some service (Art. 1305, Civil Code).

A contract undergoes various stages that include its

negotiation or preparation, its perfection and, finally, its consummation.
Negotiation
covers the period
from
the time theprospective contracting parties indicate interest in the contract
to
the time the contract is concluded(perfected). The
perfection
of the contract takes place upon the concurrence of the essential elementsthereof. A contract
which is
consensual
as to perfection is so established upon a mere meeting of minds,i.e., the concurrence of offer
and acceptance, on the object and on the cause thereof. A contract whichrequires, in addition
to the above, the delivery of the object of the agreement, as in a pledge or
commodatum
, is commonly referred to as a
real
contract. In a
solemn
contract, compliance with certainformalities prescribed by law, such as in a donation of real
property, is essential in order to make the actvalid, the prescribed form being thereby an
essential element thereof. The stage of
consummation
beginswhen the parties perform their respective undertakings under the contract culminating in
theextinguishment thereof.Until the contract is perfected, it cannot, as an independent source
of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs,the contract is perfected when a person, called
the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code
provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a
pricecertain in money or its equivalent. A contract of sale may be absolute or conditional.When
the sale is
not absolute
but
conditional
, such as in a "Contract to Sell" where invariably theownership of the thing sold is retained until
the fulfillment of a positive suspensive condition (normally, thefull payment of the purchase
price), the breach of the condition will prevent the obligation to convey titlefrom acquiring an
obligatory force.
2
In
Dignos vs. Court of Appeals
(158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a
sale is still absolute where the contract is devoid of any
proviso
that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then betransferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document)of the property sold. Where the condition
is imposed upon the perfection of the contract itself, the failure of the condition would prevent
such perfection.
3

OBLICON CASES 1
If the condition is imposed on the obligation of a party whichis not fulfilled, the other party may
either waive the condition or refuse to proceed with the sale (Art. 1545,Civil Code).
4
An unconditional
mutual promise
to buy and sell, as long as the object is made determinate and the priceis fixed, can be
obligatory on the parties, and compliance therewith may accordingly be exacted.
5
An
accepted unilateral promise
which
specifies
the
thing to be sold and the price to be
paid,
when coupled with a valuable consideration distinct
and
separate from the price
, is what may properly be termed aperfected contract of
option
. This contract is legally binding, and in sales, it conforms with the secondparagraph of Article
1479 of the Civil Code, viz: Art. 1479. . . . An accepted unilateral promise to buy or to sell a
determinate thing for a price certain isbinding upon the promissor if the promise is supported
by a consideration distinct from theprice. (1451a)
6

Observe, however, that the option is

not
the contract of sale itself.
7
The optionee has the right, but not the obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy
ensues and both partiesare then reciprocally bound to comply with their respective
undertakings.
8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
(policitacion)
ismerely an offer. Public advertisements or solicitations and the like are ordinarily construed
as mereinvitations to make offers or only as proposals. These relations, until a contract is
perfected, are notconsidered binding commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal iseffective immediately after its manifestation, such as by its mailing
and not necessarily when the offereelearns of the withdrawal (Laudico vs. Arias, 43 Phil.
270). Where a period is given to the offeree withinwhich to accept the offer, the following rules
generally govern:(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and hasthe right to withdraw the offer before its acceptance, or, if an
acceptance has been made, before theofferor's coming to know of such fact, by
communicating that withdrawal to the offeree (see
Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948
, holding that this rule is applicable to a unilateralpromise to sell under Art. 1479, modifying
the previous decision in
South Western Sugar vs. Atlantic Gulf,97 Phil. 249;
see also
Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409;Sanchez
vs. Rigos, 45 SCRA 368

OBLICON CASES 2
). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the Civil Code which ordainsthat "every
person must, in the exercise of his rights and in the performance of his duties, act with
justice,give everyone his due, and observe honesty and good faith."(2) If the period has a
separate consideration, a contract of "option" is deemed
perfected
, and it would be abreach of that contract to withdraw the offer during the agreed period. The
option, however, is anindependent contract by itself, and it is to be distinguished from the
projected main agreement (subjectmatter of the option) which is obviously yet to be concluded.
If, in fact, the optioner-offeror
withdraws theoffer before its acceptance
(exercise of the option) by the optionee-offeree, the latter may not sue for
specific performance
on the proposed contract ("object" of the option) since it has failed to reach its ownstage of
perfection. The optioner-offeror, however, renders himself liable for damages for breach
of theoption. In these cases, care should be taken of the real nature of the
consideration
given, for if, in fact, ithas been intended to be part of the consideration for the main contract
with a right of withdrawal on thepart of the optionee, the main contract could be deemed
perfected; a similar instance would be an "earnestmoney" in a contract of sale that can
evidence its perfection (
Art. 1482, Civil Code
).In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to pointout, it cannot be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can theright of first refusal, understood in its normal concept,
per se
be brought within the purview of an optionunder the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319
9
of the same Code. An option or an offer would require, among other things,
10
a clear certainty on both theobject and the cause or consideration of the envisioned contract.
In a right of first refusal, while the objectmight be made determinate, the exercise of the right,
however, would be dependent not only on thegrantor's eventual intention to enter into a
binding juridical relation with another but also on terms,including the price, that obviously are
yet to be later firmed up. Prior thereto, it can at best be so describedas merely belonging to a
class of preparatory juridical relations governed not by contracts (since theessential elements
to establish the
vinculum juris
would still be indefinite and inconclusive) but by, amongother laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment,
like here, itsbreach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merelyrecognizes its existence, nor would it sanction an action for specific
performance without thereby negatingthe indispensable element of consensuality in the
perfection of contracts.
11
It is not to say, however, that the right of first refusal would be inconsequential for, such as
alreadyintimated above, an unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 19
12
of the Civil Code, can warrant a recovery for damages.The final judgment in Civil Case No. 87-
41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners.
The consequence of such a declaration entails no more than what hasheretofore been said. In
fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private

OBLICON CASES 3
respondents to honor the right of first refusal, the remedy is not a writ of execution on the
judgment,since there is none to execute, but an action for damages in a proper forum for the
purpose.Furthermore, whether private respondent Buen Realty Development Corporation, the
alleged purchaser of the property, has acted in good faith or bad faith and whether or not it
should, in any case, be consideredbound to respect the registration of the
lis pendens
in Civil Case No. 87-41058 are matters that must beindependently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in CivilCase No. 87-41058, cannot be
held subject to the writ of execution issued by respondent Judge, let aloneousted from the
ownership and possession of the property, without first being duly afforded its day in court.We
are also unable to agree with petitioners that the Court of Appeals has erred in holding that the
writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed
in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:Finally, the
questioned writ of execution is in variance with the decision of the trial court asmodified by this
Court. As already stated, there was nothing in said decision
13
that decreedthe execution of a deed of sale between the Cu Unjiengs and respondent
lessees, or thefixing of the price of the sale, or the cancellation of title in the name of petitioner
(Limpin vs.IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311;
DeGuzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).It is likewise quite obvious
to us that the decision in Civil Case No. 87-41058 could not have decreed at thetime the
execution of any deed of sale between the Cu Unjiengs and petitioners.WHEREFORE, we
UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated30
August 1991 and 27 September 1991, of the court
a quo
. Costs against petitioners

G.R. No. L-27454 April 30, 1970

Rosendo O. Chavez, plaintiff-appellant
vs.
Fructuoso Gonzales, defendant-appellee

