could very well,
discharge it earlier. The law should not be interpreted as to compel a debtor to remain so, when he is in a
position to release himself.
Further, the acceleration clause in the contract signed by the parties state that “in the event of defaults in
payment of any amount due, either for capital or interest, the whole balance shall automatically become
due and payable, and the vendor shall have the right to foreclose the mortgage in its entirety.” While the
clause is standard one contained in most mortgage deeds where the mortgage loan is payable in several
installments, still we cannot escape the conclusion, derived from the clause itself, that payments may be
made by the vendee before the dates stated in the contract.

PONCE DE LEON VS SYJUCO

 He insisted on paying because he was going to use Japanese war notes.

 Main stipulation: payment of the loan should be made within year FROM May 5, 1948
 The title was lost and it had to be reconstituted. Ponce de Leon reconstituted the titles in his name
then mortgaged them to the bank again (even if the titles were supposedly mortgaged to Syjuco,
Inc.). This constitutes a fraud.
 Syjuco must have thought that the Americans were going to win the war and by the time the debt
became payable, the legal tender will not be Japanese war notes anymore.
 This is the proof that benefit is for both parties.

FACTS: The appellee, Philippine National Bank, was the owner of two parcels of land in Negros
Occidental. On March 9, 1936 the Bank executed a contract to sell the said properties to Jose Ponce de
Leon for the total price of P26,300.

Subsequently, Ponce de Leon obtained a loan from Santiago Syjuco, Inc in the amount of P200,000 in
Japanese Military Notes, payable within one (1) year from May 5, 1948. It was also provided that the
Ponce de Leon could not pay, and Syjuco could not demand, the payment of said note except within the
aforementioned period. To secure the payment of said obligation, Ponce de Leon mortgaged the parcels of
land which he agreed to purchase from the Bank. Using the loan, Ponce de Leon was able to pay the Bank
and a deed of absolute sale was executed in his name.

Ponce de Leon further obtained an additional loan from Syjuco. On several occasions in October, 1944,
Ponce de Leon tendered to Syjuco the amount of P254, 880 in Japanese military notes in full payment of
his indebtedness which was refused by Syjuco which Ponce de Leon deposited with the Clerk of Court of
the CFI. He then filed a petition with the CFI for the reconstitution of transfer of the certificates of the lot
in the name of the Bank which was granted by the court. Syjuco filed a second amended answer to Ponce
de Leon's complaint claiming that Ponce de Leon, by reconstituting the titles in the name of the Bank, by
causing the Register of Deeds to have the said titles transferred in his name, and by subsequently
mortgaging the said properties to the Bank as a guaranty for his overdraft account, had violated the
conditions of the mortgage which Ponce de Leon has executed in its favor during the Japanese
occupation. Syjuco prayed that the mortgage executed by Ponce de Leon in favor of the Bank be declared
null and void.

On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's complaint
and condemning Ponce de Leon to pay Syjuco the total amount of P23, 130 with interest at the legal rate
from May 6, 1949, until fully paid

ISSUE: Is the consignation made by the plaintiff valid in the light of the law and the stipulations agreed
upon in the two promissory notes signed by the plaintiff? NO

RULING: No. In order that consignation may be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made because the creditor to whom tender of payment was made
refused to accept it, or because he was absent for incapacitated, or because several persons claimed to be
entitled to receive the amount due (Art. 1176); (3) that previous notice of the consignation have been
given to the person interested in the performance of the obligation (Art. 1177); (4) that the amount due
was placed at the disposal of the court (Art 1178); and (5) that after the consignation had been made the
person interested was notified thereof (Art. 1178). In the instant case, while it is admitted a debt existed,
that the consignation was made because of the refusal of the creditor to accept it, and the filing of the
complaint to compel its acceptance on the part of the creditor can be considered sufficient notice of the
consignation to the creditor, nevertheless, it appears that at least two of the above requirements have not
been complied with. Thus, it appears that plaintiff, before making the consignation with the clerk of the
court, failed to give previous notice thereof to the person interested in the performance of the obligation.
It also appears that the obligation was not yet due and demandable when the money was consigned,
because, as already stated, by the very express provisions of the document evidencing the same, the
obligation was to be paid within one year after May 5, 1948, and the consignation was made before this
period matured. The failure of these two requirements is enough ground to render the consignation
ineffective. And it cannot be contended that plaintiff is justified in accelerating the payment of the
obligation because he was willing to pay the interests due up to the date of its maturity, because, under
the law, in a monetary obligation contracted with a period, the presumption is that the same is
deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other
circumstances it appears that the period has been established for the benefit of either one of them
(Art. 1127). Here no such exception or circumstance exists.

It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of
payment of the obligation because the debtor has offered to pay all the interests up to the date it would
become due, but this argument loses force if we consider that the payment of interests is not the only
reason why a creditor cannot be forced to accept payment contrary to the stipulation. There are other
reasons why this cannot be done. One of them is that the creditor may want to keep his money invested
safely instead of having it in his hands. Another reason is that the creditor by fixing a period protects
himself against sudden decline in the purchasing power of the currency loaned specially at a time when
there are many factors that influence the fluctuation of the currency. And all available authorities on the
matter are agreed that, unless the creditor consents, the debtor has no right to accelerate the time of
payment even if the premature tender "included an offer to pay principal and interest in full."

4. When debtor loses right to make use of period

Article 1198

“The debtor shall lose every right to make use of the period:

1. When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or
security for the debt;  Because he may become more insolvent by the time of the arrival of the
period
2. When he does not furnish to the creditor the guaranties or securities which he has promised;
3. When by his own acts he has impaired said guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless he immediately gives new ones equally
satisfactory;  it might be useless to give him the benefit of the period because he may not be
able to pay his obligation by then
4. When the debtor violates any undertaking, in consideration of which the creditor agreed to the
period; because he might not be able to fulfill the obligation as a result of this violation
5. When the debtor attempts to abscond.”  Because the attempt to abscond may become
consummated later
F. When Court may fix period

Article 1197
 “If the obligation does not fix a period, but from its nature and the circumstances it can be inferred
that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.”

