supremojohndee

[supremojohndee]

Article 1407 - ObliCon

Art. 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.

Asia Production Co., inc. vs. Pano

Facts:

Private respondents claim to be the owners of a building on a lot leased from Lucio San Andres. Respondents offered to sell the building to petitioner for 170k. The agreement and promise however was not put into writing and consequently there was a failure by the respondent to execute the Deed of Sale of the building and Deed of Assignment of the contract of lease. As a result, the petitioners removed all their properties and machineries in said lot and vacated the building and demanded the return of their partial payment from the respondents which was refused, hence the complaint. The RTC dismissed the complaint on the grounds that the complaint is barred by the statute of frauds.

Issue:

Whether or not statute of frauds is applicable in this case.

Held:

The purpose of the statute of frauds in Art. 1403 of the Civil Code which declares certain contracts to be unenforceable unless ratified is to prevent fraud & perjury in the enforcement of obligations depending for their evidence by  requiring parties to sign said contracts and transactions.

[supremojohndee]

Article 1380 - ObliCon

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law.

Pryce Corporation v. PAGCOR

Facts:

Pryce Corporation (formerly Pryce Properties Corporation) entered into a lease contract with the Philippine Amusement and Gaming Corporation (PAGCOR) on November 11, 1992.

The lease was for the ballroom of Pryce Plaza Hotel in Cagayan de Oro City, intended for casino operations by PAGCOR.

An addendum to the contract was signed on November 13, 1992, to include additional hotel grounds for casino personnel.

Local opposition, public rallies, and city ordinances prohibiting casino operations led to the suspension and eventual cessation of PAGCOR's casino activities.

PAGCOR pre-terminated the lease, citing unforeseen circumstances, and sought reimbursement for rental deposits and improvements.

Pryce Corporation demanded payment for accrued and future rentals, invoking the contract's penalty clause.

The Regional Trial Court ruled in favor of Pryce Corporation for accrued rentals but denied future rentals.

The Court of Appeals affirmed the decision with modifications, leading to the present petition before the Supreme Court.

Issue/s:

Whether or not Pryce is entitled to payment of the future rentals for theunexpired period of the contract?

Whether or not the remedy sought by Pryce was Termination or Rescission?

Whether or not the collection by PRYCE of future rentals not give rise to unjust enrichment?

Ruling:

1. Yes. Article 1159 of the Civil Code provides that "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. In deference to the rights of the parties, the law allows them to enter into stipulations, clauses, terms and conditions they may deem convenient; that is, as long as these are not contrary to law, morals, good customs, public order or public policy. Likewise, it is settled that if the terms of the contract clearly express the intention of the contracting parties, the literal meaning of the stipulations would be controlling.

Provisions of the contract, particularly in the Breach of Contract clause,  leave no doubt that the parties have covenanted

            1) to give PPC the right to terminate and cancel the Contract in the event of a default or breach by the lessee; and

            2) to make PAGCOR fully liable for rentals for the remaining term of the lease, despite the exercise of such right to terminate. Plainly, the parties have voluntarily bound themselves to require strict compliance with the provisions of the Contract by stipulating that a default or breach, among others, shall give the lessee the termination option, coupled with the lessor’s liability for rentals for the remaining term of the lease.

For sure, these stipulations are valid and are not contrary to law, morals, good customs, public order or public policy. Neither is there anything objectionable about the inclusion in the Contract of mandatory provisions concerning the rights and obligations of the parties. Being the primary law between the parties, it governs the adjudication of their rights and obligations. A court has no alternative but to enforce the contractual stipulations in the manner they have been agreed upon and written. It is well to recall that courts, be they trial or appellate, have no power to make or modify contracts. Neither can they save parties from disadvantageous provisions.

2. The term "rescission" is found in 1) Article 1191 of the Civil Code, the general provision on rescission of reciprocal obligations; 2) Article 1659, which authorizes rescission as an alternative remedy, insofar as the rights and obligations of the lessor and the lessee in contracts of lease are concerned; and 3) Article 1380 with regard to the rescission of contracts.

1191 v 1380:

The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations to the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: ‘Non servanti fidem, non est fides servanda.’ Hence, the reparation of damages for the breach is purely secondary.

Termination v Rescission

On the contrary, in 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 d’etre as well as the measure of the right to rescind.

Rescission has likewise been defined as the "unmaking of a contract, or its undoing from the beginning, and not merely its termination." Rescission may be effected by both parties by mutual agreement; or unilaterally by one of them declaring a rescission of contract without the consent of the other, if a legally sufficient ground exists or if a decree of rescission is applied for before the courts.

Termination refers to an "end in time or existence; a close, cessation or conclusion." With respect to a lease or contract, it means an ending, usually before the end of the anticipated term of such lease or contract, that may be effected by mutual agreement or by one party exercising one of its remedies as a consequence of the default of the other.

Thus, mutual restitution is required in a rescission (or resolution), in order to bring back the parties to their original situation prior to the inception of the contract.24 Applying this principle to this case, it means that PPC would re-acquire possession of the leased premises, and PAGCOR would get back the rentals it paid the former for the use of the hotel space.