REYES, J.B.L., J.:

Facts: On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a
typewriter repairman for the cleaning and servicing of the said typewriter but the latter was not
able to finish the job. During October 1963, the plaintiff gave the amount of P6.00 to the
defendant which the latter asked from the plaintiff for the purchase of spare parts, because of
the delay of the repair the plaintiff decided to recover the typewriter to the defendant which he
wrapped it like a package. When the plaintiff reached their home he opened it and examined
that some parts and screws was lost. That on October 29, 1963 the plaintiff sent a letter to the
defendant for the return of the missing parts, the interior cover and the sum of P6.00 (Exhibit
D). The following day, the defendant returned to the plaintiff some of the missing parts, the
interior cover and the P6.00. The plaintiff brought his typewriter to Freixas Business Machines
and the repair cost the amount of P89.85. He commenced this action on August 23, 1965 in
the City Court of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and
P500.00 as attorney’s fees. The defendant made no denials of the facts narrated above,
except the claim of the plaintiff that the cost of the repair made by Freixas Business Machines
be fully chargeable against him.
Issue: Whether or not the defendant is liable for the total cost of the repair made by Freixas
Business Machines with the plaintiff typewriter?
Ruling: No, he is not liable for the total cost of the repair made by Freixas Business Machines
instead he is only liable for the cost of the missing parts and screws. The defendant

OBLICON CASES 4
contravened the tenor of his obligation in repairing the typewriter of the plaintiff that he fails to
repair it and returned it with the missing parts, he is liable under “ART. 1167. If a person
obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone.”
IGNACIO BARZAGA VS CA AND ANGELITOALVIARGR No. 115129FACTS:

After a prolonged pain and suffering, Barzagas wife succumbed to a debilitating ailment on December
19,1990. Forewarned of her impending death, she wished to be buried before Christmas .In the fulfilment of
his wife’s dying wish,

Petitioner arranged her internment on the 24 th of December. On December 21, 1990 at 3 pm, he went to
Angelito Alviar s hardware store to inquire about the availability of certain materials for the construction of his
wife s niche and if it could be delivered at once. Alviar’s storekeeper replied that if there are pending
deliveries for this afternoon, it would bedelivered the following day.

Petitioner returned the following day at 7 am. He toldthe employees that the materials he was buyingwould
have to be delivered at the cemetery by eightin the morning since his hired workers were alreadythere and
time was of the essence. With the assurancethat the materials will be delivered at the designatedtime and
place, he paid the full amount of P2, 110.00.However, the materials were not delivered on time.

After several follow ups, Alviar’s employees gave him the same answer, assuring him that the materials will be
delivered in no time. Due to the delay in thedelivery, the petitioner was forced to dismiss his laborers for the
day.

Petitioner, determined to fulfil his wife ’s dying wish and distressed that Alviar ’s employees were not The
least concerned, despite his impassioned pleas, he decided to cancel the transaction and buy the materials
from another store. Her wife was finally laid to rest two-and-a-half days behind schedule sincethe niche was
not finished in time.Petitioner sued Alviar for compensation of thedamages caused by the delay. Respondent
claims thatthe legal delay could not be validly ascribed to himbecause no specific time of delivery was agreed
uponand even if there was delay, it was due to a fortuitousevent since the truck suffered a flat tire.RTC ruled in
favor of the petitioner but such wasreversed by the CA.Hence, this petition.

ISSUE:
WON Alviar incurred delay in the fulfilment of hiso bligation and is liable for damages?

RULING:
Yes. The Respondent was negligent and incurred delay in performing his obligations. The law expressly
provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and
those who in any manner contravene the tenor thereof, are liable for damages. There was actually a specific
time agreed upon for the delivery of the materials. It was evident when the petitioner only agreed to buy the
materials when he was assured of the immediate delivery according to his time frame. Time was of the
essence in the delivery of the materials to the grave site. The niche had to be constructed on the 22nd
considering that it would take about 2 days to finish the job if the internment was on the 24th . Respondent
’s delay on the delivery wasted so much time that the construction could only start on the 23rd .Respondent
’s justification that his truck had a flat tire is unacceptable, for this event was foreseeable and should have
been reasonably guarded against. This is a clear non-performance of a reciprocal obligation. Petitioner
had already complied with his obligation as a purchaser when he paid the purchase price. It was incumbent
upon the respondent to immediately fulfil his obligation to deliver otherwise delay would attach. Petition was
granted. The Court ordered private respondent to refund the purchase price of P2, 110.00with interest, pay
P20, 000.00 moral damages, P5,000.00 litigation expenses and P5, 000.00 attorney ’s fee

.R. No. 117190 January 2, 1997

OBLICON CASES 5
JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING
AND GENERALMERCHANDISING,
petitioner,

vs.

COURT OF APPEALS and VICENTE HERCE JR.,

respondents..:

 Jacinto Tanguilig [owner of JMT Engineering and General merchandise] was contracted by
Vicente
Herce to construct a “windmill” for P 60,000

 Herce paid P30,000 downpayment, an instalment of P15,000, and left a balance of P15,000

 Petitioner [Tanguilig] filed a complaint for non-payment of the remaining balance.

 Respondent answered saying that he already paid remaining balance to San Pedro
GeneralMerchandising Inc., who constructed the deep well connected to the windmill.

 Also, respondent claimed that P15,000 balance should be offset since the windmill
collapsed after astrong wind hit it.

 Respondent contends that since petitioner did not have the capacity to install the pump the
latteragreed to have a third party do the work the cost of which was to be deducted from the
contractprice. He presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig
approached himwith a letter from respondent Herce Jr. asking him to build a deep well pump
as "part of theprice/contract which Engineer (Herce) had with Mr. Tanguilig."

 TRIAL COURT: Deep well was NOT PART of the contract. NO clear showing that there is
defect in theconstruction.

 CA: REVERSED TC decision. Deep well was part of the contract. Petitioner [Tanguilig]
shouldreconstruct the windmill.ISSUE:W/N deep well was part of the contract.W/N petitioner
should reconstruct the windmill.W/N respondent can claim that Pili accepted his payment on
behalf of petitioner?HELD:Deep well was NOT PART of the contractPetitioner SHOULD
reconstruct the windmill.No.RATIO:

Part of the contractThere is absolutely no mention in the two (2) documents that a deep well
pump is a componentof the proposed windmill system. The contract prices fixed in both
proposals cover only thefeatures specifically described therein and no other.The words "deep
well" and "deep well pump
”
merely describe the type of deep well pump for which the proposed windmill would be suitable.
For if the real intent of petitioner was to include a deep well in the agreement to construct a
windmill, he would have used instead the conjunctions "and" or "with."It is a cardinal rule in the
interpretation of contracts that the intention of the parties shall beaccorded primordial
consideration and, in case of doubt, their contemporaneous andsubsequent acts shall be
principally considered. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiated. The
alleged letter was never presented in court by private respondent for reasons known only to
him. Claim that Pili accepted on behalf of petitioner While the law is clear that "payment shall
be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it," it does not appear from the record that Pili
and/or SPGMI was so authorized. Respondent cannot claim the benefit of the law concerning
"payments made by a third person."


OBLICON CASES 6
The Civil Code provisions do not apply in the instant case because no creditor-debtor
relationship between petitioner and Guillermo Pili and/or SPGMI has been established
regardingthe construction of the deep well.


