Solar Harvest, Inc. v. Davao Corrugated Carton Corp.GR No. 176868, 26 July 2010.

FACTS: Solar Harvest, Inc., entered into an agreement with respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for petitioners business of exporting fresh bananas. The agreement was not reduced into writing. To get the production underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondents US Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes. Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a demand

letter for reimbursement of the amount paid. On February 19, 2001, respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from the former’s warehouse 30 days from completion, as agreed upon. Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment from petitioner. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time.

In its Answer with Counterclaim, respondent

insisted that, as early as April 3, 1998, it had already completed production of the 36,500 boxes, contrary to petitioner’s allegation. According to respondent, petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000 had been completed without waiting for petitioner’s payment. Respondent stated that petitioner was to pick up the boxes at the factory as agreed

upon, but petitioner failed to do so. Respondent averred that, on October 8, 1998, petitioner’s representative, Bobby Que (Que), went to the factory and saw that the boxes were ready for pick up. On February 20, 1999, Que visited the factory again and supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioner’s transaction to ship bananas to China did not materialize. Respondent claimed that the boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60.00 per square meter for every month from April 1998. As counterclaim, respondent prayed that judgment be rendered ordering petitioner to pay $15,400.00, plus interest, moral and exemplary damages, attorney’s fees, and costs of the suit.

In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not commit any breach of faith that would justify rescission of the contract and the consequent reimbursement of the amount paid by petitioner. The RTC said that respondent was able to produce the ordered boxes but petitioner failed to obtain possession thereof because its ship did not arrive.

On September 21, 2006, the CA denied the

appeal for lack of merit. The appellate court

held that petitioner failed to discharge its burden of proving what it claimed to be the parties’ agreement with respect to the delivery of the boxes. According to the CA, it was unthinkable that, over a period of more than two years, petitioner did not even demand for the delivery of the boxes. The CA added that even assuming that the agreement was for respondent to deliver the boxes, respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes.

ISSUE:

Whether or not petitioner may claim reimbursement under Article 1191 of the Civil Code?

HELD:

NO

RATIO:

The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties’ respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph of the present article, that is, the other party would incur in delay only from the moment the other party demands fulfillment of the former’s obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue.

Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a “follow-up” upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioner’s witness also testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation.

Spouses Lam v. Kodak Philippines, Ltd.

GR No. 167615, 11 January 2016

FACTS:

On 8 January 1992, Spouses Lam and Kodak Philippines entered into an agreement for the sale of three (3) units of the Kodak Minilab System 22XL in the amount of 1,796,000.00 php per unit.

Spouse Lam issued 12 post-dated checks as payment. They requested that Kodak Philippiines not negotiate the first check dated 31 March 1992 allegedly due to insufficiency of funds. The same request was made the following month. However, both checks were negotiated by Kodak Philippines and were honoured by the bank. The 10 other checks were subsequently dishonoured after the Spouses Lam ordered the bank to stop payment.

Kodak Philippines canceled the sale and demanded that the Spouses return the unit it delivered. Spouses Lam ignored the demand but also rescinded the contract for failure to deliver the two (2) remaining units.

Kodak Philippines filed a complaint for replevin and/or recovery of sum of money with the Makati RTC, which then issued the decision in their favour ordering the seizure of the unit. Upon appeal to the CA, the case was remanded to the trial court.

RTC found that Kodak Philippines defaulted in the performance of its obligation under its Letter Agreement wit the Spouses. It held that the failure to deliver two (2) of out the three (3) units of the equipment causes the Lam Spouses to stop paying for the rest of the instalments. Likewise, the RTC ruled that when the Spouses accepted the delivery of the first unit, they became liable for the fair value of the goods received. Thus, they were under the obligation to pay for the amount, and the failure to deliver the remaining units did not give them the right to suspend payment for the unit already delivered. RTC dismissed the case, ordering the petitioners to pay. Upon appeal to the CA, raising the issue of the failure to order

Kodak Philippines to pay. The CA affirmed the RTC’s decision. They ruled that the Letter Agreement executed by the parties showed that their obligations were susceptible of partial performance and the contract between the parties was validly rescinded. Hence, this petition.

ISSUE:

1. Whether or not the contract between petitioners pertained to obligations that are susceptible of partial performance.

2. Whether or not the CA correctly ordered mutual restitution

HELD:

1. NO 2. YES

RATIO:

1. Based on the foregoing, the intention of the parties is for there to be a single transaction covering all three (3) units of the Minilab Equipment. Respondent’s obligation was to deliver all products purchased under a “package” and, in turn, petitioners’ obligation was to pay for the total purchase price, payable in installments.

