Case Digests

Case Digests on Contracts

Case: George Batchelder vs. Central Bank of the Philippines, March 29, 1972, J. Fernando.Facts: George Batchelder, who is an American citizen but permanently residing in the Philippines, is engaged in the construction business. Batchelder, in compliance with Monetary Board Resolution No. 857 (Filipino and resident American contractors undertaking construction projects in US military bases in the Philippines shall be authorized to utilize 90% of the proceeds of their contracts for the purchase of construction equipment, and etc.) and Monetary Board Resolution No. 695 (Agent bank should, upon compliance with its terms, credit the contractors accounts in pesos, the buying rate being governed by the appropriate rules and regulations.), surrendered to the Central Bank through the latters authorized agents, his dollar earnings and applied with the latter for license to utilize 90% of his surrendered earnings. However, the Central Bank never heeded to the plaintiffs application arguing that the Monetary Board Resolutions relied upon simply laid down policy without in any way giving rise to a valid and binding agreement to which the law should give effect. The trial court found for Batchelder. On appeal, Central Bank interposed an issue that there was no such contractual obligation between the parties which will hold Central Bank liable therefore. Issue: Whether there exist a contract between Central Bank and Batchelder, a dollar earner by virtue of the Monetary Board Resolutions of the former.Held: NO. What was done by the Central Bank was merely to issue in pursuance of its rule-making power the resolutions. There is no question that the Central Bank as a public corporation could enter into contracts. It is so provided for among the corporate powers vested in it. Thus: "The Central Bank is hereby authorized to adopt, alter, and use a corporate seal which shall be judicially noticed; to make contracts; to lease or own real personal property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise to do and perform any and all things that may be necessary or proper to carry out the purposes of this Act." No doubt would have arisen therefore if defendant Central Bank, utilizing a power expressly granted, did enter into a contract with plaintiff. It could have done so, but it did not do so. Nor is this to deal unjustly with plaintiff. Defendant Central Bank in its motion to dismiss before the lower court was quite explicit as to why under the circumstances, no right could be recognized as possessed by him. As set forth in such pleading: "We contend that Monetary Board Resolution No. 857, dated June 17, 1960, as amended by Monetary Board Resolution No. 695, dated April 28, 1961, does not give right to Filipino and resident American contractors undertaking construction projects in U.S. military bases to reacquire at the preferred rate ninety per cent (90%) of the foreign exchange sold or surrendered to defendant Central Bank thru the authorized agent banks. Nor does said resolution serve as a general authorization or license granted by the Central Bank to utilize the ninety per cent (90%) of their dollar earnings. M.B. Resolution No. 857, as amended, merely laid down a general policy on the utilization of the dollar earnings of Filipino and resident American contractors undertaking projects in U.S. military bases, ... ." Further, there is this equally relevant portion in such motion to dismiss: "It is clear from the aforecited provisions of said memorandum that not all imports against proceeds of contracts entered into prior to April 25, 1960 are entitled to the preferred buying rate of exchange. Only imports against proceeds of contracts entered into prior to April 25, 1960, not otherwise classified as dollar-to-dollar transactions, are entitled to the preferred rate of exchange. It is for this reason that the contractor is required to first file an application with defendant Central Bank (Import Department) thru the Authorized Agent Banks, for the purpose of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as dollar-to-dollar transactions (which are not entitled to the preferred rate of exchange), or not (which are entitled to the preferred rate of exchange), and that if said imports are entitled to the preferred rate of exchange, defendant Central Bank would issue a license to the contractor for authority to buy foreign exchange at the preferred rate for the payment of said imports." Had there been greater care therefore on the part of the plaintiff to show why in his opinion he could assert a right in accordance not with a contract binding on the Central Bank, because there is none, but by virtue of compliance with rules and regulations of an administrative tribunal, then perhaps a different outcome would have been justified.The decision of the trial court is dismissed without prejudice.

Case: Republic of the Philippines vs. PLDT, January 27, 1969, J.B.L. Reyes.Facts: PLDT first entered into an agreement whereby telephone messages, coming from the US and received by RCAs domestic station could automatically be transferred to the lines of PLDT and vice versa. Soon after, the Bureau of Telecommunications set up its own Government Telephone System by utilizing its own appropriation and equipment and by renting trunk lines of the PLDT to enable government offices to call private parties. Later on, the Bureau entered into an agreement with RCA Communications, Inc. for a joint overseas telephone service whereby the Bureau would convey radio-telephone overseas calls received by RCAs station to and from local residents. PLDT complained into such agreement. With much demands for telephone servicing, neither the Bureau and PLDT filled those demands. Hence, the Bureau had proposed to the PLDT that both enter into an interconnecting agreement. The PLDT replied positively with condition that the Bureau would submit to the jurisdiction of Public Service Commission and in consideration of 37 % of the gross revenues. However, the Bureau disagreeable, commenced a suit against PLDT praying for judgment commanding PLDT to execute a contract with it. Trial court ruled for PLDT stating that the Bureau could not compel PLDT to enter into an agreement with it because both parties were not in agreement. Issue: Whether or not neither the court nor even the Republic through the Bureau of Telecommunications can compel PLDT to enter into a contract with the latter.Held: NO. Parties can not be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence, intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). But the court a quo has apparently overlooked that while the Republic may not compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit interconnection of the government telephone system and that of the PLDT, as the needs of the government service may require, subject to the payment of just compensation to be determined by the court.