Circumstances only show that the construction of the well by SPGMI was for the sole account
of respondent and that petitioner merely supervised the installation of the well because the
windmill was to be connected to it. There is no legal nor factual basis by which this Court can
impose upon petitioner an obligation he did not expressly assume nor ratify. Claim for
exemption from liability

 In order for a party to claim exemption from liability by reason of fortuitous event under
Art.1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract.

 Requisites for exemption

 (a) the cause of the breach of the obligation must be independent of the will of the debtor;

(b) the event must be either unforeseeable or unavoidable;

(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in
anormal manner;

(d) the debtor must be free from any participation in or aggravation of the injury to the creditor.
 Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot
be fortuitous
—
unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places
where windmills are constructed, otherwise the windmills will not turn

Reyes vs. Sisters of Mercy HospitalG.R No. 130547 (October 3, 2000)A.

Legal Issue Whether or not Sisters of Mercy Hospital is liable for the death of Jorge Reyes.B.

Facts

Petitioner, Leah Alesna Reyes, is the wife of the deceased patient, Jorge Reyes. Five days
before the latter’s death, Jorge has been suffering from recurring fever with chills. The doctors
confirmed through the Widal test that Jorge has typhoid fever. However, he did not respond
tothe treatment and died. The cause of his death was “Ventricular Arrythemia Secondary to
Hyperpyrexia and typhoid fever.”

Consequently, petitioner filed the instant case for damages before the Regional Trial Court of
Cebu City, which dismissed the case and was affirmed by theCourt of Appeals.The contention
was that Jorge did not die of typhoid fever. Instead, his death was due tothe wrongful
administration of chloromycetin. They contended that had respondent doctorsexercised due
care and diligence, they would not have recommended and rushed the performanceof the
Widal Test, hastily concluded that Jorge was suffering from typhoid fever, and administered
chloromycetin without first conducting sufficient tests on the patient’s compatibility with said
drug.C.

Ruling

Sisters of Mercy Hospital is not liable for the death of Jorge Reyes.D .

OBLICON CASES 7
 Reasoning of the Court There is no showing that the attending physician in this case deviated
from the usual course of treatment with respect to typhoid fever. Jorge was given antibiotic
choloromycetin and some dose of triglobe after compatibility test was made by the doctor and
found that no adverse reactions manifested which would necessitate replacement of the
medicines. Indeed, the standard contemplated is not what is actually the average merit among
all known practitioners from
the best to the worst and from the most to the least experienced, but the reasonable average
meritamong the ordinarily good physicians. Here, the doctors did not depart from the
reasonable standard recommended by the experts as they in fact observed the due care
required under the circumstances.E.

PolicyIn Medical Negligence cases, it is incumbent upon the plaintiff to establish that the
usual procedure in treating the illness is not followed by the doctor. Failure to prove this, the
doctor isnot liable. Physicians are not insurers of the success of every procedure undertaken
and if
the procedure was shown to be properly done but did not work, they cannot be faulted for such
result

National Power Corporation v. Court of Appeals 161 SCRA 334, G.R. No. L-47379 (May
16, 1998)

Facts:

1. Engineering Construction, Inc. (petitioner, ECI for brevity), being a successful bidder,
executed a contract in Manila with the National Waterworks and Sewerage Authority
(NAWASA), whereby the former undertook:
1. to furnish all tools, labor, equipment and materials, and
2. to construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features at Norzagaray, Bulacan and to complete
said works within 800 calendar days. (Angat Hydro-electric Project and Dam)
2. The project involves two (2) major phases: (1) tunnel work covering a distance of 7
kilometres and (2) the outworks at both ends of the tunnel.
3. The ECI already had completed the first major phase of the work (Tunnel Excavation
Work), all the equipment no longer needed there were transferred to another site where some
projects were yet to be completed. Some portion of the Bicti site were still under construction
(2nd phase).
4. On November 4, 1967, Typhoon “Welming” hit Central Luzon, passing through
corporations’ Angat Hydro-electric Project and Dam.
5. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising
perilously at the rate of 60 cm per hour. To prevent an overflow of water from the dam, the
National Power Corporation(NPC) caused the opening of the spillway gates.
6. Extraordinary large volume of water rushed out of the gates, and hit the installations and
construction works of ECI at Ipo site with terrific impact, as a result of which the latter’s
stockpile of materials supplies, camp facilities and permanent structures and accessories
whether washed away, lost or destroyed.
Issue/s:

OBLICON CASES 8
1. Whether or not the destruction and loss of ECI’s equipment and facilities were due to
force majeure, which will exempt NPC from liability.
Ruling:

1. No, NPC will not be exempted from liability. NPC was undoubtedly negligent because it
opened the spillway gates of the Angat Dam only at the height of typhoon “Welming” when it
knew very well that it was safer to have opened the same gradually and earlier, as it was also
undeniable that NPC know of the coming typhoon at least four days before it actually struck.
The typhoon was an act of God or what we may call force majeure, NPC cannot escape
liability because its negligence was the proximate cause of the loss and damage.

As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:

“If upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the
obligation, which results in loss or damage, the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole occurrence is thereby HUMANIZED,
as it were, and removed from the rules applicable to the acts of God.

Central Philippine University v CA (Obligations and Contracts)

Central Philippine University v CA
GR No. 112127
July 17, 1995

DONATION

FACTS: (1) In 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of
Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed
a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the
subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of
Title No. T-3910-A was issued in the name of the donee CPU with the following annotations
copied from the deed of donation —

1. The land described shall be utilized by the CPU exclusively for the establishment and use of
a medical college with all its buildings as part of the curriculum;

2. The said college shall not sell, transfer or convey to any third party nor in any way encumber
said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be
under obligation to erect a cornerstone bearing that name. Any net income from the land or
any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to
be used for improvements of said campus and erection of a building thereon.

(2) On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an
action for annulment of donation, reconveyance and damages against CPU alleging that since
1939 up to the time the action was filed the latter had not complied with the conditions of the

OBLICON CASES 9
donation.

RTC: On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of
the donation and declared it null and void.

CA: 18 June 1993 ruled that the annotations at the back of petitioner's certificate of title were
resolutory conditions breach of which should terminate the rights of the donee thus making the
donation revocable.
APPLICABLE LAW/S:

• Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition. (1114)

• Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them. (1128a)

• Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

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

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
HELD: (1) The donation was onerous. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration which is considered the
equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the
value of the donation. The donation had to be valid before the fulfillment of the condition. 5 If
there was no fulfillment or compliance with the condition, such as what obtains in the instant
case, the donation may now be revoked and all rights which the donee may have acquired
under it shall be deemed lost and extinguished.

(2) The action has not prescribed. It has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent
the statute of limitations from barring the action of private respondents upon the original
contract which was the deed of donation.

(3) Courts fixing a period is now moot and rescission is proper. Petitioner has slept on its
obligation for an unreasonable length of time. Hence, it is only just and equitable now to
declare the subject donation already ineffective and, for all purposes, revoked so that petitioner
as donee should now return the donated property to the heirs of the donor, private
respondents herein, by means of reconveyance.

OBLICON CASES 10
252 Phil. 405

FERNAN, C.J.:
This is a petition for review on certiorari of the July 2, 1984 decision of the third Special Cases
Division, Intermediate Appellate Court, in AC-G.R. SP No. 01230, entitled "Heirs of Fausta
Dimaculangan v. Hon. Baltazar R. Dizon, et al." dismissing for lack of merit the petition for
review of the Orders dated June 6, 1983 and July 13, 1983, issued by the Regional Trial Court
of Pasay City, Branch CXIII in Civil Case 8865-P which is turn affirmed on appeal the October
16, 1980 decision of Hon. Mariano A. Lacsamana, then presiding judge, Pasay City Court,
Branch II, in Civil Case No. 13591, entitled "Felimon Uy v. Fausta Dimaculangan, for
Ejectment".