The intention of the parties to bind themselves to an indivisible obligation can be further discerned through their direct acts in relation to the package deal. There was only one agreement covering all three (3) units of the Minilab Equipment and their accessories.

There is no indication in the Letter Agreement that the units’ petitioners ordered were covered by three (3) separate transactions. The factors considered by the Court of Appeals are mere incidents of the execution of the obligation, which is to deliver three units of the Minilab Equipment on the part of respondent and payment for all three on the part of petitioners. The intention to create an indivisible contract is apparent

from the benefits that the Letter Agreement afforded to both parties. Petitioners were given the 19% discount on account of a multiple order, with the discount being equally applicable to all units that they sought to acquire. The provision on “no downpayment” was also applicable to all units. Respondent, in turn, was entitled to payment of all three Minilab Equipment units, payable by installments.

2. Rescission under Article 1191 has the effect of mutual restitution.

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked because the power to resolve is implied in reciprocal obligations. The right to resolve allows an injured party to minimize the damages he or she may suffer on account of the other party’s failure to perform what is incumbent upon him or her. When a party fails to comply with his or her obligation, the other party’s right to resolve the contract is triggered. The resolution immediately produces legal effects if the non-performing party does not question the resolution. Court intervention only becomes necessary when the party who allegedly failed to comply with his or her obligation disputes the resolution of the contract. Since both parties in this case have exercised their right to resolve under Article 1191, there is no need for a judicial decree before the resolution produces effects.

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract.

The Wellex Group, Inc. v. U-Land Airlines Co., Ltd.GR No. 167519, 14 January 2015

FACTS:

Wellex and U-Land agreed to develop a long-term business relationship through the creation of joint interest in airline operations and property development projects in the Philippines. The agreement includes: Acquisition of APIC and PEC shares; Operation and management of APIC/PEC/APC; Entering into and funding a joint development agreement; and the option to acquire from WELLEX shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40% of the outstanding capital stock of ESB of U-Land. The provisions of the memorandum were agreed to be executed within 40 days from its execution date.

The 40-day period lapsed but Wellex and U-Land were not able to enter into any share purchase agreement although drafts were exchanged between the two. However, Despite the absence of a share purchase agreement, U-Land remitted to Wellex a total of US$7,499,945.00. Wellex acknowledged the receipt of these remittances in a confirmation letter addressed to U-Land and allegedly delivered stock certificates and TCTs of subject properties. Despite these transactions, Wellex and U-Land still failed to enter into the share purchase agreement and the joint development agreement. Thus, U-Land filed a Complaint praying for rescission of the First Memorandum of Agreement and damages against Wellex and for the issuance of a Writ of Preliminary Attachment.

RTC: Ruled In favor of Uland and ordered rescission of contract under Art. 1911 of the civil code. Basis of rescission: Wellex’s misrepresentation that APIC was a majority

shareholder of APC that compelled it to enter into the agreement..

“Notwithstanding the said remittances, APIC does not own a single share of APC. On the other hand, defendant could not even satisfactorily substantiate its claim that at least it had the intention to cause the transfer of APC shares to APIC. Defendant obviously did not enter into the stipulated SPA because it did not have the shares of APC transferred to APIC despite its representations. Under the circumstances, it is clear that defendant fraudulently violated the provisions of the MOA.”

On appeal, the Court of Appeals affirmed the ruling of the Regional Trial Court. Hence this petition.

Petitioners invokes Suria v. Intermediate Appellate Court, which held that an "action for rescission is not a principal action that is retaliatory in character under Article 1191 of the Civil Code, but a subsidiary one which is available only in the absence of any other legal remedy under Article 1384 of the Civil Code. Respondent U-land avers that this case was inapplicable because the pertinent provision in Suria was not Article 1191 but rescission under Article 1383 of the Civil Code. The "rescission" referred to in Article 1191 referred to "resolution" of a contract due to a breach of a mutual obligation, while Article 1384 spoke of "rescission" because of lesion and damage. Thus, the rescission that is relevant to the present case is that of Article 1191, which involves breach in a reciprocal obligation.

ISSUE:

Whether or not respondent U-Land correctly sought the principal relief of rescission or resolution under Article 1191.

