ARTICLE 1158

PELAYO CASE
FACTS:
Petitioner Pelayo, a physician, rendered a medical
assistance during the child delivery of the daughter-in-law of the
defendants. The just and equitable value of services rendered by
him was P500.00 which the defendants refused to pay DOMINGO
DE LA CRUZ, plaintiff-appellant, vs. NORTHERN THEATRICAL
ENTERPRISES INC., ET AL, defendants-appellees.FACTS- Northern
Theatrical Enterprises Inc., operated a movie house in Laoag and
plaintiff DOMINGO DE LACRUZ, hired as a special guard whose
duties were to guard the main entrance of the cine, to maintain
peace and order and to report the commission of disorders within
the premises. - One Benjamin Martin wanted to crash the gate or
entrance of the movie house. Infuriated by the refusal of plaintiff
De la Cruz to let him in without first providing himself with a ticket,
Martin attacked him witha bolo. De la Cruz defended himself as
best he could until he was cornered, at which moment to save
himself he shot the gate crasher, resulting in the latter's death.- De
la Cruz was charged with homicide, after a re-investigation
conducted by the Provincial Fiscal the latter filed a motion to
dismiss the complaint, which was granted by the court in January
1943. On July 8, 1947, De la Cruz was again accused of the same
crime of homicide, of the same Court. - After trial, he was finally
acquitted of the charge on January 31, 1948. In both criminal cases
De la Cruz employed a lawyer to defend him. He demanded from
his former employer reimbursement of his expenses but was
refused. He filed the present action against the movie corporation
and the three members of its board of directors, to recover
amounts he had paid his lawyers and also moral damages said to
have been suffered, a total of P15,000. - Court of First Instance
after rejecting the theory of the plaintiff that he was an agent of the
defendants and that as such agent he was entitled to
reimbursement of the expenses incurred by him in connection with
the agency found that plaintiff had no cause of action and
dismissed the complaint without costs. ISSUEWhether an employee
or servant who in line of duty and while in the performance of the
task assigned to him, performs an act which eventually results in
his incurring in expenses, caused not directly by his master or
employer or his fellow servants or by reason of his performance of
his duty, but rather by a third party or stranger not in the employ of

his employer, may recover said damages against his

employer.HELDWe agree with the trial court that the relationship
between the movie corporation and the plaintiff was notthat of
principal and agent because the principle of representation was in
no way involved. -Plaintiff was not employed to represent the
defendant corporation in its dealings with third parties. He was a
mere employee hired to perform a certain specific duty or task, that
of acting as special guard and staying at the main entrance of the
movie house to stop gate crashers and to maintain peace and order
within the premises.
DELA CRUZ Vs. Northern
The plaintiff was innocent and blameless. If despite his innocence
and despite the absence of any criminal responsibility on his part
he was accused of homicide, then the responsibility for the
improper accusation may be laid at the door of the heirs of the
deceased and the State, and so theoretically, they are the parties
that may be held responsible civilly for damages and if this is so,
we fail to see how this responsibility can be transferred to the
employer who in no way intervened, much less initiated the
criminal proceedings and whose only connection or relation to the
whole affairs was that he employed plaintiff to perform a specific
duty or task, which task or duty was performed lawfully and without
negligence.In view of the foregoing, the judgment of the lower
court is affirmedwithout alleging any good reason. With this, the
plaintiff prayed that the judgment be entered in his favor as against
the defendants for the sum of P500.00 and costs.
The defendants denied all of the allegation of the
plaintiff, contending that their daughter-in-law had died in
consequence of the child-birth, and that when she was alive, she
lived with her husband independently and in a separate house, that
on the day she gave birth she was in the house of the defendants
and her stay there was accidental and due to fortuitous
circumstances.
ISSUE:Whether or not the defendants are obliged to pay the
petitioner for the medical assistance rendered to their daughter-inlaw.
HELD:
According to Article 1089 of the Old Civil Code (now 1157),
obligations are created by law, by contracts, by quasi-contracts, by