Case: R. Marino Corpus vs. CA and Juan David, June 30, 1980, J. Makasiar.Facts: Corpus and Atty. Juan David are intimately related to each other, being close friends. In fact, Corpus was called by Atty. David as Marino and latter to former as Juaning. Corpus was once charged with an administrative case by several employees of Central Bank Export Department of which he is the Director. By reason thereto, he was suspended and considered resigned. Thru Atty. Alvarez, he filed Petition before CFI of Manila under Judge Lantin which was dismissed for lack of exhaustion of administrative remedies. Hence, Atty. David was retained as counsel by Marino Corpus in a case dismissed by Judge Lantin. Before the SC, David was able to win the case. With that, Corpus wrote a letter to David and gave the latter a check worth P2,000. But David replied and gave the check back to Corpus, writing, When I decided to render professional services in your case, I was motivated by the value to me of the very intimate relations which you and I have enjoyed xxx and was not primarily for professional fee xxx. When you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. Corpus was able to get a favorable judgment ordering his reinstatement and payment of back salaries and allowances. Marino Corpus contends that respondent David is not entitled to attorney's fees because there was no contract to that effect. On the other hand, respondent David contends that the absence of a formal contract for the payment of the attorney's fees will not negate the payment thereof because the contract may be express or implied, and there was an implied understanding between the petitioner and private respondent that the former will pay the latter attorney's fees when a final decision shall have been rendered in favor of the petitioner reinstating him to -his former position in the Central Bank and paying his back salaries. Issue: Whether or not there has been a contract between Corpus and Atty. David for the payment of the latters attorneys fees.Held: YES. While there was express agreement between petitioner Corpus and respondent David as regards attorney's fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney's fees. Petitioner's act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David indicates petitioner's commitment to pay the former attorney's fees, which is stressed by expressing that "I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries This last sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries. Petitioner ended his letter that he was "looking forward to a continuation of the case in the lower court, ... to which the certiorari-mandamus-quo warranto case was remanded by the Supreme Court for further proceedings. Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the innominate contract of facio ut des (I do and you give which is based on the principle that "no one shall unjustly enrich himself at the expense of another." innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people. The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of plaintiff Perez for payment of services rendered against defendant Pomar despite the absence of an express contract to that effect, thus: It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into but whether the plaintiffs services were solicitedorwhethertheywereoffered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make compensation therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on the other to pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). x x x x x x x x x ... Whether the service was solicited or offered, the fact remains that Perez rendered to Pomar services as interpreter. As it does not appear that he did this gratuitously, the duty is imposed upon the defendant, he having accepted the benefit of the service, to pay a just compensation therefor, by virtue of the innominate contract of facio ut des implicitly established. x x x x x x x x x ... because it is a well-known principle of law that no one should permitted to enrich himself to the damage of another" (emphasis supplied; see also Tolentino, Civil Code of the Philippines, p. 388, Vol. IV 119621, citing Estate of Reguera vs. Tandra 81 Phil. 404 [1948]; Arroyo vs. Azur 76 Phil. 493119461; and Perez vs. Pomar. 2 Phil. 682 [1903]). WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus: Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefor because 'it is a well-known principle of law, that no one should be permitted to enrich himself to the damage of another (emphasis supplied).

Case: Daisy Tiu vs. Platinum Plans Phil., Inc., February 28, 2007, J. Quisumbing.Facts: Daisy Tiu was an employee of Platinum Plans whose business is pre-need industry. She was the Division Marketing Director from 1987-1989, and later re-hired as Senior Assistant Vice-President and Territorial Operations Head in charge of its Hongkong and ASEAN operations, with respect to the latter under a contract of employment for 5 years. However, stopped reporting to work and eventually became employed with Professional Pension Plans which is also a pre-need industry, being its Vice-President for Sales. Hence, Platinum sued Tiu for damages alleging that the latter violated the non-involvement clause in her contract of employment which provides that, 8. NON INVOLVEMENT PROVISION The EMPLOYEE further undertakes that during his/her engagement with EMPLOYER and in case of separation from the Company, whether voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter, engage in or be involved with any corporation, association or entity, whether directly or indirectly, engaged in the same business or belonging to the same pre-need industry as the EMPLOYER. However, Tiu countered that the non-involvement clause is unenforceable for being against public policy. The trial court sustained the validity of the non-involvement clause, stating that a contract in restraint of trade is valid provided there is a limitation upon either time or place. CA affirmed the trial courts decision. Issue: Whether the non-involvement clause in this case is valid.Held: YES. A non-involvement clause is not necessarily void for being in restraint of trade as long as there are reasonable limitations as to time, trade, and place.In this case, the non-involvement clause has a time limit: two years from the time petitioners employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business akin to respondents. More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of respondents Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing strategies of respondents business. To allow her to engage in a rival business soon after she leaves would make respondents trade secrets vulnerable especially in a highly competitive marketing environment. In sum, we find the non-involvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to respondent. In any event, Article 1306 of the Civil Code provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Article 1159 of the same Code also provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto. Not being contrary to public policy, the non-involvement clause, which petitioner and respondent freely agreed upon, has the force of law between them, and thus, should be complied with in good faith

Case: Emeterio Cui vs. Arellano University, May 30, 1961, J. Concepcion.Facts: Emeterio Cui was enrolled in the College of Law in Arellano University and finished his law studies up to and including the first semester of fourth year, during which period, his uncle, Francisco Capistrano, the brother of Cuis mother, was the dean and legal counsel of such University. Cui enrolled for the last semester of his law studies in Arellano but failed to pay his tuition fees because his uncle Dean Capistrano has severed his connection to such school for having accepted the deanship and chancellorship of the College of Law of Abad Santos University. Cui also transferred to such latter law school and graduated to such school. It will be noted that during those years of stay at Arellano, Cui was awarded scholarship grants for scholastic merits so that his semestral tuition fees were returned to him after the ends of semester and where his scholarship was granted to him. When Cui applied to take for the Bar Examination, he needed transcripts of his records in Arellano but the latter denied until the former will pay back the amount refunded to the former by Arellano citing this pertinent provision in a contract which Cui signed every after grant of scholarship, "In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to another school without having refunded to the University (defendant) the equivalent of my scholarship cash. Cui raised his defense into this Memorandum issued by the Director of Private Schools, as follow: 2. When students are given full or partial scholarships, it is understood that such scholarships are merited and earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently charged to the recipient students when they decide to quit school or to transfer to another institution. Scholarships should not be offered merely to attract and keep students in a school.3. Several complaints have actually been received from students who have enjoyed scholarships, full or partial, to the effect that they could not transfer to other schools since their credentials would not be released unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such transfer.Issue: Whether the provision in the Contract between Cui and Arellano University whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his scholarship in cash is valid.Held: NO. The stipulation whereby student cannot transfer to another school without refunding scholarship cash is null and void. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige. In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution. Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.) In this case, scholarship award is a business scheme designed to increase the business potential of an educational institution with respect to Arellanos case.