Fausta Dimaculangan and her children, petitioners herein, occupy by lease an apartment
located at No. 2490 E. Zamora St., Pasay City, at a monthly rental of P250.00. They have
been living in said premises since 1961. To augment its income, the family maintains therein
a sari-sari store and bakes hot pan de sal to sell to the general public. The capital investment
involved is claimed to be P3,200.00 only.

On July 5, 1978, private respondent Felimon Uy sent Fausta Dimaculangan a registered letter
informing her that the property which she has been occupying has been sold to him and should
she desire to continue occupying the same, she should sign a contract of lease for a period of
two (2) years at a monthly rental of P1,500.00. Receiving no reply to his letter, the private
respondent sent a second one, demanding payment of P750.00 covering unpaid rentals for the
months of August, September and October, 1978 but still he received no answer to his
demand. Thus, he filed with the City Court of Pasay City a complaint for ejectment [1] praying,
among others, that said court render judgment ordering Fausta Dimaculangan and all persons
claiming rights under her to vacate the leased premises.

In her answer with compulsory counterclaim,[2] Fausta Dimaculangan admitted that she
received plaintiff's letter of July 5, 1978 but claimed that she sent plaintiff a reply which was
however returned undelivered because plaintiff distorted his address. She denied having been
in default in her monthly rentals to the plaintiff, and alleged that she has never been in default
during the entire period of her occupancy of the premises since 1961 up to the present. In fact
she tried to pay the plaintiff who did not want to collect the monthly rentals, even in the form of
money orders which were however, returned unclaimed. She countered that the filing of the
complaint was just a scheme to compel her to agree to the capricious and whimsical demand
for an unconscionable increase in the monthly rental from P250.00 to P1,500.00, in clear
violation of the provisions of P.D. No. 20, as amended. She further alleged that when she
received the plaintiff's letter of October 3, 1978, she caused the payment of the rentals for
August, September and October, 1978. Defendant Fausta Dimaculangan prayed to the trial
court that the complaint be dismissed and a favorable judgment be rendered in her favor.

Pending trial of the case, Fausta Dimaculangan died. She was substituted by her children as
defendants.

After trial, the presiding judge of the City Court of Pasay found that the premises in question is
partly residential and partly commercial; that defendant has no arrears and that the latter
replied to plaintiff's demand letter and paid way of money orders her rentals which were
however, returned unclaimed.

On October 16, 1980, the aforementioned court rendered a decision increasing the monthly
rentals and fixing a definite period for the term of the lease, the dispositive portion of which
reads:

OBLICON CASES 11
"WHEREFORE, AND IN VIEW OF THE FOREGOING, the defendant is hereby ordered to pay
the plaintiff the amount of P500.00 per month, as monthly rental from August 1978 to August
1980; defendant shall be granted a Contract of Lease for two (2) years from August 1980 to
August 1982 of which the defendant shall pay the plaintiff a monthly rental of P750.00; the
party-litigants are ordered to pay the amount of P1,500.00 to their respective counsels by way
of attorney's fees; and the party-litigates (sic) shall equally pay the costs of suit.

"SO ORDERED."[3]
On Appeal, the Regional Trial Court, Branch CXIII, Pasay City, affirmed the aforesaid decision
of the City Court and denied petitioner's motion for reconsideration. [4]

On review by certiorari, the Intermediate Appellate Court, new Court of Appeals, dismissed the
petition for lack of merit.[5]

Hence, the instant petition for review, raising the following issues for the resolution of this
Court:

1. May the trial court in a complaint for ejectment increase the rental agreed upon by the
parties, and in the instant case, from the agreed P250.00 to P500.00, and then to P750.00,
without violating the provisions of existing laws;

2. May the trial court alter the agreement of the parties by shortening the period of the lease
from an indefinite period within the purview of Presidential Decree No. 20, the law in force at
the time, and of the amendatory Batas Pambansa Blg. 25, to a fixed two (2) years;

3. In dismissing the petition for review, and in effect, affirming the judgments of the
Metropolitan Trial Court, and the Regional Trial Court, has the Honorable Intermediate
Appellate Court committed a grave abuse of discretion amounting to lack or absence of
jurisdiction, or at least a grave reversible error of a question of law, and/or of fact and law,
correctible by the instant petition?[6]

It has been established that petitioners have been occupying the leased premises on a verbal
contract since 1961 at a monthly rent of P250.00, and that although no fixed period for the
duration of the lease has been agreed upon the original lessor and lessee, the rentals were
paid monthly.

Under the circumstances, there appears to be no dispute that subject contract of lease is
covered by P.D. 20 and later by B.P. No. 25.

The decisive issue therefore, in this case, is whether or not subject contract of lease is for an
indefinite period, for the purpose of applying Presidential Decree No. 20.

The pertinent provision of P.D. No. 20 reads:

"SEC. 4. - Except when the lease is for a definite period, the provisions of paragraph (1) of
Article 1678 of the Civil Code of the Philippines insofar as they refer to dwelling unit or land on
which another's dwelling is located shall be suspended until otherwise provided; but other
provisions of the Civil Code and the Rules of Court of the Philippines on lease contrast, insofar
as they are not in conflict with the provision of this act, shall apply."
To exempt the lease from the application of P.D. No. 20, it must be one with a definite period.

It will be recalled that the agreement between the original lessor and lessee was unwritten, so
that it is difficult to determine with certainty the terms and conditions agreed upon.

Be that as it may, it is undisputed that the rentals are paid monthly. This Court had already
ruled that leases as deemed on a "month-to-month basis", if rentals therefore are paid monthly.

OBLICON CASES 12
[7]

Similarly, it is well settled that a lease contract "on a month-to-month basis" provides for a
definite period and may be terminated at the end of any month. [8] By express exception of P.D.
No. 20, judicial ejectment lies when the lease is for a definite period or when the fixed or
definite period agreed upon has expired.[9]

Even more recently, this Court clarified that "(I)n exempting from suspension ejectments on the
ground of the expiration of the lease period, Section 4 of Presidential Decree No. 20 made no
distinction between oral and written lease contracts and no distinction may, therefore, be
inferred. Consequently, at the time of filing her action the private respondent had clear and
indubitable right to eject the petitioners, the period of the latter's lease expiring at the end of
every monthly period x x x."[10] The Court further pointed out that the Rent Control Law now in
force, Batas Pambansa Blg. 877, has erased the distinction between oral and written leases
insofar as expiration of the lease period as a ground for judicial ejectment in lease covered by
said law, is concerned.[11]

In view of the foregoing, there appears to be no necessity to discuss the other issues in this
case; more specifically whether or not the trial court may increase the rental and/or alter the
period of the lease from an indefinite period to a definite period; both issues having become
moot and academic.