1. Period is implied
2. Period depends solely on will of debtor

Araneta v Philippine Sugar Estate Development

Facts: Petitioner and Respondent entered into a contract of purchase and sale with mortgage whereas
Araneta sold a big tract of land to Philippine Sugar Estate subject to following conditions: 1) that buyer
(Philippine Sugar Estate) will build on said land the Sto. Domingo Church and Convent and 2) that seller
(Araneta) will construct streets surrounding the land which shall be named “Sto. Domingo Avenue”

Philippine Sugar Estate finished the construction of the church while Araneta was unable to finish the
construction of the streets because a third party, occupying the middle part thereof, refused to vacate the
same (squatters).

Philippine Sugar Estate filed a complaint seeking Araneta to comply with the obligation and/or pay
damages in case of failure/refusal.

RTC and CA decided in favor of Philippine Sugar Estate and gave Araneta 2 years to comply with its
obligation

Issue: WON the court should have fixed a period NO

Ratio: The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is
sought to be justified on the basis that petitioner (defendant below) placed the absence of a period in issue
by pleading in its answer that the contract with respondent Philippine Sugar Estates Development Co.,
Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within which to comply with its obligation to
construct and complete the streets." Neither of the courts below seems to have noticed that, on the
hypothesis stated, what the answer put in issue was not whether the court should fix the time of
performance, but whether or not the parties agreed that the petitioner should have reasonable time to
perform its part of the bargain.

All that the court should have done was to determine if the reasonable time had lapsed. Also, the petition
did not ask for intervention so the court should have not intervened. To add to this, even if it was within
the court’s power to set the period, there was no sufficient basis to show how they came up with 2 years.
Article 1197 involves two steps: (1) Determine whether the obligation fixes a period; (2) Determine the
period contemplated by both parties.

III. Alternative Obligations

A. Concept – multiple disjunctive obligations

Alternative obligations – multiple prestations but the debtor has to perform only one or some but not all
of them.
 General Rule: The choice usually lies with the debtor unless expressly given to the creditor.
o Once the party who has the right to choose the alternative and notifies the other party
about his choice, the obligation becomes simple. Without notification, it shall remain
an alternative obligation.
 o If the choice is expressly given to the creditor, the debtor should not compel or
frustrate the right of the creditor to make a choice. If through the debtor’s fault, some
of the alternatives are lost, the Court must still afford the creditor who has the right to
choose the right to choose, at least the value of the obligation.
 The relative value of each of the alternative prestation is equal to each other regardless of the
nature of each prestation.
Facultative obligations – there is a principal prestation and there is a substitute prestation. It is also a
multiple disjunctive obligation except for the notion of the principal and substitute prestation.
 If the principal prestation is an obligation ‘to do’ and it has become impossible to fulfill said
obligation then the whole obligation has become impossible.
 Effect of loss: the impossibility of the principal prestation is sufficient to extinguish the
obligation, even if the substitute is possible.

Alternative obligations Facultative obligations

- For as long as there is a prestation left, the

obligation still exists though now only a - Whatever happens to the principal happens
simple one. to the entire prestation. Whatever happens
to the substitute does not necessarily happen
to the principal.

- The right to choose which prestation to - The right to choose which prestation to
deliver belongs usually to the debtor deliver belongs only to the debtor, never to
UNLESS expressly given to the creditor. the creditor.

Multiple disjunctive obligations

The value of the prestations are equal

B. Right of Choice
C. Effect of Notice of Choice
D. When notice produces effects
E. Effect of loss or impossibility of one or all prestations
F. Facultative Obligation
1. Concept
2. Distinguished from alternative obligation
3. Effect of substitution
IV. Joint and Solidary Obligations
 The focus is on the liability and there has to be several debtors or several creditors
 The heirs of the debtor do not inherit the debt of the deceased debtor. The ESTATE inherits the
decedent’s estate. The properties left by the decedent are going to answer first for the debts of the
decedent that survived his debt.
 Statute of non-claim – piece of legislation passed by the English parliament
A. Joint Obligations
1. Concept – for as long as there is no stipulation as to how several debtors are tied
together, they are considered to be jointly liable
- Joint indivisible and Joint divisible
 o The question is whether or not the prestation can be fulfilled fully or in parts, regardless of
the divisibility of the object of the obligation.
o Joint indivisible – the debtors cooperate and put up their shares and deliver the object of
obligation; anyone who joint co-debtor who fails to come up with his contribution is the
only one liable for damages
- The joint obligation of civil law is vastly different from joint obligation of common law.
o JOINT DIVISIBLE

Example: Jointly bound both creditors and debtors; the obligation is joint-divisible worth 250 million
pesos

C1 -------- D1

C2 D2

C3 D3

C4 D4

C5 D5

C1 may only demand 10 million from D1; Divide 250 million by 5 for each creditor’s due then divide the
result by 5 for each debtor.