illicit acts and omissions or by those which any kind of fault or

negligence occurs. Obligations arising from law are not presumed.
Those expressly determined in the Code or in special law, etc., are
the only demandable ones.
The rendering of medical assistance in case of illness is
comprised among the mutual obligations to which the spouses are
bound by way of mutual support as provided by the law or the
Code. Consequently, the obligation to pay the plaintiff for the
medical assistance rendered to the defendants daughter-in-law
must be couched on the husband.
In the case at bar, the obligation of the husband to
furnish his wife in the indispensable services of a physician at such
critical moments is especially established by the law and the
compliance therewith is unavoidable.
ARTICLE 1159
MBTC vs ROSALES
FACTS:
Petitioner Metrobank is a domestic banking corporation duly
organized and existing under the laws of the Philippines.
Respondent Rosales is the owner of a travel agency while Yo Yuk To
is her mother.
In 2000, respondents opened a Joint Peso Account10 with
petitioners Pritil-Tondo Branch.
In May 2002, respondent Rosales accompanied her client Liu Chiu
Fang, a Taiwanese National applying for a retirees visa from the
Philippine Leisure and Retirement Authority (PLRA), to petitioners
branch in Escolta to open a savings account. Since Liu Chiu Fang
could speak only in Mandarin, respondent Rosales acted as an
interpreter for her.
On March 3, 2003, respondents opened with petitioners Pritil-Tondo
Branch a Joint Dollar Account with an initial deposit of
US$14,000.00.
On July 31, 2003, petitioner issued a Hold Out order against
respondents accounts.
On September 3, 2003, petitioner, through its Special Audit
Department Head Antonio Ivan Aguirre, filed before the Office of

the Prosecutor of Manila a criminal case for Estafa through False

Pretences, Misrepresentation, Deceit, and Use of Falsified
Documents.
1. Respondent Rosales, however, denied taking part in the
fraudulent and unauthorized withdrawal from the dollar
account of Liu Chiu Fang.
2. On December 15, 2003, the Office of the City Prosecutor of
Manila issued a Resolution dismissing the criminal case for
lack of probable cause. On September 10, 2004,
respondents filed before the RTC of Manila a complaint for
Breach of Obligation and Contract with Damages.

ISSUE: Whether Metrobank breached its contract with respondents.

HELD:
YES. The Court held that Metrobanks reliance on the Hold Out
clause in the Application and Agreement for Deposit Account is
misplaced.
Bank deposits, which are in the nature of a simple loan or mutuum,
must be paid upon demand by the depositor.
The Hold Out clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated
in Article 1157 of the Civil Code, to wit: law, contracts, quasicontracts, delict, and quasi-delict. In this case, petitioner failed to
show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a
criminal case was filed by petitioner against respondent Rosales,
this is not enough reason for petitioner to issue a Hold Out order
as the case is still pending and no final judgment of conviction has
been rendered against respondent Rosales.
In fact, it is significant to note that at the time petitioner
issued the Hold Out order, the criminal complaint had not yet
been filed. Thus, considering that respondent Rosales is not liable
under any of the five sources of obligation, there was no legal basis
for petitioner to issue the Hold Out order. Accordingly, we agree
with the findings of the RTC and the CA that the Hold Out clause
does not apply in the instant case.

In view of the foregoing, the Court found that petitioner is guilty of

breach of contract when it unjustifiably refused to release
respondents deposit despite demand. Having breached its contract
with respondents, petitioner is liable for damages.
FALLO:
WHEREFORE, the Petition is hereby DENIED. The assailed April 2,
2008 Decision and the May 30, 2008 Resolution of the Court of
Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED.

ISSUE: Whether or not GMC made sufficient demand to the

spouses Ramos to fulfill their obligation
RULING: No. There are three requisites necessary for a finding of
default. First, the obligation is demandable and liquidated; second,
the debtor delays performance; and third, the creditor judicially or
extrajudicially requires the debtor's performance. Article 1169 of
the Civil Code states that: those obligated to deliver or to do
something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation. However, the demand by the creditor shall not be
necessary in order that delay may exist, when the obligation or the
law expressly so declares. The contract in the instant case carries
no such provision on demand not being necessary for delay to
exist. GMC should have first made.a demand on the spouses before
proceeding to foreclose the real estate mortgage.

Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos

& Riverland, Inc.