In contrast, the parties in a case of termination are not restored to their original situation; neither is the contract treated as if it never existed. Prior to its termination, the parties are obliged to comply with their contractual obligations. Only after the contract has been cancelled will they be released from their obligations.

In this case, the actions and pleadings of petitioner show that it never intended to rescind the Lease Contract from the beginning. This fact was evident when it first sought to collect the accrued rentals from September to November 1993 because, as previously stated, it actually demanded the enforcement of the Lease Contract prior to termination. Any intent to rescind was not shown, even when it abrogated the Contract on November 25, 1993, because such abrogation was not the rescission provided for under Article 1659.

3. Future rentals cannot be claimed as compensation for the use or enjoyment of another’s property after the termination of a contract. We stress that by abrogating the Contract in the present case, PPC released PAGCOR from the latter’s future obligations, which included the payment of rentals. To grant that right to the former is to unjustly enrich it at the latter’s expense.

However, it appears that Section XX (c) was intended to be a penalty clause. That fact is manifest from a reading of the mandatory provision under subparagraph (a) in conjunction with subparagraph (c) of the Contract. 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."

Quite common in lease contracts, this clause functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from a breach. There is nothing immoral or illegal in such indemnity/penalty clause, absent any showing that it was forced upon or fraudulently foisted on the obligor.

In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the indemnity for damages and the payment of interests in case of noncompliance; that is, if there is no stipulation to the contrary, in which case proof of actual damages is not necessary for the penalty to be demanded. There are exceptions to the aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1) when there is a stipulation to the contrary, 2) when the obligor is sued for refusal to pay the agreed penalty, and 3) when the obligor is guilty of fraud. In these cases, the purpose of the penalty is obviously to punish the obligor for the breach. Hence, the obligee can recover from the former not only the penalty, but also other damages resulting from the nonfulfillment of the principal obligation. 

In the present case, the first exception applies because Article XX (c) provides that, aside from the payment of the rentals corresponding to the remaining term of the lease, the lessee shall also be liable "for any and all damages, actual or consequential, resulting from such default and termination of this contract." Having entered into the Contract voluntarily and with full knowledge of its provisions, PAGCOR must be held bound to its obligations. It cannot evade further liability for liquidated damages.

[supremojohndee]

Article 1353 - ObliCon

Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful.

This article is similar to the rule on Relative Simulation

Rolando De La Paz vs. L & J Development Company

G.R. No. 183360

September 8, 2014

FACTS: Out of trust and confidence, Rolando dela Paz lent a sum of money worth Php 350,000 to L & J Development Corporation, a property developer represented by Atty. Esteban Salonga as its president and general manager.

The loan was executed without any security and no maturity date. It was however agreed between the parties that the loan will have a 6% monthly interest (amounting to Php 21,000). So far, L&J paid a total of Php 576,000 already – including interest charges from December 2000 to August 2003.

L&J later failed to make payments due to financial difficulties in the business. Rolando then filed a collection case with the MTC and alleged as of January 2005, L&J still owes him Php 772,000 inclusive of monthly interests.

L&J (represented by Atty. Salonga) did not deny that they did incurred a debt from Rolando, and admitted that they failed to pay due to a fortuitous event (financial difficulties). They also contended that the 6% monthly interest is unconscionable and that their total payment of Php 576,000 should be applied to the principal loan which only amounts to Php 350,000.

Rolando also contends that Atty. Salonga tricked him to execute the said loan plus interest without reducing the agreement in writing. He also said that the 6% interest rate was at the suggestion and insistence of L&J.

The MTC rendered judgment in favor of Rolando and upheld the 6% interest rate as valid since L&J complied to it as evidenced by the payment they made from December 2000 to August 2003. L&J is now estopped to impugn said interest rate.

The MTC also reduced the legal interest rate to 12% per annum on the remaining loan for reasons of equity. They did not grant the prayer of moral damages to Rolando since there was no bad faith on the part of L&J.

L&J appealed the decision to the RTC – contending once again that the 6% interest rate is unconscionable, and that their previous payment which totaled Php 576,000 should be used to set off the principal loan of Php 350,000. RTC however affirmed the decision of the MTC. L&J appealed to the CA.

CA ruled in favor of L&J, noting that the agreed 6% interest rate was not reduced in a written agreement and hence, it should not be considered due. CA ruled that the loan was already paid, and that Rolando should return the excess Php 226,000 with interest of 12% per annum. The case has now reached the Supreme Court.

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ISSUE: Whether or not the unwritten 6% interest agreement should be honored.

HELD: No. The Supreme Court held that, as provided under the Civil Code, an agreement regarding loan interests should be stipulated in writing. Even if the 6% monthly rate was done in writing, it will still be void for being unconscionable and contrary to morals and public policy – for at this time, an interest rate of 3% and higher is considered excessive and exorbitant.

Furthermore, the lack of maturity date puts the total interest to a whooping 72% per annum which the Supreme Court considered to be “definitely outrageous and inordinate.” The Supreme Court affirmed CA’s ruling, but as to Rolando’s obligation to pay the excess Php 226,000, the interest rate was reduced from 12% to 6% per annum.

