SAURA VS. DBP

G.R. No. L-24968 April 27, 1972

FACTS:

Plaintiff Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital. It was also stated in the loan, among others, that China Engineers, Ltd. will be one of the joint signatories of the loan, and Saura, Inc. will use local raw materials in the manufacture of jute sacks. Saura, Inc. had already purchased the jute mill machinery on the strength of the letter of credit extended by Prudential Bank and Trust Co. At first, China Engineers, Ltd. did not want to sign the said contract and instead Saura, Inc. suggested that in lieu of that, Saura, Inc. will put up a bond of Php123,500.00, equivalent to China Engineers, Ltd.’s subscription. But later on, agreed to sign the contract. However, RFC reduced the said loan from Php500,000.00 to Php300,000.00 despite the formal execution of the loan agreement. Then, China Engineers, Ltd. withdrew its signature to the said loan. Thereafter, Saura, Inc. demanded the release of the originally approved loan of Php500,000.00 and China Engineers, Ltd. will reinstate its signature to the said loan. RFC agreed but the loan was subject to the condition that Saura, Inc. will get the necessary certification from Department of Agriculture and Natural Resources that there will be enough supply of raw materials and will there be an increase of production of the said raw materials in its vicinity. Saura, Inc. was not able to get the necessary certification and instead requested to release the loan as follows: (1) P250,000.00 for the payment of the receipt for jute mill machineries with Prudential Bank &Trust Company , (2) P182,413.91 for the purchase of materials and equipment per attached list to enable the jute mill to operate 182,413.91, (3) P67,586.09 for raw materials and labor {(a) P25,000.00 to be released on the opening of the letter of credit for raw jute for $25,000.00, (b) P25,000.00 to be released upon arrival of raw jute, and (c) P17,586.09 to be released as soon as the mill is ready to operate.} RFC, afterward, denied such request which prompted Saura, Inc. to execute a deed of cancellation of the mortgage.

Due to Saura, Inc.’s failure to proceed with the said loan with RFC, Prudential Bank and Trust Co. sued them for their failure to pay its obligation with said bank. After almost nine years, Saura, Inc. filed a suit alleging that owing to RFC’s failure to release the proceeds of the said loan thereby preventing them from paying their obligation in regards to the jute mill project. The trial court rendered judgment for the plaintiff. Hence this petition.

ISSUE:

Was there a perfected contract between Saura, Inc. and RFC?

RULING:

Yes. However, when RFC turned down the request in its letter, the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled. The action thus taken by both parties was in the nature of mutual desistance, what Manresa terms "mutuo disenso", which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. It was nine years after the

loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages. All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance, and that on the initiative of the plaintiff-appellee itself.

G.R. No. 190755 November 24, 2010

LAND BANK OF THE PHILIPPINES vs. ALFREDO ONG

Facts :

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of PhP 10 million would be payable in seven (7) years. The Spouses Sy could no longer pay their loan which resulted to the sale of three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with Assumption of Mortgage.

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform them about the sale and assumption of mortgage. Land Bank Banch Head told Alfredo that there was nothing wrong with agreement with the Spouses Sy and provided him requirements for the assumption of mortgage. Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank, as Alfredo’s payment was not returned by Land Bank. Alfredo said that Land Bank’s foreclosure without informing him of the denial of his assumption of the mortgage was done in bad faith and that he was made to believed that P750,000 would cause Land Bank to approve his assumption to the mortgage.6 He also claimed incurring expenses for attorney’s fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral damages.7 This prompted Alfredo to file a case with RTC against Land Bank.

On its decision to the case, RTC held that the contract approving the assumption of mortgage was not perfected as a result of the credit investigation conducted on Alfredo where he was disapproved.

. As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in the fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not bound by the Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Bank’s active preparations for Alfredo’s assumption of mortgage essentially novated the agreement.

Issues :

1) Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding that there is novation.

2) Whether or not the Court of Appeals misconstrued the evidence and the law when it affirmed the trial court decision’s ordering Land Bank to pay Ong the amount of Php750,000.00 with interest at 12% annum.

Ruling :

The Supreme Court affirmed with modification to the appealed decision that recourse against Land Bank. Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. The court agreed with Land Bank on the point mentioned as to the first part of paragraph 1 of Art. 1236. However,. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage which Land Bank required from him would be approved. Thus, he made payment not as a debtor but as a prospective mortgagor. Furthermore, the contract between

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Alfredo and Land Bank was not perfected nor consummated because of the adverse disapproval of the proposed assumption. The Supreme Court did not agree with the Court of Appeals that there was novation in the contract between the parties because not all elements of novation were present.

The court further stresses that the instant case would not have been litigated had Land Bank been more circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even before a credit investigation was underway and also failed to informed him of the disapproval. The court found that there was negligence to a certain degree on the part of Land Bank in handling the transaction with Alfredo. A bank as a business entity should observe a higher standard of diligence when dealing with the public which Land Bank neglect to observe in this case.

The petitioner’s appeal was denied by the Supreme Court and the decision of the Court of Appeals was affirmed with modification in that the amount of PhP 750,000 will earn interest at 6% per annum and the total aggregate monetary awards will in turn earn 12% per annum from the finality of this Decision until fully paid.