ARTICLE 1169
General Milling Corporation vs Ramos
FACTS: General Milling Corporation (GMC) entered into a Growers
Contract with spouses Librado and Remedios Ramos (Spouses
Ramos). Under the contract, GMC was to supply broiler chickens for
the spouses to raise on their land. To guarantee full compliance, the
Growers Contract was accompanied by a Deed of Real Estate
Mortgage over a piece of real property and a surety bond. Spouses
Ramos eventually were unable to settle their account with GMC.
The property was extrajudicially foreclosed and GMC was the
highest bidder. Spouses Ramos questioned the validity of the
foreclosure proceedings. The CA found that GMC made no demand
to spouses Ramos for the full payment of their obligation. A perusal
of the letters presented and offered as evidence by defendantappellant GMC did not demand but only request spouses Ramos
to go to the office of GMC to discuss the settlement of their
account.

Facts: Subject of the present petition for review on certiorari is the

Decision, dated January 30, 2002, as well as the April 12, 2002,
Resolution of the Court of Appeals, The appellate court reversed the
Decision, dated October 4, 1996, of the Regional Trial Court of
Makati City, and likewise denied petitioner's Motion for
Reconsideration.
On October 26, 1990, the parties executed a Compromise
Agreement which amicably ended all their pending litigations. The
pertinent portions of the Agreement, includethe following: (1)
Defendant Foundation shall pay Plaintiff Santos P14.5 Million on (a)
P1.5 Million immediately upon the execution of this agreement and
(b) The balance of P13 Million shall be paid, whether in one lump
sum or in installments, at the discretion of the Foundation, within a
period of not more than two years from the execution of this
agreement; (2) Immediately upon the execution of this agreement
(and [the] receipt of the P1.5 Million), plaintiff Santos shall cause
the dismissal with prejudice of Civil Cases; (3) Failure of compliance
of any of the foregoing terms and conditions by either or both
parties to this agreement shall ipso facto and ipso jure
automatically entitle the aggrieved party to a writ of execution for
the enforcement of this agreement.

In compliance with the Compromise Agreement, respondent Santos

moved for the dismissal of the aforesaid civil cases. He also caused
the lifting of the notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance of P13 million.

3. W/N respondents are barred from demanding payment of

interest by reason of the waiver provision in the compromise
agreement, which became the law among the parties.
Held:

On October 28, 1992, respondent Santos sent another letter to

petitioner inquiring when it would pay the balance of P13 million.
There was no response from petitioner. Consequently, respondent
Santos applied with the Regional Trial Court of Makati City, for the
issuance of a writ of execution of its compromise judgment dated
September 30, 1991. The RTC granted the writ.

On October 4, 1996, the trial court rendered a Decision dismissing

the respondents' complaint and ordering them to pay attorney's
fees and exemplary damages to petitioner. Respondents then
appealed to the Court of Appeals.

Petitioner, however, filed numerous motions to block the

enforcement of the said writ. The challenge of the execution of the
aforesaid compromise judgment even reached the Supreme Court.
All these efforts, however, were futile.

The appellate court reversed the ruling of the trial court:

WHEREFORE, finding merit in the appeal, the appealed Decision is
hereby REVERSED and judgment is hereby rendered ordering
appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1)
legal interest on the principal amount of P13 million at the rate of
12% per annum from the date of demand on October 28, 1992 up
to the date of actual payment of the whole obligation; and (2)
P20,000 as attorney's fees and costs of suit. SO ORDERED.

On November 22, 1994, petitioner's real properties located in

Mabalacat, Pampanga were auctioned. In the said auction,
Riverland, Inc. was the highest bidder for P12 million and it was
issued a Certificate of Sale covering the real properties subject of
the auction sale. Subsequently, another auction sale was held on
February 8, 1995, for the sale of real properties of petitioner in
Bacolod City. Again, Riverland, Inc. was the highest bidder. The
Certificates of Sale issued for both properties provided for the right
of redemption within one year from the date of registration of the
said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for
Declaratory Relief and Damages alleging that there was delay on
the part of petitioner in paying the balance of P13 million.
Issues:
1. W/N the CA committed reversible error when it awarded
legal interest in favor of the respondents notwithstanding
the fact that neither in the compromise agreement nor in
the compromise of judgment by the judge provides for
payment of interest to the respondent?
2. W/N the CA erred in awarding legal interest to the
respondents although the obligation of the petitioner to the
respondent is to pay a sum of money that had been
converted into an obligation to pay in kind?

