Arrieta vs.

NARIC (PAYMENT)

FACTS: Paz Arrieta is a rice dealer/importer. In May 1952, she participated in a public bidding held by the National
Rice and Corn Corporation (NARIC). NARIC was looking for someone to supply 20,000 metric tons of Burmese Rice.
Arrieta was the lowest bidder at $203.00 per metric ton hence she won the bidding. So a contract was made whereby
Arrieta is to deliver the rice supply and NARIC is to pay for the imported rice “by means of an irrevocable, confirmed
and assignable letter of credit in U.S. currency in favor of the Arrieta and/or supplier in Burma, immediately.” Arrieta
then proceeded to contact her supplier in Burma (Thiri Setkya) and arranged the sale of the 20k metric ton of
Burmese Rice, Arrieta promised Setkya that he will be paid by NARIC on August 4, 1952. Arrieta also made a 5%
deposit (P200k) as advance payment to Setkya.

Meanwhile, NARIC tried to open a letter of credit ion the amount of $3,614,000.00 with the Philippine National Bank.
PNB agreed to open the letter of credit but only on the condition that NARIC deposits 50% of the said amount.
NARIC failed to do this and the letter of credit was not opened when the obligation to pay Setkya became due.
Because of this, Arrieta lost the opportunity to profit from the sale as the agreement was eventually forfeited. Her 5%
depoit was likewise forfeited pursuant to Burma laws.

ISSUE: Whether or not Arrieta is entitled to damages.

HELD: Yes. It is clear upon the records that the sole and principal reason for the cancellation of the allocation
contracted by Arrieta in Rangoon, Burma, was the failure of the letter of credit to be opened with the contemplated
period. The letter of credit is in US currency. Normally, parties can stipulate as to which currency shall be used in
paying off an obligation provided that the exchange rate prevailing at the time of judgment shall prevail over the rate
of exchange at the time of the breach. This rule however is of no application in the case at bar due to the passage of
Republic Act 529 which expressly declares such stipulations as contrary to public policy, void and of no effect. If
there is any agreement to pay an obligation in a currency other than Philippine legal tender, the same is null and void
as contrary to public policy (Republic Act 529), and the most that could be demanded is to pay said obligation in
Philippine currency “to be measured in the prevailing rate of exchange at the time the obligation was incurred.

NOTE: This is a 1964 case. RA 529 has already been repealed by Republic Act 8183 which provides that every
monetary obligation must be paid in Philippine currency which is legal tender in the Philippines. However, the parties
may agree that the obligation or transaction shall be settled in any other currency at the time of payment. (The
Philippine Negotiable Instruments Law, De Leon and De Leon Jr., p. 29)
PACULDO VS. REGALADO (PAYMENT)
345 SCRA 134

FACTS: On December 27, 1990, petitioner Nereo Paculdo and respondent Bonifacio Regalado entered into a
contract of lease over a parcel of land with a wet market building, located at Fairview Park, Quezon City. The contract
was for twenty five (25) years, commencing on January 1, 1991 and ending on December 27, 2015. For the first five
(5) years of the contract beginning December 27, 1990, Nereo would pay a monthly rental of P450,000, payable
within the first five (5) days of each month with a 2% penalty for every month of late payment.

Aside from the above lease, petitioner leased eleven (11) other property from the respondent, ten (10) of which were
located within the Fairview compound, while the eleventh was located along Quirino Highway Quezon City. Petitioner
also purchased from respondent eight (8) units of heavy equipment and vehicles in the aggregate amount of Php 1,
020,000.

On account of petitioner’s failure to pay P361, 895.55 in rental for the month of May, 1992, and the monthly rental of
P450, 000.00 for the months of June and July 1992, the respondent sent two demand letters to petitioner demanding
payment of the back rentals, and if no payment was made within fifteen (15) days from the receipt of the letter, it
would cause the cancellation of the lease contract.

Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land subject of the lease contract,
including the improvements which petitioner introduced into the land amounting to P35, 000,000.00, to Monte de
Piedad Savings Bank, as a security for a loan.

On August 12, 1992, and the subsequent dates thereafter, respondent refused to accept petitioner’s daily rental
payments. Subsequently, petitioner filed an action for injunction and damages seeking to enjoin respondents from
disturbing his possession of the property subject of the lease contract. On the same day, respondent also filed a
complaint for ejectment against petitioner. The lower court rendered a decision in favor of the respondent, which was
affirmed in toto by the Court of Appeals.

ISSUE: Whether or not the petitioner was truly in arrears in the payment of rentals on the subject property at the time
of the filing of the complaint for ejectment.

RULING: NO, the petitioner was not in arrears in the payment of rentals on the subject property at the time of the
filing of the complaint for ejectment.

As found by the lower court there was a letter sent by respondent to herein petitioner, dated November 19, 1991,
which states that petitioner’s security deposit for the Quirino lot, be applied as partial payment for his account under
the subject lot as well as to the real estate taxes on the Quirino lot. Petitioner interposed no objection, as evidenced
by his signature signifying his conformity thereto.

Meanwhile, in an earlier letter, dated July 15, 1991, respondent informed petitioner that the payment was to be
applied not only to petitioner’s accounts under the subject land and the Quirino lot but also to heavy equipment
bought by the latter from respondent. Unlike in the November letter, the July letter did not contain the signature of
petitioner.
Petitioner submits that his silence is not consent but is in fact a rejection.

As provided in Article 1252 of the Civil Code, the right to specify which among his various obligations to the same
creditor is to be satisfied first rest with the debtor.

In the case at bar, at the time petitioner made the payment, he made it clear to respondent that they were to be
applied to his rental obligations on the Fairview wet market property. Though he entered into various contracts and
obligations with respondent, all the payments made, about P11,000,000.00 were to be applied to rental and security
deposit on the Fairview wet market property. However, respondent applied a big portion of the amount paid by
petitioner to the satisfaction of an obligation which was not yet due and demandable- the payment of the eight heavy
equipments.

Under the law, if the debtor did not declare at the time he made the payment to which of his debts with the creditor
the payment is to be applied, the law provided the guideline; i.e. no payment is to be applied to a debt which is not
yet due and the payment has to be applied first to the debt which is most onerous to the debtor.

The lease over the Fairview wet market is the most onerous to the petitioner in the case at bar.

Consequently, the petition is granted.

DAUDEN-HERNAEZ vs DE LOS ANGELES (UNENFORCABLE CONTRACT)

FACTS: Marlene Dauden-Hernaez, a movie actress, filed a case against Hollywood Far East Productions its
President and General Manager, Ramon Valenzuela, to recover P14,700 allegedly the balance due for her services
as leading actress in two motion pictures. The complaint was dismissed by Judge De Los Angeles mainly because
her claim was not supported by an written document, public or private in violation of Articles 1356 and 1358 of the
Civil Code. Upon a motion for reconsideration, the respondent judged dismissed the same because the allegations
were the same as the first motion.
According to Judge De Los Angeles, the contract sued upon was not alleged to be in writing when Article
1358 requires it to be so because the amount involved exceeds P500.

ISSUE: Whether or not a contract for personal services involving more than P500.00 was either invalid or
unenforceable under the last paragraph of Article 1358?

HELD : No. The order dismissing the complaint is set aside and the case is remanded to the CFI.

Consistent with the Spanish Civil Code in upholding spirit and intent of the parties over formalities, in general,
contracts are valid and binding from their perfection regardless of whether they are oral or written.

However, as provided in the 2nd sentence of Art. 1356:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. However, when the law requires that a contract
be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable....

