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I.General Provisions on Obligations (Arts. 1156-1162)I.1.Distinguished from ContractsI.2.ConceptI.3.Essential ElementsI.4.Sources
NUGUID V. NICDAO
Facts:II.Prestations (Arts. 1163-1168)II.1.To GiveII.1.1.Determinate and GenericTermsII.1.2.Accessory Obligations inObligations to GiveDeterminate Thingsa.Exercise of diligence of agood father of a family  b.Fruits (Art. 1187)c.Accessions and AccessoriesII.2.To Do or Not To Do
II.3.
Consequences of Failure to Comply  with Required Prestation Cf. Art. 1191)
 ANGELES V. CALASANZFacts:
On Dec.19, 1957, defendants-appellants, Ursula Torres Calasanz andTomas Calasanz, and plaintiff-appellees, Buenaventura Angeles andTeofila Juani, entered into a contract to sell a piece of land in Cainta,Rizal, for Php 3,920 plus 7% interest per annum. Angeles, etc made adownpayment of Php 392 upon execution of the contract, andpromised to pay the balance in monthly installments. They continuedpaying until July 1966 when the aggregate payment amounted to Php4,533.38. On numerous occasions, they gave delayed installmentpayments.On Dec. 6, 1966, Calasanz, etc. requested payment of past remittances.On Jan. 28, 1967, they cancelled said contract because Angeles failed tomeet the payments. Angeles filed a civil case to compel Calasanz toexecute a deed of sale. Calasanz alleged that they refused to pay theinstallments corresponding to the month of August 1966 for more thanfive months. The lower court rendered judgment in favor of Angeles,stating that the contract was not validly cancelled.
Issue:
 W/N the contract to sell has been automatically and validly cancelled by the defendant appellees.
Held:
In Art.1191, either party has the right to rescind the contract upon thefailure of the other to perform the obligation assumed thereunder, inreciprocal obligations. A judicial action for the rescission of a contractis not necessary where the contract provides that it may be revoked andcancelled for violation of any of its terms and conditions. It must beunderstood that the act of a party in treating a contract as cancelled orresolved on account of infractions by the other contracting party must be made known to the other and is always provisional, subject toscrutiny and review by the proper court. If the other party denies thatrescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after duehearing, decide that it was not warranted, the responsible party shall be subject to damages. In other words, the party who deems thecontract violated may consider it rescinded and proceed accordingly, without previous court action, but it proceeds at its own risk. The rightto rescind the contract for non-performace of its stipulations is notabsolute. Rescission of a contract will only be permitted for substantialand fundamental breach as would defeat the very object of the partiesin making the agreement.The breach of contract (failing to pay the August installment despitedemand, for more than four months) is so slight and casual when weconsider that the plaintiff-appellees had already paid the monthly installments for almost 9 years, including the initial downpayment,amounting to Php 4,553.38. When the defendants-appellants, insteadof availing their alleged right to rescind, accepted and received delayedinstallment payments, though the plaintiff-appellees have been inarrears beyond the grace period, the defendant-appellants waived andare estopped from exercising their alleged right to rescission. Tosanction the rescission made by the defendants-appellants will work injustice against the plaintiff-appellees. Art. 1234 provides that if theobligation has been substantially performed in good faith, the obligormay recover as though there had been a strict and complete fulfillment,less damages suffered by the obligee. It also militates against theunilateral act of the defendants-appellants in cancelling the contract.The contract to sell has characteristics of a contract of adhesion. Thedefendants-appellants drafted the contract and the plaintiffs-appelleeshad no opportunity to change the terms. It was offered on a take it orleave it basis. Contracts of adhesion are contracts where almost all theprovisions have been drafted by one party. The participation of theother is the signing of his signature or his adhesion thereto. Contractsof sale of lots on the installment plan fall under this category. Thiscontract must be construed against the party causing it. The decisionappealed from is affirmed with the modification that plaintiff-appelleesshould pay the balance without any interests.