The only issue to be resolved is whether the respondents are

entitled to legal interest.

Delay
Delay as used in this article is synonymous to default or mora
which means delay in the fulfillment of obligations. It is the nonfulfillment of the obligation with respect to time. In the case at bar,
the obligation was already due and demandable after the lapse of
the two-year period from the execution of the contract. The twoyear period ended on October 26, 1992. When the respondents
gave a demand letter on October 28, 1992, to the petitioner, the
obligation was already due and demandable. Furthermore, the
obligation is liquidated because the debtor knows precisely how
much he is to pay and when he is to pay it.
The petition lacks merit
In the case at bar, the Compromise Agreement was entered into by
the parties on October 26, 1990. It was judicially approved on
September 30, 1991. Applying existing jurisprudence, the
compromise agreement as a consensual contract became binding
between the parties upon its execution and not upon its court
approval. From the time a compromise is validly entered into, it
becomes the source of the rights and obligations of the parties

thereto. The purpose of the compromise is precisely to replace and

terminate controverted claims.

the P13M. On 30 September 1991, the RTC of Makati approved the

CA.

As to the remaining P13 million, the terms and conditions of the

compromise agreement are clear and unambiguous. It provides
that the balance of P13 Million shall be paid, whether in one lump
sum or in installments, at the discretion of the Foundation, within a
period of not more than two (2) years from the execution of this
agreement.

On October 28, 1992, Santos sent another letter inquiring when it

would pay the
P13M, which didnt get a response. Santos applied for a writ of
execution of its CA. On March 1993, the Sherriff levied the real
properties of SVHFI. Real properties in Pampanga (P12M in 1994)
and Bacolod (1995) were auctioned and sold to Riverland Inc.
Santos and Riverland filed a Complaint for Declaratory Relief and
Damages
alleging that there was delay in paying the balance of P13M. It was
supposed to be paid October 26, 1992 but was actually paid on
November 22, 1994. They pray that SVHFI pay legal interest,
penalty, attorneys fees and costs of litigation.
SVHFI says that petitioners have no cause of action because it fully
paid its
obligation and that the delay was due to its valid exercise of its
rights to protect its interests as provided under the Rules. Also,
SVHFI alleges that where a CA does not provide for a payment of
interest, legal interest by way of penalty on account of delay shall
not be due and payable considering that the obligation, on which
the payment of legal interest is based on, has been superseded by
the CA. Also, Santos is barred by res judicata from seeking legal
interest because of the waiver clause in the CA. It also claims that
the CA didnt fix a period within which the obligation will become
due and demandable. Trial Court decided in favor of SVHFI but the
Court of Appeals reversed the decision and decided in favor of
Santos.

WHEREFORE, the petition is DENIED for lack of merit. The Decision

dated January 30, 2002 of the Court of Appeals and its April 12,
2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs
against petitioner. SO ORDERED

Santos Ventura Hocorma Foundation Inc vs.

Ernesto Santos and Riverland Inc.
Facts:
Ernesto Santos and Santos Ventura Hocorma Foundation Inc (SVHFI)
were the
plaintiff and defendant, respectively, in several civil cases. On 26
October 1990, they executed a Compromise Agreement (CA) to end
the pending litigations. Some of the terms of the agreement are as
follows:
1. SVHFI shall pay Santos P14.5M, 1.5M of which shall be
paid immediately upon execution of this agreement and
13M within a period of not more than two (2) years from
the execution of the agreement
2. If SVHFI does not pay the 13M within 2 years, it shall be
paid with the
land subject of lis pendens
3. If SVHFI sells any of the lands subject of lis pendens, the
proceeds will
Be partially devoted to the payment of the P13M
4. Santos will dismiss the Civil Cases and lift the notices of
lis pendens on
the real properties
SVHFI paid the P1.5M while Santos moved for the dismissal of the
civil cases.
SVHFI sold 2 real properties previously subject to lis pendens. Upon
discovering this, Santos sent a letter demanding the payment of

