[G.R. No. L-46095. November 23, 1977.

]
PHILIPPINE NATIONAL BANK, Petitioner, v. HONORABLE ELIAS B. ASUNCION, FABAR INCORPORATED,
JOSE MA. BARREDO, CARMEN B. BORROMEO and TOMAS L. BORROMEO, Respondents.
Philippine National Bank (hereafter referred to as the petitioner), on January 16, 1963, granted in favor of respondent
Fabar Incorporated various credit accommodations and advances in the form of a discounting line, overdraft line,
temporary overdraft line and letters of credit covering the importation of machinery and equipment. Petitioner likewise
made advances by way of insurance premiums covering the chattels subject matter of a mortgage securing the
aforementioned credit accommodations. Said credit accommodations had an outstanding balance of P8,449,169.98 as
of May 13, 1977.
All of the above credit accommodations are secured by the joint and several signatures of Jose Ma. Barredo, Carmen
B. Borromeo and Tomas L. Borromeo (private respondents herein) and Manuel H. Barredo. For failure of private
respondents to pay their obligations notwithstanding repeated demands, petitioner instituted a case for collection
against all private respondents and Manuel H. Barredo in a complaint dated October 31, 1972, and which was filed
before the sala of the Honorable Elias B. Asuncion, Judge of the Court of First Instance of Manila, Branch XII
(hereafter referred to as the respondent Court).
On May 19, 1975, before the case could be decided, Manuel H. Barredo died. In a Manifestation dated June 6, 1975,
counsel for private respondents informed the respondent Court of said death.
Subsequently, respondent Court issued an Order of dismissal dated November 29, 1976, which is hereinbelow quoted
as follows:

jgc:chanrob les.c om.ph

"In view of the death of defendant Manuel Barredo, the Court hereby dismisses this case since the present suit is for a
money claim which does not survive the death of said defendant.
"Pursuant to the provisions of Section 6, Rule 86 of the Revised Rules of Court, which provides:

chanrob1e s vi rtual 1aw lib rary

Where the obligation of the decedent is solidary with another debtor, the claim shall be filed against the decedent as
if he were the only debtor, without prejudice to the right of the estate to recover contribution from the other debtor . .
the claim of plaintiff may be filed with the estate proceedings of the decedent."

cralaw vi rtua 1aw libra ry

Petitioner thereupon filed a Motion dated December 14, 1976 praying for the reconsideration of respondent Courts
Order dismissing the case as against all the defendants, contending that the dismissal should only be as against the
deceased defendant Manuel H. Barredo.
In an order dated January 26, 1977, respondent Court denied petitioners motion for reconsideration for lack of
meritorious grounds.
Hence, this instant petition for review on certiorari.
Petitioner, in its lone assignment of error, alleged that the respondent Court erred in dismissing the case against all
the defendants, instead of dismissing the case only as against the deceased defendant and thereafter proceeding with
the hearing as against the other defendants, private respondents herein.
Petitioners contention is well taken. Respondent Courts reliance on Section 6, Rule 86 of the Revised Rules of Court

was erroneous.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that nothing therein prevents a creditor
from proceeding against the surviving solidary debtors. Said provision merely sets up the procedure in enforcing
collection in case a creditor chooses to pursue his claim against the estate of the deceased solidary debtor. The rule
has been set forth that a creditor (in a solidary obligation) has the option whether to file or not to file a claim against
the estate of the solidary debtor. In construing Section 6, Rule 87 of the old Rules of Court, which is the precursor of
Section 6, Rule 86 of the Revised Rules of Court, this Court said, in the case of Manila Surety & Fidelity Co., Inc. v.
Villarama, Et. Al. (107 Phil. 891) that:

jgc:chanrobles. com.ph

"It is evident from the foregoing that Section 6 of Rule 87 (of the Old Rules of Court) provides the procedure should
the creditor desire to go against the deceased debtor, but there is certainly nothing in the said provision making
compliance with such procedure a condition precedent before an ordinary action against the surviving debtors, should
the creditor choose to demand payment from the latter, could be entertained to the extent that failure to observe the
same would deprive the court jurisdiction to take cognizance of the action against the surviving debtors. Upon the
other hand, the Civil Code expressly allow the creditor to proceed against any one of the solidary debtors or some or
all of them simultaneously."

c ralaw virtua1aw l ibra ry

It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. Said provision gives
the creditor the right to "proceed against anyone of the solidary debtors or some or all of them simultaneously." The
choice is undoubtedly left to the solidary creditor to determine against whom he will enforce collection. In case of the
death of one of the solidary debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary
debtors without necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for him to have
the case dismissed as against the surviving debtors and file its claim against the estate of the deceased solidary
debtor, as was made apparent in the aforequoted decision. For to require the creditor to proceed against the estate,
making it a condition precedent for any collection action against the surviving debtors to prosper, would deprive him
of his substantive rights provided by Article 1216 of the New Civil Code.

chan rob les law li bra ry

As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of Court were applied literally, Article
1216 of the New Civil Code would, in effect, be repealed since under the Rules of Court, petitioner has no choice but
to proceed against the estate of Manuel Barredo only. Obviously, this provision diminishes the Banks right under the
New Civil Code to proceed against any one, some or all of the solidary debtors. Such a construction is not sanctioned
by the principle, which is too well settled to require citation, that a substantive law cannot be amended by a
procedural rule. Otherwise stated, Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over
Article 1216 of the New Civil Code, the former being merely procedural, while the latter, substantive.
Moreover, no less than the New Constitution of the Philippines, in Section 5, Article X, provides that rules promulgated
by the Supreme Court should not diminish, increase or modify substantive rights.
WHEREFORE, JUDGMENT IS HEREBY RENDERED MODIFYING THE APPEALED ORDERS OF RESPONDENT COURT DATED
NOVEMBER 29, 1976 AND JANUARY 26, 1977 IN THE SENSE THAT AS AGAINST THE DECEASED MANUEL H.
BARREDO, THE CASE IS DISMISSED, BUT AS AGAINST ALL THE OTHER SOLIDARY DEBTORS, THE CASE IS
REMANDED TO RESPONDENT COURT FOR FURTHER PROCEEDINGS.

[G.R. No. 169293 : October 05, 2011]

DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. TRAVERSE DEVELOPMENT CORPORATION
This is a petition for review on certiorari1 of the September 30, 2004 Decision2 and August 11, 2005 Resolution3 of
the Court of Appeals in CA-G.R. CV No. 65311, which affirmed the November 24, 1998 Decision4 of the Regional Trial
Court (RTC) of Quezon City, Branch 87, in Civil Case No. Q-37497, as modified by its February 1, 1999 Order.5
The facts are simple and straightforward.
The Development of the Philippines (DBP)-Tarlac Branch granted a "Real Estate Loan" of ?910,000.00 to Traverse
Development Corporation (Traverse) for the construction of its three-storey commercial building at Taedo St., Tarlac
City. To secure the payment of this loan, Traverse constituted a mortgage on the land on which the building was to
be built on July 21, 1980.6 Among the conditions imposed by DBP in the mortgage contract was Traverse's acquisition
of an insurance coverage for an amount not less than the loan, to be endorsed in DBP's favor. 7
From 1980 to 1981, Traverse submitted to DBP three policies in accordance with the insurance condition in the
mortgage contract. The last of these three was FGU Policy No. 6246, in the amount of ?1 Million, for the period of one
year, from May 7, 1981 to May 7, 1982.8
On May 6, 1982, FGU Insurance Corporation (FGU) renewed Traverse's Fire Insurance Policy for another year, from
May 7, 1982 to May 7, 1983, for the same amount of ?1 Million, under Policy No. 61146. 9 However, as DBP had
already transferred the building's insurance to Central Surety & Insurance Company (Central), for the same terms,
under Fire Insurance Policy No. TAR 1056 (Policy No. TAR 1056), issued on May 7, 1982, it returned the FGU Policy to
Traverse.

10

On August 9, 1982, during the effectivity of Policy No. TAR 1056, a fire of undetermined origin razed and gutted
Traverse's building. The following day, Traverse informed Central of the mishap and requested it to immediately
conduct the necessary inspection, evaluation, and investigation.11
On September 7, 1982, Traverse submitted to Central written proof of the loss sustained by its building, together with
its claim in the amount of ?1 Million. On November 6, 1982, Central proposed to settle Traverse's claim on the basis
of cost of repairs of the affected parts of the building for ?230,748.00.12 Believing that this was highly inequitable and
unreasonable, Traverse denied such proposal.
Having failed to arrive at a settlement, Traverse, on February 28, 1983, filed a Complaint 13 before the RTC, against
Central and DBP for payment of its claim and damages.
Traverse averred that it was obvious from the beginning that Central was unable or unwilling to fulfill its liability under
Policy No. TAR 1056. Traverse alleged that due to the unjustifiable delay of Central to settle its claims, it was
prevented from receiving rentals for its building, its loan with DBP had increased due to interest and penalties, and it
had suffered actual damages. Traverse impleaded DBP as a co-defendant because of its alleged failure or refusal to
convince Central to pay Traverse's claims, considering that it transferred Traverse's insurance to Central without
Traverse's knowledge.14
In its Answer, DBP denied that Traverse had no knowledge of the transfer of its insurance to Central as evidenced by
its payment of the premium, documentary stamp tax, and other charges for the new insurance policy. DBP also
claimed that it was Traverse that transferred its insurance to Central to avoid delays in renewing its insurance, since