RELIANCE COMMODITIES, INC. v. INTERMEDIATE APPELLATE COURTFacts:
Martin Paez entered into a contract with Samuel Chuason, presidentand general manager of Reliance Commodities, Inc. on Apr. 19, 1972 where the latter agreed to provide the former with funds andequipment for the operation of manganese mining claims of DanielGarde in Nueva Ecija. On Jun. 1, 1972, they entered into anotheragreement called “Addendum to Operating Agreement” which providesthat Paez must segregate the Manganese Ores into 2 classes withReliance Commodities, Inc. giving Paez a cash advance of P8,300 tohire laborers, tools, supplies and food. The bulldozer, dump truck andcobra drill were provided by petitioner. On Jul. 28, 1972, Paez executeda deed of first real estate mortgage on their property as security formore cash advances to sustain the operation, amounting to P25,030. A difference arose between petitioner and Paez regarding the cashadvances. Petitioner demanded the tools back, which Paez’ laborersrefused to return because they had not been paid their wages.Petitioner gave Paez P800 to pay their salaries and foreclosedextrajudicially the mortgage executed by plaintiffs in its favor. Paezfiled an action for preliminary injunction to stop the sheriff fromproceeding with the auction sale, annulling the Deed of First RealEstate Mortgage and the Addendum and directing petitioner to makefurther cash advances in the amount of P75,000 plus damages.Judgment was rendered in favor of the petitioners dismissing thecomplaint and ordering Paez to pay the sum of P41,130 representingthe cash advances with interest at the rate of 12% per annum from thedate of receipt, attorney’s fees and ordering the restraining order forthe auction sale set aside upon failure to pay.Paez appealed with the CA who set aside the decision and declared both the Deed and the Addendum null and void, and ordered thepetitioner to pay P20,000 for unrealized profits.
Issue:
 Whether the IAC erred in finding that the petitioner, not respondent,have cause for rescission of the contracts and in ruling that rescission was not available in rescission of contracts under Art. 1191.
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Held:
In favor of petitioners.Under the agreement, Reliance Commodities was to pay Paez P70 forevery ton of manganese ores delivered with a grade of 40-46% or over,to be made upon delivery to the stockpile yard in Nueva Ecija.Petitioner was to advance the expenses of mining and haling as they  were incurred every 15 days, and advances made deductible from theagreed consideration.Paez failed to make a single delivery of manganese ores. In fact, there was no mining operation at all. Petitioner rescinded the contracts. Inreciprocal obligations, the power to rescind or resolve is given to theinjured party. It requires the parties to restore to each other what they have received by reason of the contracts. The rescission has the effectof abrogating the contracts in all parts.Decision of the IAC is reversed and the decision of the trial court isrevived and affirmed.
BARREDO v. LEANOFacts:
In 1979, Manuel and Jocelyn Barredo bought a house and lot in LasPinas with an SSS loan of P50,000 payable in 25 yrs. and an ApexMortgage and Loans Corporation of P88,400 payable in 20 years. Tosecure the loans, they executed a first mortgage in favor of SSS and asecond one for Apex. On Jul. 10, 1987, the sold their house and lot toEustaquio and Emilda Leano by way of a Conditional Deed of Sale with Assumption of Mortgage. The Leano Spouses would pay the BarredoSpouses P200,000, half of which would be payable on Jul. 15, 1987, with the balance paid in 10 equal monthly payments after the signingof the contract. They would also assume the mortgages and pay themonthly amortizations beginning Jul. 1987 until both obligations werefully paid.Two years later, Sept. 4, 1989, the Barredo Spouses initiated acomplaint before the RTC of Las Pinas seeking the rescission of thecontract on the ground that the Leanos failed to pay the mortgageamortizations despite repeated demands. The Leanos contended thatthey were up-to-date with Apex payments but were not able to pay SSS because their payments were refused upon instructions by theBarredos. The Barredos took it upon themselves to settle the mortgageloans and paid P27,494 on Sept. 11, 1989 and P41,401.91 on Jan. 9,1990. SSS issued a Release of Real Estate Mortgage Loan. They alsosettled the Apex loan with P5,379.23 on Oct. 3, 1989 and P64,000 onJan. 9, 1990. Apex issued a Certification of Full Payment of Loan. TheBarredos also paid the real estate property taxes for 1987-1990. TheRTC ruled in favor of the Barredos, declaring the contract as rescindedand null and void, and ordering the defendants to pay.The Leanos, who had turned over the house and lot to the Barredos,appealed to the CA, who reversed the decision on the ground that thepayments of amortization were mere collateral matters which did notdetract from the condition of paying the principal consideration, andordered the Barredos to execute the Deed of Absolute Sale upon fullpayment of P140,492.74 and turn over the property to the Leanos.