Citing the case of Mabalot v. Madala, Jr.,[12] the Court of Appeals ruled that the petition has
been rendered moot and academic by the death of the lessee Fausta Dimaculangan, which
terminated the lease in her favor. It will be noted however, that in the aforecited case, those
seeking to continue in possession of the premises were not the heirs of the lessee but merely
members of the lessee's household, which does not apply in the case at bar, where petitioner
are the lessee's children. Authorities are of the view that lease is not essentially personal in
character, thus the right is transmissible to the heirs. [13]

At any rate, the period fixed by respondent Judge which appears acceptable to the lessor has
expired in 1982 and has therefore become moot and academic, aside from the fact that with
private respondent's conformity, it has become the latter's term which is well within his
authority; that is, to terminate the contract and enter into a new one.

WHEREFORE, the petition is hereby dismissed for lack of merit, with costs against the
petitioner.

Nazareno v. CAGR No. 138842, 18 Oct 2000Facts:

- M a x i m i n o N a z a r e n o , S r . a n d A u r e a P o b l e t e w e r e husband and wife.

Aurea died on April 15, 1970,while Maximino, Sr. died on December 18, 1980.- T h e y h a d
f i v e c h i l d r e n , n a m e l y, N a t i v i d a d , R o m e o , Jose, Pacifico, and Maximino, Jr. Natividad
and Maximino, Jr. are petitioners in this case, while the estate of Maximino, Sr., Romeo, and
his wife Eliza Nazareno are the respondents.- A f t e r t h e d e a t h o f
M a x i m i n o , S r. , R o m e o f i l e d a n intestate case and was appointed administrator of his
father's estate.- I n t h e c o u r s e o f t h e i n t e s t a t e p r o c e e d i n g s , R o m e o discovered
that his parents had executed several deeds of sale conveying a number of real properties in
favor of his sister, Natividad.- O n e o f t h e d e e d s i n v o l v e d s i x l o t s i n Q u e z o n C i t y
which were allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad on January
29, 1970.By virtue of these deeds, TCTs were issued to Natividad for lots 3-B, 3, 10, 11, 13 &
14- U n k n o w n t o R o m e o , N a t i v i d a d s o l d L o t 3 - B , w / c h a d been occupied
by Romeo, his wife, & Maximino, Jr.,to Maximino, Jr.- R o m e o f i l e d t h e p r e s e n t
c a s e f o r a n n u l m e n t o f s a l e w/ damages against Natividad & Maximino Jr. on the

OBLICON CASES 13
ground that both sales were void for lack of consideration- R o m e o p r e s e n t e d t h e
D e e d o f P a r t i t i o n & Distribution executed by Maximino Sr. & Aurea in1962 & duly
signed by all of their children, except Jose, who was then abroad. However, this deed was not
carried out. In 1969, their parents instead offered to sell to them the lots- H e t e s t i f i e d
t h a t , a l t h o u g h t h e d e e d s o f s a l e executed by his parents in their favor stated that
the sale was for a consideration, they never really paid any amount for the supposed sale. The
transfer was made in this manner in order to avoid the payment of inheritance taxes.-
A l l e g e d l y, i t w a s o n l y N a t i v i d a d w h o b o u g h t t h e l o t s in question because she
was the only one financially able to do so- T h e t r i a l c o u r t r e n d e r e d a d e c i s i o n
d e c l a r i n g t h e nullity of the Deed of Sale dated January 29, 1970,except as to Lots 3, 3-B,
13 and 14 which had passed on to third persons.- O n a p p e a l t o t h e C o u r t o f A p p e a l s ,
t h e d e c i s i o n o f the trial court was modified in the sense that titles toLot 3 (in the name of
Romeo Nazareno) and Lot 3-B(in the name of Maximino Nazareno, Jr.), as well as to Lots 10
and 11 were cancelled and ordered restored to the estate of Maximino Nazareno, Sr. Hence,
the present petition.
Issue:
1)Whether the restoration of the titles to the lots in question to the estate of Maximino
Sr.was proper 2 ) W h e t h e r i t w a s t h e i n t e n t i o n o f M a x i m i n o , Sr. to give the subject
lots to Natividad
Held:
1 ) Ye s . T h e N a z a r e n o s p o u s e s t r a n s f e r r e d their properties to their children
by fictitious sales in order to avoid the payment of inheritance taxes. Facts & circumstances
indicate badges of a simulated sale w/c make the Jan 29, 1970 sale void & of no effect.
Natividad never acquired ownership over theproperty because the Deed of Sale in her favor is
also void for being w/o consideration.2 ) Ye s . I t c a n n o t b e d e n i e d t h a t M a x i m i n o ,
S r. intended to give the six Quezon City lots to Natividad. As Romeo testified, their parents
executed the Deed of Sale in favor of Natividad because the latter was the only "female and
the only unmarried member of the family." She was thus entrusted with the real properties in
behalf of her siblings. As she herself admitted, she intended to convey Lots 10 and 11 to Jose
in the event the latter returned from abroad. There was thus an implied trust constituted in her
favor. Art.1449 of the Civil Code states:
There is also an implied trust when a donation is made to a person but it appears that although
the legal estate is transmitted to the donee, he nevertheless is either to have no
beneficial interest or only a part thereof.
There being an implied trust, the lots in questionare therefore subject to collation in
accordance with Art. 1061 which states:
Every compulsory heir, who succeeds with other compulsory heirs, must bring into the mass
of the estate any property or right which he may have received from the decedent, during the
lifetime of the latter, by way of donation, or any other gratuitous title, in order that it may
becomputed in the determination of the legitime of each heir, and in the account of the
partition.
As held by the trial court, the sale of Lots 13 and14 to Ros-Alva Marketing, Corp. will have to
be upheld for it is an innocent purchaser for value which relied on the title of Natividad. (calo)

PNCC VS. CA Case Digest

PNCC VS. CA
272 SCRA 183

FACTS: On 18 November 1985, private respondents and petitioner entered into a contract of
lease of a parcel of land owned by the former. The terms and conditions of said contract of
lease are as follows: a) the lease shall be for a period of five (5) years which begins upon the
issuance of permit by the Ministry of Human Settlement and renewable at the option of the
lessee under the terms and conditions, b) the monthly rent is P20, 000.00 which shall be
increased yearly by 5% based on the monthly rate, c) the rent shall be paid yearly in advance,
and d) the property shall be used as premises of a rock crushing plan.

OBLICON CASES 14
On January 7, 1986, petitioner obtained permit from the Ministry which was to be valid for two
(2) years unless revoked by the Ministry. Later, respondent requested the payment of the first
annual rental. But petitioner alleged that the payment of rental should commence on the date
of the issuance of the industrial clearance not on the date of signing of the contract. It then
expressed its intention to terminate the contract and decided to cancel the project due to
financial and technical difficulties. However, petitioner refused to accede to respondent’s
request and reiterated their demand for the payment of the first annual rental. But the petitioner
argued that it was only obligated to pay P20, 000.00 as rental for one month prompting private
respondent to file an action against the petitioner for specific performance with damages
before the RTC of Pasig. The trial court rendered decision in favor of private respondent.
Petitioner then appealed the decision of the trial court to the Court of Appeals but the later
affirmed the decision of the trial court and denied the motion for reconsideration.

ISSUE: Whether or not petitioner can avail of the benefit of Article 1267 of the New Civil Code.

RULING: NO. The petitioner cannot take refuge of the said article. Article 1267 of the New
Civil Code provides that when the service has become so difficult as to manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not, however an absolute
application of the principle of rebus sic stantibus, which would endanger the security of
contractual relations. The parties to the contract must be presumed to have assumed the risks
of unfavorable developments. It is therefore only in absolutely exceptional chances of
circumstances that equity demands assistance for the debtor. The principle of rebus sic
stantibus neither fits in with the facts of the case. Under this theory, the parties stipulate in the
light of certain prevailing conditions, and once these conditions cease to exist, the contract
also ceases to exist.