J.M. TUASON & CO., INC. VS. JAVIER

G.R. NO. L-28569 February 27, 1970

FACTS:

On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract to sell with respondent Ligaya Javier a parcel of land known as Lot No. 28, Block No. 356, PSD 30328, of the Sta. Mesa Heights Subdivision for the sum of Php3,691.20 with 10% interest per annum; Php396.12 will be payable upon execution of the contract, and an installment of Php43.92 monthly for a period of ten (10) years. It was further stipulated in the contract, particularly the sixth paragraph, that upon failure of respondent to pay the monthly installment, she is given a one month grace period to pay such installment together with the monthly installment falling on the said grace period. Furthermore, failure to pay both monthly installments, respondent will pay an additional 10% interest. And after 90 days from the end of the grace period, petitioner can rescind the contract, the payments made by respondent will be considered as rentals.

Upon the execution of the contract, respondent religiously paid the monthly installment until January 5, 1962. Respondent, however, was unable to the pay the monthly installments within the grace period which petitioner, subsequently, sent a letter to respondent on May 22, 1964 that the contract has been rescinded and asked the respondent to vacate the said land. So, upon failure of respondent to vacate the said land, petitioner filed an action to the Court of First Instance of Rizal for the rescission of the contract. The CFI rendered a decision in favor of respondent in applying Article 1592 of the New Civil Code. Hence, petitioner made an appeal to the Supreme Court alleging that since Article 1592 of the New Civil applies only to contracts of sale and not in contracts to sell.

ISSUE:

Did the CFI erroneously apply Article 1592 of the New Civil Code?

RULING:

Yes. Regardless, however, of the propriety of applying Article 1592, petitioner has not been denied substantial justice under Article 1234 of the New Civil Code. In this connection, respondent religiously satisfied the monthly installments for almost eight (8) years or up to January 5, 1962. It has been shown that respondent had already paid Php4,134.08 as of January 5, 1962 which is beyond the stipulated amount of Php3,691.20. Also, respondent has offered to pay all installments overdue including the stipulated interest, attorney’s fees and the costs which the CFI accordingly

sentenced respondent to pay such installment, interest, fees and costs. Thus, petitioner will be able recover everything that was due thereto. Under these circumstances, the SC feel that, in the interest of justice and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the New Civil Code.

LEGARDA VS. SALDAÑA

G.R. No. L-26578, January 28, 1974

FACTS:

Saldaña had entered into two written contracts with Legarda, a subdivision owner, whereby Legarda agreed to sell to him two of his lots for 1,500 per lot, payable over a span of 10 years on 120 monthly installments with 10% interest per annum. Saldaña paid for eight consecutive years but did not make any further payments due to Legarda’s failure to make the necessary improvement on the said lot which was promised by their representative, the said Mr. Cenon. Saldaña already paid a total of Php3,582.06. The statement of account shows that Saldaña paid Php1,682.28 of the principal and Php1,889.78 for the interest. It did not distinguish which of the two said lots was paid. Petitioner, then, rescinded the contract based on the stipulation of the contract that payments made by respondent shall be considered as rentals and any improvements made shall be forfeited in favor of the petitioner. The lower court ruled sustaining petitioner’s cancellation of contract. So respondent appealed and judgment was reversed in favor of the respondent ordering petitioners to deliver to plaintiff one of the two lots at the choice of the defendant and execute the deed of conveyance. Hence this petition.

ISSUE:

Was the cancellation of the sale of contract valid?

RULING:

No, even though it was stipulated that failure to complete the payment would result to the cancellation of the contract, it was still not valid. As clearly shown in the statement of account, Saldaña was able to pay one of the two said lots. Under Article 1234 of the New Civil Code, “if the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee”. Hence, under the authority of Article 1234 of the New Civil Code, Saladaña is entitled to one of the two lots of his choice and the interest paid shall be forfeited in favor of the petitioners.

G.R. No./ SCRA: L-30597

Date: June 30, 1987

AZCONA vs JAMANDRE

Petitioner(s): GUILLERMO AZCONA and FE JALANDONI AZCONA

Respondent(s): JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre (Sp. Proc. 6921 of the Court of First Instance of Negros Occidental), and the HONORABLE COURT OF APPEALS

Facts:

• Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in NegrosOccidental to Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for 3agricultural years beginning 1960. On March 30, 1960, when the first annual rent was due, petitioner was not able to deliver possession of the leased property thus he “waived” payment of that rental. Respondent only entered the premises on

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October 26, 1960 after paying P7000, which was acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner notified respondent that the contract of lease was deemed cancelled for violation of the conditions of the contract. Earlier, in fact, the respondent had been ousted from the possession of the 60 hectares of the leased premises and let with only 20 hectares of the original area.

Issue(s):

• Whether or not the obligation is extinguished by the acceptance of payment though incomplete

Held:

• Yes. The obligation already ceased to exist when the petitioner accepted the payment without contention even if it is incomplete

Rationale:

• Petitioner contends that the payment of P7000, which was short of P200, was a violation of the agreement thus the contract should be deemed canceled. But the petitioner unqualifiedly accepted the amount. The absence of any mention of the discrepancy in the receipt nor any protest or demand to collect the remaining balance, means that petitioner acknowledged the amount as the full payment for the rent. The SC affirms the decision of the CA and petition is denied.

• Art 1235 – When the obligee accepts the performance, knowing its incompleteness or irregularity,and without expressing any protest or objection, the obligation is deemed fully complied with

Azcona v. Jamandre

Facts

Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in NegrosOccidental to Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for 3agricultural years beginning 1960. On March 30, 1960, when the first annual rent was due,petitioner was not able to deliver possession of the leased property thus he “waived” payment of that rental. Respondent only entered the premises on October 26, 1960 after paying P7000, whichwas acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner notifiedrespondent that the contract of lease was deemed cancelled for violation of the conditions of thecontract. Earlier, in fact, the respondent had been ousted from the possession of the 60 hectaresof the leased premises and let with only 20 hectares of the original area.