HELD:YES

RATIO:

Respondent U-Land is praying for rescission or resolution under Article 1191, and not

rescission under Article 1381. The failure of one of the parties to comply with its reciprocal prestation allows the wronged party to seek the remedy of Article 1191. The wronged party is entitled to rescission or resolution under Article 1191, and even the payment of damages. It is a principal action precisely because it is a violation of the original reciprocal prestation. Article 1381 and Article 1383, on the other hand, pertain to rescission where creditors or even third persons not privy to the contract can file an action due to lesion or damage as a result of the contract. Rescission or resolution under Article 1191, therefore, is a principal action that is immediately available to the party at the time that the reciprocal prestation was breached. Article 1383 mandating that rescission be deemed a subsidiary action cannot be applicable to rescission or resolution under Article 1191. Thus, respondent U-Land correctly sought the principal relief of rescission or resolution under Article 1191.

Enforcement of Section 9 of the First Memorandum of Agreement has the same effect as rescission or resolution under Article 1191 of the Civil Code. The parties are obligated to return to each other all that they may have received as a result of the breach by petitioner Wellex of the reciprocal obligation. Therefore, the Court of Appeals did not err in affirming the rescission granted by the trial court.

Contrary to petitioner Wellex’s argument, this is not rescission under Article 1381 of the Civil Code. This case does not involve prejudicial transactions affecting guardians, absentees, or fraud of creditors. Article 1381(3) pertains in particular to a series of fraudulent actions on the part of the debtor who is in the process of transferring or alienating property that can be used to satisfy the obligation of the debtor to the creditor. There is no allegation of fraud for purposes of evading obligations to other creditors. The actions of the parties involving the terms of the First Memorandum of Agreement do not fall under any of the enumerated contracts that may be subject of rescission.

Furthermore, in the rescission by reason of lesion or economic prejudice, the cause of

action is subordinated to the existence of that prejudice, because it is the raison detre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesión enumerated in Article 1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191.

The obligations of the parties gave rise to reciprocal prestations, which arose from the same cause: the desire of both parties to enter into a share purchase agreement that would allow both parties to expand their respective airline operations in the Philippines and other neighboring countries.

Casumpang v. CortejoGR No. 171127, 11 March 2015

FACTS:

Edmer Cortejo was brought to the Emergency Room of the SJDH because of difficulty in breathing, chest pain, stomach pain and fever.

Based on the initial examinations and the chest x-ray, Edmer was diagnosed with “bronchopneumonia”. Edmer was referred to Dr. Casumpang and he confirimed the initial diagnosis of bronchopneumonia.

While under observation, Edmer’s symptoms were persisting which included fever and traces of blood in his sputum, and upon alerting Dr. Casumpang, he reassured Mrs. Corteho that her son’s illness is bronchopneumonia.

The following day, Edmer vomited “phlegmn” with blood streak, and upon examination ordered by Dr. Casumpang, due to the advice of Dr. Sanga, Edmer’s blood test showed that he is suffering from Dengue Hemorrhagic Fever, which prompted his parents to transfer him to the Makati Medical Center, instead of the transferring him to the ICU which Dr. Casumpang suggested.

Upon examination in the Makati Medical Center, the attending physician diagnosed Edmer with Dengue Fever Stage IV that was already in its irreversible stage. Soon, after Edmer died. Believing that Edmer’s death was caused by the negligent and erroneous diagnosis of his doctors, the respondent instituted an action for damages against SJDH, and its physicians: Dr. Casumpang and Dr. Sanga before the RTC of Makati.

RTC ruled in favor of the respondent and held that the physicians were negligent. They also held that SJDH was solidarily liable for the damages. Upon appeal the the CA, the CA affirmed en toto the RTC’s ruling. Hence, this petition.

ISSUE:

Whether or not the SJDH is solidary liable with the physicians

HELD:

YES

RATIO:

We affirm the hospital’s liability not on the basis of Article 2180 of the Civil Code, but on the basis of the doctrine of apparent authority or agency by estoppel.

Despite the absence of employer-employee relationship between SJDH and the petitioning doctors, SJDH is not free from liability.

As a rule, hospitals are not liable for the negligence of its independent contractors. However, it may be found liable if the physician or independent contractor acts as an ostensible agent of the hospital. This exception is also known as the “doctrine of apparent authority.”

Therefore, we hold that, under the doctrine of apparent authority, a hospital can be held vicariously liable for the negligent acts of a physician providing care at the hospital, regardless of whether the physician is an independent contractor, unless the patient knows, or should have known, that the physician is an independent contractor.

SJDH impliedly held out and clothed Dr. Casumpang with apparent authority leading the respondent to believe that he is an employee or agent of the hospital.

SJDH impliedly held out Dr. Casumpang, not only as an accredited member of Fortune Care, but also as a member of its medical staff.