Thus, the two exceptions to the general rule that the form is irrelevant to the binding effect of a contract are:

(a) Solemn Contracts - contracts which the law requires to be in some particular form (writing) in order to make them
valid and enforceable. Examples:
1. Donation of immovable property (Art. 749) which must be in a public instrument to be valid. in order "that
the donation may be valid", i.e., existing or binding.
2. Donation of movables worth more than P5,000 (Art. 748) which must be in writing otherwise they are void.
(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, i.e. those covered by
the old Statute of Frauds, now Article 1403(2) of the Civil Code.
For the latter example, their existence are not provable by mere oral testimony (unless wholly or partly
executed) and are required to be in writing to be enforceable by action in court.

However, the contract sued upon (compensation for services) does not come under either exception. While
the last clause of Article 1358 provides that "all other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one." Said Article does not provide that the absence of a written form in
this case will make the agreement invalid or unenforceable.

On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by
action or suit despite the absence of writing.
SOTTO VS MIJARES (Expenses of consignation)
FACTS:

Sotto filed a "Motion for Deposit" on a case she filed before the CFI of Negros Occidental, which read: “That in view
of the admission of the defendants of the same and in order to limit the other controversial issue x x x it is fitting and
proper that the said amount of P5,106.00 be deposited in the Office of the Clerk of Court.”

Defendants, in their "Opposition", signified their willingness to deposit the amount provided that the complaint be
dismissed and that they be absolved of all other liabilities, expenses and costs.

The CFI issued the following order: "Defendants are hereby ordered to deposit said amount to the Clerk of Court
pending the final termination of this case."

Later, Sotto represented by new counsel filed a motion for partial judgment on the pleadings with respect to the
amount of P5,106.00, modifying their previous request for judicial deposit, which had already been granted.

Defendants moved to reconsider the order, explaining that through oversight they failed to allege in their "Opposition"
that the P5,106.00 was actually secured by a real estate mortgage. They would thus premise their willingness to
deposit said amount upon the condition "x x x that the plaintiff will cancel the mortgage abovementioned and that the
plaintiff be ordered to return to the defendants Transfer Certificate of Title No. 29326 covering Lot No. 327 of
Pontevedra and Transfer Certificate of Title No. 29327 covering Lot No. 882 of Hinigaran Cadastre, Negros
Occidental." (The defendants expressed their willingness to deposit the said amount in court, subject to the condition
that the mortgage they had executed as security be cancelled.)

The CFI denied both motions. Thus, this appeal. Originally appealed to the CA, this case was certified to the SC, the
only issue being one of law.

ISSUE:

 WoN the CFI acted with authority and in the judicious exercise of its discretion in ordering the defendants to
make the deposit but without the condition they had stated
o NO. Whether or not to deposit at all the amount of an admitted indebtedness, or to do so under
certain conditions, is a right which belongs to the debtor exclusively. If he refuses he may not be
compelled to do so, and the creditor must fall back on the proper coercive processes provided by
law to secure or satisfy his credit, as by attachment, judgment and execution.
o Consignation is a facultative remedy which the debtor may or may not avail himself of. The debtor
has the right to withdraw the thing or sum deposited before the creditor has accepted or before a
judicial declaration that the consignation has been properly made is given. If the debtor has such
right of withdrawal, he surely has the right to refuse to make the deposit in the first place.
 NATELCO VS. CA (Impossibility of Performance)

FACTS:
NATELCO: telephone company rendering local and long distance services in Naga.
Entered into contract with Camarines Sur II Electric Cooperative (electrice power service):
i. “For the use in operation of its telephone service, electric light posts of CASURECO II”.
ii. In return, free use of 10 telephone connections.
iii. Period: as long as NATELCO needs electric light posts, CASURECO understands that contract will terminate
when they are forced to stop, abandon operation and remove lightposts.