Issue: Whether or not Santos is entitled to legal interest

RULIN: YES
Ratio:
On Compromise Agreements
A compromise agreement is a contract whereby the parties, by
making reciprocal
concessions, avoid litigation or put an end to one already
commenced. It is an agreement between two or more persons,
who, for preventing or putting an end to a lawsuit, adjust their
difficulties by mutual consent in the manner which they agree on,
and which everyone of them prefers in the hope of gaining, balance
by the danger of losing.
The general rule is that a compromise has upon the parties the
effects and

authority or res judicata, with respect to the matter definitely

stated therein, or which by Latin for "suit pending."
implication from its terms should be deemed to have been included
therein. This holds true even if the agreement has not been
judicially approved.
The compromise agreement as a consensual contract became
binding between
the parties upon its execution and not upon its court
approval. From the time a compromise is validly entered into,
it becomes the source of the rights and obligations of the parties
thereto. The purpose of the compromise is precisely to replace and
terminate controverted claims.

2. SVHFI delayed in the performance; settled the balance only on

Feb 8, 1995.
3. Demand letter sent on Oct 28, 1992 was an extra-judicial
demand
SVHFI is liable for damages for the delay in the performance as
provided for in
NCC 1170. When the debtor knows the amount and period when he
is to pay, interest as damages is generally allowed as a matter of
right. In the absence of agreement, the legal rate of interest shall
prevail (12% pa)

On the Period
The CA was entered into on October 26, 1990 and was judicially
approved on
September 30, 1991. It has the effect and authority of res judicata
with respect to the matter stated therein even when it has not yet
been judicially approved. Thus, it became binding upon its
execution and not its court approval. The petitioner paid the initial
P1.5M upon execution, which shows SVHFI acknowledged that
the agreement was
immediately executory.
The Court finds that the terms and conditions of the compromise
agreement as to
the remaining balance of P13M are clear and ambiguous. The 2year period must be
counted from October 26, 1990, the date of execution of the CA.
When Santos wrote a demand letter on October 28, 1992, the
obligation was already due and demandable. By NCC 1169, SVHFI
incurred delay when it failed to pay its due obligation after the
demand was made.
In order for the debtor to be in default, there must be (1) an
obligation that is
demandable and already liquidated, (2) debtor delays performance
(3) creditor requires the performance judicially or extra-judicially.
1. In this case, the obligation was already due and demandable
after the lapse of
the 2-year period. When Santos wrote a demand letter,
the
obligation
was already demandable and liquidated since
SVHFI already knew how much it had
to pay and when he should pay it.

Solar Harvest, Inc. Vs. Davao Corrugated Carton CorporationGR No.

176858, July 26, 2010FACTS:
In the 1st Quarter of 1998, Solar Harvest and Davao Corrugated
entered into an unwritten agreement. SolarHarvest placed orders
for customized boxes for its business of exporting bananas at USD
1.10 each. Petitioner made afull payment of USD 40,150.00. By Jan.
3, 2001 petitioner had not received any of the ordered boxes. On
Feb. 19, 2001Davao Corrugated replied that as early as April 3,
1998, order/boxes are completed and Solar Harvest failed to pick
themup from their warehouse within 30 days from completion as
agreed upon. Respondent mentioned that petitioner evenplaced

additional order of 24,000.00 boxes, out of which, 14,000 had

already been manufactured without any advancepayment from
Solar Harvest. Davao Corrugated then demanded that Solar
Harvest remove boxes from their warehouse,pay balance of USD
15,400.00 for the additional boxes and P132,000 as storage fee. On
August 17, 2001 Solar harvestfiled complaint against Davao
Corrugated for sum of money and damages claiming that the
agreement was for thedelivery of the boxes, which Davao
Corrugated did not do. They further alleged that whenever
repeated follow-up wasmade to Davao Corrugated, they would only
see sample boxes and get promise of delivery. Due to Davao
Corrugatedsfailure to deliver, Solar Harvest had to cancel the
order and demanded payment and/or refund which Davao
Corrugatedrefused to pay. Davao Corrugated counterclaimed that
they had already completed production of the 36,500 boxes plusan
additional 14,000 boxes (which was part of the additional 24,000
order that is unpaid). The agreement was for SolarHarvest to pick
up the boxes, which they did not do. They even averred that on
Oct. 8, 1998 Solar Harvestsrepresentative Bobby Que even went
to the warehouse to inspect and saw that indeed boxes were ready
for pick up. OnFeb. 20, 1999, Que visited the factory again and said
that they ought to sell the boxes to recoup some of the costs of
the14,000 additional orders because their transaction to ship the
bananas did not materialize. Solar Harvest denies thatthey made
the additional order. On March 20, 2004 the RTC ruled in favor of
Davao Corrugated.
(RTC) ruled that respondent did not commit any breach of faith that
would justify rescission of the contract and the consequent
reimbursement of the amount paid by petitioner. The RTC said that
respondent was able to produce the ordered boxes but petitioner
failed to obtain possession thereof because its ship did not arrive. It
also dismissed respondents counterclaim for lack of merit.
CA affirmed the RTC decision. According to the CA, it was
unthinkable that, over a period of more than two years, petitioner
did not even demand for the delivery of the boxes. The CA added
that even assuming that the agreement was for respondent to
deliver the boxes, respondent would not be liable for breach of
contract as petitioner had not yet demanded from it the delivery of
the boxes.