SJDH cannot now disclaim liability since there is no showing that Mrs. Cortejo or the respondent knew, or should have known, that Dr. Casumpang is only an independent contractor of the hospital. In this case, estoppel has already set in.

De Carmen v. Spouses SabordoGR No. 181723, 11 August 2014

FACTS:

Sometime in 1961, the spouses Suico, along with several business partners, entered into a business venture by establishing a rice and corn mill at Mandaue City, Cebu. As part of their capital, they obtained a loan from the Development Bank of the Philippines (DBP), and to secure the said loan, four parcels of land owned by the Suico spouses, denominated as Lots 506, 512, 513 and 514, and another lot owned by their business partner, Juliana Del Rosario, were mortgaged.

Subsequently, the Suico spouses and their business partners failed to pay their loan obligations forcing DBP to foreclose the mortgage. After the Suico spouses and their partners failed to redeem the foreclosed properties, DBP consolidated its ownership over the same. Nonetheless, DBP later allowed the Suico spouses and Flores spouses, as substitutes for Juliana Del Rosario, to repurchase the subject lots by way of a conditional sale for the sum of P240,571.00. The Suico and Flores spouses were able to pay the down payment and the first monthly amortization, but no monthly installments were made thereafter. Threatened with the cancellation of the conditional sale, the Suico and Flores spouses sold their rights over the said properties to herein respondents Restituto and Mima Sabordo, subject to the condition

that the latter shall pay the balance of the sale price. On September 3, 1974, respondents and the Suico and Flores spouses executed a supplemental agreement whereby they affirmed that what was actually sold to respondents were Lots 512 and 513, while Lots 506 and 514 were given to them as usufructuaries. DBP approved the sale of rights of the Suico and Flores spouses in favor of herein respondents. Subsequently, respondents were able to repurchase the foreclosed properties of the Suico and Flores spouses.

On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then Court of First Instance an original action for declaratory relief with damages and prayer for a writ of preliminary injunction raising the issue of whether or not the Suico spouses have the right to recover from respondents Lots 506 and 514.

In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San Carlos City, Negros Occidental, ruled in favor of the Suico spouses directing that the latter have until August 31, 1987 within which to redeem or buy back from respondents Lots 506 and 514.

In a Resolution dated February 13, 1991, the CA granted the Suico spouses an additional period of 90 days from notice within which to exercise their option to purchase or redeem the disputed lots. Later, they discovered that respondents mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as security for a loan, which, subsequently, became delinquent.

Thereafter, claiming that they are ready with the payment of P127,500.00, but alleging that they cannot determine as to whom such payment shall be made, petitioner and her

coheirs filed a Complaint with the RTC of

San Carlos City, Negros Occidental seeking to compel herein respondents and RPB to interplead and litigate between themselves their respective interests on the above mentioned sum of money. The Complaint also prayed that respondents be directed to substitute Lots 506 and 514 with other real estate properties as collateral for their outstanding obligation with RPB and that the

latter be ordered to accept the substitute collateral and release the mortgage on Lots 506 and 514. Upon filing of their complaint, the heirs of Toribio deposited the amount of P127,500.00 with the RTC of San Carlos City, Branch 59.

On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of petitioner and her co-heirs for lack of merit. Respondents’ Counterclaim was likewise dismissed.

Petitioner and her coheirs filed an appeal with the CA contending that the judicial deposit or consignation of the amount of P127,500.00 was valid and binding and produced the effect of payment of the purchase price of the subject lots. In its assailed Decision, the CA denied the above appeal for lack of merit and affirmed the disputed RTC Decision.

ISSUE:

Whether or not there was a valid consignation.

HELD:

NO

RATIO:

In the cases of Del Rosario v. Sandico, 85 Phil. 170 (1949) and Salvante v. Cruz, 88 Phil. 236 (1951), likewise cited as authority by petitioner, this Court held that, for a consignation or deposit with the court of an amount due on a judgment to be considered as payment, there must be prior tender to the judgment creditor who refuses to accept it. The same principle was reiterated in the later case of Pabugais v. Sahijwani, 423 SCRA 596 (2004). As stated above, tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the formerÊs obligation and demanding that the latter accept the same. In the instant case, the Court finds no cogent reason to depart from the findings of the CA and the RTC that petitioner and her coheirs failed to make a prior valid tender of payment to respondents.

Furthermore, the fact that the subject lots are in danger of being foreclosed does not excuse petitioner and her coheirs from tendering payment to respondents, as directed by the court.

BPI v. DomingoGR No. 169407, 25 March 2015

FACTS:

Spouses Domingo executed a promissory note in favour of Makati Auto Centre payable in 48 successive instalments. They simultaneously executed a Deed of Chattel Mortgage over a 1993 Mazda vehicle to secure payment of the promissory note.