Issues

Whether or not the lease contract is deemed cancelled upon failure of the respondent to:

1.Attach the parcelary plan identifying the exact area subject of the contract

2.Secure approval of PNB of said contract

3.Pay the rentals

Ruling

Parcelary Plan

The correct view is that there was an agreed subject-matter, although it was not expressly definedbecause the plan was not annexed and never approved. There was still an ascertainable objectbecause the leased premises were sufficiently delineated and identified. Failure to attach the

planwas imputable to the petitioner himself because he was supposed to prepare the said plan.Nevertheless, the identification of the lease area rendered the plan unnecessary and its absencedid not nullify the agreement.

PNB Approval

Petitioners claim that such possession was not delivered because the approval of bythe PNB hadnot materialized due to respondent's neglect. Respondent was negotiating the loan with PNB butthe contract does not state upon whom fell the obligation to secure the approval.

Payment of Rent

Petitioner contends that the payment of P7000, which was short of P200, was a violation of theagreement thus the contract should be deemed cancelled. But the petitioner unqualifiedlyaccepted the amount. The absence of any mention of the discrepancy in the receipt nor anyprotest or demand to collect the remaining balance, means that petitioner acknowledged theamount as the full payment for the rent. The SC affirms the decision of the CA and petition isdenied.Note: The CA held that the amount of P200 had been condoned but the SC viewed it as a merereduction of the stipulated rental in consideration of the withdrawal from the leased premiseswhere the petitioner intended to graze his cattle.

Relevant Articles/ Jurisprudence

Art 1235 – When the obligee accepts the performance, knowing its incompleteness or irregularity,and without expressing any protest or objection, the obligation is deemed fully complied with.

G.R. No./ SCRA: L-30597

Date: June 30, 1987

AZCONA vs JAMANDRE

Petitioner(s): GUILLERMO AZCONA and FE JALANDONI AZCONA

Respondent(s): JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre (Sp. Proc. 6921 of the Court of First Instance of Negros Occidental), and the HONORABLE COURT OF APPEALS

Facts:

• Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in NegrosOccidental to Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for 3agricultural years beginning 1960. On March 30, 1960, when the first annual rent was due, petitioner was not able to deliver possession of the leased property thus he “waived” payment of that rental. Respondent only entered the premises on October 26, 1960 after paying P7000, which was acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner notified respondent that the contract of lease was deemed cancelled for violation of the conditions of the contract. Earlier, in fact, the respondent had been ousted from the possession of the 60 hectares of the leased premises and let with only 20 hectares of the original area.

Issue(s):

• Whether or not the obligation is extinguished by the acceptance of payment though incomplete

Held:

• Yes. The obligation already ceased to exist when the petitioner accepted the payment without contention even if it is incomplete

Rationale:

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• Petitioner contends that the payment of P7000, which was short of P200, was a violation of the agreement thus the contract should be deemed canceled. But the petitioner unqualifiedly accepted the amount. The absence of any mention of the discrepancy in the receipt nor any protest or demand to collect the remaining balance, means that petitioner acknowledged the amount as the full payment for the rent. The SC affirms the decision of the CA and petition is denied.

• Art 1235 – When the obligee accepts the performance, knowing its incompleteness or irregularity,and without expressing any protest or objection, the obligation is deemed fully complied with

Aranas v Tutaan

127 SCRA 828

Facts: The stocks of Universal Textile Mills (UTEX) were issued to co-defendants Manuel and Castaneda. Subsequently, in 1971, the lower court declared that Luisa Aranas is the rightful owner of the 400 shares of stocks at Universal Textile Mills (UTEX. Further, it ordered that dividends in cash or stocks pertaining to the same be delivered to Aranas. UTEX then filed a motion to clarify the phrase in said decision which states “to deliver to her all dividends appertaining to the same, whether in cash or in stocks” meant dividends properly pertaining to the plaintiffs after the court’s declaration of her ownership. The said motion was granted, where the court ordered UTEX to pay the plaintiff the cash dividends which accrued to the stocks in question after the current decision was rendered but the cash dividends already paid to the co-defendants before the court decision may not be claimed by the plaintiffs.

The co-defendants filed for a new trial and the decision was the same as the the 1971 ruling. Upon appeal to the CA, the said ruling was affirmed. The lower court issued a writ of execution in 1979 directed to UTEX to 1) cancel the certificate of stocks of the co-defendants and issue new ones in the name of the petitioners, and 2) Pay the cash dividends accrued from 1972 to 1979 (period from the new trial to the issuance of writ of execution). UTEX alleged that the cash dividends had already been paid.

ISSUE: Whether or not there was valid payment

RULING: No. It is elementary that payment made by a judgment debtor to a wrong party cannot extinguish the obligation of such debtor to its creditor. It was clear in the motion for clarification that all dividends accruing to the said shares after the rendition of judgement belonged to the Aranas. When UTEX paid the wrong parties, despite its knowledge and understanding of the final judgment, it is still liable to pay Aranas as the lawful declared owners of the said shares. The burden to recover the wrong payment is on UTEX and cannot be passed on to the Aranas as the innocent parties.