5x5 = 25 then divide 250 million by 25

Another example: If there are 5 creditors and only 3 debtors, 5x3 = 15 then divide 250 million by 15

Requisites
Words used to indicate joint obligations – mancomunada or mancomunada simple or
pro rata; apportionable joint obligation
2. Presumption
3. Effects
Extent of liability of debtor
o Any one of the joint co-debtor who fails to come up with his contribution is the only one
liable for damages because it is still a JOINT obligation, just indivisible.
 Example: A doting grandfather whose grandchildren were raised in USA. They’re
coming home for the anniversary of the grandparents. The children wanted to ride a
jeepney. Grandfather wanted to pick up grandchildren in a brand new, assembled
jeepney. He contracted with a mechanic, a welder and an upholster repainter.
(Specifications: pictures of grandchildren and 3 horses) The price is 350,000. They
asked for an advance worth 175k. 100,000 went to the mechanic, 50k went to the
welder and 25k went to the painter. They did not indicate in their contract that they
bound themselves solidarily. The mechanic did his part. The welder and painter,
however, went to Ynares Coliseum (a cockpit). They bet on an entry in the derby
and promptly lost the amount. They did not come up with their part of their
contribution to the assembly of the jeepney.
So the grandfather bought another jeepney worth 450k. The grandfather now can
ask for rescission plus damages. The welder will return 50k and the painter, 25k,
plus damages. Who will pay the damages?
Only the painter and the welder will pay for the damages. The mechanic
will have to return only 100k.
 Extent of right of creditor
In case of novation, compensation, confusion, remission
B. Solidary Obligations
1. Concept
 Three ways to make a solidary obligation
o By stipulation – ‘jointly and solidarily’
o By law
o The nature of the obligation requires solidarity – look for correct examples!!!
Requisites
Words used to indicate solidary obligations – mancomunada solidaria or ‘joint and
several’ or in solidum; ‘juntos o separadamente’
 Why is it called ‘joint and several’? Refer to Jaucian v Querol! You can sue any one of the
debtors separately for the entire obligation.
 Article 1215 – the solidary creditor who performs any of the four actions is liable to his co-
creditors for their shares
 Article 1217 – insolvency of one solidary co-debtor means his share will be borne by all his co-
debtors, in proportion to the debt of each.

2. Kinds
- As to source
Legal
Conventional
Real
- As to parties bound
Active – refers to creditors; each creditor may claim and enforce the rights of all; mutual
representation
Passive – refers to debtors; each debtor can be made to answer for the others (with the right on the
part of the debtor-payor to recover from the others their respective shares); mutual guaranty
Mixed – both parties: creditors and debtors
 From the point of view of solidary creditors, the relationship among the
solidary creditors is mutual agency.
o One solidary creditor can collect the entire debt. He must give the
shares of the other solidary creditors.
o Trust constitutes agency.
 The relationship among solidary debtors is that of mutual guaranty.
o Not only does he promise to pay, he also shares the liabilities of the
other solidary debtors.
 Severally means separately. There can be separate suits.
 Defenses available to a solidary debtor:
o Derived from the nature of the obligation
Total defense
o Personal to him
o Pertaining to his own share
Partial defense
o Personally to other co-debtors
- Total defense – debtor will not pay his share and that of the share of the others
o Examples: consent was vitiated, lack of capacity to consent on the part of whom the
demand to pay is made
- Partial defense – debtor will not pay his own share at the time of the demand
- As to uniformity
Uniform – they can bind themselves solidarily; all the other terms are similar
Varied/Non-uniform – each solidary debtor bind himself under different terms and conditions
Effects
EXAMPLE: Creditors are bound solidarily for 150 million
C1 D1 – 30m – on or before Dec. 31, 2015
C2 D2 – 50m – when he shall receive his GSIS pension
C3 D3 – 30 m – pure obligation
D4 – 20m – when he receives his inheritance from estate of Grandma
D5 – 20m – pure

 Assuming all the obligations are pure and the creditors are bound solidarily, the obligation that
can be demanded from D5 by C3 is 150 million pesos
 Assuming all the obligations are pure and the creditors are bound jointly, the obligation that
can be demanded from D5 by C3 is 50 million pesos
 Note that the creditor may not be compelled to accept partial payment. C3 has to accept the
partial payment with reservation. The reservation is that of the right to demand payment from
the other debtors.
 The fault of one solidary co-debtor is the fault of all. They will all be liable for damages. The
default of one is the default of all.
 The creditor may claim for damages from all the solidary co-debtors based on Article 19 of the
Civil Code [‘abuse of right’].
 In the case where D3 pays the obligation plus damages, he may collect from D5 because D5
should have communicated with his other solidary co-debtors to collect the full amount in
order not to incur delay and be in default, thus damages.
 Article 1217 (2) is the source of the reimbursement of the payment made by D3.

Lafarge Cement Philippines v Continental Cement

Facts:

This is a petition for review.

LAFARGE, in behalf of Luzon Continental Land Corporation (LCLC), agreed to purchase the cement
business of respondent Continental Cement Corporation. Parties entered into a Sale and Purchase
Agreement (SPA). LAFARGE was aware of CONTINENTAL pending case with the Supreme Court
(Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation).

In anticipation of the liability SC might adjudge against CONTINENTAL, the parties, under Clause 2 (c)
of the SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount
of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-
bearing account in the First National City Bank of New York (Citibank) for payment to APT, the
petitioner in Asset Privatization Trust V. CA/Continental.

LAFARGE refused to apply the sum to the payment to APT, despite decision in APT vs
CONTINENTAL, in favor of CONTINENTAL and the repeated instructions of CONTINENTAL.

Fearful that nonpayment to APT would result in the foreclosure, not just of its properties covered by the
SPA with Lafarge but of several other properties as well, CONTINENTAL filed “Complaint with
Application for Preliminary Attachment” against LAFARGE:

a. For LAFARGE to pay the “APT Retained Amount” referred to in Clause 2 (c) of the SPA.

b. LAFARGE moved to dismiss the Complaint on the ground that it violated the prohibition on forum-
shopping. Trial court denied LAFARGE’s Motion to Dismiss
LAFARGE elevated the matter to CA. LAFARGE to avoid being in default and without prejudice to the
outcome of their appeal, filed Answer and Compulsory Counterclaims ad Cautelam before the trial court.
LAFARGE denied the allegations in the Complaint.