In this case, petitioner averred that three (3) abrupt change in the political climate of the
country after the EDSA Revolution and its poor financial condition rendered the performance of
the lease contract impractical and inimical to the corporate survival of the petitioner. However,
as held in Central Bank v. CA, mere pecuniary inability to fulfill an engagement does not
discharge a contractual obligation, nor does it constitute a defense of an action for specific
performance.

Civil Law – Secured Transactions – Continuing Surety; Future Obligations

In 1981, Joseph Chua and Edgar Rodrigueza executed separate surety agreements in favor of
Fortune Motors (Phils.) Corporation to cover obligations incurred by Fortune Motors whether
they be enforced or thereafter made (from the time of said surety contracts).
In 1982, Fortune Motors secured cars from Canlubang Automotive Resources Corporation
(CARCO) via trust receipts and drafts made by CARCO. These were assigned to Filinvest
Credit Corporation. Later Filinvest, when the obligation matured, demanded payment from
Fortune Motor as well as from Chua and Rodrigueza. No payment was made. A case was filed.
Rodrigueza averred that the surety agreement was void because when it was signed in 1981,
the principal obligation (1982) did not yet exist.
ISSUE: Whether or not the surety agreement is void.
HELD: No. Future obligations can be covered by a surety. Comprehensive or continuing surety
agreements are in fact quite commonplace in present day financial and commercial practice. A
bank or financing company which anticipates entering into a series of credit transactions with a
particular company, commonly requires the projected principal debtor to execute a continuing
surety agreement along with its sureties. By executing such an agreement, the principal places
itself in a position to enter into the projected series of transactions with its creditor; with such
suretyship agreement, there would be no need to execute a separate surety contract or bond
for each financing or credit accommodation extended to the principal debtor.

OBLICON CASES 15
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 142838 August 9, 2001
ABELARDO B. LICAROS, petitioner,
vs.
ANTONIO P. GATMAITAN, respondent.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition
seeks to reverse and set aside the Decision1 dated February 10, 2000 of the Court of Appeals
and its Resolution2 dated April 7, 2000 denying petitioner's Motion for Reconsideration thereto.
The appellate court decision reversed the Decision 3 dated November 11, 1997 of the Regional
Trial Court of Makati, Branch 145 in Civil Case No. 96-1211.
The facts of the case, as stated in the Decision of the Court o Appeals dated February 10,
2000, are as follows:
"The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank
registered and organized to do business under the laws of the Republic of Vanuatu but
not in the Philippines. Its business consists primarily in receiving fund placements by
way of deposits from institutions and individuals investors from different parts of the
world and thereafter investing such deposits in money market placements and
potentially profitable capital ventures in Hongkong, Europe and the United States for the
purpose of maximizing the returns on those investments.
Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo
Licaros, a Filipino businessman, decided to make a fund placement with said bank
sometime in the 1980's. As it turned out, the grim outcome of Licaros' foray in overseas
fund investment was not exactly what he envisioned it to be. More particularly, Licaros,
after having invested in Anglo-Asean, encountered tremendous and unexplained
difficulties in retrieving, not only the interest or profits, but even the very investments he
had put in Anglo-Asean.1âwphi1.nêt
Confronted with the dire prospect of not getting back any of his investments, Licaros
then decide to seek the counsel of Antonio P. Gatmaitan, a reputable banker and
investment manager who had been extending managerial, financial and investment
consultancy services to various firms and corporations both here and abroad. To
Licaros' relief, Gatmaitan was only too willing enough to help. Gatmaitan voluntarily
offered to assume the payment of Anglo-Asean's indebtedness to Licaros subject to
certain terms and conditions. In order to effectuate and formalize the parties' respective
commitments, the two executed a notarized MEMORANDUM OF AGREEMENT on July
29, 1988 (Exh. "B"); also Exhibit "1"), the full text of which reads:
Memorandum of Agreement
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988, at
Makati by and between:
ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion Building,
Intramuros, Manila hereinafter referred to as THE PARTY OF THE FIRST PART,

OBLICON CASES 16
 and
ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La vista,
hereinafter referred to as the PARTY OF THE SECOND PART,
WITNESSETH THAT:
WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic of
Vanuatu, hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY OF THE
FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY THOUSAND ONLY
(US$150,000) which debt is now due and demandable.
WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing full
settlement of the said indebtedness from the OFFSHORE BANK and has sought a business
arrangement with the PARTY OF THE SECOND PART regarding his claims;
WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his
association with the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART to
assume the payment of the aforesaid indebtedness, upon certain terms and conditions, which
offer, the PARTY OF THE FIRST PART has accepted;
WHREAS, the parties herein have come to an agreement on the nature, form and extent of
their mutual prestations which they now record herein with the express conformity of the third
parties concerned;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants
stipulated herein, the PARTY OF THE FIRST PART and the PARTY OF THE SECOND PART
have agreed, as they do hereby agree, as follows:
1. The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF THE
FIRST PART the amount of US DOLLARS ONE HOUNDRED FIFTY THOUSAND
(US$150,000) payable in Philippine Currency at the fixed exchange rate of Philippine
Pesos 21 to US$1 without interest on or before July 15, 1993.
For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non
negotiable promissory note, bearing the aforesaid material consideration in favor of the
PARTY OF THE FIRST PART upon execution of this MEMORANDUM OF
AGREEMENT, which promissory note shall form part as ANNEX A hereof.
2. For and in consideration of the obligation of the PARTY OF THE SECOND PART, the
PARTY OF THE FIRST does hereby;
a. Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART
that certain debt now due and owing to the PARTY OF THE FIRST PART by the
OFFSHORE BANK, to the amount of US Dollars One Hundred Fifty Thousand
plus interest due and accruing thereon;
b. Grant the PART OF THE SECOND PART the full power and authority, for his
own use and benefit, but at his own cost and expense, to demand, collect,
receive, compound, compromise and give acquittance for the same or any part
thereof, and in the name of the PARTY OF THE FIRST PART, to prosecute, and
withdraw any suit or proceedings therefor;
c. Agree and stipulate that the debt assigned herein is justly owing and due to the
PARTY OF THE FIRST PART from the said OFFSHORE BANK, and that the
PARTY OF THE FIRST PART has not done and will not cause anything to be
done to diminish or discharge said debt, or to delay or prevent the PARTY OF
THE SECOND PART from collecting the same; and;

OBLICON CASES 17
 d. At the request of the PARTY OF SECOND PART and the latter's own cost and
expense, to execute and do all such further acts and deeds as shall be
reasonably necessary for proving said debt and to more effectually enable the
PARTY OF THE SECOND PART to recover the same in accordance with the true
intent and meaning of the arrangements herein.
IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT to be
signed on the date and place first written above.

Sgd. Sgd.