KALALO VS. LUZ

GR L-27782, 31 July 1970

En Banc, Zaldivar (J)

Facts: On 17 November 1959, Octavio Kalalo entered into an agreement with Alfredo Luz where he was to

render engineering design services for a fee. On 11 December 1961, Kalalo sent Luz a statement of account

where the balance due for services rendered was P59,505. On 18 May 1962, Luz sent Kalalo a resume of fees

due to the latter, and a check for P10,861.08. Kalalo refused to accept the check as full payment of the balance

of the fees due him. On 10 August 1962, Kalalo filed a complaint containing 4 causes of action, i.e. $28,000

(representing 20% of the amount paid to Luz in the International Research Institute project) and the balance

of P30,881.25 as fees; P17,0000 as consequential and moral damages; P55,000 as moral damages, attorney’s

fees and litigation expenses; and P25,000 as actual damages, attorney’s fees and litigation expenses). The trial

court ruled in favor of Kalalo. Luz filed an appeal directly with the Supreme Court raising only questions of

law.

Issue: Whether the rate of exchange of dollar to peso are those at the time of the payment of the judgment or

at the time when the research institute project became due and demandable.

Held: Luz’ obligation to pay Kalalo the sum of US$28,000 accrued on 25 August 1961, or after the enactment

of RA 529 (16 June 1950). Thus, the provision of the statute which requires payment at the prevailing rate of

exchange when the obligation was incurred cannot be applied. RA 529 does not provide for the rate of

exchange for the payment of obligation incurred after the enactment of the Act, and thus the rate of exchange

should be that prevailing at the time of payment. The view finds support in the ruling of the Court in Engel vs.

Velasco & Co. The trial court did not err in holding the rate of exchange is that at the time of payment.

Ponce vs. CA

GR L-49444, 31 May 1979

First Division, Melencio-Herrera (J)

Facts: On 3 June 1969, Jesus Afable, together with Feliza Mendoza and Ma. Aurora Dino executed a

promissory note in favor of Nelia Ponce in the sum of P814,868.42 payable without interest on or before 31

July 1969, subject to an interest of 12% per annum if not paid at maturity, and an additional sum equivalent to

10% of total amount due as attorney’s fees in case it is necessary to bring suit, and the execution of a first

mortgage on their properties or the Carmen Planas Memorial Inc. in the event of failure to pay the

indebtedness in accordance with the terms. Upon failure of the debtors to pay, a complaint was filed against

them for the recovery of the principal sum, plus interest and damages. The trial court rendered judgment in

favor of Ponce. The Court of Appeals affirmed the decision of the trial court. On the second motion for

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reconsideration, however, the appellate court reversed the judgment and opined that the intent of the parties

was that the note was payable in US dollars which is illegal, with neither party entitled to recover under the

“in pari delicto” rule.

Issue: Whether an agreement to pay in dollars defeat a creditor’s claim for payment.

Held: If there is an agreement to pay an obligation in a currency other than Philippine legal tender, the same

is illegal / null and void as contrary to public policy, pursuant to RA 529, and the most that can be demanded

is to pay the said obligation in Philippine currency. It cannot defeat a creditor’s claim for payment, for such

will allow a person to enrich himself inequitably at another’s expense. What RA 529 prohibits is the payment

of an obligation in dollars. A creditor cannot oblige the debtor to pay in dollars, even if the loan was given in

said currency. In such case, the indemnity is expressed in Philippine currency on the basis of the current rate

of exchange at the time of payment.

NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS

10 SCRA 686

FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorney’s fee of which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashier’s Check of the Equitable Banking Corporation and P13,130.00 in cash for a total of

P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was denied by the respondent Judge. Hence this present petition, alleging that the respondent Judge capriciously and whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation was fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private respondent

to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides that payments of debts shall be made in the currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit money do not have legal tender power. In sustaining the contention of the private respondent to refuse the acceptance of the cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be compelled to accept partial payment unless there is an express stipulation to the contrary.

ISSUE: Can the check be considered a valid payment of the judgment obligation?

RULING: Yes. It is to be emphasized that it is a well-known and accepted practice in the business sector that a Cashier’s Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this certification implies that the check is sufficiently funded in the drawee bank and the funds will be applied whenever the check is presented for payment. The object of certifying a check is to enable the holder to use it as money. When the holder procures the check to be certified, it operates as an assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63 of the Central Bank Act which states that checks which have been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash the amount equal to that which is credited to his account. The Cashier’s Check and the cash are valid payment of the obligation of the petitioner. The private respondent has no valid reason to refuse the acceptance of the check and cash as full payment of the obligation

ROMAN CATHOLIC BISHOP OF MALOLOS, Inc. vs. IAC

FACTS:

July 7, 1971: A contract over the land was executed between the Roman Catholic Bishop of Malolos (bishop) as vendor and the through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930 and the balance of P100,000 plus 12% interest per annum to be paid within 4 years from execution of the contract.

The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in case of failure to pay within the period

March 12, 1973: private respondent, through its new president, Atty. Adalia Francisco, addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents

July 17, 1975: after the expiration of the stipulated period for payment, Atty. Francisco wrote the formal request that her company be allowed to pay the principal amount of P100,000 in 3 equal installments of 6 months each with the 1st installment and the accrued interest of P24,000 to be paid immediately upon approval

July 29, 1975: Bishop through its counsel, Atty. Carmelo Fernandez, formally denied the request but granted a grace period of 5 days from the receipt of the denial to pay the total balance of P124,000

August 4, 1975: private respondent, through its president, Atty. Francisco, wrote the counsel of the petitioner requesting an extension of 30 days from to fully settle its account. - denied

RTC: favored Bishop declaring the down payment as forfeited

ISSUE: W/N there is tender of payment by issuance of a certified check

HELD: NO. RTC reinstated.

Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former’s obligation and demanding that the latter accept the same.

tender of payment cannot be presumed by a mere inference from surrounding circumstances

sheer proof of sufficient available funds to meet more than the total obligation within the grace period - NOT sufficient

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On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact made by the trial court which are entitled to great weight on appeal and should be accorded full consideration and respect and should not be disturbed unless for strong and cogent reasons

certified personal check which is not legal tender nor the currency stipulated, and therefore, can not constitute valid tender of payment

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment

TIBAJIA VS. CA

GR 100290, 4 June 1993

Second Division, Padilla (J)

Facts: A suit for collection of sum of money was ruled in favor of Eden Tan and against the spouses Norberto

Jr. and Carmen Tibajia. After the decision was made final, Tan filed a motion for execution and levied upon

the garnished funds which were deposited by the spouses with the cashier of the Regional Trial Court of

Pasig. The spouses, however, delivered to the deputy sheriff the total money judgment in the form of

Cashier’s Check (P262,750) and Cash (P135,733.70). Tan refused the payment and insisted upon the

garnished funds to satisfy the judgment obligation. The spouses filed a motion to lift the writ of execution on

the ground that the judgment debt had already been paid. The motion was denied.

Issue: Whether the spouses have satisfied the judgment obligation after the delivery of the cashier’s check

and cash to the deputy sheriff.

Held: A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in

payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor

(Philippine Airlines vs. Court of Appeals; Roman Catholic Bishop of Malolos vs. Intermediate Appellate

Court). The court is not, by decision, sanctioning the use of a check for the payment of obligations over the

objection of the creditor (Fortunado vs. Court of Appeals).

VELASCO VS. MERALCO

42 SCRA 556

FACTS:

Appellee, Manila Electric Company’s substation emitted noise above 50 decibel level. The intensity of the noise emitted by appelle’s transformers is most objectionable at night, when people are endeavoring to rest and sleep. The court ordered the appellee to bring down the noise to 50 decibel level upon complaint of appellant, Velasco. The appellee argued that instead of lowering the noise, wall barrier will be erected to separate the substation from the property but it was not push thru due to objections of appellant’s wife. Since Velasco, the appellant was the one who complained his wife’s objection should not suffice to constitute a waiver of this claim.

The appellant claimed for damages from the company but was not satisfied with the decision of the court for he believed that the decision has incorrectly assessed appellant’s damages and unreasonably reduced the amount of the claim. Appellant urged that the damages awarded him are inadequate considering the present high cost of living and calls attention to Article 1250 of the New Civil Code.

ISSUE:

Was the court correct in not applying Article 1250 of the New Civil Code?

RULING:

Yes. In Article 1250, it can be seen that the provision envisages contractual obligations where the parties selected specific currency as a medium of payment; hence it is not applicable to obligations arising from tort and not from contract as in the case at bar. Besides, there has been no showing that the factual assumption of the article has come into existence.

The damages awarded to herein appellant were by no means full compensatory damages, since the decision makes clear that appellant, by his failure to minimize his damages by means easily within his reach, was declared entitled only to a reduce award for nuisance sued upon. And the amount granted him had already taken into account the changed economic circumstances.

COMMISSIONER VS. BURGOS

G.R. No. L-36706 March 31, 1980

FACTS:

Private Respondent Victoria Amigable is an owner of a parcel of land in Cebu City that was taken by the Government sometime in 1924 for road-right-of-way purpose. In 1959, private respondent filed a complaint to recover ownership and possession of the said land, damages for illegal occupation of the Government of the same said land and Php5,000.00 for attorney’s fees. Petitioner-defendant, in its answer, alleged that the above-mentioned land was either donated or sold by its owners to the province of Cebu, also private respondent is already barred by estoppel and statute of limitations, and invoked the non-suitability of the Government. Based on the allegations of the petitioner-defendant, the trial court rendered a decision for the petitioner-defendant. However, on appeal to the Supreme Court, the Court reversed the decision and remanded the case to the court of origin for the determination of the compensation to be made to private respondent and attorney’s fees.

During the hearing for the determination of the compensation, the Government proved the value of the land through the certification issued by the Bureau of Records Management that the value of the said land was only

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Php2.37 per square meter. On the other hand, private respondent presented a newspaper clipping of Manila Times showing that the value of peso was Php6.775 to a dollar during the middle of 1972. Upon consideration, the trial court rendered a decision directing the Government to pay private respondent Php49,459.34 for the value of the land with 6% interest per annum and 10% attorney’s fees of the total amount due, totaling to Php214,356.75. Thereafter, the Solicitor General, representing the Government, appealed to the Supreme Court contending that the trial court erred in applying Article 1250 in the case at bar.

ISSUE:

Should Article 1250 be applied in determining the compensation for the disputed land?

RULING:

No. It is clear that Article 1250 applies only to cases where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contract. The taking of private property by the Government in the exercise of its power of eminent domain does not give rise to a contractual obligation.

Moreover, the law as quoted, clearly provides that the value of the currency at the time of the establishment of the obligation shall be the basis of payment which, in cases of expropriation, would be the value of the peso at the time of the taking of the property when the obligation of the Government to pay arises. It is only when there is an "agreement to the contrary" that the extraordinary inflation will make the value of the currency at the time of payment, not at the time of the establishment of the obligation, the basis for payment. In other words, an agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation.