They prayed -- by way of compulsory counterclaims against CONTINENTAL, its majority stockholder
and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a)
P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each
as moral damages, and (d) P5,000,000 each as attorney’s fees plus costs of suit.

Prayed that both Lim and Mariano be held “jointly and solidarily” liable with CONTINENTAL.

On behalf of Lim and Mariano, CONTINENTAL moved to dismiss petitioners’ compulsory

counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition.

RTC dismissed LAFARGE counterclaims: Counterclaims against Respondents Lim and Mariano were
not compulsory. Ruling in Sapugay was not applicable. LAFARGE’s Answer with Counterclaims
violated procedural rules on the proper joinder of causes of action.

LAFARGE Motion for Reconsideration:

RTC admitted some errors in Order, particularly in its pronouncement that their counterclaim had been
pleaded against Lim and Mariano only.

However, the RTC clarified that it was dismissing the counterclaim as it impleaded Respondents Lim and
Mariano, even if it included CONTINENTAL.

Issues:

WON petitioner’s counterclaims are compulsory  YES

WON Sapugay v CA is applicable in this case  YES

WON CCC can move to dismiss compulsory counterclaim in behalf of Lim and Mariano  NO

Ratio:

A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out of or is
not necessarily connected with the subject matter of the opposing party's claim." A permissive
counterclaim is essentially an independent claim that may be filed separately in another case. A
counterclaim is compulsory when its object "arises out of or is necessarily connected with the transaction
or occurrence constituting the subject matter of the opposing party's claim and does not require for its
adjudication the presence of third parties of whom the court cannot acquire jurisdiction." Unlike
permissive counterclaims, compulsory counterclaims should be set up in the same action; otherwise, they
would be barred forever.

NAMARCO v. Federation of United Namarco Distributors:

Criteria to determine whether a counterclaim is compulsory or permissive:

1) Are issues of fact and law raised by the claim and by the counterclaim largely the same?

2) Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory counterclaim
rule?
3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's
counterclaim?

4) Is there any logical relation between the claim and the counterclaim? A positive answer to all four
questions would indicate that the counterclaim is compulsory.

The allegations of the petitioner show that its counterclaims for damages were the result of respondents’
(Lim and Mariano) act of filing the Complaint and securing the Writ of attachment in bad faith.
Furthermore, using the "compelling test of compulsoriness," we find that, clearly, the recovery of
petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting separate
trials thereon will result in a substantial duplication of the time and effort of the court and the parties.
Since the counterclaim for damages is compulsory, it must be set up in the same action.

The inclusion of Lim and Mariano is based on the allegations of fraud and bad faith on the part of the
corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate
fiction, so that the said individual may not seek refuge therein, but may be heldindividually and personally

Sapugay vs CA:

Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action,
might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows: "A
counterclaim is defined as any claim for money or other relief which a defending party may have against
an opposing party. However, the general rule that a defendant cannot by a counterclaim bring into the
action any claim against persons other than the plaintiff admits of an exception under Section 14, Rule
6which provides that 'when the presence of parties other than those to the original action is required for
the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall
order them to be brought in as defendants, if jurisdiction over them can be obtained.' The inclusion,
therefore, of Cardenas in petitioners' counterclaim is sanctioned by the rules.

CCC has no personality to move to dismiss the compulsory counter claims on behalf of Lim and Mariano.

A perusal of CCC’s Motion to Dismiss the counterclaims shows that Respondent CCC filed it on behalf
of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed. While
Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to
individual defendants Lim and Mariano, it lacks the requisite authority to do so. A corporation has a legal
personality entirely separate and distinct from that of its officers and cannot act for and on their behalf,
without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss
the compulsory counterclaim filed by Respondent CCC has no force and effect as to them

3. Effects
- Solidary creditor in relation to (Article 1215)
o Common debtor
 Right to Demand
 In case of novation, compensation, confusion, remission by a creditor
o Solidary co-creditor/s (Article 1215)
 In case of novation, compensation, confusion, remission
 Prejudicial acts prohibited
 Assignment of rights not allowed
- Solidary debtor in relation to
o Common creditor
 Obligation to perform
 In case of novation, compensation, confusion, remission by a creditor
 o Solidary co-debtor
 In case of payment by a co-debtor
 In case of fortuitous event

Quiombing v CA

Facts:

Spouses Saligo contracted Quiombing and his co-creditor Bischoco to construct a house for them. The
Construction and Service Agreement between the parties stated that the creditors Quiombing and
Bischoco "jointly and severally" bound themselves to construct a house for the debtors. Upon completion,
Quiombing was paid partially, but was unable to collect the balance after repeated demands. Quiombing
alone filed for recovery of the balance plus charges and interests.

Issue: WON the second solidary creditor is an indispensable party  NO

Ratio:

It did not matter who as between them filed the complaint because the private respondents were liable to
either of the two as a solidary creditor for the full amount of the debt. Full satisfaction of a judgment
obtained against them by Quiombing would discharge their obligation to Biscocho, and vice versa; hence,
it was not necessary for both Quiombing and Biscocho to file the complaint. This finds support in Article
1212 of the Civil Code.

Article 1214 also states that since it was Quiombing who filed a judicial claim, the respondents should
pay him. It is now up to Biscocho to claim his share in said payment.

In a solidary obligation, one of the parties is indispensable but the second party is not even necessary
(Justice Jose Y. Feria).

Indispensable parties are those with such an interest in the controversy that a final decree would
necessarily affect their rights, so that the court cannot proceed without their presence. Necessary parties
are those whose presence is necessary to adjudicate the whole controversy, but whose interests are so far
separable that a final decree can be made in their absence without affecting them.