Case: Ramon Saura vs. Estela Sindico, March 23, 1960, J.B.L. Reyes.Facts: Ramon E. Saura and Estela P. Sindico were contesting for nomination as the official candidate of the Nacionalista Party in the fourth district of Pangasinan in the congressional elections of November 12, 1957. On August 23, 1957, the parties entered into a written agreement bearing the same date, containing among other matters stated therein, a pledge that Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us shall either run as a rebel or independent candidate after losing in said convention.In the provincial convention held by the Nacionalista Party on August 31, 1957, Saura was elected and proclaimed the Party's official congressional candidate for the aforesaid district of Pangasinan. Nonetheless, Sindico, in disregard of the covenant, filed, on September 6, 1957, her certificate of candidacy for the same office with the Commission on Elections, and she openly and actively campaigned for her election. Wherefore, on October 5, 1957, plaintiff Saura commenced this suit for the recovery of damages. Upon motion of the defendant, the lower court, in its order of November 19, 1957, dismissed the complaint on the basis that the agreement sued upon is null and void, in tat (1) the subject matter of the contract, being a public office, is not within the commerce of man; and (2) the "pledge" was in curtailment of the free exercise of elective franchise and therefore against public policy. Hence, this appeal. Issue: Whether or not the agreement between Saura and Sindico is valid.Held: NO. We agree with the lower court in adjudging the contract or agreement in question a nullity. Among those that may not be the subject matter (object) of contracts are certain rights of individuals, which the law and public policy have deemed wise to exclude from the commerce of man. Among them are the political rights conferred upon citizens, including, but not limited to, once's right to vote, the right to present one's candidacy to the people and to be voted to public office, provided, however, that all the qualifications prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed with impunity, for they are conferred not for individual or private benefit or advantage but for the public good and interest. Constitutional and statutory provision fix the qualifications of persons who may be eligible for certain elective public offices. Said requirements may neither be enlarged nor reduced by mere agreements between private parties. A voter possessing all the qualifications required to fill an office may, by himself or through a political party or group, present his candidacy without further limitations than those provided by law.

Case: Leal vs. IAC and Vicente Santiago (Substituted by Salud Santiago), November 5, 1987, J. Sarmiento.Facts: On March 21, 1941, a document entirely in Spanish language entitled as Compraventa was executed by Vicente Santiago and his brother Luis Santiago in favor of Cirilo Leal (the deceased father of herein petitioners), involving the three parcels of land, as per paragraph (b) thereof states in translation as, "they shall not sell to others these three lots but only to the seller Vicente Santiago or to his heirs or successors". However, pursuant to the Compraventa, the title over those three parcels of land was cancelled and a new one was issued in the name of Cirilo Leal who immediately took possession and exercised possession and ownership over those lands which was inherited by herein petitioners after Cirilos death. These parcels of land were either mortgaged or leased by petitioner-children of Cirilo to their co-petitioners. However, Vicente Santiago approached the petitioners and offered re-purchase of subject properties in pursuant to the Compraventa. Trial court dismissed the complaint for being premature. Court of Appeals under Justice Paras affirmed the trial courts decision.Issue: Whether or not the prohibition to sell to third parties pursuant to the Compraventa is valid.Held: NO. Contracts are generally binding between the parties, their assigns and heirs; however, under Art. 1255 of the Civil Code of Spain, which is applicable in this instance, pacts, clauses, and conditions which are contrary to public order are null and void, thus, without any binding effect. Parenthetically, the equivalent provision in the Civil Code of the Philippines is that of Art. 1306, which states: "That contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Public order signifies the public weal public policy. 5 Essentially, therefore, public order and public policy mean one and the same thing. Public policy is simply the English equivalent of "order publico" in Art. 1255 of the Civil Code of Spain. 6 One such condition which is contrary to public policy is the present prohibition to self to third parties, because the same virtually amounts to a perpetual restriction to the right of ownership, specifically the owner's right to freely dispose of his properties. This, we hold that any such prohibition, indefinite and stated as to time, so much so that it shall continue to be applicable even beyond the lifetime of the original parties to the contract, is, without doubt, a nullity. In the light of this pronouncement, we grant the petitioners' prayer for the cancellation of the annotations of this prohibition at the back of their Transfer Certificates 'Title.In the case before us, we cannot and any express or implied grant of a right to repurchase, nor can we infer, from any word or words in the questioned paragraph, the existence of any such right. The interpretation in the resolution (Justice Sison) is rather strained. The phrase "in case case" of should be construed to mean "should the buyers wish to sell which is the plain and simple import of the words, and not "the buyers should sell," which is clearly a contorted construction of the same phrase. The resort to Article 1373 of the Civil Code of the Philippines is erroneous. The subject phrase is patent and unambiguous, hence, it must not be given another interpretation But even assuming that such a right of repurchase is granted under the "Compraventa," the petitioner correctly asserts that the same has already prescribed. Under Art. 1508 of the Civil Code of Spain (Art,. 1606 of the Civil Code of the Philippines), the right to redeem or repurchase, in the absence of an express agreement as to time, shall last four years from the date of the contract. In this case then, the right to repurchase, if it was at four guaranteed under in the "Compraventa," should have been exercise within four years from March 21, 1941 (indubitably the date of execution of the contract), or at the latest in 1945. In the respondent court's resolution, it is further ruled that the right to repurchase was given birth by the condition precedent provided for in the phrase "siempre y cuando estos ultimos pueden hacer la compra" (when the buyer has money to buy). In other words, it is the respondent court's contention that the right may be exercised only when the buyer has money to buy. If this were so, the second paragraph of Article 1508 would apply there is agreement as to the time, although it is indefinite, therefore, the right should be exercised within ten years, because the law does not favor suspended ownership. Since the alleged right to repurchase was attempted to be exercised by Vicente Santiago only in 1966, or 25 years from the date of the contract, the said right has undoubtedly expired. The law provides that for conventional redemption to take place, the vendor should reserve, in no uncertain terms, the right to repurchase the thing sold. Thus, the right to redeem must be expressly stipulated in the contract of sale in order that it may have legal existence.