The correct amount of compensation due private respondent for the taking of her land for a public purpose would be not P49,459.34, as fixed by the respondent court, but only P14,615.79 at P2.37 per square meter, the actual value of the land of 6,167 square meters when it was taken in 1924. The interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered its decision, as was awarded by the said court should accordingly be reduced.

FILIPINO PIPE vs. NAWASA

G.R. No. L-43446 May 3, 1988

FACTS

NAWASA entered into a contract with the plaintiff FPFC for the latter to supply iron pressure pipes worth P270,187.50 to be used in the construction of the Anonoy Waterworks in Masbate and the Barrio San Andres-Villareal Waterworks in Samar.

NAWASA paid in installments on various dates, a total of P134,680.00 leaving a balance of P135,507.50 excluding interest.

FPFC demanded payment from NAWASA of the unpaid balance of the price with interest in accordance with the terms of their contract

NAWASA failed to pay, plaintiff filed a collection suit

RTC rendered judgment orderedNAWASA to pay the unpaid balance in NAWASA negotiable bonds

NAWASA did not deliver the bonds to the judgment creditor

FPFC filed another complaint seeking an adjustment of the unpaid balance in accordance with the value of the Philippine peso

FPFC presented voluminous records and statistics showing that a spiralling inflation has marked the progress of the country from 1962 up to the present. There is no denying that the price index of commodities, which is the usual evidence of the value of the currency has been rising.

ISSUE

W/N there exists an extraordinary inflation of the currency justifying an adjustment of NAWASA's unpaid judgment obligation to FPFC.

RULING

Article 1250 of the Civil Code provides:

In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary..

Extraordinary inflation exists "when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and such decrease or increase could not have reasonably foreseen or was manifestly beyond contemplation the the parties at the time of the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.)

While appellant's voluminous records and statistics proved that there has been a decline in the purchasing power of the Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is simply a universal trend that has not spared our country.

DEL ROSARIO vs. SHELL

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Special Form of Payment - Dacion

FILINVEST V. PHIL. ACETYLENE

G.R. No. L-50449 January 30, 1982

Facts:

Phil. Acetylene (Defendant) purchased a vehicle through a Deed of Sale from Alexander Lim payable on installment. The balance is to be paid under a promissory note with the said vehicle as the subject of a chattel mortgage to secure the obligation. Subsequently, Lim assigned his rights to the vehicle to appellee corporation (Filinvest). Phil. Acetylene defaulted after it failed to pay nine (9) successive installments. The petitioner through a demand letter informed the defendant to make the full payment plus interests and charges or return the mortgaged property. As a result, the defendant returned the vehicle together with the document "Voluntary Surrender with Special Power of Attorney To Sell" by appellant on March 12, 1973 and confirmed to by Filinvest’s vice-president.

Filinvest then informed appellant thru a letter that it cannot sell the vehicle due to its unpaid taxes in the amount of P70,122. On the last portion of the said letter, appellee requested the appellant to update its account by paying the instalments in arrears and accruing interest in the amount of P4,232.21 on or before April 9, 1973. On May 8, 1973, appellee, in a letter, offered to deliver back the motor vehicle to the appellant but the latter refused to

accept it, so the appellee instituted an action for collection of a sum of money with damages in the CFI of Manila.

Phil. Acetylene argued that appellee has no cause of action against it since its obligation towards the appellee was extinguished when it returned the mortgaged property, and that assuming that the return of the property did not extinguish its obligation, it was nonetheless justified in refusing payment since the appellee is not entitled to recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim.

Issue: whether or not the return of the mortgaged motor vehicle to the appellee by virtue of a voluntary surrender by the appellant totally extinguished and/or cancelled the obligation

RULING: No. No dacion en pago here since there’s nothing in the evidence to show that Filinvest consented or intended that the mere delivery to and acceptance by him of the vehicle be construed as actual payment or more specifically, dacion en pago. The mere return of the mortgaged motor vehicle by the mortgagor (herein appellant) to the mortgagee, (appellee), does not constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the parties. Dacion en pago, (according to Manresa) is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation.

The evidence fails to show that Filinvest consented, or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant.

Finally the Voluntary Surrender with SPA to Sell executed reveals that the possession of the mortgaged motor vehicle was voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer and sell the vehicle in behalf of the former who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the selling price and the mortgage obligation. With the stipulated conditions as stated, the appellee, in essence was constituted as a mere agent to sell the motor vehicle which was delivered to the appellee, not as its property. There is no estoppel on part of Filinvest to demand payment from the unpaid obligation since it never accepted the mortgaged motor vehicle in cull satisfaction of the mortgaged debt.

CITIZEN’S SURETY vs. CA

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SOLEDAD SOCO vs. HON. FRANCIS MILITANTE, INCUMBENT PRESIDING JUDGE OF THE CFI OF CEBU, BRANCH XII, CEBU CITY AND REGINO FRANCISCO, JR.

FACTS: Soco and Francisco entered into a contract of lease on January 17, 1973, whereby Soco leased her commercial building and lot situated at Manalili Street, Cebu City, to Francisco for a monthly rental of P 800.00 for a period of 10 years renewable for another 10 years at the option of the lessee. It can readily be discerned from Exhibit “A” (from SOCO) that paragraphs 10 and 11 appear to have been cancelled while in Exhibit “2” (from FRANCISCO) only paragraph 10 has been cancelled. Claiming that paragraph 11 of the Contract of Lease was in fact not part of the contract because it was cancelled, Soco filed Civil Case No. R-16261 in the Court of First Instance of Cebu seeking the annulment and/or reformation of the Contract of Lease.