[supremojohndee]

Article 1326 - ObliCon

Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.

Privatization and Management Office

v.

Strategic Alliance

Facts:

The case involves the Privatization and Management Office (PMO) and Strategic Alliance Development Corporation (STRADEC) regarding the auction of shares, receivables, and securities of the Philippine National Construction Corporation (PNCC) owned by the Philippine government.

The auction was conducted by the Asset Privatization Trust (APT) on October 30, 2000.

APT announced an indicative price of PHP 7 billion for the PNCC properties, which was significantly higher than the bids submitted by the qualified bidders.

Qualified bidders included Dong-A Consortium (formed by STRADEC and Dong-A Pharmaceuticals), Pacific Infrastructure Development International, and Philippine Exporters Confederation.

Dong-A Consortium submitted the highest bid of PHP 1,228,888,800, which was still far below the indicative price.

Consequently, APT rejected all bids.

STRADEC, representing Dong-A Consortium, filed a complaint for the declaration of the right to a Notice of Award and/or damages against PMO and PNCC, arguing that the indicative price was unreasonably high and that the highest bid should have been accepted.

The Regional Trial Court (RTC) ruled in favor of STRADEC, directing PMO to issue a Notice of Award and pay damages.

The Court of Appeals (CA) affirmed the RTC's decision.

PMO then petitioned the Supreme Court for review.

Issues:

Wether PMO can be compelled to award the PNCC assets to STRADEC despite their failure to match the indicative price set by PMO.

Ruling:

The Supreme Court ruled in favor of PMO, reversing the decision of the Court of Appeals.

The Court held that PMO cannot be compelled to award the PNCC assets to Dong-A Consortium, as the latter's bid did not meet the indicative price.

The Court also ruled that the people's right to information does not justify the issuance of a Notice of Award.

[supremojohndee]

Article 1299 - ObliCon

Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. 

Ledonio

v.

Capitol Development

Facts:

respondent alleged that petitioner obtained from a Ms. Patrocinio S. Picache two loans, with the aggregate principal amount of P60,000.00, and covered by promissory notes duly signed by petitioner. In the first promissory note,[5] dated 9

November 1988, petitioner promised to pay to the order of Ms. Picache the principal amount of P30,000.00, in monthly installments of P3,000.00, with the first monthly installment due on 9 January 1989. In the second promissory note,[6] dated 10 November

1988, petitioner again promised to pay to the order of Ms. Picache the principal amount of P30,000.00, with 36% interest per annum, on 1 December 1988. In case of default in payment, both promissory notes provide that (a) petitioner shall be liable for a penalty equivalent to

20% of the total outstanding balance; (b) unpaid interest shall be compounded or added to the balance of the principal amount and shall bear the same rate of interest as the latter; and (c) in case the creditor, Ms. Picache, shall engage the services of counsel to enforce her... rights and powers under the promissory notes, petitioner shall pay as attorney's fees and liquidated damages the sum equivalent to 20% of the total amount sought to be recovered, but in no case shall the said sum be less that P10,000.00, exclusive of costs of suit.

Ms. Picache executed an Assignment of Credit[7] in favor of respondent

Since petitioner did not pay any of the loans covered by the promissory notes when they became due, respondent -- through its Vice President Nina P. King and its counsel King, Capuchino, Banico & Associates -- sent petitioner several demand letters.[8]

Despite receiving the said demand letters, petitioner still failed and refused to settle his indebtedness, thus, prompting respondent to file the Complaint with the RTC... petitioner sought the dismissal of the Complaint averring that respondent had no cause of action against him. He denied obtaining any loan from Ms. Picache and questioned the genuineness and due execution of the promissory notes, for they were... the result of intimidation and fraud; hence, void. He asserted that there had been no transaction or privity of contract between him, on one hand, and Ms. Picache and respondent, on the other. The assignment by Ms. Picache of the promissory notes to respondent was a mere ploy... and simulation to effect the unjust enforcement of the invalid promissory notes and to insulate Ms. Picache from any direct counterclaims, and he never consented or agreed to the said assignment.

the RTC rendered a Decision[12] on 6 August 1993, ruling in favor of respondent.

The RTC also sustained the validity and enforceability of the Assignment of Credit executed by Ms. Picache in favor of respondent, even in the absence of petitioner's consent to the said assignment,... petitioner filed an appeal with the Court of Appeals

The appellate court, in a Decision,[14] dated 20 March 2001, found no cogent reason to depart from the... conclusions arrived at by the RTC in its appealed Decision, dated 6 August 1993, and affirmed the latter Decision in toto.

Issues:

whether or not the Court of Appeals committed grave abuse of discretion in affirming in... toto the RTC Decision

Petitioner's main argument is that the Court of Appeals erred when it ruled that there was an assignment of credit and that there was no novation/subrogation in the case at bar.

Ruling:

This Court cannot sustain petitioner's contention and hereby declares that the transaction between Ms. Picache and respondent was an assignment of credit, not conventional subrogation, and does not require petitioner's consent as debtor for its validity and enforceability.

