New Jurisprudence On Obligations And Contracts (case Digests) n3757

CIVIL LAW Soledad Dalton v. FGR Realty and Development Corp., Felix Ng, Nenita Ng, and Florita Dayrit or Florita Regner G.R. No. 172577, 19 January 2011, SECOND DIVISION, (Carpio, J.) Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void A parcel of land owned by respondent Flora R. Dayrit was leased to petitioners Dalton, et. al. Eventually, the land was sold to respondent FGR Realty and Development Corporation. FGR Realty and Dayrit decided not to accept payments from Dalton, et. al. for the purpose of terminating the lease agreements. Dalton, et. al. filed a complaint with the Regional Trial Court and attached was a consignation of the rental payments. However, they failed to notify the other party of such action. FGR Realty and Dayrit withdrew the consigned amount with reservation to question the validity of the consignation. ISSUE: Whether or not the consignation made by Dalton, et. al. is void HELD: Petition DENIED. Compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment . In said Article 1258, it is further stated that the consignation having been made, the interested party shall also be notified thereof. We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein provided. Substantial compliance is not enough for that would render only a directory construction to the law. The use of the words "shall" and "must" which are imperative, operating to impose a duty which may be

CIVIL LAW enforced, positively indicate that all the essential requisites of a valid consignation must be complied with.

Carolina Hernandez-Nievera, et. al. v. Wilfredo Hernandez, et.al. G.R. No. 171165, 14 February 2011, SECOND DIVISION, (Peralta, J.) The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Project Movers Realty & Development Corporation (PMRDC), one of the respondents, entered into different agreements with the other respondents Home Insurance & Guaranty Corporation (HIGC) and Land Bank of the Philippines through its president Mario Villamor in reference to construction projects contemplated to be executed in Batangas and Caloocan City. PMRDC then entered into a Memorandum of Agreement (MOA) with petitioners Carolina Hernandez-Nievera, Margarita H. Malvar and Demetrio P. Hernandez wherein PMRDC was given the option to buy pieces of land owned by the former within 12 months from the date of the instrument along with the payment of option money. It was further stated that in case there is failure to avail within the stipulated option period of 12 months, the option money shall be forfeited in favor of the vendor and the vendee shall return all the Transfer Certificates of Title (TCT) of the covered parcels of land to the former. When PMRDC decided to convey more properties to its Asset Pool, it entered a Deed of Assignment and Conveyance with LBP and Demetrio, who acted through the same special power of attorney used in the MOA. The DAC sought to transfer and assign some lands in Area II to the asset pool in exchange for a number of shares of stock which had been issued in favor and in the name of Demetrio. PMRDC its that they did not avail the express stipulation of 12-month option period in the MOA. Hernandez-Nievera, et. al. demands that the TCTs be returned to them but PMRDC refused contending that the properties were already transferred and assigned to the Asset Pool pursuant to the DAC. Hernandez-Nievera, et. al. filed an action to rescind the MOA and to declare the DAC a nullity. The trial court ruled in favor of Hernandez-Nievera. Aggrieved, the other party appealed to the Court of Appeals which reversed and set aside the ruling of the trial court. Hence, this petition. ISSUE: Whether or not the Memorandum of Agreement was novated by the Deed of Assignment and Conveyance HELD:

CIVIL LAW Petition DENIED. Hernandez-Nievera, et. al.’s cause stems from the failure of PMRDC to restore to them the possession of the TCTs of the lands within Area II upon its failure to exercise the option to purchase within the 12-month period stipulated in the MOA. Hernandez, et. al. maintain, however, that said obligation, dependent as it is on the exercise of the option to purchase, has altogether been expressly obliterated by the of the DAC whereby HernandezNievera, et. al., through Demetrio as attorney-in-fact, have agreed to novate the of the MOA by extinguishing the core obligations of PMRDC on the payment of option money. This seems to suggest that with the execution of the DAC, PMRDC has already entered into the exercise of its option except that its obligation to deliver the option money has, by subsequent agreement embodied in the DAC, been substituted instead by the obligation to issue participation certificates in Demetrio’s name but which, likewise, has not yet been performed by PMRDC. But Hernandez-Nievera, et. al.’s stand against the validity of the DAC on the ground that the signature of Demetrio therein was spurious. On this score, this Court quotes with approval the decision of the Court of Appeals, aptly citing the case of California Bus Lines, Inc. v. State Investment House, Inc. thus – There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal . The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.