Sometime before the filing of Civil Case No. R-16261 Francisco noticed that Soco did not anymore send her collector for the payment of rentals and at times there were payments made but no receipts were issued. This situation prompted Francisco to write Soco the letter dated February 7, 1975 which the latter received. After writing this letter, Francisco sent his payment for rentals by checks issued by the Commercial Bank and Trust Company.

The factual background setting of this case clearly indicates that soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of more than P3,000.00 which is definitely very much higher than what Francisco was paying to Soco under the Contract of Lease, the latter felt that she was on the losing end of the lease agreement so she tried to look for ways and means to terminate the contract.

In view of this alleged non-payment of rental of the leased premises beginning May, 1977, Soco through her lawyer sent a letter dated November 23, 1978 to Francisco serving notice to the latter ‘to vacate the premises leased.’ In answer to this letter, Francisco through his lawyer informed Soco and her lawyer that all payments of rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of the City Court of Cebu. Despite this explanation, Soco filed this instant case of Illegal Detainer.

MTC and RTC have conflicting findings. The former found that the consignation was valid. RTC reversed and ordered the eviction of the Francisco.

ISSUE: WON there was a valid consignation of payment of the rentals.

HELD: In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is enough ground to render a consignation ineffective. (parang wala naman tong mga to sa 1176, 1177 and 1178?)

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We hold that the respondent lessee has utterly failed to prove the following requisites of a valid consignation: First, tender of payment of the monthly rentals to the lessor. Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation,

Evidently, from this arrangement, it was the lessee’s duty to send someone to get the cashier’s check from the bank and logically, the lessee has the obligation to make and tender the check to the lessor. This the lessee failed to do, which is fatal to his defense.

Third, respondent lessee likewise failed to prove the second notice, that is after consignation has been made, to the lessor. And the fourth requisite that respondent lessee failed to prove is the actual deposit or consignation of the monthly rentals except the two cashier’s checks referred to in Exhibit 12. As indicated earlier, not a single copy of the official receipts issued by the Clerk of Court was presented at the trial of the case to prove the actual deposit or consignation.

We, therefore, find and rule that the lessee has failed to prove tender of payment except that in Exh. 10; he has failed to prove the first notice to the lessor prior to consignation except that given in Exh. 10; he has failed to prove the second notice after consignation except the two made in Exh. 12; and he has failed to pay the rentals for the months of July and August, 1977 as of the time the complaint was filed for the eviction of the lessee. We hold that the evidence is clear, competent and convincing showing that the lessee has violated the terms of the lease contract and he may, therefore, be judicially ejected.

IMMACULATA vs. NAVARRO

PEOPLE vs. FRANKLIN

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ARTICLE 1267

LAGUNA v MANABAT

FACTS:

On January 20, 1956, a contract was executed whereby the Biñan Transportation Company leased to the Laguna‐Tayabas Bus Company at a monthly rental of P2,500.00 its certificates of public convenience over the lines known as Manila‐Biñan, Manila‐Canlubang and Sta. Rosa‐Manila, and to the Batangas Transportation Company its certificate of public convenience over the line known as Manila‐Batangas Wharf, together with one "International" truck, for a period of five years, renewable for another similar period, to commence from the approval of the lease contract by the Public Service Commission. On the same date the Public Service Commission provisionally approved the lease contract on condition that the lessees should operate on the leased lines in accordance with the prescribed time schedule and that such approval was subject to modification or cancellation and to whatever decision that in due time might be rendered in the case.

Sometime after the execution of the lease contract, the plaintiff Biñan Transportation Company was declared insolvent in Special Proceedings No. B‐30 of the Court of First Instance of Laguna, and Francisco C. Manabat was appointed as its assignee. From time to time, the defendants paid the lease rentals up to December, 1957, with the exception of the rental for August 1957, from which there was deducted the sum of P1,836.92 without the consent of the plaintiff. This deduction was based on the ground that the employees of the defendants on the leased lines went on strike for 6 days in June and another 6 days in July,

1957, and caused a loss of P500 for each strike, or a total of P1,000.00; and that in Civil Case

No. 696 of the Court of First Instance of Batangas, Branch II, judgment was rendered in favor of defendant Batangas Transportation Company against the Biñan Transportation Company for the sum of P836.92. The assignee of the plaintiff objected to such deduction, claiming that the contract of lease would be suspended only if the defendants could not operate the leased lines due to the action of the officers, employees or laborers of the lessor but not of the lessees, and that the deduction of P836.92 amounted to a fraudulent preference in the insolvency proceedings as whatever judgment might have been rendered in favor of any of the lessees should have been filed as a claim in said proceedings. The defendants neither refunded the deductions nor paid the rentals beginning January, 1958, notwithstanding demands therefor made from time to time. At first, the defendants assured the plaintiff that the lease rentals would be paid, although it might be delayed, but in the end they failed to comply with their promise.

On February 18, 1958, the Batangas Transportation Company and Laguna‐Tayabas Bus Company separately filed with the Public Service Commission a petition for authority to suspend the operation on the lines covered by the certificates of public convenience leased to each of them by the Biñan Transportation Company. The defendants alleged as reasons the reduction in the amount of dollars allowed by the Monetary Board of the Central Bank of the Philippines for the purchase of spare parts needed in the operation of their trucks, the alleged difficulty encountered in securing said parts, and their procurement at exorbitant costs, thus rendering the operation of the leased lines prohibitive. The defendants further alleged that the high cost of operation, coupled with the lack of passenger traffic on the leased lines resulted in financial losses. For these reasons they asked permission to suspend the operation of the leased lines until such time as the operating expenses were restored to normal levels so as to allow the lessees to realize a reasonable margin of profit from their operation. PSC granted the suspension.

