HERMAN C. CRYSTAL vs.

BANK OF THE PHILIPPINE ISLANDS

G. R. No. 172428 November 28, 2008

Facts: On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000. 00 loan in behalf of
the Cebu Contractors Consortium Co. (CCCC) from the BPI-Butuan. The loan was secured by a chattel mortgage on
heavy equipment and machinery of CCCC. Thereafter, or on 29 March 1979, Raymundo Crystal executed a
promissory note for the amount of P300,000. 00, also in favor of BPI-Butuan. Sometime in August 1979, CCCC
renewed a previous loan, this time from BPI, Cebu City branch. The renewal was evidenced by a promissory note
dated 13 August 1979, signed by the spouses in their personal capacities and as managing partners of CCCC. The
promissory note states that the spouses are jointly and severally liable with CCCC. It appears that before the original
loan could be granted, BPI-Cebu City required CCCC to put up a security. However, CCCC had no real property to
offer as security for the loan; hence, the spouses executed a real estate mortgage over their own real property on 22
September 1977. On 3 October 1977, they executed another real estate mortgage over the same lot in favor of BPI-
Cebu City, to secure an additional loan of P20,000. 00 of CCCC. CCCC failed to pay its loans to both BPI-Butuan
and BPI-Cebu City when they became due despite demands. Thus, BPI resorted to the foreclosure of the chattel
mortgage and the real estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the
issuance of a restraining order against BPI. However, following BPIs compliance with the necessary requisites of
extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was consummated on 28 February 1988, with
the proceeds amounting to P240,000. 00 applied to the loan from BPI-Butuan which had then reached P707,393. 90.
Meanwhile, on 7 July 1981, Insular Bank of Asia and America (IBAA), through its Vice-President for Legaland
Corporate Affairs, offered to buy the lot subject of the two (2) real estate mortgages and to pay directly the spouses
indebtedness in exchange for the release of the mortgages. BPI rejected IBAAs offer to pay. BPI filed a complaint
for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan City, seeking to recover
the deficiency of the loan of CCCC and the spouses with BPI-Butuan. The trial court ruled in favor of BPI. Pursuant
to the decision, BPI instituted extrajudicial foreclosure of the spouses mortgaged property. On 10 April 1985, the
spouses filed an action for Injunction With Damages, With A Prayer For A Restraining Order and/ or Writ of
Preliminary Injunction. The spouses claimed that the foreclosure of the real estate mortgages is illegal because BPI
should have exhausted CCCCs properties first, stressing that they are mere guarantors of the renewed loans. They
also prayed that they be awarded moral and exemplary damages, attorneys fees, litigation expenses and cost of suit.
The trial court dismissed the spouses complaint and ordered them to pay moral and exemplary damages and attorneys
fees to BPI. It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily liable
for the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors,
the spouses are not entitled to the benefit of exhaustion

The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed. The
spouses moved for the reconsideration of the decision, but the Court of Appeals also denied their motion for
reconsideration.

Issue:

1) Whether or not the liability is extinguished;

2) Whether or not Spouses are solidarily liable with the corporations debt; and

3) Whether or not they are entitled to moral damages

Held: The contention has no merit. 1. Petitioners rely on IBAAs offer to purchase the mortgaged lot from them and
to directly pay BPI out of the proceeds thereof to settle the loan. BPIs refusal to agree to such payment scheme cannot
extinguish the spouses loan obligation. In the first place, IBAA is not privy to the loan agreement or the promissory
note between the spouses and BPI. Contracts, after all, take effect only between the parties, their successors in interest,
heirs and assigns. Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or
performance bya third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to
the contrary. We see no stipulation in the promissory note which states that a third person may fulfill the spouses
obligation. Thus, it is clear that the spouses alone bear responsibility for the same.

2. A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors
is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. A liability is solidary "only
when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.
"Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary, such
as in this case. By stating "I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS,"
the spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand payment from them,
but they failed to comply with their obligation, prompting BPIs valid resort to the foreclosure of the chattel mortgage
and the real estate mortgages. Thus we held in one case that if solidary liability was instituted to "guarantee" a principal
obligation, the law deems the contract to be one of suretyship. 26 And while a contract of a surety is in essence
secondary only to a valid principal obligation, the suretys liability to the creditor or promisee of the principal is said
to be direct, primary, and absolute; in other words, the surety is directly and equally bound with the principal.

3. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly
caused. Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the factual basis
for which is satisfactorily established by the aggrieved party. There being no wrongful or unjust act on the part of BPI
in demanding payment from them and in seeking the foreclosure of the chattel and real estate mortgages, there is no
lawful basis for award of damages in favor of the spouses. Neither is BPI entitled to moral damages. A juridical person
is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock

Indeed, while the Court may allow the grant of moral damages to corporations, it is not automatically granted; there
must still be proof of the existence of the factual basis of the damage and its causal relation to the defendants acts.
This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed
to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The spouses
complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral damages. Although
the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's fees, such
filing, however, has almost invariably been held not to be a ground for an award of moral damages. The rationale for
the rule is that the law could not have meant to impose a penalty on the right to litigate. Otherwise, moral damages
must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff. BPI may have been
inconvenienced by the suit, but we do not see how it could have possibly suffered besmirched reputation on account
of the single suit alone. Hence, the award of moral damages should be deleted. The awards of exemplary damages and
attorneys fees, however, are proper. Exemplary damages, on the other hand, are imposed by way of example or
correction for the public good, when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent
manner, while attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is
compelled to incur expenses to protect his interest. The spouses instituted their complaint against BPI notwithstanding
the fact that they were the ones who failed to pay their obligations. Consequently, BPI was forced to litigate and defend
its interest. For these reasons, BPI is entitled to the awards of exemplary damages and attorneys fees.
G. R. No. 155173, November 23, 2004

LAFARGE CEMENT PHILIPPINES, INC. , (formerly Lafarge Philippines, Inc. ), LUZON

CONTINENTALLAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP
ROSEBERG, petitioners, vs. CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and
ANTHONY A. MARIANO, respondents.

FACTS: Origins of the controversy can be traced to the Letter of Intent (LOI) executed by both parties, whereby
Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities, including
Petitioner Luzon Continental Land Corporation (LCLC) --agreed to purchase the cement business of Respondent
Continental Cement Corporation (CCC). Both parties entered into a Sale and Purchase Agreement (SPA). At the time
of the foregoing transactions, petitioners were well aware that CCC had a case pending with the Supreme Court. In
anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the
SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount of P117,020,846.
84 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account in the First
National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712. However,
petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the Decision
in favor of the latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result
in the foreclosure, not just of its properties covered by the SPA with Lafarge but of several other properties as well,
CCC filed before the Regional Trial Court a "Complaint with Application for Preliminary Attachment" against
petitioners. The Complaint prayed that petitioners be directed to pay the "APT Retained Amount" referred to in Clause
2 (c) of the SPA.

ISSUES:

1. Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to move to
dismiss petitioners' compulsory counterclaims on Respondents Lim and Mariano's behalf.

2. Whether or not the RTC gravely erred in ruling.

HELD:

1. Petitioners' Counterclaims Compulsory The procedural rules are founded on practicality and convenience. They are
meant to discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the courta quo has
done -- that the compulsory counter claim for damages be dismissed, only to have it possibly re-filed in a separate
proceeding. More important, as we have stated earlier, Respondents Lim and Mariano are real parties in interest to the
compulsory counterclaim; it is imperative that they be joined therein. Section 7 of Rule 3 provides:"Compulsory
joinder of indispensable parties. Parties in interest without whom no final determination can be had of an action shall
be joined either as plaintiffs or defendants. "Moreover, in joining Lim and Mariano in the compulsory counterclaim,
petitioners are being consistent with the solidary nature of the liability alleged therein.