ABELARDO B. LICAROS ANTONIO P. GATMAITAN

PARTY OF THE FIRST PART PARTY OF THE FIRST ART

WITH OUR CONFORME:

ANGLO-ASEAN BANK & TRUST

BY: (Unsigned)

SIGNED IN THE PRESENCE OF:

Sgd. (Illegible)

________________________________ ________________________________

Conformably with his undertaking under paragraph 1 of the aforequoted agreement, Gatmaitan
executed in favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH
ASSIGNMENT OF CASH DIVIDENDS (Exhs. "A"; Also Exh. "2"), which promissory note,
appended as Annex "A" to the same Memorandum of Agreement, states in full, thus
"NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH
DIVIDENDS
This promissory note is Annex A of the Memorandum of Agreement executed between
Abelardo B. Licaros and Antonio P. Gatmaitan, on ______ 1988 at Makati, Philippines
and is an integral part of said Memorandum of Agreement.
P3,150.00.
On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of
Philippine Pesos 3,150,000 (P3,150,000) without interest as material consideration for
the full settlement of his money claims from ANGLO-ASEAN BANK, referred to in the
Memorandum of Agreement as the 'OFFSHORE BANK".

OBLICON CASES 18
 As security for the payment of this of Promissory Note. I hereby ASSIGN, CEDE and
TRANSFER, Seventy Percent (70%) of ALL CASH DIVIDENDS, that may be due or
owing to me as the registered owner of __________________ (______________)
shares of stock in the Prudential Life Realty, Inc.
This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends
that may be declared by Prudential Life Realty, Inc. and due or owing to Prudential Life
Plan, Inc., of which I am a stockholder, to the extent of or in proportion to my aforesaid
shareholding in Prudential Life Plan, Inc, the latter being the holding company of
Prudential Life Realty, Inc.
In the event that I decide to sell or transfer my aforesaid shares in either or both the
Prudential Life Plan, Inc. or Prudential Life Realty, Inc. and the Promissory Note
remains unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros the first option to
buy the said shares.
Manila, Philippines
July ______, 1988
(SGD.)

ANTONIO P. GATMAITAN
7 Mangyan St., La Vista QC

SIGNED IN THE PRESENCE OF:

(SGD.)
______________________________ ______________________________
Francisco A. Alba
President, Prudential Life Plan, Inc."
Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier
executed by him and Licaros for the purpose of collecting the latter's placement thereat of U.S.
$150,000.00. Albeit the officers of Anglo-Asean allegedly committed themselves to "look into
[this matter]", no formal response was ever made by said bank to either Licaros or Gatmaitan.
To date, Anglo-Asean has not acted on Gatmaitan's monetary claims.
Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not bother
anymore to make good his promise to pay Licaros the amount stated in his promissory note
(Exh. "A"; also Exh. 2"). Licaros, however, thought differently. He felt that he had a right to
collect on the basis of the promissory note regardless of the outcome of Gatmaitan's recovery
efforts. Thus, in July, 1996, Licaros, thru counsel, addressed successive demand letters to
Gatmaitan (Exhs. "C" and "D"), demanding payment of the later's obligations under the
promissory note. Gatmaitan, however, did not accede to these demands.
Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the complaint in
this case. In his complaint, docketed in the court below as Civil case No. 96-1211, Licaros
prayed for a judgment ordering Gatmaitan to pay him the following:
'a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos
(P3,500,000.00);
b) Legal interest thereon at the rate of six (6%) percent per annum from July 16, 1993
when the amount became due until the obligation is fully paid;
b) Twenty percent (20%) of the amount due as reasonable attorney's fees;

OBLICON CASES 19
 d) Costs of the suit.'"4
After trial on the merits, the court a quo rendered judgment in favor of petitioner Licaros and
found respondent Gatmaitan liable under the Memorandum of Agreement and Promissory
Note for P3,150,000.00 plus 12% interest per annum from July 16, 1993 until the amount is
fully paid. Respondent was likewise ordered to pay attorney's fees of P200,000.00. 5
Respondent Gatmaitan appealed the trial court's decision to the Court of Appeals. In a decision
promulgated on February 10, 2000, the appellate court reversed the decision of the trial court
and held that respondent Gatmaitan did not at any point become obligated to pay to petitioner
Licaros the amount stated in the promissory note. In a Resolution dated April 7, 2000 the Court
of Appeals denied petitioner's Motion for Reconsideration of its February 10, 2000 Decision.
Hence this petition for review on certiorari where petitioner prays for the reversal of the
February 10, 2000 Decision of the Court of Appeals and the reinstatement of the November 11,
1997 decision of the Regional Trial Court.
The threshold issue for the determination of this Court is whether the Memorandum of
Agreement between petitioner and respondent is one of assignment of credit or one of
conventional subrogation. This matter is determinative of whether or not respondent became
liable to petitioner under the promissory note considering that its efficacy is dependent on the
Memorandum of Agreement, the note being merely an annex to the said memorandum. 6
An assignment of credit has been defined as the process of transferring the right of the
assignor to the assignee who would then have the right to proceed against the debtor. The
assignment may be done gratuitously or onerously, in which case, the assignment has an
effect similar to that of a sale.7
On the other hand, subrogation has been defined as 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 convention.
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. 8
The general tenor of the foregoing definitions of the terms "subrogation" and "assignment of
credit" may make it seem that they are one and the same which they are not. A noted expert in
civil law notes their distinctions thus:
"Under our Code, however, conventional subrogation is not identical to assignment of
credit. In the former, the debtor's consent is necessary; in the latter it is not required.
Subrogation extinguishes the obligation and gives rise to a new one; assignment refers
to the same right which passes from one person to another. The nullity of an old
obligation may be cured by subrogation, such that a new obligation will be perfectly
valid; but the nullity of an obligation is not remedied by the assignment of the creditor's
right to another."9
For our purposes, the crucial distinction deals with the necessity of the consent of the debtor in
the original transaction. In an assignment of credit, the consent of the debtor is not necessary
in order that the assignment may fully produce legal effects. 10 What the law requires in an
assignment of credit is not the consent of the debtor but merely notice to him as the
assignments takes effect only from the time he has knowledge thereof. 11 A creditor may,
therefore, validly assign his credit and its accessories without the debtor's consent. 12 On the
other hand, conventional subrogation requires an agreement among the three parties
concerned – the original creditor, the debtor, and the new creditor. It is a new contractual
relation based on the mutual agreement among all the necessary parties. Thus, Article 1301 of
the Civil Code explicitly states that "(C)onventional subrogation of a third person requires the
consent of the original parties and of the third person."
The trial court, in finding for the petitioner, ruled that the Memorandum of Agreement was in the
nature of an assignment of credit. As such, the court a quo held respondent liable for the