Makati Auto Center, Inc. then assigned, ceded, and transferred all its rights and interests over the said Promissory Note and chattel mortgage to Far East Bank and Trust Company (FEBTC), which the SEC approved and issued the Certificate of Filing of the Articles of Merger and Plan of Merger and between BPI, the surviving corporation, and FEBTC, the absorbed corporation. By virtue of said merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI.

Consequently, Spouses Domingo defaulted in their installments. BPI, being the surviving corporation after the merger, demanded that the spouses Domingo pay the balance of the Promissory Note including other charges or to return the subject vehicle for purposes of foreclosure. When the Spouses Domingo still failed to comply with its demands, BPI filed a complaint with the MTC. Spouses Domingo argued that BPI had no cause of action against them and that Maryden Domingo once obtained a car loan from FEBTC but sold it to Carmelita Gonzales with the bank’s conformity and the buyer subsequently assumed payment of the balance of the mortgaged loan.

MTC rendered a decision in favor of BPI as the bank was able to establish by preponderance of evidence a valid cause of action against the spouses. They held that novation is never presumed and must be clearly shown by express agreement or by acts of equal import. The MeTC found Amador’s bare testimony as insufficient

evidence to prove that he and his wife Mercy had been expressly released from their obligations and that Carmelita Gonzales (Carmelita) assumed their place as the new debtor within the context of subjective novation. Upon appeal to the RTC, the RTC held that in novation, consent of the creditor to the substitution of the debtor need not be by express agreement, it can be merely implied.

To the RTC, the following circumstances demonstrated the implied consent of BPI to the novation: (1) BPI had knowledge of the Deed of Sale and Assumption of Mortgage executed between Mercy and Carmelita, but did not interpose any objection to the same; and (2) BPI (through FEBTC) returned the personal checks of the spouses Domingo and accepted the payments made by Carmelita. The RTC also noted that BPI made a demand for payment upon the spouses Domingo only after 30 months from the time Carmelita assumed payments for the installments due. The RTC reasoned that if the spouses Domingo truly remained as debtors, BPI would not have wasted time in demanding payments from them.

Upon appeal to the CA, the CA affirmed the decision of the RTC that novation took place. Hence, this petition.

ISSUE:

Whether or not there had been a novation of the loan obligation with chattel mortgage of the Spouses Domingo to BPI so that the spouses Domingo were released from said obligation and Carmelita was substituted as debtor.

HELD:

NO

RATIO:

The burden of establishing a novation is on the party who asserts its existence. Contrary to the findings of the Court of Appeals and the RTC, Amador failed to discharge such burden, as he was unable to present proof of the clear and unmistakable consent of BPI to the substitution of debtors.

Irrefragably, there is no express consent of BPI to the substitution of debtors. The Court of Appeals and the RTC inferred the consent of BPI from the following facts: (1) BPI had a copy of the Deed of Sale and Assumption of Mortgage executed between Mercy and Carmelita in its file, indicating its knowledge of said agreement, and still it did not interpose any objection to the same; (2) BPI (through FEBTC) returned the spouses Domingo’s checks and accepted Carmelita’s payments; and (3) BPI did not demand any payment from the spouses Domingo not until 30 months after Carmelita assumed the payment of balance on the Promissory Note.

Absent proof that BPI gave its clear and unmistakable consent to release the spouses Domingo from the obligation to pay the car loan, Carmelita is simply considered an additional debtor. Consequently, BPI can still enforce the obligation against the spouses Domingo even 30 months after it had started accepting payments from Carmelita.

It is worthy to stress that Amador, as the party asserting novation, bears the burden of proving its existence. Amador cannot simply rely on the failure of BPI to produce the checks if these were not actually returned to the spouses Domingo. There is simply not enough evidence to establish the prima facie existence of novation to shift the burden of evidence to BPI to controvert the same.

The Court is therefore convinced that there is no novation by delegacion in this case and Amador remains a debtor of BPI. The Court reinstates the MeTC judgment ordering Amador to pay for the balance on the Promissory Note.

Spouses Mamaril v. The Boy Scout of the PhilippinesGR No. 179382, 14 January 2013

FACTS:

Spouses Mamaril are jeepney operators since 1971. They would park their six (6) passenger jeepneys every night at the Boy Scout of the Philippines’ (BSP) compound located at 181 Concepcion Street, Malate,

Manila for a fee. On May 26, 1995 at 8 in the evening, all these vehicles were parked inside the BSP compound. One of the vehicles was missing and was never

recovered. According to the security guards

Cesario Peña (Peña) and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB)

with whom BSP had contracted

for its security and protection, a male person who looked familiar to them took the subject vehicle out of the compound.