F.A.T. Kee Computer Systems, Inc. v. Online Networks International, Inc. G.R. No. 171238, 2 February 2011, FIRST DIVISION, (Leonardo-De Castro, J.) One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have been misled through his own want of reasonable care and circumspection. A lack of diligence by a party

CIVIL LAW claiming an estoppel is generally fatal. If the party conducts himself with careless indifference to means of information reasonably at hand, or ignores highly suspicious circumstances, he may not invoke the doctrine of estoppel. Petitioner F.A.T. Kee Computer Systems, Inc. is engaged in the business of selling computer equipment and in the rendering of maintenance services for its sold units. On the other hand, ONLINE is engaged in business of selling computer units, parts, and software. In its complaint, it was alleged that ONLINE sold computer printers to FAT KEE which was evidenced by invoice receipts containing a stipulation that an “interest of 28% per annum is to be charged on all s overdue” and “an additional sum equal to 25% of the amount will be charged by vendor for attorney’s fees plus cost of collection in case of suit.” It was also said that the president of FAT KEE, President Frederick Huang, Jr., made an offer to pay the amount which was originally in US dollars into Philippine legal tender which ONLINE accepted. After payments made in March to May 1998, ONLINE decided to stop the application of interest in view of its good relationship with FAT KEE. FAT KEE continued to pay; however, a balance remained according to ONLINE’s computations. Despite the repeated demands of ONLINE, FAT KEE failed to pay the remaining balance without a valid reason. FAT KEE answered the complaint stating that they were never informed of ONLINE’s agreement to its offer of paying US dollars. It also alleged that the invoice receipts were unilaterally prepared by ONLINE. Furthermore, FAT KEE stated that the payments tendered were in Philippine peso, in accordance with the Statement of , and that these were accepted by ONLINE. They said they already had paid the total amount of the debt. According to the testimony of Huang, he said that there was no agreement between FAT KEE and ONLINE for the payment in US dollars. There was neither an agreement to a specific exchange rate. ISSUE: Whether or not ONLINE was estopped by the December Statement of HELD: Petition DENIED. In British American Tobacco v. Camacho, the Court emphasized the doctrine of estoppel as follows: The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other

CIVIL LAW would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor's position would expect or foresee such action. In the instant case, we find that FAT KEE cannot invoke estoppel against ONLINE for the latter’s issuance of the SOA on December 9, 1997. The testimonial evidence of both ONLINE and FAT KEE establish that, during the meeting, the parties tried but failed to reach an agreement as regards the payment of FAT KEE’s outstanding obligation and the exchange rate to be applied thereto. By their act of submitting their respective proposals and counter-proposals on the mode of payment and the exchange rate, FAT KEE and ONLINE demonstrated that it was not their intention to be further bound by the SOA, especially with respect to the exchange rate to be used. Moreover, FAT KEE only started making payments vis-à-vis the subject invoice receipts on March 17, 1998, or two months after the aforementioned meeting. At this point, Mijares v. Court of Appeals is instructive in declaring that: One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have been misled through his own want of reasonable care and circumspection. A lack of diligence by a party claiming an estoppel is generally fatal. If the party conducts himself with careless indifference to means of information reasonably at hand, or ignores highly suspicious circumstances, he may not invoke the doctrine of estoppel. Good faith is generally regarded as requiring the exercise of reasonable diligence to learn the truth, and accordingly estoppel is denied where the party claiming it was put on inquiry as to the truth and had available means for ascertaining it, at least where actual fraud has not been practised on the party claiming the estoppel.

Insurance of the Philippine Islands Corporation v. Spouses Vidal S. Gregorio and Julita Gregorio G.R. No. 174104, 14 February 2011, SECOND DIVISION, (Peralta, J.) Ultimately, the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations. It cannot be used to defeat justice or perpetrate fraud and injustice. It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to be so, a manifest wrong or injustice would result.

CIVIL LAW Respondent spouses Vidal S. Gregorio and Julita Gregorio obtained loan from petitioner Insurance of the Philippine Islands Corporation. As a security, the spouses executed a Real Estate Mortgage of a parcel of land in Rizal. Again, they obtained another loan along with a security of another parcel of land in the same property in Rizal. For the third time, a loan was obtained and this time, two parcels of land was executed as mortgage. The Gregorio spouses failed to perform their obligation to pay. Hence, their mortgaged properties were extrajudicially foreclosed. In the extrajudicial foreclosure sale, Insurance of the Philippine Islands was the highest bidder. The latter assumed ownership because the Gregorio spouses were not able to redeem their properties. Then the petitioner Corporation filed a Complaint against the spouses because they found out while processing the documents for the application and confirmation of its title over the foreclosed properties that the parcels of land were already ed under the names of third persons and the Transfer Certificates of Title (TCT) were also issued to them. They alleged that the Gregorio spouses committed fraud in obtaining loans from them by misrepresenting ownership over the foreclosed properties. On the other hand, the spouses argue that petitioner's cause of action and right of action are already barred by prescription and laches. ISSUE: Whether or not the Court of Appeals erred in ruling that petitioner's right to any relief under the law has already prescribed or is barred by laches HELD: Petition GRANTED. Insurance of the Philippine Islands filed an action for damages on the ground of fraud committed against it by the spouses. Under the provisions of Article 1146 of the Civil Code, actions upon an injury to the rights of the plaintiff or upon a quasi-delict must be instituted within four years from the time the cause of action accrued. The Court finds no error in the ruling of the CA that Insurance of the Philippine Island's cause of action accrued at the time it discovered the alleged fraud committed by the Gregorio spouses. It is at this point that the four-year prescriptive period should be counted. However, the Court does not agree with the CA in its ruling that the discovery of the fraud should be reckoned from the time of registration of the titles covering the subject properties. Neither may the principle of laches apply in the present case. The essence of laches or “stale demands” is the failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising

CIVIL LAW due diligence, could or should have been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact of delay, standing alone, being insufficient to constitute laches. In addition, it is a rule of equity and applied not to penalize neglect or sleeping on one's rights, but rather to avoid recognizing a right when to do so would result in a clearly unfair situation. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances. Ultimately, the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations. It cannot be used to defeat justice or perpetrate fraud and injustice. It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to be so, a manifest wrong or injustice would result. It is significant to point out at this juncture that the overriding consideration in the instant case is that petitioner Corporation was deprived of the subject properties which it should have rightly owned were it not for the fraud committed by the Gregorio spouses. Hence, it would be the height of injustice if the spouses would be allowed to go scot-free simply because the petitioner Corporation relied in good faith on the former's false representations.

Spouses Luigi M. Guanio and Anna Hernandez-Guanio v. Makati Shangri-La Hotel and Resort, Inc., aka Shangri-La Hotel Manila G.R. No. 190601, 7 February 2011, SECOND DIVISION, (Carpio-Morales, J.) The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. Petitioner spouses, Luigi M. Guanio and Anna Hernandez-Guanio, booked respondent Makati Shangri-La Hotel for their reception. However, during the wedding itself and even during the initial food tasting they encountered bad service from the employees of the hotel. Due to that, the Guanio spouses sent a letter-complaint to Makati Shangri-La wherein the latter responded with an apology. Despite that, the Guanio spouses still filed a Complaint for breach of contract to the Regional Trial Court of Makati City. The Guanio spouses contends that the apology is an ission of the bad service the hotel has rendered to them. On the other hand, Makati Shangri-La

CIVIL LAW denies it stating that their apology is a only standard followed by their employees to express empathy in reference to the inconvenience experienced by their dissatisfied customers. ISSUE: Whether or not the apology made by Makati Shagri-La is considered an ission of breach of contract HELD: CA Decision PARTIALLY REVERSED. What applies in the present case is Article 1170 of the Civil Code which reads: Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages. RI v. Verchez, et al. enlightens: In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his"reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his"restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. (emphasis and underscoring in the original; capitalization supplied)

CIVIL LAW The Court notes that Makati Shangri-La could have managed the "situation" better, it being held in high esteem in the hotel and service industry. Given its vast experience, it is safe to presume that this is not its first encounter with booked events exceeding the guaranteed cover. It is not audacious to expect that certain measures have been placed in case this predicament crops up. That regardless of these measures, respondent still received complaints as in the present case, does not amuse. Makati Shangri-La itted that three hotel functions coincided with petitioners' reception. To the Court, the delay in service might have been avoided or minimized if respondent exercised prescience in scheduling events. No less than quality service should be delivered especially in events which possibility of repetition is close to nil. Petitioners are not expected to get married twice in their lifetimes.

Anthony Orduña, et al. v. Eduardo J. Fuentebella, et al. G.R. No. 176841, 29 June 2010, FIRST DECISION, (Velasco, Jr., J.) The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code applies only to executory contracts, i.e., those where no performance has yet been made. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. The subject of this case is a residential lot located at Fairview Subdivision, Baguio City, which was firstly ed under Amando Gabriel, Sr. Around 1996, Gabriel, Sr. sold the subject lot to Antonita Orduña but there was no executed formal deed. The price of the lot was payable in installments and Gabriel, Sr. accepted the set-up. Antonita and her sons have long been residing in the lot since 1979 and even had a house constructed therein. They also paid real property taxes and declared the lot for tax purposes. After the death of Gabriel, Sr., his son and one of the respondents Gabriel, Jr. continued to accept installment payments from Antonita. Then he wrote a letter to her ordering her to fence off the lot and to construct a road on the adjacent lot. However, despite the payments made by Antonita, Gabriel, Jr. sold the subject lot to Bernard Banta without the knowledge of Antonita and the rest of petitioners. Banta then sold the subject lot to Marcos Cid and Benjamin Cid. The Cids thereafter ceded the subject lot to Eduardo Fuentebilla, Jr. Eduardo, through his lawyer, sent a letter to the residence of Gabriel, Jr. ordering those living therein to vacate the lot or else ejectment would commence. When Antonita, et. al. went directly to Gabriel, Jr.’s house after receiving the letter, they were informed by the wife of Gabriel, Jr., Teresita Gabriel that