FGU had no branch office in Tarlac.15

Central argued in its Answer that Traverse had no valid and sufficient cause of action because aside from violating
material conditions in its policy, DBP, as the endorsee of the policy, was the real party-in-interest. Central also
averred that Traverse had no one else to blame but itself for the ballooning interest of its loan and lack of rentals
since it insisted on an exaggerated, unjustified, and unreasonable claim, considering that the building was not a total
loss, as the building was only partially damaged.16
On November 24, 1998, the RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, in the light of all the foregoing, judgment is hereby rendered as follows:
(a) ordering defendant CENTRAL SURETY to pay the DBP one million pesos (P1,000,000.00) representing the amount
for which Fire Insurance Policy No. TAR-1056 was issued, plus interest thereon at 24% which is double the legal
interest ceiling computed from thirty (30) days after defendant received proof of loss on September 29, 1982
(b) ordering defendant DBP to extinguish plaintiff's loan totally, including interest, penalties and charges;
(c) ordering defendant CENTRAL SURETY to pay plaintiff nominal damages in the amount of P50,000,00;
(d) ordering both defendants to pay jointly and severally the plaintiff, attorney's fees in the amount of P50,000.00,
plus cost of litigation.17
The RTC held that "total loss" did not require that the building be annihilated and turned into rubble, as long as the
property was destroyed to such an extent as to deprive it of the character in which it was insured. In holding Central
liable for damages, interests, penalties, attorney's fees, and costs of suit, the RTC noted how Central had tried to
evade Traverse's claims. It said that Traverse made no declarations as to the use of its building as it had been
established that not only was its insurance policy transferred to Central without its knowledge, but that Policy No. TAR
1056 was copied verbatim from its FGU policy.18
The RTC adjudged DBP to be solidarily liable with Central for damages, attorney's fees, and costs of suit in view of its
refusal or failure to pursue the claim against Central. The RTC said that as beneficiary-assignee of Policy No. TAR
1056, DBP should not have stopped at following-up its claim through letters and telegrams but should have either
filed its own case against Central or joined Traverse as a co-plaintiff. The RTC took DBP's inaction as suggestive of its
deliberate participation in the transfer of Traverse's existing insurance coverage from FGU to Central.19
On January 13, 1999, DBP filed a Motion for Reconsideration20 based on the following grounds:
1. THE HONORABLE COURT ERRED IN ORDERING DEFENDANT DBP TO EXTINGUISH [TRAVERSE'S] LOAN TOTALLY
INCLUDING INTEREST, PENALTIES AND CHARGES.
2. THE HONORABLE COURT ALSO ERRED IN ORDERING DEFENDANT DBP TO PAY [TRAVERSE] JOINTLY AND
SEVERALLY THE ATTORNEY'S FEE AND COST OF LITIGATION.21
On February 1, 1999, the RTC partially granted DBP's motion by completely deleting paragraph (b) and modifying
paragraph (c) of the disposition of its November 24, 1998 Decision. The dispositive portion of the RTC's decision in
Civil Case No. Q-37497, as revised, reads:
(a) ordering defendant CENTRAL SURETY to pay the DBP one million pesos (P1,000,000.00) representing the amount
for which Fire Insurance Policy No. TAR-1056 was issued, plus interest thereon at 24% which is double the legal
interest ceiling computed from thirty (30) days after defendant received proof of loss on September 29, 1982 (Exh.
"D-3", pp. 183-184 Rec.);

(b) ordering defendant CENTRAL SURETY to pay plaintiff nominal damages in the amount of P50,000,00;
(c) ordering both defendants to pay plaintiff jointly and severally attorney's fees in the amount of P50,000.00, plus
cost of litigation.22
Both Central and DBP appealed the decision of the RTC to the Court of Appeals, which appeal was docketed as CAG.R. CV No. 65311.
On September 30, 2004, the Court of Appeals dismissed the appeal and affirmed the RTC.
On October 18, 2004, Central moved for the reconsideration of the Court of Appeals' Decision, alleging that it dealt in
good faith with Traverse.23
On October 20, 2004, DBP filed its own Motion for Partial Reconsideration, seeking the rectification of the misquoted
dispositive portion, which was from the November 24, 1998 Decision of the RTC, and the setting aside of the order
making DBP solidarily liable with Central for the payment of attorney's fees and costs of suit.24
On August 11, 2005, the Court of Appeals resolved both motions for reconsideration, denying Central's as its
arguments were but a rehash of its petition, and partially granting DBP's, in view of the RTC's February 1, 1999
Order.25
Undaunted, DBP, on September 27, 2005, filed a petition for review of its case before this Court. Pending the
resolution of its petition, DBP then moved for this Court to Direct the Lower Court to Issue Writ of Partial Execution.
In seeking our review of its case, DBP assigns only one error, to wit:
THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DBP SOLIDARILY LIABLE WITH RESPONDENT CENTRAL
FOR ATTORNEY'S FEES IN THE AMOUNT OF P50,000.00 PLUS COST OF LITIGATION.

26

DBP claims that it cannot be held solidarily liable with Central for the payment of attorney's fees without contravening
Article 2208 of the Civil Code, which sanctions an award only when the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his interest. DBP argues that there is no legal
justification to hold it liable for attorney's fees and cost of litigation as nowhere in the decision was it stated that
Traverse was compelled to litigate because of DBP's act or omission. DBP alleges that Central's refusal to pay
Traverse's claim could not be attributed to it especially since it exerted all efforts to collect from Central. It avers that
filing a cross-claim would have been a mere surplusage and failure to file such cannot be considered as a basis for its
liability. DBP further asseverates that the speculation that Traverse would have been able to easily collect from FGU
had its insurance not been transferred to Central is not a basis for awarding attorney's fees since it was Traverse itself
that chose to transfer its insurance to Central.27
This Court's Ruling
The resolution of this case hinges upon the lone issue of whether or not DBP can be held solidarily liable with Central
for the payment of attorney's fees and cost of litigation, in light of the fact that it was the one that facilitated the
transfer of Traverse's insurance coverage from FGU to Central.

Both the RTC and the Court of Appeals held DBP liable for attorney's fees and costs of suit because said courts
believed that DBP should have been more aggressive in pursuing its claim against Central.
In the absence of stipulation, attorney's fees may be recovered as actual or compensatory damages under any of the
circumstances provided for in Article 2208 of the Civil Code,28 to wit:
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot
be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation
should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
Even if it were true that DBP had a hand in the transfer of Traverse's insurance coverage to Central, such
act is not sufficient to hold it solidarily liable with Central for the payment of attorney's fees and cost of
litigation under the above provision of the Civil Code.
Records show that during the testimony of the former insurance examiner of DBP-Tarlac, Victoria Punzalan
(Punzalan), she claimed that she had repeatedly reminded Mrs. Lourdes Roxas, Traverse's President, of the impending
expiration of Traverse's insurance coverage with FGU.29 Mrs. Roxas, however replied that her son would not be able to
attend to it as he was out of the country at that time. Subsequently, Atty. Ruperto Zamora of Central called up
Punzalan, upon the supposed instruction of Mrs. Roxas, to draw up Traverse's insurance coverage.30 DBP only came
to know that Traverse had already renewed its insurance policy with FGU on May 6, 1981, after Central had already
drawn up Policy No. TAR 1056.31
We thus find that DBP could not be blamed for facilitating such transfer in light of the previous delays in Traverse's
submission of its insurance policy. It is worthy to note that Policy No. TAR 1056 was drawn on May 7, 1986, the date
that Traverse's previous FGU policy was set to expire. Moreover, Central was not only one of DBP's accredited
insurance companies, but it also had a local branch office, which made transactions with it faster and easier.
This Court also cannot sustain the insinuation that DBP's lax attitude in pursuing its claim against Central was
tantamount to bad faith as to make it liable for attorney's fees and costs of suit. Even a resort to the principle of
equity will not justify making DBP liable.

The award of attorney's fees is the exception rather than the rule and the court must state explicitly the
legal reason for such award.32 As we held in ABS-CBN Broasting Corporation v. Court of Appeals33:
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The
power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable
justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his
rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's
persistence in a case other than an erroneous conviction of the righteousness of his cause. 34 (Emphasis supplied.)
It should be remembered that Traverse's insurance policy was assigned to DBP. While it is true that DBP still had the
real estate mortgage to ensure the payment of Traverse's loan, it would be in its favor to facilitate Central's payment
on Policy No. TAR 1056 rather than go through the process of foreclosing Traverse's lot or having to demand payment
again, albeit from Traverse this time. Moreover, Traverse's own evidence shows that DBP had tried its best to
facilitate and coordinate meetings between Traverse and Central. DBP Tarlac even suggested to its main office to
have Central blacklisted from its roster of accredited insurance companies as an effect of its handling of the Traverse
fire insurance claim.35
It was not DBP's act of facilitating the transfer of Traverse's insurance policy from FGU to Central that compelled
Traverse to litigate its claims, but rather Central's persistent refusal to pay such claims. Thus, only Central should be
held liable for the payment of attorney's fees and costs of suit.
In view of the foregoing, the Motion filed by DBP to direct the lower court to issue a writ of partial execution has
become moot.
WHEREFORE, this Court GRANTS the petition and MODIFIES the September 30, 2004 Decision as well as the
August 11, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 65311 by holding that petitioner Development
Bank of the Philippines is not liable for the payment of attorney's fees and costs of suit in said case.