2. The Trial Court is hereby ordered to take cognizance of the counterclaims pleaded in petitioners' Answer with
Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and Anthony A.
Mariano. The ambiguity in petitioners' counter claims notwithstanding, respondents' liability, if proven, is solidary.
This characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are generally
considered joint, except when otherwise expressly stated or when the law or the nature of the obligation requires
solidarity. However, obligations arising from tort are, by their nature, always solidary.
State Investment House, Inc. v. CA

GR No. 90676 June 19, 1991

Facts: Private respondents Spouses Rafael & Refugia Aquino pledged certain shares of stock to petitioner to secure a
loan. Prior to the execution of such pledge, respondents, agreed with the petitioner for the latter's purchase of
receivables from Spouses Jose and Marcelina Aquino. Respondent spouses paid their loan partly from their own
money and from the proceeds of a new loan secured by the same pledge. Upon maturity of the new loan, petitioner
demanded payment. Respondents expressed willingness to pay requesting that upon payment the shares of stocks
pledged be released. Petitioner denied the request on the ground that the loan extended to Jose & Marcelina had
remained. Respondent sued the petitioner. The trial judge ruled in their favor. During execution, the petitioner refused
to accept payment demanding that interests be paid.

Issue: Are the respondents liable for payment of interest even without mora? If they are liable, on what rate should
the interests be?

Held: On the first issue, yes. The respondents may not be in default in view of their expressed willingness to pay the
same upon demand and the refusal of the petitioner to accept. However, their tender of payment should have been
properly consigned with the court. On the second issue, since respondent spouses were held not to have been in delay,
they were properly liable only for the principal of the loan and the stipulated regular or monetary interest of 17% per
annum. They were not liable for penalty or compensatory interest, fixed by the promissory note in Account No. IF-
82-0904-AA at two percent (2%) per month or twenty-four (24%) per annum. It must be stressed that the appropriate
measure for damages in case of delay in discharging an obligation consisting of the payment of a sum or money, is
the payment of penalty interest at the rate agreed upon; and in the absence of a stipulation of a particular rate of penalty
interest, then the payment of additional interest at a rate equal to the regular monetary interest; and if no regular interest
had been agreed upon, then payment of legal interest or six percent (6%)per annum, or in the case of loans or
forbearances of money, 12 %per annum as provided for in Central Bank Circular No. 416. State Investment House vs.
CA(198 SCRA 390) The appropriate measure for damages in case of delay in discharging an obligation consisting of
the payment of a sum of money, is the payment of the penalty interest at the rate agreed upon; and in the absence of a
stipulation of a particular rate of penalty interest, then the payment of additional interest at a rate equal to the regular
monetary interest, and if no regular interest had been agreed upon, then payment of legal interest.
ADELFA PROPERTIES, INC vs. CA et al
G. R. No. 111238, January 25, 1995

FACTS: Private respondents and their brothers Jose and Dominador were the registered CO-OWNERS of a parcel of
land in Las Pinas, covered by a TCT.
Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter, Adelfa expressed interest in
buying the western portion of the property from private respondents herein. Accordingly, an exclusive Option to
Purchase was executed between Adelfa and Private respondents and an option money of 50,000 was given to the
latter.

A new owners copy of the certificate of title was issued (as the copy with respondent Salud was lost) was issued but
was kept by Adelfas counsel, Atty. Bernardo.

Before Adelfa could make payments, it received summons as a case was filed (RTC Makati) against Jose and
Dominador and Adelfa, because of a complaint in a civil case by the nephews and nieces of private respondents herein.
As a consequence, Adelfa, through a letter, informed the private respondents that it would hold payment of the full
purchase price and suggested that they settle the case with their said nephews and nieces. Salud did not heed the
suggestion; respondents informed Atty. Bernardo that they are canceling the transaction. Atty Bernardo made offers
but they were all rejected.

RTC Makati dismissed the civil case. A few days after, private respondents executed a Deed of Conditional Sale in
favor of Chua, over the same parcel of land.

Atty Bernardo wrote private respondents informing them that in view of the dismissal of the case, Adelfa is willing to
pay the purchase price, and requested that the corresponding deed of Absolute Sale be executed. This was ignored by
private respondents.

Private respondents sent a letter to Adelfa enclosing therein a check representing the refund of half the option money
paid under the exclusive option to purchase, and requested Adelfa to return the owners duplicate copy of Salud.
Adelfa failed to surrender the certificate of title, hence the private respondents filed a civil case before the RTC Pasay,
for annulment of contract with damages. The trial court directed the cancellation of the exclusive option to purchase.
On appeal, respondent CA affirmed in toto the decision of the RTC hence this petition.