Sps. Mamaril filed a complaint for damages

before the Regional Trial Court (RTC) of Manila, Branch 39, against BSP, AIB, Peña and Gaddi. In support thereof, Sps. Mamaril averred that the loss of the subject vehicle was due to the gross negligence of the above-named security guards on-duty who allowed the subject vehicle to be driven out by a stranger despite their agreement that only authorized drivers duly endorsed by the owners could do so. Peña and Gaddi even admitted their negligence during the ensuing investigation. Notwithstanding, BSP and AIB did not heed Sps. Mamaril’s demands for a conference to settle the matter. They therefore prayed that Peña and Gaddi, together with AIB and BSP, be held liable.

In its Answer,

BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with respect to the manner by which the parked vehicles would

be handled, but the parking ticket

itself expressly stated that the “Management shall not be responsible for loss of vehicle or any of its accessories or article left therein.” It also claimed that Sps. Mamaril erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its provisions cover only the protection of BSP’s properties, its officers, and employees.

The RTC found that the act of Peña and Gaddi in allowing the entry of an unidentified person and letting him drive out the subject vehicle in violation of their internal agreement with Sps. Mamaril constituted gross negligence, rendering AIB and its security guards liable for the former’s loss. BSP was also adjudged liable because the Guard Service Contract it entered into with AIB offered protection to all properties inside

the BSP premises, which necessarily included Sps. Mamaril’s vehicles. Moreover, the said contract stipulated AIB’s obligation to indemnify BSP for all losses or damages that may be caused by any act or negligence of its security guards. Accordingly, the BSP, AIB, and security guards Peña and Gaddi were held jointly and severally liable for the loss suffered by Sps. Mamaril.

In its assailed Decision, the CA affirmed the

finding of negligence on the part of security guards Peña and Gaddi. However, it absolved BSP from any liability, holding that the Guard Service Contract is purely between BSP and AIB and that there was nothing therein that would indicate any obligation and/or liability on the part of BSP in favor of third persons, such as Sps. Mamaril. Nor was there evidence sufficient to establish that BSP was negligent.

ISSUE:

Whether or not BSP should be liable for the loss to the Spouses Mamaril.

HELD:

NO

RATIO:

Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Similarly, Article 2176 of the Civil Code states: Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril’s vehicle was the negligent act of security guards Peña and Gaddi in allowing an unidentified person to drive out the subject vehicle. Proximate cause has been defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury or loss, and without

which the result would not have occurred. Moreover, Peña and Gaddi failed to refute Sps. Mamaril’s contention that they readily admitted being at fault during the investigation that ensued.

In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP compound for a monthly fee of P300.00 for each unit and took the keys home with them.

Hence, a lessor-lessee relationship indubitably existed between them and BSP. On this score, Article 1654 of the Civil Code provides that “[t]he lessor (BSP) is obliged: (1) to deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) to make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. In relation thereto, Article 1664 of the same Code states that [t]he lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. Here, BSP was not remiss in its obligation to provide Sps. Mamaril a suitable parking space for their jeepneys as it even hired security guards to secure the premises; hence, it should not be held liable for the loss suffered by Sps. Mamaril.

Lorenzo Shipping v. BJ Marthel Intenational, Inc. GR No. 145483, 19 November 2004

FACTS:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express.

On the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare parts.

From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter’s marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation

It was stipulated in the contract that DELIVERY is within 2 months after receipt of firm order. The TERMS is 25% upon delivery, balance payable in 5 bi-monthly equal and Installment[s] not to exceed 90 days.

Petitioner thereafter issued to respondent Purchase Order. For the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten post-dated checks to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner.

Subsequently, petitioner issued Purchase Order dated 15 January 1990, for yet another unit of cylinder liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal installment[s]. On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the drawee bank due to insufficiency of funds dishonoured the same. Respondent eventually returned the remaining nine post-dated checks to petitioner.

However, the parties presented disparate accounts of what happened to the check, which was previously dishonoured. Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to respondent. For its part, respondent insisted that it returned said post-dated check to petitioner.

On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to

verification" under which the signature of Eric Go, petitioner's warehouseman, appeared.

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before the Regional Trial Court (RTC) of Makati City. In its complaint, respondent (plaintiff below) alleged that despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary damages; actual damages; and compensatory damages.