[G.R. No. 7721. March 25, 1914. ]

INCHAUSTI & CO., Plaintiff-Appellant, v. GREGORIO YULO, Defendant-Appellee.
SYLLABUS
1. CONJOINT AND SOLIDARY OBLIGATIONS; ACTION BY THE CREDITOR AGAINST ANY OF THE DEBTORS; EFFECTS
OF A SUBSEQUENT INSTRUMENT. When the obligation is a solidary one, the creditor may bring his action in toto
against any of the debtors obligated in solidum and although the creditor may have, by means of a subsequent
instrument, covenanted with some of the solidary debtors different periods of payment and different conditions, not
on this account may it be understood that the solidarity stipulated in the previous instrument has been broken.
2. ID.; NOVATION. A new instrument, in which a former one containing an obligation to pay a certain sum of
money is ratified, is not renewed by merely altering the period for payment and adding other obligations not
incompatible with the one already covenanted in the old instrument. (Decisions of the supreme court of Spain of June
28, 1904 and July 8, 1909.)
3. ID.; PARTIAL REMISSION OF THE DEBT. The remission of any part of the debt, made by the creditor in favor of
one or more of his solidary debtors, inures to the benefit of the rest of them, and these latter may utilize in their favor
the defense of remission, as provided by article 1148 of the Civil Code.
4. ID.; DEFENSE OF PREMATURITY OF ACTION. The solidary debtor unconditionally obligated (or whose period for
payment has expired) may not, with respect to the part of the debt for which he is liable, plead the defense of
prematurity of the action, which is personal to his codebtors.
This suit is brought for the recovery of a certain sum of money, the balance of a current account opened by the firm of
Inchausti & Company with Teodoro Yulo and after his death continued with his widow and children, whose principal
representative is Gregorio Yulo. Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his
numerous haciendas in the province of Occidental Negros, had been borrowing money from the firm of Inchausti &
Company under specific conditions. On April 9, 1903, Teodoro Yulo died testate and for the execution of the provisions
of his will he had appointed as administrators his widow and five of his sons, Gregorio Yulo being one of the latter. He
thus left a widow, Gregoria Regalado, who died on October 22d of the following year, 1904, there remaining of the
marriage the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen,
Conception, and Jose Yulo y Regalado. Of these children Conception and Jose were minors, while Teodoro was
mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo, his widow and children held the
conjugal property in common and at the death of this said widow, Gregoria Regalado, these children preserved the
same relations under the name of Hijos de T. Yulo continuing their current account with Inchausti & Company in the
best and most harmonious reciprocity until said balance amounted to two hundred thousand pesos. In this state of
affairs the creditor firm tried to obtain security for the payment of the disbursements of money which until that time it
had been making in favor of its debtors, the Yulos.
First. Gregorio Yulo, for himself and in representation of his brothers Pedro, Francisco, Manuel, Mariano, and Carmen,
executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their indebtedness to Inchausti &
Company in the sum of P203,221.27 and, in order to secure the same with interest thereon at 10 per cent per annum,
they especially mortgaged an undivided six-ninth of their thirty-eight rural properties, their remaining urban
properties, lorchas, and family credits which were listed, obligating themselves to make a formal inventory and to
describe in due form all the said properties, as well as to cure all the defects which might prevent the inscription of
the said instrument in the registry of property and finally to extend by the necessary formalities the aforesaid

mortgage over the remaining three-ninths part of all the property and rights belonging to their other brothers, the
incompetent Teodoro, and the minors Concepcion and Jose.
Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of the firm of
Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an abstract of our current
account with your important firm, closed on the 31st of last December, with which we desire to express our entire
conformity as also with the balance in your favor of P271,863.12." On July 17, 1909, Inchausti & Company informed
Hijos de T. Yulo of the reduction of the said balance to P253,445.42, with which balance Hijos de T. Yulo expressed its
conformity by means of a letter of the 19th of the same month and year. Regarding this conformity a new document
evidencing the mortgage credit was formalized.
Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo, and in their
own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being of age at the time,
executed the notarial instrument (Exhibit X). Through this, the said persons, including Conception Yulo, ratified all the
contents of the prior document of June 26, 1908, severally and jointly acknowledged and admitted their indebtedness
to Inchausti & Company for the net amount of two hundred fifty-three thousand four hundred forty-five pesos and
forty-two centavos (P253,445.42) which they obligated themselves to pay, with interest at ten per cent per annum, in
five installments at the rate of fifty thousand pesos (P50,000), except the last, this being fifty-three thousand four
hundred forty-five pesos and forty-two centavos (P53,445.42), beginning June 30, 1910, continuing successively on
the 30th of each June until the last payment on June 30, 1914. Among other clauses, they expressly stipulated the
following:

jgc:chanrobles. com.ph

"Fifth. The default in payment of any of the installments established in clause 3, or the noncompliance of any of the
other obligations which by the present document and that of June 26, 1908, we, the Yulos, brothers and sisters, have
assumed, will result in the maturity of all the said installments, and as a consequence thereof, if they so deem
expedient Messrs. Inchausti & Company may exercise at once all the rights and actions which to them appertain in
order to obtain the immediate and total payment of our debt, in the same manner that they would have so done at
the maturity of the said installments."

cralaw vi rt ua1aw lib ra ry

"Fifteenth. All the obligations which by this, as well as by the document of June 26, 1908, concern us, will be
understood as having been contracted in solidum by all of us, the Yulos, brothers and sisters.
"Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in all its parts, within the present
week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it will not be binding on Messrs.
Inchausti & Company who can make use of their rights to demand and obtain the immediate payment of their credit
without any further extension or delay, in accordance with what we have agreed."

c ralaw virtua1aw l ibra ry

Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo.
Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not pay the first installment of the
obligation.
Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in the Court of First Instance of
Iloilo, against Gregorio Yulo for the payment of the said balance due of two hundred fifty-three thousand, four
hundred forty-five pesos and forty-two centavos (P253,445.42) with interest at ten per cent per annum, on that date
aggregating forty-two thousand, nine hundred forty-four pesos and seventy-six centavos (P42,944.76).

Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor of Inchausti &
Company another notarial instrument in recognition of the debt and the obligation of payment in the following terms:
"First, the debt is reduced for them to two hundred twenty-five thousand pesos (P225,000); second, the interest is
likewise reduced for them to 6 per cent per annum, from March 15, 1911; third, the installments are increased to
eight, the first of P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same date of each
successive year until the total obligation shall be finally and satisfactorily paid on June 30, 1919," it being expressly
agreed "that if any of the partial payments specified in the foregoing clause be not paid at its maturity, the amount of
the said partial payment together with its interest shall bear interest at the rate of 15 per cent per annum from the
date of said maturity, without the necessity of demand until its complete payment;" that "if during two consecutive
years the partial payments agreed upon be not made, they shall lose the right to make use of the period granted to
them for the payment of the debt or the part thereof which remains unpaid, and that Messrs. Inchausti & Company
may consider the total obligation due and demandable, and proceed to collect the same together with the interest for
the delay above stipulated through all legal means." (4th clause.)
Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters by way of
compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the special proceedings for
the probate of the will of Don Teodoro Yulo and of the intestacy of Doa Gregoria Regalado stipulating expressly
however in the sixth clause that "Inchausti & Company should include in their suit brought in the Court of First
Instance of Iloilo against Don Gregorio Yulo, his brother and joint coobligee, Don Pedro Yulo, and they will procure by
all legal means and in the least time possible a judgment in their favor against the said Don Gregorio and Don Pedro,
sentencing the later to pay the total amount of the obligation acknowledged by them in the aforementioned
instrument of August 12, 1909; with the understanding that if they should deem it convenient for their interests, Don
Francisco, Don Manuel, and Doa Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti &
Company in the proceedings of the said case."

c ralaw vi rtua1 aw lib rary

Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses: first, that
an accumulation of interest had taken place and that compound interest was asked for in Philippine currency at par
with Mexican; second, that in the instrument of August 12, 1909, two conditions were agreed one of which oughts to
be approved by the Court of First Instance, and the other ratified and confirmed by the other brother Mariano Yulo,
neither of which was complied with; third, that with regard to the same debt claims were presented before the
commissioners in the special proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later
they were dismissed, pending the present suit; fourth and finally, that the instrument of August 12, 1909, was
novated by that of May 12, 1911, executed by Manuel, Francisco and Carmen Yulo.
Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice to the
plaintiffs bringing within the proper time another suit for his proportional part of the joint debt, and that the plaintiff
pay the costs." (B. of E., 21.)
The plaintiff appealed from this judgment by bill of exceptions and before this court made the following assignment of
errors:

chanrob1e s virtual 1aw lib rary

I. That the court erred in considering the contract of May 12, 1911, as constituting a novation of that of August 12,
1909.
II. That the court erred in rendering judgment in favor of the defendant.
III. And that the court erred in denying the motion for a new trial.
"No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe Inchausti &