ISSUE:
1. WON the agreement between Adelfa and Private respondents was strictly an option contract
2. WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa to pay the balance of the purchase
price
3. WON Private respondents could unilaterraly and prematurely terminate the option period, if indeed it is a option
contract, as the option period has not lapsed yet.
HELD: The judgement of the CA is AFFIRMED
1. NO. The agreement between the parties is a contract to sell, and not an option contract or a contract of sale.
Contract to SELL

by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price

title is retained by the vendor until the full payment of the price, such payment being a positive

Contract of SALE

the title passes to the vendee upon the delivery of the thing sold

the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded

There are two features which convince us that the parties never intended to transfer ownership to petitioner except
upon the full payment of the purchase price.

(1) the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture
of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or
ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance
of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the
absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach,
it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of
payment of the purchase price.

(2) Secondly, it has not been shown there was delivery of the property, actual or constructive, made to herein
petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would have
been considered equivalent to delivery. Neither did petitioner take actual, physical possession of the property at any
given time. It is true that after the reconstitution of private respondents certificate of title, it remained in the possession
of petitioners counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally,
under the law, such possession by the vendee is to be understood as a delivery. 18However, private respondents
explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of
transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their
counsel in the petition for reconstitution.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the
price in this case. Article 1478 of the civil code does not require that such a stipulation be expressly made.
Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between
the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation
is considered a contract to sell.
The important task in contract interpretation is always the ascertainment of the intention (parties never intended to
transfer ownership to petitionerexcept upon the full payment of the purchase price) of the contracting parties and
that task is, of course, to be discharged by looking to the words they used to project that intention in their contract.
The title of a contract does not necessarily determine its true nature. Hence, the fact that the document under discussion
is entitled Exclusive Option to Purchase is not controlling where the text thereof shows that it is a contract to sell.
The obligation of petitioner consisted of an obligation to give something, that is, the payment of the purchase price.
The contract did not simply give petitioner the discretion to pay for the property. It will be noted that there is nothing
in the said contract to show that petitioner was merely given a certain period within which to exercise its privilege to
buy. The agreed period was intended to give time to herein petitioner within which to fulfill and comply with its
obligation, that is, to pay the balance of the purchase price. No evidence was presented by private respondents to prove
otherwise.

The test in determining whether a contract is a contract of sale or purchase or a mere option is whether or not
the agreement could be specifically enforced. There is no doubt that the obligation of petitioner to pay the purchase
price is specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to
enforce the contract, they could have specifically compelled petitioner to pay the balance. This is distinctly made
manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be
demanded from petitioner as a consequence.
While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited
in case of default in payment is to be considered as an option contract, still we are not inclined to conform with the
findings of respondent court and the court a quo that the contract executed between the parties is an option contract,
for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were
not merely quoting an agreed value for the property. The term balance, connotes a remainder or something remaining
from the original total sum already agreed upon.
In other words, the alleged option money was actually earnest money which was intended to form part of the purchase
price. The amount was not distinct from the cause or consideration for the sale of the property, but was itself a part
thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part
of the price and as proof of the perfection of the contract. It constitutes an advance payment and must, therefore, be
deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option money, viz. :
(a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration
for an option contract;

(b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected;
and

(c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy.

The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even
though it was called option money by the parties. In addition, private respondents failed to show that the payment
of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of
the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioners obligation under the contract to sell.

2. Its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which
provides:

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the
payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for
the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee
shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the
price.

Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true
agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply.

Both lower courts, are in accord that since the Civil Case in Makati involved only the eastern half of the land subject
of the deed of sale between Adelfa and the Jimenez brothers, it did not, therefore, have any adverse effect on private
respondents title and ownership over the western half of the land which is covered by the contract subject of the
present case. But at a glance, it is easily discernible that, although the complaint prayed for the annulment only of the
contract of sale executed between petitioner and the Jimenez brothers, the plaintiffs therein were claiming to be co-
owners of the entireparcel of land, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts,
not pertaining exclusively to the eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of
the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have
to worry about the case because it was pure and simple harassment is not the kind of guaranty contemplated under the
exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory
action if the vendee should give a security for the return of the price.

3. YES. The private respondents may no longer be compelled to sell and deliver the subject property to petitioner for
two reasons, that is, petitioners failure to duly effect the consignation of the purchase price after the disturbance had
ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents.