ISSUE: Whether or not Davao Corrugated was responsible for

breach of contract as Solar Harvest had not yet demanded from it
the delivery of the boxes?
HELD: NO. The CA held that it was unthinkable that for around 2
years petitioner merely followed up and did not demand the
delivery of the boxes. Even assuming that the agreement is for
delivery by Davao Corrugated, respondent would not be liable for
breach of contract as petitioner had not yet demanded from it the
delivery of the boxes. There is no error in the decision of the RTC.
Furthermore, the claim for reimbursement is actually one for
rescission or resolution of contract under Article 1191 of the Civ.
Code. The right to rescind contracts arises once the party defaults
in the performance of his obligation. Article 1191 should be taken in
conjunction with Article 1169: Those obliged to deliver orto do
something in delay from the time the obligee judicially or
extrajudicially demands form them the fulfilment of their obligation.
However the demand from creditor shall not be necessary in order
that delay may exist.:
1. When the obligation or the law expressly so declares, or
2. 2.When from the nature and the circumstance of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the
contract; OR
3. When the demand would be useless, as when the obligor
has rendered it beyond his power to perform.

In reciprocal obligations, the general rule is that the fulfilment of

the partiess respective obligations should be simultaneous. No
demand is necessary because once a party fulfills his obligation
and the other party fails to do his, the latter automatically incurs
delay. When dates are set, the default for each obligation is
determined by the rules given in the 1 st paragraph of the article.
Thus even in reciprocal obligations, if the period for the fulfilment of
the obligation is fixed, demand from the obligee is still necessary
before the obligor can be considered in default and before a cause
of action for rescission will accrue. In the case of Solar Harvest,
merely following up the order was not the same as demanding for
the boxes. The SC held that Solar Harvests petition is denied and
that Davao Corrugated did not commit breach of contract and may
remove the boxes from their premises after petitioner is given a
period of time to remove them from their warehouse as they deem
proper (Court gave 30day period to comply with this.
SSS vs. Moonwalk
CASE:
Petition for review on certiorari of the decision of the
then Intermediate Appellate Court affirming in toto the decision of
the former Court of First Instance of Rizal, Seventh Judicial District,
Branch XXIX, Pasay City.
FACTS: On February 20, 1980, the petitioner Social Security System
filed a complaint in the Court of First Instance of Rizal
against
the
respondent Moonwalk Development and Housing
Corporation. The petitioner alleged that it had committed an
error in failing to compute the 12% interest due on
delayed payments on the loan of the respondent and also in
not reflecting in its statement of account an unpaid balance on the
said penalties for delayed payments. The respondent answered
denying the claims and asserting that the petitioner had the
opportunity to ascertain the truth but it failed to do so. Decision of
the Court of First Instance:The Court of First Instance dismissed the
complaint on the ground that
the
obligation
was
already
extinguished by the payment by the respondent of its
indebtedness
to
the
petitioner
and
by
the
latters
cancellation of the real estate mortgages executed in its
favor by the defendant. The Motion for Reconsideration filed by
the petitioner was dismissed by the trial court. Decision of the
Intermediate Appellate Court: The respondent court held that

the respondents obligation

decision of the trial court.