Inciong v Court of Appeals

257 SCRA 578 (1996)
Ponente: Romero, J.

FACTS

 Petitioner signed a promissory note due on 5 May 1983 in the amount of P50,000.00 with Rene C.
Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and severally
liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch.

 14 November 1983 and 8 June 1984: having received no payment, private respondent sent
demands via telegram.

 11 December 1984: final letter of demand sent

 4 January 1986: complaint for collection filed against the three obligors
  25 November 1986: complaint dismissed (failure to prosecute); lower court reconsidered on 9
January 1987.

 27 January: lower court dismissed the case against defendant Pantanosas as prayed for by the
private respondent herein. Meanwhile, only the summons addressed to petitioner was served as the
sheriff learned that defendant Naybe had gone to Saudi Arabia

 Defense of petitioner: sometime in January 1983, he was approached by his friend, Rudy Campos,
who told him that he was a partner of Pio Tio, the branch manager of private respondent in
Cagayan de Oro City, in the falcata logs operation business. Campos told him that Rene C. Naybe
was interested in the business and would contribute a chainsaw to the venture. He added that,
although Naybe had no money to buy the equipment, Pio Tio had assured Naybe of the approval
of a loan he would make with private respondent. Campos then persuaded petitioner to act as a co-
maker in the said loan. Petitioner allegedly acceded but with the understanding that he would only
be a co-maker for the loan of P5,000.00.

 Also alleged that five copies of a blank promissory note were brought to him by Campos at his
office. He signed but in one copy, he indicated that he bound himself only for the amount of
P5,000.00.

 RTC Misamis Oriental: found petitioner solidarily liable. CA affirmed.

COURT

On whether or not petitioner should be held solidarily liable

 Petitioner signed the promissory note as a solidary co-maker and not as a guarantor. A solidary or
joint and several obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation.

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

 Any one, some or all of them may be proceeded against for the entire obligation. The choice is left
to the solidary creditor to determine against whom he will enforce collection.

 On the allegation of fraud: petitioner failed to prove this by clear and convincing evidence.

 On the affidavit executed by Pantanosas to substantiate petitioner’s claim that he only agreed to be
co-maker for P 5,000.00: should have been presented in the lower courts; SC not a trier of fact.

Petition denied; decision of the Court of Appeals affirmed.

In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in the
amount of P50k. For that he executed a promissory note in the same amount. Naybe was able to convince
Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The promissory note
went due and it was left unpaid. PBC demanded payment from the three but still no payment was made.
PBC then sue the three but PBC later released Pantanosas from its obligations. Naybe left for Saudi
Arabia hence can’t be issued summons and the complaint against him was subsequently dropped. Inciong
was left to face the suit. He argued that that since the complaint against Naybe was dropped, and that
Pantanosas was released from his obligations, he too should have been released.
ISSUE: Whether or not Inciong should be held liable.

HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing his
argument based on Article 2080 of the Civil Code which provides that guarantors are released from their
obligations if the creditors shall release their debtors. It is to be noted however that Inciong did not sign
the promissory note as a guarantor. He signed it as a solidary co-maker.

A guarantor who binds himself in solidum with the principal debtor does not become a solidary co-debtor
to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum
(surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal
debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by
reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him.

Because the promissory note involved in this case expressly states that the three signatories therein are
jointly and severally liable, any one, some or all of them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor (PBC) to determine against whom he will enforce
collection. Consequently, the dismissal of the case against Pontanosas may not be deemed as having
discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court never acquired
jurisdiction over him. Inciong, therefore, may only have recourse against his co-makers, as provided by
law.

4. Defenses available to a solidary debtor against the creditor

Alipio v Court of Appeals

341 SCRA 441 (2000)
Ponente: Mendoza, J.

FACTS

 Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito, Mabuco, Hermosa,
Bataan. The lease was for a period of five years ending on September 12, 1990. On June 19, 1987,
he subleased the fishpond, for the remaining period of his lease, to the spouses Placido and Purita
Alipio and the spouses Bienvenido and Remedios Manuel, who all signed the contract.

o Rent: P485,600.00, payable in two installments of P300,000.00 and P185,600.00, with the
second installment falling due on June 30, 1989.

 Sublessees only paid a portion of the second installment, leaving an unpaid balance of P
50,600.00.

 13 October 1989: private respondent sued for collection before RTC Branch 5, Dinalupihan,
Bataan; prayed for rescission in the alternative.

 Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had
passed away on December 1, 1988. Trial court denied petitioner’s motion on the ground that since
 petitioner was herself a party to the sublease contract, she could be independently impleaded in the
suit together with the Manuel spouses and that the death of her husband merely resulted in his
exclusion from the case.

 Alipio based her motion on Rule 3, Sec. 21; now Rule 3, Sec. 20 of the 1997 ROC - When the
action is for the recovery of money arising from contract, express or implied, and the defendant
dies before entry of final judgment in the court in which the action was pending at the time of such
death, it shall not be dismissed but shall instead be allowed to continue until entry of final
judgment. A favorable judgment obtained by the plaintiff therein shall be enforced in the manner
especially provided. in these Rules for prosecuting claims against the estate of a deceased person.

 26 February 1991: lower court rendered judgment after trial, ordering petitioner and the Manuel
spouses to pay private respondent the unpaid balance of P50,600.00 plus attorney’s fees in the
amount of P10,000.00 and the costs of the suit.

 CA dismissed petitioner’s appeal.