The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not
considered a valid tender of payment. Besides, a mere tender of payment is not sufficient to compel private respondents
to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish
petitioners obligation to pay the balance of the purchase price.

The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase, wherein
consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or
repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the
right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to
pay. A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of
a privilege of a right. Consequently, performance or payment may be effected not by tender of payment alone but by
both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of
the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it
received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment. By reason of
petitioners failure to comply with its obligation, private respondents elected to resort to and did announce the
rescission of the contract through its letter to petitioner. That written notice of rescission is deemed sufficient under
the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is
not applicable to a contract to sell. Furthermore, judicial action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach, as in the contract involved in the present controversy.
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of
rescission which specified the grounds therefore, it failed to reply thereto or protest against it. By such cavalier
disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had
theretofore disdained.

NOTES:
1. a deed of sale is considered absolute in nature where there is neither

(a) a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price,
nor

(b) one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.

2. We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the right to rescind
is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that
this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words,
resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor
impugns the declaration, it shall be subject to judicial determination 51 otherwise, if said party does not oppose it, the
extrajudicial rescission shall have legal effect. 52
3. Option vs. contract

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance
with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is
also sometimes called an unaccepted offer. An option is not of itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of propertybut a sale of the right to purchase. It is simply a contract by
which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that it
is, the right or privilege to buy at the election or option of the other party.
Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside
from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest,
transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which
the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain
terms.
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds
himself, with respect to the other, to give something or to render some service. Contracts, in general, are perfected by
mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and the acceptance absolute.

The distinction between an option and a contract of sale is that an option is an unaccepted offer. It states the terms
and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited.
If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid
and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer,
and the option is at an end.
A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of
its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms
of the agreement.
CALIFORNIA BUS LINES INC. vs STATE INVESTMENT HOUSE, INC.

G. R. No. 147950. December 11, 2003

Facts:
Delta Motors Corporation applied for financial assistance from respondent State Investment House, Inc. , a domestic
corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta which eventually
became indebted to SIHI. Meanwhile, petitioner purchased on installment basis several buses to Delta. To secure the
payment of the obligation petitioner executed promissory notes in favor of Delta. When petitioner defaulted on the
payments of the debts, it entered into an agreement with delta to cover its due obligations. However, petitioner still
had trouble meeting its obligations with delta. Pursuant to the memorandum of agreement delta executed a deed of
sale assigning to respondent, the promissory notes from petitioner. Respondent subsequently sent a demand letter to
petitioner requiring remitting payments due on the promissory notes. Petitioner replied informing respondent of the
fact that delta had taken over its management and operations.

Issue:
Whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp.
novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI,

Held:
The attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed
on October 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the
promissory notes. Absent an unequivocal declaration of extinguishment of the pre-existing obligation, only a showing
of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication.
However, our review of its terms yields no incompatibility between the promissory notes and the restructuring
agreement.

For the full case, go to: http://sc.judiciary.gov.ph/jurisprudence/2003/dec2003/147950.htm

G. R. No. 124922 June 22, 1998

JIMMY CO, doing business under the name & style DRAGON METAL MANUFACTURING, petitioner,
vs.
COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION, respondents.

MARTINEZ, J. :

On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model 1 to private respondent which is engaged
in the sale, distribution and repair of motor vehicles for the following job repair services and supply of parts:

Bleed injection pump and all nozzles;

Adjust valve tappet;

Change oil and filter;

Open up and service four wheel brakes, clean and adjust;

Lubricate accelerator linkages;

Replace aircon belt; and

Replace battery 2

Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the
job contract. After petitioner paid in full the repair bill in the amount of P1,397. 00 3 private respondent issued to him
a gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not release the vehicle
as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby
and delivered it to private respondent for installation on the same day. However, the battery was not installed and the
delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car
in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by
private respondent's employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the
incident was reported to the police.

Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against
private respondent anchoring his claim on the latter's alleged negligence. For its part, private respondent contended
that it has no liability because the car was lost as result of a fortuitous event the carnapping. During pre-trial, the
parties agreed that:

(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the defendent is
P332,500. 00 excluding accessories which were installed in the vehicle by the plaintiff consisting
of four (4) brand new tires, magwheels, stereo speaker, amplifier which amount all to P20,000. 00.
It is agreed that the vehicle was lost on July 24, 1990 "approximately two (2) years and five (5)
months from the date of the purchase. " It was agreed that the plaintiff paid the defendant the cost
of service and repairs as early as July 21, 1990 in the amount of P1,397. 00 which amount was
 received and duly receipted by the defendant company. It was also agreed that the present value of
a brand new vehicle of the same type at this time is P425,000. 00 without accessories. 4

They likewise agreed that the sole issue for trial was who between the parties shall bear the loss of the vehicle which
necessitates the resolution of whether private respondent was indeed negligent. 5 After trial, the court a quofound
private respondent guilty of delay in the performance of its obligation and held it liable to petitioner for the value of
the lost vehicle and its accessories plus interest and attorney's fees. 6 On appeal, the Court of Appeals (CA) reversed
the ruling of the lower court and ordered the dismissal of petitioner's damage suit. 7 The CA ruled that: (1) the trial
court was limited to resolving the issue of negligence as agreed during pre-trial; hence it cannot pass on the issue of
delay; and (2) the vehicle was lost due to a fortuitous event.

In a petition for review to this Court, the principal query raised is whether a repair shop can be held liable for the loss
of a customer's vehicle while the same is in its custody for repair or other job services?

The Court resolves the query in favor of the customer. First, on the technical aspect involved. Contrary to the CA' s
pronouncement, the rule that the determination of issues at a pre-trial conference bars the consideration of other issues
on appeal, except those that may involve privilege or impeaching matter, 8 is inapplicable to this case. The question
of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it
is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties, i. e. , who will
bear the loss and whether there was negligence. Petitioner's imputation of negligence to private respondent is premised
on delay which is the very basis of the former's complaint. Thus, it was unavoidable for the court to resolve the case,
particularly the question of negligence without considering whether private respondent was guilty of delay in the
performance of its obligation.

On the merits. It is a not defense for a repair shop of motor vehicles to escape liability simply because the damage or
loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a
fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in
cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails
more than the mere forceful taking of another's property. It must be proved and established that the event was an act
of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any
participation. 9 In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous
event rests on him who invokes it 10 which in this case is the private respondent. However, other than the police
report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the
incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does
not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the
pissibility of fault or negligence on the part of private respondent.

Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot
escape liability. Article 1165 11 of the New Civil Code makes an obligor who is guilty of delay responsible even for a
fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was
supposed to deliver petitioner's car three (3) days before it was lost. Petitioner's agreement to the rescheduled delivery
does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot
be construed as waiver of petitioner's right to hold private respondent liable because the car was unusable and thus,
petitioner had no option but to leave it.

Assuming further that there was no delay, still working against private respondent is the legal presumption under
Article 1265 that its possession of the thing at the time it was lost was due to its fault. 12 This presumption is reasonable
since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner
has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact
that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent's
possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present
controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances
earthquake, flood, storm or other natural calamity when the presumption of fault is not applicable 13 do not concur
in this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the exceptions,
private respondent is answerable for the loss.

It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even
if the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk". 14Carnapping
is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk
so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the
Department of Trade and Industry (DTI) 15 and to secure an insurance policy for the "shop covering the property
entrusted by its customer for repair, service or maintenance" as a pre-requisite for such registration/accreditation.
16
Violation of this statutory duty constitutes negligence per se. 17 Having taken custody of the vehicle private
respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for
his property over which he loses immediate control. An owner who cannot exercise the seven (7) juses or attributes
of ownership the right to possess, to use and enjoy, to abuse or consume, to accessories, to dispose or alienate, to
recover or vindicate and to the fruits 18 is a crippled owner. Failure of the repair shop to provide security to a motor
vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent's
repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the
loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate
petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of
negligence applies.

One last thing. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable, it
should be based on the fair market value that the property would command at the time it was entrusted to it or such
other value as agreed upon by the parties subsequent to the loss. Such recoverable value is fair and reasonable
considering that the value of the vehicle depreciates. This value may be recovered without prejudice to such other
damages that a claimant is entitled under applicable laws.

WHEREFORE, premises considered, the decision of the Court Appeals is REVERSED and SET ASIDE and the
decision of the court a quo is REINSTATED