An assignment of credit has been defined as an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation -and without need of the debtor's consent, transfers that credit and its... accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.

On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of... law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.

Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the rights of the original creditor, this Court still cannot definitively rule that assignment of credit and conventional subrogation are one and the same.

Since his consent is immaterial, the only other matter which this Court must determine is whether petitioner had knowledge of the Assignment of Credit, dated 1 April 1989, between Ms. Picache and respondent. Both the Court of Appeals and the RTC ruled in the affirmative, and so... must this Court. Petitioner does not deny having knowledge of the assignment of credit by Ms. Picache to the respondent. In 1989, when petitioner's loans became overdue, it was respondent and its counsel who sent several demand letters to him. It can be reasonably presumed that... petitioner received said letters for they were sent by registered mail, and the return cards were signed by petitioner's agent. Petitioner expressly acknowledged receipt of respondent's demand letter, dated 13 June 1989, to which he replied with another letter, dated 21 June

1989, stating that he would settle his account with respondent but also requesting consideration of the losses he suffered from the electric power disconnection at the property he leased from MRMC. It further appears that petitioner had never questioned why it was respondent... seeking payment of the loans and not the original creditor, Ms. Picache. All these circumstances tend to establish that respondent already knew of the assignment of credit made by Ms. Picache in favor of respondent and explains his acceptance of all the demands for payment of... the loans made upon him by the respondent.

Finally, assuming arguendo that this Court considers petitioner a third person to the Assignment of Credit, dated 1 April 1989, the fact that the said document was duly notarized makes it legally enforceable even as to him.

Notarization converted the Assignment of Credit, dated 1 April 1989, a private document, into a public document,[33] thus, complying with the mandate of the afore-quoted provision and making it enforceable even as against third persons.

[supremojohndee]

Article 1272 - ObliCon

Art. 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved.

This article refers to presumption of voluntary delivery.

Comglasco

v.

Santos Car Check

Facts:

Lease Agreement: On August 16, 2000, Santos Car Check Center Corporation (Santos) leased its showroom at 75 Delgado Street, Iloilo City to Comglasco Corporation (Comglasco) for five years.

Rental Terms: Monthly rental was PHP 60,000 for the first year, PHP 66,000 for the second year, and PHP 72,600 for the third through fifth years.

Pre-Termination: On October 4, 2001, Comglasco informed Santos it would pre-terminate the lease effective December 1, 2001. Santos refused, emphasizing the five-year contract term.

Vacating Premises: Despite refusal, Comglasco vacated the premises on January 15, 2002, and stopped paying rent.

Demand Letters: Santos sent several demand letters, all ignored by Comglasco, including a final one on September 15, 2003.

Breach of Contract Suit: Santos filed a suit for breach of contract on October 20, 2003. Summons and complaint were served on January 21, 2004.

Motion to Dismiss: Comglasco moved to dismiss the complaint for improper service, which the RTC dismissed, ordering new service of summons.

Answer and Judgment: Comglasco filed its Answer on June 28, 2004. Santos moved for a judgment on the pleadings, which RTC granted.

RTC Judgment: On August 18, 2004, RTC ruled in favor of Santos, ordering Comglasco to pay unpaid rentals, attorney's fees, litigation expenses, and exemplary damages.

Appeal: Comglasco appealed, and the CA affirmed the RTC's judgment but reduced attorney's fees and deleted awards for litigation expenses and exemplary damages.

Supreme Court Petition: Comglasco filed a petition for review with the Supreme Court.

Issues:

Whether or not the abrupt change in the political climate of the country afterthe EDSA Revolution and its poor financial condition rendered the performance of thelease contract impractical and inimical to the corporate survival of the petitioner?

Held:

No. In Philippine National Construction Corporation v. CA (PNCC), which alsoinvolves the termination of a lease of property by the lessee "due to financial, as well as

technical, difficulties,”

 the Court ruled:The obligation to pay rentals or deliver the thing in a contract of lease falls withinthe prestation "to give"; hence, it is not covered within the scope of Article 1266.At any rate, the unforeseen event and causes mentioned by petitioner are notthe legal or physical impossibilities contemplated in said article. Besides,petitioner failed to state specifically the circumstances brought about by "theabrupt change in the political climate in the country" except the allegedprevailing uncertainties in government policies on infrastructure project.

[supremojohndee]

Article 1245 - ObliCon

Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales.

 This shall also be referred to as dacion en pago which is the Spanish translation of dation in payment.

Dation in payment refers to, in the absence of monetary payment to a monetary debt, moveable property of value tantamount to the obligation in lieu of monetary payment may be accepted. Depending upon the agreement of the parties.

For example, I owe Eleazer 10,000.00 pesos, considering I became insolvent. For me to extinguish the obligation, I may give my watch to Eleazar in lieu of the monetary obligation, If he agrees that it will be in full satisfaction of the debt or that its value is tantamount to the amount payable to the creditor.

Law that governs dation in payment?