In an Order dated 25 July 1991, the court a quo granted respondent's prayer for the issuance of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of Attachment attaching thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued an Order lifting the levy on petitioner's properties and the garnishment of its bank accounts.

Petitioner afterwards filed its Answer alleging therein that time was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2) months after receipt of firm order" from petitioner.

Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October 1991. The amendment introduced dealt solely with the number of post-dated checks issued by petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine post-dated checks were involved.

ISSUE:

1. Whether or not respondent incurred delay in performing its obligation under the contract of sale

2. Whether or not petitioner validly rescinded said contract.

HELD:

1. NO2. NO

RATIO:

1. In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the contract itself or the surrounding circumstances of that intention. Petitioner insists that although its purchase orders did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the term of delivery appearing on the quotation it submitted to petitioner. Petitioner theorizes that the quotation embodied the offer from respondent while the purchase order represented its (petitioner’s) acceptance of the proposed terms of the contract of sale. Thus, petitioner is of the view that these two documents “cannot be taken separately as if there were two distinct contracts.” We do not agree. It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control. However, in order to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. While this Court recognizes the principle that contracts are respected as the law between the contracting parties, this principle is tempered by the rule that the intention of the parties is primordial and “once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as

though it has been originally expressed in unequivocal terms.”

As an aside, let it be underscored that “[e]ven where time is of the essence, a breach of the contract in that respect by one of the parties may be waived by the other party’s subsequently treating the contract as still in force.” Petitioner’s receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that it considered the contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said receipt was “subject to verification.” By accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items.

2. Their having been no failure on the part of the respondent to perform its obligation, the power to rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows: 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. The law explicitly gives either party the right to rescind the contract only upon the failure of the other to perform the obligation assumed thereunder. The right, however, is not an unbridled one. This Court in the case of University of the Philippines v. De los Angeles, speaking through the eminent civilist Justice J.B.L. Reyes, exhorts: Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denied that

rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. (Emphasis supplied) In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settles whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other’s breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages.

Land Bank of the Philippines v. OngGR No. 190755, 19 November 2004

FACTS:

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of PhP 10 million would be payable in seven (7) years.

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold three (3) of

their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with Assumption of Mortgage.

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about

the sale and assumption of mortgage. Atty.

Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements for the assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed at PhP 750,000 and to update due or accrued interests on the promissory notes so that Atty. Hingco could easily approve the assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt was issued for his payment. He also submitted the other documents required by Land Bank, such as financial statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be transferred in his name but this never materialized. No notice of transfer was sent to him.

Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. The bank learned from its credit investigation report that the Ong’s had a real estate mortgage in the amount of PhP 18,300,000 with another bank that was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the subject mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredo’s other counsel, Atty. Madrilejos, subsequently talked to Land Bank’s lawyer and was told that the PhP 750,000 he paid would be returned to him.

On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank in Civil Case No. T-1941, as Alfredo’s payment was not

returned by Land Bank. Alfredo maintained that Land Bank’s foreclosure without informing him of the denial of his assumption of the mortgage was done in bad faith. He argued that he was lured into believing that his payment of PhP 750,000 would cause Land Bank to approve his assumption of the loan of the Spouses Sy and the transfer of the mortgaged properties in his and his wife’s name.

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had no authority to approve loans and could not assure anybody that their assumption of mortgage would be approved.

According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan, since the new borrower is considered a new client. They used character, capacity, capital, collateral, and conditions in determining who can qualify to assume a loan. Alfredo’s proposal to assume the loan, she explained, was referred to a separate office, the Lending Center.

The RTC held that the contract approving the assumption of mortgage was not perfected as a result of the credit investigation conducted on Alfredo. It noted that Alfredo was not even informed of the disapproval of the assumption of mortgage but was just told that the accounts of the spouses Sy had matured and gone unpaid.

The CA affirmed the RTC Decision. It held that Alfredo’s recourse is not against the Sy spouses. According to the appellate court, the payment of PhP 750,000 was for the approval of his assumption of mortgage and not for payment of arrears incurred by the Sy spouses. As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in the fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not bound by the Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Bank’s active preparations for Alfredo’s assumption of mortgage essentially novated the agreement.

ISSUE:

Whether or not the assumption of mortgage novated the agreement.

HELD:

NO

RATIO:

On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance Corporation, 508 SCRA 556 (2006), provides the following discussion: Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. x x x

We do not agree, then, with the CA in holding that there was a novation in the contract between the parties. Not all the elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement.

New World Developers and Management Inc. v. AMA Computer Center, Inc. GR No. 187930, 23 February 2015

FACTS:

New World is the owner of a commercial

building located in Manila. In 1998, AMA agreed to lease the entire second floor of the building for its computer-learning center, and the parties entered into a Contract of Lease covering the eight-year period.