Case: Banco Filipino Savings and Mortgage Bank vs. Hon. Navarro and Florante Del Valle, July 28, 1987, J. Melencio-Herrera.Facts: On May 20, 1975, respondent Florante del Valle (the BORROWER) obtained a loan secured by a real estate mortgage (the LOAN, for short) from petitioner BANCO FILIPINO1 in the sum of Forty-one Thousand Three Hundred (P41,300.00) Pesos, payable and to be amortized within fifteen (15) years at twelve (12%) per cent interest annually. Hence, the LOAN still had more than 730 days to run by January 2, 1976, the date when CIRCULAR No. 494 was issued by the Central Bank.Stamped on the promissory note evidencing the loan is an Escalation Clause, reading as follows:I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan.The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued on January 2, 1976, the pertinent portion of which reads:3. The maximum rate of interest, including commissions, premiums, fees and other charges on loans with maturity of more than seven hundred thirty (730) days, by banking institutions, including thrift banks and rural banks, or by financial intermediaries authorized to engage in quasi-banking functions shall be nineteen percent (19%) per annum.x x x x x x x x x7. Except as provided in this Circular and Circular No. 493, loans or renewals thereof shall continue to be governed by the Usury Law, as amended."On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from 12% to 17% per annum effective on March 1, 1976.Contending that CIRCULAR No. 494 is not the law contemplated in the Escalation Clause of the promissory note, the BORROWER filed suit against BANCO FILIPINO for "Declaratory Relief" with respondent Court, praying that the Escalation Clause be declared null and void and that BANCO FILIPINO be ordered to desist from enforcing the increased rate of interest on the BORROWER's real estate loan.For its part, BANCO FILIPINO maintained that the Escalation Clause signed by the BORROWER authorized it to increase the interest rate once a law was passed increasing the rate of interest and that its authority to increase was provided for by CIRCULAR No. 494.In its judgment, respondent Court nullified the Escalation Clause and ordered BANCO FILIPINO to desist from enforcing the increased rate of interest on the BORROWER's loan.* On February 24, 1983, the parties represented by their respective counsel, not only moved to withdraw the appeal on the ground that it had become moot and academic "because of recent developments in the rules and regulations of the Central Bank," but also prayed that "the decision rendered in the Court of First Instance be therefore vacated and declared of no force and effect as if the case was never filed," since the parties would like to end this matter once and for all."However, "considering the subject matter of the controversy in which many persons similarly situated are interested and because of the need for a definite ruling on the question," the Court, in its Resolution of February 24, 1983, impleaded the Central Bank and required it to submit its Comment, and encouraged homeowners similarly situated as the BORROWER to intervene in the proceedings.Issue: Whether or not Banco Filipino can increase the interest rate on the loan from 12% to 19% per annum under the Escalation clause.Held: NO. It is clear from the stipulation between the parties that the interest rate may be increased "in the event a law should be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan." " The Escalation Clause was dependent on an increase of rate made by "law" alone.CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is not strictly a statute or a law, it has, however, the force and effect of law."6 (Italics supplied). "An administrative regulation adopted pursuant to law has the force and effect of law."7 "That administrative rules and regulations have the force of law can no longer be questioned. "8The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the letter to the BORROWER of Ms. Paderes of September 24, 1976 (supra). According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law."It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board."

Case: Spouses Mariano and Gilda Florendo vs. CA and Land Bank of the Philippines, December 17, 1996, J. Panganiban.Facts: Gilda Florendo (was) an employee of (Respondent Bank) from May 17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her resignation, she applied for a housing loan of P148,000.00, payable within 25 years from (respondent bank's) Provident Fund on July 20, 1983. Florendo and Land Bank entered into a Housing Loan Agreement which the former executed a Real Estate Mortgage and Promissory Note. Land Bank increased the interest rate from 9% to 17% per annum pursuant to ManCom Resolution No. 85-08 and Provident Fund Memorandum Circular proving that, ManCom (Management Committee) Resolution No. 85-08, together with PF (Provident Fund) Memorandum Circular No. 85-08, which escalated the interest rates on outstanding housing loans of bank employees who voluntarily "secede" (resign) from the Bank; the range of rates varied depending upon the number of years service rendered by the employees concerned. The rates were made applicable to those who had previously resigned from the bank as well as those who would be resigning in the future. And the same increase being stated in the real estate mortgage as follows, The rate of interest charged on the obligation secured by this mortgage. . ., shall be subject, during the life of this contract, to such an increase/decrease in accordance with prevailing rules, regulations and circulars of the Central Bank of the Philippines as the Provident Fund Board of Trustees of the Mortgagee may prescribe for its debtors and subject to the condition that the increase/decrease shall only take effect on the date of effectivity of said increase/decrease and shall only apply to the remaining balance of the loan.Florendo protested such increase. The trial court ruled in favor of the bank. However, Florendo argued that, the increased rate of interest is onerous and was imposed unilaterally, without the consent of the borrower-spouses. And that there is in fact no Central Bank rule, regulation or other issuance which would have triggered an application of the escalation clause as to her factual situation.Issue: Whether or not the bank has valid and legal basis to impose an increased interest rate on the petitioners housing loan.Held: NO. In the case at bar, the loan was perfected on July 20, 1983. PD No. 116 became effective on January 29, 1973. CB Circular No. 416 was issued on July 29, 1974. CB Circ. 504 was issued February 6, 1976. CB Circ. 706 was issued December 1, 1979. CB Circ. 905, lifting any interest rate ceiling prescribed under or pursuant to the Usury Law, as amended, was promulgated in 1982. These and other relevant CB issuances had already come into existence prior to the perfection of the housing loan agreement and mortgage contract, and thus it may be said that these regulations had been taken into consideration by the contracting parties when they first entered into their loan contract. In light of the CB issuances in force at that time, respondent bank was fully aware that it could have imposed an interest rate higher than 9% per annum rate for the housing loans of its employees, but it did not. In the subject loan, the respondent bank knowingly agreed that the interest rate on petitioners' loan shall remain at 9% p.a. unless a CB issuance is passed authorizing an increase (or decrease) in the rate on such employee loans and the Provident Fund Board of Trustees acts accordingly. Thus, as far as the parties were concerned, all other onerous factors, such as employee resignations, which could have been used to trigger an application of the escalation clause were considered barred or waived. If the intention were otherwise, they especially respondent bank should have included such factors in their loan agreement.ManCom Resolution No. 85-08, which is neither a rule nor a resolution of the Monetary Board, cannot be used as basis for the escalation in lieu of CB issuances, since paragraph (f) of the mortgage contract very categorically specifies that any interest rate increase be in accordance with "prevailing rules, regulations and circulars of the Central Bank . . . as the Provident Fund Board . . . may prescribe." The Banco Filipino and PNB doctrines are applicable four-square in this case. As a matter of fact, the said escalation clause further provides that the increased interest rate "shall only take effect on the date of effectivity of (the) increase/decrease" authorized by the CB rule, regulation or circular. Without such CB issuance, any proposed increased rate will never become effective.We have already mentioned (and now reiterate our holding in severalcases 15) that by virtue of CB Circular 905, the Usury Law has been rendered ineffective. Thus, petitioners' contention that the escalation clause is violative of the said law is bereft of any merit.On the other hand, it will not be amiss to point out that the unilateral determination and imposition of increased interest rates by the herein respondent bank is obviously violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. As this Court held in PNB: 16In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.The respondent bank tried to sidestep this difficulty by averring that petitioner Gilda Florendo as a former bank employee was very knowledgeable concerning respondent bank's lending rates and procedures, and therefore, petitioners were "on an equal footing" with respondent bank as far as the subject loan contract was concerned. That may have been true insofar as entering into the original loan agreement and mortgage contract was concerned. However, that does not hold true when it comes to the determination and imposition of escalated rates of interest as unilaterally provided in the ManCom Resolution, where she had no voice at all in its preparation and application.To allay fears that respondent bank will inordinately be prejudiced by being stuck with this "sweetheart loan" at patently concessionary interest rates, which according to respondent bank is the "sweetest deal" anyone could obtain and is an act of generosity considering that in 1985 lending rates in the banking industry were peaking well over 30% p.a., 17 we need only point out that the bank had the option to impose in its loan contracts the condition that resignation of an employee-borrower would be a ground for escalation. The fact is it did not. Hence, it must live with such omission.