COURT

On whether or not a creditor can sue the surviving spouse of a decedent in an ordinary proceeding for
the collection of a sum of money chargeable against the conjugal partnership

 Petitioner’s husband died on December 1, 1988, more than ten months before private respondent
filed the collection suit in the trial court on October 13, 1989. This case thus falls outside of the
ambit of Rule 3, §21 which deals with dismissals of collection suits because of the death of the
defendant during the pendency of the case

o When petitioner’s husband died, their conjugal partnership was automatically dissolved
and debts chargeable against it are to be paid in the settlement of estate proceedings

o After the death of either of the spouses, no complaint for the collection of indebtedness
chargeable against the conjugal partnership can be brought against the surviving spouse.
Instead, the claim must be made in the proceedings for the liquidation and settlement of the
conjugal property.

o When the spouses are sued for the enforcement of an obligation entered into by them, they
are being impleaded in their capacity as representatives of the conjugal partnership and not
as independent debtors such that the concept of joint or solidary liability, as between them,
does not apply.

 The trial court ordered petitioner and the Manuel spouses to pay private respondent the unpaid
balance of the agreed rent in the amount of P50,600.00 without specifying whether the amount
was to be paid jointly or solidarily.

o CC Art. 1207: The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the prestations.
There is a solidary liability only when the obligation expressly so estates, or when the law
or the nature of the obligation requires solidarity.
 o Presumed to be joint.

Petition granted. Manuel spouses to pay P 25,300, complaint against petitioner dismissed without
prejudice to the filing of a claim by private respondent in the proceedings for the settlement of estate of
Placido Alipio for the collection of the share of the Alipio spouses in the unpaid balance of the rent in the
amount of P25,300.00.

Facts: Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Bataan for a period of 5
years ending on September 12, 1990. On June 19, 1987, he subleased the fishpond for the remaining
period of his lease to the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios
Manuel for an amount of Php 485,600.oo payable in 2 installments in the amount of Php 300,000.00 and
185,600.00 respectively. The 2nd installment will fall due on June 30, 1989. The 1st installment was duly
paid but the 2nd installment was only partially fulfilled leaving a balance of Php 50,600.00. The sub
lessees failed to settle the remaining balance despite repeated demands. This prompted private
respondent Jaring to file a complaint on Oct. 13, 1989 against the Alipio and Manuel spouses in the RTC
Bataan for the collection of the said amount and prayed in the alternative, the rescission of the sublease
contract in case of failure to pay. However, prior to the institution of the complaint, on Dec. 1, 1988, one
of the sub lessees, Placido Alipio, died. His wife, Purita moved to dismiss the complaint citing Rule 3 Sec
21 of the 1964 Rules of Court which states that in an action for recovery of money, debt or interests and
the defendant dies before the CFI renders the final judgment, the case shall be dismissed and prosecuted
in the manner especially provided in these rules. This rule was however amended, so that in Rule 3 Sec
20 of the 1997 Rules of Civil procedure, it states that there is no longer need to dismiss, that the case will
be allowed to continue until entry of final judgment and that the claims will then be pursued in the
manner provided by the rules on prosecuting claims against the estate of a deceased person. The RTC
however, denied petitioner’s motion while the Manuel spouses were defaulted for failure to file an
answer. The RTC rendered a decision ordering the petitioner and the Manuel spouses to pay the unpaid
balance of Php 50,600 plus Php 10,000.00 for atty’s fees and cost of suit.

Petitioner Alipio appealed to the CA but her appeal was also dismissed by the said appellate court citing
the cases (1) Climaco vs. Siy-Uy - that the rule invoked by petitioner does not apply where there are
another defendants against whom the action is instituted; and (2) Imperial insurance Ins. vs. David – that
where a husband and wife bound themselves jointly and severally, in case of death, the liability of the
surviving spouse is independent and separate so that she may be sued for the whole debt.

Hence, petitioner Alipio, filed a petition for review on certiorari questioning the applicability of the
above 2 cases.

C. Joint Indivisible Obligations

1. Concept
i. Distinguished from Joint Obligations
ii. Distinguished from Solidary Obligations
2. Indivisibility distinguished from solidarity
3. Effects – Article 1209
a. Liability for Damages in case of breach – Article 1224
V. Divisible and Indivisible Obligations
A. Divisible Obligations
- Concept
- Effects – Articles 1223 and 1233
B. Indivisible Obligations
- Concept
 a. Distinguished from solidary obligations
- Kinds
- Presumptions
- Divisibility and indivisibility in obligations not to do
- Effects
- Cessation of indivisibility
VI. Obligations with a Penal Clause

Makati Development Corp. v Empire Insurance Co.

20 SCRA 557 (1967)
Ponente: Castro, J.

FACTS

 March 31, 1959: Makati Development Corporation sold to Rodolfo P. Andal a lot, with an area of
1,589 square meters, in the Urdaneta Village, Makati, Rizal, for P55,615.

 Special condition imposed: the Andals were required to have commenced and completed at least
50% of their residence on said lot within two years from 31 March 1959. Failure to comply with
said condition would result in the forfeiture of the cash bond of P 11,123.00 in favor of the vendor.

 To insure faithful compliance with this "condition," Andal gave a surety bond on April 10, 1959
wherein he, as principal, and the Empire Insurance Company, as surety, jointly and severally,
undertook to pay the Makati Development Corporation the sum of P 12,000.00 in case Andal
failed to comply with his obligation under the deed of sale.

 Instead of building a house, Andal sold the lot to Juan Carlos on 18 January 1960, who did not
build a house within the two-year period either.

 3 April 1961: MDC sent a notice of claim to the Empire Insurance Co. advising it of Andal's
failure to comply with his undertaking – demand for payment of the P 12,000.00 was refused.

 Makati Development Corporation filed a complaint in the Court of First Instance of Rizal on May
22, 1961 against the Empire Insurance Co. to recover on the bond in the full amount, plus
attorney's fees.

 28 March 1963: CFI ordered Empire Insurance Co. to pay Makati Development Corporation the
amount of P1,500, with interest at the rate of 12% from the time of the filing of the complaint until
the amount was fully paid, and to pay attorney's fees in the amount of P500, and the proportionate
part of the costs. The court directed that in case the amount of the judgment was paid by the
Empire Insurance Co., Andal should in turn pay the former the sum of P1,500 with interest at 12%
from the time of the filing of the complaint to the time of payment and to pay attorney's fees in the
sum of P500 and proportionate part of the costs.