Company an amount of money, the object of this action, namely, P253,445.42" (B. of E. 18). "The fact is admitted,"
says the defendant, "that the plaintiff has not collected the debt, and that the same is owing" (Brief, 33). "In the
arguments of the attorneys," the judge goes on, "it was really admitted that the plaintiff had a right to bring an action
against Gregorio Yulo, as one of the conjoint and solidary obligors in the contract of August 12, 1909; but the
defendant says that the plaintiff has no right to sue him alone, since after the present suit was brought, the plaintiff
entered into a compromise with the other conjoint and solidary debtors, the result being the new contract of May 12,
1911, by virtue of which the payments were extended, the same constituting a novation of the contract which gave
him the same privileges that were given his conjoint and solidary codebtors. This (the judge concludes) is the only
question brought up by the parties." (B. of E., 19.)
And this is the only-one which the Supreme Court has to solve by virtue of the assignments of errors alleged.
Consequently, there is no need of saying anything regarding the first three defenses of the answer, nor regarding the
lack of the signature of Mariano Yulo ratifying and confirming the instrument of August 12, 1909, upon which the
appellee still insists in his brief for this appeal; although it will not be superfluous to state the doctrine that a
condition, such as is contained in the sixteenth clause of the said contract (third point in the statement of facts), is by
no means a suspensive but a resolutory condition; the effect of the failure of compliance with the said clause, that is
to say, the lack of the ratification and confirmance by Mariano Yulo being not to suspend but to resolve the contract,
leaving Inchausti & Company at liberty, as stipulated, "to make use of its rights to demand and obtain the immediate
payment of its credit."

cralaw virt ua1aw lib ra ry

The only question indicated in the decision of the inferior court involves, however, these others: First, whether the
plaintiff can sue Gregorio Yulo alone, there being other obligors; second, if so, whether it lost this right by the fact of
its having agreed with the other obligors in the reduction of the debt, proroguing of the obligation and the extension
of the time for payment, in accordance with the instrument of May 12, 1911; third, whether this contract with the said
three obligors constitutes a novation of that of August 12, 1909, entered into with the six debtors who assumed the
payment of two hundred fifty-three thousand and some odd pesos, the subject matter of the suit; and fourth, if not
so, whether it does have any effect at all in the action brought, and in this present suit.
With respect to the first it cannot be doubted that, the debtors having obligated themselves in solidum, the creditor
can bring its action in toto against any one of them, inasmuch as this was surely its purpose in demanding that the
obligation contracted in its favor should be solidary having in mind the principle of law that, "when the obligation is
constituted as a conjoint and solidary obligation each one of the debtors is bound to perform in full the undertaking
which is the subject matter of such obligation." (Civil Code, articles 1137 and 1144.)
And even though the creditor may have stipulated with some of the solidary debtors diverse installments and
conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco, and Carmen Yulo through the
instrument of May 12, 1911, this does not lead to the conclusion that the solidarity stipulated in the instrument of
August 12, 1909 is broken, as we already know the law provides that "solidarity may exist even though the debtors
are not bound in the same manner and for the same periods and under the same conditions." (Ibid., article 1140.)
Whereby the second point is resolved.
With respect to the third, there can also be no doubt that the contract of May 12, 1911, does not constitute a novation
of the former one of August 12, 1909, with respect to the other debtors who executed this contract, or more
concretely, with respect to the defendant Gregorio Yulo: First because "in order that an obligation may be
extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the old and
the new be incompatible in all points" (Civil Code, article 1204); and the instrument of May 12, 1911, far from
expressly declaring that the obligation of the three who executed it substitutes the former signed by Gregorio Yulo

and the other debtors, expressly and clearly stated that the said obligation of Gregorio Yulo to pay the two hundred
and fifty-three thousand and odd pesos sued for exists, stipulating that the suit must continue its course and, if
necessary, these three parties who executed the contract of May 12, 1911, would cooperate in order that the action
against Gregorio Yulo might prosper (7th point in the statement of facts), with other undertakings concerning the
execution of the judgment which might be rendered against Gregorio Yulo in this same suit. "It is always necessary to
state that it is the intention of the contracting parties to extinguish the former obligation by the new one" (Judgment
in cassation, July 8, 1909). There exist no incompatibility between the old and the new obligation as will be
demonstrated in the resolution of the last point, and for the present we will merely reiterate the legal doctrine that an
obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the
term of payment and adding other obligations not incompatible with the old one. (Judgments in cassation of June 28,
1904 and of July 8, 1909.)
With respect to the last point, the following must be borne in mind:

chan rob1e s virtual 1aw l ibra ry

Facts. First. Of the nine children of T. Yulo, six executed the mortgage of August 12, 1909, namely, Gregorio,
Pedro, Francisco, Manuel, Carmen, and Conception, admitting a debt of P253,445.42 at 10 per cent per annum and
mortgaging six-ninths of their hereditary properties. Second. Of those six children, Francisco, Manuel and Carmen
executed the instrument of May 12, 1911, wherein was obtained a reduction of the capital to 225,000 pesos and of
the interest to 6 per cent from the 15th of March of the same year of 1911. Third. The other children of T. Yulo named
Mariano, Teodoro, and Jose have not taken part in these instruments and have not mortgaged their hereditary
portions. Fourth. By the first instrument the maturity of the first installment was June 30, 1910, whereas by the
second instrument, Francisco, Manuel, and Carmen had in their favor as the maturity of the first installment of their
debt, June 30, 1912, and Fifth, on March 27, 1911, the action against Gregorio Yulo was already filed and judgment
was pronounced on December 22, 1911, when the whole debt was not yet due nor even the first installment of the
same respecting the three aforesaid debtors, Francisco, Manuel, and Carmen.
In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos, the sum demanded as
capital by virtue of the instrument of August 12, 1909, this debtor, if he should pay all this sum, could not recover
from his joint debtors Francisco, Manuel, and Carmen their proportional parts of the P253,445.42 which he had paid,
inasmuch as the three were not obligated by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos,
thus constituting a violation of Gregorio Yulos right under such hypothesis, of being reimbursed for the sum paid by
him, with the interest of the amounts advanced at the rate of one-sixth part from each of his five codebtors. (Civ.
Code, article 1145, par. 2). This result would have been a ponderous obstacle against the prospering of the suit as it
had been brought. It would have been very just then to have absolved the solidary debtor who having to pay the debt
in its entirety would not be able to demand contribution from his codebtors in order that they might reimburse him
pro rata for the amount advanced for them by him. But such hypothesis must be put out of consideration by reason of
the fact that occurred during the pendency of the action, which fact the judge states in his decision. "In this contract
of May last," he says, "the amount of the debt was reduced to P225,00 and the attorney of the plaintiff admits in his
plea that Gregorio Yulo has a right to the benefit of this reduction." (B. of E., 19.) This is a fact which this Supreme
Court must hold as firmly established, considering that the plaintiff in its brief, on page 27, corroborates the same in
these words: "What effect," it says, "could this contract have over the rights and obligations of the defendant Gregorio
Yulo with respect to the plaintiff company? In the first place, we are the first to realize that it benefits him with
respect to the reduction of the amount of the debt. The obligation being solidary, the remission of any part of the debt
made by a creditor in favor of one or more of the solidary debtors necessarily benefits the others, and therefore there
can be no doubt that, in accordance with the provision of article 1143 of the Civil Code, the defendant has the right to
enjoy the benefits of the partial remission of the debt granted by the creditor."

cralaw virt ua1 aw libra ry

Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12, 1909, it has
affected that contract and the outcome of the suit brought against Gregorio Yulo alone for the sum of P253,445.42;
and in consequence thereof, the amount stated in the contract of August 12, 1909, cannot be recovered but only that
stated in the contract of May 12, 1911, by virtue of the remission granted to the three of the solidary debtors in this
instrument, in conformity with what is provided in article 1143 of the Civil Code, cited by the creditor itself.
If the efficacy of the later instrument over the former touching the amount of the debt had been recognized, should
such efficacy not likewise be recognized concerning the maturity of the same? If Francisco, Manuel, and Carmen had
been included in the suit, they could have alleged the defense of the nonmaturity of the installments since the first
installment did not mature until June 30, 1912, and without the least doubt the defense would have prospered, and
the three would have been absolved from the suit. Cannot this defense of the prematurity of the action, which is
implied in the last special defense set up in the answer of the defendant Gregorio Yulo be made available to him in
this proceeding?
The following commentary on article 1140 of the Civil Code sufficiently answers this question: ". . . Before the
performance of the condition, or before the execution of a term which affects one debtor alone proceedings may be
had against him or against any of the others for the remainder which may be already demandable but the conditional
obligation or that which has not yet matured cannot be demanded from any one of them. Article 1148 confirms the
rule which we now enunciate inasmuch as in case the total claim is made by one creditor, which we believe improper
if directed against the debtor affected by the condition or the term, the latter can make use of such exceptions as are
peculiarly personal to his own obligation; and if against the other debtors, they might make use of those exceptions,
even though they are personal to the other, inasmuch as they alleged them in connection with that part of the
responsibility attaching in a special manner to the other." (8 Manresa, Sp. Civil Code, 196.)
Article 1148 of the Civil Code. "The solidary debtor may utilize against the claims of the creditor all the defenses
arising from the nature of the obligation and those which are personal to him. Those personally pertaining to the
others may be employed by him only with regard to the share of the debt for which the latter may be liable."