Case: Aniceto Saludo Jr. vs. Security Bank Corporation, October 13, 2010, J. Perez.Facts: On 30 May 1996, Booklight was extended an omnibus line credit facility3 by SBC in the amount of P10,000,000.00. Said loan was covered by a Credit Agreement4 and a Continuing Suretyship5 with petitioner as surety, both documents dated 1 August 1996, to secure full payment and performance of the obligations arising from the credit accommodation.Booklight drew several availments of the approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On 30 October 1997, SBC approved the renewal of credit facility of Booklight in the amount of P10,000,000.00 under the prevailing security lending rate.6 From August 3 to 14, 1998, Booklight executed nine (9) promissory notes7 in favor of SBC in the aggregate amount of P9,652,725.00. For failure to settle the loans upon maturity, demands8 were made on Booklight and petitioner for the payment of the obligation but the duo failed to pay. As of 15 May 2000, the obligation of Booklight stood at P10,487,875.41, inclusive of interest past due and penalty.9On 16 June 2000, SBC filed against Booklight and herein petitioner an action for collection of sum of money with the RTC. RTC ruled that Saludo is jointly and severally liable with Booklight. CA affirmed in toto. Saludo argued that the Continuing Suretyship is a contract of adhesion and that its participation thereto is only his signing the same. Issue: Whether or not a lawyer can be excused from liability by arguing that the contract is one of a contract of adhesion.Held: NO. The lameness of petitioners stand is pointed up by his attempt to escape from liability by labelling the Continuing Suretyship as a contract of adhesion. A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his adhesion thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. A contract of adhesion presupposes that the party adhering to the contract is a weaker party. That cannot be said of petitioner. He is a lawyer. He is deemed knowledgeable of the legal implications of the contract that he is signing. It must be borne in mind, however, that contracts of adhesion are not invalid per se. Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his consent.

Case: Metropolitan Bank and Trust Company vs. Rogelio Reynado and Jose Adrandea, August 9, 2010, J. Del Castillo.Facts: On January 31, 1997, petitioner Metropolitan Bank and Trust Company charged respondents before the Office of the City Prosecutor of Manila with the crime of estafa under Article 315, paragraph 1(b) of the Revised Penal Code. In the affidavit of petitioners audit officer, Antonio Ivan S. Aguirre, it was alleged that the special audit conducted on the cash and lending operations of its Port Area branch uncovered anomalous/fraudulent transactions perpetrated by respondents in connivance with client Universal Converter Philippines, Inc. (Universal). In their defense, respondents denied responsibility in the anomalous transactions with Universal and claimed that they only intended to help the Port Area branch solicit and increase its deposit accounts and daily transactions.Meanwhile, on February 26, 1997, petitioner and Universal entered into a Debt Settlement Agreement whereby the latter acknowledged its indebtedness to the former in the total amount of P50,990,976.27 as of February 4, 1997 and undertook to pay the same in bi-monthly amortizations in the sum of P300,000.00 starting January 15, 1997, covered by postdated checks, plus balloon payment of the remaining principal balance and interest and other charges, if any, on December 31, 2001. The City Prosecutor and DOJ dismissed the case. Hence, Metrobank filed a petition for certiorari and mandamus to CA. CA likewise affirmed the decisions of the City Prosecutor and DOJ stating that, while novation does not extinguish criminal liability, it may prevent the rise of such liability as long as it occurs prior to the filing of the criminal information in court. Issue: Whether or not the Debt Settlement Agreement between Metropolitan Bank and Trust Company and Universal is tantamount to a novation of obligation by the latter to the former which extinguishes the criminal liability for Estafa by the latter.Held: NO. Initially, it is best to emphasize that novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment of criminal liability. In a catena of cases, it was ruled that criminal liability for estafa is not affected by a compromise or novation of contract. In Firaza v. People and Recuerdo v. People, this Court ruled that in a crime of estafa, reimbursement or belated payment to the offended party of the money swindled by the accused does not extinguish the criminal liability of the latter. We also held in People v. Moreno and in People v. Ladera that criminal liability for estafa is not affected by compromise or novation of contract, for it is a public offense which must be prosecuted and punished by the Government on its own motion even though complete reparation should have been made of the damage suffered by the offended party. Similarly in the case of Metropolitan Bank and Trust Company v. Tonda cited by petitioner, we held that in a crime of estafa, reimbursement of or compromise as to the amount misappropriated, after the commission of the crime, affects only the civil liability of the offender, and not his criminal liability.Thus, the doctrine that evolved from the aforecited cases is that a compromise or settlement entered into after the commission of the crime does not extinguish accuseds liability for estafa. Neither will the same bar the prosecution of said crime. Accordingly, in such a situation, as in this case, the complaint for estafa against respondents should not be dismissed just because petitioner entered into a Debt Settlement Agreement with Universal. Even the OSG arrived at the same conclusion:Contrary to the conclusion of public respondent, the Debt Settlement Agreement entered into between petitioner and Universal Converter Philippines extinguishes merely the civil aspect of the latters liability as a corporate entity but not the criminal liability of the persons who actually committed the crime of estafa against petitioner Metrobank. x x x