The monthly rental for the first year was set at 181,500, with an annual escalation rate equivalent to 15% for the succeeding years. It was also provided that AMA may pre terminate the contract by sending notice in writing to New World at least six months before the intended date. In case of pre termination, AMA shall be liable for liquidated damages in an amount equivalent to six months of the prevailing rent.

On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the leased premises. The following day, New World received a letter from AMA dated 6 July 2004 stating that the former had decided to pre terminate the contract effective immediately on the ground of business losses due to a drastic decline in enrollment. AMA also demanded the refund of its advance rental and security deposit.

New World replied in a letter dated 12 July 2004, to which was attached a Statement of Account indicating the following amounts to be paid by AMA. Despite the meetings between the parties, they failed to arrive at a settlement regarding the payment of the foregoing amounts.

On 27 October 2004, New World filed a complaint for a sum of money and damages against AMA before the Regional Trial Court of Marikina City, Branch 156 (RTC).

According to the RTC, AMA never denied that it had arrearages equivalent to two months rent. Other than its allegation that it did not participate in the preparation of the Statement of Account, AMA did not proffer any evidence disputing the unpaid rent. For its part, New World clearly explained the existence of the arrears.

While sympathizing with AMA in view of its business losses, the RTC ruled that AMA could not shirk from its contractual obligations, which provided that it had to pay liquidated damages equivalent to six months rent in case of a pre termination of the lease.

In the assailed Decision dated 22 January 2009, the CA ordered AMA to pay New World.

The CA also ruled that the RTC’s imposition of liquidated damages equivalent to six months rent was iniquitous. While conceding that AMA was liable for liquidated damages for pre terminating the lease, the CA also recognized that stipulated penalties may be equitably reduced by the courts based on its sound discretion. Considering that the unexpired portion of the term of lease was already less than two years, and that AMA had suffered business losses rendering it incapable of paying for its expenses, the CA deemed that liquidated damages equivalent to four months rent was reasonable.

ISSUE:

1. Whether AMA is liable to pay six months worth of rent as liquidated damages.

2. Whether AMA remained liable for the rental arrears.

HELD:

1. YES2. NO

RATIO:

1. That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at least six (6) months before the intended date of pre termination, provided, however, that in such case, [AMA] shall be liable to [New World] for an amount equivalent to six (6) months current rental as liquidated damages;

Quite notable is the fact that AMA never denied its liability for the payment of liquidated damages in view of its pre termination of the lease contract with New World. What it claims, however, is that it is entitled to the reduction of the amount due to the serious business losses it suffered as a result of a drastic decrease in its enrollment.

This Court is, first and foremost, one of law. While we are also a court of equity, we do not employ equitable principles when well-established doctrines and positive provisions of the law clearly apply.

The law does not relieve a party from the consequences of a contract it entered into with all the required formalities. Courts have no power to ease the burden of obligations voluntarily assumed by parties, just because things did not turn out as expected at the inception of the contract. It must also be emphasized that AMA is an entity that has had significant business experience, and is not a mere babe in the woods.

The fundamental rule is that a contract is the law between the parties. Unless it has been shown that its provisions are wholly or in part contrary to law, morals, good customs, public order, or public policy, the courts will strictly enforce the contract.

2. AMA assails the CA ruling mainly for the imposition of legal interest on the rent in arrears. AMA argues that the advance rental has extinguished its obligation as to the arrears. Thus, it says, there is no more basis for the imposition of interest at the rate of 6% per annum from the date of extrajudicial demand on 12 July 2004 until the finality of the Decision, plus interest at the rate of 12% per annum from finality until full payment.

At this juncture, it is necessary to look into the contract to determine the purpose of the advance rental and security deposit.

At the time of the pretermination of the contract of lease, the monthly rent stood at P233,310, inclusive of taxes; hence, the two-month rental arrears in the amount of P466,620.

Applying the security deposit of

P450,000 to the arrears will leave a balance of P16,620 in New World’s favor.

Given that we have found AMA liable for liquidated damages equivalent to six months’ rent in the amount of P1,399,860 (monthly rent of P233,310 multiplied by 6 months), its total liability to New World is P1,416,480.

We then apply the advance rental of P450,000 to this amount to arrive at a total extinguishment of the liability for the unpaid rentals and a partial extinguishment of the liability for liquidated damages. This shall leave AMA still liable to New World in the amount of P966,480 (P1,416,480 total liability less P450,000 advance rental).