cra law virt ua1aw lib ra ry

Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on March 27,
1911, the first installment of the obligation had already matured of June 30, 1910, and with the maturity of this
installment, the first not having been paid, the whole debt had become mature, according to the express agreement
of the parties, independently of the resolutory condition which gave the creditor the right to demand the immediate
payment of the whole debt upon the expiration of the stipulated term of one week allowed to secure from Mariano
Yulo the ratification and confirmation of the contract of August 12, 1909.
Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion Yulo, they
being in identical condition as he.
But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their obligation,
contracted later, had as yet matured. The first payment, as already stated, was to mature on June 30, 1912. This
exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to that part of the debt for which they were
responsible" can be set up by Gregorio Yulo as a partial defense to the action. The part of the debt for which these
three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo may claim that, even
acknowledging that the debt for which he is liable is P225,000, nevertheless not all of it can now be demanded of him,
for that part of it which pertained to his codebtors is not yet due, a state of affairs which not only prevents any action
against the persons who were granted the term which has not yet matured, but also against the other solidary
debtors who being ordered to pay could not now sue for a contribution, and for this reason the action will be only as

to the P112,500.
Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths part of the
debt which forms the subject matter of the suit, we do not think that there was any reason or argument offered which
sustains an opinion that for the present it is not proper to order him to pay all or part of the debt, the object of the
action.
It has been said in the brief of the appellee that the prematurity of the action is one of the defenses derived from the
nature of the obligation, according to the opinion of the commentator of the Civil Code, Mucius Scaevola, and
consequently the defendant Gregorio Yulo may make use of it in accordance with article 1148 of the said Code. It may
be so and yet, taken in that light, the effect would not be different from that already stated in this decision; Gregorio
Yulo could not be freed from making any payment whatever but only from the payment of that part of the debt which
corresponds to his codebtors Francisco, Manuel, and Carmen. The same author, considering the case of the opposing
contention of two solidary debtors as to one of whom the obligation is pure and unconditional and as to the order it is
conditional and is not yet demandable, and comparing the disadvantages which must flow from holding that the
obligation is demandable with these which must follow if the contrary view is adopted, favors this solution of the
problem:

jgc:chanroble s.com. ph

"There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor may of course,
demand the payment of his credit against the debtor not favored by any condition or extension of time." And further
on, he decides the question as to whether the whole debt may be recovered or only that part unconditionally owing or
which has already matured, saying, "Without failing to proceed with juridical rigor, but without falling into
extravagances or monstrosities, we believe that the solution of the difficulty is perfectly possible. How? By limiting the
right of the creditor to the recovery of the amount owed by the debtors bound unconditionally or as to whom the
obligation has matured, and leaving in suspense the right to demand the payment of the remainder until the
expiration of the term of the fulfillment of the condition. But what then is the effect of solidarity? How can this
restriction of right be reconciled with the duty imposed upon each one of the debtors to answer for the whole
obligation? Simply this, by recognizing in the creditor the power, upon the performance of the condition or the
expiration of the term of claiming from any one or all of the debtors that part of the obligation affected by those
conditions." (Scaevola, Civil Code, 19, 800 and 801.)
It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo for the
whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that part of the amount
which is owed by them because they are obliged to pay only 225,000 pesos and this in eight installments none of
which was due. For this reason he was of the opinion that he (Gregorio Yulo) cannot be obliged to pay his part of the
debt before the contract of May 12, 1911, may be enforced, and "consequently he decided the case in favor of the
defendant, without prejudice to the plaintiff proceeding in due time against him for his proportional part of the joint
debt." (B. of E., 21 and 22.)
But in the first place, taking into consideration the conformity of the plaintiff and the provision of article 1143 of the
Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the instrument of August 12,
1909, but, if anything, the P225,000 of the instrument of May 12, 1911.
In the second place, neither is it possible to curtail the defendants right of recovery from the signers of the
instrument of May 12, 1911, for he was justly exonerated from the payment of that part of the debt corresponding to
them by reason of there having been upheld in his favor the exception of an unmatured installment which pertains to
them.

In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a debtor who is
unconditionally obligated as to when the debt has matured, the creditor should be forced to await the realization of
the condition (or the expiration of the term). Not only is there no reason for this, as stated by the author, but the
court would even fail to consider the special law of the contract, neither repealed nor novated, which cannot be
omitted without violating article 1091 of the Civil Code according to which "the obligations arising from contracts have
the force of law between the contracting parties and must be complied with in accordance with the tenor of the
same." Certain it is that the trial court, in holding that this action was premature but might be brought in due time,
regarded the contract of August 12, 1909, as having been expressly novated; but it is absolutely impossible in law to
sustain such supposed novation, in accordance with the legal principles already stated, and nevertheless the
obligation of the contract of May 12, 1911, must likewise be complied with in accordance with its tenor, which is
contrary in all respects to the supposed novation, by obliging the parties who signed the contract to carry on the suit
brought against Gregorio Yulo. The contract of May 12, 1911, has affected the action and the suit, to the extent that
Gregorio Yulo has been able to make in his favor the defense of remission of part of the debt, thanks to the provision
of article 1148, because it is a defense derived from the nature of the obligation, so that although the said defendant
was not party to the contract in question, yet because of the principle of solidarity he was benefited by it.
The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit here, because he
has been benefited by the remission made by the plaintiff to three of his codebtors, many times named above.
Consequently, the debt is reduced to 225,000 pesos.
But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he can recover
from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be rendered only as to the
P112,500.
We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500, with the
interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest on this interest
due, from the time that it was claimed judicially in accordance with article 1109 of the Civil Code, without any special
finding as to costs. The judgment appealed from is reversed. So ordered.

[G.R. No. L-9262. July 10, 1959. ]

MARINO S. UMALI, Petitioner, v. EFRAIN Y. MICLAT, Respondent.
SYLLABUS
1. CORPORATION; LIABILITY OF PRESIDENT AND MANAGER; CONTRACT IN HIS PERSONAL CAPACITY. If the
President and General Manager of a corporation contracted for work to be done in his personal capacity although he
described himself as such, signing the contract as "party of the second part" without stating that he was acting in
behalf of the corporation, and there is no showing that he entered into such contract in be half of the corporation or
was authorized to do so by its Board of Directors, he is held personally liable for the said transaction.
2. PENALTY; LIABILITY FOR DAMAGES AND INTEREST IN ADDITION TO PENALTY. Under the law, a penalty takes
the place of interests only if there is no stipulation to the contrary, and even then, damages may still be collected if
the obligor refuses to pay the penalty.
This is an action to recover certain sums of money, plus damages and attorneys fees, for some word done by plaintiff
for defendant Marino S. Umali. Defendant Antonio M. Tiongco was included in his capacity as guarantor of Umali but
he was never served with summons. With leave of Court, defendant Umali filed a third a third party complaint against
Maharlika Pictures, Inc., a corporation duly organized under the laws of the Philippines, but because the latter failed to
file its answer, it was declared in default.
Defendant Umali set up the defense that the work done by the plaintiff was not complete or satisfactory; that the
contract upon which the action is based was executed by the Maharlika Pictures, Inc., of which he is the President and
General Manager, and so plaintiffs action should be directed against said corporation.
After trial, the lower court rendered judgment ordering defendant Umali to pay plaintiff the sum of P675.00, plus 1. %
surcharge thereon as stipulated, and the sum of P200.00 as attorneys fees; and with respect to the second claim, to
pay the sum of P344.50. The Court ordered that the sums of P675.00 shall bear 6% interest per annum from the date
of the filing of the complaint until paid. The complaint with respect to defendant Tiongco and the third party complaint
against the corporation were dismissed. Costs were taxed against defendant Umali.
Umali took the case on appeal to the Court of Appeals, and the decision of the lower court was affirmed in toto, with
costs against appellant. Hence the present petition for review.
It appears that in accordance with the contract Exhibit "A" and the Job Order Exhibit "D", appellee prepared posters, a
theater show board display, a theater display standee, a float, and other forms of advertisement for the showing of
the film "LAGRIMAS" ; that for the word specified in Exhibit "A", Umali agreed to pay the sum of P900, of which
appellee was paid P225 in advance; that for the work called for in Exhibit "D", Umali agreed to pay the sum of
P344.50; that the work covered by the contract and job order above mentioned were completely done and the articles
called for therein delivered to Umali; and that notwithstanding several demands made upon Umali, he refused to pay
without justification.
The first defense set up by appellant is that the contracts which appellees action is based were executed by and
between the appellee and the Maharlika Pictures, Inc., of which appellant is the President and General Manager, and
so the action should have been directed against the corporation and not against him in his personal capacity.
Appellant does not dispute the correctness of the amounts claimed in the complaint.