was extinguished and affirmed the

ISSUE: Whether or not respondent Moonwalk Development

and Housing Corporation incurred delay in the performance of its
obligation.
RULING: Under the Civil Code, delay begins from the time
the
oblige judicially or extrajudicially demands from the obligor
the performance of the obligation. (Article 1169 of the Civil
Code)Article 1169 of the Civil Code provides for three (3) instances
when demand in not necessary to render the obligation in default:
(1) When the obligation or the law expressly so declares;(2) When
from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to
be delivered or the service to be rendered was a controlling motive
for the establishment of the contract;(3) When demand would be
useless, as when the obligor has rendered it beyond his power to
perform. The case at bar does not fall within any of the
established exceptions. Hence, petitioner is not excused from
making a demand. It is true that respondent has long
been
delinquent in meeting its monthly arrears and in paying the
full amount of the loan itself as the obligation matured
sometime in January, 1977. But mere delinquency in payment does
not necessarily mean delay in the legal concept. Default generally
begins from the moment the creditor demands the performance of
the obligation. In the present case, the petitioner never
demanded
from
the respondents
the
payment
of
its
monthly amortizations. It was clear that respondent was
never
in
default
because
petitioner
never
compelled
performance. The petition was DISMISSED and the decision of the
Intermediate Appellate Court was AFFIRMED.

SSS vs. Moonwalk Development and Housing Corporation

FACTS:
Plaintiff SSS approved the application of Defendant
Moonwalk for a loan of P30,000,000for the purpose of developing
and constructing a housing project.- Out of P30,000,000 approved
loan, the sum of P9,595,000 was released to defendant Moonwalk.A third Amendment Deed of Mortgage was executed for the
payment of the amount ofP9,595,000.- Moonwalk made a total
payment of
P23,657,901.84 to SSS
for the loan
principal

ofP12,254,700.- After settlement of the account, SSS issued to

Moonwalk the release of Mortgage for Moonwalks Mortgaged
properties.- In letter to Moonwalk, SSS alleged that it committed an
honest mistake in releasing defendant.- That Moonwalk has still
12% penalty for failure to pay on time the amortization which is in
the penal clause of the contract.- Moonwalks counsel told SSS
that it had completely paid its obligation to SSS and
therefore there is no recovery of any penalty.
ISSUE:Is the penalty demandable even after the extinguishment of
the principal obligation?
HELD: No. There has been a waiver of the penal clause as it was
not demanded before the full obligation was fully paid and
extinguished. Default begins from the moment the creditor
demands the performance of the obligation. In this case, although
there were late amortizations there was no demand made by SSS
for the payment of the penalty hence Moonwalk is not in delay in
the payment of the penalty. No delay occurred and there was no
occasion when the
penalty became demandable and
enforceable. Since there was no default in the performance of the
main obligation-payment of the loan- SSS was never entitled to
recover any penalty. If the demand for the payment of the penalty
was made prior to the extinguishment of the obligation which are:
1. The principal obligation
2. The interest of 12% on the principal obligation 3. The
penalty of 12% for late payment for after demand, Moonwalk would
be in delay and therefore liable for the penalty.

GENERAL MILLING CORP v RAMOS

Requisites of finding default:
1) obligation is demandable
2) debtor delays
performance
3) creditor judicially or extra-judicially demands performance
GMC entered a GROWERS CONTRACT with Sps. Ramos under
which, GMC was to supply broiler chickens for the spouses to raise

on their land. The contract was accompanied by a Deed of Real

Estate Mortgage over a piece of real property upon which the Sps
conjugal home was built. The Sps further agreed to put up a surety
bond at the rate of P20,000 per 1,000 chicks delivered. The Deed of
Real Estate Mortgage extended to Sps. Ramos a max credit limit of
P215k payable within an indefinite period with an interest of 12%
per annum.
Sps Ramos were unable to settle their account with GMC, alleging
that they suffered business losses because of the negligence of
GMC and its violation of the growers contract.
March 31, 1997, counsel for GMC notified Sps. Ramos that
GMC would institute foreclosure proceedings on their mortgage
property.
May 7, 1997, GMC filed a petition for Extra-judicial Foreclosure of
Mortgage. Subj property was subsequently foreclosed and sold at a
public auction to GMC after required notice and publication. It was
foreclosed for P935,882,075 representing losses on chickens and
feeds exclusive of interest.
March 3, 2000, Sps. Ramos filed for Annulment / Declaration of
nullity of Extrajudicial foreclosure on the ground of non-compliance
with the required posting and publication. It was alleged that the
deed of Real Estate Mortgage had no fixed term and that GMC
did not notify them of the foreclosure.
Ruling of RTC: Holding in favor of Sps Ramos, TC ruled that since
the duration of the term was not fixed therefore depend exclusively
upon the will of the debtor-spouse, the obligation is not due and
payable until an action is commenced by the mortgagee (GMC)
against the mortgagor (Sps. Ramos) for having the court fix
term when the instrument is payable. Therefore GMCs
extrajudicial foreclosure was premature because the Spss
obligation under their contract is not yet due.
Ruling of CA: CA sustained decision on TC but on a different ground,
CA ruled that GMCs action against SPS Ramos was premature, as
they were not in default when the action was filed on May 7, 1997.
GMC made no demand to SPS Ramos for the full payment of their
obligation, that the letters presented by GMC as evidence did not
demand but only requested Sps. Ramos to go to the Office of
GMC to discuss the settlement of their account.