Issue:
 W/N the CA erred in holding that the payments of amortization aremere collateral matters.
Held:
The principal object of the contract was the sale of the Barredo houseand lot, for which the Leanos gave P200,000. The assumption of themortgages by the Leanos and their payment of amortizations are justmere collateral matters which are natural consequences of the sale of the mortgaged property. ¶3 of the agreement provides that the Leanosmerely bound themselves to assume, which they actually did uponsigning of the agreement, the obligations of the Barredos with SSS and Apex. Nowhere in the contract is it stipulated that the sale wasconditioned upon their full payment of the loans. To include the fullpayment of the obligations with SSS and Apex as a condition would beto unnecessarily stretch and put a new meaning to the provisions of theagreement.Even if the payment of the amortizations to SSS and Apex areconsidered as a condition on which the sale is based on, rescission would still not be available since non-compliance with such condition would just be a minor or causal breach as it does not defeat the very object of the parties in entering into the contract. The mainconsideration of the sale is the payment of P200,000 within the periodagreed upon. The assumption of mortgage is a natural consequence of  buying a mortgaged property. The Barredos do not stand to benefitfrom the payment of the amortizations by the Leanos simply becausethe Barredos have already parted with their property, which they werealready fully compensated for. In ordering rescission, the trial courtshould have ordered the Barredos to return the P200,000 they received as purchase price plus interests. Art. 1385 provides that“rescission creates the obligation to return the things which were theobject of the contract, together with the fruits, and the price with itsinterest.” The vendor is obliged to return the purchase price paid tohim by the buyer if the latter rescinds the sale. Thus, where a contractis rescinded, it is the duty of the court to require both parties tosurrender that which they have respectively received and place eachother as far as practicable in his original situation.
 VILLANUEVA v. ESTATE OF GERARDO L. GONZAGA Facts:
On Jan. 15, 1990, Generoso Villanueva and Raul Villanueva, Jr., business entrepreneurs engaged in the operation of transloadingstations and sugar trading, and the Estate of Gerardo L. Gonzaga,represented by its Judicial Administratix, Ma. Villa J. Gonzaga,executed a MOA which read that the latter was the owner of land inBacolod City, mortgaged with the Philippine National Bank ascollateral for loan, and that the former was to purchase portions of thelot for P150 per sq. m. for the total price of P486,000 subject to the ff.conditions:
a.)
That the Estate of Gonzaga would release the lots from PNB.
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b.)
That the Villanuevas would pay the amount P100,000 uponsigning the agreement, P191,600 on Jan. 10, 1990, andP194,400 upon approval of the PNB of the release of the lots.
c.)
That the P100,000 downpayment shall be consideredforfeited if the Villanuevas withdraw from their agreement.d.)Upon 60% payment, the Villanuevas may start to introduceimprovements.
e.)