Case: Prudential Bank and Trust Company (BPI) vs. Liwayway Abasolo, September 27, 2010, J. Carpio Morales.Facts: Leonor Valenzuela-Rosales inherited two parcels of land in Laguna which upon her death were inherited by her heirs thereby appointing Liwayway Abasolo as their agent thru the SPA empowering the latter to sell the properties. One, Corazon Marasigan expressed her interest in buying that same properties but because she had no money yet she suggested the idea of first mortgaging the properties to Prudential Bank and the proceeds of which would be paid directly to Abasolo. On consultation with Prudential Banks employee named Norberto Mendiola, a Deed of Absolute Sale was executed thereby transferring to Marasigan the property with assurance that the proceeds thereof would be paid directly to Abasolo. When all went well with the loan, in the absence of a written request for a bank guarantee, the PBTC released the proceeds of the loan to Marasigan, whom latter despite repeated demands failedto pay the purchase price of the properties. Marasigan only paid in kind but never the entire purchase price. Hence, Abasolo filed a complaint for collection of sum of money and annulment of sale and mortgage with damages. Marasigan, however, denied the existence of any agreement that the proceeds be paid to Abasolo and that the payment in kind was already sufficient. RTC ruled in favor of Abasolo ordering PBTC to pay Abasolo in the event that Marasigan failed to pay. CA affirmed.Issue: Whether or not PBTC would be subsidiarily liable to Abasolo in the absence of any contractual relationship between the two.Held: NO. In the absence of a lender-borrower relationship between petitioner and Liwayway, there is no inherent obligation of petitioner to release the proceeds of the loan to her. To a banking institution, well-defined lending policies and sound lending practices are essential to perform its lending function effectively and minimize the risk inherent in any extension of credit. In order to identify and monitor loans that a bank has extended, a system of documentation is necessary. Under this fold falls the issuance by a bank of a guarantee which is essentially a promise to repay the liabilities of a debtor, in this case Corazon. It would be contrary to established banking practice if Mendiola issued a bank guarantee, even if no request to that effect was made. The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioners cause:Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (underscoring supplied) For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor upon her must be present. A written request would have sufficed to prove this, given the nature of a banking business, not to mention the amount involved. Since it has not been established that petitioner had an obligation to Liwayway, there is no breach to speak of. Liwayways claim should only be directed against Corazon. Petitioner cannot thus be held subisidiarily liable.

Case: Asian Cathay Finance and Leasing Corporation vs. Spouses Cesario Gravador and Norma De Vera and Spouses Dumigpi, July 5, 2010, J. Nachura.Facts: Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of Eight Hundred Thousand Pesos (P800,000.00) to respondent Cesario Gravador, with respondents Norma de Vera and Emma Concepcion Dumigpi as co-makers. The loan was payable in sixty (60) monthly installments of P24,400.00 each. To secure the loan, respondent Cesario executed a real estate mortgage5 over his property in Sta. Maria, Bulacan. Respondents paid the initial installment due in November 1999. However, they were unable to pay the subsequent ones. Hence, petitioner filed a petition for extrajudicial foreclosure of mortgage. Respondent, however, filed a suit for annulment of such mortgage claiming that the real estate mortgage is null and void. They pointed out that the mortgage does not make reference to the promissory note dated October 22, 1999. The promissory note does not specify the maturity date of the loan, the interest rate, and the mode of payment; and it illegally imposed liquidated damages. The real estate mortgage, on the other hand, contains a provision on the waiver of the mortgagors right of redemption, a provision that is contrary to law and public policy. Respondents added that ACFLC violated Republic Act No. 3765, or the Truth in Lending Act, in the disclosure statement that should be issued to the borrower. RTC denied the application for TRO by respondent and thereafter dismissed the complaint sustaining the validity of the promissory note and real estate mortgage stating among others that, respondents are well-educated individuals who could not feign naivet in the execution of the loan documents. It, therefore, rejected respondents claim that ACFLC deceived them into signing the promissory note, disclosure statement, and deed of real estate mortgage. The RTC further held that the alleged defects in the promissory note and in the deed of real estate mortgage are too insubstantial to warrant the nullification of the mortgage. It added that a promissory note is not one of the essential elements of a mortgage; thus, reference to a promissory note is neither indispensable nor imperative for the validity of the mortgage. CA reversed the trial courts decision. Issue: Whether or not the subject promissory note and real estate mortgage is one of contract of adhesion.Held: YES. The supposed waiver by the mortgagors was contained in a statement made in fine print in the REM. It was made in the form and language prepared by [petitioner]ACFLC while the [respondents] merely affixed their signatures or adhesion thereto. It thus partakes of the nature of a contract of adhesion. It is settled that doubts in the interpretation of stipulations in contracts of adhesion should be resolved against the party that prepared them. This principle especially holds true with regard to waivers, which are not presumed, but which must be clearly and convincingly shown. [Petitioner] ACFLC presented no evidence hence it failed to show the efficacy of this waiver.Moreover, to say that the mortgagors right of redemption may be waived through a fine print in a mortgage contract is, in the last analysis, tantamount to placing at the mortgagees absolute disposal the property foreclosed. It would render practically nugatory this right that is provided by law for the mortgagor for reasons of public policy. A contract of adhesion may be struck down as void and unenforceable for being subversive to public policy, when the weaker party is completely deprived of the opportunity to bargain on equal footing.

Case: Pepito Velasco, et al. vs. CA and GSIS, January 28, 1980, J. Barredo.Facts: Sometime on November 10, 1965, Alta Farms secured from the GSIS a Three Million Two Hundred Fifty Five Thousand Pesos (P3,255,000.00) loan and an additional loan of Five Million Sixty-Two Thousand Pesos (P5,062,000.00) on October 5, 1967, to finance a piggery project. These loans were secured by two mortgage. Alta Farms defaulted in the payment of its amortizations presumably because of this that Alta Farms executed a Deed of Sale With Assumption of Mortgage with Asian Engineering Corporation on July 10, 1969 but without the previous consent or approval of the GSIS and in direct violation of the provisions of the mortgage contracts. Even without the approval of the Deed of Sale With Assumption of Mortgage by the GSIS, Asian Engineering Corporation executed an Exclusive Sales Agency, Management and Administration Contract in favor of Laigo Realty Corporation, with the intention of converting the piggery farm into a subdivision. And on October 20, 1969, Asian Engineering executed another contract with Laigo, whereby Laigo was to undertake the development of the property into a subdivision. Laigo, on the other hand, entered into a contract with Lumanlan to construct for the home buyers, 20 houses on the subdivision. Another contract was entered into between Laigo and Velasco for construction of the houses. However, when neither Laigo nor the individual home buyers paid for the home constructed, Velasco wrote the GSIS to intercede for the unpaid accounts of the home buyers. Contracts that were subsequently entered into by Laigo include that of Delos Santos, Galang and Lumbang. However, GSIS categorically denied that the firm has clear legal ground against Laigo having no privity of contract between petitioners. With the same plight, herein petitioners filed a case against GSIS. The latter however, presented a defense through the execution of Deed of Quitclaim and Undertaking by Laigo Realty.Issue: Whether there is contractual privity between GSIS and Lumanlan and Velasco.Held: YES. What is more, the reliance of GSIS on the Deed of Quitclaim of May 7, 1970 is to Our mind misplaced. We have analyzed this document carefully, and We are of the considered view that it is actually evidence against GSIS. Even if what is unnatural in ordinary business or industrial experience were assumed, that is, that GSIS was unaware all along during the period of their construction of the work then being done by petitioners - albeit it is possible there was no express consent given to - by and thru the aforementioned deed of quitclaim, GSIS agreed to receive and did actually receive the benefits of what petitioners had accomplished or would accomplish under their contracts with Laigo., So much so, that the dispositive portion of the quitclaim dead does not really relieve GSIS from liability to petitioners. Properly viewed, GSIS virtually assumed under said deed, liability in regard to claims like those of petitioners who might not be paid by Laigo albeit said liability has been made subject to the reservation that it could seek indemnity from Laigo. GSIS received Alta Farms' proposal about the conversion of their piggery project into a subdivision (in which Laigo Realty's participation was mentioned) as early as February 5, 1970. It was only in November, 1970 that it issued its "cease and desist" order. From all indications, the jobs of petitioners were already practically finished then. And in the Joint Manifestation filed by the parties with the trial court as late as February 20, 1976, GSIS made it clear that "defendant (GSIS) up to the present has not collected from the house owners of the 63 houses built by the plaintiffs notwithstanding the foreclosure proceedings and consolidation 6f ownership." Again, it is thus obvious that GSIS assumed ownership of the houses built by petitioners and was benefited by the same, and the fact that it has not collected any payment from the "house owners" or the construction of the houses respectively occupied by them is of no moment insofar as its liability to petitioners is concerned. Surely, it is not pretended that those "house owners" would be allowed to enrich themselves at the expense of petitioners. Indeed, the term "house owners" is inappropriate, if only because in Paragraph 16 of its Comment on the petition herein, GSIS unequivocally state that "GSIS foreclosed the properties including all improvements (the houses in 1970" and, thereby, became the owner of said houses.