CIVIL LAW she filed an affidavit-complaint against her husband and the Cids for falsification of public documents, because according to her, her signature was forged in the deed of sale between Gabriel, Jr. and Banta. Teresita accompanied Antonita to file a Complaint for Annulment of Sale, Title, Reconveyance with Damages and along with this a prayer to acquire ownership over the subject lot upon payment of their remaining balance. ISSUES: Whether or not the Statute of Frauds is applicable to partially executed contracts HELD: Petition GRANTED. The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code applies only to executory contracts, i.e., those where no performance has yet been made. Stated a bit differently, the legal consequence of noncompliance with the Statute does not come into play where the contract in question is completed, executed, or partially consummated. The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent. However, where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the vendor, as in the present case, the contract is taken out of the scope of the Statute. Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of benefits under the contract. Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondents—successive purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart petitioners’ efforts towards establishing their lawful right over the subject lot and removing any cloud in their title. As it were, petitioners need only to pay the outstanding balance of the purchase price and that would complete the execution of the oral sale.

Jose Marques and Maxilite Technologies, Inc., v. Far East Bank and Trust Company, Far East Bank Insurance Brokers, Inc., and Makati

CIVIL LAW Insurance Company/Far East Bank and Trust Company and Makati Insurance Company, v. Jose Marques and Maxilite Technologies, Inc., G.R. No. 171379, 171419, 10 January 2011 Silence may an estoppel whether the failure to speak is intentional or negligent. Maxilite Technologies, Inc. is engaged in the importation and trade of equipments for energy-efficiency systems. On the other hand, Far East Bank and Trust Co. (FEBTC) is a local bank entrusted in the financing and requirements of Maxilite and Maxilite’s president Jose N. Marques. Far East Bank Insurance Brokers, Inc. (FEBIBI) and Makati Insurance Company are insurance companies which are subsidiaries of FEBTC. When Maxilite and Marques entered into a trust receipt transaction with FEBTC for the shipping of high-technology equipment from the United States, they put the merchandise as collateral. Then around August 1993, FEBIBI was advised by FEBTC to initiate and manage the procurement and processing from Makati Insurance Company of four separate and independent fire insurance policies over the subject merchandise. Maxilite did their part by paying the s through debit arrangement and FEBTC would debit the paid amount evidenced by the statement of s sent to Maxilite. On October 1994, the trust receipt was completely settled. Then on March 1995, Maxilite suffered losses amounting to at least P 2.1 million when a fire destroyed their office in Cebu City. They filed claims against the fire insurance company with Makati Insurance Company. However, it denied the fire loss claim putting up as a defense that they have not paid their . FEBTC and FEBIBI stated they have no responsibility for the denial of the claim. ISSUE: Whether or not there was an estoppel when Maxilite and Marques were led to believe and they in fact believed that the settlement of Maxilite's trust receipt included the payment of the insurance HELD: Petition GRANTED. In estoppel, a party creating an appearance of fact, which is false, is bound by that appearance as against another person who acted in good faith on it. Estoppel is based on public policy, fair dealing, good faith and justice. Its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one who reasonably relied thereon. It springs from equity, and is designed to aid the law in the istration of justice where without its aid injustice might result.

CIVIL LAW ‘Estoppel by silence’ arises where a person, who by force of circumstances is obliged to another to speak, refrains from doing so and thereby induces the other to believe in the existence of a state of facts in reliance on which he acts to his prejudice. Silence may an estoppel whether the failure to speak is intentional or negligent. Both trial and appellate courts basically agree that FEBTC is estopped from claiming that the insurance has been unpaid. That FEBTC induced Maxilite and Marques to believe that the insurance has in fact been debited from Maxilite’s is grounded on the the following facts: (1) FEBTC represented and committed to handle Maxilite’s financing and capital requirements, including the related transactions such as the insurance of the trust receipted merchandise; (2) prior to the subject Insurance Policy No. 1024439, the s for the three separate fire insurance policies had been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC, not Maxilite nor Marques, written reminders dated 19 October 1994, 24 January 1995, and 6 March 1995 to debit Maxilite’s , establishing FEBTC’s obligation to automatically debit Maxilite’s for the amount; (4) there was no written demand from FEBTC or Makati Insurance Company for Maxilite or Marques to pay the insurance ; (5) the subject insurance policy was released to Maxilite on 19 August 1994; and (6) the subject insurance policy remained uncancelled despite the alleged non-payment of the , making it appear that the insurance policy remained in force and binding.