CASURECO after 10 years: filed for reformation of contract with damages, not conforming to guidelines of National
Electrification Administration (NEA)- reasonable compensation for use of posts.
i. Compensation is P10/posts but consumption of telephone cables costs P2630.
ii. NATELCO used 319 posts without any contract at P10.00; refused to pay.
iii. Poor servicing- damage not less than P100,000.
NATELCO
Compensation:
i. No cause of action for reformation of contract.
ii. Barred by prescription (10 years execution of contract)
iii. Barred by estoppel.
iv. Utilization could not have cause deterioration because already used for 11 years.
v. Value of expenses been equal to use of telephone lines.

TRIAL COURT
ORDERED REFORMATION OF AGREEMENT:
i. NATELCO to pay for electric polls sum of P10/pole from January 1989.
Contract eventually became unfair due to increase in volume of subscribers without increase of telephone connections
which are free of charge to CASURECO.
REFORMATION OF CONTACT: cannot make another contract but abolish inequities.
Contract does not mention use of posts outside Naga City. Contract should be reformed including provision that for the
use posts outside Naga.

CA: agreed to TRIAL COURT but for different reasons: Article 1267 applicable Contract POTESTATIVE
CONDITION, THUS VOID.

ISSUE:
Is Article 1267 applicable? YES
Has the filing of reformation of contract prescribed? NO.
Is the period of contract, “as long as the party of the first part has need for electrive light posts…” potestative? YES.
 HELD:
1. ARTICLE 1267, EVEN THOUGH NEVER RAISED BEFORE, IS APPLICABLE.
1. ARTICLE 1267: Art. 1267. 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.
2. PRESTATION: payment of money; a toll or duty; also, the rendering of a service.
3. Contract was one-sided unfair, and disadvantageous to plaintiff.

2. PRESCRIPTION HAS NOT YET LAPSED.

1. What is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether the
contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the
determination of the period for prescription of the action to reform.
2. Article 1144: Action upon a written contract must be brought within 10 years from the time the right of action accrues.
i. “From the time the right of action accrues” not necessarily the date of execution of the contract.
ii. As correctly ruled by respondent court, private respondent's right of action arose "sometime during the latter
part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked by (private respondent's) Board
of Directors to study said contract as it already appeared disadvantageous to (private respondent) in 1989.
iii. 10 years had not yet elapsed.

3. PERIOD OF CONTRACT IS POTESTATIVE, THUS INVALID.

a. Leaves the continued effectivity of the aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is
in operation
b. Leaves leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee.
SILAHIS MARKETING CORP V IAC (Legal Compensation)
FERNAN, J. December 7, 1989

FACTS:
 On various dates in Oct-Dec 1975, De Leon doing business under the name and style of Mark Industrial
Sales, sold and delivered to Silahis various items of merchandise covered by several invoices amounting to
P22,213.75 payable within 30 days from date of the covering invoices.
 Silahis failed to pay upon maturity despite repeated demands.
 De Leon filed before CFI Manila a complaint for the collection of the said accounts including accrued interest
in the amount of P 661.03 and attorney's fees of P 5,000 plus costs of litigation.
 Silahis admitted the allegations insofar as the invoices were concerned but as defense:
o Presented a debit memo for P 22,200 as unrealized profit for a supposed commission that Silahis
should have received from de Leon for the sale of sprockets amounting to P111,000 made directly
to Dole Philippines, Inc by de Leon without coursing through Silahis in violation of usual practice
o Claimed that it is entitled to return the stainless steel screen found defective by its client, Borden
International, Davao City, and to have the corresponding amount of P6,000 cancelled from its
account with de Leon.
 RTC: Confirmed the liability of Silahis for the claim of de Leon but ordered that it be partially offset by
Silahis' counterclaim as contained in the debit memo for unrealized profit and commission. Ordered to pay
P13.75 with 12% interest
o Proven by the testimonies that contrary to agreement between Silahis and de Leon that the latter
was to serve the account of DOLE in Davao, De Leon instead sold it directly to DOLE depriving
Silahis of its commission.
o As to steel wire mesh, not awarded because too late to present claim (returned only on April 1976
when bought on December 1975)
 De Leon appealed the award of partial compensation and non-award of interest on his principal claim
 IAC: Reversed the RTC decision and dismissed Silahis’ counterclaim for lack of factual or legal basis as
there was no agreement nor contractual obligation prohibiting direct sales to Dole Philippines and nothing in
the debit memo obligating de Leon to pay commission to Silahis.