 MDC appealed directly to the Supreme Court - appellant argues that Andal became liable for the
full amount of his bond upon his failure to build a house within the two-year period which expired
on March 31, 1961 and that the trial court was without authority to reduce Andal's liability on the
basis of Carlos' construction of a house a month after the stipulated period because there was no
privity of contract between Carlos and the Makati Development Corporation.

COURT
On whether or not the CFI erred in mitigating the liability of respondent:

 The "special condition" is in reality an obligation to build a house at least 50 per cent of which
must be finished within two years. It was to secure the performance of this obligation that a penal
clause was inserted.

 In obligations with a penal sanction the penalty takes the place of "damages and the payment of
interest in case of non-compliance" and that the obligee is entitled to recover upon the breach of
the obligation without the need of proving damages, it is nonetheless true that in certain instances
a mitigation of the obligor's liability is allowed pursuant to CC Art. 1229 (part/irregular
performance of the obligation).

 CFI found that Carlos had finished more than 50 per cent of his house by April, 1961, or barely a
month after the expiration of the stipulated period. There was therefore a partial performance of
the obligation within the meaning and intendment of article 1229.

 The penal clause in this case was inserted not to indemnify the Makati Development Corporation
for any damage it might suffer as a result of a breach of the contract but rather to compel
performance of the so-called "special condition" and thus encourage home building among lot
owners in the Urdaneta Village.

 Special condition cannot be construed as imposing a strictly personal obligation on Andal –

nothing in the deed of sale restricts his right to sell the property within the two year period.

Decision appealed from is affirmed.

Tan v Court of Appeals

367 SCRA 571 (2001)
Ponente:

FACTS

 May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each in the
principal amount of P2,000,000.00 or in the total principal amount of P4,000,000.00, from
respondent CCP evidenced by two (2) promissory notes with maturity dates on May 14, 1979 and
July 6, 1979

 Petitioner defaulted but after a few partial payments he had the loans restructured by respondent
CCP, and petitioner accordingly executed a promissory note on August 31, 1979 in the amount of
P3,411,421.32 payable in five (5) installments.

 In a letter dated January 26, 1982, petitioner requested and proposed to CCP a mode of paying the
restructured loan, i.e., (a) twenty percent (20%) of the principal amount of the loan upon the
respondent giving its conformity to his proposal; and (b) the balance on the principal obligation
payable in thirty-six (36) equal monthly installments until fully paid. On October 20, 1983,
petitioner again wrote to CCP requesting for a moratorium on his loan obligation until the
following year allegedly due to a substantial deduction in the volume of his business and on
account of the peso devaluation.

 CCP, through counsel, wrote a letter dated May 30, 1984 to the petitioner demanding full
payment, within ten (10) days from receipt of said letter, of the petitioner’s restructured loan
which as of April 30, 1984 amounted to P 6,088,735.03.
  August 29, 1984: CCP filed in the RTC of Manila a complaint for collection of a sum of money

 Defense of petitioner: only accommodated a friend, Wilson Lucmen, who allegedly asked for his
help to obtain a loan from CCP, and who now cannot be located.

 While case was pending, petitioner again proposed a mode of payment – rejected by CCP and trial
resumed.

 Trial court ruled in favor of CCP for the following reasons: First, it gave little weight to the
petitioner’s contention that the loan was merely for the accommodation of Wilson Lucmen for the
reason that the defense propounded was not credible in itself. Second, assuming, arguendo, that
the petitioner did not personally benefit from the said loan, he should have filed a third party
complaint against Wilson Lucmen, the alleged accommodated party but he did not. Third, for
three (3) times the petitioner offered to settle his loan obligation with respondent CCP. Fourth,
petitioner may not avoid his liability to pay his obligation under the promissory note which he
must comply with in good faith pursuant to Article 1159 of the New Civil Code. Fifth, petitioner is
estopped from denying his liability or loan obligation to the private respondent.

 Petitioner appealed the decision of the trial court to the Court of Appeals insofar as it charged
interest, surcharges, attorney’s fees and exemplary damages against the petitioner. CA affirmed
the decision of the RTC but deleted the award for exemplary damages and reduced the attorney’s
fees to 5% (respondent was using government counsel).

COURT

On whether or not there are contractual and legal bases for the imposition of the penalty, interest on the
penalty and attorney’s fees

 The promissory note expressly provides for the imposition of both interest and penalties in case of
default on the part of the petitioner in the payment of the subject restructured loan.

 14% per annum interest - monetary interest allowed under Art. 1956. 2% per month penalty is in
the form of penalty charge which is separate and distinct from the monetary interest on the
principal of the loan.

 The New Civil Code permits an agreement upon a penalty apart from the monetary interest. If the
parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as
such the two are different and distinct from each other and may be demanded separately.

 The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time
of default by the petitioner. Petitioner is liable for both the stipulated monetary interest and the
stipulated penalty charge.

On whether or not interest may accrue on the penalty or compensatory interest without violating the
provisions of Article 1959

 Art. 1959: Without prejudice to the provisions of Article 2212, interest due and unpaid shall not
earn interest. However, the contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.

 Penalty clauses can be in the form of penalty or compensatory interest. Thus, the compounding of
the penalty or compensatory interest is sanctioned by and allowed pursuant to the above-quoted
provision of Article 1959
 o Express stipulation in the promissory note

o Article 2212 of the New Civil Code provides that “Interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent upon this
point.”

 Inasmuch as petitioner has made partial payments which showed his good faith, a reduction of the
penalty charge from two percent (2%) per month on the total amount due, compounded monthly,
until paid can indeed be justified under the said provision of Article 1229 of the New Civil Code.