Law on sales (Article 1245)

Sale vs. Dation

Sale

No pre-existing credit

Obligations are created

Cause from the viewpoint of the transferor is the price

There is more freedom in fixing the price between seller and the buyer

Dation

With pre-existing credit

Obligations are extinguished

Cause from the view point of the transferor is the extinguishment of the obligation

The price is usually fixed based on the debt between debtor and the creditor.

Case:

Fort Bonifacio Development Corporation

v.

Yllas Lending

FBDC as lessor of the lessee, Tirreno, Inc. stipulated in their agreement the lien on the properties of Tirreno, Inc. as way of security should the lessor become default. When Tirreno, Inc. had failed to comply to its obligations to pay rent, another creditor of Tirreno, Yllas Lending caused the sheriff of the trial court to serve a writ of seizure and succeeded to seize the properties of Tirreno in the possession of FBDC. Tirreno agreed to a deed of chattel mortgage with Yllas Lending as a way of security shall Tirreno fail to comply with their obligations with Yllas.

Issue:

Whether the seizure of properties of Tirreno, Inc. in the possession of FBDC caused by Yllas Lending valid?

Holding:

FBDC claims that the stipulation on lien of properties with Tirreno, Inc. authorizes them to take whatever properties that Tirreno left to pay off Tirreno’s obligations.

The Court agreed with FBDC. Such agreement is not contrary to law, morals, good customs, or public policy. Forfeiture of the properties is the only security that FBDC may apply in case of Tirreno’s default in obligations.

FBDC exercised their lien even before Tirreno and Yllas executed their deed of chattel mortgage.

[supremojohndee]

Article 1218 - ObliCon

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal.

This article refers to payment for an obligation by a solidary debtor that was beyond the prescribed period of an obligation.

If you and I were solidary debtors, and I solely paid our obligation to Eleazar which has already

Prescribed, was my payment valid?

Yes. This is based on natural law, even if the system states that our debt has already prescribed. It will

not change the fact that we still owe Eleazar money.

Since I solely paid the debt. Can I reimburse your supposed proportional share from you?

No. That would not be possible. Because my payment, as a solidary debtor shall not entitle me of reimbursement from my co-debtors if such payment has prescribed or has become illegal.

Case:

Asset Builders Corporations

v.

Stronghold Insurance Company, Incorporated

ABC entered into an agreement with Lucky Star for the latter to drill one exploratory production well inclusive of supply, labor, materials, tools, and including technical supervision. The contract price was P1,150,000.00. It was agreed that the former shall provide a downpayment of 50% upon submission of surety bond of the same amount by Lucky Star and 30% performance bond.

The bonds were to guaranty faithful compliance to the agreement. Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of the petitioner.

Lucky Star did not perform and only managed to accomplish 10% of the project.

ABC sent a notice of rescission of contract subsequently, notice of claim for payment to Stronghold despite not getting any response, prompting it to file its complaint for rescission before the regional trial court.

The trial Court declared Lucky Star at default. Thereby making the same liable and absolving stronghold from liability. But the SC ruled that Stronghold, their surety as an accessory to the contract

Issue:

Essentially, the primary issue is whether or not respondent insurance company, as surety, can be held liable under its bonds.

Holding:

The Court based its decision to Art. 2047 of the Civil Code which defines a surety agreement as an ancillary contract that makes surety liable for the debt or duty of another. In this case, Stronghold shall abide to the agreement with ABC since Lucky Star failed to comply to its obligation.

Art. 1217 entitles Stronghold to reimburse from the principal debtor for the amount it may be required to pay the creditor.

[supremojohndee]

Article 1191 - ObliCon

Article 1191. The power to rescind an obligation 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 fulfilment and the rescission of the obligation, with payment for the damages in either case.

He may seek for rescission even after he has chosen the fulfilment of obligation, should the latter become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period.

Rescission is the process of rescinding, where a contract is annulled, cancelled or abrogated by the parties.

Resciprocal obligations are those which arise from the same cause, and the obligation of the parties are dependent to the obligation of the other.

With this, only the injured party may have the right to seek rescission with the intervention of the court. Unless, there be stipulations in the contract that deprivation of a specific obligation would result in the annulment or rescission of the contract. However, it shall be executed through notarized agreement.

When a rescission is decreed by the court or notarially agreed. There would be 2 effects.

Retroactivity - as if no contract ever took place.

Restitution - return whatever a party may have received, including its fruits.

Case:

EDS Manufacturing vs. Healthcheck

Healthcheck is a Health Maintenance Organization while EDS Manufacturing is a company who availed the service of Healthcheck and entered into a 1-year contract with them. Later into the program, EDS Muanufacturing's accreditation of its HMO card was repeatedly suspended with DLSU Medical Center in Dasmarinas Cavite including other hospitals and physicians. EDS Manufacturing formally notified Healthcheck that it was rescinding their agreement due to Healthcheck's repeated breach of its undertaking and demanded the return of its unused premium.

EDS Manufacturing set a pretermination date. However, some of its employees are still using the HMO card beyond the pretermination date and that it failed to surrender all of the HMO card to Healthcheck.

Issue:

Whether there was a valid rescission of the Agreement.