ISSUE: Whether or not De Leon is liable to Silahis for the commission or margin for the direct sale which the former
concluded and consummated with Dole Philippines, Inc without coursing the same through Silahis Marketing.

HELD: No.
 Court found nothing to show that respondent obligated himself to set-off or compensate petitioner’s
outstanding accounts with alleged unrealized commission from assailed sale of sprockets to Dole
Philippines.
 Compensation takes place when 2 persons, in their own right, are creditors and debtors of each other.
Article 1279 of the Civil Code provides that: “In order that compensation may be proper, it is necessary:
[1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;
[2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
[3] that the two debts be due;
[4] that they be liquidated and demandable;
[5] that over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
 When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by
operation of law, even without the consent or knowledge of the creditors and debtors. Article 1279 requires
that for legal compensation to take place, “two debts must be due” and “they must be liquidated and
demandable”. Compensation is not proper where the claim of the person asserting the set-off against
 the other is neither clear nor liquidated. Compensation CANNOT extend to unliquidated disputed claim
existing from breach of contract.
 Silahis admits the validity of its outstanding accounts of P22, 213.75 with de Leon. But whether de Leon is
liable to pay Silahis a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously
disputed. This circumstance prevents legal compensation from taking place.
 There is no evidence on record from which it can be inferred that there was any agreement between Silahis
and de Leon prohibiting the latter from direct sale to Dole
o The debit memo is not a binding contract since it was not signed by de Leon nor was there any
mention therein of any commitment by the latter to pay any commission to the former involving the
subject sale of sprockets and can be taken as self-serving with no probative value absent a
showing or inference that the party sought to be bound assented to it content or showed
conformity.
o Letter written by de Leon’s lawyer on March 1975 transmitting its Debit Memo further strengthened
their stand that they never agreed to give petitioner any commission on direct sale to Dole
Philippines because such letter denied any utilization of petitioner’s personnel and facilities.

Disposition: Decision affirmed.

NPC vs. Dayrit (novation)

Held: It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest
incompatibility between the old and the new obligations in every aspect. Thus the Civil Code provides:
Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that
it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with
each other.

In the case at bar there is nothing in the May 14, 1982, agreement which supports the petitioner's contention. There
is neither explicit novation nor incompatibility on every point between the "old" and the "new" agreements.

Facts: Daniel Roxas sued NPC to compel the NPC to restore the contract of Roxas for security services which the
former had terminated. However, they reached a compromise agreement, and the court approved it. One of the
stipulations of the agreement was that the parties shall continue with the contract of security services under the same
terms and conditions as the previous contract effective upon the signing thereof. Parties entered into another contract
for security services but NPC refused to implement the new contract for which Daniel filed a Motion for Execution.
The NPC assails the Order on the ground that it directs execution of a contract which had been novated by that of the
new contracts. NPC contends there was novation because they executed the second contract with Josefina Roxas;
therefore there was a change of party. Upon the other hand, Roxas claims that said contract was executed precisely
to implement the compromise agreement for which reason there was no novation.
 LICAROS VS GATMAITAN (subrogation)

FACTS: The Anglo-Asean Bank is a bank somewhere in Cat Heaven which receive fund placements from different
parts of the world and invest such deposits in money market placements in HK, Europe and the United States.