Case: George Kauffman vs. PNB, Sept. 29, 1921, J. Street.Facts: George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City. In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the Kauffman payment as suggested. Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine National Bank of October 11, directing the withholding of payment had been received in New York, and payment was therefore refused. Hence, Kauffman instituted a suit before the CFI of Manila to recover the sum. Issue: Whether or not Kauffman has right of action against PNB.Held: YES. In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.) Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange.

Case: Bonifacio Brothers Inc., et al. vs. Enrique Mora, et al., May 29, 1967, J. Castro.Facts: Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique Mora. During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73. Issue: Whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and the insurance company on the other.Held: NO. In this connection, this Court has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.4 In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit.We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would require us to ignore the indespensable requisite that a stipulation pour autrui must be clearly expressed by the parties, which we cannot do.As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between the appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the appellants a right of action against the insurance company as such intention can never be inferred therefrom.

Case: Miguel Florentino, et al. vs. Salvador Encarnacion, et al., Sept. 30, 1977, J. Guerrero.Facts: Just after the death of Encarnacion FIorentino in 1941 up to last year and as had always been the case since time immomorial the products of the land made subject matter of this land has been used in answering for the payment for the religious functions specified in the Deed Extrajudicial Partition belated August 24, 1947. This arrangement about the products answering for the comment of expenses for religions functions as mentioned above was not registered in the office of the Register of Deeds under Act No 3344, Act 496 or and, other system of registration. The heirs, however, of Encarnacion filed with CFI of Ilocos Sur an application for registration of a parcel of agricultural land and the revocation of the said provision in the Deed pertaining to the products of such land subject to payment of religious functions expenses. Issue: Whether or not the stipulation, arrangement or grant is revocable at the option of the co-heirs. Held: NO. We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit O-1) is revocable at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the law does not provide when the third person must make his acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked. Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of the co-owners, namely the petitioners-appellants herein. It is not disputed that from the time of the with of Doa Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before the firing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation. We hold that said stipulation is a stipulation pour autrui. A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third person and demand its fulfillment provoked that he communicates his to the obligor before it is revoked. The requisites are: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and (3) neither of the contracting bears the legal represented or authorization of third person.To constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to benefit the third and it is not sufficient that the third person may be incidentally benefited by the stipulation. The fairest test to determine whether the interest of third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this test, it meters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promisee to the third person. That no such obsorption exists may in some degree assist in determining whether the parties intended to benefit a third person.

Case: Bank of America NT & SA vs. IAC and Air Cargo and Travel Corporation, Nov. 11, 1986, J. Melencio-Herrera.Facts: Plaintiff Air Cargo and Travel Corporation is the owner of Account Number 19842-01-2 with defendant Bank of America. Defendant Toshiyuki Minami, President of plaintiff corporation in Japan, is the owner of Account Number 24506-01-7 with defendant Bank. On March 10, 1981, the Bank received a tested telex advise from Kyowa Bank of Japan stating, ADVISE PAY USDLS 23,595. TO YOUR A/C NBR 24506-01-7 OF A. C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI and the Bank Credited the amount of US$23,595.00 to Account Number 24506-07-1 (should be 24506-01-7) owned, as aforesaid, by Minami. On March 12, 1981, Minami withdrew the sum of P180,000.00 the equivalent in Philippine Pesos of the sum of US$23,595.00 from the Bank on his Account Number 24506-07-1 (should be 24506-01-7). According to ACTC in its Comment, in the early part of 1981, it was Tokyo Tourist Corporation in Japan which applied with Kyowa Bank, Ltd. also based in Tokyo, Japan, for telegraphic transfer of the sum of US$23,595.00 payable to ACTC's account with BANKAMERICA, Manila. When the tested telex was received on May 10, 1981, employees of BANKAMERICA noted its patent ambiguity. Notwithstanding, on the following day, BANKAMERICA credited the amount of US$23,595.00 to the account of Minami. ACTC claimed that the amount should have been credited to its account and demanded restitution, but BANKAMERICA refused. On February 18, 1982, ACTC filed suit for damages against BANKAMERICA and Minami before the Trial Court in Pasig for the failure of BANKAMERICA to restitute. Trial court decided in favor of the respondent. CA also affirmed. Issue: Whether or not there was a stipulation pour autrui.Held: YES. In Vargas Plow Factory, Inc. vs. Central Bank, it was held that "the opening of a letter of credit in favor of the exporter becomes ultimately but the result of a stipulation pour autrui" (27 SCRA 84 [1969]). Similarly, when KYOWA asked BANK-AMERICA to pay an amount to a beneficiary (either ACTC or Minami), the contract was between KYOWA and BANK-AMERICA and it had a stipulation pour autrui.It is our considered opinion that, in the tested telex, considered either as a patent ambiguity or as a latent ambiguity, the beneficiary is Minami. The mention of Account No. 24506-01-7, as well as the name of Minami, has to be given more weight than the mention of the name of ACTC. BANKAMERICA could not have very well disregarded that account number. It could also be that the mention of ACTC's name was a further identification of Minami, to prevent payment to a possible another "Toshiyuko Minami" who may not be connected with ACTC. On the other hand, it should be difficult to concede that, in the tested telex, Account No. 24506-01-7 was erroneously written and should be substituted by Account No. 19842-01-2 in the name of ACTC.It should be recalled that the tested telex originated from KYOWA at the behest of Tokyo Tourist Corporation with whom ACTC had business dealings. Minami, on the other hand, was the liaison officer of ACTC in Japan. As the entity responsible for the tested telex was Tokyo Tourist Corporation, it can reasonably be concluded that if it had intended that the US$23,595.00 should be credited to ACTC, upon learning that the amount was credited to Minami, it should have gone, together with the representatives of ACTC, in protest to KYOWA and lodged a protest. Since that was not done, it could well be that Tokyo Tourist Corporation had really intended its remittance to be credited to Minami. The identity of the beneficiary should be in accordance with the identification made by KYOWA, and ACTC cannot question that identification as it is not a party to the arrangement between KYOWA and BANKAMERICA (see Manila Railroad Co. vs. Compaia Trasatlantica, 38 Phil. 875 [1918]).