 Reduce the penalty charge to a straight 12% per annum on the total amount due starting August
28, 1986, the date of the last Statement of Account

Assailed Decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION in that the
penalty charge of two percent (2%) per month on the total amount due, compounded monthly, is hereby
reduced to a straight twelve percent (12%) per annum starting from August 28, 1986.

Country Bankers Insurance v Court of Appeals

G.R. No. 85161 (1991)
Ponente: Medialdea, J.

FACTS

 Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and petitioner Enrique
F. Sy, as lessee, entered into a lease agreement over the Avenue, Broadway and Capitol Theaters
and the land on which they are situated in Cabanatuan City.

 Term of the lease was for six (6) years commencing from June 13, 1977 and ending June 12, 1983.

 After more than two years, lessor OVEC made demands for the repossession of the said leased
properties in view of the Sy’s arrears and non-payment of amusement taxes.

 August 8, 1979: OVEC and Sy had a conference; allowed to continue operating the leased
premises upon his conformity to certain conditions

 The accrued amusement tax liability of the three (3) theaters to the City Government of
Cabanatuan City had accumulated to P84,000.00 despite the fact that Sy had been deducting the
amount of P4,000.00 from his monthly rental with the obligation to remit the said deductions to
the city government.

 Letters of demand dated January 7, 1980 and February 3, 1980 were sent to Sy. The latter demand
was with warning that OVEC will re-enter and repossess the Avenue, Broadway and Capital
Theaters on February 11,1980 in pursuance of the pertinent provisions of their lease contract

 Upon failure of Sy to pay, OVEC padlocked the gates of the three theaters under lease and took
possession in the morning of February 11, 1980 by posting its men around the premises of the said
movie houses and preventing the lessee’s employees from entering the same.

 Sy filed the present action for reformation of the lease agreement, damages and injunction late in
the afternoon of the same day. By virtue of a restraining order dated February 12, 1980 followed
by an order directing the issuance of a writ of preliminary injunction issued in said case, Sy
regained possession and operation of the Avenue Broadway and Capital theaters.
  Causes of action of Sy

o the amount of deposit P600,000.00 as agreed upon, P300,000.00 of which was to be paid
on June 13, 1977 and the balance on December 13, 1977·was too big; and OVEC said that
they would not forfeit;

o Sy sought to recover from OVEC the Sums of 1) P1 00,000,00 “major repairs on

Broadway Theater and the application of which to Sy’s due rentals; 2) P48,000.00 covering
the cost of electrical current allegedly used by OVEC in its alleged “illegal connection” to
Capitol Theater and (3) P31,000.00 also for the cost of electrical current allegedly used by
OVEC for its alleged “illegal connection” to Broadway Theater and for damages suffered
by Sy as a result of such connection.

o OVEC used force in padlocking the theatres, and that as a result, Sy suffered damages at
the rate of P5,000.00 a day, in view of his failure to go thru the contracts he had entered
into with movie and booking companies for the showing of movies at ABC.

o Issuance of a restraining order/preliminary injunction to enjoin OVEC and all persons

employed by it from entering and taking possession of the three theaters, conditioned upon
Sy’s filing of a P500,000.00 bond supplied by Country Bankers Insurance Corporation
(CBISCO).

 Trial court found in favor of OVEC; affirmed by CA.

COURT

On whether or not the forfeiture clause stipulated in the lease agreement would unjustly enrich the
respondent OVEC at the expense of Sy and CBISCO

 A penal clause is an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special prestation
(generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled.

 Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be
demanded

 General rule: in obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance. Exceptions:

o stipulation to the contrary

o when the obligor is sued for refusal to pay the agreed penalty

o when the obligor is guilty of fraud

 Inasmuch as the forfeiture clause provides that the deposit shall be deemed forfeited, without
prejudice to any other obligation still owing by the lessee to the lessor. the penalty cannot
substitute for the P100,000.00 supposed damage resulting from the issuance of the injunction
against the P290,000.00 remaining cash deposit.

Petition denied, decision of the Court of Appeals affirmed.

* Findings of the trial court:

1. Sy is not entitled to the reformation of the lease agreement

2. Repossession of the leased premises by OVEC after the cancellation and termination of the lease
was in accordance with the stipulation of the parties in the said agreement and the law applicable
thereto and that the consequent forfeiture of Sy’s cash deposit in favor of OVEC was clearly
agreed upon by them in the lease agreement.

3. Sy is not entitled to the writ of preliminary injunction issued in his favor after the commencement
of the action and that the injunction bond filed by Sy is liable for whatever damages

4. OVEC may have suffered by reason of the injunction - entitled to recover the said damages in
addition to the arrears in rentals and amusement tax delinquency of Sy and the accrued interest
thereon. From the evidence presented, it found that as of the end of November, 1980, when OVEC
finally regained the possession of the three (3) theaters under lease, Sy’s unpaid rentals and
amusement tax liability amounted to P289,534.78.

5. Sy was under obligation to pay P10,000.00 every month from February to November, 1980 or the
total amount of P100,000.00 with interest on each amount of P10,000.00 from the time the same
became due. This P10,000.00 portion of the monthly lease rental was supposed to come from the
remaining cash deposit of Sy but with the consequent forfeiture of the remaining cash deposit of
P290,000.00, there was no more cash deposit from which said amount could be deducted.

6. Attorney’s fees equivalent to 10% of the amounts above-mentioned.

7. Sy through the injunction bond is liable to pay the sum of P10,000.00 every month from February
to November, 1980. The amount represents the supposed increase in rental from P50,000.00 to
P60,000.00 in view of the offer of one RTG Productions, Inc. to lease the three theaters involved
for P60,000.00 a month.