Holding:

General rule is that rescission will not be permitted for a slight or casual breach. But only for substantial and fundamental violations.

It is apparent that Healthcheck violated its contract in a substantial maNNER by failing to provide medical service to the employees of EDS Manufacturing. Reports of their lacking appears from July to August 1998. However, EDS Manufacturing failed to judicially rescind the contract. This right shall be invoked judicially or executed through notarial requirement.

The decision of the CA TO reverse the ruling of RTC, and to dismiss the claims of both parties were affirmed by the SC.

[supremojohndee]

Article 1163 - ObliCon

Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard care.

This article refers to specific or determinate things.

A thing is considered determinate when it is particularly designated or physically segregated from all others of the same class.

Example: Deliver me your red Honda Civic 2022 with plate number XYZ 123.

Contrary: generic or indeterminate thing: a thing is only known to which class it belongs.

Here, the duties of the obliged is to, as provided by the same article:

1.           Preserve/take care of the thing.

2.           Deliver the fruits;

3.           Deliver the thing itself;

4.           Liability for any fortuitous event until one has effected delivery;

5.           Deliver accessions and accessories;

6.           Answer for damages in cases of fraud, negligence, delay, or if he contravenes the tenor of the      obligation.

Diligence that is referred to as of a diligence of a good father is ordinary diligence.

Other standard of care or diligence shall be stipulated by the law or the contracting parties.

Philippine National Bank

vs.

Santos

Facts:

One time deposit account from PNB of a deceased Angel Santos was then converted into a Premium savings account due to non-renewal. The heirs of Angel Santos was to claim the deposited money only to find out that it was withdrawn already by one Bernardito Manimbo with incomplete requirements and doubtful kinship with the deceased.

Issue:

Whether PNB was jointly negligent with the BM in releasing the deposited money to a doubtful claimant.

Held:

PNB and BM Aguilar was jointly liable for the release of the fund to Manimbo. They either have no standards to respect the trust that was vested in them by the public or that they have standards but did so for their convenience.

The PNB, as a bank, is in burden of higher degree of diligence than that of the diligence of a good father of a family as per the General Banking Law: Fiduciary nature of banking requires high standards of integrity and performance.” PNB even failed provide notification for the conversion of account status.

Affirmed with Modifications, PNB and Aguilar are solidarily liable to pay respondents 100,000 for exemplary damages, and the interest was now 12% from April 26, 2988 to June 30, 2013 and 6% from July 1 2013 until satisfaction. Per annum.

[supremojohndee]

Article 138: Family Code of the Philippines

Article 138. After dissolution of the absolute community or of the conjugal partnership, the provisions on complete separation of property shall apply.

Case from Article 148: Juaniza Vs. Jose

Facts:

Eugenio Jose was the registered owner and operator of the passenger jeepney involved in an accident of collision with a freight train of the Philippine National Railways which resulted in the death and physical injuries to five of its passengers. At the time of the accident, Eugenio Jose was legally married to Socorro Ramos but had been cohabiting with defendant-appellant, Rosalia Arroyo, for sixteen years in a relationship akin to that of husband and wife. Motion for reconsideration was filed by Rosalia praying that the decision be reconsidered insofar as it condemns her to pay damages jointly and severally with her co-defendant, but was denied. The lower court erred in holding defendant-appellant Rosalia liable 'for damages resulting from the death and physical injuries suffered by the passengers' of the jeepney registered in the name of Eugenio Jose, on the erroneous theory that Eugenio and Rosalia, having lived together as husband and wife, without the benefit of marriage, are co- owners of said jeepney.

Issue:

Can the petitioner be held liable for the obligations arising from the accident to which the respondent’s property was involved?

Held:

No, since Eugenio Jose is legally married to Socorro Ramos, there is an impediment for him to contract marriage with Rosalia Arroyo. Under the aforecited provision of the Civil Code, Arroyo cannot be a co-owner of the jeepney. The jeepney belongs to the conjugal partnership of Jose and his legal wife. There is therefore no basis for the liability of Arroyo for damages arising from the death of, and physical injuries suffered by, the passengers of the jeepney which figured in the collision.

[supremojohndee]

Article 105: Family Code of the Philippines

Conjugal Partnership of Gains is one of the different regimes of Property Relations that can apply to married couples depending on their circumstances.

Family Code of the Philippines took effect on August 03, 1988

The default regime of Property Relations to married couples became absolute community of property. However prior its effectivity, under the Civil Code, the conjugal partnership of gains as regime of property relations was the default.

Everything that was acquired prior the celebration of marriage will be considered exclusive property of either spouse. However, the fruits, incomes, products and proceeds of such exclusive properties shall form part of their conjugal property.

Case from Article 109: Roberto Laperal Jr. and Purificacion Laperal vs. Ramon Katigbak and Evelina Kalaw-Katigbak

Facts:

Laperals alleged that the defendant Kalaws, borrowed 14,000 in four promisory notes dated March, April and May. The Laperals alleged that the money nor the Jewelry was returned to them.