Case: Marimperio Campaia Naviera, S.A. vs. CA and Union Import and Export Corporation and Philippine Traders Corporation, Dec. 14, 1987, J. Paras.Facts: In 1964 Philippine Traders Corporation and Union Import and Export Corporation entered into a joint business venture for the purchase of copra from Indonesia for sale in Europe. James Liu President and General Manager of the Union took charge of the European market and the chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on the other hand, found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found the vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to negotiate for its charter but with instructions to keep confidential the fact that they are the real charterers. Consequently on March 21, 1965, in London England, a "Uniform Time Charter" for the hire of vessel "Paxoi" was entered into by the owner, Marimperio Compania Naviera, S.A. through its agents N. & J. Vlassopulos Ltd. and Matthews Wrightson, Burbridge, Ltd. to be referred to simply as Matthews, representing Interocean Shipping Corporation, which was made to appear as charterer, although it merely acted in behalf of the real charterers, private respondents herein. The Charterer was however twice in default in its payments which were supposed to have been done in advance. Hence, Union Import and Export Corporation and Philippine Traders Corporation filed a complaint with the Court of First Instance of Manila, Branch VIII, against the Unknown Owners of the Vessel "SS Paxoi" for specific performance with prayer for preliminary attachment. CFI rendered its decision in favor of Marimperio and against UIEC. CA affirmed.Issue: Whether or not UIEC has legal capacity to bring the suit for specific performance against Marimperio based on the Charter Party.Held: NO. It is obvious from the disclosure made in the charter party by the authorized broker, the Overseas Steamship Co., Inc., that the real charterer is the Interocean Shipping Company (which sublet the vessel to Union Import and Export Corporation which in turn sublet it to Philippine Traders Corporation). In a sub-lease, there are two leases and two distinct judicial relations although intimately connected and related to each other, unlike in a case of assignment of lease, where the lessee transmits absolutely his right, and his personality disappears; there only remains in the juridical relation two persons, the lessor and the assignee who is converted into a lessee (Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a contract of sub-lease, the personality of the lessee does not disappear; he does not transmit absolutely his rights and obligations to the sub-lessee; and the sub-lessee generally does not have any direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438). However, there are at least two instances in the Civil Code which allow the lessor to bring an action directly (accion directa) against the sub-lessee (use and preservation of the premises under Art. 1651, and rentals under Article 1652). Art. 1651 reads: Without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. Article 1652 reads: The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sub-lessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sub-lease, at the time of the extra-judicial demand by the lessor. Payments of rent in advance by the sub-lessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. It will be noted however that in said two Articles it is not the sub-lessee, but the lessor, who can bring the action. In the instant case, it is clear that the sub-lessee as such cannot maintain the suit they filed with the trial court (See A. Maluenda and Co. v. Enriquez, 46 Phil. 916). In the law of agency "with an undisclosed principal, the Civil Code in Article 1883 reads: If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shag be understood to be without prejudice to the actions between the principal and agent. While in the instant case, the true charterers of the vessel were the private respondents herein and they chartered the vessel through an intermediary which upon instructions from them did not disclose their names. Article 1883 cannot help the private respondents, because although they were the actual principals in the charter of the vessel, the law does not allow them to bring any action against the adverse party and vice, versa.

Case: Geo Daywalt vs. La Corporacion De Los Padres Agustinos Recoletos, et al., J. Street.Facts: In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree recognizing the right of Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was not issued until later. The second contract was not immediately carried into effect for the reason that the Torrens certificate was not yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the contract had expired. The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative to the registration of the land, it was found by official survey that the area of the tract inclosed in the boundaries stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract. In view of this development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser, asserting that she never intended to sell so large an amount of land and that she had been misinformed as to its area.This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and effect. When the Torrens certificate was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan Labarga the procurador and chief official of the defendant corporation, until the deliver thereof to the plaintiff was made compulsory by reason of the decree of the Supreme Court in 1914.Agustines then entered into some arrangement with Endencia with the use of the land. Daywalt, however, sued Agustines for unlawfully inducing Endencia to refrain from the performance of her contract for the sale of land in question.Issue: Whether La Corporacion may be held liable to the vendee, beyond the value of the use and occupation of the land by colluding with the vendor.Held: NO. Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the stranger cannot become more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the liability of the defendant corporation, even admitting that it has made itself coparticipant in the breach of the contract, can in no even exceed hers. This leads us to consider at this point the extent of the liability of Teodorica Endencia to the plaintiff by reason of her failure to surrender the certificate of title and to place the plaintiff in possession.It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this court, but without obtaining any special adjudication with reference to damages. Indemnification for damages resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore, it should be considered that the right of action to recover damages for the breach of the contract in question was exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res judicata in her behalf; and as the defendant corporation was not a party to that action, and such defense could not in any event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia for damages without refernce to this point.The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to carry out a contract for the sale of certain land and resisted to the last an action for specific performance in court. The result was that the plaintiff was prevented during a period of several years from exerting that control over the property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously.

Case: C.S. Gilchrist vs. E.A. Cuddy, et al. and Jose Fernandez Espejo and Mariano Zaldarriaga, Feb. 18, 1915, J. Trent.Facts: Cuddy, a resident of Manila, was the owner of the "Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in accordance with the terms of the contract entered into between Cuddy and Gilchrist the former leased to the latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913; and that Cuddy willfully violate his contract in order that he might accept the appellant's offer of P350 for the film for the same period. Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter from his agents in Manila dated April 26, assuring him that he could not get the film for about six weeks. The arrangement between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May were perfected after April 26, so that the six weeks would include and extend beyond May 26.Issue: Whether or not there was interference.Held: YES. In the case at bar the only motive for the interference with the