OBLICON CASES 20
amount stated in the said agreement even if the parties thereto failed to obtain the consent of
Anglo-Asean Bank. On the other hand, the appellate court held that the agreement was one of
conventional subrogation which necessarily requires the agreement of all the parties
concerned. The Court of Appeals thus ruled that the Memorandum of Agreement never came
into effect due to the failure of the parties to get the consent of Anglo-Asean Bank to the
agreement and, as such, respondent never became liable for the amount stipulated.
We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated
July 29, 1988 was in the nature of a conventional subrogation which requires the consent of
the debtor, Anglo-Asean Bank, for its validity. We note with approval the following
pronouncement of the Court of Appeals:
"Immediately discernible from above is the common feature of contracts involving
conventional subrogation, namely, the approval of the debtor to the subrogation of a
third person in place of the creditor. That Gatmaitan and Licaros had intended to treat
their agreement as one of conventional subrogation is plainly borne by a stipulation in
their Memorandum of Agreement, to wit:
"WHEREAS, the parties herein have come to an agreement on the nature, form and
extent of their mutual prestations which hey now record herein with the express
conformity of the third parties concerned" (emphasis supplied), which third party is
admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the status of a mere "assignee" of
appellee's credit, there is simply no sense for them to have stipulated in their agreement
that the same is conditioned on the "express conformity" thereto of Anglo-Asean Bank.
That they did so only accentuates their intention to treat the agreement as one of
conventional subrogation. And it is basic in the interpretation of contracts that the
intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court).
Given our finding that the Memorandum of Agreement (Exh. "B"; also Exh. "1"), is not
one of "assignment of credit" but is actually a "conventional subrogation", the next
question that comes to mind is whether such agreement was ever perfected at all.
Needless to state, the perfection – or non-perfection – of the subject agreement is of
utmost relevance at this point. For, if the same Memorandum of Agreement was actually
perfected, then it cannot be denied that Gatmaitan still has a subsisting commitment to
pay Licaros on the basis of his promissory note. If not, Licaros' suit for collection must
necessarily fail.
Here, it bears stressing that the subject Memorandum of Agreement expressly requires
the consent of Anglo-Asean to the subrogation. Upon whom the task of securing such
consent devolves, be it on Licaros or Gatmaitan, is of no significance. What counts most
is the hard reality that there has been an abject failure to get Anglo-Asean's nod of
approval over Gatmaitan's being subrogated in the place of Licaros. Doubtless, the
absence of such conformity on the part of Anglo-Asean, which is thereby made a party
to the same Memorandum of Agreement, prevented the agreement from becoming
effective, much less from being a source of any cause of action for the signatories
thereto"13
Aside for the "whereas clause" cited by the appellate court in its decision, we likewise note that
on the signature page, right under the place reserve for the signatures of petitioner and
respondent, there is, typewritten, the words "WITH OUR CONFORME." Under this notation,
the words "ANGLO-ASEAN BANK AND TRUST" were written by hand. 14 To our mind, this
provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with
the aforementioned preambulatory clause leads to the conclusion that both parties intended
that Anglo-Asean Bank should signify its agreement and conformity to the contractual
arrangement between petitioner and respondent. The fact that Anglo-Asean Bank did not give
such consent rendered the agreement inoperative considering that, as previously discussed,

OBLICON CASES 21
the consent of the debtor is needed in the subrogation of a third person to the rights of a
creditor.
In this petition, petitioner assails the ruling of the Court of Appeals that what was entered into
by the parties was a conventional subrogation of petitioner's rights as creditor of the Anglo-
Asean Bank which necessary requires the consent of the latter. In support, petitioner alleges
that: (1) the Memorandum of Agreement did not create a new obligation and, as such, the
same cannot be a conventional subrogation; (2) the consent of Anglo-Asean Bank was not
necessary for the validity of the Memorandum of Agreement; (3) assuming that such consent
was necessary, respondent failed to secure the same as was incumbent upon him; and (4)
respondent himself admitted that the transaction was one of assignment of credit.
Petitioner argues that the parties to the Memorandum of Agreement could not have intended
the same to be a conventional subrogation considering that no new obligation was created.
According to petitioner, the obligation of Anglo-Asean Bank to pay under Contract No. 00193
was not extinguished and in fact, it was the basic intention of the parties to the Memorandum
of Agreement to enforce the same obligation of Anglo-Asean Bank under its contract with
petitioner. Considering that the old obligation of Anglo-Asean Bank under Contract No. 00193
was never extinguished under the Memorandum of Agreement, it is contended that the same
could not be considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of extinguishing the old obligation and
giving rise to a new one. However, the extinguishment of the old obligation is the effect of the
establishment of a contract for conventional subrogation. It is not a requisite without which a
contract for conventional subrogation may not be created. As such, it is not determinative of
whether or not a contract of conventional subrogation was constituted.
Moreover, it is of no moment that the subject of the Memorandum of Agreement was the
collection of the obligation of Anglo-Asean Bank to petitioner Licaros under Contract No.
00193. Precisely, if conventional subrogation had taken place with the consent of Anglo-Asian
Bank to effect a change in the person of its creditor, there is necessarily created a new
obligation whereby Anglo-Asean Bank must now give payment to its new creditor, herein
respondent.
Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not necessary to
the validity of the Memorandum of Agreement as the evidence on record allegedly shows that
it was never the intention of the parties thereto to treat the same as one of conventional
subrogation. He claims that the preambulatory clause requiring the express conformity of third
parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is not necessary
to the validity of the agreement.
As previously discussed, the intention of the parties to treat the Memorandum of Agreement as
embodying a conventional subrogation is shown not only by the "whereas clause" but also by
the signature space captioned "WITH OUR CONFORME" reserved for the signature of a
representative of Anglo-Asean Bank. These provisions in the aforementioned Memorandum of
Agreement may not simply be disregarded or dismissed as superfluous.
It is a basic rule in the interpretation of contracts that "(t)he various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may result from
all of them taken jointly."15 Moreover, under our Rules of Court, it is mandated that "(I)n the
construction of an instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all." 16 Further, jurisprudence has
laid down the rule that contracts should be so construed as to harmonize and give effect to the
different provisions thereof.17
In the case at bench, the Memorandum of Agreement embodies certain provisions that are
consistent with either a conventional subrogation or assignment of credit. It has not been

OBLICON CASES 22
shown that any clause or provision in the Memorandum of Agreement is inconsistent or
incompatible with a conventional subrogation. On the other hand, the two cited provisions
requiring consent of the debtor to the memorandum is inconsistent with a contract of
assignment of credit. Thus, if we were to interpret the same as one of assignment of credit,
then the aforementioned stipulations regarding the consent of Anglo-Asean Bank would be
rendered inutile and useless considering that, as previously discussed, the consent of the
debtor is not necessary in an assignment of credit.
Petitioner next argues that assuming that the conformity of Anglo-Asean was necessary to the
validity of the Memorandum of Agreement, respondently only had himself to blame for the
failure to secure such conformity as was, allegedly, incumbent upon him under the
memorandum.
As to this argument regarding the party responsible for securing the conformity of Anglo-Asean
Bank, we fail to see how this question would have any relevance on the outcome of this case.
Having ruled that the consent of Anglo-Asean was necessary for the validity of the
Memorandum of Agreement, the determinative fact is that such consent was not secured by
either petitioner or respondent which consequently resulted in the invalidity of the said
memorandum.
With respect to the argument of petitioner that respondent himself allegedly admitted in open
court that an assignment of credit was intended, it is enough to say that respondent apparently
used the word "assignment" in his testimony in the general sense. Respondent is not a lawyer
and as such, he is no so well versed in law that he would be able to distinguish between the
concepts of conventional subrogation and of assignment of credit. Moreover, even assuming
that there was an admission on his part, such admission is not conclusive on this court as the
nature and interpretation of the Memorandum of Agreement is a question of law which may not
be the subject of stipulations and admission.18
Considering the foregoing, it cannot then be said that the consent of the debtor Anglo-Asean
Bank is not necessary to the validity of the Memorandum of Agreement. As above stated, the
Memorandum of Agreement embodies a contract for conventional subrogation and in such a
case, the consent of the original parties and the third person is required. 19 The absence of such
conformity by Anglo-Asean Bank prevented the Memorandum of Agreement from becoming
valid and effective. Accordingly, the Court of Appeals did not err when it ruled that the
Memorandum of Agreement was never perfected.
Having arrived at the above conclusion, the Court finds no need to discuss the other issues
raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision of the Court of Appeals dated
February 10, 2000 and its Resolution dated April 7, 2000 are hereby AFFIRMED.1âwphi1.nê

OBLICON CASES 23