The facts shown, through receipts that Evelina did not sign to receive any of the money and jewelry. It was only Ramon who received them. Evelina moved to dismiss on the ground that there was no cause of action against her.

Issue: 

Was there a cause of action against Evelina?

Ruling of the Court:

Evelina was not personally liable for the money and jewelries. Ramon was not her agent nor Ramon contracted for Evelina. The husband cannot by his contract bind the paraphernal properties unless its administration has been transferred to him which is otherwise. Ramon was personally responsible to his own private funds, and at most, the assets of the conjugal partnership.

It is not necessary for the plaintiffs to implead Evelina. Where the husband alone is liable, no action lies against the wife, and she is not a necessary party.

WHEREFORE, it is respectfully prayed that this Honorable Court render a decision —

(1) Ordering the separation of the properties of the herein Plaintiff and Defendant in accordance with Article 191 et cetera of the New Civil Code;.

(2) Transferring all the above conjugal properties to the Defendant;.

(3) Placing their children, namely RAMON, JR., TEODORO, and GRACIE MARIE, all surnamed KATIGBAK, in the custody of the Plaintiff.

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Article 71: Family Code of the Philippines

ARTICLE 71. The management of the household shall be the right and the duty of both spouses. The expenses for such management shall be paid in accordance with the provisions of Article 70.

Support from the management shall be taken from the following:

a) form the absolute community of property or conjugal partnership;

b) from the income or fruits of the separate properties of each spouse;

c) from the separate properties of the spouses

Case from Article 72: Tenchavez Vs. Escaño

Facts:

Missing her late-afternoon classes on 24 February 1948 in the University of San Carlos, Cebu City, where she was then enrolled as a second year student of commerce, Vicenta Escaño, 27 years of age, exchanged marriage vows with Pastor Tenchavez, 32 years of age, an engineer, ex-army officer and of undistinguished stock, without the knowledge of her parents, before a Catholic chaplain, Lt. Moises Lavares, in the house of one Juan Alburo in the said city. The marriage was the culmination of previous love affair and was duly registered with the local civil registrar.

Although planned for the midnight following their marriage, the elopement did not, however, materialize because when Vicenta went back to her classes after the marriage, her mother, who got wind of the intended nuptials, was already waiting for her at the college. Vicenta was... taken home where she admitted that she had already married Pastor. Mamerto and Mena Escaño were surprised, because Pastor never asked for the hand of Vicenta, and were disgusted because of the great scandal that the clandestine marriage would provoke.

The following morning, the Escaño spouses sought priestly advice. Father Reynes suggested a recelebration to validate what he believed to be an invalid marriage, from the standpoint of the Church, due to the lack of authority from the Archbishop or the parish priest... for the officiating chaplain to celebrate the marriage.

The recelebration did not take place

Ittiere, a lawyer filed for her & petition, drafted by then Senator

Emmanuel Pelaez, to annul her marriage. She did not sign the petition. The case was dismissed without prejudice because of her non-appearance at the hearing.

On 24 June 1950, without informing her husband, she applied for a passport, indicating in her application that she was single, that her purpose was to study, that she was domiciled in Cebu City , and that she intended to return after two years. The application was approved, and she left for the United States. On 22 August 1950, she filed a verified complaint for divorce against the herein plaintiff in the Second Judicial District Court of the State of Nevada in and for the County of Washoe on the ground of "extreme cruelty, entirely mental in character". On 21 October 1950, a decree of divorce, "final and absolute", was issued in open court by the said tribunal.

On 10 September 1954, Vicenta sought papal dispensation of her marriage

On 13 September 1954, Vicenta married an American, Russel Leo Moran, in Nevada. She now lives with him in California, and, by him, has begotten children. She acquired American citizenship on 8 August 1958.

But on 30 July 1955, Tenchavez had initiated the proceedings at bar by a complaint in the Court of First Instance of Cebu, and amended on 31 May 1956, aprainst Vicenta F. Escaño; her parents, Mamerto and Mena Escaño, whom he charged, with having dissuaded and discouraged Vicenta from joining her husband, and alienating her affections, and against the Roman Catholic Church, for having, through its Diocesan Tribunal, decreed the annulment of the marriage, and asked for legal separation and one million pesos in damages.

The appealed judgment did not decree a legal separation, but freed the plaintiff from supporting his wife and to acquire property to the exclusion of his wife.

Issues:

Direct appeal, on factual and legal questions, from the judgment of the Court of First Instance of Cebu, in its Civil Case No. R-4177, denying the claim of the plaintiff-appellant, Pastor B. Tenchavez, for legal separation and one million pesos in damages... against his wife and parents-in-law, the defendants-appellees, Vicenta, Mamerto and Mena all surnamed "Escaño" respectively.

Ruling:

It is equally clear from the record that the valid marriage between Pastor Tenchavez and Vicenta Escaño remained subsisting and undissolved under Philippine Law, notwithstanding the decree of absolute divorce that the wife sought and obtained on 21 October 1950 from the Second

Judicial District Court of Washoe County, State of Nevada, on grounds of "extreme cruelty, entirely mental in character". At the time the divorce decree was issued, Vicenta Escaño, like her husband, was still a Filipino citizen. She was then subject to

Philippine law, and Article 15 of the Civil Code of the Philippines, already in force at the time, expressly provided:

"Laws relating to family rights and duties or to the status, condition and legal capacity of person are binding upon the citizens of the Philippines, even though living abroad."