The Court of Appeals, in meeting this contention, made the following observation:

jgc:cha nrob les.co m.ph

"We have gone carefully over the evidence of record, and we have arrive at the conclusion that the decision appealed
from should be affirmed. As the contract (Exhibit A) would show, Umali signed the same in his personal capacity.
While it is mentioned therein that he is the President and General Manager of Maharlika Pictures, Inc., it is no stated
that, as such, he was duly authorized to enter into the contract for and on behalf of the corporation. If it were true
that it was the intention of the contracting parties to hold Maharlika Pictures, Inc. solely and exclusively liable, it was
not explained why Umali allowed Maharlika Pictures, Inc., of which he was still an Officer at the time of tial of this
case, to be declared in default by not filing its answer to the third-party complaint file by him. Neither did Umali
present in evidence any resolution or minutes of meeting of Maharlika Pictures, Inc., which Umali admits is a
corporation duly organized had existing under and by virtue of the laws of the Philippines, or of its Board of Directors,
ratifying the action of Umali and confirming the contract (Exhibit A) as an act of the corporation. As President and
General Manager of the corporation and the party appearing to be solely and personally liable under the contract
(Exhibit A), Umali should have taken steps to enable the Board of Directors of the corporation t adopt a resolution
confirming the execution by him of Exhibit A as an act of the corporation because this was for his own protection."

cralaw virtua1aw l ibra ry

We find the above observation supported by the evidence, Indeed it appears in the contract Exhibit "A" that the one
who contracted for the work to be done is appellant in his personal capacity, although he described himself therein as
President and General Manager of the Maharlika Pictures, Inc. Umali signed the contract as "party of the second part"
without stating that he was acting in behalf of the corporation: And from what may be gathered from the decision
both of the lower court and the Court of Appeals, Umali never explained that when he entered into such a contract he
acted in behalf of the corporation or was authorized to do so by its Board of Directors. It is strange that, after bringing
the corporation into this case as party-defendant, Umali allowed it to be declared in default being its president and
general manager as he claims to be, which gives rise to the suspicion that his claim is merely an attempt to shift to
the corporation the responsibility for the transaction. The same consideration may be made with regard to the job
order Exhibit "D." It is true that on its face it appears that the articles mentioned therein were delivered to the
corporation, but apparently the requisition of said articles was made by appellant himself for which reason he was
made personally responsible by the trial court and the Court of Appeals. This is a question of fact which we cannot
now look into.
The next question refers to the surcharge of 10% which was agreed upon in the contract Exhibit "A." It appears
therein that if appellant should fail to pay the balance of P675 after the lapse of 30 days from the date the exhibition
of the film "LAGRIMAS" has started, he should pay a surcharged is unconscionable and unreasonable, because it is
tantamount to imposing an interest of 10% a month, or 120% a year on the balance of the obligation until the same
is paid in full.
There is merit in this contention. While this surcharge partakes of the nature of a penal clause which the parties may
stipulate under the law, 1 however, one cannot deny that the same is unreasonable, for if that is to be maintained, we
would have that on the basis of P675 which is the balance that remains outstanding, appellant would pay P67.50 a
month, or P810 a year, which considering the time that has already elapsed since appellant defaulted, would amount
to P3,420. This is indeed a case where equity demands that the penalty be reduced in fairness to the debtor. And so,
making use of the discretion that the law grants us on the matter, we are of the opinion that a surcharge of 20% per
annum would be reasonable. We therefore hold that the penalty should be reduced accordingly. 2
The last claim of appellant refers to the portion of the decision which orders the payment of 6% interest per annum
from the date of the filing of the complaint until full payment of the obligation due, which is also considered
unreasonable considering that appellant was already ordered to pay the penalty agreed upon.

This claim is untenable in the light of the law and the contract of the parties. Thus, Article 1226 of the new Civil Code
provides that "in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall
be paid if the obligor refuses to pay the penalty. . . .." In other words, the penalty takes the place of the interests only
if there is no stipulation to the contrary, and even then, damages may still be collected if the obligor refuses to pay
the penalty. In this case not only is there an express stipulation to pay damages in addition to the penalty, but
appellant has failed to pay his obligation as well as the penalty. This appears in paragraph (f) of the contract Exhibit
"A." The imposition of 6% interest per annum is, therefore, justified.
Modified with regard to the amount of the surcharge to be imposed on appellant as above indicated, we hereby affirm
the decision appealed from in all other respects, without pronouncement as to costs.

[G.R. No. 171660 : October 17, 2011]

CONTINENTAL CEMENT CORPORATION, PETITIONER, VS. ASEA BROWN BOVERI, INC.,
"Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages."1
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the Decision3 dated August 25, 2005
and the Resolution4 dated February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 58551.
Factual Antecedents
Sometime in July 1990, petitioner Continental Cement Corporation (CCC),
a corporation engaged in the business of producing cement,5 obtained the services of respondents6 Asea Brown Boveri,
Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor). 7
On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed with
Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint 8 for sum of money and damages, docketed
as Civil Case No. Q-91-10419, against respondent corporations and respondent Tord B. Eriksson (Eriksson), VicePresident of the Service Division of the respondent ABB.9 Petitioner alleged that:
4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants to be repaired under PO
No. 17136-17137, x x x
The defendant, Tord B. Eriksson, was personally directing the repair of the said Kiln Drive Motor. He has direction and
control of the business of the defendant corporations. Apparently, the defendant Asea Brown Boveri, Inc. has no
separate personality because of the 4,000 shares of stock, 3996 shares were subscribed by Honorio Poblador, Jr. The
four other stockholders subscribed for one share of stock each only.
5. After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed for testing on October 3,
1990. On October 4, 1990 the test failed. The plaintiff removed the DC Drive Motor and replaced it with its old
motor. It was only on October 9, 1990 that the plaintiff resumed operation. The plaintiff lost 1,040 MTD per day from
October 5 to October 9, 1990.
6. On November 14, 1990, after the defendants had undertaken the second repair of the motor in question, it was
installed in the kiln. The test failed again. The plaintiff resumed operation with its old motor on November 19,
1990. The plaintiff suffered production losses for five days at the rate of 1,040 MTD daily.
7. The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor. On March 13, 1991, the motor
was installed and tested. Again, the test failed. The plaintiff resumed operation on March 15, 1991. The plaintiff
sustained production losses at the rate of 1,040 MTD for two days.
8. As a consequence of the failure of the defendants to comply with their contractual obligation to repair the 160 KW
Kiln DC Drive Motor, the plaintiff sustained the following losses:
(a) Production and opportunity losses -

P10,600,000.00

This amount represents only about 25% of the production losses at the rate of P72.00 per bag of cement.
(b)

Labor Cost and Rental of Crane

(c)

Penalties (at P987.25 a day) for failure to deliver the motor from Aug. 29, 1990 to July 31, 1991.

(d)

Cost of money interest of the P987.25 a day from July 18, 1990 to April 5, 1991 at 34% for 261 days 24,335.59

Total Damages

26,965.78
331,716.00

10,983,017.42

9. The plaintiff has made several demands on the defendants for the payment of the above-enumerated damages, but
the latter refused to do so without valid justification.
10. The plaintiff was constrained to file this action and has undertaken to pay its counsel Twenty Percentum (20%) of
the amount sought to be recovered as attorney's fees.10
Respondents, however, claimed that under Clause 7 of the General Conditions,11 attached to the letter of offer12 dated
July 4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB "does not extend to consequential
damages either direct or indirect."13 Moreover, as to respondent Eriksson, there is no lawful and tenable reason for
petitioner to sue him in his personal capacity because he did not personally direct the repair of the Kiln Drive Motor.14
Ruling of the Regional Trial Court
On August 30, 1995, the RTC rendered a Decision15 in favor of petitioner. The RTC rejected the defense of limited
liability interposed by respondents since they failed to prove that petitioner received a copy of the General
Conditions.16 Consequently, the RTC granted petitioner's claims for production loss, labor cost and rental of crane, and
attorney's fees.17 Thus:
WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff, judgment is hereby
rendered in favor of plaintiff and against defendants, hereby ordering the latter to pay jointly and severally the
former, the following sums:
P10,600,00.00 for loss of production;
P 26,965.78 labor cost and rental of crane;
P

100,000.00 attorney's fees and cost. SO ORDERED.18

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory clause in the General Conditions
and ruled that there is no implied warranty on repair work; thus, the repairman cannot be made to pay for loss of
production as a result of the unsuccessful repair.19 The fallo of the CA Decision20 reads:
WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the Regional Trial Court of Quezon City,
Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991 Complaint is hereby DISMISSED.
SO ORDERED.21
Petitioner moved for reconsideration22 but the CA denied the same in its Resolution23 dated February 16, 2006.
Issues
Hence, the present recourse where petitioner interposes the following issues:

1. Whether x x x the [CA] gravely erred in applying the terms of the "General Conditions" of Purchase Orders Nos.
17136 and 17137 to exculpate the respondents x x x from liability in this case.
2. Whether x x x the [CA] seriously erred in applying the concepts of 'implied warranty' and 'warranty against hidden
defects' of the New Civil Code in order to exculpate the respondents x x x from its contractual obligation.24
Petitioner's Arguments
Petitioner reiterates that the General Conditions cannot exculpate respondents because petitioner never agreed to be
bound by it nor did petitioner receive a copy of it.25 Petitioner also imputes error on the part of the CA in applying the
concepts of warranty against hidden defects and implied warranty.26 Petitioner contends that these concepts are not
applicable because the instant case does not involve a contract of sale.27 What applies are Articles 1170 and 2201 of
the Civil Code.28
Respondents' Arguments
Conversely, respondents insist that petitioner is bound by the General Conditions.29 By issuing Purchase Order Nos.
17136-37, petitioner in effect accepted the General Conditions appended to respondent ABB's letter of
offer.30 Respondents likewise defend the ruling of the CA that there could be no implied warranty on the repair made
by respondent ABB as the warranty of the fitness of the equipment should be enforced directly against the
manufacturer of the Kiln Drive Motor.31 Respondents also deny liability for damages claiming that they performed their
obligation in good faith.32
Our Ruling
The petition has merit.
Petitioner and respondent ABB entered into a contract for the repair of petitioner's Kiln Drive Motor, evidenced by
Purchase Order Nos. 17136-37,33 with the following terms and conditions:
a)

Total Price: P197,450.00

b)

Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down payment34

c)

Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and Twenty five centavos

(P987.25) per day of delay.

Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to repair the Kiln
Drive Motor; thus, prompting petitioner to sue for damages.
Clause 7 of the General Conditions is not binding on petitioner
Respondents contend that under Clause 7 of the General Conditions their liability "does not extend to consequential
damages either direct or indirect."35 This contention, however, is unavailing because respondents failed to show that
petitioner was duly furnished with a copy of said General Conditions. Hence, it is not binding on petitioner.
Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to Articles
1167, 1170, and 2201 of the Civil Code, which state:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be
decreed that what has been poorly done be undone.
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.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall
be those that are the natural and probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.
Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the execution of
the obligation plus damages. Though entitled, petitioner in this case is not claiming reimbursement for the repair
allegedly done by Newton Contractor,36 but is instead asking for damages for the delay caused by respondent ABB.
Petitioner is entitled to penalties under Purchase Order Nos. 17136-37
As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per day from the
time of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned to petitioner. Records show
that although the testing of Kiln Drive Motor was done on March 13, 1991, the said motor was actually delivered to
petitioner as early as January 7, 1991.37 The installation and testing was done only on March 13, 1991 upon the
request of petitioner because the Kiln was under repair at the time the motor was delivered; hence, the load testing
had to be postponed.38
Under Article 122639 of the Civil Code, the penalty clause takes the place of indemnity for damages and the payment
of interests in case of non-compliance with the obligation, unless there is a stipulation to the contrary. In this case,
since there is no stipulation to the contrary, the penalty in the amount of P987.25 per day of delay covers all other
damages (i.e. production loss, labor cost, and rental of the crane) claimed by petitioner.
Petitioner is not entitled to recover production loss, labor cost and the rental of crane
Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the instant
case,

40

damages and interests may still be recovered on top of the penalty. Damages claimed must be the natural

and probable consequences of the breach, which the parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted.41
Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost and the rental of
the crane.
Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay for labor to
install the motor.42 But except for the Summary of Claims for Damages,43 no other evidence was presented by
petitioner to show that it had indeed rented a crane or that it incurred labor cost to install the motor.
Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive Motor, its production from August
29, 1990 to March 15, 1991 decreased since it had to use its old motor which was not able to produce cement as

much as the one under repair;44 and that every time the said motor was installed and tested, petitioner had to stop its
operations; thereby, incurring more production losses.45 To support its claim, petitioner presented its monthly
production reports46 for the months of April to June 1990 showing that on the average it was able to produce 1040 MT
of cement per day. However, the production reports for the months of August 1990 to March 1991 were not
presented. Without these production reports, it cannot be determined with reasonable certainty whether petitioner
indeed incurred production losses during the said period. It may not be amiss to say that competent proof and a
reasonable degree of certainty are needed to justify a grant of actual or compensatory damages; speculations,
conjectures, assertions or guesswork are not sufficient.47
Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may be recovered
only if such damages were reasonably foreseen or have been brought within the contemplation of the parties as the
probable result of a breach at the time of or prior to contracting.48 Considering the nature of the obligation in the
instant case, respondent ABB, at the time it agreed to repair petitioner's Kiln Drive Motor, could not have reasonably
foreseen that it would be made liable for production loss, labor cost and rental of the crane in case it fails to repair the
motor or incurs delay in delivering the same, especially since the motor under repair was a spare motor. 49
For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental of the crane.
Petitioner is not entitled to attorney's fees
Neither is petitioner entitled to the award of attorney's fees. Jurisprudence requires that the factual basis for the
award of attorney's fees must be set forth in the body of the decision and not in the dispositive portion only. 50 In this
case, no explanation was given by the RTC in awarding attorney's fees in favor of petitioner. In fact, the award of
attorney's fees was mentioned only in the dispositive portion of the decision.
Respondent Eriksson cannot be made jointly and severally liable for the penalties
Respondent Eriksson, however, cannot be made jointly and severally liable for the penalties. There is no showing that
respondent Eriksson directed or participated in the repair of the Kiln Drive Motor or that he is guilty of bad faith or
gross negligence in directing the affairs of respondent ABB. It is a basic principle that a corporation has a personality
separate and distinct from the persons composing or representing it; hence, personal liability attaches only in
exceptional cases, such as when the director, trustee, or officer is guilty of bad faith or gross negligence in directing
the affairs of the corporation.51
In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from August 30, 1990 up to January
7, 1991 (131 days) or a total amount of P129,329.75 for the delay caused by respondent ABB. Finally, we impose
interest at the rate of six percent (6%) on the total amount due from the date of filing of the complaint until finality of
this Decision. However, from the finality of judgment until full payment of the total award, the interest rate of twelve
percent (12%) shall apply.52
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and the Resolution
dated February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are hereby REVERSED and SET ASIDE.
Respondent ABB is ORDERED to pay petitioner the amount of P129,329.75, with interest at 6% per annum to be
computed from the date of the filing of the complaint until finality of this Decision and 12% per annum thereafter until
full payment.

[G.R. No. L-5942. May 14, 1954. ]

REHABILITATION FINANCE CORPORATION, Petitioner, v. THE HONORABLE COURT OF APPEALS
SYLLABUS
1. OBLIGATION AND CONTRACTS; PROMISSORY NOTE PAYABLE IN INSTALLMENTS. Where the makers of the
promissory note promised to pay the obligation evidenced thereby "on or before October 31, 1951," although the full
amount of said obligation was not demandable prior to October 31, 1951, in view of the provision of the note relative
to the payment in ten annual installments, the makers or debtors were entitled to make a complete settlement of the
obligation at any time before said date.
2. ID.; RIGHT OF CREDITOR. The Bank, as creditor, has no other right than to exact payment, after which the
obligation in question, as regards said creditor, and, hence, the latters status and rights as such, become
automatically extinguished.
3. ID.; PAYMENTS MADE BY THIRD PERSONS. Under article 1158 of the Civil Code of Spain, which was in force in
the Philippines when the payments under consideration were made, "payment may be made by any person, whether
he has an interest in the performance of the obligation or not, and whether the payment is known and approved by
the debtor or whether he is unaware of it."

c ralaw vi rtua 1aw lib rary

4. ID.; ID.; PAYMENTS MADE AGAINST WILL OF DEBTOR. The provision that the payor "may only recover from the
debtor insofar as the payment has been beneficial to him," when made against his express will, is a defense that may
be availed of only by the debtor, not by the Bank- creditor, for it affects solely the rights of the former. Besides, in
order that the rights of the payor may be subject to said limitation, the debtor must oppose the payments before or at
the time the same were made, not subsequently thereto.
5. ID.; ID.; EFFECTS OF PAYMENT DETERMINED AT THE TIME IT WAS MADE; RIGHTS ACQUIRED BY PAYOR DEPEND
UPON LAW. The effects of payment must be determined at the time it was made and the rights acquired by the
payor should not be dependent upon, or subject to modification by, subsequent unilateral acts or omissions of the
debtor. The question whether the payments were beneficial or not to the debtor, depends upon the law, not upon his
will.
This is an appeal by certiorari, taken by the Rehabilitation Finance Corporation, hereinafter referred to as the Bank,
from a decision of the Court of Appeals. The pertinent facts are set forth in said decision, from which we quote:
chanrob1e s virtual 1aw l ibra ry

On or before October 31, 1951 for value received, I/we, jointly executed the following promissory note
P13,800.00 Legaspi, Albay, October 31, 1941.
On or before October 31, 1951 for value received, I/we, jointly and severally, promise to pay the AGRICULTURAL
AND INDUSTRIAL BANK, or order, at its office at Manila or Agency at Legaspi, Albay, Philippines, the sum of
THIRTEEN THOUSAND EIGHT HUNDRED PESOS (P13,800.00), Philippine currency, with interest at the rate of six per
annum, (6%) per annum, from the date hereof until paid. Payments of the principal and the corresponding interest
are to be made in ten (10 yrs.) years equal annual installments of P1,874.98 each in accordance with the following
schedule of amortizations:
chan rob1es v irt ual 1aw l ibra ry

"All unpaid installments shall bear interest at the rate of six per centum, (6%) per annum.
(Sgd.) QUINTANA CANO (Sgd.) JESUS DE ANDUIZA Mortgagor Mortgagor.