ISSUE: Was there sufficient demand?

HELD: GMC claims that the March 31, 1997 is akin to a demand, the
Court disagrees.
There are 3 requisites necessary for a finding of default:
1) obligation is demandable
2) debtor delays performance
3) creditor judicially or extra-judicially demands performance
Accdg to CA, GMC did not make a demand but merely requested
the Sps to go to their office to discuss the settlement of their
account, in spite of demand GMC instituted the foreclosure. Neither
was there any provision in the Deed allowing GMC to extra-judicially
foreclose without the need of demand.
Indeed Art 1169 requires:
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declares;
As the contract in the instant case carries no such provision on
demand not being necessary for delay to exist, GMC should have
first made a demand on the spouses before proceeding to foreclose
the real estate mortgage.

Undertaking promising to replace Gruspes car or pay for its

value (350,000) in 20 days or until Nov. 15, 1999, with an interest
of 12% p/mon after such date until fully paid.
When Cruz and Ibis failed to comply, Gruspe filed a complaint for
collection of sum of money on November 19, 1999 before the RTC.
Petitioners alleged that they were forced and deceived by Gruspea lawyer to affix their signature on the JAU in order to release the
minibus.
RTC ruled in favor of Gruspe and ordered petitioners to pay the
former 220,000 + 15% p/a from November 15, 1999. CA affirmed
but reduced interest rate to 12% p/a. CA declared that the JAU was
a contract, and said that petitioners failed to present evidence to
support contention of vitiated consent.
Present case. Petitioners contend that the JAU was not a contract
therefore cannot be a source of obligation. That an affidavits
purpose is to simply attest to the facts that are within his
knowledge while a contract requires a meeting of the minds bet 2
contracting parties.
Also, they claim that prior to the filing of the complaint on Nov
19,1999, Gruspe did not make any demand upon them. Hence,
pursuant to Art 1169, they could not be considered in default, that
without this demand Gruspe could not yet take any action.
ISSUES:
HELD: A simple reading of the JAU readily discloses that it contains
stipulations characteristic of a contract, it contained a stipulation
where petitioners promised to replace Gruspes car or pay for its
value after 20 days, and a 12% interest rate shall be imposed for
any delayed payment.
There is no merit to he allegation of vitiated consent. Petitioners
admit to the genuiness and due execution of the JAU when they
said they signed it to release the minibus. Consent was present
although they may have given it grudgingly.

CRUZ v GRUSPE
FACTS: The claim arose from a vehicular accident when the minibus
owned by Cruz collided with Gruspes car , leaving the latters car
totally wrecked. The next day, Cruz, along with Ibias (brgy. Official)
whnet to Gruspes office and executed a Joint Affidavit of

Computation of Interest rate. In the absence of a finding the lower

court that
Gruspe made a demand prior to the filing of the
complaint, the interest cannot be computed from Nov 15,
1997because until a demand has been made, petitioners could not
be said to be in default. The demand could be considered to have

been made upon the filing of the complaint on November 19, 1999
and itis only from this date that the interest be computed.
The Court notes that the interest rate was imposed by the CA on a
rate per annum, instead of the rate per month basis as provided in

the JAU without explaining the reason. Neitherparty questions the

change. Nonetheless, the Court affirms the change finding the
interest rate agreed upon in the JAU excessive.