[supremojohndee]

Article 36: Family Code of the Philippines

Article 36. A marriage contracted by any party who, at the time of the celebration, was psychologically incapacitated to comply with the essential marital obligations of marriage, shall likewise be void, even if such incapacity becomes manifest only after its solemnization.

Note:

The Family Code has not defined the concept of “psychological incapacity”. Intention of which is to give an elbow room for the courts to determine under what circumstances a person may be suffering from psychological incapacity.

Chi Ming Tsoi vs. CA and Gina Lao

Facts:

The lower courts null the marriage of Tsoi and Lao.

Tsoi and Lao was married to each other on May 22, 1988, but never consummated nor seen each other’s private parts due to the refusal and avoidance of Tsoi to make love until their separation on March 15, 1989.

Medical reports provided that Tsoi’s penis is 2 inches in its original size and lengthened by 1 inch and 1 cm, already erected.

Issue:

Whether or not psychological incapacity on the part of Tsoi as ground for the nullity of their marriage valid?

Ruling:

The nullity of their marriage was affirmed by the Supreme Court. Tsoi was psychologically incapacitated to discharge a basic marital obligation. As per the Family Code, one of the essential marital obligations is “To procreate children based on the universal principle that procreation of children through sexual cooperation is the basic end of marriage”. It is not his penis size that makes him psychologically incapacitated since he is capable of sexual intercourse and is not impotent. It is his constant refusal and avoidance to consummate their marriage.

10 months without sex is enough evidence of serious personality disorders sufficient to declare a marriage void.

Requisites of psychological incapacity – Elements (to be ground for nullity):

Must be serious or grave

Have existed upon the celebration of or after the marriage

Be incurable

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The Supreme Court in the case of Tan-Andal v. Andal, unanimously modified the interpretation of the requirements of psychological incapacity as a ground for declaration of nullity of marriage found in Article 36 of the Family Code.

The Court pronounced that psychological incapacity is not a medical but a legal concept. It refers to a personal condition that prevents a spouse to comply with fundamental marital obligations only in relation to a specific partner that may exist at the time of the marriage but may have revealed through behavior subsequent to the ceremonies. It need not be a mental or personality disorder. It need not be a permanent and incurable condition. Therefore, the testimony of psychologist or psychiatrist is not mandatory in all cases. The totality of the evidence must show clear and convincing evidence to cause the declaration of nullity of marriage (Rosanna L. Tan-Andal Vs. Mario Victor M. Andal, G.R. No. 196359. May 11, 2021).

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Article 1: Family Code of the Philippines

Family Code of the Philippines

Title I – Marriage

Chapter I. Requisites of Marriage

Article I. Marriage is a special contract of permanent union between a man and a woman entered into in accordance with law for the establishment of conjugal and family life. It is the foundation of the family and an inviolable social institution whose nature, consequences, incidents are governed by law and not subject to stipulation, except that marriage settlements may fix the property relations during the marriage within the limits provided by this Code. (52a)

Importance of marriage and the duty of state to preserve its sanctity.

Sec. 2 Art. XV of the 1987 Constitution provides: Marriage as an inviolable social constitution, is the foundation of the family and shall be protected by the State.

-Marriage is not only a civil contract, but it is a new relation, an institution the maintenance of which the public is deeply interested.

-The state is mandated to protect marriage being the the foundation of the family because the stability and security of the state depends on it.

-Marriage is not like an ordinary contract that if there is no performance of one party, it can be subject for rescission.

-The only remedy of an aggrieved spouse if the other fails to perform their duties is to ask for damages.

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Article 12 of the Civil Code

Article 12. A custom must be proved as a fact, according to the rules of evidence.

A custom may be considered as fact if it possesses the following requisites:

-Plurality of acts (how a custom is repeated during a certain situation)

-Uniformity of acts (if a certain custom is repeated consistently during a certain situation)

-General practice by the great mass of people (General practice of the custom from a community in a certain situation)

-General conviction that it is the proper rule of conduct

-General practice for a long period of time

-Conformity with law, morals, and public policy

Example:

The custom of jeepney drivers in the Philippines whenever it is raining or drizzling; they pull-over at the side of the road to draw the plastic covers in the window to prevent the rain coming inside the jeepney that may result to injury/accident of the passengers, which is his responsibility.

[supremojohndee]

Article 31 of the Civil Code

ARTICLE 31. When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter.

An independent civil action may arise not relating to an act or omission of felony. Civil liability may be based from obligations such as law, contract, quasi-contract, and quasi-delict.

One example is A committed bigamy and B being the first spouse is suing A. A was acquitted of bigamy.

However, B filed an independent civil suit against A for moral damages in the alleged bigamy that was committed by the latter. This civil suit will proceed independently regardless if A was acquitted from the criminal act of bigamy.