"Mortgagors Anduiza and Cano failed to pay the yearly amortizations that fell due on October 31, 1942 and 1943. As
plaintiff Estelito Madrid, who was at the outbreak of the last war the manager of the branch office of the National
Abaca and other Fiber Corporation in Sorsogon, and who temporarily lived in the house of Jesus de Anduiza in said
province during the Japanese occupation, learned of the latters failure to pay the aforesaid amortizations due the
creditor Agricultural and Industrial Bank, he went to its central office in Manila in October, 1944, and offered to pay
the indebtedness of Jesus de Anduiza. Accordingly, he paid on October 23, 1944, P7,374.83 for the principal, and
2,625.17 for the interest, or a total of P10,000.00 (Exh.A), thereby leaving a balance of P6,425.17 which was
likewise paid on October 30th of the same year (Exh.B).
"Alleging that defendant Jesus de Anduiza has failed to pay the plaintiff in the amount of P16,425.17 inspite of
demands therefor, and that defendant Agricultural and Industrial Bank (now R.F.C.) refused to cancel the mortgage
executed by said Anduiza, Estelito Madrid instituted the present action on July 3, 1948, in the Court of First Instance
of Manila, praying for judgment (a) declaring as paid the indebtedness amounting to P16,425.17 of Jesus de Anduiza
to the Agricultural and Industrial Bank; (b) ordering the Agricultural and Industrial Bank (now R.F.C.) to release the
properties mortgaged to it and to execute the corresponding cancellation of the mortgage; (c) condemning defendant
Jesus de Anduiza to pay plaintiff the amount of P16,425.17, with legal interest from the filing of the complaint until
completely paid, declaring such obligation a preferred lien over Anduizas properties which plaintiff freed from the
mortgage, and sentencing the defendants to pay the plaintiff the sum of P2,000.00 as damages and the costs, without
prejudice to conceding him other remedies just and equitable.
"On July 14, 1948, defendant Agricultural and Industrial Bank (now R.F.C.) filed its answer, alleging that the loan of
P13,800.00 had not become due and demandable in October, 1944, as the same was payable in ten years at
P1,874.98 annually; that up to October 30, 1944, plaintiff delivered the total sum of P16,425.17 to the Agricultural
Bank which accepted the same as deposit pending proof of the existence of Jesus de Anduizas authority and approval
which plaintiff promised to present; that it was agreed that if plaintiff could not prove said authority the deposit will be
annulled; and that the Agricultural and Industrial Bank and its successor the Rehabilitation Finance Corporation cannot
release the properties mortgaged because defendant Anduiza refused to approve, authorize or recognize said deposit
made by plaintiff. It is further averred, as special defense, that the amount of P16,425.17, in view of the refusal of
defendant Jesus de Anduiza approve and authorize same for payment of his loan, was declared null and void by
Executive Order No. 49 of June 6, 1945; that on June 4, 1948, defendant Anduiza personally came to the office of the
Rehabilitation Finance Corporation, apprising it that he did not authorize the plaintiff to pay for his loan with the
Agricultural and Industrial Bank; and that on June 4, 1948, he paid the sum of P2,000.00 on account of his loan and
interest in arrears. Defendant Agricultural and Industrial Bank (now R.F.C.) therefore prayed (1) to dismiss the
complaint and to declare plaintiffs deposit in the sum of P16,425.17 null and void in accordance with the provisions of
Executive Order No. 49, series of 1945; (2) to concede to defendant Agricultural and Industrial Bank such other legal
remedies which may be justified in the premises; and (3) to order plaintiff to pay the costs.
"Defendant Jesus de Anduiza filed his answer on August 9, 1948, with special defenses and counterclaim, alleging that
when plaintiff paid the total amount of P16,425.17 to the Agricultural and Industrial Bank his indebtedness thereto
was not yet due and demandable; that the payment was made without his knowledge and consent; that the
Agricultural and Industrial Bank did not accept the amount of P16,425.17 from Estelito Madrid as payment of his loan
but as mere deposit to be applied later as payment in the event he would approve the same; that said deposit was
declared null and void by Executive Order No. 49 of June 6, 1945; that on June 4, 1948, he personally informed the
officials of the Rehabilitation Finance Corporation that he did not authorize the plaintiff to pay the Agricultural and
Industrial Bank for his loan; and that on the same date he paid the corporation the sum of P2,000.00 of account of his
loan and the interest in arrears.

"On June 20, 1949, the trial court rendered in favor of the plaintiff a judgment which was set aside later on upon
motion of counsel for the Rehabilitation Finance Corporation on June 28th, in which it was alleged that his failure to
appear at the hearing on June 9, 1949, was due to a misunderstanding. Consequently, and after defendant
corporation had introduced its evidence, the court on August 11, 1949, rendered decision dismissing plaintiffs
complaint without pronouncement as to costs.
"On or about September 7, 1949, defendant Jesus de Anduiza filed an amended answer which the trial court, upon
considering the same as well as his co-defendants opposition thereto, denied it admission on September 20, 1949.
The motion for new trial filed by defendant Anduiza and plaintiff Estelito Madrid was likewise denied for lack of merit
on the same date, September 20th. Consequently, plaintiff Estelito Madrid and defendant Jesus de Anduiza brought
this case to this Court by way of appeal, . . ." Pp. 1-6, Decision, C.A.)
Upon the foregoing facts, the Court of Appeals rendered the aforementioned decision, the dispositive part of which
reads as follows:

jgc:chanrob les.co m.ph

"Wherefore, the judgment appealed from is hereby reversed, directing the Rehabilitation Finance Corporation,
successor in interest of the Agricultural and Industrial Bank, to cancel the mortgage executed by Jesus de Anduiza and
Quintana Cano in favor of said bank; and ordering Jesus de Anduiza to pay plaintiff Estelito Madrid the amount of
P16,425.17, without pronouncement as to costs." (Pp. 17-18, idem.)
The Bank assails said decision of the Court of Appeals upon the ground that payments by respondent Estelito Madrid
had been made against the express will of Anduiza and over the objection of the Bank; that the latter accepted said
payments, subject to the condition that a written instrument, signed by Anduiza, authorizing the same, would be
submitted by Madrid, who has not done so; that the payments in question were made by Madrid in the name of
Anduiza and, therefore, through misrepresentation and without good faith; that said payments were not beneficial to
Anduiza; and that the obligation in question was not fully due and demandable at the time of the payments
aforementioned.
At the outset, it should be noted that the makers of the promissory note quoted above promised to pay the obligation
evidenced thereby "on or before October 31, 1951." Although the full amount of said obligation was not demandable
prior to October 31, 1951, in view of the provision of the note relative to the payment in ten (10) annual installments,
it is clear, therefore, that the makers of debtors were entitled to make a complete settlement of the obligation at any
time before said date.
With reference to the other arguments of petitioner herein, Article 1158 of the Civil Code of Spain, which was in force
in the Philippines at the time of the payments under consideration and of the institution of the present case (July 3,
1948,) reads:

jgc:chanroble s.com.p h

"Payment may be made by any person, whether he has an interest in the performance of the obligation or not, and
whether the payment is known and approved by the debtor or whether he is unaware of it.
"One who makes a payment for the account of another may recover from the debtor the amount of the payment,
unless it was made against his express will.
"In the latter case he can recover from the debtor only in so far as the payment has been beneficial to him."

cra law virt ua1aw li bra ry

It is clear therefrom that respondent Madrid was entitled to pay the obligation of Anduiza irrespective of the latters

will or that of the Bank, and even over the objection of either or both.
It may not be amiss to add that, contrary to petitioners pretense, the payments in question were not made against
the objection either of Anduiza of of the Bank. And although, later on, the former questioned the validity of the
payments, subsequently, he impliedly, but clearly, acquiesced therein, for he joined Madrid in his appeal from the
decision of the Court of First Instance of Manila, referred to above. Similarly, the receipts issued by the Bank
acknowledging said payments without qualification, belie its alleged objection thereto. The Bank merely demanded a
signed statement of Anduiza sanctioning said payments, as a condition precedent, not to its acceptance, which had
already been made, but to the execution of the deed of cancellation of the mortgage constituted in favor of said
institution.
Needless to say, this condition was null and void, for, as pointed out above, the Bank, as creditor, had no other right
than to exact payment, after which the obligation in question, as regards said creditor, and, hence, the latters status
and rights as such, become automatically extinguished.
Two other consequences flow from the foregoing, namely:

chanrob 1es vi rtua l 1aw lib rary

(1) The good or bad faith of the payor is immaterial to the issue before us. Besides, the exercise of a right, vested by
law without any qualification, can hardly be legally considered as tainted with bad faith. Again, according to Sanchez
Roman "para que el pago hecho por el tercero extinga la obligaci on, es preciso que se realice a nombre de deudor."
(4 Sanchez Roman, 260.) Accordingly, the circumstance that payment by Madrid had been effected in the name of
Anduiza, upon which the Bank relies in support of its aforesaid allegation of bad faith, does not prove the existence of
the latter.
(2) The Bank can not invoke the provision that the payor "may only recover from the debtor insolar as the payment
has been beneficial to him," when maid against his express will. This is a defense that may be availed of by the
doctor, not by the Bank, for it affects solely the rights of the former. At any rate, in order that the rights of the payor
may be subject to said limitation, the debtor must oppose the payments before or at the time the same were made,
not subsequently thereto.
Indeed, it is only fair that the effects of said payments be determined at the time it was made, and that the rights
then acquired by the payor be not dependent upon, or subject to modification by, subsequent unilateral acts or
omissions of the debtor. At any rate, the theory that Anduiza had not been benefited by the payments in question is
predicated solely upon his original refusal to acknowledge the validity of said payments. Obviously, however, the
question whether the same were beneficial or not to Anduiza, depends upon the law, not upon his will. Moreover, his
former animosity towards Madrid sufficed to negate the beneficial effects of the payment under consideration, the
subsequent change of front of Anduiza, would constitute an admission and proof of said beneficial effects.
Being in conformity with law, the decision appealed from is hereby affirmed, therefore, in toto.