On May 19, 1959, plaintiff Biñan Transportation Company represented by Francisco C. Manabat, assignee, filed this action against defendants Laguna Tayabas Bus Company and Batangas Transportation Company for the recovery of the sum of P42,500 representing the accrued rentals for the lease of the certificates of public convenience of the former to the latter, corresponding to the period from January 1958, to May 1959, inclusive, plus the sum of P1,836.92 which was deducted by the defendants from the rentals due for August, 1957, together with all subsequent rentals from June, 1959, that became due and payable; P5,000.00 for attorney's fees and such corrective and exemplary damages as the court may find reasonable.

ISSUE:

W/N Petitioner is entitled to a reduced amount of rentals on the subject matter of the lease was allegedly not used by them as a result of the suspension of operations on the lines authorized by the Public Service Commission? N

RULING:

Where a person by his contract charges himself with an obligation possible to be performed, he must perform it, unless the performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule that in case the party desires to be excused from the performance in the event of contingencies arising, it is his duty to provide therefor in his contract. Hence, performance is not excused by subsequent inability to perform, by unforeseen difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by breaking of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits tobe had under the contract, by weather conditions, by financial stringency or bystagnation of business. Neither is performance excused by the fact that the contract turns out to be hard and improvident, unprofitable, or impracticable, ill‐advised, or even foolish, or less profitable, unexpectedly burdensome.

Petitioners, it must be recalled, promised to pay the accrued rentals in due time. Later, however, when they believed they found a convenient excuse for escaping their obligation, they reneged on their earlier promise. Moreover, petitioners' option to suspend operation on the leased lines appears malicious.

Since, by the lease, the lessee was to have the advantage of casual profits of the leased premises, he should run the hazard of casual losses during the term and not lay the whole burden upon the lessor.

The suspension of operation on the leased lines was conceived as a scheme to lessen operation costs with the expectation of greater profit. The petitioners are thus not entitled to reduced rentals.

OCCENA v JABSON (borrowed from A)

Facts:

• Private respondent Tropical Homes, Inc. entered into a subdivision contract with petitioners wherein respondent guaranteed petitioners (as landowners of a 55,330 square meter parcel of land in Davao City) an amount equivalent to 40% of all cash receipts from the sale of the subdivision lots. Respondent filed a complaint for modification of the terms and conditions of the contract with petitioners, alleging that:

- “due to the increase in price of oil and its derivatives and the concomitant worldwide spiralling of prices, which are not within the control of plaintiff, of all commodities including basis raw materials

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required for such development work, the cost of development has risen to levels which are unanticipated, unimagined and not within the remotest contemplation of the parties at the time said agreement was entered into and to such a degree that the conditions and factors which formed the original basis of said contract, have been totally changed;”

- “further performance by the plaintiff under the contract will result in situation where defendants would be unustly enriched at the expense of the plaintiff; will cause an inequitous distribution of proceeds from the sales of subdivided lots in manifest actually result in the unjust and intolerable exposure of plaintiff to implacable losses, all such situations resulting in an unconscionable, unjust and immoral situation contrary to and in violation of the primordial concepts of good faith, fairness and equity which should pervade all human relations.”

• Petitioners insist that the worldwide increase in prices cited by respondent does not constitute a sufficient cause of action for modification of the subdivision contract.

Issue/Held:

• Does the increase in prices constitute a sufficient cause of action of for modification of the subdivision contract? No.

Rationale:

• ART. 1267 of the Civil Code:

“When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.

• Respondent's complaint for modification of contract manifestly has no basis in law

and therefore states no cause of action. Under the particular allegations of respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief sought.

• While respondent court correctly cited in its decision the Code Commission's report giving the rationale for Article 1267 of the Civil Code, to wit: “[t]he general rule is that impossibility of performance releases the obligor. However, it is submitted that when the service has become so difficult as to be manifestly beyond the contemplation of the parties, the court should be authorized to release the obligor in whole or in part. The intention of the parties should govern and if it appears that the service turns out to be so difficult as have been beyond their contemplation, it would be doing violence to that intention to hold the obligor still responsible,” the respondent court misapplied the same to respondent's complaint.

• If respondent's complaint were to be released from having to comply with the subdivision contract, assuming it could show at the trial that the service undertaken contractually by it had "become so difficult as to be manifestly beyond the contemplation of the parties", then respondent court's upholding of respondent's complaint and dismissal of the petition would be justifiable under the cited codal article. Without said article, respondent would remain bound by its contract under the prevailing doctrine that performance therewith is not excused "by the fact that the contract turns out to be hard and improvident, unprofitable, or unexpectedly burdensome", since in case a party desires to be excused from performance in the event of such contingencies arising, it is his duty to provide it in the contract.

• However, respondent's complaint seeks not release from the subdivision contract but that the court render judgment in modifying the terms and conditions of the contract by fixing the proper shares that should pertain to the herein parties out of the gross proceeds from the sales of subdivided lots of subject subdivision.

• The cited article does not grant the courts this authority to remake, modify or

revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law between the parties, so as to substitute its own terms for those covenanted by the parties themselves.

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