· Licaros decided to make a fund placement (USD 150K) with said bank sometime in the 1980's. Licaros
encountered tremendous difficulties in retrieving the investments he had put in.
· Licaros then decide to seek the counsel of Antonio P. Gatmaitan (banker). Gatmaitan voluntarily offered to assume
the payment of Anglo-Asean's indebtedness to Licaros subject to certain terms and conditions. The two executed a
notarized MOA. Gatmaitan presented to Anglo-Asean the MOA for the purpose of collecting. No formal response was
ever made by said bank.
· Gatmaitan did not bother anymore to make good his promise to pay Licaros the PN. Licaros felt that he had a right
to collect on the basis of the PN regardless of the outcome of Gatmaitan's recovery efforts.

lower courts

· RTC found Gatmaitan liable under the MOA and PN for P3,150K plus 12% interest pa. (assignment of credit.
· CA reversed and held that Gatmaitan did not at any point become obligated to pay to Licaros the amount stated in
the PN. (conventional subrogation)

petitioner arguments

1. MOA did not create a new obligation and, as such, the same cannot be a conventional subrogation;
2. the consent of Anglo-Asean Bank was not necessary for the validity of the MOA;
3. assuming that such consent was necessary, respondent failed to secure the same as was incumbent upon him;
4. respondent himself admitted that the transaction was one of assignment of credit.

issue: Whether the MOA is one of assignment of credit or one of conventional subrogation.

difference of assignment of credit and conventional subrogation

Assignment of Credit Conventional Subrogation

process of transferring the right of the assignor to transfer of all the rights of the creditor to a third
the assignee who would then have the right to person, who substitutes him in all his rights.
proceed against the debtor.

Debtor’s consent is not necessary Debtor’s consent is necessary

nullity of an old obligation may be cured by nullity of an obligation is not remedied by the
subrogation, such that a new obligation will be assignment of the creditor's right to another.
perfectly valid

moa was a conventional subrogation (whereas clause and “with our conforme”)
· Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation: "WHEREAS,
the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which hey
now record herein with the express conformity of the third parties concerned"
· Had the intention been merely to confer the status of a mere "assignee", there is simply no sense for them to have
stipulated that the same is conditioned on the "express conformity" thereto of Anglo-Asean Bank.
· On the signature page, right under the place reserve for the signatures of Peaches and respondent, there is,
typewritten, the words "WITH OUR CONFORME." Under this notation, the words "ANGLO-ASEAN BANK AND
TRUST" were written by hand.
· This provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with the
preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank should signify
its agreement to the MOA.
EXTINGUISHMENT Of the old obligation is the effect not the requisite
· Peaches: Considering that the old obligation of Anglo-Asean Bank was never extinguished under the MOA, it is
contended that the same could not be considered as a conventional subrogation.
· SC: The extinguishment of the old obligation is the effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for conventional subrogation may not be created.
provisions may not simply be disregarded or dismissed as superfluous
· Peaches: the preambulatory clause requiring the express conformity of third parties is a mere surplusage
which is not necessary to the validity of the agreement.
· SC: the intention of the parties to treat the MOA as embodying a conventional subrogation is shown not only by the
"whereas clause" but also by "WITH OUR CONFORME" reserved for Anglo-Asean Bank. These provisions may not
simply be dismissed as superfluous. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly." It is mandated that
"(I)n the construction of an instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all." Contracts should be so construed as to harmonize and give effect to
the different provisions thereof.
irrelevant on who was required of obtaining the consent
Peaches: it was incumbent on the part of the respondent to secure the conformity of Anglo-Asean
SC: irrelevant. The determinative fact is that such consent was not secured by either Peaches or respondent which
consequently resulted in the invalidity of the said memo.
use of the word “assignment” during testimony
· Pet: respondent himself admitted that the transaction was one of assignment of credit in his testimony
· SC: respondent apparently used the word "assignment" in his testimony in the general sense. Respondent is not a
lawyer and as such, he is no so well versed in law that he would be able to distinguish between the concepts of
conventional subrogation and of assignment of credit.