Upon the release of the lots by the PNB, the Estate of Gonzaga would execute a Deed of Sale.The Villanuevas started improving after paying P291,600 or 60% of thepurchase price and requested permission to use the lots for the nextmilling season. It was refused on the ground that they had not yet paidthe full purchase price. The Villanuevas informed them that theimmediate use was absolutely necessary and delay would cause themsubstantial damages. The Estate was firm in their refusal unless they paid the full purchase price, which the Villanuevas reminded them of their obligation to redeem the lots from mortgage from PNB, givingthem 10 days to do so. The Estate informed the Villanuevas of thePNB’s approval (which contained 3 conditions: that the sale beapproved by the Court, that payment of 2 annual amortizations inaddition to P50,000 be derived from sale of lot ought to be released,and terms and conditions that their Legal Dept. might impose in theinterest of PNB), of which they demanded the clean titles to the lots.On May 28, 1991, Gonzaga executed a Deed of Rescission rescindingthe MOA on 2 grounds: that they failed to pay the balance despitenotice of the lots’ release from mortgage, and for using the lots fortransloading without permission. The Villanuevas demanded the lottitles before the full payment, which was ignored. They filed acomplaint for breach of contract, specific performance and damages before the RTC. The trial court ruled in favor of the Estate declaring theMOA rescinded, ownership and possession restored to them andordering them to refund the sum of P100,000 and another payment of P191,600 with legal interest at 6% per annum. The Villanuevas filed apetition for review in the CA where they affirmed the trial court’sdecision excepting the award for moral damages on the ground thatthey were not guilty of bad faith for refusing to pay the balance of thepurchase price.
Issue:
 W/N respondents failed to comply with their reciprocal obligation of securing the release of the lots from mortgage indebtedness with thePNB.
Held:
The PNB’s letter of approval shows that the approval was conditional.It was therefore premature for respondents to demand payment of the balance of the purchase price and rescinding the MOA. Moreover, thereis no legal basis for the rescission. The remedy of rescission under Art.1191 is predicated on a breach of faith by the other party that violatesthe reciprocity between them. The remedy does not apply to contractsto sell. In a contract to sell, title remains with the vendor and does notpass on to the vendee until the purchase price is paid in full. Thus, thepayment of the purchase price is a positive suspensive condition.Failure to pay the price agreed upon is not a mere breach, casual orserious, but a situation that prevents the obligation of the vendor toconvey title from acquiring an obligatory force. In a contract to sell, the vendor remains the owner for as long as the vendee has not compliedfully with the condition of paying the purchase price. If the vendorshould eject the vendee for failure to meet the condition precedent, heis enforcing the contract and not rescinding it.The MOA between the two parties is a conditional contract to sell.Ownership over the lots is not to pass to the petitioners until fullpayment of the purchase price. The petitioners’ obligation to pay, inturn, is conditioned upon the release of the lots from mortgage with thePNB to be secured by the respondents. Since ownership had not beentransferred, no legal action need have been taken by the respondents.The records show that the lots were finally released from mortgage inJul. 1991 and petitioners should be allowed to pay. However,petitioners may not demand production of the titles as condition forthe payment as it was not required under the MOA. Petition is grantedand the decision is reversed.
III.BreachIII.1.CausesIII.1.1.DoloIII.1.2.Culpa
RCPI v. CA Facts:
 A telegram sent through Radio Communications of the Philippines,Inc. was sent to Loreta Dionela. He alleged that it containeddefamatory words causing him undue embarrassment and affectedadversely his business. The corporation alleged that the additional words was a private joke between the sending and receiving operators,not meant for Dionela, not part of the telegram and not defamatory.The trial court ruled in favor of Dionela, stating that the defendant issued directly. If they escape liability by the simple expedient of showing that it employees acted beyond the scope of their assignedtasks, it would open the door to frauds and allow the corporation to act with impunity. The appellate court confirmed their decision, statingthat the proximate cause resulting in injury was the failure of thecorporation to take the necessary or precautionary steps to avoid theoccurrence of the humiliating incident. The company had not imposedany safeguard against such eventualities and this void did not speak  well of their concern for their client’s interests. There is libel because acarbon copy of the telegram was filed among other telegrams and leftto hang for the public to see.
Issue:
 W/N the CA erred in holding that the company should answer directly and primarily for the civil liability arising from the criminal acts of itsemployees. W/N the CA erred in holding that the liability of the company ispredicated on Arts. 19 and 20.
Held:
The cause of action of Dionela was based on Arts. 19 and 20, as well asthe respondents’ breach of conduct through the negligence of itsemployees. Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Every time a persontransmits a message through the corporation’s facilities, a contract isentered into. Upon receipt of the rate or fee fixed, the petitionerundertakes to transmit the message accurately. Libelous matters were
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